-----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, R+BZmMezCm8PlOnKEFZ6FDdKla8cXWVmxeKR3jtHUSHAGc55j1OqHoLKl67k0NQP pL+5m+TJSaEpjbO1nv4r1w== 0000950150-96-001205.txt : 19961030 0000950150-96-001205.hdr.sgml : 19961030 ACCESSION NUMBER: 0000950150-96-001205 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19961029 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: 1934 Act SEC FILE NUMBER: 000-04179 FILM NUMBER: 96649587 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 FOR THE FISCAL YEAR ENDED JULY 31, 1996 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 UNITED STATES Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended July 31, 1996 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. Yes X No --- --- 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, 1996. 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, 1996, the Registrant and its subsidiaries had 159 employees. The Registrant has classified its business activities into significant segments for the years ended July 31, 1996, 1995, and 1994. For the fiscal year ended July 31, 1996, 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 Las Vegas, Nevada. 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 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. 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. The bakery operations incurred substantial amortization costs related to not-to-compete agreements, goodwill and certain reorganizational costs during the year ended July 31, 1994. OTHER ACTIVITIES Other activities include a real estate management division in Waikiki, Hawaii that in fiscal year 1996 had revenues of $689,978 and net income of $346,956, compared with revenues of $611,670 and net income of $282,715 in fiscal year 1995. 2 4 ITEM 2. PROPERTIES As of July 31, 1996, 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, 1996. 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, 1996 and 1995:
LOW BID HIGH BID -------------- -------------- Quarter ended: October 31, 1994 1 1-1/4 January 31, 1995 3/4 1-3/16 April 30, 1995 3/4 1-3/16 July 31, 1995 3/8 1/2 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
The aforementioned quotations were received from Abel-Behnke Corporation which makes a market in the Company's stock. On July 31, 1996, 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 1996, 1995, and 1994. 5 7 ITEM 6. SELECTED FINANCIAL DATA (Not Covered By Independent Auditors' Report) SUMMARY OF CONSOLIDATED OPERATIONS For the five years ended July 31, 1996
1996 1995 1994 1993 1992 ----------- ----------- ----------- ------------ ----------- Revenues $ 8,216,261 $ 7,570,954 $ 7,536,249 $ 7,392,644 $ 8,833,016 Loss from continuing operations before extraordinary credit (373,358) (807,926) (1,423,453) (997,381) (966,427) Loss per common share from continuing operations before extraordinary credit (A) (.36) (.78) (1.38) (.97) (.93) =========== =========== =========== ============ ===========
(A) Loss per common share from continuing operations before extraordinary credit for each year was computed by dividing loss from continuing operations before extraordinary credit 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, 1996. FINANCIAL CONDITION
1996 1995 1994 1993 1992 ------------ ------------ ------------ ----------- ----------- Total assets $ 6,792,582 10,617,753 11,498,301 11,440,892 13,169,193 ============ ============ ============ =========== =========== Indebtedness: Mortgage notes $ 1,864,493 1,874,247 1,200,000 1,200,000 1,200,000 Other notes, secured 1,160,111 2,670,016 3,416,384 3,229,042 2,982,154 Debentures 2,062,245 2,108,245 2,221,895 2,378,595 2,550,845 Other notes, unsecured 427,567 499,605 507,253 463,450 560,592 ============ ============ ============ =========== ============ $ 5,514,416 7,152,113 7,345,532 7,271,087 7,293,591 ============ ============ ============ =========== ============
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 $373,358 for the fiscal year ended July 31, 1996, (fiscal year 1996), compared with net losses of $807,926 and $1,423,453 for fiscal years 1995 and 1994, respectively. The net loss for fiscal year 1996 included depreciation and amortization totaling $211,836, as compared to $323,700 and $642,851 in fiscal years 1995 and 1994, respectively. The fiscal year 1996, 1995 and 1994 charges for depreciation and amortization were comprised of the following:
1996 1995 1994 ----------------- ----------------- ----------------- Depreciation $ 206,659 318,523 361,966 Amortization of covenants not-to-compete -- -- 275,708 Other 5,177 5,177 5,177 ----------------- ----------------- ----------------- $ 211,836 323,700 642,851 ================= ================= =================
The Company's subsidiary, Latipac Fine Foods, Incorporated (which does business as Bakery Europa) accounted for $151,722, $264,878 and $297,245 of depreciation for fiscal years ended July 31, 1996, 1995 and 1994, respectively. All amortization of covenants not-to-compete related to Bakery Europa. 7 9 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 in 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 abruptly flattened in 1990 and has stagnated ever since. The major reasons for this sudden change in condition were the poor economic climates of Japan and California, 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 35.6 million air passenger movements to and within Hawaii in 1994 were fewer than the 35.8 million movements recorded in 1990, even though this represented a significant improvement from the 33.8 million movements reported for 1993. Unpublished state department of transportation data indicate that statewide air passenger movements in 1995 increased to 36.7 million. While that is an encouraging signal for the Hawaii economy, the near-term outlook for the Japanese and California economies still cannot be described as robust. 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 1997, the Company plans to continue its short-term construction lending activities in Nevada. The Company will also attempt to position Bakery Europa to ride out the weak local economy and to preserve its value as a major wholesale supplier of bakery products on Oahu. 8 10 BAKERY OPERATIONS Fiscal year 1996's net loss was primarily due to Bakery Europa's poor performance. Bakery Europa's operating loss for fiscal years 1996, 1995 and 1994 is summarized as follows:
1996 1995 1994 ----------- -------- -------- Operating loss before certain interest and depreciation and amortization $ 132,024 198,982 230,475 Interest on loan to acquire this subsidiary's assets 42,000 57,000 62,000 Depreciation 151,722 264,878 297,245 Amortization of goodwill and covenants not-to-compete -- -- 275,708 Other 5,177 5,177 5,177 ---------- -------- -------- Operating loss, net $ 330,923 526,037 870,605 ========== ======== ========
