<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Form 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended July 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file Number 0-4179
Capital Investment of Hawaii, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Hawaii 99-0065664
- ------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
- ------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (808) 537-3981
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
- ------------------------------------- ------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13, or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The Company's voting stock is not actively traded on any exchange and
accordingly the aggregate market value is not determinable.
There were 1,032,683 shares outstanding of common stock, no par value
as of October 24, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Articles of Association and By-Laws are incorporated by reference into
Part IV of this report.
<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, 1997, the Registrant and its subsidiaries had 123 employees.
The Registrant has classified its business activities into significant
segments for the years ended July 31, 1997, 1996, and 1995. For the fiscal year
ended July 31, 1997, the Registrant's operations have been classified into real
estate activities, security and other investing activities, wholesale bakery
activities and other activities. Financial information about industry segments
is presented in note 14 of the notes to consolidated financial statements.
REAL ESTATE
Real estate activities include the acquisition and development of
undeveloped real estate, the sale and leasing of developed real estate and the
investment in undeveloped land located principally on the island of Oahu in the
state of Hawaii. Also included in real estate activities is interest income on
notes receivable arising from property sales and income earned from financing
acquisition, development and construction loan commitments in connection with
residential real estate projects in Nevada, and Utah. Since real estate sales
and developments are not made and undertaken on a continuous basis, there exist
significant fluctuations from year to year. The results of any one year are not
necessarily comparable to other years and should not be a basis of expectation
for future years. The identification and location of the Registrant's real
estate holdings are discussed in Item 2, PROPERTIES.
1
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SECURITY AND OTHER INVESTING ACTIVITIES
Security and other investing activities include gains and losses from
the sale of marketable equity securities and other investments and dividend and
interest income related to the ownership of such investments. The timing of
sales and related gains/losses, which tend to vary with market conditions and
the Registrant's cash requirements, are subject to significant fluctuations from
year to year.
DISCONTINUED WHOLESALE BAKERY ACTIVITIES
Wholesale bakery activities include the production and sale of bakery
products primarily to major hotels, commercial airlines and U.S. military
installations in Hawaii. The Registrant acquired the assets of an existing
bakery in August 1990 and additional assets of another smaller bakery in May
1991. In October 1997, the Company entered into an agreement to sell certain
assets and liabilities of its subsidiary Latipac Fine Foods, Inc. and to
discontinue the bakery operations.
OTHER ACTIVITIES
Other activities include a real estate management division in Waikiki,
Hawaii that in fiscal year 1997 had revenues of $670,420 and net income of
$316,913, compared with revenues of $689,978 and net income of $346,956 in
fiscal year 1996.
2
<PAGE> 4
ITEM 2. PROPERTIES
As of July 31, 1997, the Registrant and its subsidiaries owned
properties used in connection with its real estate activities as set forth
below. All properties are located in the City and County of Honolulu, and the
titles are held in fee.
<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
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ITEM. 3 LEGAL PROCEEDINGS
There is no litigation which, in the opinion of management, will have a
materially adverse affect on the Company's consolidated financial position or
results of operations.
ITEM. 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters that were submitted to a vote of security holders
during the fourth quarter of the fiscal year ended July 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's common shares are not listed on any stock exchange,
and there is no active trading of the shares. The following is the high and low
quarterly bid information for each of the full quarterly periods within the
years ended July 31, 1997 and 1996:
<TABLE>
<CAPTION>
LOW BID HIGH BID
------- --------
<S> <C> <C>
Quarter ended:
October 31, 1995 1/2 1/2
January 31, 1996 1/2 3/8
April 30, 1996 3/8 1/4
July 31, 1996 1/4 1/4
October 31, 1996 1/4 7/16
January 31, 1997 7/16 1/2
April 30, 1997 1/2 1/2
July 31, 1997 1/2 1/2
</TABLE>
The aforementioned quotations were received from Abel-Behnke
Corporation which makes a market in the Company's stock.
On July 31, 1997, there were approximately 550 stockholders of record
of common stock, excluding individuals and institutions for whom shares are held
in the names of nominees or brokerage firms.
There were no common stock dividends declared or paid during fiscal
years 1997, 1996, and 1995.
5
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ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,817,795 $ 2,694,871 $ 2,605,160 $ 2,125,551 $ 2,387,961
Loss from continuing operations (420,934) (17,033) (247,298) (514,690) 62,653
Loss per common share from
continuing operations(A)
(.41) (.02) (.24) (.50) .06
=========== =========== =========== =========== ===========
</TABLE>
(A) Loss per common share from continuing operations for each year was computed
by dividing loss from continuing operations by the weighted average number
of shares of common stock outstanding in each year. A detailed analysis of
the loss per share computation for each year is presented in Exhibit 11.
There were no cash dividends paid on common stock for the five years ended
July 31, 1997.
FINANCIAL CONDITION
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total assets $7,123,930 6,792,582 10,617,753 11,498,301 11,440,892
========== ========== ========== ========== ==========
Indebtedness:
Mortgage notes $1,853,583 1,864,493 1,874,247 1,200,000 1,200,000
Other notes, secured 735,723 1,160,111 2,670,016 3,416,384 3,229,042
Debentures 1,976,245 2,062,245 2,108,245 2,221,895 2,378,595
Other notes, unsecured 469,457 427,567 499,605 507,253 463,450
---------- ---------- ---------- ---------- ----------
$5,035,008 5,514,416 7,152,113 7,345,532 7,271,087
========== ========== ========== ========== ==========
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company recorded a net loss of $846,984 for the fiscal year ended
July 31, 1997, (fiscal year 1997), compared with net losses of $373,358 and
$807,926 for fiscal years 1996 and 1995, respectively.
The net loss for fiscal year 1997 included depreciation and
amortization totaling $100,370, as compared to $211,836 and $323,700 in fiscal
years 1996 and 1995, respectively.
The Company's subsidiary, Latipac Fine Foods, Incorporated (which does
business as Bakery Europa) accounted for $56,806, $156,899 and $270,055 of
depreciation for fiscal years ended July 31, 1997, 1996 and 1995, respectively.
The Company's gross revenues for fiscal years 1994 through 1996 reflect
the diversification of the Company's business activities away from its
historical real estate focus. The investments during the past three years
included diversification into specialty baking on the island of Oahu, Hawaii and
residential "acquisition, development and construction" (ADC) lending in Las
Vegas, Nevada. In pursuit of that goal, the Company acquired, in August 1990,
the assets of Bakery Europa, a major supplier of bakery products and desserts to
airlines and hotels on Oahu, Hawaii.
The rapid growth rate of Oahu's tourist economy and real estate market
in the decade of the eighties abruptly flattened in 1990 and has stagnated ever
since. The reasons for this change in condition were the poor economic climates
of Japan and California, starting in 1990 Hawaii tourism's two most important
markets, and the disruptive effects of rampant speculation in Hawaiian real
estate by Japanese investors during the Japanese "bubble" economy of the late
eighties. The 37.5 million air passenger movements to and within Hawaii in 1996
were only a slight improvement from the 35.8 million movements recorded in 1990,
even though this represented a significant improvement from the 33.8 million
movements reported for 1993. The near-term outlook for the
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Japanese economy is still poor.
As a result, the Company's investment in selling bakery products to the
tourist industry and Oahu restaurants and stores has experienced poor financial
results. In addition, the poor real estate market in Hawaii has caused the
Company to look for investment opportunities elsewhere. The Company since late
1990 has increasingly invested in Las Vegas, Nevada, initially as an investor in
building single family homes and subsequently as a lender of ADC capital to
home-builders.
In fiscal year 1998, the Company plans to continue its short-term
construction lending activities in Nevada and Utah. In October 1997, the Company
entered into an agreement to sell certain assets and liabilities of Latipac Fine
Foods, Inc.
BAKERY OPERATIONS
The Company's fiscal year 1997's net loss was primarily due to Bakery
Europa's poor performance, which consumed cash which otherwise could have been
employed in other ways. Bakery Europa's operating loss for fiscal years 1997,
1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Loss before certain interest and
depreciation and amortization $341,407 157,426 233,573
Interest on loan to acquire this
subsidiary's assets 27,837 42,000 57,000
Depreciation and amortization 56,806 156,899 270,055
-------- -------- --------
Loss, net $426,050 356,325 560,628
======== ======== ========
</TABLE>
Bakery Europa's net product sales for fiscal year 1997 were $4,737,228,
compared with net sales of $5,521,390 and $4,965,794 for fiscal years 1996 and
1995, respectively. During fiscal year 1997, 14% of sales were to airlines and
airline catering companies; 19% of sales were to hotels and 11% of sales were to
the military. The gross profit margin for fiscal year 1997 was 40.1%, compared
with 36.4% and 36.0% for fiscal years 1996 and 1995, respectively. The
acquisition loan balance at the end of fiscal year 1997 was $211,526, and in the
ordinary course of business would be paid down to
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$0 at the end of fiscal year 1998. In October 1997, the Company entered into an
agreement to sell certain assets and liabilities of Bakery Europa.
