SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1995 or
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[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number 1-6844
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CALPROP CORPORATION
(Exact name of registrant as specified in its charter)
California 95-4044835
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5456 McConnell Avenue, Los Angeles, California 90066
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (310) 306-4314
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Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
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 (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
--- ---
Number of shares outstanding of each of Registrant's classes of common stock, as
of July 31, 1995:
Number of Shares
Title of Each Class Outstanding
------------------------------ ----------------
Common Stock, $1.00 par value per share 4,819,630
CALPROP CORPORATION
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Part I
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ITEM I - FINANCIAL INFORMATION
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Set forth is the unaudited quarterly report for the quarters ended June 30,
1995 and 1994, for Calprop Corporation. The information set forth reflects all
adjustments which were, in the opinion of management, necessary for a fair
presentation.
2
CALPROP CORPORATION
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BALANCE SHEETS
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ASSETS
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(Unaudited)
June 30, December 31,
1995 1994
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Real Estate Development $25,462,722 $22,700,482
Investment in Land 13,413,520 13,396,653
Allowance For Write Down to
Net Realizable Value (Note 5) (7,747,146) (7,747,146)
----------- -----------
Net Investment In Land 5,666,374 5,649,507
Total Investment in Real Estate 31,129,096 28,349,989
Other Assets:
Cash and cash equivalents 923,921 1,142,834
Prepaid Expenses 18,514 292,602
Deferred Loan Costs -- 458,333
Operating and Personal Properties,
Net of Accumulated Depreciation 41,661 50,130
Trust Deeds Receivable, Net 79,110 139,477
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Total Other Assets 1,063,206 2,083,376
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Total Assets $32,192,302 $30,433,365
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The accompanying notes are an integral
part of these financial statements.
3
CALPROP CORPORATION
--------------------
BALANCE SHEETS
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(Unaudited)
June 30, December 31,
1995 1994
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Trust Deeds and Notes Payable $ 2,693,032 $ 4,774,683
Related Party Notes 8,675,000 5,207,084
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Total Trust Deeds and Notes Payable 11,368,032 9,981,767
Community Facilities District Special Tax Bonds 2,336,544 2,381,432
Accounts Payable and Accrued
Liabilities 1,997,361 2,031,868
Warranty Reserves (Note 7) 179,000 1,499,408
Accrued Dividends Payable on Preferred Stock (Note 6) 695,215 601,078
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Total Liabilities 16,576,152 16,495,553
Stockholders' Equity
Convertible Preferred Stock, No Par Value
Authorized 6,000,000 Shares
Outstanding-3,571,368 Shares at
June 30, 1995 and 3,574,875 Shares
at December 31, 1994 (Note 6) 4,571,351 4,575,840
Common Stock, $1 Par Value -
Authorized--20,000,000 Shares
Outstanding--4,819,630 Shares at
June 30, 1995 and 4,813,641 Shares
at December 31, 1994 4,819,630 4,813,641
Additional Paid-in Capital 25,902,580 25,902,955
Accumulated Deficit (19,677,411) (21,354,624)
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Total Stockholders' Equity 15,616,150 13,937,812
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Total Liabilities and Stockholders' Equity $ 32,192,302 $ 30,433,365
============ ============
The accompanying notes are an integral
part of these financial statements.
