<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 November 30, 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)
(Issuer's telephone number) (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 XX No
1,726,433 shares of Common Stock
Outstanding at November 30, 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 to Financial Statements 5 - 10
Item 2.Management's Discussions and Analysis of Financial
Condition and Results of Operations 11
PART II - Other Information 12
SIGNATURES 13
<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, 1998, and the related statements of income and cash flows
for the three-months and six-months ended November 30, 1998 and 1997 were not
audited by us and accordingly, we do not express an opinion on them.
January 4, 1999
Endo & Company
Honolulu, Hawaii
1
<PAGE> 4
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEET
_ _ _ _ _ _ _
November 30, 1998
[CAPTION]
A S S E T S
[S] [C]
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 498,371
Certificate of deposit 600,000
Securities available-for-sale, at market (Note 2) 826,789
Accounts receivable, less allowance for doubtful accounts
of $94,162 289,044
Income taxes receivable 220,910
Inventories 139,269
Prepaid expenses and others 64,147
Deferred income taxes (Note 5) 44,285
-----------
TOTAL CURRENT ASSETS 2,682,815
-----------
INVESTMENTS
Garden Life Plan, Ltd. (Note 3) 1,691,502
Woolsey-Hosoi Mortuary Service, LLC (Note 4) 15,000
Cemetery plots 1,350
Securities held-to-maturity, at cost (Note 2) 844,871
-----------
2,552,723
-----------
PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation 1,506,105
-----------
OTHER ASSETS 95,028
-----------
TOTAL ASSETS $ 6,836,671
===========
[CAPTION]
L I A B I L I T I E S
[S] [C]
CURRENT LIABILITIES
Accounts payable $ 273,724
Accrued liabilities 76,571
------------
TOTAL CURRENT LIABILITIES 350,295
------------
DEFERRED INCOME TAXES (Note 5) 131,279
------------
[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 236,922 reacquired shares (47,604)
-----------
TOTAL CAPITAL CONTRIBUTED 389,824
-----------
RETAINED EARNINGS (Note 8) 5,972,426
-----------
NET UNREALIZED GAIN ON SECURITIES AVAILABLE-FOR-SALE, net of
deferred taxes (Note 2) 74,129
-----------
TREASURY STOCK, 223,785 shares, at cost (Note 8) (81,282)
-----------
TOTAL STOCKHOLDERS' EQUITY 6,355,097
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,836,671
============
[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,
----------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- -----------
[S] [C] [C] [C] [C]
NET SALES AND SERVICES $ 645,231 $ 631,131 $ 1,272,884 $ 1,279,036
COST OF SALES AND SERVICES 476,793 493,468 955,014 997,317
---------- ---------- ----------- -----------
GROSS PROFIT 168,438 137,663 317,870 281,719
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 166,224 145,529 321,630 310,670
---------- ---------- ----------- ----------
OPERATING INCOME (LOSS) 2,214 (7,866) (3,760) (28,951)
OTHER INCOME (EXPENSE)
Parking, dividends, interest
and miscellaneous income 35,180 118,390 71,802 159,138
Interest expense - - (1,643) -
--------- --------- ---------- ---------
INCOME BEFORE INCOME
TAXES AND EQUITY IN
EARNINGS OF GARDEN
LIFE PLAN, LTD. 37,394 110,524 66,399 130,187
INCOME TAXES (Note 6) 7,694 45,162 19,310 52,601
---------- --------- --------- --------
INCOME BEFORE EQUITY
IN EARNINGS OF GARDEN
LIFE PLAN, LTD. 29,700 65,362 47,089 77,586
EQUITY IN EARNINGS OF GARDEN
LIFE PLAN, LTD., net of
deferred income taxes
(Note 3) 25,915 129,591 80,630 287,083
---------- --------- --------- ---------
NET INCOME $ 55,615 $ 194,953 $ 127,719 $ 364,669
=========== ========= ========= =========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
(Note 7) 1,729,583 1,753,125 1,734,697 1,761,965
========== ========= ========= =========
EARNINGS PER COMMON SHARE
(Note 7) $.03 $.11 $.07 $.21
==== ==== ==== ====
[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, 1998 and 1997
[CAPTION]
1998 1997
------------ -----------
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 127,719 $ 364,669
Adjustments to reconcile net income to net
cash provided by (used in) operations
Depreciation 33,007 29,695
Gain on sale of securities (9,061) (94,311)
Undistributed earnings of affiliate (87,634) (312,019)
Cash value of life insurance policies 1,219 (560)
Deferred income taxes (42,982) 80,011
(Increase) decrease in certain assets
Accounts receivable 735,744 33,958
Income tax receivable 34,840 (79,222)
Inventories 9,999 8,618
Prepaid expenses and others 640 (95)
(Decrease) increase in certain liabilities
Accounts payable (11,721) (89,915)
Income taxes payable - (76,716)
Accrued liabilities (58,913) (120,385)
