<PAGE> 1
UNITED STATES
SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D.C.
----------------------------------
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT FILED
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
-----------------------------------
BESTWAY, INC.
AMENDMENT NO. 1
The Undersigned registrant hereby amends the following items, financial
statements, exhibits, or other portions of its Form 8-K dated April 25, 1996 as
set forth in the pages attached hereto:
Item 7. Financial Statements, Pro Forma
(a) Financial Statements of business acquired
(b) Pro Forma financial information
EXHIBITS
23 Consent of Independent Certified Public Accountants
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Bestway, Inc.
/s/ Beth A. Durrett
---------------------------
Beth A. Durrett
Vice President/Controller
June 24, 1996
<PAGE> 2
ITEM 7. Financial Statements, Pro Forma
(a) Financial statements of business acquired
<PAGE> 3
[GAMBLE GIVENS & MOODY P.A. LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To The Boards of Directors
Bestway, Inc. and All Star Rental, Inc.
We have audited the accompanying balance sheets of All Star
Rental, Inc. (an S Corporation) as of December 31, 1995 and 1994 and the
related statements of income and accumulated deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance as to whether the financial statements are free
of material misstatement. An audit includes examining. on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. 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, the financial position of All Star
Rental, Inc. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ GAMBLE GIVENS & MOODY, P.A.
March 15, 1996 except for note X, for
which the date is April 12, 1996
- 1 -
<PAGE> 4
ALL STAR RENTAL, INC.
---------------
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 42,337
Accounts receivable - officers 51,356
Accounts receivable - other 14,529
Rental inventory (net of accumulated
depreciation of $1,280,885) 1,784,515
Fixed assets (net of accumulated
depreciation of $652,685) 213,137
Prepaid expenses 65,611
Cash surrender value of officers'
life insurance 50,754
Deposits - 4,200
------------
TOTAL ASSETS $ 2,226,439
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE> 5
ALL STAR RENTAL, INC.
---------------
BALANCE SHEET
DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
LIABILITIES
Bank overdraft $ 68,641
Line of credit 45,000
Note payable - floor plan 2,427,919
Notes payable - installment 84,981
Accounts payable - trade 363,373
Withheld and accrued payroll taxes 3,985
Sales taxes payable 25,008
Other liabilities 78,567
Accrued vacation 24,062
Accrued property tax 49,232
----------
TOTAL LIABILITIES $ 3,170,768
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock (100,000 shares of $1 par value
authorized, 5,000 shares issued and outstanding) 5,000
Accumulated deficit (949,329)
----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (944,329)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,226,439
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE> 6
ALL STAR RENTAL, INC.
---------------
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
OPERATING REVENUES
Rental income and fees (net of refunds of $3,580) $ 5,573,918
Sales 34,994
------------
Total operating revenues $ 5,608,912
COST OF RENTAL INCOME, FEES AND SALES
Depreciation of rental inventory 1,215,743
Interest - floor plan 315,822
Other costs of rental units 167,421
------------
Total cost of rental income, fees and sales 1,698,986
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation 114,004
Rent 331,765
Other operating expenses 2,863,283
Other general and administrative expenses 907,659
------------
Total operating and general and administrative expenses 4,216,711
------------
OPERATING INCOME (LOSS) (306,785)
OTHER INCOME(EXPENSE)
Gain on disposition of fixed assets 810
Interest income 4,926
Interest expense (20,084)
Legal settlement 71,271
Miscellaneous 29,562
------------
Total other income 86,485
------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE> 7
ALL STAR RENTAL, INC.
---------------
STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
NET INCOME (LOSS) (220,300)
ACCUMULATED DEFICIT, BEGINNING OF YEAR (693,605)
-----------
ACCUMULATED DEFICIT, BEFORE PRIOR
PERIOD ADJUSTMENT (913,905)
PRIOR PERIOD ADJUSTMENT (35,424)
-----------
ACCUMULATED DEFICIT, END OF YEAR $ (949,329)
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE> 8
ALL STAR RENTAL, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 5,608,161
Interest received 1,593
Other operating receipts 105,515
Cash paid to suppliers and employees (4,388,947)
Interest paid (245,785)
-------------
Net cash provided by operating activities 1,080,537
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash payments for the purchase of rental inventory (1,138,607)
Cash payments for the purchase of fixed assets (38,533)
Cash proceeds from the sale of fixed assets 17,025
Loans to officers (504)
Cash value of insurance (10,362)
-------------
Net cash (used) by investing activities (1,170,981)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 165,805
Negative cash balance implicitly financed 68,641
Principal payments on long-term debt (211,630)
Payments on floor plan (26,000)
-------------
Net cash (used) by financing activities (3,184)
-------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (93,628)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 135,965
-------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 42,337
=============
</TABLE>
The accompanying notes are an Integral part of these financial statements.
