<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number 0-8568
BESTWAY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 81-0332743
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7800 Stemmons, Suite 320, Dallas, Texas 75247
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(214) 630-6655
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock, $.01 par value, outstanding as of
October 31, 1997 was 1,749,967.
<PAGE> 2
BESTWAY, INC. FORM 10-Q
- --------------------------------------------------------------------------------
QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
October 31, 1997
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
ITEM 1. Consolidated Unaudited Financial Statements 3-8
ITEM 2. Management's Discussion and Analysis of Financial 9-11
Condition and Results of Operations
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on form 8-K, Signatures 12
</TABLE>
Page 2 of 12
<PAGE> 3
BESTWAY, INC. FORM 10-Q
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
October 31, 1997 July 31, 1997
---------------- -------------
<S> <C> <C>
ASSETS
Cash $ 524,642 $ 354,738
Restricted cash 119,342 119,342
Prepaid expenses 173,471 127,977
Deferred income taxes 1,643,947 1,702,080
Other assets 76,497 68,889
Rental merchandise, at cost 17,980,167 15,962,450
less accumulated depreciation 5,980,769 5,818,763
------------ ------------
11,999,398 10,143,687
------------ ------------
Property and equipment, at cost 5,247,812 5,019,151
less accumulated depreciation 2,506,830 2,287,383
------------ ------------
2,740,982 2,731,768
------------ ------------
Non-competes, net of amortization 471,218 568,841
Goodwill, net of amortization 2,498,240 2,556,645
------------ ------------
Total assets $ 20,247,737 $ 18,373,967
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,136,509 $ 1,327,216
Accrued interest - related parties 15,500 12,013
Accrued interest - other 53,500 45,250
Income taxes payable 59,841 52,648
Other accrued liabilities 1,059,161 1,170,395
Notes payable - related parties 3,000,000 3,100,000
Notes payable - other 6,235,430 5,071,945
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $10.00 par value
1,000,000 authorized, none issued -- --
Common stock, $.01 par value, 5,000,000 authorized,
1,749,967 issued and outstanding at,
October 31, 1997 and July 31, 1997, respectively 17,500 17,500
Paid-in capital 16,089,897 16,089,897
Accumulated deficit (8,419,601) (8,512,897)
------------ ------------
Total stockholders' equity 7,687,796 7,594,500
------------ ------------
Total liabilities and stockholders' equity $ 20,247,737 $ 18,373,967
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 3 of 12
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BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
---------------------------------
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Revenues:
Rental income $ 6,041,567 $ 6,019,221
Sales of merchandise 50,610 50,535
----------- -----------
6,092,177 6,069,756
----------- -----------
Cost and operating expenses:
Depreciation and amortization:
Rental merchandise 1,310,042 1,389,395
Other 394,953 422,705
Cost of merchandise sold 51,837 52,458
Salaries and wages 1,623,843 1,522,721
Advertising 239,815 234,981
Occupancy 378,280 326,588
Other operating expenses 1,736,304 1,696,931
Interest expense 188,467 188,631
Loss (gain) on sale of property and equipment 6,114 (9,634)
----------- -----------
5,929,655 5,824,776
----------- -----------
Income from operations before
income tax provision: 162,522 244,980
----------- -----------
Current income tax expense 11,095 20,152
Deferred income tax expense 58,131 71,878
----------- -----------
Net income $ 93,296 $ 152,950
=========== ===========
Net income per share $ .05 $ .09
=========== ===========
Weighted average common shares outstanding 1,749,967 1,749,217
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 4 of 12
<PAGE> 5
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
----------------------------
October 31, October 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 93,296 $ 152,950
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,704,995 1,812,100
Net book value of rental units retired 226,646 532,619
Loss (Gain) on sale of property and equipment 6,114 (9,634)
Deferred income taxes 58,131 71,878
Changes in operating assets and liabilities other than cash
Prepaid expenses (45,494) (4,295)
Other assets (7,608) (18,236)
Accounts payable (20,747) 122,866
Accrued interest payable 11,737 598
Income taxes payable 7,193 5,397
Other accrued liabilities (111,234) (69,251)
Total adjustments ----------- -----------
(166,153) 37,079
Net cash flows from operating activities ----------- -----------
1,923,029 2,596,992
----------- -----------
Cash flows from investing activities:
Purchase of rental units and equipment (2,562,359) (2,579,278)
Additions to property and equipment (256,755) (594,221)
Proceeds from sale of property and equipment 2,504 30,344
----------- -----------
Net cash flows used in investing activities (2,816,610) (3,143,155)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 11,250
Proceeds from notes payable 1,169,974 1,075,000
Repayment of notes payable (106,489) (249,817)
