PricewaterhouseCoopers LLP
999 Bishop Street, Ste. 1900
Honolulu, HI 96813
**Report of Independent Accountants**
To the Board of Directors and Shareholders
**Hosoi Garden Mortuary, Inc.**
In our opinion, based on our audits and the reports of other auditors, theaccompanying consolidated balance sheets and the related consolidatedstatements of income and comprehensive income, of shareholders' equity and ofcash flows, present fairly, in all material respects, the financial position of HosoiGarden Mortuary, Inc. and Subsidiary (the "Company") at May 31, 2002 and 2001,and the results of its operations and its cash flows for each of the years in theperiod ending May 31, 2002 in conformity with accounting principles generallyaccepted in the United States of America.  These financial statements are theresponsibility of the Company's management; our responsibility is to express anopinion on these financial statements based on our audits.  We did not audit thefinancial statements of Garden Life Plan, Ltd., a 50% owned investee accountedfor under the equity method of accounting.  The accumulated losses of Garden LifePlan, Ltd. in excess of the Company's investment was $475,675 and $559,203 as ofMay 31, 2002 and 2001, respectively, and  represents 9.8% and 11.4% of theCompany's total liabilities and stockholders' equity as of May 31, 2002 and 2001,respectively.  The Company's equity in earnings of Garden Life Plan, Ltd. for theyears ended May 31, 2002 and 2001 amounted to $83,528 and $99,274,respectively.  Garden Life Plan, Ltd.'s financial statements were audited by otherauditors whose reports thereon have been furnished to us, and our opinionexpressed herein, insofar as it relates to the amounts included for the Company, isbased solely on the reports of the other auditors.  We conducted our audits of thesestatements in accordance with auditing standards generally accepted in theUnited States of America, which require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation.  We believe that ouraudits and the reports of other auditors provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Honolulu, Hawaii
December 30, 2002
F-1
**HOSOI GARDEN MORTUARY, INC.**
CONSOLIDATED BALANCE SHEET
May 31, 2002 and 2001**2002****2001****A S S E T S**CURRENT ASSETSCash and cash equivalents (Notes 1 and 4)
$    1,697,190
$      980,416Securities available-for-sale, at market (Notes 1 and 5)
         935,737
        928,668Accounts receivable, less allowance of $59,994 and $61,051
  229,446
   269,000Income taxes receivable (Note 1)
  20,295
             --      Inventories (Note 1)
  211,454
  160,775Prepaid expenses and other current assets
52,680
 52,026Deferred income taxes (Note 6)
           26,463
               132TOTAL CURRENT ASSETS
      3,173,265
     2,391,017INVESTMENTSWoolsey-Hosoi Mortuary Services, LLC (Note 3)
 32,986
41,177Cemetery plots
1,350
1,350Securities held-to-maturity, at cost (Notes 1 and 5)
           89,212
        888,846
         123,548
        931,373PROPERTY AND EQUIPMENT, at cost, less accumulateddepreciation (Notes 1 and 7)
      1,385,021
     1,420,366DEFERRED INCOME TAXES (Note 6)
           21,578
            6,200OTHER ASSETS
         129,545
        132,508**TOTAL ASSETS**
**$    4,832,957**
**$   4,881,464****L I A B I L I T I E S**CURRENT LIABILITIESAccounts payable
$       335,457
$      329,952Accrued liabilities (Note 9)
 173,854
159,790Income taxes payable (Note 10)
         --        
           5,555TOTAL CURRENT LIABILITIES
         509,311
        495,297DEFERRED RENT (Note 1)
           26,640
           16,328ACCUMULATED LOSSES OF EQUITY INVESTEE IN EXCESSOF INVESTMENT (Notes 1 and 2)
         475,675
        559,203**S T O C K H O L D E R S '  E Q U I T Y**COMMON STOCK (Note 1)Common stock, par value $.20 per share; authorized 3,625,000shares, issued 1,836,156 and 1,859,866 shares
367,011
371,753RETAINED EARNINGS
3,516,591
3,463,431ACCUMULATED OTHER COMPREHENSIVE INCOME net ofapplicable deferred income taxes (Notes 1 and 5)
 19,011
56,734TREASURY STOCK, 223,785 shares, at cost (Note 1)
          (81,282)
         (81,282)TOTAL STOCKHOLDERS' EQUITY
      3,821,331
     3,810,636**TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY**
**$    4,832,957**
**$   4,881**

The accompanying Notes to Consolidated Financial Statements are an integralpart of these statements.
F - 2
HOSOI GARDEN MORTUARY, INC.
