HOSOI GARDEN MORTUARY, INC.
30 North Kukui Street
(Corner of Nuuanu Avenue and Kukui Street)
Honolulu, Hawaii 96817
December 19, 1996
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 19, 1997, 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 19 and 21, 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.
<PAGE> -1-
SHAREHOLDERS WHO MAY VOTE
Only shareholders of record at the close of business
on November 15, 1996, may vote at the Annual Meeting.
On November 15, 1996, there were 1,963,355 shares
outstanding, with each share entitled to one vote.
A quorum consists of the holders of a majority of the
outstanding shares, present either in person or by
proxy. There are 223,785 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, 1996, the Company acquired 5,100 shares
at $3.50 per share, 14,658 shares at $4.00 per share,
and 222 shares at $4.50 per share, some of which were
acquired as payment for funeral expenses incurred by
the shareholders.
There were 1,696 record holders of common shares as
of November 15, 1996.
<PAGE> -2-
A cash dividend has been declared and paid once a
year since 1969. The dividend declared in October,
1996 was $.045 per share and in October, 1995 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 2000 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 2000 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 1997 annual meeting of
the shareholders, three directors will be elected to
serve until the 2000 annual meeting of the
shareholders and until their respective successors are
elected.
The Board of Directors' three nominees for directors
are Julie S. Shimonishi, Robert Kuwahara and Richard
B. Dole. All three of these nominees are currently
directors of the Company. Each nominee has consented
to serve as a director, if elected.
<PAGE> -3-
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, 1996. Endo & Company was elected as auditor for
the year commencing June 1, 1995 at the Annual Meeting
held on January 21, 1996. 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, 1996. 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, 1996. Certain information about the
holders is set forth in the table below.
<PAGE> -4-
<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 8.59%
30 N. Kukui Street of the Herman S.
Honolulu, HI 96817 Hosoi Trust
General Partner of 160,250 8.70%
the Hosoi Family
Limited Partnership,
as Trustee of the
Hosoi Family
Voting Trust
Custodian for Chad 8,000 0.43%
Shimonishi and Lane
Shimonishi under
HUGMA
Direct 52,534 2.85%
Total 379,034 20.59%
Common Sadako Hosoi Shared as co-trustee 158,250 8.59%
30 N. Kukui Street of the Herman S.
Honolulu, HI 96817 Hosoi Trust
Settlor of the Hosoi 160,250 8.70%
Family Voting Trust
and limited partner
of the Hosoi Family
Limited Partnership
Total 318,500 17.30%
Common Herman S. Hosoi Direct 158,250 8.59%
Trust
Sadako Hosoi and
Julie S. Shimonishi,
Trustees
30 N. Kukui Street
Honolulu, HI 96817
Common Hosoi Family Direct 160,250 8.70%
Limited
Partnership<FN1>
30 N. Kukui Street
Honolulu, HI 96817
<PAGE> -5-
<FN>
<FN1> 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<FN1> Beneficial Ownership<FN2> Class
<S> <C> <C> <C>
Common Julie S. Shimonishi 379,034<FN6> 20.59%
Common Sadako Hosoi 318,500<FN4> 17.30%
Common Clifford Hosoi 52,532<FN3> 2.85%
Common Anne T. Tamori 56,534<FN7> 3.07%
Common William Koyanagi 5,700<FN5> 0.31%
All directors and 493,800 26.82%
officers as a group
(14 persons)<FN2>
<FN>
<FN1> The address of each person is 30 N. Kukui
Street, Honolulu, Hawaii 96817.
<FN2> Charles McLemore, whose term as a director
expired in 1996, Rene Mansho, Roy T. Shimonishi, 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.
<FN3> Voting and investment powers exercised solely.
<FN4> 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.
<FN5> Voting and investment powers are shared with
spouse.
<PAGE> -6-
<FN6> Includes:
52,534 shares (2.85%) as to which Ms. Shimonishi
exercises sole voting and investment powers;
8,000 shares (0.43%) as to which Ms. Shimonishi
exercises sole voting and investment powers as
Custodian for Chad Shimonishi and Lane Shimonishi
under HUGMA;
158,250 shares (8.59%) 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 (8.70%) 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.
<FN7> Includes:
52,534 shares (2.85%) 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.