NEVADA AND UTAH FINANCING ACTIVITIES
Since fiscal year 1991, the Company has engaged in making ADC loans to
home builders in southern Nevada and Utah. An ADC loan is an arrangement whereby
the Company, who shares in the same risks and potential rewards as those of the
borrower, advances funds so that the borrower is able to acquire and develop raw
land, provide infrastructure and construct homes. In recent years, banks and
other federally-insured lending institutions have tightened credit standards.
The more stringent credit environment has caused many home builders to seek
alternate sources of financing.
The Company has made sixteen such loans since 1991, of which ten have
been repaid. The Company has never experienced a default on a loan it has made.
The decline in income from ADC loans in fiscal year 1997 is due to delays in
starting up projects by the borrowing home builders.
The Company's ADC lending activities in recent years have been as
follows:
<TABLE>
<CAPTION>
ADVANCES AT
INCOME FROM END OF FISCAL
FISCAL YEAR INVESTMENTS YEAR
----------- ----------- -------------
<S> <C> <C>
1997 $ 449,842 2,711,737
1996 1,143,229 1,902,009
1995 1,360,568 3,574,360
</TABLE>
Deferred income on these loans totalled $372,827 at June 30, 1997,
compared to $28,886 and $495,000, at June 30, 1996 and 1995, respectively.
ADC loans bear higher than average risk. The Company adheres to a
policy of concentrating its loans with experienced builders building
single-family dwelling projects built for the "entry-level" of the Las Vegas
housing market. The Company's practice is to limit the outstanding loan balance
to an amount only sufficient to acquire land and to construct homes on only a
portion of the total lots in the project. The effect of this practice is to
require the builder to sell completed homes in order to finance the building of
the remaining lots. The loans are secured but they are often
9
<PAGE> 11
subordinated to conventional loans to finance the construction of homes.
The Las Vegas home building market continues to be very active, driven
by an expanding economy and high job growth. The Salt Lake City home building
market, which is the most recent focus of the Company's ADC lending activities,
is also very active, led by an expansion of its technology-based industries. In
addition, the physical constraints of the Salt Lake City area means growing
population of over a million people must live in an area smaller than the island
of Oahu, Hawaii, which houses approximately 800,000 people.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at July 31, 1997 was
$797,514 compared with $757,399 at the end of fiscal year 1996.
Cash used in operating activities amounted to $2,031,933 in 1997 and
resulted primarily from the net increase in investments in real estate of
$1,042,028 related to the Company's Nevada and Utah ADC arrangements. The
Company also plans the liquidation of certain assets.
Cash inflows in 1997 provided by investing activities amounted to
$1,315,906 which could be attributed to collections on long-term receivables and
proceeds from the sale of other investments. Cash provided by financing
activities of $756,142 included proceeds of loan participation agreements of
$1,500,000 which were offset by payments made under loan participation
agreements of $264,450; (see note 6 to the consolidated financial statements)
and payments on indebtedness of $528,252.
During fiscal year 1997, the Company was able to meet its
operating cash requirements with cash flows generated from investing and
financing activities. Cash inflows and outflows from investments in Copper
Bluffs, LLC, Sunset Bay, LLC, Red Rock Canyon, LLC, Touchstone Development of
Utah, LLC, and Pageantry Communities, Inc. will continue into fiscal year 1998.
Cash requirements for fiscal year 1998 will be satisfied from institutional
borrowings, refinancing of notes payable, net collections of notes receivable,
cash in banks at year end and net collections of ADC loans.
10
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants nor disagreements on
accounting or financial disclosure matters for the years ended July 31, 1997 and
1996.
11
<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, 1997:
<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 61 Chairman of the 30 Positions held with Bancorp Hawaii,
Board and Registrant Inc.; Gannett
President Co., Inc.;
College
Retirement
Dean T. W. Ho(1) 59 Vice Chairman 16 Positions held with --
and Secretary Registrant
Donald M. Wong 79 Senior Vice 23 Positions held with --
President, Registrant
Chief Financial
Officer and
Treasurer
Pedro P. Ada 67 None 26 President of Ada's --
Incorporated;
real estate,
insurance agency
and investments
Stanley W. Hong(2) 61 None 12 President and Chief Central Pacific
Executive Officer Bank; First
of Chamber of Insurance Co. of
Commerce of Hawaii
Hawaii
C. B. Sung 72 None 12 Chairman of Unison --
International;
President and
Chief Executive
Officer of Unison
Pacific
Corporation
</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.
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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.
<TABLE>
<CAPTION>
The following table lists all executive officers of the Registrant as of July 31, 1997:
NAME AGE OFFICE POSITION HELD
- -------------------- -------------- ----------------------- -----------------------------------------------
<S> <C> <C> <C>
Stuart T. K. Ho 61 Chairman of the Board Chairman of the Board since 1982, President
and President from 1975 to 1982 and since 1988, Vice
President and Secretary from 1966 to 1975
Dean T. W. Ho(1) 59 Vice Chairman and Secretary since 1991, Vice Chairman since
Secretary 1988, President from 1982 to 1987, Executive
Vice President from 1975 to 1982 and Vice
President from 1965 to 1975
Donald M. Wong 79 Senior Vice President Senior Vice President since 1990, Financial
and Treasurer Vice President from 1965 to 1990 and
Treasurer since 1965
Harriet H. Matsuo 72 Assistant Secretary and Secretary from 1975 to 1991 and Assistant
Assistant Treasurer Secretary and Assistant Treasurer from 1965
to 1975 and since 1991
Greta U. Nakao 75 Assistant Secretary and Assistant Treasurer since 1975 and Assistant
Assistant Treasurer Secretary since 1981
Walter Lum 56 Assistant Treasurer Appointed in March 1995
</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.
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ITEM 11. EXECUTIVE COMPENSATION
The following table shows the compensation for each of the years ended
July 31, 1997, 1996 and 1995 for (a) the Chairman of the Board and President,
and (b) all executive officers of the Registrant whose annual compensation
exceeds $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------- -------------------------------------
PAYOUTS
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER SECURITY ALL
ANNUAL RESTRICTED UNDER- OTHER
COMPEN- STOCK LYING LTIP COMPEN-
NAME AND SALARY BONUS SATION AWARD(S) OPTIONS/ PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($)
- ---------------------- -------- ----------- --------- ---------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stuart T.K. Ho,
Chairman of 1997 127,424 -- -- -- -- -- --
the Board and 1996 132,000 -- -- -- -- -- --
President 1995 147,839 -- -- -- -- -- --
</TABLE>
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth, as of July 31, 1997, shareholders of record
who beneficially own more than 5% of the voting stock of the Registrant:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER: OWNERSHIP OF CLASS
- ----------------------------------------------------------------- ---------- --------
<S> <C> <C>
Cede & Co. 142,116 13.8%
P. O. Box 20
New York, New York 10004
Stuart T. K. Ho, Dean T. Ho, and Karen Ho Hong, Trustees of the 168,650 16.3
Chinn Ho Trust
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Stuart T. K. Ho 252,536(1) 24.4
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Dean T. W. Ho 225,850(2) 21.9
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Karen Ho Hong 212,425(3) 20.6
4976 Poola Street
Honolulu, Hawaii 96821
Robin Lee 77,250 7.5
977 Longridge Road
Oakland, California 94610
</TABLE>
(1) Includes: (a) sole voting and investment power, 22,813 shares.
(b) shared voting and investment power for 168,650
shares owned by the Chinn Ho Trust, of which
Stuart Ho is one of 3 Trustees, and 29,500
shares owned by the Chinn Ho Foundation, of
which Stuart Ho is one of 4 Trustees.
(c) 10,850 shares owned by Mary L. Ho, spouse, who
has sole voting and investment power.
(d) 20,723 shares held in an IRA account.
(2) Includes: (a) sole voting and investment power, 27,700 shares.
(b) shared voting and investment power for 168,650
shares owned by the Chinn Ho Trust, of which
Dean Ho is one of 3 Trustees, and 29,500 shares
owned by the Chinn Ho Foundation, of which Dean
Ho is one of 4 Trustees.
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<PAGE> 17
(3) Includes: (a) sole voting and investment power, 38,775 shares.
(b) shared voting and investment power for 168,650
shares owned by the Chinn Ho Trust, of which
Karen Ho Hong is one of 3 Trustees.
