<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from______________to________________
Commission file number 0-2288
(Unaudited)
HOSOI GARDEN MORTUARY, INC.
(Exact name of small business issuer as specified in its charter)
State of Hawaii No. 99-0088064
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 North Kukui Street
(Corner of Nuuanu Avenue
and Kukui Street)
Honolulu, Hawaii 96817
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (808) 538-3877
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
1,732,508 shares of Common Stock
Outstanding at August 31, 1998
<PAGE> 2
HOSOI GARDEN MORTUARY, INC.
_ _ _ _ _ _ _ _ _ _ _ _ _
CONTENTS
_ _ _ _ _
[CAPTION]
Pages
[S] [C]
DISCLAIMER OF OPINION 1
PART I - Financial Information
Item 1. Financial Statements
Balance Sheet 2
Statements of Income 3
Statements of Cash Flows 4
Notes 5 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - Other Information 11
SIGNATURES 12
<PAGE> 3
DISCLAIMER OF OPINION
_ _ _ _ _ _ _ _ _ _ _
To the Board of Directors
Hosoi Garden Mortuary, Inc.
The accompanying balance sheet of
HOSOI GARDEN MORTUARY, INC.
as of August 31, 1998, and the related statements of income and cash flows for
the three months ended August 31, 1998 and 1997 were not audited by us and
accordingly, we do not express an opinion on them.
September 29, 1998
Honolulu, Hawaii
ENDO & COMPANY
1
<PAGE> 4
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEET
_ _ _ _ _ _ _
August 31, 1998
[CAPTION]
A S S E T S
[S] [C]
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 560,486
Certificate of deposit 600,000
Securities available-for-sale, at market (Note 2) 717,947
Accounts receivable, less allowance for doubtful
accounts of $86,486 265,480
Income taxes receivable 226,357
Inventories 139,903
Prepaid expenses and others 111,857
Deferred income taxes (Note 5) 46,531
------------
TOTAL CURRENT ASSETS 2,668,561
------------
INVESTMENTS
Garden Life Plan, Ltd. (Note 3) 1,663,336
Cemetery plots 1,350
Securities held-to-maturity, at cost (Note 2) 825,166
------------
2,489,852
------------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation 1,519,443
-----------
OTHER ASSETS 93,435
------------
TOTAL ASSETS $ 6,771,291
============
[CAPTION]
L I A B I L I T I E S
[S] [C]
CURRENT LIABILITIES
Accounts payable $ 249,159
Accrued liabilities 148,152
------------
TOTAL CURRENT LIABILITIES 397,311
------------
DEFERRED INCOME TAXES (Note 5) 98,517
------------
[CAPTION]
S T O C K H O L D E R S' E Q U I T Y
[S] [C]
CAPITAL CONTRIBUTED (Note 8)
Common stock, par value $.20 per share; authorized
3,625,000 shares, issued 2,187,140 shares 437,428
Less 230,847 reacquired shares (46,390)
-------------
TOTAL CAPITAL CONTRIBUTED 391,038
RETAINED EARNINGS 5,941,415
NET UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE,
net of applicable deferred income taxes (Note 2) 24,292
TREASURY STOCK, 223,785 shares, at cost (Note 8) (81,282)
------------
TOTAL STOCKHOLDERS' EQUITY 6,275,463
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,771,291
============
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
2
<PAGE> 5
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF INCOME
_ _ _ _ _ _ _ _ _ _ _ _ _
Three Months Ended August 31, 1998 and 1997
[CAPTION]
1998 1997
----------- ------------
[S] [C] [C]
NET SALES AND SERVICES $ 627,653 $ 647,905
COST OF SALES AND SERVICES 478,221 503,849
---------- -----------
GROSS PROFIT 149,432 144,056
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 155,406 165,141
---------- -----------
OPERATING LOSS (5,974) (21,085)
OTHER INCOME (EXPENSE)
Parking, dividends, interest and
miscellaneous income 36,622 40,748
Interest (1,643) -
----------- ----------
INCOME BEFORE INCOME TAXES
AND EQUITY IN EARNINGS OF
GARDEN LIFE PLAN, LTD. 29,005 19,663
INCOME TAXES (Note 6) 11,616 7,439
----------- -----------
INCOME BEFORE EQUITY IN EARNINGS
OF GARDEN LIFE PLAN, LTD. 17,389 12,224
EQUITY IN EARNINGS OF GARDEN LIFE PLAN,