- 6 -
<PAGE> 9
ALL STAR RENTAL, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $ (220,300)
-----------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Accrued vacation 24,062
Depreciation of rental inventory 1,215,743
Depreciation and amortization 114,004
Gain on disposal of property (810)
Non-cash interest on officer's loans (3,333)
(Increase) decrease in assets:
Accounts receivable (4,331)
Prepaid expenses (33,664)
Deposits (250)
Inventory 4,057
Increase (decrease) in liabilities:
Accounts payable (25,537)
Accrued payroll taxes (220)
Sales tax payable (871)
Other liabilities (1,821)
Accrued property taxes 13,808
-----------
TOTAL ADJUSTMENTS 1,300,837
-----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,080,537
-----------
SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Acquisition of automotive equipment through issuance
of long-term debt $ 51,050
Financed interest added to floor plan note 90,121
-----------
TOTAL NON-CASH ACTIVITIES $ 141,171
-----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE> 10
ALL STAR RENTAL, INC.
---------------
NOTES TO FINANCIAL STATEMENTS
I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of All Star Rental,
Inc. is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representation of the
Company's management, who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial
statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
BUSINESS ACTIVITY - The Company has operated primarily in the
Rent-to-Own industry since April,1982. The Company rents consumer appliances,
electronics, furniture and jewelry on a no obligation, week to week or month to
month basis with ownership options. The ownership option on a typical new piece
of merchandise would require seventy-eight weekly or eighteen monthly payments.
These contracts may be renewed on a weekly or monthly basis or terminated at
any time at the discretion of the customer. Upon termination of the contract
the merchandise must be returned to the Company. The Company maintains
ownership of the products until such time as the contract is paid out at which
time ownership is passed to the customer. The Company maintains seventeen
rent-to-own locations in three states: South Carolina (Charleston, 4; Columbia
5): Georgia (Savannah, 1; Augusta 1); North Carolina (Charlotte, 2; Central &
Western NC, 4).
RECOGNITION OF REVENUE - Rental revenues are collected in advance on
a weekly or monthly basis. Revenue is recognized as collected since at the time
of collection the merchandise has been placed in service and substantially all
costs of installation and delivery have been incurred. As the contracts may be
terminated at any time by the customer, the Company does not include remaining
rents due on contracts in current income or recognize them as receivables on
its balance sheet.
RENTAL INVENTORY - Rental inventory is recorded on the balance sheet
at cost less accumulated depreciation. This inventory is being depreciated
using the Income Forecasting Method. Under this method, depreciation is
recorded as income is collected as opposed to with the passage of time. This
is a recognized standard method of depreciation for the Rent-to-Own industry and
management feels it provides the most accurate matching of expenses and
revenues.
At such time that the merchandise is sold or otherwise disposed of,
any remaining undepreciated balance is removed from the accounts and charged
off for the period. The cost of repairs and maintenance on the merchandise
while the Company maintains ownership is charged against income as incurred.
- 8 -
<PAGE> 11
ALL STAR RENTAL, INC.
NOTES TO FINANCIAL STATEMENTS
I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fixed Assets - Fixed assets are carried at cost less accumulated
depreciation. Depreciation is computed using straight line and accelerated
methods with useful lives as follows: Automotive equipment - 5 years, Computer
equipment - 5 years. Furniture and fixtures - 7 years: Other equipment - 5
years: Leasehold improvements - 10 to 31.5 years.
