SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
(Mark One)
|X| Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1999 or
|_| Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ________________
Commission File Number 1-6844
CALPROP CORPORATION
(Exact name of registrant as specified in its charter)
California 95-4044835
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13160 Mindanao Way, Suite 180, Marina Del Rey, California 90292
--------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (310) 306-4314
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO |_|
Number of shares outstanding of each of Registrant's classes of common
stock, as of July 22,1999:
Number of Shares
Title of Each Class Outstanding
- ------------------- ----------------
Common Stock, no par value 10,279,935
<PAGE>
CALPROP CORPORATION
Part I
Item I - Financial Information
Set forth is the unaudited quarterly report for the quarters ended June
30, 1999 and 1998, for Calprop Corporation. The information set forth reflects
all adjustments which were, in the opinion of management, necessary for a fair
presentation.
2
<PAGE>
CALPROP CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1999 1998
(Unaudited)
------------- -------------
Real estate development $68,484,512 $65,282,197
Other assets:
Cash and cash equivalents 3,064,329 1,590,403
Prepaid expenses 61,980 88,775
Deferred tax asset 4,800,000 4,800,000
Other assets 776,033 760,514
------------- -------------
Total other assets 8,702,342 7,239,692
------------- -------------
Total assets $77,186,854 $72,521,889
============= =============
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
CALPROP CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
1999 1998
(Unaudited)
------------ ------------
Trust deeds and notes payable $ 42,085,265 $ 37,524,507
Related party notes 20,052,034 20,870,286
------------ ------------
Total trust deeds and notes payable 62,137,299 58,394,793
Accounts payable and accrued liabilities 5,653,968 5,056,010
Warranty reserves 355,509 284,624
------------ ------------
Total liabilities 68,146,776 63,735,427
Minority interest (note 4) 184,180 326,941
Stockholders' equity:
Common stock, no par value
Authorized - 20,000,000 shares
Issued and outstanding - 10,279,935 and
10,284,135 shares at June 30, 1999 and
December 31, 1998, respectively 10,279,935 10,284,135
Additional paid-in capital 25,850,818 25,851,130
Deferred compensation (231,930) (241,130)
Stock purchase loans (485,472) (474,134)
Accumulated deficit (26,557,453) (26,960,480)
------------ ------------
Total stockholders' equity 8,855,898 8,459,521
------------ ------------
Total liabilities and stockholders' equity $ 77,186,854 $ 72,521,889
============ ============
The accompanying notes are an integral
part of these financial statements.
4
<PAGE>
CALPROP CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Development operations:
Real estate sales $ 18,381,700 $ 7,632,478 $ 26,164,559 $ 10,438,264
Cost of real estate sales 17,870,491 6,932,486 24,916,897 9,820,775
------------ ------------ ------------ ------------
Income from development operations 511,209 699,992 1,247,662 617,489
Other income 30,536 11,370 55,739 47,351
Other expenses:
General and administrative expenses 634,793 446,521 994,353 832,497
Interest expense 40,766 37,486 48,782 106,053
------------ ------------ ------------ ------------
Total other expenses 675,559 484,007 1,043,135 938,550
Minority interests (note 4) (208,648) 121,688 (142,761) 114,786
Income (loss) before benefit for income taxes 74,834 105,667 403,027 (388,496)
============ ============ ============ ============
Net income (loss) $ 74,834 $ 105,667 $ 403,027 $ (388,496)
============ ============ ============ ============
Basic and diluted net income (loss) per share (note 3) $ 0.01 $ 0.01 $ 0.04 ($ 0.04)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
5
<PAGE>
CALPROP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 74,834 $ 105,667 $ 403,027 $ (388,496)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Minority interests (208,648) 121,688 (142,761) 114,786
Depreciation and amortization 14,325 10,705 28,087 20,290
Provision for warranty reserves 29,224 73,601 95,230 90,601
Change in assets and liabilities:
(Increase) in deferred and other assets (101,666) (240,113) (5,984) (663)
Decrease in prepaid expenses 13,398 11,574 26,795 23,149
Increase (decrease) in accounts payable and accrued
liabilities and warranty reserves 1,698,054 (1,040,483) 573,613 903,462
(Additions) to real estate development in process (13,970,998) (12,036,920) (28,002,075) (18,356,729)
Cost of real estate sales 17,753,354 6,932,486 24,799,760 9,820,775
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities 5,301,877 (6,061,795) (2,224,308) (7,772,825)
CASH FLOWS FROM INVESTING ACTIVITIES -
Capital expenditures (23,856) (13,175) (37,622) (33,792)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under construction loans-related parties 346,930 4,121,212 1,942,049 6,171,212
