<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-2288
(Unaudited)
HOSOI GARDEN MORTUARY, INC.
(Exact name of small business issuer as specified in its charter)
State of Hawaii No. 99-0088064
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 North Kukui Street
(Corner of Nuuanu Avenue
and Kukui Street)
Honolulu, Hawaii 96817
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number) (808) 538 - 3877
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and
(2) has been subject to such filing requirements for the past 90 days.
Yes XX No
1,747,043 shares of Common Stock
Outstanding at November 30, 1997
<PAGE> 2
HOSOI GARDEN MORTUARY, INC.
_ _ _ _ _ _ _ _ _ _ _ _ _ _
CONTENTS
_ _ _ _
[CAPTION]
Pages
[S] [C]
DISCLAIMER OF OPINION 1
PART I - Financial Information
Item 1. Financial Statements
Balance Sheet 2
Statements of Income 3
Statements of Cash Flows 4
Notes to Financial Statements 5 - 9
Item 2. Management's Discussions and Analysis of Financial
Condition and Results of Operations 10
PART II - Other Information 11
SIGNATURES 12
<PAGE> 3
DISCLAIMER OF OPINION
_ _ _ _ _ _ _ _ _ _ _
To the Board of Directors
Hosoi Garden Mortuary, Inc.
The accompanying balance sheet of
HOSOI GARDEN MORTUARY, INC.
as of November 30, 1997, and the related statements of income and cash flows
for the three-months and six-months ended November 30, 1997 and 1996 were
not audited by us and accordingly, we do not express an opinion on them.
December 31, 1997
ENDO & COMPANY
Honolulu, Hawaii
1
<PAGE> 4
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEET
_ _ _ _ _ _ _
November 30, 1997
[CAPTION]
A S S E T S
[S] [C]
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 586,918
Certificate of deposit 70,000
Securities available-for-sale, at market (Note 2) 689,289
Accounts receivable, less allowance for doubtful accounts
of $70,084 269,144
Income taxes receivable 79,222
Inventories 128,328
Prepaid expenses and others 64,548
Deferred income taxes (Note 4) 85,168
-----------
TOTAL CURRENT ASSETS 1,972,617
-----------
INVESTMENTS
Garden Life Plan, Ltd. (Note 3) 1,860,028
Cemetery plots 1,350
Securities held-to-maturity, at cost (Note 2) 1,119,169
-----------
2,980,547
-----------
PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation 1,544,712
-----------
OTHER ASSETS 128,555
-----------
TOTAL ASSETS $ 6,626,431
===========
[CAPTION]
L I A B I L I T I E S
[S] [C]
CURRENT LIABILITIES
Accounts payable $ 262,774
Accrued liabilities 248,814
------------
TOTAL CURRENT LIABILITIES 511,588
------------
DEFERRED INCOME TAXES (Note 4) 144,454
------------
[CAPTION]
S T O C K H O L D E R S ' E Q U I T Y
[S] [C]
CAPITAL CONTRIBUTED (Note 7)
Common stock, par value $.20 per share; authorized
3,625,000 shares, issued 2,187,140 shares 437,428
Less 216,312 reacquired shares (43,482)
-----------
TOTAL CAPITAL CONTRIBUTED 393,946
-----------
RETAINED EARNINGS (Note 8) 5,616,556
-----------
NET UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE, net of
deferred taxes (Note 2) 41,169
-----------
TREASURY STOCK, 223,785 shares, at cost (Note 7) (81,282)
-----------
TOTAL STOCKHOLDERS' EQUITY 5,970,389
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,626,431
===========
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
2
<PAGE> 5
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF INCOME
_ _ _ _ _ _ _ _ _ _
[CAPTION]
Three-Months Ended Six-Months Ended
November 30, November 30,
1997 1996* 1997 1996*
[S] [C] [C] [C] [C]
NET SALES AND SERVICES $ 631,131 $ 694,629 $ 1,279,036 $ 1,483,009
COST OF SALES AND SERVICES 493,468 530,336 997,317 1,040,954
---------- ---------- ----------- -----------
GROSS PROFIT 137,663 164,293 281,719 442,055
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 145,529 195,120 310,670 323,408
---------- ---------- ----------- ----------
OPERATING INCOME (LOSS) (7,866) (30,827) (28,951) 118,647
OTHER INCOME (EXPENSE)
Parking, dividends, interest
and miscellaneous income 118,390 26,295 159,138 114,036
Interest - 64 - (633)
---------- ---------- ------------ ---------
INCOME (LOSS) BEFORE
INCOME TAXES AND
EQUITY IN EARNINGS OF
GARDEN LIFE PLAN, LTD. 110,524 (4,468) 130,187 232,050
INCOME TAXES (CREDIT)
(Note 5) 45,162 (1,650) 52,601 85,673
---------- ---------- ------------ ---------
INCOME (LOSS) BEFORE
EQUITY IN EARNINGS OF
GARDEN LIFE PLAN, LTD. 65,362 (2,818) 77,586 146,377
EQUITY IN EARNINGS OF GARDEN
LIFE PLAN, LTD., net of
deferred income taxes
(Note 3) 129,591 67,566 287,083 127,797
----------- ---------- ------------ ---------
NET INCOME $ 194,953 $ 64,748 $ 364,669 $ 274,174
