<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, 1999
[ ] 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
- -----------------------------------------------------------------
Issuer's telephone number, including area code
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
1,671,516 shares of Common Stock
Outstanding at August 31, 1999
<PAGE> 2
HOSOI GARDEN MORTUARY, INC.
_ _ _ _ _ _ _ _ _ _ _ _ _
[CAPTION]
CONTENTS
_ _ _ _
[S] [C]
Pages
DISCLAIMER OF OPINION 1
PART I - Financial Information
Item 1. Financial Statements
Balance Sheet 2
Statements of Income and Comprehensive 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, 1999, and the related statements of income and
comprehensive income and cash flows for the three months ended
August 31, 1999 and 1998 were not audited by us and accordingly
we do not express an opinion on them.
September 30, 1999
ENDO & COMPANY
Honolulu, Hawaii
1
<PAGE> 4
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEET
_ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1999
[CAPTION]
A S S E T S
[S] [C]
CURRENT ASSETS
Cash and cash equivalents (Note 2) $ 992,877
Securities available-for-sale,
at market (Note 3) 837,213
Accounts receivable, less allowance
for doubtful accounts of $71,085 270,619
Inventories 172,441
Prepaid expenses and others 87,422
Deferred income taxes (Note 6) 37,134
-----------
TOTAL CURRENT ASSETS 2,397,706
-----------
INVESTMENTS
Garden Life Plan, Ltd. (Note 4) 2,099,572
Woolsey-Hosoi Mortuary Services, LLC (Note 5) 14,845
Cemetery plots 1,350
Securities held-to-maturity, at cost (Note 3) 899,091
----------
3,014,858
----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 1,498,985
----------
OTHER ASSETS 103,498
----------
TOTAL ASSETS $7,015,047
==========
[CAPTION]
L I A B I L I T I E S
[S] [C]
CURRENT LIABILITIES
Accounts payable $ 281,165
Accrued liabilities 158,529
Income taxes payable 5,672
----------
TOTAL CURRENT LIABILITIES 445,366
----------
DEFERRED INCOME TAXES (Note 6) 161,489
----------
[CAPTION]
S T O C K H O L D E R S' E Q U I T Y
[S] [C]
CAPITAL CONTRIBUTED (Note 10)
Common stock, par value $.20 per share;
authorized 3,625,000 shares, issued
2,187,140 shares 437,428
Less 291,839 reacquired shares (58,588)
----------
TOTAL CAPITAL CONTRIBUTED 378,840
RETAINED EARNINGS 6,040,427
ACCUMULATED OTHER COMPREHENSIVE INCOME,
net of applicable deferred income taxes
(Note 3 and 9) 70,207
TREASURY STOCK, 223,785 shares, at cost
(Note 10) (81,282)
----------
TOTAL STOCKHOLDERS' EQUITY 6,408,192
----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $7,015,047
==========
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
2
<PAGE> 5
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Three Months Ended August 31, 1999 and 1998
[CAPTION]
1999 1998
---------- ----------
[S] [C] [C]
NET SALES AND SERVICES $ 686,513 $ 627,653
COST OF SALES AND SERVICES 491,173 478,221
---------- ----------
GROSS PROFIT 195,340 149,432
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 186,330 155,406
---------- ----------
OPERATING INCOME (LOSS) 9,010 (5,974)
OTHER INCOME (EXPENSE)
Parking, dividends, interest
and miscellaneous income 43,496 36,622
Interest - (1,643)
----------- ---------
INCOME BEFORE INCOME TAXES
AND EQUITY IN EARNINGS OF
GARDEN LIFE PLAN, LTD. 52,506 29,005
INCOME TAXES (Note 7) 17,730 11,616
---------- --------
INCOME BEFORE EQUITY IN EARNINGS
OF GARDEN LIFE PLAN, LTD. 34,776 17,389
EQUITY IN EARNINGS OF GARDEN LIFE PLAN,
LTD., net of deferred income taxes
of $752 and $4,753 (Note 4) 8,664 54,715
---------- --------
NET INCOME 43,440 72,104
OTHER COMPREHENSIVE INCOME, net of
taxes
Net unrealized gains(losses)
on available-for-sale securities 22,927 (67,233)
--------- --------
COMPREHENSIVE INCOME $ 66,367 $ 4,871
========= ========
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING(Note 8) 1,673,166 1,735,710
========= =========
EARNINGS PER COMMON SHARE (Note 8) $ .03 $ .04
========= ========
[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, 1999 and 1998
[CAPTION]
1999 1998
---------- ----------
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 43,440 $ 72,104
Adjustments to reconcile net
income to net cash provided by
operations
Depreciation 16,835 16,172
Gain on sale of securities (12,940) (4,615)
Undistributed earnings of affiliate (9,416) (59,468)
Increase in allowance for doubtful
accounts (8,375) (7,745)
Deferred income taxes (2,428) (47,479)
(Increase)decrease in cash value
of life insurance policies (208) (364)
(Increase) decrease in certain assets
Accounts receivable 59,209 17,054
Income tax receivable 8,074 29,392
Dividend receivable - 750,000
Inventories (28,467) 9,365
Prepaid expenses and others (28,557) (47,070)
(Decrease) increase in certain liabilities
Accounts payable 21,194 (36,286)
Accrued liabilities 26,813 12,668
Income taxes payable 5,672 -
--------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 90,846 703,728
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,728) (11,056)
Purchase of certificate of deposit - (600,000)
Increase in securities (65,381) (56,830)
Proceeds from sale of securities 55,739 67,220
Partnership distribution 7,500 -
Redemption of life insurance policy - 11,485
Payment of premiums on life insurance
policies (1,405) (636)
--------- --------
NET CASH USED IN INVESTING
ACTIVITIES (13,275) (589,817)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
- Shares reacquired (12,856) (52,296)
--------- --------
NET INCREASE IN CASH 64,715 61,615
CASH, beginning of period 928,162 498,871
--------- ---------
CASH, end of period $ 992,877 $ 560,486
========= =========
[FN]
See the accompanying Notes to Financial Statements
(Unaudited)
4
<PAGE> 7
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1999 and 1998
(1) Basis of presentation
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.
