UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
| [ X ] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the Quarterly period ended: November 30, 2001 | ||
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period__________________to________________________ | ||
Commission file number: 0-2288 | ||
| (Unaudited) | ||
| HOSOI GARDEN MORTUARY, INC. | ||
| (Exact name of small business issuer as specified in its charter) | ||
| State of Hawaii | No. 99-0088064 | |
| (State or other jurisdiction of incorporation or organization) | I.R.S. Employer Identification No.) | |
| 30 North Kukui Street (Corner of Nuuanu Avenue and Kukui Street, Honolulu, Hawaii) | 96817 | |
| (Address of principal executive office) | (Zip Code) | |
| Issuer's telephone number, including area code: (808) 537 -3877 | ||
| N/A | ||
| (Former name, former address and former fiscal year, if changed since last report) | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
Yes __X___ No _______
1,625,916 shares of Common Stock
Outstanding at November 30, 2001
HOSOI GARDEN MORTUARY, INC.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
CONTENTS
_ _ _ _ _ _ _
| Pages | |||
| DISCLAIMER OF OPINION | 1 | ||
| Item 1. Financial Statements | |||
| Balance Sheet | 2 | ||
| Statements of Income and Comprehensive Income | 3 | ||
| Statements of Cash Flows | 4 | ||
| Notes | 5 - 9 | ||
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||
| PART II - Other Information | 11 | ||
| SIGNATURES | 12 | ||
DISCLAIMER OF OPINION
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
To the Board of Directors
Hosoi Garden Mortuary, Inc.
The accompanying balance sheet of
HOSOI GARDEN MORTUARY, INC.
as of November 30, 2001, and the related statements of income and comprehensive income and cash flows for the six-months ended November 30, 2001 and 2000, were not audited by us and accordingly, we do not express an opinion on them.
January 7, 2002
/S/ ENDO & COMPANY
Honolulu, Hawaii
1
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEET
_ _ _ _ _ _ _ _ _ _ _
November 30, 2001
| A S S E T S | |||
| CURRENT ASSETS | |||
| Cash and cash equivalents (Note 2) | 1,581,137 | ||
| Securities available-for-sale, at market (Note 3) | 956,124 | ||
| Accounts receivable, less allowance for doubtful accounts of $74,765 | 274,255 | ||
| Inventories | 168,986 | ||
| Prepaid expenses and others | 46,790 | ||
| Deferred income taxes (Note 6) | 40,096 | ||
| TOTAL CURRENT ASSETS | 3,067,388 | ||
| INVESTMENTS | |||
| Woolsey-Hosoi Mortuary Services, LLC (Note 5) | 26,177 | ||
| Hosoi Life Plan, Ltd. (Note 5) | 206,082 | ||
| Cemetery plots | 1,350 | ||
| Securities held-to-maturity, at cost (Note 3) | 90,198 | ||
| 323,807 | |||
| PROPERTY AND EQUIPMENT, at cost, less accumulated depreciation | 1,406,955 | ||
| DEFERRED INCOME TAXES (Note 6) | 44,691 | ||
| OTHER ASSETS | 140,146 | ||
| TOTAL ASSETS | $4,983,005 | ||
| LI A B I L I T I E S | |||
| CURRENT LIABILITIES | |||
| Accounts payable | $273,596 | ||
| Accrued liabilities | 108,668 | ||
| Income tax payable | 43,504 | ||
| TOTAL CURRENT LIABILITIES | 425,768 | ||
| DEFERRED INCOME TAXES (Note 6) | 20,892 |
| DEFICIT IN EQUITY OF GARDEN LIFE PLAN, LTD. (Note 4) | 559,204 |
S T O C K H O L D E R S' E Q U I T Y | |||
| CAPITAL CONTRIBUTED (Note 7) | |||
| Common stock, par valve $.20 per share; authorized 3,625,000 shares, issued 2,187,140 shares | 437,428 | ||
| Less 337,439 reacquired shares | (67,708) | ||
| TOTAL CAPITAL CONTRIBUTED | 369,720 | ||
| RETAINED EARNINGS (Note 7) | 3,654,576 | ||
| ACCUMULATED OTHER COMPREHENSIVE INCOME, net of deferred income taxes (Note 3 and 9) | 34,127 | ||
| TREASURY STOCK, 223,785 shares, at cost (Note 7) | (81,282) | ||
| TOTAL STOCKHOLDERS' EQUITY | 3,977,141 | ||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $4,983,005 | ||
See the accompanying Notes to Financial Statements
(Unaudited)
2
HOSOI GARDEN MORTUARY, INC.
