-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QBscjgnNwQ0xLO94Wiua+AXtnSuTYsEOVaaLKglyUnArZJusylzBGQUnLNCPVJc0 FfenpBlrfWIN/Hpkos2f0A== 0000950150-97-001498.txt : 19971030 0000950150-97-001498.hdr.sgml : 19971030 ACCESSION NUMBER: 0000950150-97-001498 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19971029 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL INVESTMENT OF HAWAII INC CENTRAL INDEX KEY: 0000017221 STANDARD INDUSTRIAL CLASSIFICATION: BAKERY PRODUCTS [2050] IRS NUMBER: 990065664 STATE OF INCORPORATION: HI FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-04179 FILM NUMBER: 97702982 BUSINESS ADDRESS: STREET 1: POST OFFICE BOX 2668 STREET 2: PRI TOWER CITY: HONOLULU STATE: HI ZIP: 96803 BUSINESS PHONE: 8085373981 MAIL ADDRESS: STREET 1: 733 BISHOP STREET STREET 2: SUITE 1700 CITY: HONOLULU STATE: HI ZIP: 96813 10-K405 1 FORM 10-K, FOR THE FISCAL YEAR ENDED 07/31/1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 Form 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 31, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file Number 0-4179 Capital Investment of Hawaii, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Hawaii 99-0065664 - ------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 733 Bishop Street, Suite 1700 Honolulu, Hawaii 96813 - ------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (808) 537-3981 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None - ------------------------------------- ------------------------------------ Securities registered pursuant to Section 12(g) of the Act: Common stock, no par value - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13, or 15(d) of the 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. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The Company's voting stock is not actively traded on any exchange and accordingly the aggregate market value is not determinable. There were 1,032,683 shares outstanding of common stock, no par value as of October 24, 1997. DOCUMENTS INCORPORATED BY REFERENCE Articles of Association and By-Laws are incorporated by reference into Part IV of this report. 2 PART I ITEM 1. BUSINESS Capital Investment of Hawaii, Inc. (Registrant) was incorporated in Hawaii in 1944. The Registrant and its subsidiaries are engaged principally in real estate, security and other investing, and wholesale bakery activities. As of July 31, 1997, the Registrant and its subsidiaries had 123 employees. The Registrant has classified its business activities into significant segments for the years ended July 31, 1997, 1996, and 1995. For the fiscal year ended July 31, 1997, the Registrant's operations have been classified into real estate activities, security and other investing activities, wholesale bakery activities and other activities. Financial information about industry segments is presented in note 14 of the notes to consolidated financial statements. REAL ESTATE Real estate activities include the acquisition and development of undeveloped real estate, the sale and leasing of developed real estate and the investment in undeveloped land located principally on the island of Oahu in the state of Hawaii. Also included in real estate activities is interest income on notes receivable arising from property sales and income earned from financing acquisition, development and construction loan commitments in connection with residential real estate projects in Nevada, and Utah. Since real estate sales and developments are not made and undertaken on a continuous basis, there exist significant fluctuations from year to year. The results of any one year are not necessarily comparable to other years and should not be a basis of expectation for future years. The identification and location of the Registrant's real estate holdings are discussed in Item 2, PROPERTIES. 1 3 SECURITY AND OTHER INVESTING ACTIVITIES Security and other investing activities include gains and losses from the sale of marketable equity securities and other investments and dividend and interest income related to the ownership of such investments. The timing of sales and related gains/losses, which tend to vary with market conditions and the Registrant's cash requirements, are subject to significant fluctuations from year to year. DISCONTINUED WHOLESALE BAKERY ACTIVITIES Wholesale bakery activities include the production and sale of bakery products primarily to major hotels, commercial airlines and U.S. military installations in Hawaii. The Registrant acquired the assets of an existing bakery in August 1990 and additional assets of another smaller bakery in May 1991. In October 1997, the Company entered into an agreement to sell certain assets and liabilities of its subsidiary Latipac Fine Foods, Inc. and to discontinue the bakery operations. OTHER ACTIVITIES Other activities include a real estate management division in Waikiki, Hawaii that in fiscal year 1997 had revenues of $670,420 and net income of $316,913, compared with revenues of $689,978 and net income of $346,956 in fiscal year 1996. 2 4 ITEM 2. PROPERTIES As of July 31, 1997, the Registrant and its subsidiaries owned properties used in connection with its real estate activities as set forth below. All properties are located in the City and County of Honolulu, and the titles are held in fee.
DESCRIPTION AREA -------------------------------------------------------------------- -------- Developed Real Estate and Undeveloped Land 5 condominium apartments, Makaha Valley Towers in Makaha, Hawaii 5 condominium apartments, Ilikai Apartment Building and Ilikai Marina Apartment Building in Honolulu, Hawaii 1 lot, Makaha, Hawaii .19 acres 1 commercial warehouse and land in Honolulu, Hawaii .22 acres
The Company also owns parcels of unimproved real estate totaling approximately 39 acres and interests in real estate at Makaha Valley, Hawaii owned by the Company's 85.8 percent-owned subsidiary, Makaha Valley, Incorporated, among which are (a) 3.825 acres of land zoned "agricultural" fronting the fifth fairway of the Sheraton Makaha Resort golf course, carried at nil on the balance sheet; (b) 2.823 acres of land near Makaha beach zoned "country," but designated on the development plan of the City and County of Honolulu, Hawaii general plan as "commercial," carried at $3,065 on the balance sheet; and (c) a reversionary interest in 8.454 acres of land within the Maunaolu residential subdivision at Makaha zoned "country," title to which will revert to the subsidiary if the land ceases to be used as a reservoir, which is carried at nil on the balance sheet. See note 7 of the notes to consolidated financial statements for information with respect to real estate pledged as security for indebtedness. 3 5 ITEM. 3 LEGAL PROCEEDINGS There is no litigation which, in the opinion of management, will have a materially adverse affect on the Company's consolidated financial position or results of operations. ITEM. 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters that were submitted to a vote of security holders during the fourth quarter of the fiscal year ended July 31, 1997. 4 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Registrant's common shares are not listed on any stock exchange, and there is no active trading of the shares. The following is the high and low quarterly bid information for each of the full quarterly periods within the years ended July 31, 1997 and 1996:
LOW BID HIGH BID ------- -------- Quarter ended: October 31, 1995 1/2 1/2 January 31, 1996 1/2 3/8 April 30, 1996 3/8 1/4 July 31, 1996 1/4 1/4 October 31, 1996 1/4 7/16 January 31, 1997 7/16 1/2 April 30, 1997 1/2 1/2 July 31, 1997 1/2 1/2
The aforementioned quotations were received from Abel-Behnke Corporation which makes a market in the Company's stock. On July 31, 1997, there were approximately 550 stockholders of record of common stock, excluding individuals and institutions for whom shares are held in the names of nominees or brokerage firms. There were no common stock dividends declared or paid during fiscal years 1997, 1996, and 1995. 5 7 ITEM 6. SELECTED FINANCIAL DATA SUMMARY OF CONSOLIDATED OPERATIONS
YEARS ENDED JULY 31, ------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Revenues $ 1,817,795 $ 2,694,871 $ 2,605,160 $ 2,125,551 $ 2,387,961 Loss from continuing operations (420,934) (17,033) (247,298) (514,690) 62,653 Loss per common share from continuing operations(A) (.41) (.02) (.24) (.50) .06 =========== =========== =========== =========== ===========
(A) Loss per common share from continuing operations for each year was computed by dividing loss from continuing operations by the weighted average number of shares of common stock outstanding in each year. A detailed analysis of the loss per share computation for each year is presented in Exhibit 11. There were no cash dividends paid on common stock for the five years ended July 31, 1997. FINANCIAL CONDITION
1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- Total assets $7,123,930 6,792,582 10,617,753 11,498,301 11,440,892 ========== ========== ========== ========== ========== Indebtedness: Mortgage notes $1,853,583 1,864,493 1,874,247 1,200,000 1,200,000 Other notes, secured 735,723 1,160,111 2,670,016 3,416,384 3,229,042 Debentures 1,976,245 2,062,245 2,108,245 2,221,895 2,378,595 Other notes, unsecured 469,457 427,567 499,605 507,253 463,450 ---------- ---------- ---------- ---------- ---------- $5,035,008 5,514,416 7,152,113 7,345,532 7,271,087 ========== ========== ========== ========== ==========