LTD., net of deferred income taxes of
$4,753 and $13,680 (Note 3) 54,715 157,492
------------ -----------
NET INCOME $ 72,104 $ 169,716
============ ===========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (Note 7) 1,735,710 1,770,805
============ ===========
EARNINGS PER COMMON SHARE (Note 7) $ .04 $ .10
============ ===========
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
3
<PAGE> 6
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _ _
Three Months Ended August 31, 1998 and 1997
[CAPTION]
1998 1997
------------ -------------
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 72,104 $ 169,716
Adjustments to reconcile net income
to net cash provided by (used in)
operations
Depreciation 16,172 14,848
Gain on sale of securities (4,615) (9,707)
Undistributed earnings of affiliate (59,468) (171,172)
Deferred income taxes (47,479) 17,449
Cash value of life insurance policies 2,812 385
(Increase) decrease in certain assets
Accounts receivable 759,308 23,713
Income tax receivable 29,392 (16,878)
Inventories 9,365 37,287
Prepaid expenses and others (47,070) (36,280)
(Decrease) increase in certain liabilities
Accounts payable (36,286) (55,148)
Accrued liabilities 12,668 17,308
Income taxes payable - (76,716)
----------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 706,903 (85,195)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (11,056) (9,871)
Purchase of certificate of deposit (600,000) -
Increase in securities (56,830) (1,048,111)
Proceeds from sale of securities 67,220 1,058,548
Payment of premiums on life insurance
policies 7,674 (2,811)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (592,992) (2,245)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
- Shares reacquired (52,296) (36,888)
----------- -----------
NET INCREASE (DECREASE) IN CASH 61,615 (124,328)
CASH AT BEGINNING OF PERIOD 498,871 776,095
----------- -----------
CASH AT END OF PERIOD $ 560,486 $ 651,767
=========== ===========
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
4
<PAGE> 7
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1998 and 1997
(1) Cash and cash equivalents
-------------------------
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
(2) Investment securities
---------------------
At August 31, 1998, the Company held investments in the following types
of securities:
[CAPTION]
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ----------
[S] [C] [C] [C] [C]
Available-for-sale
Equity securities $ 82,567 23,702 $ 11,148 $ 95,121
Mutual funds 596,216 26,627 17 622,826
---------- ---------- ---------- ----------
678,783 50,329 11,165 717,947
Held-to-maturity
U.S. Treasury
bills 825,166 2,771 302 827,635
----------- -------- ---------- ----------
Total $ 1,503,949 $ 53,100 $ 11,467 $1,545,582
=========== ========= ========== ==========
The maturities for all debt securities held at August 31, 1998 were:
[CAPTION]
Available-for-Sale Held-to-Maturity
-------------------- -----------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- -------- --------- --------
[S] [C] [C] [C] [C]
Within 1 year $ - $ - $ 719,902 $ 720,220
After 1 year
through 5 years - - 40,623 41,046
After 5 years - - 64,641 66,369
--------- -------- --------- ---------
$ - $ - $ 825,166 $ 827,635
========= ======== ========= =========
[FN]
(Unaudited)
5
<PAGE> 8
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1998 and 1997
(2) Investment securities (continued)
---------------------
The Company sold available-for-sale and held-to-maturity securities for
$67,220 and $1,058,548 in 1998 and 1997, respectively. The net realized
gain of $4,615 and $9,707 in 1998 and 1997, respectively, 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 August 31, 1998, and reported as a separate component of
Stockholder's Equity are as follows:
[CAPTION]
1998
---------
[S] [C]
Unrealized holding gains, net of losses $ 39,164
Deferred income tax on net unrealized holding gains (14,872)
--------
$ 24,292
========
(3) Garden Life Plan, Ltd.