(c) shared voting and investment power for 5,000
shares owned by Karen Ho Hong and Stanley Hong
as trustees for David Hong.
The following table sets forth, as of July 31, 1997, the number of
shares of the Registrant's equity securities held by each director and all
directors and officers of the Registrant as a group:
<TABLE>
<CAPTION>
SHARED
AMOUNT AND NATURE SOLE VOTING VOTING AND
NAME OF BENEFICIAL OF BENEFICIAL AND INVES- INVESTMENT
TITLE OF CLASS OWNER OWNERSHIP TOTAL MENT POWER POWER
- ----------------- -------------------- --------------------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Common stock Stuart T. K. Ho 252,536 shares 24.4% 2.2% 22.2%(1)
owned of record
Common stock Dean T. W. Ho 225,850 shares 21.9 2.7 19.2 (1)
owned of record
Common stock Donald M. Wong 39,750 shares 3.8 -- 3.8
owned of record
Common stock Pedro Ada 5,444 shares .5 .5 --
owned of record
Common stock Stanley Hong 5,000 shares .5 -- .5
owned of record
Common stock C. B. Sung 5,000 shares .5 .5 --
owned of record
Common stock All directors and 310,730 shares 27.5 5.8 21.7 (1)
officers of owned of record
Registrant
(9 persons)
</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 through unsecured short-term notes. As of July 31, 1997,
the balance of these short-term notes were $5,000 due to the officers.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into loan participation agreements during the
current year which provided that the Company sell, without recourse, to
participants an undivided participating interest in the loan to Pageantry
Communities, Inc. and Touchstone Development of Utah, LLC (see footnote 6 to the
consolidated financial statements). Included in the total participants share of
the loan commitment to Pageantry Communities, Inc., amounting to $485,550 at
July 31, 1997, was $226,590 borrowed from an officer of a subsidiary of the
Company. Included in the total participants share of the loan commitment to
Touchstone Development of Utah, LLC, amounting to $750,000 at July 31, 1997, was
$150,000 borrowed from a director of the Company and $75,000 borrowed from an
officer of the Company.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
(A) Consolidated Financial Statements - See Index to Consolidated
Financial Statements and Schedules.
(B) There were no reports on Form 8-K filed during the last quarter of
the year ended July 31, 1997.
(C) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT FORM 10-K
NUMBER DESCRIPTION PAGE
---------- -------------------------------------------------- --------
<S> <C> <C>
3 Articles of Incorporation and By-Laws *
11 Computation of Loss Per Common Share
21 Subsidiaries of Capital Investment of Hawaii, Inc.
</TABLE>
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.
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CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets - July 31, 1997 and 1996
Consolidated Statements of Operations and Retained Earnings - Years ended
July 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended July 31, 1997, 1996
and 1995
Notes to Consolidated Financial Statements
Schedules:
II Valuation and Qualifying Accounts and Reserves - Years ended
July 31, 1997, 1996 and 1995
III Real Estate and Accumulated Depreciation - July 31, 1997
IV Mortgage Loans on Real Estate - July 31, 1997
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the required
information is included elsewhere in the consolidated financial statements
or notes thereto.
19
<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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Capital
Investment of Hawaii, Inc. and subsidiaries as of July 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended July 31, 1997, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
October 24, 1997
20
<PAGE> 22
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS (NOTE 7) 1997 1996
--------------- ---------------
<S> <C> <C>
Cash and cash equivalents $ 797,514 757,399
Marketable equity securities available-for-sale, at fair
value (note 3) -- 42,647
Receivables:
Trade accounts and notes, less allowance for doubtful
receivables of $27,191 and $25,001 in 1997 and 1996,
respectively 676,242 470,042
Long-term receivables (including installments due
within one year of $5,344 and $504,428 in 1997 and
1996, respectively) (note 4) 7,470 965,908
--------------- ---------------
Total receivables 683,712 1,435,950
--------------- ---------------
Inventories 67,425 65,322
Developed real estate, less accumulated depreciation of
$231,788 and $208,766 in 1997 and 1996, respectively
(note 5) 1,420,523 1,443,255
Undeveloped land held for sale (note 6) 134,474 134,474
Other investments:
Real estate (note 6) 2,959,237 1,917,209
Securities, at cost (note 3) 817,723 700,454
--------------- ---------------
3,776,960 2,617,663
--------------- ---------------
Property and equipment, at cost:
Leasehold improvements 221,413 218,265
Furniture and equipment 1,772,820 1,959,795
--------------- ---------------
1,994,233 2,178,060
Less accumulated depreciation and amortization (1,791,381) (1,953,414)
--------------- ---------------
Net property and equipment 202,852 224,646
Deferred charges and other assets 40,470 71,226
--------------- ---------------
$ 7,123,930 6,792,582
=============== ===============
</TABLE>
21
<PAGE> 23
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1997 and 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT 1997 1996
--------------- ---------------
<S> <C> <C>
Indebtedness (note 7):
Mortgage notes $ 1,853,583 1,864,493
Other notes, secured 735,723 1,160,111
Debentures 1,976,245 2,062,245
Other notes, unsecured 469,457 427,567
--------------- ---------------
Total indebtedness 5,035,008 5,514,416
--------------- ---------------
Accounts payable, trade 635,013 651,407
Accrued expenses:
Interest 53,808 55,348
Taxes other than income 14,518 16,954
Other 776,858 614,626
--------------- ---------------
Total accrued expenses 845,184 686,928
--------------- ---------------
Other payables:
Loans under participation agreements (note 6):
Related parties 451,590 --
Other 783,960 --
Other (notes 6 and 9) 534,041 230,376
--------------- ---------------
Total other payables 1,769,591 230,376
--------------- ---------------
Commitments and contingent liabilities (notes 6, 7, 9, 10
and 11)
Stockholders' deficit:
Common stock without par value. Authorized 2,531,765
shares; issued 1,723,765 shares at stated value of $1 1,723,765 1,723,765
Additional paid-in capital 469,321 469,321
Retained earnings 703,535 1,550,519
--------------- ---------------
2,896,621 3,743,605
Cost of 691,082 common shares in treasury (4,057,487) (4,057,487)
Unrealized gain on marketable equity securities
(note 3) -- 23,337
--------------- ---------------
Net stockholders' deficit (1,160,866) (290,545)
--------------- ---------------
$ 7,123,930 6,792,582
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 24
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
and Retained Earnings
Years ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- ---------------
<S> <C> <C> <C>
Revenues (note 7):
Income from investments notes 3 and 6) $1,017,139 1,793,636 1,867,281
Other 800,656 901,235 737,879
-------------- --------------- ---------------
1,817,795 2,694,871 2,605,160
-------------- --------------- ---------------
Costs and expenses:
Other direct operating expenses
(note 10) 551,405 577,634 592,378
General and administrative expenses
(notes 9 and 10) 1,294,041 1,302,895 1,303,705
Interest (note 7) 393,283 831,375 956,375
-------------- --------------- ---------------
2,238,729 2,711,904 2,852,458
-------------- --------------- ---------------
Loss from continuing operations (420,934) (17,033) (247,298)
Loss from discontinued operations
(note 17) (426,050) (356,325) (560,628)
-------------- --------------- ---------------
Net loss (846,984) (373,358) (807,926)
Retained earnings at beginning of year 1,550,519 1,923,877 2,731,803
-------------- --------------- ---------------
Retained earnings at end of year $ 703,535 1,550,519 1,923,877
============== =============== ===============
Loss per common share (note 13):
Loss from continuing operations (.41) (.02) (.24)
Loss from discontinued operations
(note 17) (.41) (.34) (.54)
-------------- --------------- ---------------
Net loss per common share $ (.82) (.36) (.78)
============== =============== ===============
Weighted average number of common shares
outstanding during the year 1,032,683 1,032,683 1,032,683
============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 25
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 5,271,819 6,398,025 5,751,175
Cash paid to suppliers/employees (6,380,857) (7,713,659) (6,967,784)
Capital expenditures - real estate (290) (2,201) (29,251)
Collections on long-term receivables
arising from real estate sales -- -- 3,681
Purchase of investments in real estate
(note 6) (2,257,774) (3,618,324) (6,372,767)
Collections from investments in real
estate (note 6) 1,215,746 5,392,975 8,012,363
Dividends received 8,451 13,483 10,536
Interest received 550,618 1,909,127 1,220,452
Interest paid (439,646) (896,489) (1,042,663)
-------------- -------------- --------------
Net cash (used in) provided
by operating activities (2,031,933) 1,482,937 585,742
-------------- -------------- --------------
Cash flows from investing activities:
Purchases of other investments (188,549) -- (63,618)
Proceeds from sale of marketable 47,491 80,803 401,704
securities
Proceeds from sale of other investments 543,035 521,085 100,647
Proceeds from sale of property and
equipment 6,900 -- --
Loans made -- (500,000) --
Collections on long-term receivables 958,438 1,190,406 3,690
Capital expenditures (51,409) (105,151) (75,978)
-------------- -------------- --------------
