-----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, HMoslw5DX3iST7twFWT0sTApYgLQ9vxqo1PRm5HAEPzRtvm29rDnCFKA3zhzT6q5 Egf3AF+4NOnB1N8ZTxzX2A== 0000950150-98-001663.txt : 19981030 0000950150-98-001663.hdr.sgml : 19981030 ACCESSION NUMBER: 0000950150-98-001663 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980731 FILED AS OF DATE: 19981029 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-K SEC ACT: SEC FILE NUMBER: 000-04179 FILM NUMBER: 98732956 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-K 1 FORM 10-K 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, 1998 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: Title of each class Name of each exchange 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. [ x] 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 23, 1998. 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 activities. Financial information about industry segments is presented in note 12 of the notes to consolidated financial statements. As of July 31, 1998, the Registrant and its subsidiaries had 22 employees. 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. SECURITY AND OTHER INVESTING ACTIVITIES Security and other investing activities include gains and losses from the sale of 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. 1 3 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 December 1997, the Company sold certain assets and liabilities of its subsidiary Latipac Fine Foods, Inc. and discontinued its bakery operations. OTHER ACTIVITIES Other activities include a real estate management division in Waikiki, Hawaii that in fiscal year 1998 had revenues of $660,560 and net income of $303,319, compared with revenues of $670,420 and net income of $316,913 in fiscal year 1997. ITEM 2. PROPERTIES As of July 31, 1998, 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 3,837 square feet 5 condominium apartments, Ilikai Apartment Building and Ilikai Marina Apartment Building in Honolulu, Hawaii 5,199 square feet 1 lot, Makaha, Hawaii .19 acres 1 commercial warehouse and land in Honolulu, Hawaii .22 acres
2 4 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 6 of the notes to consolidated financial statements for information with respect to real estate pledged as security for indebtedness. 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 TO A VOTE 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, 1998. 3 5 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, 1998 and 1997:
LOW BID HIGH BID ------- -------- Quarter ended: 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 October 31, 1997 1/2 1/2 January 31, 1998 1/2 1/2 April 30, 1998 1/2 1/2 July 31, 1998 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, 1998, there were approximately 540 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 1998, 1997, and 1996. 4 6 ITEM 6. SELECTED FINANCIAL DATA SUMMARY OF CONSOLIDATED OPERATIONS
YEARS ENDED JULY 31, --------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ----------- --------- ----------- ----------- ------------- Revenues $ 1,916,355 1,817,795 $ 2,694,871 $ 2,605,160 $ 2,125,551 Loss from continuing operations (615,884) (420,934) (17,033) (247,298) (514,690) Loss per common share from continuing operations (A) (.60) (.41) (.02) (.24) (.50) =========== ========= =========== =========== =============
(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, 1998. FINANCIAL CONDITION
1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Total assets $5,406,774 7,123,930 6,792,582 10,617,753 11,498,301 ========== ========== ========== ========== ========== Indebtedness: Mortgage notes $1,841,684 1,853,583 1,864,493 1,874,247 1,200,000 Other notes, secured 590,470 735,723 1,160,111 2,670,016 3,416,384 Debentures 1,942,745 1,976,245 2,062,245 2,108,245 2,221,895 Other notes, unsecured 502,355 469,457 427,567 499,605 507,253 ---------- ---------- ---------- ---------- ---------- $4,877,254 5,035,008 5,514,416 7,152,113 7,345,532 ========== ========== ========== ========== ==========
5 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company recorded a net loss of $266,867 for the fiscal year ended July 31, 1998, (fiscal year 1998), compared with net losses of $846,984 and $373,358 for fiscal years 1997 and 1996, respectively. The net loss for fiscal year 1998 included depreciation and amortization totaling $71,747, as compared to $100,370 and $211,836 in fiscal years 1997 and 1996, respectively. The Company's subsidiary, Latipac Fine Foods, Incorporated, ("Latipac") accounted for $29,858, $56,806 and $156,899 of depreciation for fiscal years ended July 31, 1998, 1997, and 1996, respectively. The Company's operating performance during fiscal year 1998, substantially reflected the effects of (a) an agreement to dispose of certain assets and liabilities owned by its subsidiary, Latipac, and the business known as "Bakery Europa"; (b) the Company's continuing activity as a lender making working capital available to home builders in Nevada and Utah to buy land and to build finished lot pads; and (c) the Company's continuing business as a property management agent of approximately 300 condominium apartments in Waikiki, Hawaii, mostly situated in the Ilikai Apartment Building and the Ilikai Marina Apartment Building. The economic climate in Hawaii during fiscal year 1998 was poor, as it had been for several years, without interruption. Hawaii's private-sector economy is heavily dependent upon tourism, and especially upon tourists from Japan. The Japanese economy has been in decline since 1992, and it is not expected to significantly improve in fiscal year 1999. The Company does not expect Hawaii's economy to improve in fiscal year 1999. The economies of southern Nevada and Utah, on the other hand, are robust and have been so for several years. The Company expects homebuilding activity in southern Nevada and Utah to continue to be active during fiscal year 1999, stimulated by steady job growth and low interest rates. 6 8 BAKERY OPERATIONS In December 1997, the Company sold certain assets and liabilities of Latipac. Bakery Europa's operating results for fiscal years 1998, 1997, and 1996 is summarized as follows:
1998 1997 1996 --------- --------- --------- Income (loss) before certain interest and depreciation and amortization $ 4,936 (341,407) (157,426) Interest on loan to acquire this subsidiary's assets (5,288) (27,837) (42,000) Depreciation and amortization (29,858) (56,806) (156,899) Gain on sale of discontinued operations 379,227 -- -- --------- --------- --------- Net income (loss) $ 349,017 (426,050) (356,325) ========= ========= =========
Bakery Europa's net product sales for fiscal year 1998 were $2,137,368, compared with net sales of $4,737,228 and $5,521,390 for fiscal years 1997 and 1996, respectively. The gross profit margin for fiscal year 1998 was 40.1%, compared with 40.1% and 36.4% for fiscal years 1997 and 1996, respectively. Net income (loss) per share for Bakery Europa amounted to $.34, $(.41) and $(.35) for the fiscal years 1998, 1997, and 1996, respectively. Gain on sale of the discontinued operation for fiscal 1998 resulted in an earnings per share of $.37. 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 unimproved land, provide infrastructure and construct homes. In recent years, banks and other federally insured lending institutions have tightened credit standards. As a result of this stringent credit environment many home builders have been forced to seek alternate sources of financing such as ADC loans. 7 9 The Company has made sixteen such loans since 1991, and all have either been paid or are performing. The Company has never experienced a default on a loan it has made. The Company's ADC lending activities in recent years have been as follows:
ADVANCES AT INCOME FROM END OF FISCAL YEAR INVESTMENTS FISCAL YEAR ----------- ----------- ----------- 1998 $ 828,824 1,435,210 1997 449,842 2,711,737 1996 1,143,229 1,902,009 ========== ==========
Deferred income on these loans totaled $434,755 at July 31, 1998, compared to $372,827 and $28,886, at July 31, 1997 and 1996, 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 priced for the "entry-level" or "first move-up" markets. 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 subordinated to conventional loans to finance the construction of homes. The Las Vegas new home market continues to be very active, driven by an expansion of hotel and gaming facilities, steady immigration into the area, driven by the growth of the area's high-job growth. The Salt Lake City home building market is also very active, driven by the growth of the area's high-technology industry and the city's confining land features, which have resulted in high urban density. The Company also finances projects in Mesquite, Nevada, and in the suburbs of St. George, Utah, which have attracted new residents, many of whom are fleeing what they consider to be over-crowded conditions in Las Vegas. 8 10 PROPERTY MANAGEMENT The Company manages more than 300 condominium apartment units in Waikiki, mainly in the Ilikai Apartment Building and the Ilikai Marina Apartment Building, under management agreements with individual apartment owners. This division of the Company from time to time earns brokerage fee income from sales of apartments. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents balance at July 31, 1998 was $752,493 compared with $797,514 at the end of fiscal year 1997. Cash provided by operating activities amounted to $597,782 in 1998 and resulted primarily from the net decrease in investments in real estate of $1,433,827 related to the Company's Nevada and Utah ADC arrangements. Cash inflows in 1998 provided by investing activities amounted to $239,159 which are attributed to collections on long-term receivables and proceeds from the sale of other investments. Cash used in financing activities of $881,962 included proceeds of loan participation agreements of $832,500 which were offset by payments made under loan participation agreements of $1,556,708 (see note 6 to the consolidated financial statements). During fiscal year 1998, the Company was able to meet its operating cash requirements with cash flows generated from operating and investing activities. Cash inflows and outflows from investments in Copper Bluffs, LLC, Sunset Bay, LLC, Red Rock Canyon, LLC, Touchstone Development of Utah, LLC, and Hearthstone Homes, Inc. will continue into fiscal year 1999. Cash requirements for fiscal year 1999 will be satisfied from institutional borrowings, refinancing of notes payable, net collections of notes receivable, cash in banks at year end, net collections of ADC loans and additional loan participation agreements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements and Schedules. 9 11 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, 1998 and 1997. 10 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists all directors of the Registrant as of July 31, 1998:
NUMBER OF YEARS SERVED OFFICE HELD WITH AS OTHER PUBLIC NAME AGE REGISTRANT DIRECTOR BUSINESS EXPERIENCE DIRECTORSHIPS - --------------------- --- --------------------- ------------ ------------------- ---------------------- Stuart T. K. Ho 62 Chairman of the Board 31 Positions held with Bancorp Hawaii, Inc.; and President Registrant Gannett Co., Inc.; College Retirement Equities Fund Dean T. W. Ho (1) 60 Vice Chairman and 17 Positions held with -- Secretary Registrant Donald M. Wong 80 Senior Vice 24 Positions held with -- President, Chief Registrant Financial Officer and Treasurer Pedro P. Ada 68 None 27 President of Ada's -- Incorporated; real estate, insurance agency and investments Stanley W. Hong (2) 62 None 13 President and Chief Central Pacific Bank; Executive Officer of First Insurance Co. Chamber of Commerce of Hawaii of Hawaii C. B. Sung 73 None 13 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. 11 13 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, 1998:
NAME AGE OFFICE POSITION HELD - -------------------- ---- --------------------------- --------------------------------------------------- Stuart T. K. Ho 62 Chairman of the Board and Chairman of the Board since 1982, President from President 1975 to 1982 and since 1988, Vice President and Secretary from 1966 to 1975 Dean T. W. Ho(1) 60 Vice Chairman and Secretary Secretary since 1991, Vice Chairman since 1988, President from 1982 to 1987, Executive Vice President from 1975 to 1982 and Vice President from 1965 to 1975 Donald M. Wong 80 Senior Vice President and Senior Vice President since 1990, Financial Vice Treasurer President from 1965 to 1990 and Treasurer since 1965 Harriet H. Matsuo 73 Assistant Secretary and Secretary from 1975 to 1991 and Assistant Secretary Assistant Treasurer and Assistant Treasurer from 1965 to 1975 and since 1991 Greta U. Nakao 76 Assistant Secretary and Assistant Treasurer since 1975 and Assistant Assistant Treasurer Secretary since 1981
(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. 12 14 ITEM 11. EXECUTIVE COMPENSATION The following table shows the compensation for each of the years ended July 31, 1998, 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 $100,000. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION --------- ---- ------------------------------- ------------------------------------- (A) (B) (C) (D) (E) (F) (G) (H) (I) OTHER SECURITY ALL ANNUAL RESTRICTED UNDER- OTHER NAME AND COMPEN- STOCK LYING LTIP COMPEN- PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS/ PAYOUTS SATION POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($) - -------------------- ---- ------ ----- ------- --------- --------- ------- ------- Stuart T.K. Ho, Chairman of the Board and President 1998 127,008 -- -- -- -- -- -- 1997 127,424 -- -- -- -- -- -- 1996 132,000 -- -- -- -- -- --
13 15 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following sets forth, as of July 31, 1998, 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. 164,124 15.9% P. O. Box 20 New York, New York 10004 Stuart T. K. Ho, Dean T. Ho, and Karen Ho Hong, Trustees of the Chinn Ho Trust 168,650 16.3 733 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. 14 16 (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, 1998, 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:
