1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended April 30, 1995
Commission File Number 0-4179
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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
Incorporation or Organization) Identification No.)
Suite 1700, PRI 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 .
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There were 1,032,683 shares outstanding of common stock, no par value,
as of April 30, 1995.
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PART I - FINANCIAL INFORMATION
CAPITAL INVESTMENT OF HAWAII, INC. & SUBSIDIARIES
Condensed Consolidated Balance Sheets
April 30, 1995 and July 31, 1994
ASSETS
April 30, July 31,
1995 1994
(Unaudited)
----------- ---------
Cash and cash equivalents $ 443,618 1,146,248
Marketable equity securities, at cost (quoted
market of $38,318 at April 30, 1995
and $67,499 at July 31, 1994) 19,310 49,310
Inventories 50,472 56,636
Receivables:
Trade accounts and notes, less allowance
for doubtful receivables of $58,544 1,031,845 762,765
Long-term receivables (including current
installments of $1,644,019 at April
30, 1995 and $1,647,729 at July 31,
1994) 1,657,249 1,663,685
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Total receivables, net 2,689,094 2,426,450
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Developed real estate, less accumulated depre-
ciation of $183,769 at April 30, 1995
and $176,259 at July 31, 1994 90,171 97,584
Undeveloped land held for sale 134,474 134,474
Other investments:
Real estate 4,685,487 5,331,456
Securities 898,321 954,953
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5,583,808 6,286,409
Property and equipment, at cost, less accumulated
depreciation of $1,738,886 at April 30,
1995 and $1,477,573 at July 31, 1994 339,270 532,449
Deferred charges and other assets 797,854 768,741
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$10,148,071 11,498,301
=========== ==========
See accompanying notes to consolidated financial statements.
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CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
April 30, 1995 and July 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
April 30, July 31,
1995 1994
(Unaudited)
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Indebtedness (current installment maturing
within one-year of $5,227,342 at April 30,
1995 and $5,834,224 at July 31, 1994):
Debentures $ 2,173,895 2,221,895
Mortgage notes 1,200,000 1,200,000
Other notes, secured 2,739,709 3,416,384
Other notes, unsecured 584,658 507,253
----------- -----------
Total indebtedness 6,698,262 7,345,532
----------- -----------
Accounts payable, trade 376,947 371,619
Accrued expenses 498,488 751,715
Covenant not-to-compete payable - 30,000
Other payables:
Loans under participation agreement:
Related parties 1,185,000 1,200,000
Other 513,500 250,000
Other 711,176 682,033
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2,409,676 2,132,033
Stockholders' equity:
Common stock without par value
Authorized 2,531,765 shares; issued
1,723,765 shares at stated value of
$1 per share. (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 2,029,099 2,731,803
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4,222,185 4,924,889
Deduct cost of 691,082 common shares
in treasury (4,057,487) (4,057,487)
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Net stockholders' equity 164,698 867,402
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$10,148,071 11,498,301
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See accompanying notes to consolidated financial statements.
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CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended April 30, 1995 and 1994
and
Nine months ended April 30, 1995 and 1994
(Unaudited)
Three Months Nine Months
April 30, April 30,
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1995 1994 1995 1994
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Revenues:
Net product sales $1,144,035 1,353,320 $3,756,610 4,197,840
Commissions and fees 179,522 230,807 485,271 563,258
Income from investments 553,624 372,070 1,391,472 1,227,821
Miscellaneous 2,604 3,004 23,554 55,795
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1,879,785 1,959,201 5,656,907 6,044,714
---------- --------- ---------- ---------
Cost and expenses:
Cost of product sales 737,245 881,309 2,403,911 2,640,489
Other direct operating expenses
and general and administrative
expenses 1,004,086 867,567 3,201,018 3,230,776
Interest 156,411 414,386 754,682 851,342
---------- --------- ---------- ---------
1,897,742 2,163,262 6,359,611 6,722,607
---------- --------- ---------- ---------
Net loss $ (17,957) (204,061) $ (702,704) (677,893)
========== ========= ========== =========
Net loss per common share $ (.02) (.20) $ (.68) (.66)
========== ========= ========== =========
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 consolidated financial statements.
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CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
Nine months ended April 30, 1995 and 1994
(Unaudited)
April 30,
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1995 1994
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Retained earnings at July 31 $2,731,803 4,155,256
Net loss (702,704) (677,893)
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Retained earnings at April 30 $2,029,099 3,477,363
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See accompanying notes to consolidated financial statements.
