**GARDEN LIFE PLAN, LTD.**
**FINANCIAL STATEMENTS WITH**
**INDEPENDENT AUDITORS' REPORT**
**Years Ended May 31, 2002 and 2001**

**GARDEN LIFE PLAN, LTD.**
**TABLE OF CONTENTS****Page****INDEPENDENT AUDITORS' REPORT**3**FINANCIAL STATEMENTS**Balance Sheets4Statements of Operations and Deficit in Retained Earnings5Statements of Cash Flows6Notes to Financial Statements7 - 12
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**NISHIHAMA & KISHIDA, CPA's, Inc.**
CERTIFIED PUBLIC ACCOUNTANTS
PACIFIC TOWER
1001 BISHOP STREET, SUITE 1700
HONOLULU, HAWAII 96813-3696
TELEPHONE (808) 524-2255
FAX (808) 523-2090
**INDEPENDENT AUDITORS' REPORT**
To the Board of Directors
Garden Life Plan, Ltd.
We have audited the accompanying balance sheets of Garden Life Plan, Ltd. (a Hawaii corporation)as of May 31, 2002 and 2001, and the related statements of operations and deficit in retainedearnings, and cash flows for the years then ended. These financial statements are the responsibilityof the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of Garden Life Plan, Ltd. as of May 31, 2002 and 2001, and the results of itsoperations and its cash flows for the years then ended in conformity with accounting principlesgenerally accepted in the United States of America.
**/s/ NISHIHAMA & KISHIDA, CPA's, Inc.**
Honolulu, Hawaii
August 28, 2002
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**Garden Life Plan, Ltd.**
**BALANCE SHEETS
**May 31, 2002 and 2001****2002****2001**ASSETS**Cash$      212,482$       780,783Marketable securities624,7281,021,456Funeral contracts receivable, less allowance forcancellations and uncollectible accounts of $542,517 in2002 and $548,072 in 20013,971,3304,794,182Income tax receivable606,36170,000Deferred acquisition costs4,731,1154,776,160Deferred tax assets3,341,0003,242,000Certificate of deposit - restricted50,00050,000Amounts held by trust23,033,10421,934,031$  **36,570,120**$  **36,668,612****LIABILITIES AND STOCKHOLDERS' DEFICIENCY****LIABILITIES**Accounts payable and accrued liabilities$       141,248$      159,292Charter member payable72,77778,061Deferred revenues30% of contracts outstanding8,938,7469,013,99970% of contracts outstanding20,247,09120,613,567Deferred trust investment income8,121,6137,922,105Total liabilities**37,521,475**37,787,024**STOCKHOLDERS' DEFICIENCY**Common stock authorized, issued, and outstanding,1000 shares of no par value1,0001,000Deficit in retained earnings(952,355)(1,119,412)Total stockholders' deficiency(951,355)(1,118,412)$  **36,570,120**$  **36,668,612**
See accompanying notes to financial statements
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**Garden Life Plan, Ltd.**
**STATEMENTS OF OPERATIONS AND DEFICIT IN RETAINED EARNINGS**
**Years Ended May 31, 2002 and 2001**2002**2001**REVENUES**Pre-need funeral contracts serviced30% of contract price$       296,607$      301,95070% of contract price692,083612,325988,690914,275Trust earnings on contracts serviced312,000303,000Interest41,82278,739Other11,94522,8571,354,4571,318,871**COSTS AND EXPENSES**Funeral service costs692,083612,325Selling expenses215,506205,078General and administrative expenses386,976399,9331,294,5651,217,336Earnings before income taxes59,892101,535**INCOME TAXES**Current tax expense (benefit)(8,165)419,988Deferred tax benefit(99,000)(517,000)(107,165)(97,012)**NET EARNINGS**167,057198,547Deficit in retained earnings at beginning of year(1,119,412)(1,317,959)Deficit in retained earnings at end of year$     **(952,355)**$ **(1,119,412)**
See accompanying notes to financial statements
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**Garden Life Plan, Ltd.**
**STATEMENTS OF CASH FLOWS**
**Years Ended May 31, 2002 and 2001**2002**2001**INCREASE (DECREASE) IN CASH****Cash flows from operating activities**Net earnings$    167,057$    198,547Adjustments to reconcile net earnings to net cashprovided by (used in) operating activities:Depreciation--6,312Net deferred income taxes(99,000)(517,000)(Increase) decrease in:Funeral contracts receivable822,852637,170Deferred acquisition costs45,045(110,160)Income taxes receivable(536,361)(70,000)Assets held by trust(1,099,073)(1,630,835)Increase (decrease) in:Accounts payable and accrued liabilities(18,044)13,772Charter member payable(5,284)(34,463)Deferred funeral contract revenue(441,729)517,756Deferred trust investment income199,5081,475,521Income taxes payable--(134,000)Total adjustments(1,132,086)154,073Net cash provided by (used in) operatingactivities(965,029)352,620**Cash flows from investing activities**Proceeds from maturities of marketable securities498,3851,458,670Purchase of marketable securities(101,657)(1,606,772)Net cash provided by (used in) investingactivities396,728(148,102)**NET INCREASE (DECREASE) IN CASH**(568,301)204,518Cash at beginning of year780,783576,265Cash at end of year$   **212,482**$    **780,783****SUPPLEMENTAL DISCLOSURE OF CASH FLOWINFORMATION**Cash paid during the year for:Income taxes$    423,500$    640,000
See accompanying notes to financial statements
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**Garden Life Plan, Ltd.**
**NOTES TO FINANCIAL STATEMENTS**
**May 31, 2002 and 2001**
**NOTE A - NATURE OF BUSINESS**
Garden Life Plan, Ltd. (the Company), was incorporated in 1968 under the laws of the State ofHawaii (State). The Company operates as a pre-need funeral authority licensed to sell pre-needfuneral services in the State under Chapter 441 of the Hawaii Revised Statutes. Hawaiian MemorialPark Cemetery (HMPC) and Hosoi Garden Mortuary, Inc. (Hosoi) each own 50% of the outstandingvoting common stock of the Company.
