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 October 31, 1995
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)
Suite 1700, PRI Tower, 733 Bishop Street
Honolulu, Hawaii 96813
- ------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (808) 537-3981
--------------
No Change
--------------------------------------------------------------------------
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
----- -----.
There were 1,032,683 shares outstanding of common stock, no par value,
as of October 31, 1995.
2
PART I - FINANCIAL INFORMATION
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
October 31, 1995 and July 31, 1995
ASSETS
October 31, July 31,
1995 1995
(Unaudited)
----------- ---------------
Cash and cash equivalents $ 853,911 1,287,636
Marketable equity securities 97,275 111,046
Receivables:
Trade accounts and notes, less allowance
for doubtful receivables of $31,860 1,163,086 1,065,991
Long-term receivables (including current
installments of $773,236 at October 31,
1995 and $360,472 at July 31, 1995) 1,652,543 1,656,314
--------------- ---------------
Total receivables 2,815,629 2,722,305
--------------- ---------------
Inventories 79,226 53,113
Developed real estate, less accumulated depre-
ciation of $192,725 at October 31, 1995
and $186,345 at July 31, 1995 1,459,451 1,465,832
Undeveloped land held for sale 134,474 134,474
Other investments:
Real estate 3,123,300 3,691,860
Securities 775,986 808,912
--------------- ---------------
3,899,286 4,500,772
--------------- ---------------
Property and equipment, at cost, less accumulated
depreciation of $1,885,087 at October 31,
1995 and $1,780,476 at July 31, 1995 244,508 300,907
Deferred charges and other assets 246,599 41,668
--------------- ---------------
$ 9,830,359 10,617,753
=============== ===============
See accompanying notes to consolidated financial statements.
3
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
October 31, 1995 and July 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
October 31, July 31,
1995 1995
(Unaudited)
----------- ---------------
Indebtedness (current installments of $4,538,618
at October 31,1995 and $5,025,642 at
July 31, 1995):
Debentures $ 2,108,245 2,108,245
Mortgage notes 1,872,005 1,874,247
Other notes, secured 2,301,022 2,670,016
Other notes, unsecured 407,075 499,605
-------------- ---------------
Total indebtedness 6,688,347 7,152,113
-------------- ---------------
Accounts payable, trade 727,453 429,433
Accrued expenses 536,867 607,891
Other payables:
Loans under participation agreement:
Related parties 942,804 1,090,200
Other 408,548 472,420
Other 725,838 740,839
-------------- ---------------
2,077,190 2,303,459
-------------- ---------------
Stockholders' equity (deficiency):
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 1,603,035 1,923,877
-------------- ---------------
3,796,121 4,116,963
Deduct cost of 691,082 common shares in
treasury (4,057,487) (4,057,487)
Unrealized gain on marketable equity securities 61,868 65,381
-------------- ---------------
Net stockholders' equity
(deficiency) (199,498) 124,857
--------------- ---------------
$ 9,830,359 10,617,753
============== ===============
See accompanying notes to consolidated financial statements.
4
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three months ended October 31, 1995 and 1994
(Unaudited)
1995 1994
---- ----
Revenues:
Net product sales $ 1,343,378 1,278,719
Commission and fees 133,295 107,661
Income from investments 420,666 444,635
Other 38,807 3,753
-------------- -------------
1,936,146 1,834,768
-------------- -------------
Cost and expenses:
Cost of product sales 831,779 817,055
Other direct operating expenses and general
and administrative expenses 1,194,007 1,171,776
Interest 231,202 321,742
-------------- -------------
2,256,988 2,310,573
-------------- -------------
Net loss $ (320,842) $ (475,805)
============== =============
Net loss per common share $ (.31) (.46)
============== =======
Dividends per common share NONE NONE
-------------- -------------
Weighted average number of common shares
outstanding during the period $ 1,032,683 1,032,683
============== =============
See accompanying notes to consolidated financial statements.
5
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
Three months ended October 31, 1995 and 1994
(Unaudited)
1995 1994
---- ----
Retained earnings at July 31 $ 1,923,877 2,731,803
Net loss (320,842) (475,805)
-------------- -------------
Retained earnings at October 31 $ 1,603,035 2,255,998
============== =============
See accompanying notes to consolidated financial statements.
6
CAPITAL INVESTMENT OF HAWAII, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three months ended October 31, 1995 and 1994
(Unaudited)
1995 1994
---- ----
Net cash provided by (used in) operating activities $ 166,310 (846,528)
-------------- -------------
Cash flows from investing activities:
Purchase of securities and other investments - (29,600)
Proceeds from sales of securities 92,395 -
Capital expenditures (17,396) (6,271)
-------------- -------------
Net cash provided by (used in) investing activities 74,999 (35,871)
-------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt 40,665 31,799
Principal payments on indebtedness (504,431) (712,952)
Payments on covenants not-to-compete - (30,000)
Proceeds received under loan participa-
tion agreements - 700,000
Payments made under loan participation
agreements (211,268) -
-------------- -------------
Net cash used in financing activities (675,034) (11,153)
-------------- -------------
Decrease in cash (433,725) (893,552)
Cash and cash equivalents at beginning of period 1,287,636 1,146,248
-------------- -------------
Cash and cash equivalents at end of period $ 853,911 252,696
============== =============
See accompanying notes to consolidated financial statements.