SOLE AMOUNT AND VOTING AND SHARED NATURE OF INVES- VOTING AND NAME OF BENEFICIAL BENEFICIAL MENT INVESTMENT TITLE OF CLASS OWNER OWNERSHIP TOTAL POWER POWER - ------------------- ------------------- ------------------- ------ ---------- ----------- Common stock Stuart T. K. Ho 252,536 shares 24.4% 2.2% 22.2% 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 owned 3.8 -- 3.8 of record Common stock Pedro Ada 5,444 shares owned .5 .5 -- of record Common stock Stanley Hong 5,000 shares owned .5 -- .5 of record Common stock C. B. Sung 5,000 shares owned .5 .5 -- 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. Chinn 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, 1998, the balance of these short-term notes were $5,000 due to an officer. 15 17 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company entered into loan participation agreements during 1997 and 1998 which provided that the Company sell, without recourse, to participants an undivided participating interest in the loans to Pageantry Communities, Inc., Touchstone Development of Utah, LLC and Hearthstone Homes, Inc. (see footnote 5 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. There were no outstanding amounts due to participants on the loan agreement with Pageantry Communities, Inc. at July 31, 1998. 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. Included in the total participants share of the loan commitment to Touchstone Development of Utah, LLC, amounting to $391,538 at July 31, 1998, was $78,307 borrowed from a director of the Company and $39,154 borrowed from an officer of the Company. Included in the total participants share of the loan commitment to Hearthstone Homes, Inc., amounting to $119,804 at July 31, 1998 was borrowed from an officer of a subsidiary of the Company. 16 18 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, 1998. (C) Exhibits:
EXHIBIT FORM 10-K NUMBER DESCRIPTION PAGE ------ ------------------------------------------------------- --------- 3 Articles of Incorporation and By-Laws * 11 Computation of Loss Per Common Share 18 21 Subsidiaries of Capital Investment of Hawaii, Inc. 19
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. 17 19 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, 1998 and 1997 Consolidated Statements of Operations and Retained Earnings - Years ended July 31, 1998, 1997, and 1996 Consolidated Statements of Cash Flows - Years ended July 31, 1998, 1997, and 1996 Notes to Consolidated Financial Statements Schedules: II Valuation and Qualifying Accounts and Reserves - Years ended July 31, 1998, 1997, and 1996 III Real Estate and Accumulated Depreciation - July 31, 1998 IV Mortgage Loans on Real Estate - July 31, 1998 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. F-1 20 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, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended July 31, 1998, 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 23, 1998 F-2 21 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1998 and 1997
ASSETS (NOTE 6) 1998 1997 ----------- ----------- Cash and cash equivalents $ 752,493 797,514 Receivables: Trade accounts, less allowance for doubtful receivables of $1,000 and $27,191 in 1998 and 1997, respectively 77,074 322,802 Accrued interest 565,458 353,440 Other 161,514 7,470 ----------- ----------- Total receivables 804,046 683,712 ----------- ----------- Inventories -- 67,425 Developed real estate, less accumulated depreciation of $253,533 and $231,788 in 1998 and 1997, respectively (note 4) 1,401,479 1,420,523 Undeveloped land held for sale (note 5) 134,474 134,474 Other investments: Real estate (note 5) 1,525,410 2,959,237 Securities, at cost (note 3) 737,202 817,723 ----------- ----------- 2,262,612 3,776,960 ----------- ----------- Property and equipment, at cost: Leasehold improvements 61,282 221,413 Furniture and equipment 394,610 1,772,820 ----------- ----------- 455,892 1,994,233 Less accumulated depreciation and amortization (413,242) (1,791,381) ----------- ----------- Net property and equipment 42,650 202,852 Deferred charges and other assets 9,020 40,470 ----------- ----------- $ 5,406,774 7,123,930 =========== ===========
(Continued) F-3 22 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1998 and 1997
LIABILITIES AND STOCKHOLDERS' DEFICIT 1998 1997 ----------- ----------- Indebtedness (note 6): Mortgage notes $ 1,841,684 1,853,583 Other notes, secured 590,470 735,723 Debentures 1,942,745 1,976,245 Other notes, unsecured 502,355 469,457 ----------- ----------- Total indebtedness 4,877,254 5,035,008 ----------- ----------- Accounts payable, trade 99,521 635,013 ----------- ----------- Accrued expenses: Interest 53,383 53,808 Taxes other than income 11,505 14,518 Other 656,205 776,858 ----------- ----------- Total accrued expenses 721,093 845,184 ----------- ----------- Other payables: Loans under participation agreements (note 5): Related parties 237,265 451,590 Other 274,077 783,960 Other (notes 5 and 8) 625,297 534,041 ----------- ----------- Total other payables 1,136,639 1,769,591 ----------- ----------- Commitments and contingent liabilities (notes 5, 6, 8 and 9) 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 436,668 703,535 ----------- ----------- 2,629,754 2,896,621 Cost of 691,082 common shares in treasury (4,057,487) (4,057,487) ----------- ----------- Net stockholders' deficit (1,427,733) (1,160,866) ----------- ----------- $ 5,406,774 7,123,930 =========== ===========
See accompanying notes to consolidated financial statements. F-4 23 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings Years ended July 31, 1998, 1997 and 1996
1998 1997 1996 ----------- ----------- ----------- Revenues (note 6): Income from real estate activities $ 989,078 583,600 1,445,709 Security and other investment income 192,363 558,054 526,252 Other 734,914 676,141 722,910 ----------- ----------- ----------- 1,916,355 1,817,795 2,694,871 ----------- ----------- ----------- Costs and expenses: Other direct operating expenses (note 9) 388,200 551,405 577,634 General and administrative expenses (notes 8 and 9) 1,333,399 1,294,041 1,302,895 Interest (note 6) 810,640 393,283 831,375 ----------- ----------- ----------- 2,532,239 2,238,729 2,711,904 ----------- ----------- ----------- Loss from continuing operations (615,884) (420,934) (17,033) Gain (loss) from discontinued operations (note 2) 349,017 (426,050) (356,325) ----------- ----------- ----------- Net loss (266,867) (846,984) (373,358) Retained earnings at beginning of year 703,535 1,550,519 1,923,877 ----------- ----------- ----------- Retained earnings at end of year $ 436,668 703,535 1,550,519 =========== =========== =========== Loss per common share (note 11): Loss from continuing operations (.60) (.41) (.02) Gain (loss) from discontinued operations (note 2) .34 (.41) (.34) ----------- ----------- ----------- Net loss per common share $ (.26) (.82) (.36) =========== =========== =========== 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. F-5 24 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended July 31, 1998, 1997 and 1996
