<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
----------------------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_____________to______________
COMMISSION FILE NUMBER 0-22948
C. BREWER HOMES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 99-0145055
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
255-A EAST WAIKO ROAD
WAILUKU, HAWAII 96793
(Address of principal executive offices) (Zip code)
(808) 242-6833
(Registrant's telephone number, including area code)
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
--------- ---------
The number of shares outstanding of each of the registrant's classes of
common stock on July 31, 1998, excluding 4,335 shares of Class B Common Stock
held in treasury and not deemed outstanding, was as follows:
Class A Common Stock (par value $.01 per share) 4,013,749 shares
Class B Common Stock (par value $.01 per share) 4,317,916 shares
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C. BREWER HOMES, INC.
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Loss - Quarters
Ended June 30, 1998 and June 30, 1997.................. 3
Balance Sheets - June 30, 1998 and March 31, 1998...... 4
Statements of Cash Flow - Quarters
Ended June 30, 1998 and June 30, 1997.................. 5
Notes to Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 8
Item 3. Quantitative and Qualitative Disclosure About
Market Risk............................................ 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.... 17
Item 5. Other Information...................................... 17
Item 6. Exhibits and Reports on Form 8-K....................... 18
Signatures....................................................... 19
2
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C. BREWER HOMES, INC.
STATEMENTS OF LOSS
(IN THOUSANDS, EXCEPT LOSS PER COMMON SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended
------------------------
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
Property sales . . . . . . . . . . . . . . . . . . . . $ 6,105 $ 624
Cost of property sales . . . . . . . . . . . . . . . . 6,224 613
------- -------
Gross profit (loss). . . . . . . . . . . . . . . . (119) 11
General and administrative expenses. . . . . . . . . . 606 473
------- -------
Operating loss . . . . . . . . . . . . . . . . . . (725) (462)
Merger transaction costs . . . . . . . . . . . . . . . (300) --
Equity in earnings of Iao Partners . . . . . . . . . . 17 21
Interest expense - net . . . . . . . . . . . . . . . . (110) (60)
Other income - net . . . . . . . . . . . . . . . . . . 33 108
------- -------
Loss before income tax benefit . . . . . . . . . . (1,085) (393)
Income tax benefit . . . . . . . . . . . . . . . . . . (423) (153)
------- -------
Net loss . . . . . . . . . . . . . . . . . . . . . $ (662) $ (240)
------- -------
------- -------
Loss per common share. . . . . . . . . . . . . . . . . $(0.08) $(0.03)
------- -------
------- -------
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . 8,332 8,332
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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C. BREWER HOMES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
-------- --------
(unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $ 287 $ 219
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . 807 800
Mortgage notes receivable. . . . . . . . . . . . . . . . . . . . 650 887
Real estate developments.. . . . . . . . . . . . . . . . . . . . 27,698 31,209
Investment in Iao Partners, net of deferred land gain. . . . . . 3,066 2,995
Property and equipment - net . . . . . . . . . . . . . . . . . . 103 116
Income taxes receivable. . . . . . . . . . . . . . . . . . . . . 436 436
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 189 549
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $ 33,236 $ 37,211
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Notes payable to banks . . . . . . . . . . . . . . . . . . . . . $ 20,001 $ 21,889
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 1,217 2,387
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 4,048 3,873
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . 1,101 1,524
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . 38 45
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 26,405 29,718
-------- --------
Commitments and contingencies
Stockholders' equity
Class A Common Stock, $.01 par value, one
vote per share, 3,993,749 shares issued and
outstanding at June 30, 1998 and 3,668,344 shares
issued and outstanding at March 31, 1998. . . . . . . . . . 40 37
Class B Common Stock, $.01 par value, three votes per
share, 4,342,251 shares issued and outstanding at June 30,
1998 and 4,667,656 shares issued and outstanding at
March 31, 1998 . . . . . . . . . . . . . . . . . . . . . . 44 47
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 27,370 27,370
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . (20,599) (19,937)
Treasury stock, at cost, 4,335 shares. . . . . . . . . . . . . . (24) (24)
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . 6,831 7,493
-------- --------
Total liabilities and stockholders' equity . . . . . . . . . . . $ 33,236 $ 37,211
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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C. BREWER HOMES, INC.
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarters Ended
------------------------
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
Operating activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (662) $ (240)
Adjustments to net loss
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 10 19
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . (423) (14)
Equity in earnings of Iao Partners . . . . . . . . . . . . . . (17) (21)
Amortization of deferred land gain . . . . . . . . . . . . . . (54) (39)
Changes in operating assets and liabilities
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . (7) --
Mortgage notes receivable. . . . . . . . . . . . . . . . . . . 237 135
Real estate developments . . . . . . . . . . . . . . . . . . . 3,511 (2,567)
Income taxes receivable. . . . . . . . . . . . . . . . . . . . -- (139)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 360 (7)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . (1,170) 1,475
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 175 27
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . (7) 19
------- -------
Cash flow from (used in) operating activities. . . . . . . 1,953 (1,352)
------- -------
Investing activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . -- (3)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 --
------- -------
Cash flow from (used in) investing activities. . . . . . . 3 (3)
------- -------
Financing activities
Loan proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 3,743 2,418
Loan payments. . . . . . . . . . . . . . . . . . . . . . . . . (5,631) (583)
------- -------
Cash flow from (used in) financing activities. . . . . . . (1,888) 1,835
------- -------
Increase in cash and cash equivalents. . . . . . . . . . . . . . . . . 68 480
Cash and cash equivalents at beginning of period . . . . . . . . . . . 219 147
------- -------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . $ 287 $ 627
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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C. BREWER HOMES, INC.
NOTES OF FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements of C. Brewer Homes, Inc. (the "Company") include all adjustments
(consisting only of normal recurring adjustments) considered necessary to
present fairly its financial position as of June 30, 1998, and its results of
operations and cash flows for the quarters ended June 30, 1998 and June 30,
1997. The results of operations for the quarter ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full year or for
any future period.
2. PROPOSED MERGER
On December 18, 1997, the Company and Mauna Loa Macadamia Partners, L.P.