Bakery Europa's net product sales for fiscal year 1996 were $5,521,390, compared with net sales of $4,965,794 and $5,410,698 for fiscal years 1995 and 1994, respectively. During fiscal year 1996, 22% of sales were to airlines and airline catering companies; 22% of sales were to hotels and 11% of sales were to the military. The gross profit margin for fiscal year 1996 was 37.4%, compared with 36.4% and 36.0% for fiscal years 1995 and 1994, respectively. The acquisition loan balance at the end of fiscal year 1996 was $345,200, and in the ordinary course of business would be paid down to $211,500 at the end of fiscal year 1997. The subsidiary's plan for fiscal year 1997 is to increase sales, continue to improve gross profit margins, and absorb material cost increases through appropriate price increases. LAS VEGAS FINANCING ACTIVITIES Since fiscal year 1991, the Company has engaged in making ADC loans to home builders in Las Vegas, Nevada. 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 builders in Las Vegas to seek alternate sources of financing. 9 11 The Company has made fourteen such loans since 1991, of which ten have been repaid. 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:
INCOME FROM ADVANCES AT END FISCAL YEAR INVESTMENTS OF FISCAL YEAR --------------------- ------------------ --------------- 1996 $1,143,229 1,902,009 1995 1,360,568 3,574,360 1994 861,594 5,169,856
Deferred income on these loans totalled $28,886 at June 30, 1996, compared to $495,000 and $373,476, at June 30, 1995 and 1994, 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 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. Between June 1995 and June 1996, Las Vegas added 46,200 jobs for a nation-leading growth rate of 8.5%. LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated balance of cash and cash equivalents at July 31, 1996 was $757,399 compared with $1,287,636 at the end of fiscal year 1995. Cash provided by operating activities amounted to $1,482,937 in 1996 and resulted primarily from the collection on real estate investments, net of purchase of investments in real estate, of $1,774,651 related to the Company's Las Vegas ADC arrangements. 10 12 Cash inflows in 1996 provided by investing activities amounted to $1,187,143. Proceeds from the sale of marketable securities amounted to $80,803 for fiscal year 1996. Cash used in financing activities of $3,200,317 included payments made under loan participation agreements of $1,562,620 (see note 6 to the consolidated financial statements) and payments on indebtedness of $2,202,260. During fiscal year 1996, 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 and Pageantry Communities, Inc. will continue into fiscal year 1997. Cash requirements for fiscal year 1997 will be satisfied from institutional borrowings, net collections of notes receivable, cash in banks at year end and/or net collections of ADC loans. 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, 1996 and 1995. 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, 1996:
NUMBER OF YEARS OFFICE HELD WITH SERVED AS OTHER PUBLIC NAME AGE REGISTRANT DIRECTOR BUSINESS EXPERIENCE DIRECTORSHIPS - ------------------ --- ---------------- -------- ------------------- ------------- Stuart T. K. Ho 60 Chairman of the 29 Positions held with Bancorp Hawaii, Board and Registrant Inc.; Gannett Co., President Inc.; College Retirement Equities Fund Dean T. W. Ho(1) 58 Vice Chairman and 15 Positions held with -- Secretary Registrant Donald M. Wong 78 Senior Vice 22 Positions held with -- President, Chief Registrant Financial Officer and Treasurer Pedro P. Ada 66 None 25 President of Ada's -- Incorporated; real estate, insurance agency and investments Stanley W. Hong(2) 60 None 11 President and Chief Central Pacific Executive Officer of Bank; First Chamber of Commerce Insurance Co. of of Hawaii Hawaii C. B. Sung 71 None 11 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, 1996:
NAME AGE OFFICE POSITION HELD - --------------------- ----- ------------------ -------------------------------------------------- Stuart T. K. Ho 60 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) 58 Vice Chairman and Secretary since 1991, Vice Chairman since 1988, Secretary President from 1982 to 1987, Executive Vice President from 1975 to 1982 and Vice President from 1965 to 1975 Donald M. Wong 78 Senior Vice President and Senior Vice President since 1990, Financial Vice Treasurer President from 1965 to 1990 and Treasurer since 1965 Harriet H. Matsuo 71 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 74 Assistant Secretary and Assistant Treasurer since 1975 and Assistant Assistant Treasurer Secretary since 1981 Walter Lum 55 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, 1996, 1995 and 1994 for (a) the Chairman of the Board and President, and (b) all executive officers of the Registrant whose annual compensation exceeds $100,000. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ----------------------------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ------------------------------- ---------------------- ------------------- (A) (B) (C) (D) (E) (F) (G) (H) (I) OTHER ALL ANNUAL RESTRICTED OTHER COMPEN- STOCK LTIP COMPEN- NAME AND SALARY BONUS SATION AWARD(S) OPTION/ PAYOUTS SATION PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($) - ------------------- ---- ------- ------- ------- ---------- ------- ------- ------- Stuart T.K. Ho, Chairman of the Board and President 1996 132,000 -- -- -- -- -- -- 1995 147,839 -- -- -- -- -- -- 1994 152,004 -- -- -- -- -- -- James Groebe, Latipac Fine Foods President SCEO 1996 -- -- -- -- -- -- -- 1995 13,125 -- -- -- -- -- -- 1994 108,520 -- -- -- -- -- --
14 16 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following sets forth, as of July 31, 1996, 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. 158,316 15.3% 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 225,813 (1) 21.9 733 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, 16,813 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. (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. (3) Includes: (a) sole voting and investment power, 38,775 shares. 15 17 (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, 1996, 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 VOTING SOLE VOTING AND NAME OF BENEFICIAL AMOUNT AND NATURE OF AND INVES- INVESTMENT TITLE OF CLASS OWNER BENEFICIAL OWNERSHIP TOTAL MENT POWER POWER - ---------------------- ---------------------- ---------------------- --------- ----------- ------------- Common stock Stuart T. K. Ho 225,813 shares owned 21.9% 1.6% 20.2%(1) of record Common stock Dean T. W. Ho 225,850 shares owned 21.9 2.7 19.2 (1) 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 All directors and 279,007 shares owned 27.0 5.3 21.7 (1) officers of 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 and $250,000 from a shareholder of the Company through unsecured short-term notes. As of July 31, 1996, the balances of these short-term notes were $5,000 and $0 due officers and a shareholder, respectively. 16 18 The Company had entered into loan participation agreements in fiscal year 1994 which provided that the Company sell, without recourse, to participants an undivided participating interest in the loan to LSR, Inc. (see footnote 6 to the consolidated financial statements). The loan participation agreements were paid in full during fiscal year 1996. 