U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8631
DOVER INVESTMENTS CORPORATION
(Name of registrant as specified in its charter)
DELAWARE 94-1712121
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Spear Street, Suite 520, San Francisco, California 94105
(Address of Principal Executive Offices) (Zip Code)
(415) 777-0414
(Registrant's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, $.01 par value per share
(Title of class)
Class B Common Stock, $.01 par value per share
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange
Act during the past 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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 126-2). Yes No x
The aggregate market value of the common stock held by non-
affiliates of the registrant, computed by reference to the average bid
and asked prices of the Class A Common Stock and Class B Common
Stock as of March 1, 2003 was $19,758,815.
The number of shares outstanding of each of the registrant's classes
of Common Stock as of March 1, 2003, were as follows:
Title Shares Outstanding
Class A Common Stock ................. 1,001,788
Class B Common Stock ................. 312,512
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Proxy Statement relating to the registrant's
2003 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Report on Form 10-K.
TABLE OF CONTENTS
Page No.
PART I
ITEM 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . 9
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK . . . . . . .18
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . 18
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . .19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT. . . . . . . . . . . . . . . . . . . . . . 19
ITEM 11. EXECUTIVE COMPENSATION .. . . . . . . . . . . . . 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS. . .19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .20
ITEM 14. CONTROLS AND PROCEDURES . . . . . . . . . . . . 20
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS,
SCHEDULES AND REPORTS ON
FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
APPENDIX A. CONSOLIDATED FINANCIAL STATEMENTS
OF DOVER INVESTMENTS CORPORATION
AND SUBSIDIARIES, AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS, DECEMBER 31,
2002, 2001 AND 2000
PART I
ITEM 1. BUSINESS
General
Dover Investments Corporation (the "Company") engages
primarily in residential real estate development. The Company's
real estate projects (other than the Coram Plaza Shopping Center
project described below) are developed through ventures with
wholly-owned subsidiaries of E. F. Communities, Inc., a California
corporation (collectively, "EFC"). Under the governing agreements,
EFC is primarily responsible for the construction and the
development of the real estate. Until March 2002, the real estate
projects were developed through ventures with Westco Community
Builders, Inc., an independent California corporation ("WCB").
In March 2002, EFC acquired the interests held by WCB in the
ventures. The owners of EFC are the same as those of WCB.
A California general partnership, Glenbriar Joint Venture, and
three California limited liability companies, Glenbriar Venture #2,
LLC, Tracy Residential Venture Partners, LLC and Meadowbrook
Ventures, LLC, have been formed for development of the Glenbriar
Estates project described below; another California limited liability
company, South Tracy Industrial Park, LLC ("STIP"), has been
formed for development of the South Tracy Industrial Park project
described below; another California limited liability company, Halcyon
Properties, LLC ("Halcyon"), has been formed for development of
the San Leandro project described below; and another California
limited liability company, Woodview Estates, LLC ("Woodview"),
has been formed for development of the Novato project described
below. During 2002, the Company and EFC formed two additional
California limited liability companies, Glenbrook Homes, LLC
and Meadowbrook Residences, LLC, for development of the Glenbriar
Estates project described below, and another California limited
liability company, Marymont, LLC, for development of the
higher priced home described below.
For each of the ventures the Company contributes all of the
capital, except that for Glenbriar Venture #2, LLC, WCB contributed
25% of the capital through December 1998 and that for Marymont,
LLC, EFC contributes 50% of the additional capital beginning
December 2002. EFC is paid a fee for managing the construction
and development of the real estate. For each of the ventures other
than Glenbriar Joint Venture, Glenbriar Venture #2, LLC and STIP,
the management fee is equal to 3% of the sales price of each home
that is sold. EFC receives a fixed monthly management fee of
$5,000 for managing Glenbriar Joint Venture and Glenbriar
Venture #2, LLC and a fixed monthly management fee of $10,000
for STIP. The Company (and EFC, with respect to Glenbriar
Venture #2, LLC and Marymont, LLC) receives a preferred return
on equity in the ventures, at an annual rate of 10% to 12%, through
December 31, 2001, and approximately 7%, since January 1, 2002.
Remaining profits for each venture are split, 50% to the Company
and 50% to EFC (or, in the case of Glenbriar Venture #2, LLC, 25%,
50% or 75% to the Company and the remainder to EFC) according
to the governing agreements.
The Company has been a member of SPM, LLC ("SPM"),
a venture with three other independent parties, which developed
and leased a property located in the Coram Plaza Shopping Center,
in Coram, New York. Pursuant to an agreement between the
Company and SPM, SPM redeemed the Company's membership
interest in SPM in December 2002.
Real Estate Development
Below is a summary of the Company's major real estate
development activities during 2002.
GLENBRIAR ESTATES
The Company, through its various ventures, continued to
develop the Glenbriar Estates project in Tracy, California.
All of the land owned by the ventures is covered by either
vesting tentative subdivision maps or final subdivision maps.
The ventures have two model complexes for two product types of
homes at Glenbriar Estates, the Glenbrook Subdivision and the
Meadowbrook Subdivision. During the third quarter of 2002, the
ventures commenced site work to improve 116 lots in addition to
the existing lots available for construction. The Company expects
that these additional lots will be completed towards the end of
the first quarter of 2003.
The Company believes, based on the number of home sales
at the Glenbriar Estates project during the last six months of 2002
and the number of pending sales contracts, that demand for homes
has increased at the Glenbriar Estates project.
HIGHER PRICED HOME
In September of 1999, the Company entered into a joint venture
with EFC to develop a large (approximately 9,600 square feet) higher
priced "custom" home in Atherton, California. Construction of the
home was completed in December 2001 and the home was placed on
the market in late January 2002. The custom home is carried at the
lower of cost or market. The Company expects that marketing of this
home will continue until the home is sold.
OTHER RESIDENTIAL PROPERTIES
South Tracy Industrial Park, LLC, a venture between the
Company and EFC, entered into an agreement in 1999 to purchase
and develop for industrial use approximately fifty acres of industrial
property in the southern part of the City of Tracy. The final subdivision
map for Phase 1 of the property has been recorded and the Phase 1
site improvements have been completed and approved by the City of
Tracy. The Phase 2 final subdivision map was approved by the City
of Tracy in the third quarter of 2002 and it is expected that the site work
will be completed during the second quarter of 2003. Construction of
the first industrial building commenced in the first quarter of 2002 and
is expected to be completed near the end of the first quarter of 2003.
The Company has leased 8,500 square feet and is negotiating with
additional tenants. Development and rental of the entire industrial
park is expected to continue for several years.
Halcyon Properties, LLC, a venture between the Company
and EFC, has purchased a property in San Leandro, California which
has been approved for eighteen single family homes. Construction of
three model homes was completed in February 2003, and construction
on all eighteen homes commenced in the first quarter of 2003.
Marketing of the homes also commenced in the first quarter of 2003.
Woodview Properties, LLC, a venture between the Company
and EFC, has purchased a property in Novato, California. The
property has a vesting tentative subdivision map for twenty single
family homes. The house plans are currently going through the
second design review process. The Company expects construction
of the twenty homes to commence towards the end of the fourth
quarter of 2003. The Company expects the pre-sale of the homes will
commence towards the end of the fourth quarter of 2003 or in
early 2004.
Competitive Position of the Company
The development and sale of residential properties is highly
competitive, and the Company competes with numerous national,
regional and local builders primarily on the basis of price, location,
design, reputation, quality and amenities. In addition, the Company
competes with other housing alternatives including existing homes
and rental housing. Although the Company believes that it competes
effectively with respect to each of these factors, there can be no
assurance that the Company will maintain its competitive position
against current and potential competitors.
Homebuilding Industry
The homebuilding industry is cyclical and is affected by
changes in general and local economic and other conditions
including employment levels, demographic considerations,
availability of financing, interest rate levels, federal income tax
provisions, consumer confidence and housing demand.
In addition, homebuilders are subject to various risks, many of
them outside of the control of the homebuilder, including
availability and cost of land, availability and cost of materials
and labor, weather conditions, delays in construction schedules,
cost overruns, changes in government regulations and increases
in property taxes and other local government fees. Net orders
often vary on a seasonal basis, with the lowest order activity
typically occurring in the winter months.
Government Regulation and Environmental Matters
The homebuilding industry is subject to various federal, state
and local laws, ordinances, rules and regulations concerning zoning,
building design, construction and similar matters. The operations of
the Company are also affected by environmental laws and regulations,
including regulations pertaining to availability of water, municipal
sewage treatment capacity, land use, protection of endangered species
and population density. Compliance with these laws and regulations
may result in delays and may cause the Company to incur
substantial costs.
Various permits and approvals are required to complete the
Company's real estate developments. The ability of the Company to
obtain such permits and approvals is often beyond the Company's control.
The length of time necessary to obtain permits and approvals increases
the carrying costs of unimproved property acquired for the purpose of
development and can delay the timing of the closing of its sales.
In addition, the continued effectiveness of permits already granted is
subject to changes in policies, rules and regulations and their
interpretation and application.