(the "Partnership") entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which the Company would have been merged
with and into the Partnership with the Partnership surviving the merger as a
Delaware limited partnership (the "Merger"). Consummation of the Merger was
subject to several conditions, including obtaining the requisite approval
thereof by the stockholders of the Company and the unitholders of the
Partnership. By reason of the failure of the unitholders of the Partnership
to approve the Merger, the Merger Agreement was terminated by the Company on
June 26, 1998. During fiscal year 1998, the Company recognized $644,000 in
merger transaction costs. The Company recognized an additional $300,000 in
merger related costs in the first quarter of fiscal year 1999, primarily
consisting of professional fees and the Company's share of certain proxy
printing and mailing costs.
3. RESTRICTED CASH
Restricted cash includes funds held in escrow for infrastructure
improvements at the Company's Kehalani master-planned community on the island
of Maui in conjunction with the sale of the Nanea subdivision during fiscal
year 1998.
4. INVESTMENT IN IAO PARTNERS
Condensed financial information relating to the Company's investment in Iao
Partners is as follows (in thousands):
Quarters Ended
----------------------------
June 30, 1998 June 30, 1997
------------- -------------
Statements of Income
Sales of residential real estate $ 811 $ 603
Cost of residential real estate sold 763 598
------ ------
Gross profit 48 5
Interest income 47 54
General and administrative expenses (60) (4)
------ ------
Pre-tax income $ 35 $ 55
------ ------
------ ------
5. NOTES PAYABLE
On August 31, 1995, the Company entered into two secured revolving loan
agreements (an infrastructure loan agreement and a building loan agreement,
collectively referred to as the "Revolving Loan Agreements") with the Bank of
Hawaii and City Bank (the "Lenders") which provided for a maximum outstanding
balance of $35
6
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million and which were scheduled to expire in September 1998. On September 5,
1996, the Company entered into two modification agreements (the "First Loan
Modification Agreements") with the Lenders which amended the terms and
conditions of the Revolving Loan Agreements to allow advances not to exceed
an aggregate of $4 million for working capital purposes. All advances made
under the First Loan Modification Agreements for working capital purposes
together with all accrued and unpaid interest were due and payable in full on
April 30, 1997. The First Loan Modification Agreements also required the
Company to remit to the Lenders 100% of the net proceeds from the sale of
each home at the Company's Kehalani project. Pursuant to the First Loan
Modification Agreements, and in addition to the collateral already held by
the Lenders, C. Brewer and Company, Limited ("CBCL") delivered a guaranty of
payment for the Company's indebtedness related to the working capital
advances. The Company's obligation to repay any amounts paid by CBCL under
such guaranty was secured by a first mortgage lien in favor of CBCL on the
Company's Kalihiwai Ridge III property located on the island of Kauai.
On July 25, 1997, the Company and the Lenders entered into an agreement
to consolidate and restructure the Revolving Loan Agreements, as modified by
the First Loan Modification Agreements (the "Master Facility Agreement").
The Master Facility Agreement provides for a maximum outstanding principal
balance of approximately $31.4 million and includes: (i) four individual
commercial mortgage loans in the aggregate amount of approximately $21.4
million with per annum interest rates ranging from the Bank of Hawaii's base
rate (the "Base Rate") plus 1% to the Base Rate plus 2%, (ii) a revolving
line of credit for borrowing up to $6 million for working capital purposes
with a per annum interest rate at the Base Rate plus .5% (the "Working
Capital Line of Credit"), and (iii) a revolving line of credit for borrowing
of up to $4 million for home construction at the Company's Kaimana and
Halemalu projects with a per annum interest rate at the Base Rate plus 1%.
Pursuant to the terms of the Master Facility Agreement, and in addition to a
first mortgage lien already held by the Lenders on the Company's Kehalani
property on the island of Maui, the Company executed in favor of the Lenders
a first mortgage on its Puueo I and Puueo II properties on the island of
Hawaii. In addition, CBCL delivered a guaranty for payment of the Working
Capital Line of Credit. The Company's obligations to repay any amounts paid
by CBCL under such guaranty is secured by a first mortgage lien on the
Company's Kalihiwai Ridge III property.
On March 25, 1998, the Company executed a First Amendment to the Master
Facility Agreement (the "Loan Amendment") with its Lenders. The Loan
Amendment extended the maturity of the existing Master Facility Agreement
from May 31, 1998 to December 1, 1998. In addition, the Loan Amendment
amended, among other things, provisions in the Master Facility Agreement
relating to the allocation of the net sales proceeds from the sale of the
homes at the Company's Kaimana subdivision between the commercial mortgage
loans and the Working Capital Line of Credit portions of the Master Facility
Agreement. The Loan Amendment also specified the manner in which the net
sales proceeds from the sales of the Nanea subdivision of the Kehalani
master-planned community and the Iao II parcel will be applied, including
amounts to be set aside for certain infrastructure improvements at Kehalani.
See Note 3.
In July 1998, the Company agreed on the form of a Second Amendment to the
Master Facility Agreement with its Lenders that extends the maturity date
from December 1, 1998 to June 30, 1999.
6. LOSS PER COMMON SHARE
Loss per common share was computed using the net loss and weighted
average number of common shares, as reported on the Statements of Loss.
Options to purchase 204,000 shares of the Company's Class A Common Stock at
prices ranging from $2.0625 to $12.75 at June 30, 1998 were not dilutive to
loss per common share.
7. CASH DIVIDENDS
The Company did not pay cash dividends on its common stock during the
quarters ended June 30, 1998 and June 30, 1997.
