<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    Form 10-K



[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 
    For the fiscal year ended July 31, 1997

                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 
    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
    incorporation or organization)                      Identification No.)

    733 Bishop Street, Suite 1700
          Honolulu, Hawaii                                 96813
-------------------------------------       ------------------------------------
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number, including area code (808) 537-3981 
Securities registered pursuant to Section 12(b) of the Act:

                                                  
                                                   Name of each exchange
       Title of each class                          on which registered 
              None                                          None
-------------------------------------       ------------------------------------
          Securities registered pursuant to Section 12(g) of the Act:
                           Common stock, no par value
--------------------------------------------------------------------------------
                                (Title of class)

         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. [X] Yes [ ] No

          Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]

         The Company's voting stock is not actively traded on any exchange and
accordingly the aggregate market value is not determinable.

         There were 1,032,683 shares outstanding of common stock, no par value
as of October 24, 1997.

DOCUMENTS INCORPORATED BY REFERENCE

         Articles of Association and By-Laws are incorporated by reference into
Part IV of this report.





<PAGE>   2

                                     PART I


ITEM 1.  BUSINESS

         Capital Investment of Hawaii, Inc. (Registrant) was incorporated in
Hawaii in 1944. The Registrant and its subsidiaries are engaged principally in
real estate, security and other investing, and wholesale bakery activities. As
of July 31, 1997, the Registrant and its subsidiaries had 123 employees.

         The Registrant has classified its business activities into significant
segments for the years ended July 31, 1997, 1996, and 1995. For the fiscal year
ended July 31, 1997, the Registrant's operations have been classified into real
estate activities, security and other investing activities, wholesale bakery
activities and other activities. Financial information about industry segments
is presented in note 14 of the notes to consolidated financial statements.

REAL ESTATE

         Real estate activities include the acquisition and development of
undeveloped real estate, the sale and leasing of developed real estate and the
investment in undeveloped land located principally on the island of Oahu in the
state of Hawaii. Also included in real estate activities is interest income on
notes receivable arising from property sales and income earned from financing
acquisition, development and construction loan commitments in connection with
residential real estate projects in Nevada, and Utah. Since real estate sales
and developments are not made and undertaken on a continuous basis, there exist
significant fluctuations from year to year. The results of any one year are not
necessarily comparable to other years and should not be a basis of expectation
for future years. The identification and location of the Registrant's real
estate holdings are discussed in Item 2, PROPERTIES.



                                        1

<PAGE>   3

SECURITY AND OTHER INVESTING ACTIVITIES

         Security and other investing activities include gains and losses from
the sale of marketable equity securities and other investments and dividend and
interest income related to the ownership of such investments. The timing of
sales and related gains/losses, which tend to vary with market conditions and
the Registrant's cash requirements, are subject to significant fluctuations from
year to year.

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. The Registrant acquired the assets of an existing
bakery in August 1990 and additional assets of another smaller bakery in May
1991. 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 the bakery operations.

OTHER ACTIVITIES

         Other activities include a real estate management division in Waikiki,
Hawaii that in fiscal year 1997 had revenues of $670,420 and net income of
$316,913, compared with revenues of $689,978 and net income of $346,956 in
fiscal year 1996.



                                        2

<PAGE>   4

ITEM 2.  PROPERTIES

         As of July 31, 1997, the Registrant and its subsidiaries owned
properties used in connection with its real estate activities as set forth
below. All properties are located in the City and County of Honolulu, and the
titles are held in fee.

<TABLE>
<CAPTION>
                                DESCRIPTION                                                      AREA
           --------------------------------------------------------------------                --------
<S>                                                                                            <C>
           Developed Real Estate and Undeveloped Land

     5     condominium apartments, Makaha Valley Towers in Makaha, Hawaii

     5     condominium apartments, Ilikai Apartment Building and Ilikai Marina
                Apartment Building in Honolulu, Hawaii

     1     lot, Makaha, Hawaii                                                                .19 acres

     1     commercial warehouse and land in Honolulu, Hawaii                                  .22 acres

</TABLE>

         The Company also owns parcels of unimproved real estate totaling
approximately 39 acres and interests in real estate at Makaha Valley, Hawaii
owned by the Company's 85.8 percent-owned subsidiary, Makaha Valley,
Incorporated, among which are (a) 3.825 acres of land zoned "agricultural"
fronting the fifth fairway of the Sheraton Makaha Resort golf course, carried at
nil on the balance sheet; (b) 2.823 acres of land near Makaha beach zoned
"country," but designated on the development plan of the City and County of
Honolulu, Hawaii general plan as "commercial," carried at $3,065 on the balance
sheet; and (c) a reversionary interest in 8.454 acres of land within the
Maunaolu residential subdivision at Makaha zoned "country," title to which will
revert to the subsidiary if the land ceases to be used as a reservoir, which is
carried at nil on the balance sheet.

         See note 7 of the notes to consolidated financial statements for
information with respect to real estate pledged as security for indebtedness.



                                        3

<PAGE>   5

ITEM. 3  LEGAL  PROCEEDINGS

         There is no litigation which, in the opinion of management, will have a
materially adverse affect on the Company's consolidated financial position or
results of operations.

ITEM. 4  SUBMISSION  OF  MATTERS  TO A  VOTE  OF  SECURITY  HOLDERS

         There were no matters that were submitted to a vote of security holders
during the fourth quarter of the fiscal year ended July 31, 1997.



                                        4

<PAGE>   6


                                     PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Registrant's common shares are not listed on any stock exchange,
and there is no active trading of the shares. The following is the high and low
quarterly bid information for each of the full quarterly periods within the
years ended July 31, 1997 and 1996:


<TABLE>
<CAPTION>
                                                                     LOW BID               HIGH BID
                                                                     -------               --------
<S>                                                                  <C>                    <C>  
             Quarter ended:
               October 31, 1995                                        1/2                    1/2
               January 31, 1996                                        1/2                    3/8
               April 30, 1996                                          3/8                    1/4
               July 31, 1996                                           1/4                    1/4
               October 31, 1996                                        1/4                    7/16
               January 31, 1997                                        7/16                   1/2
               April 30, 1997                                          1/2                    1/2
               July 31, 1997                                           1/2                    1/2
</TABLE>


         The aforementioned quotations were received from Abel-Behnke
Corporation which makes a market in the Company's stock.

         On July 31, 1997, there were approximately 550 stockholders of record
of common stock, excluding individuals and institutions for whom shares are held
in the names of nominees or brokerage firms.

         There were no common stock dividends declared or paid during fiscal
years 1997, 1996, and 1995.



                                        5

<PAGE>   7


ITEM 6.  SELECTED FINANCIAL DATA

                       SUMMARY OF CONSOLIDATED OPERATIONS


<TABLE>
<CAPTION>
                                                                  YEARS ENDED JULY 31,
                                    -------------------------------------------------------------------------------
                                       1997             1996              1995            1994             1993
                                    -----------      -----------      -----------      -----------      -----------
<S>                                <C>              <C>              <C>              <C>              <C>        
Revenues                            $ 1,817,795      $ 2,694,871      $ 2,605,160      $ 2,125,551      $ 2,387,961
Loss from continuing operations        (420,934)         (17,033)        (247,298)        (514,690)          62,653
Loss per common share from
  continuing operations(A)
                                           (.41)            (.02)            (.24)            (.50)             .06
                                    ===========      ===========      ===========      ===========      ===========
</TABLE>


(A)  Loss per common share from continuing operations for each year was computed
     by dividing loss from continuing operations by the weighted average number
     of shares of common stock outstanding in each year. A detailed analysis of
     the loss per share computation for each year is presented in Exhibit 11.
     There were no cash dividends paid on common stock for the five years ended
     July 31, 1997.

                                        FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                    1997            1996           1995          1994            1993
                                  ----------     ----------     ----------     ----------     ----------
<S>                               <C>             <C>           <C>            <C>            <C>       
Total assets                      $7,123,930      6,792,582     10,617,753     11,498,301     11,440,892
                                  ==========     ==========     ==========     ==========     ==========

Indebtedness:
       Mortgage notes             $1,853,583      1,864,493      1,874,247      1,200,000      1,200,000
       Other notes, secured          735,723      1,160,111      2,670,016      3,416,384      3,229,042
       Debentures                  1,976,245      2,062,245      2,108,245      2,221,895      2,378,595
       Other notes, unsecured        469,457        427,567        499,605        507,253        463,450
                                  ----------     ----------     ----------     ----------     ----------

                                  $5,035,008      5,514,416      7,152,113      7,345,532      7,271,087
                                  ==========     ==========     ==========     ==========     ==========

</TABLE>



                                        6

<PAGE>   8

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

         The Company recorded a net loss of $846,984 for the fiscal year ended
July 31, 1997, (fiscal year 1997), compared with net losses of $373,358 and
$807,926 for fiscal years 1996 and 1995, respectively.

         The net loss for fiscal year 1997 included depreciation and
amortization totaling $100,370, as compared to $211,836 and $323,700 in fiscal
years 1996 and 1995, respectively.

         The Company's subsidiary, Latipac Fine Foods, Incorporated (which does
business as Bakery Europa) accounted for $56,806, $156,899 and $270,055 of
depreciation for fiscal years ended July 31, 1997, 1996 and 1995, respectively.

         The Company's gross revenues for fiscal years 1994 through 1996 reflect
the diversification of the Company's business activities away from its
historical real estate focus. The investments during the past three years
included diversification into specialty baking on the island of Oahu, Hawaii and
residential "acquisition, development and construction" (ADC) lending in Las
Vegas, Nevada. In pursuit of that goal, the Company acquired, in August 1990,
the assets of Bakery Europa, a major supplier of bakery products and desserts to
airlines and hotels on Oahu, Hawaii.

         The rapid growth rate of Oahu's tourist economy and real estate market
in the decade of the eighties abruptly flattened in 1990 and has stagnated ever
since. The reasons for this change in condition were the poor economic climates
of Japan and California, starting in 1990 Hawaii tourism's two most important
markets, and the disruptive effects of rampant speculation in Hawaiian real
estate by Japanese investors during the Japanese "bubble" economy of the late
eighties. The 37.5 million air passenger movements to and within Hawaii in 1996
were only a slight improvement from the 35.8 million movements recorded in 1990,
even though this represented a significant improvement from the 33.8 million
movements reported for 1993. The near-term outlook for the 



                                       7

<PAGE>   9

Japanese economy is still poor.

         As a result, the Company's investment in selling bakery products to the
tourist industry and Oahu restaurants and stores has experienced poor financial
results. In addition, the poor real estate market in Hawaii has caused the
Company to look for investment opportunities elsewhere. The Company since late
1990 has increasingly invested in Las Vegas, Nevada, initially as an investor in
building single family homes and subsequently as a lender of ADC capital to
home-builders.

         In fiscal year 1998, the Company plans to continue its short-term
construction lending activities in Nevada and Utah. In October 1997, the Company
entered into an agreement to sell certain assets and liabilities of Latipac Fine
Foods, Inc.