Backlog
The Company has a backlog of homes and lots for which it has
entered into sales contracts but which it has not yet delivered. The
Company's backlog at December 31, 2002 was approximately 37 homes
at an aggregate sales price of approximately $14,950,000. The Company
expects to realize similar levels of gross margin percentages for home
and lot sales. As the Company's sales contracts are subject to certain
conditions being satisfied and generally may be cancelled by the
customer in the event mortgage financing is unobtainable within a
specified period of time, no assurances can be given that homes
subject to pending sales contracts will result in closings.
Employees
The Company currently has five full-time employees, all of
whom work at the Company's executive offices in San Francisco, CA.
Executive Officer of the Company
The following is information with respect to the executive officer
of the Company who is not also a director of the Company:
Erika Kleczek - Ms. Kleczek, age 60, has served as the Company's
Principal Financial Officer since January 1997 and as the Company's
Secretary and Treasurer since February 1991. Ms. Kleczek served in
various managerial positions for the Company and Homestead Savings
and Loan Association, a former subsidiary of the Company,
from June 1983 to February 1991.
ITEM 2. PROPERTIES
The Company leases its executive office space in San Francisco,
California under a lease that commenced on October 1, 1997 with an
initial term ending on September 30, 2002. On November 15, 2001,
the Company exercised an option to extend the lease for an additional
period of two years ending on September 30, 2004.
ITEM 3. LEGAL PROCEEDINGS
On June 25, 2002, owners of homes sold by the Company
through its venture with WCB at its Marina Vista project in San
Leandro, California which was completed February 5, 2000, filed
a complaint against the Company in the Superior Court of California
in the County of Alameda. Also on June 25, 2002, the Marina
Vista of San Leandro Owners' Association, the homeowners'
association for the owners of the homes at the Marina Vista project,
filed a complaint against the Company in the same court.
In addition to the Company, WCB, H. F. Properties Ltd., a former
subsidiary of the Company, and Westco Marina, Inc., a former
subsidiary of WCB, are named as defendants in the complaints.
The complaints allege, among other things, breach of contract,
violation of the governing documents of the Marina Vista
homeowners' association, negligence, breach of warranty, strict
liability, misrepresentation, breach of fiduciary duty and nuisance
based on alleged construction defects at the Marina Vista project.
The plaintiffs are seeking damages in an unspecified amount,
attorneys' fees and expert fees and investigative costs.
In October 2002, the Company and the other defendants filed
answers to the two complaints. In December 2002, the parties
stipulated to the use of a special master to manage the two cases
under the auspices of the court. In December 2002, the court
designated each case as a "complex case" as defined in Rule 1800
of the California Rules of Court. There has been no discovery in
either case.
The Company is unable to predict the ultimate outcome of
the litigation, the extent to which any claims may be covered by
insurance, or the effect that the litigation may have on the Company's
financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market Information
Shares of the Company's Class A Common Stock and Class B
Common Stock are currently traded on the NASD OTC Bulletin
Board under the symbols DOVR-A and DOVR-B, respectively.
The high and low bid information for 2002 and 2001 are as
reported on the over-the-counter market. Such bid quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
CLASS A COMMON STOCK
High Low
Fiscal 2002 Quarter Ended:
March 31 20.750 13.500
June 30 24.000 17.500
September 30 21.500 14.500
December 31 19.400 14.250
Fiscal 2001 Quarter Ended:
March 31 18.000 11.125
June 30 13.500 11.000
September 30 13.250 11.850
December 31 14.500 12.650
CLASS B COMMON STOCK
High Low
Fiscal 2002 Quarter Ended:
March 31 21.000 11.800
June 30 22.500 11.800
September 30 22.500 10.000
December 31 22.000 12.250
Fiscal 2001 Quarter Ended:
March 31 16.875 11.250
June 30 12.250 11.750
September 30 12.600 11.750
December 31 13.250 12.600
Holders
As of March 1, 2003, there were 260 stockholders of record
of the Class A Common Stock and 76 stockholders of record of the
Class B Common Stock.
Dividends
The Company has not paid dividends on the Class A Common
Stock and Class B Common Stock since June 30, 1989 and presently
has no intention to pay dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Quarterly Financial Data:
The following table sets forth certain consolidated financial
data for the periods indicated and should be read in conjunction with
the Consolidated Financial Statements, related notes and other
financial information appearing elsewhere in Part II of this Form
10-K Annual Report as well as the sections of our Quarterly Reports
Form 10-Q (dollar amounts in thousands, except per share amounts).
Quarter Ended
December 31, September 30, June 30, March 31,
2002 2002 2002 2002
Net Sales $5,568 $2,547 $4,754 $1,169
Cost of Sales 3,428 1,533 3,031 745
Impairment of Asset 350 - - -
Minority Interest in Joint
Ventures 794 287 590 42
Gross Profit 996 727 1,133 382
Selling Expenses 512 215 331 144
General and Administrative
Expenses 330 259 260 281
Other Income 418 170 79 98
Income before Income Taxes 572 423 621 55
Provision for Income Taxes 307 120 210 31
Net Income $265 $303 $411 $24
Basic Earnings per Share $0.20 $0.23 $0.31 $0.02
Diluted Earnings per Share $0.20 $0.23 $0.31 $0.02
Weighted Average Number
of Shares Outstanding:
Basic 1,314,838 1,314,313 1,314,146 1,309,877
Diluted 1,325,489 1,329,483 1,330,815 1,320,157
Quarter Ended
December 31, September 30, June 30, March 31,
2001 2001 2001 2001
Net Sales $ 863 $8,305 $10,419 $2,512
Cost of Sales 488 4,935 6,017 1,401
Minority Interest in Joint
Ventures (36) 1,299 1,734 339
Gross Profit 411 2,071 2,668 772
Selling Expenses 125 441 511 195
General and Administrative
Expenses 282 346 307 569
Other Income 131 211 243 305
Income before Income Taxes 135 1,495 2,093 313
Provision for Income Taxes 316 546 611 141
Net Income (Loss) $(181) $949 $1,482 $172
Basic Earnings (Loss)
per Share $(0.15) $0.79 $1.24 $0.14
Diluted Earnings (Loss)
per Share $(0.15) $0.79 $1.23 $0.14
Weighted Average Number
of Shares Outstanding:
Basic 1,196,340 1,195,894 1,195,653 1,195,098
Diluted 1,196,340 1,201,499 1,200,440 1,208,664
Annual Financial Data:
The following table sets forth certain consolidated financial data for
the periods indicated and should be read in conjunction with the Consolidated
Financial Statements, related notes and other financial information appearing
elsewhere in Part II of this Form 10-K Annual Report (dollar amounts in
thousands, except per share amounts).
Year Ended December 31,
2002 2001 2000 1999 1998
Statement of Operations Data:
Total revenues $14,038 $22,099 $48,384 $64,294 $25,116
Gross profit 3,238 5,922 12,214 11,805 4,839
Net income 1,003 2,422 5,317 4,305 1,410
Basic earnings per share $0.76 $2.03 $4.64 $3.93 $1.34
Diluted earnings per share $0.75 $2.01 $4.64 $3.88 $1.30
Year Ended December 31,
2002 2001 2000 1999 1998
Balance Sheet Data:
Cash and cash equivalents $11,706 $18,377 $20,531 $15,449 $ 8,622
Total assets 52,137 51,408 43,245 44,118 37,467
Total debt 1,887 6,570 2,479 8,299 12,650
Stockholders' equity 47,025 42,978 37,737 29,936 22,797
Restatement
During fiscal 2000 the Company restated prior period lot sales
and cost of home and lot sales to correct the elimination of inter-
company transactions. The restatement had no impact on gross profit,
net income or earnings per share in the Company's previously issued
financial statements. See Note A to the Company's Consolidated
Financial Statements included as Appendix A to this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information set forth below and elsewhere in this Annual
Report contains certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995
concerning the Company's business operations and financial condition.
The words or phrases "can be", "may affect", "may depend", "expect",
"believe", "anticipate", "intend", "will", "estimate", "project" and
similar words and phrases are intended to identify such forward-
looking statements. Such forward-looking statements are subject to
various known and unknown risks and uncertainties and the Company
cautions you that any forward-looking information provided by or on
behalf of the Company is not a guarantee of future performance.
Actual results could differ materially from those anticipated in such
forward-looking statements due to a number of factors, some of
which are beyond the Company's control, in addition to
those discussed in this document or in the Company's other public
filings, including (i) the continued impact of the terrorist attacks
against the United States on September 11, 2001, (ii) changes in
general and local economic conditions, (iii) consumer confidence
and housing demand, (iv) competition, (v) government regulations
affecting the Company's operations, (vi) the availability and cost of
land, materials and labor and (vii) conditions in the capital, credit
and homebuilding markets. All such forward-looking statements
are current only as of the date on which such statements were made.
The Company does not undertake any obligation to publicly
update any forward-looking statement to reflect events or
circumstances after the date on which any such statement is made
or to reflect the occurrence of unanticipated events.
Results of Operations for the Years Ended
December 31, 2002 and 2001
In the year ended December 31, 2002, the Company closed
the sale of thirty six homes at the Glenbriar Estates project, compared
to fifty six homes in 2001.
