SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB/A - Amendment No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[Fee Required]
For the fiscal year ended May 31, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[No Fee Required]
For the transition period from to
Commission file number 0-2288
HOSOI GARDEN MORTUARY, INC.
STATE OF HAWAII IRS Employer Identification No. 99-0088064
30 North Kukui Street
Honolulu, Hawaii 96817
Issuer's telephone number: 808-538-3877
Securities registered pursuant to Section 12(b) of the
Exchange Act:
None
Securities registered pursuant to Section 12(g) of the
Exchange Act:
Common Stock Par Value $.20 per share
Check whether the issuer (1) filed all reports required
to be filed by the Exchange Act during the past 12 months
(or for such shorter period that the registrant was
required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B (is not) contained
in this form, and no disclosure will be contained to the
best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this
Form 10-KSB. ( )
<PAGE>
AMENDMENT
This amendment is being filed to note the revision to
Note (12) of the Company's Financial Statements, which
is set forth on Pages F-18 and F-19 of the Company's
Form 10-KSB for the fiscal year ended May 31, 1998.
The amended footnotes corrects the percentage ownership
of the members of the Hosoi family to 27.97%, as noted
in the second sentence of footnote number 12, entitled
"Lease", as follows:
(12) LEASE
The Company leases a portion of the land on which
the mortuary is situated from the Herman S. Hosoi Trust
and the Hosoi-Tamori-Shimonishi Trust (Trusts) which
respectively owns a 13% and 12% interest in the land.
As a group, members of the Hosoi family own approximately
27.97% of the outstanding shares of the Company. The
lease which was for a term of five years expired on May
31, 1994. In August 1997 the terms for the five year
option renewal period , retroactive to June 1, 1994,
were agreed upon between the Company and the Trusts.
The retroactive agreement provides for an annual lease
rent of $312,498, including general excise. In addition,
the Company is responsible for the payment of real
property taxes on the share of the property owned by the
Trust. Total rent al expense was $356,469 and $356,432
in 1998 and 1997, respectively.
Future minimum lease payment under the lease at
May 31, 1998 for the year ending May 31, 1999 is $312,498.
On April 24, 1992, the Company entered into an
operating lease for a hearse. The term of the lease is
60 months which expired on August 21, 1997. The
noncancellable operating lease required monthly
payments of $1,151. The lease agreement also required
that the Company pays all costs of operating the vehicle.
Lease rent expense was $2,302 and $13,812 for 1998 and
1997.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)of
the Securities Exchange Act of 1934, the registrant has
duly caused this amendment to annual report to be
signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: Honolulu, Hawaii, January 27, 1998.
HOSOI GARDEN MORTUARY, INC
By CLIFFORD HOSOI
President
REPORT OF CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders
HOSOI GARDEN MORTUARY, INC.
We have audited the accompanying balance sheets of
HOSOI GARDEN MORTUARY, INC.
as of May 31, 1998 and 1997, and the related statements
of income, retained earnings and cash flows for the
years then ended. These 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., (a 50% owned subsidiary accounted for by the
equity method of accounting) for its years ended May 31,
1998 and 1997, which accounts 23.3% of total assets and
89.1% and 87.8% of net income in 1998 and 1997,
respectively. Those financial statements were audited
by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the
amounts included in the Company's equity in the
underlying net assets and its equity in the earnings of
the subsidiary is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are
free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements.
An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits and
the reports of other auditors provide a reasonable basis
for our opinion.