Fixed assets are summarized by major classifications as follows:
<TABLE>
<S> <C>
Computer systems $ 129,665
Automotive equipment 534,836
Furniture and fixtures 144,914
Other equipment 47,863
Leasehold improvements 8,544
----------
TOTAL $ 865,822
==========
</TABLE>
Income Taxes - The Company has elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those
provisions the Company generally does not pay Federal or state corporate
income taxes on its taxable income. Instead the stockholders are liable for
individual taxes on their share of the Company's taxable income.
Cash and Cash Equivalents - The Company considers all short-term
investments with an original maturity of three months or less to be cash
equivalents.
II. NOTES PAYABLE
A summary of the terms and balances of notes payable as of December
31.1995 is as follows:
<TABLE>
<S> <C>
Note payable - McDonnell Douglas Finance Corp.: note
replacing former line of credit for the purchase of rental
inventory. Interest is paid monthly at prime plus 6%.
This note is collateralized by all assets of the Company.
This agreement expires January 25, 1996. However, the
Company is currently negotiating new terms with
McDonnell Douglas. $ 2,427,919
Note payable - Ford Motor Credit: eight installment notes with
interest rates ranging from 5.9% to 9.0%. All notes are
collateralized by vehicles. The total monthly payments for
these notes is $3,868. 65,287
</TABLE>
- 9 -
<PAGE> 12
ALL STAR RENTAL, INC.
---------------
NOTES TO FINANCIAL STATEMENTS
II. NOTES PAYABLE (continued)
<TABLE>
<S> <C>
Note payable - Nations Bank: installment note with monthly
payment of $595 including interest at 8.35% collateralized
by a 1992 Lexus. 5,727
Note payable - GMAC: installment note with monthly payment of
$500 including interest at 12.65% collateralized by a 1992
Isuzu NPR truck. 3,354
Note payable - Chase Manhattan: installment note with monthly
payment of $470, including interest at 5.9% collateralized by a
1993 Volvo. 10,613
-----------
TOTAL NOTES PAYABLE $ 2,512,900
===========
</TABLE>
Maturities of long-term debt as of December 31, are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1996 $ 2,523,570
1997 28,492
1998 5,838
-----------
2,557,900
Less line of credit - See note IV. (45,000)
-----------
TOTAL $ 2,512,900
===========
</TABLE>
III. LEASES
The Company leases its home office and stores under operating leases. As
of December 31, 1995, the approximate future minimum lease payments required
under noncancellable operating leases are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1996 $ 144,125
1997 51,349
1998 47,200
-----------
TOTAL $ 242,674
===========
</TABLE>
Total rental expense for the year was $325,779.
- 10 -
<PAGE> 13
ALL STAR RENTAL, INC.
---------------
NOTES TO FINANCIAL STATEMENTS
IV. REVOLVING LINE OF CREDIT
The Company has a $50,000 revolving line of credit of which $5,000 was
unused at December 31, 1995. The remaining balance is due 365 days from the
date of the note with interest due monthly at bank prime plus 1%. The credit
line is secured by certain fixed assets of the Company.
V. PROFIT SHARING PLAN
The Company maintains a defined contribution profit sharing plan which
covers all eligible employees. Contributions to the plan may be made annually
at management's discretion. For the year ended December 31, 1995, management
has elected not to make a contribution to the plan.
VI. RELATED PARTY TRANSACTIONS
The Company has made uncollateralized advances to its Stockholders. There
are no repayment terms at present. Interest is accrued at 8% on balances over
$10,000. As of December 31, 1995, these advances are presented on the balance
sheet as:
Accounts receivable - officers $ 51,356
VII. CONCENTRATION OF CREDIT RISK
At December 31, 1995, the carrying amount of the Company's deposits
was $(26,304) and the institutions' balances totaled $20,709. Of the
institutions' balances. $14,818 was covered by FDIC insurance and $5,891 was
covered by SIPC insurance.
VIII. FAIR VALUE
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all
financial instruments at December 31, 1995, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting using market data to develop the estimates of fair value, and,
accordingly, the estimates are not necessarily indicative of the amount that the
Company could realize in a current market exchange.
<PAGE> 14
ALL STAR RENTAL, INC.
---------------
NOTES TO FINANCIAL STATEMENTS
IX. PRIOR-PERIOD ADJUSTMENT
An error resulting in an understatement of previously reported 1994
results of operations was discovered during 1995. Correction of this error
resulted in a reduction of previously reported net income of $35,424.
