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 September 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 ____________
Commission File Number 1-6844
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CALPROP CORPORATION
(Exact name of registrant as specified in its charter)
California 95-4044835
- ----------------------------------------------- -------------------
(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
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Number of shares outstanding of each of Registrant's classes of common stock, as
of October 18, 1995:
Number of Shares
Title of Each Class Outstanding
- ------------------- ----------------
Common Stock, $1.00 par value per share 4,816,030
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
September 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)
September 30, December 31,
1995 1994
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Real Estate Development $24,121,850 $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 29,788,224 28,349,989
Other Assets:
Cash and cash equivalents 835,267 1,142,834
Prepaid Expenses 676,433 292,602
Deferred Loan Costs -- 458,333
Operating and Personal Properties,
Net of Accumulated Depreciation 38,755 50,130
Trust Deeds Receivable, Net 134,118 139,477
----------- -----------
Total Other Assets 1,684,573 2,083,376
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Total Assets $31,472,797 $30,433,365
=========== ===========
The accompanying notes are an integral
part of these financial statements.
3
CALPROP CORPORATION
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BALANCE SHEETS
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
(Unaudited)
September 30, December 31,
1995 1994
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Trust Deeds and Notes Payable $ 2,488,263 $ 4,774,683
Related Party Notes 8,525,000 5,207,084
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Total Trust Deeds and Notes Payable 11,013,263 9,981,767
Community Facilities District Special Tax Bonds 2,336,544 2,381,432
Accounts Payable and Accrued Liabilities 2,117,068 2,031,868
Warranty Reserves (Note 7) 163,992 1,499,408
Accrued Dividends Payable on Preferred Stock (Note 6) 812,239 601,078
------------ ------------
Total Liabilities 16,443,106 16,495,553
Stockholders' Equity
Convertible Preferred Stock, No Par Value
Authorized 6,000,000 Shares Outstanding--3,571,368 Shares at
September 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
September 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 (20,263,870) (21,354,624)
------------ ------------
Total Stockholders' Equity 15,029,691 13,937,812
------------ ------------
Total Liabilities and Stockholders' Equity $ 31,472,797 $ 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 NINE MONTHS ENDED
September 30, September 30,
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1995 1994 1995 1994
----------- ----------- ----------- -----------
Development Operations (Note 1):
Real Estate Sales $ 5,058,756 $ 5,603,018 $12,800,591 $13,222,776
Cost of Real Estate Sales (Note 7) 5,051,056 5,565,244 11,901,392 13,096,422
----------- ----------- ----------- -----------
Income from Development Operations 7,700 37,774 899,199 126,354
Other Income (Note 4) 129,541 89,035 2,369,345 677,421
----------- ----------- ----------- -----------
Other Expenses:
General and Administrative Expenses 551,235 598,469 1,650,409 1,601,911
Investment Property Holding Costs 48,899 -- 156,393 --
Interest Expense 6,545 4,875 23,571 14,625
----------- ----------- ----------- -----------
Total Other Expenses 606,679 603,344 1,830,373 1,616,536
----------- ----------- ----------- -----------
Income (Loss) Before (Provision) Benefit
for Income Taxes (469,438) (476,535) 1,438,171 (812,761)
----------- ----------- ----------- -----------
Benefit (Provision) for Income Taxes (Note 2) -- -- -- --
----------- ----------- ----------- -----------
NET Income (Loss) $ (469,438) $ (476,535) $ 1,438,171 $ (812,671)
=========== =========== =========== ===========
Net (Loss) Per Share (Note 3)
Primary (after giving effect to Preferred
Stock Dividend) $(0.12) $(0.12) $0.22 $(0.24)
Fully Diluted $0.15
The accompanying notes are an integral
part of these financial statements.
5
CALPROP CORPORATION
STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
1995 1994 1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (469,438) $ (476,535) $ 1,438,171 $ (812,761)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,906 8,134 11,375 54,482
Other - - - (5,331)
Change in assets and liabilities
(Increase) decrease in investments in land - - (16,867) (11,172)
(Increase) decrease in prepaid expenses (657,919) (420,024) 74,502 (111,453)
(Increase) decrease in assets held by lender - 292,588 - 310,000
Increase (Decrease) in accounts payable and
accrued liabilities 104,701 (107,147) (1,250,214) (786,153)
Payments on trust deeds receivable (55,008) 761 5,359 1,876
Additions to real estate development in process (3,650,918) (4,033,672) (13,322,760) (9,913,063)
Sales of real estate and investments 4,991,791 5,565,244 11,901,392 13,096,422
----------- ----------- ------------ ------------
Net cash provided by (used in) operating activities 266,115 829,349 (1,159,042) 1,822,847
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) Disposals of Real and Personal Property - (5,064) - 169,680
---------- ----------- ------------ ------------
Net cash provided by (used in) investing activities - (5,064) - 169,680
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under construction loans 3,591,677 9,690,922 12,472,728 15,561,504
Payments under construction loans (3,946,446) (8,645,109) (11,441,232) (16,036,132)
Payments of Preferred Stock Dividends - - (136,258) -
Paydown CFD liability - - (44,888) -
Proceeds from issuance of Common Stock - - 1,125 -
----------- ----------- ------------ -----------
Net cash provided by (used in) financing activities (354,769) 1,045,813 851,475 (474,628)
Net increase (decrease) in cash and cash equivalents (88,654) 1,870,098 (307,567) 1,517,899
Cash and cash equivalents at beginning of periods 923,921 739,374 1,142,834 1,091,573
----------- ----------- ------------ -----------
Cash and cash equivalents at end of periods $ 835,267 $ 2,609,472 $ 835,267 $ 2,609,472
=========== =========== ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
NON CASH INVESTING AND FINANCING ACTIVITIES:
Amortization of allowance for write down
to net realizable value - - - 272,396
Accrual of Preferred Dividend 117,024 115,872 347,419 230,510
