-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KD2n7qxoDO9JdimNWjbyAFBxW3fqtrz8m4Gf2uxAf27FwxnjXcgDp7iooCDj2YN8 ulDWlksdfHWzZrjGl3uyMA== 0001005477-00-003193.txt : 20000417 0001005477-00-003193.hdr.sgml : 20000417 ACCESSION NUMBER: 0001005477-00-003193 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALPROP CORP CENTRAL INDEX KEY: 0000016496 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 954044835 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-06844 FILM NUMBER: 602493 BUSINESS ADDRESS: STREET 1: 13160 MINDANAO WAY STREET 2: STE 180 CITY: MARINA DEL REY STATE: CA ZIP: 90292 BUSINESS PHONE: 3103064314 MAIL ADDRESS: STREET 1: 13160 MINDANAO WAY STREET 2: STE 180 CITY: MARINA DEL REY STATE: CA ZIP: 90292 10-K405 1 FORM 10-K 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, 1999 Commission File Number 1-6844 CALPROP CORPORATION Incorporated in California I.R.S. Employer Identification No. 13160 Mindanao Way, #180 95-4044835 Marina Del Rey, California 90292 (310) 306-4314 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, no par value 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. $2,445,447 at February 22, 2000 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 10,290,535 Shares Outstanding at February 22, 2000 Documents Incorporated by reference: Portions of the registrant's definitive Proxy Statement for 2000 Annual Meeting of Shareholders are incorporated by reference into Part III of this report. PART I ITEM 1. Business General Calprop Corporation ("Calprop") designs, constructs and sells single-family detached homes and townhomes as part of condominiums or planned unit developments in California and Colorado. The Company selects and acquires the site, secures construction financing and constructs and sells homes. The Company also sells improved lots in California and Colorado. 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. During 1999, the Company was primarily engaged in the development of lots, and the construction and marketing of single-family detached homes and townhomes. As of December 31, 1999, the Company had eleven residential housing projects in various stages of development, consisting of 251 homes under construction (88 were in escrow), 886 lots under development, and 9 model homes used in selling the various types of housing developed. The Company's products range from homes for first-time buyers to custom homes. Residential Housing Industry The 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. 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, retirement 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. The Company's Strategy The Company's strategy has been to acquire land in or near major urban centers in California and Colorado 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 does not limit its operation to any specific location. The Company usually acquires project sites which are 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 zoning and other permits necessary for development into single-family housing and other urban uses. 2 Future Projects As the Company intends to continue specializing in the construction and sale of single-family and multifamily housing, the Company is continually considering potential projects for development. In addition to the construction and sale of single-family and multifamily housing, the Company is entering the market to construct and lease single-family and multifamily housing. This market would provide consistent cash flow in the cyclical industry of real estate development. During 1999, the Company has purchased land in the Northern California area for the construction of apartments. The Company also entered into a ground lease agreement for land for the construction of townhomes in the Southern California area for lease. 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. 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, 3 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 in which product is currently in the marketing stage are Parc Metropolitan, Mockingbird Canyon, and Saddlerock. 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 and Colorado 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 which the Company believes 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. 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. 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 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. All cash sales proceeds in excess of the specified release amount are 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 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. 4 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. 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 thirty eight full-time employees, including five executive officers, eighteen persons in its finance, marketing and operations departments, and fifteen 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 it believes are competitive with the building industry and the local economy. The Company believes that relations with its employees generally are excellent. 5 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 July 2002 and the Company expects to renew its license on or before expiration. ITEM 2. Properties Current projects The table below sets forth certain information relating to the Company's current projects as of December 31, 1999 and certain information relating to the Company's development operations during the previous twelve months.
Units Units Units Units sold Remaining sold under completed subject to units to 12 months construction and unsold construction construct ended as of as of as of as of Project 12/31/99 12/31/99 12/31/99 12/31/99 12/31/99 ------- ------------------------------------------------------------------ 1. Antares 91 1 -- 1 -- 2. Summertree Park 34 29 -- 13 -- 3. McGuire Luxury Apartments -- -- -- -- 182 4. Montserrat Estates 45 -- -- -- -- 5. Montserrat Classics -- -- -- -- 105 6. Creekside Estates -- 1 -- -- 30 7. Parkland Farms 35 34 -- 11 46 8. Parc Metropolitan -- 156 -- 29 226 9. Parcwest -- -- -- -- 68 10. High Ridge Court 21 37 -- 34 112 11. Saddlerock -- 2 -- -- 92 12. Templeton Heights -- -- -- -- 25 13. Mission Gorge -- -- -- -- -- ------------------------------------------------------------------ 226 260 -- 88 886 ================================================================== Total inventory units as of 12/31/99 (including 9 model units) 1,146 =============
Backlog- As noted in the above table, the total number of units sold subject to construction ("backlog") at December 31, 1999, was 88 units, with gross revenues of such backlog equal to $21,348,100. As of March 12, 2000, the backlog was 166 units, representing $45,750,000 compared to a backlog of 140 units representing $33,180,000 as of March 15, 1999. See also "Management Discussion and Analysis of Financial Condition and Results of Operations" for additional discussion of Real Estate Sales for 1999 and 1998. 1. Antares (Del Mar Heights, San Diego County, California) The Antares project, formerly Elysian 2, consists of 100 units of single-family detached housing. The project consists of three models ranging from 1,212 to 1,567 square feet with base sales prices before lot premiums or sales incentives of $210,500 to $310,500. As of December 31, 1999, ninety nine of the units closed escrow, and the remaining unit was sold subject to construction. The Company expects the project to be completely sold in the first quarter of 2000. The project is located about 20 miles north of San Diego along Interstate 5. In 1996, the Company formed DMM with RGC Courthomes, Inc., a California Corporation, ("RGC"). In December, 1996, 100 lots in the Antares project were acquired by DMM. The profits and losses of 6 DMM are to be distributed between the members as follows, 33.3% to RGC and 66.7% to the Company. The Company's construction loans for the 100 units was secured by Imperial Bank in 1997. The loans permitted borrowings by the Company of $17,029,313 on this project and boar interest at the bank's reference rate plus 1.5%. As of December 31, 1999, the loan had been paid in its entirety. The Company had an acquisition loan with the Curci-Turner Company on the entire 100 lots of the project. The loan permitted borrowing by the Company of $3,050,000 on this project and boar interest at 12%. The loan contains a profit sharing provision in the amount of 33.3% of "net proceeds" as defined in the agreement. As of December 31, 1999, the loan had been paid in its entirety. 2. Summertree Park (Elk Grove, Sacramento County, California) The Summertree Park project consists of 120 units of single-family detached housing. The first phase of 22 units and four models, which product has been discontinued, and second phase of 19 units, the first phase of the new product has been sold in its entirety as of December 31, 1998. The project presently consists of two models ranging from 1,518 to 2,288 square feet with base sales prices, before lot premiums or sales incentives, of $152,900 to $177,900. As of December 31, 1999, 29 units remains in phase five and six (13 units in escrow). The Company expects the project to be completely sold in the second quarter of 2000. The project is located about 20 miles south of Sacramento along Highway 99. The Company's construction loan for the fifth and sixth phase of construction was secured with Imperial Bank in 1999. The loan permits borrowing by the Company of $4,425,000 on this project and bears interest at the bank's reference rate plus 1.0%. As of December 31, 1999, the outstanding principal of this loan was $1,309,925, and the Company had available $1,999,556. The Company believes these funds are adequate to complete the construction of the fifth and sixth phase of construction. The Company has an acquisition/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 the prime plus 1.5%. The loan contains a profit sharing provision in the amount of 40% of "net proceeds" as defined in the agreement. As of December 31, 1999, $860,150 of this loan was outstanding. 