---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 732,857 (256,272)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (14,553) (22,459)
Increase in securities (838,886) (2,259,145)
Investment in Woolsey-Hosoi Mortuary
Service, LLC (15,000) -
Proceeds from sale of securities 805,523 2,542,378
Increase in certificate of deposit (600,000) (70,000)
Premiums payments on life insurance policies 7,674 (2,811)
---------- ----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (655,242) 187,963
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of reacquired shares (78,115) (120,868)
---------- ---------
NET CASH USED IN FINANCING ACTIVITIES (78,115) (120,868)
---------- ----------
NET DECREASE (500) (189,177)
CASH AND CASH EQUIVALENTS, beginning of period 498,871 776,095
----------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 498,371 $ 586,918
=========== ===========
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
4
<PAGE> 7
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1998 and 1997
(1) Cash and cash equivalents
For purpose 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 three local financial institution. At
November 30, 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 Market
----------- ----------- --------- ---------
[S] [C] [C] [C] [C]
November 30, 1998
Available-for-sale
Equity securities $ 106,133 $ 36,909 $ 8,125 $ 134,917
Mutual Funds 601,144 90,878 150 691,872
----------- ----------- --------- -----------
707,277 127,787 8,275 826,789
Held-to-Maturity
U. S. Treasury Notes 844,871 3,290 426 847,735
----------- ---------- --------- -----------
Totals $ 1,552,148 $ 131,077 $ 8,701 $ 1,674,524
=========== ========== ========= ===========
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 1,976 689,289
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 $ 1,805,947
=========== ========== ========= ===========
[FN]
(Unaudited)
5
<PAGE> 8
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1998 and 1997
(2) Investment securities (continued)
The maturities for all debt securities held at November 30, 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 $ - $ - $ 739,608 $ 739,476
After 1 year
through 5 years - - 40,623 41,129
After 5 years - - 64,640 67,130
--------- ------- --------- ----------
$ - $ - $ 844,871 $ 847,735
========= ======= ========= ==========
[FN]
The Company sold securities available-for-sale and held-to-maturity for
$805,523 and $582,258 in 1998 and 1997, respectively. The gross realized
gains of $14,233 in 1998 and $96,416 in 1997, are reflected in earnings.
Gross realized losses of $5,172 in 1998 and $2,105 in 1997 is reflected in
earnings. The cost of the securities sold was based on the cost of all the shar
es of each such security held at the time of sale.
The unrealized holding gains on investment securities available-for-sale as of
November 30, 1998 is reported as a separate component of Stockholders' Equity
as follows:
[CAPTION]
1998
---------
[S] [C]
Unrealized holding gains, net of losses $ 119,512
Deferred income tax on net unrealized holding gains (45,383)
--------
$ 74,129
==========
(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.
[FN]
(Unaudited)
6
<PAGE> 9
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1998 and 1997
(3) 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 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 in the financial statement of GLP. 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, for 1997, as
shown below.
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 and six-months
ended November 30, 1998 and 1997 respectively.
[FN]
(Unaudited)
7
<PAGE> 10
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1998 and 1997
(3) Garden Life Plan, Ltd. (continued)
Investment in Garden Life Plan, Ltd. as of November 30, 1998 is accounted for
as follows:
[S] [C]
Stockholders' equity at November 30, 1998 per
Garden Life Plan, Ltd.'s balance sheet $ 3,383,001
Equity Ownership 50%
-----------
1,691,501
Rounding 1
-----------
Total investment in Garden Life Plan, Ltd. $ 1,691,502
===========
(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 in Woolsey-Hosoi is $15,000.
The Company provides Woolsey-Hosoi with embalming services, assistance with
funeral arrangements, use of its facilities and related charges. The revenues
from these services provided to Woolsey-Hosoi is reflected in Net sales and
services which amounted to $6,925 for the period ended November 30, 1998.
(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 investment 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 November 30, 1998, the Company's retained earnings included approximately
$1,691,502 of undistributed earnings of Garden Life Plan, Ltd.