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, 1996. (C) Exhibits: EXHIBIT FORM 10-K NUMBER DESCRIPTION PAGE ------- ----------- --------- 3 Articles of Incorporation and By-Laws * 11 Computation of Loss Per Common Share 19 21 Subsidiaries of Capital Investment of Hawaii, Inc. 20 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, 1996 and 1995 Consolidated Statements of Operations and Retained Earnings - Years ended July 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended July 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements Schedules: II Valuation and Qualifying Accounts and Reserves - Years ended July 31, 1996, 1995 and 1994 III Real Estate and Accumulated Depreciation - July 31, 1996 IV Mortgage Loans on Real Estate - July 31, 1996 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. 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 consolidated 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 consolidated 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, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended July 31, 1996, 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. As discussed in notes 1 and 3 to the consolidated financial statements, effective August 1, 1994, the Company changed its method of accounting for investments to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. Honolulu, Hawaii October 23, 1996 22 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1996 and 1995 ASSETS 1996 1995 ------------ ----------- Cash and cash equivalents $ 757,399 1,287,636 Marketable equity securities available-for-sale, at fair value (notes 1 and 3) 42,647 111,046 Receivables: Trade accounts and notes, less allowance for doubtful receivables of $25,001 and $31,860 in 1996 and 1995, respectively 470,042 1,065,991 Long-term receivables (including installments due within one year of $504,428 and $360,472 in 1996 and 1995, respectively) (notes 4 and 7) 965,908 1,656,314 ----------- ---------- Total receivables 1,435,950 2,722,305 ----------- ---------- Inventories 65,322 53,113 Developed real estate, less accumulated depreciation of $208,766 and $186,345 in 1996 and 1995, respectively (notes 5 and 7) 1,443,255 1,465,832 Undeveloped land held for sale (note 6) 134,474 134,474 Other investments: Real estate (note 6) 1,917,209 3,691,860 Securities, at cost (notes 3 and 7) 700,454 808,912 ----------- ---------- 2,617,663 4,500,772 ----------- ---------- Property and equipment, at cost (note 7): Leasehold improvements 218,265 214,463 Furniture and equipment 1,959,795 1,866,920 ----------- ---------- 2,178,060 2,081,383 Less accumulated depreciation and amortization (1,953,414) (1,780,476) ----------- ---------- Net property and equipment 224,646 300,907 Deferred charges and other assets (note 7) 71,226 41,668 ----------- ---------- $ 6,792,582 10,617,753 =========== ==========
23 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1996 and 1995 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1996 1995 ------------ ----------- Indebtedness (note 7): Mortgage notes $ 1,864,493 1,874,247 Other notes, secured 1,160,111 2,670,016 Debentures 2,062,245 2,108,245 Other notes, unsecured 427,567 499,605 ----------- ---------- Total indebtedness 5,514,416 7,152,113 ----------- ---------- Accounts payable, trade 651,407 429,433 Accrued expenses: Interest 55,348 57,854 Taxes other than income 16,954 17,108 Other 614,626 532,929 ----------- ---------- Total accrued expenses 686,928 607,891 ----------- ---------- Other payables: Loans under participation agreements (note 6): Related parties -- 1,090,200 Other -- 472,420 Other (notes 6 and 9) 230,376 740,839 ----------- ---------- Total other payables 230,376 2,303,459 ----------- ---------- Commitments and contingent liabilities (notes 6, 9, 10 and 11) Stockholders' equity (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 1,550,519 1,923,877 ----------- ---------- 3,743,605 4,116,963 Cost of 691,082 common shares in treasury (4,057,487) (4,057,487) Unrealized gain on marketable equity securities (note 3) 23,337 65,381 ----------- ---------- Net stockholders' equity (deficit) (290,545) 124,857 ----------- ---------- $ 6,792,582 10,617,753 =========== ==========
See accompanying notes to consolidated financial statements. 24 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings Years ended July 31, 1996, 1995 and 1994
1996 1995 1994 ----------- ---------- ----------- Revenues: Net product sales $5,521,390 4,965,794 5,410,698 Income from investments 1,793,636 1,867,281 1,310,432 Other 901,235 737,879 815,119 ---------- --------- ---------- 8,216,261 7,570,954 7,536,249 ---------- --------- ---------- Costs and expenses: Cost of product sales 3,495,485 3,185,615 3,485,855 Other direct operating expenses (note 10) 1,942,848 1,998,299 2,141,105 General and administrative expenses (notes 9 and 10) 2,257,303 2,165,530 2,635,303 Interest 893,983 1,029,436 677,098 ---------- --------- ---------- 8,589,619 8,378,880 8,939,361 ---------- --------- ---------- Loss before income taxes (373,358) (807,926) (1,403,112) Provision for income taxes (note 8) -- -- 20,341 ---------- --------- ---------- Net loss (373,358) (807,926) (1,423,453) Retained earnings at beginning of year 1,923,877 2,731,803 4,155,256 ---------- --------- ---------- Retained earnings at end of year $1,550,519 1,923,877 2,731,803 ========== ========= ========== Net loss per common share (note 13) $ (.36) (.78) (1.38) ========== ========= ========== 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. 25 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended July 31, 1996, 1995 and 1994
1996 1995 1994 ------------ ----------- ----------- Cash flows from operating activities: Cash received from customers $ 6,398,025 5,751,175 6,284,269 Cash paid to suppliers/employees (7,713,659) (6,967,784) (7,425,711) Capital expenditures - real estate (2,201) (29,251) (10,310) Collections on long-term receivables arising from real estate sales -- 3,681 16,744 Purchase of investments in real estate (note 6) (3,618,324) (6,372,767) (9,366,513) Collections from investments in real estate (note 6) 5,392,975 8,012,363 7,472,238 Income tax refunds received -- -- 378,327 Dividends received 13,483 10,536 4,934 Interest received 1,909,127 1,220,452 1,097,533 Interest paid (896,489) (1,042,663) (669,090) ----------- ---------- ---------- Net cash provided by (used in) operating activities 1,482,937 585,742 (2,217,579) ----------- ---------- ---------- Cash flows from investing activities: Purchases of marketable securities -- -- (16,926) Purchases of other investments -- (63,618) (137,080) Proceeds from sale of marketable securities 80,803 401,704 44,711 Proceeds from sale of other investments 521,085 100,647 12,367 Loans made (500,000) -- (2,168,053) Collections on long-term receivables 1,190,406 3,690 3,200,306 Capital expenditures (105,151) (75,978) (77,723) ----------- ---------- ---------- Net cash provided by investing activities $ 1,187,143 $ 366,445 $ 857,602 ----------- ---------- ----------
(Continued) 26 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued
1996 1995 1994 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from indebtedness $ 564,563 432,837 4,169,674 Payments on indebtedness (2,202,260) (1,326,256) (4,095,229) Payments on covenants not-to-compete -- (30,000) (120,881) Proceeds received under loan participation agreements (note 6) -- 700,000 1,450,000 Payments made under loan participation agreements (note 6) (1,562,620) (587,380) -- ---------- ---------- ---------- Net cash provided by (used in) financing activities (3,200,317) (810,799) 1,403,564 ---------- ---------- ---------- Net increase (decrease) in cash (530,237) 141,388 43,587 Cash and cash equivalents at beginning of year 1,287,636 1,146,248 1,102,661 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 757,399 1,287,636 1,146,248 ========== ========== ========== Reconciliation of net loss to cash provided by (used in) operating activities: Net loss $ (373,358) (807,926) (1,423,453) ---------- ---------- ---------- Adjustments to reconcile net loss to cash provided by (used in) operating activities: Capital expenditures - real estate (2,201) (29,251) (10,310) Depreciation and amortization 211,836 323,700 642,851 Gain on sale of marketable securities (54,448) (236,323) (15,050) Loss (gain) on sale of other investments (412,627) (52,724) 5,897 Loss (gain) on sale/disposal of property and equipment (469) -- 1,720 Change in assets and liabilities: Decrease (increase) in inventories (12,209) 3,523 3,260 Decrease (increase) in trade accounts and notes receivable, net 595,949 (303,226) (17,396) Decrease in long-term receivables arising from real estate sales -- 3,681 16,744 Decrease (increase) in investment in real estate 1,774,651 1,639,596 (1,894,275) Decrease (increase) in deferred charges and other assets (34,735) 71,896 (7,359)
(Continued) 27 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued
1996 1995 1994 ---------- ---------- ---------- Change in assets and liabilities, continued: Decrease in cash surrender value of life insurance $ -- -- 3,826 Increase (decrease) in accounts payable, trade 221,974 57,814 (156,449) Changes in income taxes receivable and payable -- -- 398,668 Increase (decrease) in accrued expenses and other payables (431,426) (85,018) 233,747 ---------- --------- ---------- Total adjustments 1,856,295 1,393,668 (794,126) ---------- --------- ---------- Net cash provided by (used in) operating activities $1,482,937 585,742 (2,217,579) ========== ========= ==========
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 of marketable securities that are classified as available-for-sale are reported as a separate component of stockholder's equity until realized. Unrealized holding gains amounted to $23,337 and $65,381 in 1996 and 1995, respectively. (3) In fiscal year 1995, $161,736 of other investment securities transferred to marketable equity securities. See accompanying notes to consolidated financial statements. 28 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements July 31, 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 is recognized in full from sales of real estate only when a significant down payment has been received, risks of ownership have passed to the buyer, collectibility of the sales price is reasonably assured and other criteria set forth in Statement of Financial Accounting Standards (SFAS) No. 66 are met. 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%
1 29 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, 1996 and 1995, 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 adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115) at July 31, 1995. Under SFAS No. 115, 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' equity (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 2 30 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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. INTANGIBLES The costs of the covenants not-to-compete were being amortized on a straight-line basis over the term of the related covenants which range from three to four years (see note 2). ACCOUNTING CHANGES - 1997 IMPLEMENTATION In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121). SFAS No. 121, effective for fiscal years beginning after December 15, 1995, establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used for long-lived assets and certain identifiable intangibles to be disposed of. The application of SFAS No. 121, effective from August 1, 1996, is not expected to have a material impact to the consolidated financial statements of the Company. (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 addition to the purchase consideration paid for the aforementioned acquisitions, the Company entered into not-to-compete agreements. As of July 31, 1995, the Company paid all amounts due under the not-to-compete agreements. (3) SECURITY INVESTMENTS For fiscal year 1996, the Company's investments in marketable equity securities have been classified as available-for-sale and are recorded at fair value. Net unrealized holding gains have been reported as a separate component of stockholders' equity. At July 31, 1996 and 1995, the aggregate cost and aggregate fair value of marketable equity securities were as follows:
1996 1995 ------- ------- Aggregate cost $19,310 45,665 ======= ======= Aggregate fair value $42,647 111,046 ======= =======
3 31 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Gross unrealized gains (losses) on the portfolio of marketable equity securities at July 31, 1996, 1995 and 1994 and net realized gains (losses) for the years then ended pertaining to all security investments were as follows:
NET REALIZED GAINS UNREALIZED (LOSSES) -------------------------- ---------- GAINS LOSSES NET GAINS ------- ------ --------- 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 =========== 1994: Marketable equity securities $29,240 11,051 18,189 15,050 ======= ====== ========= Other security investments (5,897) ----------- $ 9,153 ===========
(4) LONG-TERM RECEIVABLES The maturities of long-term receivables for fiscal years ending on July 31 are shown in the following summary: 1997 $504,428 1998 4,859 1999 456,621 -------- $965,908 ========
4 32 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Included in long-term receivables at July 31, 1996 is $500,000 due from an individual with an interest rate of 20% per annum and maturing on June 1, 1997. The receivable is secured by marketable equity securities with a fair value of $875,000 at July 31, 1996. At July 31, 1996, substantially all other long-term receivables were secured by real estate. The long-term receivables have a weighted average interest rate of 15%. (5) DEVELOPED REAL ESTATE The components of developed real estate at July 31, 1996 and 1995 were as follows:
1996 1995 ---------- --------- Held for sale, at cost: Condominium apartment units, a portion of which includes undivided interest in land $ 301,998 302,154 Commercial property 1,350,000 1,350,000 Other 23 23 ---------- --------- 1,652,021 1,652,177 Less accumulated depreciation 208,766 186,345 ---------- --------- $1,443,255 1,465,832 ========== =========