Total sales for the year ended December 31, 2002 were
$14,038,000, resulting in a gross profit of $3,238,000 and a gross
profit margin of 23.07%, compared to total sales of $22,099,000,
resulting in a gross profit of $5,922,000 and a gross profit margin
of 26.80%, for the same period in 2001. The decrease in sales resulted
primarily from the reduced demand for new homes in the Tracy area
with consequent reduced sales at the Glenbriar Estates project
during the first six months of 2002. See the discussion of the
Glenbriar Estates project under "BUSINESS - Real Estate Development"
above. The decrease in gross profit is due to an impairment charged
related to the higher priced Atherton home.
During 2002, the Company recorded, in management's best
estimate, a write-down to fair market value of the higher priced home
of $350,000. This write down is due to the downturn in the real
estate market.
Minority interest in joint ventures for the year ended
December 31, 2002 decreased to $1,713,000, compared to $3,336,000
for 2001. The decrease in minority interest is attributable to decreased
sales of homes at the Glenbriar Estates project.
Selling expenses for the year ended December 31, 2002
were $1,202,000, which represents 8.56% of revenues for 2002,
compared to $1,272,000, which represents 5.76% of revenues for 2001.
The decrease in selling expenses was primarily due to decreased home
sales at the development projects and decreased marketing and related
commission expenses. The increase in the percentage of revenues
represented by selling expenses was primarily due to the fixed nature
of some selling expenses.
General and administrative expenses for the year ended
December 31, 2002 were $1,130,000, compared to $1,504,000 for 2001,
a decrease of 24.87% compared to 2001. The decrease was primarily
due to decreases in staffing and in executive officers compensation
expense.
Interest income in 2002 decreased to $407,000, compared to
$887,000 in 2001. The decrease is attributable to decreases in interest
rates and lower average account balances during the year.
Gain on sale of SPM for the year ended December 31, 2002
was $262,000, realized from the sale of the Company's interest in
SPM, LLC.
Other income for the year ended December 31, 2002 was
$96,000 compared to $3,000 for 2001, an increase of $93,000
compared to 2001. The increase was due to gain on sale
of an automobile, loan fees and miscellaneous income.
The Company had net income of $1,003,000 for the year
ended December 31, 2002, compared to $2,422,000 in 2001.
The Company expects that the development projects will
continue to generate profits. See "BUSINESS - Homebuilding
Industry" above for a discussion of general economic conditions
and competitive factors that influence the Company's profitability.
Results of Operations for the Years Ended
December 31, 2001 and 2000
In the year ended December 31, 2001, the Company had no
home sales at the Marina Vista development project (which was
completed in 2000), compared to eight such sales in 2000. At the
Glenbriar Estates project, the Company closed the sale of fifty six
homes for the year ended December 31, 2001, compared to one
hundred and thirty six homes in 2000. In 2000, the Company also
closed the sale of a portion of the Glenbriar Estates property to the
City of Tracy for the use as a park site, and another portion of the
property to the Jefferson School District for use as part of a school
site. The Company did not sell any higher priced custom homes in
the years ended December 31, 2001 and 2000.
Total sales for the year ended December 31, 2001 were
$22,099,000, resulting in a gross profit of $5,922,000 and a gross
profit margin of 26.80%, compared to total sales of $48,384,000,
resulting in a gross profit of $12,214,000 and a gross profit margin
of 25.24%, for the same period in 2000. The decrease in sales
resulted primarily from the reduced demand for new homes in the
Tracy area during 2001 and the resulting decrease in sales at the
Glenbriar Estates project, the lack of residential growth allocations
for the Glenbriar Estates project during a part of the second and third
quarters of 2001 prior to August 2001, and the absence of sales at
the Marina Vista project during 2001.
Minority interest in joint ventures for the year ended
December 31, 2001 decreased to $3,336,000, compared to $4,625,000
for 2000. The decrease in minority interest is attributable to decreased
sales of homes and lots at the Glenbriar Estates and the Marina Vista
projects.
Selling expenses for the year ended December 31, 2001 were
$1,272,000, which represents 5.76% of revenues for 2001, compared to
$2,535,000, which represents 5.24% of revenues for 2000. The decrease
in selling expenses was primarily due to decreased sales at the
development projects and decreased marketing and related commission
expenses.
General and administrative expenses for the year ended
December 31, 2000 were $1,504,000, compared to $1,666,000 for
2000, a decrease of 9.72% compared to 2000. The decrease was
primarily due to the absence of performance based compensation,
partially offset by increased legal fees and other administrative
expenses.
Interest income in 2001 decreased to $887,000, compared to
$1,591,000 in 2000. The decrease is attributable to decreases in
interest rates and decreased interest income from notes receivable.
Other income for the year ended December 31, 2001 was
$3,000 compared to $59,000 for 2000, a decrease of $56,000
compared to 2001. The decrease was due to reduced loan fees.
The Company had net income of $2,422,000 for the year
ended December 31, 2001, compared to $5,317,000 in 2000.
Liquidity and Capital Resources
At December 31, 2002, the Company had total assets of
$52,137,000, as compared to total assets of $51,408,000 at
December 31, 2001. The cost of the Company's property being
developed was $30,224,000 in 2002, compared to $28,473,000
in 2001. The increase in the cost of property held for development
is primarily due to increased development costs at the Glenbriar
Estates, San Leandro and Novato projects and the higher priced
custom home in Atherton, California. Highly liquid assets were
$15,206,000 at December 31, 2002, compared to $18,377,000 at
December 31, 2001.
The Company's total liabilities decreased to $5,112,000 at
December 31, 2002, compared to $8,430,000 at December 31, 2001.
This decrease is attributable primarily to decreases in notes payable.
Notes payable decreased to $1,887,000 in 2002, from $6,570,000 in
2001. The decrease is attributable primarily to the repayment of a
loan from Housing Capital Company of approximately $4,472,000.
The increase in additional paid-in capital of $3,042,000 for the
year ended December 31, 2002 is due to realization of tax benefits
related to net operating losses incurred prior to the Company's
quasi-reorganization in 1993 in the amount of $1,505,000 and the
issuance of stock of $1,537,000.
During 2002, the Company's primary liquidity needs were
related to funding development costs of the Glenbriar Estates project
and the higher priced home and interest payments in the amount
of $185,000.
At December 31, 2002, the Company had an aggregate
outstanding balance of $1,887,000 under revolving credit agreements.
These notes payable are secured by lots and homes under construction
and will be repaid from the proceeds of home and lot sales. The loans
bear interest at the rate of prime plus 0.75% through 1.00% per annum
and have various maturity dates. The Company has contractual
obligations of $91,000 related to office space leases for a
term of less than two years.
The Company's primary sources of liquidity during 2002 were
revolving credit agreements and the proceeds of home sales. The
Company may also borrow funds from time to time for development
of real estate projects.
Litigation
The Company has been named a defendant in a lawsuit brought
by owners of homes sold by the Company at its Marina Vista project
in San Leandro and in another lawsuit brought by the Marina Vista of
San Leandro Owners' Association. As this litigation is still at an
early stage, the Company is unable to predict its ultimate outcome,
the extent to which any claims may be covered by insurance, or
the effect that the litigation may have on the Company's
financial condition and results of operations.
See "LEGAL PROCEEDINGS" above.
Outlook
The Company sold twelve homes at the Glenbriar Estates project
during the first quarter of 2003 and entered into sales contracts for 45
additional homes at the Glenbriar Estates project in November and
December 2002 and January and February 2003. The Company believes
that these 45 homes will likely close in the second and third quarter
of 2003. As the Company's sales contracts are subject to satisfaction
of certain conditions and cancellation by the customer, no assurances
can be given that the sales contracts for these homes will
result in actual closings. See "BUSINESS - Backlog" above. In addition,
the Company's higher priced home in Atherton, California is currently
being marketed for sale.
Based on the foregoing, the Company expects sales for the first
quarter of 2003 to be significantly higher than for the same period in
2002. Based on the foregoing, the Company also expects sales for the
second quarter of 2003 to be higher than for the same period in 2002.
The Company believes, based on the number of homes at the
Glenbriar Estates project for which the Company entered into sales
contracts in November and December 2002 and January and February
2003, that interest among buyers at the Glenbriar Estates project has
increased.
Critical Accounting Policies
The Company's most critical accounting policies mainly involve
the use of estimates in the valuation of certain assets and liabilities.
In particular, at December 31, 2002 homes held for sale amounting to
$8,509,000 and property held for development amounting to
$21,715,000 are recorded at cost, which the Company has estimated to
be lower than fair market value. Further, the Company has recorded a
warranty reserve of $730,000 at December 31, 2002 to cover warranty
expenses incurred subsequent to sales being recorded. Based on historical
trends and other information, the Company considers the value of homes
held for sale and property held for development are recorded at the lower
of cost or market and the warranty reserve to be adequate.
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its majority owned and controlled joint venture and
limited liability companies. All significant inter-company transactions
are eliminated in consolidation.
Revenue From and Cost of Home Sales
The Company recognizes income from home sales upon closing
and transfer of title to the buyer. The cost of a homes sold includes
land, site improvement, development, construction and financing costs
and management fees. For each home sold, a reserve equal to one
percent of the selling price is established to cover warranty expense
incurred subsequent to the home sale. Warranty expenditures are
charged to the reserve when paid. Sale of lots are recognized upon
the closing and transfer of title to the buyer. The cost of the lot sold
includes land, site improvement, development and financing costs.
