SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(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, 1999 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
<PAGE>
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. ( )
State issuer's revenue for its most recent fiscal year.
$2,747,301
State the aggregate market value of the voting stock
held by non-affiliates computed by reference to the
price at which the stock was sold, or the average bid
and asked prices of such stock, as of a specified date
within the past 60 days. (See definition of affiliate
in Rule 12b-2 of the Exchange Act): $7,116,799
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of
issuer's classes of common stock, as of the latest
practicable date: 1,674,541
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by
reference, briefly describe them and identify the part
of the 10-KSB (e.g. Part I, Part II, etc.) into which
the document is incorporated: (1) any annual report
to security holders; (2) any proxy or information
statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933
("Securities Act"). The listed documents should be
clearly described for identification purposes (e.g.
annual report to the security holders for fiscal year
ended May 31, 1992).
Transitional Small Business Disclosure Format
(Check one): Yes X No
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<PAGE>
PART I
ITEM 1. Description of Business
Hosoi Garden Mortuary, Inc. (the "Company") was
incorporated in 1957 under the laws of the State of
Hawaii as the successor to a business founded in 1900.
Professional funeral services are the principal
services rendered by the Company. The Company is
engaged in the funeral and mortuary business,
including the sale of pre-need funeral services
contracts. During the fiscal years ended May 31, 1999
and 1998, funeral services accounted for 74.4% and
72.1%, respectively, of revenues. The Company owns
50% of Garden Life Plan, Ltd. ("Garden Life") which
sells pre-need funeral service contracts for which the
Company acts as the sole servicing mortuary.
The Company operates a mortuary business in Honolulu,
Hawaii. Although established to offer funeral
services to all persons in Hawaii, the Company serves
principally persons of Japanese ancestry who follow a
particular and special order of worship in accordance
with their religious beliefs. In addition to handling
funeral services for residents of Honolulu, the
Company conducts services for residents of other
counties in Hawaii and prepares remains for shipment
to or receives them from other counties in Hawaii,
other states in the United States and foreign
countries.
Competition in the funeral business in Hawaii is based
upon (1) the location of a mortuary and (2) the
principal ethnic group that a mortuary serves. There
are 21 mortuaries in the State of Hawaii. Their
locations are as follows:
<TABLE>
<CAPTION>
LOCATION NUMBER OF MORTUARIES
<C> <C>
Island of Hawaii 3
Island of Maui 3
Island of Oahu 12 (one military)
Island of Kauai 2
Island of Molokai 1
</TABLE>
Because of the separation of the Hawaiian islands by
ocean, a mortuary is generally confined to the funeral
demands of a particular island. A very small
percentage of business constitutes service requiring
the use of funeral parlors on an island other than
where death has occurred.
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<PAGE>
<TABLE>
COMPARATIVE STATISTICAL INFORMATION
<CAPTION>
Percent of Services
No. of No. of Services by Company as
Calendar Deaths in Deaths in Performed by to No. of Deaths
Year End State of HI Oahu the Company in Oahu
<S> <C> <C> <C> <C>
1990 7,056 5,253 980 18.66%
1991 6,486 4,930 980 19.00%
1992 7,173 5,317 1,011 19.01%
1993 7,570 5,689 1,114 19.00%
1994 7,531 5,588 1,091 19.00%
1995 7,795 5,834 1,043 18.00%
1996 8,148 5,557 1,151 20.71%
1997 8,016 5,856 1,050 17.93%
1998 8,297 6,058 1,063 17.54%
</TABLE>
In most cases, a substantial portion of the business
of a mortuary is from an ethnic group it principally
serves. Historically, a substantial portion of the
Company's total services were for families of
Japanese ancestry.
The larger mortuaries on the Island of Oahu and the
ethnic groups which they are believed to serve
primarily are as follows:
<TABLE>
<CAPTION>
Name Ethnic Groups Served
<C> <C>
Williams Mortuary Caucasian
Hosoi Garden Mortuary Japanese
Borthwick Mortuary Caucasian and Chinese
Hawaiian Memorial Park Mixed and Japanese
Mililani Memorial Park & Mortuary Mixed (Filipino and Japanese)
Leeward Funeral Home Mixed
Valley of the Temples Mortuary Japanese, Chinese and Caucasian
(also operating Kukui, Nuuanu
and Diamond Head Memorial Parks)
U.S. Army Mortuary All ethnic groups
</TABLE>
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<PAGE>
On July 7, 1998, the Company entered into an agreement
with Woolsey Funeral & Cemetery Services, Inc. to form
Woolsey-Hosoi Mortuary Services, LLC, a limited
liability company under the laws of the State of
Hawaii. It is expected that the LLC will conduct
funeral services to persons other than those of
Japanese ancestry. Funeral services arranged by the
LLC will generally be conducted at churches and other
locations other than on the Company's premises.
Thirty-four (34) persons were employed by the Company
for the fiscal year ended May 31, 1999. Seventeen
(17) persons were employed full-time and seventeen
(17)persons were employed part-time.
ITEM 2. DESCRIPTION OF PROPERTY
The Company operates its business at 30 North Kukui
Street, Honolulu, Hawaii, 96817, on the northwest
corner of Nuuanu Avenue and Kukui Street in Honolulu,
Hawaii. The business site consists of 92,773 square
feet, of which the Company owns a 78/104th interest.
The Herman S. Hosoi Trust owns a 13.65/104th interest
and the Hosoi-Tamori-Shimonishi Trust owns the
remaining 12.35/104th interest. The trustees and
beneficiaries of both trusts include directors,
officers and shareholders of the Company.
The portion owned by the Company is owned in fee
simple. The Company leases the portion owned by the
Herman S. Hosoi Trust and Hosoi-Tamori-Shimonishi
Trust ("Trusts") under a five-year lease that expired
on May 31,1994, subject to an option to renew for an
additional five-year period. The option to renew the
lease was exercised while negotiations for the terms
of a new lease continued. In August 1997, the terms
of a new lease retroactive to June 1, 1994 were
approved by the Directors of the Company. The lease,
which expired on May 31, 1999, provides for an annual
lease rent of $312,498, including general excise taxes.
New lease terms are currently being negotiated. In
addition, the Company is responsible for the payment
of real property taxes on the portion of the land
owned by the Trusts. Total rental expense was
$345,636 and $356,469 in 1999 and 1998, respectively.
For more information on the lease between the Company
and the Trusts, see Footnote 13 on page F-19
of the Company's Financial Statements, which are
attached hereto and incorporated by reference.
The main mortuary building, which was built in 1961,
contains a chapel area, which is capable of being used
for one service with a seating capacity of 600 or for
two chapels with a seating capacity of 300 each. There
is an altar and family room at each end of the
building. The office is located on the west end of the
main mortuary building. The embalming rooms are on the
second floor.
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<PAGE>
In addition, there is a combined garage, kitchen and
dining room annex. Parking facilities for 147 cars
have access to Nuuanu Avenue, Kukui Street and
Maunakea Street, and are one-half block away from
Vineyard Boulevard, which is one of the main
thoroughfares in Honolulu. The areas not used for
buildings or parking stalls have been appropriately
landscaped to qualify for partial real property tax
exemption.
No substantial addition or changes in the real
property or improvements of the Company were made
during the fiscal year ended May 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY
HOLDERS
On January 24, 1999, the annual meeting of the
shareholders was held. According to the Company's
stock transfer agent Continental Stock Transfer & Trust
Co., the total shares issued, outstanding and entitled
to vote were 1,734,883. The total shares present in
person and proxy were 1,160,272 (66.885%).
The election of three directors and the election of an
auditor were submitted to a vote of the shareholders.
Of the total shares present in person and proxy, the
following vote of the shareholders was taken:
<TABLE>
Election of Class A Directors (3 year term)
<CAPTION>
NAME FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Sadako Hosoi 1,109,137 (63.93%) 51,135 (2.95%)
Berton Kato 1,109,137 (63.93%) 51,135 (2.95%)
Anne Tamori 1,123,687 (64.77%) 36,585 (2.11%)
</TABLE>
The foregoing persons were elected at the annual
meeting to serve a three-year term until the 2002
annual meeting or until their successors shall be
elected.
<TABLE>
Election of Auditor (One Year Term)
<CAPTION>
NAME FOR Against Abstain
<S> <C> <C> <C>
Endo & Company, CPA 1,143,762 (65.93%) 15,135 (.87%) 1,375 (.08%)
(Jack Y. Endo)
</TABLE>
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<PAGE>
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The common shares of the Company are neither traded nor
listed on an exchange and has no established public
trading market. One stockbroker in Honolulu, Hawaii,
quotes the common stock, but the Company does not know
the prices at which the trades are made. During the
fiscal year ended May 31, 1999, the Company redeemed
70,272 shares as follows:
<TABLE>
<CAPTION>
No. Of Shares Redemption Price
<C> <C>
65,772 $4.25
4,500 $3.75
</TABLE>
There were 1,628 record holders of common stock as of
May 31, 1999.
A cash dividend has been declared and paid once a year
since 1969. The dividend for the year ended May 31,
1998, which was declared on October 15, 1998, was $.10
per share, and was paid to shareholders in January
1999.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth items from Hosoi
Garden Mortuary, Inc.'s statement of income as
percentages of net revenues:
<TABLE>
<CAPTION>
Years Ended May 31,
1999 1998
<S> <C> <C>
Total revenues 100.0% 100.0%
Cost of sales and services 74.7 78.8
Gross profit 25.3 21.2
Selling, general and administrative 24.0 26.7
Operating income(loss) 1.3 (5.5)
Other income (expenses) 6.4 10.4
Income before income taxes 7.7 4.9
Provision for income taxes 3.3 1.4
Income before equity in earnings
of Garden Life Plan, Ltd. (GLP) 4.4 3.5
Equity in earnings of GLP, net 14.7 28.5
Net income 19.1% 32.0%
</TABLE>
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<PAGE>
RESULTS OF OPERATIONS
TOTAL REVENUES
The Company's revenues increased by $82,813 in 1999
over 1998. The increase of 3.1% is attributable to
the increase in number of services performed from
1,050 in 1998 to 1,063 in 1999, which is an increase
of 1.2% and the effects of a price increase
instituted during the 1999 fiscal year.
The Company expects revenues to remain at the 1999
level, despite the increase in prices for funeral
services, because it is expected that selection of
lower priced funeral services will continue because
of the poor economic conditions in Hawaii.
In addition, it is expected that pre-need services
which generate lower average revenues will continue
to account for between 30% and 40% of total revenues.
The continued affiliation with Woolsey Funeral &
Cemetery Services, Inc., described in ITEM 1.
Description of Business, is a revenue source from a
segment of the community which was not served by
Company. The Woolsey-Hosoi Mortuary Services, LLC is
not expected to have an immediate impact on the
Company's revenues.
The Company's operating expenses in 1998 decreased
as a percentage of revenues due to a decrease in
real property taxes and an increase in revenues.
However, the Company's operating expenses is
expected to increase as a result f the Company's
plans for the upgrade of its personnel and
facilities as follows:
1. Upgrade and train professional staff to meet the
current market demands and the changing nature
of customer preferences. The current trend
indicates that families are having smaller
services with lower priced merchandise.
2. Upgrade the facilities to provide the capacity to
provide multi-cultural services and service the
increasing numbers of pre-need plans.
3. Explore the establishment of a pre-need
authority, or consider the purchase of the
interest of its 50% shareholder in Garden Life
Plan, Ltd. or extend the service agreement with
Garden Life Plan, Ltd. beyond the expiration in
2001.
4. Construction of an on-site crematory.
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<PAGE>
Operating results for fiscal 2000 will be adversely
affected if revenues do not increase in relation to
the increase in costs. The increase in the number
of pre-need services expected in relation to at-need
services will limit the growth of total revenues. The
upgrade of the Company's personnel and facilities is
expected to mitigate the effects of the increase in
pre-need plan services and the generally poor
economic conditions in Hawaii.
COST OF SALES AND SERVICES
Cost of sales and services decreased to 74.7% of
revenues in 1999 from 78.8% in 1998. The 4.1%
decrease in cost of sales is attributable to a
decrease in the real property taxes, salaries and
wages, and rent in relation to total revenues.
GROSS PROFIT
Gross profit as a percentage of total revenues
increased to 25.3% in 1999 from 21.2% in 1998.
The increase is due to the increase in revenues and
the decrease in cost of sales as mentioned above.
The 3.1% increase in revenues is attributable to
the relatively small increase of 1.2% in the number
of services performed in 1999 over 1998 and the
price increase instituted during the fiscal year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses
decreased to 24.0% in 1999 from 26.7% in 1998.
The decrease is attributable to a decrease of 1.7% in
professional services, a decrease of .4% in
advertising and promotions and .6% in bad debt
expense.
It is expected that selling, general and
administrative expenses in 2000 will increase
because of expected increases in professional
services and advertising expense.
EARNINGS OF GARDEN LIFE PLAN, LTD.
Revenues from the trust funds of the Company's
subsidiary, Garden Life Plan, Ltd. (GLP), whose
earnings are accounted for on the equity method of
accounting, are included in the amounts reflected
as EQUITY IN EARNINGS OF GARDEN LIFE PLAN, LTD. of
$405,235 and $608,171 for 1999 and 1998 respectively.
The EQUITY IN EARNINGS OF GARDEN LIFE PLAN, LTD., in
1998 was restated for a misstatement in 1998.
Information
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<PAGE>
relating to the prior period adjustments and the
effects on the Company financial statements are more
fully described in Footnote 18 of the Company's
financial statements, which are attached hereto and
incorporated by reference.
Earnings of the Trust fund of GLP are not directly
affected by decisions of the management of the
Company. Investment decisions are generally made by
the money manager of GLP's Trust funds.
Fluctuations in GLP's trust fund income, which
amounted to $1,508,657 and $2,136,577 for the years
ended May 31, 1999 and 1998 respectively are the
result of fluctuations in interest rates, capital
gains and the mix of investment of the Trust.
Information relating to Trust investments,
obligations and earnings are more fully described
in Footnote 2 of GLP's financial statements, which
are attached hereto and incorporated by reference.
Equity in the earnings of GLP continue to account
for a large part of the Company's earnings, at
77.2% and 86.8% of the Company's net income in 1999
and 1998, respectively.
INCOME TAXES
The Company's effective income tax rate was 43.3% of
pre-tax income in 1999 and 36.5% in 1998. Note (9)
to the Company's financial statements presents a
reconciliation of the Company's effective and
statutory income tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Total working capital decreased by $418,130 to
$1,971,456 in 1999 from $2,389,586 in 1998. The
decrease is attributable to an decrease in current
assets, particularly in income taxes receivable
$226,732 and a decrease in cash required to redeem
the Company's shares. Working capital ratio was
6.0:1 at May 31, 1999 and 6.7:1 at May 31, 1998.
SECURITIES AVAILABLE-FOR-SALE increased to $847,718
in 1999 from $773,464 in 1998 as a result of
earnings on the investment.
SECURITIES HELD TO MATURITY remained relatively
stable at $888,931 in 1999 and $842,656 in 1998.
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<PAGE>
At the end of 1999, the Company did not have any
long-term debt. The Company expects that cash flows
from operations, its cash reserves and investments
will be adequate to meet the Company's cash
requirements in the foreseeable future.
Dividends paid were $173,488 and $175,569 in 1999
and 1998, respectively, which was $.10 per share in
both years.
Cash outflows for the acquisition of the Company's
shares were $130,289 in 1998 and $296,407 in 1999.
The Company expects that future acquisitions will
be in the range of $100,000 to $200,000 per year.
YEAR 2000
Footnote (17) to the financial statements which
discusses "Year 2000 Compliance" is incorporated by
reference hereto.
The following summarizes the Company's Year 2000
disclosure statement pursuant to the Year 2000
Readiness and Disclosure Act.
STATE OF READINESS
Hosoi Garden Mortuary, Inc. (HOSOI) does not have
a formal Year 2000 readiness program, however, the
Company's Treasurer has been assigned the task of
assessment of the Company's exposure to the Y2K
problem, the implementation of any required
remediation and the testing and validation of its
remediation efforts.
Our Year 2000 project focuses on two areas:
(1) information technology (IT) systems, such as
application software and PC's; and (2) suppliers.
We have identified application software and PC's
which needs to be replaced. We are in the process
of upgrading our PC system and have or will replace
application software which are not Year 2000
compliant.
We expect to complete our remediation efforts by
the end of October 1999 and implement validation
and testing before the end of 1999.
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<PAGE>
RISK/CONTINGENCY PLANS
Our "worst-case scenario" would be a failure of our
suppliers to supply merchandise for a prolonged
period of time that would impair our ability to
provide services to our customers in a timely and
reliable manner. Although the occurrence of this
scenario could affect HOSOI, we do not have a basis
to determine at this time whether such a scenario
is likely to occur. We believe that suppliers
present the area of greatest risk to disruption of
our operations because of our limited ability to
influence action of third parties or to estimate the
level and impact of their noncompliance through the
supply chain.
We have not developed contingency plans for our IT
systems as we believe that our remediation efforts
in this area will be successful because of the small
size of our PC network; five workstations and one
server; the use of accounting software from one
vendor who is Year 2000 ready and the use of
wordprocessor and spreadsheet programs from major
name brand suppliers.
The continency plans for our suppliers include,
where appropriate, (1) booking orders and stocking
products before anticipated disruptions and
(2) finding alternative suppliers.
We will update our assessment for our significant
suppliers as we receive additional information from
them concerning their Y2K preparedness. However,
judgements regarding contingency plans - such as now
to develop them and to what extent - are subject to
many variables and uncertainties. There can be
no assurance that HOSOI will correctly anticipate
the level, impact or duration of noncompliance by
its suppliers.
As a result, there is no certainty that our
contingency plans will be sufficient to mitigate
the impact of noncompliance by suppliers and some
material adverse effect to HOSOI may result from
one or more third parties regardless of our
contingency plans. The failure of any contingency
plans could have a material adverse effect on
Hosoi's financial condition, results of operations
or liquidity.
COST
We do not currently expect the total cost of our
Year 2000 readiness program will be material to
our financial condition or results of operations.
Cost associated with our efforts around Year 2000
issues are expensed as incurred, unless they
relate to the purchase of hardware and software,
in which case they are capitalized.
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<PAGE>
Item 7. FINANCIAL STATEMENTS
An audited balance sheet as of May 31, 1999 and
audited statements of income, cash flows and
changes in shareholders' equity for each of the
two fiscal years preceding the date of such
audited balances sheet are on pages F-3
through F-4 of this report.
Item 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS: COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT
The Company has a total of nine (9) directors
constituting the entire Board of Directors, divided
into three (3) classes of three (3) directors each.
The Company's Articles of Association provide for each
class of directors to be elected for three-year terms
on a staggered basis.
Directors hold office for the duration of their terms
and thereafter until their successors are elected.
The executive officers serve at the pleasure of the
Board of Directors. See the table on pages F-16
and F-17 for certain information about the directors
and executive officers of the Company.
The names, ages, positions and offices, terms of
office, and business experience of the directors and
executive officers of the Company are set forth below.
DIRECTORS WHOSE TERMS EXPIRED IN 1999 AND WHO WERE
ELECTED TO TERMS EXPIRING IN 2002
Sadako Hosoi is the widow of Herman S. Hosoi, founder
of the Company. She has been a director of the
Company since 1957 and is the Chairperson of the
Board Emeritus. At the January 24, 1999, annual
meeting, she was elected to a new three-year term
which will expire in 2002. In the past, she has
served as chairperson of the Company and treasurer.
She serves as a director of Garden Life Plan, Ltd.
She is the mother of Julie S. Shimonishi, director,
Clifford Hosoi, director and president of the
Company, and Anne T. Tamori, director and vice
president of the Company.
Berton T. Kato is an attorney licensed in the State
of Hawaii and has his own law practice. At the January
24, 1999, annual meeting, he was elected to serve a
three-year term which will expire in 2002.
Anne T. Tamori has been employed by the Company since
1978. She has been a vice president of the Company
since 1994. At the January 24, 1999, annual meeting,
she was elected to serve a three-year term which will
expire in 2002. She has served as an associate
secretary of the Company. She is a daughter of
Sadako Hosoi, director, and a sister of Clifford
Hosoi, director and president of the Company, and
Julie S. Shimonishi, director.
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<PAGE>
DIRECTORS WHOSE TERMS EXPIRE IN 2001
Clifford Hosoi has been a director of the Company
since 1989. He was a vice president from 1989 until
his appointment as president and chief executive
officer of the Company as of January 1, 1994. He has
been a licensed embalmer since 1979. He has been a
Funeral Director for the Company since 1985. He serves
as a director of Garden Life Plan, Ltd. He is the son
of Sadako Hosoi, director, and a brother of Julie S.
Shimonishi, director, and Anne T. Tamori,
vice-president, director and an employee of the
Company.
Rene Mansho is an elected member of the City Council
of the City and County of Honolulu and has served on
the City Council since 1988. She has been a director
of the Company since 1993. She presently serves as
chairperson of the Board of Directors and was elected
to that position in 1994. She has been a school
teacher, Vice-Principal and Administrator with the
Department of Education of the State of Hawaii between
1971 through 1988. Other organizations with which she
is involved include the Hawaii State Association of
Counties, the Mililani Hongwanji, Mililani YMCA,
Honolulu Japanese Chamber of Commerce, Goodwill
Industries, Great Aloha Run, Salvation Army, Wahiawa
Lions, Muscular Dystrophy Association of Hawaii.
Ricky C. Manayan is currently a Manager - Prepaid Card
Programs with GTE Hawaiian Tel. He has been a
director of the Company since 1995. His other business
affiliations include Rick Manayan & Associates. He is
President of East-West Real Estate Co., Inc., Ricky
Manayan Associates and Transpacific Empire, Inc.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
Julie S. Shimonishi is a school teacher and has been
employed by the Department of Education, State of
Hawaii, since 1970. She has been a director since
1979. She is a daughter of Sadako Hosoi, director, and
a sister of Clifford Hosoi, director and president of
the Company, and Anne T. Tamori, director and
vice-president of the Company.
Robert Kuwahara is a Certified Public Accountant and
has his own CPA practice. He has been a director of
the Company since 1995. He is actively involved in
human services organizations such as the YMCA.
Richard B. Dole is the Vice-President and Principal of
Kuroman Realty, Inc. He resigned as a director of the
Company in 1999, having served as director since 1995.
The Board of Directors have not yet nominated and
elected a director to serve the remaining term of
Richard B. Dole.
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<PAGE>
OTHER EXECUTIVE OFFICERS ARE AS FOLLOWS:
David Fujishige has been employed by the Company since
1989. He has been a funeral director since 1991. He
has been a vice president of the Company since 1994.
Prior to joining the Company, he was a food production
supervisor at Rehabilitation Hospital of the Pacific.
Keith Numazu has been employed by the Company since
1992. He has been treasurer of the Company since 1994.
He has been an assistant bookkeeper and programmer
since 1992. Prior to joining the Company, he was a
systems operator/analyst for Consolidated Amusement,
Inc. and a senior systems analyst/programmer for
Holmes and Narver, Inc. and Raytheon Services Nevada.
Elaine Nakamura has been employed by the Company since
1963. She is the secretary of the Company.
<TABLE>
Directors and Executive Officers of the Company
<CAPTION>
No. Of
Director Yrs.
Name Age Office Since Family Relationship Employed
<S> <C> <C> <C> <C> <C>
Sadako Hosoi 82 Director 1957 Mother of Julie S.
Shimonishi,Director
Clifford Hosoi,Director
and President,and Anne
Tamori, Director and
Vice President
Rene Mansho 50 Director/ 1993 None 0
Chairperson
of the Board
Clifford Hosoi 50 Director/ 1991 Son of Sadako Hosoi, 20
President Brother of Julie S.
Shimonishi and
Anne Tamori
Julie S. 53 Director 1979 Daughter of Sadako Part-time
Shimonishi Hosoi, Sister of since
Clifford Hosoi and 1990
Anne T. Tamori
-16-
<PAGE>
No. Of
Director Yrs.
Name Age Office Since Family Relationship Employed
<S> <C> <C> <C> <C> <C>
Ricky C. 40 Director 1995 None 0
Manayan
Berton T. Kato 51 Director 1996 None 0
Robert 51 Director 1995 None 0
Kuwahara
Richard B. 54 Director 1995 None 0
Dole(1)
Anne T. Tamori 52 Director/ 1994 Daughter of Sadako 20
Vice Pres. Hosoi, Sister of
Clifford Hosoi
and Julie S.
Shimonishi
Elaine 61 Secretary 1972 None 35
Nakamura
David 51 Vice 1994 None 9
Fujishige President
Keith Numazu 37 Treasurer 1994 None 6
<FN>
(1) Richard B. Dole resigned as director in 1999.
The Board of Directors have not yet nominated and
elected a director to serve the remaining term of
Richard B. Dole, which will expire in 2000.
(2) None of the directors of the Company is a director
of an investment company or another company
registered under the Securities Exchange Act of
1934. All officers serve at the pleasure of the
Board of Directors.
</FN>
</TABLE>
CERTAIN REPORTS
The Company has been informed that none of its
directors, officers or holders of ten percent or more
of its securities were required to file Forms 3 or 4
during the fiscal year ended May 31, 1999, and that
during this same time period none of the holders of
five percent or more of the Company's securities were
required to file a report on Schedule 13D.
-17-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following sets forth the information, on an
accrual basis, with respect to the compensation of the
chief executive officer of the Company for the three
fiscal years ended May 31, 1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION - ANNUAL COMPENSATION
Year ended All Other
Name and Position May 31 Salary Compensation
<S> <C> <C> <C>
Clifford Hosoi 1997 $54,759 $7,955 (1)
President/Chief 1998 $46,731 $7,420 (2)
Executive Officer 1999 $52,961 $8,098 (3)
<FN>
(1) Amount shown includes $2,738 contributed to the
Company's Money Purchase Pension Plan, $3,817
contributed to the Company's Profit Sharing Plan
and $1,400 fees paid as a director.
(2) Amount shown includes $2,337 contributed to the
Company's Money Purchase Pension Plan, $3,583
contributed to the Company's Profit Sharing Plan
and $1,500 fees paid as a director.
(3) Amount shown includes $2,355 contributed to the
Company's Money Purchase Pension Plan, $3,668
contributed to the Company's Profit Sharing Plan
and $2,075 fees paid as a director.
</FN>
</TABLE>
The total annual salary and bonus for any other
executive officer does not exceed $100,000.
The standard fees paid to directors are $100 for each
Board of Directors meeting attended and $25 for each
committee meeting attended.
COMPENSATION PURSUANT TO PLANS
(a) Profit-Sharing Plan. The Company has established
a profit-sharing plan for the Company's employees.
Every employee, who has completed one year of service
with the Company, becomes eligible to participate in
the profit-sharing plan. An employee who has completed
1,000 hours of service commencing from the date
of employment or an anniversary date is considered to
have one year of service.
-18-
<PAGE>
The Company's contribution to the profit-sharing plan
is discretionary and may be up to 15% of the
participant's eligible compensation. The Company's
total contributions shall not exceed the amount
allowable by income tax regulations. The amounts
charged against income for the profit-sharing plan in
1998 and 1997 were $40,000 and $37,000, respectively.
The Company's allocation of contributions among
eligible members is based on their respective
compensation and is allocated proportionately.
The investment decision for the profit-sharing plan
is formulated by a registered investment advisor
through Hawaiian Trust Company, Ltd.
(b) Money Purchase Pension Plan. The Company has
established a money purchase pension plan, which
became effective as of June 1, 1990, for the Company's
employees. Every employee, who has completed one year
of service with the Company, becomes eligible to
participate in the money purchase plan. An employee
who has completed 1,000 hours of service commencing
from the date of employment or an anniversary date is
considered to have one year of service.
The Company is required to contribute 5% of each
participant's eligible compensation to the money
purchase plan. The Company's total contributions
cannot exceed the amount allowable by income tax
regulations. The amounts charged against income for
the money purchase pension plan in 1999 and 1998 were
$26,820 and $26,560, respectively.
The investment decision for the money purchase plan
is formulated by a registered investment advisor
through Smith Barney, Inc.
-19-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS & MANAGEMENT
A. Principal Shareholders
The Herman S. Hosoi Trust, whose trustees are Sadako
Hosoi and Julie S. Shimonishi, and the Hosoi Family
Limited Partnership, whose general partner is the
Hosoi Family Voting Trust, by its trustee Julie S.
Shimonishi, are the only persons who own of record or
are known to the Company to own beneficially more than
five percent of the common shares of the Company as of
May 31, 1999. Certain information about the holders
is set forth below.
<TABLE>
<CAPTION>
Nature of
Title of Name and Address of Beneficial No. of Percent
Class Beneficial Owner Ownership Shares of Class
<S> <C> <C> <C> <C>
Common Julie S. Shimonishi Co-trustee of 158,250 9.38%
30 N. Kukui Street the Herman S.
Honolulu, HI 96817 Hosoi Trust
General Partner of 160,250 9.50%
the Hosoi Family
Limited Partnership,
as Trustee of the
Hosoi Family
Voting Trust
Custodian for Chad 8,000 0.47%
Shimonishi and Lane
Shimonishi under
HUGMA
Direct 52,534 3.11%
Total 379,034 22.46%
-20-
<PAGE>
Title of Name and Address of Beneficial No. of Percent
Class Beneficial Owner Ownership Shares of Class
<S> <C> <C> <C> <C>
Common Sadako Hosoi Co-trustee of 158,250 9.38%
30 N. Kukui Street the Herman S.
Honolulu, HI 96817 Hosoi Trust
Settlor of the Hosoi 160,250 9.50%
Family Voting Trust
and limited partner
of the Hosoi Family
Limited Partnership
Total 318,500 18.88%
Common Herman S. Hosoi Trust Direct 158,250 9.38%
Sadako Hosoi and
Julie S. Shimonishi,
Trustees
30 N. Kukui Street
Honolulu, HI 96817
Common Hosoi Family Limited Direct 160,250 9.50%
Partnership (1)
30 N. Kukui Street
Honolulu, HI 96817
<FN>
(1) The Sadako Hosoi Trust, by its trustees Sadako
Hosoi and Julie S. Shimonishi, transferred 160,250
shares of the Company to the Hosoi Family Limited
Partnership, whose general partner is the Hosoi
Family Voting Trust, by its trustee Julie S.
Shimonishi, and whose limited partner is Sadako
Hosoi. Julie S. Shimonishi, as trustee,
exercises voting and investment powers over those
shares pursuant to the Hosoi Family Voting Trust
Agreement dated December 30, 1994, between Sadako
Hosoi, as settlor, and Julie S. Shimonishi, as
trustee.
</FN>
</TABLE>
-21-
<PAGE>
B. DIRECTORS AND EXECUTIVE OFFICERS
Certain information with respect to the holdings of
Common Stock of the directors and executive officers of
the Company as of May 31, 1999 is set forth below.
<TABLE>
<CAPTION>
Title of Name of Amount and Nature of Percent of
Class Beneficial Owner (1) Beneficial Ownership Class
<S> <C> <C> <C>
Common Julie S. Shimonishi 379,034 (2) 22.46%
Common Sadako Hosoi 318,500 (3) 18.88%
Common Clifford Hosoi 52,532 (4) 3.11%
Common Anne T. Tamori 56,534 (5) 3.35%
Common Richard B. Dole 1,000 (6) 0.06%
All directors and officers 489,100 28.29%
as a group (14 persons) (7)
<FN>
(1) The address of each person is 30 N. Kukui Street,
Honolulu, Hawaii 96817, except for Richard B. Dole
whose address is 1255 Nuuanu Avenue, Suite C-104,
Honolulu, Hawaii 96817.
(2) Includes:
52,534 shares (3.11%) as to which Ms.
Shimonishi exercises sole
voting and investment
powers;
8,000 shares (0.47%) as to which Ms.
Shimonishi exercises sole
voting and investment
powers as Custodian for
Chad Shimonishi and Lane
Shimonishi under HUGMA;
158,250 shares (9.38%) as to which Ms.
Shimonishi and Sadako
Hosoi share voting and
investment powers as
trustees of the Herman S.
Hosoi Trust; and
160,250 shares (9.50%) as to which Ms.
Shimonishi, as trustee of
the Hosoi Family Voting
Trust, has voting and
investment powers over
the shares owned by the
Hosoi Family Limited
Partnership.
-22-
<PAGE>
(3) Voting and investment powers over 158,250 shares
of the Company are shared by Sadako Hosoi and
Julie S. Shimonishi, as Trustees of the Herman S.
Hosoi Trust, which owns 158,250 shares of the
Company. Voting and investment power over 160,250
shares of the Company are exercised by Julie S.
Shimonishi, as trustee under the Hosoi Family
Voting Trust. See the preceding table for more
information about the Hosoi Family Limited
Partnership and the Hosoi Family Voting Trust.
(4) Voting and investment powers exercised solely.
(5) Includes:
52,534 shares (3.11%) as to which Ms. Tamori
exercises sole voting and
investment powers; and
4,000 shares (0.24%) as to which Ms. Tamori
exercises sole voting and
investment powers for
Ryan Tamori under HUGMA.
(6) Voting and investment powers exercised solely.
(7) Rene Mansho, Ricky C. Manayan, Berton T. Kato and
Robert Kuwahara, who are currently serving as
directors, and Elaine Nakamura, David Fujishige
and Keith Numazu, who are currently serving as
officers, do not own any shares of the Company.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 2 on page 5 of this Report and Footnote 13
on page F-19 of the Company's Financial Statements, for
information about the lease between the Company and the
Herman S. Hosoi Trust and the Hosoi-Tamori-Shimonishi
Trust.
-23-
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS.
Except as noted, the following exhibits were
previously filed on August 31, 1981, as exhibits to
Form 10-K for the fiscal year ended May 31, 1981, for
the Company and are incorporated herein by reference:
(2) Plan of Purchase, Sale, Reorganization,
Arrangement, Liquidation and Succession
(3) Articles of Association and ByLaws
(a) Articles of Association, Affidavit of
Officers and Supplemental affidavit of
incorporation filed May 31, 1957
(1) Amendments
(i) January 18, 1962
(ii) January 16, 1963
(iii) February 3, 1972
(iv) February 2, 1977
(v) March 31, 1978
(vi) July 23, 1993 (1)
(b) By Laws dated May 31, 1957
(1) Amendments
(i) January 30, 1972
(ii) March 31, 1978
(4) Instruments Defining the Rights of Security
Holders, Including Indentures
(a) Equity securities: Articles of
Association and Affidavit of Officers,
Certificate of Amendment filed January
16, 1963, in the Hawaii Department of
Regulatory Agencies.
(b) Debt securities: Not applicable.
-24-
<PAGE>
(9) Voting Trust Agreement
Hosoi Family Voting Trust Agreement dated
December 30, 1994, between Sadako Hosoi, as
settlor, and Julie S. Shimonishi, as trustee,
covering 160,250 shares owned by the Hosoi
Family Limited Partnership. (5)
(10) Material Contracts
(a) Lease between the Company, as lessee,
and Sadako Hosoi and Julie Sakaye
Shimonishi, as trustees of the Herman S.
Hosoi Trust, and Clifford Isamu Sadao
Hosoi, Anne Ume Toyo Tamori and Julie
Sakaye Shimonishi, as trustees under the
Hosoi-Tamori-Shimonishi Trust, as
lessor, dated as of July 10, 1990. (2)
(b) Deed conveying the interest of the late
Herman Hosoi to the Trustees of the
Herman S. Hosoi Trust, dated February
27, 1978.
(c) Profit-sharing Plan. (3)
(d) Annuities. (3)
(e) Amendment to profit-sharing plan. (4)
[FN]
(1) Filed August 30, 1993, as an exhibit to the
Annual Report on Form 10-KSB for the year ended
May 31, 1993.
(2) Filed August 28, 1990, as an exhibit to the
Annual Report on Form 10-K for the year ended May
31, 1990.
(3) Filed August 30, 1984, as Exhibit 19 to the
Annual Report on Form 10-K for the year ended May
31, 1984.
(4) Filed August 30, 1985, as Exhibit 19 to the
Annual Report on Form 10-K for the year ended May
31, 1985.
(5) Filed August 30, 1995, as an exhibit to this
Annual Report on Form 10-KSB for the year ended
May 31, 1995.
</FN>
(11) Statements Re Computation of Per Share
Earnings
Not applicable.
-25-
<PAGE>
(13) Annual Report to Security Holders, Form 10-K,
or Quarterly Report to Security Holders,
Form 10-Q
Not applicable.
(16) Letter on Change in Certifying Accountants
Not applicable.
(18) Letter Re Change in Accounting Principles
Not applicable.
(21) Subsidiaries of the Registrant
Garden Life Plan, Ltd., a Hawaii corporation,
is 50 percent owned by the Company.
(22) Published Report Regarding Matters Submitted
to Vote of Security Holders
Not applicable.
(23) Consents of Experts and Counsel
Not applicable.
(24) Power of Attorney
Not applicable.
(28) Information from Reports to State Insurance
Regulatory Authorities
Not applicable.
(99) Additional Exhibits
Not applicable.
B. REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K in the quarter
ended May 31, 1999.
-26-
<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 annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: Honolulu, Hawaii, August 27, 1999.
HOSOI GARDEN MORTUARY, INC.
By CLIFFORD HOSOI
President
-27-
<PAGE>
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Form 10-KSB for the year ended May
31, 1998, has been signed below by the following
persons on behalf of the registrant and in the capacity
and on the date indicated.
Dated: August 27, 1999 RENE MANSHO
Director and Chairperson
of the Board of Directors
Dated: August 27, 1999 CLIFFORD HOSOI
Director, President and
Chief Executive Officer
Dated: August 27, 1999 SADAKO HOSOI
Director
Dated: August 27, 1999 BERTON T. KATO
Director
Dated: August 27, 1999 ROBERT KUWAHARA
Director
Dated: August 27, 1999 RICKY C. MANAYAN
Director
Dated: August 27, 1999 JULIE S. SHIMONISHI
Director
Dated: August 27, 1999 ANNE T. TAMORI
Director
-28-
<PAGE>
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, 1999 and 1998, and the related
statements of income and comprehensive income,
stockholders' equity 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, 1999 and 1998, which accounts 30.0% and 23.8%
of total assets and 77.2% and 86.8% of net income in
1999 and 1998, 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, 1999 and 1998, 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, 1999
F - 2
<PAGE>
<TABLE>
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEETS
_ _ _ _ _ _ _ _ _ _ _ _
May 31, 1999 and 1998
<CAPTION>
1998
As restated
1999 (See Note 18)
<S> <C> <C>
A S S E T S
CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 4) $ 928,162 $ 498,871
Available-for-sale securities, at market
(Notes 1 and 5) 847,718 773,464
Accounts receivable, less allowance
of $62,710 and $78,740 321,453 274,788
Income tax receivable 29,017 255,749
Dividend receivable (Note 2) - 750,000
Inventories (Note 1) 143,974 149,268
Prepaid expenses and others 58,865 64,787
Deferred income taxes (Note 6) 33,954 43,588
TOTAL CURRENT ASSETS 2,363,143 2,810,515
INVESTMENTS
Garden Life Plan, Ltd. (Notes 1, 2 and 18) 2,090,156 1,649,722
Woolsey-Hosoi Mortuary Services, LLC 22,345 -
Cemetery plots 1,350 1,350
Held-to-maturity securities, at cost
(Notes 1 and 5) 888,931 842,656
3,002,782 2,493,728
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation (Notes 1 and 7) 1,506,092 1,524,560
OTHER ASSETS 101,885 103,921
TOTAL ASSETS $ 6,973,902 $ 6,932,724
<CAPTION>
L I A B I L I T I E S
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable (Note 7) $ 259,971 $ 285,445
Accrued liabilities (Note 9) 131,716 135,484
TOTAL CURRENT LIABILITIES 391,687 420,929
DEFERRED INCOME TAXES (Note 6) 169,443 172,248
<CAPTION>
S T O C K H O L D E R S ' E Q U I T Y
<S> <C> <C>
CAPITAL CONTRIBUTED (Note 11)
Common stock, par value $.20 per share;
authorized 3,625,000 shares, issued
2,187,140 shares 437,428 437,428
Less 288,814 and 218,542 reacquired shares (57,983) (43,928)
TOTAL CAPITAL CONTRIBUTED 379,445 393,500
RETAINED EARNINGS 6,030,181 5,961,335
ACCUMULATED OTHER COMPREHENSIVE INCOME
net of applicable deferred income taxes
(Notes 1 and 4) 84,428 65,994
TREASURY STOCK, 223,785 shares, at cost
(Note 10) (81,282) (81,282)
TOTAL STOCKHOLDERS' EQUITY 6,412,772 6,339,547
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,973,902 $ 6,932,724
<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 AND COMPREHENSIVE INCOME
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
<CAPTION>
1998
As restated
1999 (See Note 18)
<S> <C> <C>
Revenues
Sale of urns and other items $ 703,411 $ 742,913
Funeral services 2,043,890 1,921,575
Total revenues 2,747,301 2,664,488
Cost of sales and services 2,053,315 2,100,550
Gross profit 693,986 563,938
Selling, general and administrative expenses
Salaries and wages 249,249 241,684
Profit sharing and pension fund
contributions (Note 12) 66,816 66,560
Professional services 200,072 241,057
Taxes and licenses 27,309 26,513
Advertising 24,645 37,071
Others 92,035 98,038
Total selling, general and
administrative expenses 660,126 710,923
Operating income (loss) 33,860 (146,985)
Other income and (expenses)
Interest, dividends, and others (Note 14) 178,788 278,881
Interest and others (1,643) (502)
Total other income and (expenses) 177,145 278,379
Income before income taxes and equity in
earnings of Garden Life Plan, Ltd. 211,005 131,394
Income taxes (Note 10) 91,554 38,781
Income before equity in earnings
of Garden Life Plan, Ltd. 119,451 92,613
Equity in earnings of Garden Life Plan, Ltd.,
net of deferred taxes of $35,199 and
$33,553 (Notes 2 and 5) 405,235 608,171
Net income 524,686 700,784
Other comprehensive income, net of taxes
Net unrealized gains on available-for-sale
securities 18,434 18,996
Comprehensive income $ 543,120 $ 719,780
Average number of shares common stock
outstanding 1,722,441 1,753,998
Earnings per common share (Note 1) $ .30 $ .40
Dividends per common share $ .10 $ .10
<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 STOCKHOLDERS' EQUITY
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
<CAPTION>
Accumulated
Capital Other Com-
Contri- Retained prehensive Treasury
buted Earnings Income Stock Total
<S> <C> <C> <C> <C> <C>
Balance, May 31,
1997, as previously
reported $399,989 $5,366,712 $46,998 $(81,282) $5,732,417
Adjustment for
Earnings in
Equity of Garden
Life Plan, Ltd,
net of taxes
(Note 18) - 193,208 - - 193,208
Balance, May 31,
1997, as restated 399,989 5,559,920 46,998 (81,282) 5,925,625
Net income - 700,784 - - 700,784
Common stock
reacquired (6,489) (123,800) - - (130,289)
Cash dividends
paid, $.10 per
share - (175,569) - - (175,569)
Increase in net
unrealized gains
on available-for-
sale securities,
net of taxes - - 18,996 - 18,996
Balance, May 31,
1998 393,500 5,961,335 65,994 (81,282) 6,339,547
Net income 524,686 - - 524,686
Common stock
reacquired (14,055) (282,352) - - (296,407)
Cash dividends
paid, $.10 per
share - (173,488) - - (173,488)
Increase in net
unrealized gains
on available-for-
sale securities,
net of taxes - - 18,434 - 18,434
Balance, May 31,
1999 $379,445 $6,030,181 $84,428 $(81,282) $6,412,772
<FN>
The accompanying Notes to Financial Statements are an
integral part of these statements.
</FN>
</TABLE>
F - 5
<PAGE>
<TABLE>
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
<CAPTION>
1998
As restated
1999 (See Note 18)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 524,686 $ 700,784
Adjustments to reconcile net income to
net cash and cash equivalents provided
by (used in) operating activities:
Depreciation 64,053 67,340
Realized gain on sale of investment
securities, net (14,445) (104,819)
Increase in allowance for doubtful
accounts (16,030) 9,016
Undistributed earnings of affiliate (440,434) 108,276
Partnership income (7,345) -
Cash value of life insurance policies - (3,210)
Deferred income taxes (4,456) 122,096
(Increase) decrease in certain assets
Accounts receivable (30,635) 19,298
Income tax receivable 226,732 (255,749)
Dividend receivable 750,000 (750,000)
Inventories 5,294 (12,322)
Prepaid expenses and other 5,922 (334)
(Decrease) increase in certain liabilities
Accounts payable (25,474) (67,244)
Accrued liabilities (3,768) (233,715)
Income taxes payable - (76,716)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,034,100 (477,299)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (45,585) (39,952)
Redemption of life insurance policy - 27,284
Proceeds from sale of investment securities 1,584,108 4,363,649
Increase in investment securities (1,660,473) (3,842,237)
Investment in Woolsey-Hosoi Mortuary
Services, LLC (15,000) -
Increase in cash value of life insurance
policies 2,036 (2,811)
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (134,914) 505,933
CASH FLOWS FROM FINANCING ACTIVITIES:
Shares reacquired (296,407) (130,289)
Cash dividends paid (173,488) (175,569)
NET CASH USED IN FINANCING
ACTIVITIES (469,895) (305,858)
NET INCREASE (DECREASE) 429,291 (277,224)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 498,871 776,095
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 928,162 $ 498,871
<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, 1999 and 1998
(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
statements 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. These 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 SECURIITES
AVAILABLE FOR SALE and reported at fair value,
with unrealized gains and losses included in
other comprehensive income. 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 market values
or the need for capital.
F - 7
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(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, 1999 and 1998.
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 33.5% and
27.7% of funeral service revenues in 1999 and 1998,
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, 1999 and 1998
(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 effects 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.
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.
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.
F - 9
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(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.
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 $1,508,657 and $2,136,577 for the years
ended May 31, 1999 and 1998, respectively. The
assets of the Trust 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 showed the following summarized
financial position and results of operations.
<TABLE>
<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
Total revenue $ 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
</TABLE>
F - 10
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(2) Garden Life Plan, Ltd. (continued)
INVESTMENT IN GARDEN LIFE PLAN, LTD. as of May 31,
1999 and 1998 is accounted for as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Stockholders' equity of Garden
Life Plan, Ltd. $ 4,950,553 $ 4,022,730
Less: Accumulated other
comprehensive income (770,246) (723,292)
4,180,307 3,299,438
Equity ownership 50% 50%
2,090,154 1,649,719
Rounding 2 3
Total investment in Garden Life
Plan, Ltd. $ 2,090,156 $ 1,649,722
<FN>
Cash dividend declared and paid subsequent to 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)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 was $15,000.
The Company provides Woolsey-Hosoi with embalming
services, assistance with funeral arrangements, use
of its facilities and related charges. Revenues
from services provided to Woolsey-Hosoi is reflected
in net sales and services which amounted to $18,236
for the year ended May 31, 1999.
F - 11
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(4) Cash and cash equivalents
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash on hand $ 500 $ 500
Checking accounts 153,084 76,480
Savings accounts 673,069 316,313
Short-term investments 101,509 105,578
Total cash and cash equivalents $ 928,162 $ 498,871
</TABLE>
(5) Investment securities
As of May 31, 1999 and 1998, the Company held
investments in the following types of securities:
<TABLE>
<CAPTION>
Gross Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
<S> <C> <C> <C> <C>
May 31, 1999
Available-for-sale
Equity securities $ 87,975 $ 30,962 $ 3,841 $ 115,096
Mutual funds 623,628 109,996 1,002 732,622
711,603 140,958 4,843 847,718
Held-to-maturity
U.S. Treasury bills 888,931 504 3,711 885,724
Totals $1,600,534 $ 141,462 $ 8,554 $1,733,442
</TABLE>
F - 12
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(5) Investment securities (continued)
<TABLE>
<CAPTION>
Gross 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
</TABLE>
The maturities of all debt securities held at May 31,
1999 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 $ - $ - $ 779,601 $ 778,332
After 1 year
through 5 years - - 61,229 60,161
After 5 years - - 48,101 47,231
$ - $ - $ 888,931 $ 885,724
</TABLE>
During the year ended May 31, 1999, the Company sold
SECURITIES AVAILABLE-FOR-SALE for $1,584,108. The
net gross realized gain of $14,445 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, 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.
F - 13
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(5) Investment securities (continued)
The unrealized holding gains on investment securities
AVAILABLE-FOR-SALE during the years ended May 31,
1999 and 1998, and reported as a separate component
of Stockholders' Equity, are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Unrealized holding gains, net of losses $ 136,115 $ 106,396
Deferred income tax on the net
unrealized holding gains (51,687) (40,402)
$ 84,428 $ 65,994
</TABLE>
(6) 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 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.
F - 14
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(7) Property and equipment
Property and equipment consist of:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land $ 517,040 $ 517,040
Buildings 1,262,530 1,262,530
Land improvements 94,710 94,710
Equipment and vehicles 419,463 373,877
Total cost 2,293,743 2,248,157
Accumulated depreciation 787,651 723,597
Net property and equipment $ 1,506,092 $ 1,524,560
</TABLE>
Aggregate depreciation charged to operations are as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cost of sales and services $ 61,232 $ 64,001
Selling, general and administrative
expenses 2,821 3,339
$ 64,053 $ 67,340
</TABLE>
(8) 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,
1999, 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
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.
F - 15
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(8) Funeral service deposits (continued)
As of May 31, 1999 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.
(9) Accrued liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Bonus accrued $ 21,250 $ 7,000
Payroll and general excise taxes 16,946 25,876
Profit sharing and money-purchase
plan contributions (Note 12) 66,816 66,560
Vacation and sick leave 26,704 36,048
Total accrued liabilities $ 131,716 $ 135,484
</TABLE>
F - 16
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(10) Income taxes
The provisions for income taxes (benefits) consist of
the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current:
Federal $ 65,195 $ (60,760)
State 16,725 (14,907)
81,920 (75,667)
Deferred:
Federal 8,107 99,715
State 1,527 14,733
9,634 114,448
Total $ 91,554 $ 38,781
</TABLE>
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>
1999 1998
<S> <C> <C>
Federal income tax statutory rate 34.0% 34.0%
State income tax, net of tax benefit 8.7 (7.7)
Others, net .6 3.2
Effective tax rate 43.3% 29.5%
</TABLE>
F - 17
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(11) Reacquired shares
CAPITAL CONTRIBUTED has been reduced for shares
reacquired after June 30, 1987. Purchases of 70,272
and 32,447 reacquired shares in 1999 and 1998,
respectively, exceeded the balance of additional
paid-in capital and a charge of $282,352 and
$123,800 for 1999 and 1998, 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, 1999 reflects the shares acquired before
July 1, 1987.
(12) 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
1,000 hours of service each year.
Amounts charged against income for the retirement
benefit plans are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Profit sharing $ 40,000 $ 40,000
Money-purchase 26,820 26,560
$ 66,820 $ 66,560
</TABLE>
F - 18
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(13) 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 28.14% of the outstanding shares
of the Company. The lease, which expired on May 31,
1999, is being negotiated. An extension of the
lease, to September 30, 1999, was granted at $23,000,
plus general excise tax, per month. The Company is
responsible for the payment of real property taxes
on the share of the property owned by the Trusts.
Total rental expense was $345,636 and $356,469 in
1999 and 1998, respectively.
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 for 1998.
(14) Other income
Other income consists of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Interest $ 94,536 $ 104,092
Capital gains and dividends 16,902 17,589
Net gains from sale of securities 14,445 104,819
Parking 33,684 32,004
Others 11,876 20,377
Partnership income 7,345 -
Total other income $ 178,788 $ 278,881
</TABLE>
F - 19
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(15) Cash flow supplementary disclosure
Cash payments for interest and income taxes were as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Interest $ 1,643 $ -
Income taxes (refund) $ (39,073) $ 205,629
</TABLE>
(16) 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, 1999, the Company had deposits in a
financial institution in excess of the deposit
insurance of $100,000. At May 31, 1999 and 1998, the
Company's uninsured cash balances were $623,402
$184,051, 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.
(17) Year 2000 compliance
The Year 2000 Issue arises because most computer
software programs allocate only two digits to the
data field for year on the assumption that the first
two digits will be 19. Such programs, absent
reprogramming, will thus interpret the year 2000 as
the year 1900 and 2001 as 1901 and so on. The Year
2000 Issue affects both computer hardware (i.e. the
embedded logic computer chips) and computer software
and could impact both the ability to enter data
into computer programs and the ability of such
programs to process data correctly.
F - 20
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(17) Year 2000 compliance (continued)
The Company's operations, like those of many business
entities, including infrastructure providers, vendors
and others whose performance can affect the
operations of the Company, may be impacted by the
YEAR 2000 ISSUE with microprocessors and programs.
Unless such microprocessors or programs are modified
or replaced, they may not function properly after
December 31, 1999, causing system failure or
miscalculations.
Based on recent assessments, 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 believes that with modifications or
replacement of existing software and certain
hardware, 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 identified the system in the matrix
below as mission-critical which may be affected by
the YEAR 2000 ISSUE. This system was subject to the
following four stages of work: awareness,
assessment, remediation and validation/testing.
The following matrix summarizes the Company's Year
2000 remediation work for its mission-critical
system. The remediation is either COMPLETE, IN
PROGRESS or YET TO BE ADDRESSED.
<TABLE>
<CAPTION>
System Awareness Assessment Remediation Validation/
Description Testing
<S> <C> <C> <C> <C>
General Office Complete Complete In Progress In Progress
Desktop Systems
(Windows based
spreadsheet and
word processing)
</TABLE>
F-21
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(17) Year 2000 compliance (continued)
The Company has solicited information from vendors
and others, whose Year 2000 compliance could affect
the Company, regarding the status of assessment,
testing and remediation of their computer
applications. The Company, is continuing its
efforts to determine the status of Year 2000
compliance of entities whose systems could impact
the operations of the Company. In general, those who
have responded to the Company have indicated that
they too are working on the YEAR 2000 ISSUE. There
can be no guarantee, however, that all such persons
or others who have not been identified or solicited
or who has responded, as the case may be, but on
whose operations the Company directly or indirectly
depends, will be in compliance in a timely manner.
Any failure by some or all of these persons to be in
compliance could adversely affect the operations of
the Company.
The Company will utilize both internal and external
resources to reprogram, replace, test and implement
software and equipment for Year 2000 modifications.
The Company has spent approximately $3,500 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.
Because of the unprecedented nature of the YEAR 2000
ISSUE, its effects and the success of remediation
efforts will not be fully determinable until the Year
2000 and thereafter. There is no assurance that the
Company will be Year 2000 ready, that the Company's
remediation efforts will be successful in whole or
in part, or that parties with whom the Company does
business will be Year 2000 compliant.
F - 22
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(17) Year 2000 compliance (continued)
If the steps taken by the Company and its third
parties are not successful, the Company could
experience operational difficulties. In addition,
the preceding information, including the nature,
timing, extent and costs of the Company's
remediation efforts are subject to change, and
such changes could be material.
(18) Prior period adjustments and restatement
Subsequent to the issuance of the Company's 1998
financial statements, the Company's 50% owned
subsidiary, Garden Life Plan, Ltd. (GLP),
determined that its financial statements required
restatement as a result of misstatements of the
following:
1. Deferred income taxes - GLP's management
determined that the amount of deferred income
taxes provided in fiscal 1996 related to the
Trust's recording of its investment assets at
fair value (instead of cost) was inaccurate.
As a result GLP's retained earnings as of June 1,
1997 has been restated from the amount previously
reported to correct the deferred tax liability as
of that date. The effect of GLP's restatement on
the Company was an increase in its investment in
Garden Life Plan by $407,500, an increase in its
deferred income tax liability by $32,567, and an
increase in its retained earnings by $374,933.
2. Unrealized gains and losses of the Trust's
available-for-sale securities - GLP's management
determined that unrealized gains or losses on
the Trust's available-for-sale securities should
have been reported as a separate component of
stockholders' equity and not as trust fund income
on its Statement of Income. As a result, GLP's
retained earnings as of June 1, 1997 has been
restated from the amount previously reported to
correct the unrealized gain on investments as of
that date. The effects of the restatement on the
Company's financial statements was a decrease in
its investment in GLP by $197,510, a decrease in
deferred income taxes by $15,785, and a decrease
in retained earnings by $181,725.
F - 23
<PAGE>
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 1999 and 1998
(18) Prior period adjustments and restatement
(continued)
The following summarizes the effects of the above
restatements on the Company's 1998 financial
statements:
<TABLE>
<CAPTION>
As Previously
Reported As Restated
<S> <C> <C>
At May 31:
Investment in Garden Life
Plan, Ltd. $ 1,603,868 $ 1,649,722
Deferred income taxes (liability) 168,583 172,248
Retained earnings 5,919,146 5,961,335
For the year ended May 31:
Equity in earnings of Garden Life
Plan, Ltd., net of deferred taxes 759,190 608,171
</TABLE>
F - 24
<PAGE>
GARDEN LIFE PLAN, LTD.
Financial Statements and Supplemental Schedules
for the Years Ended May 31, 1999 and 1998 and
Independent Auditors' Report
<PAGE>
GARDEN LIFE PLAN, LTD.
TABLE OF CONTENTS
MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
MAY 31, 1999 AND 1998:
Balance Sheets 2
Statements of Income and Retained Earnings 3
Statements of Comprehensive Income 4
Statements of Accumulated Other Comprehensive Income 4
Statements of Cash Flows 5
Notes to Financial Statements 6-9
SUPPLEMENTAL SCHEDULES FOR THE YEARS ENDED
MAY 31, 1999 AND 1998:
Supplemental Schedules of Selling Expenses 10
Supplemental Schedules of Administrative Expenses 10
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Garden Life Plan, Ltd.:
We have audited the accompanying balance sheets of
Garden Life Plan, Ltd. as of May 31, 1999 and 1998,
and the related statements of income and retained
earnings, comprehensive income, accumulated other
comprehensive income, 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 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 provide a
reasonable basis for our opinion.
In our opinion, such financial statements present
fairly, in all material respects, the financial
position of Garden Life Plan, Ltd. at May 31, 1999
and 1998, and the results of its operations and its
cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in Note 6, the accompanying 1998
financial statements have been restated.
Our audits were conducted for the purpose of forming
an opinion on the basic financial statements taken
as a whole. The supplemental schedules listed in
the table of contents are presented for the purpose
of additional analysis and are not a required part
of the basic financial statements. These schedules
are the responsibility of the Company's management.
Such schedules have been subjected to the auditing
procedures applied in our audit of the basic
financial statements and, in our opinion, are fairly
stated in all material respects when considered in
relation to the basic financial statements taken as
a whole.
July 22, 1999
-1-
<PAGE>
GARDEN LIFE PLAN, LTD.
BALANCE SHEETS
MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CASH $ 787,766 $ 2,516,852
CERTIFICATE OF DEPOSIT - Restricted (Note 1) 50,000 50,000
ACCOUNTS AND CONTRACTS RECEIVABLE:
Installment contracts receivable, including
amounts maturing after one year 6,129,654 7,037,871
Less equity of trust fund in receivables (5,855,835) (6,665,404)
273,819 372,467
Less allowance for cancellations (89,000) (69,000)
Accounts and contracts
receivable - net 184,819 303,467
INVESTMENT IN TRUST FUND (Note 2) 5,087,017 4,035,569
INCOME TAXES RECEIVABLE 44,271
EQUIPMENT - Net of accumulated
depreciation of $81,840 and $64,492
(Note 1) 20,058 31,833
TOTAL $ 6,129,660 $ 6,981,992
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY 1999 1998
As Restated
(See Note 6)
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 173,553 $ 155,513
Due to trust fund 141,596 296,225
Income taxes payable 21,434
Outstanding funeral service coupons (Note 5) 112,524 112,524
Accrued dividends 1,500,000
Deferred income taxes (Notes 1 and 4) 730,000 895,000
Total Liabilities 1,179,107 2,959,262
STOCKHOLDERS' EQUITY:
Capital stock, authorized, issued and
outstanding, 1,000 shares of no par value 1,000 1,000
Retained Earnings 4,179,307 3,298,438
Accumulated other comprehensive
income (Note ) 770,246 723,292
Stockholders' equity 4,950,553 4,022,730
TOTAL $ 6,129,660 $ 6,981,992
<FN>
See notes to financial statements.
</FN>
</TABLE>
-2-
<PAGE>
GARDEN LIFE PLAN, LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
As Restated
(See Note 6)
<S> <C> <C>
REVENUE:
Income from pre-need funeral plan sales $ 474,180 $ 657,525
Less provision for cancellations (34,607) (40,311)
Total revenue 439,573 617,214
SELLING AND ADMINISTRATIVE EXPENSES:
Selling 180,602 296,219
Administrative 390,537 405,324
Total selling and administrative expenses 571,139 701,543
OPERATING LOSS (131,566) (84,329)
OTHER INCOME - Trust fund income (Note 2) 1,508,657 2,136,577
INCOME BEFORE INCOME TAXES 1,377,091 2,052,248
INCOME TAXES (Note 4):
Current 690,000 550,000
Deferred (193,778) 218,801
Total income taxes 496,222 768,801
NET INCOME 880,869 1,283,447
DIVIDENDS (1,500,000)
RETAINED EARNINGS, BEGINNING OF YEAR
As previously reported 3,206,730 3,095,012
Prior period adjustment to deferred
income taxes (Note 6) 815,000 815,000
Prior period adjustment to reflect other
comprehensive income (Note 6) (723,292) (395,021)
As restated 3,298,438 3,514,991
RETAINED EARNINGS, END OF YEAR $ 4,179,307 $ 3,298,438
<FN>
See notes to financial statements
</FN>
</TABLE>
-3-
<PAGE>
GARDEN LIFE PLAN, LTD.
STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
As Restated
(See Note 6)
<S> <C> <C>
NET INCOME $ 880,869 $ 1,283,447
OTHER COMPREHENSIVE INCOME:
Trust income - unrealized gain on investments 75,732 529,470
Deferred income taxes related to other
comprehensive income (28,778) (201,199)
46,954 328,271
COMPREHENSIVE INCOME $ 927,823 $ 1,611,718
<FN>
See notes to financial statements
</FN>
</TABLE>
STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
As Restated
(See Note 6)
<S> <C> <C>
BALANCE, BEGINNING OF YEAR:
As previously reported $ - $ -
Prior period adjustment to reflect other
comprehensive income (Note 6) 723,292 $ 395,021
As restated 723,292 395,021
OTHER COMPREHENSIVE INCOME FOR THE YEAR 46,954 328,271
BALANCE, END OF YEAR $ 770,246 $ 723,292
<FN>
See notes to financial statements
</FN>
</TABLE>
-4-
<PAGE>
GARDEN LIFE PLAN, LTD.
STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
As restated
(See Note 6)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 880,869 $ 1,283,447
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Trust fund income (975,716) (52,547)
Deferred income taxes (193,778) 218,801
Depreciation 17,346 19,908
Changes in assets and liabilities:
Accounts and contracts receivable - net 118,648 329,263
Accounts payable and accrued liabilities 18,040 (30,950)
Due to trust fund (154,629) (36,479)
Outstanding funeral service coupons (2,226)
Income taxes receivable/payable 65,705 (6,000)
Net cash provided by (used in)
operating activities (223,515) 1,723,217
INVESTING ACTIVITY - Equipment purchases (5,571) (15,115)
FINANCING ACTIVITY - Payment of dividends (1,500,000)
NET INCREASE (DECREASE) IN CASH (1,729,086) 1,708,102
CASH, BEGINNING OF YEAR 2,516,852 808,750
CASH, END OF YEAR $ 787,766 $ 2,516,852
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for income taxes (net of refunds
of $26,988 in 1999) $ 626,150 $ 556,000
Trust fund income - unrealized gain
on investments 75,732 529,470
Interest paid 16,465 -
Dividends declared but unpaid as of year end - 1,500,000
<FN>
See notes to financial statements
</FN>
</TABLE>
-5-
<PAGE>
GARDEN LIFE PLAN, LTD.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Garden Life Plan, Ltd. (the "Company")
is owned by Hawaiian Memorial Park Cemetery ("HMPC")
and Hosoi Garden Mortuary, Inc. ("Hosoi"). Each
company owns 50% of Garden Life Plan, Ltd.
BUSINESS - The Company is a sales organization that
sells pre-need mortuary services. Approximately 25%
of each sales contract is paid in cash and the
remainder is paid under an installment contract over
varying terms which are generally 60 months. The
first 30% of each contract is earned and recorded as
revenue by the Company. This amount is used to cover
the Company's initial "acquisition costs" (i.e.,
sales commissions and administrative costs) and is
not refundable to customers under the terms of the
contract. The remaining 70% is collected by the
Company and paid to Garden Life Funeral Plan Trust
(Trust), a trust administered by Pacific Century
Trust. The Trust assets are invested primarily in
available-for-sale securities.
If a contract owner dies before the contract is
fully paid, his or her estate must pay the balance
of the contract.
When a contract owner dies, the Trust pays the
mortuary service provider (primarily Hosoi) for the
contracted services at prices stipulated in the
original contract (70% of the contract price). Such
payments are made from Trust principal. The service
provider absorbs any difference between the actual
costs to perform the contracted services and the
amounts received from the Trust under the terms of
the contract.
To ensure that funds will be available when the
funeral services are performed, the market value of
the Trust assets must be equal to or greater than
the prospective obligation of the Trust.
TRUST FUND INCOME - Trust assets in excess of the
required Trust principal are redeemable by the
Company. Realized gains and losses on
available-for-sale securities held by the Trust are
recognized as Trust fund income or loss in the
statement of income. Unrealized gains and losses
on available-for-sale securities held by the Trust
are included, net of deferred income taxes, in other
comprehensive income.
COMPREHENSIVE INCOME - In fiscal year 1999, the
Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and
its components; however, the adoption of this
statement had no effect on the Company's financial
position. The statement requires unrealized gains
or losses on available-for-sale securities to be
included in other comprehensive income. Prior
year's financial statements have been reclassified
to conform to these requirements.
REVENUE RECOGNITION - Revenue from pre-need funeral
plan sales is recognized at the date of the sale
of the contract.
CERTIFICATE OF DEPOSIT - RESTRICTED - The certificate
of deposit is held by the State of Hawaii as
collateral for insurance purposes, as an
alternative to the Company obtaining a surety bond.
-6-
<PAGE>
EQUIPMENT - Equipment consists primarily of computer
equipment and software. Depreciation is calculated
on the straight-line method over the estimated
useful lives of the assets.
INCOME TAXES - Income tax expense includes federal
and Hawaii income taxes. Deferred income taxes are
provided for significant temporary differences
between the financial statement and income tax bases
of assets and liabilities.
ALLOCATION OF EXPENSES - HMPC charges the Company a
management fee to cover allocated facilities and
personnel costs.
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 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. THE TRUST
As the Company collects on its pre-need funeral
plan sales, it is obligated to pay amounts
collected in excess of the first 30% of the original
contract price to the Trust. Information relating
to Trust investments, contractual obligations, and
earnings at May 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
Market Market
INVESTMENTS Cost Value Cost Value
<S> <C> <C> <C> <C>
Available -for-sale
securities:
MAS Pooled Trust -
Income Fund $ 2,737,142 $ 2,618,147 $ 2,276,400 $ 2,276,337
Dodge Fixed & Cox
Stock Fund 1,748,340 1,950,089 1,517,600 1,677,374
Vanguard/Windsor Fund 1,699,53 1,946,059 1,517,600 1,780,706
JP Morgan Institutional
Bond Fund 1,967,444 1,886,069 1,669,300 1,659,219
Pacific Capital Growth
& Income Fund 1,621,363 1,878,282 1,517,600 1,675,650
Pacific Capital Growth
Stock Fund 1,663,441 1,867,334 1,517,600 1,695,996
Vanguard Fixed Income
Security Fund
Intermediate Term US
Treasury Portfolio 1,894,485 1,849,813 1,669,300 1,648,418
Foreign Equity Fund 1,585,408 1,811,660 1,517,600 1,763,181
Putnam Voyager Fund 840,345 1,034,847 758,800 854,644
AIM Constellation Fund 795,783 958,436 758,800 855,675
Total available-for-
sale securities 16,553,404 17,795,736 14,720,600 15,887,200
Cash 1,363,887 1,363,887 841,360 841,360
Total Trust net assets $17,917,291 19,159,623 $15,561,960 16,728,560
Contractual obligation (14,072,606) (12,692,991)
Trust assets in excess of
required Trust principal $ 5,087,017 $ 4,035,569
</TABLE>
-7-
<PAGE>
The average rate of earnings (including unrealized
gains and losses) on Trust assets approximated 9%
and 17% for the years ended May 31, 1999 and 1998,
respectively.
The State of Hawaii requires that an annual
actuarial study be performed on the Trust to
determine if Trust principal along with anticipated
future net earnings are sufficient to meet the
future liability to contract owners. Results of the
study performed as of May 31, 1998 indicate that the
value of the fund exceeds the present value of
future claims. The actuarial study as of May 31,
1999 is not yet available. However, it is
management's opinion that the value of the fund at
May 31, 1999 is sufficient to meet the future
obligation to contract owners.
3. RELATED PARTY TRANSACTIONS
Hosoi is the primary servicing mortuary. Payments
made for services rendered on contracts are made
directly to Hosoi by the Trust and are not
reflected in these financial statements.
The management fee paid to HMPC was $174,000 for
the years ended May 31, 1999 and 1998.
4. INCOME TAXES
A reconciliation between the income tax provision
and the amount computed using the statutory federal
rate of 34% follows:
<TABLE>
<CAPTION>
1998 1997
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Federal provision at statutory $468,211 34.0% $697,764 34.0%
Adjusted for:
State income taxes (27,087) (2.0) (24,141) (1.2)
Dividend received deduction (55,765) (4.0) (17,938) (0.9)
Other 31,194 2.2 42,113 2.1
Provision for federal taxes 416,553 30.2 697,798 34.0
Provision for state taxes 79,669 5.8 71,003 3.5
Total income tax provision $496,222 36.0% $768,801 37.5%
</TABLE>
The temporary differences which gave rise to
significant portions of deferred taxes at May 31,
1999 and 1998 relate to reserve for cancellations,
timing differences between book and tax recognition
of trust income, depreciation, and funeral service
coupons.
The deferred tax assets and liabilities at May 31,
1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
As Restated
(See Note 6)
<S> <C> <C>
Deferred tax assets $ 87,807 $ 76,991
Deferred tax liabilities (817,807) (971,991)
Net $ (730,000) $ (895,000)
</TABLE>
-8-
<PAGE>
5. COMPENSATION OF CHARTER MEMBERS
In October 1995, the Company's Board of Directors
moved to compensate its charter members for
relinquishing their status as charter members with
a final distribution consisting of an option to
receive either $250 in cash or a $500 coupon for
future funeral services. Charter members were the
original customers of the Company, who had received
payments from the Company in prior years at the
discretion of the Board of Directors. The option
expired February 29, 1996, at which time all charter
members who had not exercised the $250 cash option
were mailed the $500 coupon for future funeral
services. The Company will pay the servicing
mortuary for such services upon the death of the
charter member and the receipt of the issued coupon.
In fiscal 1996, the Company accrued $210,500 for
the estimated future cost of these services and, at
May 31, 1999, the accrual for the unredeemed
coupons approximated $112,500.
6. RESTATEMENT OF DEFERRED INCOME TAXES
Subsequent to the issuance of the Company's fiscal
1998 financial statements, management determined
that the amount of deferred taxes provided on the
Company's adjustment in fiscal 1996 related to the
Trust's recording of its investment assets at fair
value (instead of cost) was inaccurate. As a
result, retained earnings as of June 1, 1997 have
been restated from the amount previously reported
to correct the deferred tax liability as of that
date. The effect of the restatement was to reduce
the deferred tax liability and to increase retained
earnings by $815,000 as of June 1, 1997.
Management also noted that the unrealized gains and
losses on the Trust's available-for-sale securities
should have been recorded as a component of
stockholders' equity and not as trust fund income
on the statements of income. As a result, retained
earnings as of June 1, 1997 have been restated from
the amount previously reported to correct the
unrealized gain on investments as of that date.
The effect of the restatement was to record
comprehensive income and to decrease retained
earnings by $395,021 as of June 1, 1997.
The following table summarizes the effects of the
above restatements by major financial statement
line item affected:
<TABLE>
<CAPTION>
1998
As Previously
Reported As Restated
<S> <C> <C>
At May 31:
Deferred income taxes (liability) $ 1,710,000 $ 895,000
Accumulated other comprehensive income 723,292
Retained earnings 3,206,730 3,298,438
For the year ended May 31:
Trust fund income 2,666,047 2,136,577
Deferred income taxes 420,000 218,801
</TABLE>
******
-9-
<PAGE>
GARDEN LIFE PLAN, LTD.
SUPPLEMENTAL SCHEDULES OF SELLING EXPENSES
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Commissions and bonuses $ 162,623 $ 272,385
Payroll taxes 15,475 21,255
Travel and entertainment 1,459 1,033
Insurance 1,045 1,546
TOTAL $ 180,602 $ 296,219
</TABLE>
SUPPLEMENTAL SCHEDULES OF ADMINISTRATIVE EXPENSES
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Management fee $ 174,000 $ 174,000
Professional services 76,798 80,577
Directors' fees 36,000 39,000
Salaries and wages 25,200 25,200
General excise taxes 22,273 53,439
Depreciation 17,346 19,908
Supplies 16,898 6,391
Interest 16,465
Payroll taxes 2,383 2,532
Miscellaneous 3,174 4,277
TOTAL $ 390,537 $ 405,324
</TABLE>
-10-
<PAGE>
GARDEN LIFE FUNERAL PLAN TRUST
Statements of Assets and Trust Equity (Modified Cash
Basis) as of May 31, 1999 and 1998, Supplemental
Schedule (Modified Cash Basis) for the Year
Ended May 31, 1999 and Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
Garden Life Funeral Plan Trust:
We have audited the accompanying statements of assets
and trust equity (modified cash basis) of Garden Life
Funeral Plan Trust as of May 31, 1999 and 1998.
These financial statements are the responsibility of
the Trust's management. Our responsibility is to
express an opinion on these financial statements based
on our audits.
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 provide a reasonable basis for our opinion.
As described in Note 1, these financial statements
were prepared on a modified cash basis of
accounting, which is a comprehensive basis of
accounting other than generally accepted accounting
principles.
In our opinion, such financial statements present
fairly, in all material respects, the assets and trust
equity of Garden Life Funeral Plan Trust as of May 31,
1999 and 1998, on the basis of accounting described in
Note 1.
Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a
whole. The supplemental schedule of trust fund
deposits and withdrawals (modified cash basis) for
the year ended May 31, 1999 is presented for the
purpose of additional analysis and is not a
required part of the basic financial statements.
The schedule is the responsibility of the Trust's
management. Such supplemental schedule has been
subjected to the auditing procedures applied in our
audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects
when considered in relation to the basic financial
statements taken as a whole.
July 22, 1999
<PAGE>
<TABLE>
STATEMENTS OF ASSETS AND TRUST EQUITY (MODIFIED CASH
BASIS) MAY 31, 1999 AND 1998
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
INVESTMENTS, AT MARKET (Note 1):
MAS Pooled Trust-Fixed Income Fund
(cost of $2,737,142 and $ 2,276,400) $ 2,618,147 $ 2,276,337
Dodge & Cox Stock Fund (cost of $1,748,340
and $1,517,600) 1,950,089 1,677,374
Vanguard/Windsor Fund (cost of $1,699,653
and $1,517,600) 1,946,059 1,780,706
JP Morgan Institutional Bond Fund
(cost of $1,967,444 and $1,669,300) 1,886,069 1,659,219
Pacific Capital Growth & Income Fund
(cost of $1,621,363 and $1,517,600) 1,873,282 1,675,650
Pacific Capital Growth Stock Fund
(cost of $1,663,441 and $1,517,600) 1,867,334 1,695,996
Vanguard Fixed Income Security Fund
Intermediate Term US Treasury Portfolio
(cost of $1,894,485 and $1,669,300) 1,849,813 1,648,418
Foreign Equity Fund (cost of $1,585,408
and $1,517,600) 1,811,660 1,763,181
Putnam Voyager Fund (cost of $840,345 and
$758,800) 1,034,847 854,644
AIM Constellation Fund (cost of $795,783
and $758,800) 958,436 855,675
CASH INVESTMENTS (Note 1) 1,363,887 841,360
TOTAL ASSETS $19,159,623 $16,728,560
TRUST EQUITY (Note 2) $19,159,623 $16,728,560
<FN>
See notes to financial statements.
</FN>
</TABLE>
-2-
<PAGE>
GARDEN LIFE FUNERAL PLAN TRUST
NOTES TO FINANCIAL STATEMENTS (MODIFIED CASH BASIS)
MAY 31, 1999 AND 1998
1. SUMMARY OF BUSINESS AND ACCOUNTING POLICIES
Garden Life Funeral Plan Trust (the "Trust") was
established by Garden Life Plan, Ltd., with Pacific
Century Trust, as trustee, to comply with Chapter 441
of the Hawaii Revised Statutes which requires every
pre-need funeral licensee (Garden Life Plan, Limited,
the "Licensee") to set up and maintain one or more
trusts to hold, administer, invest, and distribute
pre-need funeral service funds. Such funds are
held in trust for the contract owner or "trustor" to
pay for his or her contracted funeral services upon
death.
The Trust comprises two separate trusts - one for
contracts written prior to 1988 (the "Pre-1988 Trust")
and one for contracts written thereafter (the
"Post-1988 Trust"). The financial information for the
Pre-1988 Trust and the Post-1988 Trust has been
combined for this financial statement presentation.
BASIS OF ACCOUNTING - The statement of assets and trust
equity is prepared on the cash basis, except that
investment funds are stated at market values, which
have been determined by Pacific Century Trust, based on
the closing market prices of the underlying portfolio
of funds at year end. Certain revenue and the related
assets are recognized when received rather than when
earned, and certain expenses are recognized when paid
rather than when the obligation is incurred.
Accordingly, the accompanying financial statements
are not intended to present financial position in
conformity with generally accepted accounting
principles.
OPERATION OF TRUST - The Licensee, after recovery of
30% of the contract price for pre-need funeral
services, is required to deposit all subsequent
contract receipts in the Trust. The income from
investments of the Trust is to be distributed to the
Licensee. The principal amount deposited should not be
diminished or withdrawn except in payment of the funeral
services contracted for or unless reclaimed by the
trustor if the contract is canceled.
INVESTMENTS - Investments consist of marketable equity
securities and are classified as available-for-sale
securities.
CASH INVESTMENTS - Cash investments represent cash
deposited in the trustee's cash management funds.
INCOME TAXES - Investment income, net of Trust
expenses, is to be distributed to the Licensee. In the
case of the Pre-1988 Trust, income tax attributes
related to trust income and expenses are reported
to the Licensee for inclusion in the Licensee's income
tax returns. In the case of the Post-1988 Trust, the
Trust has elected to be treated as a Qualified Funeral
Trust (QFT). The QFT reports the Trust income and
expenses in its tax returns and pays the related taxes
(as an expense of the Trust). The remainder is
distributed to the Licensee and is recognized as
service income on the Licensee's income tax returns.
-3-
<PAGE>
2. TRUST EQUITY
At May 31, 1999 and 1998, the Trust equity consisted
of:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Income from the Trust to be distributed to
the Licensee in the future $ 5,087,017 $ 4,035,569
Cumulative deposits - net of withdrawals for
funeral services and cancellations 14,072,606 12,692,991
$19,159,623 $16,728,560
</TABLE>
******
-4-
<PAGE>
GARDEN LIFE FUNERAL PLAN TRUST
SUPPLEMENTAL SCHEDULE OF TRUST FUND DEPOSITS AND
WITHDRAWALS (MODIFIED CASH BASIS)
YEAR ENDED MAY 31, 1999
The following is a summary of the principal deposits
to the Trust and withdrawals from the Trust for the
year ended May 31, 1999:
<TABLE>
<S> <C>
Cumulative deposits at beginning of year - net of
withdrawals for funeral services and cancellations $ 12,692,991
Principal deposits received for the year 2,005,068
Less withdrawals for funeral services and
cancellations for the year (625,453)
Cumulative deposits at end of year - net of
withdrawals funeral services and cancellations $ 14,072,606
</TABLE>
The following is a summary of principal amounts
received by the Licensee and principal deposits made to
the Trust for the year ended May 31, 1999. The amounts
reflected for principal receipts by the Licensee
represent the sales price of contracts sold reduced by
the first 30% of such sales prices which is retained by
the Licensee.
<TABLE>
<CAPTION>
Principal
Deposits
Principal to Trust
Receipts by (As recorded
the Licensee by Trust
<S> <C> <C>
June 1998 $ 155,994 $ 149,488
July 168,420 146,737
August 137,156 155,994
September 144,357 305,576
October 139,995
November 135,068 284,352
December 147,823 135,068
January 1998 171,826
February 154,146 319,649
March 179,856 154,146
April 174,202 179,856
May 141,596 174,202
Total $ 1,850,439 $ 2,005,068
<FN>
The principal due the Trust at May 31, 1999 of $141,596
was subsequently paid to the Trust by the Licensee.
</FN>
</TABLE>
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the balance sheets and the
statements of income filed as part of the annual report
on Form 10-KSB and is qualified in its entirety by
reference to such annual report on Form 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 928,162
<SECURITIES> 847,718
<RECEIVABLES> 384,163
<ALLOWANCES> 62,710
<INVENTORY> 143,974
<CURRENT-ASSETS> 2,363,143
<PP&E> 1,506,092
<DEPRECIATION> 64,053
<TOTAL-ASSETS> 6,973,902
<CURRENT-LIABILITIES> 391,687
<BONDS> 0
0
0
<COMMON> 437,428
<OTHER-SE> 5,975,344
<TOTAL-LIABILITY-AND-EQUITY> 6,973,902
<SALES> 2,747,301
<TOTAL-REVENUES> 2,747,301
<CGS> 2,053,315
<TOTAL-COSTS> 2,053,315
<OTHER-EXPENSES> 660,126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,643
<INCOME-PRETAX> 211,005
<INCOME-TAX> 91,554
<INCOME-CONTINUING> 119,451
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 524,686
<EPS-BASIC> .30
<EPS-DILUTED> .30
</TABLE>
