<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, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 Commission file Number 0-4179
Capital Investment of Hawaii, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Hawaii 99-0065664
------------------------------ -----------------
(State or other (I.R.S. Employer
jurisdiction of incorporation
or organization) Identification No.)
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
----------------------------- -----------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (808) 537-3981
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ----------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, no par value
------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13, or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The Company's voting stock is not actively traded on any exchange and
accordingly the aggregate market value is not determinable.
There were 1,032,692 shares outstanding of common stock, no par value as of
October 22, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Articles of Association and By-Laws are incorporated by reference into Part
IV of this report.
<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 11 of the notes to consolidated
financial statements. As of July 31, 1999, the Registrant and its subsidiaries
had 15 employees.
REAL ESTATE
Real estate activities include the acquisition and development of
undeveloped real estate, the sale and leasing of developed real estate and the
investment in undeveloped land located principally on the island of Oahu in the
state of Hawaii. Also included in real estate activities is interest income on
notes receivable arising from property sales and income earned from financing
acquisition, development and construction loan commitments in connection with
residential real estate projects in Nevada and Utah. Since real estate sales and
developments are not made and undertaken on a continuous basis, significant
fluctuations will occur from year to year. The results of any one year are not
necessarily comparable to other years and should not be a basis of expectation
for future years. The identification and location of the Registrant's real
estate holdings are discussed in Item 2, PROPERTIES.
SECURITY AND OTHER INVESTING ACTIVITIES
Security and other investing activities include gains and losses from
the sale of other investments and dividend and interest income related to the
ownership of such investments. The timing of sales and related gains/losses,
which tend to vary with market conditions and the Registrant's cash
requirements, are subject to significant fluctuations from year to year.
1
<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.
DISCONTINUED PROPERTY MANAGEMENT ACTIVITIES
Other activities of the Registrant include a property management
division in Waikiki, Hawaii that in fiscal year 1999 had revenues of $599,930
and net income of $238,592, compared with revenues of $660,560 and net income of
$291,319 in fiscal year 1998. In October 1999, the Company entered into an
agreement to sell certain assets of its property management division and
discontinued such operations.
ITEM 2. PROPERTIES
As of July 31, 1999, the Registrant and its subsidiaries owned
properties used in connection with its real estate activities as set forth
below. All properties listed with the exception of the lots in Washington
County, Utah, are located in the City and County of Honolulu, and the titles are
held in fee.
<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
8 lots, Washington County, Utah 1.3 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 5 of the notes to consolidated financial statements for
information with respect to real estate pledged as security for indebtedness.
ITEM. 3 LEGAL PROCEEDINGS
There is no litigation which, in the opinion of management, will have a
materially adverse affect on the Company's consolidated financial position or
results of operations.
ITEM. 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters that were submitted to a vote of security holders
during the fourth quarter of the fiscal year ended July 31, 1999.
3
<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, 1999 and 1998:
<TABLE>
<CAPTION>
LOW BID HIGH BID
----------------- ------------------
<S> <C> <C>
Quarter ended:
October 31, 1997 1/2 1/2
January 31, 1998 1/2 1/2
April 30, 1998 1/2 1/2
July 31, 1998 1/2 1/2
October 31, 1998 1/2 1/2
January 31, 1999 1/2 1/2
April 30, 1999 5/16 1/2
July 31, 1999 3/16 5/16
</TABLE>
The aforementioned quotations were received from Abel-Behnke
Corporation which makes a market in the Company's stock.
On July 31, 1999, there were approximately 541 stockholders of record
of common stock, excluding individuals and institutions for whom shares are held
in the names of nominees or brokerage firms.
There were no common stock dividends declared or paid during fiscal
years 1999, 1998, and 1997.
4
<PAGE> 6
ITEM 6. SELECTED FINANCIAL DATA
SUMMARY OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 797,538 1,255,795 1,147,375 2,004,893 1,993,490
Loss from continuing operations (1,325,158) (907,203) (725,847) (351,989) (518,013)
Loss per common share from
continuing operations(A) (1.28) (.88) (.70) (.34) (.50)
=========== =========== =========== =========== ============
</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, 1999.
FINANCIAL CONDITION
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total assets $4,132,063 5,406,774 7,123,930 6,792,582 10,617,753
========== ========== ========== ========== ==========
Indebtedness:
Mortgage notes $1,826,566 1,841,684 1,853,583 1,864,493 1,874,247
Other notes, secured 515,031 590,470 735,723 1,160,111 2,670,016
Debentures 1,897,505 1,942,745 1,976,245 2,062,245 2,108,245
Other notes, unsecured 530,748 502,355 469,457 427,567 499,605
---------- ---------- ---------- ---------- ----------
$4,769,850 4,877,254 5,035,008 5,514,416 7,152,113
========== ========== ========== ========== ==========
</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 $1,086,567 for the fiscal year ended
July 31, 1999, (fiscal year 1999), compared with net losses of $266,867 and
$846,984 for fiscal years 1998 and 1997, respectively.
The net loss for fiscal year 1999 included a provision for losses on
real estate investments of $437,297 relating to losses resulting from defaulted
"ADC loans" on certain residential projects in Mesquite, Nevada.
NEVADA AND UTAH FINANCING ACTIVITIES
Income from ADC lending (defined below) for fiscal year 1999 was
$279,709, as compared with $828,824 for fiscal year 1998. The sharp decrease in
income was due almost entirely to a builder-borrower's default. The default was
the result of the borrower's loan default of a loan unrelated to the credit
facility made available by the Company. Advances outstanding to other
builder-borrowers at the end of fiscal year 1999 were $1,217,871, compared with
$1,435,210 at the end of fiscal year 1998.
Since fiscal year 1991, the Company has engaged in making "ADC loans"
to homebuilders in southern Nevada and Utah. An ADC loan is an arrangement
whereby the Company, which shares in the same risks and potential rewards as
those of the builder-borrower, advances funds so that the builder-borrower is
able to acquire unimproved land and develop it into finished lots ready for
residential construction. Builders seek ADC financing from non-bank sources
because federally-insured lending institutions regard ADC loans as carrying
higher risk and impose more stringent lending standards as a condition of making
ADC loans, usually in the form of low loan-to-value ratios. Because home
construction in the Las Vegas area is largely in the hands of small builders who
frequently find it difficult to meet those stringent financing standards, the
demand for ADC funding is high, as is the pricing of such loans.
The $437,297 provision for losses on real estate investment recorded in
fiscal year 1999 was the first write-down to be recorded by the Company since it
began making ADC loans in fiscal year 1991. For the six consecutive fiscal years
prior to fiscal year 1999, the Company recorded $4,923,766 in receipts from its
ADC lending activities. During that six-year period, the average outstanding
advances at fiscal year-end was $2,465,528, with a high of $5,169,856 at the end
of fiscal year 1994. The decline in the Company's ADC portfolio was chiefly
attributable to the diversion of capital to deal
6
<PAGE> 8
with losses incurred during that period by Latipac Fine Foods, Inc., now a
discontinued operation of the Company.
Southern Nevada continues to be an attractive area for ADC lending. The
strong growth of the Las Vegas economy continues to be accompanied by the
movement of new residents into the area. Although interest rates have steadily
risen since the beginning of 1999, it has not diminished the demand for
affordable housing in Las Vegas.
The Company will continue to engage in ADC lending activities, but will
rely to a greater extent on participating the loans among small groups of
investors.
HAWAII OPERATIONS
The economy in Hawaii during fiscal year 1999 was poor, as it has been
for a number of years. We do not expect to see any significant improvement in
the Hawaii economy in fiscal year 2000, despite signs that business confidence
is gradually building in many North Asian economies.
The Company manages more than 300 condominium apartment units in
Waikiki, mainly in the Ilikai Apartment Building and the Ilikai Marina Apartment
Building, under management agreements with individual apartment owners. This
division of the Company from time to time earns brokerage fee income from sales
of apartments.
During fiscal year 1999, the property management division contributed
revenues of approximately $600,000 compared with approximately $661,000 and
$670,000, respectively, for fiscal years 1998 and 1997. The lower comparative
results were largely due to declining commission income from apartment rental
activity.
In October 1999, the Company entered into an agreement to sell certain
assets of its property management division. As a result of the sale of the
property management division, the Company expects a decline in future net cash
flows of approximately $160,000 in fiscal 2000. This would be offset by the net
cash to be realized from the sale of this division of approximately $480,000.
For the years subsequent to fiscal 2000, management expects that the Company's
overall net cash inflows will decrease by approximately $240,000 without the
property management division.