SPM, LLC
The Company accounts for its investment in SPM on the cost
method since it does not have significant influence over SPM's
operating and financial policies. The Company includes this
investment with its property held for development at cost, which
the Company considers to be lower than estimated market value.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest
rates relates primarily to the Company's investment in high credit
quality securities maintained with three financial institutions and the
Company's notes receivable and notes payable. The Company's
objective in managing its exposure to interest rate changes is to limit
the impact of changes on earnings and cash flow and to lower its
overall borrowing costs. The Company believes the financial risks
associated with these investments and notes are minimal.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The following consolidated financial statements of the
Company, as set forth on the pages indicated, are filed as part of
this report.
Index to Financial Statements
Report of Independent Certified Public Accountants . . . . . . . . . . . . A-1
Consolidated Balance Sheets at December 31, 2002 and 2001. . . . . A-2
Consolidated Statements of Earnings for the Years Ended
December 31, 2002, 2001 and 2000. . . . . . . . . . . . . . . . . . . . . . . . A-3
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 2002, 2001 and 2000. . . . . . . . . . . . . A-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000. . . . . . . . . . . . . . . . . . . . . . . . A-5
Notes to Consolidated Financial Statements at
December 31, 2002, 2001 and 2000. . . . . . . . . . . . . . . . . . . . . . . . A-6
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT
The information required by this item is incorporated by reference
to the information set forth under the caption "Proposal 1 -- Election of
Directors" contained in the Proxy Statement to be used by the Company
in connection with its 2003 Annual Meeting of Stockholders, except for
the information regarding the Company's executive officer who is not
also a director of the Company, which is included in "BUSINESS -
Executive Officers of the Company" above.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference
to the information set forth under the caption "Compensation of
Executive Officers and Directors" contained in the Proxy Statement to
be used by the Company in connection with its 2003 Annual Meeting
of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this item is incorporated by
reference to the information set forth under the Captions "Security
Ownership of Certain Beneficial Owners and Management" and
"Equity Compensation Plan Information" contained in the Proxy
Statement to be used by the Company in connection with its 2003
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information required by this item is incorporated by
reference to the information set forth under the caption "Certain
Relationships and Related Transactions" contained in the Proxy
Statement to be used by the Company in connection with its 2003
Annual Meeting of Stockholders.
ITEM 14. CONTROLS AND PROCEDURES
(a) The Company's President and the Company's Principal
Financial Officer, after evaluating the effectiveness of the Company's
disclosure controls and procedures as of a date within 90 days before
the filing date of this annual report, have concluded that the Company's
disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in this annual
report is accumulated and communicated to the Company's management
to allow timely decisions regarding required disclosure.
(b) No significant changes were made in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES
AND REPORTS ON FORM 8-K
(a) See "FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA" above for a list of the financial statements filed as part
of this report. The exhibits listed below are filed with or
incorporated into this report.
3.1 Restated Certificate of Incorporation and Restated By-
Laws of the Company.(1)
10.5 Partnership Agreement, Glenbriar Joint Venture, dated
January 7, 1994 between GIC Investment Corporation
and Westco Community Builders.(1)
10.7 Form of Nonqualified Stock Option Agreement as of
November 16, 1994.(1)
10.9 Form of Incentive Stock Option Agreement.(1)
10.10 Form of Nonqualified Stock Option Agreement.(1)
10.11 Operating Agreement, Tracy Residential Venture
Partners, LLC.(2)
10.14 Lease Agreement, dated October 1, 1997.(3)
10.15 Sublease Agreement, dated October 1, 1997 between
the Company and Wilfred, Inc.(3)
10.16 1995 Stock Option Plan, as amended. (4)
10.17 Operating Agreement, Meadowbrook
Ventures, LLC. (5)
10.18 Operating Agreement, South Tracy Industrial
Park, LLC.(6)
10.19 Operating Agreement, SPM, LLC.(6)
10.20 Stock Option Plan for Nonemployee Directors,
as amended and restated. (7)
10.21 Operating Agreement, Halcyon Properties, LLC.(8)
10.22 Operating Agreement, Woodview Estates, LLC.(8)
10.23 Amendments to Partnership Agreements for each of
Glenbriar Joint Venture; Glenbriar Venture #2, LLC;
Tracy Residential Venture Partners, LLC;
Meadowbrook Ventures, LLC; South Tracy Industrial
Park, LLC; Halcyon Properties, LLC; and Woodview
Estates, LLC.(9)
10.24 Letter Agreement, dated August 8, 2002, between the
Company and SPM, LLC.(10)
10.25 Operating Agreement, Glenbrook Homes, LLC.
10.26 Operating Agreement, Meadowbrook Residences, LLC.
10.27 Operating Agreement, Marymont, LLC.
21.1 Subsidiaries of the Company.
99.1 Certification of President.
99.2 Certification of Principal Financial Officer.
_________________
(1) - Incorporated by reference to Exhibits 3.1, 10.5, 10.7,
10.9 and 10.10 in the Company's Annual Report on
Form 10-K for the Year Ended December 31, 2000.
(2) - Incorporated by reference to Exhibit 10.11 in the
Company's Annual Report on Form 10-KSB for the
Year Ended December 31, 1999.
(3) - Incorporated by reference to Exhibits 10.14 and
10.15 in the Company's Quarterly Report on Form
10-QSB for the Quarter Ended March 31, 1999.
(4) - Incorporated by reference to Exhibit 10.16 in the
Company's Quarterly Report on Form 10-QSB for
the Quarter Ended June 30, 1999.
(5) - Incorporated by reference to Exhibit 10.17 in the
Company's Quarterly Report on Form 10-QSB
for the Quarter Ended September 30, 1999.
(6) - Incorporated by reference to Exhibits 10.18 and
10.19 in the Company's Annual Report on Form
10-KSB for the Year Ended December 31, 1999.
(7) - Incorporated by reference to Exhibit 10.20 in the
Company's Quarterly Report on Form 10-Q for
the Quarter Ended June 30, 2000.
(8) - Incorporated by reference to Exhibits 10.21 and
10.22 in the Company's Quarterly Report on Form
10-Q for the Quarter Ended June 30, 2001.
(9) - Incorporated by reference to Exhibit 10.22 in the
Company's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 2002.
(10) - Incorporated by reference to Exhibit 10.23 in the
Company's Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 2002.
(b.) No reports on Form 8-K were filed with the
Securities and Exchange Commission during the
fourth quarter of the year ended December 31, 2002.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOVER INVESTMENTS CORPORATION
Date: March 25, 2003 By: /s/ Frederick M. Weissberg
Frederick M. Weissberg
Chairman of the Board and
President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/ Arnold Addison Director March 25, 2003
(Arnold Addison)
/s/ John Gilbert Director March 25, 2003
(John Gilbert)
/s/ Erika Kleczek Secretary,
(Erika Kleczek) Treasurer and March 25, 2003
Principal
Financial Officer
/s/ Frederick M. Weissberg Director, Chairman March 25, 2003
(Frederick M. Weissberg) of the Board
and President
/s/ Will C. Wood Director March 25, 2003
(Will C. Wood)
CERTIFICATIONS
I, Frederick M. Weissberg, certify that:
1. I have reviewed this annual report on Form 10-K of Dover
Investments Corporation;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with
respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and
15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 25, 2003 /s/ Frederick M. Weissberg
Frederick M. Weissberg
Chairman of the Board
and President
I, Erika Kleczek, certify that:
1. I have reviewed this annual report on Form 10-K of Dover
Investments Corporation;
2. Based on my knowledge, this annual report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 25, 2003 /s/ Erika Kleczek
Erika Kleczek
Principal Financial Officer
APPENDIX A
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
DOVER INVESTMENTS CORPORATION AND SUBSIDIARIES
December 31, 2002, 2001 and 2000
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Dover Investments Corporation
We have audited the accompanying consolidated balance
sheets of Dover Investments Corporation and subsidiaries as of
December 31, 2002 and 2001, and the related consolidated
statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2002.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements 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, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Dover Investments Corporation and subsidiaries as of
December 31, 2002 and 2001, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States of America.
GRANT THORNTON LLP
San Francisco, California
March 5, 2003
DOVER INVESTMENTS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
(in thousands, except share and per share amounts)
ASSETS 2002 2001
Cash and Cash Equivalents $11,706 $18,377
Investments 3,500 -
Homes Held for Sale 8,509 1,848
Property Held for Development 21,715 26,625
Notes Receivable 1,570 885
Deferred Tax Asset 3,613 1,929
Other Assets 1,524 1,744
Total Assets $52,137 $51,408
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accrued Interest and Other Liabilities $ 2,168 $ 796
Notes Payable 1,887 6,570
Minority Interest in Joint Ventures 1,057 1,064
Total Liabilities 5,112 8,430
Stockholders' Equity
Class A Common Stock, Par Value, $.01
Per Share-Authorized 2,000,000 Shares;
Issued 1,001,788 Shares in 2002 and
883,487 Shares in 2001 10 8
Class B Common Stock, Par Value, $.01
Per Share-Authorized 1,000,000 Shares;
Issued 317,072 Shares in 2002 and
317,411 Shares in 2001 3 3
Additional Paid-In Capital 31,308 28,266
Retained Earnings since January 1, 1993 15,729 14,726
Treasury Stock (4,560 of Class B
Shares in 2002 and 2001) (25) (25)
Total Stockholders' Equity 47,025 42,978
Total Liabilities and Stockholders' Equity $52,137 $51,408
The accompanying notes are an integral part of these financial statements.