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 SEPTEMBER 30, 1995 and 1994
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(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 nine months ended September 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 nine months ended September
30, 1995, has been recorded as the Company applied net operating loss
carryforwards against the entire income earned. As of September 30, 1995, the
Company had net operating carryforwards for federal and state tax purposes of
approximately $6,950,000 and $12,950,000, 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 Nine Months Ended
September 30, September 30,
------------------------ -----------------------
1995 1994 1995 1994
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Weighted average number of common
shares and common stock equivalents
adjusted for stock dividends 4,819,630 4,762,641 4,905,238 4,762,295
Net income (loss) $ (469,438) $ (476,535) $1,438,171 $ (812,761)
Earnings (loss) per share
Primary (after giving effect to
preferred stock dividend) $(0.12) $(0.12) $0.22 $(0.24)
====== ====== ===== ======
Fully Diluted $0.15
=====
7
Note 4: Other Income
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Other income for the nine months ended September 30, 1995 consists
primarily of approximately a net $2,130,000 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 nine months ended
September 30, 1995 includes approximately $170,000 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
September 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. On March 28, 1995, the Company paid preferred stock dividends
of $136,257. As of September 30, 1995, there is $812,239 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.
Note 8: Subsequent Event
----------------
On November 9, 1995, the Company acquired 97 partially developed lots
in the city of Murrieta, California, for cash of $810,000 and seller financing
of $1,346,000. The Company anticipates units closing in this project beginning
in the third quarter of 1996.
8
Item 2 Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations
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The Company has continued to be impacted by the recent general economic
downturn and soft California housing market through the third quarter of 1995.
The Company's sales revenue during the third quarters of the last two years
decreased from $5,603,018 in 1994 to $5,058,756 in 1995. During the first nine
months of the last two years, sales revenues decreased from $13,222,776 in 1994
to $12,800,591 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 August of 1995, Imperial Bank made a $4,890,000 construction loan to
the Company for the construction of 53 units in the Summertree Park project in
Elk Grove, California. The note provides for interest at the prime rate plus
1.5% and a loan service change of 1.5 points. The loan provides for paydowns
with each closing, however, all principal and interest is due no later than
November 10, 1996. Per the terms of the loan, a six month extension is available
should it be required. As of September 30, 1995, the outstanding balance
existing on the loan totaled $591,011.
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 September 30, 1995, the outstanding balance
existing on the loan totaled $1,210,571.
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 September 30, 1995, the $1,000,000 loan had been paid
off in its entirety and the outstanding balance on the remaining loan totaled
$650,000.
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 September 30, 1995, the balance of this loan was $2,000,000.
9
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 September 30, 1995, the balance of this loan was $4,000,000.
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 January 4, 1996, and
the second $500,000 note is due on demand. In August, 1995, Mr. Zaccaglin made
an additional loan to the company of $300,000 which bears interest at prime plus
2%, and is due on November 11, 1995.
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. As of September 30, 1995, the balance on this loan was
$79,176. In October, 1995, the loan was fully paid down.
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 September 30,
1995, the balance on this loan was $259,030.
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. As of September 30, 1995, the Company has fully
paid down the balances of all loans from First Interstate Bank.
As of September 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 grand opening for the other project,
Summertree Park in Sacramento County, is planned for December of 1995. As of
September 30, 1995, the Company has 7 homes in escrow, of which 2 are completed
and 5 are under construction. The Company has an additional 55 homes, of which 5
are completed and 50 are under construction. The Company has remaining inventory
of 4 model units, 130 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/loss changed from a loss of $476,535 in the third quarter of
1994 to a loss of $469,438 in the third quarter of 1995. Net income/loss for the
first nine months changed from a loss of $812,761 in 1994 to income of
$1,438,171 in 1995. This increase in income for the respective nine 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 decreased from $37,774 for the third quarter of 1994 to
$7,700 for the third quarter of 1995. For the nine month period ended September
30, gross profit increased from $126,354 in 1994 to $899,199 in 1995. Increase
in the gross profit is primarily a result of the recognition of the $730,000 in
excess warranty reserves.
During the third quarters of the last two years, gross revenues
decreased from $5,603,018 in 1994 to $5,058,756 in 1995. During the first nine
months of the year, gross revenues decreased from $13,222,776 in 1994 to
$12,800,591 in 1995. In the third quarter of 1994 the Company sold 32 homes with
an average sales price of $175,094, and in the third quarter of 1995 the Company
sold 22 homes with an average sales price of $229,943. In the first nine months
of 1994 and 1995, the Company sold 73 and 61 homes respectively, with an average
sales price in the first nine months of 1994 of $181,134, compared to an average
sales price in the first nine months of 1995 of $209,846. The increase in gross
revenue and average sales price between the third quarters of 1994 and 1995, and
the first nine 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
- ------ --------------------------------
(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)
November 9, 1995
12