<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________to__________________
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 Identification No.)
incorporation or organization)
Suite 1700, Makai Tower, 733 Bishop Street
Honolulu, Hawaii 96813
- ------------------------------------------ ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (808) 537-3981
No Change
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
There were 1,032,683 shares outstanding of common stock, no par value,
as of October 31, 1998.
<PAGE> 2
PART I - FINANCIAL INFORMATION
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
October 31, 1998 and July 31, 1998
ASSETS
<TABLE>
<CAPTION>
October 31, July 31,
1998 1998
(Unaudited)
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 56,679 752,493
Receivables:
Trade accounts and notes, less allowance for doubtful
receivables of $1,000 at October 31, 1998 and
July 31, 1998 169,483 77,074
Accrued interest 588,388 565,458
Other 158,509 161,514
----------- -----------
Total receivables 916,380 804,046
----------- -----------
Developed real estate, less accumulated depreciation
of $259,027 at October 31, 1998 and $253,533 at
July 31, 1998 1,398,644 1,401,479
Undeveloped land held for sale 134,474 134,474
Other investments:
Real estate 1,833,057 1,525,410
Securities 722,783 737,202
----------- -----------
2,555,840 2,262,612
----------- -----------
Property and equipment, at cost:
Leasehold improvements 58,469 61,282
Furniture and equipment 398,906 394,610
----------- -----------
457,375 455,892
Less accumulated depreciation and amortization (417,563) (413,242)
----------- -----------
Net property and equipment 39,812 42,650
Deferred charges and other assets 29,620 9,020
----------- -----------
$ 5,131,449 5,406,774
=========== ===========
</TABLE>
<PAGE> 3
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, cont'd.
October 31, 1998 and July 31, 1998
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
October 31, July 31,
1998 1998
(Unaudited)
----------- -----------
<S> <C> <C>
Indebtedness (current installments of $3,731,201 at October 31,
1998 and $4,208,043 at July 31, 1998):
Debentures $ 1,937,745 1,942,745
Mortgage notes 1,838,124 1,841,684
Other notes, secured 351,482 590,470
Other notes, unsecured 509,422 502,355
----------- -----------
Total indebtedness 4,636,773 4,877,254
----------- -----------
Accounts payable, trade 519,781 99,521
Accrued expenses 280,037 721,093
Other payables:
Loans under participation agreement:
Related parties 361,183 237,265
Other 413,583 274,077
Other 627,856 625,297
----------- -----------
1,402,622 1,136,639
----------- -----------
Stockholders' deficit:
Common stock, no par value, stated value $1 per share:
Authorized 2,531,765 shares; issued 1,723,765 shares.
(No shares reserved for conversion, warrants,
options or other rights) 1,723,765 1,723,765
Additional paid-in capital 469,321 469,321
Retained earnings 156,637 436,668
----------- -----------
2,349,723 2,629,754
Deduct cost of 691,082 common shares in treasury (4,057,487) (4,057,487)
----------- -----------
Stockholders' deficit (1,707,764) (1,427,733)
----------- -----------
$ 5,131,449 5,406,774
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended October 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Commission and fees $ 122,455 130,522
Income from investments 195,416 192,721
Other 5,187 80,075
----------- -----------
323,058 403,318
----------- -----------
Cost and expenses:
Direct operating expenses and general
and administrative expenses 451,719 523,326
Interest 151,370 87,333
----------- -----------
603,089 610,659
----------- -----------
Loss from continuing operations (280,031) (207,341)
Loss from discontinued operations -- (30,839)
----------- -----------
Net loss (280,031) (238,180)
Retained earnings at beginning of period 436,668 703,535
----------- -----------
Retained earnings at end of period $ 156,637 465,355
=========== ===========
Loss per common share:
Loss from continuing operations (.27) (.20)
Loss from discontinued operations -- (.03)
----------- -----------
Net loss per common share $ (.27) (.23)
=========== ===========
Dividends per common share NONE NONE
----------- -----------
Weighted average number of common shares
outstanding during the period 1,032,683 1,032,683
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three months ended October 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net cash used in operating activities $(745,988) (603,552)
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,483) (8,241)
Proceeds from sales of securities 28,714 --
--------- ---------
Net cash provided by (used in)
investing activities 27,231 (8,241)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 9,568 159,705
Principal payments on indebtedness (250,049) (82,580)
Proceeds received under loan participation
agreements 521,874 406,061
Payments made under loan participation
agreements (258,450) (345,892)
--------- ---------
Net cash provided by financing activities 22,943 137,294
--------- ---------
Net decrease in cash and cash equivalents (695,814) (474,499)
Cash and cash equivalents at beginning of period 752,493 797,514
--------- ---------
Cash and cash equivalents at end of period $ 56,679 323,015
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Information
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial information have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The accompanying unaudited
consolidated financial statements should be read in conjunction with the
report on SEC Form 10-K for the fiscal year ended July 31, 1998 and the
consolidated financial statements and the notes thereto in the Company's
Quarterly Report on SEC Form 10-Q for the quarter ended October 31, 1997.
