<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
DESCRIPTION AREA
- -------------------------------------------------------------- -----------------
<S> <C>
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
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
LOW BID HIGH BID
-------------- --------------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 7
ITEM 6. SELECTED FINANCIAL DATA
(Not Covered By Independent Auditors' Report)
SUMMARY OF CONSOLIDATED OPERATIONS
For the five years ended July 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
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)
=========== =========== =========== ============ ===========
</TABLE>
(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
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
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
============ ============ ============ =========== ============
</TABLE>
6
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
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
================= ================= =================
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995 1994
----------- -------- --------
<S> <C> <C> <C>
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
========== ======== ========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
INCOME FROM ADVANCES AT END
FISCAL YEAR INVESTMENTS OF FISCAL YEAR
--------------------- ------------------ ---------------
<S> <C> <C>
1996 $1,143,229 1,902,009
1995 1,360,568 3,574,360
1994 861,594 5,169,856
</TABLE>
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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
NUMBER OF
YEARS
OFFICE HELD WITH SERVED AS OTHER PUBLIC
NAME AGE REGISTRANT DIRECTOR BUSINESS EXPERIENCE DIRECTORSHIPS
- ------------------ --- ---------------- -------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 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:
<TABLE>
<CAPTION>
NAME AGE OFFICE POSITION HELD
- --------------------- ----- ------------------ --------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 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 $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ---------------------- -------------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER ALL
ANNUAL RESTRICTED OTHER
COMPEN- STOCK LTIP COMPEN-
NAME AND SALARY BONUS SATION AWARD(S) OPTION/ PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($)
- ------------------- ---- ------- ------- ------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- -- -- -- -- --
</TABLE>
14
<PAGE> 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:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER: OWNERSHIP OF CLASS
- ---------------------------------------------------------------- ---------- --------
<S> <C> <C>
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
</TABLE>
(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
<PAGE> 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:
<TABLE>
<CAPTION>
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
- ---------------------- ---------------------- ---------------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
(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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 22
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1996 and 1995
<TABLE>
<S> <C> <C>
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
=========== ==========
</TABLE>
<PAGE> 23
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1996 and 1995
<TABLE>
<S> <C> <C>
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
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 24
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
and Retained Earnings
Years ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
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
========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 25
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
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
----------- ---------- ----------
</TABLE>
(Continued)
<PAGE> 26
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
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)
</TABLE>
(Continued)
<PAGE> 27
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
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)
========== ========= ==========
</TABLE>
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.
<PAGE> 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:
<TABLE>
<S> <C>
CLASS OF ASSETS RATE OF DEPRECIATION
--------------------
Leasehold improvements 5% to 20%
Furniture and equipment 10% to 33-1/3%
</TABLE>
1
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Aggregate cost $19,310 45,665
======= =======
Aggregate fair value $42,647 111,046
======= =======
</TABLE>
3
<PAGE> 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:
<TABLE>
<CAPTION>
NET REALIZED GAINS
UNREALIZED (LOSSES)
-------------------------- ----------
GAINS LOSSES NET GAINS
------- ------ ---------
<S> <C> <C> <C> <C>
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
===========
</TABLE>
(4) LONG-TERM RECEIVABLES
The maturities of long-term receivables for fiscal years ending on July 31
are shown in the following summary:
<TABLE>
<S> <C>
1997 $504,428
1998 4,859
1999 456,621
--------
$965,908
========
</TABLE>
4
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
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
========== =========
</TABLE>
(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
<PAGE> 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)
<TABLE>
<S> <C>
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
============
</TABLE>
6
<PAGE> 34
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INCOME STATEMENT
PERIOD ENDED JULY 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
General and administrative expenses $ 34,722
--------
Net loss $(34,722)
========
</TABLE>
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)
<TABLE>
<S> <C>
ASSET
Cash (held in escrow) $608,400
============
LIABILITITY
Due to Capital Investment of Hawaii, Inc. $608,400
============
</TABLE>
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
<PAGE> 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)
<TABLE>
<S> <C>
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
=============
</TABLE>
INCOME STATEMENT
PERIOD ENDED JULY 31, 1996
(UNAUDITED)
<TABLE>
<S> <C>
General and administrative expenses $ 7,871
-------------
Net loss $(7,871)
=============
</TABLE>
8
<PAGE> 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
<TABLE>
<S> <C>
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
============
</TABLE>
9
<PAGE> 37
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INCOME STATEMENT
YEAR ENDED JULY 31, 1995
<TABLE>
<S> <C>
Sales revenue $ 11,161,649
Cost of sales (10,815,642)
------------
Gross profit 346,007
Other expenses (11,252)
------------
Net income $ 334,755
============
</TABLE>
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
<TABLE>
<S> <C>
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
==========
</TABLE>
10
<PAGE> 38
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<S> <C>
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
==========
</TABLE>
INCOME STATEMENT
YEAR ENDED JULY 31, 1995
<TABLE>
<S> <C>
Sales $ 10,535,939
Cost of sales (10,205,426)
------------
Gross profit 330,513
Other expenses 6,191
------------
Net income $ 336,704
============
</TABLE>
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
<PAGE> 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
<TABLE>
<S> <C>
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
==========
</TABLE>
INCOME STATEMENT
YEAR ENDED JULY 31, 1995
<TABLE>
<S> <C>
Sales $ 1,621,475
Cost of sales (1,582,384)
-----------
Gross profit 39,091
Other expense (17,049)
-----------
Net income $ 22,042
===========
</TABLE>
12
<PAGE> 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.
