<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-4179
CAPITAL INVESTMENT OF HAWAII, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Hawaii 99-0065664
- -------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 1700, Makai Tower, 733 Bishop Street
Honolulu, Hawaii 96813
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (808) 537-3981
------------------------------
No Change
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]. No [ ].
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
There were 1,032,683 shares outstanding of common stock, no par value,
as of April 30, 1999.
<PAGE> 2
PART I - FINANCIAL INFORMATION
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
April 30, 1999 and July 31, 1998
ASSETS
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
(Unaudited)
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 117,000 752,493
Receivables:
Trade accounts and notes, less allowance
for doubtful receivables of $1,000
at April 30, 1999 and July 31,
1998 52,902 77,074
Accrued interest 37,951 565,458
Other 93,767 161,514
----------- -----------
Total receivables 184,620 804,046
----------- -----------
Developed real estate, less accumulated depre-
ciation of $270,294 at April 30, 1999
and $253,533 at July 31, 1998 1,524,991 1,401,479
Undeveloped land held for sale 134,474 134,474
Other investments:
Real estate 1,398,273 1,525,410
Securities 686,370 737,202
----------- -----------
2,084,643 2,262,612
----------- -----------
Property and equipment, at cost:
Leasehold improvements 58,469 61,282
Furniture and equipment 399,002 394,610
----------- -----------
457,471 455,892
Less accumulated depreciation and amortization (419,608) (413,242)
----------- -----------
Net property and equipment 37,863 42,650
Deferred charges and other assets 36,193 9,020
----------- -----------
$ 4,119,784 5,406,774
=========== ===========
</TABLE>
<PAGE> 3
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, cont'd.
April 30, 1999 and July 31, 1998
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
April 30, July 31,
1999 1998
(Unaudited)
----------- -----------
<S> <C> <C>
Indebtedness (current installments of $3,738,529
at April 30,1999 and $4,208,043
at July 31, 1998):
Debentures $ 1,906,485 1,942,745
Mortgage notes 1,874,173 1,841,684
Other notes, secured 405,659 590,470
Other notes, unsecured 522,323 502,355
----------- -----------
Total indebtedness 4,708,640 4,877,254
----------- -----------
Accounts payable, trade 160,535 99,521
Accrued expenses 547,696 721,093
Other payables:
Loans under participation agreement:
Related parties 380,404 237,265
Other 524,922 274,077
Other 174,047 625,297
----------- -----------
1,079,373 1,136,639
----------- -----------
Stockholders' deficiency:
Common stock, no par value, stated value
$1 per share:
Authorized 2,531,765 shares; issued
1,723,765 shares. (No shares
reserved for conversion, warrants,
options or other rights) 1,723,765 1,723,765
Additional paid-in capital 469,321 469,321
Retained earnings (accumulated deficit) (512,059) 436,668
----------- -----------
1,681,027 2,629,754
Deduct cost of 691,082 common shares in
treasury (4,057,487) (4,057,487)
----------- -----------
Stockholders' deficiency (2,376,460) (1,427,733)
----------- -----------
$ 4,119,784 5,406,774
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended April 30, 1999 and 1998
and
Nine months ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
April 30, April 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Commissions and fees $ 187,729 201,415 $ 490,654 542,837
Income from investments 195,369 157,808 578,515 621,040
Other 6,317 (885) 17,694 79,190
----------- ----------- ----------- -----------
389,415 358,338 1,086,863 1,243,067
----------- ----------- ----------- -----------
Cost and expenses:
Other direct operating expenses
and general and administrative
expenses 376,860 395,995 1,222,177 1,354,201
Provision for losses from real
estate investments 37,297 -- 437,297 --
Interest 90,957 91,560 376,116 340,535
----------- ----------- ----------- -----------
505,114 487,555 2,035,590 1,694,736
----------- ----------- ----------- -----------
Loss from continuing
operations (115,699) (129,217) (948,727) (451,669)
----------- ----------- ----------- -----------
Discontinued operations:
Loss from operations of discon-
tinued bakery operations -- -- -- (36,272)
Gain from sale of certain assets
and liabilities of discontinued
bakery operations -- -- -- 415,499
----------- ----------- ----------- -----------
Net earnings from discon-
tinued operations -- -- -- 379,227
----------- ----------- ----------- -----------
Net loss (115,699) (129,217) (948,727) (72,442)
Retained earnings (accumulated
deficit) at beginning of period (396,360) 760,310 436,668 703,535
----------- ----------- ----------- -----------
Retained earnings (accumulated
deficit) at end of period $ (512,059) 631,093 $ (512,059) 631,093
=========== =========== =========== ===========
</TABLE>
<PAGE> 5
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations - cont'd.