F-1
<PAGE>
In our opinion, based upon our audits and the report 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, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
ENDO & COMPANY
Honolulu, Hawaii
August 5, 1998
F - 2
<PAGE>
<TABLE>
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEETS
_ _ _ _ _ _ _ _ _ _ _ _
May 31, 1998 and 1997
<CAPTION>
<S> 1998 1997
A S S E T S <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 3) $ 498,871 $ 776,095
Securities available for sale, at market
(Notes 1 and 4) 773,464 906,020
Accounts receivable, less allowance of
$78,740 and $69,724 274,788 303,102
Income tax receivable 255,749 -
Dividend receivable (Note 2) 750,000 -
Inventories (Note 1) 149,268 136,946
Prepaid expenses and others 64,787 64,453
Deferred income taxes (Note 5) 43,588 140,242
TOTAL CURRENT ASSETS 2,810,515 2,326,858
INVESTMENTS
Garden Life Plan, Ltd. (Notes 1 and 2) 1,603,868 1,548,009
Cemetery plots 1,350 1,350
Securities held to maturity, at cost
(Notes 1 and 4) 842,656 1,101,423
2,447,874 2,650,782
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation (Notes 1 and 6) 1,524,560 1,551,948
OTHER ASSETS 103,921 125,184
TOTAL ASSETS $ 6,886,870 $ 6,654,772
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable (Note 7) $ 85,445 $ 352,689
Accrued liabilities (Note 8) 135,484 369,199
Income taxes payable (Note 9) - 76,716
TOTAL CURRENT LIABILITIES 420,929 798,604
DEFERRED INCOME TAXES (Note 5) 168,583 123,751
S T O C K H O L D E R S ' E Q U I T Y
CAPITAL CONTRIBUTED (Note 10)
Common stock, par value $.20 per share;
authorized 3,625,000 shares, issued 2,187,140
shares 437,428 437,428
Less 218,542 and 186,095 reacquired shares (43,928) (37,439)
TOTAL CAPITAL CONTRIBUTED 393,500 399,989
UNREALIZED GAINS ON SECURITIES AVAILABLE-FOR-SALE,
net of applicable deferred income taxes
(Notes 1 and 4) 65,994 46,998
RETAINED EARNINGS 5,919,146 5,366,712
TREASURY STOCK, 223,785 shares, at cost
(Note 10) (81,282) (81,282)
TOTAL STOCKHOLDERS' EQUITY 6,297,358 5,732,417
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,886,870 $ 6,654,772
<FN>
The accompanying Notes to Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
F - 3
<PAGE>
<TABLE>
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF INCOME
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Revenues
Sale of urns and other items $ 742,913 $ 782,467
Funeral services 1,921,575 2,087,770
Total revenues 2,664,488 2,870,237
Cost of sales and services 2,100,550 2,100,481
Gross profit 563,938 769,756
Selling, general and administrative expenses
Salaries and wages 241,684 248,156
Profit sharing and pension fund contributions
(Note 11) 66,560 64,122
Professional services 241,057 233,437
Taxes and licenses 26,513 27,930
Advertising 37,071 38,635
Others 98,038 111,362
Total selling, general and administrative
expenses 710,923 723,642
Operating income (loss) (146,985) 46,114
Other income and (expenses)
Interest, dividends, and others (Note 13) 278,881 192,500
Interest and others (502) (1,001)
Total other income and (expenses) 278,379 191,499
Income before income taxes and equity in
earnings of Garden Life Plan, Ltd. 131,394 237,613
Income taxes (Note 9) 38,781 86,745
Income before equity in earnings of Garden
Life Plan, Ltd. 92,613 150,868
Equity in earnings of Garden Life Plan, Ltd.,
net of deferred taxes of $46,669 and $95,050
(Notes 2 and 5) 759,190 1,093,897
Net income $ 851,803 $1,244,765
Average number of shares common stock outstanding 1,753,998 1,797,907
Earnings per common share (Note 1) $ .49 $ .69
Dividends per common share $ .10 $ .045
<FN>
The accompanying Notes to Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
F - 4
<PAGE>
<TABLE>
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF RETAINED EARNINGS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Balance beginning of year, as previously reported $5,366,712 $4,487,897
Retroactive rent, net of deferred taxes of
$68,035 (Note 16) - (93,089)
Prior year's income tax assessment (Note 16) - (30,094)
Balance beginning of year, as restated 5,366,712 4,364,714
Net income for the year 851,803 1,244,765
Cash dividends paid, $.10 and $.045 per share (175,569) (81,572)
Common stock reacquired in excess of par value
(Note 10) (123,800) (161,195)
Balance end of year $ 5,919,146 $ 5,366,712
<FN>
The accompanying Notes to Financial Statements are an
integral part of this statement.