<PAGE> -7-
<TABLE>
<CAPTION>
NAME AGE OFFICE BUSINESS EXPERIENCE AND FAMILY
RELATIONSHIP
NOMINEES FOR ELECTION AS DIRECTORS - TERMS TO EXPIRE IN 2000
<S> <C> <C> <C>
Julie S. Shimonishi 50 Director School teacher, Department of
Education, State of Hawaii
since 1970; daughter of Sadako
Hosoi, Director, sister-in-law
of Roy Shimonishi, Director,
sister of Clifford Hosoi,
Director, President and Chief
Executive Officer, and Anne
Tamori, Vice President
Robert K. 48 Director Certified Public Accountant
Kuwahara<FN1> (since 1995) since 1975; 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. Dole<FN1> 51 Director Vice-President and Principal of
(since 1995) Kuroman Realty, Inc.; American
Society of Appraisers,
Certified Financial Analyst and
Certified Financial Planner
designations; Co-Trustee of the
James D. Dole Trust; Director
of Research, Fry & Co.; 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
DIRECTORS WHOSE TERMS EXPIRE IN 1998
Rene Mansho 47 Director City Council member, City and
(since 1993); County of Honolulu, Hawaii
Chairperson (since 1988); School teacher,
of the Board Vice-Principal and
(since 1994) Administrator, Department of
Education, State of Hawaii
(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 45 Director Licensed embalmer since 1979;
(since 1993) Funeral Director since 1985;
President Vice President of the Company
and Chief from 1989 - 1994; Director
Executive Garden Life Plan, Ltd.; son of
Officer Sadako Hosoi, Director, brother
(since 1994) of Julie S. Shimonishi,
Director, and Anne Tamori, Vice
President
Ricky C. Manayan 37 Director President/General Manager,
(since 1995) KISS-AM Radio Station, Inc.;
Developer/General Partner,
Ricky C. Manayan, Inc., Ricky
Manayan Associates,
Transpacific Empire, Inc.;
Authorized Exclusive
Distributor, RAM
Telecommunications; Publisher,
KISS Magazine; Realtor
Associate and Salesperson, H &
K Associates, Inc.
<PAGE> -8-
NAME AGE OFFICE BUSINESS EXPERIENCE AND FAMILY
RELATIONSHIP
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Sadako Hosoi 79 Director Widow of Herman Hosoi, founder
(since 1957) of the 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, President and Chief
Executive Officer, and Anne
Tamori, Vice President
Roy T. Shimonishi 53 Director Co-owner, Hungry Lion Coffee
(since 1979) Shop, 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
Berton T. Kato 48 Director Attorney (admitted to the Bar
(since 1996) of the State of Hawaii in
1973); President, Hale Niu
Sportswear, Inc. (since 1990)
OFFICERS
Anne T. Tamori 49 Vice Employed by the Company as an
President associate secretary (since
(since 1994) 1978); daughter of Sadako
Hosoi; sister of Clifford Hosoi
and Julie S. Shimonishi
David Fujishige 48 Vice Employed by the Company since
President 1989; Funeral Director since
(since 1994) 1991; Food Production
Supervisor, Rehabilitation
Hospital of the Pacific (1980-
1991)
Keith Numazu 34 Treasurer Employed by the Company as
(since 1994) assistant 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 Nakamura 57 Secretary Employed by the Company since
(since 1972) 1963
<FN2>
<FN>
<FN1> William Koyanagi and Andre S. Tatibouet
resigned as directors in 1995. The Board of
Directors nominated and elected Robert Kuwahara and
Richard B. Dole to serve the remaining terms of
William Koyanagi and Andre S. Tatibouet as directors,
which will expire in 1997.
<FN2> 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> -9-
B. Shareholders, Board, Committees, Number of
Meetings - fiscal year ended May 31, 1996.
The shareholders of the Company last met on January
21, 1996. 1,208,895 shares representing 65.90% 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 65.27% of the
shares outstanding.
The Board of Directors met 14 times during the last
fiscal year. All directors attended at least 75% of
the Board meetings.
A nominating committee was formed with Sadako Hosoi,
Julie Shimonishi and Roy Shimonishi as members at the
October 24, 1996 Board meeting to designate nominees
for election at the annual meeting. Shareholders may
suggest nominees by contacting Sadako Hosoi, Julie
Shimonishi or Roy Shimonishi 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 19, 1997, 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 1994 $51,301 $5,984<FN1>
President/Chief 1995 $48,254 $7,240<FN2>
Executive Officer 1996 $60,502 $9,122<FN3>
<FN4>
<FN5>
<FN>
<FN1> $3,433 was accrued pursuant to the
profit-sharing plan described below and $2,551 was
paid pursuant to the money purchase pension plan
described below.
<FN2> $4,897 was accrued pursuant to the
profit-sharing plan described below and $2,343 was
paid pursuant to the money purchase pension plan
described below.
<FN3> $6,097 was accrued pursuant to the
profit-sharing plan described below and $3,025 was
paid pursuant to the money purchase pension plan
described below.
<FN4> The total annual salary and bonus for any
other executive officer does not exceed $100,000.
<FN5> The standard fees paid to directors are
$100 for each Board of Directors meeting attended
and $25 for each committee meeting attended.
</FN>
</TABLE>
<PAGE> -10-
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 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 1996 and 1995 were $46,600 and $43,000,
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 1996 and 1995 were
$19,321 and $20,377, 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
beneficiaries of both trusts include directors,
officers and principal shareholders of the Company.
