##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-Q



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|                                  |  |                                                                                                 
|--------------------------------- |  | ------------------------------------------------------------------------------------------------
|þ                                 |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                 
|                                  |  | For the quarterly period ended May 31,
    2002                                                 
|                                 
|o                                 |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|                                 
|Commission File Number: 001-09911



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Capital Pacific Holdings, Inc.

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 95-2956559                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)

4100 MacArthur Blvd., Suite 200, Newport
Beach, CA 92660

(Address of principal executive offices) (Zip
Code)


(949) 622-8400

(Registrants telephone number, including
area code)




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Indicate by check mark whether the Registrant
(1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest
practicable date.

|                                         |  |                         
|---------------------------------------- |  | ------------------------
|Class and Title of                       |  | Shares Outstanding as of
|Capital Stock                            |  | June 30, 2002           
|                                         |  |                         
|Common Stock, $0.10 Par Value            |  | 13,688,362              
|Non-Voting Common Stock, $0.10 Par Value |  | 1,235,000               



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TABLE OF CONTENTS



|                                |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I -- FINANCIAL INFORMATION
|                                | Item 1. Financial Statements                                                                 
|                                |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                                |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME         
|                                |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                | Item 2. Managements Discussion and Analysis of Results of Operations and Financial Condition
|PART II -- OTHER INFORMATION   
|                                | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                     



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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC.

INDEX TO FORM 10-Q

|                               |  |                                                                                                |  |      |    | 
|------------------------------ |  | ---------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                               |  |                                                                                                |  | Page
|                               |  |                                                                                                |  |     
|PART I  FINANCIAL INFORMATION
|Item 1.                        |  | Financial Statements                                                                           |  |      | 1  | 
|                               |  | Consolidated Balance Sheets  May 31,
    2002 and February 28, 2002                           |  |      | 1  | 
|                               |  | Consolidated Statements of Income for the Three
    Months Ended May 31, 2002
    and 2001     |  |      | 2  | 
|                               |  | Consolidated Statements of Cash Flows for the
    Three Months Ended May 31, 2002
    and 2001 |  |      | 3  | 
|                               |  | Notes to Consolidated Financial Statements                                                     |  |      | 4  | 
|Item 2.                        |  | Managements Discussion and Analysis of
    Results of Operations and Financial Condition      |  |      | 11 | 
|PART II  OTHER INFORMATION   
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                               |  |      | 15 | 

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##### Table of Contents






PART I  FINANCIAL
INFORMATION




Item 1.     Financial
Statements

CAPITAL PACIFIC HOLDINGS, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


(In thousands, except share data)


|                                                                |                                                                                                                                                                     |                                            |                   |              |         |         |         |          |         |         | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------------- | ------------ | ------- | ------- | ------- | -------- | ------- | ------- | 
|                                                                |                                                                                                                                                                     | May 31,                                    |                   | February 28,
|                                                                |                                                                                                                                                                     | 2002                                       |                   | 2002        
|                                                                |                                                                                                                                                                     |                                            |                   |             
|                                                                |                                                                                                                                                                     | (Unaudited)                                |                   |             
|ASSETS                                                         
|Cash and cash equivalents                                       |                                                                                                                                                                     | $                                          | 10,537            |              |         | $       | 5,080   |         
|Restricted cash                                                 |                                                                                                                                                                     |                                            | 365               |              |         |         | 365     |         
|Accounts and notes receivable                                   |                                                                                                                                                                     |                                            | 15,803            |              |         |         | 14,537  |         
|Real estate projects                                            |                                                                                                                                                                     |                                            | 201,464           |              |         |         | 203,685 |         
|Property and equipment                                          |                                                                                                                                                                     |                                            | 7,314             |              |         |         | 971     |         
|Investment in and advances to unconsolidated
    joint ventures |                                                                                                                                                                     |                                            | 8,368             |              |         |         | 8,549   |         
|Prepaid expenses and other assets                               |                                                                                                                                                                     |                                            | 19,019            |              |         |         | 17,008  |         
|                                                                |                                                                                                                                                                     |                                            |                   |              |         |         |         |         
|                                                                |                                                                                                                                                                     |                                            | Total assets      |              | $       | 262,870 |         |          | $       | 250,195 | 
|                                                                |                                                                                                                                                                     |                                            |                   |              |         |         |         |         
|LIABILITIES AND STOCKHOLDERS
    EQUITY                       
|Accounts payable and accrued liabilities                        |                                                                                                                                                                     | $                                          | 21,543            |              |         | $       | 35,369  |         
|Notes payable                                                   |                                                                                                                                                                     |                                            | 142,182           |              |         |         | 116,265 |         
|                                                                |                                                                                                                                                                     |                                            |                   |              |         |         |         |         
|                                                                |                                                                                                                                                                     |                                            | Total liabilities |              |         | 163,725 |         |          |         | 151,634 | 
|                                                                |                                                                                                                                                                     |                                            |                   |              |         |         |         |         
|Negative goodwill                                               |                                                                                                                                                                     |                                            |                  |              |         |         | 5,447   |         
|                                                                |                                                                                                                                                                     |                                            |                   |              |         |         |         |         
|Stockholders equity:                                           |                                                                                                                                                                     |                                            |                   |              |         |         |         |         
|                                                                | Common stock, par value $0.10 per share,
    60,000,000 shares authorized; 16,230,000 shares issued;
    14,933,162 and 14,878,711 shares outstanding, respectively |                                            |                   | 1,637        |         |         |         | 1,623    |        
|                                                                | Additional paid-in capital                                                                                                                                          |                                            |                   | 217,459      |         |         |         | 216,853  |        
|                                                                | Accumulated deficit                                                                                                                                                 |                                            |                   | (114,563     | )       |         |         | (120,762 | )      
|                                                                | Treasury stock                                                                                                                                                      |                                            |                   | (4,870       | )       |         |         | (4,080   | )      
|                                                                | Accumulated other comprehensive income (loss)                                                                                                                       |                                            |                   | (518         | )       |         |         | (520     | )      
|                                                                |                                                                                                                                                                     |                                            |                   |              |         |         |         |         
|                                                                |                                                                                                                                                                     | Total stockholders equity                 |                   |              | 99,145  |         |         |          | 93,114  |        
|                                                                |                                                                                                                                                                     |                                            |                   |              |         |         |         |         
|                                                                |                                                                                                                                                                     | Total liabilities and stockholders equity |                   | $            | 262,870 |         |         | $        | 250,195 |        
|                                                                |                                                                                                                                                                     |                                            |                   |              |         |         |         |         

See accompanying notes to financial statements.