6 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company recorded a net loss of $846,984 for the fiscal year ended July 31, 1997, (fiscal year 1997), compared with net losses of $373,358 and $807,926 for fiscal years 1996 and 1995, respectively. The net loss for fiscal year 1997 included depreciation and amortization totaling $100,370, as compared to $211,836 and $323,700 in fiscal years 1996 and 1995, respectively. The Company's subsidiary, Latipac Fine Foods, Incorporated (which does business as Bakery Europa) accounted for $56,806, $156,899 and $270,055 of depreciation for fiscal years ended July 31, 1997, 1996 and 1995, respectively. The Company's gross revenues for fiscal years 1994 through 1996 reflect the diversification of the Company's business activities away from its historical real estate focus. The investments during the past three years included diversification into specialty baking on the island of Oahu, Hawaii and residential "acquisition, development and construction" (ADC) lending in Las Vegas, Nevada. In pursuit of that goal, the Company acquired, in August 1990, the assets of Bakery Europa, a major supplier of bakery products and desserts to airlines and hotels on Oahu, Hawaii. The rapid growth rate of Oahu's tourist economy and real estate market in the decade of the eighties abruptly flattened in 1990 and has stagnated ever since. The reasons for this change in condition were the poor economic climates of Japan and California, starting in 1990 Hawaii tourism's two most important markets, and the disruptive effects of rampant speculation in Hawaiian real estate by Japanese investors during the Japanese "bubble" economy of the late eighties. The 37.5 million air passenger movements to and within Hawaii in 1996 were only a slight improvement from the 35.8 million movements recorded in 1990, even though this represented a significant improvement from the 33.8 million movements reported for 1993. The near-term outlook for the 7 9 Japanese economy is still poor. As a result, the Company's investment in selling bakery products to the tourist industry and Oahu restaurants and stores has experienced poor financial results. In addition, the poor real estate market in Hawaii has caused the Company to look for investment opportunities elsewhere. The Company since late 1990 has increasingly invested in Las Vegas, Nevada, initially as an investor in building single family homes and subsequently as a lender of ADC capital to home-builders. In fiscal year 1998, the Company plans to continue its short-term construction lending activities in Nevada and Utah. In October 1997, the Company entered into an agreement to sell certain assets and liabilities of Latipac Fine Foods, Inc. BAKERY OPERATIONS The Company's fiscal year 1997's net loss was primarily due to Bakery Europa's poor performance, which consumed cash which otherwise could have been employed in other ways. Bakery Europa's operating loss for fiscal years 1997, 1996 and 1995 is summarized as follows:
1997 1996 1995 -------- -------- -------- Loss before certain interest and depreciation and amortization $341,407 157,426 233,573 Interest on loan to acquire this subsidiary's assets 27,837 42,000 57,000 Depreciation and amortization 56,806 156,899 270,055 -------- -------- -------- Loss, net $426,050 356,325 560,628 ======== ======== ========
Bakery Europa's net product sales for fiscal year 1997 were $4,737,228, compared with net sales of $5,521,390 and $4,965,794 for fiscal years 1996 and 1995, respectively. During fiscal year 1997, 14% of sales were to airlines and airline catering companies; 19% of sales were to hotels and 11% of sales were to the military. The gross profit margin for fiscal year 1997 was 40.1%, compared with 36.4% and 36.0% for fiscal years 1996 and 1995, respectively. The acquisition loan balance at the end of fiscal year 1997 was $211,526, and in the ordinary course of business would be paid down to 8 10 $0 at the end of fiscal year 1998. In October 1997, the Company entered into an agreement to sell certain assets and liabilities of Bakery Europa. NEVADA AND UTAH FINANCING ACTIVITIES Since fiscal year 1991, the Company has engaged in making ADC loans to home builders in southern Nevada and Utah. An ADC loan is an arrangement whereby the Company, who shares in the same risks and potential rewards as those of the borrower, advances funds so that the borrower is able to acquire and develop raw land, provide infrastructure and construct homes. In recent years, banks and other federally-insured lending institutions have tightened credit standards. The more stringent credit environment has caused many home builders to seek alternate sources of financing. The Company has made sixteen such loans since 1991, of which ten have been repaid. The Company has never experienced a default on a loan it has made. The decline in income from ADC loans in fiscal year 1997 is due to delays in starting up projects by the borrowing home builders. The Company's ADC lending activities in recent years have been as follows:
ADVANCES AT INCOME FROM END OF FISCAL FISCAL YEAR INVESTMENTS YEAR ----------- ----------- ------------- 1997 $ 449,842 2,711,737 1996 1,143,229 1,902,009 1995 1,360,568 3,574,360
Deferred income on these loans totalled $372,827 at June 30, 1997, compared to $28,886 and $495,000, at June 30, 1996 and 1995, respectively. ADC loans bear higher than average risk. The Company adheres to a policy of concentrating its loans with experienced builders building single-family dwelling projects built for the "entry-level" of the Las Vegas housing market. The Company's practice is to limit the outstanding loan balance to an amount only sufficient to acquire land and to construct homes on only a portion of the total lots in the project. The effect of this practice is to require the builder to sell completed homes in order to finance the building of the remaining lots. The loans are secured but they are often 9 11 subordinated to conventional loans to finance the construction of homes. The Las Vegas home building market continues to be very active, driven by an expanding economy and high job growth. The Salt Lake City home building market, which is the most recent focus of the Company's ADC lending activities, is also very active, led by an expansion of its technology-based industries. In addition, the physical constraints of the Salt Lake City area means growing population of over a million people must live in an area smaller than the island of Oahu, Hawaii, which houses approximately 800,000 people. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents balance at July 31, 1997 was $797,514 compared with $757,399 at the end of fiscal year 1996. Cash used in operating activities amounted to $2,031,933 in 1997 and resulted primarily from the net increase in investments in real estate of $1,042,028 related to the Company's Nevada and Utah ADC arrangements. The Company also plans the liquidation of certain assets. Cash inflows in 1997 provided by investing activities amounted to $1,315,906 which could be attributed to collections on long-term receivables and proceeds from the sale of other investments. Cash provided by financing activities of $756,142 included proceeds of loan participation agreements of $1,500,000 which were offset by payments made under loan participation agreements of $264,450; (see note 6 to the consolidated financial statements) and payments on indebtedness of $528,252. During fiscal year 1997, the Company was able to meet its operating cash requirements with cash flows generated from investing and financing activities. Cash inflows and outflows from investments in Copper Bluffs, LLC, Sunset Bay, LLC, Red Rock Canyon, LLC, Touchstone Development of Utah, LLC, and Pageantry Communities, Inc. will continue into fiscal year 1998. Cash requirements for fiscal year 1998 will be satisfied from institutional borrowings, refinancing of notes payable, net collections of notes receivable, cash in banks at year end and net collections of ADC loans. 10 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements and Schedules. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in accountants nor disagreements on accounting or financial disclosure matters for the years ended July 31, 1997 and 1996. 11 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists all directors of the Registrant as of July 31, 1997:
NUMBER OF YEARS OFFICE HELD WITH SERVED AS OTHER PUBLIC NAME AGE REGISTRANT DIRECTOR BUSINESS EXPERIENCE DIRECTORSHIPS - ---------------------- --------- ------------------ --------------- --------------------------- ----------------- Stuart T. K. Ho 61 Chairman of the 30 Positions held with Bancorp Hawaii, Board and Registrant Inc.; Gannett President Co., Inc.; College Retirement Dean T. W. Ho(1) 59 Vice Chairman 16 Positions held with -- and Secretary Registrant Donald M. Wong 79 Senior Vice 23 Positions held with -- President, Registrant Chief Financial Officer and Treasurer Pedro P. Ada 67 None 26 President of Ada's -- Incorporated; real estate, insurance agency and investments Stanley W. Hong(2) 61 None 12 President and Chief Central Pacific Executive Officer Bank; First of Chamber of Insurance Co. of Commerce of Hawaii Hawaii C. B. Sung 72 None 12 Chairman of Unison -- International; President and Chief Executive Officer of Unison Pacific Corporation
(1) Mr. Dean T. W. Ho is the brother of Mr. Stuart T. K. Ho. (2) Mr. Stanley W. Hong is the brother-in-law of Mr. Stuart T. K. Ho. 12 14 The present terms of office of all directors will expire at the next annual meeting of the stockholders of the Registrant or upon election of their respective successors. No events have occurred during the past five years that are material to an evaluation of the ability or integrity of any director.
