<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 January 31, 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)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code (808) 537-3981
--------------------------
No Change
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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 January 31, 1999.
<PAGE> 2
PART I - FINANCIAL INFORMATION
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
January 31, 1999 and July 31, 1998
ASSETS
<TABLE>
<CAPTION>
January 31, July 31,
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 449,644 $ 752,493
Receivables:
Trade accounts and notes, less allowance
for doubtful receivables of $1,000 at
January 31, 1999 and July 31, 1998 85,659 77,074
Accrued interest 195,161 565,458
Other 123,431 161,514
------------ -----------
Total receivables 404,251 804,046
------------ -----------
Developed real estate, less accumulated depre-
ciation of $264,676 at January 31, 1999
and $253,533 at July 31, 1998 1,394,009 1,401,479
Undeveloped land held for sale 134,474 134,474
Other investments:
Real estate 1,560,099 1,525,410
Securities 721,109 737,202
------------ -----------
2,281,208 2,262,612
------------ -----------
Property and equipment, at cost:
Leasehold improvements 58,469 61,282
Furniture and equipment 400,594 394,610
------------ -----------
459,063 455,892
Less accumulated depreciation and amortization (418,062) (413,242)
------------ -----------
Net property and equipment 41,001 42,650
Deferred charges and other assets 21,290 9,020
------------ -----------
$ 4,725,877 $ 5,406,774
============ ===========
</TABLE>
1
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CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, cont'd.
January 31, 1999 and July 31, 1998
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
January 31, July 31,
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
Indebtedness (current installments of $3,696,447
at January 31,1999 and $4,208,043 at
July 31, 1998):
Debentures $ 1,932,745 $ 1,942,745
Mortgage notes 1,834,489 1,841,684
Other notes, secured 309,488 590,470
Other notes, unsecured 512,458 502,355
------------ -----------
Total indebtedness 4,589,180 4,877,254
------------ -----------
Accounts payable, trade 190,730 99,521
Accrued expenses 800,148 721,093
Other payables:
Loans under participation agreement:
Related parties 474,996 237,265
Other 594,600 274,077
Other 336,984 625,297
------------ -----------
1,406,580 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) (396,360) 436,668
------------ -----------
1,796,726 2,629,754
Deduct cost of 691,082 common shares in
treasury (4,057,487) (4,057,487)
------------ -----------
Stockholders' deficiency (2,260,761) (1,427,733)
------------ -----------
$ 4,725,877 $ 5,406,774
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended January 31, 1999 and 1998
and
Six months ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
January 31, January 31,
---------------------------------- -----------------------------------
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenues:
Commissions and fees $ 180,470 210,900 $ 302,925 341,422
Income from investments 187,730 270,511 383,146 463,232
Other 6,190 - 11,377 80,075
-------------- ------------- --------------- --------------
374,390 481,411 697,448 884,729
-------------- ------------- --------------- --------------
Cost and expenses:
Other direct operating expenses
and general and administrative
expenses 393,598 434,880 845,317 958,206
Provision for loss from real
estate investments 400,000 - 400,000 -
Interest 133,789 161,642 285,159 248,975
-------------- ------------- --------------- --------------
927,387 596,522 1,530,476 1,207,181
-------------- ------------- --------------- --------------
Loss from continuing
operations (552,997) (115,111) (833,028) (322,452)
-------------- ------------- --------------- --------------
Discontinued operations:
Loss from operations of discon-
tinued bakery operations - (5,433) - (36,272)
Gain from sale of certain assets
and liabilities of discontinued
bakery operations - 415,499 - 415,499
-------------- ------------- --------------- --------------
Net earnings from discon-
tinued operations - 410,066 - 379,227
-------------- ------------- --------------- --------------
Net earnings (loss) (552,997) 294,955 (833,028) 56,775
Retained earnings at beginning of
period 156,637 465,355 436,668 703,535
-------------- ------------- --------------- --------------
Retained earnings (accumulated
deficit) at end of period $ (396,360) 760,310 $ (396,360) 760,310
============== ============= =============== ==============
Earnings (loss) per common share:
Loss from continuing
operations $ (.54) (.11) $ (.81) (.31)
Earnings (loss) from discontinued
operations - .40 - .36
-------------- ------------- --------------- --------------
Net earnings (loss) per
common share $ (.54) .29 $ (.81) .05
============== ============= =============== ==============
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.
4
<PAGE> 5
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six months ended January 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Net cash provided by (used in) operating activities $ (840,863) $ 300,703
------------ -----------
Cash flows from investing activities:
Capital expenditures (3,171) (9,223)
Proceeds from sales of securities 127,005 -
------------ -----------
Net cash provided by (used in)
investing activities 123,834 (9,223)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 17,605 167,023
Principal payments on long-term debt (305,679) (180,257)
Proceeds received under loan participa-
tion agreements 1,053,202 435,493
Payments made under loan participation
agreements (350,948) (1,019,352)
------------ -----------
Net cash provided by (used in) financing activities 414,180 (597,093)
------------ -----------
Net decrease in cash and
cash equivalents (302,849) (305,613)
Cash and cash equivalents at beginning of period 752,493 797,514
------------ -----------
Cash and cash equivalents at end of period $ 449,644 $ 491,901
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Information
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial information have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The accompanying unaudited
consolidated financial statements should be read in conjunction with the
report on SEC Form 10-K for the fiscal year ended July 31, 1998 and the
consolidated financial statements and the notes thereto in the Company's
Quarterly Report on SEC Form 10-Q for the quarter ended October 31, 1998.