BAKERY OPERATIONS

         The Company's fiscal year 1997's net loss was primarily due to Bakery
Europa's poor performance, which consumed cash which otherwise could have been
employed in other ways. Bakery Europa's operating loss for fiscal years 1997,
1996 and 1995 is summarized as follows:

<TABLE>
<CAPTION>
                                           1997         1996         1995
                                         --------     --------     --------
<S>                                      <C>           <C>          <C>    
    Loss before certain interest and
         depreciation and amortization   $341,407      157,426      233,573
    Interest on loan to acquire this
         subsidiary's assets               27,837       42,000       57,000
    Depreciation and amortization          56,806      156,899      270,055
                                         --------     --------     --------

                      Loss, net          $426,050      356,325      560,628
                                         ========     ========     ========
</TABLE>

         Bakery Europa's net product sales for fiscal year 1997 were $4,737,228,
compared with net sales of $5,521,390 and $4,965,794 for fiscal years 1996 and
1995, respectively. During fiscal year 1997, 14% of sales were to airlines and
airline catering companies; 19% of sales were to hotels and 11% of sales were to
the military. The gross profit margin for fiscal year 1997 was 40.1%, compared
with 36.4% and 36.0% for fiscal years 1996 and 1995, respectively. The
acquisition loan balance at the end of fiscal year 1997 was $211,526, and in the
ordinary course of business would be paid down to



                                        8
<PAGE>   10

$0 at the end of fiscal year 1998. In October 1997, the Company entered into an
agreement to sell certain assets and liabilities of Bakery Europa.

NEVADA AND UTAH FINANCING ACTIVITIES

         Since fiscal year 1991, the Company has engaged in making ADC loans to
home builders in southern Nevada and Utah. An ADC loan is an arrangement whereby
the Company, who shares in the same risks and potential rewards as those of the
borrower, advances funds so that the borrower is able to acquire and develop raw
land, provide infrastructure and construct homes. In recent years, banks and
other federally-insured lending institutions have tightened credit standards.
The more stringent credit environment has caused many home builders to seek
alternate sources of financing.

         The Company has made sixteen such loans since 1991, of which ten have
been repaid. The Company has never experienced a default on a loan it has made.
The decline in income from ADC loans in fiscal year 1997 is due to delays in
starting up projects by the borrowing home builders.

         The Company's ADC lending activities in recent years have been as
follows:

<TABLE>
<CAPTION>
                                                       ADVANCES AT  
                               INCOME FROM             END OF FISCAL
          FISCAL YEAR          INVESTMENTS                  YEAR
          -----------          -----------             -------------
<S>                            <C>                       <C>
             1997               $  449,842                2,711,737
             1996                1,143,229                1,902,009
             1995                1,360,568                3,574,360
</TABLE>


         Deferred income on these loans totalled $372,827 at June 30, 1997,
compared to $28,886 and $495,000, at June 30, 1996 and 1995, respectively.

         ADC loans bear higher than average risk. The Company adheres to a
policy of concentrating its loans with experienced builders building
single-family dwelling projects built for the "entry-level" of the Las Vegas
housing market. The Company's practice is to limit the outstanding loan balance
to an amount only sufficient to acquire land and to construct homes on only a
portion of the total lots in the project. The effect of this practice is to
require the builder to sell completed homes in order to finance the building of
the remaining lots. The loans are secured but they are often



                                        9
<PAGE>   11

subordinated to conventional loans to finance the construction of homes.

         The Las Vegas home building market continues to be very active, driven
by an expanding economy and high job growth. The Salt Lake City home building
market, which is the most recent focus of the Company's ADC lending activities,
is also very active, led by an expansion of its technology-based industries. In
addition, the physical constraints of the Salt Lake City area means growing
population of over a million people must live in an area smaller than the island
of Oahu, Hawaii, which houses approximately 800,000 people.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's cash and cash equivalents balance at July 31, 1997 was
$797,514 compared with $757,399 at the end of fiscal year 1996. 

         Cash used in operating activities amounted to $2,031,933 in 1997 and
resulted primarily from the net increase in investments in real estate of
$1,042,028 related to the Company's Nevada and Utah ADC arrangements. The
Company also plans the liquidation of certain assets.

         Cash inflows in 1997 provided by investing activities amounted to
$1,315,906 which could be attributed to collections on long-term receivables and
proceeds from the sale of other investments. Cash provided by financing
activities of $756,142 included proceeds of loan participation agreements of
$1,500,000 which were offset by payments made under loan participation
agreements of $264,450; (see note 6 to the consolidated financial statements)
and payments on indebtedness of $528,252.

                  During fiscal year 1997, the Company was able to meet its
operating cash requirements with cash flows generated from investing and
financing activities. Cash inflows and outflows from investments in Copper
Bluffs, LLC, Sunset Bay, LLC, Red Rock Canyon, LLC, Touchstone Development of
Utah, LLC, and Pageantry Communities, Inc. will continue into fiscal year 1998.
Cash requirements for fiscal year 1998 will be satisfied from institutional
borrowings, refinancing of notes payable, net collections of notes receivable,
cash in banks at year end and net collections of ADC loans.



                                       10

<PAGE>   12


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY  DATA

See Index to Consolidated Financial Statements and Schedules.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
FINANCIAL DISCLOSURE

                  There were no changes in accountants nor disagreements on
accounting or financial disclosure matters for the years ended July 31, 1997 and
1996.



                                       11

<PAGE>   13

                                    PART III



ITEM 10.  DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT

 The following table lists all directors of the Registrant as of July 31, 1997:

<TABLE>
<CAPTION>
                                                             NUMBER OF
                                                              YEARS
                                      OFFICE HELD WITH       SERVED AS                                           OTHER PUBLIC 
      NAME                 AGE          REGISTRANT           DIRECTOR              BUSINESS EXPERIENCE           DIRECTORSHIPS
----------------------  ---------   ------------------     ---------------     ---------------------------     -----------------
<S>                        <C>      <C>                         <C>                 <C>                        <C>     
Stuart T. K. Ho            61       Chairman of the             30                  Positions held with        Bancorp Hawaii,  
                                      Board and                                        Registrant                 Inc.; Gannett 
                                      President                                                                   Co., Inc.;
                                                                                                                  College 
                                                                                                                  Retirement


Dean T. W. Ho(1)           59       Vice Chairman               16                  Positions held with              --
                                      and Secretary                                     Registrant

Donald M. Wong             79       Senior Vice                 23                  Positions held with              --
                                     President,                                          Registrant
                                     Chief Financial
                                     Officer and 
                                     Treasurer

Pedro P. Ada               67       None                        26                  President of Ada's               --
                                                                                      Incorporated;                  
                                                                                      real estate,
                                                                                      insurance agency
                                                                                      and investments

Stanley W. Hong(2)         61       None                        12                  President and Chief        Central Pacific  
                                                                                      Executive Officer          Bank; First
                                                                                      of Chamber of              Insurance Co. of
                                                                                      Commerce of                Hawaii
                                                                                      Hawaii

C. B. Sung                 72       None                        12                  Chairman of Unison           --
                                                                                      International;              
                                                                                      President and               
                                                                                      Chief Executive 
                                                                                      Officer of Unison
                                                                                      Pacific
                                                                                      Corporation

</TABLE>


(1)     Mr. Dean T. W. Ho is the brother of Mr. Stuart T. K. Ho.

(2)     Mr. Stanley W. Hong is the brother-in-law of Mr. Stuart T. K. Ho.


                                       12

<PAGE>   14

        The present terms of office of all directors will expire at the next
annual meeting of the stockholders of the Registrant or upon election of their
respective successors. No events have occurred during the past five years that
are material to an evaluation of the ability or integrity of any director.

<TABLE>
<CAPTION>

    The following table lists all executive officers of the Registrant as of July 31, 1997:

   NAME                       AGE                   OFFICE                             POSITION HELD
--------------------     --------------     -----------------------   -----------------------------------------------

<S>                            <C>          <C>                         <C>             
Stuart T. K. Ho                61           Chairman of the Board       Chairman of the Board since 1982,  President
                                              and President               from 1975 to 1982 and since 1988,  Vice  
                                                                          President and Secretary from 1966 to 1975


Dean T. W. Ho(1)               59           Vice Chairman and           Secretary since 1991, Vice Chairman since  
                                              Secretary                   1988,  President from 1982 to 1987,  Executive
                                                                          Vice President from 1975 to 1982 and Vice
                                                                          President from 1965 to 1975

Donald M. Wong                 79           Senior Vice President       Senior Vice President since 1990, Financial 
                                              and Treasurer               Vice President from 1965 to 1990 and 
                                                                          Treasurer since 1965

Harriet H. Matsuo              72           Assistant Secretary and     Secretary from 1975 to 1991 and Assistant  
                                              Assistant Treasurer         Secretary and Assistant Treasurer from 1965
                                                                          to 1975 and since 1991

Greta U. Nakao                 75           Assistant Secretary and     Assistant Treasurer since 1975 and Assistant 
                                              Assistant Treasurer         Secretary since 1981


Walter Lum                     56           Assistant Treasurer         Appointed in March 1995

</TABLE>


(1)     Mr. Dean T. W. Ho is the brother of Mr. Stuart T. K. Ho.

        The term of office of the above executive officers is for a period of
one year. No events have occurred during the past five years that are material
to an evaluation of the ability or integrity of any executive officer.



                                       13

<PAGE>   15


ITEM 11.  EXECUTIVE COMPENSATION

        The following table shows the compensation for each of the years ended
July 31, 1997, 1996 and 1995 for (a) the Chairman of the Board and President,
and (b) all executive officers of the Registrant whose annual compensation
exceeds $100,000.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                           ANNUAL COMPENSATION                  LONG-TERM COMPENSATION
                                        ---------------------------------     -------------------------------------
                                                                                                        PAYOUTS
        (a)                (b)          (c)          (d)          (e)           (f)           (g)          (h)         (i)
                                                                 OTHER                      SECURITY                   ALL
                                                                 ANNUAL       RESTRICTED    UNDER-                    OTHER
                                                                 COMPEN-       STOCK        LYING        LTIP         COMPEN-
     NAME AND                         SALARY        BONUS        SATION       AWARD(S)      OPTIONS/     PAYOUTS      SATION
PRINCIPAL POSITION         YEAR         ($)          ($)          ($)           ($)         SARS(#)       ($)          ($)
----------------------   --------   -----------   ---------    ----------     --------     ---------    --------     ---------

<S>                       <C>         <C>          <C>           <C>          <C>          <C>          <C>           <C>
Stuart T.K. Ho, 
     Chairman of         1997         127,424        --           --          --             --           --            --
     the Board and       1996         132,000        --           --          --             --           --            --
     President           1995         147,839        --           --          --             --           --            --
                        
                     
</TABLE>


                                       14

<PAGE>   16


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

        The following sets forth, as of July 31, 1997, shareholders of record
who beneficially own more than 5% of the voting stock of the Registrant:

<TABLE>
<CAPTION>
                                                                    AMOUNT AND
                                                                    NATURE OF
                                                                    BENEFICIAL     PERCENT
           NAME AND ADDRESS OF BENEFICIAL OWNER:                    OWNERSHIP      OF CLASS
-----------------------------------------------------------------   ----------     --------
<S>                                                                 <C>             <C>  

Cede & Co.                                                          142,116         13.8%
P. O. Box 20
New York, New York  10004

Stuart T. K. Ho, Dean T. Ho, and Karen Ho Hong, Trustees of the     168,650         16.3
Chinn Ho Trust
733 Bishop Street, Suite 1700
Honolulu, Hawaii  96813

Stuart T. K. Ho                                                     252,536(1)      24.4
733 Bishop Street, Suite 1700
Honolulu, Hawaii  96813

Dean T. W. Ho                                                       225,850(2)      21.9
733 Bishop Street, Suite 1700
Honolulu, Hawaii  96813

Karen Ho Hong                                                       212,425(3)      20.6
4976 Poola Street
Honolulu, Hawaii  96821

Robin Lee                                                            77,250          7.5
977 Longridge Road
Oakland, California  94610

</TABLE>


(1)    Includes:        (a)     sole voting and investment power, 22,813 shares.

                        (b)     shared voting and investment power for 168,650
                                shares owned by the Chinn Ho Trust, of which
                                Stuart Ho is one of 3 Trustees, and 29,500
                                shares owned by the Chinn Ho Foundation, of
                                which Stuart Ho is one of 4 Trustees.

