SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[Fee Required]
For the fiscal year ended May 31, 1997 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[No Fee Required]
For the transition period from to
Commission file number 0-2288
HOSOI GARDEN MORTUARY, INC.
STATE OF HAWAII
IRS Employer Identification No. 99-0088064
30 North Kukui Street
Honolulu, Hawaii 96817
Issuer's telephone number: 808-538-3877
Securities registered pursuant to Section 12(b) of the
Exchange Act:
None
Securities registered pursuant to Section 12(g) of the
Exchange Act:
Common Stock Par Value $.20 per share
Check whether the issuer (1) filed all reports required
to be filed by the Exchange Act during the past 12
months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days. Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B (is not)
contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. ( )
<PAGE>
State issuer's revenue for its most recent fiscal year.
$2,870,237
State the aggregate market value of the voting stock
held by non-affiliates computed by reference to the
price at which the stock was sold, or the average bid
and asked prices of such stock, as of a specified date
within the past 60 days. (See definition of affiliate
in Rule 12b-2 of the Exchange Act): $7,109,040
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of
issuer's classes of common stock, as of the latest
practicable date: 1,777,260
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by
reference, briefly describe them and identify the part
of the 10-KSB (e.g. Part I,Part II, etc.) into which
the document is incorporated: (1) any annual report to
security holders; (2) any proxy or information
statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933
("Securities Act"). The listed documents should be
clearly described for identification purposes
(e.g. annual report to the security holders for fiscal
year ended May 31, 1992).
Transitional Small Business Disclosure Format
(Check one):Yes X No
2
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Hosoi Garden Mortuary, Inc. (the "Company") was
incorporated in 1957 under the laws of the State of
Hawaii as the successor to a business founded in 1900.
Professional funeral services are the principal
services rendered by the Company. The Company is
engaged in the funeral and mortuary business, including
the sale of pre-need funeral services contracts.
During the fiscal years ended May 31, 1997 and 1996,
funeral services accounted for 72.7% and 70.6%,
respectively, of revenues. The Company owns 50% of
Garden Life Plan, Ltd. ("Garden Life") which sells
pre-need funeral service contracts for which the
Company acts as the sole servicing mortuary.
The Company operates a mortuary business in Honolulu,
Hawaii. Although established to offer funeral services
to all persons in Hawaii, the Company serves
principally persons of Japanese ancestry who follow a
particular and special order of worship in accordance
with their religious beliefs. In addition to handling
funeral services for residents of Honolulu, the Company
conducts services for residents of other counties in
Hawaii and prepares remains for shipment to or receives
them from other counties in Hawaii, other states in the
United States and foreign countries.
3
<PAGE>
Competition in the funeral business in Hawaii is based
upon (1) the location of a mortuary and (2) the
principal ethnic group that a mortuary serves. There
are 21 mortuaries in the State of Hawaii. Their
locations are as follows:
<TABLE>
<CAPTION>
LOCATION NUMBER OF MORTUARIES
<C> <C>
Island of Hawaii 3
Island of Maui 3
Island of Oahu 12 (one military)
Island of Kauai 2
Island of Molokai 1
</TABLE>
Because of the separation of the Hawaiian islands by
ocean, a mortuary is generally confined to the funeral
demands of a particular island. A very small
percentage of business constitutes service requiring
the use of funeral parlors on an island other than
where death has occurred.
<TABLE>
Comparative Statistical Information
<CAPTION>
Percent of Services
No. of Services by Company as
Calendar No. of Deaths No. of Deaths Performed by to No. of Deaths
Year End in State of HI in Oahu the Company in Oahu
<S> <C> <C> <C> <C>
1990 7,056 5,253 980 18.66%
1991 6,486 4,930 980 19.00%
1992 7,173 5,317 1,011 19.01%
1993 7,570 5,689 1,114 19.00%
1994 7,531 5,588 1,091 19.00%
1995 7,795 5,834 1,043 18.00%
1996 8,148 5,557 1,151 20.71%
</TABLE>
4
<PAGE>
In most cases, a substantial portion of the business of
a mortuary is from an ethnic group it principally
serves. A few of the mortuaries serve all ethnic
groups. In calendar year 1996, 87.32% of the Company's
total services were for families of Japanese ancestry.
The larger mortuaries on the Island of Oahu and the
ethnic groups which they are believed to serve
primarily are as follows:
<TABLE>
<CAPTION>
Name Ethnic Groups Served
<C> <C>
Williams Mortuary Caucasian
Hosoi Garden Mortuary Japanese
Borthwick Mortuary Caucasian and Chinese
Hawaiian Memorial Park Mixed and Japanese
Mililani Memorial Park & Mortuary Mixed (Filipino and Japanese)
Leeward Funeral Home Mixed
Valley of the Temples Mortuary Japanese, Chinese and Caucasian
(also operating Kukui, Nuuanu
and Diamond Head Memorial Parks)
U.S. Army Mortuary All ethnic groups
</TABLE>
Thirty-six (36) persons were employed by the Company
for the fiscal year ended May 31, 1997. Fourteen (14)
persons were employed full-time and twenty-two (22)
persons were employed part-time.
5
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company operates its business at 30 North Kukui
Street, Honolulu, Hawaii, 96817, on the northwest
corner of Nuuanu Avenue and Kukui Street in Honolulu
Hawaii. The business site consists of 92,773 square
feet, of which the Company owns a 78/104th interest.
The Herman S. Hosoi Trust owns a 13.65/104th interest
and the Hosoi-Tamori-Shimonishi Trust owns the
remaining 12.35/104th interest. The trustees and
beneficiaries of both trusts include directors,
officers and shareholders of the Company.
The portion owned by the Company is owned in fee
simple. The Company leases the portion owned by the
Herman S. Hosoi Trust and Hosoi-Tamori-Shimonishi Trust
("Trusts") under a five-year lease that expired on May
31,1994, subject to an option to renew for an
additional five-year period. The option to renew the
lease was exercised while negotiations for the terms of
a new lease continued. In July 1997, the terms of a
new lease were approved by the Directors of the Company.
The lease, which expires on May 31, 1999, requires
annual lease payments of $300,000, plus general excise
taxes, in addition to real property taxes on the
portion of the land owned by the Trusts. For more
information on the lease between the Company and the
Trusts, see Footnote 12 on page F-18 of the Company's
Financial Statements, which are attached hereto and
incorporated by reference.
The main mortuary building, which was built in 1961,
contains a chapel area, which is capable of being used
for one service with a seating capacity of 600 or for
two chapels with a seating capacity of 300 each.
There is an altar and family room at each end of the
building. The office is located on the west end of the
main mortuary building. The embalming rooms are on the
second floor.
6
<PAGE>
In addition, there is a combined garage, kitchen and
dining room annex. Parking facilities for 147 cars
have access to Nuuanu Avenue, Kukui Street and
Maunakea Street, and are one-half block away from
Vineyard Boulevard, which is one of the main
thoroughfares in Honolulu. The areas not used for
buildings or parking stalls have been appropriately
landscaped to qualify for partial real property tax
exemption.
No substantial addition or changes in the real
property or improvements of the Company were made
during the fiscal year ended May 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
On January 19, 1997, the annual meeting of the
shareholders was held. According to the Company's
stock transfer agent Chase Mellon Shareholder Services,
the total shares issued, outstanding and entitled to
vote were 1,812,655. The total shares present in
person and proxy were 1,128,489 (62.26%).
The election of three directors and the election of an
auditor were submitted to a vote of the shareholders.
Of the total shares present in person and proxy, the
following vote of the shareholders was taken:
7
<PAGE>
<TABLE>
Election of Class A Directors (3 year term)
<CAPTION>
NAME FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Julie Shimonishi 1,121,089 (61.85%) 7,400 (.41%) 0
Robert Kuwahara 1,121,089 (61.85%) 7,400 (.41%) 0
Richard B. Dole 1,120,989 (61.84%) 7,500 (.42%) 0
</TABLE>
The foregoing persons were elected at the annual
meeting to serve a three-year term until the 2000
annual meeting or until their successors shall be
elected.
<TABLE>
Election of Auditor (One Year Term)
<CAPTION>
NAME FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Endo & Company, CPA 1,125,889 (62.11%) 175 (.01%) 2,425 (.14%)
(Jack Y. Endo)
</TABLE>
8
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED
SHAREHOLDERS MATTERS
The common shares of the Company are neither traded nor
listed on an exchange and has no established public
trading market. One stockbroker in Honolulu, Hawaii,
quotes the common stock, but the Company does not know
the prices at which the trades are made. During the
fiscal year ended May 31, 1997, the Company redeemed
42,170 shares as follows:
<TABLE>
<CAPTION>
No. Of Shares Redemption Price
<C> <C>
1,900 $4.50
40,270 4.00
</TABLE>
There were 1,683 record holders of common stock as of
May 31, 1997.
A cash dividend has been declared and paid once a year
since 1969. The dividend for the year ended May 31,
1996, which was declared on November 15, 1996, was
$.045 per share, and was paid to shareholders in
January 1997.
9
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth items from Hosoi Garden
Mortuary, Inc.'s statement of income as percentages of
net revenues:
<TABLE>
<CAPTION>
Years Ended May 31,
1997 1996
<S> <C> <C>
Total revenues 100.0% 100.0%
Cost of sales and services 73.2 73.9
Gross profit 26.8 26.1
Selling, general and administrative 25.2 23.4
Operating income 1.6 2.7
Other income (expenses) 6.7 4.8
Income before income taxes 8.3 7.5
Provision for income taxes 3.0 3.1
Income before equity in earnings
of Garden Life Plan, Ltd. (GLP) 5.3 4.4
Equity in earnings of GLP, net 38.1 8.6
Net income 43.4% 13.0%
</TABLE>
RESULTS OF OPERATIONS
TOTAL REVENUES
The Company's revenues increased by $130,371 in 1997
over 1996. The increase of 4.8% is attributable to
increases in revenues from facilities charges and from
charges for funeral services. Revenues from facilities
charges increased by $15,500 and revenues from services
increased by $110,400 in 1997 over 1996, respectively.
Overall, the Company expects revenue growth to continue
in fiscal 1998 due to an increase in prices for funeral
services, partially offset by an expected shift to
lower priced funeral services.
