-----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, I0zULStRuCueBu4G58FZFmR7Vy3IDaZTG1BOIkvck39pHcE9oAZPndttOjqyrxQX eVZL7IBxM9DCtGlt5KP0Lw== 0000950150-99-001251.txt : 19991117 0000950150-99-001251.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950150-99-001251 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL INVESTMENT OF HAWAII INC CENTRAL INDEX KEY: 0000017221 STANDARD INDUSTRIAL CLASSIFICATION: BAKERY PRODUCTS [2050] IRS NUMBER: 990065664 STATE OF INCORPORATION: HI FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-04179 FILM NUMBER: 99756222 BUSINESS ADDRESS: STREET 1: POST OFFICE BOX 2668 STREET 2: PRI TOWER CITY: HONOLULU STATE: HI ZIP: 96803 BUSINESS PHONE: 8085373981 MAIL ADDRESS: STREET 1: 733 BISHOP STREET STREET 2: SUITE 1700 CITY: HONOLULU STATE: HI ZIP: 96813 10-K405 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file Number 0-4179 Capital Investment of Hawaii, Inc. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Hawaii 99-0065664 ------------------------------ ----------------- (State or other (I.R.S. Employer jurisdiction of incorporation or organization) Identification No.) 733 Bishop Street, Suite 1700 Honolulu, Hawaii 96813 ----------------------------- ----------------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (808) 537-3981 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ---------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common stock, no par value ------------------------------------------------------------ (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13, or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The Company's voting stock is not actively traded on any exchange and accordingly the aggregate market value is not determinable. There were 1,032,692 shares outstanding of common stock, no par value as of October 22, 1999. DOCUMENTS INCORPORATED BY REFERENCE Articles of Association and By-Laws are incorporated by reference into Part IV of this report. 2 PART I ITEM 1. BUSINESS Capital Investment of Hawaii, Inc. (Registrant) was incorporated in Hawaii in 1944. The Registrant and its subsidiaries are engaged principally in real estate, security and other investing activities. Financial information about industry segments is presented in note 11 of the notes to consolidated financial statements. As of July 31, 1999, the Registrant and its subsidiaries had 15 employees. REAL ESTATE Real estate activities include the acquisition and development of undeveloped real estate, the sale and leasing of developed real estate and the investment in undeveloped land located principally on the island of Oahu in the state of Hawaii. Also included in real estate activities is interest income on notes receivable arising from property sales and income earned from financing acquisition, development and construction loan commitments in connection with residential real estate projects in Nevada and Utah. Since real estate sales and developments are not made and undertaken on a continuous basis, significant fluctuations will occur from year to year. The results of any one year are not necessarily comparable to other years and should not be a basis of expectation for future years. The identification and location of the Registrant's real estate holdings are discussed in Item 2, PROPERTIES. SECURITY AND OTHER INVESTING ACTIVITIES Security and other investing activities include gains and losses from the sale of other investments and dividend and interest income related to the ownership of such investments. The timing of sales and related gains/losses, which tend to vary with market conditions and the Registrant's cash requirements, are subject to significant fluctuations from year to year. 1 3 DISCONTINUED WHOLESALE BAKERY ACTIVITIES Wholesale bakery activities include the production and sale of bakery products primarily to major hotels, commercial airlines and U.S. military installations in Hawaii. The Registrant acquired the assets of an existing bakery in August 1990 and additional assets of another smaller bakery in May 1991. In December 1997, the Company sold certain assets and liabilities of its subsidiary Latipac Fine Foods, Inc. and discontinued its bakery operations. DISCONTINUED PROPERTY MANAGEMENT ACTIVITIES Other activities of the Registrant include a property management division in Waikiki, Hawaii that in fiscal year 1999 had revenues of $599,930 and net income of $238,592, compared with revenues of $660,560 and net income of $291,319 in fiscal year 1998. In October 1999, the Company entered into an agreement to sell certain assets of its property management division and discontinued such operations. ITEM 2. PROPERTIES As of July 31, 1999, the Registrant and its subsidiaries owned properties used in connection with its real estate activities as set forth below. All properties listed with the exception of the lots in Washington County, Utah, are located in the City and County of Honolulu, and the titles are held in fee.
DESCRIPTION AREA ------------------------------------------------------------------------ ------------------------- Developed Real Estate and Undeveloped Land 5 Condominium apartments, Makaha Valley Towers in Makaha, Hawaii 3,837 square feet 5 Condominium apartments, Ilikai Apartment Building and Ilikai Marina Apartment Building in Honolulu, Hawaii 5,199 square feet 1 lot, Makaha, Hawaii .19 acres 1 Commercial warehouse and land in Honolulu, Hawaii .22 acres 8 lots, Washington County, Utah 1.3 acres
2 4 The Company also owns parcels of unimproved real estate totaling approximately 39 acres and interests in real estate at Makaha Valley, Hawaii owned by the Company's 85.8 percent-owned subsidiary, Makaha Valley, Incorporated, among which are (a) 3.825 acres of land zoned "agricultural" fronting the fifth fairway of the Sheraton Makaha Resort golf course, carried at nil on the balance sheet; (b) 2.823 acres of land near Makaha beach zoned "country," but designated on the development plan of the City and County of Honolulu, Hawaii general plan as "commercial," carried at $3,065 on the balance sheet; and (c) a reversionary interest in 8.454 acres of land within the Maunaolu residential subdivision at Makaha zoned "country," title to which will revert to the subsidiary if the land ceases to be used as a reservoir, which is carried at nil on the balance sheet. See note 5 of the notes to consolidated financial statements for information with respect to real estate pledged as security for indebtedness. ITEM. 3 LEGAL PROCEEDINGS There is no litigation which, in the opinion of management, will have a materially adverse affect on the Company's consolidated financial position or results of operations. ITEM. 4 SUBMISSION 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, 1999. 3 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Registrant's common shares are not listed on any stock exchange, and there is no active trading of the shares. The following is the high and low quarterly bid information for each of the full quarterly periods within the years ended July 31, 1999 and 1998:
LOW BID HIGH BID ----------------- ------------------ Quarter ended: October 31, 1997 1/2 1/2 January 31, 1998 1/2 1/2 April 30, 1998 1/2 1/2 July 31, 1998 1/2 1/2 October 31, 1998 1/2 1/2 January 31, 1999 1/2 1/2 April 30, 1999 5/16 1/2 July 31, 1999 3/16 5/16
The aforementioned quotations were received from Abel-Behnke Corporation which makes a market in the Company's stock. On July 31, 1999, there were approximately 541 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 1999, 1998, and 1997. 4 6 ITEM 6. SELECTED FINANCIAL DATA SUMMARY OF CONSOLIDATED OPERATIONS
YEARS ENDED JULY 31, -------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ------------ Revenues $ 797,538 1,255,795 1,147,375 2,004,893 1,993,490 Loss from continuing operations (1,325,158) (907,203) (725,847) (351,989) (518,013) Loss per common share from continuing operations(A) (1.28) (.88) (.70) (.34) (.50) =========== =========== =========== =========== ============
(A) Loss per common share from continuing operations for each year was computed by dividing loss from continuing operations by the weighted average number of shares of common stock outstanding in each year. A detailed analysis of the loss per share computation for each year is presented in Exhibit 11. There were no cash dividends paid on common stock for the five years ended July 31, 1999. FINANCIAL CONDITION
1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- Total assets $4,132,063 5,406,774 7,123,930 6,792,582 10,617,753 ========== ========== ========== ========== ========== Indebtedness: Mortgage notes $1,826,566 1,841,684 1,853,583 1,864,493 1,874,247 Other notes, secured 515,031 590,470 735,723 1,160,111 2,670,016 Debentures 1,897,505 1,942,745 1,976,245 2,062,245 2,108,245 Other notes, unsecured 530,748 502,355 469,457 427,567 499,605 ---------- ---------- ---------- ---------- ---------- $4,769,850 4,877,254 5,035,008 5,514,416 7,152,113 ========== ========== ========== ========== ==========