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 January 31, 1999 and July 31, 1998, the results of
its operations for the three and six months ended January 31, 1999 and
1998, and its cash flows for the six months ended January 31, 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) Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income
and SFAS No. 131, Disclosures About Segments of An Enterprise and Related
Information. SFAS No. 130 requires that changes in comprehensive income be
reported in a financial statement. Comprehensive income is defined as all
changes in equity, including net income, except those resulting from
investments by and distributions to owners. SFAS No. 131 requires public
companies to report selected quarterly information about business segments,
including information on products and services, geographic areas and major
customers based on a management approach to reporting. SFAS No. 130 and 131
are effective for fiscal years beginning after December 15, 1997, although
SFAS No. 131 need not be applied to interim periods in the initial year of
implementation. Reclassification of financial statements for prior periods
will be required for comparative purposes. As these statements relate
solely to disclosure requirements, their implementation will not have an
affect on the Company's financial condition, results of operations or
liquidity.
(3) Real Estate Investments
COPPER BLUFFS
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 January 31,
1999. The loan is secured by the 59 parcels. The loan terms provide for
repayment of $13,786 for each lot sold of which $96,502 is due on or before
April 15, 1999 and final payment due on March 1, 2001.
6
<PAGE> 7
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
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.
(4) Subsequent Event
In February 1999, the Company began negotiations with a Nevada corporation
to assign its interest in its ADC loan to Touchstone Development of Utah,
LLC. The terms of the assignment includes a purchase price of $110,000 with
interest of 20% per annum from January 1, 1999 to the date of closing. The
closing date is expected to be March 31, 1999. The purchase price and
interest thereon is expected to satisfy the net investment balance recorded
on the Company's consolidated balance sheet of $106,457 at January 31,
1999.
7
<PAGE> 8
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 six months ended January
31, 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 six months ended January 31, 1998.
Income from Investments
The decrease in income from investments of $82,781 and $80,086,
respectively for the three and six months ended January 31, 1999
as compared to the same periods in 1998 is primarily due to
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 and Touchstone Development of Utah,
LLC during the quarter ended January 31, 1999. The borrower under
those ADC loans has indicated that the loans have been impaired
and collectibility is questionable.
Provision for Loss on Real Estate Investment
Management has provided for losses on the impaired ADC loans of
$400,000 for the quarter ended January 31, 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, management
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 a loan of $813,376. These transactions resulted in an
additional provision for loss of $100,000.
Management does not consider any other ADC loans to be in distress
as of January 31, 1999.
Other Income
The decrease in other income of $68,698 for the six months ended
January 31, 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.
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.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, the Company held cash and cash equivalents of
$449,644. The decrease in cash of $302,849 for the six months
ended January 31, 1999 is primarily due to cash used in operating
activities.
Included in cash used in operating activities for the six months
ended January 31, 1999 was approximately $1,182,403 of advances
made and $562,655 of repayments received on advances for the
construction of residential developments in Nevada and Utah. The
Company's net loss $833,028 is also included in cash used in
operating activities.
Cash flows from financing activities for the six months ended
January 31, 1999 includes repayments on loan participation
agreements on the Company's ADC loans to of approximately
$350,948. Proceeds received on loan participation agreements
amounted to $1,053,202 for the six months ended January 31, 1999.
The Company met its operating cash requirements for the six months
ended January 31, 1999 by using cash on hand at July 31, 1998 and
proceeds from loan participation agreements.
Cash inflows and outflows from ADC loans to Hearthstone Homes,
Inc. and Hearthstone Homebuilders, Inc. will continue throughout
fiscal year 1999.
Management expects cash inflows from Martin Development, Inc. to
continue through March 2001, with approximately $96,500 to be
received by April 15, 1999. Included in the Martin Development,
Inc. ADC loan is approximately $470,000 due to loan participants
which is payable upon receipt of such funds from Martin
Development, Inc. Further, management is currently negotiating an
assignment of its interest in the Company's ADC loan to Touchstone
Development of Utah, LLC for $110,000. The proceeds of which are
expected to be collected in March 1999.
Further, in February and March 1999, the Company received
approximately $150,000 of sales proceeds on the sale of security
investments. Management will continue to sell security investments
as necessary to meet cash requirements for the remaining of fiscal
year 1999.
Cash requirements for ADC commitments will continue to be
satisfied primarily by participation agreements. Long-term debt
that is scheduled for repayment is expected to be refinanced with
the respective lending institutions. Management also expects that
cash inflows will also be realized in the remaining quarters of
fiscal 1999 from collections of accounts receivable.
YEAR 2000
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the
"Year 2000" issue and is developing an implementation plan to
resolve the issue. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define
the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the
year 1900 rather then the year 2000. This could result in a major
system failure or miscalculations. The company presently believes
that the Year 2000 problem will not pose significant operational
problems for the Company's computer systems.
9
<PAGE> 10
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.
10
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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: March 15, 1999 /s/ STUART T.K. HO
-----------------------------------
Chairman of the Board and President
Dated: March 15, 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 AND THE CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONDENSED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-31-1998
<PERIOD-END> JAN-31-1999
<CASH> 449,644
<SECURITIES> 0
<RECEIVABLES> 405,251
<ALLOWANCES> 1,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 459,063
<DEPRECIATION> 418,062
<TOTAL-ASSETS> 4,725,877
<CURRENT-LIABILITIES> 0
<BONDS> 4,589,180
0
0
<COMMON> 1,723,765
<OTHER-SE> (3,984,526)
<TOTAL-LIABILITY-AND-EQUITY> 4,725,877
<SALES> 0
<TOTAL-REVENUES> 697,448
<CGS> 0
<TOTAL-COSTS> 1,530,476
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 285,169
<INCOME-PRETAX> (833,028)
<INCOME-TAX> 0
<INCOME-CONTINUING> (833,028)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (833,028)
<EPS-PRIMARY> (.81)
<EPS-DILUTED> (.81)
</TABLE>