1998 1997 1996 ----------- ----------- ----------- Cash flows from operating activities: Cash received from customers $ 2,905,936 5,271,819 6,398,025 Cash paid to suppliers/employees (3,739,171) (6,380,857) (7,713,659) Capital expenditures - real estate (2,701) (290) (2,201) Purchase of investments in real estate (note 5) (1,306,518) (2,257,774) (3,618,324) Collections from investments in real estate (note 5) 2,740,345 1,215,746 5,392,975 Dividends received 12,138 8,451 13,483 Interest received 828,662 550,618 1,909,127 Interest paid (840,909) (439,646) (896,489) ----------- ----------- ----------- Net cash provided by (used in) operating activities 597,782 (2,031,933) 1,482,937 ----------- ----------- ----------- Cash flows from investing activities: Purchases of other investments -- (188,549) -- Proceeds from sale of marketable securities -- 47,491 80,803 Proceeds from sale of other investments 259,350 543,035 521,085 Proceeds from sale of property and equipment -- 6,900 -- Loans made -- -- (500,000) Collections on other receivables 4,824 958,438 1,190,406 Capital expenditures (25,015) (51,409) (105,151) ----------- ----------- ----------- Net cash provided by investing activities 239,159 1,315,906 1,187,143 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from indebtedness 185,497 48,844 564,563 Payments on indebtedness (343,251) (528,252) (2,202,260) Proceeds received under loan participation agreements (note 5) 832,500 1,500,000 -- Payments made under loan participation agreements (note 5) (1,556,708) (264,450) (1,562,620) ----------- ----------- ----------- Net cash provided by (used in) financing activities (881,962) 756,142 (3,200,317) ----------- ----------- ----------- Net increase (decrease) in cash (45,021) 40,115 (530,237) Cash and cash equivalents at beginning of year 797,514 757,399 1,287,636 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 752,493 797,514 757,399 =========== =========== ===========
(Continued) F-6 25 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended July 31, 1998, 1997 and 1996
1998 1997 1996 ----------- ----------- ----------- Reconciliation of net loss to cash provided by (used in) operating activities: Net loss $ (266,867) (846,984) (373,358) ----------- ----------- ----------- Adjustments to reconcile net loss to cash provided by (used in) operating activities: Capital expenditures - real estate (2,701) (290) (2,201) Depreciation and amortization 71,747 100,370 211,836 Gain on sale of discontinued operations (379,227) -- -- Gain on sale of marketable securities -- (28,181) (54,448) Gain on sale of other investments (178,829) (471,755) (412,627) Gain on sale/disposal of property and equipment -- (6,900) (469) Change in assets and liabilities: Decrease (increase) in inventories (30,471) (2,103) (12,209) Decrease (increase) in trade accounts, accrued interest and other receivables, net (125,158) (206,200) 595,949 Decrease (increase) in investment in real estate 1,433,827 (1,042,028) 1,774,651 Decrease (increase) in deferred charges and other assets (80,213) 26,611 (34,735) Increase (decrease) in accounts payable, trade 217,838 (16,394) 221,974 Increase (decrease) in accrued expenses and other payables (62,164) 461,921 (431,426) ----------- ----------- ----------- Total adjustments 864,649 (1,184,949) 1,856,295 ----------- ----------- ----------- Net cash provided by (used in) operating activities $ 597,782 (2,031,933) 1,482,937 =========== =========== =========== Supplemental schedule of noncash operating, investing and financing activities: (1) 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 $23,337 in 1996. There were no unrealized holdings gains in 1998 or 1997 (2) In fiscal year 1998, the Company sold certain assets and liabilities of its subsidiary, Latipac Fine Foods, Inc. A net gain on disposal was recognized on assets transferred as follows: Inventories $ 97,896 Property and equipment, net 135,215 Deferred charges and other asset 111,663 Accounts payable trade (753,330) Other payables 29,329 ----------- $ 379,227 ===========
See accompanying notes to consolidated financial statements. F-7 26 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements July 31, 1998, 1997 and 1996 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Capital Investment of Hawaii, Inc. and subsidiaries are engaged principally in real estate, security and other investing activities. 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 are 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. Security and other investing activities include gains and losses from the sale of investments and dividend and interest income related to the ownership of such investments. 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 F-8 27 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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%
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, 1998 and 1997, 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 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. 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. F-9 28 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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 FOR 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. ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income and SFAS No. 131, Disclosures About Segments of An Enterprise and Related Information. SFAS No. 130 establishes standards for reporting and display of comprehensive income in a full set of general-purpose financial statements. Comprehensive income is defined as all changes in equity, including net income, except those resulting from investments by and distributions to owners. SFAS No. 131 establishes standards for the way that public business enterprises report selected quarterly information about operating segments, including information on products and services, geographic areas and major customers based on a management approach to reporting. SFAS No. 130 and 131 are effective for fiscal years beginning after December 15, 1997, although SFAS No. 131 need not be applied to interim periods in the initial year of implementation. Reclassification of financial statements for prior periods will be required for comparative purposes. As these statements relate solely to disclosure requirements, their implementation will not have an affect on the Company's financial condition, results of operations or liquidity. F-10 29 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) DISCONTINUED OPERATIONS In December 1997, the Company sold certain assets and liabilities of its bakery operations. The Company recognized a gain on the sale of $379,227 in fiscal 1998. Summary gain (loss) from discontinued operations are as follows:
1998 1997 1996 ----------- ----------- ----------- Total revenues $ 2,137,368 4,737,228 5,521,390 Total costs and expenses (2,167,578) (5,163,278) (5,877,715) Gain on sale of assets and liabilities 379,227 -- -- ----------- ----------- ----------- Gain (loss) from discontinued operations $ 349,017 (426,050) (356,325) =========== =========== ===========
The components of net liabilities of discontinued operations included in the consolidated balance sheet at July 31, 1997 are as follows: Inventories $ 67,425 Deferred charges and other assets 28,471 Property and equipment, at cost, net of accumulated depreciation and amortization 151,640 Accounts payable, trade (441,384) Accrued expenses (194,191) --------- Net liabilities $(388,039) =========
F-11 30 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (3) SECURITY INVESTMENTS Gross unrealized gains on the portfolio of marketable equity securities at July 31, 1997 and 1996 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 ========
(4) DEVELOPED REAL ESTATE The components of developed real estate at July 31, 1998 and 1997 were as follows:
1998 1997 ---------- ---------- Held for sale, at lower of cost or market: Condominium apartment units, a portion of which includes undivided interest in land $ 304,989 302,288 Commercial property 1,350,000 1,350,000 Other 23 23 ---------- ---------- 1,655,012 1,652,311 Less accumulated depreciation 253,533 231,788 ---------- ---------- $1,401,479 1,420,523 ========== ==========
