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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ________________ to _________________

Commission file number: 0-28168

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.  

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  

The aggregate market value of the Registrant’s outstanding Common Stock held by non-affiliates of the Registrant is not determinable due to lack of reported trading in such securities.  There were 77,190 shares of Common Stock outstanding as of November 10, 2003.

TABLE OF CONTENTS

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STRATEGIC CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to condensed consolidated financial statements

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STRATEGIC CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to condensed consolidated financial statements
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STRATEGIC CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

See accompanying notes to condensed consolidated financial statements
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STRATEGIC CAPITAL RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to condensed consolidated financial statements
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STRATEGIC CAPITAL RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)

NOTE 1 BASIS OF PRESENTATION

The accompanying unaudited, condensed consolidated financial statements include the accounts of Strategic Capital Resources, Inc. (“SCRI” or the “Company”) and its subsidiaries.  Intercompany accounts and transactions have been eliminated in consolidation.  The statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America, they should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2003 Annual Report on Form 10-K.  In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three month period ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending June 30, 2004.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

NOTE 2 STANDARDS ISSUED AND NOT YET IMPLEMENTED

ACCOUNTING PRONOUNCEMENTS

In April 2003, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards (SFAS) No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”.  SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative, amends the definition of an underlying contract, and clarifies when a derivative contains a financing component in order to increase the comparability of accounting practices under SFAS No. 133.  The Statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”.  This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.  It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).  Many of those instruments were previously classified as equity.  The Statement is effective for financial instruments entered into or modified after May 31, 2003.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior period to conform to the 2003 presentation.

USE OF ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

NOTE 3 NATURE OF OPERATIONS

We provide specialized financing for major homebuilders and real estate developers (“clients”).  These arrangements take several forms, including but not limited to direct financing leases, operating leases, option agreements, or management agreements.  Such agreements may represent off-balance sheet transactions for our clients.

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Business Reporting Segment:  The Company has determined that its operations are within one reportable segment.  Accordingly, financial information on industry segments is omitted because, apart from the principal business of providing specialty financial services, the Company has no other industry segments.  All revenue of the Company are from clients within the United States.  All assets of the Company are located within the United States.

We are engaged in such arrangements in three lines of business:

NOTE 4 EARNINGS PER COMMON SHARE

In accordance with the SFAS No. 128, the Company presents both basic and diluted earnings per share (“EPS”).  Basic EPS excludes dilution and is computed by dividing net income allocable to common shareholders by the weighted average number of shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if securities or other contract to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower earnings per share amount.

NOTE 5 INCOME TAXES

The Company’s annual effective tax rate was estimated to be 26% and 43% for the three months ended September 30, 2003 and 2002, respectively.  This decrease in the estimated annual effective tax rate from 43% to 26% was primarily attributed to lower tax rates and the Company’s depreciation of model homes under operating leases for both tax and financial statement purposes.

NOTE  6 MORTGAGES PAYABLE

Mortgages payable are collateralized by a first mortgage/deed of trust on specific properties. Interest is payable monthly in arrears at interest rates ranging from thirty (30) day Libor plus a premium to 7.76% per annum. The maturity dates range from one to three years.

Each facility is secured by a first mortgage/deed of trust on real estate for the specific properties funded by each respective facility, assignment of lease payments, option maintenance fees as well as proceeds from the sales of model homes and the exercise and payments for finished lots.  Repayment of advances is upon the earliest of the close of escrow of individual lots and homes within the collateral pool, the maturity date of individual lots and homes within the collateral pool or the facility maturity date.  Outstanding advances bear interest at various rates.  The credit facilities require us to maintain specified financial ratios regarding leverage, interest coverage, and consolidated tangible net worth.  The credit facilities also place certain restrictions on, among other things, our ability to incur additional debt or liens.  Some of the covenants include minimum tangible net worth, maximum debt, debt service coverage ratios, and minimum amount of cash on hand, providing un-audited quarterly financial statements and annual audited financial statements.  We are not in default nor are we in any violation of any of our covenants.