Net cash provided by
investing activities 1,315,906 1,187,143 366,445
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from indebtedness 48,844 564,563 432,837
Payments on indebtedness (528,252) (2,202,260) (1,326,256)
Payments on covenants not-to-compete -- -- (30,000)
Proceeds received under loan
participation agreements (note 6) 1,500,000 -- 700,000
Payments made under loan participation
agreements (note 6) (264,450) (1,562,620) (587,380)
-------------- -------------- --------------
Net cash provided by (used
in) financing activities 756,142 (3,200,317) (810,799)
-------------- -------------- --------------
Net increase (decrease) in
cash 40,115 (530,237) 141,388
Cash and cash equivalents at beginning of 757,399 1,287,636 1,146,248
year
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 797,514 757,399 1,287,636
============== ============== ==============
</TABLE>
(Continued)
24
<PAGE> 26
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Reconciliation of net loss to cash (used in)
provided by operating activities:
Net loss $ (846,984) (373,358) (807,926)
-------------- -------------- --------------
Adjustments to reconcile net loss to
cash provided by (used in)
operating activities:
Capital expenditures - real estate (290) (2,201) (29,251)
Depreciation and amortization 100,370 211,836 323,700
Gain on sale of marketable
securities (28,181) (54,448) (236,323)
Gain on sale of other investments (471,755) (412,627) (52,724)
Gain on sale/disposal of property
and equipment (6,900) (469) --
Change in assets and liabilities:
Decrease (increase) in inventories (2,103) (12,209) 3,523
Decrease (increase) in trade
accounts and notes receivable,
net (206,200) 595,949 (303,226)
Decrease in long-term receivables
arising from real estate sales -- -- 3,681
Decrease (increase) in investment
in real estate (1,042,028) 1,774,651 1,639,596
Decrease (increase) in deferred
charges and other assets 26,611 (34,735) 71,896
Increase (decrease) in accounts
payable, trade (16,394) 221,974 57,814
Increase (decrease) in accrued
expenses and other payables 461,921 (431,426) (85,018)
-------------- -------------- --------------
Total adjustments (1,184,949) 1,856,295 1,393,668
-------------- -------------- --------------
Net cash (used in) provided
by operating activities $ (2,031,933) 1,482,937 585,742
============== ============== ==============
</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 on marketable
securities that are classified as available-for-sale are reported as a
separate component of stockholders' equity until realized. Unrealized
holding gains amounted to nil, $23,337 and $65,381 in 1997, 1996 and
1995, respectively.
(3) In fiscal year 1995, $161,736 of other investment securities were
transferred to marketable equity securities.
See accompanying notes to consolidated financial statements.
25
<PAGE> 27
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 31, 1997, 1996 and 1995
(1) SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial information has been prepared in
conformity with generally accepted accounting principles (GAAP). In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of the contingent assets and liabilities at the
date of the balance sheet and the reported amounts of revenues and
expenses for the period. Actual results could differ significantly from
those estimates.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Capital Investment of
Hawaii, Inc. and all of its subsidiaries (collectively referred to as the
"Company"). All material intercompany balances and transactions have been
eliminated from the consolidated financial statements.
REAL ESTATE ACCOUNTING
CARRYING AMOUNTS
Developed real estate and undeveloped land held for sale are carried at
the lower of cost or market value.
INCOME RECOGNITION
Profit on sales of real estate is recognized when title has passed,
minimum down payment criterion are met, risks and records of ownership
have been transferred to the buyer and there is no substantial continuing
involvement with the property, collectibility of the sales price is
reasonably assured and other criteria set forth in Statement of Financial
Accounting Standards (SFAS) No. 66 are met. If any of the aforementioned
criteria are not met, profit is determined and recognized under either the
installment, cost recovery, deposit or percentage of completion method.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed generally by use of the
straight-line method. Depreciation and amortization rates are based upon
the estimated useful lives of the assets or, if applicable, the remaining
terms of leases, whichever is shorter. In general, the ranges of annual
rates of depreciation and amortization applicable to major classifications
of property and equipment are as follows:
<TABLE>
<CAPTION>
CLASS OF ASSETS RATE OF DEPRECIATION
-----------------------
<S> <C>
Leasehold improvements 5% to 20%
Furniture and equipment 10% to 33-1/3%
</TABLE>
26
<PAGE> 28
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Maintenance and repairs are charged to income as incurred; expenditures
for major renewals and betterments that materially extend the economic
lives of property and equipment are capitalized. Gains or losses arising
from dispositions of depreciable assets are credited or charged to income.
Debt expense is being amortized by the straight-line method over the term
of the debt.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents. At July 31,
1997 and 1996, the Company held no instruments that would be considered
cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
SECURITY INVESTMENTS
The Company classifies its investments in debt securities and marketable
equity securities in one of three categories: trading, available-for-sale,
or held-to-maturity. Trading securities are bought and held principally
for the purpose of selling them in the near term. Held-to-maturity
securities are those debt securities in which the Company has the ability
and intent to hold until maturity. All other securities not included in
trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost, adjusted for
the amortization or accretion of premiums or discounts. Unrealized holding
gains and losses on trading securities are included in earnings.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported
as a separate component of stockholders' deficit until realized.
Other investment securities for which no ready market exists are valued at
cost.
For all security investments, declines in value below cost that are
determined to be other than temporary are reflected in operations and the
written-down value of the securities is established as the new cost basis
for those securities.
The cost of securities sold is determined on a first-in, first-out basis.
INVESTMENTS IN REAL ESTATE - ACQUISITION, DEVELOPMENT AND CONSTRUCTION
LOANS
The Company has originated acquisition, development, and construction
(ADC) loans with the following characteristics: (1) the borrower has title
to but little or no equity in the underlying security and (2) the Company
participates in the profit on the ultimate sale of the project. For
financial reporting purposes, the loans have been presented as real estate
investments.
27
<PAGE> 29
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company recognizes the interest and fees the Company is entitled to
under ADC loans ratably as profits are earned on the sale of individual
units in the underlying real estate projects.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, on August 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
(2) ACQUISITIONS OF BAKERY OPERATIONS
On August 10, 1990, the Company entered into an agreement to purchase
substantially all of the assets and assume certain liabilities of Bakery
Europa, Inc., a Hawaii corporation engaged in the business of producing
and wholesaling bakery goods in the state of Hawaii. Further, the Company
entered into a second agreement on May 23, 1991, to purchase certain
assets of Old Vienna Bake Shop, Inc., a Hawaii corporation also engaged in
the business of producing and wholesaling of bakery goods.
In October 1997, the Company entered into an agreement to sell certain
assets and liabilities of its bakery operations (see note 17).
28
<PAGE> 30
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) SECURITY INVESTMENTS
At July 31, 1997 and 1996, the aggregate cost and aggregate fair value of
marketable equity securities were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Aggregate cost $ -- 19,310
======== ======
Aggregate fair value $ -- 42,647
======== ======
</TABLE>
Gross unrealized gains on the portfolio of marketable equity securities at
July 31, 1997, 1996 and 1995 and net realized gains for the years then
ended pertaining to all security investments were as follows:
<TABLE>
<CAPTION>
NET
REALIZED
UNREALIZED GAINS
------------------------------------- ----------
GAINS LOSSES NET GAINS
---------- ----------- ----------
<S> <C> <C> <C> <C>
1997:
Marketable equity securities $ -- -- -- 28,181
======= ======= ======
Other security investments 471,755
--------
$499,936
========
1996:
Marketable equity securities $26,828 (3,491) 23,337 54,448
======= ====== ======
Other security investments 412,627
========
$467,075
========
1995:
Marketable equity securities $68,872 (3,491) 65,381 236,323
========= ====== ======
Other security investments 52,724
--------
$289,047
========
</TABLE>
29
<PAGE> 31
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) LONG-TERM RECEIVABLES
Maturities of long-term receivables at July 31, 1997 are summarized as
follows:
<TABLE>
<S> <C>
1998 $5,344
1999 2,126
------
$7,470
======
</TABLE>
Substantially all long-term receivables are secured by real estate. The
long-term receivables have a weighted average interest rate of 9%.