8. RECLASSIFICATION
Certain prior year's amounts have been reclassified to conform to the
June 30, 1998 presentation.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical financial information contained herein, the
following discussion and analysis may contain "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Such
statements include declarations regarding the intent, belief or current
expectations of the Company and its management. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of
future performance and involve a number of risks and uncertainties. The
Company's actual results could differ materially from those indicated by such
forward-looking statements. Among the important factors that could cause
actual results to differ materially from those indicated by such
forward-looking statements are: (i) risks associated with the Company's
working capital position and the repayment or refinancing of its existing
indebtedness; (ii) risks associated with the stagnant economy and slow real
estate market in Hawaii; (iii) risks associated with asset impairments; (iv)
variability in quarterly operating results; (v) risks associated with the
concentration of the Company's business in Hawaii; (vi) risks associated with
the lack of adequate public infrastructure in Hawaii; (vii) risks associated
with the long-term nature of planned residential projects, high capital
investment and carrying costs; (viii) risks associated with the entitlement
process for development of property in Hawaii; (ix) risk of natural
disasters, including hurricanes, volcanic eruptions, and drought (and the
impact of drought on the availability of water for domestic consumption and
irrigation); (x) risks associated with the recent commencement of general
contractor activities; (xi) risks associated with the homebuilding industry;
(xii) the rate of new home sales; (xiii) effects of interest rate increases
and the availability of mortgage financing; (xiv) risks associated with
environmental and conservation matters; (xv) increased land acquisition
costs; (xvi) risks associated with competition; (xvii) restrictions on land
use and development; (xviii) risks associated with the availability of
homeowner's insurance in Hawaii; (xix) risks associated with the inability to
obtain policies of insurance assuring the Company of good and marketable
title to certain parcels of land; (xx) risks associated with obtaining
performance, maintenance and other bonds; (xxi) effects of increases in
unemployment in Hawaii; and (xxii) other risks identified from time to time
in the Company's reports and registration statements filed with the
Securities and Exchange Commission.
The following discussion of results of operations and financial condition
should be read in conjunction with the Financial Statements and Notes
contained in Item I. - Financial Statements.
OVERVIEW
The Company, which was a subsidiary of CBCL until December 1993, had
historically performed the land entitlement, development and marketing
functions for CBCL. From late 1993 through early 1997, the Company's business
strategy was focused primarily on the construction and sale of homes. In
early 1997, the Company expanded its business strategy to include the
development and sale of lots and parcels of land, which had been the
Company's primary business strategy prior to late 1993, and to act as its own
general contractor for the construction of homes for its residential
development at Kaimana. The Company is presently selling homes in two
developments on the island of Maui and offering homesites in one development
on the island of Kauai. In view of current market conditions and its capital
condition, however, the Company has no immediate plans to build homes on its
other lands and has now shifted its focus to selling its lands to other
builders, developers, and investors. The lands offered for sale to other
builders and developers beginning in the Company's 1998 fiscal year included
the Nanea and Makai Residential projects, comprised of 47 acres on which
could be constructed a total of 406 residential units, and the Makai
Commercial project, comprised of 20 acres. In fiscal year 1998, the Company
sold Nanea to an unrelated third-party for $2.2 million, of which
approximately $1.4 million of the proceeds were paid to the Lenders under the
Company's Master Credit Facility and $800,000 of the proceeds were held by
the Lenders in a restricted escrow account for infrastructure improvements at
the Company's Kehalani master-planned community on the island of Maui. The
Makai Residential and Makai Commercial projects on the island of Maui, along
with the Kalihiwai Ridge III project on the island of Kauai, continue to be
offered for sale to other builders and developers. In the first quarter of
fiscal year 1999, the Company sold the unentitled land holdings comprising
its Iao II project to an unrelated third party for $2.0 million with
approximately $1.9 million of the proceeds paid to the Lenders as required
under the Company's Master Credit Facility.
The Company is presently building and selling homes on the island of
Maui at its Kaimana subdivision and at its 50% joint venture Iao Parkside
development. During fiscal year 1998, the Company completed the sale of the
last of the 30 homes built at its Halemalu subdivision of Kehalani.
8
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Kaimana is a 179-unit single-family residential project, which is part
of the Company's Kehalani master-planned community on the island of Maui. The
Kehalani development is expected to consist of a total of approximately 2,100
homes, including the homes that had been planned for Nanea and the Makai
Residential Parcels, ranging from affordably priced multi-family condominiums
to executive-quality single-family homes. In November 1994, the Company began
selling single-family homes at Kaimana and delivered the first homes in March
1995. Through June 30, 1998, 148 home sales had closed at Kaimana. The
Company currently plans to complete construction and sale of the remaining 31
homes at the Kaimana project in fiscal year 1999, acting as its own general
contractor.
In fiscal year 1993, the Company sold approximately 28 acres of land to
its 50% joint venture partner, Schuler Homes, Inc. ("SHI"), who
subsequently contributed this land to the Iao Parkside partnership ("Iao
Partners"). As a result, the Company deferred 50% of the revenue and costs
relating to the sale. Through June 30, 1998, the Company has recognized
approximately $6.8 million of the deferred income from this sale. At June
30, 1998, the Company had deferred income of approximately $792,000 related
to this sale that will be recognized as home sales at the Iao Parkside
project are closed.
Iao Parkside is a 28-acre, 480-unit low-rise garden condominium project
being constructed and sold through Iao Partners, the 50% joint venture
partnership with SHI. This project is targeted at first-time buyers under
Hawaii's affordable housing policy. Iao Partners began accepting reservations
at this project in March 1993 and executing sales contracts in July 1993.
Through June 30, 1998, 379 home sales had closed. The joint venture
partnership has reduced sales prices in an effort to stimulate home sales. As
a result, during fiscal year 1998, Iao Partners recognized an asset
impairment loss of $984,000 related to this project.
Except as indicated above with respect to the recognition of deferred
income relating to the Iao Parkside land sold to SHI, the Company generally
records a sale and recognizes income when a closing occurs and title passes
to the purchaser. To the extent that the Company provides mortgage financing
to a purchaser, minimum down payment and continuing investment criteria
required by generally accepted accounting principles must be met before sales
are recorded and income is recognized. The Company currently offers mortgage
financing only to purchasers of lots at its Kalihiwai Ridge II project, and
on a limited basis, a second mortgage of up to 20% of the selling price for
certain homes at its Kaimana project. The Company may continue to provide
customer mortgage financing for future land and home sales.
RESULTS OF OPERATIONS
GENERAL. The Company had a loss before income taxes benefit of
$1,085,000 in the first quarter of fiscal year 1999 of which $300,000 was
related to costs incurred in connection with the proposed merger with Mauna
Loa Macadamia Partners, L.P. (which will not be consummated). Without these
merger-related transaction costs, the Company's loss before income tax
benefit for the first quarter of fiscal year 1999 was $785,000. In the first
quarter of fiscal year 1998 the Company had no merger-related transaction costs.