DOVER INVESTMENTS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended December 31,
(in thousands, except share and per share amounts)
2002 2001 2000
Restated
Home Sales $14,038 $22,099 $45,684
Lot Sales - - 2,700
Total Sales 14,038 22,099 48,384
Cost of Homes Sold 8,737 12,841 29,945
Cost of Lot Sales - - 1,600
Total Cost of Sales 8,737 12,841 31,545
Impairment of Asset 350 - -
Minority Interest in
Joint Ventures 1,713 3,336 4,625
GROSS PROFIT 3,238 5,922 12,214
Selling Expenses 1,202 1,272 2,535
General and Administrative
Expenses 1,130 1,504 1,666
2,332 2,776 4,201
Operating Income 906 3,146 8,013
Other Income:
Interest 407 887 1,591
Gain on Sale of SPM 262 - -
Other 96 3 59
Total Other Income 765 890 1,650
Income before Provision for
Income Taxes 1,671 4,036 9,663
Provision for Income Taxes 668 1,614 4,346
NET INCOME $1,003 $2,422 $5,317
Basic Earnings Per Share $0.76 $2.03 $4.64
Diluted Earnings Per Share $0.75 $2.01 $4.62
Weighted Average Number
of Shares Outstanding:
Basic: 1,314,300 1,195,733 1,145,489
Diluted: 1,329,220 1,202,990 1,151,204
The accompanying notes are an integral part of these financial statements.
DOVER INVESTMENTS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 2002, 2001 and 2000
(in thousands)
Additional Treasury
Common Stock Paid-In Retained Stock
Class A Class B Capital Earnings at Cost Total
Balance at
January 1, 2000 $ 8 $ 3 $22,963 $ 6,987 $(25) $29,936
Re-issuance of
Treasury Stock - - 387 - - 387
Realization of
Prequasi-
reorganization
Net Operating
Loss Tax Benefits - - 2,097 - - 2,097
Net Income - - - 5,317 - 5,317
Balance at
December 31, 2000 8 3 25,447 12,304 (25) 37,737
Re-issuance of
Treasury Stock - - 15 - - 15
Realization of
Prequasi-
reorganization
Net Operating
Loss Tax Benefits - - 2,804 - - 2,804
Net Income - - - 2,422 - 2,422
Balance at
December 31, 2001 8 3 28,266 14,726 (25) 42,978
Issuance of Stock
from Stock Option
Exercises 2 - 1,537 - - 1,539
Realization of
Prequasi-
reorganization
Net Operating
Loss Tax Benefits - - 1,505 - - 1,505
Net Income - - - 1,003 - 1,003
Balance at
December 31, 2002 $10 $ 3 $31,308 $15,729 $(25) $47,025
The accompanying notes are an integral part of this financial statement.
DOVER INVESTMENTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
(in thousands)
2002 2001 2000
Cash Flows from Operating Activities:
Net Income $1,003 $2,422 $5,317
Reconciliation Net Income to Net
Cash Provided by (Used in)
Operating Activities:
Deferred Taxes (179) - -
Impairment of Asset 350 - -
Income Accruing to Minority Interest 1,713 3,336 4,625
Tax Benefit of Utilizing Prequasi-
reorganization Net Operating Losses 1,505 2,804 2,097
Gain on Sale of SPM (262) - -
Changes in Assets and Liabilities:
Restricted Cash - - 409
Homes Held for Sale (40) - (95)
Property Held for Development (3,899) (8,618) 3,625
Notes Receivable (685) 937 1,718
Deferred Income Taxes (1,505) (1,929) -
Other Assets 220 (707) 298
Accrued Interest and Other Liabilities 1,372 (1,142) (1,886)
Net Cash Provided by (Used in)
Operating Activities (407) (2,897) 16,108
Cash Flow from Investing Activities:
Purchase of Investments (6,000) - -
Proceed from Sale of SPM 2,100 - -
Proceeds from Sale of Investments 2,500 - -
Net Cash Used in Investing Activities (1,400) - -
Cash Flows from Financing Activities:
Repayment to Minority Interest in
Joint Ventures (1,720) (3,363) (5,593)
Proceeds from Notes Payable 5,533 12,672 14,053
Repayment of Notes Payable (10,216) (8,581) (19,873)
Exercise of Stock Options 1,539 15 387
Net Cash (Used in) Provided by
Financing Activities (4,864) 743 (11,026)
Net (Decrease) Increase in Cash and
Cash Equivalents (6,671) (2,154) 5,082
Cash and Cash Equivalents at
Beginning of Year 18,377 20,531 15,449
Cash and Cash Equivalents at
End of Year $11,706 $18,377 $20,531
Supplemental Cash Flow Activity:
Cash Paid for Interest,
Net of Capitalized Interest $ 185 $ 61 $207
Cash Paid for Income Taxes $ 295 $1,275 $2,033
Non-Cash Activity:
Transfer of Property Held for
Development to Homes Held for Sale $6,971 - -
The accompanying notes are an integral part of these financial statements.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING POLICIES
Dover Investments Corporation (the "Company") engages primarily
in residential real estate development The Company's real estate projects
(other than the Coram Plaza Shopping Center project described below)
are developed through ventures with wholly-owned subsidiaries of
E. F. Communities, Inc., a California corporation (collectively, "EFC").
Under the governing agreements, EFC is primarily responsible for the
construction and the development of the real estate. Until March 2002,
the real estate projects were developed through ventures with
Westco Community Builders, Inc., an independent California corporation
("WCB"). In March 2002, EFC acquired the interests held by WCB in
the ventures. The owners of EFC are the same as those of WCB.
A California general partnership, Glenbriar Joint Venture, and
three California limited liability companies, Glenbriar Venture #2, LLC,
Tracy Residential Venture Partners, LLC and Meadowbrook
Ventures, LLC, have been formed for development of the Glenbriar
Estates project described below; another California limited liability
company, South Tracy Industrial Park, LLC ("STIP"), has been formed
for development of the South Tracy Industrial Park project described
below; another California limited liability company, Halcyon Properties,
LLC ("Halcyon"), has been formed for development of the San Leandro
project described below; and another California limited liability
company, Woodview Estates, LLC ("Woodview"), has been formed for
development of the Novato project described below. During 2002, the
Company and EFC formed two additional California limited liability
companies, Glenbrook Homes, LLC and Meadowbrook Residences,
LLC, for development of the Glenbriar Estates project described
below, and another California limited liability company, Marymont,
LLC, for development of the higher priced home described below.
For each of the ventures the Company contributes all of the capital,
except that for Glenbriar Venture #2, LLC, WCB contributed 25% of the
capital through December 1998 and that for Marymont, LLC, EFC
contributes 50% of the additional capital beginning December 2002.
EFC is paid a fee for managing the construction and development of the
real estate. For each of the ventures other than Glenbriar Joint Venture,
Glenbriar Venture #2, LLC and STIP, the management fee is equal
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
to 3% of the sales price of each home that is sold. EFC receives a
fixed monthly management fee of $5 for managing Glenbriar Joint
Venture and Glenbriar Venture #2, LLC and a fixed monthly
management fee of $10 for STIP. The Company (and EFC, with
respect to Glenbriar Venture #2, LLC and Marymont,
LLC) receives a preferred return on equity in the ventures, at an
annual rate of 10% to 12%, through December 31, 2001, and
approximately 7%, since January 1, 2002. Remaining profits for
each venture are split, 50% to the Company and 50% to EFC (or, in
the case of Glenbriar Venture #2, LLC, 25%, 50% or 75% to the
Company and the remainder to EFC) according to the governing
agreements.
The Company has been a member of SPM, LLC ("SPM"),
a venture with three other independent parties, which developed and
leased a property located in the Coram Plaza Shopping Center, in Coram,
New York. In December 2002, pursuant to an agreement between the
Company and SPM, SPM redeemed the Company's membership interest
in SPM, recording a gain on sale of investment of $262.
Transactions with WCB and EFC
Britt Evans is the chief executive officer and a 50% shareholder
of E. F. Communities, Inc., and was also the chief executive officer
and a 50% shareholder of WCB.
On October 24, 2001, upon the resignation of Lawrence Weissberg
as trustee of The Lawrence Weissberg Revocable Living Trust, U/D/T
dated November 25, 1992 (the "Trust"), Frederick M . Weissberg, the
Chairman of the Board of Directors and President of the Company, and
Britt Evans became the successor co-trustees of the Trust. The Trust is
a revocable trust formed by Lawrence Weissberg for estate planning and
succession purposes. Britt Evans is not a beneficiary of the Trust.