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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF INCOME


(In thousands, except share data)


(Unaudited)


|                                                                                               |                                                                                                      |                    |         |        |       |   |         |        |       | 
|---------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------ | ------- | ------ | ----- | - | ------- | ------ | ----- | 
|                                                                                               |                                                                                                      |                   
|                                                                                               |                                                                                                      | Three Months Ended
|                                                                                               |                                                                                                      | May 31,           
|                                                                                               |                                                                                                      |                   
|                                                                                               |                                                                                                      | 2002               |         | 2001  
|                                                                                               |                                                                                                      |                    |         |       
|Sales of homes and land                                                                        |                                                                                                      | $                  | 44,846  |        |       | $ | 77,494  |       
|Cost of sales                                                                                  |                                                                                                      |                    | (34,243 | )      |       |   | (57,882 | )     
|Interest expense                                                                               |                                                                                                      |                    | (3,318  | )      |       |   | (7,668  | )     
|Selling, general and administrative expenses                                                   |                                                                                                      |                    | (6,707  | )      |       |   | (9,963  | )     
|Income from unconsolidated joint ventures                                                      |                                                                                                      |                    | 356     |        |       |   | 169     |       
|Interest and other income, net                                                                 |                                                                                                      |                    | 217     |        |       |   | 454     |       
|                                                                                               |                                                                                                      |                    |         |        |       |   |         |       
|                                                                                               | Income from operations                                                                               |                    |         | 1,151  |       |   |         | 2,604  |      
|Minority interest                                                                              |                                                                                                      |                    |        |        |       |   | (159    | )     
|                                                                                               |                                                                                                      |                    |         |        |       |   |         |       
|                                                                                               | Income before provision for income taxes and
    cumulative effect of change in accounting principle |                    |         | 1,151  |       |   |         | 2,445  |      
|Provision for income taxes                                                                     |                                                                                                      |                    | 399     |        |       |   | 1,015   |       
|                                                                                               |                                                                                                      |                    |         |        |       |   |         |       
|                                                                                               | Income before cumulative effect of change in
    accounting principle                                |                    |         | 752    |       |   |         | 1,430  |      
|Cumulative effect of change in accounting
    principle  negative goodwill, net of tax effect |                                                                                                      |                    | 5,447   |        |       |   |        |       
|                                                                                               |                                                                                                      |                    |         |        |       |   |         |       
|                                                                                               |                                                                                                      | Net income         |         | $      | 6,199 |   |         | $      | 1,430 | 
|                                                                                               |                                                                                                      |                    |         |        |       |   |         |       
|Earnings per common share  basic and
    diluted:                                             |                                                                                                      |                    |         |        |       |   |         |       
|                                                                                               | Income before cumulative effect of change in
    accounting principle                                |                    | $       | 0.05   |       |   | $       | 0.10   |      
|                                                                                               | Cumulative effect of change in accounting
    principle  negative goodwill, net of tax effect       |                    |         | 0.37   |       |   |         |       |      
|                                                                                               |                                                                                                      |                    |         |        |       |   |         |       
|                                                                                               | Net income                                                                                           |                    | $       | 0.42   |       |   | $       | 0.10   |      
|                                                                                               |                                                                                                      |                    |         |        |       |   |         |       
|                                                                                               | Weighted average common shares  basic                                                               |                    |         | 14,853 |       |   |         | 13,735 |      
|                                                                                               |                                                                                                      |                    |         |        |       |   |         |       
|                                                                                               | Weighted average common shares  diluted                                                             |                    |         | 14,958 |       |   |         | 13,917 |      
|                                                                                               |                                                                                                      |                    |         |        |       |   |         |       

See accompanying notes to financial statements.

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CAPITAL PACIFIC HOLDINGS, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


(Unaudited)


|                                                                                                |                                                                             |                                                         |        |         |         |   |        |        |        |  
|----------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------- | ------ | ------- | ------- | - | ------ | ------ | ------ | -
|                                                                                                |                                                                             |                                                        
|                                                                                                |                                                                             | For the Three Months                                   
|                                                                                                |                                                                             | Ended May 31,                                          
|                                                                                                |                                                                             |                                                        
|                                                                                                |                                                                             | 2002                                                    |        | 2001   
|                                                                                                |                                                                             |                                                         |        |        
|Operating activities:                                                                           |                                                                             |                                                         |        |         |         |   |        |       
|Net income                                                                                      |                                                                             | $                                                       | 6,199  |         |         | $ | 1,430  |       
|Adjustments to reconcile net income to net cash
    provided by (used in) operating activities: |                                                                             |                                                         |        |         |         |   |        |       
|                                                                                                | Depreciation and amortization                                               |                                                         |        | 122     |         |   |        | 12     |       
|                                                                                                | Accretion of deferred gain                                                  |                                                         |        | (177    | )       |   |        | (177   | )     
|                                                                                                | Accretion of negative goodwill                                              |                                                         |        |        |         |   |        | (319   | )     
|                                                                                                | Cumulative effect of change in accounting
    principle                     |                                                         |        | (5,447  | )       |   |        |       |       
|                                                                                                | (Increase) decrease in real estate projects                                 |                                                         |        | 2,221   |         |   |        | (2,726 | )     
|                                                                                                | (Increase) decrease in receivables, prepaid
    expenses and other assets   |                                                         |        | (3,100  | )       |   |        | 12,531 |       
|                                                                                                | Increase (decrease) in accounts payable and
    accrued liabilities         |                                                         |        | (13,824 | )       |   |        | (3,432 | )     
|                                                                                                | Minority interest                                                           |                                                         |        |        |         |   |        | 159    |       
|                                                                                                |                                                                             |                                                         |        |         |         |   |        |       
|                                                                                                |                                                                             | Net cash provided by (used in) operating
    activities |        |         | (14,006 | ) |        |        | 7,478  |  
|                                                                                                |                                                                             |                                                         |        |         |         |   |        |       
|Investing activities:                                                                           |                                                                             |                                                         |        |         |         |   |        |       
|                                                                                                | Purchases of property and equipment, net                                    |                                                         |        | (6,465  | )       |   |        | (372   | )     
|                                                                                                | Increase in investment in and advances to
    unconsolidated joint ventures |                                                         |        | 181     |         |   |        | 1,449  |       
|                                                                                                |                                                                             |                                                         |        |         |         |   |        |       
|                                                                                                |                                                                             | Net cash provided by (used in) investing
    activities |        |         | (6,284  | ) |        |        | 1,077  |  
|                                                                                                |                                                                             |                                                         |        |         |         |   |        |       
|Financing activities:                                                                           |                                                                             |                                                         |        |         |         |   |        |       
|                                                                                                | Borrowings (payments) on notes payable, net                                 |                                                         |        | 25,917  |         |   |        | (9,375 | )     
|                                                                                                | Issuance of common stock                                                    |                                                         |        | 620     |         |   |        |       |       
|                                                                                                | Repurchase of common stock and warrants                                     |                                                         |        | (790    | )       |   |        | (238   | )     
|                                                                                                |                                                                             |                                                         |        |         |         |   |        |       
|                                                                                                |                                                                             | Net cash provided by (used in) financing
    activities |        |         | 25,747  |   |        |        | (9,613 | )
|                                                                                                |                                                                             |                                                         |        |         |         |   |        |       
|Net increase (decrease) in cash and cash
    equivalents                                        |                                                                             |                                                         | 5,457  |         |         |   | (1,058 | )     
|Cash and cash equivalents at beginning of period                                                |                                                                             |                                                         | 5,080  |         |         |   | 7,552  |       
|                                                                                                |                                                                             |                                                         |        |         |         |   |        |       
|Cash and cash equivalents at end of period                                                      |                                                                             | $                                                       | 10,537 |         |         | $ | 6,494  |       
|                                                                                                |                                                                             |                                                         |        |         |         |   |        |       

