10-Q/A 1 strategic_6qa1.txt FORM 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q/A1 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 0-28168 Strategic Capital Resources, Inc. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 11-3289981 ------------------------------- ------------------------------------ (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 7900 Glades Road, Suite 610, Boca Raton, Florida 33434 ------------------------------------------------------ (Address of principal executive office) (561) 558-0165 ---------------------------------------------------- (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 by check mark whether the registrant is an accelerated filer (as described in Rule 12-b of the Exchange Act) Yes [ ] No [X] 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, part value $.001 per share, outstanding as of February 7, 2003 was 77,192. STRATEGIC CAPITAL RESOURCES, INC. AND SUBSIDIARIES

2 STRATEGIC CAPITAL RESOURCES, INC. AND SUBSIDIARIES PART I. - FINANCIAL INFORMATION Item 1 - Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS

See Accompanying Notes to Condensed Consolidated Financial Statements 3 STRATEGIC CAPITAL RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

See Accompanying Notes to Condensed Consolidated Financial Statements 4

See Accompanying Notes to Condensed Consolidated Financial Statements 5 STRATEGIC CAPITAL RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 (Unaudited) Note 1. DESCRIPTION OF BUSINESS Description of Business ----------------------- The Company provides specialized financing for major homebuilders and real estate clients throughout the United States. The arrangements may take several forms which include direct financing leases, option agreements or management agreements. Such arrangements may represent off-balance sheet transactions for the Company's clients. The Company is and has been engaged in such arrangements in three product lines of business, consisting of one reportable segment: 1. Purchase and lease of fully furnished model homes complete with options and upgrades 2. Residential real estate acquisition and development 3. Multi-family residential property (sold March 2003) Note 2. BASIS OF PRESENTATION Interim Presentation -------------------- The accompanying condensed consolidated financial statements have been prepared in conformity with the instructions to Form 10-Q and Article 10, Rule 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all the information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States have been omitted from the accompanying condensed consolidated financial statements. The Company's management believes the disclosures made are adequate to make the information presented not misleading. The condensed consolidated balance sheet information as of June 30, 2002 was derived from the audited consolidated financial statements included in the Company's Annual Report Form 10-K/A1. The condensed consolidated financial statements included as part of this Form 10-Q filing should be read in conjunction with that report. The accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting primarily of normal recurring items that, in the opinion of the management of the Company, are considered necessary for a fair presentation of the consolidated financial position, results from operations and cash flows for the periods presented. Results of operations achieved through December 31, 2002 are not necessarily indicative of those which may be achieved for the year ending June 30, 2003. 6 All references in the condensed consolidated financial statements to common shares, share prices, per share amounts and stock plans have been retroactively restated for the two hundred-for-one reverse stock split effective June, 2002 Note 3. SUMMARY OF SIGINIFICANT ACCOUNTING POLICIES Principles of Consolidation --------------------------- The accompanying condensed consolidated financial statements include the accounts of Strategic Capital Resources, Inc. and its wholly owned subsidiaries, which include special purpose subsidiaries. Intercompany transactions have been eliminated in consolidation. Special Purpose/Variable Interest Entities ------------------------------------------ The Company has several wholly owned special purpose subsidiaries, all of which are consolidated. They have been formed for the exclusive purpose of acquiring specific properties and perform no functions other than to manage a specific project. A special purpose subsidiary is an entity structured in a way that its sole activity is the specific project. Special Purpose/Variable Interest Entities/Off Balance Sheet Arrangements ------------------------------------------------------------------------- The Company does not have off-balance sheet arrangements with special purpose entities, variable interest entities or any other entities. Use of Estimates ---------------- The preparation of condensed consolidated 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 condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 7 Fair Value of Financial Instruments ----------------------------------- The carrying value of all financial instruments, including cash and cash equivalent, debt, accounts payable and accrued expenses, approximates their fair value at the end of the reporting period due to the relatively short term nature of these instruments. Revenue Recognition ------------------- The Company accounts for its model homes and residential real estate development financing arrangements under the direct financing method of accounting prescribed under Statement of Financial Accounting Standards ("SFAS") No. 13, Accounting for Leases. Under the direct financing method of accounting, the assets are recorded as an investment in direct financing arrangements and represent the minimum net payment receivable, including third-party guaranteed residuals, plus the un-guaranteed residual value of the assets, if any, less unearned income. Gain on sale of model home properties under direct financing arrangements is recorded at the time each model home property sale is closed and when title and possession have been transferred to the buyer. Since the residential real estate transactions are considered financing arrangements, the Company recognizes the related interest income monthly when earned. There is no gain from the sale of this real estate because the sales price equals the Company's cost. For the three months ended December 31, 2002 and 2001, the Company sold $14,661,759 and $7,650,573 of Residential Real Estate, respectively. For the six months ended December 31, 2002 and 2001, the Company sold $24,931,729 and $9,699,018 of residential real estate, respectively. See Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations. Interest income on model home direct financing arrangements is recognized monthly, when earned and in accordance with the agreements The Company accounts for its multi-family residential property arrangement as a direct financing arrangements. Interest income is recorded, as earned over the term of the agreement. See Note 5 and Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations. We believe that the Company's revenue recognition policies are appropriate to reflect the substance of the underlying transactions. 