The Company's operating expenses are increasing as the
Company continues to
10
<PAGE>
upgrade its professional staff and
continues to explore either the establishment of a
pre-need authority or the purchase of the interest of
its 50% shareholder in Garden Life Plan, Ltd., and
operating results for fiscal 1998 will be adversely
affected if revenues do not increase correspondingly.
The Company's operating results may also be affected by
Hawaii's generally unfavorable economic conditions
which may be the cause of the shift to lower priced
funeral services.
COST OF SALES AND SERVICES
Cost of sales and services remained relatively stable
at 73.2% in 1997 compared to 73.9% in 1996. Cost of
sales for 1996 has been restated from the amount
previously reported of 70.9 % to 73.9% as a result of
the retroactive adjustment of rental expense from
$275,868, the amount previously reported, to $356,430.
The increase in rental expense as a percent of
revenues, was offset by decreases in the cost of
merchandise.
GROSS PROFIT
Gross profit as a percentage of total revenues
remained relatively stable at 26.8% and 26.1% in 1997
and 1996 respectively. Gross profit for 1996 has
been restated from the amount previously reported
from 29.1% to 26.1% to reflect the adjustment of
rental expense as discussed in Cost of Sales and
Services above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased
from $643,321 in 1996 to $723,642 in 1997 and as a
percentage of revenues these expenses were 25.2% in
1997 and 23.4% in 1996. The increase in 1997 is
attributable to increases in professional services and
salaries
11
<PAGE>
and wages.
The increase in professional services is attributable
to an increase in legal and accounting fees as a
result of legal and accounting issues related to the
evaluation of the current situation with Garden Life
Plan, Ltd. and the study for the establishment of a
pre-need authority in the future.
The increase in salaries and wages is a result of the
addition of an additional secretary in the
administrative offices.
EARNINGS OF GARDEN LIFE PLAN, LTD.
Revenues from the trust funds of the Company's
subsidiary, Garden Life Plan, Ltd. (GLP), whose
earnings are accounted for on the equity method of
accounting are included in the amount reflected as
Equity in earnings of Garden Life Plan, Ltd. of
$1,093,897 and $235,324 for 1997 and 1996 respectively.
The increase in 1997 over 1996 is attributable to a
change in the method in GLP Trust's method of
accounting for its investment. Effective June 1, 1996,
the Trust began recording its investment at market
value. Previously, the Trust recorded its investments
at cost.
Earnings of the Trust fund of GLP are not directly
affected by decisions of the management of the Company.
Investment decisions are generally made by the money
manager of GLP's Trust funds. Fluctuations in GLP's
Trust fund income, which amounted to $1,641,352 and
$705,222 for the years ended May 31, 1997 and 1996
respectively are the result of fluctuations in interest
rates, capital gains and the mix of investment of the
Trust.
Information relating to Trust investments, obligations
and earnings are more fully described in Footnote 2 of
GLP's financial statements, which are attached hereto
and
12
<PAGE>
incorporated by reference.
Equity in the earnings of GLP accounted for 87.8% and
58.5% of the Company's net income in 1997 and 1996,
respectively.
INCOME TAXES
The Company's effective income tax rate was 36.5% of
pre-tax income in 1997 and 41.2% in 1996. Note (9) to
the Company's financial statements presents a
reconciliation of the Company's effective and statutory
income tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Total working capital decreased by $198,879 from
$1,727,133 in 1996 to $1,528,254 in 1997. The decrease
is attributable to an increase in current liabilities,
particularly in trade accounts payable and accrued
liabilities relative to the increase in current assets.
Working capital ratio was 2.9:1 at May 31, 1997 and
3.9:1 at May 31, 1996.
Working capital and the working capital ratio at May
31, 1996 has been restated from the amounts previously
reported of $1,850,300 and 5.6:1 respectively, because
of the restatement of the 1996 financial statements for
the retroactive accrual of rent expense, pursuant to
the renegotiation of the lease as discussed in
Item 2 - Description of Property.
Securities Held to Maturity increased from $69,834 in
1996 to $1,101,423 in 1997 principally as a result of
the investment of dividends received from Garden Life
Plan, Ltd. in the Company's investment monitor account
at a bank.
At the end of 1997, the Company did not have any
long-term debt. The Company expects that cash flows
from operations, its cash reserves and investments
will be adequate to meet the Company's cash
requirements in the foreseeable future.
13
<PAGE>
Dividends declared for the fiscal years ended 1996 and
1995, respectively, were $.045 per share which amounted
to $81,572 and $82,419.
Cash out flows for the acquisition of the Company's
shares were $169,629 in 1997 and $76,481 in 1996.
The Company expects that future acquisitions will be in
the range of $50,000 to $70,000 per year.
ITEM 7. FINANCIAL STATEMENTS
The Company's audited balance sheet as of May 31, 1997,
and audited statements of income, cash flows and
changes in shareholder's equity for each of the two
fiscal years preceding the date of such audited balance
sheet are on pages F-3 through F-6 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS: COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT
The Company has a total of nine (9) directors
constituting the entire Board of Directors, divided
into three (3) classes of three (3) directors each.
The Company's Articles of Association provide for each
class of directors to be elected for three-year terms
on a staggered basis.
Directors hold office for the duration of their terms
and thereafter until their successors are elected. The
executive officers serve at the pleasure of the Board
of Directors. See the table on pages 20-21 for certain
information about the directors and executive officers
of the Company.
The names, ages, positions and offices, terms of
office, and business experience of the directors and
executive officers of the Company during the past five
years are set forth below.
DIRECTORS WHOSE TERMS EXPIRED IN 1997 AND WHO WERE
ELECTED TO TERMS EXPIRING IN 2000
Julie S. Shimonishi is a school teacher and has been
employed by the Department of Education, State of
Hawaii, since 1970. She has been a director since
1979. She is a daughter of Sadako Hosoi, director,
and a sister of Clifford Hosoi, director and president
of the Company, and Anne T. Tamori, director and
vice-president of the Company.
Robert Kuwahara is a Certified Public Accountant and
has his own CPA practice. He has been a director of
the Company since 1995. He is actively involved in
human services organizations such as the YMCA.
Richard B. Dole is the Vice-President and Principal of
Kuroman Realty, Inc. He
15
<PAGE>
has been a director of the
Company since 1995. He holds many professional
designations, including the American Society of
Appraisers, Chartered Financial Analyst and Certified
Financial Planner designations. He is the Co-Trustee
of the James D. Dole Trust. He is involved with many
professional organizations, including the American
Society of Appraisers, the Association for Investment
Management Research (AIMR), the Hawaii Venture Capital
Association, the Hawaii Employee Ownership and
Participation Advisory Committee, State of Hawaii,
the Institute of Certified Financial Planners, and the
Hawaii Estate Planning Council.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Sadako Hosoi is the widow of Herman S. Hosoi, founder
of the Company. She has been a director of the Company
since 1957 and is the Chairperson of the Board
Emeritus. At the January 21, 1996, annual meeting, she
was elected to a new three-year term which will expire
in 1999. In the past, she has served as chairperson of
the Company and treasurer. She serves as a director of
Garden Life Plan, Ltd. She is the mother of Julie S.
Shimonishi, director, Clifford Hosoi, director and
president of the Company, and Anne T. Tamori, director
and vice president of the Company.
Roy T. Shimonishi is co-owner of Hungry Lion Coffee
Shop in Honolulu, Hawaii. He has been a director since
1979. At the January 21, 1996, annual meeting, he was
elected to a new three-year term to expire in 1999. He
serves on the Board of Directors of the Hawaii
Restaurant Association, Catholic Services for the
Elderly and Hungry Lion Charities. He is also an area
coordinator for Excel Telecommunications. Roy T.
Shimonishi resigned as a director in May 1997.
Berton T. Kato is an attorney licensed in the State of
Hawaii and has his own law
16
<PAGE>
practice. At the January
21, 1996, annual meeting, he was elected to serve a
three-year term which will expire in 1999.
Anne T. Tamori has been employed by the Company since
1978. She has been a vice president of the Company
since 1994. She has served as an associate secretary
of the Company. She is a daughter of Sadako Hosoi,
director, and a sister of Clifford Hosoi, director and
president of the Company, and Julie S. Shimonishi,
director. Following the resignation of Roy T.
Shimonishi as a director, the Board of Directors
elected Anne T. Tamori to serve Roy T. Shimonishi's
remaining term as a director, which will expire in
1999.
DIRECTORS WHOSE TERMS EXPIRE IN 1998
Clifford Hosoi has been a director of the Company
since 1989. He was a vice president from 1989 until
his appointment as president and chief executive
officer of the Company as of January 1, 1994. He has
been a licensed embalmer since 1979. He has been a
Funeral Director for the Company since 1985. He serves
as a director of Garden Life Plan, Ltd. He is the son
of Sadako Hosoi, director, and a brother of Julie S.
Shimonishi, director, and Anne T. Tamori, vice-
president, director and an employee of the Company.
Rene Mansho is an elected member of the City Council
of the City and County of Honolulu and has served on
the City Council since 1988. She has been a director
of the Company since 1993. She presently serves as
chairperson of the Board of Directors and was elected
to that position in 1994. She has been a school
teacher, Vice-Principal and Administrator with the
Department of Education of the State of Hawaii between
1971 through 1988. Other organizations with which
she is involved include the Hawaii State Association
of Counties, the Mililani Hongwanji, Mililani YMCA,
Honolulu Japanese Chamber of Commerce, Goodwill
17
<PAGE>
Industries, Great Aloha Run, Salvation Army, Wahiawa
Lions, Muscular Dystrophy Association of Hawaii.
Ricky C. Manayan is president/general manager of
KISS-AM Radio Station, Inc. He has been a director of
the Company since 1995. His other business interests
or affiliations include Ricky C. Manayan, Inc., Ricky
Manayan Associates and Transpacific Empire, Inc. He
is an Authorized Exclusive Distributor for RAM
Telecommunications, and is President of the East-West
Real Estate Co., Inc.
OTHER EXECUTIVE OFFICERS ARE AS FOLLOWS:
David Fujishige has been employed by the Company since
1989. He has been a funeral director since 1991. He
has been a vice president of the Company since 1994.