</FN>
</TABLE>
F - 5
<PAGE>
<TABLE>
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 851,803 $1,244,765
Adjustments to reconcile net income to
net cash and cash equivalents provided
by (used in) operating activities:
Depreciation 67,340 63,343
Loss on write-off of assets - 479
Realized gain on sale of investment
securities, net (104,819) (53,621)
Increase in allowance for doubtful
accounts 9,016 5,801
Undistributed earnings of affiliate (55,859) (1,188,947)
Cash value of life insurance policies (3,210) 5,587
Deferred income taxes 135,212 60,646
(Increase) decrease in certain assets
Accounts receivable 19,298 16,846
Income tax receivable (255,749) -
Dividend receivable (750,000) -
Inventories (12,322) (24,731)
Prepaid expenses and other (334) (2,934)
(Decrease) increase in certain liabilities
Accounts payable (67,244) 108,070
Accrued liabilities (233,715) 56,964
Income taxes payable (76,716) 41,013
Note payable - (685)
Decrease in deferred income taxes - (75,468)
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (477,299) 257,128
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (39,952) (28,816)
Redemption of life insurance policy 27,284 -
Redemption of certificate of deposit - 200,000
Dividend from Garden Life Plan, Ltd. 944,298
Proceeds from sale of investment securities 4,363,649 683,126
Increase in investment securities (3,842,237) (1,736,607)
Increase in cash value of life insurance
policies (2,811) (2,811)
NET CASH PROVIDED BY INVESTING ACTIVITIES 505,933 59,190
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of reacquired stocks (130,289) (169,629)
Cash dividends paid (175,569) (81,572)
NET CASH USED IN FINANCING ACTIVITIES (305,858) (251,201)
NET INCREASE (DECREASE) (277,224) 65,117
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 776,095 710,978
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 498,871 $ 776,095
<FN>
The accompanying Notes to Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
F - 6
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
The significant accounting policies followed by the
Company are summarized below.
Fair value of financial instruments - The carrying
amount of cash and cash equivalents approximates fair
value due to the short-term maturities of these
instruments. The fair value of current and non-current
marketable securities and long-term debt were estimated
based on quotes obtained from brokers for those or
similar instruments. The fair value for long-term
investments were estimated based on quoted market price
at year end.
Cash and cash equivalents - For purpose 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.
F - 7
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Investment in Garden Life Plan, Ltd. - The Company
accounts for its investment in Garden Life Plan, Ltd.
(a 50% owned Company) by the equity method of
accounting. The equity in earnings of Garden Life Plan,
Ltd., reflected on the statements of income, includes
the pro rata share of the earnings of Garden Life Plan,
Ltd., net of income taxes applicable to such earnings,
for its years ended May 31, 1998 and 1997.
Inventories - Inventories of caskets and urns are
stated at the lower of cost or market. Cost is
determined substantially by the first-in, first-out
method and market is based on replacement cost or
realizable value.
Property and equipment - Land, buildings and equipment
are carried at cost. Depreciation is computed using the
declining-balance and straight-line methods. Maintenance
and repairs are charged to income as incurred. Major
renewals and betterments are capitalized. Upon sale or
other disposition of assets, the cost and related
accumulated depreciation are removed from the accounts,
the proceeds applied thereto, and any resulting gain or
loss is reflected in income.
Compensated absences - Full-time employees of the
Company are entitled to paid vacations and sick days.
Unused vacation and sick leave are reflected in
accrued liabilities.
Earnings per common share - Earnings per common share
has been computed by dividing net income by the
weighted average number of common shares outstanding.
Revenue and cost recognition - Revenues from at-need
funeral services and pre-need funeral plan services are
recognized upon completion of the final funeral
ceremony. Revenues from at-need funeral services
include professional service revenues which are included
in FUNERAL SERVICES and sales of caskets, urns and other
items which are included in SALE OF URNS AND OTHER ITEMS.
Revenues from pre-need services, which accounted for
approximately 27.7% and 25.5% of funeral service
revenues in 1998 and 1997, respectively, are accounted
for in FUNERAL SERVICES since these plans are sold
inclusive of the merchandise selected.
F - 8
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Cost of sales and services includes all direct cost,
including merchandise, labor and other related cost
and indirect cost such as insurance, depreciation,
supplies and indirect labor costs, related to the
performance and completion of at-need and pre-need
funeral services.
Advertising - The Company follows the policy of
charging the costs of advertising to operations as
incurred.
Income taxes - Income tax expense is based on reported
earnings before income taxes. Deferred income taxes
reflect the impact of temporary differences between
assets and liabilities recognized for financial
reporting purposes and such amounts recognized for
tax purposes. In accordance with Statement of Financial
Accounting Standards (SFAS) 109, ACCOUNTING FOR INCOME
TAXES, these deferred taxes are measured by applying
currently enacted tax laws.
Use of estimates - The preparation of financial
statements in conformity with generally accepted
accounting principles requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
(2) Garden Life Plan, Ltd.
Investment in Garden Life Plan, Ltd. (GLP) 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., a Hawaii corporation engaged in the
sales of pre-need funeral plans which are serviced
solely by the Company.