CONSOLIDATED STATEMENTS OF INCOME 
AND COMPREHENSIVE INCOME
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 
Years Ended May 31, 2002 and 2001
**2002**
**2001**RevenuesFuneral services
$ 2,072,674
$ 1,940,318Sales of urns and other items
      735,820
      662,010Total revenues
   2,808,494
   2,602,328Cost of revenuesFuneral services
1,506,962
1,450,168Urns and other items
      353,368
     348,470Total cost of revenues
   1,860,330
   1,798,638**Gross profit**
**948,164**
**803,690**Selling, general, and administrative expensesSalaries and wages230,392
274,493Professional services357,141
263,780Profit-sharing and pension fund contributions (Note 11)72,78872,548Advertising58,64558,833Taxes and licenses25,21029,841Other      141,224        95,725Total selling, general, and administrative expenses      885,400      795,220**Operating income****62,764****8,470**Other income and (expenses)Interest income, dividends, and other (Note 13)127,216220,053Interest expense and other expense       (38,803)       (23,177)Total other income and (expenses)        88,413      196,876Income before income taxes and equity in earnings ofequity investees151,177205,346Income taxes (Note 10)        60,263        78,399Income before equity in earnings of equity investees        90,914      126,947Equity in earnings of equity investeesWoolsey-Hosoi Mortuary Service, LLC (Note 3)19,30936,459Garden Life Plan, Ltd. (Note 2)       83,528        99,274     102,837      135,733**Net income****193,751****262,680**Other comprehensive (loss)Net unrealized losses on securities available-for-sale, netof deferred taxes of $23,095 and $8,677       (37,723)       (14,172)**Comprehensive income****$     156,028****$    248,508****Average number of shares common stock outstanding****1,624,482****1,647,114****Earnings per common share (Note 1)****$            .12****$            .16****Dividends per common share****$          .035****$          .045**
The accompanying Notes to Consolidated Financial Statements are an integralpart of these statements.
F - 3
**HOSOI GARDEN MORTUARY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended May 31, 2002 and 2001**Common****Stock****Retained****Earnings**Accumulated****Other****Comprehensive****Income****Treasury****Stock****Total****Balance, May 31, 2000**
$376,394$3,366,575
$70,906
$(81,282**)**
$3,732,593Net income
      --       262,680
        --        
        --      
262,680Reacquired common stock
  (4,641)(90,999)
   --       
  --     
 (95,640)Dividends paid, $.045 pershare
    --      
 (74,825)
   --      
    --    
(74,825)Decrease in net unrealizedgains on securities available-for-sale, net of taxes
             --        
            --     
             (14,172)
        --      
       (14,172)**Balance, May 31, 2001**
371,753
3,463,431
56,734
(81,282)
3,810,636Net income
   --      
193,751
--      
--     
193,751Reacquired common stock
(4,742)
(83,900)
--      
--     
(88,642)Dividends paid, $.035 pershare
--      
(56,691)
--      
--     
(56,691)Decrease in net unrealizedgains on securities available-for-sale, net of taxes
           --        
           --     
             (37,723)
          --      
       (37,723)**Balance, May 31, 2002**
$367,011
$3,516,591
$          19,011
$(81,282)
$3,821,331
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F - 4
**HOSOI GARDEN MORTUARY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Years Ended May 31, 2002 and 2001CASH FLOWS FROM OPERATING ACTIVITIES:
**2002**
**2001**Net income 
$   193,751
$    262,680Adjustments to reconcile net income to net cash provided byoperating activities:Depreciation
64,462
59,282Realized losses (gains) on sale of investment securities,net
30,185
(40,928)Loss on disposal of equipment8,616 --     Decrease in allowance for doubtful accounts(1,057)(6,059)Undistributed earnings of Woolsey-Hosoi Mortuary        Services, LLC(19,309)(36,459)Distributions from Woolsey-Hosoi Mortuary Services, LLC27,50021,000Undistributed earnings of Garden Life Plan, Ltd.(83,528)(99,274)Cash value of life insurance policies7,001(13,899)Deferred income taxes(18,614)(3,999)Deferred rent10,31210,312(Increase) decrease in certain assetsAccounts receivable40,61137,565Income tax receivable(20,295)50,956Inventories(50,679) 62,899Prepaid expenses and other current assets(654)6,326Security deposits(1,227) --    (Decrease) increase in certain liabilitiesAccounts payable5,50544,301Accrued liabilities14,06411,011Income taxes payable         (5,555)          5,555NET CASH PROVIDED BY OPERATING ACTIVITIES      201,089      371,269CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment(37,733)(12,581)Proceeds from sale of investment securities2,454,5901,915,648Purchase of investment securities(1,753,028)(1,946,651)Premiums paid for life insurance policies         (2,811)         (5,622)NET CASH PROVIDED BY (USED IN) INVESTING         ACTIVITIES      661,018       (49,206)CASH FLOWS FROM FINANCING ACTIVITIES:Reacquired common stock(88,642)(95,640)Dividends paid       (56,691)       (74,825)NET CASH USED IN FINANCING ACTIVITIES     (145,333)     (170,465)NET INCREASE 716,774151,598CASH AND CASH EQUIVALENTS, beginning of year       980,416      828,818**CASH AND CASH EQUIVALENTS, end of year****$  1,697,190****$    980,416**

The accompanying Notes to Consolidated Financial Statements are an integral partof these statements.