3. McGuire Luxury Apartments (San Diego, California) The McGuire project consists of 182 units of single-family attached housing for lease. The Company entered into a 50 year ground lease agreement with an option to extend 20 additional years and the right of first refusal to purchase the land. The Company is currently in the entitlement process and the development of land. The Company plans to start construction in the current year. The project is located about 20 miles north of San Diego along Interstate 5. In 1999, the Company formed RGC Carmel Country Associates, LLC, a California limited liability company, ("RGC Carmel") with RGC. The profits and losses of PWA are to be distributed between the members as follows, 50% to RGC and 50% to the Company. 4. Montserrat Estates (Murrieta, Riverside County, California) The Montserrat Estates project consists of 119 units of single-family detached housing. The project consists of four models ranging from 2,280 to 3,411 square feet with base sales prices before lot premiums or sales incentives of $174,900 to $242,900. The Company closed escrow on all units as of December 31, 1999. The project is located about 65 miles southeast of Los Angeles along Highway 15. The Company secured a $752,000 acquisition loan from Oak Properties 24, LLC, the land seller, which bears interest at 4.0%. As of December 31, 1999, the outstanding balance on this loan was paid in its entirety. On October 30, 1997, the Company and PICal Housing Associates, L.P. ("PICal") formed Montserrat II, LLC. As part of the formation, Calprop contributed 119 lots of its Montserrat Estates project as well as certain obligations related to the lots, for a basis of $550,000, which approximated book value and fair value. PICal contributed $2,000,000 at the formation and contributed an additional $864,097. Pursuant to the operating agreement of Montserrat II, LLC, losses are allocated 100% first to Calprop until its capital account is zero, then to PICal. Income is allocated first to reverse losses, then to PICal to attain a return 7 on its capital, then to Calprop. As of December 31, 1998, PICal attained its return on capital and accordingly no longer owns ownership interest in Montserrat II, LLC. During February of 1999, an officer of the Company attained one percent ownership in the partnership in exchange for the extension of certain debts. The profits and losses of Mont II are to be distributed between the members as follows, 1% to Partner and 99% to the Company. The Company's construction loan on the 36 units in the fourth phase of construction was secured in 1998 with Imperial Bank. The loan permitted borrowing by the Company of $7,034,958 and boar interest at the prime plus 1.0%. As of December 31, 1999, the loan had been paid off in its entirety. 5. Montserrat Classics (Murrieta, Riverside County, California) The Montserrat Classics project consists of 105 lots. The Company is planning on building single-family homes averaging 2,280 to 3,411 square feet with average sales prices before lot premiums or sales incentives of $229,900 to $289,900. As of December 31, 1999, the Company had 105 lots under development. The project is located about 65 miles southeast of Los Angeles along Highway 15. The Company has an acquisition/construction loan with the Curci-Turner Company on the entire 105 lots of the project. The loan permits borrowing by the Company of $3,450,000 on this project and bears interest at 12%. The loan contains a profit sharing provision in the amount of 50% of "net proceeds" as defined in the agreement. As of December 31, 1999, $3,450,000 of the principal of this loan was outstanding. 6. Mockingbird Canyon (Unincorporated Territory of Riverside County, California) The Mockingbird Canyon project consists of 31 lots. The Company is planning on building single-family homes averaging 3,694 to 4,137 square feet with average sales prices before lot premiums or sales incentives of $429,900 to $459,900. As of December 31, 1999, the Company had one model under construction and 30 lots under development. The project is located about 90 miles east of Los Angeles and 30 miles south of San Bernardino along Interstate 15. The Company has an acquisition/construction loan with the Curci-Turner Company on the entire 31 lots of the project. The loan permits borrowing by the Company of $3,500,000 on this project and bears interest at 12%. The loan contains a profit sharing provision in the amount of 50% of "net proceeds" as defined in the agreement. As of December 31, 1999, $2,750,000 of the principal of this loan was outstanding. 7. Parkland Farms (Healdsburg, Sonoma County, California) The Parkland Farms project, formerly Parkland Hills, consists of 115 units of single-family detached housing. The project consists of three models ranging from 1,488 to 1,926 square feet with base sales prices before lot premiums or sales incentives of $259,900 to $294,900. As of December 31, 1999, the Company had 46 lots under development, 31 units under construction (eleven were in escrow), and three models. The project is located about 75 miles north of San Francisco along highway 101. In 1998, the Company formed Parkland Farms Development Co., LLC, a California limited liability company, ("Parkland") with an officer of the Company. In September, 1998, 115 lots in the Parkland Farms project were acquired by Parkland. The profits and losses of Parkland are to be distributed between the members as follows, 1% to Partner and 99% to the Company. The Company has acquisition/construction loans with the Curci-Turner Company on the entire 115 lots of the project. The loans permits borrowing by the Company of $4,808,201 on this project and bears interest at 12%. The loan contains a profit sharing provision in the amount of 50% of "net proceeds" as defined in the agreement. As of December 31, 1999, the principal balance of the loans totaled $2,999,888. The Company's construction loan on the 45 units in the first and second phase of construction was secured in 1998 with Imperial Bank. The loan permits borrowing by the Company of $14,679,000 and bears interest at the prime plus 1.0%. As of December 31, 1999, the outstanding principal of this loan was 8 $472,984, and the Company had available $1,154,062. The Company believes these funds are adequate to complete the construction of the first two phases of construction. The Company's construction loan on the remaining 70 units, phases three through five was secured in 1999 with Imperial Bank. The loan permits borrowing by the Company of $14,155,000 and bears interest at the prime plus 1.0%. As of December 31, 1999, the outstanding principal of this loan was $4,862,281, and the Company had available $8,662,521. The Company believes these funds are adequate to complete the construction of the last three phases of construction. 8. Parc Metropolitan The Parc Metropolitan project consists of three separate projects/products, Product A, Product B, and Product C for a total of 382 units. Product A consists of 130 lots. The Company is planning on building single-family attached housing. The project consists of two models ranging from 1,404 to 1,764 square feet with base sales prices before lot premiums or sales incentives of $340,000 to $375,000. Product B consists of 108 lots. The Company is planning on building single-family attached housing. The project consists of six models ranging from 1,012 to 1,369 square feet with base sales prices before lot premiums or sales incentives of $270,000 to $330,000. Product C consists of 144 lots. The Company is planning on building single-family attached housing. The project consists of two models ranging from 1,353 to 1,534 square feet with base sales prices before lot premiums or sales incentives of $320,000 to $360,000. The project is located approximately 45 miles south of San Francisco along highway 880 in the Silicon Valley area. In 1998, the Company formed RGCCLPO Development Co., LLC, a California limited liability company, ("RGCCLPO") with RGC. In September, 1998, 382 lots in the Metropolitan project were acquired by RGCCLPO. The profits and losses of RGCCLPO are to be distributed between the members as follows, 50% to RGC and 50% to the Company. During 1999, the Company acquired RGC's 50% partnership interest in RGCCLPO to attain 100% ownership as of December 31, 1999. The Company acquired the land through seller financing with Ford Motor Company and Ford Motor Land Development Corporation on the entire 382 lots and the land for the Parcwest Apartments project. The original note balance of $12,850,000 bears interest at 9%. As of December 31, 1999, $7,231,714 was outstanding. The Company's acquisition and development loan on the entire 382 lots of the project was secured in 