4
CALPROP CORPORATION
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STATEMENTS OF INCOME
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(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30,
-------------------------- --------------------------
1995 1994 1995 1994
----------- ------------ ----------- ------------
Development Operations (Note 1):
Real Estate Sales $4,263,810 $4,005,231 $7,741,835 $7,619,758
Cost of Real Estate Sales (Note 7) 3,505,857 4,054,570 6,850,336 7,531,178
---------- ---------- ---------- ----------
Income (Loss) from Development Operations 757,953 (49,339) 891,499 88,580
Other Income (Note 4) 38,099 556,901 2,239,804 588,385
---------- ---------- ---------- ----------
Other Expenses:
General and Administrative Expenses 576,574 485,833 1,099,174 1,003,442
Investment Property Holding Costs 107,494 -- 107,494 --
Interest Expense 7,184 -- 17,026 9,750
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Total Other Expenses 691,252 485,833 1,223,694 1,013,192
---------- ---------- ---------- ----------
Income (Loss) Before (Provision) Benefit
for Income Taxes 104,800 21,729 1,907,609 (336,227)
---------- ---------- ---------- ----------
Benefit (Provision) for Income Taxes (Note 2) -- -- -- --
---------- ---------- ---------- ----------
NET Income (Loss) $ 104,800 $ 21,729 $1,907,609 ($336,227)
========== ========== ========== ==========
Net (Loss) Per Share (Note 3)
Primary (after giving effect to Preferred
Stock Dividend) $ 0.00 ($0.02) $0.35 ($0.12)
Fully Diluted $0.20
The accompanying notes are an integral
part of these financial statements.
5
CALPROP CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30
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1995 1994 1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) 104,800 21,729 $ 1,907,609 $ (336,227)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,342 10,645 8,469 46,348
Other -- (956) -- (5,331)
Change in assets and liabilities
(Increase) decrease in investments in land (16,867) (11,172) (16,867) (11,172)
(Increase) decrease in prepaid expenses 524,732 170,725 732,421 308,571
(Increase) decrease in assets held by lender -- 17,412 -- 17,412
Increase (Decrease) in accounts payable
and accrued liabilities (1,256,633) (257,488) (1,354,916) (679,005)
Payments on trust deeds receivable 1,845 289 60,367 1,115
Additions to real estate development in process (6,633,232) (2,903,849) (9,671,842) (5,879,391)
Sales of real estate and investments 3,565,122 4,054,571 6,909,601 7,531,178
----------- ----------- ------------ -----------
Net cash provided by (used in) operating activities (3,705,891) 1,101,906 (1,425,158) 993,498
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) Disposals of Real and Personal Property -- 174,744 -- 174,744
----------- ----------- ------------ -----------
Net cash provided by (used in) investing activities -- 174,744 -- 174,744
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under construction loans 6,113,752 2,466,162 8,881,051 5,870,582
Payments under construction loans (3,078,905) (3,734,764) (7,494,786) (7,391,023)
Payments of Preferred Stock Dividends -- -- (136,257) --
Paydown CFD liability (44,888) -- (44,888) --
Proceeds from issuance of Common Stock 1,125 -- 1,125 --
----------- ----------- ------------ -----------
Net cash provided by (used in) financing activities 2,991,084 (1,268,602) 1,206,245 (1,520,441)
Net increase (decrease) in cash and cash equivalents (714,807) 8,048 (218,913) (352,199)
Cash and cash equivalents at beginning of periods 1,638,728 731,326 1,142,834 1,091,573
----------- ----------- ------------ -----------
Cash and cash equivalents at end of periods $ 923,921 $ 739,374 $ 923,921 $ 739,374
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest (net of amount capitalized) 7,184 -- 17,026 9,750
NON CASH INVESTING AND FINANCING ACTIVITIES: -- -- -- --
Amortization of allowance for write down to net realizable value -- -- -- 272,396
Accrual of Preferred Dividend 115,802 115,872 230,394 230,510
Net Exercise (Cancellation) of Stock Incentive Plans -- (956) -- (5,331)
Conversion of Preferred Stock to Common Stock 4,489 -- -- --
The accompanying notes are an integral
part of these financial statements.
