<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-2288
(Unaudited)
HOSOI GARDEN MORTUARY, INC.
(Exact name of small business issuer as specified in its charter)
State of Hawaii No. 99-0088064
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 North Kukui Street
(Corner of Nuuanu Avenue
and Kukui Street)
Honolulu, Hawaii 96817
Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (808) 538-3877
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
1,768,038 shares of Common Stock
Outstanding at August 31, 1997
<PAGE> 2
HOSOI GARDEN MORTUARY, INC.
_ _ _ _ _ _ _ _ _ _ _ _ _ _
CONTENTS
_ _ _ _
[CAPTION]
Pages
[S] [C]
DISCLAIMER OF OPINION 1
PART I - Financial Information
Item 1.Financial Statements
Balance Sheet 2
Statements of Income 3
Statements of Cash Flows 4
Notes 5 - 9
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - Other Information 11
SIGNATURES 12
<PAGE> 3
DISCLAIMER OF OPINION
_ _ _ _ _ _ _ _ _ _ _
To the Board of Directors
Hosoi Garden Mortuary, Inc.
The accompanying balance sheet of
HOSOI GARDEN MORTUARY, INC.
as of August 31, 1997, and the related statements of income and cash flows
for the three months ended August 31, 1997 and 1996 were not audited by us
and accordingly we do not express an opinion on them.
October 10, 1997
ENDO & COMPANY
Honolulu, Hawaii
1
<PAGE> 4
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEET
_ _ _ _ _ _ _
August 31, 1997
[CAPTION]
A S S E T S
[S] [C]
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 651,767
Securities available for sale, at market (Note 2) 935,731
Accounts receivable, less allowance for doubtful
accounts of $69,904 279,389
Income taxes receivable 16,878
Inventories 99,659
Prepaid expenses and others 100,733
Deferred income taxes (Note 4) 136,474
----------
TOTAL CURRENT ASSETS 2,220,631
----------
INVESTMENTS
Garden Life Plan, Ltd. (Note 3) 1,719,181
Cemetery plots 1,350
Securities held to maturity, at cost (Note 2) 1,114,486
----------
2,835,017
----------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation 1,546,971
----------
OTHER ASSETS 127,610
----------
TOTAL ASSETS $6,730,229
==========
[CAPTION]
L I A B I L I T I E S
[S] [C]
CURRENT LIABILITIES
Accounts payable $ 297,541
Accrued liabilities 386,507
-----------
TOTAL CURRENT LIABILITIES 684,048
-----------
DEFERRED INCOME TAXES (Note 4) 155,732
-----------
[CAPTION]
S T O C K H O L D E R S' E Q U I T Y
[S] [C]
CAPITAL CONTRIBUTED (Note 7)
Common stock, par value $.20 per share; authorized
3,625,000 shares, issued 2,187,140 shares 437,428
Less 195,317 reacquired shares (39,283)
----------
TOTAL CAPITAL CONTRIBUTED 398,145
RETAINED EARNINGS 5,501,384
NET UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE,
net of applicable deferred income taxes (Note 2) 72,202
TREASURY STOCK, 223,785 shares, at cost (Note 7) (81,282)
----------
TOTAL STOCKHOLDERS' EQUITY 5,890,449
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,730,229
==========
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
2
<PAGE> 5
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF INCOME
_ _ _ _ _ _ _ _ _ _
Three Months Ended August 31, 1997 and 1996
[CAPTION]
1996 (As
1997 Restated)
----------- ------------
[S] [C] [C]
NET SALES AND SERVICES $ 647,905 $ 788,380
COST OF SALES AND SERVICES 503,849 490,478
----------- -----------
GROSS PROFIT 144,056 297,902
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 165,141 128,288
----------- -----------
OPERATING INCOME (LOSS) (21,085) 169,614
OTHER INCOME (EXPENSE)
Parking, dividends, interest and miscellaneous
income 40,748 87,741
Interest - (697)
----------- ----------
INCOME BEFORE INCOME TAXES AND EQUITY
IN EARNINGS OF GARDEN LIFE PLAN, LTD. 19,663 256,658
INCOME TAXES (Note 5) 7,439 94,906
----------- ----------
INCOME BEFORE EQUITY IN EARNINGS
OF GARDEN LIFE PLAN, LTD. 12,224 161,752
EQUITY IN EARNINGS OF GARDEN LIFE PLAN, LTD.,
net of deferred income taxes of $13,680 and
$5,231 (Note 3) 157,492 60,231
----------- ----------
