<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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 Commission file Number 0-4179
Capital Investment of Hawaii, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Hawaii 99-0065664
- ---------------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
- ---------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (808) 537-3981
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
- ------------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13, or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (x) Yes ( ) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ x]
The Company's voting stock is not actively traded on any exchange and
accordingly the aggregate market value is not determinable.
There were 1,032,683 shares outstanding of common stock, no par value as of
October 23, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Articles of Association and By-Laws are incorporated by reference into Part
IV of this report.
<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 activities. Financial information
about industry segments is presented in note 12 of the notes to consolidated
financial statements. As of July 31, 1998, the Registrant and its subsidiaries
had 22 employees.
REAL ESTATE
Real estate activities include the acquisition and development of
undeveloped real estate, the sale and leasing of developed real estate and the
investment in undeveloped land located principally on the island of Oahu in the
state of Hawaii. Also included in real estate activities is interest income on
notes receivable arising from property sales and income earned from financing
acquisition, development and construction loan commitments in connection with
residential real estate projects in Nevada and Utah. Since real estate sales and
developments are not made and undertaken on a continuous basis, there exist
significant fluctuations from year to year. The results of any one year are not
necessarily comparable to other years and should not be a basis of expectation
for future years. The identification and location of the Registrant's real
estate holdings are discussed in Item 2, PROPERTIES.
SECURITY AND OTHER INVESTING ACTIVITIES
Security and other investing activities include gains and losses from
the sale of other investments and dividend and interest income related to the
ownership of such investments. The timing of sales and related gains/losses,
which tend to vary with market conditions and the Registrant's cash
requirements, are subject to significant fluctuations from year to year.
1
<PAGE> 3
DISCONTINUED WHOLESALE BAKERY ACTIVITIES
Wholesale bakery activities include the production and sale of bakery
products primarily to major hotels, commercial airlines and U.S. military
installations in Hawaii. The Registrant acquired the assets of an existing
bakery in August 1990 and additional assets of another smaller bakery in May
1991. In December 1997, the Company sold certain assets and liabilities of its
subsidiary Latipac Fine Foods, Inc. and discontinued its bakery operations.
OTHER ACTIVITIES
Other activities include a real estate management division in Waikiki,
Hawaii that in fiscal year 1998 had revenues of $660,560 and net income of
$303,319, compared with revenues of $670,420 and net income of $316,913 in
fiscal year 1997.
ITEM 2. PROPERTIES
As of July 31, 1998, the Registrant and its subsidiaries owned properties used
in connection with its real estate activities as set forth below. All properties
are located in the City and County of Honolulu, and the titles are held in fee.
<TABLE>
<CAPTION>
DESCRIPTION AREA
------------------------------------------------------------------- -----------------
<S> <C>
Developed Real Estate and Undeveloped Land
5 condominium apartments, Makaha Valley Towers in Makaha, Hawaii
3,837 square feet
5 condominium apartments, Ilikai Apartment Building and Ilikai Marina
Apartment Building in Honolulu, Hawaii 5,199 square feet
1 lot, Makaha, Hawaii .19 acres
1 commercial warehouse and land in Honolulu, Hawaii .22 acres
</TABLE>
2
<PAGE> 4
The Company also owns parcels of unimproved real estate totaling
approximately 39 acres and interests in real estate at Makaha Valley, Hawaii
owned by the Company's 85.8 percent-owned subsidiary, Makaha Valley,
Incorporated, among which are (a) 3.825 acres of land zoned "agricultural"
fronting the fifth fairway of the Sheraton Makaha Resort golf course, carried at
nil on the balance sheet; (b) 2.823 acres of land near Makaha beach zoned
"country," but designated on the development plan of the City and County of
Honolulu, Hawaii general plan as "commercial," carried at $3,065 on the balance
sheet; and (c) a reversionary interest in 8.454 acres of land within the
Maunaolu residential subdivision at Makaha zoned "country," title to which will
revert to the subsidiary if the land ceases to be used as a reservoir, which is
carried at nil on the balance sheet.
See note 6 of the notes to consolidated financial statements for
information with respect to real estate pledged as security for indebtedness.
ITEM. 3 LEGAL PROCEEDINGS
There is no litigation which, in the opinion of management, will have a
materially adverse affect on the Company's consolidated financial position or
results of operations.
ITEM. 4 SUBMISSION TO A VOTE HOLDERS
There were no matters that were submitted to a vote of security holders
during the fourth quarter of the fiscal year ended July 31, 1998.
3
<PAGE> 5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Registrant's common shares are not listed on any stock exchange,
and there is no active trading of the shares. The following is the high and low
quarterly bid information for each of the full quarterly periods within the
years ended July 31, 1998 and 1997:
<TABLE>
<CAPTION>
LOW BID HIGH BID
------- --------
<S> <C> <C>
Quarter ended:
October 31, 1996 1/4 7/16
January 31, 1997 7/16 1/2
April 30, 1997 1/2 1/2
July 31, 1997 1/2 1/2
October 31, 1997 1/2 1/2
January 31, 1998 1/2 1/2
April 30, 1998 1/2 1/2
July 31, 1998 1/2 1/2
</TABLE>
The aforementioned quotations were received from Abel-Behnke
Corporation which makes a market in the Company's stock.
On July 31, 1998, there were approximately 540 stockholders of record
of common stock, excluding individuals and institutions for whom shares are held
in the names of nominees or brokerage firms.
There were no common stock dividends declared or paid during fiscal
years 1998, 1997, and 1996.
4
<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,916,355 1,817,795 $ 2,694,871 $ 2,605,160 $ 2,125,551
Loss from continuing operations
(615,884) (420,934) (17,033) (247,298) (514,690)
Loss per common share from
continuing operations (A) (.60) (.41) (.02) (.24) (.50)
=========== ========= =========== =========== =============
</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, 1998.
FINANCIAL CONDITION
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total assets $5,406,774 7,123,930 6,792,582 10,617,753 11,498,301
========== ========== ========== ========== ==========
Indebtedness:
Mortgage notes $1,841,684 1,853,583 1,864,493 1,874,247 1,200,000
Other notes, secured 590,470 735,723 1,160,111 2,670,016 3,416,384
Debentures 1,942,745 1,976,245 2,062,245 2,108,245 2,221,895
Other notes, unsecured 502,355 469,457 427,567 499,605 507,253
---------- ---------- ---------- ---------- ----------
$4,877,254 5,035,008 5,514,416 7,152,113 7,345,532
========== ========== ========== ========== ==========
</TABLE>
5
<PAGE> 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company recorded a net loss of $266,867 for the fiscal year ended
July 31, 1998, (fiscal year 1998), compared with net losses of $846,984 and
$373,358 for fiscal years 1997 and 1996, respectively.
The net loss for fiscal year 1998 included depreciation and
amortization totaling $71,747, as compared to $100,370 and $211,836 in fiscal
years 1997 and 1996, respectively.
The Company's subsidiary, Latipac Fine Foods, Incorporated, ("Latipac")
accounted for $29,858, $56,806 and $156,899 of depreciation for fiscal years
ended July 31, 1998, 1997, and 1996, respectively.
The Company's operating performance during fiscal year 1998,
substantially reflected the effects of (a) an agreement to dispose of certain
assets and liabilities owned by its subsidiary, Latipac, and the business known
as "Bakery Europa"; (b) the Company's continuing activity as a lender making
working capital available to home builders in Nevada and Utah to buy land and to
build finished lot pads; and (c) the Company's continuing business as a property
management agent of approximately 300 condominium apartments in Waikiki, Hawaii,
mostly situated in the Ilikai Apartment Building and the Ilikai Marina Apartment
Building.
The economic climate in Hawaii during fiscal year 1998 was poor, as it
had been for several years, without interruption. Hawaii's private-sector
economy is heavily dependent upon tourism, and especially upon tourists from
Japan. The Japanese economy has been in decline since 1992, and it is not
expected to significantly improve in fiscal year 1999. The Company does not
expect Hawaii's economy to improve in fiscal year 1999. The economies of
southern Nevada and Utah, on the other hand, are robust and have been so for
several years. The Company expects homebuilding activity in southern Nevada and
Utah to continue to be active during fiscal year 1999, stimulated by steady job
growth and low interest rates.
6
<PAGE> 8
BAKERY OPERATIONS
In December 1997, the Company sold certain assets and liabilities of
Latipac. Bakery Europa's operating results for fiscal years 1998, 1997, and 1996
is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Income (loss) before certain interest and
depreciation and amortization $ 4,936 (341,407) (157,426)
Interest on loan to acquire this subsidiary's
assets (5,288) (27,837) (42,000)
Depreciation and amortization (29,858) (56,806) (156,899)
Gain on sale of discontinued operations 379,227 -- --
--------- --------- ---------
Net income (loss) $ 349,017 (426,050) (356,325)
========= ========= =========
</TABLE>
Bakery Europa's net product sales for fiscal year 1998 were $2,137,368,
compared with net sales of $4,737,228 and $5,521,390 for fiscal years 1997 and
1996, respectively. The gross profit margin for fiscal year 1998 was 40.1%,
compared with 40.1% and 36.4% for fiscal years 1997 and 1996, respectively. Net
income (loss) per share for Bakery Europa amounted to $.34, $(.41) and $(.35)
for the fiscal years 1998, 1997, and 1996, respectively. Gain on sale of the
discontinued operation for fiscal 1998 resulted in an earnings per share of
$.37.