Non-Cash Activities:

During the three month period ended May 31,
2001, the Company issued 1,235,000 shares of non-voting common
stock to CHF in return for CHFs remaining 7% interest in
CPH LLC in connection with the Exchange Transaction described in
Note 3 to the financial statements. Below is a summary of
amounts recorded as a result of this transaction:

|                                                           |  |   |        |  
|---------------------------------------------------------- |  | - | ------ | -
|Minority interest acquired                                 |  | $ | 7,902  |  
|Issuance of non-voting common stock                        |  |   | (5,088 | )
|Deferred income taxes and accrued expenses
    recorded    |  |   | (2,061 | )
|Adjustment of remaining property and equipment to
    zero |  |   | (360   | )
|Negative goodwill recorded                                 |  |   | (393   | )
|                                                           |  |   |        |  
|                                                           |  | $ |       |  
|                                                           |  |   |        |  

See accompanying notes to financial statements.

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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(Unaudited)


1.     Basis of
Presentation

The unaudited financial statements presented
herein have been prepared in accordance with the instructions to
Form 10-Q and do not include all of the information and
note disclosures required by accounting principles generally
accepted in the United States. These statements should be read
in conjunction with the consolidated financial statements, and
notes thereto, included in the Form 10-K for the fiscal
year ended February 28, 2002, of Capital Pacific Holdings,
Inc. (the Company). In the opinion of management,
the financial statements presented herein include all
adjustments (which are solely of a normal recurring nature)
necessary to present fairly the Companys financial
position and results of operations. The results of operations
for the three month period ended May 31, 2002, are not
necessarily indicative of the results that may be expected for
the year ending February 28, 2003. The consolidated
financial statements include the accounts of the Company,
wholly-owned subsidiaries and certain majority owned joint
ventures, as well as the accounts of Capital Pacific Holdings,
LLC (CPH LLC), which is now wholly owned by the
Company. All other investments are accounted for on the equity
method. All significant intercompany balances and transactions
have been eliminated in consolidation.

2.     Reclassifications

Certain items in prior period financial
statements have been reclassified in order to conform with the
current year presentation.

3.     Company
Organization and Operations

The Company is a regional builder and developer
with operations throughout selected metropolitan areas of
California, Texas, Arizona, Colorado and, until recently,
Nevada. The Companys principal business activities are to
build and sell single-family homes. The Companys
single-family homes are targeted to entry-level, move-up and
luxury buyers.

In fiscal year 1998, the Company consummated an
equity and restructuring transaction whereby the Company and
certain of its subsidiaries transferred to CPH LLC substantially
all of their respective assets and CPH LLC assumed all the
liabilities of the Company and its subsidiaries. An unaffiliated
investment company, California Housing Finance, L.P.
(CHF) then acquired a 32.07% minority interest in
CPH LLC as a result of a cash investment in CPH LLC. From fiscal
1998 through fiscal 2001, the Company expanded its operating
strategy to encompass the acquisition and development of
commercial and mixed-use projects, as well as ownership of
existing commercial properties, primarily through non-majority
investments in limited liability companies, with approximately
99% of the capital for these projects being provided by CHF.
CPH, Inc. and CHF had contingent profits interests (after
repayment of debt, the costs of the project, invested capital
and preferred return, typically 12%) of approximately 30% to
CPH, Inc. and 70% to CHF.

Effective February 23, 2001, CPH, Inc. and
CHF consummated an interest exchange transaction (the
Exchange Transaction), whereby CPH, Inc. exchanged
its 0.75% capital interests and contingent profit interest in
the majority of the joint ventures capitalized by CHF, including
certain entities which were previously consolidated, (the
Divested Joint Ventures) for approximately 78% of
CHFs interest in CPH LLC and all of CHFs interests
in certain residential joint ventures. At February 28, 2001
and during the three month period ended May 31, 2001, CPH,
Inc. had a 93% interest in CPH LLC and CHF held a 7% minority
interest (as compared to 32.0% formerly). As a result of the
first portion of the Exchange Transaction, CPH Inc.s
interest in total capital of CPH LLC increased by 37% equal to
$27.2 million. CPH, Inc. and CHF both had an option to
convert CHFs remaining 7% interest in CPH LLC into
1,235,000 shares of non-voting Common Stock of CPH, Inc. at
the equivalent of approximately $6.40 per share. This option was
exercised by CPH, Inc. on May 31, 2001, thus, as of this
date, CPH, Inc. owned 100% of CPH LLC, and obtained an
additional increment of CPH LLCs total capital of
$7.9 million. In addition, Capital Pacific Homes, Inc., a

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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


wholly-owned subsidiary of the Company, has
entered into construction, management and marketing agreements
relating to certain of the Divested Joint Ventures with
residential components, (the Managed Projects),
whereby the Company is compensated for performing such services
through a management fee arrangement, including reimbursement of
all project costs. As a result of the Exchange Transaction, the
Company has no further exposure to the economic or entitlement
risks associated with the Divested Joint Ventures or the Managed
Projects, including no obligation to provide any capital.

The Exchange Transaction was accounted for as the
simultaneous acquisition of CHFs minority interest in CPH
LLC and certain other residential joint ventures and the
disposition of the Companys interest in the Divested Joint
Ventures. As a result, no gain was initially recognized, the
remaining balance of the Companys property and equipment
was adjusted to zero at February 28, 2001, and again at
May 31, 2001, a deferred gain of approximately
$3.5 million was recorded on the disposition of one of the
Divested Joint Ventures, and the balance of the transaction was
recorded as negative goodwill. Negative goodwill in the amount
of $6.8 million represents a portion of the positive
difference between the Companys basis in the assets
acquired in the Exchange Transaction as compared to the assets
which were divested. Both negative goodwill and the deferred
gain were being accreted over five years, which accretion was
included as a reduction in selling, general and administrative
expenses. As further discussed in footnote 9 below, due to a
recently promulgated change in accounting principles, the
remaining $5.4 million in unaccreted negative goodwill as
of February 28, 2002 increased net income in the quarter
ended May 31, 2002 through a cumulative effect of change in
accounting principle. The remaining deferred gain will continue
to be accreted over the four years of its remaining expected
life.