The Company acts as an agent for the individual contract holders who have purchased pre-needfuneral service plans. The first 30% of payments collected for each contract sold is retained by theCompany to cover its "acquisition costs" and is non-refundable. As a pre-need funeral authority, theCompany is required to place in trust the remaining 70% of payments collected for each contractsold (the funeral reserve principal) on behalf of the individual contract purchasers (trustors). TheCompany has appointed Pacific Century Trust as the trustee of the funeral reserve principal butmay appoint another trustee. The funeral reserve principal may be invested but shall not bediminished or withdrawn from trust except in payment of the pre-need services contracted for andprovided to the deceased purchaser or designee or for the contractual refund to the purchaser.
Pacific Century Trust, as trustee, maintains the funeral reserve principal in two common trust fundsand invests such funds as directed by the Company. Realized income and capital gains earnedfrom the investment of the funeral reserve principal may be withdrawn from these common trustfunds by the Company.
**NOTE B - SIGNIFICANT ACCOUNTING POLICIES**
(1)  ***Use of estimates** - The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates. Use ofestimates include, but are not limited to, accounting for the allowance for cancellations anduncollectible accounts, deferred revenue, deferred acquisition costs, and deferred tax assets. It isat least reasonably possible that the significant estimates used to calculate the allowance forcancellations and uncollectible accounts and deferred revenue will change within the next year dueto policy changes made by the Company regarding the collection of funeral contract receivablesand also the methods used by the Company to account for trust investment income.
(2)  ***Cash and cash equivalents** - The Company considers all highly liquid investments purchasedwith an original maturity of three months or less to be cash equivalents.
(3)  ***Certificate of deposit**-***restricted** - The certificate of deposit with a financial institution isrequired to be held by the State for the Company's license as a pre-need funeral authority.
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**Garden Life Plan, Ltd.**
**NOTES TO FINANCIAL STATEMENTS**
**May 31, 2002 and 2001**
**NOTE B - SIGNIFICANT ACCOUNTING POLICIES (Continued)**
(4)  ***Funeral contracts receivable**- Approximately 25% of each contract sold is paid in cash withthe remainder being paid under installment plans with varying terms that are generally due within60 months.
(5)  ***Deferred revenue*** - The first 30% of each contract is non-refundable and is retained by theCompany to cover its "initial acquisition costs." Although 30% of the contract is non-refundable, theincome is deferred until the funeral services are provided. The remaining 70% of the contract priceis collected by the Company and deposited in trust. This funeral reserve portion of the contract isalso deferred until the pre-need funeral service is performed.
The Company also defers all accumulated realized trust earnings generated by the funeral reserveprincipal until services are performed. The accumulated trust earnings consist primarily ofreinvested dividends, interest, and capital gains on sales of securities. Upon performance of thepre-need funeral service contract, the investment earnings estimated to be attributable to thecontract are recognized as income.
(6)  ***Deferred acquisition costs** - The Company defers all selling or "acquisition" costs associatedwith pre-need funeral contract sales. Deferred acquisition costs are expensed as funeral servicecosts when the pre-need funeral service is performed and the related revenue is recognized.
(7)  ***Amounts held by trust*** - The amounts held by trust represent the cost basis of trust assetswhich consists of the accumulated funeral reserve principal on pre-need funeral service contractsoutstanding and accumulated realized trust earnings that have not been withdrawn by theCompany. Unrealized appreciation or depreciation of these investments have not been reflectedin the accompanying financial statements.