GENERAL AND ADMINISTRATIVE
Management reduced general and administrative expenses in fiscal year
1999 to $849,701, compared with $964,158 in fiscal year 1998, largely due to
management's efforts to control personnel and overhead costs.
7
<PAGE> 9
The Company has made significant reductions in personnel and other
management and general expenses in the past fiscal year. Such costs are expected
to decrease with the sale of the property management division and the
down-sizing of office support personnel. Payroll costs are expected to decline
by approximately $268,000 is fiscal 2000 as compared to fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance at July 31, 1999 was $360,769 compared with
$752,493 at the end of fiscal year 1998.
Cash requirements for fiscal year 2000 will be satisfied from
institutional borrowings, refinancing of notes payable, cash in banks at the
year end, net collections of ADC loans and additional loan participation
agreements.
The Company has three ADC loan arrangements which are expected to
continue during the following twelve months. Two ADC loans will no longer
require any additional cash disbursements to the borrower and the Company
expects only positive cash flows in the form of collections on advances, profit
participation and interest income from these loans. The third ADC loan will
require an additional cash disbursement of $110,000 which is expected to be paid
out in the second quarter of fiscal 2000. In the event that the Company requires
additional cash for this advance, participants will be solicited for the funds.
The Company has several notes payable to individuals, a corporation and
a financial institution. Approximately $1,900,000 of these notes are payable on
or before July 1, 2001. The Company has had long standing good relationships
with these individuals and companies and has been successful in the past in
obtaining extensions on these notes as they became due. Management will continue
to work with these lenders and expects that these notes will continue to be
extended for terms beyond fiscal 2000.
Further, as a result of the sale of certain assets of its property
management division, the Company expects to receive approximately $1,072,000 in
December 1999. Expenses of the sale and the remittance to the buyer of advance
rentals and security deposits will result in a net cash inflow of approximately
$480,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules.
8
<PAGE> 10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants nor disagreements on accounting or
financial disclosure matters for the years ended July 31, 1999 and 1998.
9
<PAGE> 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists all directors of the Registrant as of July
31, 1999:
<TABLE>
<CAPTION>
NUMBER OF
OFFICE HELD WITH YEARS SERVED OTHER PUBLIC
NAME AGE REGISTRANT AS DIRECTOR BUSINESS EXPERIENCE DIRECTORSHIPS
- ----------------------- ------ --------------------- -------------- --------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
Stuart T.K. Ho 63 Chairman of the 32 Positions held with Pacific Century Financial
Board and Registrant Corporation; Gannett
President Co., Inc.; College
Retirement Equities
Fund
Dean T.W. Ho(1) 61 Vice Chairman and 18 Positions held with --
Secretary Registrant
Donald M. Wong 81 Senior Vice 25 Positions held with --
President, Chief Registrant
Financial
Officer and
Treasurer
Pedro P. Ada 69 None 28 President of Ada's --
Incorporated; real
estate, insurance
agency and investments
C.B. Sung 74 None 14 Chairman of Unison --
International;
President and Chief
Executive Officer of
Unison Pacific
Corporation
</TABLE>
(1) Mr. Dean T.W. Ho is the brother of Mr. Stuart T.K. Ho.
10
<PAGE> 12
The present terms of office of all directors will expire at the next
annual meeting of the stockholders of the Registrant or upon election of their
respective successors. No events have occurred during the past five years that
are material to an evaluation of the ability or integrity of any director.
The following table lists all executive officers of the Registrant as
of July 31, 1999:
<TABLE>
<CAPTION>
NAME AGE OFFICE POSITION HELD
- ------------------------ ------- ---------------------------- -----------------------------------------------------
<S> <C> <C> <C>
Stuart T.K. Ho 63 Chairman of the Board and Chairman of the Board since 1982, President from
President 1975 to 1982 and since 1988, Vice President and
Secretary from 1966 to 1975
Dean T.W. Ho(1) 61 Vice Chairman and Secretary Secretary since 1991, Vice Chairman since 1988,
President from 1982 to 1987, Executive Vice
President from 1975 to 1982 and Vice President
from 1965 to 1975
Donald M. Wong 81 Senior Vice President and Senior Vice President since 1990, Financial Vice
Treasurer President from 1965 to 1990 and Treasurer since
1965
Harriet H. Matsuo 74 Assistant Secretary and Secretary from 1975 to 1991 and Assistant Secretary
Assistant Treasurer and Assistant Treasurer from 1965 to 1975 and
since 1991
Greta U. Nakao 77 Assistant Secretary and Assistant Treasurer since 1975 and Assistant
Assistant Treasurer Secretary since 1981
</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.
11
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ITEM 11. EXECUTIVE COMPENSATION
The following table shows the compensation for each of the years ended
July 31, 1999, 1998 and 1997 for (a) the Chairman of the Board and President,
and (b) all executive officers of the Registrant whose annual compensation
exceeds $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- ---------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER SECURITY ALL
ANNUAL RESTRICTED UNDER- OTHER
NAME AND COMPEN- STOCK LYING LTIP COMPEN-
PRINCIPAL SALARY BONUS SATION AWARD(s) OPTIONS/ PAYOUTS SATION
POSITION YEAR ($) ($) ($) ($) SARS(#) ($) ($)
- ---------------------- --------- ---------- ---------- ------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stuart T.K. Ho,
Chairman of the
Board and
President 1999 121,016 -- -- -- -- -- --
1998 127,008 -- -- -- -- -- --
1997 127,424 -- -- -- -- -- --
</TABLE>
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth, as of July 31, 1999, shareholders of record
who beneficially own more than 5% of the voting stock of the Registrant:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER: OWNERSHIP OF CLASS
- ---------------------------------------------------- -------------- ---------
<S> <C> <C>
Cede & Co. 195,438 18.9%
P.O. Box 20
New York, New York 10004
Stuart T.K. Ho, Dean T. Ho, and Karen Ho Hong,
Trustees of the Chinn Ho Trust 168,650 16.3
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Stuart T.K. Ho 252,536(1) 24.5
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Dean T.W. Ho 225,850(2) 21.9
733 Bishop Street, Suite 1700
Honolulu, Hawaii 96813
Karen Ho Hong 212,425(3) 20.6
4976 Poola Street
Honolulu, Hawaii 96821
Robin Lee 77,250 7.5
977 Longridge Road
Oakland, California 94610
</TABLE>
(1) Includes: (a) sole voting and investment power, 22,813 shares.
(b) shared voting and investment power for 168,650
shares owned by the Chinn Ho Trust, of which Stuart
Ho is one of 3 Trustees, and 29,500 shares owned by
the Chinn Ho Foundation, of which Stuart Ho is one
of 4 Trustees.
(c) 10,850 shares owned by Mary L. Ho, spouse, who has
sole voting and investment power.
(d) 20,723 shares held in an IRA account.
(2) Includes: (a) sole voting and investment power, 27,700 shares.
(b) shared voting and investment power for 168,650
shares owned by the Chinn Ho Trust, of which Dean Ho
is one of 3 Trustees, and 29,500 shares owned by the
Chinn Ho Foundation, of which Dean Ho is one of 4
Trustees.
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(3) Includes: (a) sole voting and investment power, 38,775 shares.
(b) shared voting and investment power for 168,650
shares owned by the Chinn Ho Trust, of which Karen
Ho Hong is one of 3 Trustees.
(c) shared voting and investment power for 5,000 shares
owned by Karen Ho Hong and Stanley Hong as trustees
for David Hong.
The following table sets forth, as of July 31, 1999, the number of
shares of the Registrant's equity securities held by each director and all
directors and officers of the Registrant as a group:
<TABLE>
<CAPTION>
SOLE VOTING AND SHARED VOTING
NAME OF AMOUNT AND NATURE OF INVESTMENT INVESTMENT
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP TOTAL POWER AND POWER
- ------------------- ------------------ -------------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Common stock Stuart T.K. Ho 252,536 shares owned 24.5% 2.2% 22.2%(1)
of record
Common stock Dean T.W. Ho 225,850 shares owned 21.9 2.7 19.2(1)
of record
Common stock Stanley Hong 212,425 shares owned 20.6 -- 20.6(2)
of record
Common stock Donald M. Wong 39,750 shares owned 3.8 -- 3.8(3)
of record
Common stock Pedro Ada 5,444 shares owned .5 .5 --
of record
Common stock C.B. Sung 5,000 shares owned .5 .5 --
of record
Common stock All directors and 336,132 shares owned 32.5 6.4 26.2(1)
officers of of record
Registrant
(9 persons)
</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.