PROPERTY SALES. Revenues in the first quarter of fiscal year 1999 were
$6.1 million compared to $624,000 recorded in the first quarter of fiscal
year 1998. This substantial increase in revenues in the first quarter of
fiscal year 1999 in comparison to the same period in the prior fiscal year
was due to higher home sales at the Company's Kaimana project and the sale of
the Company's Iao II project. Due to a weak Hawaii economy and the related
unfavorable conditions in the Hawaii residential housing market, the
Company's sales during this period were at prices that approximated or were
lower than the costs associated with these sales and this resulted in losses
from operations. The increase in revenues during the first quarter of fiscal
year 1999 did result in improved cash flow and debt reduction.
At the Kaimana subdivision of the Kehalani master-planned community, 17
single-family home sales were closed in the first quarter of fiscal year 1999
at an average sales price of $208,000 compared to three home sales closed in
the first quarter of fiscal year 1998 at an average sales price of $199,000.
There are 14 homes
9
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remaining to be sold at Kaimana. At Iao Parkside, the Company's 50%-owned
joint venture, seven multi-family home sales closed during the first quarter
of fiscal year 1999 at an average sales price of $122,000 compared to five
home sales closed in the first quarter of fiscal year 1998 at an average
sales price of $127,000. On the island of Kauai, the Company sold 10 acres
of land parcels in the first quarter of fiscal year 1999 for $375,000.
Additionally, the Company sold 75 acres of land on the island of Hawaii for
$182,000 in the first quarter of fiscal year 1999.
During the first quarter of fiscal year 1999, the Company also sold its
Iao II project consisting of 28 acres of land in central Maui for $2.0
million. The sale of Iao II reflects the Company's change in its business
strategy to sell land to other developers and builders.
COST OF PROPERTY SALES. Cost of property sales for the first quarter of
fiscal year 1999 was $6.2 million compared to $613,000 in the first quarter
of fiscal year 1998. The increase in cost of property sales in the first
quarter of fiscal year 1999 compared to the first quarter of fiscal year 1998
was attributable to increased home and land sales closings.
Cost of property sales as a percentage of property sales was 102% in the
first quarter of fiscal year 1999 compared to 98% in the prior year's fiscal
quarter. Cost of sales was negatively impacted by higher than expected costs
associated with the sale of the Company's Iao II project and increased costs
at its Kalihiwai Ridge II project.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses include charges from CBCL for risk management, employee benefits,
human resources, office maintenance and other services provided to the
Company, offset by the Company's charges to CBCL for certain land
entitlement, development (including planning and engineering) and management
services. General and administrative expenses for the first quarter of
fiscal year 1999 were $606,000 compared to $473,000 in the first quarter of
fiscal year 1998. This increase was primarily the result of costs associated
with a Release and Separation Agreement and a Consultant Agreement made in
conjunction with the resignation of the Company's Executive Vice-President and
Chief Financial Officer.
MERGER TRANSACTION COSTS. On December 18, 1997, the Company and Mauna
Loa Macadamia Partners, L.P. entered into an Agreement and Plan of Merger,
pursuant to which the Company would have been merged with and into the
Partnership with the Partnership surviving the merger as a Delaware limited
partnership. Consummation of the Merger was subject to several conditions,
including obtaining the requisite approval thereof by the stockholders of the
Company and the unitholders of the Partnership. By reason of the failure of
the unitholders of the Partnership to approve the Merger, the Merger
Agreement was terminated by the Company on June 26, 1998.
During fiscal year 1998, the Company recognized $644,000 in
merger-related transaction costs. The Company recognized an additional
$300,000 in merger-related transaction costs in the first quarter of fiscal
year 1999, primarily consisting of professional fees and the Company's share
of certain proxy printing and mailing costs.
EQUITY IN EARNINGS OF IAO PARTNERS. The Company and SHI entered into a
joint venture partnership agreement in October 1992 (which was subsequently
amended in October 1993), in connection with acquisition by SHI of the Iao
Parkside property from the Company. SHI contributed the Iao Parkside
property and $25,000 to the joint venture partnership and the Company
contributed $25,000. Each partner has a 50% interest in the joint venture
partnership which is engaged in the development and sale of 480 "affordable"
multi-family condominium homes on approximately 28 acres. The equity in
earnings recognized for this joint venture was $17,000 in the first quarter
of fiscal year 1999 as compared to $21,000 in the first quarter of fiscal
year 1998. This represents the Company's share of income from the closing of
seven units at the Iao Parkside project in the first quarter of fiscal year
1999 compared to five units closed in the first quarter of fiscal year 1998.
INTEREST EXPENSE - NET. Interest expense -- net consists of interest
earned from temporary investment of cash balances in investment-grade,
short-term, interest-bearing securities, and interest revenue associated with
purchase money mortgage notes owned by the Company, offset by interest
expense incurred which is not capitalized. Interest expense -- net in the
first quarter of fiscal year 1999 was $110,000 compared to $60,000 in the
previous fiscal year's first quarter. Interest expense -- net was higher in
the first quarter of fiscal year 1999 as compared to the first quarter of
fiscal year 1998 primarily due to less interest being capitalized to real
estate developments. The Company anticipates that interest capitalized to
real estate developments will continue to decrease as the construction of
homes
10
<PAGE>
and active development of lands is reduced.
OTHER INCOME (EXPENSE) - NET. Other income (expense) -- net consists of
miscellaneous income and expense items including certain marketing and
advertising expenses. Other income -- net in the first quarter of fiscal
year 1999 was $33,000 compared to $108,000 in the first quarter of fiscal
year 1998. The decrease of $75,000 in other income -- net in the first
quarter of fiscal year 1999 compared to the first quarter of fiscal year 1998
was principally attributable to the sales commission earned by the Company in
connection with a land parcel sale made by a CBCL subsidiary in fiscal year
1998.
DEFERRED REVENUE AND BACKLOG
The Company deferred 50% of the revenue from the land sold to SHI at its
Iao Parkside project. As of June 30, 1998, the Company had a total of
$919,000 in deferred revenue that will be recognized as the homes in this
project are sold to unrelated third parties.