1998 with Lowe Enterprises Residential Advisors, ("Lowe"). The loan permits borrowing by the Company of $9,700,000 and bears interest at the prime plus 2.0%. After repayment of principal and interest, Lowe will receive, as participating interest, a 27% IRR calculated on an annual basis. As of December 31, 1999, the outstanding principal of this loan was $9,241,966. The Company's construction loan on the first and second phase of construction for Product A was secured with Imperial Bank in 1998. The loan permits borrowing by the Company of $13,773,142 on this project and bears interest at the bank's reference rate plus 1.0%. As of December 31, 1999, the outstanding principal of this loan was $6,503,102, and the Company had available $7,100,829. The Company believes these funds are adequate to complete the construction of the first and second phase of construction. The Company's construction loan on the first and second phase of construction for Product B was secured with Imperial Bank in 1999. The loan permits borrowing by the Company of $10,604,352 on this project and bears interest at the bank's reference rate plus 1.0%. As of December 31, 1999, the outstanding principal of this loan was $3,590,862, and the Company had available $6,766,445. The Company believes these funds are adequate to complete the construction of the first and second phase of construction. The Company's construction loan on the first and second phase of construction for Product C was secured with Imperial Bank in 1998. The loan permits borrowing by the Company of $12,342,388 on this project and bears interest at the bank's reference rate plus 1.0%. As of December 31, 1999, the outstanding principal of this loan was $3,327,849, and the Company had available $8,705,310. The Company believes these funds are adequate to complete the construction of the first and second phase of 9 construction. 9. Parcwest The Parcwest project consists of 68 lots. The Company is in the preliminary planning stages of the project to start construction in 2000. The project is located approximately 45 miles south of San Francisco along highway 880 in the Silicon Valley area. In 1999, the Company formed PWA Associates, LLC, a California limited liability company, ("PWA") with RGC. In December, 1999, 68 lots in the Parcwest project were acquired by PWA. The profits and losses of PWA are to be distributed between the members as follows, 50% to RGC and 50% to the Company. 10. High Ridge Court The High Ridge Court project, formerly Hunters Chase, consists of 170 units of single-family detached housing. The project consists of three models ranging from 1,146 to 1,884 square feet with base sales prices before lot premiums or sales incentives of $139,900 to $186,900. The project is located approximately 3 miles west of I-25 in the city of Thornton. The Company has an acquisition loan with the Curci-Turner Company on the entire 170 lots of the project. The loan permits borrowing by the Company of $2,500,000 on this project and bears interest at 12%. The loan contains a profit sharing provision in the amount of 50% of "net proceeds" as defined in the agreement. As of December 31, 1999, $2,196,261 of the principal of this loan was outstanding. The Company's acquisition and development loan for the remaining three phases of the project was secured in 1999 with First American Bank Texas. The loan permits borrowing by the Company of $2,041,000 and bears interest at the prime plus 1.0%. As of December 31, 1999, the outstanding principal of this loan was $316,976, and the Company had available $1,503,498. The Company believes these funds are adequate to complete the land development of phases three through five. The Company's revolving construction loan on the entire 170 lots of the project was secured in 1998 with First American Bank Texas. The revolving loan permits the Company to have a maximum outstanding balance of $5,000,000 for the construction of the High Ridge and Saddlerock projects. The loan bears interest at the prime plus 1.0%. As of December 31, 1999, the outstanding principal balance of the High Ridge construction loan was $2,241,749. 11. Saddlerock The Saddlerock project consists of 94 lots. The Company is planning on building single-family homes ranging from 1,899 to 2,900 square feet with base sales prices before lot premiums or sales incentives of $212,000 to $272,000. The project is located adjacent to highway E470 approximately 7 miles east of I-25 in the city of Aurora. The Company has an acquisition/construction loan with the Curci-Turner Company on the entire 94 lots of the project. The loan permits borrowing by the Company of $2,350,000 on this project and bears interest at 12%. The loan contains a profit sharing provision in the amount of 50% of "net proceeds" as defined in the agreement. As of December 31, 1999, $2,350,000 of the principal of this loan was outstanding. The Company's acquisition and development on the entire 94 lots of the project was secured in 1998 with First American Bank Texas. The loan permits borrowing by the Company of $2,606,800 and bears interest at the prime plus 1.0%. As of December 31, 1999, the outstanding principal of this loan was $1,879,436 and the Company had available $291,878. The Company believes these funds are adequate to complete the development of the 94 lots. 10 The Company's revolving construction loan on the entire 94 lots of the project was secured in 1998 with First American Bank Texas. The revolving loan permits the Company to have a maximum outstanding balance of $5,000,000 for the construction of the Saddlerock and High Ridge projects. The loan bears interest at the prime plus 1.0%. As of December 31, 1999, the outstanding principal balance of the Saddlerock construction loan was $941,349. 12. Templeton Heights The Templeton Heights project consists of 25 lots. The lots are currently in escrow for sale and scheduled to close in February 2000. The property is located approximately 5 miles east of I-25 in the city of Colorado Springs. 13. Mission Gorge (San Diego, San Diego County, California) In 1987, the Company purchased approximately 200 acres of land in San Diego. The 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 formed Mission Gorge, LLC, a California limited liability company, with the Curci-Turner Company for the purposes of developing the 200 acres of the Mission Gorge project. The net proceeds are to be divided equally, as defined in the operating agreement, among the two members, Calprop and Curci-Turner Company. ITEM 3. Legal Proceedings There are no 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 Company's security holders during the fourth quarter of 1999. 11 PART II ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters Since October 1, 1996, transactions in the Company's common stock, its only class of common equity security, have been regularly quoted on the OTC Bulletin Board under the symbol CLPO. Prior to October 1, 1996, the Company's common stock was traded on the American Stock Exchange under the symbol, CPP. First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1999 stock price range- High $ 1 5/8 $ 2 $ 2 5/16 $ 2 1/16 Low 1 3/8 1 1/2 2 1 9/16 1998 stock price range- High 1 1/4 1 3/4 1 7/8 1 5/8 Low 1 1/16 1 1/16 1 9/16 1 1/4 As of February 22, 2000, there were 510 record holders of common stock. Dividends: There have been no cash dividends declared in the past two years, nor was there a stock dividend declared during 1999 or 1998. The dividend policy, whether cash or stock, is reviewed by the Board of Directors on an annual basis. During 1999, there were no restrictions, as a result of a loan or other agreement, limiting the Company's ability to issue a dividend. 12 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, 1999
1999 1998 1997 1996 1995 SALES AND OPERATING REVENUE $52,598,849 $33,071,722 $22,908,649 $13,717,126 $17,061,239 NET (LOSS) INCOME (752,582) 5,368,006 (1,620,211) (9,200,342) $513,381 BASIC (LOSS) INCOME PER COMMON SHARE $(0.07) $0.54 $(0.18) $(1.28) $0.01 DILUTED (LOSS) INCOME PER COMMON SHARE $(0.07) $0.52 $(0.18) $(1.28) $0.01 AS OF DECEMBER 31: TOTAL ASSETS $87,817,643 $72,521,889 $30,956,802 $27,533,378 $31,805,263 LONG TERM OBLIGATIONS $17,201,168 $24,037,842 $14,267,931 $14,993,355 $10,444,731