Reclassification - Certain amounts in 1998 have been reclassified
to conform with the 1999 presentation.
(2) 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.
(3) Investment securities
At August 31, 1999, the Company held investments in the following
types of securities:
[CAPTION]
Gross Gross
Amortized Unrealized Unrealized
Cost Gain Loss Fair Value
-------- -------- ---------- ---------
[S] [C] [C] [C] [C]
Available-for-sale
Equity securities $ 94,930 $ 19,607 $ 6,755 $ 107,782
Mutual funds 629,095 107,219 6,883 729,431
--------- -------- ------- ----------
724,025 126,826 13,638 837,213
Held-to-maturity
U.S. Treasury bills 899,091 219 4,885 894,425
--------- -------- ------- ----------
Total $1,623,116 $127,045 $ 18,523 $1,731,638
========== ======== ======== ==========
The maturities for all debt securities held at August 31,1999 were:
[CAPTION]
Available-for-Sale Held-to-Maturity
---------------------- -------------------
Amortized Market Amortized Market
Cost Value Cost Value
---------- -------- ----------- --------
[S] [C] [C] [C] [C]
Within 1 year $ - $ - $ 758,950 $ 758,497
After 1 year
through 5 years - - 92,040 89,577
After 5 years - - 48,101 46,351
----------- -------- ------------ ---------
$ - $ - $ 899,091 $ 894,425
=========== ========= ============ =========
[FN]
(Unaudited)
5
<PAGE> 8
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1999 and 1998
(3) Investment securities (continued)
The Company sold available-for-sale and held-to-maturity securities for
$55,739 and $67,220 in 1999 and 1998, respectively. The net realized gain of
$12,940 and $4,615 in 1999 and 1998, 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, 1999, and reported as a separate component of Stockholders'
Equity are as follows:
[S] [C]
Unrealized holding gains, net of losses $ 113,188
Deferred income tax on net unrealized holding
gains (42,981)
---------
$ 70,207
=========
(4) 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.
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 Pacific
Century Trust to be held in trust. GLP is entitled to all earnings from funds
held in trust which amounted to $1,508,657 and $2,136,577 for the years ended
May 31, 1999 and 1998, respectively, and is reflected in Other Income. Trust
assets are not included in the financial statements of the Company nor GLP.
Audited financial statements of this subsidiary as of May 31, 1999 and
1998 reflected the following summarized financial position and results of
operations:
[CAPTION]
1998 (As
1999 Restated)
---------- ----------
[S] [C] [C]
Total assets $ 6,129,660 $ 6,981,992
Total liabilities 1,179,107 2,959,262
----------- -----------
Total stockholders' equity $ 4,950,553 $ 4,022,730
=========== ===========
[FN]
(Unaudited)
6
<PAGE> 9
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1999 and 1998
(4) Garden Life Plan, Ltd. (continued)
[CAPTION]
1998 (As
1999 Restated)
---------- ----------
[S] [C] [C]
Total revenues $ 439,573 $ 617,214
========== ==========
Operating loss $ (131,566) $ (84,329)
========== ==========
Other income - trust fund income $1,508,657 $2,136,577
========== ==========
Net income $ 880,869 $1,283,447
========== ==========
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,
1999 and 1998.
Investment in Garden Life Plan, Ltd. as of August 31, 1999 is accounted for as
follows:
[S] [C]
Stockholders' equity at August 31, 1999
per Garden Life Plan, Ltd.'s balance sheet $ 4,969,387
Less: Accumulated other comprehensive income (770,246)
-----------
4,199,141
Equity Ownership 50%
-----------
2,099,571
Rounding 1
-----------
Total investment in Garden Life Plan, Ltd. $ 2,099,572
===========
(5) Woolsey-Hosoi Services, LLC
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 $2,250 or .3% and $2,396 or .4% of Net sales and
services in 1999 and 1998, respectively.