The following schedule details the nature and amount of this error:
Understatement of accrued taxes payable $ (35,424)
-----------
X. SUBSEQUENT EVENTS
Subsequent to December 31, 1995, the Company closed two of it's seventeen
stores. One was located in Charleston. S.C. and the other was located in
Charlotte. N.C. The combined annual gross revenues of these two stores was
approximately $450,000. The rental agreements from these stores were transferred
to other stores of the Company. No other closures are planned.
On April 4,1996 the Company received debt forgiveness in the amount of
$600,000 from McDonnell Douglas Finance Corporation.
On April 12,1996, the Company was the target corporation in a
reorganization under Internal Revenue Code Section 368(a)(1)(C) with Bestway,
Inc. The Company transferred substantially all of its assets, as well as the
transfer of liabilities to which the assets were subject, in exchange for
Bestway, Inc. stock.
- 12 -
<PAGE> 15
ALL STAR RENTAL, INC.
BALANCE SHEET
December 31, 1994
<TABLE>
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 155,523
Accounts receivable - officers 47,519
Accounts receivable - other 10,198
Inventory for resale 4,057
Rental inventory (net of accumulated
depreciation of $1,261,680) 1,771,530
Fixed assets (net of accumulated
depreciation of $624,349) 253,773
Prepaid expenses 31,947
Cash surrender value of officers,
life insurance 40,392
Deposits 3,950
-----------
Total Assets $ 2,318,889
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 2 -
<PAGE> 16
ALL STAR RENTAL, INC.
---------------
BALANCE SHEET
December 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
LIABILITIES
Line of Credit $ 20,500
Note payable - floor plan 2,363,798
Notes payable - installment 104,256
Accounts payable - trade 388,910
Bank overdraft 19,558
Withheld and accrued payroll
taxes 4,204
Sales taxes payable 25,879
Other liabilities 80,389
-----------
Total liabilities $ 3,007,494
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock (100,000 shares of
$1 par valued authorized; 5,000
shares issued and outstanding) $5,000
Retained earnings (deficit) (693,605)
-----------
Total stockholders' equity (deficit) (688,605)
-----------
Total Liabilities and Stockholders'
Equity (Deficit) $ 2,318,889
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 3 -
<PAGE> 17
ALL STAR RENTAL, INC.
---------------
STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
For the Year Ended December 31, 1994
<TABLE>
<S> <C> <C>
OPERATING REVENUES
Rental income and fees (net of
refunds of $3,865) $ 5,604,990
Sales 46,298
-----------
Total operating revenues $ 5,651,288
COST OF RENTAL INCOME, FEES AND SALES
Depreciation of rental inventory $ 1,220,848
Interest - floor plan 325,401
Other cost of rental units 452,619
-----------
Total cost of rental income, fees
and sales 1,998,868
OPERATING AND GENERAL AND ADMINISTRATIVE
EXPENSES
Depreciation $ 131,914
Rent 319,492
Other operating expenses 2,310,408
Other general and administrative expenses 831,503
-----------
Total operating and general
and administrative expenses 3,593,317
-----------
OPERATING INCOME $ 59,103
OTHER INCOME (EXPENSES)
Gain on disposition of assets $ 5,798
Interest income 8,966
Interest expense (14,512)
Miscellaneous 12,726
-----------
Total other income 12,978
-----------
NET INCOME $ 72,081
RETAINED EARNINGS (DEFICIT), BEGINNING OF YEAR (765,686)
-----------
RETAINED EARNINGS (DEFICIT), END OF YEAR $ (693,605)
===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 4-
<PAGE> 18
ALL STAR RENTAL, INC.
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1994
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 5,655,153
Interest received 6,824
Other operating receipts 12,726
Cash paid to suppliers and employees (3,400,411)
Interest paid (339,913)
-----------
Net cash provided by operating activities $ 1,934,379
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash payments for the purchase of rental inventory $(1,520,196)
Cash payments for the purchase of property (73,524)
Cash proceeds from the sale of property 15,050
Loans to officers (14,485)
Cash value of life insurance (9,472)
-----------
Net cash (used) by investing activities $(1,602,627)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt $20,000
Bank Overdraft 19,558
Principal payments on long-term debt (94,155)
Payments on floor plan (350,000)
-----------
Net cash (used) by financing activities $ (404,597)
-----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS $(72,845)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 228,368
-----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 155,523
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 5 -
<PAGE> 19
ALL STAR RENTAL, INC.