6
CALPROP CORPORATION
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NOTES TO FINANCIAL STATEMENTS
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PERIODS ENDED JUNE 30, 1995 and 1994
-------------------------------------
(Unaudited)
Note 1: Basis of presentation and significant accounting policies
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The unaudited, condensed, financial statements included herein have been
prepared by the registrant pursuant to the instructions to Quarterly Report on
Form 10-Q required to be filed with the Securities and Exchange Commission and
do not include all information and footnote disclosure required by generally
accepted accounting principles. The accompanying financial statements have not
been examined by independent accountants in accordance with generally accepted
auditing standards, but in the opinion of management, such financial statements
include all adjustments, consisting only of normal recurring adjustments
necessary to summarize fairly the Company's financial position and results of
operations. The condensed financial statements should be read in conjunction
with the financial statements and the notes thereto included in the registrant's
latest Annual Report on Form 10-K, particularly with regard to disclosures
relating to major accounting policies.
The results of operations for the six months ended June 30, 1995 may not be
indicative of the operating results for the year ending December 31, 1995.
Note 2: Income taxes
------------
No provision for income taxes for the six months ended June 30, 1995, has
been recorded as the Company applied net operating loss carryforwards against
the entire income earned. As of June 30, 1995, the Company had net operating
carryforwards for federal and state tax purposes of approximately $6,500,000 and
$12,500,000, respectively.
Note 3: Net income per share
--------------------
Net income per share has been computed based upon the weighted average
number of shares outstanding.
Three Months Ended Six Months Ended
June 30, June 30,
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1995 1994 1995 1994
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Weighted average number of common
shares and common stock equivalents
adjusted for stock dividends 4,816,520 4,762,379 4,815,088 4,762,119
Net income (loss) $104,800 $21,729 $1,907,609 $(336,227)
Earnings (loss) per share
Primary (after giving effect to $0.00 $(0.02) $0.35 $(0.12)
preferred stock dividend) ========= ========= ========= =========
Fully Diluted $0.20
=========
7
Note 4: Other Income
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Other income for the six months ended June 30, 1995 consists primarily of
approximately a net $2,100,000 of cash received as a result of a settlement of
the California Department of Transportation (Caltrans) litigation. In addition
to the legal settlement, other income for the six months ended June 30, 1995
includes approximately $139,000 in miscellaneous insurance and property tax
refunds.
Note 5: Net realizable allowances on properties
---------------------------------------
The Company established net realizable reserves on its land held for
investment as of December 31, 1993, in response to market conditions and
economic events. The reserves are based on the Company's plans for development
and build out, the costs estimated to complete and sell the projects and does
not purport, for a specific project, to represent the current sales price that
the Company could obtain from third parties at their current stage of
development. The reserves may be reversed as the properties are sold or if
there is a change in the economic climate. The company had reserves of
$7,747,146 at June 30, 1995 and December 31, 1994.
Note 6: Preferred Stock
----------------
On September 15, 1993 the Company completed an offering of 3,576,301 shares
of Convertible Preferred Stock, to existing shareholders at $1.28 per share.
The sales price of the 3,576,301 shares sold was $4,577,665, of which
$3,017,663 was paid by the conversion of existing indebtedness, and $1,560,002
in cash proceeds. Each share of Convertible Preferred Stock is convertible to
1.28 shares of Common Stock at the option of the shareholder. Each share of
Convertible Preferred Stock is entitled to receive dividends of $0.13 per annum,
payable in cash, however, the Company's loan agreements had previously
prohibited the payment of dividends. On March 28,1995, the Company paid
preferred stock dividends of $136,257. As of June 30, 1995, there is $695,215
of dividends in arrears on the Preferred Stock. The Convertible Preferred Stock
is also entitled to a liquidation preference of $1.28 per share, and may be
redeemed by the Company at a redemption price of $1.28 per share, plus accrued
dividends.
Note 7: Cost of Real Estate Sales
-------------------------
Cost of Real Estate Sales was reduced by approximately $730,000 resulting
from the reduction of warranty reserves associated with the settlement in May,
1995 of a lawsuit filed against the Company for general damages caused by
alleged land subsidence.