Prior to joining the Company, he was a food production
supervisor at Rehabilitation Hospital of the Pacific.
Keith Numazu has been employed by the Company since
1992. He has been treasurer of the Company since 1994.
He has been an assistant bookkeeper and programmer
since 1992. Prior to joining the Company, he was a
systems operator/analyst for Consolidated Amusement,
Inc. and a senior systems analyst/programmer for
Holmes and Narver, Inc. and Raytheon Services Nevada.
Elaine Nakamura has been employed by the Company since
1963. She is the secretary of the Company.
18
<PAGE>
<TABLE>
Directors and Executive Officers of the Company
<CAPTION>
Director No. Of Yrs.
Name Age Office Since Family Relationship Employed
<S> <C> <C> <C> <C> <C>
Sadako Hosoi 79 Director 1957 Mother of Julie S. 11
Shimonishi, Director
Clifford Hosoi, Director
and President, and Anne
Tamori, Director and
Vice President
Rene Mansho 48 Director/ 1993 None 0
Chairperson
of the Board
Clifford Hosoi 48 Director/ 1991 Son of Sadako Hosoi, 17
President Brother of Julie S.
Shimonishi and
Anne Tamori
Julie S. 50 Director 1979 Daughter of Sadako Part-time
Shimonishi Hosoi, Sister of since 1990
Clifford Hosoi and
Anne T. Tamori
Roy T. 55 Director 1979 None 0
Shimonishi
Ricky C. 38 Director 1995 None 0
Manayan
Berton T. 49 Director 1996 None 0
Kato
Robert 49 Director 1995 None 0
Kuwahara
Richard B. 52 Director 1995 None 0
Dole
19
<PAGE>
<CAPTION>
Director/
Officer No. of Years No. of Yrs.
Name Age Office Since Family Relationship Employed
<S> <C> <C> <C> <C> <C>
Anne T. 49 Director/ 1994 Daughter of Sadako 19
Tamori Vice Pres. Hosoi, Sister of
Clifford Hosoi and
Julie S. Shimonishi
Elaine 58 Secretary 1972 None 34
Nakamura
David 49 Vice 1994 None 8
Fujishige President
Keith Numazu 35 Treasurer 1994 None 5
<FN>
None of the directors of the Company is a director of
an investment company or another company registered
under the Securities Exchange Act of 1934. All officers
serve at the pleasure of the Board of Directors.
</FN>
</TABLE>
CERTAIN REPORTS. The Company has been informed that
none of its directors, officers or holders of ten
percent or more of its securities were required to file
Forms 3 or 4 during the fiscal year ended May 31, 1997,
and that during this same time period none of the
holders of five percent or more of the Company's
securities were required to file a report on Schedule
13D.
ITEM 10.EXECUTIVE COMPENSATION
The following sets forth the information, on an accrual
basis, with respect to the compensation of the chief
executive officer of the Company for the three fiscal
years ended May 31, 1997.
20
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION - ANNUAL COMPENSATION
Year ended Annual All Other
Name and Position May 31 Compensation Compensation
<S> <C> <C> <C>
Clifford Hosoi 1995 $48,254 $ 8,640 (1)
President/Chief 1996 $60,502 $ 10,447 (2)
Executive Officer 1997 $54,759 $ 7,955 (3)
<FN>
(1) Amount shown includes $2,343 contributed to the
Company's Money Purchase Pension Plan, $4,897
contributed to the Company's Profit Sharing Plan and
$1,400 fees paid as a director.
(2) Amount shown includes $3,025 contributed to the
Company's Money Purchase Pension Plan, $3,817
contributed to the Company's Profit Sharing Plan and
$1,325 fees paid as a director.
(3) Amount shown includes $2,738 contributed to the
Company's Money Purchase Pension Plan, $6,097
contributed to the Company's Profit Sharing Plan and
$1,400 fees paid as a director.
</FN>
</TABLE>
The total annual salary and bonus for any other
executive officer does not exceed $100,000.
The standard fees paid to directors are $100 for each
Board of Directors meeting attended and $25 for each
committee meeting attended.
COMPENSATION PURSUANT TO PLANS.
(a)PROFIT-SHARING PLAN. The Company has established a
profit-sharing plan for the Company's employees. Every
employee, who has completed one year of service with
the Company, becomes eligible to participate in the
profit-sharing plan. An employee who has completed
1,000 hours of service commencing from the date of
employment or an anniversary date is considered to have
one year of service.
The Company's contribution to the profit-sharing plan
is discretionary and may be
21
<PAGE>
up to 15% of the participant's eligible compensation.
The Company's total contributions shall not exceed
the amount allowable by income tax regulations.
The amounts charged against income for the
profit-sharing plan in 1997 and 1996 were $37,000 and
$46,600, respectively. The Company's allocation of
contributions among eligible members is based on their
respective compensation and is allocated
proportionately.
The investment decision for the profit-sharing plan is
formulated by a registered investment advisor through
Hawaiian Trust Company, Ltd.
(b)MONEY PURCHASE PENSION PLAN. The Company has
established a money purchase pension plan, which became
effective as of June 1, 1990, for the Company's
employees. Every employee, who has completed one year
of service with the Company, becomes eligible to
participate in the money purchase plan. An employee
who has completed 1,000 hours of service commencing
from the date of employment or an anniversary date is
considered to have one year of service.
The Company is required to contribute 5% of each
participant's eligible compensation to the money
purchase plan. The Company's total contributions
cannot exceed the amount allowable by income tax
regulations. The amounts charged against income for
the money purchase pension plan in 1997 and 1996 were
$27,122 and $19,316, respectively.
The investment decision for the money purchase plan is
formulated by a registered investment advisor through
Smith Barney, Inc.
22
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS & MANAGEMENT
A. PRINCIPAL SHAREHOLDERS
The Herman S. Hosoi Trust, whose trustees are Sadako
Hosoi and Julie S. Shimonishi, and the Hosoi Family
Limited Partnership, whose general partner is the Hosoi
Family Voting Trust, by its trustee Julie S.
Shimonishi, are the only persons who own of record or
are known to the Company to own beneficially more than
five percent of the common shares of the Company as of
May 31, 1997. Certain information about the holders is
set forth below.
<TABLE>
<CAPTION>
Nature of
Title of Name and Address of Beneficial No. of Percent of
Class Beneficial Owner Ownership Shares Class
<S> <C> <C> <C> <C>
Common Julie S. Shimonishi Co-trustee of 158,250 8.86%
30 N. Kukui Street the Herman S.
Honolulu, HI 96817 Hosoi Trust
General Partner of 160,250 8.97%
the Hosoi Family
Limited Partnership,
as Trustee of the
Hosoi Family
Voting Trust
Custodian for Chad 8,000 0.45%
Shimonishi and Lane
Shimonishi under
HUGMA
Direct 52,534 2.94%
Total 379,034 21.22%
23
<PAGE>
<CAPTION>
Nature of
Title of Name and Address of Beneficial No. of Percent of
Class Beneficial Owner Ownership Shares Class
<S> <C> <C> <C> <C>
Common Sadako Hosoi Co-trustee of 158,250 8.86%
30 N. Kukui Street the Herman S.
Honolulu, HI 96817 Hosoi Trust
Settlor of the Hosoi 160,250 8.97%
Family Voting Trust
and limited partner
of the Hosoi Family
Limited Partnership
Total 318,500 17.83%
Common Herman S. Hosoi Trust Direct 158,250 8.86%
Sadako Hosoi and
Julie S. Shimonishi,
Trustees
30 N. Kukui Street
Honolulu, HI 96817
Common Hosoi Family Limited Direct 160,250 8.97%
Partnership (1)
30 N. Kukui Street
Honolulu, HI 96817
<FN>
The Sadako Hosoi Trust, by its trustees Sadako Hosoi
and Julie S. Shimonishi, transferred 160,250 shares of
the Company to the Hosoi Family Limited Partnership,
whose general partner is the Hosoi Family Voting Trust,
by its trustee Julie S. Shimonishi, and whose limited
partner is Sadako Hosoi. Julie S. Shimonishi, as
trustee, exercises voting and investment powers over
those shares pursuant to the Hosoi Family Voting Trust
Agreement dated December 30, 1994, between Sadako
Hosoi, as settlor, and Julie S. Shimonishi, as trustee.
</FN>
</TABLE>
24
<PAGE>
B. DIRECTORS AND EXECUTIVE OFFICERS
Certain information with respect to the holdings of
Common Stock of the directors and executive officers of
the Company as of May 31, 1997, is set forth below.
<TABLE>
<CAPTION>
Title of Name of Amount and Nature of Percent of
Class Beneficial Owner (1) Beneficial Ownership (2) Class
<S> <C> <C> <C>
Common Julie S. Shimonishi 379,034 (6) 21.22%
Common Sadako Hosoi 318,500 (4) 17.83%
Common Clifford Hosoi 52,532 (3) 2.94%
Common Anne T. Tamori 56,534 (7) 3.17%
All directors and officers 806,600 45.16%
as a group (13 persons) (2)
<FN>
(1) The address of each person is 30 N. Kukui Street,
Honolulu, Hawaii 96817.
(2) Roy T. Shimonishi, who resigned as a director in
1997, Rene Mansho, Ricky C. Manayan, Berton T. Kato,
Richard B. Dole and Robert Kuwahara, who are currently
serving as directors, and Elaine Nakamura, David
Fujishige and Keith Numazu, who are currently serving
as officers, do not own any shares of the Company.
(3) Voting and investment powers exercised solely.
(4) Voting and investment powers over 158,250 shares
of the Company are shared by Sadako Hosoi and Julie S.
Shimonishi, as Trustees of the Herman S. Hosoi Trust,
which owns 158,250 shares of the Company.
Voting and investment power over 160,250 shares of the
Company are exercised by Julie S. Shimonishi, as
trustee under the Hosoi Family Voting Trust. See the
preceding table for more information about the Hosoi
Family Limited Partnership and the Hosoi Family Voting
Trust.
(5) Voting and investment powers are shared with spouse.