8 New Accounting Pronouncements ----------------------------- The FASB had issued an Exposure Draft "Consolidation of Certain Special Purpose Entities ("SPEs), a proposed Interpretation of Accounting Research Bulletin (ARB) No. 51, "Consolidated Financial Statements" that establishes accounting guidance for consolidation of SPEs. On January 17, 2003, FASB issued interpretation No.46, "Consolidation of Variable Interest Entities". The release proceeds to interpret ARB No. 51. Due to the complexity of the exposure draft and related interpretation, additional clarification will be need from FASB. After reviewing the FASB interpretation, we believe that its application would not require our clients t consolidate our transactions. Reclassifications ----------------- Certain prior year amounts and account descriptions have been reclassified in the condensed consolidated financial statements and the related notes to conform to the 2002 presentation. Sales of residential real estate sold under direct financing arrangements and the related costs which are typically the same amount, are no longer reported as operating revenue and operating expense. The sales of residential real estate are now disclosed in Note 3 and in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations. The multi-family operating expenses (property taxes, insurance and repairs) have been netted against the multi-family interest income in the accompanying condensed consolidated statements of income. See Note 5 and Management's Discussion and Analysis of Financial Condition and Results of Operations. The proceeds from the sale of model homes under direct financing arrangements and the related costs have been reported as a net gain or loss in the condensed consolidated statements of income. SEC Consultation/Prior Period Restatements ------------------------------------------ The Company has consulted with the Securities and Exchange Commission and requested guidance with regard to accounting issues relating to the issuance of warrants in conjunction with stockholder loans in addition to the proper classification of its assets as well as the recording of certain sales and cost of sales of the related asset dispositions. These consultations included the proper timing of revenue and expense recognition versus cash flow recognition for accounting purposes. The accompanying condensed consolidated balance sheet as of December 31, 2002 and the condensed consolidated statements of income and cash flows for the six months ended December 31, 2002 and 2001 have been restated to correct errors resulting in the net overstatement of interest income and income tax expense. The proceeds from the sale of model homes under direct financing arrangements and the related costs have been reported as a net gain in the condensed consolidated statements of income. Revenue and cost of sales have previously been recorded at the time each home or finished lot was closed and title and possession was transferred to the buyer as well as the receipt of "good collected funds" by us. 9 Under direct finance accounting arrangements we now only record the net gain or loss on the sale. Sales of residential real estate sold under direct financing arrangements and the related costs which have been the same amount are no longer reported as operating revenue and operating expense. The sales of residential real estate are now disclosed in Note 3 and Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations. Additionally in May 2003, after consultation with the Securities and Exchange Commission, the Company's management discovered that it had not properly accounted for the implicit interest rate in the multi-family residential property agreement. As a result of the correction, interest income decreased by $32,540 and $29,369 for the three months ended December 31, 2002 and 2001, respectively and decreased by $64,257 and $44,971 for the six months ended December 31, 2002 and 2001, respectively. Income tax expense was reduced by $13,016 and $11,748, for the three months ended December 31, 2002 and 2001, respectively, and was reduced by $25,703 and $17,988 for the six months ended December 31, 2002 and 2001, respectively. The adjustment to interest income also resulted in a decrease to the net investment in the multi-family residential property by $281,671 at December 31, 2002. The net investment is $9,946,328 at December 31, 2002. The deferred tax asset at December 31, 2002 is $112,671. The aggregate net effect of the correction of the errors was to reduce previously reported net income of $274,941 and $509,552 for the three months ended December 31, 2002 and 2001, respectively to $255,417 and $491,931, and to reduce previously reported net income of $493,068 and $954,102 for the six months ended December 31, 2002 and 2001, respectively to $454,514 and $927,120, respectively. The aggregate net effect of the correction of the errors on earnings per share was to reduce previously reported earnings per share of $3.56 and $6.41 for the three months ended December 30, 2002 and 2001, respectively to $3.31 and $6.18, respectively, and to reduce previously reported earnings per share of $6.32 and $11.97 for the six months ended December 31, 2002 and 2001, respectively to $5.82 and $11.62, respectively. See Note 9. The retained earnings, additional paid-in capital, net investment in multi family residential property and the deferred tax asset in the December 31, 2002 condensed consolidated balance sheet, and the net income, interest income and income tax expense in the condensed consolidated statements of income and cash flows for the three and six months ended December 31, 2002 have been restated for the effect of the adjustments resulting from the correction of the errors. The conclusions reached with the Securities and Exchange Commission have been incorporated into this filing. Additionally as a result of the conclusions reached, the Company amended its annual report on Form 10-K for its fiscal year ended June 30, 2002 and its Form 10-Q for the quarter ended September 30, 2002 and is amending its quarterly report on Form 10-Q for the six months ended December 31, 2002. The Company has been advised by the Securities and Exchange Commission that it will be performing a "cover to cover" review of its amended Form 10-K for the fiscal year ended June 30, 2002 as well as other filings. The Securities and Exchange Commission may have additional comments that require additional amendments to our filings. We have not been advised when the "cover to cover" review will be completed. Note 4. NET INVESTMENT IN DIRECT FINANCING ARRANGEMENTS The components of the net investment in direct financing arrangements at December 31, 2002 and June 30, 2002 are as follows: 10 December 31, June 30, 2002 2002 (As Restated) ------------ ------------ Total minimum payments receivable $ 68,352,583 $ 88,344,330 Less: Unearned income 156,181 173,038 ------------ ------------ Net investment in direct financing arrangements $ 68,196,402 $ 88,171,292 ============ ============ Note 5. MULTI-FAMILY RESIDENTIAL PROPERTY The asset described below was sold March, 2003. On July 15, 1999, we purchased a 288 unit multi-family residential property in Jacksonville, Florida, for a purchase price of $10,227,999. The purchase price was paid as follows: Assumption of existing first mortgage $ 4,927,999 New loan 5,300,000 ------------ Total Purchase