Coffees of Hawaii
expects business to
perk up this year

But the Molokai-based company
still faces upset shareholders and
more than $4 million in debts

By Russ Lynch
Star-Bulletin

After investing about $12 million since the mid-1980s, Coffees of Hawaii Inc. expects its operations to break even this year, says a top executive of the Molokai company.

But that's just comparing the cost of production with the income the company expects from this year's crop, said Daniel R. Kuhn, executive vice president and chief operations officer.

It doesn't allow for repayment of any of the $4 million in loans and interest that is payable on demand to majority owner, John H. Magoon Jr., chairman, president and chief executive officer of the coffee producer and marketer.

Magoon has said he won't demand any of the money back this year but there is also a $475,000 bank loan due July 1, according to Coffees of Hawaii's financial statements, which were discussed yesterday at the firm's annual shareholders meeting in Honolulu.

The company, therefore, isn't likely to make a net profit for its shareholders this year. It hasn't produced a profit since it was founded in 1984 or since it began production in 1994.

In materials prepared for the meeting, the company, which doesn't trade on a stock exchange and has some 240 shareholders, reported a net loss of $1.35 million for 1996. Sales last year totaled $563,000.

Kuhn, however, showed charts of escalating field production and yield from the 650,000 trees growing on 460 acres of the company's 600-acre plantation.

Prices are good and sales in the first four months of this year came to $648,000, Kuhn said.

He cautioned that the company has had to spend big money on changing the way it does business and developing new growing, harvesting and processing techniques.

"We are paying the price to become a player," Kuhn said.

So far, it's mostly Magoon who is paying the price.

A former chairman and major investor in Hawaiian Airlines, Magoon invested $2 million in Coffees of Hawaii stock in 1990 and has since lent the company about $4 million. He and his wife, Jeanette, own 75 percent of the stock.

About a dozen minority shareholders were present at yesterday's meeting but had few questions.

An overwhelming vote driven by the Magoon stock, with a less than 10 percent no vote, reelected a four-person board of directors: the Magoons, Kuhn, and Gerard K. Cappello, a Los Angeles entrepreneur and investment banker and longtime shareholder.

Some of the minority shareholders were passing around copies of letters between a lawyer representing some of them, Evan R. Shirley, and Coffees of Hawaii attorney Martin D. Anderson.

In the letters, the minority group accused the company of frittering away assets. In return, Anderson cautioned that such comments were unfounded and possibly a negotiating ploy by shareholders wanting to sell their stock to the company.

The letters were not introduced at the meeting and both sides later declined comment.

An auditor's statement with the financial materials sent to shareholders warned that the company's "recurring losses and lack of available credit facilities raise substantial doubt about the company's ability to continue as a going concern."

Magoon said last week that he considers the company still to be in the development stage and losses can be expected until it gets on its feet. He also said he is looking for additional financing for the company.

One profitable operation the company does have involves tourism. Kuhn said mule-driven wagon rides around the plantation and the operation of an espresso bar and company store on the property is generating good income.

Meanwhile, the company's efforts over the last couple of years to do its own roasting and generate a brand image around the world, including via the Internet, are working, Kuhn said. He said the company is getting up to $5.25 a pound wholesale for its coffee in bulk purchases.