8
Item 2 Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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The Company has continued to be impacted by the general economic downturn,
and the soft California housing market through the second quarter of 1995. The
Company's sales revenue during the second quarters of the last two years
increased from $4,005,231 in 1994 to $4,263,810 in 1995. During the first six
months of the last two years, sales revenues increased from $7,619,758 in 1994
to $7,741,835 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's liquidity changes during the course of the year depending
upon the status of the Company's real estate projects in process. The Company's
liquidity decreases as it enters a project cycle and increases as the completed
homes are sold at the end of the cycle. In large part, the Company historically
funded its operations through the utilization of cash flow from one project to
fund the construction and development of another project. The Company is
currently in an expansion program that requires additional sources of financing.
In order to acquire the additional funds needed, the Company is increasing its
external financing through the use of land loans, lot development loans,
construction loans and the use of its unsecured credit lines.
In an effort to increase working capital, the Company has continued to
institute cost reduction programs in all areas of its operations and converted
other assets to liquid funds. Additionally, the Company is actively seeking
joint venture partners and additional financing to fund its operations.
In September of 1994, First Interstate Bank of California extended the pre-
existing Secured Line of Credit in the amount of $3,500,000 and made three
additional loans totaling $5,920,000 to the Company in the Summertree Park
project in Windsor, California. Two of the loans are construction loans to fund
the construction of the next 46 units in the Summertree Park project. The third
loan is to finance the Summertree Park models, which were originally constructed
with Company funds. The Secured Line of Credit provides for interest at the
prime rate plus 0.5%, and the other notes provide for interest at the prime rate
plus 2% and loan service charges of two points. All four of these loans mature
on September 23, 1995. As of June 30, 1995, the combined balances of these four
loans from First Interstate Bank totaled $1,356,986.
In February of 1995, United Savings Bank made a $2,185,000 construction
loan to the Company for the construction of 15 units in the Cypress Cove project
in Half Moon Bay, California. The note provides for interest at the prime rate
plus 2% and a loan service charge of two points. The loan provides for paydowns
with each closing, however, all principal and interest is due no later than
March 1, 1996. Per the terms of the loan, a six month extension is available
should it be required. As of June 30, 1995, the outstanding balance existing on
the loan totaled $662,958.
In May of 1994, the Curci-Turner Company made two loan commitments for
$1,000,000 and $1,750,000 totaling $2,750,000, to the Company for the
construction of 22 units in the Cypress Cove project in Half Moon Bay,
California. The notes provide for interest at 12%, and a loan service charge
totaling $275,000, payable in four installments. The notes provide for paydowns
with each home sale, however, all principal and interest is due no later than
December 31, 1995. As of June, 30, 1995, the $1,000,000 loan had been paid off
in its entirety and the outstanding balance on the remaining loan totaled
$1,350,000.
9
In the third quarter of 1994, the Company obtained a $2,000,000 loan from
the Curci-Turner Company, secured by the Company's Mission Gorge land, located
in San Diego, California. The loan provides for interest at 10%, contains a
profit sharing provision and a loan service charge of $300,000 payable in
monthly installments. The loan matures on September 30, 1997 and as of June 30,
1995, the balance of this loan was $2,000,000.
In April , 1995, the Company obtained a $4,000,000 loan from the Curci-
Turner Company, secured by the Company's Elk Grove land, located in Sacramento
County, California. This note bears interest at prime plus 1.5% and contains a
profit sharing provision. The note provides for paydowns with each closing,
however, all principal and interest is due no later than March 31, 1997. As of
June 30, 1995, the balance of this loan was $3,500,000.
During the first quarter of 1995, Mr. Zaccaglin, Chairman of the Board and
Chief Executive Officer, made two loans to the Company of $500,000 each for
working capital purposes. The loans provide for interest at prime plus 2%. The
maturity for the first $500,000 note has been extended to October 6, 1995, and
the second $500,000 note is due on demand.