                        (c)     10,850 shares owned by Mary L. Ho, spouse, who
                                has sole voting and investment power.

                        (d)     20,723 shares held in an IRA account.


(2)    Includes:        (a)     sole voting and investment power, 27,700 shares.

                        (b)     shared voting and investment power for 168,650
                                shares owned by the Chinn Ho Trust, of which
                                Dean Ho is one of 3 Trustees, and 29,500 shares
                                owned by the Chinn Ho Foundation, of which Dean
                                Ho is one of 4 Trustees.


                                       15

<PAGE>   17


(3)    Includes:        (a)     sole voting and investment power, 38,775 shares.

                        (b)     shared voting and investment power for 168,650
                                shares owned by the Chinn Ho Trust, of which
                                Karen Ho Hong is one of 3 Trustees.

                        (c)     shared voting and investment power for 5,000
                                shares owned by Karen Ho Hong and Stanley Hong
                                as trustees for David Hong.

        The following table sets forth, as of July 31, 1997, the number of
shares of the Registrant's equity securities held by each director and all
directors and officers of the Registrant as a group:

<TABLE>
<CAPTION>
                                                                                        SHARED  
                                            AMOUNT AND NATURE              SOLE VOTING  VOTING AND
                   NAME OF BENEFICIAL        OF BENEFICIAL                 AND INVES-   INVESTMENT 
 TITLE OF CLASS         OWNER                  OWNERSHIP          TOTAL    MENT POWER    POWER
----------------- --------------------   ---------------------   --------  ------------ ----------
<S>                 <C>                   <C>                      <C>         <C>       <C> 
  Common stock      Stuart T. K. Ho       252,536 shares           24.4%       2.2%      22.2%(1)
                                             owned of record
  Common stock      Dean T. W. Ho         225,850 shares           21.9        2.7       19.2 (1)
                                             owned of record
  Common stock      Donald M. Wong        39,750 shares             3.8         --        3.8
                                             owned of record
  Common stock      Pedro Ada             5,444 shares               .5         .5         --
                                             owned of record
  Common stock      Stanley Hong          5,000 shares               .5         --         .5
                                             owned of record
  Common stock      C. B. Sung            5,000 shares               .5         .5         --
                                             owned of record
  Common stock      All directors and     310,730 shares           27.5        5.8       21.7 (1)
                     officers of             owned of record
                     Registrant
                     (9 persons)
</TABLE>

(1)     Includes (a) 168,650 shares owned by the Chinn Ho Trust as to which two
        executive officers of the Registrant are Trustees. The trust agreement
        is effective until 2 years after the death of Mrs. Chinn Ho or at such
        time as the personal representative of Mrs. Ho's estate is discharged
        and appropriately released, whichever occurs later, not to exceed 21
        years after the death of the last survivor of Chinn Ho, Mrs. Ho and the
        children of Chinn Ho; and (b) 29,500 shares owned by the Chinn Ho
        Foundation qualified under Section 501(c)(3) of the Internal Revenue
        Service Code, as to which four executive officers of the Registrant are
        Trustees. 

        During fiscal year 1995, the Company borrowed $100,000 from certain
officers of the Company through unsecured short-term notes. As of July 31, 1997,
the balance of these short-term notes were $5,000 due to the officers.




                                       16

<PAGE>   18




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The Company entered into loan participation agreements during the
current year which provided that the Company sell, without recourse, to
participants an undivided participating interest in the loan to Pageantry
Communities, Inc. and Touchstone Development of Utah, LLC (see footnote 6 to the
consolidated financial statements). Included in the total participants share of
the loan commitment to Pageantry Communities, Inc., amounting to $485,550 at
July 31, 1997, was $226,590 borrowed from an officer of a subsidiary of the
Company. Included in the total participants share of the loan commitment to
Touchstone Development of Utah, LLC, amounting to $750,000 at July 31, 1997, was
$150,000 borrowed from a director of the Company and $75,000 borrowed from an
officer of the Company.


                                       17

<PAGE>   19

                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K

      (A)   Consolidated Financial Statements - See Index to Consolidated
            Financial Statements and Schedules.

      (B)   There were no reports on Form 8-K filed during the last quarter of
            the year ended July 31, 1997.

      (C)   Exhibits:

<TABLE>
<CAPTION>
              EXHIBIT                                                        FORM 10-K
              NUMBER               DESCRIPTION                                 PAGE
            ----------   --------------------------------------------------  --------
<S>             <C>                                                            <C> 
                3        Articles of Incorporation and By-Laws                 *
               11        Computation of Loss Per Common Share                  
               21        Subsidiaries of Capital Investment of Hawaii, Inc.    
</TABLE>


            Exhibits not listed above are omitted because of the absence of the
            conditions under which they are required.

      *     Incorporated by reference as Exhibits 1A and 1B to Registration
            Statement number 0-4179 filed on November 29, 1969.

      (D)   Financial Statement Schedules - See Index to Consolidated Financial
            Statements and Schedules.



                                       18

<PAGE>   20

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

            Index to Consolidated Financial Statements and Schedules



Independent Auditors' Report

Consolidated Financial Statements:

      Consolidated Balance Sheets - July 31, 1997 and 1996

      Consolidated Statements of Operations and Retained Earnings - Years ended
        July 31, 1997, 1996 and 1995

      Consolidated Statements of Cash Flows - Years ended July 31, 1997, 1996
        and 1995

      Notes to Consolidated Financial Statements

Schedules:

            II    Valuation and Qualifying Accounts and Reserves - Years ended
                  July 31, 1997, 1996 and 1995

            III   Real Estate and Accumulated Depreciation - July 31, 1997

            IV    Mortgage Loans on Real Estate - July 31, 1997


      Schedules not listed above are omitted because of the absence of the
      conditions under which they are required or because the required
      information is included elsewhere in the consolidated financial statements
      or notes thereto.



                                       19
<PAGE>   21

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
Capital Investment of Hawaii, Inc.:


We have audited the consolidated financial statements of Capital Investment of
Hawaii, Inc. and subsidiaries as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Capital
Investment of Hawaii, Inc. and subsidiaries as of July 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended July 31, 1997, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.



                                            /s/ KPMG Peat Marwick LLP



Honolulu, Hawaii
October 24, 1997




                                       20
<PAGE>   22

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                             July 31, 1997 and 1996


<TABLE>
<CAPTION>
                     ASSETS (NOTE 7)                               1997             1996
                                                              ---------------  ---------------
<S>                                                        <C>                     <C>    
Cash and cash equivalents                                  $      797,514          757,399

Marketable equity securities available-for-sale, at fair
   value (note 3)                                                      --           42,647

Receivables:
   Trade accounts and notes, less allowance for doubtful
     receivables of $27,191 and $25,001 in 1997 and 1996,
     respectively                                                 676,242          470,042
   Long-term receivables (including installments due
     within one year of $5,344 and $504,428 in 1997 and
     1996, respectively) (note 4)                                   7,470          965,908
                                                              ---------------  ---------------

         Total receivables                                        683,712        1,435,950
                                                              ---------------  ---------------

Inventories                                                        67,425           65,322

Developed real estate, less accumulated depreciation of
   $231,788 and $208,766 in 1997 and 1996, respectively
   (note 5)                                                     1,420,523        1,443,255

Undeveloped land held for sale (note 6)                           134,474          134,474

Other investments:
   Real estate (note 6)                                         2,959,237        1,917,209
   Securities, at cost (note 3)                                   817,723          700,454
                                                              ---------------  ---------------
                                                                3,776,960        2,617,663
                                                              ---------------  ---------------
Property and equipment, at cost:
   Leasehold improvements                                         221,413          218,265
   Furniture and equipment                                      1,772,820        1,959,795
                                                              ---------------  ---------------
                                                                1,994,233        2,178,060
   Less accumulated depreciation and amortization              (1,791,381)      (1,953,414)
                                                              ---------------  ---------------

         Net property and equipment                               202,852          224,646

Deferred charges and other assets                                  40,470           71,226
                                                              ---------------  ---------------

                                                           $    7,123,930        6,792,582
                                                              ===============  ===============
</TABLE>



                                       21
<PAGE>   23


                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                             July 31, 1997 and 1996



<TABLE>
<CAPTION>
          LIABILITIES AND STOCKHOLDERS' DEFICIT                    1997             1996
                                                              ---------------  ---------------
<S>                                                                <C>          <C>
Indebtedness (note 7):
   Mortgage notes                                          $    1,853,583        1,864,493
   Other notes, secured                                           735,723        1,160,111
   Debentures                                                   1,976,245        2,062,245
   Other notes, unsecured                                         469,457          427,567
                                                              ---------------  ---------------

           Total indebtedness                                   5,035,008        5,514,416
                                                              ---------------  ---------------

Accounts payable, trade                                           635,013          651,407

Accrued expenses:
   Interest                                                        53,808           55,348
   Taxes other than income                                         14,518           16,954
   Other                                                          776,858          614,626
                                                              ---------------  ---------------

           Total accrued expenses                                 845,184          686,928
                                                              ---------------  ---------------

Other payables:
   Loans under participation agreements (note 6):
     Related parties                                              451,590               --
     Other                                                        783,960               --
   Other (notes 6 and 9)                                          534,041          230,376
                                                              ---------------  ---------------

           Total other payables                                 1,769,591          230,376
                                                              ---------------  ---------------

Commitments and contingent liabilities (notes 6, 7, 9, 10
   and 11)

Stockholders' deficit:
   Common stock without par value. Authorized 2,531,765
     shares; issued 1,723,765 shares at stated value of $1      1,723,765        1,723,765
   Additional paid-in capital                                     469,321          469,321
   Retained earnings                                              703,535        1,550,519
                                                              ---------------  ---------------
                                                                2,896,621        3,743,605

   Cost of 691,082 common shares in treasury                   (4,057,487)      (4,057,487)
   Unrealized gain on marketable equity securities 
    (note 3)                                                           --           23,337
                                                              ---------------  ---------------

           Net stockholders' deficit                           (1,160,866)        (290,545)
                                                              ---------------  ---------------

                                                           $    7,123,930        6,792,582
                                                              ===============  ===============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       22
<PAGE>   24

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Operations
                              and Retained Earnings

                    Years ended July 31, 1997, 1996 and 1995


<TABLE>
<CAPTION>

                                                 1997              1996             1995
                                             --------------   ---------------  ---------------
<S>                                           <C>                <C>             <C>      
Revenues (note 7):  
   Income from investments notes 3 and 6)     $1,017,139        1,793,636        1,867,281
   Other                                         800,656          901,235          737,879
                                             --------------   ---------------  ---------------
                                               1,817,795        2,694,871        2,605,160
                                             --------------   ---------------  ---------------
Costs and expenses:
   Other direct operating expenses
     (note 10)                                   551,405          577,634          592,378
   General and administrative expenses
     (notes 9 and 10)                          1,294,041        1,302,895        1,303,705
   Interest (note 7)                             393,283          831,375          956,375
                                             --------------   ---------------  ---------------
                                               2,238,729        2,711,904        2,852,458
                                             --------------   ---------------  ---------------

         Loss from continuing operations        (420,934)         (17,033)        (247,298)

Loss from discontinued operations
     (note 17)                                  (426,050)        (356,325)        (560,628)
                                             --------------   ---------------  ---------------

         Net loss                               (846,984)        (373,358)        (807,926)

Retained earnings at beginning of year         1,550,519        1,923,877        2,731,803
                                             --------------   ---------------  ---------------

Retained earnings at end of year             $   703,535        1,550,519        1,923,877
                                             ==============   ===============  ===============

Loss per common share (note 13):
   Loss from continuing operations                  (.41)            (.02)            (.24)
   Loss from discontinued operations
     (note 17)                                      (.41)            (.34)            (.54)
                                             --------------   ---------------  ---------------

         Net loss per common share           $      (.82)            (.36)            (.78)
                                             ==============   ===============  ===============

Weighted average number of common shares
   outstanding during the year                 1,032,683        1,032,683        1,032,683
                                             ==============   ===============  ===============
</TABLE>


See accompanying notes to consolidated financial statements.