</FN>
25
<PAGE>
<FN>
(6) Includes:
<C> <C>
52,534 shares (3.17%) as to which Ms. Shimonishi exercises
sole voting and investment powers;
8,000 shares (0.45%) as to which Ms. Shimonishi exercises
sole voting and investment powers as
Custodian for Chad Shimonishi and
Lane Shimonishi under HUGMA;
158,250 shares (8.86%) as to which Ms. Shimonishi and Sadako
Hosoi share voting and investment
powers as trustees of the Herman S.
Hosoi Trust; and
160,250 shares (8.97%) as to which Ms. Shimonishi, as trustee
of the Hosoi Family Voting Trust, has
voting and investment powers over the
shares owned by the Hosoi Family
Limited Partnership.
(7) Includes:
<C> <C>
52,534 shares (2.94%) as to which Ms. Tamori exercises sole
voting and investment powers; and
4,000 shares (0.22%) as to which Ms. Tamori exercises sole
voting and investment powers for Ryan
Tamori under HUGMA.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See Item 2 on page 6 of this Report and Footnote 12 on
page F-18 of the Company's Financial Statements, for
information about the lease between the Company and the
Herman S. Hosoi Trust and the Hosoi-Tamori-Shimonishi
Trust.
26
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
A. EXHIBITS
Except as noted, the following exhibits were previously
filed on August 31, 1981, as exhibits to Form 10-K for
the fiscal year ended May 31, 1981, for the Company
and are incorporated herein by reference:
(2) PLAN OF PURCHASE, SALE, REORGANIZATION,
ARRANGEMENT, LIQUIDATION AND SUCCESSION
(3) ARTICLES OF ASSOCIATION AND BY LAWS
(a) Articles of Association, Affidavit of
Officers and Supplemental affidavit of
incorporation filed May 31, 1957
(1) Amendments
(i) January 18, 1962
(ii) January 16, 1963
(iii) February 3, 1972
(iv) February 2, 1977
(v) March 31, 1978
(vi) July 23, 1993 (1)
(b) By Laws dated May 31, 1957
(1) Amendments
(i) January 30, 1972
(ii) March 31, 1978
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY
HOLDERS, INCLUDING INDENTURES
(a) Equity securities: Articles of Association and
Affidavit of Officers, Certificate of Amendment
filed January 16, 1963, in the Hawaii Department
of Regulatory Agencies.
(b) Debt securities: Not applicable.
27
<PAGE>
(9) VOTING TRUST AGREEMENT
Hosoi Family Voting Trust Agreement dated December
30, 1994, between Sadako Hosoi, as settlor, and
Julie S. Shimonishi, as trustee, covering 160,250
shares owned by the Hosoi Family Limited
Partnership. (5)
(10) MATERIAL CONTRACTS
(i) Lease between the Company, as lessee, and
Sadako Hosoi and Julie Sakaye Shimonishi,
as trustees of the Herman S. Hosoi Trust,
and Clifford Isamu Sadao Hosoi, Anne Ume
Toyo Tamori and Julie Sakaye Shimonishi,
as trustees under the
Hosoi-Tamori-Shimonishi Trust, as lessor,
dated as of July 10, 1990. (2)
(ii) Deed conveying the interest of the late
Herman Hosoi to the Trustees of the Herman
S. Hosoi Trust, dated February 27, 1978.
(iii) Profit-sharing Plan. (3)
(iv) Annuities. (3)
(v) Amendment to profit-sharing plan. (4)
[FN]
(1) Filed August 30, 1993, as an exhibit to the
Annual Report on Form 10-KSB for the year ended May
31, 1993.
(2) Filed August 28, 1990, as an exhibit to the
Annual Report on Form 10-K for the year ended May
31, 1990.
(3) Filed August 30, 1984, as Exhibit 19 to the
Annual Report on Form 10-K for the year ended May
31, 1984.
(4) Filed August 30, 1985, as Exhibit 19 to the
Annual Report on Form 10-K for the year ended May
31, 1985.
(5) Filed August 30, 1995, as an exhibit to this
Annual Report on Form 10-KSB for the year ended
May 31, 1995.
</FN>
(11) STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
Not applicable.
28
<PAGE>
(13) ANNUAL REPORT TO SECURITY HOLDERS, FORM 10-Q OR
QUARTERLY REPORT TO SECURITY HOLDERS, FORM 10-Q
OR QUARTERLY REPORT TO SECURITIES HOLDERS
Not applicable.
(16) LETTER ON CHANGE IN CERTIFYING ACCOUNTANTS
Not applicable.
(18) LETTER RE CHANGE IN ACCOUNTING PRINCIPLES
Not applicable.
(21) SUBSIDIARIES OF THE REGISTRANT
Garden Life Plan, Ltd., a Hawaii corporation,
is 50 percent owned by the Company.
(22) PUBLISHED REPORT REGARDING MATTERS SUBMITTED TO
TO VOTE OF SECURITY HOLDERS
Not applicable.
(23) CONSENTS OF EXPERTS AND COUNSEL
Not applicable.
(24) POWER OF ATTORNEY
Not applicable.
(28) INFORMATION FROM REPORTS TO STATE INSURANCE
REGULATORY AUTHORITIES
Not applicable.
(99) ADDITIONAL EXHIBITS
Not applicable.
B. REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K in the
quarter ended May 31, 1997.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the
registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: Honolulu, Hawaii, August 29, 1997.
HOSOI GARDEN MORTUARY, INC.
By CLIFFORD HOSOI
President
30
<PAGE>
Pursuant to the requirements of the Securities
Exchange Act of 1934, this Form 10-KSB for the year
ended May 31, 1997, has been signed below by the
following persons on behalf of the registrant and
in the capacity and on the date indicated.
RENE MANSHO Date: August 29, 1997
Director and Chairperson
of the Board of Directors
CLIFFORD HOSOI Date: August 29, 1997
Director, President and
Chief Executive Officer
RICHARD B. DOLE Date: August 29, 1997
Director
SADAKO HOSOI Date: August 29, 1997
Director
BERTON T. KATO Date: August 29, 1997
Director
ROBERT KUWAHARA Date: August 29, 1997
Director
RICKY C. MANAYAN Date: August 29, 1997
Director
JULIE S. SHIMONISHI Date: August 29, 1997
Director
ANNE T. TAMORI Date: August 29, 1997
Director
31
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
HOSOI GARDEN MORTUARY, INC.
We have audited the balance sheets of
HOSOI GARDEN MORTUARY, INC.
as of May 31, 1997 and 1996, and the related
statements of income, retained earnings and cash flows
for the years then ended. The financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audits. We did not
audit the financial statements of Garden Life Plan,
Ltd., (50% owned subsidiary accounted for by the equity
method) for its years then ended May 31, 1997 and 1996,
which accounts for 23.3% and 24.5% of total assets and
87.8% and 58.5% of net income in 1997 and 1996
respectively. Those statements were audited by other
auditors whose reports have been furnished to us, and
our opinion, insofar as it relates to the amounts
included in the Company's equity in the underlying net
assets and its equity in the earnings of the subsidiary
is based solely on the report of the other auditors.
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 and the reports of other auditors provide a
reasonable basis for our opinion.
F-1
<PAGE>
In our opinion, based upon our audits and the reports
of other auditors, the financial statements referred
to above present fairly, in all material respects, the
financial position of HOSOI GARDEN MORTUARY, INC. as of
May 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended
in conformity with generally accepted accounting
principles.
ENDO & COMPANY
Honolulu, Hawaii
August 8, 1997
F-2
<PAGE>
<TABLE>
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEETS
_ _ _ _ _ _ _ _ _ _ _ _
May 31, 1997 and 1996
<CAPTION>
1996 (As
1997 Restated)
<S> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 3) $ 776,095 $ 710,978
Time certificate of deposit - 200,000
Securities available for sale, at market
(Notes 1 and 4) 906,020 805,484
Accounts receivable, less allowance of
$69,724 and $63,923 303,102 325,749
Inventories (Note 1) 136,946 112,215
Prepaid expenses and others 64,453 61,519
Deferred income taxes (Note 5) 140,242 104,430
TOTAL CURRENT ASSETS 2,326,858 2,320,375
INVESTMENTS
Garden Life Plan, Ltd. (Notes 1 and 2) 1,548,009 1,303,360
Cemetery plots 1,350 1,350
Securities held to maturity, at cost
(Notes 1 and 4) 1,101,423 69,834
2,650,782 1,374,544
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation (Notes 1 and 6) 1,551,948 1,586,954
OTHER ASSETS 125,184 127,960
TOTAL ASSETS $6,654,772 $5,409,833
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable (Note 7) $ 352,689 $ 244,619
Accrued liabilities (Note 8) 369,199 312,235
Income taxes payable (Note 9) 76,716 35,703
Note payable - 685
TOTAL CURRENT LIABILITIES 798,604 593,242
DEFERRED INCOME TAXES (Note 5) 123,751 92,234
S T O C K H O L D E R S ' E Q U I T Y
CAPITAL CONTRIBUTED (Note 10)
Common stock, par value $.20 per share;
authorized 3,625,000 shares, issued
2,187,140 shares 437,428 437,428
Less 186,095 and 143,925 reacquired shares (37,439) (29,005)
TOTAL CAPITAL CONTRIBUTED 399,989 408,423
UNREALIZED GAINS ON SECURITIES
AVAILABLE-FOR-SALE, net of applicable
deferred income taxes (Notes 1 and 4) 46,998 32,503
RETAINED EARNINGS 5,366,712 4,364,713
TREASURY STOCK, 223,785 shares, at cost
(Note 10) (81,282) (81,282)
TOTAL STOCKHOLDERS' EQUITY 5,732,417 4,724,357
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,654,772 $5,409,833
<FN>
The accompanying Notes to Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
F - 3
<PAGE>
<TABLE>
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF INCOME
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
<CAPTION>
1997 1996 (As
Restated)
<S> <C> <C>
Revenues
Sale of urns and other items $ 782,467 $ 806,791
Funeral services 2,087,770 1,933,075
Total revenues 2,870,237 2,739,866
Cost of sales and services 2,100,481 2,023,851
Gross profit 769,756 716,015
Selling, general and administrative expenses
Salaries and wages 248,156 233,143
Profit sharing and pension fund contributions
(Note 11) 64,122 65,916
Professional services 233,437 184,215
Taxes and license 27,930 25,687
Advertising 38,635 29,058
Others 111,362 105,302
Total selling, general and administrative
expenses 723,642 643,321
Operating income 46,114 72,694
Other income (expenses)
Interest, dividends, and others (Note 13) 192,500 144,695
Interest and others (1,001) (12,240)
Total other income (expenses) 191,499 132,455
Income before income taxes and equity in
earnings of Garden Life Plan, Ltd. 237,613 205,149
Income taxes (Note 9) 86,745 84,544
Income before equity in earnings of
Garden Life Plan, Ltd. 150,868 120,605
Equity in earnings of Garden Life Plan,
Ltd., net of deferred taxes of
$95,050 and $20,441 (Notes 2 and 5) 1,093,897 235,324
Net income $ 1,244,765 $ 355,929
Average number of shares common stock
outstanding 1,797,907 1,828,809
Earnings per common share (Note 1) $ .69 $ .19
Dividends per common share $ .045 $ .045
<FN>
The accompanying Notes to Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
F - 4
<PAGE>
<TABLE>
HOSOI GARDEN MORTUARY, INC.