Three months ended April 30, 1999 and 1998
and
Nine months ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
April 30, April 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings (loss) per common share:
Loss from continuing
operations $ (.11) (.13) $ (.92) (.44)
Earnings from discontinued
operations -- -- -- .37
---------- ---------- ---------- ----------
Net loss per common share $ (.11) (.13) $ (.92) (.07)
========== ========== ========== ==========
Weighted average number of common
shares outstanding during the
period 1,032,683 1,032,683 1,032,683 1,032,683
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine months ended April 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net cash provided by (used in) operating activities $(1,272,097) 138,108
----------- -----------
Cash flows from investing activities:
Proceeds from sales of securities 278,305 --
Capital expenditures (8,944) (16,723)
----------- -----------
Net cash provided by (used in)
investing activities 269,361 (16,723)
----------- -----------
Cash flows from financing activities:
Proceeds from indebtedness 241,070 176,190
Principal payments on indebtedness (409,684) (258,335)
Proceeds received under loan participa-
tion agreements 1,053,202 810,283
Payments made under loan participation
agreements (517,345) (1,304,776)
----------- -----------
Net cash provided by (used in)
financing activities 367,243 (576,638)
----------- -----------
Net decrease in cash and
cash equivalents (635,493) (455,253)
Cash and cash equivalents at beginning of period 752,493 797,514
----------- -----------
Cash and cash equivalents at end of period $ 117,000 342,261
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 7
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Information
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial information have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The accompanying unaudited
consolidated financial statements should be read in conjunction with the
report on SEC Form 10-K for the fiscal year ended July 31, 1998 and the
consolidated financial statements and the notes thereto in the Company's
Quarterly Report on SEC Form 10-Q for the quarter ended January 31, 1999.
In the opinion of the Company's management, the accompanying unaudited
financial information contains all material adjustments required by
generally accepted accounting principles to present fairly the Company's
financial position as of April 30, 1999 and July 31, 1998, the results of
its operations for the three and nine months ended April 30, 1999 and 1998,
and its cash flows for the nine months ended April 30, 1999 and 1998. All
such adjustments are of a normal recurring nature, unless otherwise
disclosed in this Form 10-Q or other referenced material. Results of
operations for interim periods are not necessarily indicative of results for
the full year.
(2) Real Estate Investments
COPPER BLUFFS, LLC
In January 1999, the Company obtained title to 59 parcels of land in Clark
County, Nevada in satisfaction of its acquisition, development and
construction (ADC) loan to Copper Bluffs, LLC. Title to the parcels were
subsequently assigned to Martin Development , Inc., a Nevada Corporation in
exchange for an non-interest bearing loan of $813,376 which is included in
the consolidated balance sheet as real estate investments at April 30, 1999.
The loan is secured by the 59 parcels. The loan terms provide for repayment
of $13,786 for each lot sold with final payment due on March 1, 2001.
As a result of the transactions, the Company recorded a provision for loss
from real estate investment of $100,000 during the quarter ended January 31,
1999.
SUNSET BAY, LLC
At January 31, 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.
RED ROCK CANYON, LLC
The Company obtained title to 11 improved residential housing lots in
Washington County, Utah in satisfaction of its ADC loan to Red Rock Canyon,
LLC. As of April 30, 1999, the Company had sold 3 of the 11 lots. The net
realizable values of the remaining 8 lots totals $136,000 and is recorded as
developed real estate in the consolidated balance sheet as of April 30,
1999.
<PAGE> 8
The lots are secured by a first mortgage from a bank. The Company is obliged
to remit $15,677 to the bank for each lot sold. The balance of the bank loan
is $43,677 at April 30, 1999 and is included in mortgage notes in the
consolidated balance sheet.
As a result of the transaction, the Company recorded a provision for loss
from real estate investment of $37,297 during the quarter ended April 30,
1999.
TOUCHSTONE DEVELOPMENT OF UTAH, LLC
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.
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company and its subsidiaries are engaged principally in the
business of acquiring, developing, leasing and dealing in real estate
and investing in securities, which are subject to various factors
which cause fluctuations between periods. Accordingly, the results of
operations for the three and nine months ended April 30, 1999 are not
necessarily indicative of results to be expected for the year and are
not necessarily comparable to the results of operations for the three
and nine months ended April 30, 1998.
Income from Investments
The increase in income from investments of $37,561 for the three
months ended April 30, 1999 as compared to the same period in 1998 is
primarily due to the sale of security investments resulting in gains
totaling approximately $196,000. These gains were offset by several
non-performing acquisition, development and construction (ADC) loans
in Nevada and Utah. The Company has not received principal or
interest payments on the ADC loans made to Copper Bluffs, LLC, Sunset
Bay, LLC, Red Rock Canyon, LLC and Touchstone Development of Utah,
LLC during the three months ended April 30, 1999. The Company has
determined that the loans are impaired and collectibility is
questionable.
Provision for Loss on Real Estate Investment
Management has provided for losses on the impaired ADC loans of
$437,297 during the nine months ended April 30, 1999. The provision
includes the write off of all principal and interest receivable on
the ADC loan to Sunset Bay, LLC of $300,000.
Further, the Company has obtained title to 59 parcels in Clark
County, Nevada in satisfaction of its ADC loan to Copper Bluffs, LLC.