---------------
STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1994
<TABLE>
<S> <C>
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 72,081
------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of rental inventory $ 1,220,848
Depreciation and amortization 131,914
Gain on disposal of property (5,798)
Non-cash interest on officers' loans (2,142)
Non-cash charge-offs and disposals 343,802
(Increase) decrease in assets:
Accounts receivable 9,564
Prepaid expenses (5,255)
Deposits 13,818
Increase (decrease) in liabilities:
Accounts payable 148,338
Accrued payroll taxes (690)
Sales tax payable (758)
Other liabilities 8,657
------------
Total adjustments $ 1,862,298
------------
Net cash provided by operating activities $ 1,934,379
============
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of automotive equipment through
issuance of long-term debt $ 29,449
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
- 6 -
<PAGE> 20
ALL STAR RENTAL, INC.
---------------
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY - The Company has operated primarily in the Rent-to-Own
industry since April, 1982. The Company rents consumer appliances, electronics,
furniture and jewelry on a no obligation, week to week or month to month basis
with ownership options. The ownership option on a typical new piece of
merchandise would require seventy-eight weekly or eighteen monthly payments.
These contracts may be renewed on a weekly or monthly basis or terminated at
any time at the discretion of the customer. Upon termination of the contract,
the merchandise must be returned to the Company. The Company maintains
ownership of the products until such time as the contract is paid out at which
time ownership is passed to the customer. The Company maintains seventeen
rent-to-own locations in three states: South Carolina (Charleston, 4; Columbia,
5); Georgia (Savannah, 1; Augusta, 1); North Carolina (Charlotte, 2; Central
Western NC, 4).
RECOGNITION OF REVENUE - Rental revenues are collected in advance on a weekly
or monthly basis. Revenue is recognized as collected since at the time of
collection the merchandise has been placed in service and substantially all
costs of installation and delivery have been incurred. As the contracts may be
terminated at any time by the customer, the Company does not include remaining
rents due on contracts in current income or recognize them as receivables on
its balance sheet.
RENTAL INVENTORY - Rental inventory is recorded on the balance sheet at cost
less accumulated depreciation. This inventory is being depreciated using the
Income Forecasting Method. Under this method, depreciation is recorded as
income is collected as opposed to the passage of time. This is a recognized
standard method of depreciation for the Rent-to-Own industry and management
feels it provides the most accurate matching of expenses and revenues.
At such time that the merchandise is sold or otherwise disposed of, any
remaining undepreciated balance is removed from the accounts and charged off
for the period. The cost of repairs and maintenance on the merchandise while
the Company maintains ownership is charged against income as incurred.
- 7 -
<PAGE> 21
ALL STAR RENTAL, INC.
---------------
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FIXED ASSETS - Fixed assets are carried at cost less accumulated depreciation.
Depreciation is computed using straight line and accelerated methods with
useful lives as follows: Automotive Equipment - 5 years; Electronic Equipment
- 5 years; Furniture and Fixtures - 7 years; Leasehold Improvements - 10 to
31.5 years.
Property and equipment are summarized by major classifications as follows:
<TABLE>
<S> <C>
Computer systems $ 122,244
Automotive equipment 567,488
Furniture and fixtures 131,036
Other equipment 48,810
Leasehold improvements 8,544
-----------
Total $ 878,122
===========
</TABLE>
INCOME TAXES - The Company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the Company
generally does not pay Federal or state corporate income taxes on its taxable
income. Instead the stockholders are liable for individual taxes on their share
of the Company's taxable income.
CASH AND CASH EQUIVALENTS - The Company considers all short-term investments
with an original maturity of three months or less to be cash equivalents.
- 8 -
<PAGE> 22
ALL STAR RENTAL, INC.
