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UNITED STATES
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 December 31, 1995
Commission File Number 1-6844
CALPROP CORPORATION
INCORPORATED IN CALIFORNIA 95-4044835
5456 McConnell Avenue, #245 I.R.S. Employer
Los Angeles, California 90066 Identification No.
(310) 306-4314
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which
Title of Each Class Registered
COMMON STOCK, $1.00 PAR VALUE AMERICAN STOCK EXCHANGE
Securities Registered Pursuant to Section 12(g) of the Act:
NONE.
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 .
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 X .
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing.
$4,284,901 at March 15, 1996
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
4,897,030 Shares Outstanding at March 15, 1996
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's definitive Proxy Statement for 1996 Annual Meeting
of Shareholders are incorporated by reference into Part III of this report.
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PART I
ITEM 1 BUSINESS
GENERAL
Calprop Corporation designs, constructs and sells single-family detached and
attached homes and townhomes as part of condominiums or planned unit
developments in California. The Company selects and acquires the site, secures
construction financing and constructs and sells homes. The Company also sells
improved lots in California. The Company selects projects of varying types in
several local markets in an effort to reduce the risks inherent in the
residential housing industry. To enable the Company to adapt to the changing
market conditions and to control its overhead expenses, the Company performs
its construction activities through independent subcontractors under the
direction of on-site construction supervisors employed by the Company rather
than employing a permanent construction work force. The Company does not
generally finance the purchase of its homes, but has done so in the past to
facilitate sales and may do so in the future to the extent it is feasible, if
market conditions require such financing. In addition to the continuing
emphasis on single-family construction, the Company also develops raw land
through the planning, zoning, and entitlement process.
From its inception in 1961 until the early 1970's the Company engaged in the
development of apartment projects, primarily for sale to limited partnerships
organized by the Company, for which it served as general partner. The Company
generally retained a subordinated equity interest in each apartment project and
acted as property manager for those projects in return for property management
fees. In the early 1970's the apartment rental market deteriorated and the
Company discontinued its sponsorship of new limited partnerships. The Company
remained as general partner and property manager for those limited partnerships
it previously organized, but turned its focus on future operations to the
single-family home market, which presented an opportunity for the Company to
achieve a greater return on its capital investment. In 1983 the Company decided
to sell the real property owned by its nine remaining limited partnerships.
Those real property sales were completed in 1984.
During 1995, the Company was primarily engaged in the development and
marketing of 91 single-family detached homes and 32 townhomes. The Company as
of December 31, 1995 has standing inventory (completed homes not sold) of
seventeen townhouses that should be sold in 1996. Additionally, the Company has
eight model homes used in selling the various types of housing developed. Also,
during 1996, the Company should complete the construction in process at
December 31, 1995 of 26 single-family detached homes. Escrow has been opened on
seven of these homes.
As of December 31, 1995 the Company had four residential housing projects in
various stages of development, consisting of 278 units under current
development and approximately 548 units held for future development, ranging
from less expensive homes for first-time buyers to more expensive near custom
homes.
RESIDENTIAL HOUSING INDUSTRY
The California residential housing industry includes several hundred
developers and home builders of various sizes and capabilities. The development
process starts with the acquisition of a raw parcel of land. The developer
prepares preliminary plans, environmental reports and obtains all necessary
governmental approvals, including zoning and conditional use permits before
subdividing the land into final tract maps and approved development plans. The
subdivided parcel is then graded and the infrastructure of roads, sewers, storm
drains, and public utilities are added to develop finished lots. Building
permits are obtained and housing is constructed, and then sold or rented.
California residential housing is constructed in a variety of types, including
single-family detached homes (ranging from the less expensive "first-time
buyer" homes to the medium priced "trade-up" homes to the more expensive
"custom" homes), patio-homes (adjacent homes with party walls), condominiums
(owner-occupied multifamily housing), and multifamily rental housing
(apartments, retirements homes and other types of nonowner occupied multifamily
housing). Any of these types can be built as part of a planned unit development
with common areas such as green belts, swimming pools and other recreational
facilities for common use by occupants.
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THE COMPANY'S STRATEGY
In recent years, the Company's strategy has been to acquire land in or near
major urban centers in California and to construct single-family housing for
resale. The Company does not specialize in the construction of a specific type
or design of housing and, although the Company constructs housing only in
California, it does not limit its operation to any specific location in
California. The Company usually acquires project sites which are properly zoned
and subdivided so that the Company can construct and sell single-family housing
in a relatively short period of time, usually two to three years. The Company
will also acquire raw land that is not zoned or subdivided for investment or
for development by processing it through the entitlement process to obtain
proper zoning and other permits necessary for development into single-family
housing and other urban uses. The Company from time to time has provided
permanent financing secured by a deed of trust on its homes only when necessary
to complete certain sales as the market conditions dictate.
FUTURE PROJECTS
As the Company intends to continue specializing in the construction and sale
of single-family and multifamily housing, the Company is presently considering
potential projects for development. The following discussion is the process
which the Company follows to acquire land, entitle, market and build
residential housing projects.
LAND ACQUISITION AND CONSTRUCTION
In considering the purchase of land for the construction of housing, the
Company takes various factors into account, including, among others, population
growth patterns, availability of utilities and community services such as
water, gas, electricity, sewer, transportation and schools, the estimated
absorption rate for new housing, estimated costs of construction and success of
the Company's past projects in and familiarity with the area.
The Company's long-term strategy is to acquire or option project sites which
are properly zoned and subdivided so that the Company can construct and sell
single-family housing in a relatively short period of time, usually less than
three years, after acquiring the land. Larger projects are constructed in
phases, and the Company determines the number of homes in each phase based upon
the estimated costs of construction and estimated sales schedule. The division
of a project into phases may also be required by the project construction
lender. Although a construction and marketing schedule is established for all
phases at the commencement of a project, the precise timing of construction of
each phase depends on the rate of sales of homes in previous phases.
In certain instances, the Company purchases land which is not substantially
ready for construction. Depending on the stage of development of the parcel,
the Company might be required to obtain necessary entitlements to subdivide the
parcel of land; these entitlements include environmental clearances, zoning,
subdivision mapping, permits and other governmental approvals. After the
entitlement process the Company would then develop the land through grading
lots and streets, and building the infrastructure of water, sewer, storm
drains, utilities, curbs, streets, and possibly amenities, such as parks, pools
and recreational facilities.
The Company acts as its own general contractor, and its supervisory employees
coordinate all work on a project. The services of independent architectural,
design, engineering and other consulting firms are engaged to assist in the
pre-construction aspects of the project. The Company's construction activities
are conducted through independent subcontractors, under fixed-price contracts,
operating in conformity with plans, specifications and detailed drawings
furnished by the Company and under the direction of on-site construction
supervisors employed by the Company. Generally, the Company solicits bids from
several potential subcontractors and awards a contract for a single phase of a
project based on the subcontracting bid as well as the Company's knowledge of
the subcontractor's work and reputation. Subcontracting enables the Company to
retain the necessary flexibility to react to changes in the demand for housing,
and to utilize the management strengths, specialization capabilities, equipment
and facilities of its subcontractors without large capital investments of its
own.
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The Company does not have long-term contractual commitments with any of its
subcontractors, consultants or suppliers of materials. The Company selects
subcontractors who it believes will perform the required work in a timely
manner and whose quality of workmanship meets the Company's standards. Although
some subcontractors employ unionized labor, the Company has not signed a master
labor agreement or experienced any significant delays in construction as a
result of strikes or stoppages; however, there can be no assurances that the
Company will not experience such delays in the future.
The Company secures raw materials, fixtures and furnishings directly or
through its subcontractors from customary trade sources. Although certain
products have been in short supply from time to time, such shortages have not
impaired the Company's ability to conduct its business in the past and are not
expected to do so in the foreseeable future.
MARKETING
The Company's marketing department coordinates the design of the homes to be
built and the interior design of model units and the design and preparation of
advertising materials. The Company builds, landscapes and furnishes model units
for public display. After each project is sufficiently completed so as to
permit retail sales to begin, the Company selects a realtor or realty company
to market homes which are under construction or completed.
Projects which are currently in the marketing stage are Summertree Park
(Sacramento), Pleasant Oaks Estates, and Cypress Cove. All such projects are
being marketed through realtors who have no other affiliation with the Company.
WARRANTIES
The Company provides a one-year express warranty against defects in
workmanship and materials to purchasers of homes in its projects. In addition,
California law provides the Company's customers certain implied warranties, the
scope and duration of which exceed the Company's express warranties. The
Company requires its subcontractors to indemnify the Company in writing and
requires the insurance of the subcontractor to provide that the Company is a
primary insured and an additional insured from its subcontractors for
liabilities arising from their work, except for liability arising through the
sole negligence or willful misconduct of the Company or from defects in designs
furnished by the Company. Nevertheless, the Company is primarily liable to its
customers for breach of warranty. The Company has builder's product liability
insurance coverage which it believes to be adequate in light of the Company's
claims history.
Schedule II to the financial statements sets forth the Company's warranty
reserves. The Company has adjusted its warranty reserves for potential loss as
described in Item 3, Legal Matters, and the Company believes such reserves are
adequate. Normal warranty costs are accrued at the close of escrow and held on
a project until two years after the project is completed and all completion
bonds posted with governmental agencies are released. In the past 3 years, the
Company has not completely closed out any projects.
FINANCING
Generally, the Company acquires a project site for a purchase price paid with
cash or a combination of cash and short-term acquisition financing secured by
the project site. The amount and terms of financing vary from project to
project.
