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,October 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from tofrom________________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) Identification No.)
Suite 1700, Makai Tower, 733 Bishop Street
Honolulu, Hawaii 96813
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (808) 537-3981
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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 April 30,October 31, 1998.
2
PART I - FINANCIAL INFORMATION
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
April 30,October 31, 1998 and July 31, 19971998
ASSETS
April 30,October 31, July 31,
1998 19971998
(Unaudited)
----------- -----------
Cash and cash equivalents $ 342,261 797,51456,679 752,493
Receivables:
Trade accounts and notes, less allowance for doubtful
receivables of $21,157$1,000 at April 30,October 31, 1998 and
$27,191 at
July 31, 1997 816,450 676,242
Long-term receivables (including current
installments of $3,335 at April 30,
1998 and $5,344 at July 31, 1997 3,737 7,470169,483 77,074
Accrued interest 588,388 565,458
Other 158,509 161,514
----------- -----------
Total receivables 820,187 683,712916,380 804,046
----------- -----------
Inventories -- 67,425
Developed real estate, less accumulated depre-
ciationdepreciation
of $248,041$259,027 at April 30,October 31, 1998 and $231,788$253,533 at
July 31, 1997 1,406,292 1,420,5231998 1,398,644 1,401,479
Undeveloped land held for sale 134,474 134,474
Other investments:
Real estate 2,284,360 2,959,2371,833,057 1,525,410
Securities 816,259 817,723722,783 737,202
----------- -----------
Total other investments 3,100,619 3,776,9602,555,840 2,262,612
----------- -----------
Property and equipment, at cost:
Leasehold improvements 66,531 221,41358,469 61,282
Furniture and equipment 397,809 1,772,820398,906 394,610
----------- -----------
464,340 1,994,233457,375 455,892
Less accumulated depreciation and amortization (419,854) (1,791,381)(417,563) (413,242)
----------- -----------
Net property and equipment 44,486 202,85239,812 42,650
Deferred charges and other assets 10,192 40,47029,620 9,020
----------- -----------
$ 5,858,511 7,123,9305,131,449 5,406,774
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, April 30,cont'd.
October 31, 1998 and July 31, 19971998
LIABILITIES AND STOCKHOLDERS' DEFICIENCYDEFICIT
April 30,October 31, July 31,
1998 19971998
(Unaudited)
----------- -----------
Indebtedness (current installments of $4,196,000$3,731,201 at April 30,1998October 31,
1998 and $4,094,639$4,208,043 at July 31, 1997)1998):
Debentures $ 1,948,245 1,976,2451,937,745 1,942,745
Mortgage notes 1,844,810 1,853,5831,838,124 1,841,684
Other notes, secured 667,624 735,723351,482 590,470
Other notes, unsecured 492,184 469,457509,422 502,355
----------- -----------
Total indebtedness 4,952,863 5,035,0084,636,773 4,877,254
----------- -----------
Accounts payable, trade 145,890 635,013519,781 99,521
Accrued expenses 530,776 845,184280,037 721,093
Other payables:
Loans under participation agreement:
Related parties 213,527 451,590361,183 237,265
Other 527,530 783,960413,583 274,077
Other 721,233 534,041627,856 625,297
----------- -----------
Total other payables 1,462,290 1,769,5911,402,622 1,136,639
----------- -----------
Stockholders' deficiency:deficit:
Common stock, no par value, stated value $1 per share:
Authorized 2,531,765 shares; issued 1,723,765 sharesshares.