Payments under construction loans-related parties (2,133,187) (250,024) (2,760,301) (1,854,116)
Borrowings under construction loans 11,775,603 8,241,168 24,181,195 14,310,510
Payments under construction loans (13,414,280) (6,058,316) (19,620,437) (8,818,969)
Contributions from joint venture partner -- 377,920 -- 669,558
Distributions to joint venture partner -- (1,100,000) -- (1,100,000)
Proceeds from issuance of common stock 4,688 -- 4,688 306,639
Accrue interest for executive stock purchase loans (5,731) -- (11,338) --
------------ ------------ ------------ ------------
Net cash (used in) provided by financing activities (3,425,977) 5,331,960 3,735,856 9,684,834
------------ ------------ ------------ ------------
Net increase in cash and cash equivalents 1,852,044 (743,010) 1,473,926 1,878,217
Cash and cash equivalents at beginning of periods 1,212,285 3,721,255 1,590,403 1,100,028
------------ ------------ ------------ ------------
Cash and cash equivalents at end of periods 3,064,329 2,978,245 $ 3,064,329 $ 2,978,245
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for -
Interest (net of amount capitalized) 40,766 37,486 48,782 65,567
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Receipt of executive loan from issuance of shares -- -- -- 447,813
</TABLE>
The accompanying notes are an integral
part of these financial statements
6
<PAGE>
CALPROP CORPORATION
NOTES TO FINANCIAL STATEMENTS
PERIODS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
Note 1: Basis of presentation and significant accounting policies
The unaudited, condensed, financial statements included herein have been
prepared by the registrant pursuant to the instructions to Quarterly
Report on Form 10-Q required to be filed with the Securities and Exchange
Commission and do not include all information and footnote disclosure
required by generally accepted accounting principles. The accompanying
financial statements have not been examined by independent accountants in
accordance with generally accepted auditing standards, but in the opinion
of management, such financial statements include all adjustments,
consisting only of normal recurring adjustments necessary to summarize
fairly the Company's financial position and results of operations. The
condensed financial statements should be read in conjunction with the
financial statements and the notes thereto included in the registrant's
latest Annual Report on Form 10-K, particularly with regard to disclosures
relating to major accounting policies.
The results of operations for the six months ended June 30, 1999 may not
be indicative of the operating results for the year ending December 31,
1999.
Note 2: Income taxes
At June 30, 1999, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $23,400,000 and
$8,700,000, respectively. For federal and state tax purposes the net
operating loss carryforwards expire from 2007 through 2013, and from 1999
through 2003, respectively.
Note 3: Net income per share
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted net income
(loss) per share $ 74,834 $ 105,667 $ 403,027 $ (388,496)
========================= =========================
Denominator for basic net income (loss) per share 10,279,657 10,154,785 10,280,516 9,846,674
Effect of dilutive stock options 322,585 283,638 311,997 --
------------------------- -------------------------
Denominator for dilutive net income (loss) per share 10,602,242 10,438,423 10,592,513 9,846,674
========================= =========================
Basic net income (loss) per share $ 0.01 $ 0.01 $ 0.04 $ (0.04)
========================= =========================
Diluted net income per share $ 0.01 $ 0.01 $ 0.04 $ (0.04)
========================= =========================
</TABLE>
Options and warrants to purchase 874,250 and 799,000 shares of common
stock were outstanding as of June 30, 1999 and 1998, respectively. For the
three months ended June 30, 1999 and the six months ended June 30, 1999,
63,500 and 335,650 options and warrants were not included in the
computation of
7
<PAGE>
diluted net income because their exercise prices were higher than the
average market price per share of common stock, respectively.
Note 4: Minority interest
The Company has consolidated the financial statements of Colorado Pacific
Homes, Inc. ("CPH"), a corporation formed for the purpose of developing
real estate in the state of Colorado; DMM Development, LLC ("DMM"), a
joint-venture formed for the development of the Cierra del Lago and
Antares projects; Montserrat II, LLC ("Mont II"), a joint-venture formed
for the development of 119 lots adjacent to the Company's original
Montserrat project; Parkland Farms Development Co., LLC ("Parkland"), a
joint-venture formed for the development of 115 lots in Healdsburg,
California; and RGCCLPO Development Co., LLC ("RGCCLPO"), a joint venture
formed for the development of 382 lots in Milpitas, California.