See: Footnote 13 on page F-18 of the Company's
Financial Statements for more information about the
lease between the Company and the trusts.
<PAGE> -11-
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 under a five-year lease that expired on May 31,
994, subject to an option to renew for an additional
five-year period. The option to renew was exercised
for the five-year period following May 31, 1994. The
lease rent for the additional five-year period is
currently being negotiated. The base lease rents
(including Hawaii general excise taxes) for each 12
month-period beginning on June 1 and ending on May 31
of each of the following years are as follows:
<TABLE>
<CAPTION>
PERIOD UP TO AMOUNT
<S> <C>
May 31, 1996 $231,936
Thereafter To be negotiated (Pending negotiations
of the new base lease rent, the Company
will pay an annual base lease rent of
$231,936)
</TABLE>
The total rental expense, including the base lease
rent, general excise taxes and real property taxes,
for the past three years ending on May 31 were as
follows:
[C] [C]
1996 $275,868
1995 $275,511
1994 $271,560
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 1995 and 1996.
ACTION WITH RESPECT TO REPORTS
Minutes of the last annual meeting of the
shareholders held on January 21, 1996, 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.
<PAGE> -12-
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, 1996 and May 31, 1995, 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 1997
Proposals of shareholders intended to be presented
at the annual meeting of the Company in January or
February 1998 must be received by the Company on or
before September 15, 1997.
BY ORDER OF THE BOARD OF DIRECTORS
By Elaine Nakamura, Secretary
December 19, 1996
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.
<PAGE> -13-
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 last two fiscal years, funeral
services accounted for 71.6% 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.
Twenty-nine (29) persons were employed by the Company
for the fiscal year ended May 31, 1996. Thirteen (13)
persons were employed full-time and sixteen (16)
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.
<PAGE> -1-
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. 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.
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 which will
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.
Berton T. Kato is an attorney licensed in the State
of Hawaii and has his own law practice. At the
January 21, 1996, annual meeting, he was elected to
serve a three-year term 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 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, the
publisher of KISS Magazine, and a Realtor Associate
and Salesperson with H & K Associates, Inc.
<PAGE> -2-
DIRECTORS WHOSE TERMS EXPIRE IN 1997
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, Certified Financial Analyst and Certified
Financial Planner designations. He is the Co-Trustee
of the James D. Dole Trust and is the Director of
Research for Fry & Co. 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
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.
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.
<PAGE> -3-
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, 1996, the Company
redeemed 19,980 shares as follows:
<TABLE>
<CAPTION>
NO. OF SHARES REDEMPTION PRICE
<S> <C>
222 $4.50
14,658 $4.00
5,100 $3.50
</TABLE>
There were 1,737 record holders of common stock as
of May 31, 1996.
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 October 24, 1996, was
$.045 per share. Dividends for the year ended May 31,
1996, are payable to shareholders in January 2, 1997.
The dividend for the year ended May 31, 1995, which
was declared on October 19, 1995, was $.045 per share.
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The efforts of Clifford Hosoi, grandson of the
founder of the Company who was elected President and
Chief Executive Officer in January 1994, to increase
revenues and decrease costs is reflected in a 8.1%
increase in revenues in 1996 over 1995. Cost of
sales and services as a percent of revenues decreased
from 72.2% in 1995 to 70.9% in 1996 and selling,
general and administrative expenses decreased from
25.7% of revenues in 1995 to 23.5% in 1996. As a
result of the increase in revenues, the decreases in
cost of sales and services and administrative,
selling and general expenses, operating income
increased to $153,256 in 1996 over $52,791 in 1995.
It is expected that operating income will continue to
improve as the implementation of strategies to
increase revenues and control costs and expenses
continue.
<PAGE> -4-
RESULTS OF OPERATIONS
TOTAL REVENUES
The Company's revenues increased by $206,337 in 1996
over 1995. The increase of 8.1% in 1996 over 1995 is
attributable principally to increases in revenues from
facilities charges and revenues from the sale of
caskets and other merchandise. Revenues from
facilities charges increased by $84,300 in 1996 over
1995, an increase of 22.6%. Revenues from sale of
caskets and other merchandise increased by $110,400 in
1996 over 1995, an increase of 18.5%.
COST OF SALES AND SERVICES
Cost of sales and services as a percent of revenues
decreased from 72.2% in 1995 to 70.9% in 1996. The
decrease of 1.3% from 1995 to 1996 resulted from a
decrease of 2.5% in indirect cost of sales and a 1.0%
decrease in the cost of cremations which were offset
by an increase of 2.2% in the cost of merchandise sold.