Price $ 10,227,999 ============ At the time of purchase, the Company entered into a five year management agreement with a non affiliated independent management company. The management company was responsible for the operation of the property, retained all income from the property and was responsible for any losses. The Company received a monthly fee comprised of the sum of the debt service to cover the assumed existing first mortgage ($43,365) plus required escrows for real estate taxes, property insurance and repair reserve, plus a 12% annual return on the $5,300,000 new loan. The escrow portion was variable based on changes in estimated expenses. The multi-family operating expenses (property taxes, insurance and repairs) were netted against the multi-family interest income in the accompanying condensed consolidated statements of income. The Company's profit on the transaction is the difference between the 12% return and interest expense paid by the Company on its $5,300,000 loan. The management company received the benefit of the property appreciation, rent and occupancy increases. The annual return was 11% for the first two years, 12% for year three and 13% for years four and five. The average return over the term of the agreement was 12%. The management company had an option to purchase the property any time during the last four years of the agreement at an amount equal to the balance of the first mortgage plus an interest adjustment of $121,527, representing the difference between the 11% paid and the 12% due us, bearing interest of 12% since August 25, 2001, plus $5,300,000. If they failed to exercise the option, the management company was required to pay a balloon payment of $5,300,000 at the end of the five years. A performance bond, issued by an insurance company rated "AAA" by Moody's and Standard & Poors, in the amount of $8,335,000 was obtained and paid for by the management company to insure the payment and performance of the management company. The performance bond insured the monthly payments by the management company and the $5,300,000 balloon payment at the end of the Management Agreement. The Company accounted for the multi-family residential property as a direct financing arrangement, in accordance with the provisions of SFAS No. 13, Accounting for Leases, because the agreement contained a bargain purchase option. In May, 2003, after consultation with the Securities and Exchange Commission, the Company's management discovered that it had not properly accounted for the implicit interest rate in the agreement and has accounted for the prior period adjustment as a correction of error in the accompanying condensed consolidated financial statements (see Note 3). SFAS No. 13 dictates the following accounting treatment for this transaction: (1) Using the actual purchase price of $10,227,999, the projected bargain purchase option at the end of five (5) years of $9,630,902 and the minimum lease payments, an implicit interest rate of 10.295% was derived utilizing present value tables; (2) the implicit interest rate was then applied to the purchase price and an interest income stream was generated for the five (5) years; (3) the calculated amount was compared to the actual cash amount received (net of executory payments for taxes and insurances); (4) since the actual interest was greater than the implicit interest the actual interest was adjusted, resulting in a non-cash interest expense charge in each of the fiscal years commencing with June 30, 2000. Additionally, the net investment in the multi-family direct financing arrangement in the condensed consolidated balance sheet was decreased by the adjustment in (4) above resulting in a net investment in the multi-family residential property of $9,946,328 at December 31, 2002. The adjustment also results in an increase in deferred tax asset, since the adjustment is being recognized for book purposes and not for tax purposes. 11 The table below reflects the change to the results previously reported.

12 The effect on the condensed consolidated statement of income for the six months ended December 31, 2002 and 2001 was to reduce interest income by $64,257 and $44,971, respectively (See Note 3 - SEC Consultation/Prior Period Adjustments). In March 2003, the management company exercised its option to purchase the property. The sales price of $9,895,920 was the sum of $5,300,000, the unpaid interest adjustment of $146,896 ($121,527 plus accrued interest), and the balance of the first mortgage of $4,384,570 plus closing adjustments of $64,454. The company received cash at closing of $902,961 which was net of the outstanding balance of the original $5,300,000 loan. Due to the reduction of the balance sheet value of the asset by the non-cash interest expense, a gain on the sale of $281,670 was recorded for the three months ended March 31, 2003. Note 6. COMMITMENTS AND CONTINGENCIES A. Financing Activities -------------------- At December 31, 2002, the Company had approximately $35 million of unused, committed credit facilities available under existing revolving loan agreements, which may be utilized to acquire revenue producing real estate assets. Such credit facilities expire through August 2003. As a part of its ongoing business, the Company is in discussion with financial institutions for new credit facilities, as well as private or public placements of its debt or equity securities. The possible offering or private placement of senior notes with warrants, convertible preferred stock or similar type of security is constantly being evaluated. It is the Company's policy not to incur costs from activation of credit facilities unless and until needed. 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 due diligence and financing agreements. 13 B. Legal Proceedings and Current Developments ------------------------------------------ Strategic Capital Resources, Inc. and FPE Funding, LLC v. Dylan Tire Industries, LLC, et al. On January 2, 2003, the Company was advised that the Tennessee Supreme Court denied our request for appeal without an opinion (which is standard procedure). We are currently analyzing our options. We are not presently involved in any other material litigation nor, to our knowledge, is any other material litigation threatened against us or any of our properties, other than routine litigation arising in the ordinary course of business. See Notes to Financial Statements. Star Insurance Company v. Strategic Capital Resources, Inc., 15th Judicial Court, Palm Beach County, Florida, Case No. CL 00-433 AD, The Company resolved the Star Insurance Company action. Based on mediation, the case was settled for $250,000 in January 2003. This amount was previously accrued as a corporate expense in the quarter ended September 30, 2002. The lawsuit against the Company was far in excess of $2,500,000. The Company and its counsel were convinced that our defense was very strong but decided to settle the suit in order to avoid the uncertainty of a jury verdict as well as the expenses of the inevitable appeals that would follow. The mediator pointed out that our cost to defend the lawsuit and appeals would exceed the $250,000 settlement. On January 15, 2003, we wire transferred $250,000 to Star Insurance Company's attorney trust account in full settlement of this litigation. The receipt of the funds was