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, 1996
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.
State of Hawaii
IRS Employer Identification number 99-0088064
30 North Kukui Street
(Corner of Nuuanu Avenue and Kukui Street)
Honolulu, Hawaii 96817
Issuer's telephone number: (808) 538-3877
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
1,805,805 shares of Common Stock
Outstanding at August 31, 1996
HOSOI GARDEN MORTUARY, INC.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
CONTENTS
_ _ _ _ _ _ _
Pages
DISCLAIMER OF OPINION 1
PART I - Financial Information
Item 1. Financial Statements
Balance Sheet 2
Statements of 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 10
SIGNATURES 11
DISCLAIMER OF OPINION
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
To the Board of Directors
Hosoi Garden Mortuary, Inc.
The accompanying balance sheet of
HOSOI GARDEN MORTUARY, INC.
as of August 31, 1996, and the related statements of income
and cash flows for the three months ended August 31, 1996 and
1995 were not audited by us and accordingly we do not express
an opinion on them.
ENDO & COMPANY
September 30, 1996
Honolulu, Hawaii
1
HOSOI GARDEN MORTUARY, INC.
BALANCE SHEET
_ _ _ _ _ _ _ _ _ _ _
August 31, 1996
A S S E T S
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 694,279
Certificate of deposit 200,000
Securities available for sale, at market (Note 2) 847,315
Accounts receivable, less allowance for doubtful
accounts of $63,943 345,155
Inventories 158,498
Prepaid expenses and others 101,739
Deferred income taxes (Note 4) 36,396
TOTAL CURRENT ASSETS 2,383,382
INVESTMENTS
Garden Life Plan, Ltd. (Note 3) 1,368,823
Cemetery plots 1,350
Securities held to maturity, at cost (Note 2) 89,932
1,460,105
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation 1,567,697
OTHER ASSETS 129,039
TOTAL ASSETS $5,540,223
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable $ 274,580
Accrued liabilities 129,354
Income taxes payable 82,487
Note payable 685
TOTAL CURRENT LIABILITIES 487,106
DEFERRED INCOME TAXES (Note 4) 73,865
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 value $.20 per share;
authorized 3,625,000 shares, issued
2,187,140 shares 437,428
Less 157,550 reacquired shares (31,730)
TOTAL CAPITAL CONTRIBUTED 405,698
RETAINED EARNINGS 4,658,106
NET UNREALIZED LOSS ON SECURITIES AVAILABLE
FOR SALE (Note 2) (3,270)
TREASURY STOCK, 223,785 shares, at cost (Note 7) (81,282)
TOTAL STOCKHOLDERS' EQUITY 4,979,252
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,540,223
<FN>
See the accompanying Notes to Financial Statements
</FN>
(Unaudited)
2
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF INCOME
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Three Months Ended August 31, 1996 and 1995
1996 1995
NET SALES AND SERVICES $ 788,380 $ 688,968
COST OF SALES AND SERVICES 490,478 441,968
GROSS PROFIT 297,902 247,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 128,288 141,922
OPERATING INCOME 169,614 105,078
OTHER INCOME (EXPENSE)
Parking, dividends, interest
and miscellaneous income 87,741 38,591
Interest (697) (196)
INCOME BEFORE INCOME TAXES AND
EQUITY IN EARNINGS OF GARDEN
LIFE PLAN, LTD. 256,658 143,473
INCOME TAXES (Note 5) 100,137 60,232
INCOME BEFORE EQUITY IN EARNINGS
OF GARDEN LIFE PLAN, LTD. 156,521 83,241
EQUITY IN EARNINGS OF GARDEN LIFE
PLAN, LTD. (Note 3) 65,462 72,658
NET INCOME $ 221,983 $ 155,899
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (Note 6) 1,814,555 1,834,310
EARNINGS PER COMMON SHARE (Note 6) $ .12 $ .09
<FN>
See the accompanying Notes to Financial Statements
</FN>
(Unaudited)
3
HOSOI GARDEN MORTUARY, INC.
STATEMENTS OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Three Months Ended August 31, 1996 and 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 221,983 $ 155,899
Adjustment to reconcile net income
to net cash provided by operations
Depreciation 19,257 15,873
Gain on sale of securities (47,800) (7,861)
Undistributed earnings of affiliate (65,462) (72,658)
Deferred income taxes (5,231) 5,807
(Increase) decrease in certain assets
Accounts receivable (19,406) (25,765)
Income tax receivable - 7,925
Inventories (46,283) (15,504)
Prepaid expenses and others (40,220) (48,770)
Cash value of life insurance
policies (1,079) (310)
(Decrease) increase in certain liabilities
Accounts payable 36,233 (1,239)
Accrued liabilities (21,757) (2,425)
Income taxes payable 70,606 -
NET CASH PROVIDED BY OPERATING
ACTIVITIES 100,841 10,972
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment - (4,700)
Increase in securities (518,618) (27,414)
Proceeds from sale of securities 455,578 55,107
Increase in certificate of deposit - (200,000)
Payment of premiums on life
insurance policies - (504)
NET CASH USED IN INVESTING ACTIVITIES (63,040) (177,511)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of reacquired stocks (54,500) (17,850)
NET CASH USED IN FINANCING ACTIVITIES (54,500) (17,850)
NET DECREASE IN CASH (16,699) (184,389)
CASH AT BEGINNING OF PERIOD 710,978 938,707
CASH AT END OF PERIOD $ 694,279 $ 754,318
<FN>
See the accompanying Notes to Financial Statements
</FN>
(Unaudited)
4
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1996 and 1995
(1) 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.
