<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> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 445934
<SECURITIES> 760114
<RECEIVABLES> 419868
<ALLOWANCES> 70264
<INVENTORY> 197343
<CURRENT-ASSETS> 2070640
<PP&E> 1546656
<DEPRECIATION> 44543
<TOTAL-ASSETS> 7055657
<CURRENT-LIABILITIES> 468339
<BONDS> 0
0
0
<COMMON> 437428
<OTHER-SE> 5945868
<TOTAL-LIABILITY-AND-EQUITY> 7055657
<SALES> 1947369
<TOTAL-REVENUES> 1947369
<CGS> 1525831
<TOTAL-COSTS> 1525831
<OTHER-EXPENSES> 489369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 148664
<INCOME-CONTINUING> 43883
<DISCONTINUED> 104781
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 957562
<EPS-PRIMARY> 54
<EPS-DILUTED> 54
</TABLE>
<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 February 28, 1998
[ ]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)
(808) 538-3877
(Registrant's telephone number, including area code)
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 Securities Exchange Act of 1934 during the past 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
Yes XX No
1,746,818 shares of Common Stock
Outstanding at February 28, 1998
<PAGE> 2
HOSOI GARDEN MORTUARY, INC.
_ _ _ _ _ _ _ _ _ _ _ _ _ _
Nine-Months Ended February 28, 1998 and 1997
CONTENTS
_ _ _ _
[CAPTION]
[S] [C]
Pages
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 - 11
Item 2. Management's Discussions and Analysis of Financial
Conditions and Results of Operations 12
PART II -Other Information 13
SIGNATURES 14
<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 February 28, 1998, and the related statements of income for the
three-months and nine-months ended February 28, 1998 and 1997 and the cash
flows for the nine-months ended February 28, 1998 and 1997 were not audited by
us and accordingly, we do not express an opinion on them.
March 27, 1998
Honolulu, Hawaii
ENDO & COMPANY
1
<PAGE> 4
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEET
_ _ _ _ _ _ _
February 28, 1998
[CAPTION]
A S S E T S
[S] [C]
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 445,934
Securities available-for-sale, at market (Note 2) 760,114
Accounts receivable, less allowance for losses of $70,264 349,604
Income taxes receivable 197,343
Inventories 159,718
Prepaid expenses and others 121,943
Deferred income taxes (Note 4) 35,984
TOTAL CURRENT ASSETS 2,070,640
INVESTMENTS
Garden Life Plan, Ltd. (Note 3) 2,485,731
Cemetery plots 1,350
Securities held-to-maturity, at cost (Note 2) 821,780
TOTAL INVESTMENTS 3,308,861
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated
depreciation 1,546,656
OTHER ASSETS 129,500
TOTAL ASSETS $ 7,055,657
[CAPTION]
L I A B I L I T I E S
[S] [C]
CURRENT LIABILITIES
Accounts payable $ 326,438
Accrued liabilities 141,901
TOTAL CURRENT LIABILITIES 468,339
DEFERRED INCOME TAXES (Note 4) 204,022
[CAPTION]
S T O C K H O L D E R S' E Q U I T Y
[S] [C]
CAPITAL CONTRIBUTED
Common stock, par value $.20 per share; authorized
3,625,000 shares, issued 2,187,140 shares 437,428
Less 216,537 reacquired shares 43,527
TOTAL CAPITAL CONTRIBUTED 393,901
RETAINED EARNINGS 6,016,339
NET UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE,
net of deferred taxes (Note 2) 54,338
TREASURY STOCK, 223,785 shares, at cost (Note 7) (81,282)
TOTAL STOCKHOLDERS' EQUITY 6,383,296
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,055,657
[FN]
See the Accompanying Notes to Financial Statements
(Unaudited)
2
<PAGE> 5
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF INCOME
- - - - - - - - - -
[CAPTION]
Three-Months Ended Nine-Months Ended
February 28 February 28
1998 1997 * 1998 1997 *
[S] [C] [C] [C] [C]
NET SALES AND SERVICES $ 668,333 $ 712,978 $ 1,947,369 $ 2,195,987
COST OF SALES AND SERVICES 528,514 545,512 1,525,831 1,586,466
GROSS PROFIT 139,819 167,466 421,538 609,521
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 178,699 188,161 489,369 511,569
OPERATING INCOME(LOSS) (38,880) (20,695) (67,831) 97,952
OTHER INCOME (EXPENSE)
Parking, dividends, interest
and miscellaneous income 57,357 45,281 216 ,495 159,317
Interest - - - (633)
INCOME BEFORE INCOME
TAXES AND EQUITY IN
EARNINGS OF GARDEN
LIFE PLAN, LTD. 18,477 24,586 148,664 256,636
INCOME TAXES (Note 5) 5,451 8,804 43,883 94,477
INCOME BEFORE EQUITY
IN EARNINGS OF GARDEN
LIFE PLAN, LTD. 13,026 15,782 104,781 162,159
EQUITY IN EARNINGS OF GARDEN
LIFE PLAN, LTD., net of
deferred income taxes
(Note 3) 575,698 141,212 862,781 269,009
NET INCOME $ 588,724 $ 156,994 $ 967,562 $ 431,168
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 6) 1,746,818 1,791,583 1,756,916 1,803,498
EARNINGS PER COMMON SHARE
(Note 6) $ .33 $ .09 $ .54 $ .24
* restated
[FN]
See the Accompanying Notes to Financial Statements
(Unaudited)
3
<PAGE> 6
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _
[CAPTION]
Nine-Months Ended
February 28
1998 1997 *
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 967,562 $ 431,168
Adjustments to reconcile net income to net
cash provided by (used in) operations
Depreciation 44,543 57,771
Gain on sale of securities (97,890) (53,621)
Undistributed earnings of Garden Life
Plan, Ltd. (937,722) (222,567)
Dividend from Garden Life Plan, Ltd. - 200,000
Increase in cash value of life insurance
policies (1,505) (1,615)
Deferred income taxes 179,201 (77,605)
(Increase) decrease in certain assets
Accounts receivable (46,502) (97,642)
Income taxes receivable (197,343) -
Inventories (22,772) (9,483)
Prepaid expenses and others (57,490) (53,507)
(Decrease) increase in certain liabilities
Accounts payable (26,252) 160,594
Income taxes payable (103,401) (7,442)
Accrued liabilities (227,298) (66,723)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (526,869) 259,328
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities 3,673,294 683,126
Purchase of property and equipment (39,251) (22,268)
Increase in securities (3,137,187) (695,097)
Premium payments on life insurance policies (2,811) (1,622)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 494,045 (35,861)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of reacquired shares (121,768) (137,555)
Cash dividends paid (175,569) (81,572)
NET CASH USED IN FINANCING ACTIVITIES (297,337) (219,127)
NET INCREASE (DECREASE) (330,161) 4,340
CASH AT BEGINNING OF PERIOD 776,095 710,978
CASH AT END OF PERIOD $ 445,934 $ 715,318
*restated
[FN]
See the Accompanying Notes to Financial Statements
(Unaudited)
4
<PAGE> 7
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
February 28, 1998 and 1997
(1)Cash and cash equivalents
For purposes of the Statements 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 is deposited with four local financial institution. At
February 28, 1998 and 1997 the Company had deposits in two of these 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]
February 28, 1998
Available-for-Sale
Equity Securities $ 77,276 $ 40,773 $ 1,612 $ 116,437
Mutual Funds 589,044 54,657 24 643,677
666,320 95,430 1,636 760,114
Held-to-Maturity
U.S. Treasury Notes 821,780 859 4,959 817,680
Total $ 1,488,100 $ 96,289 $ 6,595 $ 1,577,794
[FN]
(Unaudited)
5
<PAGE> 8
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
February 28, 1998 and 1997
(2)Investment securities (continued)
[CAPTION]
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
[S] [C] [C] [C] [C]
February 28, 1997
Available-for-Sale
Equity Securities $ 77,587 $ 28,035 $ 1,187 $ 104,435
Mutual Funds 732,567 23,484 - 756,051
810,154 51,519 1,187 860,486
Held-to-Maturity
U.S. Treasury Notes 74,653 35 3,770 70,918
Total $ 884,807 $ 51,554 $ 4,957 $ 931,404
[FN]
The maturities for all debt securities held at February 28, 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 $ - $ - $ 733,056 $ 729,119
After 1 year
through 5 years - - 40,623 40,721
After 5 years - - 48,101 47,840
$ - $ - $ 821,780 $ 817,680
[FN]
(Unaudited)
6
<PAGE> 9
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
February 28, 1998 and 1997
(2)Investment securities (continued)
The Company sold securities available-for-sale and held-to-maturity for
$3,673,294 and $683,126 in 1998 and 1997, respectively. The gross net
realized gain of $102,047 in 1998 and $53,621 in 1997 is reflected in
earnings. The gross realized losses of $4,157 in 1998 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 net unrealized holding gains on investment securities available-for-sale
as of February 28, 1998 is reported as a separate component of Stockholders'
Equity as follows:
[S] [C]
Unrealized holding gains, net of losses $ 93,794
Deferred income tax on net unrealized holding gains (39,456)
$ 54,338
(3) Garden Life Plan, Ltd.
Investments 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. Garden Life Plan, Ltd., (GLP), a Hawaii
corporation is engaged in the sale of pre-need funeral plans which are
serviced solely by the Company.
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 $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.
[FN]
(Unaudited)
7
<PAGE> 10
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
February 28, 1998 and 1997
(3) Garden Life Plan, Ltd. (continued)
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
[S] [C] [C]
Total revenue $ 1,184,909 $ 958,576
[S] [C] [C]
Operating income (loss) $ 172,255 $ (136,244)
[S] [C] [C]
Other income $ 1,641,352 $ 707,774
[S] [C] [C]
Cumulative effect of change in
accounting principle $ 1,574,286 $ -
[S] [C] [C]
Net income $ 2,377,893 $ 511,339
Equity in earnings of Garden Life Plan, Ltd. represents the Company's share of
the earnings of GLP for its three-months and nine-months ended February 28,
1998 and 1997.