5 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The Company recorded a net loss of $1,086,567 for the fiscal year ended July 31, 1999, (fiscal year 1999), compared with net losses of $266,867 and $846,984 for fiscal years 1998 and 1997, respectively. The net loss for fiscal year 1999 included a provision for losses on real estate investments of $437,297 relating to losses resulting from defaulted "ADC loans" on certain residential projects in Mesquite, Nevada. NEVADA AND UTAH FINANCING ACTIVITIES Income from ADC lending (defined below) for fiscal year 1999 was $279,709, as compared with $828,824 for fiscal year 1998. The sharp decrease in income was due almost entirely to a builder-borrower's default. The default was the result of the borrower's loan default of a loan unrelated to the credit facility made available by the Company. Advances outstanding to other builder-borrowers at the end of fiscal year 1999 were $1,217,871, compared with $1,435,210 at the end of fiscal year 1998. Since fiscal year 1991, the Company has engaged in making "ADC loans" to homebuilders in southern Nevada and Utah. An ADC loan is an arrangement whereby the Company, which shares in the same risks and potential rewards as those of the builder-borrower, advances funds so that the builder-borrower is able to acquire unimproved land and develop it into finished lots ready for residential construction. Builders seek ADC financing from non-bank sources because federally-insured lending institutions regard ADC loans as carrying higher risk and impose more stringent lending standards as a condition of making ADC loans, usually in the form of low loan-to-value ratios. Because home construction in the Las Vegas area is largely in the hands of small builders who frequently find it difficult to meet those stringent financing standards, the demand for ADC funding is high, as is the pricing of such loans. The $437,297 provision for losses on real estate investment recorded in fiscal year 1999 was the first write-down to be recorded by the Company since it began making ADC loans in fiscal year 1991. For the six consecutive fiscal years prior to fiscal year 1999, the Company recorded $4,923,766 in receipts from its ADC lending activities. During that six-year period, the average outstanding advances at fiscal year-end was $2,465,528, with a high of $5,169,856 at the end of fiscal year 1994. The decline in the Company's ADC portfolio was chiefly attributable to the diversion of capital to deal 6 8 with losses incurred during that period by Latipac Fine Foods, Inc., now a discontinued operation of the Company. Southern Nevada continues to be an attractive area for ADC lending. The strong growth of the Las Vegas economy continues to be accompanied by the movement of new residents into the area. Although interest rates have steadily risen since the beginning of 1999, it has not diminished the demand for affordable housing in Las Vegas. The Company will continue to engage in ADC lending activities, but will rely to a greater extent on participating the loans among small groups of investors. HAWAII OPERATIONS The economy in Hawaii during fiscal year 1999 was poor, as it has been for a number of years. We do not expect to see any significant improvement in the Hawaii economy in fiscal year 2000, despite signs that business confidence is gradually building in many North Asian economies. The Company manages more than 300 condominium apartment units in Waikiki, mainly in the Ilikai Apartment Building and the Ilikai Marina Apartment Building, under management agreements with individual apartment owners. This division of the Company from time to time earns brokerage fee income from sales of apartments. During fiscal year 1999, the property management division contributed revenues of approximately $600,000 compared with approximately $661,000 and $670,000, respectively, for fiscal years 1998 and 1997. The lower comparative results were largely due to declining commission income from apartment rental activity. In October 1999, the Company entered into an agreement to sell certain assets of its property management division. As a result of the sale of the property management division, the Company expects a decline in future net cash flows of approximately $160,000 in fiscal 2000. This would be offset by the net cash to be realized from the sale of this division of approximately $480,000. For the years subsequent to fiscal 2000, management expects that the Company's overall net cash inflows will decrease by approximately $240,000 without the property management division. GENERAL AND ADMINISTRATIVE Management reduced general and administrative expenses in fiscal year 1999 to $849,701, compared with $964,158 in fiscal year 1998, largely due to management's efforts to control personnel and overhead costs. 7 9 The Company has made significant reductions in personnel and other management and general expenses in the past fiscal year. Such costs are expected to decrease with the sale of the property management division and the down-sizing of office support personnel. Payroll costs are expected to decline by approximately $268,000 is fiscal 2000 as compared to fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's cash balance at July 31, 1999 was $360,769 compared with $752,493 at the end of fiscal year 1998. Cash requirements for fiscal year 2000 will be satisfied from institutional borrowings, refinancing of notes payable, cash in banks at the year end, net collections of ADC loans and additional loan participation agreements. The Company has three ADC loan arrangements which are expected to continue during the following twelve months. Two ADC loans will no longer require any additional cash disbursements to the borrower and the Company expects only positive cash flows in the form of collections on advances, profit participation and interest income from these loans. The third ADC loan will require an additional cash disbursement of $110,000 which is expected to be paid out in the second quarter of fiscal 2000. In the event that the Company requires additional cash for this advance, participants will be solicited for the funds. The Company has several notes payable to individuals, a corporation and a financial institution. Approximately $1,900,000 of these notes are payable on or before July 1, 2001. The Company has had long standing good relationships with these individuals and companies and has been successful in the past in obtaining extensions on these notes as they became due. Management will continue to work with these lenders and expects that these notes will continue to be extended for terms beyond fiscal 2000. Further, as a result of the sale of certain assets of its property management division, the Company expects to receive approximately $1,072,000 in December 1999. Expenses of the sale and the remittance to the buyer of advance rentals and security deposits will result in a net cash inflow of approximately $480,000. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements and Schedules. 8 10 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, 1999 and 1998. 9 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table lists all directors of the Registrant as of July 31, 1999:
NUMBER OF OFFICE HELD WITH YEARS SERVED OTHER PUBLIC NAME AGE REGISTRANT AS DIRECTOR BUSINESS EXPERIENCE DIRECTORSHIPS - ----------------------- ------ --------------------- -------------- --------------------------- -------------------------- Stuart T.K. Ho 63 Chairman of the 32 Positions held with Pacific Century Financial Board and Registrant Corporation; Gannett President Co., Inc.; College Retirement Equities Fund Dean T.W. Ho(1) 61 Vice Chairman and 18 Positions held with -- Secretary Registrant Donald M. Wong 81 Senior Vice 25 Positions held with -- President, Chief Registrant Financial Officer and Treasurer Pedro P. Ada 69 None 28 President of Ada's -- Incorporated; real estate, insurance agency and investments C.B. Sung 74 None 14 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. 10 12 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, 1999:
NAME AGE OFFICE POSITION HELD - ------------------------ ------- ---------------------------- ----------------------------------------------------- Stuart T.K. Ho 63 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) 61 Vice Chairman and Secretary Secretary since 1991, Vice Chairman since 1988, President from 1982 to 1987, Executive Vice President from 1975 to 1982 and Vice President from 1965 to 1975 Donald M. Wong 81 Senior Vice President and Senior Vice President since 1990, Financial Vice Treasurer President from 1965 to 1990 and Treasurer since 1965 Harriet H. Matsuo 74 Assistant Secretary and Secretary from 1975 to 1991 and Assistant Secretary Assistant Treasurer and Assistant Treasurer from 1965 to 1975 and since 1991 Greta U. Nakao 77 Assistant Secretary and Assistant Treasurer since 1975 and Assistant Assistant Treasurer Secretary since 1981