(6) REAL ESTATE INVESTMENTS UNDEVELOPED LAND Undeveloped land held for sale as of July 31, 1996 was comprised 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 Las Vegas, Nevada. 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, 1996 and 1995, 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 paragraphs summarize the ADC loan arrangements and present summary financial information for the corporate real estate ventures. 5 33 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, 1996, the Company's aggregate investment in the real estate project amounted to $607,000, including $7,000 of capitalized interest. The ADC loan is secured by a marketable equity securities with a fair value of $462,500 at July 31, 1996 and parcel of land in Clark County, Nevada. Condensed financial information of Copper Bluffs, LLC is as follows: BALANCE SHEET JULY 31, 1996 (UNAUDITED) ASSETS Cash $ 116,711 Notes receivable 56,000 Construction work in progress 1,609,497 Other current assets 25,000 Finished lot equity 429,000 ------------ $2,236,208 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Construction notes payable $1,241,930 Due to Capital Investment of Hawaii, Inc. 600,000 ------------ Total liabilities 1,841,930 Land equity 429,000 Retained earnings (34,722) ------------ Total stockholders' equity 394,278 ------------ $2,236,208 ============
6 34 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued INCOME STATEMENT PERIOD ENDED JULY 31, 1996 (UNAUDITED) General and administrative expenses $ 34,722 -------- Net loss $(34,722) ========
SUNSET BAY, LLC On July 29, 1996, the Company extended a $608,400 ADC loan commitment to Copper Bluffs, LLC to finance a residential real estate project in Clark County, Nevada. At July 31, 1996, the Company's aggregate investment in the real estate project amounted to $608,400. There was no capitalized interest as of July 31, 1996. The ADC loan is secured by marketable equity securities with a fair value of $587,500 at July 31, 1996 and a parcel of land in Clark County, Nevada. Condensed financial information of Sunset Bay, LLC is as follows: BALANCE SHEET JULY 31, 1996 (UNAUDITED) ASSET Cash (held in escrow) $608,400 ============ LIABILITITY Due to Capital Investment of Hawaii, Inc. $608,400 ============
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, 1996, the Company's aggregate investment in the real estate amounted to $701,809 including $8,200 of capitalized interest, with an outstanding unfunded commitment totaling $206,391. 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. In September 1996, the Company extended the remaining commitment of $203,391. 7 35 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued In September 1996 and October 1996, the Company entered into 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 is $750,000 of which $350,000 is 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. 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. Condensed financial information of Tradewinds Subdivision is as follows: BALANCE SHEET JULY 31, 1996 (UNAUDITED) ASSETS Cash $ 7,003 Construction work in progress 1,423,614 ------------- $1,430,617 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Interest payable $ 11,945 Notes payable 716,235 Due to Capital Investment of Hawaii, Inc. 693,609 ------------- Total liabilities 1,421,789 Pageantry Communities, Inc. funded costs 8,828 ------------- $1,430,617 =============
INCOME STATEMENT PERIOD ENDED JULY 31, 1996 (UNAUDITED) General and administrative expenses $ 7,871 ------------- Net loss $(7,871) =============
8 36 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued TBW, INC. On April 29, 1993, the Company extended a $5,205,025 ADC loan commitment to TBW, Inc. to finance a residential real estate project in Clark County, Nevada. During the year ended July 31, 1995, the real estate project was completed with all loan advances being fully repaid. MVL, INC. On November 12, 1993, the Company extended a $6,101,056 ADC loan commitment to MVL, Inc. to finance a residential real estate project in Clark County, Nevada. At July 31, 1995, the Company's aggregate investment in the real estate project amounted to $1,516,732, including $65,000 of capitalized interest, with an outstanding unfunded commitment totaling $557,200. Restrictive loan covenants limited the maximum amount of the loan proceeds that was available during various phases of the project. During the year ended July 31, 1996, all loan advances were fully repaid. Condensed financial information of MVL, Inc. is as follows: BALANCE SHEET JULY 31, 1995 ASSETS Cash $ 196,245 Prepaid fees and deposits 214,487 Land 2,298,994 Construction work in progress 1,226,994 ------------ $ 3,936,720 ============ LIABILITIES AND STOCKHOLDER'S EQUITY Trade accounts payable $593,254 Customer deposits 168,362 Related party note payable 588,205 Note and interest payable 763,851 Due to Capital Investment of Hawaii, Inc. 1,451,732 ------------ Total liabilities 3,565,404 ------------ Capital stock 5,000 Retained earnings 366,316 ------------ Total stockholder's equity 371,316 ------------ $3,936,720 ============
9 37 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued INCOME STATEMENT YEAR ENDED JULY 31, 1995 Sales revenue $ 11,161,649 Cost of sales (10,815,642) ------------ Gross profit 346,007 Other expenses (11,252) ------------ Net income $ 334,755 ============
QCL, INC. On March 9, 1994, the Company extended a $2,900,000 ADC loan commitment to QCL, Inc. to finance a residential real estate project in Clark County, Nevada. At July 31, 1995, the Company's aggregate investment in the real estate project amounted to $662,300, including $47,000 in capitalized interest. Restrictive loan covenants limited the maximum amount of the loan proceeds that was available to $1,900,000. During the year ended July 31, 1996, all loan advances were fully repaid. Condensed financial information of QCL, Inc. is as follows: BALANCE SHEET JULY 31, 1995 ASSETS Cash $ 27,604 Prepaid fees and deposits 90,827 Related party note receivable 203,417 Land 946,843 Construction work in progress 923,023 ---------- $2,191,714 ==========
10 38 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued LIABILITIES AND STOCKHOLDER'S EQUITY Trade accounts payable $ 385,184 Customer deposits 58,626 Note and interest payable 797,257 Due to Capital Investment of Hawaii, Inc. 615,300 ---------- Total liabilities 1,856,367 ---------- Capital stock 5,000 Retained earnings 330,347 ---------- Total stockholder's equity 335,347 ---------- $2,191,714 ==========
INCOME STATEMENT YEAR ENDED JULY 31, 1995 Sales $ 10,535,939 Cost of sales (10,205,426) ------------ Gross profit 330,513 Other expenses 6,191 ------------ Net income $ 336,704 ============
LSR, INC. On July 8, 1994, the Company extended a $15,288,287 ADC loan commitment to LSR, Inc. to finance a residential real estate project in Clark County, Nevada. On March 2, 1995, the loan was modified, which reduced the loan commitment to $8,187,879. At July 31, 1995, the Company's aggregate investment in the real estate project amounted to $1,512,828, including $5,500 in capitalized interest, with an outstanding unfunded commitment totaling $4,810,800. At July 31, 1995, restrictive loan covenants limited the maximum amount of loan proceeds available to $1,800,000. During the year ended July 31, 1996, all loan advances were fully repaid. 11 39 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Condensed financial information of LSR, Inc. is as follows: BALANCE SHEET JULY 31, 1995 ASSETS Cash $ 104,630 Prepaid fees and deposits 305,546 Land 2,602,340 Construction work in progress 1,349,314 ---------- $4,361,830 ========== LIABILITIES AND STOCKHOLDER'S EQUITY Trade accounts payable $ 475,487 Customers' deposits 16,580 Related party note payable 447,302 Note and interest payable 1,893,099 Due to Capital Investment of Hawaii, Inc.* 1,507,328 ---------- Total liabilities 4,339,796 Retained earnings 22,034 ---------- Total stockholder's equity 22,034 ---------- $4,361,830 ==========
