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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,April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-4179
CAPITAL INVESTMENT OF HAWAII, INC.
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(Exact name of registrant as specified in its charter)
Hawaii 99-0065664
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 1700, Makai Tower, 733 Bishop Street
Honolulu, Hawaii 96813
- ------------------------------------------ ------------------------------------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
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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[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,April 30, 1999.
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PART I - FINANCIAL INFORMATION
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
January 31,April 30, 1999 and July 31, 1998
ASSETS
January 31,April 30, July 31,
1999 1998
------------(Unaudited)
----------- (Unaudited)-----------
Cash and cash equivalents $ 449,644 $117,000 752,493
Receivables:
Trade accounts and notes, less allowance
for doubtful receivables of $1,000
at January 31,April 30, 1999 and July 31,
1998 85,65952,902 77,074
Accrued interest 195,16137,951 565,458
Other 123,43193,767 161,514
----------------------- -----------
Total receivables 404,251184,620 804,046
----------------------- -----------
Developed real estate, less accumulated depre-
ciation of $264,676$270,294 at January 31,April 30, 1999
and $253,533 at July 31, 1998 1,394,0091,524,991 1,401,479
Undeveloped land held for sale 134,474 134,474
Other investments:
Real estate 1,560,0991,398,273 1,525,410
Securities 721,109686,370 737,202
------------ ----------- 2,281,208-----------
2,084,643 2,262,612
----------------------- -----------
Property and equipment, at cost:
Leasehold improvements 58,469 61,282
Furniture and equipment 400,594399,002 394,610
------------ ----------- 459,063-----------
457,471 455,892
Less accumulated depreciation and amortization (418,062)(419,608) (413,242)
----------------------- -----------
Net property and equipment 41,00137,863 42,650
Deferred charges and other assets 21,29036,193 9,020
----------------------- -----------
$ 4,725,877 $4,119,784 5,406,774
======================= ===========
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CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, cont'd.
January 31,April 30, 1999 and July 31, 1998
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
January 31,April 30, July 31,
1999 1998
------------(Unaudited)
----------- (Unaudited)-----------
Indebtedness (current installments of $3,696,447$3,738,529
at January 31,1999April 30,1999 and $4,208,043
at July 31, 1998):
Debentures $ 1,932,745 $1,906,485 1,942,745
Mortgage notes 1,834,4891,874,173 1,841,684
Other notes, secured 309,488405,659 590,470
Other notes, unsecured 512,458522,323 502,355
----------------------- -----------
Total indebtedness 4,589,1804,708,640 4,877,254
----------------------- -----------
Accounts payable, trade 190,730160,535 99,521
Accrued expenses 800,148547,696 721,093
Other payables:
Loans under participation agreement:
Related parties 474,996380,404 237,265
Other 594,600524,922 274,077
Other 336,984174,047 625,297
------------ ----------- 1,406,580-----------
1,079,373 1,136,639
----------------------- -----------
Stockholders' deficiency:
Common stock, no par value, stated value
$1 per share:
Authorized 2,531,765 shares; issued
1,723,765 shares. (No shares
reserved for conversion, warrants,
options or other rights) 1,723,765 1,723,765
Additional paid-in capital 469,321 469,321
Retained earnings (accumulated deficit) (396,360)(512,059) 436,668
------------ ----------- 1,796,726-----------
1,681,027 2,629,754
Deduct cost of 691,082 common shares in
treasury (4,057,487) (4,057,487)
----------------------- -----------
Stockholders' deficiency (2,260,761)(2,376,460) (1,427,733)
----------------------- -----------
$ 4,725,877 $4,119,784 5,406,774
======================= ===========
See accompanying notes to condensed consolidated financial statements.