(2) INVESTMENT SECURITIES
At August 31, 1996 and 1995, the Company held investments in the
following types of securities:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
AUGUST 31, 1996
Available for sale
Equity securities $ 85,464 $ 14,802 $ 5,282 $ 94,984
Mutual funds 765,122 - 12,791 752,331
850,586 14,802 18,073 847,315
Held to maturity
U.S. Treasury bills 89,932 - 4,459 85,473
Totals $940,518 $ 14,802 $22,532 $932,788
AUGUST 31, 1995
Available for sale
Equity securities $ 60,222 $ 6,148 $ 3,716 $ 62,654
Mutual funds 629,254 35,711 - 664,965
689,476 41,859 3,716 727,619
Held to maturity
U.S. Treasury bills 105,749 - 6,244 99,505
Totals $795,225 $ 41,859 $ 9,960 $827,124
(Unaudited)
5
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1996 and 1995
(2) INVESTMENT SECURITIES (continued)
The maturities for all debt securities held at August 31, 1996
were:
Available for Sale Held to Maturity
Amortized Market Amortized Market
Cost Value Cost Value
Within 1 year $ - $ - $ 10,242 $ 10,075
After 1 year
through 5 years - - 79,690 75,398
After 5 years - - - -
$ - $ - $ 89,932 $ 85,473
The Company sold securities available for sale and held to
maturity for $455,578 and $55,107 in 1996 and 1995,
respectively. The gross realized gain of $47,800 and $7,861
in 1996 and 1995, respectively, 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.
(3) GARDEN LIFE PLAN, LTD.
Investment in Garden Life Plan, Ltd. represented 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. (GLP),
a Hawaii corporation engaged in the sales of pre-need funeral
plans serviced solely by Hosoi Garden Mortuary, Inc.
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
to be held in trust. GLP is entitled to all earnings from
funds held in trust which amounted to $705,222 and $601,851
for the years ended May 31, 1996 and 1995, respectively.
Trust assets are not included in the financial statements of
Hosoi Garden Mortuary, Inc. nor GLP.
(Unaudited)
6
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1996 and 1995
(3) GARDEN LIFE PLAN, LTD. Continued)
Audited financial statements of this subsidiary as of May 31,
1996 and 1995 reflected the following summarized financial
position and results of operations:
1996 1995
Total assets $2,991,958 $2,529,777
Total liabilities 385,243 434,592
Total stockholders' equity $2,606,715 $2,095,185
Total revenues $ 958,576 $1,176,848
Operating (loss) income $ (136,244) $ 170,728
Net income $ 511,539 $ 584,579
Equity in earnings of Garden Life Plan, Ltd. represents
the Company's share of the earnings of Garden Life Plan, Ltd.
for its three-months ended August 31, 1996.
INVESTMENT IN GARDEN LIFE PLAN, LTD. as of August 31, 1996 is
accounted for as follows:
Stockholders' equity at August 31, 1996 per
Garden Life Plan, Ltd.'s balance sheet $2,737,646
Equity Ownership 50%
Total investment in Garden Life Plan, Ltd. $1,368,823
(4) DEFERRED INCOME TAXES
Deferred income taxes are provided for timing differences
resulting from inclusion of income and expense items in
financial statements in years other than recognized for
income tax purposes. Timing differences result 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 purposes and
from the use of 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.
(Unaudited)
7
HOSOI GARDEN MORTUARY, INC.
NOTES TO FINANCIAL STATEMENTS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1996 and 1995
(4) DEFERRED INCOME TAXES (continue)
At August 31, 1996 the Company's retained earnings
included approximately $1,368,823 of undistributed
earnings of Garden Life Plan, Ltd.
(5) INCOME TAXES
The provision for income taxes consists of the following:
1996 1995
Federal:
Current $ 82,297 $ 46,043
Deferred 4,049 4,495
86,346 50,538
State:
Current 12,609 8,382
Deferred 1,182 1,312
13,791 9,694
Total $100,137 $ 60,232
(6) EARNINGS PER SHARE
Earnings per common share has been computed on the basis
of a weighted average of shares outstanding of 1,814,555
for 1996 and 1,834,310 for 1995.
(7) 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, 1996 reflects the shares acquired before July 1, 1987.
(Unaudited)
8
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, 1996.
The working capital and working capital ratio at August 31,
1996 reflected strong liquidity as follows:
Working capital $1,896,276
Working capital ratio 4.9:1
CHANGES IN RESULTS OF OPERATIONS
Cost of Sales and Services - Cost of sales and services
as a percent of net sales decrease to 62.2% from 64.1%
for the three-months ended August 31, 1996 over 1995. The
decrease is due to decreases in rent and cost of merchandise
offset by an increase in salaries and wages.
Selling, General and Administrative Expenses - Selling,
general and administrative expenses as a percent of net
sales decrease to 16.3% from 20.6% for the three-months
ended August 31, 1996 and 1995. The decrease resulted
from decreases in professional fees and charitable
contributions.
Income Taxes - The effective income tax rate is 39.0% for 1996
and 42.0% for 1995.
Other Income (Expense) - Other income as a percent of net sales
and services increased to 11.1% in 1996 over 5.6% in 1995. The
increase resulted primarily from an increase in gains on sale of
securities and a non-recurring reimbursement from a former
employee
for expenses previously advanced.
9
HOSOI GARDEN MORTUARY, INC.
PART II - OTHER INFORMATION
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
August 31, 1996 and 1995
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K - There were no reports on Form 8-K
filed for the three-months ended August 31, 1996.
10
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 4, 1996
By CLIFFORD HOSOI, President
Date October 4, 1996
By ELAINE NAKAMURA, Bookkeeper & Corporate Secretary
11