--------------
NOTES TO FINANCIAL STATEMENTS
NOTES PAYABLE
A summary of the terms and balances of notes payable as of December 31, 1994 is
as follows:
Description
<TABLE>
<S> <C>
McDonnell Douglas Finance Corp. - note replacing
former line of credit for the purchase of
rental inventory. Interest is paid monthly
at prime plus 6%. This note is collateralized
by all assets of the Company. This agreement
expires January 25, 1996. However the Company is
currently in default with certain terms of this
agreement. $ 2,363,798
Ford Motor Credit - nine installment notes
with interest rates ranging from 5.9% to
10.0%. All notes are collateralized by vehicles.
The total monthly payments for these notes is
$4,190. 68,128
Nations Bank - installment note with monthly
payment of $594.92 including interest at 8.35%
collateralized by a 1992 Lexus. 12,096
GMAC - installment note with monthly payment of
$499.75 including interest at 12.65%
collateralized by a 1992 Isuzu NPR truck. 8,564
Chase Manhattan - installment note with monthly
payment of $469.93 including interest at
5.9% collateralized by a 1993 Volvo. 15,468
------------
Total notes payable $ 2,468,054
============
Debt maturity for the next five years is as follows:
YEARS ENDING DECEMBER 31,
1995 $ 2,422,524
1996 $ 35,169
1997 $ 10,361
</TABLE>
- 9 -
<PAGE> 23
ALL STAR RENTAL, INC.
NOTES TO FINANCIAL STATEMENTS
LEASES
The Company leases its home office and stores under operating leases. As of
December 31, 1994 the approximate future minimum lease payments required under
noncancellable operating leases are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1995 $ 211,722
1996 $ 114,761
1997 $ 26,149
</TABLE>
Total rental expense for the year was $319,492.
REVOLVING LINE OF CREDIT
The Company has a $32,000 revolving line of credit of which $11,500 was
unused at December 31, 1994. The remaining balance is due 365 days from the
date of the note with interest due monthly at bank prime plus l%. The credit
line is secured by certain fixed assets of the Company.
PROFIT SHARING PLAN
The Company maintains a defined contribution profit sharing plan which covers
all eligible employees. Contributions to the plan may be made annually at
management's discretion. For the year ended December 31, 1994, management has
elected to make a contribution to the plan in the amount of $5,000.
RELATED PARTY TRANSACTIONS
The Company has made uncollateralized advances to its Stockholders. There are
no repayment terms at present. Interest is accrued at 8% on balances over
$10,000. As of December 31, 1994, these advances are presented on the balance
sheet as:
Accounts receivable - officers $47,519
CONCENTRATION OF CREDIT RISK
At December 31, 1994, the carrying amount of the Company's deposits was
$131,502 and the institutions' balances totaled $147,619. Of the institutions'
balances, $29,121, was covered by FDIC insurance and $118,498 was covered by
SIPC insurance.
- 10 -
<PAGE> 24
ITEM 7. Financial Statements, Pro Forma, con't.
(b) Pro Forma financial statements
BESTWAY, INC.
INTRODUCTION TO PRO FORMA COMBINED
FINANCIAL INFORMATION
(Unaudited)
The following unaudited pro forma condensed financial statements (the "Pro
Forma Financial Statements") are based on the historical financial statements
of Bestway, Inc. ("Bestway" or the "Company") and All Star Rental, Inc. ("All
Star"). The Pro Forma Financial Statements have been prepared to illustrate the
effects of the consummation of the Agreement for the Purchase and Sale of
Assets (the "Asset Purchase Agreement") between Bestway and All Star. The
assets acquired by the Company include, among other things, All Star's idle
inventory, rental contracts, vehicles, store furniture and fixtures, computers
and leasehold improvements. In addition, the Company assumed the leases for 15
of All Star's former store locations.
The combined condensed pro forma balance sheet as of January 31, 1996, has
been prepared as if the transaction has occurred on that date. The combined
condensed pro forma statements of operations have been presented for the
Bestway year ended July 31, 1995 and the six months ended January 31, 1996, as
if the transaction had occurred at the beginning of fiscal year 1995 and
carried forward through the interim period presented, except that additional
liabilities resulting from the operations of the business from January 31, 1996
through the closing date of April 12, 1996 all assumed by the Company in
accordance with the Asset Purchase Agreement and is included herein.