F - 5
**HOSOI GARDEN MORTUARY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(1)	Summary of significant accounting policies
**Line of business** - The Company is engaged in the business that consistsprincipally of providing mortuary services in the State of Hawaii on the island ofOahu.
	On August 3, 2001, the Company incorporated Hosoi Life Plan, Inc.(HLP), awholly-owned subsidiary, to sell price guaranteed prearranged funeral contractswhereby a customer contractually agrees to the terms of a funeral to beperformed in the future by the Company.  Through May 31, 2002, no contractshad been sold by HLP and all prearranged funeral contracts were owned byGarden Life Plan, Ltd. (See Note 2).
	The significant accounting policies followed by the Company are summarizedbelow.
**Principles of  consolidation** - The accompanying consolidated financial statementsinclude the accounts of the parent company, Hosoi Garden Mortuary, Inc. and itswholly-owned subsidiary, Hosoi Life Plan, Inc.  All material intercompanytransaction have been eliminated in the consolidation.
**Use of estimates** - The preparation of consolidated financial statements inconformity with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect thereported amounts of assets and liabilities, the disclosure of contingent assets andliabilities at the date of the consolidated financial statements and the reportedamounts of revenues and expenses during the reporting periods.  Actual resultscould differ from those estimates.
**Cash and cash equivalent** - The Company considers certificates of deposit, moneymarket accounts and all highly liquid debt instruments with original maturitiesof three months or less to be cash and cash equivalent.
**Fair value of financial instruments** - The carrying amounts of cash and cashequivalents, trade receivables and accounts payable approximate fair values dueto the short-term maturities of these instruments.  The fair value of current andnon-current marketable securities were estimated based on available marketinformation from brokers.  The fair value for long-term investments wasestimated based on quoted market price at year end.
F - 6
**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended May 31, 2002 and 2001
(1)	Summary of significant accounting policies (continued)****
**Investment securities** -****The Company classifies its marketable securities as*held-to-maturity* if it has the intent and ability to hold the securities tomaturity.  All other marketable securities are classified as *available-for-sale*.Securities classified as *available-for-sale* are carried in the consolidatedfinancial statements at fair value. Realized gains and losses are determinedusing the specific identification method for the cost of the shares at the time ofsale, and included in earnings; unrealized holding gains and losses arereported as other comprehensive income (loss).  Securities classified as *held-to-maturity* are carried at amortized cost.
**Equity investees** - The Company owns 50% of the common stock of GardenLife Plan, Ltd. (GLP) and 50% of the partners' capital of Woolsey-HosoiMortuary Services, LLC (Woolsey-Hosoi).  These investment are managed andcontrolled by the management of the Company's co-owners and are accountedfor under the equity method of accounting.
	Because of its obligation to provide mortuary services to GLP in connectionwith GLP's prearranged funeral contracts, the Company has continued torecognize its share of GLP's losses in amounts that exceed its investment.  Asa result, the accumulated losses of GLP in excess of the Company'sinvestment are reported in the consolidated balance sheets as a liability (seeNote 2).
**Inventories** - Inventories of caskets and urns are stated at the lower of cost ormarket.  Cost is determined substantially by the first-in, first-out method andmarket is based on replacement cost or realizable value.
**Property and equipment**- Land, building and equipment are carried at cost.Maintenance and repairs are charged to income as incurred.  Major renewalsand betterments are capitalized.  Upon sale or other disposition of assets, thecost and related accumulated depreciation are removed from the accounts, theproceeds applied thereto, and any resulting gain or loss is reflected in income.
