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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2003

[  ] 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.  Yes  [X]  No  [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  [  ]  No  [X]

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 77,192 shares of Common Stock outstanding as of August 6, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Certain specified portions of the Registrant’s definitive Information Statement to be filed within 120 days after June 30, 2003 are incorporated herein by reference in response to Part III, Items 10 through 14, inclusive.

TABLE OF CONTENTS

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PART I

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated” and “potential.” Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, ability to continue insurance coverage, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors that may affect our operations, pricing, products and services.

ITEM 1.     BUSINESS

Strategic Capital Resources, Inc. (referred to herein as “SCRI”, the “Company”, “We”, “Our” or “Us” was incorporated in Delaware in 1995.  We reincorporated as a Florida corporation on August 14, 2003.  SCRI is actively exploring other asset classes and business opportunities.  Future opportunities may be in real estate assets or extend to other real estate activities or unrelated asset classes.

The Company’s filings with the Securities and Exchange Commission (“SEC”), including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to the Securities Exchange Act of 1934, are accessible free of charge after the Company electronically files such material with, or furnishes it to, the SEC.  As we do not maintain an internet website, such reports can be accessed at the internet address of the SEC, which is http://www.sec.gov.  Also, the public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These filings will be made available without charge to all shareholders upon written request to the Company.

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.

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 revenues 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:

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MODEL HOME PROGRAM

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 and other applicable costs including, but not limited to, utilities and homeowner association assessments. These arrangements terminate upon the sale of the model homes or the expiration of the lease. In this regard, we enter into listing agreements with real estate brokerage affiliates of those clients with whom we have entered into the leaseback arrangement. These agreements provide for commissions and incentives, which are negotiated on a per transaction basis.

For the Difference between a “financing lease” and an “operating lease” see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Policies – Revenue Recognition – Direct Financing Arrangements – Operating Leases.

All of our clients are required to provide either a surety bond, letter of credit, cash or equivalent financial instrument in order to insure their performance of their obligations. These financial instruments provided by our clients have historically ranged from 5% to 110% of our purchase price of the model homes.

In many cases, we obtain various forms of insurance, which effectively serve as credit enhancements. The insurance instrument insures the timely performance of our client of its obligations under the relevant agreements. In the event of default by our client, the insurer has an obligation to continue to make the payments up to the penal sum of the bond. All such insurance has been obtained from major domestic insurance companies rated “A” through “AAA” by major credit rating agencies. Also see residual value insurance discussion in the residential real estate acquisition and development section that follows. In the event that any or all of the insurance providers are unwilling and/or unable to pay a claim we would have to bear the cost of litigation to collect the claim.  We would 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 insurance 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 cannot protect ourselves against subsequent downgrades by rating agencies or future losses by the insurance providers.  The intent of these arrangements is to reduce our cost of funds and to increase the amounts borrowed, thereby increasing our profitability and leverage.

Residual Value Insurance

Residual Value Insurance (“RVI”) indemnifies an insured against a loss that might occur if the proceeds of the sale of a 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 to possibly pay a higher interest rate for the borrowed funds. In a typical transaction, we would be required to invest 5% of our own cash in the transaction with RVI coverage. Without RVI coverage, we would 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.

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RVI, when obtained, insures 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 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.

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.

Such factors 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 or all of the providers are unwilling or unable 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 might be 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.

In May, 2003, we filed a claim against an insurance company that provided RVI coverage as well as cash flow protection/coverage.  They have not denied the claim but have requested additional information which we provided.  We believe based on the length of time and acrimonious correspondence that they will contest (not honor) their obligation to pay our claim.  The policy provided for payment within fifteen (15) days.  The provider of RVI was rated A+ by Standard & Poors at the time the policy was issued.  It is currently rated A with a negative outlook by Standard & Poors.

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Since inception, we have purchased a total of 539 model homes at an aggregate purchase price in excess of $129,000,000. The following is a breakdown of model homes which we have purchased and the purchase price by state at June 30, 2003, and June 30, 2002:

The following is a summary by state of our model home purchases and sales since inception, as well as our inventory at June 30, 2003.

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     The following chart summarizes our model home purchases and sales by state since inception, as well as the current model home inventory before depreciation at June 30, 2003:

The following is a breakdown of model homes under operating agreements as of June 30, 2003.