The Pro Forma Financial Statements are presented for illustrative purposes
only and are not necessarily indicative of the operating results that would
have occurred if the transaction given pro forma effect herein had been
consummated as of the time reflected herein, nor are they necessarily
indicative of the future operating results or financial position of the
Company. The pro forma adjustments are based upon available information and
certain assumptions that the Company believes are reasonable. Allocations of
the purchase price for the All Star Asset Purchase have been determined based
upon preliminary estimates of fair value and are subject to change. Differences
between the amounts included herein and the final allocations are not expected
to have a material effect on the Pro Forma Financial Statements. These Pro
Forma Financial Statements should be read in conjunction with the historical
financial statements and related notes of the Company's historical consolidated
financial statements and notes thereto contained in the 1995 Form 10-K for the
year ended July 31, 1995.
<PAGE> 25
BESTWAY, INC.
PRO FORMA CONDENSED BALANCE SHEETS
(Unaudited)
January 31, 1996
<TABLE>
<CAPTION>
Pro Forma
-------------------------------
Company All Star Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 457,818 $ 4,275 $ (2,775)(1) $ 459,318
Rental merchandise, net 6,907,205 1,772,895 -- 8,680,100
Property assets, net 2,145,461 207,356 (74,458)(2) 2,278,359
Intangible assets, net 2,442,734 -- 1,030,785(3) 3,473,519
Prepaid expenses and other 2,776,457 209,481 (203,686)(4) 2,782,270
------------ ------------ ------------ ------------
$ 14,729,693 $ 2,194,007 $ 749,866 $ 17,673,566
============ ============ ============ ============
LIABILITIES
Accounts payable - trade $ 503,056 $ 357,090 $ 62,808(5) $ 922,954
Accrued liabilities 834,629 119,608 236,499(6) 1,190,736
Income taxes payable 76,376 -- -- 76,376
Debt 7,061,612 2,550,554 (960,921)(7) 8,651,245
------------ ------------ ------------ ------------
8,475,673 3,027,252 (661,614) 10,841,311
Stockholders' equity 6,254,020 (833,245) 1,411,480(8) 6,832,255
------------ ------------ ------------ ------------
$ 14,729,693 $ 2,194,007 $ 749,866 $ 17,673,566
============ ============ ============ ============
</TABLE>
(1) Reflects the elimination of cash not transferred in accordance with the
Asset Purchase Agreement.
(2) Reflects the adjustment to property and equipment based on an estimated
fair value of $132,898.
(3) Reflects the excess of the purchase price over the assets and liabilities
assumed of $861,687 and a non-compete agreement of $287,500 to be
amortized over 15 and 2 years, respectively.
(4) Reflects the elimination of certain prepaid expenses and other assets
which are not a part of the Asset Purchase Agreement.
(5) Reflects the increase in accounts payable - trade for costs incurred
through the consummation date in accordance with the Asset Purchase
Agreement.
(6) Reflects a reduction in certain accrued liabilities from January 31, 1996
to the consummation date of approximately $51,000, plus the increase of
$287,500 in additional consideration to be paid to the previous owners of
All Star.
(7) Reflects the reduction in debt forgiven by All Star's senior secured
lender.
(8) Reflects the issuance of 115,647 restricted shares of the Company's voting
common stock, $.01 par value per share delivered to the former owners of
All Star valued at $5.00 per share. The $5.00 share value is the
approximate weighted average price (based on volume of shares traded)
during the period from June, 1995 to April, 1996. The weighted average of
$6.75 was then discounted for the restricted nature of the stock.
<PAGE> 26
BESTWAY, INC.