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CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine months ended April 30, 1995 and 1994
(Unaudited)
1995 1994
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Net cash used in operating activities $ (402,379) (1,569,376)
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Cash flows from investing activities:
Purchase of securities and other investments (25,600) (128,816)
Proceeds from sales of securities and other
investments 196,053 22,731
Capital expenditures (41,934) (80,213)
Loans made - (2,011,564)
Collections on long-term receivables and loans - 2,047,373
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Net cash provided by (used in) investing activities 128,519 (150,489)
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Cash flows from financing activities:
Proceeds from long-term borrowings 270,890 3,071,914
Principal payments on indebtedness (918,160) (2,249,115)
Payments on covenants not-to-compete (30,000) (120,881)
Proceeds under loan participation agreements 700,000 -
Payments under loan participation agreements (451,500) -
---------- ----------
Net cash provided by (used in) financing activities (428,770) 701,918
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Decrease in cash and cash equivalents (702,630) (1,017,947)
Cash and cash equivalents at beginning of period 1,146,248 1,102,661
---------- ----------
Cash and cash equivalents at end of period $ 443,618 84,714
========== ==========
See accompanying notes to consolidated financial statements.
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CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Notes to Condensed Financial Information
(Unaudited)
(1) Basis of Information Furnished
The information furnished reflects all adjustments which are necessary
in the opinion of management for a fair presentation of the financial
position, results of operations and changes in cash flows as of April
30, 1995 and 1994 and for all periods presented.
(2) Net Loss Per Common Share
Net loss per common share was computed by dividing the net loss by the
weighted average number of shares of common stock outstanding.
(3) Notes Receivable Sold with Recourse and Mortgage
Notes Payable Assumed by Others
Under the provision of various agreements relating to their
participation in mortgage notes receivables sold with recourse, the
Company and its subsidiaries are committed to repurchase notes that
become delinquent, as specified in the agreements, if requested to do
so by the holder of the notes. At April 30, 1995, the outstanding
balances of notes receivable sold that are subject to the
aforementioned recourse provisions aggregated approximately $279,000.
The Company and its subsidiaries may be subject to similar recourse
provisions with respect to additional outstanding balances of notes
aggregating approximately $145,000 at April 30, 1995, although
management does not believe this was the intent of the parties to the
agreements related to the sale of its participation in notes
receivable. The mortgage notes referred to above relate to
condominium unit sales in 1972 and 1973.
Management believes that if the Company is required to repurchase
delinquent notes, no losses will be incurred as the proceeds from the
sale of real estate securing the notes would be adequate to satisfy the
related debt obligations.
(4) Other Real Estate Investments
On April 29, 1993, the Company extended a $5,205,025 acquisition,
development and construction (ADC) loan commitment to TBW, Inc. to
finance a residential real estate project in Clark County, Nevada.
This financing arrangement is being accounted for as an in-substance
investment in real estate whereby the interest and fees to which the
Company is entitled, are recognized ratably as profits are earned on
the sale of units in the underlying real estate project. At July
31, 1994, the Company's aggregate investment in the real estate
project amounted to $529,470. As of April 30, 1995, all amounts under
the loan had been repaid.
On November 12, 1993, the Company extended a $6,101,056 acquisition,
development and construction loan commitment to MVL, Inc. to finance a
residential real estate project in Clark County, Nevada. This
financing
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arrangement is also being accounted for as an in-substance investment
in real estate. At April 30, 1995 and July 31, 1994, the Company's
aggregate investment in the real estate project amounted to
$1,934,345 and $1,072,839, respectively. Restrictive loan covenants
limit the maximum amount of the loan proceeds available during various
phases of the project.
On March 9, 1994, the Company extended a $2,900,000 acquisition,
development and construction loan commitment to QCL, Inc. to finance a
residential real estate project in Clark County, Nevada. This
financing arrangement is also being accounted for as an
in-substance investment in real estate. At April 30, 1995 and July
31, 1994, the Company's aggregate investment in the real estate
project amounted to $1,118,399 and $1,909,647, respectively.
Restrictive loan covenants limit the maximum amount of the loan
proceeds available to $1,900,000.
On July 8, 1994, the Company extended a $15,288,287 acquisition,
development and construction loan commitment to LSR, Inc. to finance a
residential real estate project in Clark County, Nevada. In February
1995, the loan commitment to LSR, Inc. was reduced to $8,187,879. At
April 30, 1995 and July 31, 1994, the Company's aggregate investment
in the real estate project amounted to $1,632,743 and $1,819,500,
respectively. Restrictive loan covenants limit the maximum amount of
loan proceeds available to $2,400,000, which was reduced to
$1,800,000. The Company has entered into loan participation
agreements which provide that the Company sell, without recourse, to
participants an undivided participating interest in the loan to LSR,
Inc. At April 30, 1995 and July 31, 1994, participants share of the
loan commitment amounted to $1,698,500 and $1,450,000, respectively.
Certain participants are related parties which, in the aggregate, have
a 72 and 66 percent interest in the loan commitment at April 30, 1995
and July 31, 1994.