(5) REAL ESTATE INVESTMENTS UNDEVELOPED LAND Undeveloped land held for sale at July 31, 1998 and 1997 consisted of approximately 39 acres in Makaha Valley on the island of Oahu, state of Hawaii. F-12 31 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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. At July 31, 1998 and 1997, 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, 1998: Copper Bluffs, LLC $ 365,380 27,200 392,580 161,314 Sunset Bay, LLC 249,232 38,900 288,132 134,711 Red Rock Canyon, LLC 191,406 17,300 208,706 106,628 Touchstone Development of Utah, LLC 404,192 2,400 406,592 18,911 Hearthstone Homes, Inc. 225,000 4,400 229,400 13,191 ---------- ---------- ---------- ---------- $1,435,210 90,200 1,525,410 434,755 ========== ========== ========== ========== 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 ========== ========== ========== ==========
The following paragraphs summarize the ADC loan arrangements and present summary financial information for the corporate real estate ventures. F-13 32 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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, 1998 and 1997, the Company's aggregate investment in the real estate project amounted to $392,580 and $539,449, respectively, including $27,200 and $58,600, respectively, of capitalized interest. The ADC loan is secured by a parcel of land in Clark County, Nevada. Financial information of Copper Bluffs, LLC is as follows: CONDENSED BALANCE SHEETS JUNE 30, 1998 AND JULY 31, 1997
ASSETS JUNE 30, 1998 JULY 31, 1997 ------------- ------------- Cash $ -- 45,249 Construction work in progress 1,246,433 1,902,144 Other current assets 260,359 385,226 ----------- --------- $ 1,506,792 2,332,619 =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Accounts payable $ 269,382 152,691 Construction notes payable 720,426 1,435,774 Due to Capital Investment of Hawaii, Inc. 528,820 480,849 Other payables 39,145 197,679 ----------- --------- Total liabilities 1,557,773 2,266,993 ----------- --------- Paid-in capital 5,000 5,000 Retained earnings (accumulated deficit) (55,981) 60,626 ----------- --------- Total stockholders' equity (deficiency) (50,981) 65,626 ----------- --------- $ 1,506,792 2,332,619 =========== =========
F-14 33 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued CONDENSED STATEMENTS OF INCOME (LOSS) PERIODS ENDED JUNE 30, 1998 AND JULY 31, 1997
ELEVEN MONTHS ENDED YEAR ENDED JULY JUNE 30, 1998 31, 1997 ----------- ----------- Sales $ 4,513,754 4,064,607 Cost of sales (4,471,368) (3,928,396) ----------- ----------- Gross profit 42,386 136,211 Other income 28,902 18,736 Other expenses (130,395) -- ----------- ----------- Net income (loss) $ (59,107) 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 another residential real estate project in Clark County, Nevada. At July 31, 1998 and 1997, the Company's aggregate investment in the real estate project amounted to $288,132 and $554,668, respectively, including $38,900 and $56,400, respectively, of capitalized interest. The ADC loan is secured by a parcel of land in Clark County, Nevada. F-15 34 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Financial information of Sunset Bay, LLC is as follows: CONDENSED BALANCE SHEETS JUNE 30, 1998 AND JULY 31, 1997
ASSETS JUNE 30, 1998 JULY 31, 1997 ------------- ------------- Cash $ -- 307,902 Restricted cash 28,915 -- Construction work in progress 2,780,080 2,412,946 ---------- ---------- $2,808,995 2,720,848 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 167,382 261,618 Construction notes payable 1,471,051 1,766,066 Due to Capital Investment of Hawaii, Inc. 490,411 498,268 Other payable 613,526 190,046 ---------- ---------- Total liabilities 2,742,370 2,715,998 ---------- ---------- Paid-in capital 5,000 5,000 Retained earnings (accumulated deficit) 61,625 (150) ---------- ---------- Total stockholders' equity 66,625 4,850 ---------- ---------- $2,808,995 2,720,848 ========== ==========
CONDENSED STATEMENTS OF INCOME (LOSS) PERIODS ENDED JUNE 30, 1998 AND JULY 31, 1997
ELEVEN MONTHS ENDED YEAR ENDED JUNE 30, 1998 JULY 31, 1997 ------------- ------------- Sales $ 1,674,620 -- Cost of sales (1,601,856) -- ----------- ----------- Gross profit 72,764 -- Other income 4,123 -- Other expense (15,112) (150) ----------- ----------- Net income (loss) $ 61,775 (150) =========== ===========
F-16 35 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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. The ADC loan was fully repaid as of July 31, 1998. 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. The participants' share of the loan commitment was fully repaid to participants as of July 31, 1998. 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, 1998 and 1997, the Company's aggregate investment in the real estate project amounted to $208,706 and $485,636, respectively, including $17,300 and $33,300, respectively, of capitalized interest. The ADC loan is secured by a parcel of land in Washington County, Utah. Financial information of Red Rock Canyon, LLC is as follows: CONDENSED BALANCE SHEETS JUNE 30, 1998 AND JULY 31, 1997
ASSETS JUNE 30, 1998 JULY 31, 1997 ------------- ------------- Cash $ 15,808 58,036 Accounts receivable 4,000 6,000 Refundable deposits -- 62,181 Construction work in progress 690,627 1,312,830 Other assets 20,838 -- ----------- ----------- $ 731,273 1,439,047 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Accounts payable $ 84,291 85,093 Construction notes payable 276,936 692,414 Due to Capital Investment of Hawaii, Inc. 357,331 452,336 Other payables 52,946 146,984 ----------- ----------- Total liabilities 771,504 1,376,827 ----------- ----------- Capital accounts 5,000 10,000 Distributions -- (5,000) Retained earnings (accumulated deficit) (45,231) 57,220 ----------- ----------- Total stockholders' equity (deficiency) (40,231) 62,220 ----------- ----------- $ 731,273 1,439,047 =========== ===========
F-17 36 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued CONDENSED STATEMENTS OF INCOME (LOSS) PERIODS ENDED JUNE 30, 1998 AND JULY 31, 1997
ELEVEN MONTHS ENDED YEAR ENDED JUNE 30, 1998 JULY 31, 1997 ------------- ------------- Sales $ 1,996,374 644,376 Cost of sales (2,078,001) (587,156) ----------- ----------- Gross profit (loss) (81,627) 57,220 Other income 143 -- Other expenses (10,432) -- ----------- ----------- Net income (loss) $ (91,916) 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, 1998 and 1997, the Company's aggregate investment in the real estate project amounted to $406,592 and $825,354, respectively, including $2,400 and $19,700, respectively, 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. F-18 37 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Financial information of Touchstone Development of Utah, LLC is as follows: CONDENSED BALANCE SHEETS JUNE 30, 1998 AND JULY 31, 1997
ASSETS JUNE 30, 1998 JULY 31, 1997 ------------- ------------- Cash $ 89,693 94,132 Refundable deposits -- 20,650 Construction work in progress 5,983,335 1,183,799 Restricted cash 775,728 -- Receivables 100,835 -- Other assets 24,315 -- ----------- ----------- $ 6,973,906 1,298,581 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 857,233 166,410 Due to Capital Investment of Hawaii, Inc. 521,898 805,654 Construction notes payable 5,289,307 172,566 Other payables 78,058 148,951 ----------- ----------- Total liabilities 6,746,496 1,293,581 ----------- ----------- Paid-in capital 397,297 5,000 Retained earnings (169,887) -- ----------- ----------- Total stockholders' equity 227,410 5,000 ----------- ----------- $ 6,973,906 1,298,581 =========== ===========