[FN]
(Unaudited)
8
<PAGE> 11
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
February 28, 1998 and 1997
(3) Garden Life Plan, Ltd. (continued)
Investment in Garden Life Plan, Ltd. as of February 28, 1998 is accounted for
as follows:
[S] [C]
Stockholders' equity as of February 28, 1998
per Garden Life Plan, Ltd.'s balance sheet $ 4,971,459
Equity Ownership 50%
2,485,730
Rounding 1
Total investment in Garden Life Plan, Ltd. $ 2,485,731
(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
statements and recognition of gains or losses when securities are sold for
income tax purposes, the inclusion of deferred earnings on an annuity policy
for financial statements and the recognition of the earnings when received for
tax purposes and the equity method of accounting for the investments 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. At
February 28, 1998 the Company's retained earnings included approximately
$2,485,731 of undistributed earnings of GLP.
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.
[FN]
(Unaudited)
9
<PAGE> 12
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
February 28, 1998 and 1997
(5)Income taxes
The provision for income taxes consists of the following:
[CAPTION]
1998 1997
[S] [C] [C]
Federal:
Current $ (6,920) $ 101,226
Deferred 107,215 (37,020)
Total federal 100,295 64,206
State:
Current (4,135) 16,003
Deferred 22,664 (9,422)
Total state 18,529 6,581
Total income taxes $ 118,824 $ 70,787
(6) Earnings per share
Earnings per common share has been computed on the basis of a weighted average
of shares outstanding of 1,756,916 for 1998 and 1,803,498 for 1997.
(7) Reacquired shares
Capital contributed has been reduced for shares reacquired after June 30,
1987. Payments for shares in excess of the par value has been charged to
additional paid-in capital.
The 223,785 shares reflected as Treasury Stock as of February 28, 1998
reflects shares acquired before July 1, 1987.
[FN]
(Unaudited)
10
<PAGE 13>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
February 28, 1998 and 1997
(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 terms of the lease for the period June 1, 1994 to May 31, 1999 was
agreed upon. As a result the Statement of Income for the three and nine
months period ended February 28, 1996 has been restated to reflect the
retroactive rent.
[FN]
(Unaudited)
11
<PAGE 14>
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
February 28, 1998.
The working capital and working capital ratios at February 28, 1998 is as
follows:
[CAPTION]
[S] [C]
Working capital $ 1,602,764
Working capital ratio 4.4:1
Changes in results of operations
Cost of Sales and Services - Cost of sales and services as a percent of net
sales increased to 78.4% from 72.2% for the nine-months ended February 28,
1998 over 1997. The increase is due principally to a decrease in revenues,
resulting from a decrease in the number of services performed.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses as a percent of net sales increased to 25.1% from
23.3% for the nine-months ended February 28, 1998 over 1997. The increases is
mainly due to a decrease in revenues which was partially offset by an overall
decrease in selling, general and administrative expenses.
Income Taxes - The effective income tax rate increased to 47.2% in 1998 from
36.8% in 1997.
Other Income (Expense) - Other income as a percent of net sales increased from
7.3% to 11.1% for the nine-month ended February 28, 1998 over 1997. The
increase in other income resulted primarily from gains on the sale of
securities.
Equity in Earnings of Garden Life Plan, Ltd. - The earnings of GLP net of
deferred income taxes tripled from the prior year. The increase resulted from
an increase in earnings of the trust funds. The earnings from the funds held
in trust is included in GLP's earnings of which 50% is included a equity in
earnings of Garden Life Plan, Ltd.
[FN]
12
<PAGE 15>
HOSOI GARDEN MORTUARY, INC.
PART II - OTHER INFORMATION
_ _ _ _ _ _ _ _ _ _ _ _ _ _
February 28, 1998 and 1997
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company held on January 18, 1998,
the Stockholders elected the following individuals as members of the Board of
Directors: Clifford Hosoi, Ricky Manayan and Rene Mansho. The Stockholders
elected Endo & Company as the auditors for 1999.
At the Annual Meeting of Stockholders of the Company held on January 19, 1997,
the Stockholders elected the following individuals as members of the Board of
Directors: Richard Dole, Robert Kuwahara and Julie Shimonishi. The
Stockholders elected Endo & Company as the auditors for 1998.
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
nine-months ended February 28, 1998.
13
<PAGE> 16
SIGNATURES
_ _ _ _ _
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.
(Registrant)
Date April 14, 1998 Clifford Hosoi
Clifford Hosoi, President
Date April 14, 1998 Keith M Numazu
Keith M Numazu, Treasurer
<PAGE> 15
EXHIBIT INDEX
EXHIBITS
NO. DESCRIPTION
27 Financial Data Schedule, which is submitted electronically to the
securities and Exchange Commission for information only and not
filed.