STATEMENT OF RETAINED EARNINGS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
<CAPTION>
1996 (As
1997 Restated)
<S> <C> <C>
Balance beginning of year, as
previously reported $4,487,897 $4,240,377
Retroactive Rent, net of deferred taxes of
$68,035 and $34,017 (Note 16) (93,089) (46,545)
Prior year income tax assessment (Note 16) (30,094) (30,094)
Balance beginning of year, as restated 4,364,714 4,163,738
Add: Net income for the year 1,244,765 355,929
Less: Cash dividends paid,
$.045 and $.045 per share (81,572) (82,419)
Common stock reacquired in excess
of par value (Note 10) (161,195) (72,535)
Balance end of year $5,366,712 $4,364,713
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</FN>
</TABLE>
F - 5
<PAGE>
<TABLE>
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
<CAPTION>
1996 (As
1997 Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $1,244,765 $ 355,929
Adjustments to reconcile net income to net
cash and cash equivalents provided by
operating activities:
Depreciation 63,343 67,198
Loss on write-off of assets 479 7,853
Realized gain on sale of investment
securities, net (53,621) (9,834)
Increase in allowance for doubtful accounts 5,801 19,436
Undistributed earnings of affiliate (1,188,947) (255,765)
Cash value of life insurance policies 5,587 (5,140)
Deferred income taxes 60,646 (989)
(Increase) decrease in certain assets:
Accounts receivable 16,846 (37,636)
Income taxes receivable - 54,246
Inventories (24,731) (908)
Prepaid expenses and others (2,934) 7,324
Other assets - (18,834)
(Decrease) increase in certain liabilities
Accounts payable 108,070 (62,044)
Accrued liabilities 56,964 100,279
Income taxes payable 41,013 11,881
Note payable (685) -
Decrease in deferred income taxes (75,468) -
NET CASH PROVIDED BY OPERATING ACTIVITIES 257,128 232,996
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (28,816) (107,501)
Purchase of time certificate of deposit - (200,000)
Redemption of time certificate of deposit 200,000 -
Dividend from Garden Life Plan Ltd. 944,298 -
Proceeds from sale of investment securities 683,126 229,363
Increase in investment securities (1,736,607) (223,687)
Increase in cash value of life insurance policies (2,811) -
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 59,190 (301,825)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of reacquired stocks (169,629) (76,481)
Cash dividends paid (81,572) (82,419)
NET CASH USED IN FINANCING ACTIVITIES (251,201) (158,900)
NET INCREASE (DECREASE) 65,117 (227,729)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 710,978 938,707
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 776,095 $ 710,978
<FN>
The accompanying Notes to Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
F - 6
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Investment in Garden Life Plan, Ltd. - The Company
accounts for its investment in Garden Life Plan, Ltd.
(50% owned Company) by the equity method. The equity
in earnings of Garden Life Plan, Ltd. reflected on the
statements of income includes the pro rata share of the
earnings of Garden Life Plan, Ltd., net of income
taxes applicable to such earnings, for its years ended
May 31, 1997 and 1996.
Inventories - Inventories of caskets and urns are
stated at the lower of cost or market. Cost is
determined substantially by the first-in, first-out
method and market is based on replacement cost or
realizable value.
Property and equipment - Land, buildings and equipment
are carried at cost. Depreciation is computed using
the declining-balance and straight-line methods.
Maintenance and repairs are charged to income as
incurred. Major renewals and betterments are
capitalized. Upon sale or other disposition of assets,
the cost and related accumulated depreciation are
removed from the accounts, the proceeds applied
thereto, and any resulting gain or loss is reflected
in income.
Compensated absences - Full-time employees of the
Company are entitled to paid vacations and sick days.
Unused vacation and sick leave are reflected in accrued
liabilities.
Earnings per common share - Earnings per common share
has been computed by dividing net income by the
weighted average number of common shares outstanding.
Revenue and cost recognition - Revenues from at-need
funeral services and pre-need funeral plan services are
recognized upon the completion of the final funeral
ceremony. Revenues from at-need funeral services
include professional service revenues which are
included in FUNERAL SERVICES and sales of caskets, urns
and other items which are included in SALE OF URNS AND
OTHER ITEMS. Revenues from pre-need services, which
accounted for approximately 25.5% and 22.6% of funeral
service revenues in 1997 and 1996, respectively, are
accounted for in FUNERAL SERVICES since these plans are
sold inclusive of the merchandise selected.
F - 8
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Cost of sales and services includes all direct cost,
including merchandise, labor and other related cost
and indirect cost such as insurance, depreciation,
supplies and indirect labor costs, related to the
performance and completion of at-need and pre-need
funeral services.
Advertising - The Company follows the policy of
charging the costs of advertising to operations as
incurred.
Income taxes - Income tax expense is based on reported
earnings before income taxes. Deferred income taxes
reflect the impact of temporary differences between
assets and liabilities recognized for financial
reporting purposes and such amounts recognized for
tax purposes. In accordance with Statement of
Financial Accounting Standards (SFAS) 109, ACCOUNTING
FOR INCOME TAXES, these deferred taxes are measured by
applying currently enacted tax laws.
Use of estimates - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements, and the reported amounts of
revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
(2) 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 the Company.
F - 9
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(2) GARDEN LIFE PLAN, LTD. (CONTINUED)
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 (Trust) to be held in
trust. GLP is entitled to all earnings from funds held
in trust which earnings amounted to $1,641,352 and
$705,222 for the years ended May 31, 1997 and 1996,
respectively. The assets of the Trust are not included
in the financial statements of the Company 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 taxes of $964,885) and is
reflected in GLP's net income of $2,377,893 as shown
below.
Audited financial statements of this subsidiary as of
May 31, 1997 and 1996 showed the following summarized
financial position and results of operations.
<TABLE>
<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 income (loss) $ 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 $ 511,530
</TABLE>
F - 10
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(2) GARDEN LIFE PLAN, LTD. (CONTINUED)
INVESTMENT IN GARDEN LIFE PLAN, LTD. as of May 31,
1997 and 1996 is accounted for as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Stockholders' equity of Garden Life
Plan, Ltd., beginning of the year $ 3,096,012 $ 2,606,715
Equity ownership 50% 50%
1,548,006 1,303,358
Rounding 3 2
Total investment in Garden Life Plan, Ltd. $ 1,548,009 $ 1,303,360
</TABLE>
(3) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash on hand $ 500 $ 4,772
Checking accounts 122,306 80,235
Savings accounts 354,486 512,755
Certificate of deposit 200,000 -
Short-term investments 98,803 113,216
Total cash and cash equivalents $ 776,095 $ 710,978
</TABLE>
F - 11
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(4) Investment securities
At May 31, 1997 and 1996, the Company held investments
in the following types of securities:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
<S> <C> <C> <C> <C>
May 31, 1997
Available for sale
Equity securities $ 84,713 $ 36,233 $ 2,698 $ 118,248
Mutual funds 740,181 50,630 3,039 787,772
824,894 86,863 5,737 906,020
Held to maturity
U.S. Treasury bills 1,101,423 5,103 4,226 1,102,300
Totals $1,926,317 $ 91,966 $ 9,963 $2,008,320
May 31, 1996
Available for sale
Equity securities $ 76,601 $ 17,946 $ 2,147 $ 92,400
Mutual funds 672,781 43,241 2,938 713,084
749,382 61,187 5,085 805,484
Held to maturity
U.S. Treasury bills 69,834 - 3,864 65,970
Totals $ 819,216 $ 61,187 $ 8,949 $ 871,454
</TABLE>
The maturities of all debt securities held at
May 31, 1997 were:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Within 1 year $ - $ - $ 1,001,868 $ 1,006,971
After 1 year
through 5 years - - 99,555 95,329
After 5 years - - - -
$ - $ - $ 1,101,423 $ 1,102,300
</TABLE>
F - 12
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(4) Investment securities (continued)
During the year ended May 31, 1997, the Company sold
securities available for sale for $683,126. The net
gross realized gain of $53,621 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.
During the year ended May 31, 1996, the Company sold
securities available for sale for $229,363. The net
gross realized gain of $9,834 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 during the years ended May 31,
1997 and 1996, and reported as a separate component
of Stockholders' Equity are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Unrealized holding gains, net of losses $ 81,126 $ 56,102
Deferred income tax on the net
unrealized holding gains (34,128) (23,599)
$ 46,998 $ 32,503
</TABLE>
(5) Deferred income taxes
Deferred taxes are recognized for differences between
the basis of assets and liabilities for financial
statement 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 or
losses on securities for financial statements and
the recognition of gains or losses when securities are
sold for income tax purposes, the inclusion of the
deferred earnings on an annuity for financial
statements and the recognition of the earnings when
received for tax purposes
F - 13
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(5) Deferred income taxes (continued)
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.
(6) Property and equipment
Property and equipment consist of:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 517,040 $ 517,040
Buildings 1,262,530 1,262,530
Land improvements 94,710 94,710
Equipment and vehicles 333,926 307,794
Total cost 2,208,206 2,182,074
Accumulated depreciation 656,258 595,120
Net property and equipment $1,551,948 $1,586,954
</TABLE>
Aggregate depreciation charged to operations
are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cost of sales and services $ 57,709 $ 54,105
Selling, general and
administrative expenses 5,634 13,093
$ 63,343 $ 67,198
</TABLE>
F - 14
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(7) Funeral service deposits
Included in accounts payable is $32,564 of deposits
made by eleven individuals that the Company has been
collecting from since 1969 for future services or
purchase of merchandise. The payable of $32,564,
including interest of $24,539 accrued to May 31, 1997,
approximates fair value.