F - 7
**HOSOI GARDEN MORTUARY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(1)	Summary of significant accounting policies (continued)
**Depreciation -** Depreciation is computed using the declining-balance andstraight-line methods.  Building and land improvements are depreciated overa period ranging from three to thirty nine years and equipment and vehiclesare depreciated over a period ranging from three to ten years.

**Compensated absences** - Full-time employees of the Company are entitled topaid vacation and sick days.  Unused vacation and sick leave are reflected inaccrued liabilities.
**Rent Expense -**The Company's ground lease provides for scheduled rentincreases 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 rentexpense and actual payments made under the lease is recorded as ***DeferredRent* in the consolidated balance sheets.
**Reacquired shares*-*Shares reacquired by the Company prior to July 1, 1987were recorded at cost and are reflected as ***Treasury stock*in the balancesheets. At May 31, 2002, and 2001, there were 223,785 shares classified astreasury stock. **
**	Shares reacquired by the Company subsequent to June 30, 1987 areconsidered constructively retired and directly reduce the amount of commonstock outstanding. These reacquired shares are recorded at par value in thestatements of stockholders' equity, with the excess over par value having beencharged to retained earnings. **
**Earnings per common share** - Earnings per common share has been computedby dividing net income by the weighted average number of common sharesoutstanding.
F - 8
**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(1)	Summary of significant accounting policies (continued)
**Funeral operations** - The Company provides funeral services to customers onan "at-need" basis or under price guaranteed prearranged funeral contractssold by GLP and HLP.  Revenues are recognized for services and sales ofmerchandise when funeral services are performed. Professional servicesrendered are reported as ***Funeral Services***.  Sales of merchandise, includingcaskets, urns and other items are reported as ***Sales of Urns and Other Items***.
	The components of ***Cost of Revenues*** include all direct and indirect costs,attributable to the respective components of revenues.  Direct costs includethe cost of merchandise sold, labor, and certain other related costs.  Indirectcosts include the cost of insurance, depreciation, supplies and other labor costsrelated to the performance and completion of funeral services.
**Prearranged funeral activities** - Through HLP, its wholly-owned subsidiary,the Company will sell price guaranteed prearranged funeral contracts forfuture funeral services at prices prevailing at the time the agreements aresigned. Of the payments received under these contracts, 70% will be placedinto trust accounts pursuant to applicable law, which together withaccumulated realized trust earnings are intended to cover the future cost ofproviding price guaranteed funeral services.  The remaining 30% will beretained by HLP to cover its operational costs and is non-refundable.

	Customer receivables and amounts due from trust funds, includingaccumulated realized trust earnings relating to funeral services yet to beprovided under prearranged funeral contracts will be reported in theconsolidated balance sheets as a ***Prearranged Funeral Contract*** assets.  Acorresponding liability will be recorded and revenue will not be recognizeduntil such time that the funeral services are performed.
	Incremental and direct costs to be incurred by HLP relating to the sale ofprearranged funeral contracts will be deferred and charged to expense asprearranged funeral contract revenues are recognized.  Such costs includesales
F - 9
**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(1)	Summary of significant accounting policies (continued)
	commissions and certain other direct selling costs that vary with and areprimarily related to the acquisition of new prearranged funeral business, andwill be reported as ***Deferred Acquisition Costs*in the consolidated balancesheet.
	As of May 31, 2002, sales of prearranged funeral contracts had notcommenced and no incremental and direct costs were incurred.  Start-up andpre-operating costs of HLP have been expensed as incurred.
	See also Note (2) regarding GLP's accounting policies for its prearrangedfuneral activities.
**Advertising** - The Company follows the policy of charging the costs ofadvertising to operations as incurred.  Advertising costs for the years endedMay 31, 2002 and 2001 amounted to $58,645 and $58,833, respectively
**Income taxes** - Income tax expense is based on reported earnings beforeincome taxes.  Deferred income taxes reflect the effects of temporarydifferences between assets and liabilities recognized for financial reportingpurposes and such amounts recognized for tax purposes.  In accordance withStatement of Financial Accounting Standards (SFAS) No. 109, *Accounting forIncome Taxes*, deferred income taxes are measured by applying currentlyenacted tax laws.
**Comprehensive income** - Unrealized gains and losses on securities*available-for-sale* are included in other comprehensive income.
**Recent accounting pronouncements** - In June 2001, the Financial AccountingStandards Board (FASB) issued Statement of Financial Accounting Standards(SFAS) No. 141, *Business Combinations,*and SFAS No. 142, *Goodwill andOther Intangible Assets.*SFAS No. 141 address financial accounting andreporting for business combinations and establishes the purchase method foraccounting for such transactions.  SFAS No. 142 address accounting forgoodwill and other intangible assets and redefines useful lives, amortizationperiods and impairment of goodwill.  Under the new standard, goodwill will nolonger be amortized, but must be tested for impairment annually.