                                       23
<PAGE>   25

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                    Years ended July 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                   1997            1996            1995
                                               --------------  --------------  --------------
<S>                                              <C>             <C>             <C>      
Cash flows from operating activities:            
   Cash received from customers                $ 5,271,819       6,398,025       5,751,175
   Cash paid to suppliers/employees             (6,380,857)     (7,713,659)     (6,967,784)
   Capital expenditures - real estate                 (290)         (2,201)        (29,251)
   Collections on long-term receivables
     arising from real estate sales                     --              --           3,681
   Purchase of investments in real estate
     (note 6)                                   (2,257,774)     (3,618,324)     (6,372,767)
   Collections from investments in real
     estate (note 6)                             1,215,746       5,392,975       8,012,363
   Dividends received                                8,451          13,483          10,536
   Interest received                               550,618       1,909,127       1,220,452
   Interest paid                                  (439,646)       (896,489)     (1,042,663)
                                               --------------  --------------  --------------

               Net cash (used in) provided
                 by operating activities        (2,031,933)      1,482,937         585,742
                                               --------------  --------------  --------------

Cash flows from investing activities:
   Purchases of other investments                 (188,549)             --         (63,618)
   Proceeds from sale of marketable                 47,491          80,803         401,704
     securities
   Proceeds from sale of other investments         543,035         521,085         100,647
   Proceeds from sale of property and
     equipment                                       6,900              --              --
   Loans made                                           --        (500,000)             --
   Collections on long-term receivables            958,438       1,190,406           3,690
   Capital expenditures                            (51,409)       (105,151)        (75,978)
                                               --------------  --------------  --------------

               Net cash provided by
                 investing activities            1,315,906       1,187,143         366,445
                                               --------------  --------------  --------------

Cash flows from financing activities:
   Proceeds from indebtedness                       48,844         564,563         432,837
   Payments on indebtedness                       (528,252)     (2,202,260)     (1,326,256)
   Payments on covenants not-to-compete                 --              --         (30,000)
   Proceeds received under loan
     participation agreements (note 6)           1,500,000              --         700,000
   Payments made under loan participation
     agreements (note 6)                          (264,450)     (1,562,620)       (587,380)
                                               --------------  --------------  --------------

               Net cash provided by (used
                 in) financing activities          756,142      (3,200,317)       (810,799)
                                               --------------  --------------  --------------

               Net increase (decrease) in
                 cash                               40,115        (530,237)        141,388

Cash and cash equivalents at beginning of          757,399       1,287,636       1,146,248
   year
                                               --------------  --------------  --------------

Cash and cash equivalents at end of year       $   797,514         757,399       1,287,636
                                               ==============  ==============  ==============
</TABLE>

                                   (Continued)


                                       24
<PAGE>   26

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

                Consolidated Statements of Cash Flows, Continued


<TABLE>
<CAPTION>
                                                   1997            1996            1995
                                               --------------  --------------  --------------
<S>                                         <C>                   <C>             <C>      
Reconciliation of net loss to cash (used in)
  provided by operating activities:
     Net loss                               $     (846,984)       (373,358)       (807,926)
                                               --------------  --------------  --------------

     Adjustments to reconcile net loss to
       cash provided by  (used in)
       operating activities:
        Capital expenditures - real estate            (290)         (2,201)        (29,251)
        Depreciation and amortization              100,370         211,836         323,700
        Gain on sale of marketable                 
          securities                               (28,181)        (54,448)       (236,323)
        Gain on sale of other investments         (471,755)       (412,627)        (52,724)
        Gain on sale/disposal of property
          and equipment                             (6,900)           (469)             --
        Change in assets and liabilities:
          Decrease (increase) in inventories        (2,103)        (12,209)          3,523
          Decrease (increase) in trade
            accounts and notes receivable,   
            net                                   (206,200)        595,949        (303,226)
          Decrease in long-term receivables
            arising from real estate sales              --              --           3,681
          Decrease (increase) in investment
            in real estate                      (1,042,028)      1,774,651       1,639,596
          Decrease (increase) in deferred
            charges and other assets                26,611         (34,735)         71,896
          Increase (decrease) in accounts
            payable, trade                         (16,394)        221,974          57,814
          Increase (decrease) in accrued
            expenses and other payables            461,921        (431,426)        (85,018)
                                               --------------  --------------  --------------

               Total adjustments                (1,184,949)      1,856,295       1,393,668
                                               --------------  --------------  --------------

               Net cash (used in) provided
                 by operating activities    $   (2,031,933)      1,482,937         585,742
                                               ==============  ==============  ==============
</TABLE>

Supplemental schedule of noncash operating, investing and financing activities:

(1)     In fiscal year 1992, the Company entered into an agreement to acquire
        land and a warehouse for $1,350,000. The Company assumed the existing
        mortgage loan with an original balance of $700,000 and applied $650,000
        of the existing deposit towards the purchase of the property in fiscal
        year 1995.

(2)     Under SFAS No. 115, unrealized holding gains and losses on marketable
        securities that are classified as available-for-sale are reported as a
        separate component of stockholders' equity until realized. Unrealized
        holding gains amounted to nil, $23,337 and $65,381 in 1997, 1996 and
        1995, respectively.

(3)     In fiscal year 1995, $161,736 of other investment securities were
        transferred to marketable equity securities.


See accompanying notes to consolidated financial statements.



                                       25
<PAGE>   27

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                          July 31, 1997, 1996 and 1995




(1) SUMMARY OF ACCOUNTING POLICIES



      BASIS OF PRESENTATION

      The accompanying consolidated financial information has been prepared in
      conformity with generally accepted accounting principles (GAAP). In
      preparing the financial statements, management is required to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of the contingent assets and liabilities at the
      date of the balance sheet and the reported amounts of revenues and
      expenses for the period. Actual results could differ significantly from
      those estimates.


      PRINCIPLES OF CONSOLIDATION

      The financial statements include the accounts of Capital Investment of
      Hawaii, Inc. and all of its subsidiaries (collectively referred to as the
      "Company"). All material intercompany balances and transactions have been
      eliminated from the consolidated financial statements.


      REAL ESTATE ACCOUNTING

          CARRYING AMOUNTS

      Developed real estate and undeveloped land held for sale are carried at
      the lower of cost or market value.

          INCOME RECOGNITION

      Profit on sales of real estate is recognized when title has passed,
      minimum down payment criterion are met, risks and records of ownership
      have been transferred to the buyer and there is no substantial continuing
      involvement with the property, collectibility of the sales price is
      reasonably assured and other criteria set forth in Statement of Financial
      Accounting Standards (SFAS) No. 66 are met. If any of the aforementioned
      criteria are not met, profit is determined and recognized under either the
      installment, cost recovery, deposit or percentage of completion method.


      DEPRECIATION AND AMORTIZATION

      Depreciation and amortization are computed generally by use of the
      straight-line method. Depreciation and amortization rates are based upon
      the estimated useful lives of the assets or, if applicable, the remaining
      terms of leases, whichever is shorter. In general, the ranges of annual
      rates of depreciation and amortization applicable to major classifications
      of property and equipment are as follows:

<TABLE>
<CAPTION>
                    CLASS OF ASSETS                  RATE OF DEPRECIATION
                                                     -----------------------
<S>                                                  <C>
                 Leasehold improvements                   5% to 20%
                 Furniture and equipment               10% to 33-1/3%
</TABLE>



                                       26

<PAGE>   28
                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued



      Maintenance and repairs are charged to income as incurred; expenditures
      for major renewals and betterments that materially extend the economic
      lives of property and equipment are capitalized. Gains or losses arising
      from dispositions of depreciable assets are credited or charged to income.

      Debt expense is being amortized by the straight-line method over the term
      of the debt.


      CASH EQUIVALENTS

      For purposes of the consolidated statements of cash flows, the Company
      considers all highly liquid debt instruments purchased with original
      maturities of three months or less to be cash equivalents. At July 31,
      1997 and 1996, the Company held no instruments that would be considered
      cash equivalents.


      INVENTORIES

      Inventories are stated at the lower of cost or market. Cost is determined
      using the first-in, first-out method.


      SECURITY INVESTMENTS

      The Company classifies its investments in debt securities and marketable
      equity securities in one of three categories: trading, available-for-sale,
      or held-to-maturity. Trading securities are bought and held principally
      for the purpose of selling them in the near term. Held-to-maturity
      securities are those debt securities in which the Company has the ability
      and intent to hold until maturity. All other securities not included in
      trading or held-to-maturity are classified as available-for-sale.

      Trading and available-for-sale securities are recorded at fair value.
      Held-to-maturity securities are recorded at amortized cost, adjusted for
      the amortization or accretion of premiums or discounts. Unrealized holding
      gains and losses on trading securities are included in earnings.
      Unrealized holding gains and losses, net of the related tax effect, on
      available-for-sale securities are excluded from earnings and are reported
      as a separate component of stockholders' deficit until realized.

      Other investment securities for which no ready market exists are valued at
      cost.

      For all security investments, declines in value below cost that are
      determined to be other than temporary are reflected in operations and the
      written-down value of the securities is established as the new cost basis
      for those securities.

      The cost of securities sold is determined on a first-in, first-out basis.


      INVESTMENTS IN REAL ESTATE - ACQUISITION, DEVELOPMENT AND CONSTRUCTION
      LOANS

      The Company has originated acquisition, development, and construction
      (ADC) loans with the following characteristics: (1) the borrower has title
      to but little or no equity in the underlying security and (2) the Company
      participates in the profit on the ultimate sale of the project. For
      financial reporting purposes, the loans have been presented as real estate
      investments.



                                       27
<PAGE>   29
                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

      The Company recognizes the interest and fees the Company is entitled to
      under ADC loans ratably as profits are earned on the sale of individual
      units in the underlying real estate projects.


      INCOME TAXES

      Income taxes are accounted for under the asset and liability method.
      Deferred tax assets and liabilities are recognized for the future tax
      consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective
      tax bases and operating loss and tax credit carryforwards. Deferred tax
      assets and liabilities are measured using enacted tax rates expected to
      apply to taxable income in the years in which those temporary differences
      are expected to be recovered or settled. The effect on deferred tax assets
      and liabilities of a change in tax rates is recognized in income in the
      period that includes the enactment date.


      IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

      The Company adopted the provisions of SFAS No. 121, Accounting for the
      Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
      Of, on August 1, 1996. This Statement requires that long-lived assets and
      certain identifiable intangibles be reviewed for impairment whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset may not be recoverable. Recoverability of assets to be held and used
      is measured by a comparison of the carrying amount of an asset to future
      net cash flows expected to be generated by the asset. If such assets are
      considered to be impaired, the impairment to be recognized is measured by
      the amount by which the carrying amount of the assets exceed the fair
      value of the assets. Assets to be disposed of are reported at the lower of
      the carrying amount or fair value less costs to sell. Adoption of this
      Statement did not have a material impact on the Company's financial
      position, results of operations, or liquidity.

(2) ACQUISITIONS OF BAKERY OPERATIONS

      On August 10, 1990, the Company entered into an agreement to purchase
      substantially all of the assets and assume certain liabilities of Bakery
      Europa, Inc., a Hawaii corporation engaged in the business of producing
      and wholesaling bakery goods in the state of Hawaii. Further, the Company
      entered into a second agreement on May 23, 1991, to purchase certain
      assets of Old Vienna Bake Shop, Inc., a Hawaii corporation also engaged in
      the business of producing and wholesaling of bakery goods.