After final working drawings from architects are prepared, the Company
obtains a construction loan, secured by the portion of the project site to
which the loan relates, from an independent financial institution. The
Company's construction loans are used to finance projected construction costs.
In order to obtain the construction loan, the Company must repay all
acquisition financing or obtain a reconveyance of that portion of the project
site which is used to secure the construction loan. The construction loan is
due and payable shortly after completion of the construction being financed.
The Company repays construction financing from the proceeds of project unit
sales. The construction
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financing provides for release of individual lots for sale during the term of
the financing upon partial repayment of principal in a specified amount per
lot. Any cash sales proceeds in excess of the specified release amount may be
retained by the Company. If the Company experienced a delay in unit sales
following construction and was unable to extend the term of its construction
financing, the Company would be required to repay the construction financing or
obtain other financing in order to hold the unsold units until market
conditions improved. Although the Company does not arrange third-party
financing for its customers, it has provided secured purchase money financing
from time to time to the extent required by market conditions. In the past 3
years only minor second trust deed financing have been taken on sales. In
addition, the Company in the future may also subsidize home purchasers, as an
alternative to providing direct financing, by "buying down" the interest rate
on loans from lending institutions, the extent and amount of which would depend
upon prevailing market conditions and interest rate levels at the time.
The Company usually receives the full sales price for its homes in cash at
the closing of purchase escrows. Most of the Company's home purchasers obtain
conventional financing from independent financial institutions. Depending upon
the price range of the homes in a particular project and the prevailing
mortgage market in the area, the financing obtained by the Company's qualifying
home purchasers may be insured either by the Federal Housing Administration
("FHA") or guaranteed by the Veterans Administration ("VA"). As a result of
government regulations, FHA and VA financing of the purchase of homes from the
Company is limited because, among other things, the loan amount may not exceed
certain specified levels.
COMPETITION
The home building industry is highly competitive, particularly in the large
urban areas of California. In each of the areas in which it operates, the
Company competes in terms of location, design, quality, price and available
mortgage financing with numerous other residential construction firms,
including large national and regional firms, many of which have greater
financial resources than the Company. The Company believes that no single
competitor dominates any single market area served by the Company.
For projects in master planned developments, the Company's units are adjacent
to those of other builders and usually marketed at the same time through
participation in joint advertising programs. While this often increases direct
competition for the Company, it also attracts a larger group of potential
purchasers than would be the case if the Company advertised by itself.
BUSINESS RISKS
The development, construction and sale of single-family homes generally are
subject to various risks, including, among others, possible changes in the
governmental structure of the project locality, possible shortages of suitable
undeveloped land at reasonable prices, unfavorable general and local economic
conditions such as employment conditions and income levels of the general
population, adverse local market conditions resulting from such unfavorable
economic conditions or competitive overbuilding, increases in prevailing
interest rates, increases in real estate taxes and the cost of materials and
labor, and the availability of construction financing and home mortgage
financing attractive to home purchasers. In addition, the demand for
residential housing depends in part on the tax consequences of home ownership
to home purchasers. There have been various tax legislation proposals before
Congress over the past few years which could reduce the tax advantages
currently associated with home ownership. There can be no assurances that any
such legislation, if enacted, would not adversely impact the residential
housing industry in general or the Company's business and results of
operations.
The Company's business in particular depends upon the successful completion
of construction and sale of homes on established schedules. Construction and
sale schedules may be adversely affected by a variety of factors which are not
within the Company's control, including the factors described above, inclement
weather conditions, earthquakes, labor and material shortages and strikes.
Although the Company has not experienced any serious labor or material
shortages in recent years, the residential housing industry from time to time
experiences serious labor and material shortages.
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GOVERNMENTAL REGULATIONS
The residential housing industry is also subject to increasing environmental,
building, zoning and real estate sales regulation by various federal, state and
local governmental authorities. Such regulations affect home building by
specifying, among other things, the type and quality of building material which
must be used, certain aspects of land use and building design, as well as the
manner in which the Company conducts its sales, lending activities and other
dealings with its customers. For example, the Federal Consumer Credit
Protection Act requires, among other things, certain disclosures to purchasers
about finance charges in credit transactions, such as sales financed by the
Company. California law requires that full information concerning certain
subdivisions be filed with the California Real Estate Commissioner, and in such
instances no sales may be made to the public until the Commissioner has issued
a public report which is delivered to purchasers. Because the Company's
competitors are also subject to the foregoing regulation, the Company believes
that it is not placed at a competitive disadvantage, except to the extent that
competitors with greater financial resources and greater volume of development
activity may more readily withstand longer delays and increased costs in the
development of projects.
Although the strategy of the Company is to build homes on land which is
already subdivided, zoned and improved with utilities, the Company occasionally
undertakes projects which entail the subdivision of partially improved land. In
such cases the Company is required to obtain the approval of numerous
governmental authorities regulating such matters as permitted land uses and
levels of population density, access to utility services such as water and
waste disposal, and the dedication of acreage for open space, parks, schools
and other community purposes. Furthermore, changes in prevailing local
circumstances or applicable law, including moratoria, zoning changes and other
governmental actions, can require additional approvals or modification of
approvals previously obtained. As a result of such regulation, the time between
the original acquisition and the commencement and completion of a project can
increase significantly. Furthermore, the commencement or completion of a
project could be precluded entirely, in which case the Company would sustain a
substantial loss on the project.
EMPLOYEES
The Company has approximately 25 full-time employees, including 4 executive
officers, 10 persons in its finance, marketing and operations departments, and
11 field superintendents and general laborers. The Company also employs
temporary and part-time laborers from time to time as necessary. None of the
Company's employees is currently represented by a collective bargaining unit.
The Company compensates its employees with salaries and fringe benefits that
are competitive with the building industry and the local economy. The Company
believes that relations with its employees generally are excellent.
LICENSING
The Company is licensed by the State of California as a general building
contractor, and this license is essential to its operations. This license must
be renewed every two years. The Company's current license expires in June 1996
and the Company expects to renew its license on or before expiration.
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ITEM 2 PROPERTIES
CURRENT PROJECTS
The table below sets forth certain information relating to the Company's
current projects as of December 31, 1995 and certain information relating to
the Company's development operations during the previous twelve months. In
addition, the Company owns 517 entitled lots in Victorville, California and 31
entitled lots in Riverside, California.
<TABLE>
<CAPTION>
UNITS UNITS UNITS UNITS SOLD REMAINING
SOLD UNDER COMPLETED SUBJECT TO UNITS TO
12 MONTHS CONST. AND UNSOLD CONST. CONSTRUCT
ENDED AS OF AS OF AS OF AS OF
PROJECT 12/31/95 12/31/95 12/31/95 12/31/95 12/31/95
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Gardens I.............. 1 -- -- -- --
2. Summertree Park-Wind-
sor...................... 50 -- -- -- --
3. Summertree Park-Elk
Grove.................... -- 22 -- -- 94
4. Cypress Cove........... 15 -- 17 -- 36
5. Pleasant Oaks Estates.. 10 4 -- -- --
6. Montserrat............. -- -- -- -- 97
7. Mission Gorge.......... -- -- -- -- --
--- --- --- --- ---
Total..................... 76 26 17 -- 227
Total Inventory Units as
of 12/31/95
(excluding 8 model
units)................... 270
===
</TABLE>
1. GARDENS I (WINDSOR, SONOMA COUNTY, CALIFORNIA)
The Gardens project originally consisted of 158 units of single-family
detached housing. The project consists of 4 models ranging from 1,341 to 1,935
square feet with base sales prices before lot premiums or sales incentives of
$169,950 to $205,950. Construction of the project's first phase of 63 units and
4 models began in the second quarter of 1989, the second phase of 42 units
began in the fourth quarter of 1990, the third phase of 10 units began in
February of 1991, the fourth phase of 10 units began in July of 1991, the fifth
phase of 9 units began in February 1992, the sixth phase of 7 units in April
1992, a seventh phase of 9 units in June 1992 and the eighth phase of 2 units
in April 1994. The remaining 2 lots were not released for construction during
1995. The Company closed escrow on 21 homes in 1989, 76 in 1990, 24 in 1991, 23
in 1992, 6 in 1993, 5 in 1994 and 1 in 1995 with the remaining two developed
lots sold to the City of Windsor. The project was completed as of December 31,
1995.
The project is located about 50 miles north of San Francisco along Highway
101 near Santa Rosa.
The Company's construction loan from First Interstate Bank permitted
borrowing by the Company of up to an aggregate amount of $20,360,000 on this
project and bears interest at .75% in excess of the bank's reference rate. As
of December 31, 1994, the principal amount owed First Interstate Bank had been
repaid in its entirety.
2. SUMMERTREE PARK (WINDSOR, SONOMA COUNTY, CALIFORNIA)
The Summertree Park project consists of 124 units of single-family detached
housing. The project consists of 3 models ranging from 1,146 to 1,395 square
feet with base sales prices before lot premiums or sales incentives of $145,900
to $163,900. The first phase of 25 units and 3 models was released for
construction in October of 1993, the second phase of 25 in March of 1994, the
third phase of 25 in May of 1994, the fourth phase of 20 in September of 1994
and the remaining 26 units March of 1995. As of December 31, 1995, the Company
closed escrow on 74 homes in 1994 and the remaining 50 units in 1995. The
project was completed as of December 31, 1995.
The project is located about 50 miles north of San Francisco along Highway
101 near Santa Rosa.