acknowledged. We have not received the executed settlement agreement as of April 30, 2003 and demanded the return of our funds by May 1, 2003. Star Insurance Company faxed back an executed settlement agreement on May 1, 2003. We filed a motion with the court to have the $250,000 settlement payment returned to us and Star Insurance Company then made a motion to compel settlement. A decision is anticipated this calendar year. Strategic Capital Resources, Inc. vs. Citrin Cooperman& Company, LLP, Horton & Company, LLP and Edward Horton, United State District Court, Southern District of Florida, Case No. 03-80249-CIV-HURLEY. We filed suit against our former auditors. In our Complaint we allege among other things that the defendants neglected and breached their duty to us by failing to complete an audit which was necessary for us to file our Form 10-K for the fiscal year ended June 30, 2002, timely, failed to disclose that its principal independent accountant (Edward C. Horton) and his former firm (Horton & Company, LLC) as well as others at Citrin Cooperman & Company, LLP had been temporarily denied the privilege of appearing or practicing before the Securities and Exchange Commission as an accountant, failed to obtain authorization to practice accountancy in the State of Florida as well as other acts of malpractice and abuse of duty. The litigation is in its early stages and therefore, an outcome is not predictable at this time. We are not presently involved in any other material litigation other than previously disclosed nor, to our knowledge, are any other material litigation threatened against us or any of our properties, other than routine litigation arising in the ordinary course of business. Note 7. MORTGAGES AND NOTES PAYABLE Mortgages and notes payable are collateralized by first mortgages on specific properties. Interest is payable monthly in arrears at interest rates ranging from 4.75% to 8.75% as of December 31, 2002. The maturity dates range from one (1) to fifteen (15) years. In addition to the mortgages being secured by specific properties, all loans are secured by specific lease and related security bonds, letters of credit and/or residual value insurance policies. Note 8. SUPPLEMENTAL CASH FLOW INFORMATION The Company's non-cash investing and financing activities were as follows: Six Months Six Months Ended Ended December 31, December 31, Model Home and Residential Real Estate Sales 2002 2001 -------------------------------------------- ------------ ------------ Sales proceeds $ 27,885,019 $ 19,712,518 Debt payments (25,356,152) (18,078,641) ------------ ------------ Net proceeds $ 2,528,867 $ 1,633,877 ============ ============ 14 Investment in Residential Real Estate ------------------------------------- Investment $ 7,524,781 $ 16,627,098 Related debt (5,471,232) (12,633,404) ------------ ------------ Net investment $ 2,053,549 $ 3,993,694 ============ ============ Interest paid to financial institutions totaled $1,979,893 during the six months ended December 31, 2002 and $2,544,350 for the six months ended December 31, 2001. Interest paid to stockholders totaled $73,284 during the six months ended December 31, 2002 and $55,623 for the six months ended December 31, 2001. Income taxes paid totaled $477,120 during the six months ended December 31, 2002 and $13,234 during the six months ended December 31, 2001. Note 9. EARNINGS PER SHARE Basic and diluted earnings per share are calculated as follows:

Note 10. SUBSEQUENT EVENTS A. Model Home Program ------------------ From January 1, 2003 through February 11, 2003, the Company sold five (5) model homes under direct financing leases at an aggregate sales price of approximately $1.3 million. These models were acquired at an aggregate cost of approximately $1.1 million. The Company also has contracts to sell pending on four (4) model homes at an aggregate costs of $510,000 and a sales price of $543,000. During February 2003, we completed the acquisition of 76 model homes throughout the United States from a publicly traded homebuilder at a cost of approximately $27 million. The acquisition will be financed by utilizing our existing credit facilities, new financing and company funds. B. Residential Real Estate Acquisition and Development --------------------------------------------------- From January 1, 2003 through February 11, 2003, the Company paid development costs in the amount of $335,596 and had sales of finished lots in the amount of $3,498,925 with a cost of $3,498,925. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Disclosure Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q/A1 contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Discussions containing forward-looking statements may be found in the material set forth in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations". These statements concern expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Specifically, this Quarterly Report contains forward-looking statements regarding: 1. our estimate that we have adequate financial resources to meet our current working capital needs for the foreseeable future; 2. the impact of inflation on our future results of operations; and 3. our ability to pass through to our customers in the form of increased prices any increase in our costs. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following: 1. our significant level of debt; 2. our ability to borrow or otherwise finance our business in the future; 16 3. our ability to locate customers in need of our services; 4. economic or other business conditions that affect the desire or ability of our customers to build new homes in markets in which we conduct our business; 5. a decline in the demand for housing; 6. a decline in the value of the land and model home inventories we maintain; 7. an increase in interest rates; 8. our ability to successfully dispose of developed properties, model homes, or undeveloped land or lots at expected prices and within anticipated time frames; 9. our ability to compete in our existing and future markets; and 10. an increase or change in governmental regulations. OVERVIEW We are a Delaware corporation organized in 1995. Our principal operations consist of the following business lines consisting of one (1) product segment: 1. The purchase and lease of fully furnished model homes complete with options and upgrades. 2. Residential real estate acquisition and development 3. Multi-family residential real property (sold March 2003) The Company derives its income by acquiring revenue producing assets and entering into agreements for direct financing or operating leases. During the six months ended December 31, 2002, revenue producing assets totaling $27,885,019 were sold. For the three months ended December 31, 2002 and 2001, the Company had sales of residential real estate amounting to $14,661,759 and $7,650,573, respectively. Sales of residential real estate sold under direct financing arrangements and the related costs which are typically the same amount are no longer as operating revenue and operating expenses. The sales of residential real estate are now disclosed in Not 3, Revenue Recognition as well as Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS Comparison of Three Months Ended December 31, 2002 to Three Months ended December 31, 2001. A summary of operating results for the three months ended December 31, 2002 and 2001 are presented below. 