      In October 1997, the Company entered into an agreement to sell certain
      assets and liabilities of its bakery operations (see note 17).



                                       28

<PAGE>   30

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(3) SECURITY INVESTMENTS

      At July 31, 1997 and 1996, the aggregate cost and aggregate fair value of
      marketable equity securities were as follows:

<TABLE>
<CAPTION>
                                          1997              1996
                                          ----              ----

<S>                                   <C>                  <C>   
      Aggregate cost                  $     --             19,310
                                      ========             ======

      Aggregate fair value            $     --             42,647
                                      ========             ======
</TABLE>


      Gross unrealized gains on the portfolio of marketable equity securities at
      July 31, 1997, 1996 and 1995 and net realized gains for the years then
      ended pertaining to all security investments were as follows:

<TABLE>
<CAPTION>
                                                                                      NET
                                                                                   REALIZED
                                                        UNREALIZED                   GAINS
                                           -------------------------------------   ----------
                                             GAINS        LOSSES      NET GAINS
                                           ----------   -----------   ----------
<S>                                     <C>               <C>           <C>         <C>    
       1997:
          Marketable equity securities      $    --           --            --       28,181
                                            =======       =======       ====== 
          Other security investments                                                471,755
                                                                                   --------

                                                                                   $499,936
                                                                                   ========

       1996:
          Marketable equity securities      $26,828       (3,491)       23,337       54,448
                                            =======       ======        ======  

          Other security investments                                                412,627
                                                                                   ========

                                                                                   $467,075
                                                                                   ========

       1995:
          Marketable equity securities      $68,872       (3,491)       65,381      236,323
                                            =========     ======        ======  

          Other security investments                                                 52,724
                                                                                   --------

                                                                                   $289,047
                                                                                   ========
</TABLE>


                                       29
<PAGE>   31

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(4) LONG-TERM RECEIVABLES


      Maturities of long-term receivables at July 31, 1997 are summarized as
      follows:

<TABLE>
<S>                                                    <C>           
                  1998                                 $5,344
                  1999                                  2,126
                                                       ------

                                                       $7,470
                                                       ======
</TABLE>


      Substantially all long-term receivables are secured by real estate. The
      long-term receivables have a weighted average interest rate of 9%.


(5) DEVELOPED REAL ESTATE


      The components of developed real estate at July 31, 1997 and 1996 were as
      follows:

<TABLE>
<CAPTION>
                                                                   1997             1996
                                                                   ----             ----
<S>                                                           <C>                  <C>    
      Held for sale, at cost:                                 
         Condominium apartment units, a portion of which 
          includes undivided interest in land                  $  302,288          301,998
         Commercial property                                    1,350,000        1,350,000
         Other                                                         23               23
                                                               ----------        ---------    
                                                                1,652,311        1,652,021
         Less accumulated depreciation                            231,788          208,766
                                                               ----------        ---------

                                                               $1,420,523        1,443,255
                                                               ==========        =========    
</TABLE>



(6) REAL ESTATE INVESTMENTS



      UNDEVELOPED LAND

      Undeveloped land held for sale at July 31, 1997 and 1996 consisted of
      approximately 39 acres in Makaha Valley on the island of Oahu, state of
      Hawaii.


      OTHER REAL ESTATE INVESTMENTS

      The Company has extended various ADC loan commitments to corporate real
      estate ventures to finance residential real estate projects in Nevada and
      Utah. These financing arrangements are being accounted for as in-substance
      investments in real estate, whereby the interest and fees the Company is
      entitled to will be recognized ratably as profits are earned on the sale
      of units in the underlying real estate projects. Each loan commitment has
      restrictive loan covenants which limit the maximum amount of loan proceeds
      available for site acquisition and development and building construction.



                                       30
<PAGE>   32
                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

      At July 31, 1997 and 1996, all ADC loans were made to corporate real
      estate ventures which are owned by individuals who have personally
      guaranteed payment of the ADC loans.

      The following summarizes the Company's other investments in real estate
      and related deferred income which is presented as "other payables" in the
      accompanying consolidated balance sheets.

<TABLE>
<CAPTION>
                                                 CAPITALIZED                      DEFERRED
             PROJECT              ADVANCES        INTEREST          TOTAL          INCOME
             -------             ----------      -----------       ------         --------
<S>                             <C>                  <C>            <C>              <C>   
         As of July 31, 1997:         
         Copper Bluffs, LLC      $  480,849        58,600          539,449          93,188
         Sunset Bay, LLC            498,268        56,400          554,668         137,376
         Pageantry
           Communities, Inc.        474,630        79,500          554,130          60,842
         Red Rock Canyon,
           LLC                      452,336        33,300          485,636          69,401
         Touchstone
           Development of
           Utah, LLC                805,654        19,700          825,354          12,020
                                 ----------        ------        ---------         -------     

                                 $2,711,737       247,500        2,959,237         372,827
                                 ==========       =======        =========         ========
         As of July 31, 1996:
         Copper Bluffs, LLC      $  600,000         7,000          607,000          14,000
         Sunset Bay, LLC            608,400            --          608,400           1,014
         Pageantry
            Communities, Inc.       693,609         8,200          701,809          13,872
                                 ----------       -------        ---------         -------

                                 $1,902,009        15,200        1,917,209          28,886
                                 ==========        ======        =========         =======
</TABLE>


      The following paragraphs summarize the ADC loan arrangements and present
      summary financial information for the corporate real estate ventures.


      COPPER BLUFFS, LLC

      On June 18, 1996, the Company extended a $600,000 ADC loan commitment to
      Copper Bluffs, LLC to finance a residential real estate project in Clark
      County, Nevada. At July 31, 1997 and 1996, the Company's aggregate
      investment in the real estate project amounted to $539,449 and $607,000,
      respectively, including $58,600 and $7,000, respectively, of capitalized
      interest. The ADC loan is secured by a parcel of land in Clark County,
      Nevada.



                                       31
<PAGE>   33

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


      Financial information of Copper Bluffs, LLC is as follows:

                           CONDENSED BALANCE SHEET

                                JULY 31, 1997

<TABLE>
<CAPTION>
                               ASSETS

<S>                                                      <C>           
       Cash                                              $    45,249
       Construction work in progress                       1,902,144
       Other current assets                                  385,226
                                                         -----------

                                                         $ 2,332,619
                                                         ===========

                  LIABILITIES AND STOCKHOLDERS' EQUITY

       Accounts payable                                  $   152,691
       Construction notes payable                          1,435,774
       Due to Capital Investment of Hawaii, Inc.             480,849
       Other payables                                        197,679
                                                         -----------

                Total liabilities                          2,266,993
                                                         -----------

       Paid-in capital                                        21,821
       Retained earnings                                      43,805
                                                         -----------

                Total stockholders' equity                    65,626
                                                         -----------

                                                         $ 2,332,619
                                                         ===========
</TABLE>



                                       32
<PAGE>   34
                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                          CONDENSED STATEMENT OF INCOME

                            YEAR ENDED JULY 31, 1997

<S>                                                   <C>           
       Sales                                          $    4,064,607
       Cost of sales                                      (3,663,215)
                                                         ---------------
               Gross profit                                  401,392
       Other income                                           18,736
       Other expenses                                       (265,181)
                                                         ---------------
               Net income                             $      154,947
                                                         ===============
</TABLE>

      SUNSET BAY, LLC

      On July 29, 1996, the Company extended a $608,400 ADC loan commitment to
      Sunset Bay, LLC to finance a residential real estate project in Clark
      County, Nevada. The loan commitment was paid in full on November 1, 1996.
      Subsequently, on December 23, 1996, the Company extended a $800,000 ADC
      loan commitment to Sunset Bay, LLC to finance a residential real estate
      project in Clark County, Nevada. At July 31, 1997 and 1996, the Company's
      aggregate investment in the real estate project amounted to $554,668 and
      $608,400, respectively, including $56,400 of capitalized interest at July
      31, 1997. The ADC loan is secured by a parcel of land in Clark County,
      Nevada.

      Financial information of Sunset Bay, LLC is as follows:

<TABLE>
<CAPTION>
                         CONDENSED BALANCE SHEET

                              JULY 31, 1997
                                  ASSET

<S>                                               <C>           
       Cash                                       $      307,902
       Construction work in progress                   2,412,946
                                                     --------------
                                                  $    2,720,848
                                                     ==============

                  LIABILITIES AND STOCKHOLDERS' EQUITY

       Accounts payable                           $      261,618
       Construction notes payable                      1,766,066
       Due to Capital Investment of Hawaii, Inc.         498,268
       Other payable                                     190,046
                                                     --------------
               Total liabilities                       2,715,998
                                                     --------------
       Capital accounts                                    5,000
       Accumulated deficit                                  (150)
                                                     --------------
               Total stockholders' equity                  4,850
                                                     --------------
                                                  $    2,720,848
                                                     ==============
</TABLE>



                                       33
<PAGE>   35

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                           CONDENSED STATEMENT OF LOSS

                            YEAR ENDED JULY 31, 1997

<S>                                               <C>           
       Expenses                                   $          150
                                                     --------------
               Net loss                           $         (150)
                                                     ==============
</TABLE>


      PAGEANTRY COMMUNITIES, INC.

      On June 25, 1996, the Company extended a $900,000 ADC loan commitment to
      Pageantry Communities, Inc. to finance a residential real estate project
      known as Tradewinds Subdivision in Clark County, Nevada. At July 31, 1997
      and 1996, the Company's aggregate investment in the real estate amounted
      to $554,130 and $701,809, respectively, including $79,500 and $8,200,
      respectively, of capitalized interest. The ADC loan is secured by a parcel
      of land in Clark County, Nevada. Restrictive loan covenants limit the
      maximum amount of loan proceeds available during various phases of the
      project.

      Financial information of Tradewinds Subdivision is as follows:

<TABLE>
<CAPTION>
                         CONDENSED BALANCE SHEET

                              JULY 31, 1997

                                 ASSETS

<S>                                               <C>           
       Cash                                       $      336,000
       Construction work in progress                   3,615,456
       Due from Escrow account                            34,501
       Other receivable                                  245,000
                                                     --------------
                                                  $    4,230,957
                                                     ==============

                  LIABILITIES AND STOCKHOLDERS' EQUITY

       Accounts payable                           $      839,438
       Interest payable                                   29,344
       Notes payable                                   2,288,561
       Due to Capital Investment of Hawaii, Inc.         474,630
       Other payables                                     81,117
                                                     --------------
               Total liabilities                       3,713,090
       Stockholders' equity                              517,867
                                                     --------------
                                                  $    4,230,957
                                                     ==============
</TABLE>



                                       34
<PAGE>   36
                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                           CONDENSED STATEMENT OF INCOME

                              YEAR ENDED JULY 31, 1997
<S>                                                         <C>           
       Sales                                                $    7,676,148
       Cost of sales                                            (6,901,771)
                                                               ---------------
               Gross profit                                        774,377

       Other expenses                                             (256,510)
                                                               ---------------
               Net income                                   $      517,867
                                                               ===============
</TABLE>


      In fiscal year 1997, the Company entered into 15% loan participation
      agreements which provide that the Company sell, without recourse, to
      participants an undivided participating interest in the loan to Pageantry
      Communities, Inc. Participants' share of the loan commitment amounted to
      $485,550 at July 31, 1997, of which $226,590 was borrowed from an officer
      of a subsidiary of the Company.