At June 30, 1998, the Company's sales backlog totaled $3.8 million. At
Kaimana, 15 homes were in backlog with an aggregate sales value of $3.1
million. At Iao Parkside, five homes were in backlog with an aggregate sales
value of $700,000. The backlog at Iao Parkside represents 100% of the joint
venture's pending sales. The financial results of this joint venture
partnership are not consolidated into the Company's results, but instead are
accounted for by the equity method. Accordingly, the Company will not
recognize the revenue from such contracts, but will recognize 50% of the
financial results of this joint venture partnership.
It is the Company's practice to include a sale in backlog at the
contract price upon execution of a pre-construction sales contract and
receipt of money on deposit. The Company's sales contracts are typically
subject to cancellation by the purchaser under specified circumstances such
as the failure to obtain financing. As a result, no assurance can be given
that the homes which presently comprise backlog will result in actual
closings nor can assurances be given as to when such closings may occur. In
addition, the Company believes that home sales rates at its projects continue
to be adversely affected by various factors, including uncertainty of
prospective home buyers resulting from the stagnation of the Hawaii economy
and the slow market for new homes.
LIQUIDITY AND FINANCIAL CONDITION
The Company generally requires capital to plan projects, obtain
entitlements, acquire and develop land, construct homes, and for working
capital purposes. Prior to the Company's restructuring and initial public
offering in 1993, the Company used internally generated funds and funds from
CBCL for working capital and development purposes, including planning,
entitling, engineering, site preparation, construction of roads, water and
sewer lines, as well as the construction and marketing of its lots and
parcels of land. In December 1993, the Company completed the restructuring,
in connection with which it issued an unsecured $25 million term note payable
to CBCL, and consummated its initial public offering of Class A Common Stock,
which resulted in net proceeds to the Company of $27.4 million. The note to
CBCL was paid off from the proceeds of new bank facilities in 1995. The
Company has not issued any additional shares of Class A Common Stock, except
upon conversion of shares of Class B Common Stock, since the initial public
offering.
The Company has both short and long-term capital requirements, including
those relating to its working capital needs and its Kehalani master-planned
community. The Company is funding its short-term capital requirements through a
combination of internally generated funds and bank financing. The Company
intends to rely on its existing bank financing to complete the construction of
the remaining homes at Kaimana and for its working capital needs. Further
development of the Company's Kehalani master-planned community and/or its other
projects would require the Company to obtain additional funding. The Company
currently believes that its ability to obtain additional funding through bank
and other financing is dependent on its ability to reduce the amount of its
current indebtedness, which the Company is attempting to accomplish through
pursuit of its strategy of land and land parcel sales. No assurance can be
given that such land or land parcel sales will be consummated or that the
Company will be able to arrange additional funding on acceptable terms.
11
<PAGE>
At the present time, the Company's ability to generate funds internally
is limited by the slow down in the sale of its new homes and decline in its
sale prices. The Company is addressing this issue, in part, by a shift in the
focus of its business to sell land parcels to other builders, developers, and
investors, thus permitting it to realize the value of its properties at an
earlier time and with less capital investment. However, virtually all funds
generated by such sales are required to be applied to reduce the Company's
debt to the Lenders.
The Company's proposed merger with Mauna Loa Macadamia Partners, L.P.
was terminated on June 26, 1998 after the limited partners of the Partnership
failed to approve the merger at a special meeting called for that purpose.
The Board of Directors of the Company had supported the proposed merger
because, among other reasons, it would have addressed the Company's capital
and liquidity requirements and resulted in expense reductions through the
combination of certain administrative and financial reporting functions.
With the termination of the merger, these requirements must again be
addressed and the Board of Directors of the Company has directed management
to evaluate the Company's strategic alternatives, including but not limited
to refinancing the Company's indebtedness, negotiating a transaction for the
sale of the Company or substantially all of its assets and/or entering into
joint venture arrangements for the development of its major projects.
As of June 30, 1998, the Company was indebted to the Lenders in the
principal amount of approximately $20.0 million. This indebtedness currently
matures on June 30, 1999. Although management intends to conduct its
operations in a manner that will permit the Company to reduce the principal
amount of such indebtedness by June 30, 1999, it is probable that a
substantial portion of such indebtedness will remain outstanding at that
time. If the Company by that time is unable to obtain a further extension of
the maturity of such indebtedness, or a refinancing thereof, it may be
required to further reduce its work force, curtail operations, sell
properties at less than optimum prices, or take other measures which would
likely have material adverse effects on its operating results and financial
condition. There can be no assurance that an extension of the Master Facility
Agreement past June 30, 1999, or refinancing of the Company's indebtedness on
satisfactory terms, will be achieved.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS
OF AN ENTERPRISE AND RELATED INFORMATION, the provisions of which are
effective for fiscal years beginning after December 15, 1997. This Statement
establishes standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company has not determined the
impact that the adoption of this new accounting standard will have on its
financial statement disclosures.
CERTAIN FACTORS THAT MIGHT AFFECT FUTURE OPERATING RESULTS
In addition to other information contained in this Quarterly Report on
Form 10-Q, the following are important factors that should be considered in
evaluating the Company and its business.
The Company has landholdings which are entitled for residential and
commercial development. In light of the stagnant economy in Hawaii, the
generally unfavorable market for new housing in the State, and the high
capital costs associated with homebuilding, the Company's current strategy is
to offer certain of its entitled lands for sale to other builders,
developers, and investors. There can be no assurance that such sales will be
made at favorable prices or at all. The Company has no immediate plans to
build homes on the remainder of these lands, but may offer these lands for
sale to other builders, developers, and investors with or without installing
additional infrastructure, or hold these lands for future development, which
could include selected homebuilding activities as well as joint ventures with
other developers. The decision to further develop these lands will depend on
numerous factors, including the Company's working capital position, the
availability of financing on satisfactory terms, and market conditions.