The Company's construction loan on the three phases of 25 units each from
Curci-Turner Company, an affiliate of the Company, permits borrowing by the
Company of $6,000,000 on this project and bears
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interest at 10%. In addition, the terms of the loan require that 50% of the net
profits be paid to Curci-Turner Company. As of December 31, 1994, the principal
amount owed Curci-Turner Company had been repaid in its entirety.
The Company has a line of credit from First Interstate Bank on this project
in the amount of $3,500,000. The loan bears interest at .50% in excess of the
bank's reference rate. The Company obtained construction loans from First
Interstate Bank permitting borrowings by the Company of $375,000, $2,420,000
and $3,125,000 on this project for 3 models, phase 4 of 20 units and phase 5 of
26 units, respectively. These loans bear interest at 2% in excess of the bank's
reference rate. As of December 31, 1995, the principal amount owed First
Interstate Bank had been repaid in its entirety.
3. SUMMERTREE PARK (ELK GROVE, SACRAMENTO COUNTY, CALIFORNIA)
The Summertree Park project consists of 120 units of single-family detached
housing. The project consists of 4 models ranging from 1,227 to 1,917 square
feet with base sales prices, before lot premiums or sales incentives, of
$119,900 to $154,900. The first phase of 22 units and 4 models was released for
construction in July of 1995 and the remaining 94 units will be released as
sales permit. As of December 31, 1995, the Company had not sold any units in
this project.
The project is located about 20 miles south of Sacramento along Highway 99.
The Company's construction loan on the four models and first three phases of
construction, 22, 14 and 13 units, respectively, was secured with Imperial
Bank. The loan permits borrowing by the Company of $4,890,000 on this project
and bears interest at the bank's reference rate plus 1.5%. As of December 31,
1995, $1,715,192 of principal of this loan was outstanding and the Company has
available $3,878,385. The Company believes these funds are adequate to complete
the construction of the models and the first 53 units of construction.
The Company has a construction loan with the Curci-Turner Company on the
entire 120 lots of the project. The loan permits borrowing by the Company of
$4,000,000 on this project and bears interest at 10%. The loan contains a
profit sharing provision in the amount of 40% of "net proceeds" as defined in
the agreement. As of December 31, 1995, $4,000,000 of the principal of this
loan was outstanding.
4. CYPRESS COVE (HALF MOON BAY, SAN MATEO COUNTY, CALIFORNIA)
The Cypress Cove project consists of 128 units of townhomes. The project
consists of 4 plans ranging from 1,282 to 1,659 square feet with base sales
prices, before lot premiums or sales incentives, of $239,900 to $294,900.
Construction of the project's first phase of 22 units and 4 models began in the
first quarter of 1991, the second phase of 16 homes were started in 1992, the
third phase of 13 homes in 1993 and fourth, fifth and sixth phases of 8,14, and
15, respectively, in 1994. The remaining 36 units will be released to
construction when there is sufficient demand for this product type. The Company
closed escrow on 2 homes in 1991, 21 homes in 1992, 16 homes in 1993, 17 homes
in 1994 and 15 homes in 1995. The Company had unsold completed inventory of
seventeen units as of December 31, 1995.
The project is located about 30 miles South of San Francisco along Highway 1,
10 miles from San Mateo.
The Company obtained construction loans from Curci-Turner Company permitting
borrowings by the Company of $1,000,000, $1,750,000 and $1,500,000 on this
project for phase 4 of 8 units, phase 5 of 14 units, and acquisition and
development, respectively. The loans for phases 4 and 5 bear interest at 12%
and the loan replacing the Bank of California debt at 2% in excess of the prime
rate. As of December 31, 1995, the principal amount owed Curci-Turner Company
on all three loans had been repaid in its entirety.
The Company's construction loan on phase 6 of 15 units was secured with
United Savings Bank. The loan permits borrowing by the Company of $2,185,000 on
this project and bears interest at the bank's reference rate plus 2.00%. As of
December 31, 1995, $466,313 of the principal of this loan was outstanding and
the Company has available $933,068. The Company believes these funds are
adequate to complete the construction of the fifteen units of construction.
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5. PLEASANT OAKS ESTATES (THOUSAND OAKS, VENTURA COUNTY, CALIFORNIA)
The Pleasant Oaks Estates project consists of 14 units of single-family
detached housing. The project consists of models ranging from 2,800 to 3,300
square feet with base sales prices before lot premiums or sales incentives of
$415,000 to $495,000. The first phase of 4 units and 1 model was released for
construction in June of 1994, the second phase of 5 units in September of 1994
and the final phase of 4 units in June of 1995. The Company closed escrow on
ten homes in 1995. Through December 31, 1995, the Company has four unsold
homes.
The project is located about 30 miles northwest of Los Angeles along Highway
101.
The Company's construction loan from CenFed Bank permits borrowing by the
Company of $2,200,000 on this project and bears interest at prime plus 2%. As
of December 31, 1995, the principal amount owed CenFed Bank was repaid in its
entirety.
The Company has obtained a construction loan from Brentwood Bank on 3 of the
remaining 4 units in the amount of $800,000. As of December 31, 1995, $406,448
of the principal of that loan was outstanding and the Company has available
$393,552 to complete the units, which the Company believes is a sufficient
amount to complete the units.
6. MONTSERRAT (MURRIETA, RIVERSIDE COUNTY, CALIFORNIA)
The Montserrat project consists of 97 units of single-family detached
housing. The project consists of 4 models ranging from 2,280 to 3,389 square
feet with base sales prices before lot premiums or sales incentives of $169,900
to $219,900. The four models were released for construction in January of 1996
and the first phase of construction, 20 units will be released for construction
in March of 1996. The remaining 73 units will be released as sales permit. As
of December 31, 1995, the Company had not sold any units in this project.
The project is located about 65 miles southeast of Los Angeles along Highway
15.
The Company secured a $1,346,000 acquisition loan from L & N Consultants,
Inc., the land seller, which bears interest at prime plus 2.0%.
The Company's construction loan on the four models and first phase of
construction, 20 units was secured in March 1996 with Imperial Bank. The loan
permits borrowing by the Company of $3,465,000 on this project and bears
interest at the bank's reference rate plus 1.75%. The Company believes these
funds are adequate to complete the construction of the models and the first 20
units of construction.
7. MISSION GORGE (SAN DIEGO, SAN DIEGO COUNTY, CALIFORNIA)
The Company, in 1987, purchased approximately 200 acres of land in San Diego.
Previous owners, as a part of a group of property owners, had entered into an
option agreement with another developer to acquire the group's property, upon
obtaining an Amended Community Plan for the community in which the property is
located. At the present time, the Amended Community Plan has not been
completed. The Company is actively pursuing alternative land development
opportunities.
The Company has a loan with the Curci-Turner Company on the 200 acres of the
Mission Gorge project. The loan permits borrowing by the Company of $2,000,000
on this project and bears interest at 15%. The loan contains a profit sharing
provision in the amount of 50% of "net proceeds" as defined in the agreement.
As of December 31, 1995, $2,000,000 of principal of this loan was outstanding.
LAND HELD FOR INVESTMENT
1. BRENTWOOD (VICTORVILLE, SAN BERNARDINO COUNTY, CALIFORNIA)
This project consists of 517 lots. The Company substantially completed the
entitlement process on the project during 1992. The project is part of a Mello
Roos Community Facilities District for major infrastructure in the Victorville
area. In the future, the Company plans on building single-family housing on 140
lots, with homes averaging 1000 square feet and average sales prices near
$85,000. The plans for
8
<PAGE>
the remaining 377 lots include lot sales to other builders and possibly a
second project for which the basic parameters have not been determined.
The project is located about 90 miles northeast of Los Angeles and 30 miles
north of San Bernardino near Interstate 15 and Highway 395.
2. MOCKINGBIRD CANYON (RIVERSIDE COUNTY, CALIFORNIA)
The project originally consisted of 162 lots. The Company owned 31 lots and
131 lots were subject to a first trust deed with the original seller of the
property. In November of 1990 the Company received a notice of default on the
loan. The 131 lots were sold in foreclosure on March 13, 1991. The Company
completed the entitlement process on the remaining 31 lots during 1991. In the
future, the Company is planning on building single-family homes averaging 3,200
square feet and average sales prices near $390,000 on the 31 lots.
The project is located about 90 miles east of Los Angeles and 30 miles south
of San Bernardino along Interstate 15.
ITEM 3 LEGAL PROCEEDINGS
In January 1992, a lawsuit was filed against the Company entitled Cityhomes
West HOA v. Town Center Properties Ltd., et. al. (San Mateo County Superior
Court Case No. 369246). The Complaint alleges a number of causes of action in
contract and tort, including negligence, breach of implied warranty, strict
liability, fraud, breach of contract, breach of express written warranty,
breach of express oral warranty, negligence per se, breach of fiduciary duties
and bonds of surety. The above litigation arises out of claims for alleged
construction defects. The Cityhomes West project is comprised of 39 buildings
and 143 units, the distinguishing feature of which is that they have red sheet
metal roofs. The basic claim is that the sheet metal roofs leak and have caused
interior damage to the condominium units. In addition, the plaintiffs are
making claims for the following defects: structural, built-up roofing,
horizontal lath and plastering, carpeting, driveways, fire sprinklers, squeaky
floors and framing. The Company answered the complaint and discovery is
proceeding. The trial date is scheduled for April 15, 1996. The Company intends
to vigorously oppose the lawsuit. The Company has reserved for the contingent
loss in the financial statements as part of the warranty reserves.
There are no other pending legal proceedings to which the Company is a party
or to which any of its properties are subject other than routine litigation
incidental to the Company's business, none of which is considered by the
Company to be material to its business or operations.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Registrant's security holders during
the fourth quarter of 1995.