      The loan participation agreements further provide that the Company, from
      time to time, may repurchase from the participants, their participating
      interests, in whole or in part, for an amount equal to the principal
      amount of the participating interests. Generally accepted accounting
      principles require that these participating agreements to be accounted for
      as financing arrangements rather than as sales due to the Company's option
      to repurchase the participating interests. Accordingly, the participants'
      loans amounting to $485,550 have been presented as "other investments in
      real estate" and "loans under participation agreements" in the
      accompanying balance sheets. Loans under these participation agreements
      will earn interest at the rate of 15% and participants share pro rata with
      the Company as to all payments, collections and recoveries. Payments on
      the loans are made from the proceeds from the sales of the residential
      units.


      RED ROCK CANYON, LLC

      On October 2, 1996, the Company extended a $500,000 ADC loan commitment to
      Red Rock Canyon, LLC to finance a residential real estate project in
      Washington County, Utah. At July 31, 1997, the Company's aggregate
      investment in the real estate project amounted to $485,636, including
      $33,300 of capitalized interest. The ADC loan is secured by a parcel of
      land in Washington County, Utah.



                                       35
<PAGE>   37
                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

          Financial information of Red Rock Canyon, LLC is as follows:

<TABLE>
<CAPTION>
                             CONDENSED BALANCE SHEET

                                  JULY 31, 1997
                                     ASSETS

<S>                                                         <C>           
       Cash                                                 $       58,036
       Accounts receivable                                           6,000
       Refundable deposits                                          62,181
       Construction work in progress                             1,312,830
                                                               ---------------

                                                            $    1,439,047
                                                               ===============

                        LIABILITIES AND STOCKHOLDERS' EQUITY

       Accounts payable                                     $       85,093
       Construction notes payable                                  692,414
       Due to Capital Investment of Hawaii, Inc.                   452,336
       Other payables                                              146,984
                                                               ---------------

               Total liabilities                                 1,376,827
                                                               ---------------

       Capital accounts                                             10,000
       Distributions                                                (5,000)
       Retained earnings                                            57,220
                                                               ---------------

               Total stockholders' equity                           62,220
                                                               ---------------

                                                            $    1,439,047
                                                               ===============
</TABLE>



                                       36
<PAGE>   38

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                          CONDENSED STATEMENT OF INCOME

                           PERIOD ENDED JULY 31, 1997
<S>                                                         <C>           
       Sales                                                $      644,376
       Cost of sales                                              (559,413)
                                                               ---------------
               Gross profit                                         84,963

       Other expenses                                              (27,743)
                                                               ---------------
               Net income                                   $       57,220
                                                               ===============
</TABLE>


      TOUCHSTONE DEVELOPMENT OF UTAH, LLC

      On February 4, 1997, the Company extended a $2,337,437 ADC loan commitment
      to Touchstone Development of Utah, LLC to finance a residential real
      estate project known as Overlake Estates in Tooele County, Utah. At July
      31, 1997, the Company's aggregate investment in the real estate project
      amounted to $825,354, including $19,700 of capitalized interest. The ADC
      loan is secured by a parcel of land in Tooele County, Utah. Restrictive
      loan covenants limit the maximum amount of loan proceeds available during
      various phases of the project.

      Financial information of Touchstone Development of Utah, LLC is as
      follows:

<TABLE>
<CAPTION>
                             CONDENSED BALANCE SHEET

                                  JULY 31, 1997
                                     ASSETS
<S>                                                         <C>           
       Cash                                                 $       94,132
       Refundable deposits                                          20,650
       Construction work in progress                             1,183,799
                                                               ---------------
                                                            $    1,298,581
                                                               ===============

                     LIABILITIES AND STOCKHOLDERS' EQUITY

       Accounts payable                                     $      166,410
       Due to Capital Investment of Hawaii, Inc.                   805,654
       Construction notes payable                                  172,566
       Other payables                                              148,951
                                                               ---------------
               Total liabilities                                 1,293,581
       Stockholders' equity                                          5,000
                                                               ---------------
                                                            $    1,298,581
                                                               ===============
</TABLE>



                                       37
<PAGE>   39

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

      The Company entered into 15% loan participation agreements which provide
      that the Company sell, without recourse, to participants an undivided
      participating interest in the loan to Touchstone Development of Utah, LLC.
      Participants' share of the loan commitment amounted to $750,000 at July
      31, 1997. Certain participants are related parties which, in the
      aggregate, totaled $225,000 at July 31, 1997.


(7) INDEBTEDNESS


      Indebtedness at July 31, 1997 and 1996 is summarized as follows:

<TABLE>
<CAPTION>

                                                                                   1997          1996
                                                                                -----------   -----------
<S>                                                                              <C>          <C>    
      Mortgage notes:                                            
         9-1/2%, payable to individuals in monthly installments 
           of interest only, due on demand                                       $  200,000      200,000
         9-1/2%, payable to a corporation in monthly
           installments of interest only, due February 28, 1998                    1,000,000    1,000,000
         9-1/2%, payable to a financial institution in
           monthly installments of $6,125 including
           interest, due July 1, 2001                                               653,583      664,493
                                                                                 ----------   ----------
                                                                                  1,853,583    1,864,493
                                                                                 ----------   ----------
      Other notes, secured:
         Interest at index rate plus 1.5%, payable to a
           financial institution, paid in full in fiscal year 1997                     --            714
         Interest at prime (8.5% at July 31, 1997) plus 2.0%, payable to a
           financial institution in monthly installments of principal of
           $11,138, plus interest, due February 1, 1998, but payable on demand
           if subsidiary is in violation of
           certain financial covenants in loan agreement                            211,526      345,223
         10%, payable to a financial institution in monthly
           installments of $14,539 including interest, due
           June 1, 2002                                                             137,390      394,454
         Interest at prime (8.5% at July 31, 1997) plus
           2.5%, payable to a financial institution in
           monthly installments of interest only, due February 1, 1998              100,000      100,000
         10%, payable to a financial institution in monthly
           installments of $2,272 including interest, due
           June 1, 1998                                                             247,633      250,000
         Interest at prime (8.5% at July 31, 1997) plus
           1.25% until September 3, 1997, interest at prime plus 1.5%
           thereafter, payable to a financial institution in monthly
           installments of $278 including interest, due August 3, 2000                8,724       11,093
</TABLE>



                                       38
<PAGE>   40

                        CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                                                                                1997         1996
                                                                             ----------   ----------
<S>                                                                          <C>              <C>   
   Interest at prime (8.5% at July 31, 1997) plus 1.25% until December 1,
     1997; interest at prime plus 1.5% thereafter, payable to a financial
     institution in monthly principal installments of
     $322 plus interest, due October 31, 2000                                $   12,559       16,424
   Interest at prime (8.5% at July 31, 1997) plus
     1.5%, payable to a financial institution in
     monthly principal installments of $1,111 plus
     interest, due December 22, 1998                                             17,891       31,223
                                                                             ----------   ----------
                                                                                735,723    1,160,111
                                                                             ----------   ----------
Debentures - at stated rates (7% to 9.5%), payable to individuals in
   quarterly installments of interest only, all of which have matured and
   are payable on demand; amount authorized by indenture, $19,000,000         1,976,245    2,062,245
                                                                             ----------   ----------

Other notes, unsecured:
   Interest at stated rates (6% to 9.5%), term notes
     payable to individuals in quarterly installments
     of interest only, due two years from date of issuance                      324,457      297,567
   Interest at stated rates (8.0% to 9.5%), payable to individuals in
     quarterly installments of interest only, payable on demand except
     $75,000 due February 14, 1998 (of which $5,000 due to related parties)     145,000      130,000
                                                                             ----------   ----------

                                                                                469,457      427,567
                                                                             ----------   ----------

                                                                             $5,035,008    5,514,416
                                                                             ==========   ==========
</TABLE>


      The Company has a $100,000 working capital line of credit with a bank. As
      of July 31, 1997, the outstanding drawings amounted to $100,000. The line
      of credit expires on February 1, 1998.

      Maturities of indebtedness are shown in the following summary:

<TABLE>
<S>                                                           <C>           
                1998                                              $    4,094,639
                1999                                                     303,210
                2000                                                      21,777
                2001                                                     615,382
                                                                     -----------
                                                                  $    5,035,008
                                                                     ===========

</TABLE>



                                       39
<PAGE>   41

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

      The carrying amounts of assets pledged as collateral for indebtedness as
      of July 31, 1997 were as follows:

<TABLE>
<S>                                                                  <C>       
                Cash and cash equivalents                            $    35,640
                Inventories                                               67,425
                Developed real estate                                  1,420,523
                Investment in other securities                           817,723
                Property and equipment                                   180,254
                                                                     ===========
</TABLE>


      In addition, the rights and interests in insurance policies, income or
      profits, and other contracts and agreements of the Company and Latipac
      Fine Foods, Inc., a wholly owned subsidiary, were pledged as collateral
      for indebtedness as of July 31, 1997.


(8) INCOME TAXES


      The benefit for income taxes applicable to the net loss for fiscal years
      1997, 1996 and 1995 differ from the "expected benefit for income taxes"
      for those years (computed by applying the U.S. federal income tax rate of
      34% to net loss) as follows:

      <TABLE>                                                                  
      <CAPTION>                                                                
                                              1997         1996          1995  
                                           ----------    ---------    ---------
      <S>                                  <C>           <C>          <C>      
      Computed "expected" tax benefit      $(287,975)    (126,942)    (274,695)
      Net operating losses for which no                                        
         deferred income tax benefit has                                       
         been recognized                     271,312      111,222      255,602 
      Dividends received deduction            (2,011)      (3,209)      (2,508)
      Officers' life insurance                16,508       16,441       17,794 
      Other, net                               2,166        2,488        3,807 
                                           ---------    ---------    --------- 
                                                                               
                                           $      --           --           -- 
                                           =========    =========    ========= 
      </TABLE>                                                                 
      


                                       40
<PAGE>   42
                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

      The tax effects of temporary differences that give rise to significant
      portions of the deferred tax assets and deferred tax liabilities at July
      31, 1997 and 1996 are presented below.
      

      <TABLE>                                                  
      <CAPTION>                                                
                                                              1997           1996     
                                                           -----------    ----------- 
      <S>                                                  <C>                 <C>    
      Deferred tax assets:                                                            
         Deferred compensation agreement                   $    56,700         64,300 
         Other investment securities, permanent decline                               
           in market value                                      83,100         83,100 
         Deferred income on other real estate investment       141,700         11,000 
         Net tax operating loss carryforwards                1,329,400      1,038,100 
         Other                                                  80,800         95,600 
                                                           -----------    ----------- 
                                                                                      
               Total gross deferred tax assets               1,691,700      1,292,100 
                                                                                      
         Less valuation allowance                           (1,596,300)    (1,285,100)
                                                           -----------    ----------- 
                                                                                      
               Net deferred tax assets                     $    95,400          7,000 
                                                           ===========    =========== 
                                                                                      
      Deferred tax liabilities:                                                       
         Capitalized interest on other real estate         $    94,100          5,800 
           investments                                                                
         Other                                                   1,300          1,200 
                                                           -----------    ----------- 
                                                                                      
               Total gross deferred tax liabilities        $    95,400          7,000 
                                                           ===========    =========== 
      </TABLE>                                                          
      
      The valuation allowance for deferred tax assets as of August 1, 1996 and
      1995 were $1,285,100 and $1,157,400, respectively. The net change in the
      total valuation allowance for the years ended July 31, 1997 and 1996 were
      increases of $311,200 and $127,700, respectively. In assessing the
      realizability of deferred tax assets, management considers whether it is
      more likely than not that some portion or all of the deferred tax assets
      will not be realized. The ultimate realization of deferred tax assets is
      dependent upon the generation of future taxable income during the periods
      in which those temporary differences become deductible. Management
      considers the scheduled reversal of deferred tax liabilities, projected
      future taxable income, and tax planning strategies in making this
      assessment.