(1) Mr. Dean T.W. Ho is the brother of Mr. Stuart T.K. Ho. The term of office of the above executive officers is for a period of one year. 11 13 ITEM 11. EXECUTIVE COMPENSATION The following table shows the compensation for each of the years ended July 31, 1999, 1998 and 1997 for (a) the Chairman of the Board and President, and (b) all executive officers of the Registrant whose annual compensation exceeds $100,000. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------------------------- --------------------------------------- (a) (b) (c) (d) (e) (f) (g) (h) (i) OTHER SECURITY ALL ANNUAL RESTRICTED UNDER- OTHER NAME AND COMPEN- STOCK LYING LTIP COMPEN- PRINCIPAL SALARY BONUS SATION AWARD(s) OPTIONS/ PAYOUTS SATION POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($) - ---------------------- --------- ---------- ---------- ------------- ------------ ------------ ----------- ------------ Stuart T.K. Ho, Chairman of the Board and President 1999 121,016 -- -- -- -- -- -- 1998 127,008 -- -- -- -- -- -- 1997 127,424 -- -- -- -- -- --
12 14 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following sets forth, as of July 31, 1999, 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. 195,438 18.9% P.O. Box 20 New York, New York 10004 Stuart T.K. Ho, Dean T. Ho, and Karen Ho Hong, Trustees of the Chinn Ho Trust 168,650 16.3 733 Bishop Street, Suite 1700 Honolulu, Hawaii 96813 Stuart T.K. Ho 252,536(1) 24.5 733 Bishop Street, Suite 1700 Honolulu, Hawaii 96813 Dean T.W. Ho 225,850(2) 21.9 733 Bishop Street, Suite 1700 Honolulu, Hawaii 96813 Karen Ho Hong 212,425(3) 20.6 4976 Poola Street Honolulu, Hawaii 96821 Robin Lee 77,250 7.5 977 Longridge Road Oakland, California 94610
(1) Includes: (a) sole voting and investment power, 22,813 shares. (b) shared voting and investment power for 168,650 shares owned by the Chinn Ho Trust, of which Stuart Ho is one of 3 Trustees, and 29,500 shares owned by the Chinn Ho Foundation, of which Stuart Ho is one of 4 Trustees. (c) 10,850 shares owned by Mary L. Ho, spouse, who has sole voting and investment power. (d) 20,723 shares held in an IRA account. (2) Includes: (a) sole voting and investment power, 27,700 shares. (b) shared voting and investment power for 168,650 shares owned by the Chinn Ho Trust, of which Dean Ho is one of 3 Trustees, and 29,500 shares owned by the Chinn Ho Foundation, of which Dean Ho is one of 4 Trustees. 13 15 (3) Includes: (a) sole voting and investment power, 38,775 shares. (b) shared voting and investment power for 168,650 shares owned by the Chinn Ho Trust, of which Karen Ho Hong is one of 3 Trustees. (c) shared voting and investment power for 5,000 shares owned by Karen Ho Hong and Stanley Hong as trustees for David Hong. The following table sets forth, as of July 31, 1999, the number of shares of the Registrant's equity securities held by each director and all directors and officers of the Registrant as a group:
SOLE VOTING AND SHARED VOTING NAME OF AMOUNT AND NATURE OF INVESTMENT INVESTMENT TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP TOTAL POWER AND POWER - ------------------- ------------------ -------------------- ----------- --------------- ------------- Common stock Stuart T.K. Ho 252,536 shares owned 24.5% 2.2% 22.2%(1) of record Common stock Dean T.W. Ho 225,850 shares owned 21.9 2.7 19.2(1) of record Common stock Stanley Hong 212,425 shares owned 20.6 -- 20.6(2) of record Common stock Donald M. Wong 39,750 shares owned 3.8 -- 3.8(3) of record Common stock Pedro Ada 5,444 shares owned .5 .5 -- of record Common stock C.B. Sung 5,000 shares owned .5 .5 -- of record Common stock All directors and 336,132 shares owned 32.5 6.4 26.2(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. Chinn Ho and the children of Chinn Ho. (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. 14 16 (2) Includes: (a) Shared voting and investment power for 5,000 shares owned by Stanley Hong and Karen Ho Hong as Trustees for David Hong. (b) 38,775 shares owned by Karen Ho Hong, spouse, who has sole voting and investment power. (c) 168,650 shares owned by the Chinn Ho Trust, of which Karen Ho Hong, spouse, is one of three trustees. (3) Includes: (a) Shared voting and investment power for 10,250 owned by Donald M. Wong and Eugenia C. Wong. (b) 29,500 shares owned by the Chinn Ho Foundation, of which Donald Wong is one of four trustees. During fiscal year 1995, the Company borrowed $100,000 from certain officers of the Company through unsecured short-term notes. As of July 31, 1999, the balance of these short-term notes was $5,000. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company entered into loan participation agreements during 1999 and 1998, which provided that the Company sell, without recourse, to participants, an undivided participating interest in the loans to Touchstone Development of Utah, LLC, Hearthstone Homes, Inc., Martin Development, Inc., and Hearthstone Homebuilders, Inc. (see footnote 4 to the consolidated financial statements). There were no outstanding amounts due to participants on the loan agreements with Touchstone Development of Utah, LLC, and Hearthstone Homes, Inc., at July 31, 1999. Included in the total participants' share of the loan commitment to Martin Development, Inc., amounting to $351,824 at July 31, 1999, was $58,608 from a director of the Company and $234,608 from an officer of the Company. Included in the total participants' share of the loan commitment to Hearthstone Homebuilders, Inc., amounting to $449,049 at July 31, 1999, was $149,684 from a director of the Company. Included in the total participants' share of the loan commitment to Touchstone Development of Utah, LLC, amounting to $391,538 at July 31, 1998, was $78,307 borrowed from a director of the Company and $39,154 borrowed from an officer of the Company. The participants' share of the loan commitment to Hearthstone Homes, Inc., amounting to $119,804 at July 31, 1998 was from an officer of a subsidiary of the Company. 15 17 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, 1999. (C) Exhibits:
EXHIBIT FORM 10-K NUMBER DESCRIPTION PAGE ------- ---------------------------------------------------- --------- 3 Articles of Incorporation and By-Laws * 11 Computation of Loss Per Common Share 17 21 Subsidiaries of Capital Investment of Hawaii, Inc. 18
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. 16 18 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, 1999 and 1998 Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) - Years ended July 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows - Years ended July 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Schedules: II Valuation and Qualifying Accounts and Reserves - Years ended July 31, 1999, 1998 and 1997 III Real Estate and Accumulated Depreciation - July 31, 1999 IV Mortgage Loans on Real Estate - July 31, 1999 Schedules not listed above are omitted because of the absence of the conditions under which they are required or because the required information is included elsewhere in the consolidated financial statements or notes thereto. 19 INDEPENDENT AUDITORS' REPORT The Board of Directors Capital Investment of Hawaii, Inc.: We have audited the consolidated financial statements of Capital Investment of Hawaii, Inc. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capital Investment of Hawaii, Inc. and subsidiaries as of July 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended July 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KDMG LLP Honolulu, Hawaii October 22, 1999 20 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1999 and 1998
ASSETS (NOTE 5) 1999 1998 ----------- ----------- Cash $ 360,769 752,493 ----------- ----------- Receivables: Trade accounts, less allowance for doubtful receivables of $1,000 in 1999 and 1998 67,421 77,074 Accrued interest 55,417 565,458 Other 66,483 161,514 ----------- ----------- Total receivables 189,321 804,046 ----------- ----------- Developed real estate, less accumulated depreciation of $274,759 and $253,533 in 1999 and 1998, respectively (note 3) 1,383,745 1,401,479 ----------- ----------- Undeveloped land held for sale (note 4) 226,797 134,474 ----------- ----------- Other investments: Real estate (note 4) 1,246,608 1,525,410 Securities, at cost 681,006 737,202 ----------- ----------- 1,927,614 2,262,612 ----------- ----------- Property and equipment, at cost: Leasehold improvements 63,740 61,282 Furniture and equipment 329,394 394,610 ----------- ----------- 393,134 455,892 Less accumulated depreciation and amortization (360,944) (413,242) ----------- ----------- Net property and equipment 32,190 42,650 ----------- ----------- Deferred charges and other assets 11,627 9,020 ----------- ----------- $ 4,132,063 5,406,774 =========== ===========
2 21 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Balance Sheets July 31, 1999 and 1998