In an agreement with the Professional and Vocational
Licensing Division of the State of Hawaii, Department
of Commerce and Consumer Affairs (DCCA), the Company
consented to a plan to either convert these funeral
service deposits to a Garden Life Plan, Ltd.'s (GLP)
pre-need funeral plan identical to the services and/or
merchandise that the depositor originally contracted
for or refund the deposit plus accrued interest. The
agreement with the DCCA provides that the Company will
provide the funds for any difference between the cost
of a comparable GLP pre-need plan and the amount
deposited with the Company.
As of May 31, 1997, twenty-seven plans have been
converted to GLP pre-need plans. The difference
between the cost of plans converted and the amount of
the available deposit is reflected as a charge to
operations. Eleven plans remain to be converted. No
provision has been made for the cost of conversion of
the remaining eleven plans because of the uncertainty
of whether the holders of the deposits will elect to
convert to a GLP pre-need plan or elect to receive a
refund.
F - 15
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(8) Accrued liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1996 (As
1997 Restated
<S> <C> <C>
Salaries and wages $ 16,492 $ 19,468
Bonus accrued 10,000 20,000
Payroll and general excise taxes 12,222 13,920
Accrued rent payable (Note 16) 241,686 161,124
Profit sharing and money-purchase
plan contributions (Note 12) 64,122 65,921
Vacation and sick leave 24,677 31,802
Total accrued liabilities $ 369,199 $ 312,235
</TABLE>
(9) Income taxes
The provisions for income taxes consist of the
following:
<TABLE>
<CAPTION>
1996 (As
1997 Restated
<S> <C> <C>
Current:
Federal $ 104,734 $ 89,629
State 16,415 16,344
121,149 105,973
Deferred:
Federal (30,193) (19,173)
State (4,211) (2,256)
(34,404) (21,429)
Total $ 86,745 $ 84,544
</TABLE>
F - 16
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(9) Income taxes (continued)
A reconciliation of income taxes at the United States
statutory rate, as a percentage of pretax income, to
the effective tax rate is as follows:
<TABLE>
<CAPTION>
1996 (As
1997 Restated)
<S> <C> <C>
Federal income tax statutory rate 34.0% 34.0%
Benefit of graduated tax rates - (1.7)
State income tax, net of tax benefit 9.4 5.0
Others, net (6.9) 3.9
Effective tax rate 36.5% 41.2%
</TABLE>
(10) 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. Purchases
of 42,170 and 19,980 reacquired shares in 1997 and
1996, respectively, exceeded the balance of additional
paid-in capital and a charge of $161,195 and $72,535
for 1997 and 1996, respectively, were made to Retained
Earnings for the excess of reacquired shares in excess
of their par value.
The 223,785 shares reflected as Treasury Stock as of
May 31, 1997 reflects the shares acquired before July
1, 1987.
F - 17
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(11) Retirement plans
The Company provides benefits to substantially all
full-time employees with a defined contribution profit
sharing plan and a money-purchase pension plan. Both
plans are non-contributory plans.
The money-purchase pension plan was adopted on June 1,
1990 and provides benefits to employees after one
year of service and upon completion of 1,000 hours of
service each year. The required contribution under
this plan is five-percent of compensation of all
employees who qualify.
Contribution to the defined contribution profit sharing
plan is discretionary up to a maximum of
fifteen-percent of compensation of eligible employees
after one year of service and upon completion of 1,000
hours of service each year.
Amounts charged against income for the retirement
benefit plans are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Profit sharing $ 37,000 $ 46,600
Money-purchase 27,122 19,316
$ 64,122 $ 65,916
</TABLE>
(12) Lease
The Company leases the land on which the mortuary is
situated from the Herman S. Hosoi Trust and the
Hosoi-Tamori-Shimonishi Trust (Trusts) which
respectively owns a 13% and 12% interest in the land.
As a group, members of the Hosoi family own
approximately 24.61% of the outstanding shares of the
Company. The lease which was for a term of five years
expired on May 31, 1994. In August 1997 terms for the
lease, retroactive to June 1, 1994, were agreed to
between the Company and the Trusts. The retroactive
agreement provides for an annual lease rent of
$312,498, including general excise. In addition, the
Company is responsible for the payment of real property
taxes on the share of the property owned by the Trust.
Total rental expense were $356,432 and $356,430 in 1997
and 1996, respectively.
F - 18
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(12) Lease (continued)
Future minimum lease payments under the lease at
May 31, 1997 are:
<TABLE>
<CAPTION>
To Amount
<S> <C>
May 31, 1998 $ 312,498
May 31, 1999 312,498
Total minimum payments $ 624,996
</TABLE>
On April 24, 1992, the Company entered into an
operating lease for a hearse. The term of the lease is
60 months and will expire on August 21, 1997. The
noncancellable operating lease requires monthly
payments of $1,151. The lease agreement also requires
that the Company pays all costs of operating the
vehicle. Lease rent expense was $13,812 for 1997
and 1996.
The expected minimum lease payments required under the
operating lease are as follows:
<TABLE>
<C> <C>
May 31, 1998 $ 2,302
</TABLE>
(13) Other income
Other income consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Interest $ 74,431 $ 79,037
Capital gains and dividends 64,586 14,899
Parking 39,597 45,070
Others 13,886 5,689
Total other income $ 192,500 $ 144,695
</TABLE>
F - 19
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(14) Cash flow supplementary disclosure
Cash payments for interest and income taxes were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Interest $ 2,559 $ 670
Income taxes $ 154,967 $ 53,217
</TABLE>
The Company had a non cash transaction during the year
ended May 31, 1997 consisting of the surrender of a
life insurance policy on the life of the former
President for $64,317 which was used to purchase a
policy for the Company's current President.
(15) Concentrations of credit risk of financial instruments
The Company's cash and cash equivalents are deposited
with five local financial institutions. For the year
ended May 31, 1997, the Company had deposits in two
financial institutions in excess of the deposit
insurance of $100,000. At May 31, 1997 and 1996, the
Company's uninsured cash balance total $419,221 and
$617,302, respectively.
The Company performs funeral services for deaths
occurring principally on the island of Oahu located in
the State of Hawaii. In the normal course of business
the Company extends unsecured credit to its customers.
(16) Prior year adjustments
In October 1996, an Internal Revenue Service
examination for the year ended May 31, 1995 was
settled. The settlement resulted in income tax
assessments of $26,333 and $3,761 by the Internal
Revenue Service and the Hawaii State Tax
Collector, respectively, which is reflected as a
adjustment to retained earnings.
F - 20
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1997 and 1996
(16) Prior year adjustments (continued)
The Company exercised it option to renew the lease
on the portion of the land owned by the Herman S. Hosoi
Trust and Hosoi-Tamori-Shimonishi Trust as discussed
in Note (13). As a result, retroactive rents for the
fiscal years ended May 31, 1995 and 1996 has been
reflected as a liability. The financial statements for
the fiscal year ended May 31, 1996 has been restated to
reflect the retroactive accrual, net of deferred taxes
as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Rent accrual for May 31, 1995 $ 80,562 $ 80,562
Rent accrual for May 31, 1996 80,562 -
161,124 80,562
Less deferred taxes (68,035) (34,017)
$ 93,089 $ 46,545
</TABLE>
F - 21
<PAGE>
GARDEN LIFE PLAN, LTD.
Financial Statements and Supplemental Schedules for the
Years Ended May 31, 1997 and 1996 and Independent
Auditors' Report
<PAGE>
GARDEN LIFE PLAN, LTD.
TABLE OF CONTENTS
MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
MAY 31, 1997 AND 1996:
Balance Sheets 2
Statements of Income and Retained Earnings 3
Statements of Cash Flow 4
Notes to Financial Statements 5-8
SUPPLEMENTAL SCHEDULES FOR THE YEARS ENDED
MAY 31, 1997 AND 1996
Supplemental Schedules of Selling Expenses 9
Supplemental Schedules of Administrative Expenses 9
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Garden Life Plan, Ltd.:
We have audited the accompanying balance sheets of
Garden Life Plan, Ltd. as of May 31, 1997 and 1996, and
the related statements of income and retained earnings
and of cash flows for the years then ended. These
financial statements are the responsibility of the
Company's management. Our responsibility is to express
an opinion on these financial statements 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, such financial statements present
fairly, in all material respects, the financial
position of Garden Life Plan, Ltd. at May 31, 1997 and
1996, and the results of its operations and its cash
flows for the years then ended in conformity with
generally accepted accounting principles. As described
in Note 2 to the financial statements, in fiscal 1997,
the Company changed its method of accounting for trust
fund income.
Our audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a
whole. The supplemental schedules listed in the table
of contents are presented for the purpose of additional
analysis and are not a required part of the basic
financial statements. These schedules are the
responsibility of the Company's management. Such
schedules have been subjected to the auditing
procedures applied in our audit of the basic financial
statements and, in our opinion, are fairly stated in
all material respects when considered in relation to
the basic financial statements taken as a whole.
DELOITTE & TOUCHE LLP
August 1, 1997
-1-
<PAGE>
<TABLE>
GARDEN LIFE PLAN, LTD.
