SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
(Mark One)
|X| Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000 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 October 26, 2000:
Number of Shares
Title of Each Class Outstanding
------------------------- ----------------
Common Stock, no par value 10,290,535
<PAGE>
CALPROP CORPORATION
Part I
Item I - Financial Information
Set forth is the unaudited quarterly report for the quarters ended
September 30, 2000 and 1999, 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
September 30, December 31,
2000 1999
(Unaudited)
------------ ------------
Real estate under development $104,798,403 $ 79,070,791
Other assets:
Cash and cash equivalents 2,040,252 1,405,663
Prepaid expenses 90,231 84,219
Deferred tax asset (note 2) 6,233,074 6,500,000
Other assets 802,480 756,970
------------ ------------
Total other assets 9,166,037 8,746,852
------------ ------------
$113,964,440 $ 87,817,643
============ ============
The accompanying notes are an integral
part of these financial statements.
3
<PAGE>
CALPROP CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited)
------------- -------------
<S> <C> <C>
Trust deeds and notes payable $ 73,982,281 $ 48,216,139
Related party notes 22,694,288 24,860,032
------------- -------------
Total trust deeds, notes payable and related party notes 96,676,569 73,076,171
Accounts payable and accrued liabilities 8,548,829 6,391,621
Warranty reserves 473,526 358,287
------------- -------------
Total liabilities 105,698,924 79,826,079
Minority interests (note 4) 228,191
Stockholders' equity:
Common stock, no par value
Authorized - 20,000,000 shares
Issued and outstanding - 10,290,535 and
10,293,735 shares at September 30, 2000 and
December 31, 1999, respectively 10,290,535 10,293,735
Additional paid-in capital 25,849,961 25,849,961
Deferred compensation (167,127) (170,327)
Stock purchase loans (514,002) (496,934)
Accumulated deficit (27,193,851) (27,713,062)
------------- -------------
Total stockholders' equity 8,265,516 7,763,373
------------- -------------
$ 113,964,440 $ 87,817,643
============= =============
</TABLE>
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 Nine Months Ended
September 30, September 30,
------------------------------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Development operations:
Real estate sales $ 16,525,836 $ 15,730,888 $ 34,323,298 $ 41,895,447
Cost of real estate sales 14,765,814 15,100,809 32,072,973 40,017,706
------------ ------------ ------------ ------------
Income from development operations 1,760,022 630,079 2,250,325 1,877,741
Recognition of impairment of real estate
Development (note 1) -- (2,519,521) -- (2,519,521)
------------ ------------ ------------ ------------
Income (loss) from development operations 1,760,022 (1,889,442) 2,250,325 (641,780)
Other income 112,339 24,424 187,212 80,163
Other expenses:
General and administrative 718,548 572,261 1,973,097 1,566,614
Interest (40,008) 8,742 13,518 57,524
------------ ------------ ------------ ------------
Total other expenses 678,540 581,003 1,986,615 1,624,138
Minority interests (note 4) 10,000 26,973 (216,393) (115,788)
Income (loss) before income taxes (benefit for income taxes) 1,183,821 (2,472,994) 667,315 (2,069,967)
Income taxes (benefit for income taxes) (note 2) 286,181 (3,400,000) 148,104 (3,400,000)
------------ ------------ ------------ ------------
Net income $ 897,640 $ 927,006 $ 519,211 $ 1,330,033
============ ============ ============ ============
Basic and diluted net income per share (note 3) $0.09 $0.09 $0.05 $0.13
===== ===== ===== =====
</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 Nine Months Ended
September 30, September 30,
------------------------------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 897,640 $ 927,006 $ 519,211 $ 1,330,033
Adjustments to reconcile net income to net cash
used in operating activities:
Minority interests 10,000 26,973 (216,393) (115,788)
Depreciation and amortization 15,454 15,447 47,074 43,534
Recognition of impairment of real estate under -- 2,519,521 -- 2,519,521
development
Provision for warranty reserves (240,759) 30,001 134,771 125,231
Change in assets and liabilities:
Decrease (increase) in other assets 209,327 (1,326,977) (64,608) (1,332,961)
Decrease (increase) in deferred tax assets 266,926 (3,400,000) 266,926 (3,400,000)
Decrease in prepaid expenses (35,542) (36,994) (6,012) (10,199)
Increase (decrease) in accounts payable and accrued 975,444 (221,368) 2,157,208 352,245
liabilities
Increase (decrease) in warranty reserves 205,304 -- (19,532) --
Additions to real estate under development (23,691,039) (11,429,559) (57,800,585) (39,431,634)
Cost of real estate sales 14,765,814 12,698,425 32,072,973 37,498,185
Accrued interest for executive stock purchase loans (5,730) (5,731) (17,068) (17,069)
------------ ------------ ------------ ------------
Net cash used in operating activities (6,627,161) (203,256) (22,926,035) (2,438,902)
CASH FLOWS FROM INVESTING ACTIVITIES -
Capital expenditures (10,183) (25,520) (27,976) (63,142)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under related party notes 1,800,000 928,791 5,650,000 2,870,840