Assets under management, including assets owned
by unconsolidated joint ventures and Managed Projects, totaled
$484 million at May 31, 2002 in 57 residential
projects. At May 31, 2002, CPH LLC, which is now 100% owned
by the Company, had $231 million in assets and a net worth
of $108 million. The Company and its subsidiaries perform
their respective management functions for CPH LLC and the
Managed Projects, pursuant to management agreements, which
include provisions for the reimbursement of Company and
subsidiary costs and a management fee. CPH LLC, the Managed
Projects and certain other project-specific entities indemnify
the Company against liabilities arising from the projects owned
by such entities. The Company maintains certain licenses and
other assets as is necessary to fulfill its obligations as
managing member and under management agreements.

References to the Company are, unless the context
indicates otherwise, also references to CPH LLC and the
project-specific entities in which the Company has an equity
ownership interest. At the current time, all material financing
transactions and arrangements are incurred either by CPH LLC or
by the project-specific entities.

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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


4.     Investments in
and Advances to Unconsolidated Entities

The Company is a general partner or a direct or
indirect managing member and has a 50 percent or lesser
ownership in 13 unconsolidated entities at May 31, 2002.
The Companys net investment in and advances to
unconsolidated entities are as follows at May 31, 2002 and
February 28, 2002 (in thousands):

|                               |                                |          |  |         |  |              |       |       |  |   |       |       | 
|------------------------------ | ------------------------------ | -------- |  | ------- |  | ------------ | ----- | ----- |  | - | ----- | ----- | 
|                               |                                | Capital  |  | May 31, |  | February 28,
|                               |                                | Interest |  | 2002    |  | 2002        
|                               |                                |          |  |         |  |             
|Unconsolidated Joint Ventures: |                                |          |  |         |  |              |       |       |  |   |       |      
|                               | JMP Canyon Estates, L.P.       |          |  | 10%     |  |              | $     | 112   |  |   | $     | 112   | 
|                               | JMP Harbor View, L.P.          |          |  | 10%     |  |              |       | 315   |  |   |       | 318   | 
|                               | Grand Coto Estates, L.P.       |          |  | 10%     |  |              |       | 574   |  |   |       | 546   | 
|                               | M.P.E. Partners, L.P.          |          |  | 10%     |  |              |       | 985   |  |   |       | 989   | 
|                               | LB/ L  CPH Providence, LLC    |          |  | 10%     |  |              |       | 1,001 |  |   |       | 1,065 | 
|                               | LB/ L  CPH Longmont, LLC      |          |  | 10%     |  |              |       | 1,033 |  |   |       | 1,004 | 
|                               | LB/ L  CPH Laguna Street, LLC |          |  | 10%     |  |              |       | 796   |  |   |       | 946   | 
|                               | CPH Daily Ranch, L.P.          |          |  | 10%     |  |              |       | 3,114 |  |   |       | 3,103 | 
|                               | CPH Banning-Lewis Ranch, LLC   |          |  |        |  |              |       | 236   |  |   |       | 200   | 
|                               | Other                          |          |  | Various |  |              |       | 202   |  |   |       | 266   | 
|                               |                                |          |  |         |  |              |       |       |  |   |       |      
|                               |                                |          |  |         |  | $            | 8,368 |       |  | $ | 8,549 |      
|                               |                                |          |  |         |  |              |       |       |  |   |       |      

The Companys ownership interests in the
unconsolidated joint ventures vary. Generally, the Company
receives a portion of earnings although a preferred return on
invested capital is provided. Typically, the majority of capital
is provided by capital partners. The Company is typically a
general partner or managing member in each of the above entities
and is the managing entity pursuant to terms in each
ventures agreement. In the case of Divested Joint Ventures
which are now Managed Projects, the Company or a subsidiary
manages the development of the project under a management
contract which typically provides for the payment of a fee to
compensate the Company for overhead expenditures as well as
reimbursement of all direct project costs. The Companys
carrying amount in each of the unconsolidated joint ventures
(and the Divested Joint Ventures prior to the Exchange
Transaction) equals the underlying equity in the joint venture,
and there are generally no significant amounts of undistributed
earnings. The Company provides for income taxes currently on its
share of distributed and undistributed earnings and losses from
the investments.

The Company uses the equity method of accounting
for its investments in the unconsolidated 50 percent or
less owned entities. The accounting policies of the entities are
substantially the same as those of the Company.

6



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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


Following is summarized, combined financial
information for the unconsolidated entities at May 31, 2002
and February 28, 2002 and for the three month periods ended
May 31, 2002 and May 31, 2001 (in thousands). This
information includes in each case the interest of all equity
owners of the entities, not just that of the Company and its
subsidiaries.

Assets

|                     |  |         |        |              |  |   |        | 
|-------------------- |  | ------- | ------ | ------------ |  | - | ------ | 
|                     |  | May 31, |        | February 28,
|                     |  | 2002    |        | 2002        
|                     |  |         |        |             
|Cash                 |  | $       | 2,552  |              |  | $ | 1,163  | 
|Real estate projects |  |         | 90,212 |              |  |   | 94,818 | 
|Other assets         |  |         | 1,196  |              |  |   | 1,275  | 
|                     |  |         |        |              |  |   |        | 
|                     |  | $       | 93,960 |              |  | $ | 97,256 | 
|                     |  |         |        |              |  |   |        | 

Liabilities and Equity

|                                       |  |         |        |              |  |   |        | 
|-------------------------------------- |  | ------- | ------ | ------------ |  | - | ------ | 
|                                       |  | May 31, |        | February 28,
|                                       |  | 2002    |        | 2002        
|                                       |  |         |        |             
|Accounts payable and other liabilities |  | $       | 3,011  |              |  | $ | 5,818  | 
|Notes payable                          |  |         | 2,197  |              |  |   | 5,539  | 
|                                       |  |         |        |              |  |   |        | 
|                                       |  |         | 5,208  |              |  |   | 11,357 | 
|                                       |  |         |        |              |  |   |        | 
|Equity                                 |  |         | 88,752 |              |  |   | 85,899 | 
|                                       |  |         |        |              |  |   |        | 
|                                       |  | $       | 93,960 |              |  | $ | 97,256 | 
|                                       |  |         |        |              |  |   |        | 

Income Statement

|                               |  |              |       |         |  |   |       | 
|------------------------------ |  | ------------ | ----- | ------- |  | - | ----- | 
|                               |  |             
|                               |  | Three Months
|                               |  | Ended       
|                               |  |             
|                               |  | May 31,      |       | May 31,
|                               |  | 2002         |       | 2001   
|                               |  |              |       |        
|Sales of homes and land        |  | $            | 9,517 |         |  | $ | 1,109 | 
|Interest and other income, net |  |              | 248   |         |  |   | 3     | 
|                               |  |              |       |         |  |   |       | 
|                               |  |              | 9,765 |         |  |   | 1,112 | 
|Costs and expenses             |  |              | 8,651 |         |  |   | 1,049 | 
|                               |  |              |       |         |  |   |       | 
|Net income                     |  | $            | 1,114 |         |  | $ | 63    | 
|                               |  |              |       |         |  |   |       | 