(No shares reserved for con-
version,conversion, warrants,
options or other rights) 1,723,765 1,723,765
Additional paid-in capital 469,321 469,321
Retained earnings 631,093 703,535156,637 436,668
----------- -----------
2,824,179 2,896,6212,349,723 2,629,754
Deduct cost of 691,082 common shares in treasury (4,057,487) (4,057,487)
----------- -----------
Stockholders' deficiency (1,233,308) (1,160,866)deficit (1,707,764) (1,427,733)
----------- -----------
$ 5,858,511 7,123,9305,131,449 5,406,774
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months ended April 30, 1998 and 1997
and
Nine months ended April 30,October 31, 1998 and 1997
(Unaudited)
Three Months Nine Months
April 30, April 30,
--------- ---------
1998 1997 1998 1997
----------- -----------
----------- -----------
Revenues:
CommissionsCommission and fees $ 201,415 191,115 $ 542,837 524,955122,455 130,522
Income from investments 157,808 450,966 621,040 806,621195,416 192,721
Other (885) 8,773 79,190 16,1925,187 80,075
----------- -----------
----------- -----------
358,338 650,854 1,243,067 1,347,768
----------- -----------323,058 403,318
----------- -----------
Cost and expenses:
Other directDirect operating expenses and general
and administrative expenses 395,995 437,299 1,354,201 1,431,357451,719 523,326
Interest 91,560 109,536 340,535 281,883151,370 87,333
----------- -----------
603,089 610,659
----------- -----------
487,555 546,835 1,694,736 1,713,240
----------- ----------- ----------- -----------
Gain (loss)Loss from continuing operations (129,217) 104,019 (451,669) (365,472)
----------- ----------- ----------- -----------
Discontinued operations:(280,031) (207,341)
Loss from operations of discon-
tinued bakery operations -- (113,616) (36,272) (252,643)
Gain from sale of certain assets
and liabilities of discontinued
bakery operations -- -- 415,499 --
----------- ----------- ----------- -----------
Net earnings (loss) from discontinued operations -- (113,616) 379,227 (252,643)
----------- -----------(30,839)
----------- -----------
Net loss (129,217) (9,597) (72,442) (618,115)(280,031) (238,180)
Retained earnings at beginning of period 760,310 942,001436,668 703,535 1,550,519
----------- -----------
----------- -----------
Retained earnings at end of period $ 631,093 932,404 $ 631,093 932,404156,637 465,355
=========== ===========
=========== ===========
5
Condensed Consolidated Statements of Operations - cont'd.
Three Months Nine Months
April 30, April 30,
--------- ---------
1998 1997 1998 1997
--------- ------------ ------------- ------------
Earnings (loss)Loss per common share:
Gain (loss)Loss from continuing operations $ (.13) .10 $ (.44) (.35)(.27) (.20)
Loss from discontinued operations -- (.11) .37 (.25)
--------- ------------ ------------- ------------
Loss(.03)
----------- -----------
Net loss per common share $ (.13) (.01) $ (.07) (.60)
========= ============ ============= ============(.27) (.23)
=========== ===========
Dividends per common share NONE NONE
NONE NONE
========= ============ ============= ============----------- -----------
Weighted average number of common shares
outstanding during the period 1,032,683 1,032,683
1,032,683 1,032,683
========= ============ ============= ======================= ===========
See accompanying notes to condensed consolidated financial statements.
65
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
NineThree months ended April 30,October 31, 1998 and 1997
(Unaudited)
1998 1997
----------- ------------------- ---------
Net cash provided by (used in)used in operating activities $ 138,108 (1,078,690)
----------- ----------$(745,988) (603,552)
--------- ---------
Cash flows from investing activities:
Capital expenditures (1,483) (8,241)
Proceeds from sales of securities 28,714 --
428,394
Capital expenditures (16,723) (36,257)
----------- ------------------- ---------
Net cash provided by (used in)
investing activities (16,723) 392,137
----------- ----------27,231 (8,241)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt 176,190 40,2059,568 159,705
Principal payments on indebtedness (258,335) (427,824)(250,049) (82,580)
Proceeds received under loan participa-
tionparticipation
agreements 810,283 1,250,000521,874 406,061
Payments made under loan participation
agreements (1,304,776) (180,600)
----------- ----------(258,450) (345,892)
--------- ---------
Net cash provided by (used in)
financing activities (576,638) 681,781
----------- ----------22,943 137,294
--------- ---------
Net decrease in cash and cash equivalents (455,253) (4,772)(695,814) (474,499)
Cash and cash equivalents at beginning of period 752,493 797,514
757,399
----------- ------------------- ---------
Cash and cash equivalents at end of period $ 342,261 752,627
=========== ==========56,679 323,015
========= =========
See accompanying notes to condensed consolidated financial statements.