NEVADA AND UTAH FINANCING ACTIVITIES
Since fiscal year 1991, the Company has engaged in making "ADC loans"
to home builders in southern Nevada and Utah. An ADC loan is an arrangement
whereby the Company, who shares in the same risks and potential rewards as those
of the borrower, advances funds so that the borrower is able to acquire and
develop unimproved land, provide infrastructure and construct homes. In recent
years, banks and other federally insured lending institutions have tightened
credit standards. As a result of this stringent credit environment many home
builders have been forced to seek alternate sources of financing such as ADC
loans.
7
<PAGE> 9
The Company has made sixteen such loans since 1991, and all have either
been paid or are performing. The Company has never experienced a default on a
loan it has made. The Company's ADC lending activities in recent years have been
as follows:
<TABLE>
<CAPTION>
ADVANCES AT
INCOME FROM END OF
FISCAL YEAR INVESTMENTS FISCAL YEAR
----------- ----------- -----------
<S> <C> <C>
1998 $ 828,824 1,435,210
1997 449,842 2,711,737
1996 1,143,229 1,902,009
========== ==========
</TABLE>
Deferred income on these loans totaled $434,755 at July 31, 1998,
compared to $372,827 and $28,886, at July 31, 1997 and 1996, respectively.
ADC loans bear higher than average risk. The Company adheres to a
policy of concentrating its loans with experienced builders building
single-family dwelling projects priced for the "entry-level" or "first move-up"
markets. The Company's practice is to limit the outstanding loan balance to an
amount only sufficient to acquire land and to construct homes on only a portion
of the total lots in the project. The effect of this practice is to require the
builder to sell completed homes in order to finance the building of the
remaining lots. The loans are secured, but they are often subordinated to
conventional loans to finance the construction of homes.
The Las Vegas new home market continues to be very active, driven by an
expansion of hotel and gaming facilities, steady immigration into the area,
driven by the growth of the area's high-job growth. The Salt Lake City home
building market is also very active, driven by the growth of the area's
high-technology industry and the city's confining land features, which have
resulted in high urban density. The Company also finances projects in Mesquite,
Nevada, and in the suburbs of St. George, Utah, which have attracted new
residents, many of whom are fleeing what they consider to be over-crowded
conditions in Las Vegas.
8
<PAGE> 10
PROPERTY MANAGEMENT
The Company manages more than 300 condominium apartment units in
Waikiki, mainly in the Ilikai Apartment Building and the Ilikai Marina Apartment
Building, under management agreements with individual apartment owners. This
division of the Company from time to time earns brokerage fee income from sales
of apartments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at July 31, 1998 was
$752,493 compared with $797,514 at the end of fiscal year 1997.
Cash provided by operating activities amounted to $597,782 in 1998 and
resulted primarily from the net decrease in investments in real estate of
$1,433,827 related to the Company's Nevada and Utah ADC arrangements.
Cash inflows in 1998 provided by investing activities amounted to
$239,159 which are attributed to collections on long-term receivables and
proceeds from the sale of other investments. Cash used in financing activities
of $881,962 included proceeds of loan participation agreements of $832,500 which
were offset by payments made under loan participation agreements of $1,556,708
(see note 6 to the consolidated financial statements).
During fiscal year 1998, the Company was able to meet its operating
cash requirements with cash flows generated from operating and investing
activities. Cash inflows and outflows from investments in Copper Bluffs, LLC,
Sunset Bay, LLC, Red Rock Canyon, LLC, Touchstone Development of Utah, LLC, and
Hearthstone Homes, Inc. will continue into fiscal year 1999. Cash requirements
for fiscal year 1999 will be satisfied from institutional borrowings,
refinancing of notes payable, net collections of notes receivable, cash in banks
at year end, net collections of ADC loans and additional loan participation
agreements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules.
9
<PAGE> 11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants nor disagreements on accounting or
financial disclosure matters for the years ended July 31, 1998 and 1997.
10
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists all directors of the Registrant as of July
31, 1998:
<TABLE>
<CAPTION>
NUMBER OF
YEARS SERVED
OFFICE HELD WITH AS OTHER PUBLIC
NAME AGE REGISTRANT DIRECTOR BUSINESS EXPERIENCE DIRECTORSHIPS
- --------------------- --- --------------------- ------------ ------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Stuart T. K. Ho 62 Chairman of the Board 31 Positions held with Bancorp Hawaii, Inc.;
and President Registrant Gannett Co., Inc.;
College Retirement
Equities Fund
Dean T. W. Ho (1) 60 Vice Chairman and 17 Positions held with --
Secretary Registrant
Donald M. Wong 80 Senior Vice 24 Positions held with --
President, Chief Registrant
Financial Officer
and Treasurer
Pedro P. Ada 68 None 27 President of Ada's --
Incorporated; real
estate, insurance
agency and investments
Stanley W. Hong (2) 62 None 13 President and Chief Central Pacific Bank;
Executive Officer of First Insurance Co.
Chamber of Commerce of Hawaii
of Hawaii
C. B. Sung 73 None 13 Chairman of Unison --
International;
President and Chief
Executive Officer of
Unison Pacific
Corporation
</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.
11
<PAGE> 13
The present terms of office of all directors will expire at the next
annual meeting of the stockholders of the Registrant or upon election of their
respective successors. No events have occurred during the past five years that
are material to an evaluation of the ability or integrity of any director.
The following table lists all executive officers of the Registrant as
of July 31, 1998:
<TABLE>
<CAPTION>
NAME AGE OFFICE POSITION HELD
- -------------------- ---- --------------------------- ---------------------------------------------------
<S> <C> <C> <C>
Stuart T. K. Ho 62 Chairman of the Board and Chairman of the Board since 1982, President from
President 1975 to 1982 and since 1988, Vice President and
Secretary from 1966 to 1975
Dean T. W. Ho(1) 60 Vice Chairman and Secretary Secretary since 1991, Vice Chairman since 1988,
President from 1982 to 1987, Executive Vice
President from 1975 to 1982 and Vice President
from 1965 to 1975
Donald M. Wong 80 Senior Vice President and Senior Vice President since 1990, Financial Vice
Treasurer President from 1965 to 1990 and Treasurer since
1965
Harriet H. Matsuo 73 Assistant Secretary and Secretary from 1975 to 1991 and Assistant Secretary
Assistant Treasurer and Assistant Treasurer from 1965 to 1975 and
since 1991
Greta U. Nakao 76 Assistant Secretary and Assistant Treasurer since 1975 and Assistant
Assistant Treasurer Secretary since 1981
</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.
12
<PAGE> 14
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the compensation for each of the years ended
July 31, 1998, 1997, 1996 and 1995 for (a) the Chairman of the Board and
President, and (b) all executive officers of the Registrant whose annual
compensation exceeds $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------- ---- ------------------------------- -------------------------------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER SECURITY ALL
ANNUAL RESTRICTED UNDER- OTHER
NAME AND COMPEN- STOCK LYING LTIP COMPEN-
PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS/ PAYOUTS SATION
POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($)
- -------------------- ---- ------ ----- ------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stuart T.K. Ho,
Chairman of the
Board and
President 1998 127,008 -- -- -- -- -- --
1997 127,424 -- -- -- -- -- --
1996 132,000 -- -- -- -- -- --
</TABLE>
13
<PAGE> 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth, as of July 31, 1998, shareholders of record
who beneficially own more than 5% of the voting stock of the Registrant:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER: OWNERSHIP OF CLASS
- ---------------------------------------------------------- --------- --------
<S> <C> <C>
Cede & Co. 164,124 15.9%
P. O. Box 20
New York, New York 10004
Stuart T. K. Ho, Dean T. Ho, and Karen Ho Hong, Trustees
of the Chinn Ho Trust
168,650 16.3
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Stuart T. K. Ho 252,536 (1) 24.4
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Dean T. W. Ho 225,850 (2) 21.9
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Karen Ho Hong 212,425 (3) 20.6
4976 Poola Street
Honolulu, Hawaii 96821
Robin Lee 77,250 7.5
977 Longridge Road
Oakland, California 94610
</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.
14
<PAGE> 16
(3) Includes:(a) sole voting and investment power, 38,775 shares.
(b) shared voting and investment power for 168,650 shares
owned by the Chinn Ho Trust, of which Karen Ho Hong is
one of 3 Trustees.