F - 10
**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(1)	Summary of significant accounting policies (continued)
	The adoption of these new standards will not impact the fiscal 2002consolidated financial statements; however, the fiscal 2003 acquisition of GLP(see Note 2) will be accounted for under these new pronouncements.
	In June 2001, the FASB issued SFAS No. 143, *Accounting for AssetRetirement Obligations*.  The provisions of SFAS No. 143 are effective forfiscal years beginning after June 15, 2002.  The adoption of SFAS No. 143 isnot expected to have a material effect on the Company's consolidated financialstatements.
	In October 2001, the FASB issued SFAS No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets.*   SFAS No. 144 supersedesSFAS No. 121, *Accounting for the Impairment of Long-Lived Asset and Long-Lived Assets to Be Disposed of.*  However, SFAS No. 144 retains thefundamental provisions of SFAS No. 121 for the recognition and measurementof the impairment of long-lived assets to be held and used and themeasurement of long-lived assets to be disposed of by sale.  The scope of SFASNo. 144 excludes goodwill and the other non-amortizable intangible assetsheld and used as well as goodwill associated with a reporting unit to bedisposed of.  The provisions of SFAS No. 144 are effective for fiscal yearsbeginning after December 15, 2001.  The adoption of SFAS No. 144 is notexpected to have a material effect on the Company's consolidated financialstatements.
	In April 2002, the FASB issued SFAS No. 145, *Rescission of FASB StatementsNo. 4, 44 and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections.*  The provisions of SFAS No. 145 are effective for fiscal yearsbeginning after May 15, 2002.  The adoption of SFAS No. 145 is not expectedto have a material effect on the Company's consolidated financial statements.
	In September 2002, the FASB issued SFAS No. 146, *Accounting for CostsAssociated with Exit or Disposal Activities*.  The provisions of SFAS No. 146are effective for exit or disposal activities that are initiated after December 31,2002.  The adoption of SFAS No. 146 is not expected to have a material effecton the Company's consolidated financial statements.
F - 11
**HOSOI GARDEN MORTUARY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(1)	Summary of significant accounting policies (continued)
	On November 25, 2002, the FASB issued FASB Interpretation No. 45 ("FIN45"), *Guarantor's Accounting and Disclosure Requirements for Guarantees,Including Indirect Guarantees of Indebtedness of Other , and interpretation ofFASB Statement No. 5, 57, and 107 and Rescission of FASB InterpretationsNo. 34*.  FIN 45 clarifies the requirements of FASB Statement No. 5,*Accounting for Contingencies* (FAS 5), relating to the guarantor's accountingfor, and disclosure of, the issuance of certain types of guarantees.  Theadoption of FIN 45 is not expected to have a material effect on the Company'sconsolidated financial statements.
(2)	Garden Life Plan, Ltd.
	Garden Life Plan, Ltd. (GLP), a Hawaii corporation, was engaged in the saleof price guaranteed prearranged funeral contracts.  Of the payments receivedby GLP under these contracts, 70% is placed into trust accounts with PacificCentury Trust (PCT) pursuant to applicable law and is intended to cover thefuture cost of providing price guaranteed funeral services.  PCT, as trustee,invests such trust funds as directed by GLP.  The remaining 30% is retainedby GLP to cover its operational costs and is non-refundable.
	GLP's revenues from the sale of prearranged funeral contracts are deferreduntil such time that funeral services have been provided.  Accumulatedrealized trust earnings are also deferred until the funeral services have beenprovided.  Incremental and direct costs incurred by GLP relating to the sale ofprearranged funeral contracts are deferred and charged to expense asprearranged funeral contract revenues are recognized.
	Pursuant to a service agreement with GLP, the Company is the sole servicingmortuary for prearranged funeral contracts sold by GLP and is entitled toreceive 70% of  prearranged funeral contract price from GLP upon providingsuch mortuary services.  As of September 15, 2001, GLP ceased selling priceguaranteed prearranged funeral contracts; however, the Company is obligatedto service the contracts sold by GLP prior to September 16, 2001.