9
<PAGE>
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock, its only class of common equity security, is
traded on the American Stock Exchange under the symbol CPP.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1995 stock price range--
High 1 3/8 1 3/8 1 1/4 1 1/8
Low 5/8 1 7/8 5/8
1994 stock price range--
High 1 7/16 1 7/8 15/16
Low 3/4 3/4 1/2 9/16
</TABLE>
As of March 15, 1996, there were 578 record holders of common stock.
Source of Information: American Stock Exchange, Inc.
Dividends: There have been no cash dividends declared in the past three
years, nor was there a stock dividend declared during 1995 or 1994. The
dividend policy, whether cash or stock, is reviewed by the Board of Directors
on an annual basis.
Preferred Stock: The Company currently has 3,571,368 shares of convertible
preferred stock issued and outstanding. The stock pays a 10% dividend and
converts for 1.28 shares of common stock at the discretion of the shareholder.
The stock can be redeemed at any time at the discretion of the Company. No
established public trading market exists for the preferred stock.
10
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
The following data should be read in conjunction with the financial
statements of the Company and the related notes thereto which are included
elsewhere in this Form 10K and in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which is also
included elsewhere in this Form 10K.
FOR THE FIVE YEAR PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
SALES AND OPERATING
REVENUE................ $17,061,239 $18,733,525 $23,431,438 $ 34,135,653 $ 26,290,759
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM..... 513,381 (1,628,889) (3,147,770) (22,741,204) (12,215,764)
EXTRAORDINARY ITEM--
EXTINGUISHMENT OF DEBT. -- -- 610,893 17,377,400 --
NET INCOME (LOSS)....... $ 513,381 $(1,628,889) $(2,536,877) $ (5,363,804) $(12,215,764)
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM PER
COMMON SHARE........... $0.01 $(0.44) $(0.70) $(4.86) $(2.63)
EXTRAORDINARY ITEM PER
COMMON SHARE........... -- -- $0.13 $3.71 --
NET INCOME (LOSS) PER
COMMON SHARE........... $ 0.01 $(0.44) $(0.57) $(1.15) $(2.63)
AS OF DECEMBER 31:
TOTAL ASSETS............ $31,893,201 $30,433,365 $31,851,283 $ 46,284,622 $ 97,384,648
LONG-TERM OBLIGATIONS... $10,444,731 $ 4,336,544 $ 828,263 $ 5,719,587 $ 189,399
</TABLE>
The extraordinary item in 1992 and 1993 is a result of forgiveness of debt.
The decrease in total assets in 1992 and 1993 is a result of the sale and
abandonment of assets in addition to the write down of assets to net realizable
value.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company began experiencing difficulties due to the down turn in the
California real estate market during the second quarter of 1990, and the
Company has continued through 1995 to be impacted by the general economic
downturn, and the soft California housing market. In response to these
conditions the Company began utilizing marketing programs which included price
reductions and incentives to potential buyers. The decrease in sales, and cost
of sales between 1993 and 1994 is primarily attributable to a decrease in
improved lot sales. The Company's sales decreased from $23,431,438 in 1993 to
$18,733,525 in 1994. The Company had improved lot sales of $4,674,429 in 1993,
versus none in 1994. The Company's gross profit decreased from $729,933 in 1993
to $118,789 in 1994 as a result of profit participation payments made to
construction lenders, increased incentives required to stimulate sales, and
increased capitalized overhead and interest due to slower absorption. The
decrease in sales revenue between 1994 and 1995 is primarily attributable to a
decrease in units sold. The Company's sales decreased from $18,733,525 in 1994
to $17,061,239 in 1995. The Company sold 104 units in 1994 as opposed to 76 in
1995. The Company's gross profit increased from $118,789 in 1994 to $824,406 in
1995, primarily as a result of the reversal of warranty reserves in the amount
of $733,672 as a result of the settlement of a lawsuit.
11
<PAGE>
In 1993, the Company's Oceanside property was taken by the State of
California through eminent domain. The Company received a deposit of probable
compensation of $2,332,000 from the State and a loss was recorded at that time.
In January 1995, a valuation trial was held, and the verdict entitled the
Company to an additional $2,080,900, plus interest. On March 24, 1995, the
Company received $2,280,363 in settlement of this matter, which was recorded as
income in the first quarter of 1995. The reversal of warranty reserves and the
settlement with the State of California contributed to net income of $513,381
in 1995.
The Company has continued its program of cost reduction and control in all
areas of its operations. Based on current economic factors, interest rates and
current product mix, the Company does not anticipate a significant turnaround
in profitability until the fourth quarter of 1996, at the earliest.
In March 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" and in October 1995,
issued Statement of Financial Accounting Standard No. 123, "Accounting for
Stock-Based Compensation." The requirements of these statements are not
expected to have a significant impact on the Financial Statements of the
Company.
RESULTS OF OPERATIONS
The Company had net losses of $2,536,877 in 1993 and $1,628,889 in 1994,
corresponding with the downturn in the California real estate market and net
income of $513,381 in 1995. The loss in 1993 is reduced by the extraordinary
gain on extinguishment of debt which was the result of the foreclosure and
forgiveness of debt transactions, which totaled $610,893. The loss suffered in
1993 reflected additional write-downs in the value of the Company's properties
of $1,700,000. These charges were in response to the continuing recession in
the California housing market and the lack of demand among the home-buying
public. The net income in 1995 primarily the result of both the favorable
$2,332,000 State of California settlement and the reversal of $729,933 in
warranty reserves as a result of the settlement of a lawsuit.
Gross revenues decreased from $23,431,438 in 1993 to $18,733,525 in 1994
(20%) and then to $17,061,239 in 1995 (9%). In 1993, the Company sold 74 homes
and 170 lots. The average sales price of a home sold in 1993 was $253,473. In
1994, the Company sold 104 homes. The average sales price of a home sold in
1994 was $180,130. In 1995, the Company sold 76 homes and two lots. The average
sales price of a home sold in 1995 was $223,174.
The overall gross profit percentage of the Company changed from 3.1 percent
in 1993 to 0.6 percent in 1994 to 4.8 percent in 1995. The Company's gross
overall profit percentage has been adversely impacted by profit participation
payments made to construction lenders, increased incentives required to
stimulate sales, and increased capitalized overhead and interest due to slower
absorption. The reversal of warranty reserves positively impacted the gross
profit in 1995.
General and administrative expenses decreased from $2,194,984 in 1993 to
$2,166,236 in 1994, and then increased to $2,454,220 in 1995 for a 0.1 percent
decrease from 1993 to 1994 and a 13.3 percent increase to 1995. The increase
from 1994 to 1995 is the result of increased payroll costs, increased
accounting costs incurred to both resolve an Internal Revenue Service audit and
file an amended 1993 tax return in pursuit of a tax refund, and increased
general liability insurance premiums.
The increase in other income from 1993 to 1994 is due primarily to the sale
of the building which resulted in $446,159 of income, while the increase to
1995 is due primarily to the State of California settlement which resulted in
$2,332,000 of income.
LIQUIDITY AND CAPITAL RESOURCES
The Company began to experience cash flow deficiencies during the second half
of 1990 which continued throughout 1991, 1992, 1993 and 1994 as a result of
decreased sales and increased debt service due to the expansion program. To
attempt to alleviate the cash flow deficiencies, the Company instituted the
cost reductions described above, extended its payables and converted other
assets to liquid funds. The Company continues to seek joint venture partners
and additional financing to fund its operations.
12
<PAGE>
During 1995, the Company's loans with First Interstate Bank were paid in
their entirety. As a result, the Company is no longer prohibited under the
terms of its loan agreement with First Interstate Bank from paying any
dividends without the consent of the lender. Additionally, the Company obtained
a six month extension on its loan with Brentwood Bank. Brentwood Bank has a
loan on the Company's Pleasant Oaks Estates project. The loan commitment for
this loan is $800,000 and as of December 31, 1995 the outstanding balance
totaled $406,448. Furthermore, the Company's $2,200,000 loan with CenFed Bank
on the Pleasant Oaks Estates project was paid in its entirety. The Company
obtained a second loan from CenFed Bank on this same project in the amount of
$260,000. As of December 31, 1995, the outstanding balance totaled $50,438.
During 1994, the Curci-Turner Company (a related party) made loans of (1)
$1,500,000 to the Company, refinancing the debt to the Bank of California on
the Cypress Cove Project, (2) $2,750,000 for the construction of the next two
phases of the Cypress Cove project and (3) $2,000,000 loan to the Company,
secured by the Company's Mission Gorge project in San Diego, California. During
1995, the Company repaid both the $1,500,000 and $2,750,000 loans in their
entirety. Additionally, the Company obtained a loan in the amount of $4,000,000
from the Curci-Turner Company for the acquisition and development of 120 lots
in Elk Grove area of Sacramento County, California. In addition to the interest
payable to the Curci-Turner Company, this loan contains a profit sharing
provision which stipulates that the Curci-Turner Company receive 40% of "Net
Proceeds" as defined in the agreement, which is comparable to gross profit. As
of December 31, 1995, the outstanding balance owing on these loans totaled
$6,000,000.
During 1995, the Company obtained four new lenders, Imperial Bank, United
Savings Bank, Keros-Mozilo Mortgage Bankers, and L & N Consultants, Inc.