7



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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


5.     Notes
Payable

Notes payable at May 31, 2002 and
February 28, 2002, are summarized as follows (in thousands):

|                                                                                                                                                                                                                                                                          |  |         |         |              |  |   |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | ------- | ------------ |  | - | ------- | 
|                                                                                                                                                                                                                                                                          |  | May 31, |         | February 28,
|                                                                                                                                                                                                                                                                          |  | 2002    |         | 2002        
|                                                                                                                                                                                                                                                                          |  |         |         |             
|Senior unsecured revolving credit facility,
    bearing interest varying from LIBOR to prime, as selected by the
    Company, plus applicable margins                                                                                                                     |  | $       | 109,158 |              |  | $ | 90,658  | 
|Notes payable to banks, including interest
    varying from prime plus one quarter percent to LIBOR plus four
    and one quarter percent, maturing between August 5, 2002
    and November 30, 2003, secured by certain real estate projects
    on a non-recourse basis |  |         | 26,319  |              |  |   | 18,011  | 
|Other                                                                                                                                                                                                                                                                     |  |         | 6,705   |              |  |   | 7,596   | 
|                                                                                                                                                                                                                                                                          |  |         |         |              |  |   |         | 
|                                                                                                                                                                                                                                                                          |  | $       | 142,182 |              |  | $ | 116,265 | 
|                                                                                                                                                                                                                                                                          |  |         |         |              |  |   |         | 

During the third quarter of fiscal 2002, CPH LLC
entered into a senior unsecured revolving credit facility with
several participant banks. The facility has a maximum commitment
of $125 million and a two year revolving term. Proceeds
from this facility were used to pay down CPH LLCs existing
facilities and retire the remaining $55.6 million of Senior
Notes at face value. In addition, the Company fixed the interest
rate on $50 million and $25 million of borrowings at 5.68%
and 5.62%, respectively, until September 2003 through interest
rate swap agreements with a bank.

6.     Earnings Per
Common Share

Basic earnings per common share is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding. Diluted earnings
per common share includes the effect of the potential shares
outstanding, including dilutive securities using the treasury
stock method. The table below reconciles the components of the
basic earnings per common share calculation to diluted earnings
per common share (in thousands, except per share data):

|                                                                                                 |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |      |  |   |       |       |  |  |        |        |  |   |      |      | 
|------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------ | ------------------ | --- | ------------ |  | --- | ------ | ------ |  | ------ | ---- | ---- |  | - | ----- | ----- |  |  | ------ | ------ |  | - | ---- | ---- | 
|                                                                                                 |                                                                                                        |                   
|                                                                                                 |                                                                                                        | Three Months Ended
|                                                                                                 |                                                                                                        |                   
|                                                                                                 |                                                                                                        |                    |     |             
|                                                                                                 |                                                                                                        | May 31, 2002       |     | May 30, 2001
|                                                                                                 |                                                                                                        |                    |     |             
|                                                                                                 |                                                                                                        | Income             |     | Shares       |  | EPS |        | Income |  | Shares |      | EPS 
|                                                                                                 |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |     
|Basic earnings per common share:                                                                 |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |      |  |   |       |       |  |  |        |        |  |   |      |     
|                                                                                                 | Income available to common stockholders before
    cumulative effect of change in accounting principle |                    | $   | 752          |  |     |        | 14,853 |  |        | $    | 0.05 |  |   | $     | 1,430 |  |  |        | 13,735 |  |   | $    | 0.10 | 
|Effect of dilutive securities:                                                                   |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |      |  |   |       |       |  |  |        |        |  |   |      |     
|                                                                                                 | Warrants                                                                                               |                    |     |             |  |     |        |       |  |        |      |     |  |   |       |      |  |  |        | 8      |  |   |      |     | 
|                                                                                                 | Stock options                                                                                          |                    |     |             |  |     |        | 105    |  |        |      |     |  |   |       |      |  |  |        | 174    |  |   |      |     | 
|                                                                                                 |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |      |  |   |       |       |  |  |        |        |  |   |      |     
|Diluted earnings per common share before
    cumulative effect of change in accounting principle |                                                                                                        | $                  | 752 |              |  |     | 14,958 |        |  | $      | 0.05 |      |  | $ | 1,430 |       |  |  | 13,917 |        |  | $ | 0.10 |     
|                                                                                                 |                                                                                                        |                    |     |              |  |     |        |        |  |        |      |      |  |   |       |       |  |  |        |        |  |   |      |     

7.     Stockholders
Equity

The Company has a stock repurchase program in
place whereby up to 1,000,000 shares of the Companys
outstanding common stock may be repurchased. As of May 31,
2002, 731,300 shares have been repurchased cumulatively under
this program. In addition, as of May 31, 2002, the Company
has repurchased 657,095 of

8



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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


the warrants originally issued in connection with
the issuance of the Senior Notes. The remaining warrants were
exercised during the quarter ended May 31, 2002.

8.     Comprehensive
Income and Implementation of SFAS No. 133

Effective March 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS 133), as amended. SFAS 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities by requiring that all
derivatives be recognized in the balance sheet and measured at
fair value. The Companys policy is to designate at a
derivatives inception the specific assets, liabilities, or
future commitments being hedged and monitor the derivative to
determine if it remains an effective hedge.

The Company was required under the terms of the
senior unsecured revolving line of credit facility related to
its homebuilding operations to enter into interest rate swap
agreements which effectively fix the variable interest rate on a
notional amount of $75 million of outstandings under the
facility. The swap agreements have been designated as cash flow
hedges and, accordingly, are reflected at their fair value in
the consolidated balance sheet at May 31, 2002. Since
applicable interest rates are somewhat lower as of May 31,
2002 than at the time of the swap, the current fair value of the
swaps is negative. The unrealized loss, as of May 31, 2002,
of $518,000 is recorded in stockholders equity as
accumulated other comprehensive loss.

Amounts to be received or paid as a result of the
swap agreements are recognized as adjustments to interest
incurred on the related debt instruments. The Company believes
that there will be no ineffectiveness related to the interest
rate swaps and therefore no portion of the accumulated other
comprehensive loss would be reclassified into future earnings.
The net effect on the Companys operating results is that
interest on the variable-rate debt being hedged is recorded and
paid based on fixed interest rates.