(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.
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<PAGE> 16
(2) Includes: (a) Shared voting and investment power for 5,000 shares
owned by Stanley Hong and Karen Ho Hong as Trustees
for David Hong.
(b) 38,775 shares owned by Karen Ho Hong, spouse, who
has sole voting and investment power.
(c) 168,650 shares owned by the Chinn Ho Trust, of which
Karen Ho Hong, spouse, is one of three trustees.
(3) Includes: (a) Shared voting and investment power for 10,250
owned by Donald M. Wong and Eugenia C. Wong.
(b) 29,500 shares owned by the Chinn Ho Foundation, of
which Donald Wong is one of four trustees.
During fiscal year 1995, the Company borrowed $100,000 from certain
officers of the Company through unsecured short-term notes. As of July 31, 1999,
the balance of these short-term notes was $5,000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into loan participation agreements during 1999 and
1998, which provided that the Company sell, without recourse, to participants,
an undivided participating interest in the loans to Touchstone Development of
Utah, LLC, Hearthstone Homes, Inc., Martin Development, Inc., and Hearthstone
Homebuilders, Inc. (see footnote 4 to the consolidated financial statements).
There were no outstanding amounts due to participants on the loan agreements
with Touchstone Development of Utah, LLC, and Hearthstone Homes, Inc., at July
31, 1999. Included in the total participants' share of the loan commitment to
Martin Development, Inc., amounting to $351,824 at July 31, 1999, was $58,608
from a director of the Company and $234,608 from an officer of the Company.
Included in the total participants' share of the loan commitment to Hearthstone
Homebuilders, Inc., amounting to $449,049 at July 31, 1999, was $149,684 from a
director of the Company. Included in the total participants' share of the loan
commitment to Touchstone Development of Utah, LLC, amounting to $391,538 at July
31, 1998, was $78,307 borrowed from a director of the Company and $39,154
borrowed from an officer of the Company. The participants' share of the loan
commitment to Hearthstone Homes, Inc., amounting to $119,804 at July 31, 1998
was from an officer of a subsidiary of the Company.
15
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Consolidated Financial Statements - See Index to Consolidated
Financial Statements and Schedules.
(B) There were no reports on Form 8-K filed during the last
quarter of the year ended July 31, 1999.
(C) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT FORM 10-K
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------- ---------
<S> <C> <C> <C>
3 Articles of Incorporation and By-Laws *
11 Computation of Loss Per Common Share 17
21 Subsidiaries of Capital Investment of Hawaii, Inc. 18
</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.
16
<PAGE> 18
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedules
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets - July 31, 1999 and 1998
Consolidated Statements of Operations and Retained Earnings (Accumulated
Deficit) - Years ended July 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended July 31, 1999, 1998 and
1997
Notes to Consolidated Financial Statements
Schedules:
II Valuation and Qualifying Accounts and Reserves - Years ended July 31,
1999, 1998 and 1997
III Real Estate and Accumulated Depreciation - July 31, 1999
IV Mortgage Loans on Real Estate - July 31, 1999
Schedules not listed above are omitted because of the absence of the conditions
under which they are required or because the required information is included
elsewhere in the consolidated financial statements or notes thereto.
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Capital Investment of Hawaii, Inc.:
We have audited the consolidated financial statements of Capital Investment of
Hawaii, Inc. and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Capital
Investment of Hawaii, Inc. and subsidiaries as of July 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended July 31, 1999, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ KDMG LLP
Honolulu, Hawaii
October 22, 1999
<PAGE> 20
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS (NOTE 5) 1999 1998
----------- -----------
<S> <C> <C>
Cash $ 360,769 752,493
----------- -----------
Receivables:
Trade accounts, less allowance for doubtful receivables of
$1,000 in 1999 and 1998 67,421 77,074
Accrued interest 55,417 565,458
Other 66,483 161,514
----------- -----------
Total receivables 189,321 804,046
----------- -----------
Developed real estate, less accumulated depreciation of $274,759
and $253,533 in 1999 and 1998, respectively (note 3) 1,383,745 1,401,479
----------- -----------
Undeveloped land held for sale (note 4) 226,797 134,474
----------- -----------
Other investments:
Real estate (note 4) 1,246,608 1,525,410
Securities, at cost 681,006 737,202
----------- -----------
1,927,614 2,262,612
----------- -----------
Property and equipment, at cost:
Leasehold improvements 63,740 61,282
Furniture and equipment 329,394 394,610
----------- -----------
393,134 455,892
Less accumulated depreciation and amortization (360,944) (413,242)
----------- -----------
Net property and equipment 32,190 42,650
----------- -----------
Deferred charges and other assets 11,627 9,020
----------- -----------
$ 4,132,063 5,406,774
=========== ===========
</TABLE>
2
<PAGE> 21
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1999 and 1998
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 1999 1998
----------- -----------
<S> <C> <C>
Indebtedness (note 5):
Mortgage notes $ 1,826,566 1,841,684
Other notes, secured 515,031 590,470
Debentures 1,897,505 1,942,745
Other notes, unsecured 530,748 502,355
----------- -----------
Total indebtedness 4,769,850 4,877,254
----------- -----------
Accounts payable, trade 105,048 99,521
----------- -----------
Accrued expenses:
Interest 55,001 53,383
Taxes other than income 59,101 11,505
Other 662,830 656,205
----------- -----------
Total accrued expenses 776,932 721,093
----------- -----------
Other payables:
Loans under participation agreements (note 4):
Related parties 442,900 237,265
Other 357,973 274,077
Other (notes 4 and 7) 193,660 625,297
----------- -----------
Total other payables 994,533 1,136,639
----------- -----------
Commitments and contingent liabilities (notes 4, 5, 7 and 8)
Stockholders' deficiency:
Common stock without par value. Authorized 2,531,765 shares;
issued 1,723,774 shares at stated value of $1 1,723,774 1,723,774
Additional paid-in capital 469,312 469,312
Retained earnings (accumulated deficit) (649,899) 436,668
----------- -----------
1,543,187 2,629,754
Cost of 691,082 common shares in treasury (4,057,487) (4,057,487)
----------- -----------
Stockholders' deficiency (2,514,300) (1,427,733)
----------- -----------
$ 4,132,063 5,406,774
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 22
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
and Retained Earnings (Accumulated Deficit)
Years ended July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues (note 5):
Income from real estate activities $ 443,888 989,078 583,600
Security and other investment income 349,790 192,363 558,054
Other 3,860 74,354 5,721
----------- ----------- -----------
797,538 1,255,795 1,147,375
----------- ----------- -----------
Costs and expenses:
Other direct operating expenses (note 8) 327,913 388,200 551,405
General and administrative expenses (notes 7 and 8) 849,701 964,158 928,534
Interest (note 5) 507,785 810,640 393,283
Provision for losses on real estate investments (note 4) 437,297 -- --
----------- ----------- -----------
2,122,696 2,162,998 1,873,222
----------- ----------- -----------
Loss from continuing operations (1,325,158) (907,203) (725,847)
Gain (loss) from discontinued operations (notes 2 and 14) 238,591 640,336 (121,137)
----------- ----------- -----------
Net loss (1,086,567) (266,867) (846,984)
Retained earnings at beginning of year 436,668 703,535 1,550,519
----------- ----------- -----------
Retained earnings (accumulated deficit) at end of year $ (649,899) 436,668 703,535
=========== =========== ===========
Loss per common share (note 10):
Loss from continuing operations $ (1.28) (.88) (.70)
Gain (loss) from discontinued operations (notes 2 and 14) .23 .62 (.12)
----------- ----------- -----------
Net loss per common share $ (1.05) (.26) (.82)
=========== =========== ===========
Weighted average number of common shares outstanding
during the year 1,032,692 1,032,692 1,032,692
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 23
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 1,259,143 2,905,936 5,271,819
Cash paid to suppliers/employees (1,044,664) (3,739,171) (6,380,857)
Capital expenditures - real estate (4,880) (2,701) (290)
Purchase of investments in real estate (1,587,321) (1,306,518) (2,257,774)
Collections from investments in real estate 1,428,826 2,740,345 1,215,746
Dividends received 11,365 12,138 8,451
Interest received 311,290 828,662 550,618
Interest paid (506,167) (840,909) (439,646)
----------- ----------- -----------
Net cash provided by (used in) operating activities (132,408) 597,782 (2,031,933)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of other investments -- -- (188,549)
Proceeds from sale of marketable securities -- -- 47,491
Proceeds from sale of other investments 391,616 259,350 543,035
Proceeds from sale/disposal of property and equipment 5,367 -- 6,900
Collections on other receivables 2,646 4,824 958,438
Capital expenditures (7,127) (25,015) (51,409)
----------- ----------- -----------
Net cash provided by investing activities 392,502 239,159 1,315,906
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from indebtedness 310,895 185,497 48,844
Payments on indebtedness (418,299) (343,251) (528,252)