Imperial Bank made a loan commitment on the Company's Summertree Park project
in Sacramento County in the amount of $4,890,000, United Savings Bank made a
loan commitment on the Company's Cypress Cove project in the amount of
$2,185,000, Keros-Mozilo Mortgage Bankers made a loan commitment on the model
complex of the Company's Cypress Cove project in the amount of $840,000, and L
& N Consultants, Inc. made a loan commitment on the developed lots in the
Company's Montserrat project in the amount of $1,346,000. As of December 31,
1995, the outstanding balances owing on these loans was $1,715,192, $466,314,
$840,000 and $1,346,000, respectively.
During 1995, the Company borrowed $1,000,000 from an officer of the Company.
As of December 31, 1995, the amount owed to the officer was $1,500,000.
As of December 31, 1995, the Company had loan commitments from banks and
other sources totaling $17,283,485, of which the Company has used $12,257,926,
and has a remaining capacity of $5,025,559 on the commitments, which may be
drawn down by the Company upon the satisfaction of certain conditions.
The Company, as of December 31, 1995, does not have any material commitments
for capital expenditures in 1996.
As of December 31, 1995, the Company had four projects in various stages of
development, with two producing revenues from completed homes: Cypress Cove and
Pleasant Oaks Estates. The Company enters 1996 with 26 homes under construction
of which 2 homes are sold and 17 homes completed and unsold. Additionally, the
Company has an inventory of 227 improved lots and 548 mapped unimproved lots.
Based on its agreements with its lenders, the Company believes that even with
the anticipated slowdown in certain of its marketplaces, it will have
sufficient liquidity to finance its construction projects in 1996 through funds
generated from operations, funds available under its existing bank commitments,
funds generated from new lending institutions, and, if necessary, funds that
could be obtained by using its internally financed real estate development in
process as collateral for additional loans.
13
<PAGE>
Since 1990, the Company has experienced difficulties producing sufficient
cash flow from its development operations due to the declining real estate
market in California. The Company has sold assets, obtained additional loans,
and sold preferred stock to maintain a sufficient level of cash flow to
continue its operations. Management's plan, with respect to managing cash flow
includes the following components: pay off or obtain extensions on the debt
that is coming due in 1996, minimize operating expenses, and maintain control
over costs. With regard to the debt coming due in 1996, management expects to
pay these loans off through cashflow from operations, prior to their maturity
date. With regard to minimizing operating expenses, management plans to achieve
this by continuing to closely examine overhead items. Management anticipates
that the funds generated from operations will be adequate to allow the Company
to continue operations throughout 1996. During 1995, the Company commenced
production in the 120 lot Summertree Park project in the Elk Grove area of
Sacramento, California, and the 97 lot Montserrat project in Murrieta,
California.
EFFECTS OF INFLATION
Real estate has long been considered a hedge against inflation, and inflation
has often contributed to dramatic growth in property values. During normal
markets the Company has been able to pass increased costs of materials and
labor to its buyers by increasing its sales prices. However, growth in property
values slowed or reversed during 1993, 1994 and 1995 in California, thus
preventing the Company from increasing sales prices to cover increased costs.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE NO. FINANCIAL STATEMENTS:
<C> <S>
16 Independent Auditors' Report
17 Balance Sheets as of December 31, 1995 and 1994
18 Statements of Operations--Three Years Ended December 31,
1995
19 Statements of Stockholders' Equity--
Three Years Ended December 31, 1995
20 Statements of Cash Flows--
Three Years Ended December 31, 1995
21 Notes to Financial Statements
SCHEDULE SUPPORTING FINANCIAL STATEMENTS:
29 II--Valuation and Qualifying Accounts--Three Years Ended
December 31, 1995
</TABLE>
ITEM 9 DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Items 10, 11, 12 and 13 are incorporated by reference from the Company's
definitive proxy statement to be filed within 120 days after the close of the
calendar year with the Commission, pursuant to Regulation 14A.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) For a listing of financial statements and schedules, reference
is made to Item 8 included in this Form 10-K.
(3) The Exhibits listed on the accompanying Index to Exhibits immediately
following Schedule II are filed as part of this report. Exhibits 10.1
through 10.4 are compensatory plans.
(b) Reports on Form 8-K -
No Reports on Form 8-K were filed during the quarter ending on December 31,
1995.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
<TABLE>
<S> <C>
/s/ VICTOR ZACCAGLIN March 29, 1996
- --------------------------------- --------------------
Victor Zaccaglin, Date
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Mark F. Spiro March 29, 1996
- --------------------------------- --------------------
Mark F. Spiro Date
Vice President/Secretary and
Treasurer (Chief Financial
and Accounting Officer)
/s/ Ronald S. Petch March 29, 1996
- --------------------------------- --------------------
Ronald S. Petch, Date
President
/s/ William E. McKenna March 29, 1996
- --------------------------------- --------------------
William E. McKenna, Date
Director
/s/ John L. Curci March 29, 1996
- --------------------------------- --------------------
John L. Curci Date
Director
/s/ Angelo Leparulo March 29, 1996
- --------------------------------- --------------------
Angelo Leparulo Date
Director
/s/ Victor Zaccaglin March 29, 1996
- --------------------------------- --------------------
Victor Zaccaglin Date
Chairman of the Board
Chief Executive Officer
</TABLE>
15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
Calprop Corporation
Los Angeles, California:
We have audited the accompanying balance sheets of Calprop Corporation as of
December 31, 1995 and 1994, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. Our audits also included the financial statement
schedule listed in the index at Item 8. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Calprop Corporation as of December 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. Also in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 8, 1996
16
<PAGE>
CALPROP CORPORATION
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Real estate development (Notes 1, 2 and 5)......... $ 24,862,199 $ 22,700,482
investment in land................................. 5,655,063 5,649,507
------------ ------------
Total investment in real estate.................... 30,517,262 28,349,989
------------ ------------
Other assets:
Cash and cash equivalents (Note 1)............... 758,323 1,142,834
Prepaid expenses................................. 329,314 292,602
Deferred and other assets (Notes 4 and 8)........ 288,302 647,940
------------ ------------
Total other assets............................. 1,375,939 2,083,376
------------ ------------
$ 31,893,201 $ 30,433,365
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Trust deeds and notes payable (Note 5)............. $ 4,682,926 $ 4,774,683
Related party notes (Note 5)....................... 7,575,000 5,207,084
------------ ------------
Total trust deeds and notes payable.............. 12,257,926 9,981,767
Community facilities district special tax bonds
(Note 5).......................................... 2,336,544 2,381,432
Accounts payable and accrued liabilities........... 1,993,056 2,031,868
Warranty reserves (Note 1)......................... 301,700 1,499,408
Accrued dividends payable on preferred stock....... 929,262 601,078
------------ ------------
Total liabilities................................ 17,818,488 16,495,553
Commitments and contingencies (Note 10)
Stockholders' equity (Notes 7 and 8):
Convertible preferred stock, no par value
Authorized--6,000,000 shares
Issued and outstanding--3,571,368 and 3,574,875
shares at December 31, 1995 and 1994,
respectively.................................... 4,571,351 4,575,840
Common stock, $1 par value--
Authorized--20,000,000 shares
Issued and outstanding--4,899,030 and 4,813,641
shares at December 31, 1995 and 1994,
respectively.................................... 4,899,030 4,813,641
Additional paid-in capital........................ 25,910,018 25,902,955
Accumulated deficit............................... (21,305,686) (21,354,624)
------------ ------------
Total equity..................................... 14,074,713 13,937,812
------------ ------------
$ 31,893,201 $ 30,433,365
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements
17
<PAGE>
CALPROP CORPORATION
STATEMENT OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Development operations (Notes 1 and 2):
Real estate sales....................... $17,061,239 $18,733,525 $23,431,438
Cost of real estate sales.............. 16,236,833 18,614,736 22,701,505
----------- ----------- -----------
824,406 118,789 729,933
Write down of real estate under
development
to net realizable value (Note 2)..... -- -- (1,700,000)
----------- ----------- -----------
Income (Loss) from development
operations............................ 824,406 118,789 (970,067)
Other income:
Interest and miscellaneous income (Note
9)..................................... 2,401,150 779,068 57,860
Income from rental operations, net of
expenses............................... 5,200 6,261 56,027
----------- ----------- -----------
Total other income................... 2,406,350 785,329 113,887
Other expenses:
General and administrative.............. 2,454,220 2,166,236 2,194,984
Investment property holding costs (Note
3)..................................... 263,155 366,771
----------- ----------- -----------
Total other expenses................. 2,717,375 2,533,007 2,194,984
----------- ----------- -----------
Income (loss) before benefit for income
taxes
and extraordinary item.................. 513,381 (1,628,889) (3,051,164)
Provision for income taxes (Note 6)...... -- -- (96,606)
----------- ----------- -----------
Income (loss) before extraordinary gain.. 513,381 (1,628,889) (3,147,770)
Extraordinary gain on extinguishment of
debt (Note 5)........................... -- -- 610,893
----------- ----------- -----------
Net income (loss)........................ $ 513,381 $(1,628,889) $(2,536,877)
=========== =========== ===========
Net income (loss) allocable to common
stock................................... $ 48,938 $(2,093,674) $(2,673,170)
=========== =========== ===========
Income (loss) per share before
extraordinary item (Note 1)............. $0.01 $(0.44) $(0.70)
Extraordinary item....................... -- -- $0.13
----------- ----------- -----------
Net income (loss) per share.............. $0.01 $(0.44) $(0.57)
=========== =========== ===========
Weighted average number of shares of
common stock............................ 4,836,393 4,762,382 4,691,552
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
18
<PAGE>
CALPROP CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Total