CONDENSED STATEMENTS OF LOSS ELEVEN MONTHS ENDED JUNE 30, 1998 Sales $ 7,383,304 Cost of sales (7,385,537) ----------- Gross profit (2,233) Other income 10,708 Other expenses (167,962) ----------- Net loss $ (159,487) ===========
F-19 38 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 $391,538 and $750,000 at July 31, 1998 and 1997, respectively. Certain participants are related parties which, in the aggregate, totaled $117,461 and $225,000 at July 31, 1998 and 1997, respectively. HEARTHSTONE HOMES, INC. On February 10, 1998, the Company extended a $425,000 ADC loan commitment to Hearthstone Homes, Inc. to finance a residential real estate project known as Hearthstone Homes in Clark County, Nevada. At July 31, 1998, the Company's aggregate investment in the real estate project amounted to $229,400, including $4,400 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. The Company entered into a 50% loan participation agreement which provides that the Company sell, without recourse, to a participant an undivided participating interest in the loan to Hearthstone Homes, Inc. The participant's share of the loan commitment amounted to $119,804 at July 31, 1998. The participant is an officer of a subsidiary of the Company. (6) INDEBTEDNESS Indebtedness at July 31, 1998 and 1997 is summarized as follows:
1998 1997 ---------- --------- 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, 1999 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 641,684 653,583 ---------- --------- 1,841,684 1,853,583 ---------- --------- Other notes, secured: Interest at prime (8.5% at July 31, 1998) plus 2.0%, payable to a financial institution in monthly installments of principal of $11,138, plus interest, due August 31, 1998 (*) 78,632 211,526 10%, payable to a financial institution in monthly installments of $14,539 including interest, due June 1, 2002 147,426 137,390
F-20 39 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
1998 1997 ---------- --------- Other notes, secured, continued: Interest at prime plus 2.5%, payable to a financial institution in monthly installments of interest only, due on demand (*) $ 100,000 100,000 10%, payable to a financial institution in monthly installments of $2,272 including interest, due February 1, 1999 245,017 247,633 Interest at prime (8.5% at July 31, 1998) plus 1.25% until September 3, 1998, interest at prime plus 1.5% thereafter, payable to a financial institution in monthly installments of $278 including interest, due August 3, 2000 (*) 6,141 8,724 Interest at prime plus 1.25% until December 1, 1998; interest at prime plus 1.5% thereafter, payable to a financial institution in monthly principal installments of $322 plus interest, due October 31, 2000 (*) 8,695 12,559 Interest at prime plus 1.5%, payable to a financial institution in monthly principal installments of $1,111 plus interest, due December 22, 1998 (*) 4,559 17,891 ---------- --------- 590,470 735,723 ---------- --------- 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 1,942,745 1,976,245 ---------- --------- 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 357,355 324,457 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 is due to a related party) 145,000 145,000 ---------- --------- 502,355 469,457 ---------- --------- $4,877,254 5,035,008 ========== =========
F-21 40 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Maturities of indebtedness are shown in the following summary: 1999 $4,208,043 2000 54,078 2001 615,133 ---------- $4,877,254 ==========
*Notes were repaid in August 1998. The carrying amounts of assets pledged as collateral for indebtedness as of July 31, 1998 were as follows: Cash and cash equivalents $ 746,055 Developed real estate 1,401,479 Investment in other securities 737,202 Property and equipment 27,099 ==========
In addition, the rights and interests in insurance policies, income or profits, and other contracts and agreements of the Company were pledged as collateral for indebtedness as of July 31, 1998. (7) INCOME TAXES The benefit for income taxes applicable to the net loss for fiscal years 1998, 1997 and 1996 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:
1998 1997 1996 -------- -------- -------- Computed "expected" tax benefit $(90,735) (287,975) (126,942) Net operating losses for which no deferred income tax benefit has been recognized 91,506 271,312 111,222 Dividends received deduction (2,889) (2,011) (3,209) Officers' life insurance -- 16,508 16,441 Other, net 2,118 2,166 2,488 -------- -------- -------- $ -- -- -- ======== ======== ========
F-22 41 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, 1998 and 1997 are presented below.
1998 1997 ----------- ----------- Deferred tax assets: Deferred compensation agreement $ 56,700 56,700 Other investment securities, permanent decline in market value 83,100 83,100 Deferred income on other real estate investment 165,200 141,700 Net tax operating loss carryforwards 1,346,200 1,329,400 Other 83,000 80,800 ----------- ----------- Total gross deferred tax assets 1,734,200 1,691,700 Less valuation allowance (1,698,600) (1,596,300) ----------- ----------- Net deferred tax assets $ 35,600 95,400 =========== =========== Deferred tax liabilities: Capitalized interest on other real estate investments $ 34,300 94,100 Other 1,300 1,300 ----------- ----------- Total gross deferred tax liabilities $ 35,600 95,400 =========== ===========
The valuation allowance for deferred tax assets as of August 1, 1997 and 1996 were $1,698,600 and $1,596,300, respectively. The net change in the total valuation allowance for the years ended July 31, 1998 and 1997 were increases of $102,300 and $311,200, 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, 1998, the Company had tax net operating loss carryforwards of approximately $3,600,000 and $4,400,000 for federal and state income tax purposes, respectively, which can be used to offset future taxable income through 2013. (8) 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. F-23 42 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The accrued obligation as of July 31, 1998 and 1997 amounted to $149,158 and is included in the consolidated balance sheet as other payables. (9) LEASE COMMITMENTS The Company leases various facilities for its office premises and rental agency. 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, 1998 are summarized as follows:
Year ending July 31: 1999 $160,328 2000 158,028 2001 162,228 2002 146,478 2003 97,200 -------- $724,262 ========
Rent expense for all operating leases was $176,509, $408,250 and $501,100 for the years ended July 31, 1998, 1997 and 1996, respectively. (10) FOURTH QUARTER RESULTS (UNAUDITED) Fourth quarter results for the year ended July 31, 1998 are as follows: Revenues from continuing operations $ 558,753 ========= Loss: Loss from continuing operations ($(.27) per common share) $(278,750) Gain from discontinued operations ($.001 per common share) 628 --------- $(278,122) =========