7
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Statements of Retained Earnings
Nine months ended April 30, 1998 and 1997
(Unaudited)
1998 1997
--------- ----------
Retained earnings at July 31 $ 703,535 1,550,519
Net loss (72,442) (618,115)
--------- ----------
Retained earnings at April 30 $ 631,093 932,404
========= ==========
See accompanying notes to condensed consolidated financial statements.
86
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, 19971998 and the
consolidated financial statements and the notes thereto in the Company's
Quarterly Report on SEC Form 10-Q for the quarter ended JanuaryOctober 31, 1998.1997.
In the opinion of the Company's management, the accompanying unaudited
financial information contains all material adjustments required by
generally accepted accounting principles to present fairly the Company's
financial position as of April 30,October 31, 1998 and July 31, 1997,1998, the results of
its operations for the ninethree months ended April 30,October 31, 1998 and 1997, and its
cash flows for the ninethree months ended April 30,October 31, 1998 and 1997. All such
adjustments are of a normal recurring nature, unless otherwise disclosed in
this Form 10-Q or other referenced material. Results of operations for
interim periods are not necessarily indicative of results for the full year.
(2) Accounting PronouncementPronouncements
In June 1997, the Financial Accounting Standards BoardFASB issued Statement of
Accounting Standards (SFAS)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
isare effective for fiscal years beginning after December 15, 1997, although
its provisionsSFAS 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 this statement relatesthese statements relate solely
to disclosure requirements, itstheir implementation will not have an affect on
the Company's financial condition, results of operations or liquidity.
(3) Other Real Estate Investments
HEARTHSTONE HOMES, INC.Subsequent Event
In FebruaryDecember 1998, the Company extended a $425,000$575,000 acquisition, development
and construction (ADC) loan commitment to Hearthstone Homes, Inc. to finance a
residential real estate project in
Clark County, Nevada. At April 30, 1998,
the Company's aggregate investments in the real estate project amounted to
$225,000.
Further, theThe Company also entered into a participation agreement in February
1998agreements
which providesprovide that the Company sell, without recourse, to the
participantparticipants an
undivided participating interest in the loan.
As of December 9, 1998, the outstanding loan to Hearthstone
Homes, Inc.amount was $415,000. The
participant'sparticipants share of the loan commitment is $112,500 aswas $409,500 at December 9, 1998,
of April 30, 1998. The loan under this participation agreement earns
interest atwhich $136,500 was with a ratetrust for which a member of 15% per annum and the participant shares pro rata
withboard of
directors of the Company as to all payments, collections and recoveries. The loan
participation agreement provides that the Company, from time to time, may
repurchase from the participant, his participating interest.is trustee.
97
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company and its subsidiaries are engaged principally in the
business of acquiring, developing, leasing and dealing in real
estate, investing in securities, and wholesale business activities
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,October 31, 1998 are not
necessarily indicative of results to be expected for the year and are
not necessarily comparable to the results of operations for the three
and nine months ended April 30,October 31, 1997.
Other Income from Investments
The decrease in other income from investments of $293,158 and $185,581
respectively$74,888 for the three and nine months ended
April 30,October 31, 1998 as compared to the same periodsperiod in 1997 is primarily
due to a decreasethe receipt of interest income from the Company's acquisition, developmentcash surrender value of officer life
insurance policies which were cancelled by the Company in the first
quarter of fiscal 1997.
Direct Operating and construction (ADC) loans in NevadaGeneral and Utah.Administrative Expenses
The decline in
investment income is also attributed to a decrease in income from the
sale of security investments of $91,700direct operating and general and administrative
expenses for the ninethree months ended April 30, 1997October 31, 1998 as compared to
nil for the nine months ended April 30,same period in 1997 of $71,607 is primarily due to the reduction
of the corporate office space during fiscal 1998. Management plans to
further reduce general and administrative expenses during fiscal
1999. Such plans include the reduction in general and administrative
payroll costs through terminations and retirements.