(5) DEVELOPED REAL ESTATE
The components of developed real estate at July 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Held for sale, at cost:
Condominium apartment units, a portion of which
includes undivided interest in land $ 302,288 301,998
Commercial property 1,350,000 1,350,000
Other 23 23
---------- ---------
1,652,311 1,652,021
Less accumulated depreciation 231,788 208,766
---------- ---------
$1,420,523 1,443,255
========== =========
</TABLE>
(6) REAL ESTATE INVESTMENTS
UNDEVELOPED LAND
Undeveloped land held for sale at July 31, 1997 and 1996 consisted of
approximately 39 acres in Makaha Valley on the island of Oahu, state of
Hawaii.
OTHER REAL ESTATE INVESTMENTS
The Company has extended various ADC loan commitments to corporate real
estate ventures to finance residential real estate projects in Nevada and
Utah. These financing arrangements are being accounted for as in-substance
investments in real estate, whereby the interest and fees the Company is
entitled to will be recognized ratably as profits are earned on the sale
of units in the underlying real estate projects. Each loan commitment has
restrictive loan covenants which limit the maximum amount of loan proceeds
available for site acquisition and development and building construction.
30
<PAGE> 32
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
At July 31, 1997 and 1996, all ADC loans were made to corporate real
estate ventures which are owned by individuals who have personally
guaranteed payment of the ADC loans.
The following summarizes the Company's other investments in real estate
and related deferred income which is presented as "other payables" in the
accompanying consolidated balance sheets.
<TABLE>
<CAPTION>
CAPITALIZED DEFERRED
PROJECT ADVANCES INTEREST TOTAL INCOME
------- ---------- ----------- ------ --------
<S> <C> <C> <C> <C>
As of July 31, 1997:
Copper Bluffs, LLC $ 480,849 58,600 539,449 93,188
Sunset Bay, LLC 498,268 56,400 554,668 137,376
Pageantry
Communities, Inc. 474,630 79,500 554,130 60,842
Red Rock Canyon,
LLC 452,336 33,300 485,636 69,401
Touchstone
Development of
Utah, LLC 805,654 19,700 825,354 12,020
---------- ------ --------- -------
$2,711,737 247,500 2,959,237 372,827
========== ======= ========= ========
As of July 31, 1996:
Copper Bluffs, LLC $ 600,000 7,000 607,000 14,000
Sunset Bay, LLC 608,400 -- 608,400 1,014
Pageantry
Communities, Inc. 693,609 8,200 701,809 13,872
---------- ------- --------- -------
$1,902,009 15,200 1,917,209 28,886
========== ====== ========= =======
</TABLE>
The following paragraphs summarize the ADC loan arrangements and present
summary financial information for the corporate real estate ventures.
COPPER BLUFFS, LLC
On June 18, 1996, the Company extended a $600,000 ADC loan commitment to
Copper Bluffs, LLC to finance a residential real estate project in Clark
County, Nevada. At July 31, 1997 and 1996, the Company's aggregate
investment in the real estate project amounted to $539,449 and $607,000,
respectively, including $58,600 and $7,000, respectively, of capitalized
interest. The ADC loan is secured by a parcel of land in Clark County,
Nevada.
31
<PAGE> 33
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Financial information of Copper Bluffs, LLC is as follows:
CONDENSED BALANCE SHEET
JULY 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 45,249
Construction work in progress 1,902,144
Other current assets 385,226
-----------
$ 2,332,619
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 152,691
Construction notes payable 1,435,774
Due to Capital Investment of Hawaii, Inc. 480,849
Other payables 197,679
-----------
Total liabilities 2,266,993
-----------
Paid-in capital 21,821
Retained earnings 43,805
-----------
Total stockholders' equity 65,626
-----------
$ 2,332,619
===========
</TABLE>
32
<PAGE> 34
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
YEAR ENDED JULY 31, 1997
<S> <C>
Sales $ 4,064,607
Cost of sales (3,663,215)
---------------
Gross profit 401,392
Other income 18,736
Other expenses (265,181)
---------------
Net income $ 154,947
===============
</TABLE>
SUNSET BAY, LLC
On July 29, 1996, the Company extended a $608,400 ADC loan commitment to
Sunset Bay, LLC to finance a residential real estate project in Clark
County, Nevada. The loan commitment was paid in full on November 1, 1996.
Subsequently, on December 23, 1996, the Company extended a $800,000 ADC
loan commitment to Sunset Bay, LLC to finance a residential real estate
project in Clark County, Nevada. At July 31, 1997 and 1996, the Company's
aggregate investment in the real estate project amounted to $554,668 and
$608,400, respectively, including $56,400 of capitalized interest at July
31, 1997. The ADC loan is secured by a parcel of land in Clark County,
Nevada.
Financial information of Sunset Bay, LLC is as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
JULY 31, 1997
ASSET
<S> <C>
Cash $ 307,902
Construction work in progress 2,412,946
--------------
$ 2,720,848
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 261,618
Construction notes payable 1,766,066
Due to Capital Investment of Hawaii, Inc. 498,268
Other payable 190,046
--------------
Total liabilities 2,715,998
--------------
Capital accounts 5,000
Accumulated deficit (150)
--------------
Total stockholders' equity 4,850
--------------
$ 2,720,848
==============
</TABLE>
33
<PAGE> 35
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF LOSS
YEAR ENDED JULY 31, 1997
<S> <C>
Expenses $ 150
--------------
Net loss $ (150)
==============
</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, 1997
and 1996, the Company's aggregate investment in the real estate amounted
to $554,130 and $701,809, respectively, including $79,500 and $8,200,
respectively, of capitalized interest. The ADC loan is secured by a parcel
of land in Clark County, Nevada. Restrictive loan covenants limit the
maximum amount of loan proceeds available during various phases of the
project.
Financial information of Tradewinds Subdivision is as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
JULY 31, 1997
ASSETS
<S> <C>
Cash $ 336,000
Construction work in progress 3,615,456
Due from Escrow account 34,501
Other receivable 245,000
--------------
$ 4,230,957
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 839,438
Interest payable 29,344
Notes payable 2,288,561
Due to Capital Investment of Hawaii, Inc. 474,630
Other payables 81,117
--------------
Total liabilities 3,713,090
Stockholders' equity 517,867
--------------
$ 4,230,957
==============
</TABLE>
34
<PAGE> 36
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
YEAR ENDED JULY 31, 1997
<S> <C>
Sales $ 7,676,148
Cost of sales (6,901,771)
---------------
Gross profit 774,377
Other expenses (256,510)
---------------
Net income $ 517,867
===============
</TABLE>
In fiscal year 1997, the Company entered into 15% loan participation
agreements which provide that the Company sell, without recourse, to
participants an undivided participating interest in the loan to Pageantry
Communities, Inc. Participants' share of the loan commitment amounted to
$485,550 at July 31, 1997, of which $226,590 was borrowed from an officer
of a subsidiary of the Company.
The loan participation agreements further provide that the Company, from
time to time, may repurchase from the participants, their participating
interests, in whole or in part, for an amount equal to the principal
amount of the participating interests. Generally accepted accounting
principles require that these participating agreements to be accounted for
as financing arrangements rather than as sales due to the Company's option
to repurchase the participating interests. Accordingly, the participants'
loans amounting to $485,550 have been presented as "other investments in
real estate" and "loans under participation agreements" in the
accompanying balance sheets. Loans under these participation agreements
will earn interest at the rate of 15% and participants share pro rata with
the Company as to all payments, collections and recoveries. Payments on
the loans are made from the proceeds from the sales of the residential
units.
RED ROCK CANYON, LLC
On October 2, 1996, the Company extended a $500,000 ADC loan commitment to
Red Rock Canyon, LLC to finance a residential real estate project in
Washington County, Utah. At July 31, 1997, the Company's aggregate
investment in the real estate project amounted to $485,636, including
$33,300 of capitalized interest. The ADC loan is secured by a parcel of
land in Washington County, Utah.
35
<PAGE> 37
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Financial information of Red Rock Canyon, LLC is as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
JULY 31, 1997
ASSETS
<S> <C>
Cash $ 58,036
Accounts receivable 6,000
Refundable deposits 62,181
Construction work in progress 1,312,830
---------------
$ 1,439,047
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 85,093
Construction notes payable 692,414
Due to Capital Investment of Hawaii, Inc. 452,336
Other payables 146,984
---------------
Total liabilities 1,376,827
---------------
Capital accounts 10,000
Distributions (5,000)
Retained earnings 57,220
---------------
Total stockholders' equity 62,220
---------------
$ 1,439,047
===============
</TABLE>
36
<PAGE> 38
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
PERIOD ENDED JULY 31, 1997
<S> <C>
Sales $ 644,376
Cost of sales (559,413)
---------------
Gross profit 84,963
Other expenses (27,743)
---------------
Net income $ 57,220
===============
</TABLE>
TOUCHSTONE DEVELOPMENT OF UTAH, LLC
On February 4, 1997, the Company extended a $2,337,437 ADC loan commitment
to Touchstone Development of Utah, LLC to finance a residential real
estate project known as Overlake Estates in Tooele County, Utah. At July
31, 1997, the Company's aggregate investment in the real estate project
amounted to $825,354, including $19,700 of capitalized interest. The ADC
loan is secured by a parcel of land in Tooele County, Utah. Restrictive
loan covenants limit the maximum amount of loan proceeds available during
various phases of the project.