(8)***Marketable securities*** - The Company's marketable securities are held within a self-managedinvestment account that is not part of the trust assets. The Company's investments consist of ashort-term government mutual fund. As such, the Company classifies marketable securities as"available for sale" and carries these investments at cost.
(9)***Income taxes*** - The provision for income taxes includes federal and state income taxescurrently payable or receivable and those deferred because of temporary differences between thefinancial statement and tax basis of assets and liabilities.
Income taxes are provided for the tax effects of transactions reported in the financial statementsand consist of taxes currently due adjusted for deferred taxes related to differences betweenfinancial and income tax reporting. The deferred taxes represent the future tax return consequencesof those differences, which will either be taxable or deductible when the assets and liabilities arerecovered or settled.
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**Garden Life Plan, Ltd.**
**NOTES TO FINANCIAL STATEMENTS**
**May 31, 2002 and 2001**
**NOTE C - AMOUNTS HELD BY TRUST**
As the Company receives payments on pre-need funeral contracts, it is obligated to depositamounts collected in excess of the first 30% of the contract price in trust. Information relating to theamounts held by trust as of May 31, 2002 and 2001, are summarized as follows:**2002****2001****Cost**MarketValue**Cost****MarketValueEQUITY SECURITIESVanguard Fixed Income SecurityFund Intermediate Term USTreasury Portfolio$2,268,505$2,375,748$2,129,673$2,178,590Dodge & Cox Stock Fund1,872,0602,070,6172,000,1062,235,359Foreign Equity Fund2,455,4922,090,6002,282,3052,113,053Pacific Capital Small Cap Fund827,3121,055,8921,077,9511,260,492Pacific Capital Growth & IncomeFund2,456,5611,926,5562,474,4932,264,504Pacific Capital Growth Stock Fund2,680,7231,855,0812,788,2272,280,589Putnam Voyager Fund1,232,690963,9421,221,1041,141,389Vanguard/Windsor Fund  2,091,674,052,5812,134,5222,293,772Total equity securities15,885,01714,391,01716,108,38115,767,748DEBT SECURITIES - amortized costU.S. Treasury Obligations1,527,8511,537,2491,700,9211,667,544U.S. Government Agencies1,985,5162,032,4281,063,2761,054,748Corporate Bonds2,107,7662,121,7822,751,2952,731,586Total debt securities5,621,1335,691,4595,515,4925,453,878Total investments held in trust21,506,15020,082,47621,623,87321,221,626Cash held in trust1,526,9541,526,954310,158310,158Total assets held in trust$**23,033,104**$**21,609,430**$**21,934,031**$**21,531,784**
The amortized cost and market value of debt securities at May 31, 2002 and 2001, by maturity, areshown below:**2002****2001****AmortizedCost**MarketValue**AmortizedCost****MarketValueDue after one year through fiveyears$2,942,406$3,002,943$2,744,091$2,729,581Due after five years through tenyears1,365,0771,387,3121,521,1541,498,375Due after ten years1,313,8501,301,2041,250,2471,225,922$**5,621,333**$**5,691,459**$**5,515,492**$**5,453,878**

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**Garden Life Plan, Ltd.**
**NOTES TO FINANCIAL STATEMENTS**
**May 31, 2002 and 2001**
**NOTE C - AMOUNTS HELD BY TRUST (Continued)**
The portion of trust assets representing funeral reserve principal at May 31, 2002 and 2001, aresummarized as follows:**2002****2001**Cost basis of amounts held by trust$23,033,104$21,934,031Undistributed income held in trust6,629,5346,118,027Funeral reserve principal held in trust$**16,403,570**$**15,816,004**
The principal held in trust may be invested but shall not be diminished or withdrawn except inpayment of the pre-need services contracted for and provided to the deceased purchaser ordesignee or for the contractual refund to the purchaser. Undistributed income held in trust consistsof income generated from investments made with principal held in trust such as realized gains,dividends, and interest income. These income amounts are accumulated and held in trust untildistributed to the Company
**NOTE D - MARKETABLE SECURITIES**
In July 1999, the Company established a self-managed investment account consisting of debtsecurities classified as held-to-date maturity. In April 2001, the Company repositioned itsinvestments by purchasing units in a short-term government mutual fund classified as available-for-sale. The cost of this investment as of May 31, 2002 and 2001, totaled $624,728 and $1,021,456,respectively. Due to the short-term nature of the debt securities held in this mutual fund, fair valueapproximates cost.