The following table lists all executive officers of the Registrant as of July 31, 1997: NAME AGE OFFICE POSITION HELD - -------------------- -------------- ----------------------- ----------------------------------------------- Stuart T. K. Ho 61 Chairman of the Board Chairman of the Board since 1982, President and President from 1975 to 1982 and since 1988, Vice President and Secretary from 1966 to 1975 Dean T. W. Ho(1) 59 Vice Chairman and Secretary since 1991, Vice Chairman since Secretary 1988, President from 1982 to 1987, Executive Vice President from 1975 to 1982 and Vice President from 1965 to 1975 Donald M. Wong 79 Senior Vice President Senior Vice President since 1990, Financial and Treasurer Vice President from 1965 to 1990 and Treasurer since 1965 Harriet H. Matsuo 72 Assistant Secretary and Secretary from 1975 to 1991 and Assistant Assistant Treasurer Secretary and Assistant Treasurer from 1965 to 1975 and since 1991 Greta U. Nakao 75 Assistant Secretary and Assistant Treasurer since 1975 and Assistant Assistant Treasurer Secretary since 1981 Walter Lum 56 Assistant Treasurer Appointed in March 1995
(1) Mr. Dean T. W. Ho is the brother of Mr. Stuart T. K. Ho. The term of office of the above executive officers is for a period of one year. No events have occurred during the past five years that are material to an evaluation of the ability or integrity of any executive officer. 13 15 ITEM 11. EXECUTIVE COMPENSATION The following table shows the compensation for each of the years ended July 31, 1997, 1996 and 1995 for (a) the Chairman of the Board and President, and (b) all executive officers of the Registrant whose annual compensation exceeds $100,000. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION --------------------------------- ------------------------------------- PAYOUTS (a) (b) (c) (d) (e) (f) (g) (h) (i) OTHER SECURITY ALL ANNUAL RESTRICTED UNDER- OTHER COMPEN- STOCK LYING LTIP COMPEN- NAME AND SALARY BONUS SATION AWARD(S) OPTIONS/ PAYOUTS SATION PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($) - ---------------------- -------- ----------- --------- ---------- -------- --------- -------- --------- Stuart T.K. Ho, Chairman of 1997 127,424 -- -- -- -- -- -- the Board and 1996 132,000 -- -- -- -- -- -- President 1995 147,839 -- -- -- -- -- --
14 16 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following sets forth, as of July 31, 1997, shareholders of record who beneficially own more than 5% of the voting stock of the Registrant:
AMOUNT AND NATURE OF BENEFICIAL PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER: OWNERSHIP OF CLASS - ----------------------------------------------------------------- ---------- -------- Cede & Co. 142,116 13.8% P. O. Box 20 New York, New York 10004 Stuart T. K. Ho, Dean T. Ho, and Karen Ho Hong, Trustees of the 168,650 16.3 Chinn Ho Trust 733 Bishop Street, Suite 1700 Honolulu, Hawaii 96813 Stuart T. K. Ho 252,536(1) 24.4 733 Bishop Street, Suite 1700 Honolulu, Hawaii 96813 Dean T. W. Ho 225,850(2) 21.9 733 Bishop Street, Suite 1700 Honolulu, Hawaii 96813 Karen Ho Hong 212,425(3) 20.6 4976 Poola Street Honolulu, Hawaii 96821 Robin Lee 77,250 7.5 977 Longridge Road Oakland, California 94610
(1) Includes: (a) sole voting and investment power, 22,813 shares. (b) shared voting and investment power for 168,650 shares owned by the Chinn Ho Trust, of which Stuart Ho is one of 3 Trustees, and 29,500 shares owned by the Chinn Ho Foundation, of which Stuart Ho is one of 4 Trustees. (c) 10,850 shares owned by Mary L. Ho, spouse, who has sole voting and investment power. (d) 20,723 shares held in an IRA account. (2) Includes: (a) sole voting and investment power, 27,700 shares. (b) shared voting and investment power for 168,650 shares owned by the Chinn Ho Trust, of which Dean Ho is one of 3 Trustees, and 29,500 shares owned by the Chinn Ho Foundation, of which Dean Ho is one of 4 Trustees. 15 17 (3) Includes: (a) sole voting and investment power, 38,775 shares. (b) shared voting and investment power for 168,650 shares owned by the Chinn Ho Trust, of which Karen Ho Hong is one of 3 Trustees. (c) shared voting and investment power for 5,000 shares owned by Karen Ho Hong and Stanley Hong as trustees for David Hong. The following table sets forth, as of July 31, 1997, the number of shares of the Registrant's equity securities held by each director and all directors and officers of the Registrant as a group:
SHARED AMOUNT AND NATURE SOLE VOTING VOTING AND NAME OF BENEFICIAL OF BENEFICIAL AND INVES- INVESTMENT TITLE OF CLASS OWNER OWNERSHIP TOTAL MENT POWER POWER - ----------------- -------------------- --------------------- -------- ------------ ---------- Common stock Stuart T. K. Ho 252,536 shares 24.4% 2.2% 22.2%(1) owned of record Common stock Dean T. W. Ho 225,850 shares 21.9 2.7 19.2 (1) owned of record Common stock Donald M. Wong 39,750 shares 3.8 -- 3.8 owned of record Common stock Pedro Ada 5,444 shares .5 .5 -- owned of record Common stock Stanley Hong 5,000 shares .5 -- .5 owned of record Common stock C. B. Sung 5,000 shares .5 .5 -- owned of record Common stock All directors and 310,730 shares 27.5 5.8 21.7 (1) officers of owned of record Registrant (9 persons)
(1) Includes (a) 168,650 shares owned by the Chinn Ho Trust as to which two executive officers of the Registrant are Trustees. The trust agreement is effective until 2 years after the death of Mrs. Chinn Ho or at such time as the personal representative of Mrs. Ho's estate is discharged and appropriately released, whichever occurs later, not to exceed 21 years after the death of the last survivor of Chinn Ho, Mrs. Ho and the children of Chinn Ho; and (b) 29,500 shares owned by the Chinn Ho Foundation qualified under Section 501(c)(3) of the Internal Revenue Service Code, as to which four executive officers of the Registrant are Trustees. During fiscal year 1995, the Company borrowed $100,000 from certain officers of the Company through unsecured short-term notes. As of July 31, 1997, the balance of these short-term notes were $5,000 due to the officers. 16 18 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company entered into loan participation agreements during the current year which provided that the Company sell, without recourse, to participants an undivided participating interest in the loan to Pageantry Communities, Inc. and Touchstone Development of Utah, LLC (see footnote 6 to the consolidated financial statements). Included in the total participants share of the loan commitment to Pageantry Communities, Inc., amounting to $485,550 at July 31, 1997, was $226,590 borrowed from an officer of a subsidiary of the Company. Included in the total participants share of the loan commitment to Touchstone Development of Utah, LLC, amounting to $750,000 at July 31, 1997, was $150,000 borrowed from a director of the Company and $75,000 borrowed from an officer of the Company. 17 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) Consolidated Financial Statements - See Index to Consolidated Financial Statements and Schedules. (B) There were no reports on Form 8-K filed during the last quarter of the year ended July 31, 1997. (C) Exhibits:
EXHIBIT FORM 10-K NUMBER DESCRIPTION PAGE ---------- -------------------------------------------------- -------- 3 Articles of Incorporation and By-Laws * 11 Computation of Loss Per Common Share 21 Subsidiaries of Capital Investment of Hawaii, Inc.
Exhibits not listed above are omitted because of the absence of the conditions under which they are required. * Incorporated by reference as Exhibits 1A and 1B to Registration Statement number 0-4179 filed on November 29, 1969. (D) Financial Statement Schedules - See Index to Consolidated Financial Statements and Schedules. 18 20 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements and Schedules Independent Auditors' Report Consolidated Financial Statements: Consolidated Balance Sheets - July 31, 1997 and 1996 Consolidated Statements of Operations and Retained Earnings - Years ended July 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows - Years ended July 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Schedules: II Valuation and Qualifying Accounts and Reserves - Years ended July 31, 1997, 1996 and 1995 III Real Estate and Accumulated Depreciation - July 31, 1997 IV Mortgage Loans on Real Estate - July 31, 1997 Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the required information is included elsewhere in the consolidated financial statements or notes thereto. 19 21 INDEPENDENT AUDITORS' REPORT The Board of Directors Capital Investment of Hawaii, Inc.: We have audited the consolidated financial statements of Capital Investment of Hawaii, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capital Investment of Hawaii, Inc. and subsidiaries as of July 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended July 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Honolulu, Hawaii October 24, 1997 20 22 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1997 and 1996
ASSETS (NOTE 7) 1997 1996 --------------- --------------- Cash and cash equivalents $ 797,514 757,399 Marketable equity securities available-for-sale, at fair value (note 3) -- 42,647 Receivables: Trade accounts and notes, less allowance for doubtful receivables of $27,191 and $25,001 in 1997 and 1996, respectively 676,242 470,042 Long-term receivables (including installments due within one year of $5,344 and $504,428 in 1997 and 1996, respectively) (note 4) 7,470 965,908 --------------- --------------- Total receivables 683,712 1,435,950 --------------- --------------- Inventories 67,425 65,322 Developed real estate, less accumulated depreciation of $231,788 and $208,766 in 1997 and 1996, respectively (note 5) 1,420,523 1,443,255 Undeveloped land held for sale (note 6) 134,474 134,474 Other investments: Real estate (note 6) 2,959,237 1,917,209 Securities, at cost (note 3) 817,723 700,454 --------------- --------------- 3,776,960 2,617,663 --------------- --------------- Property and equipment, at cost: Leasehold improvements 221,413 218,265 Furniture and equipment 1,772,820 1,959,795 --------------- --------------- 1,994,233 2,178,060 Less accumulated depreciation and amortization (1,791,381) (1,953,414) --------------- --------------- Net property and equipment 202,852 224,646 Deferred charges and other assets 40,470 71,226 --------------- --------------- $ 7,123,930 6,792,582 =============== ===============