F - 12
**HOSOI GARDEN MORTUARY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(2)	Garden Life Plan, Ltd. (continued)
	Summarized financial information of GLP as of and for the years ended May31, 2002 and 2001 is as follows:**2002****2001**Total assets, including prearranged  funeral contractassets of $27,004,434 and $26,728,213$ 36,570,120$ 36,668,612Total liabilities, including deferred prearrangedfuneral contract revenues  of $28,368,704 and$28,535,672   37,521,475   37,787,024Total stockholders' deficit$     (951,355)$  (1,118,412)Total revenues$   1,354,457$   1,318,871Costs and expenses, including $692,083  and$612,325, respectively, related to the purchase ofservices 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 ofMay 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)
	On November 6, 2002 the Company purchased the 50% interest of GLP that itdid not already own for $2,500,000.  The purchase of this interest in GLPresulted in GLP becoming wholly owned subsidiary of the Company.  Thepurchase was partially financed through bank borrowing (see Note (14)).  Thepurchase of GLP enables the Company to resume sales of GLP's prearrangedfuneral contracts.
	The purchase will be accounted for in accordance with FASB No. 141 -*Accounting for Business Combinations*.
F - 13
**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(3)	Woolsey-Hosoi Mortuary 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 tomarket sectors not previously serviced by the Company.  The Company'sinitial capital contribution, for a 50% interest  in Woolsey-Hosoi, was $15,000.The Company received distributions of $27,500 and $21,000 for 2002 and2001, respectively.
	The Company provides Woolsey-Hosoi with embalming services, assistancewith funeral arrangements, use of its facilities and related charges.  Revenuesfrom services provided to Woolsey-Hosoi is reflected in Total revenues whichamounted to $22,136 and $29,365 for the years ended May 31, 2002 and 2001,respectively.  Included in accounts receivable is $4,480 and $6,728 ofreceivables from Woolsey-Hosoi for 2002 and 2001, respectively.
	Summarized financial information of Woolsey-Hosoi as of and for the yearsended December 31, 2001 and 2000 is as follows:**2001****2000**Total assets$        89,684$        81,005Total liabilities               242               179Total partners' capital$        89,442$        80,826Total revenues$      208,357$      246,771Costs and expenses        170,438        174,231Operating income$        37,919$        72,540Net Income$        38,617$        72,918
F - 14
**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(3)	Woolsey-Hosoi Mortuary Services, LLC (continued)
	The Company's  investment in Woolsey-Hosoi as of May 31, 2002 and 2001was as follows:**2002****2001**Partnerships' capital$      89,442$      80,826 Equity ownership               50%              50%44,72140,413Distribution received after investee's year end       (12,500)            --      Investment in Woolsey-Hosoi Services Mortuary,LLC$      32,986$      41,177
(4)	Cash and cash equivalents
	Cash and cash equivalents consist of the following:**2002****2001**Cash on hand$          500$    64,561Checking accounts360,887201,211Savings accounts578,796531,577Short-term investments     757,007    183,067Total cash and cash equivalents$1,697,190$  980,416
F - 15
**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(5)	Investment securities
	As of May 31, 2002 and 2001, the Company held investments in the followingtypes of securities:**Amortized****Cost****Gross****Unrealized****Gain****Gross****Unrealized****Loss****Market  Value****May 31, 2002**Available-for-saleEquity securities$    170,438$      8,250$   22,159$  156,529Mutual funds      734,649      49,074       4,515    779,208      905,087      57,324     26,674    935,737Held-to-maturityU.S. Treasury bondand notes25,03915025224,937Corporate bonds25,2814732,44323,311Government notes        38,892           445          403        38,934        89,212        1,068       3,098        87,182**Totals****$    994,299****$    58,392****$   29,772****$ 1,022,919****May 31, 2001**Available-for-saleEquity securities$   127,202$      8,379$     2,843$    132,738Mutual funds     709,999      85,942            11      795,930     837,201      94,321       2,854      928,668Held-to-maturityU.S. Treasury bondand notes850,365348191850,522Government notes       38,481               1          378        38,104     888,846           349          569      888,626**Totals****$1,726,047****$    94,670****$     3,423****$ 1,817,294**
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**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(5)	Investment securities (continued)
	The maturities of all debt securities held at May 31, 2002 were as follows:**Available-for-Sale****Held-to-Maturity**Amortized  CostMarketValueAmortized     CostMarketValueWithin one year$       --      $     --        $     9,202$     9,187After one year through fiveyears          --        --        38,71638,372After five years         --       --             41,294     39,623$       --$     --     $   89,212$   87,182
	The Company sold securities *available-for-sale* for $94,264 and $206,794 in2002 and 2001, respectively. The Company redeemed securities *held-to-maturity* for $2,360,326 and $1,708,854 in 2002 and 2001, respectively upontheir maturity.  Gross realized gains of $8,230 and $56,572 and gross realizedlosses of $38,415 and $15,644 on the sale of securities *available-for-sale* andthe maturity of securities *held-to-maturity* for 2002 and 2001, respectively, arereflected in earnings.