Decreases in depreciation, insurance, repairs and
maintenance and real property taxes, as a percent of
net revenues, accounted for the decrease of 2.5% in
indirect cost of sales. The increase in the cost of
merchandise sold reflects increases in the cost of
caskets and urn purchases.
GROSS PROFIT
Gross profit as a percentage of total revenues
increased from 27.8% in 1995 to 29.1% in 1996. The
increase in the gross profit margin was the result of
the decrease in cost of sales and services as
discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses
decreased from $650,525 in 1995 to $643,321 in 1996.
As a percentage of total revenues, these expenses
were 25.7% and 23.4% in 1995 and 1996, respectively.
The decrease is attributable principally to decreases
in salaries and bad debts expense.
OTHER INCOME
Other income decreased from $157,442 in 1995 to
$144,695 in 1996. The decrease of $12,747 resulted
primarily from decreases in parking revenues and
miscellaneous income of $14,300 and $16,700
respectively, offset by an increase in interest
income.
The decrease in parking revenues resulted from a
decrease in the number of parking stalls available
for daytime parking. The increase in interest income
is a result of increases in returns on invested funds.
<PAGE> -5-
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
$255,765 and $292,290 for 1996 and 1995, respectively.
Earnings from the Trust funds 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 income, which amounted to $705,222 and
$601,851 for the years ended May 31, 1996 and 1995,
respectively, are the result of fluctuations in
interest rates and the mix of investments of the
Trust.
Equity in earnings of GLP accounted for 58.5% and
68.8% of the Company's net income in 1996 and 1995
respectively.
INCOME TAXES
The Company's effective income tax rate was 25.7%
of pre-tax income in 1996 and 18.6% in 1995. The
increase in 1996 over 1995 is due to an increase in
taxable income before income taxes in 1996 over 1995
and therefore proportionately more of the 1996 income
was subject to the higher surtax rates.
LIQUIDITY AND CAPITAL RESOURCES
Total working capital remained relatively unchanged
between 1996 and 1995 at $1,850,300 and $1,835,300
respectively. Working capital ratio was 5.6:1 at May
31, 1996 and 5.2:1 at May 31, 1995.
Cash and cash equivalents decreased from $938,700 in
1995 to $711,000 in 1996 as a result of investment in
a time certificate of deposit, purchases of equipment,
repurchases of the Company's shares and payment of
dividends which were partially offset by cash
generated by operations.
At the end of 1996, the Company did not have any
long-term debt. The Company expects that cash flows
from operations, its cash reserves and short-term
investments will be adequate to meet the Company's
cash requirements in the foreseeable future.
In 1986, the Company initiated plans for major
renovations to its premises. The development plans
included a major redevelopment of existing facilities
and additions to increase the Company's capacity to
provide mortuary services. Architectural drawings
were drafted and preliminary estimates of construction
costs were obtained. The Company is reassessing its
plan for this major redevelopment. The alternatives
being considered are construction of new facilities
within a major redevelopment on the existing premises
or relocation to another location. No decision has
been made as to these alternatives or the
<PAGE> -6-
method of funding the redevelopment. A major
redevelopment on the existing premises, whether or
not the Company relocates, would be undertaken with
financing from a financial institution or in a joint
venture with a real estate developer.
Dividends declared for fiscal years ended 1995 and
1994, respectively, were $0.045 and $0.05 per share
which amounted to $82,400 and $95,500 respectively,
and were paid to shareholders in January 1996 and
1995, respectively.
Cash outflow for the reacquisition of the Company's
shares were $76,500 in 1996 and $66,300 in 1995.
The Company expects that future reacquisitions will be
in range of $50,000 to $70,000 per year.
<PAGE> -7-
<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> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> MAY-31-1996 MAY-31-1995
<PERIOD-END> MAY-31-1996 MAY-31-1995
<CASH> 710,978 938,707
<SECURITIES> 805,484 741,409
<RECEIVABLES> 325,749 307,549
<ALLOWANCES> 63,923 44,487
<INVENTORY> 112,215 111,307
<CURRENT-ASSETS> 2,252,341 2,267,696
<PP&E> 1,586,954 1,554,503
<DEPRECIATION> 67,198 77,578
<TOTAL-ASSETS> 5,341,799 5,080,879
<CURRENT-LIABILITIES> 402,024 432,470
<BONDS> 0 0
<COMMON> 437,428 437,428
0 0
0 0
<OTHER-SE> 4,410,113 4,166,137
<TOTAL-LIABILITY-AND-EQUITY> 5,341,799 5,080,879
<SALES> 2,739,866 2,553,529
<TOTAL-REVENUES> 2,739,866 2,553,529
<CGS> 1,943,289 1,830,213
<TOTAL-COSTS> 1,943,289 1,830,213
<OTHER-EXPENSES> 643,321 650,525
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,240 22,301
<INCOME-PRETAX> 285,711 187,932
<INCOME-TAX> 118,561 65,899
<INCOME-CONTINUING> 167,150 122,033
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 402,474 390,963
<EPS-PRIMARY> .22 .21
<EPS-DILUTED> .22 .21
</TABLE>
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, 1996 and 1995, and the related
statements of income, retained earnings and cash
flows for each of the two years ended May 31, 1996.