<TABLE>
<S> <C> <C> <C> <C>
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
========== =========== ========= ========
</TABLE>
13
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
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 --
</TABLE>
14
<PAGE> 42
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
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
========== =========
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C>
1997 $4,331,451
1998 521,903
1999 24,412
2000 21,482
2001 615,168
----------
$5,514,416
==========
</TABLE>
The carrying amounts of assets pledged as collateral for indebtedness as of
July 31, 1996 were as follows:
<TABLE>
<S> <C>
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
==========
</TABLE>
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:
<TABLE>
<CAPTION>
CURRENT
----------
<S> <C>
1994:
Federal $20,575
State (186)
Foreign (48)
----------
$20,341
==========
</TABLE>
16
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
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
========= ======== ========
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C>
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
==========
</TABLE>
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:
<TABLE>
<S> <C>
Revenues $1,850,766
==========
Net loss ($.16 per common share) $ (168,615)
==========
</TABLE>
19
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
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
========== ========= =========
</TABLE>
20
<PAGE> 48
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
21
<PAGE> 49
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
JULY 31, 1996
--------------------------------
FAIR
FINANCIAL ASSETS CARRYING AMOUNT VALUE
---------------- --------------- ----------
<S> <C> <C>
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
</TABLE>
23
<PAGE> 51
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
JULY 31, 1996
----------------------------
FAIR
FINANCIAL LIABILITIES CARRYING AMOUNT VALUE
--------------------- --------------- ---------
<S> <C> <C>
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
</TABLE>
24
<PAGE> 52
Schedule II
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
BALANCE OF CHARGED TO
BEGINNING OF COSTS AND CHARGED TO BALANCE AT
DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
- ------------------------------------ ----------- ---------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>
(1) Accounts receivable written off.
<PAGE> 53
Schedule III
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Real Estate and Accumulated Depreciation
July 31, 1996
<TABLE>
<CAPTION>
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
----------- ------------ ---------- ------------ ------------ ------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
----------- ------------ ------------- -----------------------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 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:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
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
============= =============
</TABLE>
(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:
<TABLE>
<CAPTION>
UNDEVELOPED
DEVELOPED LAND HELD
REAL ESTATE FOR SALE
------------- -------------
<S> <C> <C>
Cost $1,652,021 (A) 134,474(C)
Less accumulated depreciation 208,766 (B) -- (D)
------------- -------------
$ 1,443,255 134,474
============= =============
</TABLE>
<PAGE> 55
Schedule IV
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Mortgage Loans on Real Estate
July 31, 1996
<TABLE>
<CAPTION>
FINAL PERIODIC
DESCRIPTION INTEREST RATE MATURITY DATE PAYMENT TERMS PRIOR LIENS
----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
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 --
-----------
$ --
===========
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
FACE CARRYING LOANS SUBJECT TO
AMOUNT OF AMOUNT OF DELINQUENT PRINCIPAL
DESCRIPTION MORTGAGES MORTGAGE (1) OR INTEREST
----------- ---------- ----------- -------------------
<S> <C> <C> <C>
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 --
========== =========== ==========
</TABLE>
(1)Changes during the two years ended July 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
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
============ ==========
</TABLE>
<PAGE> 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
<PAGE> 1
Exhibit 11
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Computation of Loss Per Common Share
Five years ended July 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
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)
========== ========= ========== ========== =========
</TABLE>
<PAGE> 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.
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
---- -------------
<S> <C>
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
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-1-1995
<PERIOD-END> JUL-31-1996
<CASH> 757,399
<SECURITIES> 42,647
<RECEIVABLES> 470,042
<ALLOWANCES> 25,001
<INVENTORY> 65,322
<CURRENT-ASSETS> 0
<PP&E> 2,178,060
<DEPRECIATION> 1,953,414
<TOTAL-ASSETS> 6,792,582
<CURRENT-LIABILITIES> 0
<BONDS> 5,514,416
0
0
<COMMON> 1,723,765
<OTHER-SE> (2,014,310)
<TOTAL-LIABILITY-AND-EQUITY> 6,792,582
<SALES> 5,521,390
<TOTAL-REVENUES> 8,216,261
<CGS> 3,495,485
<TOTAL-COSTS> 8,589,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 893,983
<INCOME-PRETAX> (373,358)
<INCOME-TAX> 0
<INCOME-CONTINUING> (373,358)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (373,358)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