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CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended January 31,April 30, 1999 and 1998
and
SixNine months ended January 31,April 30, 1999 and 1998
(Unaudited)
Three Months SixNine Months
January 31, January 31,
---------------------------------- -----------------------------------April 30, April 30,
---------------------------- ----------------------------
1999 1998 1999 1998
-------------- ------------- --------------- ------------------------- ----------- ----------- -----------
Revenues:
Commissions and fees $ 180,470 210,900187,729 201,415 $ 302,925 341,422490,654 542,837
Income from investments 187,730 270,511 383,146 463,232195,369 157,808 578,515 621,040
Other 6,190 - 11,377 80,075
-------------- ------------- --------------- --------------
374,390 481,411 697,448 884,729
-------------- ------------- --------------- --------------6,317 (885) 17,694 79,190
----------- ----------- ----------- -----------
389,415 358,338 1,086,863 1,243,067
----------- ----------- ----------- -----------
Cost and expenses:
Other direct operating expenses
and general and administrative
expenses 393,598 434,880 845,317 958,206376,860 395,995 1,222,177 1,354,201
Provision for losslosses from real
estate investments 400,000 - 400,000 -37,297 -- 437,297 --
Interest 133,789 161,642 285,159 248,975
-------------- ------------- --------------- --------------
927,387 596,522 1,530,476 1,207,181
-------------- ------------- --------------- --------------90,957 91,560 376,116 340,535
----------- ----------- ----------- -----------
505,114 487,555 2,035,590 1,694,736
----------- ----------- ----------- -----------
Loss from continuing
operations (552,997) (115,111) (833,028) (322,452)
-------------- ------------- --------------- --------------(115,699) (129,217) (948,727) (451,669)
----------- ----------- ----------- -----------
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) 56,775loss (115,699) (129,217) (948,727) (72,442)
Retained earnings (accumulated
deficit) at beginning of period 156,637 465,355(396,360) 760,310 436,668 703,535
-------------- ------------- --------------- ------------------------- ----------- ----------- -----------
Retained earnings (accumulated
deficit) at end of period $ (396,360) 760,310(512,059) 631,093 $ (396,360) 760,310
============== ============= =============== ==============(512,059) 631,093
=========== =========== =========== ===========
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CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations - cont'd.
Three months ended April 30, 1999 and 1998
and
Nine months ended April 30, 1999 and 1998
(Unaudited)
Three Months Nine Months
April 30, April 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Earnings (loss) per common share:
Loss from continuing
operations $ (.54) (.11) (.13) $ (.81) (.31)(.92) (.44)
Earnings (loss) from discontinued
operations - .40 - .36
-------------- ------------- --------------- ---------------- -- -- .37
---------- ---------- ---------- ----------
Net earnings (loss)loss per common share $ (.54) .29(.11) (.13) $ (.81) .05
============== ============= =============== ==============(.92) (.07)
========== ========== ========== ==========
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.
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CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
SixNine months ended January 31,April 30, 1999 and 1998
(Unaudited)
1999 1998
----------------------- -----------
Net cash provided by (used in) operating activities $ (840,863) $ 300,703
------------$(1,272,097) 138,108
----------- -----------
Cash flows from investing activities:
Capital expenditures (3,171) (9,223)
Proceeds from sales of securities 127,005 -
------------278,305 --
Capital expenditures (8,944) (16,723)
----------- -----------
Net cash provided by (used in)
investing activities 123,834 (9,223)
------------269,361 (16,723)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 17,605 167,023indebtedness 241,070 176,190
Principal payments on long-term debt (305,679) (180,257)indebtedness (409,684) (258,335)
Proceeds received under loan participa-
tion agreements 1,053,202 435,493810,283
Payments made under loan participation
agreements (350,948) (1,019,352)
------------(517,345) (1,304,776)
----------- -----------
Net cash provided by (used in)
financing activities 414,180 (597,093)
------------367,243 (576,638)
----------- -----------
Net decrease in cash and
cash equivalents (302,849) (305,613)(635,493) (455,253)
Cash and cash equivalents at beginning of period 752,493 797,514
----------------------- -----------
Cash and cash equivalents at end of period $ 449,644 $ 491,901
============117,000 342,261
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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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 OctoberJanuary 31, 1998.1999.