	The unrealized holding gains on investment**securities*available-for-sale*during the years ended May 31, 2002 and 2001, and reported as a separatecomponent of Stockholders' Equity, are as follows:**2002****2001**Unrealized holding gains, net of losses$   30,649$   91,467Deferred income tax on the net unrealized holdinggains    (11,638)   (34,733)$    19,011$   56,734
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**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(6)	Deferred income taxes
	Deferred income taxes are recognized for differences between the basis ofassets and liability for financial statement and income tax purposes.  Thedeferred tax assets and liability represent the future tax consequences of thosedifferences, which will be either taxable or deductible when the assets andliability are recovered or settled.
	The deferred tax liability results from the recognition of unrealized gains orlosses on securities for financial statements and the recognition of gains orlosses when securities are sold for income tax purposes.
	The deferred tax assets results from the use of the reserve method inaccounting for uncollectible accounts receivable in the financial statementsand the use of the direct write off method for income tax purposes, the accrualof vacation and sick leave when earned for the financial statements, theaccrual of rent expense for financial statements, and capital loss carryforwards.
	The cumulative temporary differences related to the deferred tax assets and(liability) as of May 31, 2002 and 2001, were as follows:**2002****2001**Deferred tax assetsAccrued vacation and sick leave$     15,320$    11,704Capital losses carry forward11,462--    Allowance for doubtful accounts22,78123,161Deferred rent       10,116        6,200Total deferred tax assets       59,679     41,065
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**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(6)	Deferred income taxes**2002****2001**Deferred tax liabilityUnrealized gains on securities available-for-sale      (11,638)     ( 34,733)Net deferred taxes$      48,041$       6,332
(7)	Property and equipment
	Property and equipment consist of:**2002****2001**Land$    517,040$    517,040Buildings and land improvements1,327,1951,357,240Equipment and vehicles      214,586      379,674Total cost2,058,8212,253,954Accumulated depreciation     (673,800)     (833,588)Net property and equipment$ 1,385,021$ 1,420,366
	Property and equipment are pledged to secure the line-of-credit as describedin Note (14).
	Aggregate depreciation charged to operations is as follows:**2002****2001**Cost of revenues$     48,924$     50,772Selling, general, and administrative expenses       15,538         8,510$     64,462$     59,282
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**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(8)	Funeral service deposits
	Included in accounts payable is $33,731 of deposits made by ten individualsthat the Company had collected from since 1969 for future services orpurchase of merchandise.  The payable of $33,731, including interest of$26,294 accrued to May 31, 2002, approximates fair value.
	In an agreement with the Professional and Vocational Licensing Division ofthe State of Hawaii, Department of Commerce and Consumer Affairs (DCCA),the Company consented to a plan to either convert these funeral servicedeposits to a Garden Life Plan, Ltd.'s (GLP) prearranged funeral servicecontract identical to the services and/or merchandise that the depositororiginally contracted for or refund the deposit plus accrued interest.  Theagreement with the DCCA provides that the  Company will provide the fundsfor any difference between the cost of a comparable GLP prearranged funeralservice contract and the amount deposited with the Company.
	As of May 31, 2002, twenty-eight plans have been converted to GLPprearranged funeral service contracts or refunded to the original depositor.The Company does not anticipate any significant loss from the conversion orrefunding of the remaining ten (10) plans.
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**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(9)	Accrued liabilities
	Accrued liabilities consist of the following:**2002****2001**Accrued bonus$   40,000$   25,000Accrued wages payable10,1599,347Payroll and general excise taxes10,565 22,070Profit-sharing and money-purchase plancontributions72,78872,548Vacation and sick leave     40,342     30,825Total accrued liabilities$ 173,854$ 159,790
(10)	Income taxes
	The provisions for income taxes (benefit) consist of the following:**2002****2001**Current:Federal$   67,812$   71,295State     11,065     11,103     78,877     82,398Deferred:Federal(15,663)(3,365)State     (2,951)        (634)   (18,614)     (3,999)Total$   60,263$   78,399
	Income taxes paid, net of refunds, were $101,458 and $75,353 in 2002 and2001, respectively.