**NOTE E - INCOME TAXES**
The Company's provision (benefit) for income taxes is summarized as follows:**2002****2001**Current taxFederal$       (3,348)$     369,589State(4,817)50,399(8,165)419,988Deferred tax benefitFederal(75,000)(408,000)State(24,000)(109,000)(99,000)(517,000)$  **(107,165**)$**(97,012)**
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**Garden Life Plan, Ltd.**
**NOTES TO FINANCIAL STATEMENTS**
**May 31, 2002 and 2001**
**NOTE E - INCOME TAXES (Continued)**
The Company's current tax provision differs from the expense that would result from applying thefederal statutory rates to earnings before income taxes primarily due to differences in trust earningson contracts serviced reported for financial statement purposes and  tax purposes.
The cumulative temporary differences related to the deferred tax assets and (liabilities) as of May31, 2002 and 2001, were as follows:**2002****2001**Reserve for funeral contract cancellations expensed forfinancial reporting purposes, not deductible for income taxpurposes$    206,000$     18,000Charter member payable expensed for financial reportingpurposes, not deductible for income tax purposes27,00030,000Deferred funeral revenue - 30% of contracts outstanding3,397,0003,425,000Deferred trust investment income1,504,0001,584,000Capital loss carry forward for state tax purposes5,000--Deferred acquisition costs(1,798,000)(1,815,000)Net deferred income tax assets$ **3,341,000**$  **3,242,000**
The Company's net deferred tax assets at May 31, 2002 and 2001, include the followingcomponents:**2002****2001**Deferred tax assets$   5,139,000$   5,057,000Deferred tax liabilities(1,798,000)(1,815,000)Net deferred tax assets$**3,341,000**$ **3,242,000**
The Company has not recorded a valuation allowance for the deferred tax assets as managementbelieves that it is more likely than not that they will be ultimately realized.
**NOTE F - RELATED PARTY TRANSACTIONS**
Hosoi is the primary servicing mortuary. Payments made for services rendered on pre-need funeralcontracts are made directly to Hosoi by the trustee.
Management fees of $43,500 and $159,500 were paid to HMPC for the years ended May 31, 2002and 2001, respectively.
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**Garden Life Plan, Ltd.**
**NOTES TO FINANCIAL STATEMENTS**
**May 31, 2002 and 2001**
**NOTE G - CHARTER MEMBER PAYABLE**
In October 1995, the Company's board of directors moved to compensate its charter members forrelinquishing their status as charter members with a final distribution consisting of an option toreceive either $250 in cash or a $500 coupon for future funeral services. Charter members werethe original customers of the Company, who had received payments from the Company in prioryears at the discretion of the board of directors. The option expired February 29, 1996, at whichtime all charter members who had not exercised the $250 cash option were mailed the $500coupon for future funeral services. The Company will pay the servicing mortuary for such servicesupon the death of the charter member and the receipt of the issued coupon. In fiscal year 1996, theCompany accrued $210,500 for the estimated future services and, at May 31, 2002 and 2001, theaccrual for the unredeemed coupons approximated $73,000 and $78,000, respectively.
**NOTE H - CONTINGENT LIABILITIES**
The Company has an agreement with Hosoi which gives the Company the exclusive right to solicitpre-need funeral service arrangements for service by Hosoi. This agreement also commits Hosoito perform the funeral services that are the contractual obligations of the Company to the individualcontract purchasers. This agreement expired in September 2001. However, Hosoi's responsibilityto provide services under pre-need contracts sold prior to expiration of the agreement continuesindefinitely.
When a prepaid funeral contract purchaser passes away, the Trustee is required to pay thedesignated mortuary service provider the related amount from the funeral reserve principalpreviously deposited in the common trusts. A contract purchaser also has the right to terminate thecontract; in which case, the related amount in the funeral reserve principal must be refunded. TheCompany, as seller of the pre-need funeral service agreements, has the obligation to secureperformance of the funeral service at no further cost to the prepaid funeral contract purchaser.Therefore, the Company is contingently liable for any costs in excess of funds available in thefuneral reserve principal to provide alternate funeral services if Hosoi is unable to perform on itscontractual obligation. Hosoi has given no indication that it will be unable to fully perform itsobligations under the servicing mortuary agreement and has provided assurances that it willcontinue to service all pre-need contracts sold prior to the expiration date of the servicing mortuaryagreement. Accordingly, management has not undertaken to estimate the liability, if any, that mayresult from the excess of current and expected funeral service costs over the funeral reserveprincipal, if Hosoi is unable to perform.
**NOTE I - CONCENTRATION OF CREDIT RISK**
The Company maintains its cash accounts in commercial banks and with the trustee located in theState. Cash balances of these accounts are insured up to $100,000 per account holder by theFederal Deposit Insurance Corporation (FDIC) or up to $500,000 (with a limit of $100,000 for cash)by the Securities Investors Protection Corporation (SIPC). In assessing its concentration of creditrisk related to cash and cash equivalents, the Company places its cash and cash equivalents incommercial banks and with the trustee, which may at times exceed the insurance limits.
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