The assets of the Trust include 431,021 shares of the Company's Class
A Common Stock and 245,114 shares of the Company's Class B
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
Common Stock. On May 2, 2002, Britt Evans resigned as co-trustee
of the Trust with respect to the shares of the Company's Common Stock
owned by the Trust, and on June 7, 2002 Britt Evans resigned as co-
trustee of the Trust with respect to all matters of the Trust. From
October 24, 2001 until May 2, 2002, as a result of his shared voting and
dispositive power, together with Frederick M. Weissberg, with respect to
the shares of the Company's Common Stock owned by the Trust,
Britt Evans was deemed to share indirect beneficial ownership of
these shares.
For 2002, EFC was paid management fees for the ventures in an
aggregate amount of $782, representing $60 for Glenbriar Joint Venture,
$60 for Glenbriar Venture #2, LLC, $120 for STIP, $189 for Tracy
Residential Venture Partners, LLC, $85 for Glenbrook Homes, LLC
and $268 for Meadowbrook Ventures, LLC. No management fees were
paid for Halcyon, Woodview, Meadowbrook Residences LLC and
Marymont, LLC as development has either not started or has been
completed. For 2002, EFC's aggregate net profit participation for
the ventures was $1,712, representing a profit participation of $181 for
Glenbriar Venture #2, LLC, a profit participation of $656 for Tracy
Residential Venture Partners, LLC, a profit participation of $28
for Glenbriar Joint Venture and a profit participation of $913 for
Meadowbrook Ventures, LLC, offset by initial deficits of $10, $4,
$13, $27 and $12 for STIP, Halcyon, Woodview, Glenbrook Homes
and Meadowbrook Residences, respectively. A portion of the profit
participation earned by EFC in 2002 was paid in 2002 and the remainder
will be paid in 2003 or thereafter.
On October 9, 2001, the Company extended a line of credit of up
to $1,659 to WCB for construction of single family homes solely
constructed by EFC. During 2002, draws of $1,551 were made under
the line of credit. As of December 31, 2002, the outstanding balance
under the line of credit was $1,570. The line of credit bears interest
at a floating rate of prime (4.25% as of December 31, 2002) plus 2%
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
per annum and matures on April 9, 2003, and is secured by a deed of
trust on the related property. In March 2002, the line of credit was
assigned to EFC.
Use of Estimates
In preparing the financial statements in conformity with accounting
principles generally accepted in the United States of America,
management is required to make estimates that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its majority owned and controlled joint venture and
limited liability companies. All significant inter-company
transactions are eliminated in consolidation.
Property Held for Development
Costs for the development of property and the building of homes
are capitalized during the construction period. Such costs include
expenditures for land, land improvements, model homes, capitalized
interest, and construction in progress. When a home is sold, the cost
of the sale is recognized, which includes land, site development,
construction, management fees and financing costs using the specific
identification method.
Property Held for Development is stated at the lower of cost or
net realizable value. The Company conducts a review for impairment
whenever events or changes in circumstances indicate that the
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
carrying value of the Property Held for Development may
not be recoverable. Impairment is recognized when estimated
expected aggregate undiscounted cash flows are less than the
carrying amount of the Property Held for Development. To the
extent that an impairment has occurred, the excess of the carrying
amount of the Property Held for Development over its estimated
fair value will be charged to operations.
Homes Held for Sale
In connection with the preparation of the December 31, 2002
financial statements, the Company identified indicators of possible
impairment of one of the homes held for sale. Such indicators
included the significant downturn in the higher priced home and real
estate industry.
The Company performed asset impairment tests. The tests were
performed by comparing the expected aggregate undiscounted cash
flows to the carrying amounts of homes held for sale. Based on these
results, the Company determined that the homes held for sale
were impaired.
The Company determined the fair market value of its
homes held for sale using a market comparison method.
A write down of $350 was recorded in 2002 in connection with the
higher priced Atherton home, reflecting the amount by which the
carrying amount of this asset exceeded its net realizable value.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
Revenues From and Cost of Home Sales
The Company recognizes income from home sales upon the closing
and transfer of title to the buyer. The cost of a home sold includes land,
site improvement, development, construction and financing costs and
management fees. For each home sold, a reserve equal to one percent
of the selling price is established to cover warranty expense incurred
subsequent to the home sale. Warranty expenditures are charged to the
reserve when paid. Sale of lots are recognized upon the closing and
transfer of title to the buyer. The cost of the lot sold, includes land,
site improvement, development and financing costs.
Income Taxes
The Company follows the asset and liability method in accounting
for income taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between the financial reporting and
tax bases of assets and liabilities and on the expected future tax benefit
to be derived from tax loss carry forwards, if any. Additionally, deferred
tax items are measured using current tax rates. A valuation allowance is
established to reflect the likelihood of realization of deferred tax assets.
Concentrations of Risk
The Company maintains its cash balances, which exceed federally
insured limits, in major financial institutions. The Company has not
experienced any losses in such accounts and believes it is not
exposed to significant risk or loss. The Company's development projects
are primarily located in Northern California. Any changes to the housing
market in this area could affect the Company's operations. The Company
operates as a single segment.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with
an original maturity of three months or less to be cash equivalents
for purposes of the Statement of Cash Flows. Amounts also include
purchased securities, in the amount of $6,421 under agreements to
resell (repurchase agreements) with primary securities dealers.
Such repurchase agreements are typically overnight investments
and collateralized by mortgage-backed certificates which are held
on behalf of the Company by the dealers who arrange the transaction.
At December 31, 2002, the weighted average interest rate of such
repurchase agreements was 1.75%. The market value of the
repurchase agreements approximates cost.
Investments
Investments consist of government debt securities with maturities
greater than one year from the balance sheet date. Investments are
classified as available for sale securities because the Company may
sell them before they reach maturity. The investments are carried at
fair market value, with unrealized gains and losses recorded in
shareholder equity. The cost of securities sold is based on the
specified identification method.
Reclassification
Certain prior year amounts have been reclassified to conform to
current year presentation.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
Earnings Per Share
Basic earnings per share are computed based on the weighted-
average number of shares of common stock outstanding. Diluted
earnings per share is computed based on the weighted-average
number of shares of common stock and other dilutive securities.
Restatement
During 2000, the Company restated prior period lot sales and cost
of home and lot sales to correct the elimination of inter-company
transactions. The impact of the restatement is as follows:
Year Ended
December 31, 2000
As Previously Reported Restatement As Restated
Lot Sales $ 6,591 $(3,891) $ 2,700
Cost of Home Sales 32,342 (2,397) 29,945
Cost of Lot Sales 3,094 (1,494) 1,600
The restatement had no impact on gross profit, net income or
earnings per share in the Company's issued financial statements.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
Effect Of New Accounting Standards
In July 2001, the Financial Accounting Standards Board
(FASB) issued SFAS 141, "Business Combinations." SFAS 141
supersedes APB 16, "Business Combinations," and SFAS 38,
"Accounting of Preacquisition Contingencies of Purchased
Enterprises," SFAS 141 requires the purchase method of
accounting for all business combinations initiated after June 30,
2001 and eliminates the pooling-of-interest method. The Company
adopted SFAS 141 on January 1, 2002 and the adoption had no
material effect on its financial condition or results of operations.
In July 2001, the FASB issued SFAS 142, "Goodwill and Other
Intangible Assets." SFAS 142 supersedes APB17, "Intangible Assets,"
and requires the discontinuance of goodwill amortization. In addition,
SFAS 142 includes provisions regarding the reclassification of certain
existing recognized intangibles as goodwill, reassessment of the
useful lives of existing recognized intangibles, reclassification of
certain intangibles out of previously reported goodwill and the testing
for impairment of existing goodwill and other intangibles.
SFAS 142 is required to be applied for fiscal years beginning after
December 15, 2001, with certain early adoption permitted. The
Company does not have any goodwill or intangible assets,
and therefore SFAS 142 will not impact its financial statements.
In June 2001, the FASB issued SFAS 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The purpose
of this statement is to develop consistent accounting of asset retirement
obligations and related costs in the financial statements and provide
more information about future cash outflows, leverage and liquidity
regarding retirement obligations and the gross investment in long-lived
assets. This statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The Company will
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
implement SFAS No. 143 on January 1, 2003. The impact of such
adoption is not anticipated to have a material effect on the Company's
financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for
Impairment or Disposal of Long-Lived Assets," which is effective for
fiscal years beginning after December 15, 2001. This statement
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," and the accounting
and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business
(as previously defined in that Opinion). This Statement also amends
Accounting Research Board No. 51, "Consolidated Financial
Statements," to eliminate the exception to consolidation for
subsidiaries for which control is likely to be temporary. The Company
adopted SFAS No. 144 on January 1, 2002.
In July 2002, the FASB issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, effective for exit
or disposal activities initiated after December 31, 2002. SFAS No.
146 addresses the financial accounting and reporting for certain costs
associated with exit or disposal activities, including restructuring actions.
SFAS No. 146 excludes from its scope severance benefits that are
subject to an on-going benefit arrangement governed by SFAS
No. 112, Employer's Accounting for Post employment Benefits, and
asset impairments governed by SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The Corporation
does not believe that the impact of adoption will have a material
impact on the Corporation's financial position or results of operations.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
In November 2002, the FASB issued Interpretation No. 45
(or FIN 45), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees or Indebtedness of Others."