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, 1996 and 1995, which
accounts for 24.5% and 20.6% of total assets and
51.8% and 68.8% of net income in 1996 and 1995,
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 share of 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 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.
<PAGE> F-1
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, 1996 and 1995, and the results of its
operations and its cash flows for each of the two
years ended May 31, 1996 in conformity with generally
accepted accounting principles.
ENDO & COMPANY
Certified Public Accountants
Honolulu, Hawaii
August 16, 1996
<PAGE> F-2
<TABLE>
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEETS
_ _ _ _ _ _ _ _ _ _ _ _
May 31, 1996 and 1995
<CAPTION>
1996 1995
<S> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents
(Notes 1 and 3) $ 710,978 $ 938,707
Time certificate of deposit
200,000 -
Securities available for sale,
at market (Notes 1 and 4) 805,484 741,409
Accounts receivable, less
allowance of $63,923 and $44,487 325,749 307,549
Income taxes receivable - 54,246
Inventories (Note 1) 112,215 111,307
Prepaid expenses and others 61,519 68,843
Deferred income taxes (Note 5) 36,396 45,635
TOTAL CURRENT ASSETS 2,252,341 2,267,696
INVESTMENTS
Garden Life Plan, Ltd.
(Notes 1 and 2) 1,303,360 1,047,596
Cemetery plots 1,350 1,350
Securities held to maturity,
at cost (Notes 1 and 4) 69,834 105,749
1,374,544 1,154,695
PROPERTY AND EQUIPMENT, at cost,
less accumulated depreciation
(Notes 1 and 6) 1,586,954 1,554,503
OTHER ASSETS (Note 7) 127,960 103,985
TOTAL ASSETS $5,341,799 $5,080,879
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable (Note 8) $ 238,347 $ 300,391
Accrued liabilities (Note 9) 151,111 131,394
Income taxes payable (Note 10) 11,881 -
Note payable 685 685
TOTAL CURRENT LIABILITIES 402,024 432,470
DEFERRED INCOME TAXES (Note 5) 92,234 44,844
S T O C K H O L D E R S ' E Q U I T Y
CAPITAL CONTRIBUTED (Note 11)
Common stock, par value $.20 per
share; authorized 3,625,000
shares,issued 2,187,140 shares 437,428 437,428
Less 143,925 and 123,945
reacquired shares (29,005) (25,059)
TOTAL CAPITAL CONTRIBUTED 408,423 412,369
NET UNREALIZED GAIN ON SECURITIES
AVAILABLE FOR SALE (Note 17) 32,503 32,101
RETAINED EARNINGS 4,487,897 4,240,377
TREASURY STOCK, 223,785 shares,
at cost (Note 11) (81,282) (81,282)
TOTAL STOCKHOLDERS' EQUITY 4,847,541 4,603,565
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,341,799 $5,080,879
<FN>
The accompanying Notes to Financial Statements are
an integral part of these statements.
</FN>
</TABLE>
<PAGE> F - 3
<TABLE>
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF INCOME
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
<CAPTION>
1996 1995
<S> <C> <C>
Revenues
Sale of urns and other items $ 806,791 $ 689,050
Funeral services 1,933,075 1,844,479
Total revenues 2,739,866 2,533,529
Cost of sales and services 1,943,289 1,830,213
Gross profit 796,577 703,316
Selling, general and
administrative expenses
Salaries and wages 233,143 218,436
Profit sharing and pension
fund contributions (Note 12) 65,321 63,377
Professional services 184,215 161,656
Others 160,042 207,056
Total selling, general and
administrative expenses 643,321 650,525
Operating income 153,256 52,791
Other income (expenses)
Interest, dividends, and
others (Note 14) 144,695 157,442
Interest and others (12,240) (22,301)
Total other income (expenses) 132,455 135,141
Income before income taxes and
equity in earnings of
Garden Life Plan, Ltd. 285,711 187,932
Income taxes (Note 10)
Current
Federal 89,629 35,805
State 16,344 6,453
105,973 42,258
Deferred (Note 5) 12,588 23,641
118,561 65,899
Income before equity in earnings
of Garden Life Plan, Ltd. 167,150 122,033
Equity in earnings of Garden
Life Plan, Ltd. (Note 2) 255,765 292,290
Income taxes - deferred (Note 5) 20,441 23,360
235,324 268,930
Net income $ 402,474 $ 390,963
Average number of shares
common stock outstanding 1,828,809 1,846,623
Earnings per common share
(Note 1) $ .22 $ .21
Dividends per common share $ .045 $ .05
<FN>
The accompanying Notes to Financial Statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE> F - 4
<TABLE>
HOSOI GARDEN MORTUARY, INC.