--------------------- -------------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
--------- ---------- --------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1993 4,691,336 $4,691,336 $26,090,732 $(16,587,780) $14,194,288
Net income (2,536,877) (2,536,877)
Net issuance of shares
under 1989 stock
incentive plan
(Note 8) 71,940 71,940 (36,372) 35,568
Preferred stock
offering costs (97,534) (97,534)
Preferred stock
offering--no par 3,576,301 4,577,665 4,577,665
Dividend accrual-
preferred stock (136,293) 136,293)
--------- ---------- --------- ---------- ----------- ------------ -----------
Balance,
December 31, 1993 3,576,301 $4,577,665 4,763,276 $4,763,276 $25,956,826 $(19,260,950) $16,036,817
Net income (1,628,889) (1,628,889)
Net issuance of shares
under 1989 stock
incentive plan
(Note 8) 48,540 48,540 (53,871) (5,331)
Conversion of Preferred
Stock to Common Stock (1,426) (1,825) 1,825 1,825 --
Dividend accrual-
preferred stock (464,785) (464,785)
--------- ---------- --------- ---------- ----------- ------------ -----------
Balance,
December 31, 1994 3,574,875 $4,575,840 4,813,641 $4,813,641 $25,902,955 $(21,354,624) $13,937,812
Net income 513,381 513,381
Net issuance of shares
under 1989 stock
incentive plan
(Note 8) 79,400 79,400 7,438 86,838
Issuance of shares upon
exercise of options
issued under 1993
stock option plan
(Note 8) 1,500 1,500 (375) 1,125
Conversion of Preferred
Stock to Common Stock (3,507) (4,489) 4,489 4,489 --
Dividend accrual-
preferred stock (464,443) (464,443)
--------- ---------- --------- ---------- ----------- ------------ -----------
Balance,
December 31, 1995 3,571,368 $4,571,351 4,899,030 $4,899,030 $25,910,018 $(21,305,686) $14,074,713
========= ========== ========= ========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
19
<PAGE>
CALPROP CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss)...................... $ 513,381 $(1,628,889) $ (2,536,877)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Extraordinary gain on extinguishment
of debt.............................. -- -- (610,893)
Depreciation and amortization......... 15,277 61,360 156,331
Provision for write down of real
estate under development to net
realizable value..................... -- -- 1,700,000
Other................................. 86,837 (5,331) 35,568
Provision for warranty reserves....... 275,966 143,954 150,000
Change in assets and liabilities
Deposits on land...................... -- -- (34,790)
(Increase) decrease in deferred and
other assets......................... 384,207 (146,102) (303,803)
(Increase) decrease in investments in
land................................. (5,556) -- --
(Increase) decrease in prepaid
expenses............................. (36,712) 94,717 69,816
Increase (decrease) in accounts
payable and accrued liabilities and
warranty reserves.................... (1,512,487) 82,173 (223,392)
(Decrease) in deferred income......... -- -- (215,000)
Decrease (increase) in income tax
receivable........................... -- -- 924,117
Decrease (increase) in income taxes
payable.............................. -- -- (28,600)
Decrease in deferred taxes payable.... -- -- (100,001)
Additions to real estate development
in process........................... (18,398,550) (14,834,078) (10,571,350)
Cost of real estate sales............. 16,236,833 18,614,736 22,701,505
----------- ----------- ------------
Net cash (used in) provided by
operating activities............... $(2,440,804) $ 2,382,540 $ 11,112,631
Cash Flows from Investing Activities
Capital (expenditures) sales........... $ (39,846) $ 141,373 $ (14,900)
----------- ----------- ------------
Net cash (used in) provided by
investing activities................. $ (39,846) $ 141,373 $ (14,900)
Cash Flows from Financing Activities
Borrowings under construction loans-
related parties....................... $ 6,060,000 $11,780,113
Payments under construction loans-
related parties....................... (3,692,084) (7,726,292)
Borrowings under construction loans.... 9,790,510 6,516,665 11,630,350
Payments under construction loans...... (9,882,267) (12,961,742) (23,996,963)
Preferred stock offering............... -- -- 1,560,002
Preferred stock offering costs......... -- -- (97,534)
Payments of preferred stock dividends.. (136,257) --
Payments on bond liability............. (44,888) (81,396)
Proceeds from issuance of common stock. 1,125 --
----------- ----------- ------------
Net cash provided by (used in)
financing activities................. $ 2,096,139 $(2,472,652) $(10,904,145)
----------- ----------- ------------
Net increase in cash and cash
equivalents........................... (384,511) 51,261 193,586
Cash and cash equivalents at beginning
of the year........................... 1,142,834 1,091,573 897,987
----------- ----------- ------------
Cash and cash equivalents at end of the
year.................................. $ 758,323 $ 1,142,834 $ 1,091,573
=========== =========== ============
Supplemental Disclosures of Cash Flow
Information
Cash paid during the periods for:
Interest (net of amount capitalized).. $ 25,211 $ 141,332 $ 24,172
Income taxes (refund)................. -- -- (706,700)
Non-Cash Investing and Financing
Activities:
Accrual of preferred dividend.......... (464,443) (464,785) (136,293)
Conversion of debt to preferred stock.. -- -- 3,017,663
Record CFD debt and related asset...... -- 2,381,432 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
CALPROP CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Management's intentions -- Since 1990, the Company has experienced
difficulties producing sufficient cash flow from its development operations due
to the declining real estate market in California. The Company has sold assets,
obtained additional loans, and sold preferred stock to maintain a sufficient
level of cash flow to continue its operations. Management's plan, with respect
to managing cash flow includes the following components: pay off or obtain
extensions on the debt that is coming due in 1996, minimize operating expenses,
and maintain control over costs. With regard to the debt coming due in 1996,
management expects to pay these loans off through cashflow from operations,
prior to their maturity date. With regard to minimizing operating expenses,
management plans to achieve this by continuing to closely examine overhead
items. Management anticipates that the funds generated from operations will be
adequate to allow the Company to continue operations throughout 1996. During
1995, the Company commenced production in the 120 lot Summertree Park project
in the Elk Grove area of Sacramento, California, and the 97 lot Montserrat
project in Murrieta, California.
(b) Nature of operations -- The Company is primarily engaged in the
construction and sale of single-family attached and detached homes, including
lot sales.
(c) Use of estimates -- The preparation of 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
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(d) Real estate sales -- Revenue from real estate sales and related costs are
recognized at the close of escrow, when title passes to the buyer. The Company
follows the guidelines for profit recognition as set forth by Statement of
Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate."
(e) Cost of real estate under development -- Real estate under development is
stated at the lower of cost or estimated net realizable value, (see Note 2).
Land and site development costs, including capitalizable carrying costs
(primarily interest and property taxes), are accumulated by specific
development and allocated on a relative sales value basis to lots and units
within the development. Construction costs incurred in connection with the
development of properties are charged to individual phases.
Cost of real estate sales is based upon the relative sales value of units
sold to the estimated total sales value of the respective phases.
(f) Warranty reserves -- The Company provides a one-year warranty to
purchasers of single-family homes. The Company accrues estimated warranty
costs, based on actual historical costs, on properties as they are sold.
(g) Cash and cash equivalents -- For purposes of the statement of cash flows,
cash and cash equivalents include securities purchased with an original
maturity of 90 days or less.
(h) Net income per share -- Net income per share has been computed based on
the weighted average number of shares outstanding (4,836,393 in 1995, 4,762,382
in 1994, 4,691,552 in 1993) after giving effect to the Preferred Stock Dividend
of $464,443 in 1995, $464,787 in 1994 and $136,293 in 1993.
(i) Accounting Pronouncements -- In March 1993, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" and in October 1995, issued Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation." The
requirements of these statements are not expected to have a significant impact
on the Consolidated Financial Statements of the Company.
21
<PAGE>
CALPROP CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 (CONTINUED)
(j) Fair Value of Financial Instruments -- Statement of Financial Accounting
Standards No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires disclosure of fair value information on financial instruments, when it
is practicable to estimate that value. Management believes that the book value
of all financial instruments approximates their fair market value as result of
variable interest rates and short term durations.
(k) Reclassifications -- Certain reclassifications have been made to the 1993
and 1994 financial statements to conform to the presentation of the 1995
financial statements.
(2) REAL ESTATE UNDER DEVELOPMENT
Real estate under development at December 31, 1995 and 1994 is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
Amount Units/Lots Amount Units/Lots
<S> <C> <C> <C> <C>
--------------- ---------------
Single-family residences......... $ 5,497,852 34 $ 6,977,632 35
Townhomes....................... 6,333,133 21 6,903,975 36
----------- --- ----------- ---
Net single family residences.... 11,830,985 55 13,881,607 71
Land under development.......... 13,031,214 223 8,818,875 68
----------- --- ----------- ---
Total real estate under
development..................... $24,862,199 278 $22,700,482 139
=========== === =========== ===
</TABLE>
Real estate under development is stated at the lower of cost or estimated net
realizable value.
Net realizable value, for financial reporting purposes: (i) is based on the
Company's plans for development and build-out of each project; (ii) is computed
using estimated sales prices less estimated costs to complete and sell the
project; and (iii) does not purport, for a specific project, to represent the
current sales price that the Company could obtain from third parties for such
properties at their current state of development.
The fulfillment of the Company's plans for development and build-out of its
projects is dependent upon, among other things, the presence of economic
conditions which will support projected housing demand and the Company's
ability to finance its development and build-out plans. Management believes
that its assumptions as to projected demand are reasonable based upon present
economic trends and that financing will be available to enable the Company to
realize the carrying value of its real estate development consistent with its
plans for build-out and development.