---------------------
Investment in Garden Life Plan, Ltd. represents the Company's 50% share,
in the underlying equity in the net assets, accounted for under the equity
method of accounting for investments in common stock, of Garden Life Plan,
Ltd. (GLP), a Hawaii corporation engaged in the sales of pre-need funeral
plans which are serviced solely by Hosoi Garden Mortuary, Inc.
All payments received from the sale of pre-need funeral plans up to an
amount equal to 30% of the total price plus any sales tax or other charges
are retained by GLP as its compensation. The balance is deposited with
Hawaiian Trust Company, Limited to be held in trust. GLP is entitled to
all earnings from funds held in trust which amounted to $2,666,047 and
$1,641,352 for the years ended May 31, 1998 and 1997, respectively, and is
reflected in Other Income. Trust assets are not included in the financial
statements of Hosoi Garden Mortuary, Inc. nor GLP.
Effective June 1, 1996, the Trust began recording its investments at
market value. Previously, the Trust recorded its investments at cost.
The cumulative effect of this change as of June 1, 1996 was an increase in
GLP's trust fund income receivable of $1,574,286, net of deferred income
taxes of $964,885 and is reflected in GLP's net income of $2,377,893 as
shown below.
[FN]
(Unaudited)
6
<PAGE> 9
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1998 and 1997
(3) Garden Life Plan, Ltd. (continued)
----------------------
Audited financial statements of this subsidiary as of May 31, 1998 and
1997 reflected the following summarized financial position and results of
operations:
[CAPTION]
1998 1997
----------- -----------
[S] [C] [C]
Total assets $ 6,981,992 $ 5,019,929
Total liabilities 2,274,260 1,923,917
----------- -----------
Total stockholders' equity $ 4,707,732 $ 3,096,012
=========== ===========
Total revenues $ 617,214 $ 1,184,909
=========== ===========
Operating (loss)income $ (84,329) $ 172,255
=========== ===========
Other income $ 2,666,047 $ 1,641,352
=========== ===========
Cumulative effect of change in
accounting principle $ - $ 1,574,286
=========== ===========
Net income $ 1,611,718 $ 2,377,893
=========== ===========
Equity in earnings of Garden Life Plan, Ltd. represents the Company's
share of the earnings of Garden Life Plan, Ltd. for its three-months ended
August 31, 1998 and 1997.
Investment in Garden Life Plan, Ltd. as of August 31, 1998 is accounted
for as follows:
[S] [C]
Stockholders' equity at August 31, 1998 per Garden
Life Plan, Ltd.'s balance sheet $ 3,326,672
Equity Ownership 50%
-----------
Total investment in Garden Life Plan, Ltd. $ 1,663,336
===========
(4) Related party transactions
--------------------------
On July 7, 1998, the Company in partnership with Woolsey Funeral &
Cemetery Services, Inc. formed Woolsey-Hosoi Mortuary Services, LLC
(Woolsey-Hosoi), a limited liability company, to provide funeral services
to market sectors not previously serviced by the Company. The Company's
initial capital contribution to Woolsey-Hosoi is $15,000.
The Company provides Woolsey-Hosoi with embalming services, assistance
with funeral arrangements and facilities use and related charges. The
revenues from these services provided to Woolsey-Hosoi is reflected in Net
sales and services which amounted to $2,396 or .4% of Net sales and
services.
[FN]
(Unaudited)
7
<PAGE> 10
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1998 and 1997
(5) 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 purposes and recognition of gains or
losses when securities are sold for income 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, and the accrual of vacation and sick leave when earned for the
financial statements and the recognition for income tax purposes when paid.
At August 31, 1998 the Company's retained earnings included approximately
$1,663,336 of undistributed earnings of Garden Life Plan, Ltd.