The Company presently conducts all of its business in the State of
Hawaii, primarily on the island of Maui and also on the islands of Kauai and
Hawaii. In addition, all of the Company's operations on Maui are concentrated
in central Maui. Although the State of Hawaii was one of the country's
fastest growing economies in the late 1980's,
12
<PAGE>
Hawaii has experienced a dramatic slowdown in the 1990's. After adjusting for
inflation, Hawaii's gross state product grew 0.9% in 1992, 0.4% in 1993, 0.0%
in 1994, 0.5% in 1995 and 0.9% in 1996, and is estimated to have grown 1.1%
in 1997, after having grown by a total of 18.9% between 1986 and 1990 and at
an average annual rate of 4.1% between 1959 (Statehood) and 1995, in each
case according to the State of Hawaii Department of Business, Economic
Development and Tourism. Hawaii's economy and many of its major industries,
such as tourism, are affected by the economies of Asia. Recently, several
Asian countries have experienced economic problems such as currency
devaluation and slow growth, and these problems may lead to adverse effects
on Hawaii's tourism industry. The stagnant condition of the Hawaii economy
has adversely affected the Hawaii real estate market, and in turn the results
of the Company's operations.
Although the Company has been holding, entitling, developing, marketing
and selling land for over 25 years, its homebuilding operations began only in
late 1993, after which time it became the principal focus of its activities
with total closings of 673 home sales (includes home sales by the Iao
Partners joint venture with SHI) through June 30, 1998. As a result of
establishing its homebuilding line of business, the Company's cost of
property sales as a percentage of property sales increased substantially over
that period and therefore its gross profit declined as compared to periods
prior to the commencement of home building activities. With further increases
in costs and declines in sales prices in the first quarter of fiscal year
1999, the Company's gross profit was negative. Two changes in the Company's
operations implemented in fiscal year 1998--a change in focus to parcel and
lot sales rather than home sales, and a change to act as its own general
contractor in building homes--are expected to have a significant effect on
its future results. As a result of these changes, and as a result of the
effects of required accounting adjustments, the Company's historical
financial performance is not likely to be a meaningful indicator of future
results.
During the fourth quarter of fiscal year 1996, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." Application of SFAS No.121 required the recording of asset
impairment losses of approximately $3.5 million in fiscal year 1997 and
approximately $1.3 million in fiscal year 1996. There can be no assurance
that asset impairment losses will not be required to be recorded in future
periods, with a concomitant adverse effect on the Company's results of
operations.
The Company has observed a reduction in the price and rate of new home
sales since 1993, which the Company believes to be the result of increases in
Hawaii unemployment rates and a general lack of confidence in the Hawaii
economy by prospective home buyers. These conditions have increased
competition for homebuyers among Hawaii's homebuilders. In response to
prevailing market conditions, the Company has provided, and may provide in
the future, certain price reductions and other sales incentives to encourage
buyer interest. As a result, the Company's gross margin as a percentage of
sales on residential homes has declined, and may decline in the future. A
continuation of the economic stagnation that Hawaii has experienced in the
last few years, or an economic downturn in Hawaii, would likely continue to
have a material adverse effect on the Company's business.
Historically, most sectors of the land development and homebuilding
industry have been cyclical and have been significantly affected by changes in
general economic conditions, levels of consumer confidence and income, housing
demand, interest rates, and the availability of financing. In addition, the
Company is subject to various risks relating to overbuilding, the cost and
availability of materials and labor, competition, environmental risks, delays in
schedules for the construction of infrastructure and homes caused by strikes,
adverse weather, including drought and related impacts on the availability of
water (for domestic consumption and irrigation), the availability and cost of
capital, cost overruns, lack of public infrastructure (such as roads, water,
utilities, sewage, drainage, and other facilities), changes in government
regulation and increases in real estate taxes and other government fees, and
other factors not within a developer's control. In addition, due to the
Company's location in Hawaii, it is particularly susceptible to delays caused by
strikes affecting the shipping and transportation of building materials
necessary for the Company's homebuilding business.
13
<PAGE>
The Company has experienced, and expects to continue to experience,
significant variability in sales and net income on a quarterly basis. Factors
that may contribute to the variability of the Company's results include: (i)
the timing of home closings and land sales; (ii) the condition of the real
estate markets and the economy in general in Hawaii; (iii) the cyclical
nature of the homebuilding industry and changes in prevailing interest rates;
(iv) costs of materials and labor; and (v) delays in construction schedules
caused by the timing of inspections and approvals by regulatory agencies,
including zoning approvals and receipt of entitlements, the completion of
necessary public infrastructure, the timing of utility hookups, and adverse
weather.
The Company in the past entered into fixed-price contracts with
experienced general contractors for the construction of infrastructure and
homes for its residential developments. In fiscal year 1998, the Company
began operating as its own general contractor for the remaining homes being
built at Kaimana. To the extent it engages in homebuilding activity, the
Company is and will be subject to the risks that formerly were assumed by the
general contractors with whom the Company contracted. These risks include the
risk of cost overruns and warranty claims (including long-term claims arising
out of latent defects) that otherwise would be the responsibility of a
third-party general contractor, the risk that the Company's ability to act as
its own general contractor may be subject to limitations and restrictions
arising out of the terms of its credit facilities, the risks associated with
utilizing subcontractors without recourse for their failures to perform
against a third-party general contractor, the difficulty of securing bondings
and the risk inherent in the need to retain a licensed managing employee in
order to retain the Company's general contractor's license.
The Company is also subject to certain risks associated with the
availability and cost of materials and labor, delays in construction
schedules, and cost overruns. For example, homebuilders nationwide have
experienced significant volatility in the cost of lumber, with lumber prices
varying by as much as 50% over a several month period. The Hawaii residential
construction industry has experienced serious labor and material shortages in
the past. Delays in construction of homes due to these shortages or to
inclement weather conditions could have an adverse effect upon the Company's
homebuilding operations. The Company's developments are also susceptible to
delays caused by strikes or other events involving construction trade unions.
Environmental regulations can also have an adverse impact on the availability
and price of certain raw materials such as lumber. In addition, the Company's
operations are susceptible to delays caused by weather disturbances,
international events affecting the shipping industry and the transportation
of building materials necessary for the Company's business, and other factors
not within a developer's control.
Substantially all home buyers utilize long-term mortgage financing to
purchase their homes and lenders generally make loans only to borrowers who
satisfy the lenders' income and other requirements. Accordingly, the
Company's homebuilding activities are dependent upon the availability of
mortgage financing for first-time homebuyers as well as move-up homebuyers
who need to sell existing homes. In addition, changes in law relating to the
deductibility of mortgage interest for federal income tax purposes could
adversely affect the Company's business by reducing the advantages of home
ownership.