NET INCOME $ 169,716 $ 221,983
=========== ===========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(Note 6) 1,770,805 1,814,555
=========== ===========
EARNINGS PER COMMON SHARE (Note 6) $ .10 $ .12
=========== ===========
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
3
<PAGE> 6
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _
Three Months Ended August 31, 1997 and 1996
[CAPTION]
1997 1996
---------- ---------
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 169,716 $ 221,983
Adjustment to reconcile net income to net cash
provided by (used in) operations
Depreciation 14,848 19,257
Gain on sale of securities (9,707) (47,800)
Undistributed earnings of affiliate (171,172) (65,462)
Deferred income taxes 17,449 (5,231)
(Increase) decrease in certain assets
Accounts receivable 23,713 (19,406)
Income tax receivable (16,878) -
Inventories 37,287 (46,283)
Prepaid expenses and others (36,280) (40,220)
Cash value of life insurance policies 385 (1,079)
(Decrease) increase in certain liabilities
Accounts payable (55,148) 36,233
Accrued liabilities 17,308 (21,757)
Income taxes payable (76,716) 70,606
---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (85,195) 100,841
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,871) -
Increase in securities (1,048,111) (518,618)
Proceeds from sale of securities 1,058,548 455,578
Payment of premiums on life insurance policies (2,811) -
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (2,245) (63,040)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES-Shares
reacquired (36,888) (54,500)
---------- ---------
NET DECREASE IN CASH (124,328) (16,699)
CASH AT BEGINNING OF PERIOD 776,095 710,978
---------- ---------
CASH AT END OF PERIOD $ 651,767 $ 694,279
========== =========
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
4
<PAGE> 7
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ __
August 31, 1997 and 1996
(1) Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
(2) Investment securities
At August 31, 1997, the Company held investments in the following types of
securities:
[CAPTION]
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
---------- ---------- ---------- -----------
[S] [C] [C] [C] [C]
Available for sale
Equity securities $ 75,939 $ 42,055 $ 736 $ 117,258
Mutual funds 735,162 84,050 739 818,473
---------- ----------- --------- -----------
811,101 126,105 1,475 935,731
Held to maturity
U.S. Treasury bills 1,114,486 241 4,188 1,110,539
----------- ----------- --------- ----------
Total $1,925,587 $ 126,346 $ 5,663 $2,046,270
=========== =========== ========= ==========
The maturities for all debt securities held at August 31, 1997 were:
[CAPTION]
Available for Sale Held to Maturity
---------------------- ---------------------------
Amortized Market Amortized Market
Cost Value Cost Value
------------ ------- ------------ -----------
[S] [C] [C] [C] [C]
Within 1 year $ - $ - $ 1,014,931 $ 1,014,688
After 1 year
through 5 years - - 99,555 95,851
After 5 years - - - -
----------- ------- ----------- ------------
$ - $ - $ 1,114,486 $ 1,110,539
=========== ======= =========== ============
[FN]
(Unaudited)
5
<PAGE> 8
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1997 and 1996
(2) Investment securities (continued)
The Company sold securities available for sale and held to maturity for
$1,058,548 and $455,578 in 1997 and 1996, respectively. The net realized
gain of $9,707 and $47,800 in 1997 and 1996, respectively, is reflected
in earnings. The cost of the securities sold was based on cost of all the
shares of each such security held at the time of sale.
The unrealized holding gains on investment securities available-for-sale as
of August 31, 1997, and reported as a separate component of Stockholder's
Equity are as follows:
[CAPTION]
1997
-----------
[S] [C]
Unrealized holding gains, net of losses $ 124,630
Deferred income tax on net unrealized holding gains (52,428)
-----------
$ 72,202
===========
(3) Garden Life Plan, Ltd.