Proceeds received under loan participation agreements 409,500 832,500 1,500,000
Payments made under loan participation agreements (953,914) (1,556,708) (264,450)
----------- ----------- -----------
Net cash provided by (used in) financing activities (651,818) (881,962) 756,142
----------- ----------- -----------
Net increase (decrease) in cash (391,724) (45,021) 40,115
Cash at beginning of year 752,493 797,514 757,399
----------- ----------- -----------
Cash at end of year $ 360,769 752,493 797,514
=========== =========== ===========
</TABLE>
5
<PAGE> 24
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended July 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Reconciliation of net loss to cash provided by (used in) operating activities:
Net loss $(1,086,567) (266,867) (846,984)
----------- ---------- ----------
Adjustments to reconcile net loss to cash provided by (used in)
operating activities:
Capital expenditures - real estate (4,880) (2,701) (290)
Depreciation and amortization 34,521 71,747 100,370
Provision for losses on real estate investments 437,297 -- --
Acquisition of undeveloped land through foreclosure (92,323) -- --
Gain on sale of other investments (335,422) (178,829) (471,755)
Gain on sale of discontinued operations -- (379,227) --
Gain on sale of marketable securities -- -- (28,181)
Loss (gain) on sale/disposal of property and equipment 315 -- (6,900)
Change in assets and liabilities:
Increase in inventories -- (30,471) (2,103)
Decrease (increase) in trade accounts, accrued interest
and other receivables, net 612,079 (125,158) (206,200)
Decrease (increase) in investment in real estate (158,495) 1,433,827 (1,042,028)
Decrease (increase) in deferred charges and other assets (2,607) (80,213) 26,611
Increase (decrease) in accounts payable, trade 5,527 217,838 (16,394)
Increase (decrease) in accrued expenses
and other payables 458,147 (62,164) 461,921
----------- ---------- ----------
Total adjustments 954,159 864,649 (1,184,949)
----------- ---------- ----------
Net cash provided by (used in) operating activities $ (132,408) 597,782 (2,031,933)
=========== ========== ==========
Supplemental schedule of noncash operating, investing and financing activities:
In fiscal year 1998, the Company sold certain assets and liabilities of
its subsidiary, Latipac Fine Foods, Inc. A net gain on disposal was
recognized on assets transferred as follows:
Inventories $ 97,896
Property and equipment, net 135,215
Deferred charges and other assets 111,663
Accounts payable trade (753,330)
Other payables 29,329
-----------
$ (379,227)
===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 25
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Capital Investment of Hawaii, Inc. and subsidiaries are
engaged principally in real estate, security and other
investing activities.
Real estate activities include the acquisition and development
of undeveloped real estate, the sale and leasing of developed
real estate and the investment in undeveloped land located
principally on the island of Oahu in the state of Hawaii. Also
included in real estate activities are interest income on
notes receivable arising from property sales and income earned
from financing acquisition, development and construction loan
commitments in connection with residential real estate
projects in Nevada and Utah.
Security and other investing activities include gains and
losses from the sale of investments and dividend and interest
income related to the ownership of such investments.
(b) PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Capital
Investment of Hawaii, Inc. and all of its subsidiaries
(collectively referred to as the "Company"). All material
intercompany balances and transactions have been eliminated
from the consolidated financial statements.
(c) REAL ESTATE ACCOUNTING
(a) CARRYING AMOUNTS
Developed real estate and undeveloped land held for
sale are carried at the lower of cost or market
value.
(b) INCOME RECOGNITION
Profit on sales of real estate is recognized when
title has passed, minimum down payment criterion are
met, risks and records of ownership have been
transferred to the buyer and there is no substantial
continuing involvement with the property,
collectibility of the sales price is reasonably
assured and other criteria set forth in Statement of
Financial Accounting Standards (SFAS) No. 66 are met.
If any of the aforementioned criteria are not met,
profit is deferred and recognized under either the
installment, cost recovery, deposit or percentage of
completion method.
7
<PAGE> 26
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
(d) DEPRECIATION AND AMORTIZATION
Depreciation and amortization are computed generally by use of the
straight-line method. Depreciation and amortization rates are based
upon the estimated useful lives of the assets or, if applicable, the
remaining terms of leases, whichever is shorter. In general, the ranges
of annual rates of depreciation and amortization applicable to major
classifications of property and equipment are as follows:
<TABLE>
<CAPTION>
CLASS OF ASSETS RATE OF DEPRECIATION
-------------------------- --------------------
<S> <C>
Leasehold improvements 5% to 20%
Furniture and equipment 10% to 20%
</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.
(e) SECURITY INVESTMENTS
Investment securities for which no ready market exists are valued at
cost.
For all security investments, declines in value below cost that are
determined to be other than temporary are reflected in operations and
the written-down value of the securities is established as the new cost
basis for those securities.
The cost of securities sold is determined on a first-in, first-out
basis.
(f) INVESTMENTS IN REAL ESTATE - ACQUISITION, DEVELOPMENT AND CONSTRUCTION
LOANS
The Company has originated acquisition, development, and construction
(ADC) loans with the following characteristics: (1) the borrower has
title to but little or no equity in the underlying security and (2) the
Company participates in the profit on the ultimate sale of the project.
For financial reporting purposes, the loans have been presented as real
estate investments.
The Company recognizes the interest and fees the Company is entitled to
under ADC loans ratably as profits are earned on the sale of individual
units in the underlying real estate projects.
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary
8
<PAGE> 27
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(h) IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. This Statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
(i) NEWLY ADOPTED ACCOUNTING PRINCIPLES
(a) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 130, Reporting Comprehensive Income. SFAS No.
130, effective for fiscal years beginning after December 15,
1997, establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is
defined as all changes in equity, including net income, except
those resulting from investment by and distributions to
owners. SFAS No. 130 requires reclassification of financial
statements for earlier periods provided for comparative
purposes. The application SFAS No. 130, effective from August
1, 1998, did not have a material impact on the Company's
consolidated financial statements.
(b) SEGMENTS AND RELATED INFORMATION
In June 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No.
131 is effective for fiscal years beginning after December 15,
1997. SFAS No. 131 establishes standards for the way public
companies report selected information about business segments,
including information on products and services, geographic
areas and major customers, based on a management approach to
reporting. Reclassification of financial statements for prior
periods is required for comparative purposes. The application
of SFAS No. 131, effective August 1, 1998, did not have
material impact on the consolidated financial statements of
the Company.
9
<PAGE> 28
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
(j) USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) DISCONTINUED BAKERY OPERATION
In December 1997, the Company sold certain assets and liabilities of
its bakery operations. The Company recognized a gain on the sale of
$379,227 in fiscal 1998.
Summary gain (loss) from discontinued operations are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Total revenues $ 2,137,368 4,737,228
Total costs and expenses (2,167,578) (5,163,278)
Gain on sale of assets and liabilities 379,227 --
----------- ----------
Gain (loss) from discontinued operations $ 349,017 (426,050)
----------- ----------
</TABLE>
(3) DEVELOPED REAL ESTATE
The components of developed real estate at July 31, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Held for sale, at lower of cost or market:
Condominium apartment units, a portion of which
includes undivided interest in land $ 308,479 304,989
Commercial property 1,350,000 1,350,000
Other 23 23
---------- ----------
1,658,502 1,655,012
Less accumulated depreciation 274,757 253,533
---------- ----------
$1,383,745 1,401,479
========== ==========
</TABLE>
(4) REAL ESTATE INVESTMENTS
(a) UNDEVELOPED LAND
Undeveloped land held for sale at July 31, 1999 and 1998
consisted of approximately 39 acres in Makaha Valley on the
island of Oahu, state of Hawaii and approximately 1.3 acres in
Washington County, Utah.
10
<PAGE> 29
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
(b) OTHER REAL ESTATE INVESTMENTS
The Company has extended various ADC loan commitments to corporate real
estate ventures to finance residential real estate projects in Nevada
and Utah. These financing arrangements are being accounted for as
in-substance investments in real estate, whereby the interest and fees
the Company is entitled to will be recognized ratably as profits are
earned on the sale of units in the underlying real estate projects.