The partnership income or loss for the three months ended March 31, 1999 has
not been reflected in the financial statements. The earning or loss is
deemed to not have a material effect on the financial statements.
[FN]
(Unaudited)
7
<PAGE> 10
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1999 and 1998
(6) 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, 1999 the Company's retained earnings included approximately
$2,099,572 of undistributed earnings of Garden Life Plan, Ltd.
(7) Income taxes
The provision for income taxes consists of the following:
[CAPTION]
1999 1998
-------- --------
[S] [C] [C]
Federal:
Current $ 18,228 $ 12,390
Deferred (2,676) (2,476)
-------- --------
15,552 9,914
-------- --------
State:
Current 2,682 2,169
Deferred (504) (467)
-------- --------
2,178 1,702
-------- --------
Total $ 17,730 $ 11,616
======== ========
(8) 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 1999 and 1,735,710 for 1998.
[FN]
(Unaudited)
8
<PAGE> 11
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1999 and 1998
(9) Comprehensive income
In the year ended May 31, 1999, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, which requires
that unrealized gains and losses on available-for-sale securities be included
in other comprehensive income.
(10) 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, 1999 and 1998,
reflects shares acquired before July 1, 1987.
(11) Prior period adjustment
Subsequent to the issuance of the Company's 1999 financial statements, it was
determined that the amount of income taxes provided in the financial
statements was inaccurate. As a result additional income taxes of $20,943
was charged to retained earnings in the current year.
(12) Year 2000 issue
The Company has determined that it will be required to modify or replace
significant portions of its software and hardware so that these systems will
properly utilize dates beyond December 31, 1999. The Company presently in the
process of modifying or replacing existing software and certain hardware, so
that the Year 2000 Issue can be mitigated. However, if such modifications and
replacements are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Company.
The Company has spent approximately $15,300 to replace general office desktop
systems. At the present time, the Company believes that the amount of money
needed to complete the Year 2000 remediation will not be material and is
estimated not to exceed $25,000.
The Company does not have any substantial contingency plans because it
believes that its remediation efforts will be successful. The Company has,
however, identified specific procedures required to keep its operations
functioning in the event of delays or machine failures.
[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, 1999.
The working capital and working capital ratio at August 31, 1999 reflected
strong liquidity as follows:
[S] [C]
Working capital $ 1,952,340
===========
Working capital ratio 5.4:1
===========
Changes in results of operations
Net Sales and Services - Net sales and services in 1999 increased by 9.4% over
1998. The increase resulted principally from a price increase as well as an
increase in the number of services performed.
Cost of Sales and Services - Cost of sales and services as a percent of net
sales decreased to 71.5% in 1999 from 76.2% in 1998. The decrease is due to a
decrease in rent and real property taxes, as well as the overall increase in
net sales and services.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses, as a percent of net sales, increased to 27.1% in 1999
from 24.8% in 1998. The increase resulted from increases in professional
fees, advertising expense, and salaries and wages.
Income Taxes - The effective income tax rate is 33.8% for 1999 and 40.0% for
1998.
Other Income (Expense) - Other income as a percent of net sales and services
increased to 6.3% in 1999 from 5.8% in 1998. The increase resulted primarily
from an increase in gains on sale of securities.
[FN]
10
<PAGE> 13
HOSOI GARDEN MORTUARY, INC.
PART II - OTHER INFORMATION
_ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1999 and 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
three-months ended August 31, 1999.
[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, 1999 Clifford Hosoi
---------------------
Clifford Hosoi, President
Date October 14, 1999
Keith Numazu
------------------------
Keith Numazu, Treasurer
[FN]
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and the statements of income and comprehensive income filed as part of the
quarterly report on Form 10-QSB and is qualified in its entirety by reference to
such quarterly report on Form 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> AUG-31-1999
<CASH> 992877
<SECURITIES> 837213
<RECEIVABLES> 270619
<ALLOWANCES> 71085
<INVENTORY> 172441
<CURRENT-ASSETS> 2397706
<PP&E> 1498985
<DEPRECIATION> 16835
<TOTAL-ASSETS> 7015047
<CURRENT-LIABILITIES> 445366
<BONDS> 0
0
0
<COMMON> 378840
<OTHER-SE> 6029352
<TOTAL-LIABILITY-AND-EQUITY> 7015047
<SALES> 686513
<TOTAL-REVENUES> 686513
<CGS> 491173
<TOTAL-COSTS> 491173
<OTHER-EXPENSES> 186330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 52506
<INCOME-TAX> 17730
<INCOME-CONTINUING> 34776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43440
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