(c) shared voting and investment power for 5,000 shares owned
by Karen Ho Hong and Stanley Hong as trustees for David
Hong.
The following table sets forth, as of July 31, 1998, the
number of shares of the Registrant's equity securities held by each director and
all directors and officers of the Registrant as a group:
<TABLE>
<CAPTION>
SOLE
AMOUNT AND VOTING AND SHARED
NATURE OF INVES- VOTING AND
NAME OF BENEFICIAL BENEFICIAL MENT INVESTMENT
TITLE OF CLASS OWNER OWNERSHIP TOTAL POWER POWER
- ------------------- ------------------- ------------------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Common stock Stuart T. K. Ho 252,536 shares 24.4% 2.2% 22.2%
owned of record
Common stock Dean T. W. Ho 225,850 shares 21.9 2.7 19.2 (1)
owned of record
Common stock Donald M. Wong 39,750 shares owned 3.8 -- 3.8
of record
Common stock Pedro Ada 5,444 shares owned .5 .5 --
of record
Common stock Stanley Hong 5,000 shares owned .5 -- .5
of record
Common stock C. B. Sung 5,000 shares owned .5 .5 --
of record
Common stock All directors and 310,730 shares 27.5 5.8 21.7 (1)
officers of owned of record
Registrant
(9 persons)
</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. Chinn Ho
and the children of Chinn Ho; and (b) 29,500 shares owned by the Chinn
Ho Foundation qualified under Section 501(c)(3) of the Internal Revenue
Service Code, as to which four executive officers of the Registrant are
Trustees.
During fiscal year 1995, the Company borrowed $100,000 from certain
officers of the Company through unsecured short-term notes. As of July 31, 1998,
the balance of these short-term notes were $5,000 due to an officer.
15
<PAGE> 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into loan participation agreements during 1997 and
1998 which provided that the Company sell, without recourse, to participants an
undivided participating interest in the loans to Pageantry Communities, Inc.,
Touchstone Development of Utah, LLC and Hearthstone Homes, Inc. (see footnote 5
to the consolidated financial statements). Included in the total participants
share of the loan commitment to Pageantry Communities, Inc., amounting to
$485,550 at July 31, 1997, was $226,590 borrowed from an officer of a subsidiary
of the Company. There were no outstanding amounts due to participants on the
loan agreement with Pageantry Communities, Inc. at July 31, 1998. Included in
the total participants share of the loan commitment to Touchstone Development of
Utah, LLC, amounting to $750,000 at July 31, 1997, was $150,000 borrowed from a
director of the Company and $75,000 borrowed from an officer of the Company.
Included in the total participants share of the loan commitment to Touchstone
Development of Utah, LLC, amounting to $391,538 at July 31, 1998, was $78,307
borrowed from a director of the Company and $39,154 borrowed from an officer of
the Company. Included in the total participants share of the loan commitment to
Hearthstone Homes, Inc., amounting to $119,804 at July 31, 1998 was borrowed
from an officer of a subsidiary of the Company.
16
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Consolidated Financial Statements - See Index to Consolidated
Financial Statements and Schedules.
(B) There were no reports on Form 8-K filed during the last quarter
of the year ended July 31, 1998.
(C) Exhibits:
<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 18
21 Subsidiaries of Capital Investment of Hawaii, Inc. 19
</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.
17
<PAGE> 19
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets - July 31, 1998 and 1997
Consolidated Statements of Operations and Retained Earnings - Years
ended July 31, 1998, 1997, and 1996
Consolidated Statements of Cash Flows - Years ended July 31, 1998,
1997, and 1996
Notes to Consolidated Financial Statements
Schedules:
II Valuation and Qualifying Accounts and Reserves - Years ended
July 31, 1998, 1997, and 1996
III Real Estate and Accumulated Depreciation - July 31, 1998
IV Mortgage Loans on Real Estate - July 31, 1998
Schedules not listed above are omitted because of the absence of the conditions
under which they are required or because the required information is included
elsewhere in the consolidated financial statements or notes thereto.
F-1
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Capital Investment of Hawaii, Inc.:
We have audited the consolidated financial statements of Capital Investment of
Hawaii, Inc. and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Capital
Investment of Hawaii, Inc. and subsidiaries as of July 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended July 31, 1998, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ KPMG PEAT MARWICK LLP
Honolulu, Hawaii
October 23, 1998
F-2
<PAGE> 21
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS (NOTE 6) 1998 1997
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 752,493 797,514
Receivables:
Trade accounts, less allowance for doubtful receivables of
$1,000 and $27,191 in 1998 and 1997, respectively 77,074 322,802
Accrued interest 565,458 353,440
Other 161,514 7,470
----------- -----------
Total receivables 804,046 683,712
----------- -----------
Inventories -- 67,425
Developed real estate, less accumulated depreciation of $253,533
and $231,788 in 1998 and 1997, respectively (note 4) 1,401,479 1,420,523
Undeveloped land held for sale (note 5) 134,474 134,474
Other investments:
Real estate (note 5) 1,525,410 2,959,237
Securities, at cost (note 3) 737,202 817,723
----------- -----------
2,262,612 3,776,960
----------- -----------
Property and equipment, at cost:
Leasehold improvements 61,282 221,413
Furniture and equipment 394,610 1,772,820
----------- -----------
455,892 1,994,233
Less accumulated depreciation and amortization (413,242) (1,791,381)
----------- -----------
Net property and equipment 42,650 202,852
Deferred charges and other assets 9,020 40,470
----------- -----------
$ 5,406,774 7,123,930
=========== ===========
</TABLE>
(Continued)
F-3
<PAGE> 22
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1998 and 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT 1998 1997
----------- -----------
<S> <C> <C>
Indebtedness (note 6):
Mortgage notes $ 1,841,684 1,853,583
Other notes, secured 590,470 735,723
Debentures 1,942,745 1,976,245
Other notes, unsecured 502,355 469,457
----------- -----------
Total indebtedness 4,877,254 5,035,008
----------- -----------
Accounts payable, trade 99,521 635,013
----------- -----------
Accrued expenses:
Interest 53,383 53,808
Taxes other than income 11,505 14,518
Other 656,205 776,858
----------- -----------
Total accrued expenses 721,093 845,184
----------- -----------
Other payables:
Loans under participation agreements (note 5):
Related parties 237,265 451,590
Other 274,077 783,960
Other (notes 5 and 8) 625,297 534,041
----------- -----------
Total other payables 1,136,639 1,769,591
----------- -----------
Commitments and contingent liabilities (notes 5, 6, 8 and 9)
Stockholders' deficit:
Common stock without par value. Authorized 2,531,765 shares;
issued 1,723,765 shares at stated value of $1 1,723,765 1,723,765
Additional paid-in capital 469,321 469,321
Retained earnings 436,668 703,535
----------- -----------
2,629,754 2,896,621
Cost of 691,082 common shares in treasury (4,057,487) (4,057,487)
----------- -----------
Net stockholders' deficit (1,427,733) (1,160,866)
----------- -----------
$ 5,406,774 7,123,930
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 23
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
and Retained Earnings
Years ended July 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues (note 6):
Income from real estate activities $ 989,078 583,600 1,445,709
Security and other investment income 192,363 558,054 526,252
Other 734,914 676,141 722,910
----------- ----------- -----------
1,916,355 1,817,795 2,694,871
----------- ----------- -----------
Costs and expenses:
Other direct operating expenses (note 9) 388,200 551,405 577,634
General and administrative expenses (notes 8 and 9) 1,333,399 1,294,041 1,302,895
Interest (note 6) 810,640 393,283 831,375
----------- ----------- -----------
2,532,239 2,238,729 2,711,904
----------- ----------- -----------
Loss from continuing operations (615,884) (420,934) (17,033)
Gain (loss) from discontinued operations (note 2) 349,017 (426,050) (356,325)
----------- ----------- -----------
Net loss (266,867) (846,984) (373,358)
Retained earnings at beginning of year 703,535 1,550,519 1,923,877
----------- ----------- -----------
Retained earnings at end of year $ 436,668 703,535 1,550,519
=========== =========== ===========
Loss per common share (note 11):
Loss from continuing operations (.60) (.41) (.02)
Gain (loss) from discontinued operations (note 2) .34 (.41) (.34)
----------- ----------- -----------
Net loss per common share $ (.26) (.82) (.36)
=========== =========== ===========
Weighted average number of common shares outstanding
during the year 1,032,683 1,032,683 1,032,683
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 24
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended July 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 2,905,936 5,271,819 6,398,025
Cash paid to suppliers/employees (3,739,171) (6,380,857) (7,713,659)
Capital expenditures - real estate (2,701) (290) (2,201)
Purchase of investments in real estate (note 5) (1,306,518) (2,257,774) (3,618,324)
Collections from investments in real estate (note 5) 2,740,345 1,215,746 5,392,975
Dividends received 12,138 8,451 13,483
Interest received 828,662 550,618 1,909,127
Interest paid (840,909) (439,646) (896,489)
----------- ----------- -----------
Net cash provided by (used in) operating activities 597,782 (2,031,933) 1,482,937
----------- ----------- -----------
Cash flows from investing activities:
Purchases of other investments -- (188,549) --
Proceeds from sale of marketable securities -- 47,491 80,803
Proceeds from sale of other investments 259,350 543,035 521,085
Proceeds from sale of property and equipment -- 6,900 --
Loans made -- -- (500,000)
Collections on other receivables 4,824 958,438 1,190,406
Capital expenditures (25,015) (51,409) (105,151)
----------- ----------- -----------
Net cash provided by investing activities 239,159 1,315,906 1,187,143
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from indebtedness 185,497 48,844 564,563
Payments on indebtedness (343,251) (528,252) (2,202,260)
Proceeds received under loan participation agreements (note 5) 832,500 1,500,000 --