(5) Commitment
In fiscal year 1992, the Company entered into an agreement to acquire
land and a warehouse for $1,350,000. The acquisition was to be
consummated as a nonmonetary exchange for tax purposes whereby the
Company was to divest its interest in certain Makaha Valley Towers
condominium apartments to qualify the exchange under Section 1031 of
the Internal Revenue Code. As the transaction was not completed by the
date required to qualify as a nonmonetary exchange and as the Company
is contractually liable to purchase the property, management intends to
assume the existing mortgage loan of $685,000 and apply an existing
deposit of $658,537 towards the purchase of the property. The deposit
is presented as "other asset" in the accompanying consolidated balance
sheets.
(6) Income Taxes
Effective August 1, 1993, the Company adopted Statement of Accounting
Standards No. 109. There was no cumulative effect of the change in
accounting method. Statement 109 requires a change from the deferred
method of accounting for income taxes of APB Opinion 11 to the asset
and liability method of accounting for income taxes. Under the asset
and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. Under Statement
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109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the period that includes the enactment date.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
April 30, 1995 are presented below.
Deferred tax assets:
Deferred compensation agreement $ 102,700
Marketable equity securities, permanent decline
in market value 150,800
Deferred income on other real estate investments 185,000
Net operating loss carry forward 680,100
Other 69,200
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Total gross deferred tax assets 1,187,800
Less - valuation allowance (1,113,700)
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Net deferred tax assets $ 74,100
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Deferred tax liabilities:
Capitalized interest on other real estate investments $ 72,800
Other 1,300
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Total gross deferred tax liabilities $ 74,100
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As of April 30, 1995, the Company had a tax net operating loss
carryforward of $1,700,000 to offset future taxable income through
2010.
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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, product sales, including bakery goods and investing in
securities, which activities are subject to various factors which
cause fluctuations between periods. Accordingly, the results of
operations for the three and nine months ended April 30, 1995 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, 1994.
Net Product Sales
The decrease in net product sales of $209,285 and $441,230,
respectively, for the three and nine months ended April 30, 1995
as compared to the same period in 1994 is due to the decrease in
sales of Latipac Fine Foods, Incorporated, which operates under
the name Bakery Europa. This decrease is attributed primarily to
a slump in the economy in Hawaii in 1995 which affected the
airline and hotel industries which Bakery Europa supplies.
Cost of Product Sales
The decrease in cost of product sales of $144,064 and $236,578,
respectively, for the three and nine months ended April 30, 1995
as compared to the same period in 1994 is due to the decrease in
product sales for Bakery Europa.
As a percentage of gross revenues, the cost of bakery sales
decreased to 64% for the three months ended April 30, 1995 as
compared to 65% for the same period in 1994. For the nine months
ended April 30, 1995 the cost of bakery sales as a percentage of
gross revenues increased to 64% as compared to 63% for the same
period in 1994.
Interest Expense
The decrease in interest expense of $257,975 and $96,660 for the
three and nine months ended April 30, 1995, respectively, as
compared to the same periods in 1994 is due to a decrease in
borrowings related to the financing of real estate investments.
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LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1995, the Company held cash and cash equivalents of
$443,618 and marketable securities with a market value of $38,318.
The decrease in cash of $702,630 for the nine months ended April
30, 1995 is primarily due to cash used in operating activities and
financing activities.
Included in cash used in operating activities for the nine months
ended April 30, 1995 was approximately $5,620,487 of advances for
the construction of residential developments in Las Vegas, Nevada.
Payments received on the advances for the same period amounted to
$6,286,083. The Company's net loss of $702,704 for the nine
months ended April 30, 1995 is also included in cash used in
operating activities.
Cash flows from financing activities for the nine months ended
April 30, 1995 includes principal payments on indebtedness which
amounted to $918,160 and the final payment on covenants
not-to-compete of $30,000. Proceeds from loans under
participation agreements amounted to $700,000 for the nine months
ended April 30, 1995. Payments under loan participation
agreements for the nine months ended April 30, 1995 amounted to
$451,500.
The Company, during the nine months ended April 30, 1995, was able
to meet operating cash requirements with cash on hand at July 31,
1994. Cash requirements for the fourth quarter of fiscal 1995
will be satisfied from institutional borrowings, net collections
of net receivables and net collections of ADC loans.
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PART II - OTHER INFORMATION
Items 1,2,3,5. None
Item 4. The following actions were taken at the annual stockholders
meeting held on January 31, 1995:
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 was re-elected independent auditors
for the year ending July 31, 1995 by a vote of 559,858
shares in the affirmative and none in the negative.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 99.I - computation of net loss per common
share for three and nine months ended April 30,
1995 and 1994.
b. No reports on Form 8-K were required to be
filed during the quarter ended April 30, 1995.
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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: June 5, 1995 /s/ STUART T.K. HO
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Stuart T.K. Ho, Chairman of the
Board and President
Dated: June 5, 1995 /s/ DONALD M. WONG
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Donald M. Wong, Senior Vice
President and Treasurer