In the opinion of the Company's management, the accompanying unaudited
financial information contains all material adjustments required by
generally accepted accounting principles to present fairly the Company's
financial position as of January 31,April 30, 1999 and July 31, 1998, the results of
its operations for the three and sixnine months ended January 31,April 30, 1999 and 1998,
and its cash flows for the sixnine months ended January 31,April 30, 1999 and 1998. All
such adjustments are of a normal recurring nature, unless otherwise
disclosed in this Form 10-Q or other referenced material. Results of
operations for interim periods are not necessarily indicative of results for
the full year.
(2) 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, LLC
In January 1999, the Company obtained title to 59 parcels of land in Clark
County, Nevada in satisfaction of its acquisition, development and
construction (ADC) loan to Copper Bluffs, LLC. Title to the parcels were
subsequently assigned to Martin Development , Inc., a Nevada Corporation in
exchange for an non-interest bearing loan of $813,376 which is included in
the consolidated balance sheet as real estate investments at January 31,April 30, 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 andwith final payment due on March 1, 2001.
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As a result of the transactions, the Company recorded a provision for loss
from real estate investment of $100,000 during the quarter ended January 31,
1999.
SUNSET BAY, LLC
At January 31, 1999, the Company recorded a provision for loss from real
estate investment for its ADC loan to Sunset Bay, LLC of $300,000. The
provision included the write-off of the total principal and interest due on
the loan at January 31, 1999.
(4) Subsequent Event
In FebruaryRED ROCK CANYON, LLC
The Company obtained title to 11 improved residential housing lots in
Washington County, Utah in satisfaction of its ADC loan to Red Rock Canyon,
LLC. As of April 30, 1999, the Company began negotiations withhad sold 3 of the 11 lots. The net
realizable values of the remaining 8 lots totals $136,000 and is recorded as
developed real estate in the consolidated balance sheet as of April 30,
1999.
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The lots are secured by a first mortgage from a bank. The Company is obliged
to remit $15,677 to the bank for each lot sold. The balance of the bank loan
is $43,677 at April 30, 1999 and is included in mortgage notes in the
consolidated balance sheet.
As a result of the transaction, the Company recorded a provision for loss
from real estate investment of $37,297 during the quarter ended April 30,
1999.
TOUCHSTONE DEVELOPMENT OF UTAH, LLC
In April, 1999, the Company received approximately $115,800 from a Nevada
corporation to assignin exchange for the assignment of its interest in itsthe 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.
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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 sixnine months ended January
31,April 30, 1999 are not
necessarily indicative of results to be expected for the year and are
not necessarily comparable to the results of operations for the three
and sixnine months ended January 31,April 30, 1998.
Income from Investments
The decreaseincrease in income from investments of $82,781 and $80,086,
respectively$37,561 for the three
and six months ended January 31,April 30, 1999 as compared to the same periodsperiod in 1998 is
primarily due to the sale of security investments resulting in gains
totaling approximately $196,000. These gains were offset by several
non-performing acquisition, development and construction (ADC) loans
in Nevada and Utah. The Company has not received principal or
interest payments on the ADC loans made to Copper Bluffs, LLC, Sunset
Bay, LLC, Red Rock Canyon, LLC and Touchstone Development of Utah,
LLC during the quarterthree months ended January 31,April 30, 1999. The borrower under
those ADC loansCompany has
indicateddetermined that the loans have beenare 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$437,297 during the quarternine months ended January 31,April 30, 1999. The provision
includes the write-offwrite off of all principal and interest receivable on
the ADC loan to Sunset Bay, LLC of $300,000.
Further, managementthe Company has obtained title to 59 parcels in Clark
County, Nevada in satisfaction of its ADC loan to Copper Bluffs, LLC.
The parcels were subsequently assigned to Martin Development, Inc. in
exchange for aan ADC loan of $813,376. These transactions resulted in
an
additionala provision for loss from real estate investment of $100,000.
The Company obtained title to improved residential housing lots in
Washington County, Utah in satisfaction of its ADC loan to Red Rock
Canyon, LLC. As a result of this transaction, the Company recorded a
provision for loss from real estate investments of $37,297 during the
quarter ended April 30, 1999.