Payments made under loan participation agreements (note 5) (1,556,708) (264,450) (1,562,620)
----------- ----------- -----------
Net cash provided by (used in) financing activities (881,962) 756,142 (3,200,317)
----------- ----------- -----------
Net increase (decrease) in cash (45,021) 40,115 (530,237)
Cash and cash equivalents at beginning of year 797,514 757,399 1,287,636
----------- ----------- -----------
Cash and cash equivalents at end of year $ 752,493 797,514 757,399
=========== =========== ===========
</TABLE>
(Continued)
F-6
<PAGE> 25
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended July 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net loss to cash provided by (used in) operating activities:
Net loss $ (266,867) (846,984) (373,358)
----------- ----------- -----------
Adjustments to reconcile net loss to cash provided by (used in) operating
activities:
Capital expenditures - real estate (2,701) (290) (2,201)
Depreciation and amortization 71,747 100,370 211,836
Gain on sale of discontinued operations (379,227) -- --
Gain on sale of marketable securities -- (28,181) (54,448)
Gain on sale of other investments (178,829) (471,755) (412,627)
Gain on sale/disposal of property and equipment -- (6,900) (469)
Change in assets and liabilities:
Decrease (increase) in inventories (30,471) (2,103) (12,209)
Decrease (increase) in trade accounts, accrued interest
and other receivables, net (125,158) (206,200) 595,949
Decrease (increase) in investment in real estate 1,433,827 (1,042,028) 1,774,651
Decrease (increase) in deferred charges and other assets (80,213) 26,611 (34,735)
Increase (decrease) in accounts payable, trade 217,838 (16,394) 221,974
Increase (decrease) in accrued expenses and other payables (62,164) 461,921 (431,426)
----------- ----------- -----------
Total adjustments 864,649 (1,184,949) 1,856,295
----------- ----------- -----------
Net cash provided by (used in) operating activities $ 597,782 (2,031,933) 1,482,937
=========== =========== ===========
Supplemental schedule of noncash operating, investing and financing activities:
(1) Under SFAS No. 115, unrealized holding gains and losses on marketable securities that are classified as available-for-sale
are reported as a separate component of stockholders' equity until realized. Unrealized holding gains amounted to $23,337
in 1996. There were no unrealized holdings gains in 1998 or 1997
(2) In fiscal year 1998, the Company sold certain assets and liabilities of its subsidiary, Latipac Fine Foods, Inc. A net
gain on disposal was recognized on assets transferred as follows:
Inventories $ 97,896
Property and equipment, net 135,215
Deferred charges and other asset 111,663
Accounts payable trade (753,330)
Other payables 29,329
-----------
$ 379,227
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 26
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 31, 1998, 1997 and 1996
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Capital Investment of Hawaii, Inc. and subsidiaries are engaged
principally in real estate, security and other investing activities.
Real estate activities include the acquisition and development of
undeveloped real estate, the sale and leasing of developed real estate
and the investment in undeveloped land located principally on the island
of Oahu in the state of Hawaii. Also included in real estate activities
are interest income on notes receivable arising from property sales and
income earned from financing acquisition, development and construction
loan commitments in connection with residential real estate projects in
Nevada and Utah.
Security and other investing activities include gains and losses from the
sale of investments and dividend and interest income related to the
ownership of such investments.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Capital Investment of
Hawaii, Inc. and all of its subsidiaries (collectively referred to as the
"Company"). All material intercompany balances and transactions have been
eliminated from the consolidated financial statements.
REAL ESTATE ACCOUNTING
CARRYING AMOUNTS
Developed real estate and undeveloped land held for sale are carried at
the lower of cost or market value.
INCOME RECOGNITION
Profit on sales of real estate is recognized when title has passed,
minimum down payment criterion are met, risks and records of ownership
have been transferred to the buyer and there is no substantial continuing
involvement with the property, collectibility of the sales price is
reasonably assured and other criteria set forth in Statement of Financial
Accounting Standards (SFAS) No. 66 are met. If any of the aforementioned
criteria are not met, profit is determined and recognized under either
the installment, cost recovery, deposit or percentage of completion
method.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed generally by use of the
straight-line method. Depreciation and amortization rates are based upon
the estimated useful lives of the assets or, if applicable, the remaining
terms of leases, whichever is shorter. In general, the ranges of annual
F-8
<PAGE> 27
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
rates of depreciation and amortization applicable to major
classifications of property and equipment are as follows:
<TABLE>
<CAPTION>
CLASS OF ASSETS RATE OF DEPRECIATION
---------------------------------- --------------------
<S> <C>
Leasehold improvements 5% to 20%
Furniture and equipment 10% to 33-1/3%
</TABLE>
Maintenance and repairs are charged to income as incurred; expenditures
for major renewals and betterments that materially extend the economic
lives of property and equipment are capitalized. Gains or losses arising
from dispositions of depreciable assets are credited or charged to
income.
Debt expense is being amortized by the straight-line method over the term
of the debt.
CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents. At July 31,
1998 and 1997, the Company held no instruments that would be considered
cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
SECURITY INVESTMENTS
Investment securities for which no ready market exists are valued at
cost.
For all security investments, declines in value below cost that are
determined to be other than temporary are reflected in operations and the
written-down value of the securities is established as the new cost basis
for those securities.
The cost of securities sold is determined on a first-in, first-out basis.
INVESTMENTS IN REAL ESTATE - ACQUISITION, DEVELOPMENT AND CONSTRUCTION
LOANS
The Company has originated acquisition, development, and construction
(ADC) loans with the following characteristics: (1) the borrower has
title to but little or no equity in the underlying security and (2) the
Company participates in the profit on the ultimate sale of the project.
For financial reporting purposes, the loans have been presented as real
estate investments.
The Company recognizes the interest and fees the Company is entitled to
under ADC loans ratably as profits are earned on the sale of individual
units in the underlying real estate projects.
F-9
<PAGE> 28
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED
OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, on August 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income and SFAS No. 131, Disclosures About Segments of An Enterprise and
Related Information. SFAS No. 130 establishes standards for reporting and
display of comprehensive income in a full set of general-purpose
financial statements. Comprehensive income is defined as all changes in
equity, including net income, except those resulting from investments by
and distributions to owners. SFAS No. 131 establishes standards for the
way that public business enterprises report selected quarterly
information about operating segments, including information on products
and services, geographic areas and major customers based on a management
approach to reporting. SFAS No. 130 and 131 are effective for fiscal
years beginning after December 15, 1997, although SFAS No. 131 need not
be applied to interim periods in the initial year of implementation.
Reclassification of financial statements for prior periods will be
required for comparative purposes. As these statements relate solely to
disclosure requirements, their implementation will not have an affect on
the Company's financial condition, results of operations or liquidity.
F-10
<PAGE> 29
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) DISCONTINUED OPERATIONS
In December 1997, the Company sold certain assets and liabilities of its
bakery operations. The Company recognized a gain on the sale of $379,227
in fiscal 1998.
Summary gain (loss) from discontinued operations are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Total revenues $ 2,137,368 4,737,228 5,521,390
Total costs and expenses (2,167,578) (5,163,278) (5,877,715)
Gain on sale of assets and liabilities 379,227 -- --
----------- ----------- -----------
Gain (loss) from discontinued
operations $ 349,017 (426,050) (356,325)
=========== =========== ===========
</TABLE>
The components of net liabilities of discontinued operations included in
the consolidated balance sheet at July 31, 1997 are as follows:
<TABLE>
<S> <C>
Inventories $ 67,425
Deferred charges and other assets 28,471
Property and equipment, at cost, net of accumulated
depreciation and amortization 151,640
Accounts payable, trade (441,384)
Accrued expenses (194,191)
---------
Net liabilities $(388,039)
=========
</TABLE>
F-11
<PAGE> 30
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) SECURITY INVESTMENTS
Gross unrealized gains on the portfolio of marketable equity securities
at July 31, 1997 and 1996 and net realized gains for the years then ended
pertaining to all security investments were as follows:
<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
========
</TABLE>
(4) DEVELOPED REAL ESTATE
The components of developed real estate at July 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Held for sale, at lower of cost or market:
Condominium apartment units, a portion of which
includes undivided interest in land $ 304,989 302,288
Commercial property 1,350,000 1,350,000
Other 23 23
---------- ----------
1,655,012 1,652,311
Less accumulated depreciation 253,533 231,788
---------- ----------
$1,401,479 1,420,523
========== ==========
</TABLE>
(5) REAL ESTATE INVESTMENTS
UNDEVELOPED LAND
Undeveloped land held for sale at July 31, 1998 and 1997 consisted of
approximately 39 acres in Makaha Valley on the island of Oahu, state of
Hawaii.