Each loan commitment has restrictive loan covenants which limit the
maximum amount of loan proceeds available for site acquisition and
development and building construction.
At July 31, 1999, the ADC loans to Hearthstone Homes, Inc. and
Hearthstone Homebuilders, Inc. were made to corporate real estate
ventures which are owned by individuals who have personally guaranteed
payment of the ADC loans. At July 31, 1998, all ADC loans were made to
corporate real estate ventures.
The following summarizes the Company's other investments in real estate
and related deferred income which is presented as "other payables" in
the accompanying consolidated balance sheets.
<TABLE>
<CAPTION>
CAPITALIZED DEFERRED
PROJECT ADVANCES INTEREST TOTAL INCOME
- --------------------------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
As of July 31, 1999:
Hearthstone Homes, Inc. $ 200,000 7,700 207,700 14,617
Hearthstone Home-
builders, Inc. 415,091 350 415,441 17,830
Martin Development, Inc. 602,780 20,687 623,467 --
---------- ------ --------- -------
$1,217,871 28,737 1,246,608 32,447
========== ====== ========= =======
As of July 31, 1998:
Copper Bluffs, LLC $ 365,380 27,200 392,580 161,314
Sunset Bay, LLC 249,232 38,900 288,132 134,711
Red Rock Canyon, LLC 191,406 17,300 208,706 106,628
Touchstone Development
of Utah, LLC 404,192 2,400 406,592 18,911
Hearthstone Homes, Inc. 225,000 4,400 229,400 13,191
---------- ------ --------- -------
$1,435,210 90,200 1,525,410 434,755
========== ====== ========= =======
</TABLE>
HEARTHSTONE HOMES, INC.
On February 10, 1998, the Company extended a $425,000 ADC loan
commitment to Hearthstone Homes, Inc. to finance a residential real
estate project known as Hearthstone Homes in Clark County, Nevada. At
July 31, 1999 and 1998, the Company's aggregate investment in the real
estate project amounted to $207,700 and $229,400, respectively,
including $7,700 and $4,400 of capitalized interest, respectively. The
ADC loan is secured by a parcel of land in Clark County,
11
<PAGE> 30
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
Nevada. Restrictive loan covenants limit the maximum amount of loan proceeds
available during various phases of the project.
The Company entered into a 50% loan participation agreement which provides that
the Company sell, without recourse, to a participant an undivided participating
interest in the loan to Hearthstone Homes, Inc. The participant's share of the
loan commitment amounted to nil and $119,804 at July 31, 1999 and 1998,
respectively. The participant is an officer of a subsidiary of the Company.
HEARTHSTONE HOMEBUILDERS, INC.
On December 3, 1998, the Company extended a $415,000 ADC loan commitment to
Hearthstone Homebuilders, Inc. to finance a residential real estate project in
Clark County, Nevada. As of July 31, 1999, the Company's aggregate investment in
the real estate project amounted to $415,441, including $350 of capitalized
interest. The ADC loan is secured by a parcel of land in Clark County, Nevada.
The Company entered into 50% loan participation agreements which provide that
the Company sell, without recourse, to participants an undivided participating
interest in the loan to Hearthstone Homebuilders, Inc. The participants' share
of the loan at July 31, 1999 was $449,049 of which $149,684 was from a director
of the Company.
MARTIN DEVELOPMENT, INC.
On February 19, 1999, the Company entered into an agreement with Martin
Development, Inc. to exchange its interest in 59 parcels of land in the Copper
Bluffs project located in Clark County, Nevada, for a promissory note totaling
$813,376. As of July 31, 1999, the balance due from Martin Development totals
$602,780. The promissory note is secured by the deed to the land parcels in
Clark County, Nevada.
The Company entered into 50% loan participation agreements which provide that
the Company sell, without recourse, to participants an undivided participating
interest in the loan to Martin Development, Inc. The participants' share of the
loan at July 31, 1999 was $351,824, of which $58,608 was from a director of the
Company and $234,608 from an officer of the Company.
COPPER BLUFFS, LLC
On June 18, 1996, the Company extended a $600,000 ADC loan commitment to Copper
Bluffs, LLC to finance a residential real estate project in Clark County,
Nevada. At July 31, 1998, the Company's aggregate investment in the real estate
project amounted to $392,580, including $27,200 of capitalized interest.
In January 1999, the Company obtained title to 59 parcels of land in Clark
County, Nevada in satisfaction of its loan to Copper Bluffs, LLC. Title to the
parcels were subsequently assigned to Martin Development, Inc. in exchange for a
non-interest bearing loan of $813,376. These transactions resulted in a
provision for loss from real estate investment of $100,000.
12
<PAGE> 31
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
Financial information of Copper Bluffs, LLC is as follows:
CONDENSED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS
Construction work in progress $ 1,246,433
Other current assets 260,359
-----------
$ 1,506,792
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable $ 269,382
Construction notes payable 720,426
Due to Capital Investment of Hawaii, Inc. 528,820
Other payables 39,145
-----------
Total liabilities 1,557,773
-----------
Paid-in capital $ 5,000
Accumulated deficit (55,981)
-----------
Total stockholders' deficiency (50,981)
===========
$ 1,506,792
-----------
CONDENSED STATEMENT OF LOSS
ELEVEN MONTHS ENDED JUNE 30, 1998
Sales $ 4,513,754
Cost of sales (4,471,368)
-----------
Gross profit 42,386
Other income 28,902
Other expenses (130,395)
-----------
Net loss $ (59,107)
===========
</TABLE>
13
<PAGE> 32
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
SUNSET BAY, LLC
On July 29, 1996, the Company extended a $608,400 ADC loan commitment to Sunset
Bay, LLC to finance a residential real estate project in Clark County, Nevada.
The loan commitment was paid in full on November 1, 1996. Subsequently, on
December 23, 1996, the Company extended a $800,000 ADC loan commitment to Sunset
Bay, LLC to finance another residential real estate project in Clark County,
Nevada. At July 31, 1998, the Company's aggregate investment in the real estate
project amounted to $288,132, including $38,900 of capitalized interest.
In January 1999, the Company recorded a provision for loss from real estate
investment for its ADC loan to Sunset Bay LLC of $300,000. The provision
included the write-off of the total principal and interest due on the loan at
January 31, 1999.
Financial information of Sunset Bay, LLC is as follows:
CONDENSED BALANCE SHEET
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C>
Restricted cash $ 28,915
Construction work in progress 2,780,080
-----------
$ 2,808,995
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 167,382
Construction notes payable 1,471,051
Due to Capital Investment of Hawaii, Inc. 490,411
Other payable 613,526
-----------
Total liabilities 2,742,370
-----------
Paid-in capital $ 5,000
Retained earnings 61,625
-----------
Total stockholders' equity 66,625
-----------
$ 2,808,995
===========
</TABLE>
14
<PAGE> 33
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
CONDENSED STATEMENTS OF INCOME
ELEVEN MONTHS ENDED JUNE 30, 1998
Sales $ 1,674,620
Cost of sales (1,601,856)
-----------
Gross profit 72,764
Other income 4,123
Other expense (15,112)
-----------
Net income $ 61,775
===========
RED ROCK CANYON, LLC
On October 2, 1996, the Company extended a $500,000 ADC loan commitment to Red
Rock Canyon, LLC to finance a residential real estate project in Washington
County, Utah. At July 31, 1998, the Company's aggregate investment in the real
estate project amounted to $208,706 including $17,300 of capitalized interest.
The Company obtained title to improved residential housing lots in Washington
County, Utah in satisfaction of its ADC loan to Red Rock Canyon, LLC. As a
result of this transaction, the Company recorded a provision for loss from real
estate investments of $37,297 during the year ended July 31, 1999.
15
<PAGE> 34
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
Financial information of Red Rock Canyon, LLC is as follows:
CONDENSED BALANCE SHEET
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C>
Cash $ 15,808
Accounts receivable 4,000
Construction work in progress 690,627
Other assets 20,838
-----------
$ 731,273
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable $ 84,291
Construction notes payable 276,936
Due to Capital Investment of Hawaii, Inc. 357,331
Other payables 52,946
-----------
Total liabilities 771,504
-----------
Capital accounts $ 5,000
Accumulated deficit (45,231)
-----------
Total stockholders' deficiency (40,231)
===========
$ 731,273
===========
CONDENSED STATEMENTS OF LOSS
ELEVEN MONTHS ENDED JUNE 30, 1998
Sales $ 1,996,374
Cost of sales (2,078,001)
-----------
Gross loss (81,627)
Other income 143
Other expenses (10,432)
-----------
Net loss $ (91,916)
===========
</TABLE>
16
<PAGE> 35
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
TOUCHSTONE DEVELOPMENT OF UTAH, LLC
On February 4, 1997, the Company extended a $2,337,437 ADC loan commitment to
Touchstone Development of Utah, LLC to finance a residential real estate project
known as Overlake Estates in Tooele County, Utah. At July 31, 1998, the
Company's aggregate investment in the real estate project amounted to $406,592
including $2,400 of capitalized interest.