Colorado Pacific Homes, Inc. is owned eighty percent by Calprop
Corporation ("Calprop") and twenty percent by the President of CPH.
Calprop is entitled to receive two-thirds of the profits of DMM, and the
other member, RGC Courthomes, Inc. ("RGC"), is entitled to receive the
remaining one-third of the profits. As of June 30, 1999, RGC's ownership
percentage in DMM was fifty percent.
Pursuant to the operating agreement of Montserrat II, LLC, Calprop is
entitled to receive ninety nine percent of the profits of Montserrat II,
LLC, and the other member, an officer of the Company, is entitled to
receive the remaining one percent of the profits. As of June 30, 1999, the
officer of the Company's ownership percentage is Montserrat II, LLC was
one percent.
Pursuant to the operating agreement of Parkland Farms Development Co.,
LLC, Calprop is entitled to receive ninety nine percent of profits of
Parkland, and the other member, an officer of the Company, is entitled to
receive the remaining one percent of the profits. As of June 30, 1999, the
officer of the Company's ownership percentage in Parkland was one percent.
Calprop is entitled to receive fifty percent of the profits of RGCCPLO,
and the other member, RGC, is entitled to receive the remaining fifty
percent of the profits. As of June 30, 1999, RGC's ownership percentage in
RGCCPLO was fifty percent.
As a result of the consolidations, the Company has recorded minority
interest of $302,488 and $326,941 as of June 30, 1999 and December 31,
1998, respectively.
8
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and capital resources
As of June 30, 1999, the Company had remaining loan commitments from
financial institutions of approximately $18,650,000, which may be drawn down by
the Company upon the satisfaction of certain conditions. The Company continues
to seek joint venture partners and additional financing to fund its operations.
As of June 30, 1999, the Company had ten residential housing projects in
various stages of development, with four producing revenues from completed
homes: Summertree Park, Montserrat Estates, Antares, and Parkland Farms. The
remaining six projects, Creekside at Mockingbird Canyon (formerly Mockingbird
Canyon), Parc Metropolitan, Parcwest Apartments, High Ridge Court, Saddlerock,
and Templeton Heights, are in the initial stages of development. As of June 30,
1999, the Company controlled 1,288 lots, of which, 1,001 were owned by the
company and in various stages of development, and 287 were in escrow to be
purchased by the Company. Of the 1,001 owned lots, the Company had 25 homes
completed (12 were in escrow, including 8 models and 13 were models not yet
released for sale), 180 homes under construction (130 were in escrow and 50 were
available for sale), 796 lots under development.
As of June 30, 1999, the Company had 134 units in escrow ("backlog")
compared with a backlog of 151 units as of June 30, 1998. The gross revenues of
such backlog was $31,100,000 and $31,700,000 as of June 30, 1999 and 1998,
respectively.
The Company believes that, based on agreements with its existing
institutional lenders and the Curci-Turner Company, it will have sufficient
liquidity to finance its construction projects in 1999 through funds generated
from operations and funds available under its existing loan commitments. In
addition, the Company believes that if necessary, additional funds could be
obtained by using its unencumbered real estate developments as collateral for
additional loans.
Year 2000 Readiness
The Company utilizes computer technologies throughout its business to
effectively carry out its day to day operations. Similar to most companies, the
Company must determine whether its systems are capable of recognizing and
processing date sensitive information properly as the year 2000 approaches. The
Company has reviewed each of its systems and programs and has determined that it
is Year 2000 compliant. No material costs have been or will be incurred related
to the Year 2000 compliance issue.
The Company has initiated evaluation of its significant suppliers,
customers, and critical business partners to determine the extent to which the
Company may be vulnerable in the event that those parties fail to properly
remediate their own year 2000 issues. The Company will develop appropriate
contingency plans in the event that a significant exposure is identified
relative to the dependencies on third-party systems. While the Company is not
presently aware of any such significant exposure, there can be no guarantee that
the systems of third-parties on which the Company relies will be converted in a
timely manner, or that a failure to properly convert by another company would
not have a material adverse effect on the Company.