Financial information of Touchstone Development of Utah, LLC is as
follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
JULY 31, 1997
ASSETS
<S> <C>
Cash $ 94,132
Refundable deposits 20,650
Construction work in progress 1,183,799
---------------
$ 1,298,581
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 166,410
Due to Capital Investment of Hawaii, Inc. 805,654
Construction notes payable 172,566
Other payables 148,951
---------------
Total liabilities 1,293,581
Stockholders' equity 5,000
---------------
$ 1,298,581
===============
</TABLE>
37
<PAGE> 39
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company entered into 15% loan participation agreements which provide
that the Company sell, without recourse, to participants an undivided
participating interest in the loan to Touchstone Development of Utah, LLC.
Participants' share of the loan commitment amounted to $750,000 at July
31, 1997. Certain participants are related parties which, in the
aggregate, totaled $225,000 at July 31, 1997.
(7) INDEBTEDNESS
Indebtedness at July 31, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<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, 1998 1,000,000 1,000,000
9-1/2%, payable to a financial institution in
monthly installments of $6,125 including
interest, due July 1, 2001 653,583 664,493
---------- ----------
1,853,583 1,864,493
---------- ----------
Other notes, secured:
Interest at index rate plus 1.5%, payable to a
financial institution, paid in full in fiscal year 1997 -- 714
Interest at prime (8.5% at July 31, 1997) plus 2.0%, payable to a
financial institution in monthly installments of principal of
$11,138, plus interest, due February 1, 1998, but payable on demand
if subsidiary is in violation of
certain financial covenants in loan agreement 211,526 345,223
10%, payable to a financial institution in monthly
installments of $14,539 including interest, due
June 1, 2002 137,390 394,454
Interest at prime (8.5% at July 31, 1997) plus
2.5%, payable to a financial institution in
monthly installments of interest only, due February 1, 1998 100,000 100,000
10%, payable to a financial institution in monthly
installments of $2,272 including interest, due
June 1, 1998 247,633 250,000
Interest at prime (8.5% at July 31, 1997) plus
1.25% until September 3, 1997, interest at prime plus 1.5%
thereafter, payable to a financial institution in monthly
installments of $278 including interest, due August 3, 2000 8,724 11,093
</TABLE>
38
<PAGE> 40
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Interest at prime (8.5% at July 31, 1997) plus 1.25% until December 1,
1997; interest at prime plus 1.5% thereafter, payable to a financial
institution in monthly principal installments of
$322 plus interest, due October 31, 2000 $ 12,559 16,424
Interest at prime (8.5% at July 31, 1997) plus
1.5%, payable to a financial institution in
monthly principal installments of $1,111 plus
interest, due December 22, 1998 17,891 31,223
---------- ----------
735,723 1,160,111
---------- ----------
Debentures - at stated rates (7% to 9.5%), payable to individuals in
quarterly installments of interest only, all of which have matured and
are payable on demand; amount authorized by indenture, $19,000,000 1,976,245 2,062,245
---------- ----------
Other notes, unsecured:
Interest at stated rates (6% to 9.5%), term notes
payable to individuals in quarterly installments
of interest only, due two years from date of issuance 324,457 297,567
Interest at stated rates (8.0% to 9.5%), payable to individuals in
quarterly installments of interest only, payable on demand except
$75,000 due February 14, 1998 (of which $5,000 due to related parties) 145,000 130,000
---------- ----------
469,457 427,567
---------- ----------
$5,035,008 5,514,416
========== ==========
</TABLE>
The Company has a $100,000 working capital line of credit with a bank. As
of July 31, 1997, the outstanding drawings amounted to $100,000. The line
of credit expires on February 1, 1998.
Maturities of indebtedness are shown in the following summary:
<TABLE>
<S> <C>
1998 $ 4,094,639
1999 303,210
2000 21,777
2001 615,382
-----------
$ 5,035,008
===========
</TABLE>
39
<PAGE> 41
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The carrying amounts of assets pledged as collateral for indebtedness as
of July 31, 1997 were as follows:
<TABLE>
<S> <C>
Cash and cash equivalents $ 35,640
Inventories 67,425
Developed real estate 1,420,523
Investment in other securities 817,723
Property and equipment 180,254
===========
</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, 1997.
(8) INCOME TAXES
The benefit for income taxes applicable to the net loss for fiscal years
1997, 1996 and 1995 differ from the "expected benefit for income taxes"
for those years (computed by applying the U.S. federal income tax rate of
34% to net loss) as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax benefit $(287,975) (126,942) (274,695)
Net operating losses for which no
deferred income tax benefit has
been recognized 271,312 111,222 255,602
Dividends received deduction (2,011) (3,209) (2,508)
Officers' life insurance 16,508 16,441 17,794
Other, net 2,166 2,488 3,807
--------- --------- ---------
$ -- -- --
========= ========= =========
</TABLE>
40
<PAGE> 42
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at July
31, 1997 and 1996 are presented below.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Deferred compensation agreement $ 56,700 64,300
Other investment securities, permanent decline
in market value 83,100 83,100
Deferred income on other real estate investment 141,700 11,000
Net tax operating loss carryforwards 1,329,400 1,038,100
Other 80,800 95,600
----------- -----------
Total gross deferred tax assets 1,691,700 1,292,100
Less valuation allowance (1,596,300) (1,285,100)
----------- -----------
Net deferred tax assets $ 95,400 7,000
=========== ===========
Deferred tax liabilities:
Capitalized interest on other real estate $ 94,100 5,800
investments
Other 1,300 1,200
----------- -----------
Total gross deferred tax liabilities $ 95,400 7,000
=========== ===========
</TABLE>
The valuation allowance for deferred tax assets as of August 1, 1996 and
1995 were $1,285,100 and $1,157,400, respectively. The net change in the
total valuation allowance for the years ended July 31, 1997 and 1996 were
increases of $311,200 and $127,700, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment.
As of July 31, 1997, the Company had tax net operating loss carryforwards
of approximately $3,300,000 and $4,400,000 for federal and state income
tax purposes, respectively, which can be used to offset future taxable
income through 2012.
41
<PAGE> 43
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) DEFERRED COMPENSATION
The Company has a deferred compensation agreement under which the Company
is obligated to pay $5,000 each month for 120 consecutive months to the
spouse of the late Mr. Chinn Ho, the former chairman of the Executive
Committee. The Company commenced monthly payments in accordance with the
deferred compensation agreement to Mrs. Chinn Ho in November 1989. The
accrued obligation as of July 31, 1997 and 1996 amounted to $149,158 and
$169,158, respectively, and is included in the consolidated balance sheet
as other payables.
(10) LEASE COMMITMENTS
The Company leases various facilities for its office premises, rental
agency and its bakery operations. These operating leases provide that the
Company pay all taxes, maintenance and insurance applicable to the leased
properties.
Consolidated future minimum payments required under noncancelable
operating leases as of July 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Year ending July 31:
<S> <C>
1998 $ 330,960
1999 286,897
2000 281,815
2001 280,120
2002 280,120
Thereafter 2,249,247
----------
$3,709,159
==========
</TABLE>
Net rent expense for all operating leases was $408,250, $501,100 and
$449,900 for the years ended July 31, 1997, 1996 and 1995, respectively.
(11) COMMITMENT AND CONTINGENT LIABILITIES
Under the provision of various agreements relating to its participation in
mortgage notes receivable sold with recourse, the Company is committed to
repurchase notes that become delinquent, as specified in the agreements,
if requested to do so by the holder of the notes. At July 31, 1997 the
outstanding balances of notes receivable sold that were subject to the
aforementioned recourse provisions aggregated $74,000. The Company may be
subject to similar recourse provisions with respect to additional
outstanding balances of notes aggregating approximately $28,000 at July
31, 1997, although management does not believe this was the intent of the
parties to the agreements related to the sale of its participation in
notes receivable. The mortgage notes referred to above relate to
condominium unit sales in 1972 and 1973. Management believes that if the
Company is required to repurchase delinquent notes, no losses will be
incurred as the proceeds from the sale of real estate securing the notes
would be adequate to satisfy the related debt obligations.