STATEMENT OF RETAINED EARNINGS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
<S> <C>
Balance, May 31, l994 $ 3,969,705
Net income for the year ended May 31, l995 390,963
Change in accounting principle (Note 17) 38,076
Common stock reacquired in excess of par value
Note 11) (62,892)
Cash dividend on common stock ($.05 per share) (95,475)
Balance, May 31, l995 4,240,377
Net income for the year ended May 31, l996 402,474
Common stock reacquired in excess of par value
(Note 11) (72,535)
Cash dividend on common stock ($.045 per share) (82,419)
Balance, May 31, l996 $ 4,487,897
<FN>
The accompanying Notes to Financial Statements
are an integral part of this statement.
</FN>
</TABLE>
<PAGE> F - 5
<TABLE>
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 402,474 $ 390,963
Adjustments to reconcile net
income to net cash and cash
equivalents provided by
operating activities:
Depreciation 67,198 77,578
Loss on write-off of assets 7,853 28
Realized loss (gain) on sale
of investments (9,834) 20,628
Unrealized gain on investments - 70,177
Increase (decrease) in allowance
for doubtful accounts 19,436 (70,836)
Undistributed earnings of
affiliate (255,765) (292,290)
Increase in cash value of
life insurance policies (5,141) (1,802)
Deferred income taxes 33,029 7,041
(Increase) decrease in certain
assets
Accounts receivable (37,636) 33,955
Dividend receivable - 500,000
Income taxes receivable 54,246 (54,246)
Inventories (908) (33,891)
Prepaid expenses and others 7,324 (9,529)
Other assets (18,834) (27)
(Decrease) increase in certain
liabilities
Accounts payable (62,044) 63,588
Accrued liabilities 19,717 10,225
Income taxes payable 11,881 (122,308)
Note payable - 685
NET CASH PROVIDED BY OPERATING
ACTIVITIES 232,996 589,939
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (107,501) (10,322)
Purchase of time certificate
of deposit (200,000) -
Proceeds from sale of investments 229,363 738,454
Increase in investments (223,687) (820,905)
Increase in cash value of life
insurance policies - (2,810)
NET CASH USED IN INVESTING
ACTIVITIES (301,825) (95,583)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Purchase of reacquired stocks (76,481) (66,288)
Cash dividends paid (82,419) (95,475)
NET CASH USED IN FINANCING
ACTIVITIES (158,900) (161,763)
NET INCREASE (DECREASE) (227,729) 332,593
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 938,707 606,114
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 710,978 $ 938,707
<FN>
The accompanying Notes to Financial Statements
are an integral part of these statements.
</FN>
</TABLE>
<PAGE> F - 6
<TABLE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the
Company are summarized below.
Line of business - The Company is engaged in one line
of business that consists principally of providing
mortuary services in the State of Hawaii on the island
of Oahu.
Cash and cash equivalents - For purposes of the
statement of cash flows, cash equivalents includes
certificates of deposit, money market accounts and
highly liquid debt instruments with maturities of
three months or less at the date of acquisition.
Investment securities - Management determines the
appropriate classification of securities at the time
of purchase. Those investments are classified in
three categories and accounted for as follows:
Debt securities that the company intends to hold to
maturity are classified as securities held to
maturity and reported at cost.
Debt and equity securities that are purchased and
held for the purpose of selling in the near term are
classified as trading securities and reported at
fair value, with unrealized gains and losses included
in income.
Debt and equity securities not classified as
securities held to maturity or trading securities are
classified as securities available for sale and
reported at fair value, with unrealized gains and
losses reported as a separate component of
stockholders' equity. Securities available for sale
will be used as part of the Company's asset management
strategy and may be sold in response to changes in
interest rates or the need for capital.
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 Hosoi Garden Mortuary, Inc. in the
earnings of Garden Life Plan, Ltd. net of income taxes
applicable to such earnings for its years ended
May 31, 1996 and 1995.
<PAGE> F - 7
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Inventories - Inventories of caskets, urns and
supplies 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 that
are included in Funeral services and sales of caskets,
urns and other items are included in Sale of urns and
other items. Revenues from pre-need services, which
accounted for approximately 22.6% and 23% of funeral
service revenues in 1996 and 1995, respectively, are
accounted for in Funeral services since these plans
are sold inclusive of the merchandise selected.
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.
<PAGE> F - 8
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
(2) GARDEN LIFE PLAN, LTD.
Investment in Garden Life Plan, Ltd. represented the
Company's 50% share in the underlying equity in the
net assets, accounted for under the equity method of
accounting for investments in common stock, of Garden
Life Plan, Ltd. (GLP), a Hawaii corporation engaged
in the sales of pre-need funeral plans which are
serviced solely by Hosoi Garden Mortuary, Inc.