During December 2001, the Company consolidated its $15,000,000 and $45,000,000 revolving credit facility into one commercial revolving line of credit totaling a maximum loan amount of $60,000,000 which is due to expire August 2005. The interest rate is a thirty-day LIBOR based floating rate plus a premium. In addition to the mortgages being secured by specific properties, all loans are secured by specific leases and related surety bonds, letters of credit, etc.

During July 2003, the Company renewed its $60,000,000 secured revolving credit facility for two (2) years with an option to extend the term for an additional year.  The lead bank is in the process of participating out 50% to other banks.

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Mortgages and notes payable consist of the following:

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At September 30, 2003, maturities of mortgages and notes payable are as follows:

NOTE 7 ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

NOTE 8 STOCKHOLDER LOANS PAYABLE

Stockholder loans payable arose from advances various stockholders made to the Company. The loans are payable on demand and bear interest at 9% per annum.

Stockholder loans are as follows:

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NOTE 9 SUPPLEMENTAL CASH FLOW INFORMATION

The Company’s investing and financing activities were as follows:

During the quarters ended September 30, 2003 and 2002, the Company acquired revenue producing assets at a cost of $7,912,631 and $700,226, respectively. Such purchases were financed as follows:

During the three months ended September 30, 2003 and 2002, the Company sold revenue producing assets and also paid down the related debt. The sales proceeds, net of expenses and related debt are as follows:

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NOTE 10 COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS

MODEL HOME PROGRAM

From October 1, 2003 through November 11, 2003, the Company sold three model homes, underlying the direct financing leases at an approximate aggregate sales price of $2,200,000. These models were acquired at an approximate aggregate cost of $1,300,000.  The Company also has a contract pending on one model home at an approximate sales price of $720,000, which was acquired at an approximate cost of $450,000.

From October 1, 2003 through November 11, 2003, the Company bought 9 model homes, underlying the operating leases at an approximate aggregate sale price of $2,900,000.

The Company has commitments to purchase approximately 23 model homes at an estimated aggregate price of $6,400,000.

The Company also has sales contracts pending, for the sale of 2 model homes underlying the operating leases at an approximate aggregate price of $730,000, which were acquired at an approximate aggregate cost of $660,000.

RESIDENTIAL REAL ESTATE ACQUISITION AND DEVELOPMENT

From October 1, 2003 through November 11, 2003, the Company had sales of finished lots in the approximate amount of $3,500,000 at a cost of $3,500,000.  No further development costs were incurred in that period.

NEW FACILITY AT COLORADO STATE BANK

During October, 2003, we obtained a new loan from an existing lender to finance the acquisition of 4 model homes and finance 24 model homes that we had acquired for cash.

NEW FACILITY COMERICA

We closed on a new $6,900,000 revolving credit facility with a new financial institution which was funded in early October.

INTEREST RATE SWAP

An Interest Rate Swap Agreement was entered into in early October.

Interest Rate Swap.  An agreement to exchange interest receipts or interest-payment obligations, used to speculate on interest-rate changes, or to convert an instrument or obligation from a fixed to a floating rate – or from a floating to a fixed rate.  The parties to such an agreement are termed “counterparties”.

The type of Interest Rate Swap that was entered into is called a plain vanilla swap.

Plain Vanilla Swap.  A typical interest-rate swap that involved one counterparty’s paying a fixed interest rate while the other assumes a floating interest rate based on the amount of the principal of the underlying debt.  The underlying debt, called the “notional” amount of the swap, does not change hands – only the interest payments are exchanged.

13E3/14C “GOING PRIVATE” TRANSACTION

We filed a Schedule 13E-3 and preliminary information statement concerning a proposed “going private” transaction with the United States Securities and Exchange Commission (“Commission”).

If such transaction is effected, of which no assurances are given, all of the shareholders of the Company, other than the Company’s principal, majority shareholders and certain members of management and related persons and entities, as of a to-be established record date, will receive $25 cash per share (pro-rata portion thereof as to fractional shares) for their Company common stock.

