HOSOI GARDEN MORTUARY, INC.
30 North Kukui Street
(Corner of Nuuanu Avenue and Kukui Street)
Honolulu, Hawaii 96817
December 18, 1997
PROXY STATEMENT
GENERAL INFORMATION
The accompanying proxy is solicited on behalf of the
Board of Directors of Hosoi Garden Mortuary, Inc.
(the "Company") to be used at the Annual Meeting of
Shareholders of the Company to be held at 11:00 A. M.
on Sunday, January 18, 1998, at 30 North Kukui Street
(corner of Nuuanu Avenue and Kukui Street), Honolulu,
Hawaii 96817, and any adjournments thereof.
Attached to this proxy statement is your proxy. The
Board of Directors will vote all proxies it receives
which are properly signed and received in time. If
you send the Board of Directors your proxy, it will be
voted according to how you fill out the proxy.
However, if you send your proxy to the Board, but do
not tell the Board how to vote by filling out the
proxy, the Board will vote your proxy according to its
recommendations explained in this proxy statement.
The Board is seeking to have the proxy, proxy
statement, annual report and other materials sent to
the shareholders between December 18 and 20, 1996.
REVOCABILITY OF PROXY
You may revoke your proxy any time before the proxy
is voted. You can revoke your proxy only if you
inform the secretary of the Company in writing, as
provided in the Company's by-laws. You can also
change your proxy by sending another proxy of later
date to the Board.
Your attendance at the Annual Meeting in person will
not revoke the proxy you give to the Board. But if
you attend the Annual Meeting in person, you still may
revoke any proxy you have given and you may vote your
shares in person.
SHAREHOLDERS WHO MAY VOTE
Only shareholders of record at the close of business
on November 14, 1997, may vote at the Annual Meeting.
On November 14, 1997, there were 1,755,671 shares
outstanding, with each share entitled to one vote.
A quorum consists of the
<PAGE>
holders of a majority of the outstanding shares,
present either in person or by proxy. There are
431,469 shares in the treasury which are not
included in calculating such number and shall
not be voted.
CUMULATIVE VOTING
Cumulative voting is governed by Hawaii Revised
Statutes Section 415-33. If a request for cumulative
voting is delivered in writing to an officer of the
Company not less than forty-eight (48) hours prior to
the time set for the Annual Meeting of Shareholders,
cumulative voting will be used for the election of
directors. If cumulative voting is used, each
shareholder shall be entitled to as many votes as
shall equal the number of his shares multiplied by the
number of directors to be elected. He may cast all of
such votes for a single director or may distribute
them among any two or more of the number to be elected
as he may see fit. If no request for cumulative
voting is received, each shareholder will be entitled
to one vote per share for each position on the Board
of Directors.
PERSONS MAKING THE SOLICITATION AND COST
The accompanying proxy is solicited by mail on behalf
of the Board of Directors of the Company. The Company
will pay the cost of solicitation of proxies.
Following the mailing of proxy soliciting material,
officers, employees and directors of the Company may,
without additional expense, solicit proxies by
appropriate means, including by mail, telephone, fax
or personal interview.
SECURITIES MARKET AND DIVIDENDS
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
quotes the common shares, but the Company is not aware
of the prices at which sales have been made. The
records of the Company indicate that very few shares
are transferred. During the fiscal year ended May 31,
1997, the Company redeemed 40,270 shares at $4.00 per
share, and 1,900 shares at $4.50 per share, some of
which were acquired as payment for funeral expenses
incurred by the shareholders.
Pursuant to Section 9 of Article XII of the By-Laws of
the Hosoi Garden Mortuary, Inc., as amended, each
shareholder desiring to sell or transfer its stock is
required to first offer such stock to the Company at
the price designated by the Board of Directors for
this purpose. Effective November 1, 1997, the Board
of Directors authorized the redemption of shares (for
either cash or services) at $4.25 per share. Any
stock not purchased by the Company shall then be
offered to the remaining shareholders at the price
negotiated by the parties. If neither the Company
nor the remaining shareholders opt to purchase the
selling shareholder's stock, then the stock may be
offered to any person at any price designated by the
selling shareholder.
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<PAGE>
There were 1,688 record holders of common shares as
of November 14, 1997.
A cash dividend has been declared and paid once a
year since 1969. The dividend declared in November,
1997 was $.10 per share and in November, 1996 was
$.045 per share.
UPON REQUEST THE COMPANY WILL SEND TO YOU AT NO CHARGE
A COPY OF FORM 10-KSB, THE ANNUAL REPORT INCLUDING THE
FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENTS
SCHEDULES FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE MOST RECENT FISCAL YEAR. TO
REQUEST A COPY, YOU MUST WRITE TO:
MS. ELAINE NAKAMURA, SECRETARY
HOSOI GARDEN MORTUARY, INC.