F - 9
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(2) GARDEN LIFE PLAN, LTD. (CONTINUED)
All payments received from the sale of pre-need
funeral plans up to an amount equal to 30% of the
total price plus any sales tax or other charges are
retained by GLP as its compensation. The balance is
deposited with Hawaiian Trust Company, Limited (Trust)
to be held in trust. GLP is entitled to all earnings
from funds held in trust which earnings amounted to
$2,666,047 and $1,641,352 for the years ended May 31,
1998 and 1997, respectively. The assets of the Trust
are not included in the financial statements of the
Company nor GLP.
Effective June 1, 1996, the Trust began recording its
investments at market value. Previously, the Trust
recorded its investments at cost. The cumulative effect
of this change as of June 1, 1996 was an increase in
GLP's trust fund income receivable of $1,574,286 (net
of deferred taxes of $964,885) and is reflected in GLP's
net income of $2,377,893 as shown below.
Audited financial statements of this subsidiary as of
May 31, 1998 and 1997 showed the following summarized
financial position and results of operations.
<TABLE>
<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 income (loss) $ (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
</TABLE>
F - 10
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(2) GARDEN LIFE PLAN, LTD. (CONTINUED)
INVESTMENT IN GARDEN LIFE PLAN, LTD. as of May 31, 1998
and 1997 is accounted for as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Stockholders' equity of Garden Life Plan, Ltd. $4,707,732 $3,096,012
Less: dividend declared (1,500,000) -
3,207,732 3,096,012
Equity ownership 50% 50%
1,603,866 1,548,006
Rounding 2 3
Total investment in Garden Life Plan, Ltd. $1,603,868 $1,548,009
<FN>
Cash dividend declared and subsequently paid after
May 31, 1998 by Garden Life Plan, Ltd. is recorded as
dividend receivable in the amount of $750,000 as of
May 31, 1998.
</FN>
</TABLE>
(3) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash on hand $ 500 $ 500
Checking accounts 76,480 122,306
Savings accounts 316,313 354,486
Certificate of deposit - 200,000
Short-term investments 105,578 98,803
Total cash and cash equivalents $ 498,871 $ 776,095
</TABLE>
F - 11
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(4) INVESTMENT SECURITIES
As of May 31, 1998 and 1997, 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, 1998
Available for sale
Equity securities $ 74,346 $ 41,132 $ 1,760 $ 113,718
Mutual funds 592,721 67,128 103 659,746
667,067 108,260 1,863 773,464
Held to maturity
U.S. Treasury
bills 842,656 850 5,148 838,358
Totals $1,509,723 $109,110 $ 7,011 $1,611,822
MAY 31, 1997
Available for sale
Equity securities $ 84,713 $ 36,233 $ 2,698 $ 118,248
Mutual funds 740,181 50,630 3,039 787,772
824,894 86,863 5,737 906,020
Held to maturity
U.S. Treasury
bills 1,101,423 5,103 4,226 1,102,300
Totals $1,926,317 $ 91,966 $ 9,963 $2,008,320
</TABLE>
The maturities of all debt securities held at May 31,
1998 were as follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Within 1 year $ - $ - $ 753,932 $ 749,812
After 1 year
through 5 years - - 40,623 40,648
After 5 years - - 48,101 47,898
$ - $ - $ 842,656 $ 838,358
</TABLE>
F - 12
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(4) INVESTMENT SECURITIES (CONTINUED)
During the year ended May 31, 1998, the Company sold
SECURITIES AVAILABLE FOR SALE for $4,363,649. The net
gross realized gain of $104,819 is reflected in
earnings. The cost of the securities sold was based on
cost of all the shares of each such security held at the
time of sale.
During the year ended May 31, 1997, the Company sold
SECURITIES AVAILABLE FOR SALE for $683,126. The net
gross realized gain of $53,621 is reflected in earnings.
The cost of the securities sold was based on cost of all
the shares of each such security held at the time of
sale.