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 1999 1998 ----------- ----------- Indebtedness (note 5): Mortgage notes $ 1,826,566 1,841,684 Other notes, secured 515,031 590,470 Debentures 1,897,505 1,942,745 Other notes, unsecured 530,748 502,355 ----------- ----------- Total indebtedness 4,769,850 4,877,254 ----------- ----------- Accounts payable, trade 105,048 99,521 ----------- ----------- Accrued expenses: Interest 55,001 53,383 Taxes other than income 59,101 11,505 Other 662,830 656,205 ----------- ----------- Total accrued expenses 776,932 721,093 ----------- ----------- Other payables: Loans under participation agreements (note 4): Related parties 442,900 237,265 Other 357,973 274,077 Other (notes 4 and 7) 193,660 625,297 ----------- ----------- Total other payables 994,533 1,136,639 ----------- ----------- Commitments and contingent liabilities (notes 4, 5, 7 and 8) Stockholders' deficiency: Common stock without par value. Authorized 2,531,765 shares; issued 1,723,774 shares at stated value of $1 1,723,774 1,723,774 Additional paid-in capital 469,312 469,312 Retained earnings (accumulated deficit) (649,899) 436,668 ----------- ----------- 1,543,187 2,629,754 Cost of 691,082 common shares in treasury (4,057,487) (4,057,487) ----------- ----------- Stockholders' deficiency (2,514,300) (1,427,733) ----------- ----------- $ 4,132,063 5,406,774 =========== ===========
See accompanying notes to consolidated financial statements. 3 22 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) Years ended July 31, 1999, 1998 and 1997
1999 1998 1997 ----------- ----------- ----------- Revenues (note 5): Income from real estate activities $ 443,888 989,078 583,600 Security and other investment income 349,790 192,363 558,054 Other 3,860 74,354 5,721 ----------- ----------- ----------- 797,538 1,255,795 1,147,375 ----------- ----------- ----------- Costs and expenses: Other direct operating expenses (note 8) 327,913 388,200 551,405 General and administrative expenses (notes 7 and 8) 849,701 964,158 928,534 Interest (note 5) 507,785 810,640 393,283 Provision for losses on real estate investments (note 4) 437,297 -- -- ----------- ----------- ----------- 2,122,696 2,162,998 1,873,222 ----------- ----------- ----------- Loss from continuing operations (1,325,158) (907,203) (725,847) Gain (loss) from discontinued operations (notes 2 and 14) 238,591 640,336 (121,137) ----------- ----------- ----------- Net loss (1,086,567) (266,867) (846,984) Retained earnings at beginning of year 436,668 703,535 1,550,519 ----------- ----------- ----------- Retained earnings (accumulated deficit) at end of year $ (649,899) 436,668 703,535 =========== =========== =========== Loss per common share (note 10): Loss from continuing operations $ (1.28) (.88) (.70) Gain (loss) from discontinued operations (notes 2 and 14) .23 .62 (.12) ----------- ----------- ----------- Net loss per common share $ (1.05) (.26) (.82) =========== =========== =========== Weighted average number of common shares outstanding during the year 1,032,692 1,032,692 1,032,692 =========== =========== ===========
See accompanying notes to consolidated financial statements. 4 23 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended July 31, 1999, 1998 and 1997
1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Cash received from customers $ 1,259,143 2,905,936 5,271,819 Cash paid to suppliers/employees (1,044,664) (3,739,171) (6,380,857) Capital expenditures - real estate (4,880) (2,701) (290) Purchase of investments in real estate (1,587,321) (1,306,518) (2,257,774) Collections from investments in real estate 1,428,826 2,740,345 1,215,746 Dividends received 11,365 12,138 8,451 Interest received 311,290 828,662 550,618 Interest paid (506,167) (840,909) (439,646) ----------- ----------- ----------- Net cash provided by (used in) operating activities (132,408) 597,782 (2,031,933) ----------- ----------- ----------- Cash flows from investing activities: Purchases of other investments -- -- (188,549) Proceeds from sale of marketable securities -- -- 47,491 Proceeds from sale of other investments 391,616 259,350 543,035 Proceeds from sale/disposal of property and equipment 5,367 -- 6,900 Collections on other receivables 2,646 4,824 958,438 Capital expenditures (7,127) (25,015) (51,409) ----------- ----------- ----------- Net cash provided by investing activities 392,502 239,159 1,315,906 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from indebtedness 310,895 185,497 48,844 Payments on indebtedness (418,299) (343,251) (528,252) Proceeds received under loan participation agreements 409,500 832,500 1,500,000 Payments made under loan participation agreements (953,914) (1,556,708) (264,450) ----------- ----------- ----------- Net cash provided by (used in) financing activities (651,818) (881,962) 756,142 ----------- ----------- ----------- Net increase (decrease) in cash (391,724) (45,021) 40,115 Cash at beginning of year 752,493 797,514 757,399 ----------- ----------- ----------- Cash at end of year $ 360,769 752,493 797,514 =========== =========== ===========
5 24 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended July 31, 1999, 1998 and 1997
1999 1998 1997 ----------- ---------- ---------- Reconciliation of net loss to cash provided by (used in) operating activities: Net loss $(1,086,567) (266,867) (846,984) ----------- ---------- ---------- Adjustments to reconcile net loss to cash provided by (used in) operating activities: Capital expenditures - real estate (4,880) (2,701) (290) Depreciation and amortization 34,521 71,747 100,370 Provision for losses on real estate investments 437,297 -- -- Acquisition of undeveloped land through foreclosure (92,323) -- -- Gain on sale of other investments (335,422) (178,829) (471,755) Gain on sale of discontinued operations -- (379,227) -- Gain on sale of marketable securities -- -- (28,181) Loss (gain) on sale/disposal of property and equipment 315 -- (6,900) Change in assets and liabilities: Increase in inventories -- (30,471) (2,103) Decrease (increase) in trade accounts, accrued interest and other receivables, net 612,079 (125,158) (206,200) Decrease (increase) in investment in real estate (158,495) 1,433,827 (1,042,028) Decrease (increase) in deferred charges and other assets (2,607) (80,213) 26,611 Increase (decrease) in accounts payable, trade 5,527 217,838 (16,394) Increase (decrease) in accrued expenses and other payables 458,147 (62,164) 461,921 ----------- ---------- ---------- Total adjustments 954,159 864,649 (1,184,949) ----------- ---------- ---------- Net cash provided by (used in) operating activities $ (132,408) 597,782 (2,031,933) =========== ========== ========== Supplemental schedule of noncash operating, investing and financing activities: In fiscal year 1998, the Company sold certain assets and liabilities of its subsidiary, Latipac Fine Foods, Inc. A net gain on disposal was recognized on assets transferred as follows: Inventories $ 97,896 Property and equipment, net 135,215 Deferred charges and other assets 111,663 Accounts payable trade (753,330) Other payables 29,329 ----------- $ (379,227) ===========
See accompanying notes to consolidated financial statements. 6 25 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (a) DESCRIPTION OF BUSINESS Capital Investment of Hawaii, Inc. and subsidiaries are engaged principally in real estate, security and other investing activities. Real estate activities include the acquisition and development of undeveloped real estate, the sale and leasing of developed real estate and the investment in undeveloped land located principally on the island of Oahu in the state of Hawaii. Also included in real estate activities are interest income on notes receivable arising from property sales and income earned from financing acquisition, development and construction loan commitments in connection with residential real estate projects in Nevada and Utah. Security and other investing activities include gains and losses from the sale of investments and dividend and interest income related to the ownership of such investments. (b) 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. (c) REAL ESTATE ACCOUNTING (a) CARRYING AMOUNTS Developed real estate and undeveloped land held for sale are carried at the lower of cost or market value. (b) INCOME RECOGNITION Profit on sales of real estate is recognized when title has passed, minimum down payment criterion are met, risks and records of ownership have been transferred to the buyer and there is no substantial continuing involvement with the property, collectibility of the sales price is reasonably assured and other criteria set forth in Statement of Financial Accounting Standards (SFAS) No. 66 are met. If any of the aforementioned criteria are not met, profit is deferred and recognized under either the installment, cost recovery, deposit or percentage of completion method. 7 26 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 (d) 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 20%