F-12
<PAGE> 31
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
OTHER REAL ESTATE INVESTMENTS
The Company has extended various ADC loan commitments to corporate real
estate ventures to finance residential real estate projects in Nevada and
Utah. These financing arrangements are being accounted for as
in-substance investments in real estate, whereby the interest and fees
the Company is entitled to will be recognized ratably as profits are
earned on the sale of units in the underlying real estate projects. Each
loan commitment has restrictive loan covenants which limit the maximum
amount of loan proceeds available for site acquisition and development
and building construction.
At July 31, 1998 and 1997, all ADC loans were made to corporate real
estate ventures which are owned by individuals who have personally
guaranteed payment of the ADC loans.
The following summarizes the Company's other investments in real estate
and related deferred income which is presented as "other payables" in the
accompanying consolidated balance sheets.
<TABLE>
<CAPTION>
CAPITALIZED DEFERRED
PROJECT ADVANCES INTEREST TOTAL INCOME
--------------------------- ---------- ----------- ------- --------
<S> <C> <C> <C> <C>
As of July 31, 1998:
Copper Bluffs, LLC $ 365,380 27,200 392,580 161,314
Sunset Bay, LLC 249,232 38,900 288,132 134,711
Red Rock Canyon, LLC 191,406 17,300 208,706 106,628
Touchstone Development
of Utah, LLC 404,192 2,400 406,592 18,911
Hearthstone Homes, Inc. 225,000 4,400 229,400 13,191
---------- ---------- ---------- ----------
$1,435,210 90,200 1,525,410 434,755
========== ========== ========== ==========
As of July 31, 1997:
Copper Bluffs, LLC $ 480,849 58,600 539,449 93,188
Sunset Bay, LLC 498,268 56,400 554,668 137,376
Pageantry Communities,
Inc. 474,630 79,500 554,130 60,842
Red Rock Canyon, LLC 452,336 33,300 485,636 69,401
Touchstone Development
of Utah, LLC 805,654 19,700 825,354 12,020
---------- ---------- ---------- ----------
$2,711,737 247,500 2,959,237 372,827
========== ========== ========== ==========
</TABLE>
The following paragraphs summarize the ADC loan arrangements and present
summary financial information for the corporate real estate ventures.
F-13
<PAGE> 32
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
COPPER BLUFFS, LLC
On June 18, 1996, the Company extended a $600,000 ADC loan commitment to
Copper Bluffs, LLC to finance a residential real estate project in Clark
County, Nevada. At July 31, 1998 and 1997, the Company's aggregate
investment in the real estate project amounted to $392,580 and $539,449,
respectively, including $27,200 and $58,600, respectively, of capitalized
interest. The ADC loan is secured by a parcel of land in Clark County,
Nevada.
Financial information of Copper Bluffs, LLC is as follows:
CONDENSED BALANCE SHEETS
JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 JULY 31, 1997
------------- -------------
<S> <C> <C>
Cash $ -- 45,249
Construction work in progress 1,246,433 1,902,144
Other current assets 260,359 385,226
----------- ---------
$ 1,506,792 2,332,619
=========== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
Accounts payable $ 269,382 152,691
Construction notes payable 720,426 1,435,774
Due to Capital Investment of Hawaii, Inc. 528,820 480,849
Other payables 39,145 197,679
----------- ---------
Total liabilities 1,557,773 2,266,993
----------- ---------
Paid-in capital 5,000 5,000
Retained earnings (accumulated deficit) (55,981) 60,626
----------- ---------
Total stockholders' equity (deficiency) (50,981) 65,626
----------- ---------
$ 1,506,792 2,332,619
=========== =========
</TABLE>
F-14
<PAGE> 33
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
CONDENSED STATEMENTS OF INCOME (LOSS)
PERIODS ENDED JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED JULY
JUNE 30, 1998 31, 1997
----------- -----------
<S> <C> <C>
Sales $ 4,513,754 4,064,607
Cost of sales (4,471,368) (3,928,396)
----------- -----------
Gross profit 42,386 136,211
Other income 28,902 18,736
Other expenses (130,395) --
----------- -----------
Net income (loss) $ (59,107) 154,947
=========== ===========
</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 another residential real
estate project in Clark County, Nevada. At July 31, 1998 and 1997, the
Company's aggregate investment in the real estate project amounted to
$288,132 and $554,668, respectively, including $38,900 and $56,400,
respectively, of capitalized interest. The ADC loan is secured by a
parcel of land in Clark County, Nevada.
F-15
<PAGE> 34
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Financial information of Sunset Bay, LLC is as follows:
CONDENSED BALANCE SHEETS
JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 JULY 31, 1997
------------- -------------
<S> <C> <C>
Cash $ -- 307,902
Restricted cash 28,915 --
Construction work in progress 2,780,080 2,412,946
---------- ----------
$2,808,995 2,720,848
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 167,382 261,618
Construction notes payable 1,471,051 1,766,066
Due to Capital Investment of Hawaii, Inc. 490,411 498,268
Other payable 613,526 190,046
---------- ----------
Total liabilities 2,742,370 2,715,998
---------- ----------
Paid-in capital 5,000 5,000
Retained earnings (accumulated deficit) 61,625 (150)
---------- ----------
Total stockholders' equity 66,625 4,850
---------- ----------
$2,808,995 2,720,848
========== ==========
</TABLE>
CONDENSED STATEMENTS OF INCOME (LOSS)
PERIODS ENDED JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 JULY 31, 1997
------------- -------------
<S> <C> <C>
Sales $ 1,674,620 --
Cost of sales (1,601,856) --
----------- -----------
Gross profit 72,764 --
Other income 4,123 --
Other expense (15,112) (150)
----------- -----------
Net income (loss) $ 61,775 (150)
=========== ===========
</TABLE>
F-16
<PAGE> 35
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
PAGEANTRY COMMUNITIES, INC.
On June 25, 1996, the Company extended a $900,000 ADC loan commitment to
Pageantry Communities, Inc. to finance a residential real estate project
known as Tradewinds Subdivision in Clark County, Nevada. The ADC loan was
fully repaid as of July 31, 1998.
In fiscal year 1997, the Company entered into 15% loan participation
agreements which provide that the Company sell, without recourse, to
participants an undivided participating interest in the loan to Pageantry
Communities, Inc. The participants' share of the loan commitment was
fully repaid to participants as of July 31, 1998.
RED ROCK CANYON, LLC
On October 2, 1996, the Company extended a $500,000 ADC loan commitment
to Red Rock Canyon, LLC to finance a residential real estate project in
Washington County, Utah. At July 31, 1998 and 1997, the Company's
aggregate investment in the real estate project amounted to $208,706 and
$485,636, respectively, including $17,300 and $33,300, respectively, of
capitalized interest. The ADC loan is secured by a parcel of land in
Washington County, Utah.
Financial information of Red Rock Canyon, LLC is as follows:
CONDENSED BALANCE SHEETS
JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 JULY 31, 1997
------------- -------------
<S> <C> <C>
Cash $ 15,808 58,036
Accounts receivable 4,000 6,000
Refundable deposits -- 62,181
Construction work in progress 690,627 1,312,830
Other assets 20,838 --
----------- -----------
$ 731,273 1,439,047
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Accounts payable $ 84,291 85,093
Construction notes payable 276,936 692,414
Due to Capital Investment of Hawaii, Inc. 357,331 452,336
Other payables 52,946 146,984
----------- -----------
Total liabilities 771,504 1,376,827
----------- -----------
Capital accounts 5,000 10,000
Distributions -- (5,000)
Retained earnings (accumulated deficit) (45,231) 57,220
----------- -----------
Total stockholders' equity (deficiency) (40,231) 62,220
----------- -----------
$ 731,273 1,439,047
=========== ===========
</TABLE>
F-17
<PAGE> 36
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
CONDENSED STATEMENTS OF INCOME (LOSS)
PERIODS ENDED JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 JULY 31, 1997
------------- -------------
<S> <C> <C>
Sales $ 1,996,374 644,376
Cost of sales (2,078,001) (587,156)
----------- -----------
Gross profit (loss) (81,627) 57,220
Other income 143 --
Other expenses (10,432) --
----------- -----------
Net income (loss) $ (91,916) 57,220
=========== ===========
</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, 1998 and 1997, the Company's aggregate
investment in the real estate project amounted to $406,592 and $825,354,
respectively, including $2,400 and $19,700, respectively, of capitalized
interest. The ADC loan is secured by a parcel of land in Tooele County,
Utah. Restrictive loan covenants limit the maximum amount of loan
proceeds available during various phases of the project.