In July of 1994, the Company obtained a construction loan of $2,200,000
from CenFed Bank. These funds are for the construction of the first ten units
in the Company's Pleasant Oaks Estates project, located in Thousand Oaks,
California. The loan provides for interest at prime plus 2% and a loan service
charge of two points. The loan matures on July 30, 1995 with two six month
extensions available per the terms of the loan agreement. As of June 30, 1995
the balance on this loan was $420,101.
In December 1994, the Company obtained a construction loan of $800,000 from
Brentwood Bank. These funds are for the construction of the last 3 units in the
Company's Pleasant Oaks Estates project, located in Thousand Oaks, California.
The loan provides for interest at prime plus 2% and a loan service charge of two
points. The loan matures on December 1, 1995. As of June 30, 1995, the balance
on this loan was $69,815.
As of June 30, 1995, the Company had four projects with a combined total of
six phases in various stages of development with three of the four projects
producing revenues from completed homes: Pleasant Oaks Estates, Cypress Cove,
and Summertree Park at Windsor. The other project, Summertree Park in
Sacramento County, is in the early stages of development. As of June 30, 1995,
the Company has 24 homes in escrow, of which 5 are completed and 19 are under
construction. The Company has an additional 29 homes, of which 9 are completed
and 20 are under construction. The Company has remaining inventory of 8 model
units, 156 improved lots and 548 entitled lots.
The Company believes that, based on its agreements with its existing
institutional lenders, and the Curci-Turner Company, even with the continued
slowdown in certain of its marketplaces, it will have sufficient liquidity to
finance its construction projects in 1995 through funds generated from
operations and funds available under its existing loan commitments. In addition,
the Company believes that if necessary, additional funds could be obtained by
using its internally financed real estate development in process as collateral
for additional loans.
RESULTS OF OPERATIONS
---------------------
Net Income increased from $21,729 in the second quarter of 1994 to $104,800
in the second quarter of 1995. It should be noted that the net income in the
second quarter of 1994 is the result of non-operating items included in Other
Income, and is not the result of operations. Furthermore, the increase in the
net income for the second quarter of 1995 is the result of the Company
recognizing approximately $730,000 in warranty reserves as a reduction of cost
of sales. Net income/loss for the first six months changed from a loss of
$336,227 in 1994 to income of $1,907,609 in 1995. This increase in income for
the respective six month periods is primarily due to the net cash settlement of
approximately $2,100,000 in the California department of transportation
litigation, and the reduction of cost of sales by approximately $730,000 from
excess warranty reserves.
10
Gross profit increased from a loss of $49,339 for the second quarter of
1994 to income of $757,953 for the second quarter of 1995. For the six months
period ended June 30, gross profit increased from $88,580 in 1994 to $891,499 in
1995. Increase in the gross profit is primarily a result of the recognition of
the $730,000 in excess warranty reserves.
During the second quarters of the last two years, gross revenues increased
from $4,005,231 in 1994 to $4,263,810 in 1995. During the first six months of
the year, gross revenues increased from $7,619,758 in 1994 to $7,741,835 in
1995. In the second quarter of both 1994 and 1995, the Company sold 20 homes
with an average sales price of $200,262 in 1994, compared to an average sales
of $213,191 in 1995. In first six months of 1994 and 1995, the Company sold 41
and 39 homes respectively, with an average sales price in the first six months
of 1994 of $185,849, compared to an average sales price in the first six months
of 1995 of $198,508. The increase in gross revenue and average sales price
between the second quarters of 1994 and 1995, and the first six months of 1994
and 1995, is primarily due to a change in the product mix as the company began
closing homes in the Pleasant Oaks Estates project in Thousand Oaks, California,
where the average sales price of a home is approximately $440,000.
11
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits -
27 Financial Data Schedule
SIGNATURES
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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.
CALPROP CORPORATION
By: /s/ Mark F. Spiro .
---------------------------------------------
Mark F. Spiro
Vice President/Secretary/Treasurer
(Chief Financial and Accounting Officer)
August 9, 1995
12