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. (e) SECURITY INVESTMENTS Investment securities for which no ready market exists are valued at cost. For all security investments, declines in value below cost that are determined to be other than temporary are reflected in operations and the written-down value of the securities is established as the new cost basis for those securities. The cost of securities sold is determined on a first-in, first-out basis. (f) INVESTMENTS IN REAL ESTATE - ACQUISITION, DEVELOPMENT AND CONSTRUCTION LOANS The Company has originated acquisition, development, and construction (ADC) loans with the following characteristics: (1) the borrower has title to but little or no equity in the underlying security and (2) the Company participates in the profit on the ultimate sale of the project. For financial reporting purposes, the loans have been presented as real estate investments. The Company recognizes the interest and fees the Company is entitled to under ADC loans ratably as profits are earned on the sale of individual units in the underlying real estate projects. (g) INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary 8 27 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (h) IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. (i) NEWLY ADOPTED ACCOUNTING PRINCIPLES (a) COMPREHENSIVE INCOME In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130, effective for fiscal years beginning after December 15, 1997, establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income is defined as all changes in equity, including net income, except those resulting from investment by and distributions to owners. SFAS No. 130 requires reclassification of financial statements for earlier periods provided for comparative purposes. The application SFAS No. 130, effective from August 1, 1998, did not have a material impact on the Company's consolidated financial statements. (b) SEGMENTS AND RELATED INFORMATION In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 establishes standards for the way public companies report selected information about business segments, including information on products and services, geographic areas and major customers, based on a management approach to reporting. Reclassification of financial statements for prior periods is required for comparative purposes. The application of SFAS No. 131, effective August 1, 1998, did not have material impact on the consolidated financial statements of the Company. 9 28 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 (j) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) DISCONTINUED BAKERY OPERATION In December 1997, the Company sold certain assets and liabilities of its bakery operations. The Company recognized a gain on the sale of $379,227 in fiscal 1998. Summary gain (loss) from discontinued operations are as follows:
1998 1997 ----------- ---------- Total revenues $ 2,137,368 4,737,228 Total costs and expenses (2,167,578) (5,163,278) Gain on sale of assets and liabilities 379,227 -- ----------- ---------- Gain (loss) from discontinued operations $ 349,017 (426,050) ----------- ----------
(3) DEVELOPED REAL ESTATE The components of developed real estate at July 31, 1999 and 1998 were as follows:
1999 1998 ---------- ---------- Held for sale, at lower of cost or market: Condominium apartment units, a portion of which includes undivided interest in land $ 308,479 304,989 Commercial property 1,350,000 1,350,000 Other 23 23 ---------- ---------- 1,658,502 1,655,012 Less accumulated depreciation 274,757 253,533 ---------- ---------- $1,383,745 1,401,479 ========== ==========
(4) REAL ESTATE INVESTMENTS (a) UNDEVELOPED LAND Undeveloped land held for sale at July 31, 1999 and 1998 consisted of approximately 39 acres in Makaha Valley on the island of Oahu, state of Hawaii and approximately 1.3 acres in Washington County, Utah. 10 29 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 (b) OTHER REAL ESTATE INVESTMENTS The Company has extended various ADC loan commitments to corporate real estate ventures to finance residential real estate projects in Nevada and Utah. These financing arrangements are being accounted for as in-substance investments in real estate, whereby the interest and fees the Company is entitled to will be recognized ratably as profits are earned on the sale of units in the underlying real estate projects. Each loan commitment has restrictive loan covenants which limit the maximum amount of loan proceeds available for site acquisition and development and building construction. At July 31, 1999, the ADC loans to Hearthstone Homes, Inc. and Hearthstone Homebuilders, Inc. were made to corporate real estate ventures which are owned by individuals who have personally guaranteed payment of the ADC loans. At July 31, 1998, all ADC loans were made to corporate real estate ventures. 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, 1999: Hearthstone Homes, Inc. $ 200,000 7,700 207,700 14,617 Hearthstone Home- builders, Inc. 415,091 350 415,441 17,830 Martin Development, Inc. 602,780 20,687 623,467 -- ---------- ------ --------- ------- $1,217,871 28,737 1,246,608 32,447 ========== ====== ========= ======= As of July 31, 1998: Copper Bluffs, LLC $ 365,380 27,200 392,580 161,314 Sunset Bay, LLC 249,232 38,900 288,132 134,711 Red Rock Canyon, LLC 191,406 17,300 208,706 106,628 Touchstone Development of Utah, LLC 404,192 2,400 406,592 18,911 Hearthstone Homes, Inc. 225,000 4,400 229,400 13,191 ---------- ------ --------- ------- $1,435,210 90,200 1,525,410 434,755 ========== ====== ========= =======
HEARTHSTONE HOMES, INC. On February 10, 1998, the Company extended a $425,000 ADC loan commitment to Hearthstone Homes, Inc. to finance a residential real estate project known as Hearthstone Homes in Clark County, Nevada. At July 31, 1999 and 1998, the Company's aggregate investment in the real estate project amounted to $207,700 and $229,400, respectively, including $7,700 and $4,400 of capitalized interest, respectively. The ADC loan is secured by a parcel of land in Clark County, 11 30 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 Nevada. Restrictive loan covenants limit the maximum amount of loan proceeds available during various phases of the project. The Company entered into a 50% loan participation agreement which provides that the Company sell, without recourse, to a participant an undivided participating interest in the loan to Hearthstone Homes, Inc. The participant's share of the loan commitment amounted to nil and $119,804 at July 31, 1999 and 1998, respectively. The participant is an officer of a subsidiary of the Company. HEARTHSTONE HOMEBUILDERS, INC. On December 3, 1998, the Company extended a $415,000 ADC loan commitment to Hearthstone Homebuilders, Inc. to finance a residential real estate project in Clark County, Nevada. As of July 31, 1999, the Company's aggregate investment in the real estate project amounted to $415,441, including $350 of capitalized interest. The ADC loan is secured by a parcel of land in Clark County, Nevada. The Company entered into 50% loan participation agreements which provide that the Company sell, without recourse, to participants an undivided participating interest in the loan to Hearthstone Homebuilders, Inc. The participants' share of the loan at July 31, 1999 was $449,049 of which $149,684 was from a director of the Company. MARTIN DEVELOPMENT, INC. On February 19, 1999, the Company entered into an agreement with Martin Development, Inc. to exchange its interest in 59 parcels of land in the Copper Bluffs project located in Clark County, Nevada, for a promissory note totaling $813,376. As of July 31, 1999, the balance due from Martin Development totals $602,780. The promissory note is secured by the deed to the land parcels in Clark County, Nevada. The Company entered into 50% loan participation agreements which provide that the Company sell, without recourse, to participants an undivided participating interest in the loan to Martin Development, Inc. The participants' share of the loan at July 31, 1999 was $351,824, of which $58,608 was from a director of the Company and $234,608 from an officer of the Company. COPPER BLUFFS, LLC On June 18, 1996, the Company extended a $600,000 ADC loan commitment to Copper Bluffs, LLC to finance a residential real estate project in Clark County, Nevada. At July 31, 1998, the Company's aggregate investment in the real estate project amounted to $392,580, including $27,200 of capitalized interest. In January 1999, the Company obtained title to 59 parcels of land in Clark County, Nevada in satisfaction of its loan to Copper Bluffs, LLC. Title to the parcels were subsequently assigned to Martin Development, Inc. in exchange for a non-interest bearing loan of $813,376. These transactions resulted in a provision for loss from real estate investment of $100,000. 12 31 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 Financial information of Copper Bluffs, LLC is as follows: CONDENSED BALANCE SHEET JUNE 30, 1998 ASSETS Construction work in progress $ 1,246,433 Other current assets 260,359 ----------- $ 1,506,792 =========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Accounts payable $ 269,382 Construction notes payable 720,426 Due to Capital Investment of Hawaii, Inc. 528,820 Other payables 39,145 ----------- Total liabilities 1,557,773 ----------- Paid-in capital $ 5,000 Accumulated deficit (55,981) ----------- Total stockholders' deficiency (50,981) =========== $ 1,506,792 ----------- CONDENSED STATEMENT OF LOSS ELEVEN MONTHS ENDED JUNE 30, 1998 Sales $ 4,513,754 Cost of sales (4,471,368) ----------- Gross profit 42,386 Other income 28,902 Other expenses (130,395) ----------- Net loss $ (59,107) ===========