STATEMENT OF INCOME AND COMPREHENSIVE INCOME
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
| Three-Months Ended November 30, | Six-Months Ended November 30, | |||||
| 2001 | 2000 | 2001 | 2000 | |||
| NET SALES AND SERVICES | $650,628 | $586,766 | $1,413,500 | $1,303,635 | ||
| COST OF SALES AND SERVICES | 395,709 | 401,313 | 866,252 | 843,875 | ||
| GROSS PROFIT | 254,919 | 185,453 | 547,248 | 459,760 | ||
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | 195,306 | 185,297 | 389,987 | 372,632 | ||
| OPERATING INCOME | 59,613 | 156 | 157,261 | 87,128 | ||
| OTHER INCOME (EXPENSE) | ||||||
| Parking, dividends, interest and miscellaneous income | 40,751 | 38,707 | 74,436 | 106,507 | ||
| Interest and miscellaneous expenses | -- | (20,921) | -- | (20,921) | ||
| INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF GARDEN LIFE PLAN, LTD. | 100,364 | 17,942 | 231,697 | 172,714 | ||
| INCOME TAXES (Note 8) | 8,743 | 6,782 | 57,226 | 63,253 | ||
| INCOME BEFORE EQUITY IN EARNINGS OF GARDEN LIFE PLAN, LTD. | 91,621 | 11,160 | 174,471 | 109,461 | ||
| EQUITY IN EARNINGS OF GARDEN LIFE PLAN, LTD., net of deferred income taxes (Note 4) | -- | -- | -- | -- | ||
| NET INCOME | 91,621 | 11,160 | 174,471 | 109,461 | ||
| OTHER COMPREHENSIVE INCOME, Net unrealized gains (losses) on available- for-sale securities, net of income taxes | 3,501 | (32,781) | (34,127) | (15,111) | ||
| COMPREHENSIVE INCOME (LOSS) | $95,122 | $(21,621) | $140,344 | $94,350 | ||
| AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (Note 10) | 1,627,583 | 1,651,356 | 1,629,330 | 1,654,400 | ||
| EARNINGS PER COMMON SHARE (Note 10) | $.06 | $.01 | $.11 | $.07 | ||
See the accompanying Notes to Financial Statements
(Unaudited)
3
HOSOI GARDEN MORTUARY, INC.
STATEMENT OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Six-Months Ended November 30, 2001 and 2000
| 2001 | 2000 | ||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||
| Net Income | $174,471 | $109,461 | |||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||
| Depreciation | 29,443 | 33,670 | |||
| Loss (gain) on sale of securities | 5,898 | (20,600) | |||
| Increase in allowance for doubtful accounts | 13,714 | 15,000 | |||
| Cash value of life insurance policies | (4,845) | (2,740) | |||
| Deferred income taxes | (5,231) | (5,696) | |||
| (Increase)decrease in certain assets: | |||||
| Accounts receivable | (18,969) | 10,446 | |||
| Income tax receivable | -- | 50,956 | |||
| Inventories | (8,211) | 7,557 | |||
| Prepaid expenses and others | 5,236 | 6,167 | |||
| (Decrease)increase in certain liabilities: | |||||
| Accounts payable | (56,356) | 65,444 | |||
| Accrued liabilities | (51,122) | 24,898 | |||
| Income taxes payable | 37,949 | 13,486 | |||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 121,977 | 308,049 | |||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||
| Purchase of property and equipment | (16,032) | (10,081) | |||
| Purchase of securities | (200,659) | (911,069) | |||
| Proceeds from sale of securities | 929,505 | 1,665,307 | |||
| Distribution from Woolsey-Hosoi Mortuary Services, LLC | 15,000 | 16,000 | |||
| Investment in Hosoi Life Plan, Ltd. | (206,082) | - | |||
| Premium payments on life insurance policies | (2,811) | (2,811) | |||
| NET CASH PROVIDED BY INVESTING ACTIVITIES | 518,921 | 757,346 | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||
| Purchase of reacquired shares | (40,660) | (41,353) | |||
| Dividends rebate | 483 | - | |||
| NET CASH USED IN FINANCING ACTIVITIES | (40,177) | (41,353) | |||
| NET INCREASE | 600,721 | 1,024,042 | |||
| CASH AND CASH EQUIVALENTS, beginning of period | 980,416 | 828,818 | |||
| CASH AND CASH EQUIVALENTS, end of period | $1,581,137 | $1,852,860 | |||
See the accompanying Notes to Financial Statements
(Unaudited)
4
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 2001 and 2000
(1) Basis of presentation
Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 2000 have been reclassified to conform with the 2001 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
On November 30, 2001, the Company held investments in the following types of securities:
| Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Market Value | |||
| Available-for-sale | ||||||
| Equity securities | $178,765 | $6,701 | $11,232 | $174,234 | ||
| Mutual funds | 722,340 | 59,550 | - | 781,890 | ||
| 901,105 | 66,251 | 11,232 | 956,124 | |||
| Held-to-maturity | ||||||
| Corporate bonds | 24,330 | 639 | 104 | 24,865 | ||
| U.S. treasury notes | 65,868 | 1,321 | 358 | 66,832 | ||
| 90,198 | 1,960 | 462 | 91,697 | |||
| Total | $991,303 | $68,211 | $11,694 | $1,047,821 | ||
(Unaudited)
5
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 2001 and 2000
(3) Investment securities (continued)
The maturities for all debt securities held on November 30, 2001 were:
| Available-for-Sale | Held-to-Maturity | |||
| Amortized Cost | Market Value | Amortized Cost | Market Value | |
| Within 1 year | $ - | $ - | $ - | $ - |
| After 1 year through 5 years | - | - | 46,789 | 47,374 |
| After 5 years | - | - | 43,409 | 44,323 |
$ - | $ - | $90,198 | $91,697 | |
The Company sold available-for-sale and held-to-maturity securities for $929,505 and $1,665,308 in 2001 and 2000, respectively. The realized gain of $6,567 and $23,044 in 2001 and 2000, respectively, are reflected in earnings. The realized losses of $12,465 and $2,444 in 2001 and 2000, respectively, are reflected in earnings. The cost of the securities sold was based on all the securities held at the time of sale.
The unrealized holding gains on available-for-sale securities as of November 30, 2001, as a separate component of Stockholders' Equity are as follows:
| Unrealized holding gains, net of losses | $55,019 |
| Deferred income tax on net unrealized holding gains | (20,892) |
| $34,127 |
(4) Garden Life Plan, Ltd.
Deficit 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 investment 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.
(Unaudited)
6
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 2001 and 2000
(4) Garden Life Plan, Ltd. (continued)
All payments received from the sale of pre-need funeral plans up to an amount equal to 30% of the total funeral contract are retained by GLP to cover its acquisition costs and are non-refundable. The remaining balance of 70% of payments collected, for each contract sold (the funeral reserve principal), is placed in trust with Pacific Century Trust Company, Limited. Pacific Century Trust, as trustee, invests such funds deposited as directed by GLP. Realized income and capital gains earned from the investments of the funeral reserve principal may be withdrawn from the trust funds by GLP.
Although 30% of each contract sold is non-refundable and retained by GLP to cover its acquisition costs, the income is deferred until the funeral services are provided. GLP also defers all accumulated realized trust earnings generated by the funeral reserve principal until the services are performed. Upon performance of the pre-need funeral service, the investment earnings attributable to the contract are recognized as income by GLP.
Equity in earnings (loss) of GLP is not reflected in the Company's Statement of Income and Comprehensive Income because this information was not available at the time of filing of Form 10-QSB.
Audited financial statements of GLP as of May 31, 2001 and 2000 showed the following summarized financial position and results of operations.
2001 | 2000 | ||
| Total assets | $36,668,612 | $34,631,479 | |
| Total liabilities | 37,787,024 | 35,948,438 | |
| Total stockholders' deficit | $(1,118,412) | $(1,316,959) | |
| Total Revenues | $914,275 | $986,024 | |
| Other income | $404,596 | $354,372 | |
| Net income (loss) | $198,547 | $(52,873) | |
Deficit in equity of Garden Life Plan, Ltd. as of May 31, 2001 is accounted for as follows:
| Stockholders' deficit of Garden Life Plan, Ltd. | $(1,118,412) | ||
| Equity ownership | 50% | ||
| (559,206) | |||
| Rounding | 2 | ||
| Deficit in equity of Garden Life Plan, Ltd. | $(559,204) | ||
On September 16, 2001, the servicing agreement between the Company and GLP expired. The agreement was not renewed and as a result, GLP no longer sells pre-need contracts. The Company is in informal discussions to purchase the 50% interest in GLP which is owned by Hawaii Memorial Life Plan.