In April 1999, the Company received approximately $115,800 from a Nevada
corporation in exchange for the assignment of its interest in the ADC loan to
Touchstone Development of Utah, LLC.
Financial information of Touchstone Development of Utah, LLC is as follows:
CONDENSED BALANCE SHEET
JUNE 30, 1998
ASSETS
<TABLE>
<S> <C>
Cash $ 89,693
Construction work in progress 5,983,335
Restricted cash 775,728
Receivables 100,835
Other assets 24,315
-----------
$ 6,973,906
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 857,233
Due to Capital Investment of Hawaii, Inc. 521,898
Construction notes payable 5,289,307
Other payables 78,058
-----------
Total liabilities 6,746,496
-----------
Paid-in capital $ 397,297
Accumulated deficit (169,887)
-----------
Total stockholders' equity 227,410
-----------
$ 6,973,906
===========
</TABLE>
17
<PAGE> 36
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
CONDENSED STATEMENT OF LOSS
ELEVEN MONTHS ENDED JUNE 30, 1998
<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>
The Company entered into 15% loan participation agreements which provide that
the Company sell, without recourse, to participants an undivided participating
interest in the loan to Touchstone Development of Utah, LLC. Participants' share
of the loan commitment amounted to $391,538 at July 31, 1998. Certain
participants are related parties which, in the aggregate, totaled $117,461 at
July 31, 1998.
(5) INDEBTEDNESS
Indebtedness at July 31, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<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, 2000 1,000,000 1,000,000
9-1/2%, payable to a financial institution in monthly
installments of $6,125 including interest, due July 1,
2001 626,566 641,684
--------- ---------
1,826,566 1,841,684
--------- ---------
</TABLE>
18
<PAGE> 37
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Other notes, secured:
10%, payable to a financial institution in monthly
installments of $2,272 including interest, payable on
demand $ 242,128 245,017
10%, payable to a financial institution in monthly
installments of interest only, due June 1, 2002 150,000 --
10%, payable to a financial institution in monthly
installments of $14,539 including interest, due
June 1, 2002 122,903 147,426
Interest at prime plus 2.0%, payable to a financial
institution; paid in full in 1999 -- 78,632
Interest at prime plus 2.5%, payable to a financial
institution; paid in full in 1999 -- 100,000
Interest at prime plus 1.5%, payable to a financial
institution; paid in full in 1999 -- 6,141
Interest at prime plus 1.25%, payable to a financial
institution; paid in full in 1999 -- 8,695
Interest at prime plus 1.5%, payable to a financial
institution; paid in full in 1999 -- 4,559
---------- ---------
515,031 590,470
---------- ---------
Debentures - at stated rates (7% to 9.5%), payable to
individuals in quarterly installments of interest only,
all of which have matured and are payable on demand;
amount authorized by indenture, $19,000,000 1,897,505 1,942,745
---------- ---------
Other notes, unsecured:
Interest at stated rates (6% to 9.5%), term notes payable
to individuals in quarterly installments of interest only, due
two years from date of issuance 385,748 357,355
Interest at stated rates (8.0% to 9.5%), payable to
individuals in quarterly installments of interest only,
payable on demand except $75,000 due February 14,
2000 (of which $5,000 is due to a related party) 145,000 145,000
---------- ---------
530,748 502,355
---------- ---------
$4,769,850 4,877,254
========== =========
</TABLE>
19
<PAGE> 38
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
Maturities of indebtedness are shown in the following summary:
<TABLE>
<S> <C> <C>
2000 $3,971,798
2001 648,052
2002 150,000
----------
$4,769,850
==========
</TABLE>
The carrying amounts of assets pledged as collateral for indebtedness as of July
31, 1999 were as follows:
<TABLE>
<S> <C>
Cash $ 351,839
Developed real estate 1,383,745
Investment in other securities 681,006
Investment in real estate 200,000
Property and equipment 20,361
----------
$2,636,951
==========
</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, 1999.
(6) INCOME TAXES
The benefit for income taxes applicable to the net loss for fiscal years 1999,
1998 and 1997 differ from the "expected benefit for income taxes" for those
years (computed by applying the U.S. federal income tax rate of 34% to net loss)
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax benefit $(369,433) (90,735) (287,975)
Net operating losses for which no deferred
income tax benefit has been recognized 371,713 91,506 271,312
Dividends received deduction (2,705) (2,889) (2,011)
Officers' life insurance -- -- 16,508
Other, net 425 2,118 2,166
--------- --------- ---------
$ -- -- --
========= ========= =========
</TABLE>
20
<PAGE> 39
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at July 31, 1999 and
1998 are presented below.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<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 12,300 165,200
Net tax operating loss carryforwards 1,725,900 1,346,200
Provision for loss on real estate investments 166,200 --
Other 82,000 83,000
----------- -----------
Total gross deferred tax assets 2,126,200 1,734,200
Less valuation allowance (2,114,000) (1,698,600)
----------- -----------
Net deferred tax assets $ 12,200 35,600
=========== ===========
Deferred tax liabilities:
Capitalized interest on other real estate investments $ 10,900 34,300
Other 1,300 1,300
----------- -----------
Total gross deferred tax liabilities $ 12,200 35,600
=========== ===========
</TABLE>
The valuation allowance for deferred tax assets as of August 1, 1998 and 1997
were $2,114,000 and $1,698,600, respectively. The net change in the total
valuation allowance for the years ended July 31, 1999 and 1998 were increases of
$415,400 and $102,300, respectively. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment.
As of July 31, 1999, the Company had tax net operating loss carryforwards of
approximately $5,000,000 and $4,700,000 for federal and state income tax
purposes, respectively, which can be used to offset future taxable income
through 2013.
(7) DEFERRED COMPENSATION
The Company has a deferred compensation agreement under which the Company is
obligated to pay $5,000 each month for 120 consecutive months to the spouse of
the late Mr. Chinn Ho, the former chairman of the Executive Committee. The
Company commenced monthly payments in accordance with the deferred compensation
agreement to Mrs. Chinn Ho in November 1989. The accrued obligation as of
21
<PAGE> 40
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
July 31, 1999 and 1998 amounted to $149,158 and is included in the consolidated
balance sheet as other payables.
(8) LEASE COMMITMENTS
The Company leases various facilities for its office premises and rental agency.
These operating leases provide that the Company pay all taxes, maintenance and
insurance applicable to the leased properties.
Consolidated future minimum payments required under noncancelable operating
leases as of July 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Year ending July 31:
<S> <C>
2000 $ 120,274
2001 120,045
2002 100,408
2003 51,844
-----------
$ 392,571
===========
</TABLE>
Rent expense for all operating leases was $124,208, $176,509 and $408,250 for
the years ended July 31, 1999, 1998 and 1997, respectively.
(9) FOURTH QUARTER RESULTS (UNAUDITED)
Fourth quarter results for the years ended July 31, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Revenues from continuing operations $ 201,389 558,753
Revenues from discontinued operations 109,215 --
--------- ---------
$ 310,604 558,753
========= =========
Gain (loss):
Loss from continuing operations ($(.15) and $(.27)
per common share 1999 and 1998, respectively)
$(159,591) (278,750)
Gain from discontinued operations ($.02 and $.001
per common share in 1999 and 1998, respectively)
21,751 628
--------- ---------
$(137,840) (278,122)
========= =========
</TABLE>
22
<PAGE> 41
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
(10) LOSS PER COMMON SHARE
Loss per common share was computed by dividing the applicable loss by
the weighted average number of shares of common stock outstanding.