(6) Income taxes
------------
The provision for income taxes consists of the following:
[CAPTION]
1998 1997
------------ ------------
[S] [C] [C]
Federal:
Current $ 12,390 $ 3,218
Deferred (2,476) 4,980
----------- -----------
9,914 8,198
----------- -----------
State:
Current 2,169 453
Deferred (467) (1,212)
----------- -----------
1,702 (759)
----------- -----------
Total $ 11,616 $ 7,439
=========== ===========
[FN]
(Unaudited)
8
<PAGE> 11
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1998 and 1997
(7) Earnings per share
------------------
Earnings per common share has been computed on the basis of a weighted
average of shares outstanding of 1,735,710 for 1998 and 1,770,805 for 1997.
(8) Reacquired shares
-----------------
Capital contributed has been reduced for shares reacquired after June 30,
1987. Payments for shares in excess of the par value of each share
acquired has been charged to additional paid-in capital.
The 223,785 shares reflected as Treasury Stock as of August 31, 1998 and
1997, reflects shares acquired before July 1, 1987.
[FN]
(Unaudited)
9
<PAGE> 12
HOSOI GARDEN MORTUARY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Changes in financial condition
There have been no material adverse changes in financial condition from the
end of the preceding fiscal year to the end of the current quarter ended
August 31, 1998.
The working capital and working capital ratio at August 31, 1998 reflected
strong liquidity as follows:
[S] [C]
Working capital $ 2,271,250
Working capital ratio 6.7:1
Changes in results of operations
Net Sales and Services - Net sales and services in 1998 decreased by 3.1% over
1997. The decrease resulted principally from decreases in merchandise sales
and funeral service revenues as a result of a shift toward private services.
Cost of Sales and Services - Cost of sales and services as a percent of net
sales decreased to 76.2% in 1998 from 77.8% in 1997. The decrease is due to a
decrease in the cost of merchandise sales , supplies and real property taxes.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses, as a percent of net sales, decreased from 25.5% in
1997 to 24.8% in 1998. The decrease resulted from decreases in professional
fees offset by increases in accruals for profit sharing and bad debts
expenses.
Income Taxes - The effective income tax rate is 40.0% for 1998 and 37.8% for
1997.
Other Income (Expense) - Other income as a percent of net sales and services
decreased to 5.8% in 1998 from 6.3% in 1997. The decrease resulted primarily
from a decrease in gains on sale of securities.
[FN]
10
<PAGE> 13
HOSOI GARDEN MORTUARY, INC.
PART II - OTHER INFORMATION
_ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1998 and 1997
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
three-months ended August 31, 1998.
[FN]
11
<PAGE> 14
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The information furnished reflects all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the interim
periods.
HOSOI GARDEN MORTUARY, INC.
(Small business issuer)
Date October 14, 1998 Clifford Hosoi
------------------ -------------------------
Clifford Hosoi, President
Date October 14, 1998 Keith Numazu
------------------ --------------------------
Keith Numazu, Treasurer
[FN]
12
<PAGE> 15
EXHIBIT INDEX
[CAPTION]
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------
[C] [S]
27 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and the statements of income filed as part of the quarterly report on Form
10-QSB and is qualified inits entirety by reference to such quarterly report on
Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> AUG-31-1998
<CASH> 560486
<SECURITIES> 717947
<RECEIVABLES> 265480
<ALLOWANCES> 86486
<INVENTORY> 139903
<CURRENT-ASSETS> 2668561
<PP&E> 1519443
<DEPRECIATION> 16172
<TOTAL-ASSETS> 6771291
<CURRENT-LIABILITIES> 397331
<BONDS> 0
0
0
<COMMON> 437428
<OTHER-SE> 5838035
<TOTAL-LIABILITY-AND-EQUITY> 6771291
<SALES> 627653
<TOTAL-REVENUES> 627653
<CGS> 478221
<TOTAL-COSTS> 478221
<OTHER-EXPENSES> 155406
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1643
<INCOME-PRETAX> 29005
<INCOME-TAX> 11616
<INCOME-CONTINUING> 17389
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 72104
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