9.     New Accounting
Pronouncements

In June 2001, the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 141, Business
Combinations (SFAS 141). This Statement
addresses financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16,
Business Combinations, and FASB Statement
No. 38, Accounting for Preacquisition Contingencies
of Purchased Enterprises. All business combinations in the
scope of this Statement are to be accounted for using one
method, the purchase method. The Company will adopt SFAS 141 for
any business combinations initiated after June 30, 2001.

Also in June 2001, the FASB issued Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 142
addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion
No. 17, Intangible Assets. This pronouncement
addresses, among other things, how goodwill and other intangible
assets should be accounted for after they have been initially
recognized in the financial statements. Goodwill will no longer
be amortized but will be assessed at least annually for
impairment using a fair value methodology. The Company has
adopted this statement for all goodwill and other intangible
assets acquired after June 30, 2001 and for all existing
goodwill and other intangible assets beginning March 1,
2002. Upon adoption of this standard on March 1, 2002, the
Company was required to accrete the remaining balance of
negative goodwill through a cumulative effect of change in
accounting principle, which increased net income in the first
quarter of fiscal 2003 by $5.4 million, or $0.36 per
diluted share. Other than the accretion of the remaining
negative goodwill, the Company does not anticipate that the
adoption of SFAS 142 will have a material impact on the
Companys financial position or results of operations.

9



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##### Table of Contents



CAPITAL PACIFIC HOLDINGS, INC., AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Unaudited)


In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets
(SFAS 144). SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 supersedes
SFAS No. 121, which is discussed above, 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). The provisions of
SFAS 144 are effective for financial statements issued for
fiscal years beginning after December 15, 2001. The Company
does not anticipate that the adoption of SFAS 144 will have
a material impact on the Companys financial position or
results of operations.

10



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Results of Operations and Financial Condition

Forward-Looking Information is Subject to Risk
and Uncertainty

Certain statements in the financial discussion
and analysis by management contain forward-looking
information (as defined in the Private Securities Litigation
Reform Act of 1995 and within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended) that involves risk
and uncertainty, including projections and assumptions regarding
the business environment in which the Company operates. Actual
future results and trends may differ materially depending on a
variety of factors, including the Companys successful
execution of internal performance strategies; changes in general
national and regional economic conditions, such as levels of
employment, consumer confidence and income; uncertainty arising
from acts of terrorism and similar factors; availability to
homebuilders of financing for acquisitions, development and
construction; availability to homebuyers of permanent mortgages
and interest rate levels; the demand for housing; supply levels
of land, labor and materials; difficulties in obtaining permits
or approvals from governmental authorities; difficulties in
marketing homes; regulatory changes and weather and other
environmental uncertainties, including water and power
shortages; competitive influences; and the outcome of pending
and future legal claims and proceedings.

Results of
Operations  General

As is noted in footnote 1 to the financial
statements presented herein, the Company is reporting its
results on a consolidated basis with the results of its
wholly-owned subsidiaries, including CPH LLC. References to the
Company in this Item 2 are, unless the context indicates
otherwise, also references to such subsidiaries. At the current
time, all material financing transactions and arrangements are
incurred either by CPH LLC or by project-specific entities.

The following table illustrates the actual
results of the Companys operations, as well as the results
including the Companys unconsolidated joint ventures, for
the three months ended May 31, 2002 and 2001. The actual
results have been adjusted to reflect the inclusion of the
operating results of the Companys unconsolidated joint
ventures, including the portion attributable to the
Companys Joint Venture partners, in order to facilitate
the discussion of the overall results in certain portions of the
discussion below.

Results of Operations

(Amounts in thousands)


|                        |              |                    |        |                |  |              |        |                |  |   |        |        |  |   |        |        | 
|----------------------- | ------------ | ------------------ | ------ | -------------- |  | ------------ | ------ | -------------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                        |              |                   
|                        |              | Three Months Ended
|                        |              |                   
|                        |              |                    |        |               
|                        |              | May 31, 2002       |        | May 31, 2001  
|                        |              |                    |        |               
|                        |              |                    |        | Including      |  |              |        | Including     
|                        |              | Consolidated       |        | Joint Ventures |  | Consolidated |        | Joint Ventures
|                        |              |                    |        |                |  |              |        |               
|Sales of homes and land |              | $                  | 44,846 |                |  | $            | 54,364 |                |  | $ | 77,494 |        |  | $ | 78,603 |       
|Cost of sales           |              |                    | 34,243 |                |  |              | 42,215 |                |  |   | 57,882 |        |  |   | 58,830 |       
|                        |              |                    |        |                |  |              |        |                |  |   |        |        |  |   |        |       
|                        | Gross margin |                    | $      | 10,603         |  |              | $      | 12,149         |  |   | $      | 19,612 |  |   | $      | 19,773 | 
|                        |              |                    |        |                |  |              |        |                |  |   |        |        |  |   |        |       

Cost of sales, as shown above, does not include
the amount of previously capitalized interest costs which are
included in interest expense. As a result, the gross margin also
does not reflect the impact of current interest expense.
Industry practice among homebuilders varies, but Company
management feels that gross margin, exclusive of interest
expense, is the most relevant comparable measure.

11



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##### Table of Contents



In addition to the results shown above, the
Company was responsible for the following activity in certain
Managed Projects (including the Divested Joint Ventures) for the
three months ended May 31, 2002 and 2001:

Managed and Divested Operations

(Dollar amounts in thousands)


|                           |  |                    |       |         |  |   |        | 
|-------------------------- |  | ------------------ | ----- | ------- |  | - | ------ | 
|                           |  |                   
|                           |  | Three Months Ended
|                           |  |                   
|                           |  | May 31,            |       | May 31,
|                           |  | 2002               |       | 2001   
|                           |  |                    |       |        
|Number of managed projects |  |                    | 2     |         |  |   | 3      | 
|Unit closings              |  |                    | 2     |         |  |   | 6      | 
|Revenues                   |  | $                  | 4,774 |         |  | $ | 10,159 | 

During the three months ended May 31, 2002
and 2001, the Company was responsible for construction and
marketing activity in the Managed Projects and the
Companys sole economic interest is through management
arrangements.