=========== =========== ============ =========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
(Note 6) 1,753,125 1,804,355 1,761,965 1,809,455
=========== =========== ============ =========
EARNINGS PER COMMON SHARE
(Note 6) $.11 $.04 $.21 $.15
==== ==== ==== ====
*=As restated
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
3
<PAGE> 6
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _
Six-Months Ended November 30, 1997 and 1996
[CAPTION]
1997 1996
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 364,669 $ 274,174
Adjustments to reconcile net income to
net cash (used in) provided by operations
Depreciation 29,695 38,514
Gain on sale of securities (94,311) (44,798)
Undistributed earnings of affiliate (312,019) (120,742)
Cash value of life insurance policies (560) (1,455)
Deferred income taxes 80,011 (22,221)
(Increase) decrease in certain assets
Accounts receivable 33,958 (20,657)
Income tax receivable (79,222) -
Inventories 8,618 (769)
Prepaid expenses and others (95) 6,562
(Decrease) increase in certain liabilities
Accounts payable (89,915) 64,551
Income taxes payable (76,716) (6,975)
Accrued liabilities (120,385) (31,152)
------------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (256,272) 135,032
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (22,459) (20,927)
Increase in securities (2,259,145) (505,877)
Proceeds from sale of securities 2,542,378 446,376
Increase in certificate of deposit (70,000) -
Premiums payments on life insurance policies (2,811) (703)
------------- -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES 187,963 (81,131)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of reacquired shares (120,868) (62,375)
------------- -----------
NET CASH USED IN FINANCING
ACTIVITIES (120,868) (62,375)
------------- -----------
NET DECREASE (189,177) (8,474)
CASH AND CASH EQUIVALENTS, beginning of year 776,095 710,978
------------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 586,918 $ 702,504
============ ===========
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
4
<PAGE> 7
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1997 and 1996
(1) Cash and cash equivalents
For purposes of the Statement of Cash Flows, cash equivalents include
certificate of deposit, money market accounts and highly liquid debt
instruments with maturities of three months or less at the date of
acquisition. For debt instruments, carrying value is a reasonable
estimate of fair value.
The Company's cash are deposited with three local financial institution.
At November 30, 1997 and 1996, the Company had deposits in two financial
institutions in excess of the deposit insurance of $100,000.
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) Investment securities
The Company held investments in the following types of securities:
[CAPTION]
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
---------- ---------- ---------- ---------
[S] [C] [C] [C] [C]
November 30, 1997
Available for sale
Equity securities $ 74,667 $ 34,805 $ 1,882 $ 107,590
Mutual Funds 543,559 38,234 94 581,699
---------- ---------- ---------- ----------
618,226 73,039 1,976 698,289
Held to Maturity
U. S. Treasury Notes 1,119,169 1,494 4,005 1,116,658
---------- ---------- ---------- ----------
Totals $1,737,395 $ 74,533 $ 5,981 $1,814,947
========== ========== ========== ==========
November 30, 1996
Available for sale
Equity securities $ 80,998 $ 27,058 $ 1,542 $ 106,514
Mutual Funds 752,584 38,274 - 790,858
---------- ---------- ---------- ----------
833,582 65,332 1,542 897,372
Held to Maturity
U. S. Treasury Notes 89,932 454 3,429 86,957
---------- ---------- ---------- ----------
Totals $ 923,514 $ 65,786 $ 4,971 $ 984,329
========== ========== ========== ==========
[FN]
(Unaudited)
5
<PAGE> 8
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1997 and 1996
(2) Investment securities (continued)
The maturities for all debt securities held at November 30, 1997 were:
[CAPTION]
Available-for-Sale Held-to-Maturity
------------------- --------------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- ------ ---------- ----------
[S] [C] [C] [C] [C]
Within 1 year $ - $ - $1,033,064 $1,029,973
After 1 year
through 5 years - - 40,623 40,543
After 5 years - - 45,482 46,142
--------- ------- ---------- ----------
$ - $ - $1,119,169 $1,116,658
========= ======= ========== ==========
[FN]
The Company sold securities available-for-sale for $582,258 and $446,376
in 1997 and 1996, respectively. The gross realized gains of $96,416 in
1997 and $47,437 in 1996, are reflected in earnings. Gross realized
losses of $2,105 in 1997 and $2,639 in 1996 is reflected in earnings.