Investment in Garden Life Plan, Ltd. represents the Company's 50% share, in
the underlying equity in the net assets, accounted for under the equity
method of accounting for investments in common stock, of Garden Life Plan,
Ltd. (GLP), a Hawaii corporation engaged in the sales of pre-need funeral
Plans which are serviced solely by Hosoi Garden Mortuary, Inc.
All payments received from the sale of pre-need funeral plans up to an
amount equal to 30% of the total price plus any sales tax or other charges
are retained by GLP as its compensation. The balance is deposited with
Hawaiian Trust Company, Limited to be held in trust. GLP is entitled to
all earnings from funds held in trust which amounted to $1,641,352 and
$705,222 for the years ended May 31, 1997 and 1996, respectively, and is
reflected in Other Income. Trust assets are not included in the financial
statements of Hosoi Garden Mortuary, Inc. nor GLP.
Effective June 1, 1996, the Trust began recording its investments at market
value. Previously, the Trust recorded its investments at cost. The
cumulative effect of this change as of June 1, 1996 was an increase in
GLP's trust fund income receivable of $1,574,286, net of deferred income
taxes of $964,885 and is reflected in GLP's net income of $2,377,893 as
shown below.
[FN]
(Unaudited)
6
<PAGE> 9
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1997 and 1996
(3) Garden Life Plan, Ltd. (Continued)
Audited financial statements of this subsidiary as of May 31, 1997 and 1996
reflected the following summarized financial position and results of
operations:
[CAPTION]
1997 1996
----------- -----------
[S] [C] [C]
Total assets $ 5,019,929 $ 2,991,958
Total liabilities 1,923,917 385,243
----------- -----------
Total stockholders' equity $ 3,096,012 $ 2,606,715
=========== ===========
Total revenues $ 1,184,909 $ 958,576
=========== ===========
Operating (loss) income $ 172,255 $ (136,244)
=========== ===========
Other income $ 1,641,352 $ 707,774
=========== ===========
Cumulative effect of change in
accounting principle $ 1,574,286 $ -
=========== ===========
Net income $ 2,377,893 $ 511,539
=========== ===========
Equity in earnings of Garden Life Plan, Ltd. represents the Company's share
of the earnings of Garden Life Plan, Ltd. for its three-months ended August
31, 1997 and 1996.
Investment in Garden Life Plan, Ltd. as of August 31, 1997 is accounted for
as follows:
[S] [C]
Stockholders' equity at August 31, 1997 per Garden
Life Plan, Ltd.'s balance sheet $ 3,438,362
Equity Ownership 50%
-----------
Total investment in Garden Life Plan, Ltd. $ 1,719,181
===========
(4)Deferred income taxes
Deferred taxes are recognized for differences between the basis of assets
and liabilities for financial statements and income tax purposes. The
deferred assets and liabilities represent the future tax consequences
of those differences, which will be either taxable or deductible when
the assets and liabilities are recovered or settled. The deferred tax
liability results from the recognition of unrealized gains, net of losses
on securities for financial statement and recognition of gains or losses
when securities are sold for income tax purposes, the inclusion of the
derrerred
[FN]
(Unaudited)
7
<PAGE> 10
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1997 and 1996
(4)Deferred income taxes (continued)
earnings on an annuity for financial statements and the recognition of
the earnings when received for tax purposes and the equity method of
accounting for the investment in subsidiary as explained under Garden
Life Plan, Ltd. above. Under the equity method the Company's share of
earnings of the subsidiary is reported for tax purposes only when
distributions of earnings are received as dividend.
The deferred tax asset results from the use of the reserve method in
accounting for uncollectible accounts receivable in the financial
statements and the use of the direct write off method for income tax
purpose, the accrual of the retroactive rent for financial statements
purposes and the recognition of the rent expense when paid for income
tax purposes and the accrual of vacation and sick leave when earned for
the financial statements and the recognition for income tax purposes
when paid.
At August 31, 1997 the Company's retained earnings included approximately
$1,719,181 of undistributed earnings of Garden Life Plan, Ltd.