13 ITEM 7. 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. The Company began experiencing difficulties due to the downturn in the California real estate market during the second quarter of 1990, and through 1996 the Company continued to be impacted by the general economic downturn. In response to these conditions the Company began utilizing marketing programs which included price reductions and incentives to potential buyers. During 1997 however, the California real estate market began to experience a recovery. In general, the Company's products were well received, exemplified by an increase in the number of units sold subject to construction ("backlog") at December 31, 1999, 1998, and 1997 of 88, 123, and 114 units, respectively compared to 33 units as of 1996. Additionally, the Company's sales revenue increased from $22,908,649 in 1997 to $33,071,722 in 1998, and to $52,598,849 in 1999. The increase in sales revenue between 1997, 1998, and 1999 is primarily attributable to an increase in units available for sale resulting from an increase in production. Units increased from 102 in 1997, 162 in 1998, and to 226 in 1999. The Company decreased its gross profit to $2,356,734 in 1999 from $2,627,524 in 1998. As a percentage of gross revenues, gross profit decreased by 3.46 percentage points to 4.48% in 1999 compared to 7.94% in 1998. The significant decrease of gross profit as a percentage of gross revenues during 1999 results from the increase in the number of home sales in the lower profit margin projects Summertree Park and Antares compared to the higher profit margin project Montserrat Estates primarily sold during 1998. In addition, the Cierra Del Lago project which completed construction in early 1998 and all homes were sold in the third quarter of 1998 had incurred warranty costs of approximately $615,000 recognized in 1999. The Company increased its gross profit to $2,627,524 in 1998 from $54,702 in 1997. As a percentage of gross revenues, gross profit increased by 7.7 percentage points to 7.94% in 1998 compared to .24% in 1997. The significant increase of gross profit as a percentage of gross revenues during 1998 from 1997 results from the increase in the number of home sales in the higher profit margin projects in 1998 compared to 1997. During 1997, the Company was selling homes in the Cypress Cove and Summertree Park projects both of which had been adjusted for impairment in 1996. The 1999 impairment loss on the Summertree Park, Elk Grove project is primarily a result of the introduction of two new product lines 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 Company had 29 remaining units as of December 31, 1999. Results of operations The Company had loss before benefit for income taxes of $2,435,955 in 1999 from income before benefit for income taxes of $594,306 in 1998, and a loss before benefit for income taxes of $1,806,068 in 1997. The net loss suffered in 1999 is primarily a reflection of the recognition of asset impairment of the Summertree Park, Elk Grove project in the amount of $2,519,521. The change from a net loss to a net profit in 1998 is primarily due to increase in profit from operations as the Company began selling homes in its Cierra Del Lago and Montserrat Estates projects. The net loss in 1997 is primarily due to the impact of impairment losses on three projects recognized in 1996 resulting in low gross profit in 1997. 14 Gross revenues increased to $52,598,849 in 1999 from $33,071,722 in 1998, up 59%. Gross revenues were $22,908,649 in 1997. In 1999, the Company sold 226 homes, with an average sales price of $232,738. In 1998, the Company sold 162 homes, with an average sales price of $204,146. In 1997, the Company sold 102 homes, with an average sales price of $224,595. The overall gross profit percentage before recognition of impairment loss of the Company was 4.5%, 7.9%, and 0.2% in 1999, 1998, and 1997, respectively. General and administrative expenses were $2,309,225 in 1999 and $1,752,909 in 1998, up 31.7%. General and administrative expenses were $1,444,096 in 1997. The increase in 1999 from 1998 is the result of an increase in payroll costs, and increased accounting costs due to the growth of the Company. Benefit for income taxes of $1,683,373 in 1999 and $4,773,700 in 1998 includes the utilization of unrecognized deferred income tax benefit of $871,745 and $4,800,000, respectively to recognize a deferred tax asset. The recognized deferred tax asset is based upon expected utilization of net operating loss carryforwards. The realization of the deferred tax asset will require aggregate taxable income of approximately $16,250,000 in future years. Benefit for income taxes in 1997 of $185,857 represents the net refund resulting from a claim filed for the carryback of losses related to certain qualifying expenses incurred in 1996. Liquidity and capital resources As of December 1999, the Company has loans outstanding to financial institutions, secured by the development projects' trust deeds, with rates ranging from 6.25% to prime plus 2.0% and maturing March 2000 through July 2029. As of December 31, 1999, the outstanding balances owing on these loans totaled $48,216,139. As of December 31, 1999, the Company had remaining loan commitments from banks and financial institutions of approximately $44,287,000, 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 December 31, 1999, the Company does not have any material commitments for capital expenditures in 1999. Related Party Notes - The Company has the following notes payable to Curci at December 31, 1999 and 1998. Under the terms of certain of the notes payable, Curci participates in "Net Proceeds" from certain projects, as defined in the loan agreement, which is comparable to net profit:
Project Profit share December 31, December 31, 1999 1998 - --------------------- ----------------- ------------------ ------------------ Summertree Park 40% $860,150 $1,701,894 Antares 33% -- 2,816,600 Montserrat 50% -- 104,250 Parkland Farms 50% 2,999,888 3,532,739 High Ridge Court 50% 2,196,261 2,291,297 Saddlerock 50% 2,350,000 2,350,000 Mockingbird Canyon 50% 2,750,000 2,513,808 Montserrat Classics 50% 3,450,000 -- ------------------ ------------------ 14,606,299 15,310,588 ------------------ ------------------ Other: Unsecured loans 1,604,250 1,400,000 ------------------ ------------------ $16,210,549 $16,710,588 ================== ==================
During 1999, the Company purchased RGC's fifty percent ownership in RGCCLPO. Consideration for the purchase consisted of issuance of a note payable for $2,000,000 and payment of cash of $1,000,000. As of December 31, 1999, the outstanding principal balance on this loan totaled $2,000,000. During 1996, the Company converted its Preferred Stock to Common Stock and the accrued Preferred Stock dividend due an officer of the Company and a related party of $581,542 and $472,545, respectively, was exchanged for notes with interest payable at 10%. As of December 31, 1999, the outstanding principal due an officer of the Company and a related party on these notes was $581,542 and $462,330, respectively. As of December 31, 1998, $581,542 and $472,545 was outstanding. 15 Included in notes payable to related parties is a note payable to Mission Gorge, LLC which bear interest at 12%. Outstanding balances as of December 31, 1999 and 1998 was $2,000,000. Included in notes payable to related parties are notes payable to an officer which bear interest at 12%. Outstanding balances as of December 31, 1999 and 1998 were $2,865,611 and $930,000, respectively. The Company has other loans from related parties, which provide for interest at 10% per annum and are due on demand. As of December 31, 1999 and 1998 these loans totaled $740,000 and $175,000, respectively. As of December 31, 1999, the Company had 11 remaining projects in various stages of development. During 1999, the Company had five producing revenues from completed homes: Summertree Park, Montserrat Estates, Antares, Parkland Farms, and High Ridge Court. As of December 31, 1999, the Montserrat Estates project was completed and all homes were closed in escrow. The remaining six projects, Creekside Estates, Montserrat Classics, Parc Metropolitan, Parcwest Apartments, Saddlerock, and McGuire Luxury Apartments are in the initial stages of development. The Company enters 2000 with 251 homes under construction, of which 88 are sold, and 9 model units. Additionally, the Company has an inventory of 886 lots under development. Based on its agreements with its lenders, the Company believes that it will have sufficient liquidity to finance its construction projects in 1999 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. 16 Quantitative and Qualitative Disclosures About Market Risk The table below represents the contractual balances of our financial instruments at the expected maturity dates as well as their fair value at December 31, 1998. The expected maturity categories take into consideration actual amortization of principal and does not take into consideration reinvestment of cash. The weighted average interest rate for various liabilities presented are actual as of December 31, 1998.
Principal maturing in: Fair value ------------------------------------------------------------------------- December 31, 1999 2000 2001 2002 2003 Thereafter Total 1998 =================================================================================================== Interest rate sensitive liabilities Variable rate borrowings $19,198,445 $7,663,835 $ -- $26,862,280 $26,862,280 Average interest rate 8.86% 9.57% 9.06% Fixed rate borrowings 15,158,506 5,273,353 11,100,654 31,532,513 31,532,513 Average interest rate 11.81% 10.66% 9.00% 10.63% =================================================================================================== $34,356,951 $12,937,188 $11,100,654 $58,394,793 $58,394,783 =================================================================================================== Weighted average interest rate 10.16% 10.01% 9.00% 9.91% ===================================================================================================
The table below represents the contractual balances of our financial instruments at the expected maturity dates as well as their fair value at December 31, 1999. The expected maturity categories take into consideration actual amortization of principal and does not take into consideration reinvestment of cash. The weighted average interest rate for various liabilities presented are actual as of December 31, 1999.