PRO FORMA CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Year Ended July 31, 1995
<TABLE>
<CAPTION>
Company All Star Adjustments Combined
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 16,423,262 $ 5,656,806 $ -- $ 22,080,068
Cost and Operating Expenses
Depreciation and amortization
Rental merchandise 3,959,484 1,248,928 -- 5,208,412
Other 937,690 120,005 180,299(1) 1,237,994
Cost of merchandise sold 140,038 23,075 -- 163,113
Salaries and Wages 4,014,289 1,590,896 (163,502)(2) 5,441,683
Advertising 726,967 326,085 -- 1,053,052
Occupancy expense 759,613 327,708 (18,818)(3) 1,068,503
Other operating expenses 4,302,231 1,721,023 (212,987)(4) 5,810,267
Interest expense 510,838 346,682 (187,719)(5) 669,801
------------ ------------ ------------ ------------
Income before income tax provision 1,072,112 (47,596) 402,727 1,427,243
Current income tax expense (benefit) 101,047 (952) 10,743 110,838
Deferred income tax (benefit)
expense (2,013,784) 952 126,157 (1,886,675)
------------ ------------ ------------ ------------
Net income $ 2,984,849 $ (47,596) $ 265,827 $ 3,203,080
============ ============ ============ ============
Net income per share $ 1.99 $ 1.98
============ ------------
Weighted average common
shares outstanding 1,502,239 1,617,886
============ ============
</TABLE>
(1) Reflects amortization of goodwill of $743,285 recorded in connection with
the All Star asset purchase over 15 years and amortization of non-compete
of $287,500 over 2 years.
(2) Reflects adjustments for the elimination of certain designated employees
that will not be replaced, and the reduction of the previous owners
compensation expense pursuant to the Asset Purchase Agreement.
(3) Reflects adjustments for the elimination of certain occupancy expense
relating to the All Star corporate headquarters that will be permanently
closed.
(4) Reflects adjustments for the elimination of certain general and
administrative expenses relating to All Star.
(5) Reflects a reduction in interest expense on debt as a result of the Asset
Purchase Agreement.
<PAGE> 27
BESTWAY, INC.
PRO FORMA CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
Six Months Ended January 31, 1996
<TABLE>
<CAPTION>
Company All Star Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 8,583,561 $ 2,720,432 $ -- $11,303,993
Cost and Operating Expenses
Depreciation and amortization
Rental merchandise 1,985,229 616,314 -- 2,601,543
Other 506,223 53,564 72,652(1) 632,439
Cost of merchandise sold 243,690 18,748 -- 262,438
Salaries and Wages 2,142,684 833,692 (71,920)(2) 2,904,456
Advertising 318,540 160,760 -- 479,300
Occupancy expense 397,959 161,307 (4,560)(3) 554,706
Other operating expenses 2,345,016 845,502 (92,652)(4) 3,097,866
Interest expense 247,822 126,494 (47,012)(5) 327,304
----------- ----------- ----------- -----------
Income before income tax provision 396,398 (95,949) 143,492 443,941
Current income tax expense (benefit) 30,287 (1,919) 4,690 33,058
Deferred income tax expense 153,384 1,919 (44,097) 199,400
----------- ----------- ----------- -----------
Net income $ 212,727 $ (95,949) $ 94,704 $ 211,483
=========== =========== =========== ===========
Net income per share $ .14 $ .13
----------- -----------
Weighted average common
shares outstanding 1,500,070 1,615,717
=========== ===========
</TABLE>
(1) Reflects amortization of goodwill of $743,285 recorded in connection with
the All Star asset purchase over 15 years and amortization of non-compete
of $287,500 over 2 years.
(2) Reflects adjustments for the elimination of certain designated employees
that will not be replaced, and the reduction of the previous owners
compensation expense pursuant to the Asset Purchase Agreement.
(3) Reflects adjustments for the elimination of certain occupancy expense
relating to the All Star corporate headquarters that will be permanently
closed.
(4) Reflects adjustments for the elimination of certain general and
administrative expense relating to All Star.
(5) Reflects a reduction in interest expenses on debt as a result of the Asset
Purchase Agreement.
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23 Consent of Independent Certified Public Accountants
</TABLE>
<PAGE> 1
[GAMBLE GIVENS & MOODY P.A. LETTERHEAD}
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
March 15,1996 except for Note X, for which the date is April 12, 1996 on the
Financial Statements of All Star Rental, Inc, included in or made a part of
Bestway, Inc.'s registration statement dated June 24, 1996 and to all references
to our Firm included in this registration statement.
/s/ GAMBLE, GIVENS & MOODY, P.A.
Gamble, Givens & Moody, P.A.
North Charleston, South Carolina
June 20, 1996