17 Three Months Ended December 31 ------------------------- 2002 2001 (As Restated)(As restated) ----------- ------------ Revenues and other income: $2,185,292 $2,858,901 ---------- ---------- Costs and operating expenses: Interest and financing costs 964,739 1,296,687 Depreciation and amortization 309,606 364,117 Corporate selling, general and administrative 461,546 457,914 ---------- ---------- Total costs and operating expenses 1,735,891 2,118,718 ---------- ---------- Income before income taxes 449,401 740,183 Income tax expense 193,984 248,252 ---------- ---------- Net income $ 255,417 $ 491,931 Preferred stock distributions 0 15,000 ---------- ---------- Income applicable to common shareholders $ 255,417 $ 476,931 ========== ========== Revenues and other income for the three months ended December 31, 2002 decreased $673,609 compared to the prior year period. The decrease was due to the reduction in the amount of revenue producing assets. For the three months ended December 31, 2002 and 2001, the Company had sales of revenue producing assets of $17,464,499 and $7,650,573, respectively. This decrease resulted in $578,538 less interest income on direct financing arrangements. Gain on sales of model home properties also decreased by $96,834. A decrease in sales of $3,700,692, Costs and operating expenses decreased by $382,827 for the three months ended December 31, 2002 compared to the prior year period. Interest expense decreased $331,948 due to lower interest rates on floating rate loans and reduced balances. In addition, a non cash interest expense related to warrants of $98,668 was recorded during the three months ended December 31, 2001. Corporate selling, general and administrative expense increased by $3,632. The effective tax rate increased from 33% to 43% due to the decrease in available net operating loss carry forwards. Net income for the three months ended December 31, 2002 decreased by $236,514 as a result of the above items. 18 Comparison of Six Months Ended December 31, 2002 to Six Months ended December 31, 2001. A summary of operating results for the six months ended December 31, 2002 and 2001 are presented below. Six Months Ended December 31 -------------------------- 2002 2001 (As Restated)(As Restated) ------------ ------------ Revenues and other income: $4,679,126 $5,635,921 ---------- ---------- Costs and operating expenses: Interest and financing costs 2,053,177 2,708,641 Depreciation and amortization 665,507 725,376 Corporate selling, general and administrative 1,159,631 860,772 ---------- ---------- Total costs and operating expenses 3,878,315 4,294,789 ---------- ---------- Income before income taxes 800,811 1,359,132 Income tax expense 346,297 432,012 ---------- ---------- Net income $ 454,514 $ 927,120 Preferred stock distributions 5,000 30,000 ---------- ---------- Income applicable to common shareholders $ 449,514 $ 897,120 ========== ========== Revenues and other income for the six months ended December 31, 2002 decreased $974,795 compared to the prior year period. The decrease was due to the reduction in the amount of revenue producing assets. For the six months ended December 31, 2002 and 2001, the Company had sales of revenue producing assets of $27,885,019 and $19,712,518, respectively. This decrease resulted in $747,078 less interest income on direct financing arrangements. Gain on sales of model home properties also decreased by $211,004. Due to a decrease in sales of $7,400,076. Costs and operating expenses decreased by $416,474 for the six months ended December 31, 2002 compared to the prior year period. Interest expense decreased $665,464 due to lower interest rates on floating rate loans and reduced balances. In addition, a non cash interest expense related to warrants of $98,668 was recorded during the three months ended December 31, 2001. Corporate selling, general and administrative expense increased by $298,859, due to the Star Insurance settlement of $250,000 and increased consulting fees. The effective tax rate increased from 32% to 43% due to the decrease in available net operating loss carry forwards. Net income for the six months ended December 31, 2002 decreased by $472,606 as a result of the above items. 19 Model homes under Direct Financing Arrangements We purchase and leaseback fully furnished model homes complete with options and upgrades to major publicly traded homebuilders. The model homes are leased pursuant to a triple-net lease where the lessee is obligated to pay all maintenance, taxes, insurance, etc., in addition to the required lease payment. We try to develop new programs on a continuing basis to satisfy customer needs and changing economic conditions and accounting issues. Since inception, we have purchased a total of 463 model homes at an aggregate purchase price in excess of $102,000,000. The following is a breakdown of model home units and their purchase price by state under direct financing arrangements: December 31, 2002 December 31, 2001 ----------------- ----------------- STATE UNITS AMOUNT UNITS AMOUNT ----- ----- ------ ----- ------ Arizona 0 $ 0 1 $ 134,650 California 18 5,547,460 40 10,916,315 Florida 0 0 1 472,917 Iowa 7 1,053,335 13 2,247,025 Minnesota 1 226,040 4 912,185 Nevada 4 469,960 9 1,145,910 New Jersey 19 4,748.222 20 5,028,087 New York 1 254,000 2 555,357 North Carolina 4 808,463 6 1,497,891 Pennsylvania 1 250,000 2 487,619 Texas 1 279,000 5 1,330,000 Utah 0 0 2 316,383 ----------- ----------- ----------- ----------- 56 $13,636,480 105 $25,044,339 =========== =========== =========== =========== The following is a breakdown of interest income on model home direct financing arrangements by state: Three Months Ended Six Months Ended December 31, December 31, ------------ ------------ STATE 2002 2001 2002 2001 ----- ---------- ---------- ---------- ---------- California $ 192,601 $ 337,735 $ 392,875 $ 697,833 Florida 0 14,188 0 36,971 Iowa 19,436 53,367 43,050 108,554 Minnesota 4,144 30,431 8,382 66,988 Nevada 0 29,218 0 49,497 New Jersey 131,939 164,985 273,375 382,701 New York 7,620 19,846 15,240 45,558 North Carolina 30,853 44,937 65,526 93,946 Pennsylvania 7,500 19,737 12,722 61,875 Texas 8,615 48,031 28,385 117,028 ---------- ---------- ---------- ---------- $ 402,708 $ 762,475 $ 839,555 $1,660,951 ========== ========== ========== ========== 20 Residential Real Estate Acquisition and Development We purchase parcels of residential real estate from non-affiliated third parties. These parcels are selected by homebuilders with whom we have established a business relationship. The parcels of land may require additional government approvals or entitlements and development work or consist of finished lots. If development work is required, the homebuilder enters into a fixed price development agreement to develop the parcels of land for us, and in all cases, is required to provide completion bonds for some or all work by a surety company acceptable to us. The Company enters into these transactions with funding from banks and these loans are secured by specific assets of the Company. As development occurs, the Company retains ownership of the developed real estate. We approve draw requests paid to the developer under the development agreements, fund them ourselves or have our banks fund. If we fund the draws, the banks reimburse us