(11) 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. F-24 43 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (12) SEGMENT INFORMATION The Company has classified its business activities into significant segments for the years ended July 31, 1998, 1997 and 1996. The Company's operations have been classified into real estate, security and other investing 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 is interest income 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, 1998, 1997 and 1996:
1998 1997 1996 ----------- ----------- ----------- Revenues: Real estate activities: Property rentals $ 158,858 117,615 178,325 Income from ADC loan arrangements 828,824 449,842 1,143,229 Interest income 1,396 16,143 124,155 ----------- ----------- ----------- Total real estate activities 989,078 583,600 1,445,709 ----------- ----------- ----------- Security and other investing activities: Gains from sales of securities 178,829 499,936 467,075 Dividends and interest 13,534 58,118 59,177 ----------- ----------- ----------- Total security and other investing activities 192,363 558,054 526,252 ----------- ----------- ----------- Other activities 734,914 676,141 722,910 ----------- ----------- ----------- $ 1,916,355 1,817,795 2,694,871 =========== =========== =========== Operating loss from continuing operations: Real estate activities $ 636,962 181,465 1,016,950 Security and other investing activities 149,620 510,625 479,910 Other activities 54,844 (15,049) 43,294 ----------- ----------- ----------- 841,426 677,041 1,540,154 Interest expense (810,640) (393,283) (831,375) Corporate expenses (646,670) (704,692) (725,812) ----------- ----------- ----------- Loss from continuing operations $ (615,884) (420,934) (17,033) =========== =========== ===========
F-25 44 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
1998 1997 1996 ---------- ---------- ---------- Depreciation and amortization: Real estate activities $ 22,977 24,226 30,768 Security and other investing activities 671 657 780 Other activities 7,572 8,100 16,244 ---------- ---------- ---------- Total segments 31,220 32,983 47,792 Corporate 10,669 10,581 7,145 Discontinued operations - wholesale bakery activities (note 2) 29,858 56,806 156,899 ---------- ---------- ---------- $ 71,747 100,370 211,836 ========== ========== ========== Capital expenditures: Real estate activities $ -- 290 2,201 Other activities 1,914 13,288 790 Corporate 9,670 7,595 8,182 Discontinued operations - wholesale bakery activities (note 2) 13,431 30,526 96,179 ---------- ---------- ---------- $ 25,015 51,699 107,352 ========== ========== ========== Identifiable assets: Real estate activities $3,074,212 4,535,896 4,479,964 Security and other investing activities 738,828 819,440 745,019 Other activities 658,369 439,206 128,501 ---------- ---------- ---------- Total segments 4,471,409 5,794,542 5,353,484 Corporate 935,365 824,260 800,698 Discontinued operations - wholesale bakery activities (note 2) -- 505,128 638,400 ---------- ---------- ---------- $5,406,774 7,123,930 6,792,582 ========== ========== ==========
Sales between business segments are immaterial and are netted against the sales of the respective segment. F-26 45 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (13) 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, 1998 and 1997, the Company had outstanding ADC loans of $1,435,210 and $2,711,737, respectively, due from corporate real estate ventures. Under participation agreements the Company had sold $511,342 and $1,235,550 of these loans without recourse as of July 31, 1998 and 1997, respectively (see note 5). (14) 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 payable approximate fair value because of the short maturity of these instruments. OTHER INVESTMENT SECURITIES Fair value is based on dealer quotes. 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 F-27 46 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, 1998 JULY 31, 1997 ------------------------------ ---------------------------- CARRYING FAIR CARRYING FAIR FINANCIAL ASSETS AMOUNT VALUE AMOUNT VALUE ---------- ------- ------- ------- Cash and cash equivalents $ 752,493 752,493 797,514 797,514 Receivables: Trade accounts 77,074 77,074 322,802 322,802 Accrued interest 565,458 565,458 353,440 353,440 Other 161,514 161,514 7,470 7,470 Other investments: Real estate 1,525,410 1,448,757 2,959,237 2,933,208 Securities 737,202 1,118,619 817,723 1,378,169 FINANCIAL LIABILITIES Accounts payable, trade 99,521 99,521 635,013 635,013 Accrued expenses: Interest 53,383 53,383 53,808 53,808 Taxes other than income 11,505 11,505 14,518 14,518 Other 656,205 656,205 776,858 776,858 Mortgage notes 1,841,684 1,731,455 1,853,583 1,693,951 Other notes, secured 590,470 588,818 735,723 710,277 Debentures 1,942,745 1,942,745 1,976,245 1,976,245 Other notes, unsecured 502,355 499,287 469,457 466,347 Deferred compensation payable 149,158 149,158 149,158 149,158
F-28 47 SCHEDULE II CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves Years ended July 31, 1998, 1997, and 1996
ADDITIONS ----------------------------------------- BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - ----------------------------------------- ---------- --------- -------- ---------- --------- Year ended July 31, 1998: Allowance for doubtful receivables $27,191 3,000 -- 29,191 (1) 1,000 ======= ======= == ======= ======= 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 ======= ======= == ======= =======
(1) Accounts receivable written off. See accompanying independent auditors' report. S-1 48 SCHEDULE III CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation July 31, 1998
COST CAPITALIZED SUBSEQUENT TO INITIAL COST TO COMPANY ACQUISITION ------------------------- ----------- BUILDINGS AND IMPROVE- IMPROVE- DESCRIPTION ENCUMBRANCES LAND MENTS 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 Honolulu, Hawaii Mortgages payable on four apartments to various individuals and company; note payable on one apartment to financial institution 24,578 166,705 72,510 Commercial/industrial: Mortgages payable to financial Honolulu, Hawaii institution and company; notes payable to financial institution 743,000 607,000 -- Other miscellaneous developed real estate located in Hawaii None 23 -- -- --------- --------- --------- Total developed real estate 765,278 803,843 85,891 Undeveloped land held for sale - Makaha, Hawaii None 73,290 -- 61,184 --------- --------- --------- Grand total $838,568 803,843 147,075 ========= ========= ========= GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF PERIOD ----------------------------------------- BUILDINGS AND IMPROVE- DESCRIPTION ENCUMBRANCES LAND MENTS TOTAL - ------------------------------------ ------------------------------------ ------- ---------- ------ Developed real estate - held for sale Condominium apartments: Makaha, Hawaii Note payable on five apartments to financial institution (2,323) 43,519 41,196 Honolulu, Hawaii Mortgages payable on four apartments to various individuals and company; note payable on one apartment to financial institution 24,578 239,215 263,793 Commercial/industrial: Mortgages payable to financial Honolulu, Hawaii institution and company; notes payable to financial institution 743,000 607,000 1,350,000 Other miscellaneous developed real estate located in Hawaii None 23 -- 23 --------- --------- --------- Total developed real