Operating Data

The following table shows new home deliveries,
lot deliveries, net new orders and average sales prices for the
first fiscal quarter of fiscal years 2003 and 2002, including
unconsolidated joint ventures but excluding Managed Projects:

|                               |                                            |                    |                       |         |     |     |     |           |     |     | 
|------------------------------ | ------------------------------------------ | ------------------ | --------------------- | ------- | --- | --- | --- | --------- | --- | --- | 
|                               |                                            |                   
|                               |                                            | Three Months Ended
|                               |                                            |                   
|                               |                                            | May 31,            |                       | May 31,
|                               |                                            | 2002               |                       | 2001   
|                               |                                            |                    |                       |        
|New homes delivered:           |                                            |                    |                       |         |     |     |     |          
|                               | California                                 |                    |                       | 25      |     |     |     | 24        |    
|                               | Texas                                      |                    |                       | 36      |     |     |     | 87        |    
|                               | Nevada                                     |                    |                       |        |     |     |     | 46        |    
|                               | Arizona                                    |                    |                       | 19      |     |     |     | 48        |    
|                               | Colorado                                   |                    |                       | 27      |     |     |     | 44        |    
|                               |                                            |                    |                       |         |     |     |     |          
|                               |                                            | Subtotal           |                       |         | 107 |     |     |           | 249 |    
|                               | Unconsolidated Joint Ventures (California) |                    |                       | 33      |     |     |     | 4         |    
|                               |                                            |                    |                       |         |     |     |     |          
|                               |                                            |                    | Total homes delivered |         |     | 140 |     |           |     | 253 | 
|Lots delivered                 |                                            |                    | 62                    |         |     |     | 11  |          
|                               |                                            |                    |                       |         |     |     |     |          
|Total homes and lots delivered |                                            |                    | 202                   |         |     |     | 264 |          
|                               |                                            |                    |                       |         |     |     |     |          
|Net new orders                 |                                            |                    | 222                   |         |     |     | 209 |          
|                               |                                            |                    |                       |         |     |     |     |          
|Average home sales price:      |                                            |                    |                       |         |     |     |     |          
|                               | California                                 |                    | $                     | 747,000 |     |     | $   | 1,061,000 |    
|                               | Texas                                      |                    |                       | 325,000 |     |     |     | 244,000   |    
|                               | Nevada                                     |                    |                       |        |     |     |     | 203,000   |    
|                               | Arizona                                    |                    |                       | 139,000 |     |     |     | 153,000   |    
|                               | Colorado                                   |                    |                       | 257,000 |     |     |     | 224,000   |    
|                               | Combined                                   |                    |                       | 353,000 |     |     |     | 306,000   |    

12



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##### Table of Contents



The following table shows backlog in units and
dollars at May 31, 2002 and 2001 for each of the
Companys operations, including unconsolidated joint
ventures:

|           |       |                |    |              |  |       |        |         |  |  |     |     |  |   |        |         | 
|---------- | ----- | -------------- | -- | ------------ |  | ----- | ------ | ------- |  |  | --- | --- |  | - | ------ | ------- | 
|           |       |               
|           |       | Ending Backlog
|           |       |               
|           |       |                |    |             
|           |       | May 31, 2002   |    | May 31, 2001
|           |       |                |    |             
|           |       | Units          |    | ($000s)      |  | Units |        | ($000s)
|           |       |                |    |              |  |       |        |        
|California |       |                | 79 |              |  | $     | 57,300 |         |  |  | 71  |     |  | $ | 62,500 |        
|Texas      |       |                | 79 |              |  |       | 19,900 |         |  |  | 234 |     |  |   | 60,100 |        
|Nevada     |       |                |   |              |  |       |       |         |  |  | 23  |     |  |   | 6,900  |        
|Arizona    |       |                | 47 |              |  |       | 6,900  |         |  |  | 48  |     |  |   | 7,300  |        
|Colorado   |       |                | 71 |              |  |       | 9,700  |         |  |  | 63  |     |  |   | 9,700  |        
|           |       |                |    |              |  |       |        |         |  |  |     |     |  |   |        |        
|           | Total |                |    | 276          |  |       | $      | 93,800  |  |  |     | 439 |  |   | $      | 146,500 | 
|           |       |                |    |              |  |       |        |         |  |  |     |     |  |   |        |        



| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | First Three Months of Fiscal 2003 (ended
    May 31, 2002) Compared to First Three Months of Fiscal 2002
    (ended May 31, 2001)

The Company reported net income of
$6.2 million, or $0.41 per share, in the first quarter of
fiscal 2003, as compared to net income of $1.4 million, or
$0.10 per share, in the first quarter of fiscal 2002. Income for
the quarter ended May 31, 2002 included a cumulative effect
of change in accounting principle which increased income by
$5.4 million, or $0.36 per share. Excluding the effect of
cumulative change in accounting principle, net income decreased
from $1.4 million in the first quarter of fiscal 2002 to
$752,000 in the first quarter of fiscal 2003.

On a consolidated basis, sales of homes and land
decreased to $44.8 million for the first quarter of fiscal
2003 compared to $77.5 million for the first quarter of
fiscal 2002. This decrease is due to a decrease in total home
closings, partially offset by an increase in the Companys
average sales price per home to $353,000 in the first quarter of
fiscal 2003 from $306,000 in the first quarter of fiscal 2002.
Sales of homes and land including unconsolidated joint ventures,
but excluding Managed Projects, decreased to $54.4 million
from $78.6 million for the respective quarters. Total home
closings decreased from 253 in the first quarter of fiscal 2002
to 140 in the first quarter of fiscal 2003, including 4 and 33
homes, respectively, closed in unconsolidated joint ventures.
This was partially offset by an increase in lot closings from 11
in the first quarter of fiscal 2002 to 62 in the first quarter
of fiscal 2003. The decrease in the Companys backlog from
439 units to 276 units between quarters is primarily due to a
decrease in demand in certain of the Companys markets and
to a lesser extent, the reduction in backlog units in Nevada in
connection with the Companys exit from that market. In
addition, the number of actively selling projects has decreased
from 38 at May 31, 2001 to 31 at May 31, 2002, which
affected both backlog and net new orders. The Company
anticipates opening between 6 and 12 net new communities over
the next few quarters.

The Companys gross margin on home and lot
closings decreased to 23.6% for the first quarter of fiscal 2003
as compared to 25.3% for the first quarter of fiscal 2002, due
to a change in the mix of closings to certain higher-volume,
lower-margin projects and the close-out of certain less
profitable projects. The gross margin, including unconsolidated
joint ventures, decreased from 25.2% in the first quarter of
fiscal 2002 to 22.3% in the first quarter of fiscal 2003. The
Companys measure of gross margin may differ from other
homebuilders, as discussed above.

Selling, general and administrative expense of
$6.7 million for the first quarter of fiscal 2003 decreased
$3.3 million or 32.7% as compared to the first quarter of
fiscal 2002 due principally to a reduction in overhead
associated with certain projects in which the Company is no
longer active. As a percentage of revenue, selling, general and
administrative expense increased from 12.9% for the first
quarter of fiscal 2002 to 15.0% for the first quarter of fiscal
2003. The increased percentage of such expense compared to
revenue is primarily due to a lower level of sales activity in
the current quarter.

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Income from unconsolidated joint ventures
increased from $169,000 in the first quarter of fiscal 2002 to
$356,000 in the first quarter of fiscal 2003, due to an
increased level of profit participation in the active joint
ventures in the current quarter.

Interest and other income decreased from $454,000
in the first quarter of fiscal 2002 to $217,000 in the first
quarter of fiscal 2003.

