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, 2002 | |||
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the transition period from to | |||
| Commission file number 0-2288 | |||
| (Unaudited) | |||
| HOSOI GARDEN MORTUARY, INC. | |||
| (Exact name of small business issuer as specified in its charter) | |||
| State of Hawaii | |||
| (State or other jurisdiction of incorporation or organization) | |||
| No. 99-0088064 | |||
| (I.R.S. Employer Identification No.) | |||
| 30 North Kukui Street (Corner of Nuuanu Avenue and Kukui Street) | |||
| Honolulu, Hawaii 96817 | |||
| (Address of principal executive offices) | |||
| (Issuer's telephone number) (808) 538 - 3877 | |||
| N/A | |||
| (Former name, former address and former fiscal year, if changed since last report) | |||
| Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. | |||
| Yes | No | X | |
1,594,591 shares of Common Stock | |||
| Outstanding at November 30, 2002 | |||
| HOSOI GARDEN MORTUARY, INC. | |||
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ | |||
CONTENTS | |||
_ _ _ _ _ _ _ | |||
| Pages | |||
| PART I - Financial Information | |||
| Item 1. | Financial Statements | ||
| Notes to Consolidated Financial Statements | 1 - 6 | ||
| PART II - Other Information | 7 | ||
| SIGNATURES | 8 - 9 | ||
HOSOI GARDEN MORTUARY, INC.
(1) Summary of significant accounting policies
Principles of consolidation - The accompanying consolidated financial statements include the accounts of the parent company, Hosoi Garden Mortuary, Inc. and its wholly-owned subsidiaries, Hosoi Life Plan, Inc. (HLP) and Garden Life Plan, Inc. (GLP). All material intercompany transaction have been eliminated in the consolidation.
On August 3, 2001, the Company incorporated Hosoi Life Plan, Inc. (HLP), a wholly-owned subsidiary, to sell price guaranteed prearranged funeral contracts whereby a customer contractually agrees to the terms of a funeral to be performed in the future by the Company.
On November 6, 2003, the Company purchased the 50% ownership interest of GLP which it did not previously own.
Cash and cash equivalent - The Company considers certificate of deposit, money market accounts and all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
Equity investees - The Company owned 50% of the common stock of Garden Life Plan, Ltd. up to November 5, 2003 and 50% of the capital of Woolsey-Hosoi Mortuary Services, LLC (Woolsey-Hosoi). GLP was managed and controlled by the management of the Company's co-owners, up to the date of acquisition, and Woolsey-Hosoi is managed anc controlled by the Company's co-owner. GLP's earnings, up to the date of acquisition, and Woolsey-Hosoi's earnings are accounted for under the equity method of accounting.
Rent expense - The Company's ground lease provides for scheduled rent increases over the term of the lease. Rent expense is recognized on a straight-line basis over the lease term. The difference between the straight-line rent expense and actual payments made under the lease is recorded as Deferred Rent in the consolidated financial statements.
Reacquired shares - Shares reacquired by the Company prior to July 1, 1987 were recorded at cost and are reflected as Treasury stock in the consolidated balance sheet. At August 31, 2002 there were 223,785 shares classified as treasury stock.
Shares reacquired by the Company subsequent to June 30, 1987 are considered constructively retired and directly reduce the amount of common stock outstanding. These reacquired shares are recorded at par value, with the excess over par value charged to retained earnings.
Earning per common share - Earnings per common share has been computed by dividing net income by the weighted average number of common shares outstanding.
Funeral operations - The Company provides funeral services to customers on an "at-need" basis or under price guaranteed prearranged funeral contracts sold by GLP and HLP. Revenues are recognized for services and sales of merchandise when funeral services are performed. Professional services rendered are reported as Funeral services. Sales of merchandise, including caskets, urns and other items are reported as Sales of urns and other items.
(Unaudited)
1
HOSOI GARDEN MORTUARY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 2002 and 2001
(1) Summary of significant accounting policies
Cost of revenues include all direct and indirect costs, attributable to the respective components of revenues. Direct costs include the cost of merchandise sold, labor, and certain other related costs. Indirect costs include the cost of insurance, depreciation, supplies and other labor cost related to the performance and completion of funeral services.