estate 765,278 889,734 1,655,012 Undeveloped land held for sale - Makaha, Hawaii None 73,290 61,184 134,474 --------- --------- --------- Grand total 838,568 950,918 1,789,486 ========= ========= ========= ACCUMU- LATED DEPRE- DATE OF DATE DESCRIPTION ENCUMBRANCES CIATION CONSTRUCTION ACQUIRED - ------------------------------------ ------------------------------------ ------ ------------ -------- Developed real estate - held for sale Condominium apartments: Makaha, Hawaii Note payable on five Completed apartments to financial February Various 1973 institution 10,081 1971 to 1985 Honolulu, Hawaii Mortgages payable on four apartments to various individuals and company; note Completed payable on one apartment 1964 and Various 1964 to financial institution 196,757 1968 to 1985 Commercial/industrial: Mortgages payable to financial Honolulu, Hawaii institution and company; notes payable to financial institution 46,692 Built 1986 July 1995 Other miscellaneous developed real estate located in Hawaii None -- April 1956 July 1953 --------- Total developed real estate 253,533 Undeveloped land held for sale - Makaha, Hawaii None -- May 1973 --------- Grand total 253,533 ========= LIFE ON WHICH DEPRECIATION IN LATEST INCOME DESCRIPTION ENCUMBRANCES STATEMENT IS COMPUTED - ------------------------------------ ------------------------------------ -------------------------- Developed real estate - held for sale Condominium apartments: Makaha, Hawaii Note payable on five apartments to financial 36 to 40 years for apartments institution 5 years for furnishings Honolulu, Hawaii Mortgages payable on four apartments to various individuals and company; note payable on one apartment 40 years for apartments to financial institution 5 years for furnishings Commercial/industrial: Mortgages payable to financial Honolulu, Hawaii institution and company; notes payable to financial institution 39 years Other miscellaneous developed real estate located in Hawaii None Total developed real estate Undeveloped land held for sale - Makaha, Hawaii None Primarily 20 years Grand total
S-2 49 SCHEDULE III CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation, Continued (1) Changes during the two years ended July 31, 1998:
1998 1997 ---------- ---------- Cost of real estate: Balance at beginning of year $1,786,785 1,786,495 Additions during year - improvements to real estate 2,701 290 ---------- ---------- Balance at end of year $1,789,486 1,786,785 ========== ========== Accumulated depreciation of real estate: Balance at beginning of year $ 231,788 208,766 Additions during the year - charged to costs and expenses 21,745 23,022 ---------- ---------- Balance at end of year $ 253,533 231,788 ========== ==========
(2) Aggregate original cost for federal income tax purposes amounted to $1,865,475 for 1998. (3) Presentation on consolidated balance sheet as of July 31, 1998:
UNDEVELOPED DEVELOPED LAND HELD REAL ESTATE FOR SALE ---------- ---------- Cost $1,655,012 134,474 Less accumulated depreciation 253,533 -- ---------- ---------- $1,401,479 134,474 ========== ==========
See accompanying independent auditors' report. S-3 50 SCHEDULE IV CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Mortgage Loans on Real Estate July 31, 1998
MATURITY PERIODIC DESCRIPTION INTEREST RATE DATE PAYMENT TERMS PRIOR LIENS - --------------------------------------------- ------------ -------- ------------------------- ----------- First mortgage - payable to a corporation on condominium apartments located in February 28, Monthly installments Honolulu, Hawaii 9-1/2% 1999 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 -- First mortgages - payable to a financial Monthly installments institution on land and warehouse of $6,125, including located in Honolulu, Hawaii 9-1/2% July 1, 2001 interest -- ----------- $ -- =========== PRINCIPAL AMOUNT OF LOANS SUBJECT FACE CARRYING TO DELINQUENT AMOUNT OF AMOUNT OF PRINCIPAL DESCRIPTION MORTGAGES MORTGAGE(1) OR INTEREST - --------------------------------------------- --------- ----------- -------------- First mortgage - payable to a corporation on condominium apartments located in Honolulu, Hawaii 1,000,000 1,000,000 -- First mortgages - payable to individuals on condominium apartment located in Honolulu, Hawaii 200,000 200,000 -- First mortgages - payable to a financial institution on land and warehouse located in Honolulu, Hawaii 700,000 647,684 -- ----------- ----------- ----------- 1,900,000 1,841,684 -- =========== =========== ===========
(1) Changes during the years ended July 31, 1998 and 1997:
1998 1997 ----------- ----------- Balance at beginning of year $ 1,853,583 1,864,493 Deductions during the year (11,899) (10,910) ----------- ----------- Balance at end of year $ 1,841,684 1,853,583 =========== ===========
See accompanying independent auditors' report. S-4 51 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 23, 1998 /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 23, 1998 /s/ Dean T. W. Ho ----------------------------------------------- Dean T. W. Ho, Vice Chairman, Secretary and Director Date: October 23, 1998 /s/ Donald M. Wong ----------------------------------------------- Donald M. Wong, Senior Vice President, Senior Vice President, Treasurer and Director Date: October 23, 1998 /s/ Harriet H. Matsuo ----------------------------------------------- Harriet H. Matsuo, Assistant Secretary and Assistant Treasurer Date: October 23, 1998 /s/ Greta U. Nakao ----------------------------------------------- Greta U. Nakao, Assistant Secretary and Assistant Treasurer Date: October 23, 1998 /s/ Pedro P. Ada ----------------------------------------------- Pedro P. Ada, Director Date: October 23, 1998 /s/ C. B. Sung ----------------------------------------------- C. B. Sung, Director Date: October 23, 1998 /s/ Stanley W. Hong ----------------------------------------------- Stanley W. Hong, Director
S-5 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, ------------------------------------------------------------------- 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- Loss from continuing operations $ (615,884) (420,934) (17,033) (247,298) (514,690) Gain (loss) from discontinued operations 349,017 (426,050) (356,325) (560,628) (908,763) ----------- ----------- ----------- ----------- ----------- Net loss applicable to common shareholders $ (266,867) (846,984) (373,358) (807,926) (1,423,453) =========== =========== =========== =========== =========== 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 (.60) (.41) (.02) (.24) (.50) Discontinued operations .34 (.41) (.34) (.54) (.88) ----------- ----------- ----------- ----------- ----------- Net loss (.26) (.82) (.36) (.78) (1.38) =========== =========== =========== =========== ===========
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 Hawaii Makaha Valley, Incorporated (85.8% - owned) Hawaii Resources, Incorporated
EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT JULY 31, 1998 AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS FOR THE YEAR ENDED JULY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. YEAR JUL-31-1998 AUG-01-1997 JUL-31-1998 752,493 0 804,046 1,000 0 0 455,892 413,242 5,406,774 0 4,877,254 0 0 1,723,765 (3,151,498) 5,406,774 0 1,916,355 0 2,532,239 0 0 810,640 (615,884) 0 (615,884) 349,017 0 0 (266,867) (.26) (.26)
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