F-18
<PAGE> 37
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Financial information of Touchstone Development of Utah, LLC is as
follows:
CONDENSED BALANCE SHEETS
JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 JULY 31, 1997
------------- -------------
<S> <C> <C>
Cash $ 89,693 94,132
Refundable deposits -- 20,650
Construction work in progress 5,983,335 1,183,799
Restricted cash 775,728 --
Receivables 100,835 --
Other assets 24,315 --
----------- -----------
$ 6,973,906 1,298,581
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 857,233 166,410
Due to Capital Investment of Hawaii, Inc. 521,898 805,654
Construction notes payable 5,289,307 172,566
Other payables 78,058 148,951
----------- -----------
Total liabilities 6,746,496 1,293,581
----------- -----------
Paid-in capital 397,297 5,000
Retained earnings (169,887) --
----------- -----------
Total stockholders' equity 227,410 5,000
----------- -----------
$ 6,973,906 1,298,581
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF LOSS
ELEVEN MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Sales $ 7,383,304
Cost of sales (7,385,537)
-----------
Gross profit (2,233)
Other income 10,708
Other expenses (167,962)
-----------
Net loss $ (159,487)
===========
</TABLE>
F-19
<PAGE> 38
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company entered into 15% loan participation agreements which provide
that the Company sell, without recourse, to participants an undivided
participating interest in the loan to Touchstone Development of Utah,
LLC. Participants' share of the loan commitment amounted to $391,538 and
$750,000 at July 31, 1998 and 1997, respectively. Certain participants
are related parties which, in the aggregate, totaled $117,461 and
$225,000 at July 31, 1998 and 1997, respectively.
HEARTHSTONE HOMES, INC.
On February 10, 1998, the Company extended a $425,000 ADC loan commitment
to Hearthstone Homes, Inc. to finance a residential real estate project
known as Hearthstone Homes in Clark County, Nevada. At July 31, 1998, the
Company's aggregate investment in the real estate project amounted to
$229,400, including $4,400 of capitalized interest. The ADC loan is
secured by a parcel of land in Clark County, Nevada. Restrictive loan
covenants limit the maximum amount of loan proceeds available during
various phases of the project.
The Company entered into a 50% loan participation agreement which
provides that the Company sell, without recourse, to a participant an
undivided participating interest in the loan to Hearthstone Homes, Inc.
The participant's share of the loan commitment amounted to $119,804 at
July 31, 1998. The participant is an officer of a subsidiary of the
Company.
(6) INDEBTEDNESS
Indebtedness at July 31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<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, 1999 1,000,000 1,000,000
9-1/2%, payable to a financial institution in monthly
installments of $6,125 including interest, due July 1,
2001 641,684 653,583
---------- ---------
1,841,684 1,853,583
---------- ---------
Other notes, secured:
Interest at prime (8.5% at July 31, 1998) plus 2.0%, payable to a financial
institution in monthly installments of principal of $11,138, plus interest,
due
August 31, 1998 (*) 78,632 211,526
10%, payable to a financial institution in monthly
installments of $14,539 including interest, due
June 1, 2002 147,426 137,390
</TABLE>
F-20
<PAGE> 39
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Other notes, secured, continued:
Interest at prime plus 2.5%, payable to a financial
institution in monthly installments of interest only, due
on demand (*) $ 100,000 100,000
10%, payable to a financial institution in monthly
installments of $2,272 including interest, due
February 1, 1999 245,017 247,633
Interest at prime (8.5% at July 31, 1998) plus 1.25% until
September 3, 1998, interest at prime plus 1.5% thereafter, payable to a
financial institution in monthly installments of $278 including interest,
due August 3, 2000 (*) 6,141 8,724
Interest at prime plus 1.25% until December 1, 1998;
interest at prime plus 1.5% thereafter, payable to a
financial institution in monthly principal installments of
$322 plus interest, due October 31, 2000 (*) 8,695 12,559
Interest at prime plus 1.5%, payable to a financial
institution in monthly principal installments of $1,111
plus interest, due December 22, 1998 (*) 4,559 17,891
---------- ---------
590,470 735,723
---------- ---------
Debentures - at stated rates (7% to 9.5%), payable to individuals in quarterly
installments of interest only, all of which have matured and are payable on
demand;
amount authorized by indenture, $19,000,000 1,942,745 1,976,245
---------- ---------
Other notes, unsecured:
Interest at stated rates (6% to 9.5%), term notes payable to individuals in
quarterly installments of interest only,
due two years from date of issuance 357,355 324,457
Interest at stated rates (8.0% to 9.5%), payable to
individuals in quarterly installments of interest only,
payable on demand except $75,000 due February 14,
1998 (of which $5,000 is due to a related party) 145,000 145,000
---------- ---------
502,355 469,457
---------- ---------
$4,877,254 5,035,008
========== =========
</TABLE>
F-21
<PAGE> 40
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Maturities of indebtedness are shown in the following summary:
<TABLE>
<S> <C>
1999 $4,208,043
2000 54,078
2001 615,133
----------
$4,877,254
==========
</TABLE>
*Notes were repaid in August 1998.
The carrying amounts of assets pledged as collateral for indebtedness as
of July 31, 1998 were as follows:
<TABLE>
<S> <C>
Cash and cash equivalents $ 746,055
Developed real estate 1,401,479
Investment in other securities 737,202
Property and equipment 27,099
==========
</TABLE>
In addition, the rights and interests in insurance policies, income or
profits, and other contracts and agreements of the Company were pledged
as collateral for indebtedness as of July 31, 1998.
(7) INCOME TAXES
The benefit for income taxes applicable to the net loss for fiscal years
1998, 1997 and 1996 differ from the "expected benefit for income taxes"
for those years (computed by applying the U.S. federal income tax rate of
34% to net loss) as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit $(90,735) (287,975) (126,942)
Net operating losses for which no
deferred income tax benefit has been
recognized 91,506 271,312 111,222
Dividends received deduction (2,889) (2,011) (3,209)
Officers' life insurance -- 16,508 16,441
Other, net 2,118 2,166 2,488
-------- -------- --------
$ -- -- --
======== ======== ========
</TABLE>
F-22
<PAGE> 41
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at July
31, 1998 and 1997 are presented below.
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Deferred compensation agreement $ 56,700 56,700
Other investment securities, permanent decline in market
value 83,100 83,100
Deferred income on other real estate investment 165,200 141,700
Net tax operating loss carryforwards 1,346,200 1,329,400
Other 83,000 80,800
----------- -----------
Total gross deferred tax assets 1,734,200 1,691,700
Less valuation allowance (1,698,600) (1,596,300)
----------- -----------
Net deferred tax assets $ 35,600 95,400
=========== ===========
Deferred tax liabilities:
Capitalized interest on other real estate investments $ 34,300 94,100
Other 1,300 1,300
----------- -----------
Total gross deferred tax liabilities $ 35,600 95,400
=========== ===========
</TABLE>
The valuation allowance for deferred tax assets as of August 1, 1997 and
1996 were $1,698,600 and $1,596,300, respectively. The net change in the
total valuation allowance for the years ended July 31, 1998 and 1997 were
increases of $102,300 and $311,200, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment.
As of July 31, 1998, the Company had tax net operating loss carryforwards
of approximately $3,600,000 and $4,400,000 for federal and state income
tax purposes, respectively, which can be used to offset future taxable
income through 2013.
(8) DEFERRED COMPENSATION
The Company has a deferred compensation agreement under which the Company
is obligated to pay $5,000 each month for 120 consecutive months to the
spouse of the late Mr. Chinn Ho, the former chairman of the Executive
Committee. The Company commenced monthly payments in accordance with the
deferred compensation agreement to Mrs. Chinn Ho in November 1989.
F-23
<PAGE> 42
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The accrued obligation as of July 31, 1998 and 1997 amounted to $149,158
and is included in the consolidated balance sheet as other payables.
(9) LEASE COMMITMENTS
The Company leases various facilities for its office premises and rental
agency. These operating leases provide that the Company pay all taxes,
maintenance and insurance applicable to the leased properties.
Consolidated future minimum payments required under noncancelable
operating leases as of July 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Year ending July 31:
<S> <C>
1999 $160,328
2000 158,028
2001 162,228
2002 146,478
2003 97,200
--------
$724,262
========
</TABLE>
Rent expense for all operating leases was $176,509, $408,250 and $501,100
for the years ended July 31, 1998, 1997 and 1996, respectively.