Results of operations
Gross revenues for the three months ended June 30, 1999 increased 140.8%
to $18,381,700 from $7,632,478 for the three months ended June 30, 1998. For the
six months ended June 30, 1999, gross revenues increased 150.7% to $26,164,559
from $10,438,264 in the year-earlier period. The increase in gross revenues for
the three and six month periods of 1999 was primarily due to the higher volume
of production and home sales. In the second quarter of 1999, the Company sold 80
homes with an average sales price of $229,800, 128.6% increase in the volume of
home sales compared to 33 homes with an average sales price of $235,900 for the
second quarter of 1998. During the first six months of 1999, the Company sold
113 homes with an average sales price of $231,600, 117.3% increase in the volume
of home sales compared to 52 homes with an average sales price of $201,000 for
the six months of 1998. The higher average sales price for the six months in
9
<PAGE>
1999 is due to sales price increases made during the current year to the
Montserrat Estates and Antares projects. In addition, the Company sold 11 homes
in the higher priced Parkland Farms project during the second quarter in 1999
with an average sales price of $263,400 with expected future sales price
increases.
Income from development operations decreased to $511,209 in the second
quarter of 1999 from $699,992 in the second quarter of 1998. As a percentage of
gross revenues, income from development operations decreased by 6.39 percentage
points to 2.78% in the second quarter of 1999 compared to 9.17% in the second
quarter of 1998. The significant decrease of income from development operations
as a percentage of gross revenues during the second quarter of 1999 results from
the revised estimates to complete the construction costs of approximately
$615,000 in the Cierra Del Lago project. The project was completed in early 1998
and all homes were sold in the third quarter of 1998. The Company does not
expect to incur additional construction costs related to this project which will
be significant. In addition, during the second quarter of 1999, numerous sales
offices were in the process of opening, thus, marketing expenses associated with
the development of product awareness were incurred for the Parc Metropolitan,
Parkland Farms, and High Ridge Court projects, which entailed significant
nonrecurring startup marketing costs of approximately $330,000. For the six
months ended June 30, 1999, income from development operations increased to
$1,247,662 from $617,489 in the corresponding period of 1998. As a percentage of
gross revenues, income from development operations decreased to 4.77% in the
first half of 1999 from 5.92%.
General and administrative expenses increased to $634,793 in the three
months ended June 30, 1999 from $446,521 in the corresponding 1998 period. As a
percentage of gross revenues, general and administrative expenses decreased 2.4
percentage points to 3.45% in the second quarter of 1999 from 5.85% for the
year-earlier period. For the six months ended June 30, 1999, general and
administrative expenses increased to $994,353 from $832,497 in the corresponding
1998 period. As a percentage of gross revenues, general and administrative
expenses decreased 4.18 percentage points to 3.8% for the first six months of
1999 from 7.98% in the corresponding period in 1998. The improvement in the
general and administrative expense ratio reflects the Company's commitment to
obtaining operating efficiencies as it grows its businesses.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
27 Financial data schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K dated March 31, 1999 was filed with the
Securities and Exchange Commission (the "Commission") and included under item
7(a) its audited consolidated financial statements for the year ended December
31, 1998 and unaudited consolidated financial statements for the quarter ended
December 31, 1998, and under item 7(c) a press release announcing Calprop
Corporations' 1999 annual and fourth quarter results.
A Current Report on Form 8-K dated May 3, 1999 was filed with the
Securities and Exchange Commission (the "Commission") and included under item
7(a) its unaudited consolidated financial statements for the quarter ended March
31, 1999, and under item 7(c) a press release announcing Calprop Corporations'
first quarter results.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALPROP CORPORATION
By: /s/ Mark F. Spiro.
----------------------------------------
Mark F. Spiro
Vice President/Secretary/Treasurer
(Chief Financial and Accounting Officer)
August 11, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Calprop
Corporation and is qualified in it's entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,064,329
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 68,484,512
<CURRENT-ASSETS> 8,702,342
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,186,854
<CURRENT-LIABILITIES> 68,146,776
<BONDS> 0
0
0
<COMMON> 10,279,935
<OTHER-SE> 8,855,898
<TOTAL-LIABILITY-AND-EQUITY> 77,186,854
<SALES> 26,164,559
<TOTAL-REVENUES> 26,164,559
<CGS> 24,916,897
<TOTAL-COSTS> 24,916,897
<OTHER-EXPENSES> 1,043,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,782
<INCOME-PRETAX> 403,027
<INCOME-TAX> 0
<INCOME-CONTINUING> 403,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403,027
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