(5) Income taxes
The provision for income taxes consists of the following:
[CAPTION]
1997 1996
--------- ---------
[S] [C] [C]
Federal:
Current $ 3,218 $ 82,297
Deferred 4,980 -
--------- ---------
8,198 82,297
--------- ---------
State:
Current 453 12,609
Deferred (1,212) -
--------- ---------
(759) 12,609
--------- ---------
Total $ 7,439 $ 94,906
========= =========
(6) Earnings per share
Earnings per common share has been computed on the basis of a weighted
average of shares outstanding of 1,770,805 for 1997 and 1,814,555 for 1996.
[FN]
(Unaudited)
8
<PAGE> 11
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1997 and 1996
(7) Reacquired shares
Capital contributed has been reduced for shares reacquired after
June 30, 1987. Payments for shares in excess of the par value of
each share acquired has been charged to additional paid-in capital.
The 223,785 shares reflected as Treasury Stock as of August 31, 1996
reflects shares acquired before July 1, 1987.
[FN]
(Unaudited)
9
<PAGE> 12
HOSOI GARDEN MORTUARY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Changes in financial condition
There have been no material adverse changes in financial condition from
the end of the preceding fiscal year to the end of the current quarter
ended August 31, 1997
The working capital and working capital ratio at August 31, 1997 reflected
strong liquidity as follows:
[S] [C]
Working capital $ 1,536,583
Working capital ratio 3.2:1
Changes in results of operations
Net Sales and Services - Net sales and service in 1997 decreased by 17.8%
over 1996. The decrease resulted principally from the decrease in the
number of services performed.
Cost of Sales and Services - Cost of sales and services as a percent of
net sales increase to 77.8% from 62.2% for the three-months ended August
31, 1997 over 1996. The increase is due to a decrease of 17.8% in
revenues and an increase in the cost of urns and caskets, rent expense
and salaries and wages.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses, as a percent of net sales, increased from
16.3% to 25.5% for the three-months ended August 31, 1997 over 1996.
The increase resulted from increases in professional fees and salaries
and wages.
Income Taxes - The effective income tax rate is 39.0% for 1996 and 37.8%
for 1997.
Other Income (Expense) - Other income as a percent of net sales and
services decreased to 6.2% in 1997 from 11.1% in 1996. The decrease
resulted primarily from a decrease in gains on sale of securities and
a non-recurring reimbursement from a former employee for expenses
previously advanced.
[FN]
10
<PAGE> 13
HOSOI GARDEN MORTUARY, INC.
PART II - OTHER INFORMATION
_ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1997 and 1996
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for
the three-months ended August 31, 1997.
[FN]
11
<PAGE> 14
Pursuant to the requirements 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.
The information furnished reflects all adjustments which are, in the
opinion of management, necessary to a fair statement of the results
for the interim periods.
HOSOI GARDEN MORTUARY, INC.
----------------------------
(Small business issuer)
Date October 13, 1997 Clifford Hosoi
--------------------------
Clifford Hosoi, President
Date October 13, 1997 Keith Numazu
--------------------------
Keith Numazu, Treasurer
[FN]
12
<PAGE> 15
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet and the statement of income filed as part of the quarterly
report on Form 10-QSB and is qualified in its entirety by reference to
such quarterly report on Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> Aug-31-1997
<CASH> 651767
<SECURITIES> 935731
<RECEIVABLES> 279,389
<ALLOWANCES> 69904
<INVENTORY> 99659
<CURRENT-ASSETS> 2220631
<PP&E> 1546971
<DEPRECIATION> 14848
<TOTAL-ASSETS> 6730229
<CURRENT-LIABILITIES> 684048
<BONDS> 0
0
0
<COMMON> 437428
<OTHER-SE> 5453021
<TOTAL-LIABILITY-AND-EQUITY> 6730229
<SALES> 647905
<TOTAL-REVENUES> 647905
<CGS> 503849
<TOTAL-COSTS> 503849
<OTHER-EXPENSES> 165141
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19663
<INCOME-TAX> 7439
<INCOME-CONTINUING> 12224
<DISCONTINUED> 0
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<NET-INCOME> 169716
<EPS-PRIMARY> .10
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</TABLE>