30 NORTH KUKUI STREET
HONOLULU, HAWAII 96817
SOLICITED PROXIES WILL BE VOTED ON THE FOLLOWING
MATTERS
The Board of Directors intends to vote solicited
proxies on the following matters:
I. To elect three (3) directors to serve
until the 2001 annual meeting of
shareholders and until their successors
are elected;
II. To elect an auditor; and
III. To vote upon other business properly
before the meeting or any adjournment
thereof.
I. TO ELECT THREE (3)(DIRECTORS TO SERVE UNTIL THE
2001 ANNUAL MEETING OF SHAREHOLDERS AND UNTIL
THEIR SUCCESSORS ARE ELECTED.
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. At the 1998 annual
meeting of the shareholders, three directors will be
elected to serve until the 2001 annual meeting of the shareholders and until
their respective successors
are elected.
The Board of Directors' three nominees for directors
are Clifford Hosoi, Rene Mansho and Ricky Manayan.
All three of these nominees are currently directors of
the Company. Each nominee has consented to serve as
a director, if elected.
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<PAGE>
Proxies in the accompanying form will (unless a
contrary direction is indicated therein) be voted to
elect the foregoing nominees (who have been nominated
by the present Board of Directors) as directors to
serve, subject to the Articles of Association and
By-Laws of the Company. If any of the nominees listed
is not available for election at the Annual Meeting
(a contingency which the management of the Company does
not now foresee), it is the intention of the Board of
Directors to recommend the election of such other
persons as may be necessary to fill such vacancies.
Proxies in the accompanying form will be voted for the
election of such other persons unless authority to
vote such proxies in the election of directors has
been withheld.
II. TO ELECT AN AUDITOR.
The Board of Directors recommends the election of Endo
& Company, a firm of certified public accountants, as
auditor for the year commencing June 1, 1997. Endo &
Company was elected as auditor for the year
commencing June 1, 1996 at the Annual Meeting held on
January 19, 1997. A representative of Endo & Company
will be present at the Annual Meeting, will make a
statement if the shareholders desire and will respond
to any appropriate questions raised at the meeting.
With respect to the election of the Auditor, each
shareholder is entitled to one vote for each share.
III. TO VOTE UPON OTHER BUSINESS PROPERLY BEFORE
THE MEETING.
Management does not intend to bring any maters before
the meeting other than the election of directors,
election of auditor, and presentation of President's
Report with the financial statements for the fiscal
year ended May 31, 1997. Management does not have
any information that other matters will be brought
before the meeting, or any adjournment or adjournments
thereof. If other matters are introduced, it is the
intention of the persons named in the enclosed form of
proxy to vote said proxy in accordance with their
judgment.
INFORMATION ON STOCK OWNERSHIP OF PRINCIPAL
SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS
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 in the table below.
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<PAGE>
<TABLE>
<CAPTION>
Title of Name and Address of Nature of Beneficial No. of Percent of
Class Beneficial Owner Ownership Shares Class
<S> <C> <C> <C> <C>
Common Julie S. Shimonishi Shared as co-trustee 158,250 8.86%
30 N. Kukui Street of 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%
Common Sadako Hosoi Shared as co-trustee 158,250 8.86%
30 N. Kukui Street of 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 *
30 N. Kukui Street
Honolulu, HI 96817
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<PAGE>
<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>
B. DIRECTORS AND EXECUTIVE OFFICERS
Certain information with respect to the holdings of
common shares of the directors and executive officers
of the Company as of November 15, 1996, is set forth
in the table 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 (5) 21.22%
Common Sadako Hosoi 318,500 (4) 17.83%
Common Clifford Hosoi 52,532 (3) 2.94%
Common Anne T. Tamori 56,534 (6) 3.17%
All directors 806,600 45.16%
and officers
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 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.
-6-
<PAGE>
(5) Includes:
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.
(6) Includes:
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>
INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS OF
THE COMPANY
The Board of Directors is comprised of nine members
who serve staggered three-year terms. One-third of
the directors will be elected each year for a
three-year term. 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.
The Board of Directors of the Company has no audit or
compensation committees or committees performing
similar functions.
A. The following table sets forth the directors' and
executive officers' names, ages, position and year of
appointment or election, relationship, and business
experience.