upon request. An exclusive option to purchase agreement is entered into with the homebuilder simultaneously with the land acquisition. The interest rate relating to the option is negotiated with each client. It is based on the credit of the client, estimated duration and size of the project and interest rates in effect at the time. The interest rate on the option is a fixed percentage, is non-refundable, is payable monthly in advance by the homebuilder and is fully earned. The interest income is calculated by applying the fixed percentage to the Company's net investment in the real estate (cost of the land plus development cost incurred less options exercised by the homebuilder). Our financing agreements with our lenders may call for a fixed interest rate or variable rate. These factors are all considered during negotiations to maintain the Company's profit margins. Each time the homebuilder exercises their option to purchase the residential real estate there is a formal real estate closing and title passes to the homebuilder. If the homebuilder fails to exercise their options to purchase the real estate, the Company has the right to sell the real estate to another party and there is no refund of the interest received. In addition, the Company has the right to draw against the developer's letter of credit or performance bond. Since the option sales price of the real estate to the homebuilder is equal to the Company's cost of the land plus costs to develop, there typically is no gain or loss on the sale of the residential real estate. The terms and conditions of each transaction are project specific (interest rate on the option, term, takedown schedule, etc.). We grant our clients an option to acquire finished lots in staged takedowns. In consideration for the option we receive a deposit in the form of a performance bond or a letter of credit equal to 20% or less of the total purchase price as well as an option maintenance fee which is payable monthly in advance. The option fees are fully earned when paid and non refundable. The client has the right to terminate their obligations under the option agreements by forfeiting the deposit, paying for the finished lots exercised and any other penalties provided for in the agreements. We have legal title to these assets. If the client terminated the agreements we have the risk of a decline in the market value of the property. We are required to market the property. Residual Value Insurance has been obtained to mitigate this risk however the insurance company provider of this coverage may be unwilling or unable to pay a claim filed. 21 The following is a summary of our residential real estate projects: Development Sale of Date Property Purchase Costs Paid Finished Balance Acquired Location Price to 12/31/02 Lots 12/31/02 ---------- ----------- ----------- ----------- ----------- ----------- 8/31/2000 California $20,546,010 $ 2,604,559 $16,252,265 $ 6,898,304 11/15/2000 Arizona 1,680,925 1,121,163 1,837,538 964,550 11/22/2000 Utah 3,145,522 1,568,396 4,713,918 0 12/20/2000 Nevada 3,554,591 1,965,374 5,519,965 0 4/30/2001 Nevada 8,620,383 3,658,293 7,985,213 4,293,463 4/30/2001 California 5,762,000 1,000,000 6,762,000 0 9/13/2001 New Jersey 11,800,000 3,941,501 5,905,765 9,835,736 1/24/2002 California 11,736,233 1,332,906 0 13,069,139 3/28/2002 California 7,680,468 21,191,246 19,319,312 9,552,402 ----------- ----------- ----------- ----------- $74,526,132 $38,383,438 $68,295,976 $44,613,594 =========== =========== =========== =========== The Company had sales of finished lots as follows: Six Months Six Months 12/31/2002 12/31/2001 ----------- ----------- Sales $ 24,931,729 $ 9,699,018 Cost of sales 24,931,729 9,699,018 ------------ ----------- Net gain or loss $ 0 $ 0 ============ =========== The following is a breakdown of interest income on residential real estate by state: Three Months Ended Six Months December 31, December 31, -------------------------- ------------------------- State 2002 2001 2002 2001 ------------- ---------- ---------- ---------- ---------- California $1,028,042 $ 844,908 $2,240,877 $ 1,767,204 Arizona 37,378 53,543 80,870 115,040 Nevada 110,969 351,750 248,388 742,028 New Jersey 352,703 383,443 772,692 457,195 Utah 0 27,024 0 90,657 ---------- ---------- ---------- ---------- Total $1,529,092 $1,660,668 $3,342,827 $3,172,124 ========== ========== ========== ========== 22 Residual Value Insurance Residual Value Insurance (RVI) indemnifies an insured against a loss that might occur if the proceeds of the sale of a properly maintained asset are less than that asset's insured residual value at a specific point in time. It protects against a decline in the market value of the property. If we are unwilling or unable to obtain such insurance coverage, our cost of funds might increase. Some of the Company's lenders consider the insurance as a credit enhancement to the loan. Lack of the coverage will result in the Company being required to increase the amount of down payment (equity/investment) in a transaction and may have to pay a higher interest rate for the borrowed funds. In a typical transaction we were required to invest 5% of our own cash in the transaction with RVI coverage. Without RVI coverage, we will be required to invest 10%-15% of our own cash in the transaction (i.e. original loan amount $10 million - with RVI we would be required to invest 5% or $500,000 - without RVI we would be required to invest an additional 5%-10% or $500,000 to $1,000,000 instead of $500,000). This will result in a decrease in loan-to value ratios in our financing and we assume the risk of loss if the property is sold below our original acquisition cost. RVI is obtained to insure 80% to 100% of the acquisition cost of the model homes as well as 80% to 100% of the fully developed cost of the residential real estate. In some cases, RVI even covers the cash flow - i.e. interest income on direct financing of model home arrangements and interest relating to the options on the residential real estate (this includes related homebuilder contractual obligations to the Company). The premiums are paid annually in advance by the Company and are non-refundable and not pro-ratable. They represent a percentage of the insured value. We understand that the premiums are based on numerous factors such as - perceived risk, allocation of statuary capital, and availability of similar coverage by other insurance companies and the feasibility of different financial models. Insurance companies providing RVI coverage have suffered severe losses on automobiles, aircraft, aircraft engines and various other assets/properties. The losses reflected poor underwriting performance. The mandatory recognition by the insurance carriers of prior period reserve deficiencies as well as deteriorating investment results have resulted in higher premiums and fewer providers. As a result, some insurance companies have ceased providing RVI coverage primarily due to large "shock" losses which have caused both weaker and stronger insurance companies to retrench or withdraw from the market place leaving a limited number of insurance companies that are willing to provide such coverage. As a result of the limited number of insurance companies willing to provide the RVI coverage, the existing providers are able to increase their pricing for such coverage. In addition, due to the significant losses by these insurance companies in other segments, coverage terms and conditions have been more restrictive and the lack of competition and capacity has hampered the availability and significantly increased the pricing for such coverage. Cost of reinsurance coverage available to the primary insurers has dramatically increased due to the catastrophic losses associated with September 11, asbestos claims, class action lawsuits and adverse trends in other lines. 