The unrealized holding gains on investment securities
AVAILABLE-FOR-SALE during the years ended May 31, 1998
and 1997, and reported as a separate component of
Stockholders' Equity, are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Unrealized holding gains, net of losses $ 106,396 $ 81,126
Deferred income tax on the net unrealized
holding gains (40,402) (34,128)
$ 65,994 $ 46,998
</TABLE>
(5) DEFERRED INCOME TAXES
Deferred taxes are recognized for differences between
the basis of assets and liabilities for financial
statement and income tax purposes. The deferred assets
and liabilities represent the future tax consequences of
those differences, which will be either taxable or
deductible when the assets and liabilities are recovered
or settled. The deferred tax liability results from the
recognition of unrealized gains or losses on securities
for financial statements and the recognition of gains or
losses when securities are sold for income tax purposes,
the inclusion of deferred earnings on an annuity for
financial statements and the recognition of the earnings
when received for tax purposes
F - 13
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(5) DEFERRED INCOME TAXES (CONTINUED)
and the equity method of accounting for the investment
in subsidiary as explained under GARDEN LIFE PLAN, LTD.
above. Under the equity method the Company's share of
earnings of the subsidiary is reported for tax purposes
only when distributions of earnings are received as
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.
(6) PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 517,040 $ 517,040
Buildings 1,262,530 1,262,530
Land improvements 94,710 94,710
Equipment and vehicles 373,877 333,926
Total cost 2,248,157 2,208,206
Accumulated depreciation 723,597 656,258
Net property and equipment $1,524,560 $1,551,948
</TABLE>
Aggregate depreciation charged to operations are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cost of sales and services $ 64,001 $ 57,709
Selling, general and administrative expenses 3,339 5,634
$ 67,340 $ 63,343
</TABLE>
F - 14
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(7) FUNERAL SERVICE DEPOSITS
Included in accounts payable is $33,066 of deposits made
by eleven individuals that the Company has been
collecting from since 1969 for future services or
purchase of merchandise. The payable of $33,066,
including interest of $25,041 accrued to May 31, 1998,
approximates fair value.
In an agreement with the Professional and Vocational
Licensing Division of the State of Hawaii, Department
of Commerce and Consumer Affairs (DCCA), the Company
consented to a plan to either convert these funeral
service deposits to a Garden Life Plan, Ltd.'s (GLP)
pre-need funeral plan identical to the services and/or
merchandise that the depositor originally contracted for
or refund the deposit plus accrued interest. The
agreement with the DCCA provides that the Company will
provide the funds for any difference between the cost of
a comparable GLP pre-need plan and the amount deposited
with the Company.
As of May 31, 1998, twenty-seven plans have been
converted to GLP pre-need plans. The difference between
the cost of plans converted and the amount of the
available deposit is reflected as a charge to
operations. Eleven plans remain to be converted. No
provision has been made for the cost of conversion of
the remaining eleven plans because of the uncertainty of
whether the holders of the deposits will elect to
convert to a GLP pre-need plan or elect to receive a
refund.
F - 15
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(8) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Salaries and wages $ - $ 16,492
Bonus accrued 7,000 10,000
Payroll and general excise taxes 25,876 12,222
Accrued rent payable (Note 16) - 241,686
Profit sharing and money-purchase
plan contributions (Note 12) 66,560 64,122
Vacation and sick leave 36,048 24,677
Total accrued liabilities $135,484 $ 369,199
</TABLE>
(9) INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current:
Federal $ (60,760) $104,734
State (14,907) 16,415
(75,667) 121,149
Deferred:
Federal 99,715 (30,193)
State 14,733 (4,211)
114,448 (34,404)
Total $ 38,781 $ 86,745
</TABLE>
F - 16
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(9) INCOME TAXES (CONTINUED)
A reconciliation of income taxes at the United States
statutory rate, as a percentage of pretax income, to
the effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Federal income tax statutory rate 34.0% 34.0%
State income tax, net of tax benefit (7.7) 9.4
Others, net 3.2 ( 6.9)
Effective tax rate 29.5% 36.5%
</TABLE>
(10) REACQUIRED SHARES
CAPITAL CONTRIBUTED has been reduced for shares
reacquired after June 30, 1987. Purchases of 32,447
and 42,170 reacquired shares in 1998 and 1997,
respectively, exceeded the balance of additional
paid-in capital and a charge of $123,800 and $161,195
for 1998 and 1997, 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, 1998 reflects the shares acquired before July
1, 1987.
F - 17
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(11) RETIREMENT PLANS
The Company provides benefits to substantially all
full-time employees with a defined contribution profit
sharing plan and a money-purchase pension plan. Both
plans are non-contributory plans.
The money-purchase pension plan was adopted on June 1,
1990 and provides benefits to employees after one year
of service and upon completion of 1,000 hours of
service each year. The required contribution under
this plan is five-percent of compensation of all
employees who qualify.