Minority interest of $159,000 for the first
quarter of fiscal 2002 primarily represents the share of CPH
LLCs income attributable to CHF, until the Company
acquired the remaining minority interest in CPH, LLC on
May 31, 2002. Due to the fact that CHF no longer holds an
ownership interest in CPH LLC, no minority interest was recorded
in the current quarter.

Interest incurred was $2.2 million in the
first quarter of fiscal 2003, as compared to $5.1 million
in the first quarter of fiscal 2002, while previously
capitalized interest expensed was $3.3 million during the
first quarter of fiscal 2003, as compared to $7.7 million
in the first quarter of fiscal 2002. Once the Company sells out
of certain older projects with higher capitalized interest, it
anticipates that interest expensed will be closer to its
currently lower level of interest incurred.

The Company recorded a provision for income taxes
of $399,000 in the first quarter of fiscal 2003, utilizing an
effective tax rate of 34.7 percent, as compared to
$1.0 million in the first quarter of fiscal 2002, with an
effective tax rate of 41.5 percent.

Liquidity and Capital Resources

The Companys principal cash requirements
are for the acquisition, development, construction, marketing
and overhead of its projects. When building inventory, the
Company uses substantial amounts of cash that are generally
obtained from borrowings, available cash flow from operations
and partners contributions to joint ventures.

At the current time, all material financing
transactions and arrangements are incurred either by CPH LLC or
by certain project specific entities. During the third quarter
of fiscal 2002, CPH LLC entered into a senior unsecured
revolving credit facility (the Senior Facility) with
several participant banks. The facility has a maximum commitment
of $125 million and a two year revolving term. Proceeds
from this facility were used to pay down CPH LLCs existing
facilities and retire the remaining Senior Notes during the
quarter ending November 30, 2001, as discussed below. The
new credit facility has substantially more favorable pricing
than the Senior Notes which have been retired.

As of May 31, 2002, the Company has in place
several credit facilities, including the Senior Facility,
totaling $181 million (the Facilities) with
various bank lenders (the Banks), of which
approximately $135 million was outstanding. The Facilities
other than the Senior Facility are secured by liens on various
completed or under construction homes and lots held by CPH LLC,
CPH Newport Coast, LLC and CPH Yucaipa I, LLC, all of which are
wholly-owned subsidiaries. Pursuant to the Facilities, the
Company is subject to certain covenants, which require, among
other things, the maintenance of a consolidated liabilities to
net worth ratio, minimum liquidity, minimum net worth and loss
limitations, all as defined in the documents that evidence the
Facilities. At May 31, 2002, the Company was in compliance
with these covenants. The Facilities also define certain events
that constitute events of default. As of May 31, 2002, no
such event had occurred. Commitment fees are payable annually on
some of the Facilities.

Homebuilding activity is being financed out of
CPH LLC cash, bank financing, and the existing joint ventures,
including joint ventures with institutional investors. In
addition, development work undertaken in certain of the
Companys joint ventures is financed through various
non-recourse lending arrangements. The Company anticipates that
it will continue to utilize both third party financing and joint
ventures to cover financing needs in excess of internally
generated cash flow.

Management expects that cash flow generated from
operations and from bank financing will be sufficient to cover
the debt service and to fund CPH LLCs current development
and homebuilding activities for the reasonably foreseeable
future, and expects that capital commitments from its joint
venture partners and other bank facilities will provide
sufficient financing for the operation of its joint ventures.

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Critical Accounting Policies

The Companys financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires management to make estimates and
judgments that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and costs and expenses during the
reporting period. Management evaluates its estimates and
judgments, including those which impact its most critical
accounting policies on an ongoing basis. Management bases its
estimates and judgments on historical experience and on various
other factors that are believed to be reasonable under the
circumstances, within the framework of current accounting
literature. Actual results may differ from these estimates under
different assumptions or conditions. The Companys key
accounting policies are discussed in detail in the
Companys Form 10-K for the fiscal year ended
February 28, 2002.

Market Risk Exposure

The Market Risk Exposure paragraphs
are presented to provide an update about material changes to the
Quantitative and Qualitative Disclosures about Market
Risk paragraphs included in the Companys 2002 Annual
Report on Form 10-K filed with the Securities and Exchange
Commission and should be read in conjunction with those
paragraphs.

The Company is exposed to market risks related to
fluctuations in interest rates on its debt. Under the new credit
facility, the Company utilized interest rate swaps in order to
fix the interest rate on $75 million of its variable rate
debt. The Company has not used forward or option contracts on
foreign currencies or commodities, or other types of derivative
financial instruments.

The Company uses debt financing primarily for the
purpose of acquiring and developing land and constructing and
selling homes. Historically, the Company has made short-term
borrowings under its revolving credit facilities to fund those
expenditures. In addition, the Company has previously issued
$100 million in fixed-rate 12 3/4% Senior Notes
(Senior Notes) to provide longer-term financing.
Prior to the third quarter of fiscal 2002, the Company had
repurchased Senior Notes with a face value of
$44.4 million. During the third quarter of fiscal 2002, the
Company redeemed at face value the remaining $55.6 million of
the Senior Notes.

For fixed rate debt, changes in interest rates
generally affect the fair market value, but not the
Companys earnings or cash flows. Conversely, for variable
rate debt, changes in interest rates generally do not have an
impact on fair market value, but do affect the Companys
future earnings and cash flows. The Company does not have an
obligation to prepay fixed rate debt prior to maturity, and as a
result, interest rate risk and changes in fair market value
should not have a significant impact on such debt until the
Company would be required to refinance such debt. Based upon the
amount of variable rate debt outstanding at the end of the third
quarter, and holding the variable rate debt balance constant,
each one percentage point increase in interest rates occurring
on the first day of an annual period would result in an increase
in interest incurred for the coming year of approximately
$400,000.

The Company does not believe that future market
interest rate risks related to its debt obligations will have a
material impact on the Companys financial position,
results of operations or liquidity.




PART II  OTHER INFORMATION




Item 6.     Exhibits
and Reports on Form 8-K

(a) Exhibits

None Filed.

(b) Reports on Form 8-K

None Filed.

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SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.



| |     |                     
| | --- | --------------------
| | By: | /s/ HADI MAKARECHIAN

| |                                          
| | -----------------------------------------
| |                                          
| | Hadi Makarechian                         
| | Chairman of the Board,                   
| | Chief Executive Officer and
    President
| | (Principal Executive Officer)            

Date: July 15, 2002



| |     |                           
| | --- | --------------------------
| | By: | /s/ STEVEN O. SPELMAN, JR.

| |                                                    
| | ---------------------------------------------------
| |                                                    
| | Steven O. Spelman, Jr.                             
| | Chief Financial Officer and Corporate
    Secretary
| | (Principal Financial Officer)                      

Date: July 15, 2002

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