21 23 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' DEFICIT 1997 1996 --------------- --------------- Indebtedness (note 7): Mortgage notes $ 1,853,583 1,864,493 Other notes, secured 735,723 1,160,111 Debentures 1,976,245 2,062,245 Other notes, unsecured 469,457 427,567 --------------- --------------- Total indebtedness 5,035,008 5,514,416 --------------- --------------- Accounts payable, trade 635,013 651,407 Accrued expenses: Interest 53,808 55,348 Taxes other than income 14,518 16,954 Other 776,858 614,626 --------------- --------------- Total accrued expenses 845,184 686,928 --------------- --------------- Other payables: Loans under participation agreements (note 6): Related parties 451,590 -- Other 783,960 -- Other (notes 6 and 9) 534,041 230,376 --------------- --------------- Total other payables 1,769,591 230,376 --------------- --------------- Commitments and contingent liabilities (notes 6, 7, 9, 10 and 11) Stockholders' deficit: Common stock without par value. Authorized 2,531,765 shares; issued 1,723,765 shares at stated value of $1 1,723,765 1,723,765 Additional paid-in capital 469,321 469,321 Retained earnings 703,535 1,550,519 --------------- --------------- 2,896,621 3,743,605 Cost of 691,082 common shares in treasury (4,057,487) (4,057,487) Unrealized gain on marketable equity securities (note 3) -- 23,337 --------------- --------------- Net stockholders' deficit (1,160,866) (290,545) --------------- --------------- $ 7,123,930 6,792,582 =============== ===============
See accompanying notes to consolidated financial statements. 22 24 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings Years ended July 31, 1997, 1996 and 1995
1997 1996 1995 -------------- --------------- --------------- Revenues (note 7): Income from investments notes 3 and 6) $1,017,139 1,793,636 1,867,281 Other 800,656 901,235 737,879 -------------- --------------- --------------- 1,817,795 2,694,871 2,605,160 -------------- --------------- --------------- Costs and expenses: Other direct operating expenses (note 10) 551,405 577,634 592,378 General and administrative expenses (notes 9 and 10) 1,294,041 1,302,895 1,303,705 Interest (note 7) 393,283 831,375 956,375 -------------- --------------- --------------- 2,238,729 2,711,904 2,852,458 -------------- --------------- --------------- Loss from continuing operations (420,934) (17,033) (247,298) Loss from discontinued operations (note 17) (426,050) (356,325) (560,628) -------------- --------------- --------------- Net loss (846,984) (373,358) (807,926) Retained earnings at beginning of year 1,550,519 1,923,877 2,731,803 -------------- --------------- --------------- Retained earnings at end of year $ 703,535 1,550,519 1,923,877 ============== =============== =============== Loss per common share (note 13): Loss from continuing operations (.41) (.02) (.24) Loss from discontinued operations (note 17) (.41) (.34) (.54) -------------- --------------- --------------- Net loss per common share $ (.82) (.36) (.78) ============== =============== =============== Weighted average number of common shares outstanding during the year 1,032,683 1,032,683 1,032,683 ============== =============== ===============
See accompanying notes to consolidated financial statements. 23 25 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended July 31, 1997, 1996 and 1995
1997 1996 1995 -------------- -------------- -------------- Cash flows from operating activities: Cash received from customers $ 5,271,819 6,398,025 5,751,175 Cash paid to suppliers/employees (6,380,857) (7,713,659) (6,967,784) Capital expenditures - real estate (290) (2,201) (29,251) Collections on long-term receivables arising from real estate sales -- -- 3,681 Purchase of investments in real estate (note 6) (2,257,774) (3,618,324) (6,372,767) Collections from investments in real estate (note 6) 1,215,746 5,392,975 8,012,363 Dividends received 8,451 13,483 10,536 Interest received 550,618 1,909,127 1,220,452 Interest paid (439,646) (896,489) (1,042,663) -------------- -------------- -------------- Net cash (used in) provided by operating activities (2,031,933) 1,482,937 585,742 -------------- -------------- -------------- Cash flows from investing activities: Purchases of other investments (188,549) -- (63,618) Proceeds from sale of marketable 47,491 80,803 401,704 securities Proceeds from sale of other investments 543,035 521,085 100,647 Proceeds from sale of property and equipment 6,900 -- -- Loans made -- (500,000) -- Collections on long-term receivables 958,438 1,190,406 3,690 Capital expenditures (51,409) (105,151) (75,978) -------------- -------------- -------------- Net cash provided by investing activities 1,315,906 1,187,143 366,445 -------------- -------------- -------------- Cash flows from financing activities: Proceeds from indebtedness 48,844 564,563 432,837 Payments on indebtedness (528,252) (2,202,260) (1,326,256) Payments on covenants not-to-compete -- -- (30,000) Proceeds received under loan participation agreements (note 6) 1,500,000 -- 700,000 Payments made under loan participation agreements (note 6) (264,450) (1,562,620) (587,380) -------------- -------------- -------------- Net cash provided by (used in) financing activities 756,142 (3,200,317) (810,799) -------------- -------------- -------------- Net increase (decrease) in cash 40,115 (530,237) 141,388 Cash and cash equivalents at beginning of 757,399 1,287,636 1,146,248 year -------------- -------------- -------------- Cash and cash equivalents at end of year $ 797,514 757,399 1,287,636 ============== ============== ==============
(Continued) 24 26 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued
1997 1996 1995 -------------- -------------- -------------- Reconciliation of net loss to cash (used in) provided by operating activities: Net loss $ (846,984) (373,358) (807,926) -------------- -------------- -------------- Adjustments to reconcile net loss to cash provided by (used in) operating activities: Capital expenditures - real estate (290) (2,201) (29,251) Depreciation and amortization 100,370 211,836 323,700 Gain on sale of marketable securities (28,181) (54,448) (236,323) Gain on sale of other investments (471,755) (412,627) (52,724) Gain on sale/disposal of property and equipment (6,900) (469) -- Change in assets and liabilities: Decrease (increase) in inventories (2,103) (12,209) 3,523 Decrease (increase) in trade accounts and notes receivable, net (206,200) 595,949 (303,226) Decrease in long-term receivables arising from real estate sales -- -- 3,681 Decrease (increase) in investment in real estate (1,042,028) 1,774,651 1,639,596 Decrease (increase) in deferred charges and other assets 26,611 (34,735) 71,896 Increase (decrease) in accounts payable, trade (16,394) 221,974 57,814 Increase (decrease) in accrued expenses and other payables 461,921 (431,426) (85,018) -------------- -------------- -------------- Total adjustments (1,184,949) 1,856,295 1,393,668 -------------- -------------- -------------- Net cash (used in) provided by operating activities $ (2,031,933) 1,482,937 585,742 ============== ============== ==============
Supplemental schedule of noncash operating, investing and financing activities: (1) In fiscal year 1992, the Company entered into an agreement to acquire land and a warehouse for $1,350,000. The Company assumed the existing mortgage loan with an original balance of $700,000 and applied $650,000 of the existing deposit towards the purchase of the property in fiscal year 1995. (2) Under SFAS No. 115, unrealized holding gains and losses on marketable securities that are classified as available-for-sale are reported as a separate component of stockholders' equity until realized. Unrealized holding gains amounted to nil, $23,337 and $65,381 in 1997, 1996 and 1995, respectively. (3) In fiscal year 1995, $161,736 of other investment securities were transferred to marketable equity securities. See accompanying notes to consolidated financial statements. 25 27 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements July 31, 1997, 1996 and 1995 (1) SUMMARY OF ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying consolidated financial information has been prepared in conformity with generally accepted accounting principles (GAAP). In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. PRINCIPLES OF CONSOLIDATION The financial statements include the accounts of Capital Investment of Hawaii, Inc. and all of its subsidiaries (collectively referred to as the "Company"). All material intercompany balances and transactions have been eliminated from the consolidated financial statements. REAL ESTATE ACCOUNTING CARRYING AMOUNTS Developed real estate and undeveloped land held for sale are carried at the lower of cost or market value. INCOME RECOGNITION Profit on sales of real estate is recognized when title has passed, minimum down payment criterion are met, risks and records of ownership have been transferred to the buyer and there is no substantial continuing involvement with the property, collectibility of the sales price is reasonably assured and other criteria set forth in Statement of Financial Accounting Standards (SFAS) No. 66 are met. If any of the aforementioned criteria are not met, profit is determined and recognized under either the installment, cost recovery, deposit or percentage of completion method. DEPRECIATION AND AMORTIZATION Depreciation and amortization are computed generally by use of the straight-line method. Depreciation and amortization rates are based upon the estimated useful lives of the assets or, if applicable, the remaining terms of leases, whichever is shorter. In general, the ranges of annual rates of depreciation and amortization applicable to major classifications of property and equipment are as follows:
CLASS OF ASSETS RATE OF DEPRECIATION ----------------------- Leasehold improvements 5% to 20% Furniture and equipment 10% to 33-1/3%
26 28 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Maintenance and repairs are charged to income as incurred; expenditures for major renewals and betterments that materially extend the economic lives of property and equipment are capitalized. Gains or losses arising from dispositions of depreciable assets are credited or charged to income. Debt expense is being amortized by the straight-line method over the term of the debt. CASH EQUIVALENTS For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. At July 31, 1997 and 1996, the Company held no instruments that would be considered cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. SECURITY INVESTMENTS The Company classifies its investments in debt securities and marketable equity securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those debt securities in which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' deficit until realized. Other investment securities for which no ready market exists are valued at cost. For all security investments, declines in value below cost that are determined to be other than temporary are reflected in operations and the written-down value of the securities is established as the new cost basis for those securities. The cost of securities sold is determined on a first-in, first-out basis. INVESTMENTS IN REAL ESTATE - ACQUISITION, DEVELOPMENT AND CONSTRUCTION LOANS The Company has originated acquisition, development, and construction (ADC) loans with the following characteristics: (1) the borrower has title to but little or no equity in the underlying security and (2) the Company participates in the profit on the ultimate sale of the project. For financial reporting purposes, the loans have been presented as real estate investments. 27 29 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The Company recognizes the interest and fees the Company is entitled to under ADC loans ratably as profits are earned on the sale of individual units in the underlying real estate projects. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on August 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (2) ACQUISITIONS OF BAKERY OPERATIONS On August 10, 1990, the Company entered into an agreement to purchase substantially all of the assets and assume certain liabilities of Bakery Europa, Inc., a Hawaii corporation engaged in the business of producing and wholesaling bakery goods in the state of Hawaii. Further, the Company entered into a second agreement on May 23, 1991, to purchase certain assets of Old Vienna Bake Shop, Inc., a Hawaii corporation also engaged in the business of producing and wholesaling of bakery goods. In October 1997, the Company entered into an agreement to sell certain assets and liabilities of its bakery operations (see note 17). 28 30 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (3) SECURITY INVESTMENTS At July 31, 1997 and 1996, the aggregate cost and aggregate fair value of marketable equity securities were as follows:
1997 1996 ---- ---- Aggregate cost $ -- 19,310 ======== ====== Aggregate fair value $ -- 42,647 ======== ======
Gross unrealized gains on the portfolio of marketable equity securities at July 31, 1997, 1996 and 1995 and net realized gains for the years then ended pertaining to all security investments were as follows:
NET REALIZED UNREALIZED GAINS ------------------------------------- ---------- GAINS LOSSES NET GAINS ---------- ----------- ---------- 1997: Marketable equity securities $ -- -- -- 28,181 ======= ======= ====== Other security investments 471,755 -------- $499,936 ======== 1996: Marketable equity securities $26,828 (3,491) 23,337 54,448 ======= ====== ====== Other security investments 412,627 ======== $467,075 ======== 1995: Marketable equity securities $68,872 (3,491) 65,381 236,323 ========= ====== ====== Other security investments 52,724 -------- $289,047 ========
29 31 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (4) LONG-TERM RECEIVABLES Maturities of long-term receivables at July 31, 1997 are summarized as follows: 1998 $5,344 1999 2,126 ------ $7,470 ======
Substantially all long-term receivables are secured by real estate. The long-term receivables have a weighted average interest rate of 9%. (5) DEVELOPED REAL ESTATE The components of developed real estate at July 31, 1997 and 1996 were as follows:
1997 1996 ---- ---- Held for sale, at cost: Condominium apartment units, a portion of which includes undivided interest in land $ 302,288 301,998 Commercial property 1,350,000 1,350,000 Other 23 23 ---------- --------- 1,652,311 1,652,021 Less accumulated depreciation 231,788 208,766 ---------- --------- $1,420,523 1,443,255 ========== =========
(6) REAL ESTATE INVESTMENTS UNDEVELOPED LAND Undeveloped land held for sale at July 31, 1997 and 1996 consisted of approximately 39 acres in Makaha Valley on the island of Oahu, state of Hawaii. OTHER REAL ESTATE INVESTMENTS The Company has extended various ADC loan commitments to corporate real estate ventures to finance residential real estate projects in Nevada and Utah. These financing arrangements are being accounted for as in-substance investments in real estate, whereby the interest and fees the Company is entitled to will be recognized ratably as profits are earned on the sale of units in the underlying real estate projects. Each loan commitment has restrictive loan covenants which limit the maximum amount of loan proceeds available for site acquisition and development and building construction. 30 32 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued At July 31, 1997 and 1996, all ADC loans were made to corporate real estate ventures which are owned by individuals who have personally guaranteed payment of the ADC loans. The following summarizes the Company's other investments in real estate and related deferred income which is presented as "other payables" in the accompanying consolidated balance sheets.
CAPITALIZED DEFERRED PROJECT ADVANCES INTEREST TOTAL INCOME ------- ---------- ----------- ------ -------- As of July 31, 1997: Copper Bluffs, LLC $ 480,849 58,600 539,449 93,188 Sunset Bay, LLC 498,268 56,400 554,668 137,376 Pageantry Communities, Inc. 474,630 79,500 554,130 60,842 Red Rock Canyon, LLC 452,336 33,300 485,636 69,401 Touchstone Development of Utah, LLC 805,654 19,700 825,354 12,020 ---------- ------ --------- ------- $2,711,737 247,500 2,959,237 372,827 ========== ======= ========= ======== As of July 31, 1996: Copper Bluffs, LLC $ 600,000 7,000 607,000 14,000 Sunset Bay, LLC 608,400 -- 608,400 1,014 Pageantry Communities, Inc. 693,609 8,200 701,809 13,872 ---------- ------- --------- ------- $1,902,009 15,200 1,917,209 28,886 ========== ====== ========= =======
The following paragraphs summarize the ADC loan arrangements and present summary financial information for the corporate real estate ventures. COPPER BLUFFS, LLC On June 18, 1996, the Company extended a $600,000 ADC loan commitment to Copper Bluffs, LLC to finance a residential real estate project in Clark County, Nevada. At July 31, 1997 and 1996, the Company's aggregate investment in the real estate project amounted to $539,449 and $607,000, respectively, including $58,600 and $7,000, respectively, of capitalized interest. The ADC loan is secured by a parcel of land in Clark County, Nevada. 31 33 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Financial information of Copper Bluffs, LLC is as follows: CONDENSED BALANCE SHEET JULY 31, 1997
ASSETS Cash $ 45,249 Construction work in progress 1,902,144 Other current assets 385,226 ----------- $ 2,332,619 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 152,691 Construction notes payable 1,435,774 Due to Capital Investment of Hawaii, Inc. 480,849 Other payables 197,679 ----------- Total liabilities 2,266,993 ----------- Paid-in capital 21,821 Retained earnings 43,805 ----------- Total stockholders' equity 65,626 ----------- $ 2,332,619 ===========
32 34 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
CONDENSED STATEMENT OF INCOME YEAR ENDED JULY 31, 1997 Sales $ 4,064,607 Cost of sales (3,663,215) --------------- Gross profit 401,392 Other income 18,736 Other expenses (265,181) --------------- Net income $ 154,947 ===============
SUNSET BAY, LLC On July 29, 1996, the Company extended a $608,400 ADC loan commitment to Sunset Bay, LLC to finance a residential real estate project in Clark County, Nevada. The loan commitment was paid in full on November 1, 1996. Subsequently, on December 23, 1996, the Company extended a $800,000 ADC loan commitment to Sunset Bay, LLC to finance a residential real estate project in Clark County, Nevada. At July 31, 1997 and 1996, the Company's aggregate investment in the real estate project amounted to $554,668 and $608,400, respectively, including $56,400 of capitalized interest at July 31, 1997. The ADC loan is secured by a parcel of land in Clark County, Nevada. Financial information of Sunset Bay, LLC is as follows:
CONDENSED BALANCE SHEET JULY 31, 1997 ASSET Cash $ 307,902 Construction work in progress 2,412,946 -------------- $ 2,720,848 ============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 261,618 Construction notes payable 1,766,066 Due to Capital Investment of Hawaii, Inc. 498,268 Other payable 190,046 -------------- Total liabilities 2,715,998 -------------- Capital accounts 5,000 Accumulated deficit (150) -------------- Total stockholders' equity 4,850 -------------- $ 2,720,848 ==============
33 35 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
CONDENSED STATEMENT OF LOSS YEAR ENDED JULY 31, 1997 Expenses $ 150 -------------- Net loss $ (150) ==============