All payments received from the sale of pre-need
funeral plans up to an amount equal to 30% of the
total price plus any sales tax or other charges are
retained by GLP as its compensation. The balance is
deposited with Hawaiian Trust Company, Limited to be
held in trust. GLP is entitled to all earnings from
funds held in trust which earnings amounted to
$705,222 and $601,851 for the years ended May 31,
1996 and 1995, respectively. Trust assets are not
included in the financial statements of Hosoi Garden
Mortuary, Inc. nor GLP.
<PAGE> F - 9
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(2) GARDEN LIFE PLAN, LTD. (continued)
Audited financial statements of this subsidiary
as of May 31, 1996 and 1995 showed the following
summarized financial position and results of
operations.
1996 1995
<C> <C> <C>
Total assets $2,991,958 $2,529,777
Total liabilities 385,243 434,592
Total stockholders' equity $2,606,715 $2,095,185
Total revenues $ 958,576 $1,176,848
Operating income (loss) $ (136,244) $ 170,728
Net income $ 511,530 $ 584,579
</TABLE>
<TABLE>
INVESTMENT IN GARDEN LIFE PLAN, LTD. as of May 31,
1996 is accounted for as follows:
<S> <C>
Stockholders' equity of Garden Life
Plan, Ltd.'s at May 31, 1996 $2,606,715
Equity ownership 50%
1,303,358
Rounding 2
Total investment in Garden Life Plan, Ltd. $1,303,360
</TABLE>
<PAGE> F - 10
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(3) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash on hand $ 4,772 $ 500
Checking accounts 80,235 22,356
Savings accounts 512,755 645,767
Certificate of deposit 113,216 70,084
Total cash and cash equivalents $ 710,978 $ 938,707
</TABLE>
(4) INVESTMENT SECURITIES
At May 31, 1996 and 1995, 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, 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
MAY 31, 1995
Available for sale
Equity securities $ 52,895 $ 11,781 $ 2,684 $ 61,992
Mutual funds 656,413 23,004 - 679,417
709,308 34,785 2,684 741,409
Held to maturity
U.S. Treasury bills 105,749 - 5,910 99,839
Totals $815,057 $ 34,785 $ 8,594 $841,248
</TABLE>
<PAGE> F - 11
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(4) INVESTMENT SECURITIES (continued)
The maturities of all debt securities held at May 31, 1996 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 $ 10,242 $ 10,118 $ - $ -
After 1 year
through 5 years 59,592 55,852 105,749 99,839
After 5 years - - - -
$ 69,834 $ 65,970 $105,749 $ 99,839
</TABLE>
During the year ended May 31, 1996, the Company sold
securities available for sale for $229,363. The gross
realized gain of $14,541 and gross realized loss of
$4,707 are 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, 1995, the Company sold
securities available for sale for $717,826. The
gross realized gain of $4,203 and gross realized loss
of $24,831 are 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.
Included in stockholders' equity at May 31, 1996 and
1995 is $32,503 and $32,101, respectively, of net
unrealized gains on investments available for sale.
(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 liabilities represent the future tax
consequences of those differences, which will either
taxable or deductible when the assets and liabilities
are recovered or settled.
<PAGE> F - 12
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(5) DEFERRED INCOME TAXES (continued)
Differences in the basis of assets and liabilities
result 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 purposes, the
recognition of unrealized gains and losses on
securities for financial statements purposes and the
recognition of gains or losses when securities are
sold for income tax purposes, and from the use of 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 dividends.
(6) PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 517,040 $ 517,040
Buildings 1,262,530 1,214,215
Land improvements 94,710 94,710
Equipment and vehicles 307,794 380,334
Total cost 2,182,074 2,206,299
Accumulated depreciation 595,120 651,796
Net property and equipment $1,586,954 $1,554,503
</TABLE>
<PAGE> F - 13
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(6) PROPERTY AND EQUIPMENT (continued)
Aggregate depreciation charged to operations and
included in cost of sales and services and selling,
general and administrative expenses are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cost of sales and services $ 54,105 $ 58,824
Selling, general and
administrative expenses 13,093 18,754
$ 67,198 $ 77,578
</TABLE>
(7) LIFE INSURANCE CASH VALUE
The Company maintains keyman life insurance policies
on its former president and CEO. The cash surrender
value of these policies were $106,804 and $101,662 at
May 31, 1996 and 1995, respectively, and is included
in other assets in the accompanying balance sheets.
(8) FUNERAL SERVICE DEPOSITS
Included in accounts payable is $32,646 of deposits
made by eighteen individuals that the Company has
been collecting from since 1969 for future services
or purchase of merchandise. The payable of $32,646,
including interest of $30,228 accrued to May 31, 1996,
approximates fair value.