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**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(10)	Income taxes (continued)
	The provision for income taxes differs from the amount computed by applyingthe federal statutory income tax rate to income before income taxes and equityin earnings of equity investees as follows:**2002****2001**Federal income tax statutory rate34.0%34.0%Graduated tax rate     (3.3)    (2.7)30.731.3State income tax, net of tax benefit3.53.4Life insurance premiums, net of increase in cash value2.0(2.3)Effects of partnership equity investee4.36.0Others, net     (0.6)    (0.2)Effective tax rate    39.9%   38.2%
(11)	Retirement plans
	The Company provides benefits to substantially all full-time employees with adefined 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 providesbenefits to employees after one year of service and upon completion of 1,000hours of service each year.  The required contribution under this plan is five-percent of compensation of qualified employees.
	Subsequent to May 31, 2002, the Company terminated the money-purchasepension plan and merged the assets of the pension plan with the profit-sharing plan.
	Contribution to the defined contribution profit-sharing plan is discretionaryup to a maximum of fifteen-percent of compensation of eligible employees afterone year of service and upon completion of 1,000 hours of service each year.
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**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(11)	Retirement plans (continued)
	Amounts charged against income for the retirement plans and the percentagethat they represent of eligible compensation are as follows:**2002****2001****Amount****Percent of****Compensation****Amount****Percent of****Compensation**Profit-sharing$   40,0006.3%$  40,0006.1%Money-purchase     32,7885.0%    32,5485.0%$   72,788$  72,548
(12)	Lease
	The Company leases a portion of  the land on which the mortuary is situatedfrom the Herman S. Hosoi Trust and the Hosoi-Tamori-Shimonishi Trust(Trusts) which respectively owns a 13% and 12% interest in the land.  As agroup, members of the Hosoi family own approximately 29.4% of theoutstanding shares of the Company.
	On October 31, 1999, the Company entered into a fifteen-year lease whichexpires on October 31, 2014.  For the first five years of the agreement, theCompany pays the higher of $112,200, plus general excise tax, per year orpercentage rent of 25% times 15% of gross annual revenues, as defined.  Forthe second five year period, the Company will pay $132,000, plus generalexcise tax, per year or the percentage rent which ever is greater.  For the thirdfive year period, an appraisal of  the property will be required to establish thebase rent but in no event will the base rent exceed the greater of $200,000,plus general excise tax, per year or the  percentage rent.  In addition, theCompany is responsible for the payment of all real property taxes.  Totalrental expense was $144,138 and $144,138 in 2002 and 2001, respectively.
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**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(12)	Lease (continued)
	The future minimum lease payments under the lease at May 31, 2002 are asfollows:**May 31,****Amount**2003$   116,8752004116,8752005128,9052006137,4992007137,499Thereafter     332,290$   969,943
(13)	Other income
	Other income consists of the following:**2002****2001**Interest$    78,600$ 134,702Capital gains and dividends3,05619,197Net gains from sale of securities -     40,928Parking	42,73523,620Others		         2,825     1,606Total other income$   127,216$ 220,053
(14)	Debt
The Company has a line-of-credit of $500,000 with a bank which expires onJune 1, 2003.  Interest only payments are payable on advances at .5% over thebank's base interest rate.  The principal is due on the maturity of the loan.The line-of-
F - 24
**HOSOI GARDEN MORTUARY, INC.**
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 31, 2002 and 2001
(14)	Debt (continued)
	credit loan is collateralized by a security interest in accounts receivable,inventories, property and equipment and deposit accounts  at the bank whichgranted the credit line.   As of May 31, 2002 there were no borrowing on theline-of-credit.
	Subsequent to the May 31, 2002, the Company obtained a commitment from abank for a $3,400,000 short-term loan which expires 180 days from the date ofinitial disbursement.  Interest only payments are payable during the term ofthe loan at .5% over the bank's base interest rate.  The short-term loan iscollateralized by a security interest in accounts receivable, inventories,property and equipment and any deposit accounts held at the bank whichgranted the loan commitment.
	A total of $500,000 on the line-of-credit and $1,100,000 from the short-termloan was borrowed and used to purchase the 50% interest in GLP which theCompany did not previously own (see Note (2)).
(15)	Concentrations of credit risk of financial instruments

	The Company's cash, cash equivalents, short and long term investments aredeposited with five local financial institutions.  For the years ended May 31,2002 and 2001, the Company had deposits in a financial institution in excessof the deposit insurance by $610,323 and $556,406, respectively.
	The Company performs funeral services for deaths occurring principally onthe island of Oahu located in the State of Hawaii.  In the normal course ofbusiness the Company extends unsecured credit to its customers.  TheCompany maintains reserves for potential credit losses; historically, suchlosses have been within management's expectations.
F - 25**********************