PAGEANTRY COMMUNITIES, INC. On June 25, 1996, the Company extended a $900,000 ADC loan commitment to Pageantry Communities, Inc. to finance a residential real estate project known as Tradewinds Subdivision in Clark County, Nevada. At July 31, 1997 and 1996, the Company's aggregate investment in the real estate amounted to $554,130 and $701,809, respectively, including $79,500 and $8,200, respectively, of capitalized interest. The ADC loan is secured by a parcel of land in Clark County, Nevada. Restrictive loan covenants limit the maximum amount of loan proceeds available during various phases of the project. Financial information of Tradewinds Subdivision is as follows:
CONDENSED BALANCE SHEET JULY 31, 1997 ASSETS Cash $ 336,000 Construction work in progress 3,615,456 Due from Escrow account 34,501 Other receivable 245,000 -------------- $ 4,230,957 ============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 839,438 Interest payable 29,344 Notes payable 2,288,561 Due to Capital Investment of Hawaii, Inc. 474,630 Other payables 81,117 -------------- Total liabilities 3,713,090 Stockholders' equity 517,867 -------------- $ 4,230,957 ==============
34 36 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
CONDENSED STATEMENT OF INCOME YEAR ENDED JULY 31, 1997 Sales $ 7,676,148 Cost of sales (6,901,771) --------------- Gross profit 774,377 Other expenses (256,510) --------------- Net income $ 517,867 ===============
In fiscal year 1997, the Company entered into 15% loan participation agreements which provide that the Company sell, without recourse, to participants an undivided participating interest in the loan to Pageantry Communities, Inc. Participants' share of the loan commitment amounted to $485,550 at July 31, 1997, of which $226,590 was borrowed from an officer of a subsidiary of the Company. The loan participation agreements further provide that the Company, from time to time, may repurchase from the participants, their participating interests, in whole or in part, for an amount equal to the principal amount of the participating interests. Generally accepted accounting principles require that these participating agreements to be accounted for as financing arrangements rather than as sales due to the Company's option to repurchase the participating interests. Accordingly, the participants' loans amounting to $485,550 have been presented as "other investments in real estate" and "loans under participation agreements" in the accompanying balance sheets. Loans under these participation agreements will earn interest at the rate of 15% and participants share pro rata with the Company as to all payments, collections and recoveries. Payments on the loans are made from the proceeds from the sales of the residential units. RED ROCK CANYON, LLC On October 2, 1996, the Company extended a $500,000 ADC loan commitment to Red Rock Canyon, LLC to finance a residential real estate project in Washington County, Utah. At July 31, 1997, the Company's aggregate investment in the real estate project amounted to $485,636, including $33,300 of capitalized interest. The ADC loan is secured by a parcel of land in Washington County, Utah. 35 37 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Financial information of Red Rock Canyon, LLC is as follows:
CONDENSED BALANCE SHEET JULY 31, 1997 ASSETS Cash $ 58,036 Accounts receivable 6,000 Refundable deposits 62,181 Construction work in progress 1,312,830 --------------- $ 1,439,047 =============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 85,093 Construction notes payable 692,414 Due to Capital Investment of Hawaii, Inc. 452,336 Other payables 146,984 --------------- Total liabilities 1,376,827 --------------- Capital accounts 10,000 Distributions (5,000) Retained earnings 57,220 --------------- Total stockholders' equity 62,220 --------------- $ 1,439,047 ===============
36 38 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
CONDENSED STATEMENT OF INCOME PERIOD ENDED JULY 31, 1997 Sales $ 644,376 Cost of sales (559,413) --------------- Gross profit 84,963 Other expenses (27,743) --------------- Net income $ 57,220 ===============
TOUCHSTONE DEVELOPMENT OF UTAH, LLC On February 4, 1997, the Company extended a $2,337,437 ADC loan commitment to Touchstone Development of Utah, LLC to finance a residential real estate project known as Overlake Estates in Tooele County, Utah. At July 31, 1997, the Company's aggregate investment in the real estate project amounted to $825,354, including $19,700 of capitalized interest. The ADC loan is secured by a parcel of land in Tooele County, Utah. Restrictive loan covenants limit the maximum amount of loan proceeds available during various phases of the project. Financial information of Touchstone Development of Utah, LLC is as follows:
CONDENSED BALANCE SHEET JULY 31, 1997 ASSETS Cash $ 94,132 Refundable deposits 20,650 Construction work in progress 1,183,799 --------------- $ 1,298,581 =============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 166,410 Due to Capital Investment of Hawaii, Inc. 805,654 Construction notes payable 172,566 Other payables 148,951 --------------- Total liabilities 1,293,581 Stockholders' equity 5,000 --------------- $ 1,298,581 ===============
37 39 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The Company entered into 15% loan participation agreements which provide that the Company sell, without recourse, to participants an undivided participating interest in the loan to Touchstone Development of Utah, LLC. Participants' share of the loan commitment amounted to $750,000 at July 31, 1997. Certain participants are related parties which, in the aggregate, totaled $225,000 at July 31, 1997. (7) INDEBTEDNESS Indebtedness at July 31, 1997 and 1996 is summarized as follows:
1997 1996 ----------- ----------- Mortgage notes: 9-1/2%, payable to individuals in monthly installments of interest only, due on demand $ 200,000 200,000 9-1/2%, payable to a corporation in monthly installments of interest only, due February 28, 1998 1,000,000 1,000,000 9-1/2%, payable to a financial institution in monthly installments of $6,125 including interest, due July 1, 2001 653,583 664,493 ---------- ---------- 1,853,583 1,864,493 ---------- ---------- Other notes, secured: Interest at index rate plus 1.5%, payable to a financial institution, paid in full in fiscal year 1997 -- 714 Interest at prime (8.5% at July 31, 1997) plus 2.0%, payable to a financial institution in monthly installments of principal of $11,138, plus interest, due February 1, 1998, but payable on demand if subsidiary is in violation of certain financial covenants in loan agreement 211,526 345,223 10%, payable to a financial institution in monthly installments of $14,539 including interest, due June 1, 2002 137,390 394,454 Interest at prime (8.5% at July 31, 1997) plus 2.5%, payable to a financial institution in monthly installments of interest only, due February 1, 1998 100,000 100,000 10%, payable to a financial institution in monthly installments of $2,272 including interest, due June 1, 1998 247,633 250,000 Interest at prime (8.5% at July 31, 1997) plus 1.25% until September 3, 1997, interest at prime plus 1.5% thereafter, payable to a financial institution in monthly installments of $278 including interest, due August 3, 2000 8,724 11,093
38 40 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
1997 1996 ---------- ---------- Interest at prime (8.5% at July 31, 1997) plus 1.25% until December 1, 1997; interest at prime plus 1.5% thereafter, payable to a financial institution in monthly principal installments of $322 plus interest, due October 31, 2000 $ 12,559 16,424 Interest at prime (8.5% at July 31, 1997) plus 1.5%, payable to a financial institution in monthly principal installments of $1,111 plus interest, due December 22, 1998 17,891 31,223 ---------- ---------- 735,723 1,160,111 ---------- ---------- Debentures - at stated rates (7% to 9.5%), payable to individuals in quarterly installments of interest only, all of which have matured and are payable on demand; amount authorized by indenture, $19,000,000 1,976,245 2,062,245 ---------- ---------- Other notes, unsecured: Interest at stated rates (6% to 9.5%), term notes payable to individuals in quarterly installments of interest only, due two years from date of issuance 324,457 297,567 Interest at stated rates (8.0% to 9.5%), payable to individuals in quarterly installments of interest only, payable on demand except $75,000 due February 14, 1998 (of which $5,000 due to related parties) 145,000 130,000 ---------- ---------- 469,457 427,567 ---------- ---------- $5,035,008 5,514,416 ========== ==========
The Company has a $100,000 working capital line of credit with a bank. As of July 31, 1997, the outstanding drawings amounted to $100,000. The line of credit expires on February 1, 1998. Maturities of indebtedness are shown in the following summary: 1998 $ 4,094,639 1999 303,210 2000 21,777 2001 615,382 ----------- $ 5,035,008 ===========
39 41 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The carrying amounts of assets pledged as collateral for indebtedness as of July 31, 1997 were as follows: Cash and cash equivalents $ 35,640 Inventories 67,425 Developed real estate 1,420,523 Investment in other securities 817,723 Property and equipment 180,254 ===========
In addition, the rights and interests in insurance policies, income or profits, and other contracts and agreements of the Company and Latipac Fine Foods, Inc., a wholly owned subsidiary, were pledged as collateral for indebtedness as of July 31, 1997. (8) INCOME TAXES The benefit for income taxes applicable to the net loss for fiscal years 1997, 1996 and 1995 differ from the "expected benefit for income taxes" for those years (computed by applying the U.S. federal income tax rate of 34% to net loss) as follows:
1997 1996 1995 ---------- --------- --------- Computed "expected" tax benefit $(287,975) (126,942) (274,695) Net operating losses for which no deferred income tax benefit has been recognized 271,312 111,222 255,602 Dividends received deduction (2,011) (3,209) (2,508) Officers' life insurance 16,508 16,441 17,794 Other, net 2,166 2,488 3,807 --------- --------- --------- $ -- -- -- ========= ========= =========
40 42 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at July 31, 1997 and 1996 are presented below.