Principal maturing in: Fair value ------------------------------------------------------------------------- December 31, 2000 2001 2002 2003 2004 Thereafter Total 1999 =================================================================================================== Interest rate sensitive liabilities Variable rate borrowings $40,011,138 $314,231 $ -- $40,325,369 $40,325,369 Average interest rate 9.74% 9.50% 9.74% Fixed rate borrowings 15,863,865 15,886,937 1,000,000 32,750,802 32,750,802 Average interest rate 11.64% 10.58% 6.35% 10.96% =================================================================================================== $55,875,003 $16,201,168 $1,000,000 $73,076,171 $73,076,171 =================================================================================================== Weighted average interest rate 10.28% 10.56% 6.35% 10.29% ===================================================================================================
Year 2000 Issue The Company successfully implemented its year 2000 remediation plan for all affected information technology-based systems and other remediation plans related to non-Management Information Systems. Following the arrival of the Year 2000, the Company has not experienced any problems, with devices and raw materials manufactured and/or supplied by third parties. There was no interruption in the Company's ability to build and deliver its products and transact business with its suppliers and customers. The Company has received no notification from vendors regarding Year 2000 issues and the Company continues to monitor its systems and suppliers for any unanticipated issues that may not yet have manifested themselves. 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 1996 and 1997 in California, thus preventing the Company from increasing sales prices to cover increased costs. In 1998 and 1999, due to the strength and stability of the economy, the real estate market has experienced increases in sales price and the number of home buyers. 17 ITEM 8. Financial Statements and Supplementary Data Page No. Financial Statements: 24 Independent Auditors' Report 25 Consolidated Balance Sheets as of December 31, 1999 and 1998 26 Consolidated Statements of Operations For Each of the Three Years Ended December 31, 1999 27 Consolidated Statements of Stockholders' Equity For Each of the Three Years Ended December 31, 1999 28 Consolidated Statements of Cash Flows For Each of the Three Years Ended December 31, 1999 30 Notes to Consolidated Financial Statements FINANCIAL STATEMENT SCHEDULE: 42 II - Valuation and Qualifying Accounts -- Three Years Ended December 31, 1999 Schedules other then listed above are omitted because they are not applicable, not required, or the information required to be set forth therein is included in the financial statements or the notes thereto. ITEM 9. Disagreements on Accounting and Financial Disclosure None. 18 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 - 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' 1998 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. A Current Report on Form 8-K dated August 18, 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 June 30, 1999, and under item 7(c) a press release announcing Calprop Corporations' second quarter results. A Current Report on Form 8-K dated November 16, 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 September 30, 1999, and under Item 7(c) a press release announcing Calprop Corporation's 1999 third quarter results. 19 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) /s/ Victor Zaccaglin April 13, 2000 - --------------------------------- ---------------------- 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 April 13, 2000 - -------------------------------- -------------------- Mark F. Spiro Date Vice President/Secretary and Treasurer (Chief Financial and Accounting Officer) /s/ Ronald S. Petch April 13, 2000 - -------------------------------- -------------------- Ronald S. Petch, Date President /s/ E. James Murar April 13, 2000 - -------------------------------- -------------------- E. James Murar Date Director /s/ Mark T. Duvall April 13, 2000 - -------------------------------- -------------------- Mark T. Duvall Date Director /s/ John L. Curci April 13, 2000 - --------------------------------- -------------------- John L. Curci Date Director /s/ Victor Zaccaglin April 13, 2000 - --------------------------------- -------------------- Victor Zaccaglin Date Chairman of the Board Chief Executive Officer 20 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Calprop Corporation: We have audited the accompanying consolidated balance sheets of Calprop Corporation and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. 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 the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 consolidated financial statements present fairly, in all material respects, the financial position of Calprop Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. 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 April 13, 2000 21 CALPROP CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998
Assets 1999 1998 ------------------------------------ REAL ESTATE UNDER DEVELOPMENT (Notes 3 and 5) $79,070,791 $65,282,197 ------------------------------------ OTHER ASSETS: Cash and cash equivalents 1,405,663 1,590,403 Deferred tax asset (Note 6) 6,500,000 4,800,000 Other assets (Note 4) 841,189 849,289 ------------------------------------ Total other assets 8,746,852 7,239,692 ------------------------------------ $87,817,643 $72,521,889 ==================================== Liabilities and Stockholders' Equity TRUST DEEDS AND NOTES PAYABLE (Note 5) $48,216,139 $37,524,507 RELATED PARTY NOTES (Note 5 ) 24,860,032 20,870,286 ------------------------------------ Total trust deeds, notes payable and related party notes 73,076,171 58,394,793 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 6,391,621 5,056,010 WARRANTY RESERVES 358,287 284,624 ------------------------------------ Total liabilities 79,826,079 63,735,427 ------------------------------------ MINORITY INTERESTS 228,191 326,941 ------------------------------------ COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDERS' EQUITY (Note 8): Common stock, no par value; $1 stated value, 20,000,000 shares authorized; 10,293,735 and 10,284,135 shares issued and outstanding at December 31, 1999 and 1998, respectively 10,293,735 10,284,135 Additional paid-in capital 25,849,961 25,851,130 Deferred Compensation (Note 7) (170,327) (241,130) Stock Purchase Loans (Note 7) (496,934) (474,134) Accumulated deficit (27,713,062) (26,960,480) ------------------------------------ Total Equity 7,763,373 8,459,521 ------------------------------------ $87,817,643 $72,521,889 ====================================
See notes to consolidated financial statements 22 CALPROP CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1999
1999 1998 1997 ------------------------------------------------ DEVELOPMENT OPERATIONS (Note 3): Real estate sales $52,598,849 $33,071,722 $22,908,649 Cost of real estate sales 50,242,115 30,444,198 22,853,947 ----------------------------------------------- 2,356,734 2,627,524 54,702 Recognition of impairment of real estate under development (Note 3) (2,519,521) ----------------------------------------------- (Loss) income from development operations (162,787) 2,627,524 54,702 Other income 107,610 87,405 91,738 Other expenses: General and administrative 2,309,225 1,752,909 1,444,096 Interest expense (Note 5) 70,304 135,081 339,766 Investment property holding costs 185,838 ----------------------------------------------- Total other expenses 2,379,529 1,887,990 1,969,700 Minority interests 1,249 232,633 (17,192) ----------------------------------------------- (Loss) income before benefit for income taxes (2,435,955) 594,306 (1,806,068) Benefit for income taxes (Note 6) 1,683,373 4,773,700 185,857 ----------------------------------------------- NET (LOSS) INCOME $(752,582) $5,368,006 $(1,620,211) =============================================== BASIC (LOSS) INCOME PER SHARE (NOTE 8) $(0.07) $0.54 $(0.18) =============================================== DILUTED (LOSS) INCOME PER SHARE (NOTE 8) $(0.07) $0.52 $(0.18) ===============================================
See notes to consolidated financial statements 23 CALPROP CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 1999
Common Stock ----------------------- Additional Deferred Stock Total Paid-In Comp- Purchase Accumulated Stockholders' Shares Amount Capital ensation Loans Deficit Equity -------------------------------------------------------------------------------------- BALANCE, January 1, 1997 9,224,585 $9,224,585 $25,911,579 $(68,655) $(30,708,275) $4,359,234 Net loss (1,620,211) (1,620,211) Net issuance of shares under 1989 stock incentive plan (Note 7) 80,200 80,200 (24,673) (55,527) Amortization of deferred compensation (Note 7) 17,587 17,587 ----------------------------------------------------------------------------------------- BALANCE, December 31, 1997 9,304,785 9,304,785 25,886,906 (106,595) (32,328,486) 2,756,610 Net income 5,368,006 5,368,006 Net issuance of shares under 1989 stock incentive plan (Note 7) 98,100 98,100 64,725 (162,825) Issuance of shares upon option exercise 151,250 151,250 (25,827) 125,423 Issuance of shares upon executive loan (Note 7) 730,000 730,000 (74,674) $(455,938) 199,388 Accrual of interest under stock purchase loan (18,196) (18,196) Amortization of deferred compensation (Note 7) 28,290 28,290 ----------------------------------------------------------------------------------------- BALANCE, December 31, 1998 10,284,135 10,284,135 25,851,130 (241,130) (474,134) (26,960,480) 8,459,521 Net loss (752,582) (752,582) Cancellation of shares under 1989 stock incentive plan (Note 7) (13,400) (13,400) 9,200 Issuance of shares upon option exercise 23,000 23,000 (1,169) 17,631 Accrual of interest under stock purchase loan (22,800) (22,800) Amortization of deferred compensation (Note 7) 61,603 61,603 ----------------------------------------------------------------------------------------- BALANCE, December 31, 1999 10,293,735 $10,293,735 $25,849,961 $(170,327) $(496,934) $(27,713,062) $7,763,373 =========================================================================================
See notes to consolidated financial statements 24 CALPROP CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 1999