7
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
for the three month periods ended October 31, 1995 and 1994.
The results of operations for the three months ended October 31,
1995 are not necessarily indicative of the results to be expected
for the full year.
(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) Marketable Equity Securities
The Company's investments in marketable equity securities are
classified as available-for-sale and are recorded at fair value. Net
unrealized holding gains have been reported as a separate component of
stockholders' equity.
At October 31, 1995 and July 31, 1995, the aggregate cost and
aggregate fair value of marketable equity securities were as follows:
October 31, July 31,
1995 1995
---- ----
Aggregate cost $ 35,407 45,665
========== ==========
Aggregate fair value $ 97,275 111,046
========== ==========
(4) 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 October 31, 1995, the outstanding
balances of notes receivable sold that are subject to the
aforementioned recourse provisions aggregated approximately $274,000.
The Company and its subsidiaries may be subject to similar recourse
provisions with respect to additional outstanding balances of notes
aggregating approximately $105,000 at October 31, 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.
8
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.
(5) Other Real Estate Investments
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 arrangement is also being accounted for as an in-substance
investment in real estate. At October 31, 1995 and July 31, 1995, the
Company's aggregate investment in the real estate project amounted to
$1,164,396 and $1,516,732, 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 October 31, 1995 and July 31, 1995, the
Company's aggregate investment in the real estate project amounted to
$477,129 and $662,300. 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. On March
2, 1995, the loan was modified, which reduced the loan commitment to
$8,187,879. At October 31, 1995 and July 31, 1995, the Company's
aggregate investment in the real estate project amounted to $1,481,775
and $1,512,828, respectively. Restrictive loan covenants limit the
maximum amount of loan proceeds available to $2,400,000. 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 October 31, 1995
and July 31, 1995, participants' share of the loan commitment amounted
to $1,351,352 and $1,562,620, respectively. Certain participants are
related parties which, in the aggregate, have a 70 percent and 72
percent interest in the loan commitment at October 31, 1995 and July
31, 1995, espectively.
(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 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.
9
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
October 31, 1995 are presented below.
Deferred tax assets:
Deferred compensation agreement $ 79,700
Marketable equity securities, permanent decline
in market value 83,100
Deferred income on other real estate investments 188,100
Net operating loss carry forward 890,900
Other 102,600
--------------
Total gross deferred tax assets 1,344,400
Less - valuation allowance (1,298,400)
--------------
Net deferred tax assets $ 46,000
==============
Deferred tax liabilities:
Capitalized interest on other real estate investments $ 44,700
Other 1,300
--------------
Total gross deferred tax liabilities $ 46,000
==============
As of October 31, 1995, the Company had tax net operating loss
carryforwards of $2,100,000 and $3,200,000 for federal and state
income tax purposes, respectively, to offset future taxable income
through 2011.
10
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 months ended October 31, 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 months ended October 31, 1994.
Net Product Sales
The increase in net product sales of $64,659 for the three months
ended October 31, 1995 as compared to the same period in 1994 is due
to the increase in sales of Latipac Fine Foods, Incorporated, which
operates under the name Bakery Europa. This increase is attributed
primarily to the increase in tourism in the State of Hawaii for 1995
which affects the airline and hotel industries which Bakery Europa
supplies.
Cost of Product Sales
The increase in cost of product sales of $14,724 for the three
months ended October 31, 1995 as compared to the same period in 1994
is due to the increase in product sales for Bakery Europa.
As a percentage of net sales, the cost of bakery sales decreased to
62% for the three months ended October 31, 1995 as compared to 64%
for the same period in 1994.
Interest Expense
The decrease in interest expense of $90,540 for the three months
ended October 31, 1995 as compared to the same period in 1994 is due
to a decrease in borrowings related to the financing of real estate
investments.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1995, the Company held cash and cash equivalents of
$853,911. The decrease in cash of $433,725 for the three months
ended October 31, 1995 is primarily due to cash used in financing
activities.
Included in cash provided by operating activities for the three
months ended October 31, 1995 was approximately $1,026,000 of
advances for the construction of residential developments in Las
Vegas, Nevada. Payments received on the advances for the same
period amounted to approximately $1,552,000. The Company's net loss
of $320,842 and the increase in accounts receivable of $97,095 for
the three months ended October 31, 1995 are also included in cash
provided by operating activities.
Cash flows from financing activities for the three months ended
October 31, 1995 includes principal payments on indebtedness which
amounted to $504,431.
11
Payments on loan participation agreements in the Company's loan to
LSR, Inc. amounted to $211,268 for the three months ended October
31, 1995.
The Company, during the three months ended October 31, 1995, was
able to meet operating cash requirements with cash on hand at July
31, 1995. Cash requirements for the remaining quarters of fiscal
1996 will be satisfied from cash on hand, operations, institutional
borrowings, and net collection of ADC loans.
12
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: December 8, 1995
_____________________________________
Stuart T.K. Ho, Chairman of the Board
and President
Dated: December 8, 1995
_____________________________________
Donald M. Wong, Senior Vice President
and Treasurer
13
PART II - OTHER INFORMATION
Items 1,2,3,4,5. None
Item 6 Exhibits and Reports on Form 8-K
a. Exhibit 11 - computation of net loss per
common share for three months ended October
31, 1995 and 1994.
b. No reports on Form 8-K were required to be
filed during the quarter ended October 31, 1995.