Prearranged funeral activities - Through Hosoi Life Plan, Inc. (HLP), its wholly-owned subsidiary, the Company sells price guaranteed prearranged funeral contracts for future funeral services at prices prevailing at the time the agreements are signed. Of the payments received under these contracts, 70% is placed into trust accounts pursuant to applicable law, which together with accumulated realized trust earnings are intended to cover the future cost of providing price guaranteed funeral services. The remaining 30% is retained by HLP to cover its operational costs and is non-refundable.
Customer receivables and amounts due from trust funds, including accumulated realized trust earnings relating to funeral services yet to be provided under prearranged funeral contracts is reported in the consolidated balance sheet as Prearranged funeral contract asset. A corresponding liability is recorded and revenues are recognized at such time that the funeral services are performed.
Incremental and direct costs incurred by HLP relating to the sale of prearranged funeral contracts are deferred and charged to expense as prearranged funeral contract revenues are recognized. Such costs includes commissions and certain other direct selling costs that vary with and are primarily related to the acquisition of new prearranged funeral contracts and is reported as Deferred acquisition costs in the consolidated balance sheet. Also, see Note (2) regarding GLP's accounting policies for its prearranged funeral activities.
Comprehensive income - Unrealized gains and losses on securities available-for-sale are included in other comprehensive income.
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 2001 have been reclassified to conform with the 2002 presentation.
(2) Garden Life Plan, Ltd.
Garden Life Plan, Ltd. (GLP), a Hawaii corporation, was engaged in the sale of price guaranteed prearranged funeral contracts. Of the payments received by GLP under these contracts, 70% is placed into trust accounts with Bank of Hawaii, Investment Service Group (BOH-ISG) pursuant to applicable law and is intended to cover the future cost of providing price guaranteed funeral services. BOH-ISG, as trustee, invest such trust funds as directed by GLP. The remaining 30% is retained by GLP to cover its operational costs and is non-refundable.
(Unaudited)
HOSOI GARDEN MORTUARY, INC.
(2) Garden Life Plan, Ltd. (continued)
GLP's revenues from sale of prearranged funeral contracts are deferred until such time that funeral services are provided. Accumulated realized trust earnings are also deferred until the funeral services have been provided. Incremental and direct costs incurred by GLP relating to the sale of prearranged funeral contracts are deferred and charged to expense as prearranged funeral contract revenues are recognized.
Pursuant to a service agreement with GLP, the Company is the sole servicing mortuary for prearranged funeral contracts sold by GLP and is entitled to receive 70% of the prearranged funeral contract price from GLP upon providing such mortuary services. As of September 15, 2001, GLP ceased selling price guaranteed prearranged funeral contracts; however, the Company is obligated to service the contracts sold by GLP to September 15, 2001.
Summarized financial information of GLP as of and for the years ended May 31, 2002 and 2001 is as follows:
2002 | 2001 | ||
| Total assets, including prearranged funeral contract assets of $27,004,434 and $26,728,213 | $ 36,570,120 | $ 36,668,612 | |
| Total liabilities, including deferred prearranged funeral contract revenues of $28,368,704 and $28,535,672 | 37,521,475 | 37,787,024 | |
| Total stockholders' deficit | $ (951,355) | $ (1,118,412) | |
| Total revenues | $ 1,354,457 | $ 1,318,871 | |
| Costs and expenses, including $692,083 and $612,325, respectively, related to the purchase of services from the Company | (1,187,400) | (1,120,324) | |
| Net income | $ 167,057 | $ 198,547 | |
The accumulated losses in excess of the Company's investment in GLP as of May 31, 2002 and 2001 is accounted for as follows:
2002 | 2001 | ||
| Stockholders' deficit of GLP | $ (951,355) | $(1,118,412) | |
| Equity ownership | 50% | 50% | |
| Accumulated losses in excess of investment in GLP | $ (475,675) | $ (559,203) | |
(Unaudited)
3
HOSOI GARDEN MORTUARY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 2002 and 2001
(2) Garden Life Plan, Ltd. (continued)
On November 6, 2002 the Company purchased the 50% interest of GLP that it did not already own for $2,500,000. The purchase of this interest in GLP resulted in GLP becoming a wholly-owned subsidiary of the Company. The purchase was partially financed through bank borrowing, see Note (6 ). The purchase of GLP enables the Company to resume sales of GLP's prearranged funeral contracts.