In the opinion of the Company's management, the accompanying unaudited
financial information contains all material adjustments required by
generally accepted accounting principles to present fairly the Company's
financial position as of October 31, 1998 and July 31, 1998, the results of
its operations for the three months ended October 31, 1998 and 1997, and its
cash flows for the three months ended October 31, 1998 and 1997. All such
adjustments are of a normal recurring nature, unless otherwise disclosed in
this Form 10-Q or other referenced material. Results of operations for
interim periods are not necessarily indicative of results for the full year.
(2) 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 requires that changes in comprehensive income be
reported in a financial statement. 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 requires public
companies to report selected quarterly information about business 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.
(3) Subsequent Event
In December 1998, the Company extended a $575,000 acquisition, development
and construction (ADC) loan commitment to finance a real estate project in
Clark County, Nevada. The Company also entered into participation agreements
which provide that the Company sell, without recourse, to participants an
undivided participating interest in the loan.
As of December 9, 1998, the outstanding loan amount was $415,000. The
participants share of the loan commitment was $409,500 at December 9, 1998,
of which $136,500 was with a trust for which a member of the board of
directors of the Company is trustee.
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company and its subsidiaries are engaged principally in the
business of acquiring, developing, leasing and dealing in real
estate, investing in securities, which are subject to various factors
which cause fluctuations between periods. Accordingly, the results of
operations for the three months ended October 31, 1998 are not
necessarily indicative of results to be expected for the year and are
not necessarily comparable to the results of operations for the three
months ended October 31, 1997.
Other Income
The decrease in other income of $74,888 for the three months ended
October 31, 1998 as compared to the same period in 1997 is primarily
due to the receipt of the cash surrender value of officer life
insurance policies which were cancelled by the Company in the first
quarter of fiscal 1997.
Direct Operating and General and Administrative Expenses
The decrease in direct operating and general and administrative
expenses for the three months ended October 31, 1998 as compared to
the same period in 1997 of $71,607 is primarily due to the reduction
of the corporate office space during fiscal 1998. Management plans to
further reduce general and administrative expenses during fiscal
1999. Such plans include the reduction in general and administrative
payroll costs through terminations and retirements.
Interest Expense
The increase in interest expense of $64,037 is primarily due to the
increase in loans payable under participation agreements at October
31, 1998 as compared to October 31, 1997.
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. In October 1997, the Company
entered into an agreement to sell certain assets and liabilities of
its subsidiary Latipac Fine Foods, Inc. and to discontinue its bakery
operations.
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1998, the Company held cash and cash equivalents of
$56,679. The decrease in cash of $695,814 for the three months ended
October 31, 1998 is primarily due to cash used in operating
activities.
Included in cash used in operating activities for the three months
ended October 31, 1998 was approximately $167,400 of advances for the
construction of residential developments in Nevada and Utah. The
Company's net loss $280,031 is also included in cash used in
operating activities.
The Company met its operating cash requirements for the three months
ended October 31, 1998 by using cash on hand at July 31, 1998 and
proceeds from loan participation agreements. Cash inflows and
outflows from ADC loans in Copper Bluffs, LLC, Sunset Bay, LLC, Red
Rock Canyon, LLC, Touchstone Development of Utah, LLC and Hearthstone
Homes, Inc. will continue throughout fiscal year 1999. In order to
improve the Company's cash position, management has been making
efforts to collect accrued interest receivable on an accelerated
basis from certain of the outstanding ADC loans. Further, new ADC
loan agreements will be funded by participants as necessary.
Cash requirements will continue to be satisfied from institutional
borrowings, loan participation agreements and net collections on ADC
loans. Management expects that cash inflows will also be realized in
the remaining quarters of fiscal 1999 from sales of security
investments and collections of accounts receivable.
YEAR 2000
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year
2000" issue and is developing an implementation plan to resolve the
issue. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable
year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather then the year
2000. This could result in a major system failure or miscalculations.
The company presently believes that the Year 2000 problem will not
pose significant operational problems for the Company's computer
systems.
<PAGE> 9
PART II - OTHER INFORMATION
Items 1,2,3,4,5,6. None
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL INVESTMENT OF HAWAII, INC.
Dated: December 11, 1998 /s/ STUART T.K. HO
------------------------------------
Chairman of the Board and President
Dated: December 11, 1998 /s/ DONALD M. WONG
------------------------------------
Senior Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 56,679
<SECURITIES> 0
<RECEIVABLES> 917,380
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 457,375
<DEPRECIATION> 417,563
<TOTAL-ASSETS> 5,131,449
<CURRENT-LIABILITIES> 0
<BONDS> 4,636,773
0
0
<COMMON> 1,723,765
<OTHER-SE> (3,431,529)
<TOTAL-LIABILITY-AND-EQUITY> 5,131,449
<SALES> 0
<TOTAL-REVENUES> 323,058
<CGS> 0
<TOTAL-COSTS> 603,089
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151,370
<INCOME-PRETAX> (280,031)
<INCOME-TAX> 0
<INCOME-CONTINUING> (280,031)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (280,031)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