INCOME STATEMENT YEAR ENDED JULY 31, 1995 Sales $ 1,621,475 Cost of sales (1,582,384) ----------- Gross profit 39,091 Other expense (17,049) ----------- Net income $ 22,042 ===========
12 40 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued * The Company had entered into loan participation agreements which provided that the Company sell, without recourse, to participants an undivided participating interest in the loan to LSR, Inc. Participants' share of the loan commitment amounted to $1,562,620 at July 31, 1995. Certain participants are related parties which, in the aggregate, had a 72% interest at July 31, 1995 in the loan commitment. The loan participation agreements further provided 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 participation agreements 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 $1,562,620 have been presented as "Other investments in real estate" and as "Loans under participation agreements" in the accompanying consolidated balance sheets as of July 31, 1995. Loans under these participation agreements earned 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 were received from the proceeds from the sales of the residential units. As of July 31, 1996, all amounts under these participation agreements have been fully repaid. 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, 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 ========== =========== ========= ======== As of July 31, 1995: MVL, Inc. $1,451,732 65,000 1,516,732 237,000 QCL, Inc. 615,300 47,000 662,300 153,000 LSR, Inc. 1,507,328 5,500 1,512,828 105,000 ---------- ----------- --------- -------- $3,574,360 117,500 3,691,860 495,000 ========== =========== ========= ========
13 41 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (7) INDEBTEDNESS Indebtedness at July 31, 1996 and 1995 is summarized as follows:
1996 1995 ---------- --------- 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, 1997 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 664,493 674,247 ---------- --------- 1,864,493 1,874,247 ---------- --------- Other notes, secured: Interest at index rate (8.75% at July 31, 1996) plus 1.5%, payable to a financial institution in monthly installments of $762 including interest, due February 2, 1997 714 9,289 Interest at prime (8.25% at July 31, 1996) plus 2.0%, payable to a financial institution in monthly installments of principal of $11,138, plus interest, due February 1, 1997, but payable on demand as subsidiary is in violation of certain financial covenants in loan agreement 345,223 473,850 10%, payable to a financial institution in monthly installments of $14,539 including interest, due June 1, 1997 394,454 1,448,585 Interest at prime (8.25% at July 31, 1996) plus 2.5%, payable to a financial institution in monthly installments of interest only, due February 1, 1997 100,000 100,000 Interest at prime (8.25% at July 31, 1996) plus 1.5%, payable to a financial institution in monthly installments of $1,706 including interest, due through July 23, 1997 10,980 29,371 10%, payable to a financial institution in monthly installments of $2,272 including interest, due August 1, 1998 250,000 -- Interest at prime (8.25% at July 31, 1996) plus 1.25% until September 3, 1997, then interest at prime plus 1.5%, payable to a financial institution in monthly installments of $278 including interest, due August 3, 2000 11,093 --
14 42 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
1996 1995 ---------- --------- Interest at prime (8.25% at July 31, 1996) plus 1.25% until December 1, 1997; interest at prime plus 1.5% thereafter payable to a financial institution in monthly principal of $322 plus interest, due October 31, 2000 16,424 -- Interest at prime (8.25% at July 31, 1996) plus 1.5% payable to a financial institution in monthly principal of $1,111 plus interest, due December 22, 1998 31,223 -- 11% payable to a financial institution in monthly installments of $2,477 including interest, paid in full on March 29, 1996 -- 258,921 11% payable to a financial institution in monthly installments of $3,208 including interest, paid in full on August 1, 1995 -- 350,000 ---------- --------- 1,160,111 2,670,016 ---------- --------- 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 2,062,245 2,108,245 ---------- --------- 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 297,567 269,605 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, 1997 (of which $5,000 and $105,000 at July 31, 1996 and 1995, respectively, due to related parties) 130,000 230,000 ---------- --------- 427,567 499,605 ---------- --------- $5,514,416 7,152,113 ========== =========
The Company has a $100,000 working capital line of credit with a bank. As of July 31, 1996, the outstanding drawings amounted to $100,000. The line of credit expires on February 1, 1997. 15 43 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Maturities of indebtedness over the next five fiscal years ending on July 31 are shown in the following summary: 1997 $4,331,451 1998 521,903 1999 24,412 2000 21,482 2001 615,168 ---------- $5,514,416 ==========
The carrying amounts of assets pledged as collateral for indebtedness as of July 31, 1996 were as follows: Cash and cash equivalents $ 32,099 Marketable equity securities 42,647 Notes receivable 453,989 Inventories 65,322 Developed real estate 1,443,255 Investment in other securities 700,454 Property and equipment 205,744 ==========
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, 1996. (8) INCOME TAXES The components of the provision for income taxes are as follows:
CURRENT ---------- 1994: Federal $20,575 State (186) Foreign (48) ---------- $20,341 ==========
16 44 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The provision (benefit) for income taxes applicable to loss before income taxes for fiscal years 1996, 1995 and 1994 differ from the "expected benefit for income taxes" for those years (computed by applying the U.S. federal income tax rate of 34% to loss before income taxes) as follows:
1996 1995 1994 ---------- --------- --------- Computed "expected" tax benefit $(126,942) (274,695) (477,058) Net operating losses for which no deferred income tax benefit has been recognized 111,222 255,602 448,157 Dividends received deduction (3,209) (2,508) (1,174) Over accrual of prior years' income tax benefit -- -- 20,341 Officers' life insurance 16,441 17,794 24,495 Other, net 2,488 3,807 5,580 --------- -------- -------- $ -- -- 20,341 ========= ======== ========
In February 1992, the FASB issued Statement of Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes." SFAS No. 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Effective August 1, 1993, the Company adopted SFAS No. 109. There was no cumulative effect of a change in accounting method as of August 1, 1993 and prior fiscal years were not restated. 17 45 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, 1996 and 1995 are presented below.