In an agreement with the Professional and Vocational
Licensing Division of the State of Hawaii's
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's pre-need plan and the amount deposited with the
Company.
<PAGE> F - 14
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(8) FUNERAL SERVICE DEPOSITS (continued)
As of May 31, 1996, twenty-six plans have been
converted to GLP's pre-need plan. The difference
between the cost of plans converted and the amount
of the available deposit is reflected as a charge to
operations. Twelve plans remain to be converted.
No provision has been made for the cost of conversion
of the remaining twelve 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.
(9) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Salaries and wages $ 19,468 $ 14,991
Bonus accrued 20,000 -
Payroll and general excise taxes 13,920 9,438
Profit sharing and money-purchase
plan contributions (Note 12) 65,921 63,377
Vacation and sick leave 31,802 43,588
Total accrued liabilities $ 151,111 $ 131,394
</TABLE>
<PAGE> F - 15
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(10) INCOME TAXES
The provisions for income taxes for the two years
ended May 31, 1996 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Federal:
Current $ 89,629 $ 35,805
Deferred 10,586 20,004
State:
Current 16,344 6,453
Deferred 2,002 3,637
Total $ 118,561 $ 65,899
</TABLE>
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 1995
<S> <C> <C>
Federal income tax statutory rate 34.0% 34.0%
Benefit of graduated tax rates (2.2) (2.4)
State income tax,
net of tax benefit 2.1 .3
Tax effect on dividend exclusion
on equity in earnings of
subsidiary, net of dividend
distribution (12.3) (15.2)
Others, net 4.1 1.9
Effective tax rate 25.7% 18.6%
</TABLE>
<PAGE> F - 16
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(11) 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 19,980 and 16,980 reacquired shares in
1996 and 1995, respectively, exceeded the balance of
additional paid-in capital and a charge of $73,085
and $62,892 for the years ended May 31, 1996 and 1995,
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, 1996 reflects the shares acquired before
July 1, 1987.
(12) 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 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>
1996 1995
<S> <C> <C>
Profit sharing $ 46,600 $ 43,000
Money-purchase 19,321 20,377
$ 65,921 $ 63,377
</TABLE>
<PAGE> F - 17
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(13) LEASE
The Company leases the land on which the mortuary is
situated from the Herman S. Hosoi Trust and the
Hosoi-Tamori-Shimonishi Trust which own a 13% and 12%
interest in the land, respectively. The lease which
was for a term of five years expired on May 31, 1994.
As a group, members of the Hosoi family own
approximately 27% of the outstanding shares of the
Company. The lease provides for a monthly lease rent
of $18,555 plus general excise tax and real property
taxes. The Company exercised its option to renew the
lease for an additional five year period. While
negotiations for the terms of the additional five
year period are in progress, the Company continues
to pay monthly rentals of $18,555 plus general excise
tax. Total rental expense were $275,868 and $275,511
in 1996 and 1995 respectively. Future minimum lease
payments under the lease at May 31, 1996 are:
<TABLE>
<CAPTION>
To Amount
<S> <C>
May 31, 1997 $ 271,560
May 31, 1998 271,560
May 31, 1999 271,560
May 31, 2000 271,560
Total minimum payments $ 1,086,240
</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 1996 and
1995.
The expected minimum lease payments required under the
operating lease are as follows:
<TABLE>
<C> <C>
1997 $ 13,812
1998 2,302
$ 16,114
</TABLE>
<PAGE> F - 18
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(14) OTHER INCOME
Other income consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Interest $ 79,037 $ 59,979
Capital gains 12,738 13,030
Parking 45,070 59,363
Others 7,850 25,070
Total other income $ 144,695 $ 157,442
</TABLE>
(15) CASH FLOW SUPPLEMENTARY DISCLOSURE
Cash payments for interest and income taxes
were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Interest $ 670 $ 331
Income taxes $ 53,217 $ 258,772
</TABLE>
(16) CONCENTRATIOINS OF CREDIT RISK OF FINANCIAL
INSTRUMENTS
The Company's cash and cash equivalents and short term
investments are deposited with five local financial
institutions. For the year ended May 31, 1996, the
Company had deposits in two financial institutions in
excess of the deposit insurance of $100,000.
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.
<PAGE> F - 19
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Two Years Ended May 31, 1996
(17) CHANGE IN ACCOUNTING PRINCIPLES
Effective June 1, 1994, the Company adopted Statement
of Financial Accounting Standards No. 115 (SFAS 115),
Accounting for Certain Investments in Debt and Equity
Securities. The statement addresses the accounting
and reporting of investments in equity securities that
have readily determinable fair values and for all
investment in debt securities. Stockholders' equity
as of June 1, 1994 was increased by $38,076 (net of
tax effect) as a result of the change in accounting
principle.
<PAGE> F-20