      As of July 31, 1997, the Company had tax net operating loss carryforwards
      of approximately $3,300,000 and $4,400,000 for federal and state income
      tax purposes, respectively, which can be used to offset future taxable
      income through 2012.



                                       41
<PAGE>   43

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(9) DEFERRED COMPENSATION


      The Company has a deferred compensation agreement under which the Company
      is obligated to pay $5,000 each month for 120 consecutive months to the
      spouse of the late Mr. Chinn Ho, the former chairman of the Executive
      Committee. The Company commenced monthly payments in accordance with the
      deferred compensation agreement to Mrs. Chinn Ho in November 1989. The
      accrued obligation as of July 31, 1997 and 1996 amounted to $149,158 and
      $169,158, respectively, and is included in the consolidated balance sheet
      as other payables.


(10) LEASE COMMITMENTS


      The Company leases various facilities for its office premises, rental
      agency and its bakery operations. These operating leases provide that the
      Company pay all taxes, maintenance and insurance applicable to the leased
      properties.

      Consolidated future minimum payments required under noncancelable
      operating leases as of July 31, 1997 are summarized as follows:

<TABLE>
<CAPTION>
      Year ending July 31:
<S>                                           <C>           
         1998                                  $  330,960
         1999                                     286,897
         2000                                     281,815
         2001                                     280,120
         2002                                     280,120
         Thereafter                             2,249,247
                                               ----------
                                               $3,709,159
                                               ==========
</TABLE>


      Net rent expense for all operating leases was $408,250, $501,100 and
      $449,900 for the years ended July 31, 1997, 1996 and 1995, respectively.


(11) COMMITMENT AND CONTINGENT LIABILITIES


      Under the provision of various agreements relating to its participation in
      mortgage notes receivable sold with recourse, the Company is committed to
      repurchase notes that become delinquent, as specified in the agreements,
      if requested to do so by the holder of the notes. At July 31, 1997 the
      outstanding balances of notes receivable sold that were subject to the
      aforementioned recourse provisions aggregated $74,000. The Company may be
      subject to similar recourse provisions with respect to additional
      outstanding balances of notes aggregating approximately $28,000 at July
      31, 1997, 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.




                                       42
<PAGE>   44

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(12) FOURTH QUARTER RESULTS (UNAUDITED)


      Fourth quarter results for the year ended July 31, 1997 are as follows:

<TABLE>
<S>                                                     <C>        
      Revenues:
         Revenues from continuing operations            $   476,927
         Revenues from discontinued operations            1,071,813
                                                        -----------

                                                        $ 1,548,740
                                                        ===========
      Loss:
         Loss from continuing operations ($.08 per
           common share)                                $   (83,299)
         Loss from discountinued operations ($.14 per
           common share)                                   (145,570)
                                                        -----------

                                                        $  (228,869)
                                                        ===========
</TABLE>


(13) LOSS PER COMMON SHARE


      Loss per common share was computed by dividing the applicable loss by the
      weighted average number of shares of common stock outstanding.


(14) SEGMENT INFORMATION


      The Company has classified its business activities into significant
      segments for the years ended July 31, 1997, 1996 and 1995. The Company's
      operations have been classified into real estate, security and other
      investing, wholesale bakery and other activities. Real estate activities
      include the acquisition and development of undeveloped real estate, the
      sale and leasing of developed real estate and investment in undeveloped
      real estate. Also included in real estate activities are interest income
      on notes receivable arising from property sales and from loans made to
      development projects. Security and other investing activities include
      gains or losses from security investments and investment income related to
      the ownership of such investments. Other activities include the Company's
      rental agency businesses and other miscellaneous activities. The following
      is a summary of segment financial information for the years ended July 31,
      1997, 1996 and 1995:



                                       43
<PAGE>   45

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                                                        1997          1996           1995
                                                    -----------    -----------    -----------
<S>                                                 <C>                <C>             <C>   
      Revenues:
         Real estate activities:
           Property rentals                         $   117,615        178,325         87,741
           Income from ADC loan
             arrangements                               449,842      1,143,229      1,360,568
           Interest income                               16,143        124,155        181,077
                                                    -----------    -----------    -----------

                 Total real estate
                   activities                           583,600      1,445,709      1,629,386
                                                    -----------    -----------    -----------

         Security and other investing activities:
             Gains from sales of securities             499,936        467,075        289,047
             Dividends and interest                      58,118         59,177         36,589
                                                    -----------    -----------    -----------

                 Total security and
                   other investing activities           558,054        526,252        325,636
                                                    -----------    -----------    -----------

         Other activities                               676,141        722,910        650,138
                                                    -----------    -----------    -----------

                                                    $ 1,817,795      2,694,871      2,605,160
                                                    ===========    ===========    ===========
      Operating loss from continuing operations:
           Real estate activities                   $   181,465      1,016,950      1,191,284
           Security and other investing
             activities                                 510,625        479,910        278,666
           Other activities                             (15,049)        43,294        (14,817)
                                                    -----------    -----------    -----------
                                                        677,041      1,540,154      1,455,133

           Interest expense                            (393,283)      (831,375)      (956,375)
           Corporate expenses                          (704,692)      (725,812)      (746,056)
                                                    -----------    -----------    -----------

                 Loss from continuing
                   operations                       $  (420,934)       (17,033)      (247,298)
                                                    ===========    ===========    ===========
</TABLE>



                                       44
<PAGE>   46
                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


<TABLE>
<CAPTION>
                                             1997        1996         1995
                                         ----------   ----------   ----------
<S>                                      <C>              <C>          <C>   
      Depreciation and amortization:
         Real estate activities          $   24,226       30,768       18,210
         Security and other investing
           activities                           657          780        1,412
         Other activities                     8,100       16,244       21,075
                                         ----------   ----------   ----------

                 Total segments              32,983       47,792       40,697

         Corporate                           10,581        7,145       12,948
         Discontinued operations -
           wholesale bakery activities
           (note 17)                         56,806      156,899      270,055
                                         ----------   ----------   ----------

                                         $  100,370      211,836      323,700
                                         ==========   ==========   ==========

      Capital expenditures:
         Real estate activities          $      290        2,201    1,379,251
         Other activities                    13,288          790          341
         Corporate                            7,595        8,182        9,741
         Discontinued operations -
           wholesale bakery activities
           (note 17)                         30,526       96,179       65,896
                                         ----------   ----------   ----------

                                         $   51,699      107,352    1,455,229
                                         ==========   ==========   ==========

      Identifiable assets:
         Real estate activities          $4,535,896    4,479,964    6,975,918
         Security and other investing
           activities                       819,440      745,019      922,165
         Other activities                   439,206      128,501      728,060
                                         ----------   ----------   ----------

                 Total segments           5,794,542    5,353,484    8,626,143

      Corporate                             824,260      800,698    1,316,868
      Discontinued operations -
         wholesale bakery activities       
         (note 17)                          505,128      638,400      674,742
                                         ----------   ----------   ----------

                                         $7,123,930    6,792,582   10,617,753
                                         ==========   ==========   ==========
</TABLE>


      Sales between business segments are immaterial and are netted against the
      sales of the respective segment.




                                       45
<PAGE>   47

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(15) BUSINESS AND CREDIT CONCENTRATIONS


      Substantially all of the Company's business activity is with customers
      located in Hawaii, Nevada and Utah. The majority of customers of the
      Company's operating businesses are related to the hospitality industry.

      The Company's business activities in Nevada and Utah related solely to
      financing residential real estate development projects. At July 31, 1997
      and 1996, the Company had outstanding ADC loans of $2,711,737 and
      $1,902,009, respectively, due from corporate real estate ventures. Under
      participation agreements the Company had sold $1,235,550 of these loans
      without recourse as of July 31, 1997 (see note 6).


(16) FAIR VALUE OF FINANCIAL INSTRUMENTS


      The following methods and assumptions were used to estimate the fair value
      of each applicable class of financial instruments for which it is
      practicable to estimate that value:

      The carrying amount of cash and cash equivalents, trade accounts
      receivable, accounts payable, accrued expenses and debentures approximate
      fair value because of the short maturity of these instruments.


      MARKETABLE EQUITY SECURITIES AND OTHER INVESTMENT SECURITIES

      Fair value is based on quoted market prices or dealer quotes.


      LONG-TERM RECEIVABLES AND OTHER REAL ESTATE INVESTMENTS

      Fair value is determined as the present value of expected future cash
      flows discounted at the interest rate currently offered by the Company,
      which approximates rates currently offered by local lending institutions
      for loans of similar terms to companies with comparable credit risk.


      INDEBTEDNESS

      Fair value of mortgage notes, other notes, secured and other notes,
      unsecured is estimated by discounting the future cash flows of each
      instrument based on the quoted market prices for the same or similar
      issues or on the current rates offered for debt of the same or similar
      remaining maturities.


      DEFERRED COMPENSATION PAYABLE

      The carrying value of deferred compensation payable estimates fair value.


      LIMITATIONS

      Fair value estimates are made at a specific point in time, based on
      relevant market information and information about the financial
      instrument. These estimates do not reflect any premium or discount that
      could result from offering for sale at one time the Company's entire
      holdings of a particular financial instrument. Because no market exists
      for a significant portion of the 



                                       46
<PAGE>   48
                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


      Company's financial instruments, fair value estimates cannot be determined
      with precision. Changes in assumptions could significantly affect the
      estimates.

      Fair value estimates are provided for certain existing on-and off-balance
      sheet financial instruments without attempting to estimate the value of
      anticipated future business and the value of assets and liabilities that
      are not considered financial instruments. In addition, the tax
      ramifications related to the realization of the unrealized gains and
      losses can have a significant effect on fair value estimates and have not
      been considered.

<TABLE>
<CAPTION>
                                                JULY 31, 1997             JULY 31, 1996
                                           ------------------------- -------------------------
                                           CARRYING        FAIR       CARRYING       FAIR
               FINANCIAL ASSETS              AMOUNT        VALUE       AMOUNT        VALUE
                                           -----------  ------------ ------------ ------------
<S>                                     <C>                <C>         <C>           <C>    
       Cash and cash equivalents        $     797,514      797,514     757,399       757,399
       Marketable equity securities                --           --      42,647        42,647
       Trade accounts receivable              676,242      676,242     470,042       470,042
       Long-term receivables                    7,470        7,272     965,908       886,218
       Other investments:
          Real estate                       2,959,237    2,933,208   1,917,209     1,785,774
          Securities                          817,723    1,378,169     700,454     1,511,892

            FINANCIAL LIABILITIES

       Accounts payable                       635,013      635,013     651,407       651,407
       Accrued expenses:
          Interest                             53,808       53,808      55,348        55,348
          Taxes other than income              14,518       14,518      16,954        16,954
          Other                               776,858      776,858     614,626       614,626
       Mortgage notes                       1,853,583    1,693,951   1,864,493     1,662,857
       Other notes, secured                   735,723      710,277   1,160,111     1,112,537
       Debentures                           1,976,245    1,976,245   2,062,245     2,062,245
       Other notes, unsecured                 469,457      466,347     427,567       424,752
       Deferred compensation payable          149,158      149,158     169,158       169,158
</TABLE>



                                       47
<PAGE>   49

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

(17) SUBSEQUENT EVENT


      In October 1997, the Company entered into an agreement to sell certain
      assets and liabilities of its subsidiary, Latipac Fine Foods, Inc. Summary
      operating results of the discontinued operations are as follows:

<TABLE>
<CAPTION>
                                           1997           1996          1995
                                       ------------   ------------   -----------
<S>                                    <C>              <C>            <C>      
      Total revenues                   $ 4,737,228      5,521,390      4,965,794
      Total costs and expenses          (5,163,278)    (5,877,715)    (5,526,422)
                                       -----------    -----------    -----------