(Unaudited)
7
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 2001 and 2000
(5) Related Parties
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. The revenues by providing the services to Woolsey-Hosoi are reflected in Net sales and services, which amounted to $9,298 or 0.7% and $14,491 or 1.1% of Net sales and services in 2001 and 2000, respectively.
During the current quarter the Company formed Hosoi Life Plan, Ltd. (HLP), a wholly-owned subsidiary, to engage in the sale of pre-need funeral plans which are to be serviced solely by the Company. HLP is in process of obtaining approval to operate a pre-need trust. As of November 30, 2001, the Company has advanced to HLP $206,082 for organizational expenses and working capital.
(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 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.
The deferred tax asset results from the uses of the reserve method in accounting for uncollectible accounts receivable in the financial statements and of the direct write-off method for income tax purpose, the accrual of vacation and sick leave when earned for the financial statements and the recognition for income tax purposes when paid, 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.
(7) Reacquired shares
Capital contributed has been reduced for shares reacquired after June 30, 1987. Payments for shares in excess of the par value have been charged to additional paid-in capital. Purchase of reacquired shares has exceeded the balance of additional paid-in capital and therefore, Retained Earnings are charged for the cost in excess of par value.
The 223,785 shares reflected as Treasury Stock as of November 30, 2001 and 2000, reflect shares acquired before July 1, 1987.
(Unaudited)
8
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 2001 and 2000
(8) Income taxes
The provision for income taxes consists of the following:
2001 | 2000 | |||
| Current: | ||||
| Federal | $53,533 | $59,966 | ||
| State | 8,924 | 8,983 | ||
| Total current | 62,457 | 68,949 | ||
| Deferred: | ||||
| Federal | (4,402) | (4,793) | ||
| State | (829) | (903) | ||
| Total deferred | (5,231) | (5,696) | ||
| Total Federal and State | $57,226 | $63,253 | ||
(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) Earnings per share
Earnings per common share have been computed on the basis of a weighted average of outstanding shares of 1,629,330 for 2001 and 1,654,400 for 2000.
(Unaudited)
9
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 November 30, 2001.
The working capital and working capital ratio at November 30, 2001 reflected strong liquidity as follows:
| Working capital | $2,641,620 |
| Working capital ratio | 7.2:1 |
Changes in results of operations
Cost of Sales and Services - Cost of sales and services as a percent of net sales decreased to 61.3% from 64.7% for the six-months ended November 30, 2001 over 2000. The decrease is due principally to decreases in rent, real property taxes and cost of merchandise.
Selling, General and Administrative Expenses - Selling, general and administrative expenses, as a percent of net sales decreased to 27.6% from 28.6% for the six-months ended November 30, 2001 over 2000. Increases in depreciation, accounting fees, legal fees and pension services are offset by decreases in charitable contribution, office supplies, and salaries and wages.
Income Taxes - The effective income tax rate is 24.7% for 2001 and 36.6% for 2000.
Other Income (Expense) - Other incomes(expenses) as a percent of net sales and services decreased to 5.3% from 6.6% for the six-months ended November 2001 over 2000. The decrease resulted from losses on the sale of securities which were offset by an increase in parking income.
10
HOSOI GARDEN MORTUARY, INC.
PART II - OTHER INFORMATION
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 2001 and 2000
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K - None
The Company filed a current report on Form 8-K and Form 8-K/A, dated May 10, 2000, reporting the resignation of Deloitte & Touche as auditor for the registrant's subsidiary for its year ended May 31, 2000.
The Company filed a current report on Form 8-K and Form 8-K/A, dated August 31, 2000, reporting the dismissal of Deloitte & Touche as auditor for the registrant's subsidiary for its years ended May 31, 1999 and the engagement of the firm of Nishihima & Kishida CPA's as successor auditors for the registrant's subsidiary for the fiscal years ended May 31, 2000 and 1999.
11
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. | |
| (Registrant) | |
| Date: January 16, 2002 | /S/ Clifford S. Hosoi |
| Clifford S. Hosoi, President | |
| Date: January 16, 2000 | /S/ Elaine Nakamura |
| Elaine Nakamura, Corporate Secretary and Bookkeeper |
12