(10) FOURTH QUARTER RESULTS (UNAUDITED)
Fourth quarter results for the year ended July 31, 1998 are as follows:
<TABLE>
<S> <C>
Revenues from continuing operations $ 558,753
=========
Loss:
Loss from continuing operations ($(.27) per common share)
$(278,750)
Gain from discontinued operations ($.001 per common
share) 628
---------
$(278,122)
=========
</TABLE>
(11) LOSS PER COMMON SHARE
Loss per common share was computed by dividing the applicable loss by the
weighted average number of shares of common stock outstanding.
F-24
<PAGE> 43
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(12) SEGMENT INFORMATION
The Company has classified its business activities into significant
segments for the years ended July 31, 1998, 1997 and 1996. The Company's
operations have been classified into real estate, security and other
investing and other activities. Real estate activities include the
acquisition and development of undeveloped real estate, the sale and
leasing of developed real estate and investment in undeveloped real
estate. Also included in real estate activities is interest income from
loans made to development projects. Security and other investing
activities include gains or losses from security investments and
investment income related to the ownership of such investments. Other
activities include the Company's rental agency businesses and other
miscellaneous activities. The following is a summary of segment financial
information for the years ended July 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Real estate activities:
Property rentals $ 158,858 117,615 178,325
Income from ADC loan
arrangements 828,824 449,842 1,143,229
Interest income 1,396 16,143 124,155
----------- ----------- -----------
Total real estate activities 989,078 583,600 1,445,709
----------- ----------- -----------
Security and other investing
activities:
Gains from sales of securities 178,829 499,936 467,075
Dividends and interest 13,534 58,118 59,177
----------- ----------- -----------
Total security and other
investing activities 192,363 558,054 526,252
----------- ----------- -----------
Other activities 734,914 676,141 722,910
----------- ----------- -----------
$ 1,916,355 1,817,795 2,694,871
=========== =========== ===========
Operating loss from continuing operations:
Real estate activities $ 636,962 181,465 1,016,950
Security and other investing
activities 149,620 510,625 479,910
Other activities 54,844 (15,049) 43,294
----------- ----------- -----------
841,426 677,041 1,540,154
Interest expense (810,640) (393,283) (831,375)
Corporate expenses (646,670) (704,692) (725,812)
----------- ----------- -----------
Loss from continuing
operations $ (615,884) (420,934) (17,033)
=========== =========== ===========
</TABLE>
F-25
<PAGE> 44
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation and amortization:
Real estate activities $ 22,977 24,226 30,768
Security and other investing
activities 671 657 780
Other activities 7,572 8,100 16,244
---------- ---------- ----------
Total segments 31,220 32,983 47,792
Corporate 10,669 10,581 7,145
Discontinued operations - wholesale
bakery activities
(note 2) 29,858 56,806 156,899
---------- ---------- ----------
$ 71,747 100,370 211,836
========== ========== ==========
Capital expenditures:
Real estate activities $ -- 290 2,201
Other activities 1,914 13,288 790
Corporate 9,670 7,595 8,182
Discontinued operations - wholesale
bakery activities
(note 2) 13,431 30,526 96,179
---------- ---------- ----------
$ 25,015 51,699 107,352
========== ========== ==========
Identifiable assets:
Real estate activities $3,074,212 4,535,896 4,479,964
Security and other investing
activities 738,828 819,440 745,019
Other activities 658,369 439,206 128,501
---------- ---------- ----------
Total segments 4,471,409 5,794,542 5,353,484
Corporate 935,365 824,260 800,698
Discontinued operations - wholesale
bakery activities (note 2) -- 505,128 638,400
---------- ---------- ----------
$5,406,774 7,123,930 6,792,582
========== ========== ==========
</TABLE>
Sales between business segments are immaterial and are netted against the sales
of the respective segment.
F-26
<PAGE> 45
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(13) BUSINESS AND CREDIT CONCENTRATIONS
Substantially all of the Company's business activity is with customers
located in Hawaii, Nevada and Utah. The majority of customers of the
Company's operating businesses are related to the hospitality industry.
The Company's business activities in Nevada and Utah related solely to
financing residential real estate development projects. At July 31, 1998
and 1997, the Company had outstanding ADC loans of $1,435,210 and
$2,711,737, respectively, due from corporate real estate ventures. Under
participation agreements the Company had sold $511,342 and $1,235,550 of
these loans without recourse as of July 31, 1998 and 1997, respectively
(see note 5).
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each applicable class of financial instruments for which it is
practicable to estimate that value:
The carrying amount of cash and cash equivalents, trade accounts
receivable, accounts payable, accrued expenses and debentures payable
approximate fair value because of the short maturity of these
instruments.
OTHER INVESTMENT SECURITIES
Fair value is based on dealer quotes.
OTHER REAL ESTATE INVESTMENTS
Fair value is determined as the present value of expected future cash
flows discounted at the interest rate currently offered by the Company,
which approximates rates currently offered by local lending institutions
for loans of similar terms to companies with comparable credit risk.
INDEBTEDNESS
Fair value of mortgage notes, other notes, secured and other notes,
unsecured is estimated by discounting the future cash flows of each
instrument based on the quoted market prices for the same or similar
issues or on the current rates offered for debt of the same or similar
remaining maturities.
DEFERRED COMPENSATION PAYABLE
The carrying value of deferred compensation payable estimates fair value.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the
F-27
<PAGE> 46
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Company's financial instruments, fair value estimates cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates.
Fair value estimates are provided for certain existing on- and
off-balance sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. In addition,
the tax ramifications related to the realization of the unrealized gains
and losses can have a significant effect on fair value estimates and have
not been considered.
<TABLE>
<CAPTION>
JULY 31, 1998 JULY 31, 1997
------------------------------ ----------------------------
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS AMOUNT VALUE AMOUNT VALUE
---------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 752,493 752,493 797,514 797,514
Receivables:
Trade accounts 77,074 77,074 322,802 322,802
Accrued interest 565,458 565,458 353,440 353,440
Other 161,514 161,514 7,470 7,470
Other investments:
Real estate 1,525,410 1,448,757 2,959,237 2,933,208
Securities 737,202 1,118,619 817,723 1,378,169
FINANCIAL LIABILITIES
Accounts payable, trade 99,521 99,521 635,013 635,013
Accrued expenses:
Interest 53,383 53,383 53,808 53,808
Taxes other than income 11,505 11,505 14,518 14,518
Other 656,205 656,205 776,858 776,858
Mortgage notes 1,841,684 1,731,455 1,853,583 1,693,951
Other notes, secured 590,470 588,818 735,723 710,277
Debentures 1,942,745 1,942,745 1,976,245 1,976,245
Other notes, unsecured 502,355 499,287 469,457 466,347
Deferred compensation payable 149,158 149,158 149,158 149,158
</TABLE>
F-28
<PAGE> 47
SCHEDULE II
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended July 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
ADDITIONS
-----------------------------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ----------------------------------------- ---------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1998:
Allowance for doubtful receivables $27,191 3,000 -- 29,191 (1) 1,000
======= ======= == ======= =======
Year ended July 31, 1997:
Allowance for doubtful receivables $25,001 18,000 -- 15,810 (1) 27,191
======= ======= == ======= =======
Year ended July 31, 1996:
Allowance for doubtful receivables $31,860 24,500 -- 31,358 (1) 25,001
======= ======= == ======= =======
</TABLE>
(1) Accounts receivable written off.
See accompanying independent auditors' report.