Shareholders who oppose the transaction will be entitled to appraisal rights in accordance with applicable Florida law.

The above-described transaction is subject to the review of the Commission, and no assurances are given that such transaction will be effected.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY

From time to time, we may make statements that contain projections or “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risk and uncertainty.  The words “aim”, “plan”, “likely”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “will”, “should”, “could”, “may”, and other expressions that indicate future events and trends identify forward-looking statements.  These statements are not guaranties of future performance and involve risks, uncertainties and assumptions that are difficult to predict.  Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.  Actual outcomes and results may differ materially from what we express or forecast in these forward-looking statements.  As a result, these statements speak only as of the date they were made and we undertake no obligation to publicly update or revise any forward-looking statements.  Certain statements in this Form 10-Q may contain forward-looking information.  The subject matter of such statements may include, but not be limited to wars, the effects of the September 11, 2001 terrorist attacks or future terrorist threats and attacks, the level of new financing opportunities made available to us, future earnings, business volume, costs, expenditures, losses, liquidity, residual values and various business environment trends including the state of the economy, in general, and the housing industry, in particular.  In addition to those contained herein, forward-looking statements and projections may be made by us orally or in writing including, but not limited to, various sections of our filings with the Securities and Exchange Commission under the Securities Act of 1933 and the Securities Exchange Act of 1934.

Our actual results and future trends may differ materially from our forward-looking statements depending on a variety of factors including our relationship with clients, as well as strategic decisions of clients relating to us, the effect of the September 11, 2001 terrorist attacks or future terrorist threats or attacks and their continuing impact on the housing industry, wars, Severe Acute Respiratory Syndrome (“SARS”), the capital equipment requirements of United States domestic and foreign businesses, general economic conditions, and in particular, economic conditions in the housing industry and the continued operation, viability and growth of major clients, capital availability and cost, change in laws and tax benefits, competition for other financial institutions, our successful execution of internal operating plans, defaults or bankruptcies by customers, adverse developments in the value of  out model homes, regulatory uncertainties, legal proceedings and an adverse development in rating agency credit ratings or assessments of our clients.

RESULTS OF OPERATIONS

Revenue producing assets at September 30, 2002 were approximately $83,000,000 compared to approximately $51,000,000 at September 30, 2003 a decrease of $32,000,000.  This was primarily due to sales of residential real estate, models under direct financing leases and the sale of the multi-family residential property aggregating in excess of $69,000,000.  This was partially offset by the acquisition of model homes under operating leases and residential real estate aggregating approximately $38,000,000.

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The changes in the components were as follows:

As a result of the decrease in revenue producing assets, total lease revenue decreased to approximately $1,800,000 from approximately $2,500,000 for the three month periods ending September 30, 2003 and September 30, 2002, primarily due to the reduction in lease revenue from residential real estate and model homes under direct financing leases.

The decrease in lease revenue by components is as follows:

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Cost and operating expenses declined from approximately $2,000,000 for the three months ended September 30, 2002 to approximately $1,500,000 for the three months ended September 30, 2003, primarily due to a reduction of interest charges which were as a direct result of the payoff of loans attributable to the sales of residential real estate and model homes.  The reduction in interest charges were also as a result of more favorable interest rates.

The components of cost and operating expenses are as follows:

Revenue Producing Assets

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Liabilities decreased to approximately $42,500,000 at September 30, 2003 from approximately $77,300,000 at September 30, 2002, primarily as a result of the reduction in loans attributable to the sale of residential real estate and a reduction in accrued expenses related to legal and professional fees and settlement of a lawsuit.

The changes in the liability components are as follows:

Other assets decreased to approximately $1,300,000 at September 30, 2003 from approximately $2,800,000 at September 30, 2002, primarily due to a reduction in cash as a result of the Company funded purchase of model homes and the year end write off of a receivable of approximately $700,000.

The changes in components are as follows: