UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-2288
(Unaudited)
HOSOI GARDEN MORTUARY, INC.
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(Exact name of small business issuer as specified in its charter)
State of Hawaii No. 99-0088064
-------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 North Kukui Street
(Corner of Nuuanu Avenue
and Kukui Street)
Honolulu, Hawaii 96817
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (808) 538-3877
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
1,655,986 shares of Common Stock
Outstanding at August 31, 2000
<PAGE> 1
HOSOI GARDEN MORTUARY, INC.
_ _ _ _ _ _ _ _ _ _ _ _ _ _
[CAPTION]
CONTENTS
_ _ _ _
[S] [C]
Pages
-----
Report of Independent Public Accountant 1
PART I - Financial Information
Item 1. Financial Statements
Balance Sheet 2
Statements of Income and Comprehensive Income 3
Statements of Cash Flows 4
Notes 5 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - Other Information
Item 6. Exhibits and Reports on Form 8 - K 10
SIGNATURES 11
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
To the Board of Directors
Hosoi Garden Mortuary, Inc.
We have reviewed the accompanying balance sheet of
HOSOI GARDEN MORTUARY, INC.
as of August 31, 2000, and the related statements of income and comprehensive
income and cash flows for the three months ended August 31, 2000 and 1999, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of
the management of Hosoi Garden Mortuary, Inc.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of person responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express an opinion.
Based on our review, we are not aware of any material modifications, except
for the recognition of Equity in Earnings of Garden Life Plan, Ltd. As
discussed in Note (4) to the financial statements, that should be made to the
accompanying financial statements in order for them to be in conformity with
generally accepted accounting principles.
October 14, 2000
/S/ ENDO & COMPANY
Honolulu, Hawaii
1
<PAGE> 3
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEET
(Unaudited)
_ _ _ _ _ _ _
August 31, 2000
[CAPTION]
A S S E T S
[S] [C]
CURRENT ASSETS
Cash and cash equivalents (Note 2) $1,019,764
Securities available-for-sale, at market (Note 3) 943,203
Accounts receivable, less allowance for doubtful
accounts of $74,610 227,163
Inventories 201,393
Prepaid expenses and others 82,789
Deferred income taxes (Note 6) 37,631
----------
TOTAL CURRENT ASSETS 2,511,943
----------
INVESTMENTS
Garden Life Plan, Ltd. (Note 4) 2,090,156
Woolsey-Hosoi Mortuary Services, LLC (Note 5) 25,718
Cemetery plots 1,350
Securities held-to-maturity, at cost (Note 3) 896,569
----------
3,013,793
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation 1,453,664
OTHER ASSETS 115,762
----------
TOTAL ASSETS $7,095,162
==========
[CAPTION]
L I A B I L I T I E S
[S] [C]
CURRENT LIABILITIES
Accounts payable $ 283,206
Accrued liabilities 166,967
Income tax payable 3,857
-----------
TOTAL CURRENT LIABILITIES 454,030
DEFERRED INCOME TAXES (Note 6) 171,983
[CAPTION]
S T O C K H O L D E R S' E Q U I T Y
[S] [C]
CAPITAL CONTRIBUTED (Note 10)
Common stock, par value $.20 per share;
authorized 3,625,000 shares, issued 2,187,140 shares 437,428
Less 307,369 reacquired shares (61,694)
-----------
TOTAL CAPITAL CONTRIBUTED 375,734
RETAINED EARNINGS 6,086,121
ACCUMULATED OTHER COMPREHENSIVE INCOME,
net of deferred income taxes (Note 3 and 9) 88,576
TREASURY STOCK, 223,785 shares, at cost (Note 10) (81,282)
------------
TOTAL STOCKHOLDERS' EQUITY 6,469,149
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,095,162
============
[FN]
See the accompanying Notes to Financial Statements
2
<PAGE> 4
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Three Months Ended August 31, 2000 and 1999
[CAPTION]
1999 (As
2000 Restated
---------- ----------
[S] [C] [C]
NET SALES AND SERVICES $ 716,869 $ 686,513
COST OF SALES AND SERVICES 442,562 491,173
---------- ----------
GROSS PROFIT 274,307 195,340
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 187,335 186,330
---------- ----------
OPERATING INCOME 86,972 9,010
OTHER INCOME (EXPENSE)
Parking, dividends, interest and
miscellaneous income 67,800 43,496
---------- ----------
INCOME BEFORE INCOME TAXES AND EQUITY
IN EARNINGS OF GARDEN LIFE PLAN, LTD. 154,772 52,506
INCOME TAXES (Note 7) 56,471 17,730
---------- ----------
INCOME BEFORE EQUITY IN EARNINGS
OF GARDEN LIFE PLAN, LTD. 98,301 34,776
EQUITY IN EARNINGS OF GARDEN LIFE PLAN, LTD.,
net of deferred income taxes (Note 4) - -
---------- ----------
NET INCOME 98,301 34,776
OTHER COMPREHENSIVE INCOME, net of income taxes
Net unrealized gains on available-for-sale
securities 17,670 22,927
---------- ----------
COMPREHENSIVE INCOME $ 115,971 $ 57,703
========== ==========
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
(Note 8) 1,657,444 1,673,166
========== ==========
EARNINGS PER COMMON SHARE (Note 8) $ .07 $ .03
========== ==========
[FN]
See the accompanying Notes to Financial Statements
3
<PAGE> 5
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
_ _ _ _ _ _ _ _ _ _ _ _ _
Three Months Ended August 31, 2000 and 1999
[CAPTION]
2000 1999
--------- ----------
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 98,301 $ 43,440
Adjustments to reconcile net income to net cash
provided by operations
Depreciation 16,835 16,835
Gain on sale of securities (20,547) (12,940)
Undistributed earnings of affiliate - (9,416)
Increase in allowance for doubtful accounts 7,500 (8,375)
Deferred income taxes (2,849) (2,428)
Increase in cash value of life insurance policies (1,369) (208)
(Increase) decrease in certain assets
Accounts receivable 65,843 59,209
Income tax receivable 50,956 8,074
Inventories 22,281 (28,467)
Prepaid expenses and others (24,436) (28,557)
(Decrease) increase in certain liabilities
Accounts payable (2,445) 21,194
Accrued liabilities 18,188 26,813
Income taxes payable 3,857 5,672
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 232,115 90,846
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,432) (9,728)
Increase in securities (876,726) (65,381)
Proceeds from sale of securities 854,420 55,739
Payment of premiums on life insurance policies (1,406) (1,405)
Distribution-investment in LLC - 7,500
----------- ---------
NET CASH USED IN INVESTING ACTIVITIES (27,144) (13,275)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES - Shares
reacquired (14,025) (12,856)
----------- ---------
NET INCREASE IN CASH 190,946 64,715
CASH, beginning of period 828,818 928,162
----------- ---------
CASH, end of period $1,019,764 $ 992,877
=========== =========
[FN]
See the accompanying Notes to Financial Statements
4
<PAGE> 6
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1999 and 1998
(1) Basis of presentation
---------------------
Use of estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Reclassification - Certain amounts in 1999 have been reclassified to conform
with the 2000 presentation.
(2) Cash and cash equivalents
-------------------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
(3) Investment securities
---------------------
At August 31, 2000, the Company held investments in the following types
of securities:
[CAPTION]
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ---------
[S] [C] [C] [C] [C]
Available-for-sale
Equity securities $ 127,013 $ 19,102 $ 15,795 $ 130,320
Mutual funds 673,387 144,512 5,016 812,883
---------- ---------- ---------- ----------
800,400 163,614 20,811 943,203
Held-to-maturity
U.S. Treasury bills 896,569 9 1,980 894,598
---------- ---------- ---------- ----------
Total $1,696,969 $ 163,623 $ 22,791 $1,837,801
========== =========== ========== ==========
The maturities for all debt securities held at August 31, 2000 were:
[CAPTION]
Available-for-Sale Held-to-Maturity
---------------------- ---------------------
Amortized Market Amortized Market
Cost Value Cost Value
---------- ------- --------- ----------
[S] [C] [C] [C] [C]
Within 1 year $ - $ - $ 809,212 $ 808,973
After 1 year
through 5 years - - 53,475 52,409
After 5 years - - 33,882 33,216
--------- ------- --------- ----------
$ - $ - $ 896,569 $ 894,598
========= ======= ========= ==========
[FN]
(Unaudited)
5
<PAGE> 7
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 2000 and 1999
(3) Investment securities (continued)
---------------------
The Company sold available-for-sale and held-to-maturity securities for
$854,420 and $55,739 in 2000 and 1999, respectively. The net realized gain
of $20,547 and $12,940 in 2000 and 1999, respectively, is reflected in
earnings. The cost of the securities sold was based on the cost of all the
shares of each such security held at the time of sale.
The unrealized holding gains on investment securities available-for-sale
as of August 31, 2000, and reported as a separate component of Stockholders'
Equity are as follows:
[S] [C]
Unrealized holding gains, net of losses $ 142,803
Deferred income tax on net unrealized
holding gains (54,227)
----------
$ 88,576
==========
(4) Garden Life Plan, Ltd.
----------------------
Investment in Garden Life Plan, Ltd. (GLP) represents the Company's 50%
share, in the underlying equity in the net assets, accounted for under the
equity method of accounting for investments in common stock, of Garden Life
Plan, Ltd., a Hawaii corporation engaged in the sales of pre-need funeral
plans which are serviced solely by the Company.
All payments received from the sale of pre-need funeral plans up to an amount
equal to 30% of the total price plus any sales tax or other charges are
retained by GLP as its compensation. The balance is deposited in trust funds
at Pacific Century Trust. GLP is entitled to all earnings from funds held in
trust.
Earnings of GLP is not reflected in these financial statements because the
audits of GLP's financial statements for the years ended May 31, 2000 and 1999
have not been completed. GLP's successor auditors are in the process of
auditing GLP's financial statements as of and for the year ended May 31, 1999
and will thereafter audit GLP's financial statements as of and for the year
ended May 31, 2000.
Until the completion of the audit of GLP's financial statements for 2000 and
1999, interim earnings of GLP will not be reported because of unresolved
issues regarding GLP's revenue recognition policies.
[FN]
(Unaudited)
6
<PAGE> 8
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 2000 and 1999
(5) Woolsey-Hosoi Services, LLC
---------------------------
On July 7, 1998, the Company in partnership with Woolsey Funeral & Cemetery
Services, Inc. formed Woolsey-Hosoi Mortuary Services, LLC (Woolsey-Hosoi), a
limited liability company, to provide funeral services to market sectors not
previously serviced by the Company. The Company's initial capital
contribution to Woolsey-Hosoi was $15,000.
The Company provides Woolsey-Hosoi with embalming services, assistance with
funeral arrangements and facilities use and related charges. The revenues
from these services provided to Woolsey-Hosoi is reflected in Net sales and
services which amounted to $8,026 or 1.1% and $2,250 or .3% of Net sales and
services in 2000 and 1999, respectively.
(6) Deferred income taxes
---------------------
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statements and income tax purposes. The deferred
assets and liabilities represent the future tax consequences of those
differences, which will be either taxable or deductible when the assets and
liabilities are recovered or settled. The deferred tax liability results from
the recognition of unrealized gains, net of losses, on securities for
financial statement purposes and recognition of gains or losses when
securities are sold for income tax purposes, and the equity method of
accounting for the investment in subsidiary as explained under Garden Life
Plan, Ltd. above. Under the equity method the Company's share of earnings of
the subsidiary is reported for tax purposes only when distributions of
earnings are received as dividends. At August 31, 2000 the Company's retained
earnings included approximately $2,090,156 of undistributed earnings of Garden
Life Plan, Ltd.
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.
(7) Income taxes
------------
The provision for income taxes consists of the following:
[CAPTION]
2000 1999
--------- ---------
[S] [C] [C]
Federal:
Current $ 51,672 $ 18,228
Deferred (2,397) (2,676)
--------- ----------
49,275 15,552
--------- ---------
[FN]
(Unaudited)
7
<PAGE> 9
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 2000 and 1999
(7) Income taxes (continued)
------------
[CAPTION]
2000 1999
-------- --------
[S] [C] [C]
State:
Current 7,648 2,682
Deferred (452) (504)
--------- --------
7,196 2,178
--------- --------
Total $ 56,471 $ 17,730
========= ========
(8) Earnings per share
------------------
Earnings per common share has been computed on the basis of a weighted average
of shares outstanding of 1,657,444 for 2000 and 1,673,166 for 1999.
(9) Comprehensive income
--------------------
In the year ended May 31, 1999, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, which requires
that unrealized gains and losses on available-for-sale securities be included
in other comprehensive income.
(10) Reacquired shares
-----------------
Capital contributed has been reduced for shares reacquired after June 30,
1987. Payments for shares in excess of the par value of each share acquired
has been charged to additional paid-in capital.
The 223,785 shares reflected as Treasury Stock as of August 31, 2000 and
1999, reflects shares acquired before July 1, 1987.
(11) Prior period adjustment
-----------------------
Subsequent to the issuance of the Company's 1999 financial statements, it was
determined that the amount of income taxes provided in the financial
statements was understated. As a result additional income taxes of $20,943
has been charged to retained earnings in the current year.
[FN]
(Unaudited)
8
<PAGE> 10
HOSOI GARDEN MORTUARY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Changes in financial condition
------------------------------
There have been no material adverse changes in financial condition from the
end of the preceding fiscal year to the end of the current quarter ended
August 31, 2000.
The working capital and working capital ratio at August 31, 2000 reflected
strong liquidity as follows:
[S] [C]
Working capital $ 2,057,913
Working capital ratio 5.5:1
Changes in results of operations
--------------------------------
Net Sales and Services - Net sales and services in 2000 increased by 4.4% from
1999. The increase resulted principally from a price restructuring for
professional services and merchandise sales.
Cost of Sales and Services - Cost of sales and services as a percent of net
sales decreased to 61.7% in 2000 from 71.5% in 1999. The decrease is due to a
decrease in rent, cost of merchandise, and real property taxes.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses, as a percent of net sales, remained relatively stable
at 26.1% in 2000 from 27.1% in 1999. The slight decrease is the result of
decreases in professional fees, and salaries and wages.
Income Taxes - The effective income tax rate is 36.5% for 2000 and 33.8% for
1999.
Other Income (Expense) - Other income as a percent of net sales and services
increased to 9.5% in 2000 from 6.3% in 1999. The increase resulted primarily
from an increase in gains on sale of securities and an increase in interest
income.
[FN]
9
<PAGE> 11
HOSOI GARDEN MORTUARY, INC.
PART II - OTHER INFORMATION
_ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 2000 and 1999
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(b) Reports on Form 8-K
(i) The Company filed a Current Report on Form 8-K dated May 10, 2000 on
September 25, 2000 reporting a change in auditors of Garden Life
Plan, Ltd., the Company's 50% owned subsidiary.
(ii) The Company filed an Amended Current Report on Form 8-K dated May 10,
2000 on October 6, 2000 reporting a change in auditors of Garden
Life Plan, Ltd., the Company's 50% owned subsidiary.
[FN]
10
<PAGE> 12
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The information furnished reflects all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the interim
periods.
HOSOI GARDEN MORTUARY, INC.
(Small business issuer)
Date October 16, 2000 /S/ Clifford Hosoi
Clifford Hosoi, President
Date October 16, 2000 /S/ Keith Numazu
Keith Numazu, Treasurer
[FN]
11
<PAGE> 13