(11) SEGMENT INFORMATION
The Company has classified its business activities into significant
segments for the years ended July 31, 1999, 1998 and 1997. The Company's
operations have been classified into real estate, security and other
investing and other activities. Real estate activities include the
acquisition and development of undeveloped real estate, the sale and
leasing of developed real estate and investment in undeveloped real
estate. Also included in real estate activities is interest income from
loans made to development projects. Security and other investing
activities include gains or losses from security investments and
investment income related to the ownership of such investments. Other
activities include the Company's rental agency businesses and other
miscellaneous activities. The following is a summary of segment
financial information for the years ended July 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Real estate activities:
Property rentals $ 164,179 158,858 117,615
Income from ADC loan arrangements 279,709 828,824 449,842
Interest income -- 1,396 16,143
----------- ----------- -----------
Total real estate activities 443,888 989,078 583,600
----------- ----------- -----------
Security and other investing activities:
Gains from sales of securities 335,422 178,829 499,936
Dividends and interest 14,368 13,534 58,118
----------- ----------- -----------
Total security and other investing
activities 349,790 192,363 558,054
----------- ----------- -----------
Other activities 3,860 74,354 5,721
----------- ----------- -----------
$ 797,538 1,255,795 1,147,375
=========== =========== ===========
Operating profit (loss) from continuing operations:
Real estate activities $ (292,395) 636,962 181,465
Security and other investing activities 309,370 149,620 510,625
Other activities (238,559) (236,475) (319,962)
----------- ----------- -----------
(221,584) 550,107 372,128
Interest expense (507,785) (810,640) (393,283)
Corporate expenses (595,789) (646,670) (704,692)
----------- ----------- -----------
Loss from continuing operations $(1,325,158) (907,203) (725,847)
=========== =========== ===========
</TABLE>
23
<PAGE> 42
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation and amortization:
Real estate activities $ 23,144 22,977 24,226
Security and other investing activities 460 671 657
Other activities 2,148 3,130 3,067
---------- ---------- ----------
Total segments 25,752 26,778 27,950
Corporate 4,945 10,669 10,581
Discontinued operations (notes 2 and 14) 3,824 34,300 61,839
---------- ---------- ----------
$ 34,521 71,747 100,370
========== ========== ==========
Capital expenditures:
Real estate activities $ 4,880 2,701 290
Other activities -- 1,914 8,874
Corporate 6,300 9,670 7,595
Discontinued operations (notes 2 and 14) 827 13,431 34,940
---------- ---------- ----------
$ 12,007 27,716 51,699
========== ========== ==========
Identifiable assets:
Real estate activities $2,865,540 3,074,212 4,535,896
Security and other investing activities 682,228 738,828 819,440
Other activities 60,950 575,798 361,641
---------- ---------- ----------
Total segments 3,608,718 4,388,838 5,716,977
Corporate 450,126 935,365 824,260
Discontinued operations (notes 2 and 14) 73,219 82,571 582,693
---------- ---------- ----------
$4,132,063 5,406,774 7,123,930
========== ========== ==========
</TABLE>
Sales between business segments are immaterial and are netted against
the sales of the respective segment.
(12) BUSINESS AND CREDIT CONCENTRATIONS
Substantially all of the Company's business activity is with customers
located in Hawaii, Nevada and Utah. The majority of customers of the
Company's operating businesses are related to the hospitality industry.
The Company's business activities in Nevada and Utah related solely to
financing residential real estate development projects. At July 31, 1999
and 1998, the Company had outstanding ADC loans of $1,217,871 and
$1,435,210, respectively, due from corporate real estate ventures. Under
participation agreements the Company had sold $800,873 and $511,342 of
these loans without recourse as of July 31, 1999 and 1998, respectively
(see note 4).
24
<PAGE> 43
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each applicable class of financial instruments for which it is
practicable to estimate that value:
The carrying amount of cash, trade accounts receivable, accounts
payable, accrued expenses and debentures payable approximate fair value
because of the short maturity of these instruments.
(a) OTHER INVESTMENT SECURITIES
Fair value is based on dealer quotes.
(b) OTHER REAL ESTATE INVESTMENTS
Fair value is determined as the present value of expected future
cash flows discounted at the interest rate currently offered by
the Company, which approximates rates currently offered by local
lending institutions for loans of similar terms to companies
with comparable credit risk.
(c) INDEBTEDNESS
Fair value of mortgage notes, other notes, secured and other
notes, unsecured is estimated by discounting the future cash
flows of each instrument based on the quoted market prices for
the same or similar issues or on the current rates offered for
debt of the same or similar remaining maturities.
(d) DEFERRED COMPENSATION PAYABLE
The carrying value of deferred compensation payable estimates
fair value.
(e) ACCRUED INTEREST
Accrued interest is determined by the present value of interest
income recognized by the Company.
(f) OTHER RECEIVABLES
The carrying value of other receivable balances approximates the
fair value.
(g) LIMITATIONS
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time
the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion
of the Company's financial instruments, fair value estimates
cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
Fair value estimates are provided for certain existing on- and
off-balance sheet financial instruments without attempting to
estimate the value of anticipated future business and the value
of assets and liabilities that are not considered financial
instruments. In addition, the tax ramifications related to
25
<PAGE> 44
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
the realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered.
<TABLE>
<CAPTION>
JULY 31, 1999 JULY 31, 1998
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Cash $ 360,769 360,769 752,493 752,493
Receivables:
Trade accounts 67,421 67,421 77,074 77,074
Accrued interest 55,417 55,417 565,458 565,458
Other 66,483 66,483 161,514 161,514
Other investments:
Real estate 1,246,608 1,021,682 1,525,410 1,448,757
Securities 681,006 714,418 737,202 1,118,619
FINANCIAL LIABILITIES
Accounts payable, trade 105,048 105,048 99,521 99,521
Accrued expenses:
Interest 55,001 55,001 53,383 53,383
Taxes other than income 59,101 59,101 11,505 11,505
Other 662,830 662,830 656,205 656,205
Mortgage notes 1,826,566 1,721,273 1,841,684 1,731,455
Other notes, secured 515,031 495,667 590,470 588,818
Debentures 1,897,505 1,897,505 1,942,745 1,942,745
Other notes, unsecured 530,748 492,037 502,355 499,287
Loans under participation agreements 442,900 442,900 237,265 237,265
Deferred compensation payable 149,158 149,158 149,158 149,158
</TABLE>
(14) SUBSEQUENT EVENT
In October 1999, the Company entered into an agreement to sell certain
assets of its property management division. Summary operating results of
the discontinued operations are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
Total revenues $ 599,930 660,560 670,420
Total costs and expenses (361,339) (369,241) (365,507)
--------- ------- -------
Gain from discontinued operations $ 238,591 291,319 304,913
========= ======= =======
</TABLE>
26
<PAGE> 45
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Notes Consolidated Financial Statements
July 31, 1999,1998 and 1997
The components of net liabilities of discontinued operations included in the
consolidated balance sheets at July 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Commissions receivable $ 56,980 63,408
Deferred charges and other asset 6,704 6,632
Fixed assets, net 9,535 12,531
Accounts payable and accrued expenses (760,267) (703,110)
---------- ---------
Net liabilities $(687,048) (620,539)
========== =========
</TABLE>
27
<PAGE> 46
SCHEDULE II
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended July 31, 1999, 1998 and 1997
<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, 1999:
Allowance for doubtful receivables $ 1,000 -- -- -- 1,000
========== ========== ========= ========== =============
Year ended July 31, 1998:
Allowance for doubtful receivables $ 27,191 3,000 -- 29,191 (1) 1,000
========== ========== ========= ========== =============
Year ended July 31, 1997:
Allowance for doubtful receivables $ 25,001 18,000 -- 15,810 (1) 27,191
========== ========== ========= ========== =============
(1) Accounts receivable written off.
</TABLE>
See accompanying independent auditors' report.
<PAGE> 47
SCHEDULE III
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Real Estate and Accumulated Depreciation
July 31, 1999
(1) Changes during the two years ended July 31, 1999:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cost of real estate:
Balance at beginning of year $ 1,789,486 1,786,785
Additions during year:
Improvements to real estate 3,492 2,701
Acquisitions through foreclosure 361,862 --
Deductions during year - cost of real estate sold (269,539) --
----------- -----------
Balance at end of year $ 1,885,301 1,789,486
=========== ===========
Accumulated depreciation of real estate:
Balance at beginning of year $ 253,533 231,788
Additions during the year - charged to costs and expenses 21,226 21,745
----------- -----------
Balance at end of year $ 274,759 253,533
=========== ===========
</TABLE>
(2) Aggregate original cost for federal income tax purposes amounted to
$1,868,966 for 1999.