Although mortgage financing for qualified home buyers is currently
available at low interest rates, there can be no assurance that mortgage
financing will remain readily available to the Company's customers due to
general economic conditions, the restrictions on the ability of banks and
savings and loan institutions to finance the purchase of homes by home
buyers, and other factors. In the event of increases in interest rates, it
will generally be more difficult for people to qualify for mortgage loans due
to the higher payments associated with higher interest rates. In addition,
increases in interest rates will increase the Company costs because it has
substantial borrowings on which the interest rate is variable. If the
availability of mortgage loans becomes restricted, or if mortgage interest
rates increase significantly, thereby affecting the ability of prospective
buyers to finance home purchases and the Company's borrowing costs, the
Company's results of operations and financial condition will be adversely
affected.
Much of the land in the State of Hawaii, particularly on the islands of
Maui, Kauai, and Hawaii, has historically not been supported by adequate
public infrastructure (E.G., roads, water utilities, sewage, drainage, and
other facilities) necessary for residential development. The total investment
in infrastructure for a large residential community in Hawaii can be
substantial and there can be no assurance that the prices at which parcels,
lots or homes may eventually be sold by the Company will be sufficient to
result in a profit, or even to recover the investment made in such
infrastructure and related carrying costs.
14
<PAGE>
The Company's planned residential projects and commercial/industrial
developments are long-term in duration. In Hawaii it can take in excess of
ten years from the decision to develop unentitled land until the property is
sold or commercial space is leased, depending on the nature of the
governmental approval process, the project's size, the state of the economy
and the physical characteristics of the site. In addition, before planned
residential projects and other developed properties can generate any revenue,
significant development expenditures and carrying costs are required for,
among other things, compliance with governmental land use and environmental
requirements, land development, and installation of infrastructure. Because
of changing economic and market conditions, competition, and other factors,
there can be no assurance that the price that may eventually be obtained when
a parcel, lot or home is sold will be adequate to cover the capital
investments that have been made in entitling and improving the property and
related carrying costs, and to generate a satisfactory return on the
investment.
The Company is subject to local, state and federal statutes, ordinances,
rules and regulations affecting land use and building design. As of June 30,
1998, approximately 562 acres of the Company's existing supply of land and
all of the approximately 1,957 remaining acres subject to the option granted
to the Company by CBCL are not fully entitled for their intended purposes.
Before developing any of its unentitled land, the Company will be required to
obtain a variety of regulatory approvals from state and local governmental
authorities. The entitlement process for development of property in Hawaii
involves numerous state and county discretionary regulatory approvals.
Conversion of an unentitled parcel of land to residential zoning usually
requires the following approvals: adoption of or amendment to the County
Community Plan to reflect the desired general land use; approval by the State
Land Use Commission to reclassify the parcel to an urban designation; County
Council approval to rezone the property to the specific use desired; and, if
the parcel is located in the Coastal Zone Management area, the granting of a
Special Management Area Permit by the County Planning Commission. In
obtaining the necessary land entitlements at the state and county levels, the
Company obtains approvals from these authorities for related matters,
including density, provisions for affordable housing, roads, utilities, and
the dedication of acreage for schools, parks, and other purposes. County
approval is typically obtained after state approval. Subsequent to county
approval of entitlements, subdivision approvals and building permits must be
obtained. The entitlement process is complicated by the conditions,
restrictions, and exactions that are placed on these approvals, such as
requirements for construction of infrastructure improvements, payment of
impact fees, restrictions on the permitted uses of the land, and provisions
for affordable housing. If the Company is unable to obtain necessary
entitlements or if the cost of obtaining such entitlements is excessive
relative to the prices at which it may sell parcels, lots or homes, the
Company's results of operations and financial condition will be adversely
affected.
The climate and geology of Hawaii present certain risks of natural
disasters. In September 1992, for example, even though Hurricane Iniki did
not damage the Company's projects, it caused a delay in the construction of
roads and utilities at the Company's Kalihiwai Ridge project on the island of
Kauai as construction resources were directed to civil recovery projects for
the community. In addition, certain of the Company's projects are located on
the island of Hawaii, where there is volcanic activity. To the extent that
hurricanes, severe storms, volcanic eruptions, drought, or other natural
disasters occur in Hawaii, the Company's results of operations and financial
condition may be adversely affected.
Mortgage financing for a new home is conditioned, among other things, on
the availability of adequate homeowner's (including hurricane) insurance and
the cost of such insurance is considered by financial institutions in
determining whether applicants qualify for a mortgage loan. There can be no
assurance that homeowner's and hurricane insurance will be available or
affordable to prospective purchasers of homes. The unavailability or high
cost of homeowners' insurance could have a material adverse effect on the
Company's business.
The Company is subject to local, state and federal statutes, ordinances,
rules and regulations protecting health and safety, archeological
preservation laws, and environmental laws, including laws protecting
endangered species. Environmental laws (i) may cause the Company to incur
substantial compliance, mitigation and other costs, (ii) may prohibit or
severely restrict development in certain environmentally sensitive areas, and
(iii) may delay completion of the Company's projects. Some of the properties
held for development by the Company were formerly sites of large agricultural
operations, which involved the use of pesticides and other agricultural
chemicals. Although management is not currently aware of any environmental
compliance issues that are expected to have a material adverse effect on the
Company, no assurance can be given that such laws will not have a material
adverse effect on the Company's operations in the future.
15
<PAGE>
The land development and home building industries are highly
competitive. The Company competes for land and residential sales, financing,
raw materials, and skilled labor. The Company competes for home sales, as
well as for sales of parcels and lots entitled for residential use, on the
basis of a number of interrelated factors, including location, reputation,
amenities, design, quality, and price. Moreover, the Company competes for
land and residential sales with numerous large and small developers
(including some developers with greater financial and other resources than
the Company), government-built or subsidized housing units, individual
resales of existing homes and condominiums, and available rental housing.