BALANCE SHEETS
MAY 31, 1997 AND 1996
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CASH $ 808,750 $ 635,116
CERTIFICATE OF DEPOSIT - Restricted (Note 1) 50,000 50,000
ACCOUNTS AND CONTRACTS RECEIVABLE:
Installment contracts receivable, including
amounts maturing after one year 7,592,527 6,537,492
Less equity of trust fund in receivables
(net of overpayments to the trust fund
of $57,095 and $153,342) (6,896,797) (5,824,312)
695,730 713,180
Less allowance for cancellations (63,000) (62,000)
632,730 651,180
Trust fund income receivable (Note 2) 3,453,552 1,380,343
Total accounts and contracts receivable 4,086,282 2,031,523
INCOME TAXES RECEIVABLE 38,271
DEFERRED INCOME TAXES (Note 4) 240,050
EQUIPMENT - Net of accumulated
depreciation of $44,584 and $29,863 36,626 35,269
TOTAL $ 5,019,929 $ 2,991,958
LIABILITIES AND
STOCKHOLDERS' EQUITY 1997 1996
LIABILITIES:
Accounts payable and accrued liabilities $ 186,463 $ 177,349
Due to trust fund 332,704
Outstanding funeral service coupons (Note 5) 114,750 120,000
Income taxes payable 87,894
Deferred income taxes (Note 4) 1,290,000
Total Liabilities 1,923,917 385,243
STOCKHOLDERS' EQUITY:
Capital stock, authorized, issued and
outstanding, 1,000 shares of no par value 1,000 1,000
Retained Earnings 3,095,012 2,605,715
Stockholders' equity $ 3,096,012 $ 2,606,715
TOTAL $ 5,019,929 $ 2,991,958
<FN>
See notes to financial statements.
</FN>
</TABLE>
-2-
<PAGE>
<TABLE>
GARDEN LIFE PLAN, LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED MAY 31, 1997 AND 1996
<CAPTION>
1997 1996
<S> <C> <C>
REVENUE:
Income from pre-need funeral plan sales $ 1,203,895 $ 1,236,455
Less provision for cancellations (18,986) (7,200)
Total revenue 1,184,909 958,576
SELLING AND ADMINISTRATIVE EXPENSES:
Selling 619,036 494,259
Administrative (Note 5) 393,618 600,561
Total selling and administrative expenses 1,012,654 1,094,820
OPERATING INCOME (LOSS) 172,225 (136,244)
OTHER INCOME:
Trust fund income 1,641,352 705,222
Other - net - 2,552
INCOME BEFORE INCOME TAXES 1,813,607 571,530
INCOME TAXES (Note 4):
Current 444,835 300,050
Deferred 565,165 (240,050)
Total income taxes 1,010,000 60,000
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 803,607 511,530
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE (Note 2) 1,574,286
NET INCOME 2,377,893 511,530
DIVIDENDS PAID (1,888,596)
RETAINED EARNINGS, BEGINNING OF YEAR 2,605,715 2,094,185
RETAINED EARNINGS, END OF YEAR $ 3,095,012 $ 2,605,715
<FN>
See notes to financial statements.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
GARDEN LIFE PLAN, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1997 AND 1996
<CAPTION>
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,377,893 $ 511,530
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle (Note 2) (1,574,286)
Depreciation 14,721 10,478
Deferred income taxes 565,165 (240,050)
Changes in assets and liabilities:
Contracts receivable - net 18,450 128,864
Trust fund income receivable 465,962 90,718
Accounts payable and accrued liabilities 9,114 21,942
Due to trust fund 332,704 (272,742)
Outstanding funeral service coupons (5,250) 120,000
Income taxes payable/receivable (126,165) 81,451
Net cash provided by operating activities 2,078,308 452,191
INVESTING ACTIVITY - Equipment purchases (16,078) (8,708)
FINANCING ACTIVITY - Payment of dividends (1,888,596) -
NET INCREASE IN CASH 173,634 443,483
CASH, BEGINNING OF YEAR 635,116 191,633
CASH, END OF YEAR $ 808,750 $ 635,116
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid for income taxes $ 571,000 $ 219,000
<FN>
See notes to financial statements.
</FN>
</TABLE>
-4-
<PAGE>
GARDEN LIFE PLAN, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Garden Life Plan, Ltd. (the "Company")
is owned by Hawaiian Memorial Park Cemetery ("HMPC")
and Hosoi Garden Mortuary, Inc. ("Hosoi"). Each
company owns 50% of Garden Life Plan, Ltd.
BUSINESS - The Company is a sales organization that
sells pre-need mortuary services. Approximately 25% of
each sales contract is paid in cash and the remainder
is paid under an installment contract over varying
terms but usually 60 months. The first 30% of each
contract is earned and recorded as revenue by the
Company. This amount is used to cover the Company's
initial "acquisition costs" (i.e., sales commissions
and administrative costs) and is not refundable to
customers under the terms of the contract. The
remaining 70% is collected by the Company and paid to
Garden Life Funeral Plan Trust (Trust), a trust
administered by Hawaiian Trust Company, Limited.
If a contract owner dies before the contract is fully
paid, his or her estate must pay the balance of the
contract.
When a contract owner dies, Hosoi provides the
mortuary services and the Trust pays Hosoi for the
contract services at prices stipulated in the
original contract (70% of the contract price). Such
payments are made from Trust principal. Hosoi absorbs
any difference between the actual costs to perform the
contracted services and the amounts received from the
Trust under the terms of the contract. Trust earnings
are payable to the Company and are recorded as income
as earned. Many of the Trust investments are tax
exempt and, accordingly, certain earnings recorded by
the Company are tax exempt.
REVENUE RECOGNITION - Revenue from pre-need funeral
plan sales is recognized at the date of the sale of
the contract.
CERTIFICATE OF DEPOSIT - RESTRICTED - The certificate
of deposit is held by the State of Hawaii as collateral
for insurance purposes, as an alternative to the
Company obtaining a surety bond.
EQUIPMENT - Equipment consists primarily of computer
equipment and software. Depreciation is calculated
on the straight-line method over the estimated useful
lives of the assets.
INCOME TAXES - Income tax expense includes federal
and Hawaii income taxes. Deferred income taxes are
provided for significant temporary differences, if
any, between the financial statement and income tax
bases for assets and liabilities.
ALLOCATION OF EXPENSES - HMPC charges the Company a
management fee to cover allocated facilities and
personnel costs.
-5-
<PAGE>
USE OF ESTIMATES - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date
of the financial statements, and the reported amounts
of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
2. THE TRUST
As the Company collects on its pre-need funeral plans
sales, it is obligated to pay amounts collected in
excess of the first 30% of the original contract price
to the Trust. To ensure that these funds will be
available when the funeral services are performed by
Hosoi, the market value of the Trust assets must equal
or exceed the prospective obligation of the Trust. The
market value of the Trust assets exceeded this
contractual obligation by approximately $3,450,000 and
$3,900,000 at May 31, 1997 and 1996, respectively.
Information relating to Trust investments, obligations
and earnings at May 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
Market Market
INVESTMENTS Cost Value Cost Value
<S> <C> <C> <C> <C>
Hawaiian Tax-Free Trust $ 6,081,470 $ 6,149,598 $ 5,679,143 $ 5,667,222
HTCO Income Stock Fund 1,267,931 4,360,269 2,386,013 4,555,561
Pacific Capital Diversified
Fixed Income Fund 3,475,000 3,481,670
HTCO International Fund 190,700 209,681 190,700 195,680
Tax-Free Securities Fund 3,704,165 4,080,729
Cash 793,770 793,770 292,575 292,575
Total - Trust Net Assets $11,808,871 $14,994,988 $12,252,596 $14,791,767
</TABLE>
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 the trust fund income receivable of
$1,574,286 (net of deferred taxes of $964,885) and is
shown as a "cumulative effect of change in accounting
principle" in the fiscal 1997 statement of income and
retained earnings.
The contractual obligation of the Trust to fund
pre-need funeral plans approximated $11,500,000 and
$10,900,000 at May 31, 1997 and 1996, respectively.
Trust income to be distributed to the Company amounted
to $3,453,552 at May 31, 1997.
The weighted average rate of earnings (including
unrealized gains and losses) on Trust assets
approximated 11% and 10% for the years ended May 31,
1997 and 1996, respectively.
The timing of distribution of the Company's trust
income receivable is generally dependent upon the
market value of the Trust assets in relation to
obligations.
The State of Hawaii requires that an annual actuarial
study be performed on the Trust to determine if Trust
principal along with anticipated future earnings are
sufficient to meet the future liability to plan
purchasers. Results of the study performed as of June
30, 1996 indicate that the value of the fund exceeds
the present value of future claims. The actuarial
study as of May 31, 1997 is not yet available.
However, it is management's opinion that the value of
the fund at May 31, 1997 is sufficient to meet the
future liability to plan purchasers.
-6-
<PAGE>
3. RELATED PARTY TRANSACTIONS
Hosoi is the sole servicing mortuary. Payments made
for services rendered on contracts are made directly
to Hosoi by the Trust and are not reflected in these
financial statements.
The management fee paid to HMPC was $174,000 for the
years ended May 31, 1997 and 1996.
4. INCOME TAXES
A reconciliation between the income tax provision
and the amount computed using the statutory federal
rate of 34% follows:
<TABLE>
<CAPTION>
1996 1995
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Federal provision at statutory $ 616,626 34.0% $ 194,320 34.0%
Adjusted for:
State income taxes (22,630) (1.2) (18,505) (3.2)
Dividend received deduction (20,541) (1.1) (24,949) (4.4)
Reversal of prior years' valuation
allowance relating to alternative
minimum tax - (130,813)(22.9)
Adjustments to prior years' accruals
relating to trust income reporting 353,343 19.4 -
Other 16,642 0.9 (14,481) (2.5)
Provision for federal taxes 943,440 52.0 5,572 1.0
Provision for state taxes 66,560 3.7 54,428 9.5
Total income tax provision $1,010,000 55.7% $ 60,000 10.5%
</TABLE>
The temporary differences which gave rise to
significant portions of deferred taxes at May 31,
1997 and 1996 were adjustments for a change in
accounting method, reserve for cancellations,
timing differences between book and tax recognition
of trust income, and funeral service coupons.
The deferred tax assets and liabilities at May 31,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets $ 455,475 $ 559,640
Deferred tax liabilities (1,745,475) (319,590)
Net $(1,290,000) $ 240,050
5. COMPENSATION OF CHARTER MEMBERS
In October 1995, the Company's Board of Directors moved to
compensate its charter members, for relinquishing their
status as charter members with a final distribution
consisting of an option to receive either $250 in cash or a
$500 coupon for future funeral services. Charter members
are the original customers of the Company, who had received
payments from the Company in prior years at the discretion
of the Board of Directors. The option expired February 29,
1996, at which time all charter members who had not
exercised the $250 cash option were mailed the $500 coupon
for future funeral services. The Company will pay the
servicing mortuary (Hosoi) for such services upon the death
of the charter member and the receipt of the issued coupon.