The cost of the securities sold was based on the cost of all the shares
of each such security held at the time of sale.
The unrealized holding gains on investment securities available-for-sale
as of November 30, 1997 is reported as a separate component of
Stockholders' Equity as follows:
[CAPTION]
1997
---------
[S] [C]
Unrealized holding gains, net of losses $ 71,063
Deferred income tax on net unrealized
holding gains (29,894)
---------
$ 41,169
=========
(3) Garden Life Plan, Ltd.
Investment in Garden Life Plan, Ltd. represent the Company's 50% share, in
the underlying equity, 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
[FN]
(Unaudited)
6
<PAGE> 9
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1997 and 1996
(3) Garden Life Plan, Ltd. (continued)
entitled to all earnings from funds held in trust which amounted to
$1,641,352 and $705,222 for the years ended May 31, 1997 and 1996,
respectively. Trust assets are not included in the financial statements
of Hosoi Garden Mortuary, Inc. nor GLP.
Effective June 1, 1996, the Trust began recording its investments at market
value. Previously, the Trust recorded its investments at cost. The
cumulative effect of this change as of June 1, 1996 was an increase in
GLP's trust fund income receivable of $1,574,286, net of deferred income
taxes of $964,885 and is reflected in GLP's net income of $2,377,893 as
shown below.
Audited financial statements of this subsidiary as of May 31, 1997 and 1996
reflected the following summarized financial position and results of
operations:
[CAPTION]
1997 1996
[S] [C] [C]
Total assets $ 5,019,929 $ 2,991,958
Total liabilities 1,923,917 385,243
----------- -----------
Total stockholders' equity $ 3,096,012 $ 2,606,715
=========== ===========
Total revenues $ 1,184,909 $ 958,576
=========== ===========
Operating 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 $ 511,339
=========== ============
Equity in earnings of Garden Life Plan, Ltd. represents the Company's
share of the earnings of Garden Life Plan, Ltd. for its three-months
and six-months ended November 30, 1997.
Investment in Garden Life Plan, Ltd. as of November 30, 1997 is accounted
for as follows:
[S] [C]
Stockholders' equity at November 30, 1997 per
Garden Life Plan, Ltd.'s balance sheet $ 3,720,053
Equity Ownership 50%
-----------
1,860,027
Rounding 1
-----------
Total investment in Garden Life Plan, Ltd. $ 1,860,028
===========
[FN]
(Unaudited)
7
<PAGE> 10
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1997 and 1996
(4)Deferred income taxes
Deferred taxes are recognized for differences between the basis of assets
and liabilities for financial statements and income tax purposes. The
deferred assets and liabilities represent the future tax consequences of
those differences, which will be either taxable or deductible when the
assets and liabilities are recovered or settled. The deferred tax liability
results from the recognition of unrealized gains, net of losses on
securities for financial statement and recognition of gains or losses
when securities are sold for income tax purposes, the inclusion of the
deferred earning on an annuity for financial statements and the recognition
of the earnings when received for tax purposes and the equity method of
accounting for the investment in subsidiary as explained under Garden Life
Plan, Ltd. above. Under the equity method, the Company's share of earnings
of the subsidiary is reported for tax purposes only when distributions of
earnings are received
as dividends.
The deferred tax asset results from the use of the reserve method in
accounting for uncollectible accounts receivable in the financial
statements and the use of the direct write off method for income tax
purpose, the accrual of the retroactive rent for financial statements
purposes and the recognition of the rent expense when paid for income
tax purposes and the accrual of vacation and sick leave when earned for
the financial statements and the recognition for income tax purposes when
paid.
At November 30, 1997, the Company's retained earnings included
approximately $ 1,860,028 of undistributed earnings of Garden Life
Plan, Ltd.