Management does not consider any other ADC loans to be in distressimpaired as of
January 31,April 30, 1999.
Other Income
The decrease in other income of $68,698$61,496 for the sixnine months ended
January 31,April 30, 1999 as compared to the same period in 1998 is primarily
due to the receipt of cash surrender value of officer life insurance
policies which were cancelled by the Company during the first quarter
of fiscal 1998. 10
DISCONTINUED WHOLESALE BAKERY ACTIVITIES
Wholesale bakery activities include the production and sale of bakery
products primarily to major hotels, commercial airlines and U.S.
military installations in Hawaii. In October 1997, the Company
entered into an agreement to sell certain assets and liabilities of
its subsidiary Latipac Fine Foods, Inc. and to discontinue its bakery
operations.
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LIQUIDITY AND CAPITAL RESOURCES
NINE MONTHS ENDED APRIL 30, 1999
At January 31,April 30, 1999, the Company held cash and cash equivalents of
$449,644.$117,000. The decrease in cash of $302,849$635,493 for the sixnine months ended
January 31,April 30, 1999 is primarily due to cash used in operating activities.
Included in cash used in operating activities for the sixnine months
ended January 31,April 30, 1999 was approximately $1,182,403$1,382,400 of advances made
and $562,655$714,200 of repayments received on advances for the construction
of residential developments in Nevada and Utah. The Company's net
loss $833,028$948,727 is also included in cash used in operating activities.
Cash flows from financing activities for the sixnine months ended January 31,April
30, 1999 includes repayments on loan participation agreements on the
Company's ADC loans to of approximately $350,948.$517,345. Proceeds received on
loan participation agreements amounted to $1,053,202 for the sixnine
months ended January 31,April 30, 1999.
The Company met its operating cash requirements for the sixnine months
ended January 31,April 30, 1999 by using cash on hand at July 31, 1998 and
proceeds from loan participation agreements.
Cash inflowsFUTURE CASH REQUIREMENTS
The decline in cash during the nine months ended April 30, 1999 is
directly related to the loss of revenues from real estate
investments, particularly with respect to the Company's ADC loans.
Management expects to continue to fully realize interest income and
outflowsprofit participation revenues from its remaining ADC loans towith
Hearthstone Homes, Inc. and Hearthstone Homebuilders, Inc. during the
remaining quarter of fiscal 1999. Cash requirements for ADC
commitments will continue throughout
fiscal year 1999.to be satisfied primarily by participation
agreements.
Management expects cash inflows from Martin Development, Inc. to
continue through March 2001, with approximately $96,500$200,000 to be
received by April 15,in June 1999. Included inApproximately 58% of the Martin Development,
Inc. ADCamount on the 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 inare due to 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 Marchparticipants.
During the nine months ended April 30, 1999, the Company receivedhas
implemented cost reduction measures, primarily related to general and
administrative expenses. As a result of management's cost reduction
efforts, salary costs have been reduced by approximately $150,000 of sales proceeds on7% during
the sale of security
investments.three months ended April 30, 1999, as compared to the same period
last year. Management will continue to sell security investments
as necessaryreduce expenses in order to
meet cash requirements forits current obligations during the remainingfourth quarter of fiscal
year 1999.
Cash requirements for ADC commitments will continue to be
satisfied primarily by participation agreements. 11
Long-term debt that isare scheduled for repayment isare expected to be
refinanced with the respective lending institutions.
Management also expects that cash inflows will also be realized in
the remaining quartersquarter of fiscal 1999 from collections of accounts
receivable.receivable and sales of security investments.
YEAR 2000
The Company has conducted a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year
2000" issue and is developing an implementation plan to resolve the
issue. The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable
year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather then the year
2000. This could result in a major system failure or miscalculations.
The company presently believes that the Year 2000 problem will not
pose significant operational problems for the Company's computer
systems.
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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.
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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,June 18, 1999 /s/ STUART T.K. HO
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Chairman of the Board and President
Dated: March 15,June 18, 1999 /s/ DONALD M. WONG
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Senior Vice President and Treasurer