1999 1998 1997 ------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ (752,582) $ 5,368,006 $ (1,620,211) Adjustments to reconcile net (loss) income to net cash used in operating activities: Minority interests 1,249 232,633 (17,192) Depreciation and amortization 121,114 73,414 50,677 Deferred income taxes (1,700,000) (4,800,000) Recognition of impairment of real estate under development 2,519,521 Provision for warranty reserves 456,283 288,977 207,844 Change in assets and liabilities Decrease (increase) in other assets 34,284 (261,994) (203,505) Increase in accounts payable and accrued liabilities 1,335,611 1,740,563 929,102 Decrease in warranty reserves (382,619) (292,631) (180,967) Additions to real estate under development (66,550,230) (69,400,417) (26,210,556) Cost of real estate sales 50,242,115 30,444,198 22,853,947 Accrued interest for executive stock purchase loans (22,800) (18,196) ------------------------------------------------- Net cash used in operating activities (14,698,054) (36,625,447) (4,190,861) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (85,695) (77,605) (21,152) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under related party notes 10,970,840 13,852,845 6,652,968 Payments under related party notes (6,981,094) (5,701,388) (6,342,689) Borrowings under trust deeds and notes payable 59,300,047 57,750,061 15,318,368 Payments under trust deeds and notes payables (48,608,415) (26,939,363) (13,616,425) Contributions from joint venture partners 770,558 2,483,019 Distributions to joint venture partners (100,000) (2,864,097) (407,980) Proceeds from issuance of common stock 17,631 324,811 ------------------------------------------------- Net cash provided by financing activities 14,599,009 37,193,427 4,087,261 ------------------------------------------------- Net (decrease) increase in cash and cash equivalents (184,740) 490,375 (124,752) Cash and cash equivalents at beginning of the year 1,590,403 1,100,028 1,224,780 ------------------------------------------------- Cash and cash equivalents at end of the year $ 1,405,663 $ 1,590,403 $ 1,100,028 ================================================
See notes to consolidated financial statements 25 CALPROP CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED DECEMBER 31, 1999
1999 1998 1997 -------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest (net of amount capitalized) $57,524 $135,081 $339,766 Income taxes 21,727 26,300 NON-CASH INVESTING AND FINANCING ACTIVITIES: Exchange of loan from related party to minority interest $120,000 Issuance of shares in exchange for executive loans to officers 162,825 Receipt of executive loans in exchange for issuance of shares 455,938 Sale of the Victorville property 2,975,982 Reduction of debt related to the sale of the Victorville property 2,975,982 Acquisition of 50% interest in joint venture in exchange for cash and a note payable of $2,000,000 2,000,000
See notes to consolidated financial statements 26 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (1) Organization Nature of operations - Calprop Corporation ("the Company"), a California Corporation, constructs and sells single-family detached and attached homes and townhomes as part of condominiums or planned unit developments in California and Colorado. As of December 31, 1999, the Company had eleven residential housing projects in various stages of development, consisting of 251 homes under construction (88 were in escrow), 886 lots under development, and 9 model homes used in selling the various types of housing developed. The Company's products range from homes for first-time buyers to custom homes. Basis of consolidation - The accompanying financial statements include the accounts of Calprop Corporation and all its subsidiaries. The Company has consolidated the financial statements of the following entities:
- -------------------------------------------------------------------------------------------------------- Ownership interest at Entity December 31, 1999 Development - -------------------------------------------------------------------------------------------------------- Colorado Pacific Homes, Inc. ("CPH") 80% Real estate in the state of Colorado DMM Development, LLC ("DMM") 50% Cierra del Lago and Antares projects, California Montserrat Development Co., LLC ("MDC") 99-100% Montserrat project, California Montserrat II, LLC ("Mont II") 99% Montserrat Estate project, California Parkland Farms Development Co., LLC 99% 115 lots in Healdsburg, California ("Parkland") RGCCLPO Development Co., LLC ("RGCCLPO") 100% 382 lots in Milpitas, California PWA Associates, LLC ("PWA") 50% 68 unit apartment in Milpitas, California RGC Carmel Country Associates, LLC ("RGC 50% 182 townhomes for lease in San Diego, Carmel") California. - --------------------------------------------------------------------------------------------------------
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. MDC: MDC was formed February 10, 1997 by the Company and an officer of the Company. The Company received ninety-nine percent of the profits from the development of the first 24 lots and one hundred percent of the profits from the development of 29 additional lots. The project was completed and the entity was dissolved during 1998. 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. Parkland: Pursuant to the operating agreement of Parkland, Calprop 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, Calprop was entitled to receive fifty percent of the profits of RGCCLPO, and the other member, RGC, was entitled to receive the 27 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 remaining fifty percent of the profits. During December 1999, Calprop purchased all of RGC's ownership interest in RGCCLPO. As a result of the consolidations, the Company has recorded minority interest of $228,191 and $326,941 as of December 31, 1999, and December 31, 1998, respectively. (2) Summary of Significant Accounting Policies Revenue and cost recognition - Revenue from real estate sales and related costs are recognized at the close of escrow, when title passes to the buyer. Cost of real estate sales is based upon the relative sales value of units sold to the estimated total sales value of the respective projects. The Company 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. During 1999, the Company recorded an impairment loss of $2,519,521 (Note 3). Cash and cash equivalents - For purposes of the statement of cash flows, cash and cash equivalents include readily marketable securities with an original maturity of 90 days or less. Income Taxes - Deferred income tax assets and liabilities are computed for differences between the financial statement and income tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Income tax expense is the income tax payable or refundable for the period plus or minus the change during the period in deferred income tax assets and liabilities. Office Equipment and other - Office equipment and other is stated at cost less accumulated depreciation. Equipment is depreciated utilizing the straight-line method over its estimated useful life of five years. Warranty reserves - The Company provides a one-year warranty to purchasers of single-family homes. The Company accrues estimated warranty costs on properties as they are sold. Estimated warranty costs are based on actual warranty costs. In addition, to the Company's one-year warranty, 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 on their insurance policy 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. Employee Stock Plans - The Company adheres to APB Opinion No. 25 to account for its stock-based compensation awards to employees and discloses the required pro forma effect on net income and earnings per share consistent with SFAS No. 123, "Accounting for Stock Based Compensation." 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 28 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Segment Information - The Company is in one business segment, the residential housing industry, and as a result, substantially all of the assets of the Company are devoted to that segment and accordingly do not provide additional segment disclosure. Reclassifications - Certain prior year amounts have been reclassified to conform to the 1999 presentation. Fair Value of Financial Instruments - Management believes the recorded value of notes payable to financial institutions approximate the fair market value as a result of variable interest rates and short term durations. Management also believes that it is not practical to estimate the fair value of related party notes. 29 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (3) Real Estate Under Development Real estate under development at December 31, 1999 and 1998 is summarized as follows:
1999 1998 --------------------------------------------------------- Amount Units/Lots Amount Units/Lots --------------------------------------------------------- Single-family residences $19,822,171 111 $27,653,597 184 Townhomes 14,503,476 41 2,731,232 12 Apartments 251,949 --------------------------------------------------------- Total single family residences 34,577,596 152 30,384,829 196 Land under development 41,980,927 994 32,417,774 918 --------------------------------------------------------- Total real estate under development before investment in joint venture 76,558,523 1,146 62,802,603 1,114 Investment in joint venture 2,512,268 2,479,594 --------------------------------------------------------- Total real estate under development $79,070,791 1,146 $65,282,197 1,114 =========================================================
Investment in joint venture represents the Company's investment in Mission Gorge, LLC. In 1996, Mission Gorge, LLC, a California limited liability company, was formed and the Company transferred its Mission Gorge property to the joint venture. In connection with the formation, the Curci-Turner Company ("Curci"), exchanged a $2,000,000 note receivable from the Company for a 50% ownership interest in Mission Gorge, LLC. A principal of the Curci-Turner Company is a stockholder of the Company. Development operations in 1999, 1998 and 1997 are summarized as follows:
1999 1998 1997 ---------------------------------------------------------------------- REAL ESTATE SALES: Amount Units Amount Units Amount Units ---------------------------------------------------------------------- Single-family residences $52,598,849 226 $33,071,722 162 $14,283,509 71 Townhomes 8,625,140 31 ---------------------------------------------------------------------- Total Sales 52,598,849 226 33,071,722 162 22,908,649 102 COST OF REAL ESTATE SALES: Single-family residences 49,576,788 30,124,006 14,090,308 Townhomes 198,089 31,215 8,555,795 Apartments 10,956 Warranty 456,282 288,977 207,844 -------------- ------------- ------------- Total Cost of Sales 50,242,115 30,444,198 22,853,947 Recognition of impairment of real estate under development (2,519,521) -------------- ------------- ------------- (Loss) income from development operations $(162,787) $2,627,524 $54,702 ============== ============= =============