(5) Income taxes
The provision for income taxes consists of the following:
[CAPTION]
1997 1996
---------- ---------
[S] [C] [C]
Current:
Federal $ (106) $ 87,031
State (2,367) 13,808
---------- ---------
Total Current (2,473) 100,839
---------- ---------
Deferred:
Federal 49,345 (12,523)
State 5,729 (2,643)
---------- ---------
Total Deferred 55,074 (15,166)
---------- ---------
Total Federal and State $ 52,601 $ 85,673
========== =========
[FN]
(Unaudited)
8
<PAGE> 11
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1997 and 1996
(6) Earnings per share
Earnings per common share has been computed on the basis of a weighted
average shares outstanding of 1,761,965 for 1997 and 1,809,455 for 1996.
(7) Reacquired shares
Capital contributed has been reduced for shares reacquired after June 30,
1987. Payments for shares in excess of the par value of each share acquired
has been charged to additional paid- in capital. Purchase of reacquired
shares have exceeded the balance of additional paid-in capital and
therefore, charges are made to Retained Earnings for the cost in excess
of par value.
The 223,785 shares reflected as Treasury Stock as of November 30, 1997 and
1996 reflects the shares acquired before July 1, 1987.
(8) Restatement
The Company exercised its option to renew the lease on the portion of land
owed by the Herman S. Hosoi and Hosoi-Tamori-Shimonishi Trusts. In August
1997 the negotiations for the option period was agreed upon between the
Company and the Trust. As a result the retroactive rent and related
deferred taxes for the fiscal year ended May 31, 1996 is reflected in
the statement of income.
[FN]
(Unaudited)
9
<PAGE> 12
HOSOI GARDEN MORTUARY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1997 and 1996
Changes in financial condition
There have been no material adverse changes in financial condition from the
end of the preceding fiscal year to the end of the current quarter ended
November 30, 1997.
The working capital and working capital ratio at November 30, 1997 is as
follows:
[S] [C]
Working capital $1,461,029
Working capital ratio 3.9:1
Changes in results of operations
Cost of Sales and Services - Cost of sales and services as a percent of net
sales increased to 78.0% from 70.2% for the six-months ended November 30,
1997 over 1996. The increase is due principally to a decrease in the number
of total services performed.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses as a percent of net sales increased to 24.3% from 21.8%
for the six-months ended November 30, 1997 over 1996. The increase is
mainly due to a decrease in net sales and services, which was partially
offset by an overall decrease in selling, general and administrative expenses.
Income Taxes - The effective income tax rate has increased to 40.4% for
1997 from 36.9% for 1996.
Other income (expense) - Other income as a percent of net sales increased
to 12.4% from 7.7% for the six-months ended November 30, 1997 over 1996.
The increase in other income resulted primarily from gains on the sale of
securities.
[FN]
10
<PAGE> 13
HOSOI GARDEN MORTUARY, INC.
PART II - OTHER INFORMATION
---------------------------
November 30, 1997 and 1996
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
six-months ended November 30, 1997.
[FN]
11
<PAGE> 14
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
The information furnished reflects all adjustments which are, in the
opinion of management, necessary to a fair statement of the results for
the interim periods.
HOSOI GARDEN MORTUARY, INC.
----------------------------------
(Small business issuer)
Date January 14, 1998 CLIFFORD HOSOI
----------------------------------
Clifford Hosoi, President
Date January 14, 1998 KEITH NUMAZU
----------------------------------
Keith Numazu, Treasurer
Corporate Treasurer and Bookkeeper
[FN]
12
<PAGE 15>
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
- ------- -----------
27 Financial Date Schedule, which is submitted electroncially to
the Securities and Exchange Commission for information only and
not filed.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and the statement of income filed as part of the quarterly report on Form
10-QSB and is qualified in its entirety by reference by reference to such
quarterly report on Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 656918
<SECURITIES> 689289
<RECEIVABLES> 269144
<ALLOWANCES> 70084
<INVENTORY> 128328
<CURRENT-ASSETS> 1972617
<PP&E> 1544712
<DEPRECIATION> 29695
<TOTAL-ASSETS> 6626431
<CURRENT-LIABILITIES> 511588
<BONDS> 00
0
0
<COMMON> 437428
<OTHER-SE> 5532961
<TOTAL-LIABILITY-AND-EQUITY> 6626431
<SALES> 1279036
<TOTAL-REVENUES> 1279036
<CGS> 997317
<TOTAL-COSTS> 997317
<OTHER-EXPENSES> 310670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 130187
<INCOME-TAX> 52601
<INCOME-CONTINUING> 77586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 364669
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