22
<PAGE>
CALPROP CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 (CONTINUED)
Development operations in 1995, 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ----------------- ------------------
Amount Units Amount Units Amount Units
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Real Estate Sales:
Single--family
residences............ $12,929,854 61 $14,177,525 87 $14,388,901 58
Townhomes.............. 4,131,385 15 4,556,000 17 4,368,108 16
Improved lots.......... -- -- -- -- 4,674,429 170
----------- --- ----------- --- ----------- ---
Total Sales........... $17,061,239 76 $18,733,525 104 $23,431,438 244
=========== === =========== === =========== ===
Cost of Real Estate
Sales:
Single--family
residences............ $12,591,882 $13,929,189 $14,218,564
Townhomes.............. 4,143,297 4,541,593 4,079,812
Improved lots.......... -- -- 4,823,805
Warranty and property
investigation costs.... 257,966 143,954 (420,676)
Reversal of warranty
reserves............... (774,312) -- --
----------- ----------- -----------
$16,236,833 $18,614,736 $22,701,505
Provision for write down
of real estate
under development to
net realizable
value.................. -- -- 1,700,000
----------- ----------- -----------
Total Cost of Sales... 16,236,833 18,614,736 24,401,505
----------- ----------- -----------
Income (loss)-develop-
ment operations........ $ 824,406 $ 118,789 $ (970,067)
=========== =========== ===========
</TABLE>
Reversal of warranty reserves is the result of the settlement of a lawsuit
filed against the Company for general damages caused by alleged land
subsidence.
(3) INVESTMENT IN LAND
The Company is deferring the development of the Victorville project in San
Bernardino County, California, and its Mockingbird project, in Riverside
County, California due to market conditions. The property is recorded at its
net realizable value. The Company has expensed the 1995 and 1994 holding costs
related to these properties, consisting primarily of property taxes, and debt
service on the Victorville bond liability (Note 5).
(4) DEFERRED AND OTHER ASSETS
Included in deferred and other assets is trust deeds receivable. The balances
of trust deeds receivable at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
Outstanding
Balance
-------------------
Interest
Rate 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Trust Deeds Receivable............................ 10%-12% $175,666 $ 245,267
Less Reserve...................................... (50,000) (105,790)
-------- ---------
Net Trust Deeds Receivable........................ $125,666 $ 139,477
Deferred Compensation Expense..................... 87,937 --
Other............................................. 74,699 508,463
======== =========
Deferred and Other Assets......................... $288,302 $ 647,940
======== =========
</TABLE>
These trust deeds are collateralized by lots, houses, and condominium units
sold by the Company, and they mature from 1997 to 2014.
23
<PAGE>
CALPROP CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) TRUST DEEDS AND NOTES PAYABLE
Trust deeds and notes payable as of December 31, 1995 and 1994 are summarized
as follows:
<TABLE>
<CAPTION>
Balance
----------------------
1995 1994
----------- ----------
<S> <C> <C>
Notes payable to financial institutions, secured by de-
velopment projects' trust deeds--variable rates rang-
ing from prime + 0.5% through prime + 4.0%;
maturing July 1996 through October 2025............... $ 4,682,926 $4,774,683
Notes payable to related parties, secured by develop-
ment projects' trust deeds--variable rates ranging
from prime + 1.5% through prime + 2.0%; maturing De-
cember 1996 through September 1997.................... 7,500,000 4,382,084
Note payable to related parites, unsecured--prime in-
terest rate;
due on demand......................................... 75,000 825,000
----------- ----------
Total trust deeds and notes payable.................... $12,257,926 $9,981,767
----------- ----------
Community Facilities District Special Tax Bonds........ $ 2,336,544 $2,381,432
=========== ==========
</TABLE>
At December 31, 1995, the Prime rate was 8.5%. Monthly interest payments on
the above liabilities, which are not drawn against existing prepaid interest
reserve accounts, total approximately $80,000.
As of December 31, 1995, the Company had loan commitments from banks and
other sources totaling $17,283,485, of which the Company has used $12,257,926,
and has a remaining capacity of $5,025,559 on the commitments, which may be
drawn down by the Company upon the satisfaction of certain conditions.
During 1995, the Company obtained new loans from four new financial
institutions, Imperial Bank, United Savings Bank, Keros-Mozilo Mortgage
Bankers, and L & N Consultants, Inc. Imperial Bank made a loan commitment on
the Company's Summertree Park project in Sacramento County in the amount of
$4,890,000, United Savings Bank made a loan commitment on the Company's Cypress
Cove project in the amount of $2,185,000, Keros-Mozilo Mortgage Bankers made a
loan commitment on the model complex of the Company's Cypress Cove project in
the amount of $840,000, and L & N Consultants, Inc. (seller) provided financing
on the developed lots in the Company's Montserrat project in the amount of
$1,346,000.
During 1995, the Company obtained a loan from the Curci-Turner Company (a
related party), in the amount of $4,000,000 for the acquisition and development
of the Summertree Park project in Sacramento County. The loan contains a profit
sharing provision in the amount of 40% of "Net Proceeds" as defined in the
agreement.
During 1994, Curci-Turner Company made 4 additional loans to the Company: one
replacing the remaining debt to Bank of California on the Cypress Cove Project,
two construction loans on the Cypress Cove project., and a loan secured by the
Company's Mission Gorge project in San Diego, California in which Curci-Turner
Company will receive 50% of "Net Sales Proceeds" as defined in the agreement.
The loan costs associated with these loans totaled $575,000. Included in
accounts payable and accrued liabilities are deferred loan costs of $325,000
and $500,000 as of December 31, 1995 and 1994, respectively.
During 1994 and 1993, Curci-Turner Company made 3 construction loans to the
Company for the construction of the first 3 phases (25 units per phase) of the
Summertree Park project in Windsor, California. In addition to the interest
payable to Curci Turner, these loans contain a profit sharing provision which
stipulates that Curci Turner receive 50% of "Net Sales Proceeds" as defined in
the agreement, which is comparable to gross profit. Pursuant to these
agreements, $508,316 was paid in 1994. As of December 31, 1994, these loans and
all profit sharing obligations have been fully paid.
24
<PAGE>
CALPROP CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 (CONTINUED)
During 1995, the Company borrowed $1,000,000 from an officer of the Company.
As of December 31, 1995, the amount owed to the officer was $1,500,000.
During 1995, the Company repaid loans from First Interstate Bank, and repaid
loans from the Curci-Turner Company for the development of two phases of the
Cypress Cove project.
The $2,336,544 Community Facilities District Special Tax Bonds (CFD), were
issued by the City of Victorville, California, to finance the construction of
the infrastructure within the District, of which the Company's Victorville
property is a part. The bonds are repaid through a special tax assessment on
the parcels of land within the development. As the amount of the liability is
fixed and determinable and the related assets are subject to a lien, the
liability and corresponding site improvement assets have been reflected in the
financial statements.
Aggregate future principal payments due on trust deeds payable, notes
payable, and CFD indebtedness are summarized as follows:
<TABLE>
Year Ended
December 31, Principal Payments
------------ ------------------
<S> <C>
1996 $4,149,739
1997 7,404,240
1998 62,398
1999 67,118
2000 72,232
Thereafter 2,838,743
------------------
Total $14,594,470
==================
</TABLE>
During 1995, 1994 and 1993, the Company paid interest of $862,505, $304,035
and $154,883 respectively, on loans from related parties.
During 1993, due to a declining real estate market in California, two of the
Company's lenders forgave amounts due in connection with the disposal of
certain projects which resulted in extraordinary gains of $610,893.
(6) INCOME TAXES
No provision for federal or state income taxes was recorded in 1995 or 1994.
During 1993, the Company recorded a $96,606 provision related to federal and
state income taxes.
The deferred income tax assets, resulting from differences between accounting
for financial statements purposes, and tax purposes less valuation reserves are
as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Inventory Reserves.................................... $ 2,634,000 $ 2,624,000
Warranty Reserves..................................... 52,000 609,000
State Net Operating Loss.............................. 1,373,000 869,000
Other................................................. -- 173,000
Loss Carryback Claim.................................. 457,000 --
Federal Operating Loss................................ 3,095,000 2,844,000
----------- -----------
7,611,000 7,129,000
Valuation Reserve..................................... (7,611,000) (7,129,000)
----------- -----------
$-- $--
=========== ===========
</TABLE>
The Company has established a valuation reserve equal to the deferred tax
asset, as realization depends on future Company earnings.
25
<PAGE>
CALPROP CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 (CONTINUED)
During 1995, the Company filed a claim for a refund resulting from the
carryback of losses related to the condemnation of certain property.
The following is a reconciliation of the federal statutory rate to the
Company's effective rate for 1995, 1994, and 1993:
<TABLE>
<CAPTION>
Percentage of
Amount Pretax Income
------------------- ------------------
1995 1993 1992 1994 1993 1992
-------- --------- --------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statutory rate............... $174,550 $(553,822) $(829,700) 34% (34%) (34%)
Utilization of unrecognized
deferred income tax benefit. (174,550) -- -- (34%) -- --
Limitation of loss
carryforward................ -- 553,822 829,700 -- 34% 34%
Other........................ -- -- 96,606 -- -- 4%
-------- --------- --------- --- --- ---
$ -- $ -- $ 96,606 -- -- 4%
======== ========= ========= === === ===
</TABLE>
As of December 31, 1995, the Corporation had net operating loss carryforwards
for federal and state income tax purposes of approximately $9,100,000 and
$14,750,000, respectively.