1996 1995 ---------- ---------- Deferred tax assets: Deferred compensation agreement $ 64,300 79,700 Other investment securities, permanent decline in market value 83,100 83,100 Deferred income on other real estate investment 11,000 188,100 Net tax operating loss carryforwards 1,038,100 749,800 Other 95,600 102,600 ---------- ---------- Total gross deferred tax assets 1,292,100 1,203,300 Less valuation allowance (1,285,100) (1,157,400) ---------- ---------- Net deferred tax assets $ 7,000 45,900 ========== ========== Deferred tax liabilities: Capitalized interest on other real estate investments $ 5,800 44,700 Other 1,200 1,200 ---------- ---------- Total gross deferred tax liabilities $ 7,000 45,900 ========== ==========
The net change in the total valuation allowance for the years ended July 31, 1996 and 1995 were increases of $127,700 and $242,700, 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, 1996, the Company had tax net operating loss carryforwards of approximately $2,600,000 and $3,700,000 for federal and state income tax purposes, respectively, which can be used to offset future taxable income through 2011. (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, 1996 and 1995 amounted to $169,158 and $209,777, respectively, and is included in the consolidated balance sheet as other payables. 18 46 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (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, 1996 are summarized as follows: Year ending July 31: 1997 $ 329,562 1998 330,960 1999 286,897 2000 281,815 2001 280,120 Thereafter 2,529,367 ---------- $4,038,721 ==========
Net rent expense for all operating leases was $501,100, $449,900 and $423,000 for the years ended July 31, 1996, 1995 and 1994, 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, 1996 the outstanding balances of notes receivable sold that were subject to the aforementioned recourse provisions aggregated $186,000. The Company may be subject to similar recourse provisions with respect to additional outstanding balances of notes aggregating approximately $76,000 at July 31, 1996, 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. (12) FOURTH QUARTER RESULTS (UNAUDITED) Fourth quarter results for the year ended July 31, 1996 are as follows: Revenues $1,850,766 ========== Net loss ($.16 per common share) $ (168,615) ==========
19 47 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (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, 1996, 1995 and 1994. 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 include gain or loss from security investments, investment income related to the ownership of such investments and income from a partnership. 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, 1996, 1995 and 1994:
1996 1995 1994 ---------- --------- --------- Revenues: Real estate activities: Property rentals $ 178,325 87,741 59,631 Income from ADC loan arrangements 1,143,229 1,360,568 861,594 Interest income 124,155 181,077 399,300 Other -- -- 17,847 ---------- --------- --------- Total real estate activities 1,445,709 1,629,386 1,338,372 ---------- --------- --------- Security and other investing activities: Gains from securities 467,075 289,047 9,153 Dividends and interest 59,177 36,589 40,385 ---------- --------- --------- Total security and other investing activities 526,252 325,636 49,538 ---------- --------- --------- Wholesale bakery activities 5,521,390 4,965,794 5,410,698 Other activities 722,910 650,138 737,641 ---------- --------- --------- $8,216,261 7,570,954 7,536,249 ========== ========= =========
20 48 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
1996 1995 1994 ---------- ---------- ----------- Operating income (loss): Real estate activities $1,016,950 1,191,284 792,363 Security and other investing activities 479,910 278,666 1,587 Wholesale bakery activities (330,923) (526,037) (870,605) Other activities 43,294 (14,817) 107,759 ---------- ---------- ---------- Income from operations 1,209,231 929,096 31,104 Interest expense (893,983) (1,029,436) (677,098) Corporate expenses (688,606) (707,586) (757,118) Provision for income taxes -- -- (20,341) ---------- ---------- ---------- Net loss $ (373,358) (807,926) (1,423,453) ========== ========== ========== Depreciation and amortization: Real estate activities $ 30,768 18,210 20,732 Security and other investing activities 780 1,412 1,893 Wholesale bakery activities 156,899 270,055 578,130 Other activities 16,244 21,075 24,746 ---------- ---------- ---------- Total segments 204,691 310,752 625,501 Corporate 7,145 12,948 17,350 ---------- ---------- ---------- $ 211,836 323,700 642,851 ========== ========== ========== Capital expenditures: Real estate activities $ 2,201 1,379,251 10,310 Wholesale bakery activities 96,179 65,896 69,920 Other activities 790 341 5,597 Corporate 8,182 9,741 2,206 ---------- ---------- ---------- $ 107,352 1,455,229 88,033 ========== ========== ==========
21 49 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
1996 1995 1994 ---------- ---------- ---------- Identifiable assets: Real estate activities $4,479,964 6,975,918 7,921,148 Security and other investing activities 745,019 922,165 1,007,298 Wholesale bakery activities 638,400 674,742 945,097 Other activities 128,501 728,060 405,385 ---------- ---------- ---------- Total segments 5,991,884 9,300,885 10,278,928 Corporate 800,698 1,316,868 1,219,373 ---------- ---------- ---------- $6,792,582 10,617,753 11,498,301 ========== ========== ==========
Sales between business segments are immaterial and are netted against the sales of the respective segment. (15) BUSINESS AND CREDIT CONCENTRATIONS Substantially all of the Company's business activity is with customers located in the state of Hawaii and Las Vegas, Nevada. The majority of customers of the Company's operating businesses are related to the hospitality industry. The Company's business activities in Las Vegas related solely to financing residential real estate development projects. At July 31, 1996 and 1995, the Company had outstanding ADC loans of $1,902,009 and $3,574,360 due from corporate real estate ventures which are owned by a single developer. Under participation agreements the Company had sold $1,562,620 of these loans without recourse as of July 31, 1995 (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. 22 50 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued 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. The carrying amount of debentures approximates fair value because of the short maturity of this investment. DEFERRED COMPENSATION PAYABLE Fair value is determined as the present value of expected future cash flows discounted at the current rates offered for commercial debt. 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 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, 1996 -------------------------------- FAIR FINANCIAL ASSETS CARRYING AMOUNT VALUE ---------------- --------------- ---------- Cash and cash equivalents $ 757,399 757,399 Marketable equity securities 42,647 42,647 Trade accounts receivable 470,042 470,042 Long-term receivables 965,908 886,218 Other investments: Real estate 1,917,209 1,785,774 Securities 700,454 1,511,892
23 51 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
JULY 31, 1996 ---------------------------- FAIR FINANCIAL LIABILITIES CARRYING AMOUNT VALUE --------------------- --------------- --------- Accounts payable $ 651,407 651,407 Accrued expenses: Interest 55,348 55,348 Taxes other than income 16,954 16,954 Other 614,626 614,626 Mortgage notes 1,864,493 1,662,857 Other notes, secured 1,160,111 1,112,537 Debentures 2,062,245 2,062,245 Other notes, unsecured 427,567 424,752 Deferred compensation payable 169,158 169,158
24 52 Schedule II CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves Years ended July 31, 1996, 1995 and 1994