(3) 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, for a 50% interest in Woolsey-Hosoi, was $15,000.
The Company provides Woolsey-Hosoi with embalming services, assistance with funeral arrangements, facilities use and related charges. The revenues from Woolsey-Hosoi are reflected in Funeral services.
Summarized financial information of Woolsey-Hosoi as of and for its years ended December 31, 2001 and 2000 is as follows:
2001 | 2000 | ||
| Total assets | $ 89,684 | $ 81,005 | |
| Total liabilities | 242 | 179 | |
| Total partners' capital | $ 89,442 | $ 80,826 | |
| Total revenues | $ 208,357 | $ 246,771 | |
| Costs and expenses | 170,438 | 174,231 | |
| Operating income | $ 37,919 | $ 72,540 | |
| Net income | $ 38,617 | $ 72,918 | |
(Unaudited)
4
HOSOI GARDEN MORTUARY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
November 30, 2002 and 2001
(3) Woolsey-Hosoi Services, LLC (continued)
The Company's investment in Woolsey-Hosoi as of May 31, 2002 and 2001 is accounted for as follows:
2002 | 2001 | ||
| Partnerships' capital | $89,442 | $80,826 | |
| Equity ownership | 50% | 50% | |
| 44,721 | 40,413 | ||
| Distribution received after investee's year end | (12,500) | - | |
| Investment in Woolsey-Hosoi | $32,986 | $41,177 | |
(4) Certificate of Deposit - Restricted
Included in Other Assets are certificate of deposits with a financial institution which is held by the State of Hawaii, Department of Commerce and Consumer Affairs, for HLP's license as a pre-need funeral authority.
(5) Deferred income taxes
Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statements and income tax purposes. The deferred assets and liabilities represent the future tax consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled.
The deferred tax liability results from the recognition of unrealized gains, net of losses, on securities for financial statement purposes, and the recognition of gains or losses when securities are sold for income tax purposes.
The deferred tax asset results from the use of the reserve method in accounting for uncollectible accounts receivable in the financial statements and the direct write-off method for income tax purposes, the accrual of vacation and sick leave when earned for financial statements and the recognition for income tax purposes when paid, the accrual of rent expense for financial statements on a straight-line basis and when paid for tax purposes and for unused capital loss carryovers.
(6) Line-of-credit
The Company has a line-of-credit of $500,000 with a bank which expires on June 1, 2003. Interest only payments are required during the term of any advances at .5% over the bank's base interest rate. The line-of-credit loan is collateralized by a security interest in accounts receivable, property and equipment and bank accounts held at the bank.
(Unaudited)
5
HOSOI GARDEN MORTUARY, INC.
(6) Line-of-credit (continued)
The Company also has available $3,400,000 on a short term basis with a bank which expires within 180 days of the initial advance. Interest is payable at .5% over the bank's base interest rate. The line-of-credit is collateralized by a security interest in accounts receivable, property and equipment and accounts held at the bank.
(Unaudited)
6
HOSOI GARDEN MORTUARY, INC.
November 30, 2002 and 2001
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K and Form 8-K/A dated November 6, 2002 to report the purchase of the 50% interest of Garden Life Plan, Ltd., which the Company did not own previously.
7
** * * *
SIGNATURES
* * * * *
CERTIFICATION PURSUANT TO
OF THE SARBANES-OXLEY ACT OF 2002
1. I have reviewed this Quarterly Report (Form 10-QSB) of Hosoi Garden Mortuary, Inc. for the six months ended November 30, 2002;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: January 21, 2003
/s/ Clifford Hosoi
Clifford Hosoi,
President and Chief Executive Officer
8
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
1. I have reviewed this Quarterly Report (Form 10-QSB) of Hosoi Garden Mortuary, Inc. for the six months ended November 30, 2002;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's Board of Directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: January 21, 2003
/s/ Jack Y. Endo
Jack Y. Endo
Chief Financial Officer
9