-7-
<PAGE>
<TABLE>
<CAPTION>
Name Age Office Business Experience and Family Relationship
NOMINEES FOR ELECTION AS DIRECTORS - TERMS TO EXPIRE IN 2001
<S> <C> <C> <C>
Rene Mansho 48 Director City Council member, City and County of
(since 1993); Honolulu, Hawaii (since 1988); School
Chairperson of teacher, Vice-Principal and Administrator,
the Board Department of Education, State of Hawaii
(since 1994) (1971-1988); served as a director or
officer of Mililani Hongwanji Church,
Mililani Teen Support Organization,
Mililani YMCA, Kahuku Hospital Service
Corporation, Goodwill Industries, Friends
of Waipahu Cultural Garden Park, Hawaii
State Teachers Association, Honolulu
Japanese Chamber of Commerce
Clifford Hosoi 48 Director Licensed embalmer since 1979; Funeral
(since 1992); Director since 1985; Vice President of the
President and Company from 1989 - 1994; Director Garden
Chief Executive Life Plan, Ltd.; son of Sadako Hosoi,
Officer Director, brother of Julie S. Shimonishi,
(since 1994) Director, and Anne Tamori, Director and
Vice President
Ricky C. 38 Director President/General Manager, KISS-AM Radio
Manayan (since 1995) Station, Inc.; Developer/General Partner,
Ricky C. Manayan, Inc., Ricky Manayan
Associates, Transpacific Empire, Inc.;
Authorized Exclusive Distributor, RAM
Telecommunications; President of East-West
Real Estate Co., Inc.
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 2000
<S> <C> <C> <C>
Julie S. 50 Director School teacher, Department of Education,
Shimonishi State of Hawaii since 1970; daughter of
Sadako Hosoi, Director, sister-in-law of
Roy Shimonishi, Director, sister of
Clifford Hosoi, Director and President and
Chief Executive Officer, and Anne Tamori,
Director and Vice President
Robert K. 49 Director Certified Public Accountant since 1975;
Kuwahara (since 1995) member of American Institute of Certified
Public Accountants, Hawaii Society of
Certified Public Accountants, National
Society of Public Accountants; member of
Board of Managers, Young Men's Christian
Association, Nuuanu Branch
Richard B. 52 Director Vice-President and Principal of Kuroman
Dole (since 1995) Realty, Inc.; American Society of
Appraisers, Chartered Financial Analyst and
Certified Financial Planner designations;
Co-Trustee of the James D. Dole Trust;
member of American Society of Appraisers,
Association for Investment Management
Research, Hawaii Venture Capital
Association, Hawaii Employee Ownership and
Participation Advisory Committee, State of
Hawaii, Institute of Certified Financial
Planners, and Hawaii Estate Planning
Council
<PAGE>
<CAPTION>
Name Age Office Business Experience and Family Relationship
DIRECTORS WHOSE TERMS EXPIRE IN 1999
<S> <C> <C> <C>
Sadako Hosoi 79 Director Widow of Herman Hosoi, founder of the
(since 1957) Company; in the past, served as Treasurer
and Chairperson of the Board of the
Company; Director and President of Garden
Life Plan, Ltd.; mother of Julie
Shimonishi, Director, Clifford Hosoi,
Director and President and Chief Executive
Officer, and Anne Tamori, Director and Vice
President
Roy T. 55 Director Co-owner, Hungry Lion Coffee Shop,
Shimonishi* (since 1979) Honolulu; Director of Hawaii Restaurant
Association, Catholic Services for the
Elderly, and Hungry Lion Charities; Area
Coordinator for Excel Telecommunications;
Brother-in-law of Julie Shimonishi,
Director. Roy T. Shimonishi resigned as a
director in May 1997.
Berton T. 49 Director Attorney (admitted to the Bar of the State
Kato (since 1996) of Hawaii in 1973); President, Hale Niu
Sportswear, Inc. (since 1990)
Anne T. Tamori 49 Vice President Employed by the Company as an associate
(since 1994) secretary (since 1978); daughter of Sadako
Hosoi; sister of Clifford Hosoi and Julie
S. Shimonishi
<CAPTION>
OTHER EXECUTIVE OFFICERS
<S> <C> <C> <C>
David 48 Vice President Employed by the Company since 1989;
Fujishige (since 1994) Funeral Director since 1991; Food
Production Supervisor, Rehabilitation
Hospital of the Pacific (1980-1991)
Keith Numazu 34 Treasurer Employed by the Company as assistant
(since 1994) bookkeeper and programmer since 1992;
Systems Operator/Analyst, Consolidated
Amusement, Inc. (1991-1992); Senior Systems
Analyst/Programmer, Holmes and Narver,
Inc., and Raytheon Services Nevada (1987 -
1991)
Elaine 57 Secretary Employed by the Company since 1963
Nakamura (since 1972)
<FN>
* Roy T. Shimonishi resigned as a director in 1997. The Board of Directors
nominated and elected Anne T. Tamori to serve the remaining term of Roy T.
Shimonishi as director, which will expire in 1999.
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>
<PAGE>
B. Shareholders, Board, Committees, Number of
Meetings - fiscal year ended May 31, 1997.