During 1999, the Company recorded an impairment loss on its Summertree Park, Elk Grove project of $2,519,521. The impairment loss on the Summertree Park, Elk Grove project was primarily a result of a slower absorption caused by a sagging real estate market in the Sacramento area since the inception of the project. The Company introduced two new product lines at the Summertree Park, Elk Grove project during the second quarter of 1999 to 30 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 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. (4) Other Assets Other assets at December 31, 1999 and 1998 are as follows: Interest Rate Outstanding Balance ------------- ---------------------------- 1999 1998 ---------------------------- Trust deeds receivable 10%-12% $118,853 $132,240 Less reserve (50,000) (50,000) ---------------------------- Net trust deeds receivable 68,853 82,240 Related party receivable 70,000 Deposits in escrow 1,000 225,000 Office equipment and other, net of accumulated depreciation of $182,823 and $123,312 as of December 31, 1999 and 1998, respectively 617,117 453,274 Prepaid expenses 84,219 88,775 ---------------------------- Other assets $841,189 $849,289 ============================ The trust deeds receivable are collateralized by lots, houses, and condominium units sold by the Company, and mature from 2013 to 2014. (5) Trust Deeds, Notes Payable and Related Party Notes Trust deeds, notes payable and related party notes as of December 31, 1999 and 1998 are as follows: Balance ---------------------------- 1999 1998 ---------------------------- Trust Deeds and Notes Payable: Notes payable to financial institutions, secured by development projects' trust deeds - variable rates ranging from 6.25% to prime + 2.0%, (10.50% at December 31, 1999); maturing March 2000 through July 2029 $48,216,139 $37,524,507 ============================ Related Party Notes: Notes payable to related parties, secured by development projects' trust deeds - rates of prime + 1.5%, (10% at December 31, 1999) and 12%; maturing on demand through December 2001 $16,606,299 $17,310,588 Notes payable to related parties, unsecured - rates of 10% and 12%; maturing on demand through December 2001 8,253,733 3,559,698 ---------------------------- Total related party notes $24,860,032 $20,870,286 ============================ 31 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 As of December 31, 1999, the Company had remaining loan commitments from banks and financial institutions of approximately $44,287,000 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. Related Party Notes - The Company has the following notes payable to Curci at December 31, 1999 and 1998. Under the terms of certain of the notes payable, Curci receives interest and participates in "Net Proceeds" from certain projects, as defined in the loan agreement, which is comparable to net profit: Project Profit share December 31, December 31, 1999 1998 ------------------- -------------- -------------- -------------- Summertree Park 40% $860,150 $1,701,894 Antares 33% 2,816,600 Montserrat 50% 104,250 Parkland Farms 50% 2,999,888 3,532,739 High Ridge Court 50% 2,196,261 2,291,297 Saddlerock 50% 2,350,000 2,350,000 Mockingbird Canyon 50% 2,750,000 2,513,808 Montserrat Classics 50% 3,450,000 -------------- -------------- 14,606,299 15,310,588 -------------- -------------- Other: Unsecured loans 1,604,250 1,400,000 -------------- -------------- Total - Curci $16,210,549 $16,710,588 ============== ============== Other Related Parties During 1999, the Company purchased RGC's fifty percent ownership in RGCCLPO. Consideration for the purchase consisted of issuance of a note payable for $2,000,000 and payment of cash of $1,000,000. As of December 31, 1999, the outstanding principal balance on this loan totaled $2,000,000. During 1996, the Company converted its Preferred Stock to Common Stock and the accrued Preferred Stock dividend due an officer of the Company and a related party of $581,542 and $472,545, respectively, was exchanged for notes with interest payable at 10%. As of December 31, 1999, the outstanding principal due on these notes was $581,542 and $462,330, respectively. As of December 31, 1999, the Company had loans, which provide for interest at 10% and in which certain loans are due on demand from related parties. As of December 31, 1999, these loans totaled $740,000. Included in notes payable to related parties are notes payable to an officer which bear interest at 12%. Outstanding balances as of December 31, 1999 and 1998 were $2,865,611 and $930,611, respectively. Aggregate future principal payments due on trust deeds payable, notes payable and related party notes are as follows: Years Ended December 31, ----------------------------------------- 2000 $55,875,003 2001 16,201,168 Thereafter 1,000,000 32 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 ----------------------------------------- Total $73,076,171 ========================================= During 1999, 1998 and 1997, the Company paid interest of $2,124,618, $1,446,132 and $1,081,847, respectively, on loans from related parties. The Company capitalized interest of approximately $2,067,094, $1,311,051 and $742,081 for 1999, 1998 and 1997, respectively. (6) Income Taxes The benefit for income taxes consisted of the following: Year Ended December 31, ---------------------------------------- 1999 1998 1997 ---------------------------------------- Current income tax expense $16,627 $26,300 Net deferred income tax benefit (1,700,000) (4,800,000) $(185,857) ---------------------------------------- $(1,683,373) $(4,773,700) $(185,857) ======================================== During the year ended December 31, 1999 and 1998, the Company reduced the deferred tax valuation allowance to recognize a deferred income tax benefit of $1,700,000 and $4,800,000, respectively. The deferred tax benefit is based upon expected utilization of net operating loss carryforwards. The realization of the deferred tax asset will require aggregate taxable income of approximately $16,250,000 in future years. The Company has assessed its past earnings history and trends, sales backlog, budgeted sales, and expiration dates of carryforwards and has determined that it is more likely than not that the $6,500,000 of deferred tax assets will be realized. As of December 31, 1999, the Corporation had net operating loss carryforwards for federal and state income tax purposes of approximately $23,000,000 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. Benefit for income taxes in 1997 of $185,857 represents the net refund resulting from a claim filed for the carryback of losses related to certain qualifying expenses incurred in 1996. The deferred income tax assets, resulting from differences between accounting for financial statements purposes and tax purposes, less valuation allowance, are as follows: 1999 1998 1997 ------------------------------------------------ Inventory reserves $1,128,000 $927,000 $3,758,000 Warranty reserves and others 218,000 218,000 391,000 State net operating loss 376,000 886,000 1,700,000 Net operating loss 7,768,000 8,500,000 5,282,000 ------------------------------------------------ 9,490,000 10,531,000 11,131,000 Valuation allowance (2,990,000) (5,731,000) (11,131,000) ------------------------------------------------ $6,500,000 $4,800,000 $ -- ================================================ 33 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 The following is a reconciliation of the federal statutory rate to the Company's effective rate for 1999, 1998, and 1997:
1999 1998 1997 ---------------------------------------------------------------------------------- Amount Percentage Amount Percentage Amount Percentage ---------------------------------------------------------------------------------- Statutory rate $(828,225) (34)% $202,064 34% $(550,872) (34%) Utilization of NOL (202,064) (34%) State franchise tax, net of federal tax benefit 16,627 .7% 26,300 4.4% Utilization of unrecognized deferred income tax benefit (871,745) (35.8%) (4,800,000) (807.6%) Increase in valuation allowance 550,872 34% ---------------------------------------------------------------------------------- $(1,683,373) (69.1%) $(4,773,700) (803.2%) $ -- -- ==================================================================================
(7) Qualified and Non-Qualified Stock Option Plans The Company has three stock-based compensation plans, which are described below. The Company applies APB Opinion 25 and related Interpretations in accounting for its stock-based compensation. Accordingly, no compensation costs have been recognized for its fixed stock option plans during 1997, 1998, and 1999. The compensation cost that has been charged against income for its stock incentive plan was $61,602 in 1999, $28,290 in 1998 and $17,587 in 1997. Had compensation costs for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with SFAS No. 123, the Company's net (loss) income and (loss) income per share would have been adjusted to the pro forma amounts indicated below:
1999 1998 1997 ---- ---- ---- Net (loss) income to common shareholders: As reported $ (752,582) $5,368,006 $(1,620,211) Pro forma $(1,047,863) $5,079,334 $(1,737,223) Diluted (loss) income per share: As reported $(0.07) $0.52 $(0.18) Pro forma $(0.10) $0.49 $(0.19)
The 1983 Stock Option Plan authorized an aggregate of 653,006 (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 Option Plan are summarized as follows:
1999 1998 1997 ------------------------ ------------------------ ------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------ ------------------------ ------------------------ Outstanding, beginning of year 64,000 $2.89 154,500 $1.72 294,500 $1.41 Granted Exercised (500) $2.50 (90,000) $0.88 Canceled (500) $2.50 (140,000) $1.07 ------------------------ ------------------------- ------------------------ Outstanding, end of year 63,500 $2.89 64,000 $2.89 154,500 $1.72 ======================== ========================= ======================== Exercisable, end of year 48,500 44,000 129,500 =============== ============== ===============
34 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 The 1993 Stock Option Plan, (amended by the shareholders May 20, 1999) authorizes an aggregate of 2,000,000 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:
1999 1998 1997 ------------------------ ------------------------ ------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------------------------ ------------------------ ------------------------ Outstanding, beginning of year 659,000 $1.13 1,162,000 $0.85 872,250 $0.90 Granted 260,350 $1.56 274,900 $1.63 297,000 $0.71 Exercised (43,300) $0.89 (766,250) $0.89 Canceled (7,750) $1.63 (11,650) $0.77 (7,250) $0.87 ------------------------- ------------------------- ------------------------ Outstanding, end of year 868,300 $1.27 659,000 $1.13 1,162,000 $0.85 ========================= ========================= ======================== Exercisable, end of year 607,950 384,100 865,000 ============= ============== =============== Available for grant, end of year 320,650 83,250 339,500 ============= ============== ===============
The following table summarizes information about the outstanding options at December 31, 1999, from the Company's 1983 and 1993 stock option plans:
Options Outstanding Options Exercisable ----------------------------------------------------- -------------------------------- Number Weighted-Average Number Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average Exercise Prices at 12/31/99 Contractual Life Exercise Price at 12/31/99 Exercise Price - ------------------- ----------------------------------------------------- -------------------------------- $0.69 to $0.96 299,800 5.8 years $0.72 299,800 $0.72 $1.00 to $1.88 568,500 9.1 years $1.56 308,150 $1.56 $2.50 to $3.00 63,500 2.2 years $2.89 48,500 $2.86 ----------------------------------------------------- -------------------------------- $0.69 to $3.00 931,800 7.6 years $1.38 656,450 $1.27 ======================================================================================
The 1989 Executive Long-Term Stock Incentive Plan , (amended by the shareholders May 23, 1996) authorizes an aggregate of 500,000 (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. The 1989 Executive Long-Term Incentive Plan expired in May, 1999. Changes in the 1989 Executive Long-Term Stock Incentive plan are summarized as follows: 1999 1998 1997 ---------------------------------------- Issued shares, beginning of year 435,680 337,580 257,380 Issued 103,500 82,000 Returned at termination of employment (13,400) (5,400) (1,800) ---------------------------------------- Issued shares, end of year 422,280 435,680 337,580 ======================================== Vested, end of year 287,080 229,180 174,180 ======================================== 35 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 Available for award, end of year -- 65,320 158,840 ======================================== Included as a separate deduction of stockholder's equity is deferred compensation relating to this plan of $170,327 and $241,130 as of December 31, 1999, and 1998, respectively. 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, and expire 10 years after the grant date. During 1997, 1998 and 1999, 15,000 shares, 15,000 shares and 15,000 shares, respectively, were granted under this plan at an exercise prices of $0.44, $1.13 and $1.63 per share, respectively. The exercise prices represent the market price at the date of grant. At December 31, 1999, 22,500 shares were outstanding related to this plan. In 1996, the Company issued warrants to purchase 150,000 shares of common stock. As of December 31, 1999, 150,000 warrants were outstanding. The weighted-average fair value of the options granted during 1999, 1998 and 1997 is $0.98, $1.28 and $0.60, respectively. The fair value of each option was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of 6.5 percent for all years; dividend yield of zero percent for all years; expected lives of 9.7, 9.7, and 8.1 years; and volatility of 28, 61, and 106 percent. Options to purchase 1,104,300 and 875,500 shares of common stock were outstanding during 1999 and 1998, respectively. For the years ended December 31, 1999 and 1997, options were not included in the computation of diluted net loss per common share because the effect would be antidilutive to the net loss in the period. However, for the year ended December 31, 1998, 328,900 options and warrants 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. On March 10, 1998, three officers and a director of the Company exercised options to purchase a total of 720,000 shares of common stock with a weighted-average exercise price of $0.8989 per share. The Company received $199,389 cash from an officer and received $447,813 in notes receivable from the remaining two officers and the director as a result of the exercise of these options. The notes receivable accrue interest at 4.987% and mature on March 10, 2001 and are guaranteed by the officers. On October 15, 1998, one officer of the Company exercised options to purchase a total of 10,000 shares of common stock with a weighted-average exercise price of $0.8125 per share. The Company received a note receivable for $8,125 from the officer as a result of the exercise of these options. The note receivable accrues interest at 4.987% and mature on October 15, 2001 and is guaranteed by the officer. As of December 31, 1999 and 1998, accrued interest for the stock purchase loans was $40,996 and $18,196, respectively. 36 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (8) Earnings Per Share The following table sets forth the computation of basic and diluted net (loss) income per common share:
1999 1998 1997 ------------------------------------------- Numerator: Net (loss) income $(752,582) $5,368,006 $(1,620,211) ------------------------------------------- Numerator for basic and diluted net (loss) income per share $(752,582) $5,368,006 $(1,620,211) =========================================== Denominator for basic net (loss) income per share 10,289,852 10,005,565 9,242,386 Effect of dilutive stock options 275,730 ------------------------------------------- Denominator for dilutive net (loss) income per share (weighted average outstanding shares) 10,289,852 10,281,295 9,242,386 =========================================== Basic net (loss) income per share $(0.07) $0.54 $(0.18) =========================================== Diluted net income per share $(0.07) $0.52 $(0.18) ===========================================
(9) 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 operating leases that expire through 2003. Future minimum rent as of December 31, 1999, is $134,779 in 2000, $107,750 in 2001, $31,004 in 2002, and $18,085 in 2003, for a total of $291,619. Rent expense for the years ended December 31, 1999, 1998 and 1997 was $159,431, $137,854, and $127,667, respectively. (10) Quarterly Financial Data - (unaudited) Year Ended December 31, 1999
First Second Third Fourth -------------------------------------------------------- Sales $7,782,859 $18,381,700 $15,730,888 $10,703,402 ======================================================== Income (loss) from development operations $736,453 $511,209 $(1,889,442) $478,993 ======================================================== Net income (loss) $328,193 $74,834 $927,006 $(2,082,615) ======================================================== Basic income (loss) per share $0.03 $0.01 $0.09 $(0.20) ======================================================== Diluted income per share $0.03 $0.01 $0.09 $(0.20) ========================================================
During the fourth quarter, the Company recorded a deferred tax expense of $1,700,000 37 CALPROP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 Year Ended December 31, 1998
First Second Third Fourth ------------------------------------------------------- Sales $2,805,786 $7,632,478 $12,020,548 $10,612,910 ======================================================= (Loss) income from development operations $(82,503) $699,992 $1,122,684 $887,351 ======================================================= Net (loss) income $(494,163) $105,667 $2,896,652 $2,859,850 ======================================================= Basic (loss) income per share $(0.05) $0.01 $0.29 $0.28 ======================================================= Diluted income per share $(0.05) $0.01 $0.27 $0.27 =======================================================
38 CALPROP CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the three years ended December 31, 1999 Trust Deeds Warranty Receivable ------------------------------- Balance January 1, 1997 $261,401 $50,000 Additions charged to operations 207,844 --- Reductions (180,967) --- ------------------------------ Balance December 31, 1997 288,278 50,000 Additions charged to operations 288,977 --- Reductions (292,631) --- ------------------------------ Balance December 31, 1998 284,624 50,000 Additions charged to operations 456,282 --- Reductions (382,619) --- ------------------------------ Balance December 31, 1999 $358,287 $50,000 ============================== 39 Index to Exhibits 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.) 23 Independent Auditors' Consent 27 Financial Data Schedule 40 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) April 13, 2000 - ----------------------------- ----------------------- 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. April 13, 2000 - ----------------------------- ----------------------- Mark F. Spiro Date Vice President/Secretary and Treasurer (Chief Financial and Accounting Officer) April 13, 2000 - ----------------------------- ----------------------- Ronald S. Petch Date President April 13, 2000 - ----------------------------- ----------------------- E. James Murar Date Director April 13, 2000 - ----------------------------- ----------------------- Mark T. Duvall Date Director April 13, 2000 - ----------------------------- ----------------------- John L. Curci Date Director April 13, 2000 - ----------------------------- ----------------------- Victor Zaccaglin Date Chairman of the Board Chief Executive Officer 42 EX-23 2 INDEPENDENT AUDITORS CONSENT Exhibit 23 CALPROP CORPORATION INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-92633 and 333-92635 of Calprop Corporation on Form S-8 of our report dated April 13, 2000 appearing in this Annual Report on Form 10-K of Calprop Corporation for the year ended December 31, 1999. Deloitte & Touche LLP Los Angeles, California April 13, 2000 43 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CALPROP CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1,405,663 0 0 0 79,070,791 87,817,643 0 0 87,817,643 0 0 0 0 10,293,735 7,763,373 87,817,643 52,598,849 52,598,849 50,242,115 52,761,636 2,309,225 0 70,304 (2,435,955) (1,683,373) (752,582) 0 0 0 (752,582) (.07) (.07)
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