FIN 45 elaborates on the existing disclosure requirements for most
guarantees, including residual value guarantees issued in conjunction
with operating lease agreements. It also clarifies that at the time a
company issues a guarantee, the company must recognize an initial
liability for the fair value of the obligation it assumes under that
guarantee and must disclose that information in its interim and annual
financial statements. The initial recognition and measurement
provisions apply on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements
are effective for financial statements of interim or annual periods
ending after December 15, 2002. The Company's adoption of
FIN 45 did not have a material impact on the results of operations
and financial position.
In January 2003, the FASB issued Interpretation No. 46
(or FIN 46), "Consolidation of Variable Interest Entities." FIN 46
requires a variable interest entity to be consolidated by a company
if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority
of the entity's residual returns or both. A variable interest entity is
a corporation, partnership, trust, or any other legal structures used
for business purposes that either (a) does not have equity investors
with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
A variable interest entity often holds financial assets, including
loans or receivables, real estate or other property. A variable
interest entity may be essentially passive or it may engage in
research and development or other activities on behalf of another
company. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31,
2003. The consolidation requirements apply to older entities in
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
the first fiscal year or interim period beginning after June 15, 2003.
Certain of the disclosure requirements apply to all financial statements
issued after January 31, 2003, regardless of when the variable interest
entity was established. The Company does not have any variable
interest entities, and therefore FIN No. 46 will not impact its
financial statements.
In December 2002, the FASB issued Statement No. 148,
"Accounting for Stock-Based Compensation - Transition and
Disclosure." FAS 148 amends FAS 123 "Accounting for Stock-
Based Compensation" to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, FAS 148 amends
the disclosure requirements of FAS 123 to require more prominent
disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The additional
disclosure requirements of FAS 148 are effective for fiscal years
ending December 15, 2002. The Company has elected to continue
to follow the intrinsic value method of accounting as prescribed
by Accounting Principles Board Opinion No. 25 (or APB 25),
"Accounting for Stock Issued to Employees," to account for
employee stock options.
Had compensation cost for all the plans described in Note G
been determined based on the fair value of the options at the grant
dates consistent with the methodology prescribed by FAS 123, as
amended by FAS 148, the Company's net income and income per
share would be reduced to the pro forma amounts indicated below:
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE A - ORGANIZATION AND ACCOUNTING
POLICIES (continued)
Year Ended December 31,
2002 2001 2000
Net income:
As reported $1,003 $2,422 $5,317
Pro forma expense (121) (316) (267)
Pro forma 882 2,106 5,050
Basic net income per share:
As reported $0.76 $2.03 $4.64
Pro forma 0.67 1.76 4.41
Diluted net income per share:
As reported $0.75 $2.01 $4.62
Pro forma 0.66 1.75 4.39
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options pricing model with the following
weighted-average assumptions: expected life of five years from the date
of grant; stock volatility 28% in 2002, 47% in 2001 and 74% in 2000;
risk free interest rates, 3.82% in 2002, 5.12% in 2001 and 5.12% in 2000;
no dividends are expected.
NOTE B - NOTES RECEIVABLE
On October 9, 2001, the Company extended a line of credit of up
to $1,659 to WCB for construction of single family homes solely
constructed by EFC. During 2002, draws of $1,551 were made
under the line of credit. As of December 31, 2002, the outstanding
balance under the line of credit was $1,570. The line of credit bears
interest at a floating rate of prime (4.25% as of December 31, 2002)
plus 2% per annum and matures on April 9, 2003, and is secured
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE B - NOTES RECEIVABLE (continued)
by a deed of trust on the related property. In March 2002, the line
of credit was assigned to EFC.
In May 2001, the Company's Principal Financial Officer, received
a loan from the Company in the amount of $874. The loan amortized
over a 30 year period and interest was payable at a fixed rate of 4.0%
per annum. The loan was made for the purchase of her residence and
was secured by a deed of trust. As of December 31, 2002, the loan
was repaid in full.
NOTE C - NOTES PAYABLE
Notes payable at December 31, are comprised of the following:
2002 2001
Notes Payable, maturing August 12, 2003,
and bearing interest at prime (4.25% at
December 31, 2002) plus 0.75% $ 557 $1,126
Notes Payable, maturing April 20, 2003,
and bearing interest at prime (4.25% at
December 31, 2002) plus 0.75%. 1,330 972
Notes Payable, maturing April 10, 2002,
and bearing interest at prime (4.25% at
December 31, 2002) plus 0.75%. - 4,472
$1,887 $6,570
Aggregate principal payments of $1,887 are due through
August 12, 2003. All these notes payable are collateralized by Deeds
of Trust over property held for development.
Interest in 2002, 2001 and 2000 amounted to $185, $61 and $207,
respectively, and is capitalized as part of property held for development.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands except share and per share amounts)
NOTE D - LEASE COMMITMENT
The Company has an agreement to lease premises that commenced
on October 1, 1997 with an initial term ending on September 30, 2002.
On November 15, 2001, the Company exercised an option to extend the
lease for an additional period of two years ending on September 30, 2004.
The Company subleases a portion of the premises to a related party. The
sublease's share of the lease equals 35% of the total rent and operating
costs. Rent and yearly operating cost reimbursements from the sublease
were $52 for 2002 compared to $40 for 2001 and $41 for 2000.
A summary of net minimum lease payments is as follows:
Years ending December 31,
2003 $52
2004 39
Total $91
Rent expenses for the years ended December 31, 2002, 2001 and
2000 totaled $100, $92 and $76, respectively.
NOTE E - INCOME TAXES
Income tax expenses for the year ended December 31, consists of:
Current 2002 2001 2000
Federal $ 548 $1,053 $3,399
State 299 332 947
$ 847 $1,385 $4,346
Deferred
Federal $(150) $ 212 $ -
State (29) 17 -
$(179) $ 229 $ -
Total $ 668 $1,614 $4,346
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands except share and per share amounts)
NOTE E - INCOME TAXES (continued)
In 1993, the Company underwent a quasi-reorganization
resulting in the elimination of its accumulated deficit and a
decrease in additional Paid-in Capital. The subsequent tax
benefit of utilization of prequasi-reorganization operating losses
are credited to Paid-in Capital. A tax benefit for 2002, 2001
and 2000 of $1,505, $2,804 and $2,097, respectively, for prequasi-
reorganization net operating losses has been credited to Paid-in
Capital. At December 31, 2002 all prequasi-reorganization net
operating loss tax benefits had been fully recognized and no
further tax benefits are available to be credited to Paid-in Capital
after that date.
The following is a reconciliation between the federal statutory
rate and the effective rate used for the Company's provision for taxes:
2002 2001 2000
Tax expense at statutory federal
income tax rate (34%) $ 568 $1,372 $3,285
State franchise tax 93 235 570
Change in valuation allowance - (1,395) 473
Recognition of prequasi-
reorganization tax benefits - 1,426 -
Other 7 (24) 18
Income tax expense $ 668 $1,614 $4,346
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2001, 2000 and 1999
(in thousands, except share and per share amounts)
NOTE E - INCOME TAXES (continued)
Net deferred taxes as of December 31, Are as follows:
2002 2001 2000
Deferred tax asset:
Accrued warranty reserve $ 116 $ 140 $ -
AMT credit carry forward 3,166 2,618 654
Difference between book and tax
partnership investment 201 - 551
Accrued expenses 2 22 29
Other 135 113 -
Depreciation - 17 10
Net operating loss carry forward - 929 151
3,620 3,839 1,395
Valuation allowance - - (1,395)
3,620 3,839 -
Deferred tax liability:
Difference between book and tax
partnership investment - (1,910) -
Depreciation (7) - -
Net deferred tax asset $3,613 $1,929 $ -
Statement of Financial Accounting Standards ("SFAS") No.109
requires the establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets. In 2000 the Company
recorded a valuation allowance for the total amount of deferred tax
assets. The deferred tax asset schedule for 2000 did not give effect to
any deferred tax asset related to prequasi-reorganization tax loss carry
forwards. At December 31, 2002, the Company has determined that it
is more likely than not that its deferred tax assets including those related
to the remaining prequasi-reorganization tax loss carry forwards, will
be realized, and accordingly the valuation allowance has been reduced.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2001, 2000 and 1999
(in thousands, except share and per share amounts)
NOTE E - INCOME TAXES (continued)
As of December 31, 2002, the Company estimates that the
Federal net operating loss carry forwards have been fully utilized.
NOTE F - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instrument assets and liabilities consist
of cash and cash equivalents, notes receivable and long-term debt.
The balance sheet carrying amounts of cash and cash equivalents,
notes receivable and debt approximate the estimated fair values.
NOTE G - COMMON STOCK OPTION PLANS AND
EARNINGS PER SHARE
At December 31, 2002, the Company had three stock-based
compensation plans. Two of the plans are primarily for employees and
the other is for non-employee Directors. The Company applies APB
Opinion 25 "Accounting for Stock Issued to Employees" and related
interpretations in accounting for the plans. The Company has adopted
the disclosure only provision pursuant to FAS 123 as amended by
FAS 148. Accordingly, since options are issued at fair market value
no compensation costs have been recognized for the plans.
STOCK OPTION PLAN FOR EMPLOYEES
Under the 1995 Stock Option Plan (the "Plan"), 400,000 shares of
Class A Common Stock and 400,000 shares of Class B Common Stock
of the Corporation have been reserved for issuance pursuant to the Plan.