              Loss from discontinued
               operations              $  (426,050)      (356,325)      (560,628)
                                       ===========    ===========    ===========
</TABLE>


      The components of net liabilities of discontinued operations included in
      the consolidated balance sheets at July 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                  1997          1996
                                                ----------    --------
<S>                                             <C>             <C>   
      Inventories                               $  67,425       65,322
      Deferred charges and other assets            28,471       45,571
      Property and equipment, at cost, net of
         accumulated depreciation and
         amortization                             151,640      173,777
      Accounts payable, trade                    (441,384)    (461,633)
      Accrued expenses                           (194,191)    (151,019)
                                                ---------    ---------

               Net liabilities                  $(388,039)    (327,982)
                                                =========    =========
</TABLE>



                                       48
<PAGE>   50

                                        Schedule II

                             CAPITAL INVESTMENT OF HAWAII, INC.
                                      AND SUBSIDIARIES

                       Valuation and Qualifying Accounts and Reserves

                          Years ended July 31, 1997, 1996 and 1995



<TABLE>
<CAPTION>
                                                                       ADDITIONS
                                                            --------------------------------
                                             BALANCE AT       CHARGED TO
                                            BEGINNING OF      COSTS AND         CHARGED TO                        BALANCE AT
                  DESCRIPTION                  PERIOD          EXPENSES       OTHER ACCOUNTS     DEDUCTIONS      END OF PERIOD
----------------------------------------   ---------------  ---------------   --------------   --------------   ---------------
<S>                                            <C>               <C>          <C>              <C>              <C>   
Year ended July 31, 1997:
   Allowance for doubtful receivables          $25,001           18,000                --         15,810 (1)         27,191
                                           ===============  ===============   ==============   ==============   ===============

Year ended July 31, 1996:
   Allowance for doubtful receivables          $31,860           24,500                --         31,358 (1)         25,001
                                           ===============  ===============   ==============   ==============   ===============

Year ended July 31, 1995:
   Allowance for doubtful receivables          $58,544           (3,482)               --         23,202 (1)         31,860
                                           ===============  ===============   ==============   ==============   ===============
</TABLE>


(1)   Accounts receivable written off.


See accompanying independent auditors' report.



                                       49
<PAGE>   51

                                  Schedule III

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

                    Real Estate and Accumulated Depreciation

                                  July 31, 1997



<TABLE>
<CAPTION>
                                                                                            COST
                                                                                        CAPITALIZED
                                                                                         SUBSEQUENT      GROSS AMOUNT AT WHICH 
                                                             INITIAL COST TO COMPANY         TO            CARRIED AT CLOSE
                                                                                        ACQUISITION           OF PERIOD
                                                             ------------------------   -------------   -----------------------
                                                                           BUILDINGS                                  BUILDINGS
                                                                             AND                                         AND       
                                                                           IMPROVE-       IMPROVE-                    IMPROVE-    
         DESCRIPTION                  ENCUMBRANCES              LAND        MENTS          MENTS            LAND        MENTS      
------------------------------ ----------------------------  -----------   ----------   -------------    ----------   ---------   
<S>                            <C>                           <C>           <C>           <C>             <C>           <C>          
Developed real estate - held
   for sale
     Condominium apartments:
        Makaha, Hawaii         Note payable on five
                                  apartments to financial                                                                         
                                  institution                $ (2,323)       30,138           13,381       (2,323)      43,519     
                                                                                                                                  

        Honolulu, Hawaii       Mortgages payable on four
                                  apartments to various
                                  individuals and
                                  company; note payable
                                  on one apartment to                                                                             
                                  financial institution        24,578       166,705           69,809       24,578      236,514     

     Commercial/industrial:    Mortgages payable to
       Honolulu, Hawaii           financial institution
                                  and company; notes
                                  payable to financial        743,000       607,000             --        743,000      607,000     
                                  institution

     Other miscellaneous
       developed real estate
       located in Hawaii       None                                23            --             --             23        --     
                                                             -----------   ----------   -------------   ----------   -----------  

             Total developed
               real estate                                    765,278       803,843           83,190      765,278      887,033     

Undeveloped land held for
   sale - Makaha, Hawaii       None                            73,290            --           61,184       73,290       61,184     
                                                             -----------   ----------   -------------   ----------   -----------  

             Grand total                                   $  838,568       803,843          144,374      838,568      948,217     
                                                             ===========   ==========   =============   ==========   ===========  
</TABLE>




<TABLE>
<CAPTION>
                                                                                                        LIFE ON WHICH DEPRECIATION
                                             ACCUMULATED        DATE OF                                  IN LATEST INCOME STATEMENT
         DESCRIPTION             TOTAL       DEPRECIATION     CONSTRUCTION        DATE ACQUIRED               IS COMPUTED
------------------------------  ---------  --------------   -----------------   -------------------    ----------------------------
<S>                             <C>           <C>             <C>               <C>                      <C>        
Developed real estate - held
   for sale
     Condominium apartments:
        Makaha, Hawaii         
                                                            Completed           Various 1973 to       36 to 40 years for
                                  41,196       10,081          February 1971       1985                  apartments 5 years for
                                                                                                         furnishings

        Honolulu, Hawaii       
                               
                               
                               
                                                            Completed 1964      Various 1964 to       40 years for apartments 
                                 261,092      190,579          and 1968            1985                  5 years for furnishings

     Commercial/industrial:    
       Honolulu, Hawaii        
                               
                               1,350,000       31,128        Built 1986         July 1995             39 years
                               

     Other miscellaneous
       developed real estate
       located in Hawaii              23           --        April 1956         July 1953
                                ---------- --------------

             Total developed
               real estate     1,652,311      231,788

Undeveloped land held for
   sale - Makaha, Hawaii         134,474           --                           May 1973              Primarily 20 years
                               ----------- --------------

             Grand total       1,786,785      231,788
                               =========== ==============
</TABLE>



                                       50
<PAGE>   52

                                  Schedule III

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

               Real Estate and Accumulated Depreciation, Continued



(1) Changes during the two years ended July 31, 1997:

<TABLE>
<CAPTION>
                                                                 1997         1996
                                                               ----------   ----------
<S>                                                            <C>           <C>      
      Cost of real estate:
         Balance at beginning of year                          $1,786,495    1,786,651

         Additions during year - improvements to real estate          290        2,200
         Deductions during year - cost of retirements                --         (2,356)
                                                               ----------   ----------

         Balance at end of year                                $1,786,785    1,786,495
                                                               ==========   ==========

      Accumulated depreciation of real estate:
         Balance at beginning of year                          $  208,766      186,345

         Additions during the year - charged to costs and
           expenses                                                23,022       24,777
         Deductions during the year - retirements and sales          --         (2,356)
                                                               ----------   ----------

         Balance at end of year                                $  231,788      208,766
                                                               ==========   ==========
</TABLE>


(2)   Aggregate original cost for federal income tax purposes amounted to
      $1,862,770 for 1997.

(3)   Presentation on consolidated balance sheet as of July 31, 1997:

<TABLE>
<CAPTION>
                                                         UNDEVELOPED
                                         DEVELOPED       LAND HELD
                                         REAL ESTATE     FOR SALE
                                         ------------   -----------
<S>                                      <C>                <C>    
      Cost                               $ 1,652,311        134,474
         Less accumulated depreciation      (231,788)          --
                                         -----------    -----------

                                         $ 1,420,523        134,474
                                         ===========    ===========
</TABLE>


See accompanying independent auditors' report.



                                       51
<PAGE>   53

                                   Schedule IV

                       CAPITAL INVESTMENT OF HAWAII, INC.
                                AND SUBSIDIARIES

                          Mortgage Loans on Real Estate

                                  July 31, 1997

<TABLE>
<CAPTION>
                                                                                                                                 
                                                                                                                                 
                                                                                                                        FACE    
                                                                FINAL                 PERIODIC                        AMOUNT OF 
              DESCRIPTION                  INTEREST RATE    MATURITY DATE          PAYMENT TERMS       PRIOR LIENS    MORTGAGES 
----------------------------------------   -------------- -----------------   ----------------------   -----------   ----------- 
<S>                                           <C>          <C>                <C>                     <C>            <C>      
First mortgage - payable to a corporation                 
  on condominium apartments located                                              
  in Honolulu, Hawaii                         9-1/2%       February 28, 1998   Monthly installments    $    --        1,000,000   
                                                                                of interest only
First mortgages - payable to
   individuals
   on condominium apartment located                                            Monthly installments
   in Honolulu, Hawaii                        9-1/2%       On Demand            of interest only            --          200,000   

First mortgages - payable to a                                                 Monthly installments
   financial institution on land                                               of $6,125, including
   and warehouse located in Honolulu,         9-1/2%       July 1, 2001             interest                --          700,000   
   Hawaii
                                                                                                      ---------     -----------  
                                                                                                      $     --        1,900,000   
                                                                                                      =========     ===========  
</TABLE>


<TABLE>
<CAPTION>
                                                            PRINCIPAL AMOUNT OF
                                                              LOANS SUBJECT TO
                                               CARRYING          DELINQUENT
                                               AMOUNT OF          PRINCIPAL
              DESCRIPTION                     MORTGAGE(1)        OR INTEREST
------------------------------------------   -------------  -------------------
<S>                                          <C>                <C>
First mortgage - payable to a corporation  
  on condominium apartments located        
  in Honolulu, Hawaii                        1,000,000               --

First mortgages - payable to
   individuals
   on condominium apartment located        
   in Honolulu, Hawaii                         200,000               --

First mortgages - payable to a             
   financial institution on land 
   and warehouse located in Honolulu,
   Hawaii                                      653,583               --
                                            ----------          -----------

                                             1,853,583               --
                                            ==========          ===========
</TABLE>


(1) Changes during the two years ended July 31, 1997 and 1996:

<TABLE>
                                                                      1997             1996
                                                                 --------------    -----------
<S>                                                              <C>               <C>      
    Balance at beginning of year                                  $ 1,864,493        1,874,247

    Deductions during the year                                        (10,910)          (9,754)
                                                                  -----------      -----------

    Balance at end of year                                        $ 1,853,583        1,864,493
                                                                  ===========      ===========
</TABLE>


See accompanying independent auditors' report.




                                       52
<PAGE>   54


                                    SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.




Date:  October 24, 1997              /s/ Stuart T. K. Ho
                                     ---------------------------------------
                                     Stuart T. K. Ho, Chairman of the Board,
                                     President and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.



Date: October 24, 1997               /s/ Dean T. W. Ho
                                     ---------------------------------------
                                     Dean T. W. Ho, Vice Chairman, Secretary
                                     and Director



Date: October 24, 1997               /s/ Donald M. Wong
                                     ---------------------------------------
                                     Donald M. Wong, Senior Vice President,
                                     Chief Financial Officer, Treasurer and
                                     Director



Date: October 24, 1997               /s/ Harriet H. Matsuo
                                     ---------------------------------------
                                     Harriet H. Matsuo, Assistant Secretary and
                                     Assistant Treasurer



Date: October 24, 1997               /s/ Greta U. Nakao
                                     ---------------------------------------
                                     Greta U. Nakao, Assistant Secretary
                                     and Assistant Treasurer



Date: October 24, 1997               /s/ Pedro P. Ada
                                     ---------------------------------------
                                     Pedro P. Ada, Director



Date: October 24, 1997               /s/ C. B. Sung
                                     ---------------------------------------
                                     C. B. Sung, Director



Date: October 24, 1997               /s/ Stanley W. Hong
                                     ---------------------------------------
                                     Stanley W. Hong, Director




                                       53
<PAGE>   55


Date: October 24, 1997               /s/ Walter Lum
                                     ---------------------------------------
                                     Walter Lum, Assistant Treasurer



                                       54