[FN]
(Unaudited)
8
<PAGE> 11
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1998 and 1997
(6) Income taxes
The provision for income taxes consists of the following:
[CAPTION]
1998 1997
---------- -----------
[S] [C] [C]
Current:
Federal $ 16,860 $ (106)
State 3,147 (2,367)
-------- ------------
Total Current 20,007 (2,473)
-------- -----------
Deferred:
Federal (586) 49,345
State (111) 5,729
-------- -----------
Total Deferred (697) 55,074
-------- -----------
Total Federal and State $ 19,310 $ 52,601
======== ===========
(7) Earnings per share
Earnings per common share has been computed on the basis of a weighted average
shares outstanding of 1,734,697 for 1998 and 1,761,965 for 1997.
(8) Reacquired shares
Capital contributed is reduced for shares of the Company 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, Retained Earnings is charged for the cost in excess of par value.
The 223,785 shares reflected as Treasury Stock as of November 30, 1998
reflects the shares acquired before July 1, 1987.
(9) Year 2000 Issue
As of November 30, 1998, the Company had not devoted any significant efforts
toward assessment of its Year 2000 issues and had not incurred any significant
costs related to its Year 2000 issues.
[FN]
(Unaudited)
9
<PAGE>12
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1998 and 1997
(9) Year 2000 Issue (continued)
During 1999 the Company will initiate assessment of its exposure to Year 2000
issues. Its assessment will focus on the followings areas:
1.Assessment of its internal hardware, software and embedded systems. It is
anticipated that most of the Company's hardware and software will be replaced
with Year 2000 compliant third-party systems. It is not expected that
embedded systems will have a major effect on the Company's operations.
2.Identification of major suppliers and other third-parties to understand
their ability to continue providing products and services through the change
to 2000.
It is expected that costs related to the Year 2000 issue will be funded
through operating cash flow. The Company presently believes that the total
cost of achieving Year 2000 compliant systems is not expected to be material
to its financial condition, liquidity or results of operations.
[FN]
(Unaudited)
10
<PAGE> 13
HOSOI GARDEN MORTUARY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 1998 and 1997
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, 1998.
The working capital and working capital ratio at November 30, 1998 is as
follows:
[S] [C]
Working capital $2,332,520
Working capital ratio 7.7:1
Changes in results of operations
Cost of Sales and Services - Cost of sales and services as a percent of net
sales decreased to 75.0% from 78.0% for the six-months ended November 30, 1998
over 1997. The decrease is due principally to a decrease in the cost of
merchandise purchased and a decrease in real property taxes.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses as a percent of net sales increased to 25.3% from
24.3% for the six-months ended November 30, 1998 over 1997. The increase is
due to increases in accruals for employee benefit plan and bad debt expense.
Income Taxes - The effective income tax rate has decreased to 29.1% for 1998
from 40.4% for 1997.
Other income (expense) - Other income as a percent of net sales decreased to
5.5% from 12.4% for the six-months ended November 30, 1998 over 1997. The
decrease in other income resulted primarily from a reduction on sale of
securities.
[FN]
11
<PAGE>14
HOSOI GARDEN MORTUARY, INC.
PART II - OTHER INFORMATION
_ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 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
six-months ended November 30, 1998.
[FN]
12
<PAGE> 15
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 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.
(Registrant)
Date 01/14/99 CLIFFORD HOSOI
-------------- -------------------------
Clifford Hosoi, President
Date 01/14/99 KEITH NUMAZU
------------- -------------------------
Keith Numazu, Treasurer
Corporate Treasurer and Bookkeeper
[FN]
13
<PAGE> 16
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 statements of income filed as part of the quarterly report of Form
10-QSB and is qualified in its entirety by reference to such quarterly report of
Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 498371
<SECURITIES> 826786
<RECEIVABLES> 289044
<ALLOWANCES> 94162
<INVENTORY> 139269
<CURRENT-ASSETS> 2682815
<PP&E> 1506105
<DEPRECIATION> 33007
<TOTAL-ASSETS> 6836671
<CURRENT-LIABILITIES> 350295
<BONDS> 0
0
0
<COMMON> 437428
<OTHER-SE> 5917669
<TOTAL-LIABILITY-AND-EQUITY> 6836671
<SALES> 1272884
<TOTAL-REVENUES> 1272884
<CGS> 955014
<TOTAL-COSTS> 955014
<OTHER-EXPENSES> 321630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1643
<INCOME-PRETAX> 66399
<INCOME-TAX> 19310
<INCOME-CONTINUING> 47089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127719
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