The aggregate number of shares which may be issued under the Plan
shall not exceed 400,000 shares of any combination of shares of
Class A Common Stock and Class B Common Stock. Awards may
be made under the Plan until January 16, 2005.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE G - COMMON STOCK OPTION PLANS AND
EARNINGS PER SHARE (continued)
The exercise price for shares subject to the options granted under
the Plan is the fair market value of the shares at the date of grant.
The option price per share of a stock option granted to a person
who, on the date of such grant, owns stock possessing more than 10%
of the total combined voting power of all classes of stock of the
Company shall not be less than 110% of the fair market value on the
date that the option is granted. Options granted under the Plan become
exercisable over three years at the rate of approximately 33.333%,
each year on each anniversary of the grant date, with full vesting
occurring on the third anniversary date. As of December 31, 2002,
unexercised options to purchase 62,500 shares (including options
granted subject to stockholder approval) were outstanding
under the Plan.
The Board of Directors has proposed to increase from 400,000
to 500,000 the number of shares of the Company reserved for
issuance upon exercise of stock options granted under the Plan,
and to extend the term of the Plan until January 16, 2007.
The plan amendment is subject to stockholder approval.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The 1990 Stock Option Plan for Non-employee Directors
(the "Restated Plan"), was restated and approved by stockholders
on May 24, 2000. The exercise price for each option granted is the
market price of the shares at the date of grant. Options granted
under the Restated Plan are exercisable in 50% increments on
each anniversary of the grant date, with full vesting occurring on
the second anniversary date. All options terminate upon the earliest
of (a) thirty days after an optionee ceases to be a director of the
Company for any reason other than death, (b) six months after an
optionees death or (c) ten years after the date such options were
granted.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE G - COMMON STOCK OPTION PLANS AND
EARNINGS PER SHARE (continued)
The aggregate number of shares which may be issued under
the Restated Plan shall not exceed 12,500 shares of Class A Common
Stock.
The Restated Plan provides that each director who is not an
employee of the Company and has not been an employee of the
Company for all or any part of the preceding fiscal year automatically
receives options to purchase 1000 shares of Class A Common Stock
upon their election or appointment as a director of the Company.
Thereafter, every year options to purchase 500 shares of Class A
Common Stock (subject to adjustment for recapitalization, stock
splits and similar events) will automatically be granted to such
director, provided, however, that such automatic option grants will
be made only if the director (a) has served on the Board of Directors
for the entire two preceding fiscal years, (b) is not otherwise an
employee of the Company or any subsidiaries on the date of grant
and (c) has not been an employee of the Company or any
subsidiaries for all or any part of the preceding fiscal years.
As of December 31, 2002, unexercised options to purchase 6,000
shares (including options granted subject to stockholder approval)
were outstanding under the Restated Plan.
The Board of Directors has proposed to increase from 12,500 to
25,000 the number of shares of the Company reserved for issuance
upon exercise of stock options granted under the Plan, and to
extend the term of the Plan until January 16, 2007. The plan
amendment is subject to stockholder approval.
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE G - COMMON STOCK OPTION PLANS AND
EARNINGS PER SHARE (continued)
A summary of the status of the Company's fixed stock plans
as of December 31, 2002, 2001 and 2000, and changes during the years
ending on those dates is presented below:
December 31, 2002 December 31, 2001 December 31, 2000
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding
at beginning
of year 166,500 $12.52 167,250 $12.44 172,300 $11.12
Granted 37,500 16.33 1,500 12.30 46,500 11.29
Cancelled (17,500) 12.10 - - - -
Exercised (118,000) 13.03 (2,250) 6.81 (51,550) 7.51
Outstanding at
end of year 68,500 13.84 166,500 12.52 167,250 12.42
Options
exercisable
at year end 26,916 $10.76 136,749 $12.66 61,667 $6.31
Weighted-
average fair
value of
options granted
during the year $4.39 $8.00 $7.93
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE G - COMMON STOCK OPTION PLANS AND
EARNINGS PER SHARE (continued)
The following information applies to options outstanding
at December 31, 2002:
Options Outstanding Options Exercisable
Options Weighted Options Weighted
Range of Outstanding Average Weighted Exercisable Average
Exercise at December Remaining Average at December Exercise
Prices 31, 2002 Contractual Life Exercise Price 31, 2002 Price
$ 5.88 - 6.38 2,000 4.25 $ 6.22 2,000 $ 6.22
8.13 - 9.50 6,250 6.12 9.33 6,250 9.33
10.75 - 11.50 11,250 8.04 11.02 7,666 11.02
12.00 - 13.25 11,000 7.18 12.05 10,500 12.09
14.25 - 20.00 38,000 9.97 16.00 500 16.32
68,500 8.69 26,916 13.84
DOVER INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2002, 2001 and 2000
(in thousands, except share and per share amounts)
NOTE G - COMMON STOCK OPTION PLANS AND
EARNINGS PER SHARE (continued)
The following table illustrates the reconciliation of the numerators
and denominators of the basic and diluted earnings per share
computations.
Year Ended December 31,
2002 2001 2000
Net Income $1,003 $2,422 $5,317
Weighted average common
shares outstanding 1,314,300 1,195,733 1,145,489
Additional dilutive potential
common shares 14,920 7,257 5,715
Diluted shares outstanding 1,329,220 1,202,990 1,151,204
Net income per share - basic $0.76 $2.03 $4.64
Net income per share - diluted $0.75 $2.01 $4.62
Shares excluded from diluted EPS 500 101,000 100,500
EXHIBIT INDEX
Exhibit Description
Number
3.1 Restated Certificate of Incorporation and Restated
By-Laws of the Company.(1)
10.5 Partnership Agreement, Glenbriar Joint Venture,
dated January 7, 1994 between GIC Investment
Corporation and Westco Community Builders.(1)
10.7 Form of Nonqualified Stock Option Agreement as
of November 16, 1994.(1)
10.9 Form of Incentive Stock Option Agreement.(1)
10.10 Form of Nonqualified Stock Option Agreement.(1)
10.11 Operating Agreement, Tracy Residential Venture
Partners, LLC.(2)
10.14 Lease Agreement, dated October 1, 1997.(3)
10.15 Sublease Agreement, dated October 1, 1997 between
the Company and Wilfred, Inc.(3)
10.16 1995 Stock Option Plan, as amended. (4)
10.17 Operating Agreement, Meadowbrook
Ventures, LLC. (5)
10.18 Operating Agreement, South Tracy Industrial
Park, LLC.(6)
10.19 Operating Agreement, SPM, LLC.(6)
10.20 Stock Option Plan for Nonemployee Directors, as
amended and restated. (7)
10.21 Operating Agreement, Halcyon Properties, LLC.(8)
10.22 Operating Agreement, Woodview Estates, LLC.(8)
10.23 Amendments to Partnership Agreements for each of
Glenbriar Joint Venture; Glenbriar Venture #2, LLC;
Tracy Residential Venture Partners, LLC;
Meadowbrook Ventures, LLC; South Tracy Industrial
Park, LLC; Halcyon Properties, LLC; and Woodview
Estates, LLC.(9)
10.24 Letter Agreement, dated August 8, 2002, between the
Company and SPM, LLC.(10)
10.25 Operating Agreement, Glenbrook Homes, LLC.
10.26 Operating Agreement, Meadowbrook Residences, LLC.
10.27 Operating Agreement, Marymont, LLC.
21.1 Subsidiaries of the Company.
99.1 Certification of President.
99.2 Certification of Principal Financial Officer.
(1) - Incorporated by reference to Exhibits 3.1, 10.5, 10.7,
10.9 and 10.10 in the Company's Annual Report on Form
10-K for the Year Ended December 31, 2000.
(2) - Incorporated by reference to Exhibit 10.11 in the
Company's Annual Report on Form 10-KSB for the
Year Ended December 31, 1999.
(3) - Incorporated by reference to Exhibits 10.14 and 10.15
in the Company's Quarterly Report on Form 10-QSB
for the Quarter Ended March 31, 1999.
(4) - Incorporated by reference to Exhibit 10.16 in the
Company's Quarterly Report on Form 10-QSB for the
Quarter Ended June 30, 1999.
(5) - Incorporated by reference to Exhibit 10.17 in the
Company's Quarterly Report on Form 10-QSB for the
Quarter Ended September 30, 1999.
(6) - Incorporated by reference to Exhibits 10.18 and 10.19
in the Company's Annual Report on Form 10-KSB
for the Year Ended December 31, 1999.
(7) - Incorporated by reference to Exhibit 10.20 in the
Company's Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 2000.
(8) - Incorporated by reference to Exhibits 10.21 and 10.22
in the Company's Quarterly Report on Form 10-Q for
the Quarter Ended June 30, 2001.
(9) - Incorporated by reference to Exhibit 10.22 in the
Company's Quarterly Report on Form 10-Q for the
Quarter Ended March 31, 2002.
(10) - Incorporated by reference to Exhibit 10.23 in the
Company's Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2002.
(b.) No reports on Form 8-K were filed with the Securities
and Exchange Commission during the fourth quarter of
the year ended December 31, 2002.