ADDITIONS ------------------------------ BALANCE OF CHARGED TO BEGINNING OF COSTS AND CHARGED TO BALANCE AT DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD - ------------------------------------ ----------- ---------- ------------- ------------ ------------- 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 ========== ========== ========== ========== ========== Year ended July 31, 1994: Allowance for doubtful receivables $ 56,641 126,788 -- 124,885(1) 58,544 ========== ========== ========== ========== ==========
(1) Accounts receivable written off. 53 Schedule III CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation July 31, 1996
Cost capitalized subsequent to Gross amount at which Initial Cost to Company acquisition carried at close of period ------------------------ ------------- ------------------------------ Buildings Buildings and and Accumulated Description Encumbrances Land Improvements Improvements Land Improvements Total depreciation ----------- ------------ ---------- ------------ ------------ ------- ------------ ------- ------------ Developed real estate - held for sale Condominium apartments: Makaha, Hawaii Note payable on apartments to financial institution $ (2,323) 30,138 13,381 (2,323) 43,519 41,196 9,165 Honolulu, Hawaii Mortgages payable on four apart- ments to various individuals and company; note payable on one apartment to financial institution 24,578 166,705 69,519 24,578 236,224 260,802 184,037 Commercial/ Mortgages payable industrial: to financial Honolulu, Hawaii institution and company; notes payable to financial institution 743,000 607,000 -- 743,000 607,000 1,350,000 15,564 Other miscellaneous developed real estate located in Hawaii None 23 -- -- 23 -- 23 -- -------- ------- ------- ------- ------- --------- ------- Total developed real estate 765,278 803,843 82,900 765,278 886,743 1,652,021(A) 208,766(B) Undeveloped land held for sale - Makaha, Hawaii None 73,290 -- 61,184 73,290 61,184 134,474(C) --(D) -------- ------- ------- ------- ------- --------- ------- Grand total $838,568 803,843 144,084 838,568 947,927 1,786,495 208,766 ======== ======= ======= ======= ======= ========= ======= Life on which depreciation in Date of latest income statement Description construction Date acquired is computed ----------- ------------ ------------- ----------------------------- Developed real estate - held for sale Condominium apartments: Completed Various 1973 36 to 40 years for apartments, Makaha, Hawaii February 1971 to 1985 5 years for furnishings Honolulu, Hawaii Completed 1964 Various 1964 40 years for apartments, and 1968 to 1985 5 years for furnishings Commercial/ industrial: Honolulu, Hawaii 1986 July 1995 39 years Other miscellaneous developed real estate located in Hawaii April 1956 July 1953 Undeveloped land held for sale - Makaha, Hawaii May 1973 Primarily over 20 years
54 Schedule III, Cont. CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation, Continued (1) Changes during the two years ended July 31, 1996:
1996 1995 ------------- ------------- Cost of real estate: Balance at beginning of year $ 1,786,651 408,317 Additions during year - improvements to real estate 2,200 1,379,251 Deductions during year - cost of retirements (2,356) (917) ------------- ------------- Balance at end of year $ 1,786,495 1,786,651 ============= ============= Accumulated depreciation of real estate: Balance at beginning of year $ 186,345 176,259 Additions during the year - charged to costs and expenses 24,777 11,003 Deductions during the year - retirements and sales (2,356) (917) ------------- ------------- Balance at end of year $ 208,766 186,345 ============= =============
(2) Aggregate original cost for federal income tax purposes amounted to $1,862,484 for 1996. (3) Presentation on consolidated balance sheet as of July 31, 1996:
UNDEVELOPED DEVELOPED LAND HELD REAL ESTATE FOR SALE ------------- ------------- Cost $1,652,021 (A) 134,474(C) Less accumulated depreciation 208,766 (B) -- (D) ------------- ------------- $ 1,443,255 134,474 ============= =============
55 Schedule IV CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Mortgage Loans on Real Estate July 31, 1996
FINAL PERIODIC DESCRIPTION INTEREST RATE MATURITY DATE PAYMENT TERMS PRIOR LIENS ----------- ------------- ------------- ------------- ----------- First mortgage - payable to a corporation on condominium apartments located in Monthly installments Honolulu, Hawaii 9-1/2% February 28, 1997 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 insititution on land and warehouse of $6,125, including located in Honolulu, Hawaii 9-1/2% July 1, 2001 interest -- ----------- $ -- ===========
PRINCIPAL AMOUNT OF FACE CARRYING LOANS SUBJECT TO AMOUNT OF AMOUNT OF DELINQUENT 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 insititution on land and warehouse located in Honolulu, Hawaii 700,000 664,493 -- ---------- ----------- ---------- 1,900,000 1,864,493 -- ========== =========== ==========
(1)Changes during the two years ended July 31, 1996 and 1995:
1996 1995 ------------ ---------- Balance at beginning of year $ 1,874,247 1,200,000 Additions during the year -- 700,000 Deductions during the year (9,754) (25,753) ------------ ---------- Balance at end of year $ 1,864,493 1,874,247 ============ ==========
56 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities 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, 1996 By: /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. /s/ DEAN T.W. HO Date: October 23, 1996 ----------------------------------------- Dean T.W. Ho, Vice Chairman, Secretary and Director /s/ DONALD M. WONG Date: October 23, 1996 ----------------------------------------- Donald M. Wong, Senior Vice President, Chief Financial Officer, Treasurer and Director /s/ HARRIET H. MATSUO Date: October 23, 1996 ----------------------------------------- Harriet H. Matsuo, Assistant Secretary and Assistant Treasurer /s/ GRETA U. NAKAO Date: October 23, 1996 ----------------------------------------- Greta U. Nakao, Assistant Secretary and Assistant Treasurer /s/ PEDRO P. ADA Date: October 23, 1996 ----------------------------------------- Pedro P. Ada, Director /s/ C. B. SUNG Date: October 23, 1996 ----------------------------------------- C. B. Sung, Director /s/ STANLEY W. HONG Date: October 23, 1996 ----------------------------------------- Stanley W. Hong, Director /s/ WALTER LUM Date: October 23, 1996 ----------------------------------------- Walter Lum, Assistant Treasurer 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 Five years ended July 31, 1996
1996 1995 1994 1993 1992 ---------- --------- ---------- ---------- --------- Loss from continuing operations before extraordinary credit applicable to common shareholders $ (373,358) (807,926) (1,423,453) (997,381) (966,427) Discontinued operations -- -- -- (23,398) (121,352) Extraordinary credit -- -- -- -- 507,000 ---------- --------- ---------- ---------- --------- Net loss applicable to common shareholders $ (373,358) (807,926) (1,423,453) (1,020,779) (580,779) ========== ========= ========== ========== ========= Divided by weighted average number of common share outstanding during the period 1,032,683 1,032,683 1,032,683 1,032,683 1,032,683 ========== ========= ========== ========== ========= Loss per common share: Loss before extraordinary credit (.36) (.78) (1.38) (.97) (0.93) Discontinued operations -- -- -- (.02) (.12) Extraordinary credit -- -- -- -- .49 ---------- --------- ---------- ---------- --------- Net loss (.36) (.78) (1.38) (.99) (0.56) ========== ========= ========== ========== =========
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, 1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 12-MOS JUL-31-1996 AUG-1-1995 JUL-31-1996 757,399 42,647 470,042 25,001 65,322 0 2,178,060 1,953,414 6,792,582 0 5,514,416 0 0 1,723,765 (2,014,310) 6,792,582 5,521,390 8,216,261 3,495,485 8,589,619 0 0 893,983 (373,358) 0 (373,358) 0 0 0 (373,358) (.36) (.36)
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