1997 1996 ----------- ----------- Deferred tax assets: Deferred compensation agreement $ 56,700 64,300 Other investment securities, permanent decline in market value 83,100 83,100 Deferred income on other real estate investment 141,700 11,000 Net tax operating loss carryforwards 1,329,400 1,038,100 Other 80,800 95,600 ----------- ----------- Total gross deferred tax assets 1,691,700 1,292,100 Less valuation allowance (1,596,300) (1,285,100) ----------- ----------- Net deferred tax assets $ 95,400 7,000 =========== =========== Deferred tax liabilities: Capitalized interest on other real estate $ 94,100 5,800 investments Other 1,300 1,200 ----------- ----------- Total gross deferred tax liabilities $ 95,400 7,000 =========== ===========
The valuation allowance for deferred tax assets as of August 1, 1996 and 1995 were $1,285,100 and $1,157,400, respectively. The net change in the total valuation allowance for the years ended July 31, 1997 and 1996 were increases of $311,200 and $127,700, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of July 31, 1997, the Company had tax net operating loss carryforwards of approximately $3,300,000 and $4,400,000 for federal and state income tax purposes, respectively, which can be used to offset future taxable income through 2012. 41 43 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (9) DEFERRED COMPENSATION The Company has a deferred compensation agreement under which the Company is obligated to pay $5,000 each month for 120 consecutive months to the spouse of the late Mr. Chinn Ho, the former chairman of the Executive Committee. The Company commenced monthly payments in accordance with the deferred compensation agreement to Mrs. Chinn Ho in November 1989. The accrued obligation as of July 31, 1997 and 1996 amounted to $149,158 and $169,158, respectively, and is included in the consolidated balance sheet as other payables. (10) LEASE COMMITMENTS The Company leases various facilities for its office premises, rental agency and its bakery operations. These operating leases provide that the Company pay all taxes, maintenance and insurance applicable to the leased properties. Consolidated future minimum payments required under noncancelable operating leases as of July 31, 1997 are summarized as follows:
Year ending July 31: 1998 $ 330,960 1999 286,897 2000 281,815 2001 280,120 2002 280,120 Thereafter 2,249,247 ---------- $3,709,159 ==========
Net rent expense for all operating leases was $408,250, $501,100 and $449,900 for the years ended July 31, 1997, 1996 and 1995, respectively. (11) COMMITMENT AND CONTINGENT LIABILITIES Under the provision of various agreements relating to its participation in mortgage notes receivable sold with recourse, the Company is committed to repurchase notes that become delinquent, as specified in the agreements, if requested to do so by the holder of the notes. At July 31, 1997 the outstanding balances of notes receivable sold that were subject to the aforementioned recourse provisions aggregated $74,000. The Company may be subject to similar recourse provisions with respect to additional outstanding balances of notes aggregating approximately $28,000 at July 31, 1997, although management does not believe this was the intent of the parties to the agreements related to the sale of its participation in notes receivable. The mortgage notes referred to above relate to condominium unit sales in 1972 and 1973. Management believes that if the Company is required to repurchase delinquent notes, no losses will be incurred as the proceeds from the sale of real estate securing the notes would be adequate to satisfy the related debt obligations. 42 44 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (12) FOURTH QUARTER RESULTS (UNAUDITED) Fourth quarter results for the year ended July 31, 1997 are as follows: Revenues: Revenues from continuing operations $ 476,927 Revenues from discontinued operations 1,071,813 ----------- $ 1,548,740 =========== Loss: Loss from continuing operations ($.08 per common share) $ (83,299) Loss from discountinued operations ($.14 per common share) (145,570) ----------- $ (228,869) ===========
(13) LOSS PER COMMON SHARE Loss per common share was computed by dividing the applicable loss by the weighted average number of shares of common stock outstanding. (14) SEGMENT INFORMATION The Company has classified its business activities into significant segments for the years ended July 31, 1997, 1996 and 1995. The Company's operations have been classified into real estate, security and other investing, wholesale bakery and other activities. Real estate activities include the acquisition and development of undeveloped real estate, the sale and leasing of developed real estate and investment in undeveloped real estate. Also included in real estate activities are interest income on notes receivable arising from property sales and from loans made to development projects. Security and other investing activities include gains or losses from security investments and investment income related to the ownership of such investments. Other activities include the Company's rental agency businesses and other miscellaneous activities. The following is a summary of segment financial information for the years ended July 31, 1997, 1996 and 1995: 43 45 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
1997 1996 1995 ----------- ----------- ----------- Revenues: Real estate activities: Property rentals $ 117,615 178,325 87,741 Income from ADC loan arrangements 449,842 1,143,229 1,360,568 Interest income 16,143 124,155 181,077 ----------- ----------- ----------- Total real estate activities 583,600 1,445,709 1,629,386 ----------- ----------- ----------- Security and other investing activities: Gains from sales of securities 499,936 467,075 289,047 Dividends and interest 58,118 59,177 36,589 ----------- ----------- ----------- Total security and other investing activities 558,054 526,252 325,636 ----------- ----------- ----------- Other activities 676,141 722,910 650,138 ----------- ----------- ----------- $ 1,817,795 2,694,871 2,605,160 =========== =========== =========== Operating loss from continuing operations: Real estate activities $ 181,465 1,016,950 1,191,284 Security and other investing activities 510,625 479,910 278,666 Other activities (15,049) 43,294 (14,817) ----------- ----------- ----------- 677,041 1,540,154 1,455,133 Interest expense (393,283) (831,375) (956,375) Corporate expenses (704,692) (725,812) (746,056) ----------- ----------- ----------- Loss from continuing operations $ (420,934) (17,033) (247,298) =========== =========== ===========
44 46 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
1997 1996 1995 ---------- ---------- ---------- Depreciation and amortization: Real estate activities $ 24,226 30,768 18,210 Security and other investing activities 657 780 1,412 Other activities 8,100 16,244 21,075 ---------- ---------- ---------- Total segments 32,983 47,792 40,697 Corporate 10,581 7,145 12,948 Discontinued operations - wholesale bakery activities (note 17) 56,806 156,899 270,055 ---------- ---------- ---------- $ 100,370 211,836 323,700 ========== ========== ========== Capital expenditures: Real estate activities $ 290 2,201 1,379,251 Other activities 13,288 790 341 Corporate 7,595 8,182 9,741 Discontinued operations - wholesale bakery activities (note 17) 30,526 96,179 65,896 ---------- ---------- ---------- $ 51,699 107,352 1,455,229 ========== ========== ========== Identifiable assets: Real estate activities $4,535,896 4,479,964 6,975,918 Security and other investing activities 819,440 745,019 922,165 Other activities 439,206 128,501 728,060 ---------- ---------- ---------- Total segments 5,794,542 5,353,484 8,626,143 Corporate 824,260 800,698 1,316,868 Discontinued operations - wholesale bakery activities (note 17) 505,128 638,400 674,742 ---------- ---------- ---------- $7,123,930 6,792,582 10,617,753 ========== ========== ==========
Sales between business segments are immaterial and are netted against the sales of the respective segment. 45 47 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (15) BUSINESS AND CREDIT CONCENTRATIONS Substantially all of the Company's business activity is with customers located in Hawaii, Nevada and Utah. The majority of customers of the Company's operating businesses are related to the hospitality industry. The Company's business activities in Nevada and Utah related solely to financing residential real estate development projects. At July 31, 1997 and 1996, the Company had outstanding ADC loans of $2,711,737 and $1,902,009, respectively, due from corporate real estate ventures. Under participation agreements the Company had sold $1,235,550 of these loans without recourse as of July 31, 1997 (see note 6). (16) FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each applicable class of financial instruments for which it is practicable to estimate that value: The carrying amount of cash and cash equivalents, trade accounts receivable, accounts payable, accrued expenses and debentures approximate fair value because of the short maturity of these instruments. MARKETABLE EQUITY SECURITIES AND OTHER INVESTMENT SECURITIES Fair value is based on quoted market prices or dealer quotes. LONG-TERM RECEIVABLES AND OTHER REAL ESTATE INVESTMENTS Fair value is determined as the present value of expected future cash flows discounted at the interest rate currently offered by the Company, which approximates rates currently offered by local lending institutions for loans of similar terms to companies with comparable credit risk. INDEBTEDNESS Fair value of mortgage notes, other notes, secured and other notes, unsecured is estimated by discounting the future cash flows of each instrument based on the quoted market prices for the same or similar issues or on the current rates offered for debt of the same or similar remaining maturities. DEFERRED COMPENSATION PAYABLE The carrying value of deferred compensation payable estimates fair value. LIMITATIONS Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the 46 48 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Company's financial instruments, fair value estimates cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are provided for certain existing on-and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered.
JULY 31, 1997 JULY 31, 1996 ------------------------- ------------------------- CARRYING FAIR CARRYING FAIR FINANCIAL ASSETS AMOUNT VALUE AMOUNT VALUE ----------- ------------ ------------ ------------ Cash and cash equivalents $ 797,514 797,514 757,399 757,399 Marketable equity securities -- -- 42,647 42,647 Trade accounts receivable 676,242 676,242 470,042 470,042 Long-term receivables 7,470 7,272 965,908 886,218 Other investments: Real estate 2,959,237 2,933,208 1,917,209 1,785,774 Securities 817,723 1,378,169 700,454 1,511,892 FINANCIAL LIABILITIES Accounts payable 635,013 635,013 651,407 651,407 Accrued expenses: Interest 53,808 53,808 55,348 55,348 Taxes other than income 14,518 14,518 16,954 16,954 Other 776,858 776,858 614,626 614,626 Mortgage notes 1,853,583 1,693,951 1,864,493 1,662,857 Other notes, secured 735,723 710,277 1,160,111 1,112,537 Debentures 1,976,245 1,976,245 2,062,245 2,062,245 Other notes, unsecured 469,457 466,347 427,567 424,752 Deferred compensation payable 149,158 149,158 169,158 169,158