13 32 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 SUNSET BAY, LLC On July 29, 1996, the Company extended a $608,400 ADC loan commitment to Sunset Bay, LLC to finance a residential real estate project in Clark County, Nevada. The loan commitment was paid in full on November 1, 1996. Subsequently, on December 23, 1996, the Company extended a $800,000 ADC loan commitment to Sunset Bay, LLC to finance another residential real estate project in Clark County, Nevada. At July 31, 1998, the Company's aggregate investment in the real estate project amounted to $288,132, including $38,900 of capitalized interest. In January 1999, the Company recorded a provision for loss from real estate investment for its ADC loan to Sunset Bay LLC of $300,000. The provision included the write-off of the total principal and interest due on the loan at January 31, 1999. Financial information of Sunset Bay, LLC is as follows: CONDENSED BALANCE SHEET JUNE 30, 1998 ASSETS Restricted cash $ 28,915 Construction work in progress 2,780,080 ----------- $ 2,808,995 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 167,382 Construction notes payable 1,471,051 Due to Capital Investment of Hawaii, Inc. 490,411 Other payable 613,526 ----------- Total liabilities 2,742,370 ----------- Paid-in capital $ 5,000 Retained earnings 61,625 ----------- Total stockholders' equity 66,625 ----------- $ 2,808,995 ===========
14 33 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 CONDENSED STATEMENTS OF INCOME ELEVEN MONTHS ENDED JUNE 30, 1998 Sales $ 1,674,620 Cost of sales (1,601,856) ----------- Gross profit 72,764 Other income 4,123 Other expense (15,112) ----------- Net income $ 61,775 =========== RED ROCK CANYON, LLC On October 2, 1996, the Company extended a $500,000 ADC loan commitment to Red Rock Canyon, LLC to finance a residential real estate project in Washington County, Utah. At July 31, 1998, the Company's aggregate investment in the real estate project amounted to $208,706 including $17,300 of capitalized interest. The Company obtained title to improved residential housing lots in Washington County, Utah in satisfaction of its ADC loan to Red Rock Canyon, LLC. As a result of this transaction, the Company recorded a provision for loss from real estate investments of $37,297 during the year ended July 31, 1999. 15 34 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 Financial information of Red Rock Canyon, LLC is as follows: CONDENSED BALANCE SHEET JUNE 30, 1998 ASSETS Cash $ 15,808 Accounts receivable 4,000 Construction work in progress 690,627 Other assets 20,838 ----------- $ 731,273 =========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY Accounts payable $ 84,291 Construction notes payable 276,936 Due to Capital Investment of Hawaii, Inc. 357,331 Other payables 52,946 ----------- Total liabilities 771,504 ----------- Capital accounts $ 5,000 Accumulated deficit (45,231) ----------- Total stockholders' deficiency (40,231) =========== $ 731,273 =========== CONDENSED STATEMENTS OF LOSS ELEVEN MONTHS ENDED JUNE 30, 1998 Sales $ 1,996,374 Cost of sales (2,078,001) ----------- Gross loss (81,627) Other income 143 Other expenses (10,432) ----------- Net loss $ (91,916) ===========
16 35 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 TOUCHSTONE DEVELOPMENT OF UTAH, LLC On February 4, 1997, the Company extended a $2,337,437 ADC loan commitment to Touchstone Development of Utah, LLC to finance a residential real estate project known as Overlake Estates in Tooele County, Utah. At July 31, 1998, the Company's aggregate investment in the real estate project amounted to $406,592 including $2,400 of capitalized interest. In April 1999, the Company received approximately $115,800 from a Nevada corporation in exchange for the assignment of its interest in the ADC loan to Touchstone Development of Utah, LLC. Financial information of Touchstone Development of Utah, LLC is as follows: CONDENSED BALANCE SHEET JUNE 30, 1998 ASSETS Cash $ 89,693 Construction work in progress 5,983,335 Restricted cash 775,728 Receivables 100,835 Other assets 24,315 ----------- $ 6,973,906 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 857,233 Due to Capital Investment of Hawaii, Inc. 521,898 Construction notes payable 5,289,307 Other payables 78,058 ----------- Total liabilities 6,746,496 ----------- Paid-in capital $ 397,297 Accumulated deficit (169,887) ----------- Total stockholders' equity 227,410 ----------- $ 6,973,906 ===========
17 36 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 CONDENSED STATEMENT OF LOSS ELEVEN MONTHS ENDED JUNE 30, 1998 Sales $ 7,383,304 Cost of sales (7,385,537) ----------- Gross profit (2,233) Other income 10,708 Other expenses (167,962) ----------- Net loss $ (159,487) ===========
The Company entered into 15% loan participation agreements which provide that the Company sell, without recourse, to participants an undivided participating interest in the loan to Touchstone Development of Utah, LLC. Participants' share of the loan commitment amounted to $391,538 at July 31, 1998. Certain participants are related parties which, in the aggregate, totaled $117,461 at July 31, 1998. (5) INDEBTEDNESS Indebtedness at July 31, 1999 and 1998 is summarized as follows:
1999 1998 --------- --------- 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, 2000 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 626,566 641,684 --------- --------- 1,826,566 1,841,684 --------- ---------
18 37 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997
1999 1998 ---------- --------- Other notes, secured: 10%, payable to a financial institution in monthly installments of $2,272 including interest, payable on demand $ 242,128 245,017 10%, payable to a financial institution in monthly installments of interest only, due June 1, 2002 150,000 -- 10%, payable to a financial institution in monthly installments of $14,539 including interest, due June 1, 2002 122,903 147,426 Interest at prime plus 2.0%, payable to a financial institution; paid in full in 1999 -- 78,632 Interest at prime plus 2.5%, payable to a financial institution; paid in full in 1999 -- 100,000 Interest at prime plus 1.5%, payable to a financial institution; paid in full in 1999 -- 6,141 Interest at prime plus 1.25%, payable to a financial institution; paid in full in 1999 -- 8,695 Interest at prime plus 1.5%, payable to a financial institution; paid in full in 1999 -- 4,559 ---------- --------- 515,031 590,470 ---------- --------- Debentures - at stated rates (7% to 9.5%), payable to individuals in quarterly installments of interest only, all of which have matured and are payable on demand; amount authorized by indenture, $19,000,000 1,897,505 1,942,745 ---------- --------- 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 385,748 357,355 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, 2000 (of which $5,000 is due to a related party) 145,000 145,000 ---------- --------- 530,748 502,355 ---------- --------- $4,769,850 4,877,254 ========== =========
19 38 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 Maturities of indebtedness are shown in the following summary: 2000 $3,971,798 2001 648,052 2002 150,000 ---------- $4,769,850 ==========
The carrying amounts of assets pledged as collateral for indebtedness as of July 31, 1999 were as follows: Cash $ 351,839 Developed real estate 1,383,745 Investment in other securities 681,006 Investment in real estate 200,000 Property and equipment 20,361 ---------- $2,636,951 ==========
In addition, the rights and interests in insurance policies, income or profits, and other contracts and agreements of the Company were pledged as collateral for indebtedness as of July 31, 1999. (6) INCOME TAXES The benefit for income taxes applicable to the net loss for fiscal years 1999, 1998 and 1997 differ from the "expected benefit for income taxes" for those years (computed by applying the U.S. federal income tax rate of 34% to net loss) as follows:
1999 1998 1997 --------- --------- --------- Computed "expected" tax benefit $(369,433) (90,735) (287,975) Net operating losses for which no deferred income tax benefit has been recognized 371,713 91,506 271,312 Dividends received deduction (2,705) (2,889) (2,011) Officers' life insurance -- -- 16,508 Other, net 425 2,118 2,166 --------- --------- --------- $ -- -- -- ========= ========= =========
20 39 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at July 31, 1999 and 1998 are presented below.