In fiscal 1996, the Company accrued in administrative
expenses the $210,500 estimated cost of the option,
including cash payments of $90,500 and $120,000 representing
the estimated net present value of the future payments on
coupons outstanding. At May 31, 1997, the net present value
of future payments on coupons outstanding approximated
$114,750.
-8-
<PAGE>
GARDEN LIFE PLAN, LTD.
</TABLE>
<TABLE>
SUPPLEMENTAL SCHEDULES OF SELLING EXPENSES
YEARS ENDED MAY 31, 1997 AND 1996
<CAPTION>
1997 1996
<S> <C> <C>
Commissions and bonuses $ 569,473 $ 452,304
Payroll taxes 45,908 36,708
Insurance 2,144 1,734
Travel and entertainment 1,511 3,149
Miscellaneous 364
TOTAL $ 619,036 $ 494,259
</TABLE>
<TABLE>
SUPPLEMENTAL SCHEDULES OF ADMINISTRATIVE EXPENSES
YEARS ENDED MAY 31, 1997 AND 1996
<CAPTION>
1997 1996
<S> <C> <C>
Management fee $174,000 $174,000
General excise tax 70,253 62,648
Professional services 57,809 62,196
Directors' fees 32,500 36,000
Salaries and wages 22,151 25,745
Depreciation 14,721 10,478
Supplies 9,062 7,180
Payroll taxes 2,653 2,809
Compensation to charter members 210,500
Miscellaneous 10,469 9,005
TOTAL $393,618 $600,561
</TABLE>
-9-
<PAGE>
GARDEN LIFE FUNERAL PLAN TRUST
STATEMENTS OF ASSETS AND TRUST EQUITY (MODIFIED CASH
BASIS) AS OF MAY 31, 1997 AND 1996, SUPPLEMENTAL
SCHEDULE (MODIFIED CASH BASIS) FOR THE YEAR ENDED
MAY 31, 1997 AND INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
Garden Life Funeral Plan Trust:
We have audited the accompanying statements of assets
and trust equity (modified cash basis) of
Garden Life Funeral Plan Trust as of May 31, 1997 and
1996. These financial statements are the
responsibility of the Trust's management. Our
responsibility is to express an opinion on these
financial statements 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.
As described in Note 1, these financial statements were
prepared on a modified cash basis of accounting, which
is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, such financial statements present
fairly, in all material respects, the assets and
trust equity of Garden Life Funeral Plan Trust as
of May 31, 1997 and 1996, on the basis of accounting
described in Note 1.
Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a
whole. The supplemental schedule of trust fund
deposits and withdrawals (modified cash basis) for
the year ended May 31, 1997 is presented for the
purpose of additional analysis and is not a required
part of the basic financial statements. The schedule
is the responsibility of the Trust's management. Such
supplemental schedule has been subjected to the
auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly
stated in all material respects when considered in
relation to the basic financial statements taken as a
whole.
DELOITTE & TOUCHE LLP
July 23, 1996
<PAGE>
GARDEN LIFE FUNERAL PLAN TRUST
<TABLE>
STATEMENTS OF ASSETS AND TRUST EQUITY (MODIFIED CASH
BASIS) MAY 31, 1997 AND 1996
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
INVESTMENTS, AT MARKET (Note 1):
Hawaiian Tax-Free Trust
(cost of $6,081,470 and $5,679,143) $ 6,149,598 $ 5,667,222
HTCO Income Stock Fund
(cost of $1,267,931 and $2,386,013) 4,360,269 4,555,561
Pacific Capital Diversified Fixed Income Fund
(cost of $3,475,000) 3,481,670
HTCO International Fund
(cost of $190,700) 209,681 195,680
Tax-Free Securities Fund
(cost of $3,704,165) 4,080,729
CASH INVESTMENTS (Note 2) 793,770 292,575
TOTAL ASSETS $14,994,988 $14,791,767
TRUST EQUITY (Note 4) $14,994,988 $14,791,767
<FN>
See notes to financial statements.
</FN>
</TABLE>
-2-
<PAGE>
GARDEN LIFE FUNERAL PLAN TRUST
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND 1996
1. SUMMARY OF BUSINESS AND ACCOUNTING POLICIES
Garden Life Funeral Plan Trust (the "Trust") was
established by Garden Life Plan, Limited, with
Hawaiian Trust Company, Limited as trustee, to comply
with Chapter 441 of the Hawaii Revised Statutes which
requires every pre-need funeral licensee (Garden Life
Plan, Limited, the "Licensee") to set up and maintain
one or more trusts to hold, administer, invest, and
distribute pre-need funeral service funds. Such funds
are held in trust for the contract owner or "trustor"
to pay for his or her contracted funeral services
upon death.
BASIS OF ACCOUNTING - The statement of assets and
trust equity is prepared on the modified cash basis,
except that investment funds are stated at market value,
which have been determined by Hawaiian Trust Company,
Ltd. based on the closing market prices of the underlying
portfolio at year end. Certain revenue and the
related assets are recognized when received rather
than when earned, and certain expenses are recognized
when paid rather than when the obligation is
incurred. Accordingly, the accompanying financial
statements are not intended to present financial
position in conformity with generally accepted
accounting principles.
CHANGE IN ACCOUNTING METHOD - In fiscal 1997, the basis
of accounting for investments was retroactively changed
to fair market value from cost. The effect of the change
was to increase the carrying value of net assets by
$2,539,171 at May 31, 1996.
OPERATION OF TRUST - The Licensee, after recovery of
30% of the pre-need funeral service contract price,
is required to deposit all subsequent contract price
receipts in the Trust. The income from investments
of the Trust is to be distributed to the Licensee.
The principal amount deposited should not be
diminished or withdrawn except in payment of the
funeral services contracted for or unless reclaimed
by the trustor if the contract is canceled.
2. CASH
Cash represents cash deposited in the trustee's cash
management funds.
3. INCOME TAXES
Investment income, net of Trust expenses, is to be
distributed to the Licensee. Accordingly, income
taxes are an obligation of the Licensee and are not
reflected in the accompanying financial statements.
-3-
<PAGE>
4. TRUST EQUITY
At May 31, 1997 and 1996, the Trust equity
consisted of:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Income from the Trust to be distributed to
the Licensee in the future $ 3,453,552 $ 3,919,514
Cumulative deposits - net of withdrawals for
funeral services and cancellations 11,541,436 10,872,253
$14,994,988 $14,791,767
</TABLE>
-4-
<PAGE>
GARDEN LIFE FUNERAL PLAN TRUST
SUPPLEMENTAL SCHEDULE OF TRUST FUND DEPOSITS AND
WITHDRAWALS (MODIFIED CASH BASIS)
YEAR ENDED MAY 31, 1997
The following is a summary of the principal deposits
to the Trust and withdrawals from the Trust for the
year ended May 31, 1997:
<TABLE>
<S> <C>
Cumulative deposits at beginning of year - net of
withdrawals for funeral services and cancellations $ 10,872,253
Principal deposits received for the year 1,230,559
Less withdrawals for funeral services and
cancellations for the year (561,376)
Cumulative deposits at end of year - net of
withdrawals funeral services and cancellations 11,541,436
</TABLE>
The following is a summary of principal amounts
received by the Licensee and principal deposits
made to the Trust for the year ended May 31, 1997:
<TABLE>
<CAPTION>
Principal Principal
Receipts by Deposits
the Licensee to Trust
<S> <C> <C>
June 1996 $ 123,548 $ 117,340
July 141,564 120,212
August 107,890 210,426
September 105,407 52,933
October 153,223
November 119,179 144,704
December 121,343 60,295
January 1997 153,640
February 149,639 223,637
March 151,373 149,639
April 184,658 151,373
May 148,046
Total $ 1,659,510 $ 1,230,559
<FN>
Principal deposits to the Trust at May 31, 1996 were
overpaid by $153,342. The Licensee reduced deposits
from September 1996 to January 1997 by $96,247 of the
overpaid amount. The remaining overpaid amount of
$57,095 will be used to reduce deposits in fiscal 1998.
The principal due the Trust at May 31, 1997 of $332,704
was subsequently paid to the Trust by the Licensee in
June and July 1997.
</FN>
</TABLE>
-5-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the balance sheets and the
statements of income filed as part of the annual report
on Form 10-KSB and is qualified in its entirety by
reference to such annual report on Form 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 776,095
<SECURITIES> 906,020
<RECEIVABLES> 372,826
<ALLOWANCES> 69,724
<INVENTORY> 136,946
<CURRENT-ASSETS> 2,326,858
<PP&E> 1,551,948
<DEPRECIATION> 63,343
<TOTAL-ASSETS> 6,654,772
<CURRENT-LIABILITIES> 798,604
<BONDS> 0
0
0
<COMMON> 437,428
<OTHER-SE> 5,294,989
<TOTAL-LIABILITY-AND-EQUITY> 6,654,772
<SALES> 2,870,237
<TOTAL-REVENUES> 2,870,237
<CGS> 2,100,481
<TOTAL-COSTS> 2,100,481
<OTHER-EXPENSES> 723,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,001
<INCOME-PRETAX> 237,613
<INCOME-TAX> 86,745
<INCOME-CONTINUING> 150,868
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,244,765
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the balance sheets and the
statement of income filed as part of the annual report
on Form 10-KSB and is qualified in its entirety by
reference to such annual report on Form 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 808,750
<SECURITIES> 50,000
<RECEIVABLES> 4,149,282
<ALLOWANCES> 63,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,983,303
<PP&E> 36,626
<DEPRECIATION> 44,584
<TOTAL-ASSETS> 5,019,929
<CURRENT-LIABILITIES> 633,917
<BONDS> 0
<COMMON> 1,000
0
0
<OTHER-SE> 3,095,012
<TOTAL-LIABILITY-AND-EQUITY> 5,019,929
<SALES> 1,203,895
<TOTAL-REVENUES> 1,184,909
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,012,654
<LOSS-PROVISION> 18,986
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,813,607
<INCOME-TAX> 1,010,000
<INCOME-CONTINUING> 803,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 1,574,286
<NET-INCOME> 2,377,893
<EPS-PRIMARY> 2,378
<EPS-DILUTED> 2,378
</TABLE>