Payments under related party notes (1,461,404) (1,052,905) (7,815,744) (3,813,206)
Borrowings under trust deeds and notes payable 24,495,323 16,541,311 64,207,545 40,722,506
Payments under trust deeds and notes payable (17,112,934) (17,908,460) (38,441,403) (37,528,897)
Proceeds from issuance of common stock -- -- -- 4,688
Distributions to joint venture partner (10,000) (92,637) (11,798) (92,637)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 7,710,985 (1,583,900) 23,588,600 2,163,294
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,073,641 (1,812,676) 634,589 (338,750)
Cash and cash equivalents at beginning of periods 966,611 3,064,329 1,405,663 1,590,403
------------ ------------ ------------ ------------
Cash and cash equivalents at end of periods $ 2,040,252 $ 1,251,653 $ 2,040,252 $ 1,251,653
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the periods for -
Interest (net of amount capitalized) $(40,008) $8,742 $13,518 $57,524
Income taxes (122,217) 21,727 (118,822) 21,727
</TABLE>
The accompanying notes are an integral
part of these financial statements
6
<PAGE>
CALPROP CORPORATION
NOTES TO FINANCIAL STATEMENTS
PERIODS ENDED SEPTEMBER 30, 2000 AND 1999
(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 financial position of Calprop Corporation ("the Company") 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 Company regularly reviews the carrying value of its real estate
developments for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. If
the sum of the expected future cash flows is less than the carrying amount
of the asset, the Company recognizes an impairment loss. The Company
introduced two new product lines at the Summertree Park, Elk Grove project
during the second quarter of 1999 to increase the absorption rate and
these were primarily sold during the third quarter. The increase in sales
price was not sufficient to offset the increased direct construction cost,
marketing and sales incentives, production overhead and interest costs and
as a result the Company recorded an impairment loss on real estate under
development of $2,519,521 during the third quarter of 1999.
The results of operations for the nine months ended September 30, 2000 may
not be indicative of the operating results for the year ending December
31, 2000.
Note 2: Income taxes
As of September 30, 2000, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $24,000,000 and
$6,400,000, respectively. For federal and state tax purposes the net
operating loss carryforwards expire from 2007 through 2013, and from 2000
through 2003, respectively.
Income taxes in 2000 includes the net refund resulting from a claim filed
for the carryback of losses related to certain qualifying expenses
incurred in 1994 of $141,488.
7
<PAGE>
Note 3: Earnings per share
The following table sets forth the computation of basic and diluted net income
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 897,640 $ 927,006 $ 519,211 $ 1,330,033
=====================================================
Weighted average shares for basic net income per share 10,291,673 10,279,657 10,291,673 10,280,516
Effect of dilutive stock options 186,299 437,215 183,716 356,559
-----------------------------------------------------
Weighted average shares for dilutive net income per share 10,477,972 10,716,872 10,475,389 10,637,075
=====================================================
Basic net income per share $0.09 $0.09 $0.05 $0.13
=====================================================
Diluted net income per share $0.09 $0.09 $0.05 $0.13
=====================================================
</TABLE>
Options to purchase 1,091,200 and 874,250 shares of common stock were
outstanding as of September 30, 2000 and 1999, respectively. For the three and
six months ended September 30, 2000, 587,200 options were not included in the
computation of diluted net income because their exercise prices were higher than
the average market price per share of common stock.
Note 4: Minority interest
The Company has consolidated the financial statements of the following entities:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Ownership interest at Development
Entity September 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Colorado Pacific Homes, Inc. ("CPH") 80% Real estate in the state of Colorado
DMM Development, LLC ("DMM") 67% Cierra del Lago and Antares projects, California
Montserrat II, LLC ("Mont II") 99% Montserrat Estate project, California
Parkland Farms Development Co., LLC ("Parkland") 99% 115 lots in Healdsburg, California
RGCCLPO Development Co., LLC ("RGCCLPO") 100% 382 lots in Milpitas, California
PWA Associates, LLC ("PWA") 50% 68 unit apartment in Milpitas, California
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DMM: The Company is entitled to receive two-thirds of the profits of DMM, and
the other owner, RGC Courthomes, Inc. ("RGC"), is entitled to receive the
remaining one-third of the profits.
Mont II: Pursuant to the operating agreement of Mont II, income was allocated
first to PICal Housing Associates, L.P. ("PICaL") to obtain the
return of its capital. Subsequent income is allocated 100% to the Company.