42
<PAGE> 44
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) FOURTH QUARTER RESULTS (UNAUDITED)
Fourth quarter results for the year ended July 31, 1997 are as follows:
<TABLE>
<S> <C>
Revenues:
Revenues from continuing operations $ 476,927
Revenues from discontinued operations 1,071,813
-----------
$ 1,548,740
===========
Loss:
Loss from continuing operations ($.08 per
common share) $ (83,299)
Loss from discountinued operations ($.14 per
common share) (145,570)
-----------
$ (228,869)
===========
</TABLE>
(13) LOSS PER COMMON SHARE
Loss per common share was computed by dividing the applicable loss by the
weighted average number of shares of common stock outstanding.
(14) SEGMENT INFORMATION
The Company has classified its business activities into significant
segments for the years ended July 31, 1997, 1996 and 1995. The Company's
operations have been classified into real estate, security and other
investing, wholesale bakery and other activities. Real estate activities
include the acquisition and development of undeveloped real estate, the
sale and leasing of developed real estate and investment in undeveloped
real estate. Also included in real estate activities are interest income
on notes receivable arising from property sales and from loans made to
development projects. Security and other investing activities include
gains or losses from security investments and investment income related to
the ownership of such investments. Other activities include the Company's
rental agency businesses and other miscellaneous activities. The following
is a summary of segment financial information for the years ended July 31,
1997, 1996 and 1995:
43
<PAGE> 45
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Real estate activities:
Property rentals $ 117,615 178,325 87,741
Income from ADC loan
arrangements 449,842 1,143,229 1,360,568
Interest income 16,143 124,155 181,077
----------- ----------- -----------
Total real estate
activities 583,600 1,445,709 1,629,386
----------- ----------- -----------
Security and other investing activities:
Gains from sales of securities 499,936 467,075 289,047
Dividends and interest 58,118 59,177 36,589
----------- ----------- -----------
Total security and
other investing activities 558,054 526,252 325,636
----------- ----------- -----------
Other activities 676,141 722,910 650,138
----------- ----------- -----------
$ 1,817,795 2,694,871 2,605,160
=========== =========== ===========
Operating loss from continuing operations:
Real estate activities $ 181,465 1,016,950 1,191,284
Security and other investing
activities 510,625 479,910 278,666
Other activities (15,049) 43,294 (14,817)
----------- ----------- -----------
677,041 1,540,154 1,455,133
Interest expense (393,283) (831,375) (956,375)
Corporate expenses (704,692) (725,812) (746,056)
----------- ----------- -----------
Loss from continuing
operations $ (420,934) (17,033) (247,298)
=========== =========== ===========
</TABLE>
44
<PAGE> 46
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation and amortization:
Real estate activities $ 24,226 30,768 18,210
Security and other investing
activities 657 780 1,412
Other activities 8,100 16,244 21,075
---------- ---------- ----------
Total segments 32,983 47,792 40,697
Corporate 10,581 7,145 12,948
Discontinued operations -
wholesale bakery activities
(note 17) 56,806 156,899 270,055
---------- ---------- ----------
$ 100,370 211,836 323,700
========== ========== ==========
Capital expenditures:
Real estate activities $ 290 2,201 1,379,251
Other activities 13,288 790 341
Corporate 7,595 8,182 9,741
Discontinued operations -
wholesale bakery activities
(note 17) 30,526 96,179 65,896
---------- ---------- ----------
$ 51,699 107,352 1,455,229
========== ========== ==========
Identifiable assets:
Real estate activities $4,535,896 4,479,964 6,975,918
Security and other investing
activities 819,440 745,019 922,165
Other activities 439,206 128,501 728,060
---------- ---------- ----------
Total segments 5,794,542 5,353,484 8,626,143
Corporate 824,260 800,698 1,316,868
Discontinued operations -
wholesale bakery activities
(note 17) 505,128 638,400 674,742
---------- ---------- ----------
$7,123,930 6,792,582 10,617,753
========== ========== ==========
</TABLE>
Sales between business segments are immaterial and are netted against the
sales of the respective segment.
45
<PAGE> 47
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) BUSINESS AND CREDIT CONCENTRATIONS
Substantially all of the Company's business activity is with customers
located in Hawaii, Nevada and Utah. The majority of customers of the
Company's operating businesses are related to the hospitality industry.
The Company's business activities in Nevada and Utah related solely to
financing residential real estate development projects. At July 31, 1997
and 1996, the Company had outstanding ADC loans of $2,711,737 and
$1,902,009, respectively, due from corporate real estate ventures. Under
participation agreements the Company had sold $1,235,550 of these loans
without recourse as of July 31, 1997 (see note 6).
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each applicable class of financial instruments for which it is
practicable to estimate that value:
The carrying amount of cash and cash equivalents, trade accounts
receivable, accounts payable, accrued expenses and debentures approximate
fair value because of the short maturity of these instruments.
MARKETABLE EQUITY SECURITIES AND OTHER INVESTMENT SECURITIES
Fair value is based on quoted market prices or dealer quotes.
LONG-TERM RECEIVABLES AND OTHER REAL ESTATE INVESTMENTS
Fair value is determined as the present value of expected future cash
flows discounted at the interest rate currently offered by the Company,
which approximates rates currently offered by local lending institutions
for loans of similar terms to companies with comparable credit risk.
INDEBTEDNESS
Fair value of mortgage notes, other notes, secured and other notes,
unsecured is estimated by discounting the future cash flows of each
instrument based on the quoted market prices for the same or similar
issues or on the current rates offered for debt of the same or similar
remaining maturities.
DEFERRED COMPENSATION PAYABLE
The carrying value of deferred compensation payable estimates fair value.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the
46
<PAGE> 48
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Company's financial instruments, fair value estimates cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are provided for certain existing on-and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not
been considered.
<TABLE>
<CAPTION>
JULY 31, 1997 JULY 31, 1996
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS AMOUNT VALUE AMOUNT VALUE
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 797,514 797,514 757,399 757,399
Marketable equity securities -- -- 42,647 42,647
Trade accounts receivable 676,242 676,242 470,042 470,042
Long-term receivables 7,470 7,272 965,908 886,218
Other investments:
Real estate 2,959,237 2,933,208 1,917,209 1,785,774
Securities 817,723 1,378,169 700,454 1,511,892
FINANCIAL LIABILITIES
Accounts payable 635,013 635,013 651,407 651,407
Accrued expenses:
Interest 53,808 53,808 55,348 55,348
Taxes other than income 14,518 14,518 16,954 16,954
Other 776,858 776,858 614,626 614,626
Mortgage notes 1,853,583 1,693,951 1,864,493 1,662,857
Other notes, secured 735,723 710,277 1,160,111 1,112,537
Debentures 1,976,245 1,976,245 2,062,245 2,062,245
Other notes, unsecured 469,457 466,347 427,567 424,752
Deferred compensation payable 149,158 149,158 169,158 169,158
</TABLE>
47
<PAGE> 49
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(17) SUBSEQUENT EVENT
In October 1997, the Company entered into an agreement to sell certain
assets and liabilities of its subsidiary, Latipac Fine Foods, Inc. Summary
operating results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Total revenues $ 4,737,228 5,521,390 4,965,794
Total costs and expenses (5,163,278) (5,877,715) (5,526,422)
----------- ----------- -----------
Loss from discontinued
operations $ (426,050) (356,325) (560,628)
=========== =========== ===========
</TABLE>
The components of net liabilities of discontinued operations included in
the consolidated balance sheets at July 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Inventories $ 67,425 65,322
Deferred charges and other assets 28,471 45,571
Property and equipment, at cost, net of
accumulated depreciation and
amortization 151,640 173,777
Accounts payable, trade (441,384) (461,633)
Accrued expenses (194,191) (151,019)
--------- ---------
Net liabilities $(388,039) (327,982)
========= =========
</TABLE>
48
<PAGE> 50
Schedule II
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended July 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------
BALANCE AT 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, 1997:
Allowance for doubtful receivables $25,001 18,000 -- 15,810 (1) 27,191
=============== =============== ============== ============== ===============
Year ended July 31, 1996:
Allowance for doubtful receivables $31,860 24,500 -- 31,358 (1) 25,001
=============== =============== ============== ============== ===============
Year ended July 31, 1995:
Allowance for doubtful receivables $58,544 (3,482) -- 23,202 (1) 31,860
=============== =============== ============== ============== ===============
</TABLE>
(1) Accounts receivable written off.
See accompanying independent auditors' report.