S-1
<PAGE> 48
SCHEDULE III
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Real Estate and Accumulated Depreciation
July 31, 1998
<TABLE>
<CAPTION>
COST
CAPITALIZED
SUBSEQUENT
TO
INITIAL COST TO COMPANY ACQUISITION
------------------------- -----------
BUILDINGS
AND
IMPROVE- IMPROVE-
DESCRIPTION ENCUMBRANCES LAND MENTS MENTS
- ------------------------------------ ------------------------------------ --------- --------- -----------
<S> <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
Honolulu, Hawaii Mortgages payable on four
apartments to various
individuals and company; note
payable on one apartment
to financial institution 24,578 166,705 72,510
Commercial/industrial: Mortgages payable to financial
Honolulu, Hawaii institution and company; notes
payable to financial institution 743,000 607,000 --
Other miscellaneous
developed real
estate located in
Hawaii None 23 -- --
--------- --------- ---------
Total developed
real estate 765,278 803,843 85,891
Undeveloped land held for
sale - Makaha, Hawaii None 73,290 -- 61,184
--------- --------- ---------
Grand total $838,568 803,843 147,075
========= ========= =========
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED AT
CLOSE OF PERIOD
-----------------------------------------
BUILDINGS
AND
IMPROVE-
DESCRIPTION ENCUMBRANCES LAND MENTS TOTAL
- ------------------------------------ ------------------------------------ ------- ---------- ------
<S> <C> <C> <C> <C>
Developed real estate - held
for sale
Condominium
apartments:
Makaha, Hawaii Note payable on five
apartments to financial
institution (2,323) 43,519 41,196
Honolulu, Hawaii Mortgages payable on four
apartments to various
individuals and company; note
payable on one apartment
to financial institution 24,578 239,215 263,793
Commercial/industrial: Mortgages payable to financial
Honolulu, Hawaii institution and company; notes
payable to financial institution 743,000 607,000 1,350,000
Other miscellaneous
developed real
estate located in
Hawaii None 23 -- 23
--------- --------- ---------
Total developed
real estate 765,278 889,734 1,655,012
Undeveloped land held for
sale - Makaha, Hawaii None 73,290 61,184 134,474
--------- --------- ---------
Grand total 838,568 950,918 1,789,486
========= ========= =========
<CAPTION>
ACCUMU-
LATED
DEPRE- DATE OF DATE
DESCRIPTION ENCUMBRANCES CIATION CONSTRUCTION ACQUIRED
- ------------------------------------ ------------------------------------ ------ ------------ --------
<S> <C> <C> <C> <C>
Developed real estate - held
for sale
Condominium
apartments:
Makaha, Hawaii Note payable on five Completed
apartments to financial February Various 1973
institution 10,081 1971 to 1985
Honolulu, Hawaii Mortgages payable on four
apartments to various
individuals and company; note Completed
payable on one apartment 1964 and Various 1964
to financial institution 196,757 1968 to 1985
Commercial/industrial: Mortgages payable to financial
Honolulu, Hawaii institution and company; notes
payable to financial institution 46,692 Built 1986 July 1995
Other miscellaneous
developed real
estate located in
Hawaii None -- April 1956 July 1953
---------
Total developed
real estate 253,533
Undeveloped land held for
sale - Makaha, Hawaii None -- May 1973
---------
Grand total 253,533
=========
<CAPTION>
LIFE ON WHICH DEPRECIATION
IN LATEST INCOME
DESCRIPTION ENCUMBRANCES STATEMENT IS COMPUTED
- ------------------------------------ ------------------------------------ --------------------------
<S> <C> <C>
Developed real estate - held
for sale
Condominium
apartments:
Makaha, Hawaii Note payable on five
apartments to financial 36 to 40 years for apartments
institution 5 years for furnishings
Honolulu, Hawaii Mortgages payable on four
apartments to various
individuals and company; note
payable on one apartment 40 years for apartments
to financial institution 5 years for furnishings
Commercial/industrial: Mortgages payable to financial
Honolulu, Hawaii institution and company; notes
payable to financial institution 39 years
Other miscellaneous
developed real
estate located in
Hawaii None
Total developed
real estate
Undeveloped land held for
sale - Makaha, Hawaii None Primarily 20 years
Grand total
</TABLE>
S-2
<PAGE> 49
SCHEDULE III
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Real Estate and Accumulated Depreciation, Continued
(1) Changes during the two years ended July 31, 1998:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cost of real estate:
Balance at beginning of year $1,786,785 1,786,495
Additions during year - improvements to real estate 2,701 290
---------- ----------
Balance at end of year $1,789,486 1,786,785
========== ==========
Accumulated depreciation of real estate:
Balance at beginning of year $ 231,788 208,766
Additions during the year - charged to costs and expenses 21,745 23,022
---------- ----------
Balance at end of year $ 253,533 231,788
========== ==========
</TABLE>
(2) Aggregate original cost for federal income tax purposes amounted to
$1,865,475 for 1998. (3) Presentation on consolidated balance sheet as of
July 31, 1998:
<TABLE>
<CAPTION>
UNDEVELOPED
DEVELOPED LAND HELD
REAL ESTATE FOR SALE
---------- ----------
<S> <C> <C>
Cost $1,655,012 134,474
Less accumulated depreciation 253,533 --
---------- ----------
$1,401,479 134,474
========== ==========
</TABLE>
See accompanying independent auditors' report.
S-3
<PAGE> 50
SCHEDULE IV
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Mortgage Loans on Real Estate
July 31, 1998
<TABLE>
<CAPTION>
MATURITY PERIODIC
DESCRIPTION INTEREST RATE DATE PAYMENT TERMS PRIOR LIENS
- --------------------------------------------- ------------ -------- ------------------------- -----------
<S> <C> <C> <C> <C>
First mortgage - payable to a corporation
on condominium apartments located in February 28, Monthly installments
Honolulu, Hawaii 9-1/2% 1999 of interest only $ --
First mortgages - payable to individuals
on condominium apartment located Monthly installments
in Honolulu, Hawaii 9-1/2% On Demand of interest only --
First mortgages - payable to a financial Monthly installments
institution on land and warehouse of $6,125, including
located in Honolulu, Hawaii 9-1/2% July 1, 2001 interest --
-----------
$ --
===========
<CAPTION>
PRINCIPAL
AMOUNT OF
LOANS SUBJECT
FACE CARRYING TO DELINQUENT
AMOUNT OF AMOUNT OF PRINCIPAL
DESCRIPTION MORTGAGES MORTGAGE(1) OR INTEREST
- --------------------------------------------- --------- ----------- --------------
<S> <C> <C> <C>
First mortgage - payable to a corporation
on condominium apartments located in
Honolulu, Hawaii 1,000,000 1,000,000 --
First mortgages - payable to individuals
on condominium apartment located
in Honolulu, Hawaii 200,000 200,000 --
First mortgages - payable to a financial
institution on land and warehouse
located in Honolulu, Hawaii 700,000 647,684 --
----------- ----------- -----------
1,900,000 1,841,684 --
=========== =========== ===========
</TABLE>
(1) Changes during the years ended July 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Balance at beginning of year $ 1,853,583 1,864,493
Deductions during the year (11,899) (10,910)
----------- -----------
Balance at end of year $ 1,841,684 1,853,583
=========== ===========
</TABLE>
See accompanying independent auditors' report.
S-4
<PAGE> 51
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
CAPITAL INVESTMENT OF HAWAII, INC.
Date: October 23, 1998 /s/ Stuart T. K. Ho
-----------------------------------------------
Stuart T. K. Ho, Chairman of the Board,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: October 23, 1998 /s/ Dean T. W. Ho
-----------------------------------------------
Dean T. W. Ho, Vice Chairman, Secretary
and Director
Date: October 23, 1998 /s/ Donald M. Wong
-----------------------------------------------
Donald M. Wong, Senior Vice President,
Senior Vice President, Treasurer and
Director
Date: October 23, 1998 /s/ Harriet H. Matsuo
-----------------------------------------------
Harriet H. Matsuo, Assistant Secretary and
Assistant Treasurer
Date: October 23, 1998 /s/ Greta U. Nakao
-----------------------------------------------
Greta U. Nakao, Assistant Secretary
and Assistant Treasurer
Date: October 23, 1998 /s/ Pedro P. Ada
-----------------------------------------------
Pedro P. Ada, Director
Date: October 23, 1998 /s/ C. B. Sung
-----------------------------------------------
C. B. Sung, Director
Date: October 23, 1998 /s/ Stanley W. Hong
-----------------------------------------------
Stanley W. Hong, Director
</TABLE>
S-5
<PAGE> 1
EXHIBIT 11
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Computation of Loss Per Common Share
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loss from continuing operations $ (615,884) (420,934) (17,033) (247,298) (514,690)
Gain (loss) from discontinued operations 349,017 (426,050) (356,325) (560,628) (908,763)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common shareholders $ (266,867) (846,984) (373,358) (807,926) (1,423,453)
=========== =========== =========== =========== ===========
Divided by weighted average number of common
shares outstanding during the year 1,032,683 1,032,683 1,032,683 1,032,683 1,032,683
=========== =========== =========== =========== ===========
Loss per common share:
Continuing operations (.60) (.41) (.02) (.24) (.50)
Discontinued operations .34 (.41) (.34) (.54) (.88)
----------- ----------- ----------- ----------- -----------
Net loss (.26) (.82) (.36) (.78) (1.38)
=========== =========== =========== =========== ===========
</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
Hawaii
Makaha Valley, Incorporated (85.8% - owned) Hawaii
Resources, Incorporated
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JULY 31, 1998 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS AND RETAINED EARNINGS FOR THE YEAR ENDED JULY 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 752,493
<SECURITIES> 0
<RECEIVABLES> 804,046
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 455,892
<DEPRECIATION> 413,242
<TOTAL-ASSETS> 5,406,774
<CURRENT-LIABILITIES> 0
<BONDS> 4,877,254
0
0
<COMMON> 1,723,765
<OTHER-SE> (3,151,498)
<TOTAL-LIABILITY-AND-EQUITY> 5,406,774
<SALES> 0
<TOTAL-REVENUES> 1,916,355
<CGS> 0
<TOTAL-COSTS> 2,532,239
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 810,640
<INCOME-PRETAX> (615,884)
<INCOME-TAX> 0
<INCOME-CONTINUING> (615,884)
<DISCONTINUED> 349,017
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (266,867)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