23 Further downgrades by the rating agencies of property and casualty insurance companies have led to their diminished presence in the commercial and specialty lines business segments and continue to result in increased premiums. This has adversely affected coverage pricing and availability. The inability to obtain cost effective RVI insurance on future projects could affect the cost of funds from the lending institutions we work with as the coverage is considered a credit enhancement. In addition, the coverage gives the Company added security in the event a homebuilder does not fulfill its contractual obligations to the Company. In the event that any and all of the providers are unwilling to pay a claim, we would have to bear the cost of litigation to collect the claim and not have the use of the funds for our operations until the litigation and potential appeals are resolved in our favor. In the event that any or all of the providers are unable to pay a claim, we are subject to that credit risk. We evaluate the financial condition of the provider prior to our acceptance of the credit enhancement but can not protect ourselves against downgrades by rating agencies or future losses by the providers. Liquidity and Capital Resources Our uses for cash during the six months ended December 31 2002 were for revenue producing asset acquisitions, interest, debt repayment and operating expenses. We provided for our cash requirements from borrowings, the sale properties under direct financing arrangements, and other revenues. We believe that these sources of cash are sufficient to finance our working capital requirements and other needs for the next twelve (12) months. In order to acquire larger asset acquisitions, additional capital and/or credit enhancement may be needed to meet the equity requirements imposed by our lenders. 24 Inflation Inflation has not had a significant impact on the results of operations and is not anticipated to have a significant negative impact in the foreseeable future. Although increases in the rate of inflation may tend to increase interest rates which may increase our cost of borrowed funds, we attempt to pass the increases through to our customers through increased charges. The potential adverse impact of inflation on our lease operations is further mitigated by requiring clients to pay all operating expenses, including but not limited to real property taxes, insurance and utilities. However, there is no assurance that inflation will not have a material adverse impact on future results of operations. Deflation Deflation is a persistent fall in the general price level of goods and services. Deflation is dangerous, however, more so even than inflation, when it reflects a sharp slump in demand, excess capacity and shrinking money supply. Runaway deflation of this sort can be much more damaging than runaway inflation, because it creates a vicious spiral that is hard to escape. The expectation that prices will be lower tomorrow may encourage consumers to delay purchases, depressing demand and forcing firms to cut prices by even more. Falling prices also inflate the real burden of debt (that is, increase real interest rates) causing bankruptcy and bank failure. This makes deflation particularly dangerous for economies that have large amounts of corporate debt. Most serious of all, deflation can make monetary policy ineffective: nominal interest rates cannot be negative, so real rates can get stuck too high. We can not New Accounting Pronouncements ----------------------------- The FASB had issued an Exposure Draft "Consolidation of Certain Special Purpose Entities ("SPEs), a proposed Interpretation of Accounting Research Bulletin (ARB) No. 51, "Consolidated Financial Statements" that establishes accounting guidance for consolidation of SPEs. On January 17, 2003, FASB issued interpretation No.46, "Consolidation of Variable Interest Entities". The release proceeds to interpret ARB No. 51. Due to the complexity of the exposure draft and related interpretation, additional clarification will be need from FASB. After reviewing the FASB interpretation, we believe that its application would not require our clients t consolidate our transactions. 25 Interest Rate Risk The primary market risk facing us is interest rate risk on our current and future variable rate mortgage loans which are based on a base rate plus a negotiated premium. To date, we have not hedged interest rate risk but continually evaluate interest rate swaps and other financial instruments to mitigate this risk. While we have benefited from the overall reduction in interest rates, there is no assurance that such benefits will continue. If interest rates increase, it will have a negative impact on margins. 26 Item 3 -- Quantitative and Qualitative Disclosures About Market Risk We are exposed to changes in interest rates primarily as a result of our floating rate debt arrangements, which include borrowings under lines of credit. These lines, along with cash flow from operations, are used to maintain liquidity and fund business operations. The nature and amount of our debt may vary as a result of business requirements, market conditions and other factors. It has not been necessary for us to use derivative instruments to adjust our interest rate risk profile, although we continuously evaluate the need for interest rate caps, swaps, and other interest rate-related derivative contracts, to mitigate this risk. We have attempted to comply with the Sarbanes-Oxley Act of 2002. The Securities and Exchange Commission implemented Section 302 of the Sarbanes-Oxley Act of 2002 (the "Act") effective August 29, 2002. Provisions of the Act apply to all public reporting companies who file reports with the Securities and Exchange Commission. In addition to certification by the Chief Executive Officer and Chief Financial Officer as to the accuracy and completeness of financial statements contained in filed reports, other restrictions and requirements are part of the Act. The consensus of the AICPA and public filers is that additional clarification will be needed to fully comply with the Act. Item 4 -- Controls and Procedures During the 90-day period prior to the filing of this report, management, including the Company's President & Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Corporation's disclosure controls and procedures. Based upon, and as of the date of that evaluation, the President & Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. There have been no significant changes in the Company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation. There were no significant deficiencies or material weaknesses identified in the evaluation and, therefore, no corrective actions were taken. PART II - OTHER INFORMATION Item 1. Current Legal Developments Strategic Capital Resources, Inc. and FPE Funding, LLC v. Dylan