1999 1998 ----------- ----------- Deferred tax assets: Deferred compensation agreement $ 56,700 56,700 Other investment securities, permanent decline in market value 83,100 83,100 Deferred income on other real estate investment 12,300 165,200 Net tax operating loss carryforwards 1,725,900 1,346,200 Provision for loss on real estate investments 166,200 -- Other 82,000 83,000 ----------- ----------- Total gross deferred tax assets 2,126,200 1,734,200 Less valuation allowance (2,114,000) (1,698,600) ----------- ----------- Net deferred tax assets $ 12,200 35,600 =========== =========== Deferred tax liabilities: Capitalized interest on other real estate investments $ 10,900 34,300 Other 1,300 1,300 ----------- ----------- Total gross deferred tax liabilities $ 12,200 35,600 =========== ===========
The valuation allowance for deferred tax assets as of August 1, 1998 and 1997 were $2,114,000 and $1,698,600, respectively. The net change in the total valuation allowance for the years ended July 31, 1999 and 1998 were increases of $415,400 and $102,300, 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, 1999, the Company had tax net operating loss carryforwards of approximately $5,000,000 and $4,700,000 for federal and state income tax purposes, respectively, which can be used to offset future taxable income through 2013. (7) 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 21 40 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 July 31, 1999 and 1998 amounted to $149,158 and is included in the consolidated balance sheet as other payables. (8) LEASE COMMITMENTS The Company leases various facilities for its office premises and rental agency. These operating leases provide that the Company pay all taxes, maintenance and insurance applicable to the leased properties. Consolidated future minimum payments required under noncancelable operating leases as of July 31, 1999 are summarized as follows:
Year ending July 31: 2000 $ 120,274 2001 120,045 2002 100,408 2003 51,844 ----------- $ 392,571 ===========
Rent expense for all operating leases was $124,208, $176,509 and $408,250 for the years ended July 31, 1999, 1998 and 1997, respectively. (9) FOURTH QUARTER RESULTS (UNAUDITED) Fourth quarter results for the years ended July 31, 1999 and 1998 are as follows:
1999 1998 --------- --------- Revenues: Revenues from continuing operations $ 201,389 558,753 Revenues from discontinued operations 109,215 -- --------- --------- $ 310,604 558,753 ========= ========= Gain (loss): Loss from continuing operations ($(.15) and $(.27) per common share 1999 and 1998, respectively) $(159,591) (278,750) Gain from discontinued operations ($.02 and $.001 per common share in 1999 and 1998, respectively) 21,751 628 --------- --------- $(137,840) (278,122) ========= =========
22 41 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 (10) 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. (11) SEGMENT INFORMATION The Company has classified its business activities into significant segments for the years ended July 31, 1999, 1998 and 1997. The Company's operations have been classified into real estate, security and other investing and other activities. Real estate activities include the acquisition and development of undeveloped real estate, the sale and leasing of developed real estate and investment in undeveloped real estate. Also included in real estate activities is interest income from loans made to development projects. Security and other investing activities include gains or losses from security investments and investment income related to the ownership of such investments. Other activities include the Company's rental agency businesses and other miscellaneous activities. The following is a summary of segment financial information for the years ended July 31, 1999, 1998 and 1997:
1999 1998 1997 ----------- ----------- ----------- Revenues: Real estate activities: Property rentals $ 164,179 158,858 117,615 Income from ADC loan arrangements 279,709 828,824 449,842 Interest income -- 1,396 16,143 ----------- ----------- ----------- Total real estate activities 443,888 989,078 583,600 ----------- ----------- ----------- Security and other investing activities: Gains from sales of securities 335,422 178,829 499,936 Dividends and interest 14,368 13,534 58,118 ----------- ----------- ----------- Total security and other investing activities 349,790 192,363 558,054 ----------- ----------- ----------- Other activities 3,860 74,354 5,721 ----------- ----------- ----------- $ 797,538 1,255,795 1,147,375 =========== =========== =========== Operating profit (loss) from continuing operations: Real estate activities $ (292,395) 636,962 181,465 Security and other investing activities 309,370 149,620 510,625 Other activities (238,559) (236,475) (319,962) ----------- ----------- ----------- (221,584) 550,107 372,128 Interest expense (507,785) (810,640) (393,283) Corporate expenses (595,789) (646,670) (704,692) ----------- ----------- ----------- Loss from continuing operations $(1,325,158) (907,203) (725,847) =========== =========== ===========
23 42 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997
1999 1998 1997 ---------- ---------- ---------- Depreciation and amortization: Real estate activities $ 23,144 22,977 24,226 Security and other investing activities 460 671 657 Other activities 2,148 3,130 3,067 ---------- ---------- ---------- Total segments 25,752 26,778 27,950 Corporate 4,945 10,669 10,581 Discontinued operations (notes 2 and 14) 3,824 34,300 61,839 ---------- ---------- ---------- $ 34,521 71,747 100,370 ========== ========== ========== Capital expenditures: Real estate activities $ 4,880 2,701 290 Other activities -- 1,914 8,874 Corporate 6,300 9,670 7,595 Discontinued operations (notes 2 and 14) 827 13,431 34,940 ---------- ---------- ---------- $ 12,007 27,716 51,699 ========== ========== ========== Identifiable assets: Real estate activities $2,865,540 3,074,212 4,535,896 Security and other investing activities 682,228 738,828 819,440 Other activities 60,950 575,798 361,641 ---------- ---------- ---------- Total segments 3,608,718 4,388,838 5,716,977 Corporate 450,126 935,365 824,260 Discontinued operations (notes 2 and 14) 73,219 82,571 582,693 ---------- ---------- ---------- $4,132,063 5,406,774 7,123,930 ========== ========== ==========
Sales between business segments are immaterial and are netted against the sales of the respective segment. (12) BUSINESS AND CREDIT CONCENTRATIONS Substantially all of the Company's business activity is with customers located in Hawaii, Nevada and Utah. The majority of customers of the Company's operating businesses are related to the hospitality industry. The Company's business activities in Nevada and Utah related solely to financing residential real estate development projects. At July 31, 1999 and 1998, the Company had outstanding ADC loans of $1,217,871 and $1,435,210, respectively, due from corporate real estate ventures. Under participation agreements the Company had sold $800,873 and $511,342 of these loans without recourse as of July 31, 1999 and 1998, respectively (see note 4). 24 43 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 (13) 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, trade accounts receivable, accounts payable, accrued expenses and debentures payable approximate fair value because of the short maturity of these instruments. (a) OTHER INVESTMENT SECURITIES Fair value is based on dealer quotes. (b) 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. (c) 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. (d) DEFERRED COMPENSATION PAYABLE The carrying value of deferred compensation payable estimates fair value. (e) ACCRUED INTEREST Accrued interest is determined by the present value of interest income recognized by the Company. (f) OTHER RECEIVABLES The carrying value of other receivable balances approximates the fair value. (g) 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 25 44 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered.
JULY 31, 1999 JULY 31, 1998 --------------------------- --------------------------- CARRYING FAIR CARRYING FAIR FINANCIAL ASSETS AMOUNT VALUE AMOUNT VALUE --------- --------- --------- --------- Cash $ 360,769 360,769 752,493 752,493 Receivables: Trade accounts 67,421 67,421 77,074 77,074 Accrued interest 55,417 55,417 565,458 565,458 Other 66,483 66,483 161,514 161,514 Other investments: Real estate 1,246,608 1,021,682 1,525,410 1,448,757 Securities 681,006 714,418 737,202 1,118,619 FINANCIAL LIABILITIES Accounts payable, trade 105,048 105,048 99,521 99,521 Accrued expenses: Interest 55,001 55,001 53,383 53,383 Taxes other than income 59,101 59,101 11,505 11,505 Other 662,830 662,830 656,205 656,205 Mortgage notes 1,826,566 1,721,273 1,841,684 1,731,455 Other notes, secured 515,031 495,667 590,470 588,818 Debentures 1,897,505 1,897,505 1,942,745 1,942,745 Other notes, unsecured 530,748 492,037 502,355 499,287 Loans under participation agreements 442,900 442,900 237,265 237,265 Deferred compensation payable 149,158 149,158 149,158 149,158
(14) SUBSEQUENT EVENT In October 1999, the Company entered into an agreement to sell certain assets of its property management division. Summary operating results of the discontinued operations are as follows:
1999 1998 1997 --------- ------- ------- Total revenues $ 599,930 660,560 670,420 Total costs and expenses (361,339) (369,241) (365,507) --------- ------- ------- Gain from discontinued operations $ 238,591 291,319 304,913 ========= ======= =======
26 45 CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Notes Consolidated Financial Statements July 31, 1999,1998 and 1997 The components of net liabilities of discontinued operations included in the consolidated balance sheets at July 31, 1999 and 1998 are as follows:
1999 1998 ---------- --------- Commissions receivable $ 56,980 63,408 Deferred charges and other asset 6,704 6,632 Fixed assets, net 9,535 12,531 Accounts payable and accrued expenses (760,267) (703,110) ---------- --------- Net liabilities $(687,048) (620,539) ========== =========
27 46 SCHEDULE II CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts and Reserves Years ended July 31, 1999, 1998 and 1997
ADDITIONS ---------------------- BALANCE AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - --------------------------------------- ---------- ---------- --------- ---------- ------------- Year ended July 31, 1999: Allowance for doubtful receivables $ 1,000 -- -- -- 1,000 ========== ========== ========= ========== ============= Year ended July 31, 1998: Allowance for doubtful receivables $ 27,191 3,000 -- 29,191 (1) 1,000 ========== ========== ========= ========== ============= Year ended July 31, 1997: Allowance for doubtful receivables $ 25,001 18,000 -- 15,810 (1) 27,191 ========== ========== ========= ========== ============= (1) Accounts receivable written off.