Contribution to the defined contribution profit
sharing plan is discretionary up to a maximum of
fifteen-percent of compensation of eligible employees
after one year of service and upon completion of 1,000
hours of service each year.
Amounts charged against income for the retirement
benefit plans are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Profit sharing $ 40,000 $ 37,000
Money-purchase 26,560 27,122
$ 66,560 $ 64,122
</TABLE>
(12) LEASE
The Company leases a portion of the land on which the
mortuary is situated from the Herman S. Hosoi Trust and
the Hosoi-Tamori-Shimonishi Trust (Trusts) which
respectively owns a 13% and 12% interest in the land.
As a group, members of the Hosoi family own
approximately 27.97% of the outstanding shares of the
Company. The lease which was for a term of five years
expired on May 31, 1994. In August 1997 the terms for
the five year option renewal period , retroactive to
June 1, 1994, were agreed upon between the Company and
the Trusts. The retroactive agreement provides for an
annual lease rent of $312,498, including general excise.
In addition, the
F - 18
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(12) LEASE (CONTINUED)
Company is responsible for the payment of real property
taxes on the share of the property owned by the Trust.
Total rental expense was $356,469 and $356,432 in 1998
and 1997, respectively.
Future minimum lease payment under the lease at May 31,
1998 for the year ending May 31, 1999 is $312,498.
On April 24, 1992, the Company entered into an operating
lease for a hearse. The term of the lease is 60 months
which expired on August 21, 1997. The noncancellable
operating lease required monthly payments of $1,151. The
lease agreement also required that the Company pays all
costs of operating the vehicle. Lease rent expense was
$2,302 and $13,812 for 1998 and 1997.
(13) OTHER INCOME
Other income consists of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Interest $ 104,092 $ 74,431
Capital gains and dividends 17,589 10,964
Net gains from sale of securities 104,819 53,622
Parking 32,004 39,597
Others 20,377 13,886
Total other income $ 278,881 $ 192,500
</TABLE>
F - 19
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(14) CASH FLOW SUPPLEMENTARY DISCLOSURE
Cash payments for interest and income taxes were
as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Interest $ - $ 2,559
Income taxes $ 205,629 $ 154,967
</TABLE>
The Company had a non cash transaction during the year
ended May 31, 1997 consisting of the surrender of a
life insurance policy on the life of the former
President for $64,317 which was used to purchase an
insurance policy for the Company's current President.
(15) CONCENTRATIONS OF CREDIT RISK OF FINANCIAL INSTRUMENTS
The Company's cash and cash equivalents are deposited
with five local financial institutions. For the year
ended May 31, 1998, the Company had deposits in two
financial institutions in excess of the deposit
insurance of $100,000. At May 31, 1998 and 1997, the
Company's uninsured cash balances were $284,051 and
$419,221, respectively.
The Company performs funeral services for deaths
occurring principally on the island of Oahu located in
the State of Hawaii. In the normal course of business
the Company extends unsecured credit to its customers.
(16) PRIOR YEAR ADJUSTMENTS
In October 1996, an Internal Revenue Service's
examination for the year ended May 31, 1995 was
settled. The settlement resulted in income tax
assessments of $26,333 and $3,761 by the Internal
Revenue Service and the Hawaii State Tax Collector,
respectively, which is reflected as an adjustment
to retained earnings.
F - 20
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1998 and 1997
(16) PRIOR YEAR ADJUSTMENTS (CONTINUED)
The Company exercised its option to renew the lease on
the portion of the land owned by the Herman S. Hosoi
Trust and Hosoi-Tamori-Shimonishi Trust as discussed in
Note (12). As a result, retroactive rents for the
fiscal years ended May 31, 1995 and 1996 was reflected
as a liability as of May 31, 1997.
<TABLE>
<CAPTION>
1997
<S> <C>
Rent accrual for May 31, 1995 $ 80,562
Rent accrual for May 31, 1996 80,562
161,124
Less deferred taxes (68,035)
$ 93,089
</TABLE>
(17) SUBSEQUENT EVENT
On July 7, 1998, the Company in partnership with Woolsey
Funeral & Cemetery Services, Inc. formed a limited
liability company named Woolsey-Hosoi Mortuary Services,
LLC (Woolsey-Hosoi) to provide funeral services to
market sectors not previously serviced by the Company.
The Company's initial capital contribution to
Woolsey-Hosoi was $15,000.
F - 21