As a result of title uncertainties with respect to certain of its
properties, the Company is sometimes unable to obtain a title insurance
policy, delivery of which is typically a condition to obtaining financing for
a project or selling a parcel of land. The Company believes that this
condition exists with respect to approximately one acre of its 79 acres of
land at its Piihana project. In order to cure title defects and obtain
appropriate title insurance, the Company has initiated, or intends to
initiate, "quiet title" actions to obtain clear title to such parcels in
its name. The process of prosecuting actions to the quiet title process can
be lengthy and could have the effect of delaying the Company's planned
development of particular projects and increasing their cost. No assurance
can be given that the Company will prevail in its current or intended title
actions or will otherwise be able to obtain insurable title to such
properties.
The Company is frequently required, in connection with the development
of its projects, to obtain performance, maintenance, and other bonds. The
amount of these bonds outstanding at any time varies in accordance with the
Company's pending development activities. In the event any such obligations
are drawn upon because of the Company's failure to install required
infrastructure, the Company would be obligated to reimburse the issuing
surety or bank, which could have a material adverse effect on the Company's
financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
16
<PAGE>
C. BREWER HOMES, INC.
PART II. OTHER INFORMATION
ITEMS 1. - THROUGH 3. Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a Special Meeting of Stockholders on June 26, 1998 at
which the Company's stockholders voted to approve the proposed merger of the
Company with and into Mauna Loa Macadamia Partners, L.P.
Holders of record of the Company's Class A Common Stock and Class B Common
Stock as of the close of business on April 30, 1998 were entitled to vote at the
Special Meeting. As of that date, there were 3,741,846 shares of Class A Common
Stock, entitled to one vote per share, and 4,589,819 shares of Class B Common
Stock, entitled to three votes per share (collectively, "Voting Stock") that
were outstanding and entitled to vote at the meeting. There were present at the
Special Meeting, either in person or by proxy, holders of an aggregate 6,389,404
shares of Voting Stock of the Company entitled to vote at the meeting, which
constituted a quorum.
Over 83% of the votes cast by the holders of Voting Stock represented at
the Special Meeting were cast in favor of approving and adopting the Amended
and Restated Agreement and Plan of Merger dated as of December 18, 1997 by
and between the Company and Mauna Loa Macadamia Partners, L.P. and the merger
contemplated thereby, with the number of votes cast as follows:
For Against Withheld
---------------------------------------------------------------
14,692,222 210,900 20,300
ITEM 5. OTHER INFORMATION
QUOTATION OF THE COMPANY'S CLASS A COMMON STOCK ON THE NASDAQ NATIONAL MARKET
The Company's Class A Common Stock has been quoted on the Nasdaq National
Market under the symbol "CBHI" since December 14, 1993. The closing sale
price of the Company's Class A Common Stock as reported on the Nasdaq National
Market on July 31, 1998 was $1.125 per share. There is no established public
trading market for the Company's Class B Common Stock.
Certain requirements must be met for the Company's Class A Common Stock to
continue to qualify for quotation on the Nasdaq National Market. Meeting some of
these requirements, such as the minimum bid price of the Company's shares and
the aggregate market value of its "public float", is beyond the control of the
Company and there can be no assurances that such requirements will continue to
be met.
17
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
*11.1 Statement Regarding Computation of Loss Per Common Share.
*27.1 Financial Data Schedule
* Filed herewith
+ Management contract or compensatory plan or arrangement
(b) On April 21, 1998 the Company filed a report on Form 8-K
announcing that (a) the Company executed a First Amendment to the Master
Facility Agreement with its Lenders extending the maturity date of the
existing Master Facility Agreement from May 31, 1998 to December 1, 1998; (b)
the Company completed the sale of the Nanea subdivision of its Kehalani
master planned community for $2.2 million to an unrelated third party; (c)
the Company completed the sale of its Iao II land parcel for $2.0 million to
an unrelated third party; (d) the Company provided forms of Stock Option
Cancellation and Replacement Agreements to be used in connection with the
proposed Merger (which will not be consummated); (e) the Company and Edward
T. Foley, the Company's Executive Vice President and Chief Financial Officer,
executed a letter agreement amending Mr. Foley's Release and Separation
Agreement and Consultant Agreement; and (f) the Company memorialized its
agreement with Eben Dale, its corporate secretary and employee, and Ka'u
Agribusiness Co., Inc. ("Ka'u") pursuant to which Mr. Dale continues to
provide corporate secretary services for the Company and also provides land
management and legal services to Ka'u.
18
<PAGE>
C. BREWER HOMES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
C. BREWER HOMES, INC.
(Registrant)
Date: August 14, 1998 By /s/ Seth A. Bakes
---------------------------------
SETH A. BAKES
President and Chief Executive Officer
(Principal Executive Officer)
By /s/ Scott K. Okada
---------------------------------
SCOTT K. OKADA
Controller
(Principal Financial and Accounting Officer)
19
<PAGE>
Exhibit 11.1
C BREWER HOMES, INC.
STATEMENT REGARDING COMPUTATION OF LOSS PER COMMON SHARE
(IN THOUSANDS, EXCEPT FOR LOSS PER COMMON SHARE)
<TABLE>
<CAPTION>
Quarters Ended
------------------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Class A Common Stock
- --------------------
Shares issued and outstanding. . . . . . . . . . . . . . 3,994 3,392
Class B Common Stock
- --------------------
Shares issued. . . . . . . . . . . . . . . . . . . . . . 4,342 4,944
Treasury stock purchased in July 1995. . . . . . . . . . (4) (4)
------- -------
Weighted average number of common shares
outstanding. . . . . . . . . . . . . . . . . . . . . . . . . 8,332 8,332
------- -------
------- -------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $ (662) $ (240)
------- -------
------- -------
Loss per common share. . . . . . . . . . . . . . . . . . . . $ (0.08) $ (0.03)
------- -------
------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,094
<SECURITIES> 0
<RECEIVABLES> 1,086
<ALLOWANCES> 0
<INVENTORY> 27,698
<CURRENT-ASSETS> 30,067
<PP&E> 307
<DEPRECIATION> 204
<TOTAL-ASSETS> 33,236
<CURRENT-LIABILITIES> 25,304
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 6,747
<TOTAL-LIABILITY-AND-EQUITY> 33,236
<SALES> 6,105
<TOTAL-REVENUES> 6,105
<CGS> 6,224
<TOTAL-COSTS> 6,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> (1,085)
<INCOME-TAX> (423)
<INCOME-CONTINUING> (662)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (662)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