49
<PAGE> 51
Schedule III
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Real Estate and Accumulated Depreciation
July 31, 1997
<TABLE>
<CAPTION>
COST
CAPITALIZED
SUBSEQUENT GROSS AMOUNT AT WHICH
INITIAL COST TO COMPANY TO CARRIED AT CLOSE
ACQUISITION OF PERIOD
------------------------ ------------- -----------------------
BUILDINGS BUILDINGS
AND AND
IMPROVE- IMPROVE- IMPROVE-
DESCRIPTION ENCUMBRANCES LAND MENTS MENTS LAND MENTS
- ------------------------------ ---------------------------- ----------- ---------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Developed real estate - held
for sale
Condominium apartments:
Makaha, Hawaii Note payable on five
apartments to financial
institution $ (2,323) 30,138 13,381 (2,323) 43,519
Honolulu, Hawaii Mortgages payable on four
apartments to various
individuals and
company; note payable
on one apartment to
financial institution 24,578 166,705 69,809 24,578 236,514
Commercial/industrial: Mortgages payable to
Honolulu, Hawaii financial institution
and company; notes
payable to financial 743,000 607,000 -- 743,000 607,000
institution
Other miscellaneous
developed real estate
located in Hawaii None 23 -- -- 23 --
----------- ---------- ------------- ---------- -----------
Total developed
real estate 765,278 803,843 83,190 765,278 887,033
Undeveloped land held for
sale - Makaha, Hawaii None 73,290 -- 61,184 73,290 61,184
----------- ---------- ------------- ---------- -----------
Grand total $ 838,568 803,843 144,374 838,568 948,217
=========== ========== ============= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH DEPRECIATION
ACCUMULATED DATE OF IN LATEST INCOME STATEMENT
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION DATE ACQUIRED IS COMPUTED
- ------------------------------ --------- -------------- ----------------- ------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Developed real estate - held
for sale
Condominium apartments:
Makaha, Hawaii
Completed Various 1973 to 36 to 40 years for
41,196 10,081 February 1971 1985 apartments 5 years for
furnishings
Honolulu, Hawaii
Completed 1964 Various 1964 to 40 years for apartments
261,092 190,579 and 1968 1985 5 years for furnishings
Commercial/industrial:
Honolulu, Hawaii
1,350,000 31,128 Built 1986 July 1995 39 years
Other miscellaneous
developed real estate
located in Hawaii 23 -- April 1956 July 1953
---------- --------------
Total developed
real estate 1,652,311 231,788
Undeveloped land held for
sale - Makaha, Hawaii 134,474 -- May 1973 Primarily 20 years
----------- --------------
Grand total 1,786,785 231,788
=========== ==============
</TABLE>
50
<PAGE> 52
Schedule III
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Real Estate and Accumulated Depreciation, Continued
(1) Changes during the two years ended July 31, 1997:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cost of real estate:
Balance at beginning of year $1,786,495 1,786,651
Additions during year - improvements to real estate 290 2,200
Deductions during year - cost of retirements -- (2,356)
---------- ----------
Balance at end of year $1,786,785 1,786,495
========== ==========
Accumulated depreciation of real estate:
Balance at beginning of year $ 208,766 186,345
Additions during the year - charged to costs and
expenses 23,022 24,777
Deductions during the year - retirements and sales -- (2,356)
---------- ----------
Balance at end of year $ 231,788 208,766
========== ==========
</TABLE>
(2) Aggregate original cost for federal income tax purposes amounted to
$1,862,770 for 1997.
(3) Presentation on consolidated balance sheet as of July 31, 1997:
<TABLE>
<CAPTION>
UNDEVELOPED
DEVELOPED LAND HELD
REAL ESTATE FOR SALE
------------ -----------
<S> <C> <C>
Cost $ 1,652,311 134,474
Less accumulated depreciation (231,788) --
----------- -----------
$ 1,420,523 134,474
=========== ===========
</TABLE>
See accompanying independent auditors' report.
51
<PAGE> 53
Schedule IV
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Mortgage Loans on Real Estate
July 31, 1997
<TABLE>
<CAPTION>
FACE
FINAL PERIODIC AMOUNT OF
DESCRIPTION INTEREST RATE MATURITY DATE PAYMENT TERMS PRIOR LIENS MORTGAGES
- ---------------------------------------- -------------- ----------------- ---------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
First mortgage - payable to a corporation
on condominium apartments located
in Honolulu, Hawaii 9-1/2% February 28, 1998 Monthly installments $ -- 1,000,000
of interest only
First mortgages - payable to
individuals
on condominium apartment located Monthly installments
in Honolulu, Hawaii 9-1/2% On Demand of interest only -- 200,000
First mortgages - payable to a Monthly installments
financial institution on land of $6,125, including
and warehouse located in Honolulu, 9-1/2% July 1, 2001 interest -- 700,000
Hawaii
--------- -----------
$ -- 1,900,000
========= ===========
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
LOANS SUBJECT TO
CARRYING DELINQUENT
AMOUNT OF PRINCIPAL
DESCRIPTION MORTGAGE(1) OR INTEREST
- ------------------------------------------ ------------- -------------------
<S> <C> <C>
First mortgage - payable to a corporation
on condominium apartments located
in Honolulu, Hawaii 1,000,000 --
First mortgages - payable to
individuals
on condominium apartment located
in Honolulu, Hawaii 200,000 --
First mortgages - payable to a
financial institution on land
and warehouse located in Honolulu,
Hawaii 653,583 --
---------- -----------
1,853,583 --
========== ===========
</TABLE>
(1) Changes during the two years ended July 31, 1997 and 1996:
<TABLE>
1997 1996
-------------- -----------
<S> <C> <C>
Balance at beginning of year $ 1,864,493 1,874,247
Deductions during the year (10,910) (9,754)
----------- -----------
Balance at end of year $ 1,853,583 1,864,493
=========== ===========
</TABLE>
See accompanying independent auditors' report.
52
<PAGE> 54
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITAL INVESTMENT OF HAWAII, INC.
Date: October 24, 1997 /s/ Stuart T. K. Ho
---------------------------------------
Stuart T. K. Ho, Chairman of the Board,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: October 24, 1997 /s/ Dean T. W. Ho
---------------------------------------
Dean T. W. Ho, Vice Chairman, Secretary
and Director
Date: October 24, 1997 /s/ Donald M. Wong
---------------------------------------
Donald M. Wong, Senior Vice President,
Chief Financial Officer, Treasurer and
Director
Date: October 24, 1997 /s/ Harriet H. Matsuo
---------------------------------------
Harriet H. Matsuo, Assistant Secretary and
Assistant Treasurer
Date: October 24, 1997 /s/ Greta U. Nakao
---------------------------------------
Greta U. Nakao, Assistant Secretary
and Assistant Treasurer
Date: October 24, 1997 /s/ Pedro P. Ada
---------------------------------------
Pedro P. Ada, Director
Date: October 24, 1997 /s/ C. B. Sung
---------------------------------------
C. B. Sung, Director
Date: October 24, 1997 /s/ Stanley W. Hong
---------------------------------------
Stanley W. Hong, Director
53
<PAGE> 55
Date: October 24, 1997 /s/ Walter Lum
---------------------------------------
Walter Lum, Assistant Treasurer
54
<PAGE> 1
Exhibit 11
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Computation of Loss Per Common Share
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Loss from continuing operations $ (420,934) (17,033) (247,298) (514,690) 62,653
Discontinued operations (426,050) (356,325) (560,628) (908,763) (1,083,432)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
shareholders $ (846,984) (373,358) (807,926) (1,423,453) (1,020,779)
=========== =========== =========== =========== ===========
Divided by weighted average number of common
shares outstanding during the year 1,032,683 1,032,683 1,032,683 1,032,683 1,032,683
=========== =========== =========== =========== ===========
Loss per common share:
Continuing operations (.41) (.02) (.24) (.50) .06
Discontinued operations (.41) (.34) (.54) (.88) (1.05)
----------- ----------- ----------- ----------- -----------
Net loss (.82) (.36) (.78) (1.38) (.99)
=========== =========== =========== =========== ===========
</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, 1997 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS AND RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED JULY 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 797,514
<SECURITIES> 0
<RECEIVABLES> 676,242
<ALLOWANCES> 27,191
<INVENTORY> 67,425
<CURRENT-ASSETS> 0
<PP&E> 1,994,233
<DEPRECIATION> 1,791,381
<TOTAL-ASSETS> 7,123,930
<CURRENT-LIABILITIES> 0
<BONDS> 5,035,008
0
0
<COMMON> 1,723,765
<OTHER-SE> (2,884,631)
<TOTAL-LIABILITY-AND-EQUITY> 7,123,930
<SALES> 0
<TOTAL-REVENUES> 1,817,795
<CGS> 0
<TOTAL-COSTS> 2,238,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 393,283
<INCOME-PRETAX> (420,934)
<INCOME-TAX> 0
<INCOME-CONTINUING> (420,934)
<DISCONTINUED> (426,050)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (846,984)
<EPS-PRIMARY> (.82)
<EPS-DILUTED> (.82)
</TABLE>