(7) PREFERRED STOCK
On September 15, 1993, the Company completed an offering of 3,576,301 shares
of Convertible Preferred Stock, to existing common 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. The existing indebtedness that was converted to Preferred
Stock consisted of $2,349,663 payable to the Chairman of the Board and $668,000
payable to Curci-Turner Company. The debt that was converted into Preferred
Stock was converted at a rate of $1 of debt for $1 of Preferred Stock. 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
December 31, 1995 there is $929,262 of cumulative dividends in arrears on the
Preferred Stock. The Convertible Preferred Stock is also entitled to a
liquidation preference of $1.28 per share (aggregate of $4,571,351 at December
31, 1995), and may be redeemed by the Company at a redemption price of $1.28
per share, plus accrued dividends.
(8) QUALIFIED AND NON-QUALIFIED STOCK OPTION PLANS
The Company has two employee stock option plans that provide for the grant,
to eligible employees, of stock options to purchase shares of common stock. The
1983 Stock Option Plan authorized an aggregate of 596,957 (adjusted for stock
dividends) shares of common stock to be reserved for grant. The 1983 Stock
Option Plan expired in September, 1993. Changes in the 1983 Stock Options Plan
are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Outstanding, beginning of year..................... 320,000 448,674 565,686
Granted............................................ -- -- --
Exercised.......................................... -- -- --
Canceled........................................... (500) (128,674) (117,012)
------- -------- --------
Outstanding, end of year........................... 319,500 320,000 448,674
======= ======== ========
Exercisable, end of year........................... 235,500 229,000 335,674
======= ======== ========
</TABLE>
Outstanding options under the 1983 Stock Option Plan were granted at prices
ranging from $.875 to $2.75, which represents the market price at the date of
grant.
26
<PAGE>
CALPROP CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 (CONTINUED)
The 1993 Stock Option Plan (approved by the shareholders May 27, 1993)
authorizes an aggregate of 1,000,000 shares of the Company's common stock to be
reserved for grant. The options fully vest a year from the date of grant.
Changes in the 1993 Stock Option plan are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Outstanding, beginning of year........................ 577,000 302,500 --
Granted............................................... 305,250 275,500 302,500
Exercised............................................. (1,500) -- --
Canceled.............................................. (2,500) (1,000) --
------- ------- -------
Outstanding, end of year.............................. 878,250 577,000 302,500
======= ======= =======
Exercisable, end of year.............................. 563,000 301,500 --
======= ======= =======
Available for grant, end of year...................... 120,250 423,000 197,500
======= ======= =======
</TABLE>
Outstanding options under the 1993 Stock Option Plan were granted at prices
ranging from $.75 to $1.169, which represents the market price at the date of
grant.
The 1989 Executive Long-Term Stock Incentive Plan authorizes an aggregate of
275,000 (adjusted for stock dividends) shares of the Company's common stock to
be reserved for awards to key employees of the Company. The stock, once granted
to the key employees, vests at 20 percent a year from the date of grant. The
non-vested shares represent unearned compensation. Changes in the 1989
Executive Long-Term Stock Incentive plan are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Issued shares, beginning of year..................... 181,660 133,120 61,180
Issued............................................... 83,000 51,000 78,500
Returned at terminaton of employment................. (3,600) (2,460) (6,560)
------- ------- -------
Issued shares, end of year........................... 261,060 181,660 133,120
======= ======= =======
Vested, end of year.................................. 83,590 53,135 16,640
======= ======= =======
Available for award, end of year..................... 13,940 93,340 141,880
======= ======= =======
</TABLE>
Included in deferred and other assets as of December 31, 1995, is deferred
compensation expense of $87,937 relating to this plan.
The 1992 Director Stock Option Plan authorizes an aggregate amount of 100,000
shares to be granted. Each year, the directors that are members of the stock
option committee are granted options to buy 7,500 shares at the market price at
the date of grant, exercisable one year after grant. Forty-five thousand shares
have been granted under this plan at December 31, 1995, at prices ranging from
$.75 to $2.50 per share, which represents the market price at the date of
grant.
(9) OTHER INCOME
The Company had a one-third interest in an office building which was sold to
an unrelated third party in April 1994 resulting in a gain of $446,159 in the
second quarter of 1994. Prior to the sale, the Company was leasing a portion of
the remaining two-thirds interest from a related party for $74,368 annually.
In 1993, the Company's Oceanside property was taken by the State of
California through eminent domain. The Company received a deposit of probable
compensation of $2,332,000 from the State and a loss of $194,932 was recorded
at that time. In January 1995, a valuation trial was held, and the verdict
entitled the Company to an additional $2,080,900, plus accrued interest. On
March 24, 1995, the Company received $2,280,363 in settlement of this matter,
which was recorded as other income in the first quarter of 1995.
27
<PAGE>
CALPROP CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES
There are several legal actions and claims pending against the Company. Based
on the advice of legal counsel, management believes that the ultimate
liability, if any, which may result from any of these lawsuits will not
materially affect the financial position or results of operations of the
Company.
The Company has two noncancelable operating leases that expire at various
dates through 1997. Future minimum rent as of December 31, 1995 is $59,940 in
1996, and $14,985 in 1997, for a total of $74,925. Rent expense for the years
ended December 31, 1995, 1994 and 1993 was $82,178, $87,122 and $153,172,
respectively.
(11) QUARTERLY FINANCIAL DATA--(UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
First Second Third Fourth
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales.......................... $3,478,025 $4,263,810 $5,058,756 $4,260,648
Gross profit (loss)............ 133,546 757,953 7,700 (74,793)
Net income (loss).............. $1,802,808 $ 104,800 $ (469,438) $ (924,789)
========== ========== ========== ==========
Net income (loss) per share
(primary)..................... $ 0.35 $ 0.00 $ (0.12) $ (0.21)
========== ========== ========== ==========
Net income (loss) per share
(fully-diluted)............... 0.19
========== ========== ========== ==========
<CAPTION>
Year Ended December 31, 1994
First Second Third Fourth
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales.......................... $3,614,527 $4,005,231 $5,603,018 $5,510,749
Gross profit (loss)............ 137,920 (49,339) 37,774 (7,566)
Net (loss) income.............. $(357,955) $ 21,729 $ (476,535) $ (816,128)
========== ========== ========== ==========
Net (loss) income per share.... $(0.10) $(0.02) $(0.12) $(0.20)
========== ========== ========== ==========
</TABLE>
During the first quarter of 1995, the Company received $2,280,363 in a
settlement with the State of California, which was recorded as other income.
See Note 9.
During the second quarter of 1995, cost of real estate sales was reduced by
approximately $730,000 resulting from the reversal of warranty reserves
associated with the settlement of a lawsuit filed against the Company for
general damages caused by alleged land subsidence.
28
<PAGE>
CALPROP CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Trust Deeds
Warranty Receivable
----------- -----------
<S> <C> <C>
Balance January 1, 1993................................ $ 2,451,473 $105,790
Additions charged to operations...................... 150,000 --
Reductions........................................... (809,687) --
----------- --------
Balance December 31, 1993.............................. $ 1,791,786 $105,790
Additions charged to operations...................... 143,954 --
Reductions........................................... (436,332) --
----------- --------
Balance December 31, 1994.............................. $ 1,499,408 $105,790
Additions charged to operations...................... 275,966 --
Reductions........................................... (1,173,674) (55,790)
----------- --------
Balance December 31, 1995.............................. $ 301,700 $ 50,000
=========== ========
</TABLE>
29
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <S>
3.1 Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the Company's Amendment
No. 1 to Form S-1 filed with Securities Exchange Commission on July
3, 1994 bearing File #33-62516.)
3.2 By-laws of the Company
(Incorporated by reference to Exhibit 3.2 to the Company's Amendment
No. 1 to Form S-1 filed with Securities Exchange Commission on July
3, 1994 bearing File #33-62516.)
10.1 1983 Calprop Corporation Stock Option Plan
(Incorporated by reference to the Company's Form S-8 Registration
Statement (File No. 2-86872), which became effective September 30,
1983.)
10.2 1989 Executive Long-Term Stock Incentive Option Plan
(Incorporated by reference to the Company's Form S-8 Registration
Statement (File No. 33-33640), which became effective March 18,
1991.)
10.3 1992 Directors Stock Option Plan
(Incorporated by reference to the Company's Form S-8 Registration
Statement (File No. 33-57226), which became effective January 18,
1993.)
10.4 1993 Calprop Corporation Stock Option Plan
(Incorporated by reference to Exhibit 10.3 to the Company's Amendment
No. 1 to Form S-1 filed with Securities Exchange Commission on July
3, 1993 bearing File #33-62516.)
24 Independent Auditors' Consent
27 Financial Data Schedule
</TABLE>
30
<PAGE>
EXHIBIT 24
CALPROP CORPORATION
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in (1) Registration Statements
No. 2-86872, 33-33640 and 33-57226 and 33-88892 on Form S-8 and (2) Post-
effective amendment No. 1 to Form S-1 on Form S-3 Registration Statement No.
33-62516 of our report dated March 8, 1996 appearing in this Annual Report on
Form 10-K of Calprop Corporation for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 8, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT ON FORM 10-K FYE 12/31/95 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 758,323
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 30,517,262
<CURRENT-ASSETS> 758,323
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 3,224,019
<BONDS> 0
4,571,351
0
<COMMON> 4,899,030
<OTHER-SE> 4,604,332
<TOTAL-LIABILITY-AND-EQUITY> 31,893,201
<SALES> 17,061,239
<TOTAL-REVENUES> 19,467,589
<CGS> 16,236,833
<TOTAL-COSTS> 18,954,208
<OTHER-EXPENSES> 2,717,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 513,381
<INCOME-TAX> 0
<INCOME-CONTINUING> 513,381
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513,381
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.00
</TABLE>