47 49 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (17) SUBSEQUENT EVENT In October 1997, the Company entered into an agreement to sell certain assets and liabilities of its subsidiary, Latipac Fine Foods, Inc. Summary operating results of the discontinued operations are as follows:
1997 1996 1995 ------------ ------------ ----------- Total revenues $ 4,737,228 5,521,390 4,965,794 Total costs and expenses (5,163,278) (5,877,715) (5,526,422) ----------- ----------- ----------- Loss from discontinued operations $ (426,050) (356,325) (560,628) =========== =========== ===========
The components of net liabilities of discontinued operations included in the consolidated balance sheets at July 31, 1997 and 1996 are as follows:
1997 1996 ---------- -------- Inventories $ 67,425 65,322 Deferred charges and other assets 28,471 45,571 Property and equipment, at cost, net of accumulated depreciation and amortization 151,640 173,777 Accounts payable, trade (441,384) (461,633) Accrued expenses (194,191) (151,019) --------- --------- Net liabilities $(388,039) (327,982) ========= =========
48 50 Schedule II CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves Years ended July 31, 1997, 1996 and 1995
ADDITIONS -------------------------------- BALANCE AT CHARGED TO BEGINNING OF COSTS AND CHARGED TO BALANCE AT DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD - ---------------------------------------- --------------- --------------- -------------- -------------- --------------- Year ended July 31, 1997: Allowance for doubtful receivables $25,001 18,000 -- 15,810 (1) 27,191 =============== =============== ============== ============== =============== Year ended July 31, 1996: Allowance for doubtful receivables $31,860 24,500 -- 31,358 (1) 25,001 =============== =============== ============== ============== =============== Year ended July 31, 1995: Allowance for doubtful receivables $58,544 (3,482) -- 23,202 (1) 31,860 =============== =============== ============== ============== ===============
(1) Accounts receivable written off. See accompanying independent auditors' report. 49 51 Schedule III CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation July 31, 1997
COST CAPITALIZED SUBSEQUENT GROSS AMOUNT AT WHICH INITIAL COST TO COMPANY TO CARRIED AT CLOSE ACQUISITION OF PERIOD ------------------------ ------------- ----------------------- BUILDINGS BUILDINGS AND AND IMPROVE- IMPROVE- IMPROVE- DESCRIPTION ENCUMBRANCES LAND MENTS MENTS LAND MENTS - ------------------------------ ---------------------------- ----------- ---------- ------------- ---------- --------- Developed real estate - held for sale Condominium apartments: Makaha, Hawaii Note payable on five apartments to financial institution $ (2,323) 30,138 13,381 (2,323) 43,519 Honolulu, Hawaii Mortgages payable on four apartments to various individuals and company; note payable on one apartment to financial institution 24,578 166,705 69,809 24,578 236,514 Commercial/industrial: Mortgages payable to Honolulu, Hawaii financial institution and company; notes payable to financial 743,000 607,000 -- 743,000 607,000 institution Other miscellaneous developed real estate located in Hawaii None 23 -- -- 23 -- ----------- ---------- ------------- ---------- ----------- Total developed real estate 765,278 803,843 83,190 765,278 887,033 Undeveloped land held for sale - Makaha, Hawaii None 73,290 -- 61,184 73,290 61,184 ----------- ---------- ------------- ---------- ----------- Grand total $ 838,568 803,843 144,374 838,568 948,217 =========== ========== ============= ========== ===========
LIFE ON WHICH DEPRECIATION ACCUMULATED DATE OF IN LATEST INCOME STATEMENT DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION DATE ACQUIRED IS COMPUTED - ------------------------------ --------- -------------- ----------------- ------------------- ---------------------------- Developed real estate - held for sale Condominium apartments: Makaha, Hawaii Completed Various 1973 to 36 to 40 years for 41,196 10,081 February 1971 1985 apartments 5 years for furnishings Honolulu, Hawaii Completed 1964 Various 1964 to 40 years for apartments 261,092 190,579 and 1968 1985 5 years for furnishings Commercial/industrial: Honolulu, Hawaii 1,350,000 31,128 Built 1986 July 1995 39 years Other miscellaneous developed real estate located in Hawaii 23 -- April 1956 July 1953 ---------- -------------- Total developed real estate 1,652,311 231,788 Undeveloped land held for sale - Makaha, Hawaii 134,474 -- May 1973 Primarily 20 years ----------- -------------- Grand total 1,786,785 231,788 =========== ==============
50 52 Schedule III CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation, Continued (1) Changes during the two years ended July 31, 1997:
1997 1996 ---------- ---------- Cost of real estate: Balance at beginning of year $1,786,495 1,786,651 Additions during year - improvements to real estate 290 2,200 Deductions during year - cost of retirements -- (2,356) ---------- ---------- Balance at end of year $1,786,785 1,786,495 ========== ========== Accumulated depreciation of real estate: Balance at beginning of year $ 208,766 186,345 Additions during the year - charged to costs and expenses 23,022 24,777 Deductions during the year - retirements and sales -- (2,356) ---------- ---------- Balance at end of year $ 231,788 208,766 ========== ==========
(2) Aggregate original cost for federal income tax purposes amounted to $1,862,770 for 1997. (3) Presentation on consolidated balance sheet as of July 31, 1997:
UNDEVELOPED DEVELOPED LAND HELD REAL ESTATE FOR SALE ------------ ----------- Cost $ 1,652,311 134,474 Less accumulated depreciation (231,788) -- ----------- ----------- $ 1,420,523 134,474 =========== ===========
See accompanying independent auditors' report. 51 53 Schedule IV CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Mortgage Loans on Real Estate July 31, 1997
FACE FINAL PERIODIC AMOUNT OF DESCRIPTION INTEREST RATE MATURITY DATE PAYMENT TERMS PRIOR LIENS MORTGAGES - ---------------------------------------- -------------- ----------------- ---------------------- ----------- ----------- First mortgage - payable to a corporation on condominium apartments located in Honolulu, Hawaii 9-1/2% February 28, 1998 Monthly installments $ -- 1,000,000 of interest only First mortgages - payable to individuals on condominium apartment located Monthly installments in Honolulu, Hawaii 9-1/2% On Demand of interest only -- 200,000 First mortgages - payable to a Monthly installments financial institution on land of $6,125, including and warehouse located in Honolulu, 9-1/2% July 1, 2001 interest -- 700,000 Hawaii --------- ----------- $ -- 1,900,000 ========= ===========
PRINCIPAL AMOUNT OF LOANS SUBJECT TO CARRYING DELINQUENT AMOUNT OF PRINCIPAL DESCRIPTION MORTGAGE(1) OR INTEREST - ------------------------------------------ ------------- ------------------- First mortgage - payable to a corporation on condominium apartments located in Honolulu, Hawaii 1,000,000 -- First mortgages - payable to individuals on condominium apartment located in Honolulu, Hawaii 200,000 -- First mortgages - payable to a financial institution on land and warehouse located in Honolulu, Hawaii 653,583 -- ---------- ----------- 1,853,583 -- ========== ===========
(1) Changes during the two years ended July 31, 1997 and 1996: 1997 1996 -------------- ----------- Balance at beginning of year $ 1,864,493 1,874,247 Deductions during the year (10,910) (9,754) ----------- ----------- Balance at end of year $ 1,853,583 1,864,493 =========== ===========
See accompanying independent auditors' report. 52 54 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPITAL INVESTMENT OF HAWAII, INC. Date: October 24, 1997 /s/ Stuart T. K. Ho --------------------------------------- Stuart T. K. Ho, Chairman of the Board, President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: October 24, 1997 /s/ Dean T. W. Ho --------------------------------------- Dean T. W. Ho, Vice Chairman, Secretary and Director Date: October 24, 1997 /s/ Donald M. Wong --------------------------------------- Donald M. Wong, Senior Vice President, Chief Financial Officer, Treasurer and Director Date: October 24, 1997 /s/ Harriet H. Matsuo --------------------------------------- Harriet H. Matsuo, Assistant Secretary and Assistant Treasurer Date: October 24, 1997 /s/ Greta U. Nakao --------------------------------------- Greta U. Nakao, Assistant Secretary and Assistant Treasurer Date: October 24, 1997 /s/ Pedro P. Ada --------------------------------------- Pedro P. Ada, Director Date: October 24, 1997 /s/ C. B. Sung --------------------------------------- C. B. Sung, Director Date: October 24, 1997 /s/ Stanley W. Hong --------------------------------------- Stanley W. Hong, Director 53 55 Date: October 24, 1997 /s/ Walter Lum --------------------------------------- Walter Lum, Assistant Treasurer 54 EX-11 2 COMPUTATION OF LOSS PER COMMON SHARE 1 Exhibit 11 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Computation of Loss Per Common Share
YEARS ENDED JULY 31, ----------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ----------- Loss from continuing operations $ (420,934) (17,033) (247,298) (514,690) 62,653 Discontinued operations (426,050) (356,325) (560,628) (908,763) (1,083,432) ----------- ----------- ----------- ----------- ----------- Net loss applicable to common shareholders $ (846,984) (373,358) (807,926) (1,423,453) (1,020,779) =========== =========== =========== =========== =========== Divided by weighted average number of common shares outstanding during the year 1,032,683 1,032,683 1,032,683 1,032,683 1,032,683 =========== =========== =========== =========== =========== Loss per common share: Continuing operations (.41) (.02) (.24) (.50) .06 Discontinued operations (.41) (.34) (.54) (.88) (1.05) ----------- ----------- ----------- ----------- ----------- Net loss (.82) (.36) (.78) (1.38) (.99) =========== =========== =========== =========== ===========
EX-21 3 SUBSIDIARIES OF CAPITAL INVESTMENT OF HAWAII, INC. 1 Exhibit 21 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Subsidiaries of Capital Investment of Hawaii, Inc. The Registrant, Capital Investment of Hawaii, Inc., has no parent. The Registrant has the following subsidiaries, all of which are included in the accompanying consolidated financial statements. All companies are wholly owned subsidiaries of the Registrant except for Makaha Valley, Incorporated.
STATE OF NAME INCORPORATION --------------------------------------------------------- ------------------- Latipac Fine Foods, Incorporated Hawaii Latipac Mortgage Company, Limited and its wholly owned Hawaii subsidiary - Latipac, Limited California Makaha Valley, Incorporated (85.8% - owned) Hawaii Resources, Incorporated Hawaii
EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE CONSOLIDATED BALANCE SHEET AT JULY 31, 1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) CONSOLIDATED FINANCIAL STATEMENTS. 12-MOS JUL-31-1997 AUG-01-1996 JUL-31-1997 797,514 0 676,242 27,191 67,425 0 1,994,233 1,791,381 7,123,930 0 5,035,008 0 0 1,723,765 (2,884,631) 7,123,930 0 1,817,795 0 2,238,729 0 0 393,283 (420,934) 0 (420,934) (426,050) 0 0 (846,984) (.82) (.82)
-----END PRIVACY-ENHANCED MESSAGE-----