The parcels were subsequently assigned to Martin Development, Inc. in
exchange for an ADC loan of $813,376. These transactions resulted in
a provision for loss from real estate investment of $100,000.
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
quarter ended April 30, 1999.
Management does not consider any other ADC loans to be impaired as of
April 30, 1999.
Other Income
The decrease in other income of $61,496 for the nine months ended
April 30, 1999 as compared to the same period in 1998 is primarily
due to the receipt of cash surrender value of officer life insurance
policies which were cancelled by the Company during the first quarter
of fiscal 1998.
<PAGE> 10
DISCONTINUED WHOLESALE BAKERY ACTIVITIES
Wholesale bakery activities include the production and sale of bakery
products primarily to major hotels, commercial airlines and U.S.
military installations in Hawaii. In October 1997, the Company
entered into an agreement to sell certain assets and liabilities of
its subsidiary Latipac Fine Foods, Inc. and to discontinue its bakery
operations.
LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED APRIL 30, 1999
At April 30, 1999, the Company held cash and cash equivalents of
$117,000. The decrease in cash of $635,493 for the nine months ended
April 30, 1999 is primarily due to cash used in operating activities.
Included in cash used in operating activities for the nine months
ended April 30, 1999 was approximately $1,382,400 of advances made
and $714,200 of repayments received on advances for the construction
of residential developments in Nevada and Utah. The Company's net
loss $948,727 is also included in cash used in operating activities.
Cash flows from financing activities for the nine months ended April
30, 1999 includes repayments on loan participation agreements on the
Company's ADC loans of approximately $517,345. Proceeds received on
loan participation agreements amounted to $1,053,202 for the nine
months ended April 30, 1999.
The Company met its operating cash requirements for the nine months
ended April 30, 1999 by using cash on hand at July 31, 1998 and
proceeds from loan participation agreements.
FUTURE CASH REQUIREMENTS
The decline in cash during the nine months ended April 30, 1999 is
directly related to the loss of revenues from real estate
investments, particularly with respect to the Company's ADC loans.
Management expects to continue to fully realize interest income and
profit participation revenues from its remaining ADC loans with
Hearthstone Homes, Inc. and Hearthstone Homebuilders, Inc. during the
remaining quarter of fiscal 1999. Cash requirements for ADC
commitments will continue to be satisfied primarily by participation
agreements.
Management expects cash inflows from Martin Development, Inc. to
continue through March 2001, with approximately $200,000 to be
received in June 1999. Approximately 58% of the amount on the loan
due from Martin Development, Inc. are due to the loan participants.
During the nine months ended April 30, 1999, the Company has
implemented cost reduction measures, primarily related to general and
administrative expenses. As a result of management's cost reduction
efforts, salary costs have been reduced by approximately 7% during
the three months ended April 30, 1999, as compared to the same period
last year. Management will continue to reduce expenses in order to
meet its current obligations during the fourth quarter of fiscal
1999.
<PAGE> 11
Long-term debt that are scheduled for repayment are expected to be
refinanced with the respective lending institutions.
Management also expects that cash inflows will also be realized in
the remaining quarter of fiscal 1999 from collections of accounts
receivable and sales of security investments.
YEAR 2000
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year
2000" issue and is developing an implementation plan to resolve the
issue. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable
year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather then the year
2000. This could result in a major system failure or miscalculations.
The company presently believes that the Year 2000 problem will not
pose significant operational problems for the Company's computer
systems.
<PAGE> 12
PART II - OTHER INFORMATION
Items 1,2,3,5,6 None
Item 4. The following actions were taken at the annual stockholders
meeting held on January 29, 1999:
a. Directors were re-elected for the year as follows:
Stuart T.K. Ho
Dean T.W. Ho
Donald M. Wong
Stanley W. Hong
Pedro Ada
C.B. Sung
b. KPMG LLP was re-elected independent auditors for the
year ending July 31, 1999 by a vote of 570,958 shares in
the affirmative and none in the negative.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL INVESTMENT OF HAWAII, INC.
Dated: June 18, 1999 /s/ STUART T.K. HO
----------------------------------------
Chairman of the Board and President
Dated: June 18, 1999 /s/ DONALD M. WONG
----------------------------------------
Senior Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF APRIL 30, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED APRIL 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> 117,000
<SECURITIES> 0
<RECEIVABLES> 185,620
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 457,471
<DEPRECIATION> 419,608
<TOTAL-ASSETS> 4,119,784
<CURRENT-LIABILITIES> 0
<BONDS> 4,708,640
0
0
<COMMON> 1,723,765
<OTHER-SE> (4,100,225)
<TOTAL-LIABILITY-AND-EQUITY> 4,119,784
<SALES> 0
<TOTAL-REVENUES> 1,086,863
<CGS> 0
<TOTAL-COSTS> 2,035,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 437,297
<INTEREST-EXPENSE> 376,116
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (948,727)
<EPS-BASIC> (0.92)
<EPS-DILUTED> (0.92)
</TABLE>