(3) Presentation on consolidated balance sheet as of July 31, 1999:
<TABLE>
<CAPTION>
UNDEVELOPED
DEVELOPED LAND HELD
REAL ESTATE FOR SALE
----------- ----------
<S> <C> <C>
Cost $1,658,504 226,797
Less accumulated depreciation 274,759 --
---------- ----------
$1,383,745 226,797
========== ==========
</TABLE>
See accompanying independent auditors' report.
<PAGE> 48
SCHEDULE III
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Real Estate and Accumulated Depreciation
July 31, 1999
<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 13,916
Honolulu, Hawaii Mortgages payable on four
apartments to various
individuals and company; note
payable on one apartment
to financial institution 24,578 166,705 75,466
Commercial/industrial: Mortgages payable to financial
Honolulu, Hawaii institution and company; notes
payable to financial institution 743,000 607,000 --
Other miscellaneous
developed real
estate located in
Hawaii None 23 -- --
--------- ------- -------
Total developed
real estate 765,278 803,843 89,382
--------- ------- -------
Undeveloped land held for sale:
Makaha, Hawaii None 73,290 -- 61,184
Residential - Washington
County, Utah 92,323 -- --
--------- ------- -------
Total undeveloped
real estate 165,613 -- 61,184
--------- ------- -------
Grand total $ 930,891 803,843 150,566
========= ======= =======
</TABLE>
<TABLE>
<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) 44,055 41,732
Honolulu, Hawaii Mortgages payable on four
apartments to various
individuals and company; note
payable on one apartment
to financial institution 24,578 242,171 266,749
Commercial/industrial: Mortgages payable to financial
Honolulu, Hawaii institution and company; notes
payable to financial institution 743,000 607,000 1,350,000
Other miscellaneous
developed real
estate located in
Hawaii None 23 -- 23
------- -------- ---------
Total developed
real estate 765,278 893,226 1,658,504
------- -------- ---------
Undeveloped land held for sale:
Makaha, Hawaii None 73,290 61,184 134,474
Residential - Washington
County, Utah 92,323 -- 92,323
------- -------- ---------
Total undeveloped
real estate 165,613 61,184 226,797
------- -------- ---------
Grand total 930,891 954,410 1,885,301
======= ======== =========
</TABLE>
<TABLE>
<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 10,144 1971 to 1985
Honolulu, Hawaii Mortgages payable on four
apartments to various
individuals and company; note Completed
payable on one apartment 1964 and Various 1964
to financial institution 202,359 1968 to 1985
Commercial/industrial: Mortgages payable to financial
Honolulu, Hawaii institution and company; notes
payable to financial institution 62,256 Built 1986 July 1995
Other miscellaneous
developed real
estate located in
Hawaii None -- April 1956 July 1953
---------
Total developed
real estate 274,759
---------
Undeveloped land held for sale:
Makaha, Hawaii None -- May 1973
Residential - Washington
County, Utah -- February 1999
---------
Total undeveloped
real estate --
---------
Grand total 274,759
=========
</TABLE>
<TABLE>
<CAPTION>
Life on which depreciation
in latest income
Description statement is computed
- --------------------------------------- -----------------------------
<S> <C>
Developed real estate - held for sale:
Condominium
apartments:
Makaha, Hawaii
36 to 40 years for apartments
5 years for furnishings
Honolulu, Hawaii
40 years for apartments
5 years for furnishings
Commercial/industrial:
Honolulu, Hawaii
39 years
Other miscellaneous
developed real
estate located in
Hawaii
Total developed
real estate
Undeveloped land held for sale:
Makaha, Hawaii
Residential - Washington
County, Utah
Total undeveloped
real estate
Grand total
</TABLE>
<PAGE> 49
SCHEDULE IV
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Mortgage Loans on Real Estate
July 31, 1999
<TABLE>
<CAPTION>
Final
maturity Periodic
Description Interest rate date payment terms
- ----------------------------------------- ------------- ------------ ---------------------
<S> <C> <C> <C>
First mortgage - payable to a corporation
on condominium apartments located in February 28, Monthly installments
Honolulu, Hawaii 9-1/2% 2000 of interest only
First mortgages - payable to individuals
on condominium apartment located Monthly installments
in Honolulu, Hawaii 9-1/2% On Demand of interest only
First mortgage - payable to a financial Monthly installments
institution on land and warehouse of $6,125, including
located in Honolulu, Hawaii 9-1/2% July 1, 2001 interest
</TABLE>
<TABLE>
<CAPTION>
Principal
amount of
loans subject
Face Carrying to delinquent
amount of amount of principal
Description Prior liens mortgages mortgage (1) or interest
- ----------------------------------------- ------------ ------------- ------------- --------------
<S> <C> <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 mortgage - payable to a financial
institution on land and warehouse
located in Honolulu, Hawaii -- 700,000 626,566 --
-------- ----------- ---------- -------
$ -- 1,900,000 1,826,566 --
======== =========== ========== =======
</TABLE>
(1) Changes during the years ended July 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Balance at beginning of year $ 1,841,684 1,853,583
Deductions during the year (15,118) (11,899)
-------------- -------------
Balance at end of year $ 1,826,566 1,841,684
============== =============
</TABLE>
See accompanying independent auditors' report.
<PAGE> 50
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITAL INVESTMENT OF HAWAII, INC.
Date: October 22, 1999 /s/ Stuart T. K. Ho
----------------------------------------
Stuart T. K. Ho, Chairman of the Board,
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: October 22, 1999 /s/ Dean T. W. Ho
----------------------------------------
Dean T. W. Ho, Vice Chairman, Secretary
and Director
Date: October 22, 1999 /s/ Donald M. Wong
----------------------------------------
Donald M. Wong, Senior Vice President,
Senior Vice President, Treasurer and
Director
Date: October 22, 1999 /s/ Harriet H. Matsuo
----------------------------------------
Harriet H. Matsuo, Assistant Secretary
and Assistant Treasurer
Date: October 22, 1999 /s/ Greta U. Nakao
---------------------------------------
Greta U. Nakao, Assistant Secretary
and Assistant Treasurer
<PAGE> 1
EXHIBIT 11
CAPITAL INVESTMENT OF HAWAII, INC.
AND SUBSIDIARIES
Computation of Loss Per Common Share
<TABLE>
<CAPTION>
Years ended July 31,
--------------------------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Loss from continuing operations $(1,325,158) (907,203) (725,847)
Gain (loss) from discontinued operations 238,591 640,336 (121,137)
----------- ---------- ----------
Net loss applicable to common shareholders $(1,086,567) (266,867) (846,984)
=========== ========== ==========
Divided by weighted average number of common
shares outstanding during the year 1,032,692 1,032,692 1,032,692
=========== ========== ==========
Loss per common share:
Continuing operations (1.28) (.88) (.70)
Discontinued operations .23 .62 (.12)
----------- ---------- ----------
Net loss (1.05) (.26) (.82)
=========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Years ended July 31,
-----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Loss from continuing operations (351,989) (518,013)
Gain (loss) from discontinued operations (21,369) (289,913)
---------- ----------
Net loss applicable to common shareholders (373,358) (807,926)
========== ==========
Divided by weighted average number of common
shares outstanding during the year 1,032,692 1,032,692
========== ==========
Loss per common share:
Continuing operations (.34) (.50)
Discontinued operations (.02) (.28)
---------- ----------
Net loss (.36) (.78)
========== ==========
</TABLE>
17
<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
Latipac Nevada, Limited Nevada
Makaha Valley, Incorporated (85.8% - owned) Hawaii
Resources, Incorporated Hawaii
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF JULY 31, 1999 AND THE CONSOLIDATED STATEMENTS
OF OPERATIONS AND RETAINED EARNINGS (ACCUMULATED DEFICIT) FOR THE YEAR ENDED
JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 360,769
<SECURITIES> 0
<RECEIVABLES> 190,321
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 393,134
<DEPRECIATION> 360,944
<TOTAL-ASSETS> 4,132,063
<CURRENT-LIABILITIES> 0
<BONDS> 4,769,850
0
0
<COMMON> 1,723,744
<OTHER-SE> (4,238,074)
<TOTAL-LIABILITY-AND-EQUITY> 4,132,063
<SALES> 0
<TOTAL-REVENUES> 797,538
<CGS> 0
<TOTAL-COSTS> 2,122,696
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 437,297
<INTEREST-EXPENSE> 507,785
<INCOME-PRETAX> (1,325,158)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,325,158)
<DISCONTINUED> 238,591
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,086,567)
<EPS-BASIC> (1.05)
<EPS-DILUTED> (1.05)
</TABLE>