8
<PAGE>
Parkland: Pursuant to the operating agreement of Parkland, the Company is
entitled to receive ninety-nine percent of the profits of Parkland, and the
other member, an officer of the Company, is entitled to receive the remaining
one percent of the profits.
RGCCLPO: Pursuant to the operating agreement of RGCCLPO, the Company was
entitled to receive fifty percent of the profits of RGCCLPO, and the other
member, RGC, was entitled to receive the remaining fifty percent of the profits.
During December 1999, the Company purchased all of RGC's ownership
interest in RGCCLPO.
As a result of the consolidation, the Company has recorded minority interest of
$0 and $228,191 as of September 30, 2000 and December 31, 1999, respectively.
9
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion relates to the consolidated financial statements
of the Company and should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report. Statements contained in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" that are not historical facts may be forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. You are
cautioned not to place undue reliance on these forward-looking statements.
Liquidity and capital resources
As of September 30, 2000, the Company had remaining loan commitments from
financial institutions of approximately $55,200,000, 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 September 30, 2000, the Company had eight residential housing
projects in various stages of development, with four producing revenues from
completed homes: Parkland Farms, Parc Metropolitan, High Ridge Court and
Creekside Estates. The remaining four projects, Montserrat Classics, Parcwest
Apartments, Saddlerock, and McGuire Luxury Apartments are in various stages of
development. As of September 30, 2000, the Company has 390 homes under
construction, of which 147 are sold, and 22 model units. Additionally, the
Company has an inventory of 578 lots under development.
As of September 30, 2000, the Company had 147 units in escrow ("backlog")
compared with a backlog of 98 units as of September 30, 1999. The gross revenues
of such backlog was $50,720,000 and $23,330,000 as of September 30, 2000 and
1999, respectively.
Based on its agreements with its lenders, the Company believes that it
will have sufficient liquidity to finance its construction projects in 2000
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.
Management's plan, with respect to managing cash flow includes the
following components: pay off debt that is coming due in 2000, minimize
operating expenses, and maintain control over costs. With regard to the debt
coming due in 2000, management expects to extend the maturity dates of various
loans and pay the remaining 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, including
borrowings from existing loan commitments, will be adequate to allow the Company
to continue operations throughout 2000.
Results of operations
Gross revenues for the three months ended September 30, 2000 increased
5.1% to $16,525,836 from $15,730,888 for the three months ended Sepember 30,
1999. For the nine months ended September 30, 2000, gross revenues decreased
18.1% to $34,323,298 from $41,895,447 in the year-earlier period. The decrease
in gross revenues for the nine month period of 2000 was primarily due to the low
volume of inventory of completed homes for sales compared to the significant
increase in volume of projects in the early stages of construction. During the
nine months of 2000, the Company sold 131 homes with an average sales price of
$262,000, a 27.2% decrease in the volume of home sales compared to 180 homes
with an average sales price of $232,750 for the nine months of 1999.
Gross profit increased to $1,760,022 in the third quarter of 2000 from
$630,079 in the third quarter of 1999. As a percentage of gross revenues, gross
profit increased by 6.7 percentage points to 10.7% in the third quarter of 2000
compared to 4.0% in the third quarter of 1999. The significant increase of gross
profit as a percentage of gross revenues during the third quarter of 2000
results from the increase in the number of home sales in the higher profit
margin projects Parc Metropolitan, Parkland Farms, and High Ridge Court compared
to the lower profit margin projects Summertree Park and Antares primarily sold
during 1999. For the nine months
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<PAGE>
ended September 30, 2000, gross profit increased to 6.6% from 4.5% for the
corresponding period in 1999. The increase results from the homes sold in the
higher profit margin projects during the nine months ended September 30, 2000.
In addition, during the nine months 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.
The Company introduced two new product lines at the Summertree Park, Elk
Grove project during the second quarter of 1999 to increase the absorption rate
and these were primarily sold during the third quarter. The increase in sales
price was not sufficient to offset the increased direct construction cost,
marketing and sales incentives, production overhead and interest costs and as a
result the Company recorded an impairment loss on real estate under development
of $2,519,521 during the third quarter of 1999.
General and administrative expenses increased to $718,548 in the three
months ended September 30, 2000 from $572,261 in the corresponding 1999 period.
For the nine months ended September 30, 2000, general and administrative
expenses increased to $1,973,097 from $1,566,614 in the corresponding 1999
period. The increase is due to the significant growth in the number of lots
under development.
11
<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 April 19, 2000 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, 1999 and unaudited consolidated financial statements for the quarter ended
December 31, 1999, 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 17, 2000 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, 2000, and under item 7(c) a press release announcing Calprop Corporations'
first quarter results
A Current Report on Form 8-K dated August 15, 2000 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
June 30, 2000, and under item 7(c) a press release announcing Calprop
Corporations' second 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)
November 13, 2000
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