Tire Industries, LLC, et al. On January 2, 2003, the Company was advised that the Tennessee Supreme Court denied our request for appeal without an opinion (which is standard procedure). We are currently analyzing our options. We are not presently involved in any other material litigation nor, to our knowledge, is any other material litigation threatened against us or any of our properties, other than routine litigation arising in the ordinary course of business. See Notes to Financial Statements. Star Insurance Company v. Strategic Capital Resources, Inc., 15th Judicial Court, Palm Beach County, Florida, Case No. CL 00-433 AD, The Company resolved the Star Insurance Company action. Based on mediation, the case was settled for $250,000 in January 2003. This amount was previously accrued as a corporate expense in the quarter ended September 30, 2002. The lawsuit against the Company was far in excess of $2,500,000. The Company and its counsel were convinced that our defense was very strong but decided to settle the suit in order to avoid the uncertainty of a jury verdict as well as the expenses of the inevitable appeals that would follow. The mediator pointed out that our cost to defend the lawsuit and appeals would exceed the $250,000 settlement. 27 On January 15, 2003, we wire transferred $250,000 to Star Insurance Company's attorney trust account in full settlement of this litigation. The receipt of the funds was acknowledged. We have not received the executed settlement agreement as of April 30, 2003 and demanded the return of our funds by May 1, 2003. Star Insurance Company faxed back an executed settlement agreement on May 1, 2003. We filed a motion with the court to have the $250,000 settlement payment returned to us and Star Insurance Company then made a motion to compel settlement. A decision is anticipated this calendar year. Strategic Capital Resources, Inc. vs. Citrin Cooperman& Company, LLP, Horton & Company, LLP and Edward Horton, United State District Court, Southern District of Florida, Case No. 03-80249-CIV-HURLEY. We filed suit against our former auditors. In our Complaint we allege among other things that the defendants neglected and breached their duty to us by failing to complete an audit which was necessary for us to file our Form 10-K for the fiscal year ended June 30, 2002, timely, failed to disclose that its principal independent accountant (Edward C. Horton) and his former firm (Horton & Company, LLC) as well as others at Citrin Cooperman & Company, LLP had been temporarily denied the privilege of appearing or practicing before the Securities and Exchange Commission as an accountant, failed to obtain authorization to practice accountancy in the State of Florida as well as other acts of malpractice and abuse of duty. The litigation is in its early stages and therefore, an outcome is not predictable at this time. We are not presently involved in any other material litigation other than previously disclosed nor, to our knowledge, are any other material litigation threatened against us or any of our properties, other than routine litigation arising in the ordinary course of business. Item 2. CHANGES IN SECURITIES Most of our previously outstanding warrants to purchase shares of our Common Stock had been issued to Mr. Miller, our Chairman, in connection with loans that had been extended to us by Mr. Miller and another member of our management from time to time since our inception. The loans represented funds that were necessary to conclude transactions in the ordinary course of our business, but were unavailable from other sources. According to the terms of these warrants, in the event of a transaction that resulted in a reduction of the number of outstanding shares of our Common Stock, including a reverse stock split, there would be no proportionate adjustment in the number of shares issuable upon exercise of the warrants or in the exercise price thereof. The warrants had exercise prices that ranged from $.13 to $.47. In June 2002, an aggregate of 1,430,000 warrants were exercised for an aggregate exercise price of $236,100 (approximately $.17 per warrant). 28 In December 2002, the warrant exercise discussed above was rescinded by the mutual consent of the former warrant holders and our Company. This rescission was necessary due to what we believe to be inaccurate advice provided to us by our former independent accountants, who failed to advise of various negative tax consequences to the warrant holder, and more importantly, significant negative impact to our income statement relating to the fact that the applicable warrant agreement contained the provisions discussed above. In addition, also in December 2002, pursuant to our Board of Directors and the warrant holders, the relevant warrant agreements were amended to negate the provisions specifying that they are not affected by any reverse stock split, effective as of the date of our reverse stock split. As a result, the 8,797,114 previously outstanding warrants have been reduced to 43,986 pursuant to the 200:1 reverse stock split previously undertaken. The exercise prices have also been adjusted pursuant to the reverse stock split, resulting in exercise prices ranging from $24 to $94 per warrant. This amendment was also necessary as a result of incorrect advice provided by our prior independent accountants. The outstanding warrants as of December 31, 2002 is 18,205. At the same time, it was decided by the Board and stock option holders that it will be in the best interest of the Company to cancel the outstanding stock options. At June 30, 2002 there were 12,500 outstanding options. The weighted average exercise price was $46.00. The Board is currently in the discussion stage as to how to compensate the holders of the cancelled warrants and options. 29 Item 3. DEFAULTS UPON SENIOR SECURITIES None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None Item 5. OTHER INFORMATION Not applicable Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 99.1 CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER 99.2 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER 99.3 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. We filed two (2) reports on Form 8-K during the three month period ended December 31, 2002. The Form 8-K filed on October 24, 2002 contained information related to the change in our Certifying Accountants. During December 2002, we filed a report on Form 8-K, advising of various changes to the accounting treatment we had historically attributed to the sales of our model homes, as well as the accounting treatment applicable to our amending certain warrant agreements relating to our outstanding warrants. On February 5, 2003, we filed a Current Report on Form 8-K, which included a press release dated February 4, 2003, announcing our earnings for the first quarter ended September 30, 2002. On February 12, 2003, we filed a Current Report on Form 8-K, which included a press release dated February 12, 2003, announcing our earnings for the second quarter ended December 31, 2002. 30 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 by the undersigned thereunto duly authorized. Strategic Capital Resources, Inc. (Registrant) By: /s/ DAVID MILLER ------------------------------------- David Miller Chief Executive Officer Date: June 27, 2003 31

STRATEGIC CAPITAL RESOURCES INC 10-Q/A