See accompanying independent auditors' report. 47 SCHEDULE III CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation July 31, 1999 (1) Changes during the two years ended July 31, 1999:
1999 1998 ----------- ----------- Cost of real estate: Balance at beginning of year $ 1,789,486 1,786,785 Additions during year: Improvements to real estate 3,492 2,701 Acquisitions through foreclosure 361,862 -- Deductions during year - cost of real estate sold (269,539) -- ----------- ----------- Balance at end of year $ 1,885,301 1,789,486 =========== =========== Accumulated depreciation of real estate: Balance at beginning of year $ 253,533 231,788 Additions during the year - charged to costs and expenses 21,226 21,745 ----------- ----------- Balance at end of year $ 274,759 253,533 =========== ===========
(2) Aggregate original cost for federal income tax purposes amounted to $1,868,966 for 1999. (3) Presentation on consolidated balance sheet as of July 31, 1999:
UNDEVELOPED DEVELOPED LAND HELD REAL ESTATE FOR SALE ----------- ---------- Cost $1,658,504 226,797 Less accumulated depreciation 274,759 -- ---------- ---------- $1,383,745 226,797 ========== ==========
See accompanying independent auditors' report. 48 SCHEDULE III CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Real Estate and Accumulated Depreciation July 31, 1999
Cost capitalized subsequent to Initial cost to Company acquisition -------------------------- ------------ Buildings and improve- Improve- Description Encumbrances Land ments ments - --------------------------------------- ----------------------------------- ---------- ----------- ------------ Developed real estate - held for sale: Condominium apartments: Makaha, Hawaii Note payable on five apartments to financial institution $ (2,323) 30,138 13,916 Honolulu, Hawaii Mortgages payable on four apartments to various individuals and company; note payable on one apartment to financial institution 24,578 166,705 75,466 Commercial/industrial: Mortgages payable to financial Honolulu, Hawaii institution and company; notes payable to financial institution 743,000 607,000 -- Other miscellaneous developed real estate located in Hawaii None 23 -- -- --------- ------- ------- Total developed real estate 765,278 803,843 89,382 --------- ------- ------- Undeveloped land held for sale: Makaha, Hawaii None 73,290 -- 61,184 Residential - Washington County, Utah 92,323 -- -- --------- ------- ------- Total undeveloped real estate 165,613 -- 61,184 --------- ------- ------- Grand total $ 930,891 803,843 150,566 ========= ======= =======
Gross amount at which carried at close of period ------------------------------------- Buildings and improve- Description Encumbrances Land ments Total - --------------------------------------- --------------------------------- ---------- --------- -------- Developed real estate - held for sale: Condominium apartments: Makaha, Hawaii Note payable on five apartments to financial institution (2,323) 44,055 41,732 Honolulu, Hawaii Mortgages payable on four apartments to various individuals and company; note payable on one apartment to financial institution 24,578 242,171 266,749 Commercial/industrial: Mortgages payable to financial Honolulu, Hawaii institution and company; notes payable to financial institution 743,000 607,000 1,350,000 Other miscellaneous developed real estate located in Hawaii None 23 -- 23 ------- -------- --------- Total developed real estate 765,278 893,226 1,658,504 ------- -------- --------- Undeveloped land held for sale: Makaha, Hawaii None 73,290 61,184 134,474 Residential - Washington County, Utah 92,323 -- 92,323 ------- -------- --------- Total undeveloped real estate 165,613 61,184 226,797 ------- -------- --------- Grand total 930,891 954,410 1,885,301 ======= ======== =========
Accumu- lated depre- Date of Date Description Encumbrances ciation construction acquired - --------------------------------------- ------------------------------------- -------------- ------------ ---------- Developed real estate - held for sale: Condominium apartments: Makaha, Hawaii Note payable on five Completed apartments to financial February Various 1973 institution 10,144 1971 to 1985 Honolulu, Hawaii Mortgages payable on four apartments to various individuals and company; note Completed payable on one apartment 1964 and Various 1964 to financial institution 202,359 1968 to 1985 Commercial/industrial: Mortgages payable to financial Honolulu, Hawaii institution and company; notes payable to financial institution 62,256 Built 1986 July 1995 Other miscellaneous developed real estate located in Hawaii None -- April 1956 July 1953 --------- Total developed real estate 274,759 --------- Undeveloped land held for sale: Makaha, Hawaii None -- May 1973 Residential - Washington County, Utah -- February 1999 --------- Total undeveloped real estate -- --------- Grand total 274,759 =========
Life on which depreciation in latest income Description statement is computed - --------------------------------------- ----------------------------- Developed real estate - held for sale: Condominium apartments: Makaha, Hawaii 36 to 40 years for apartments 5 years for furnishings Honolulu, Hawaii 40 years for apartments 5 years for furnishings Commercial/industrial: Honolulu, Hawaii 39 years Other miscellaneous developed real estate located in Hawaii Total developed real estate Undeveloped land held for sale: Makaha, Hawaii Residential - Washington County, Utah Total undeveloped real estate Grand total
49 SCHEDULE IV CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES Mortgage Loans on Real Estate July 31, 1999
Final maturity Periodic Description Interest rate date payment terms - ----------------------------------------- ------------- ------------ --------------------- First mortgage - payable to a corporation on condominium apartments located in February 28, Monthly installments Honolulu, Hawaii 9-1/2% 2000 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 mortgage - payable to a financial Monthly installments institution on land and warehouse of $6,125, including located in Honolulu, Hawaii 9-1/2% July 1, 2001 interest
Principal amount of loans subject Face Carrying to delinquent amount of amount of principal Description Prior liens 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 mortgage - payable to a financial institution on land and warehouse located in Honolulu, Hawaii -- 700,000 626,566 -- -------- ----------- ---------- ------- $ -- 1,900,000 1,826,566 -- ======== =========== ========== =======
(1) Changes during the years ended July 31, 1999 and 1998:
1999 1998 -------------- ------------- Balance at beginning of year $ 1,841,684 1,853,583 Deductions during the year (15,118) (11,899) -------------- ------------- Balance at end of year $ 1,826,566 1,841,684 ============== =============
See accompanying independent auditors' report. 50 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPITAL INVESTMENT OF HAWAII, INC. Date: October 22, 1999 /s/ Stuart T. K. Ho ---------------------------------------- Stuart T. K. Ho, Chairman of the Board, President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: October 22, 1999 /s/ Dean T. W. Ho ---------------------------------------- Dean T. W. Ho, Vice Chairman, Secretary and Director Date: October 22, 1999 /s/ Donald M. Wong ---------------------------------------- Donald M. Wong, Senior Vice President, Senior Vice President, Treasurer and Director Date: October 22, 1999 /s/ Harriet H. Matsuo ---------------------------------------- Harriet H. Matsuo, Assistant Secretary and Assistant Treasurer Date: October 22, 1999 /s/ Greta U. Nakao --------------------------------------- Greta U. Nakao, Assistant Secretary and 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
Years ended July 31, -------------------------------------------------- 1999 1998 1997 ----------- ---------- ---------- Loss from continuing operations $(1,325,158) (907,203) (725,847) Gain (loss) from discontinued operations 238,591 640,336 (121,137) ----------- ---------- ---------- Net loss applicable to common shareholders $(1,086,567) (266,867) (846,984) =========== ========== ========== Divided by weighted average number of common shares outstanding during the year 1,032,692 1,032,692 1,032,692 =========== ========== ========== Loss per common share: Continuing operations (1.28) (.88) (.70) Discontinued operations .23 .62 (.12) ----------- ---------- ---------- Net loss (1.05) (.26) (.82) =========== ========== ==========
Years ended July 31, ----------------------------- 1996 1995 ----------- ---------- Loss from continuing operations (351,989) (518,013) Gain (loss) from discontinued operations (21,369) (289,913) ---------- ---------- Net loss applicable to common shareholders (373,358) (807,926) ========== ========== Divided by weighted average number of common shares outstanding during the year 1,032,692 1,032,692 ========== ========== Loss per common share: Continuing operations (.34) (.50) Discontinued operations (.02) (.28) ---------- ---------- Net loss (.36) (.78) ========== ==========
17 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 Latipac Nevada, Limited Nevada Makaha Valley, Incorporated (85.8% - owned) Hawaii Resources, Incorporated Hawaii
18 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF JULY 31, 1999 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT) FOR THE YEAR ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. YEAR JUL-31-1999 AUG-01-1998 JUL-31-1999 360,769 0 190,321 1,000 0 0 393,134 360,944 4,132,063 0 4,769,850 0 0 1,723,744 (4,238,074) 4,132,063 0 797,538 0 2,122,696 0 437,297 507,785 (1,325,158) 0 (1,325,158) 238,591 0 0 (1,086,567) (1.05) (1.05)
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