Interest Expense
The increase in interest expense of $64,037 is primarily due to the
increase in loans payable under participation agreements at October
31, 1998 as compared to October 31, 1997.
DISCONTINUED WHOLESALE BAKERY ACTIVITIES
Wholesale bakery activities include the production and sale of bakery
products primarily to major hotels, commercial airlines and U.S.
military installations in Hawaii. In October 1997, the Company
entered into an agreement to sell certain assets and liabilities of
its subsidiary Latipac Fine Foods, Inc. and to discontinue its bakery
operations.
In December 1997, the Company finalized the sale of the assets and
liabilities of its discontinued bakery operations and recorded a
gain on sale of $415,499. The decrease in loss from discontinued
operations of $216,371 for the nine months ended April 30, 1998 as
compared to the same period in 1997 is due to the decrease in
operating and administrative expenses of Latipac Fine Foods,
Incorporated. 8
LIQUIDITY AND CAPITAL RESOURCES
At April 30,October 31, 1998, the Company held cash and cash equivalents of
$342,261.$56,679. The decrease in cash of $455,253$695,814 for the ninethree months ended
April 30,October 31, 1998 is primarily due to cash used in financingoperating
activities.
Included in cash provided byused in operating activities for the ninethree months
ended April 30,October 31, 1998 was approximately $677,000$167,400 of advances made and
$894,000 of repayments received on advances for the
construction of residential developments in Nevada and Utah. The
Company's net loss of $72,442$280,031 is also included in cash provided byused in
operating activities. 10
Cash flows from financing activities for the nine months ended April
30, 1998 includes repayments on loan participation agreements in the
Company's loans to Pageantry Communities, Inc. and Touchstone
Development of Utah, LLC of $1,304,776. Proceeds received on loan
participation agreements in the Company's loans to Pageantry
Communities, Inc. and Touchstone Development of Utah, LLC amounted
to $810,283 for the nine months ended April 30, 1998.
The Company met its operating cash requirements for the ninethree months
ended April 30,October 31, 1998 by using cash on hand at July 31, 19971998 and
proceeds from loan participation agreements. Cash inflows and
outflows from ADC loans in Copper Bluffs, LLC, Sunset Bay, LLC, Red
Rock Canyon, Pageantry Communities, Inc.,LLC, Touchstone Development of Utah, LLC and Hearthstone
Homes, Inc. will continue throughout fiscal year 1998.1999. In order to
improve the Company's cash position, management has been making
efforts to collect accrued interest receivable on an accelerated
basis from certain of the outstanding ADC loans. Further, new ADC
loan agreements will be funded by participants as necessary.
Cash requirements will continue to be satisfied from institutional
borrowings, loan participation agreements and net collections on ADC
loans. Management expects that cash inflows will also be realized in
the remaining quarters of fiscal 1999 from sales of security
investments and collections of accounts receivable.
YEAR 2000
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year
2000" issue and is developing an implementation plan to resolve the
issue. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable
year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather then the year
2000. This could result in a major system failure or miscalculations.
The company presently believes that the Year 2000 problem will not
pose significant operational problems for the Company's computer
systems.
119
PART II - OTHER INFORMATION
Items 1,2,3,5.1,2,3,4,5,6. None
Item 4. The following actions were taken at the annual
stockholders meeting held on January 30, 1998:
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 Peat Marwick LLP was re-elected independent
auditors for the year ending July 31, 1998 by a
vote of 557,558 shares in the affirmative and none
in the negative.
Item 6. (a) None
(b) Form 8-K dated November 3, 1997 was filed during the
six months ended January 31, 1998 reporting the sale
of assets and liabilities of the Company's
wholly-owned subsidiary, Latipac Fine Foods, Ltd.
1210
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: JuneDecember 11, 1998 /s/ STUART T.K. HO
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Chairman of the Board and President
Dated: JuneDecember 11, 1998 /s/ DONALD M. WONG
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Senior Vice President and Treasurer