The shareholders of the Company last met on January
19, 1997. 1,128,489 shares representing 62.26% of
shares issued and outstanding were present in person
or by proxy. All members of the Board of Directors
were elected by holders of at least 61.85% of the
shares outstanding.
The Board of Directors met 13 times during the last
fiscal year. All directors attended at least 76% of
the Board meetings.
A nominating committee was formed with Berton Kato,
Richard Dole and Anne Tamori (Chairperson) as members
at the October 16, 1997 Board meeting to designate
nominees for election at the annual meeting.
Shareholders may suggest nominees by contacting
Berton Kato, Richard Dole and Anne Tamori
(Chairperson) at the Company's address. No specific
format or information is required to nominate a person
as a director. Nominations must be received by the
close of nominations during the course of the Annual
Meeting on January 18, 1998, to be acted upon at that
Annual Meeting.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
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, 1996.
<TABLE>
<CAPTION>
Name and Year ended Annual Other
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, $6,097 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, $3,817 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.
-10-
<PAGE>
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
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 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.
TRANSACTION WITH DIRECTORS AND OFFICERS
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
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<PAGE>
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.
SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and officers, and
persons who own more than 10% of a registered class of
the Company's equity securities, to file, on forms 3,
4 and 5, reports of ownership and changes in ownership
of such securities with the Securities and Exchange
Commission. No such reports were required to be filed
for 1996 and 1997.
ACTION WITH RESPECT TO REPORTS
Minutes of the last annual meeting of the shareholders
held on January 19, 1997, will be read and the
shareholders will be requested to approve or
disapprove the minutes. Approval or disapproval of
the minutes will not constitute approval or
disapproval of the matters referred to in such reports
or minutes.
The President will give a report at the meeting. All
records of the Company, including the minutes of the
meetings of the Board of Directors and the
shareholders held during the preceding year are
available for review by the shareholders at the office
of the Company.
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<PAGE>
VOTE REQUIRED FOR APPROVAL
A majority vote of shareholders present, in person or
by proxy, shall be required in matters other than the
election of directors.
ANNUAL REPORT TO SHAREHOLDERS
The annual report to shareholders, consisting of the
President's and Chief Executive Officer's letter and
the comparative financial statements for the years
ended May 31, 1997 and May 31, 1996, is included with
this Proxy Statement.
RETURN OF PROXY
If you do not plan to attend the Annual Meeting in
person, we urge you to execute the proxy and return it
promptly in the enclosed business reply envelope.
SHAREHOLDER PROPOSALS FOR 1998
Proposals of shareholders intended to be presented at
the annual meeting of the Company in January or
February 1999 must be received by the Company on or
before September 15, 1998.
BY ORDER OF THE BOARD OF DIRECTORS
By Elaine Nakamura, Secretary
December 18, 1997
WHETHER YOU PLAN TO ATTEND OR NOT, YOU ARE URGED TO
MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY. A
PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION WILL
BE APPRECIATED.
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ANNUAL REPORT
HOSOI GARDEN MORTUARY, INC.
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.
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.
DIRECTORS AND EXECUTIVE OFFICERS
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.
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.
-1-
<PAGE>
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 Plan, Ltd.
Rene Mansho is an elected member of the City Council
of 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
Industries, Friends of Waipahu Cultural Garden Park
and Hawaii State Teachers Association.
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, President of
East-West Real Estate Co., Inc.
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. In the past, she has served as
chairperson of the Company and treasurer. She serves
as a director of Garden Life Plan, Ltd.
Roy T. Shimonishi is co-owner of Hungry Lion Coffee
Shop in Honolulu, Hawaii. He has been a director
since 1979. 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 practice.
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. 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.
-2-
<PAGE>
DIRECTORS WHOSE TERMS EXPIRE 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.
Robert Kuwahara is a Certified Public Accountant
licensed to practice in the State of Hawaii since
1975. He was elected as a director of the Company to
serve the remaining term of William Koyanagi who
resigned in 1995. He is a member of the American
Institute of Certified Public Accountants, Hawaii
Society of Certified Public Accountants, and National
Society of Public Accountants. He is also on the
Board of Managers of the Nuuanu YMCA.
Richard B. Dole is the Vice-President and Principal
of Kuroman Realty, Inc. He 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.
OTHER EXECUTIVE OFFICERS
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.
-3-
<PAGE>
MARKET FOR THE COMPANY'S COMMON SHARES
AND RELATED SHAREHOLDER 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
<S> <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,
1997, which was declared on October 16, 1997, was $.10
per share. Dividends for the year ended May 31, 1997,
are payable to shareholders on January 2, 1998. The
dividend for the year ended May 31, 1996, which was
declared on October 26, 1996, was $.045 per share.
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 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.
-4-
<PAGE>
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 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
-5-
<PAGE>
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 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.
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.
-6-
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
<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>