----------- -----------
Net cash flows provided by financing activities 1,063,485 836,433
----------- -----------
Cash at August 1, 1997 and 1996 respectively 354,738 325,513
----------- -----------
Cash at the end of the quarter $ 524,642 $ 615,783
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 5 of 12
<PAGE> 6
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended October 31, 1997
<TABLE>
<CAPTION>
Common Stock
--------------------------- Paid-In Accumulated
Shares Amount Capital Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at July 31, 1997 1,749,967 $ 17,500 $16,089,897 $(8,512,897)
----------- ----------- ----------- -----------
Net income for the three months
ended October 31, 1997 -- -- -- 93,296
----------- ----------- ----------- -----------
Balance at October 31, 1997 1,749,967 $ 17,500 $16,089,897 $(8,419,601)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 6 of 12
<PAGE> 7
BESTWAY, INC. FORM 10-Q
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Reference to Previous Disclosures
The consolidated financial statements included herein have been
prepared by the Company without audit. Certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted or are
incorporated herein by reference to the financial statements included in the
Company's 1997 Form 10-K. Management believes that the disclosures are adequate
to make the information presented not misleading and that all adjustments deemed
necessary for a fair statement of the results for the interim period have been
reflected. It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's 1997 Form 10-K, particularly with regard to disclosure relating to
significant accounting policies.
Earnings Per Common Share
Earnings per common share is based on the weighted average of common
shares outstanding during the period and the effect of considering common stock
equivalents (stock options) under the treasury stock method. Primary and fully
diluted earnings per common share are not shown because the effect of the stock
options is immaterial.
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
effective for periods ending after December 15, 1997. The impact of this
statement, when adopted, will not be material.
2. Reclassifications
Certain reclassifications were made to the prior year financial
statements to conform with the current year presentation.
3. Notes Payable
On August 18, 1997, the Company amended its August 19, 1993 Second
Amendment to First Amended and Restated Revolving Credit Loan Agreement (the
"Agreement") with its senior collateralized lender. In the amendment, the
Company extended the maturity date from August 19, 1997 to November 18, 1997.
Page 7 of 12
<PAGE> 8
BESTWAY, INC. FORM 10-Q
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, con't.
3. Notes Payable, con't.
On November 18, 1997, the Company further amended the Agreement.
Pursuant to the Third Amendment of the Agreement, the Company revised certain
covenants, increased the maximum amount of revolving credit under such loan
Agreement from $7,500,000 to $8,500,000 and extended the maturity date of such
Agreement by two years from November 18, 1997 to November 30, 1999.
On August 18, 1997, the Company paid in full a $100,000 subordinated
note payable to a director and stockholder.
On August 19, 1997, the Company amended its note payable to limited
partnership and stockholder dated July 19, 1993. In the amendment, the Company
extended the maturity date by two years from August 19, 1997 to August 19, 1999
and increased the interest rate from 4.5% to 6.0% during the first year and 8.0%
thereafter.
Page 8 of 12
<PAGE> 9
BESTWAY, INC. FORM 10-Q
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements that involves risk and
uncertainties. The actual future results of the Company could differ materially
from those statements.
In April 1996, the Company acquired all the assets and certain
liabilities of 15 stores located in 3 states, all of which the Company
previously had no operations, from All Star Rental, Inc. (the "All Star
Acquisition"), and in July 1996, the Company acquired substantially all the
assets of 8 stores located in 2 states, one of which the Company previously had
no operations, from REJA, Inc. (the "REJA Acquisition", and together with the
All Star Acquisition, the "1997 Acquisitions").
Results of Operations
The following table sets forth, for the periods indicated, certain
items from the Company's Consolidated Statements of Operations, expressed as a
percentage of revenues.
<TABLE>
<CAPTION>
Quarter Ended
October 31,
-----------------
1997 1996
------ ------
<S> <C> <C>
Revenues
Rental income 99.2% 99.2%
Sales of merchandise .8 .8
------ ------
Total revenues 100.0 100.0
Cost and operating expenses
Depreciation and amortization:
Rental merchandise 21.5 22.9
Other 6.4 7.0
Cost of merchandise sold .9 .9
Salaries and wages 26.7 25.1
Advertising 3.9 3.9
Occupancy 6.2 5.4
Other operating expenses 28.5 27.9
Interest expense 3.1 3.1
Loss (gain) on sale of property and equipment .1 (.2)
------ ------
Total cost and operating expenses 97.3 96.0
------ ------
Income from operations before income tax provision 2.7 4.0
------ ------
Current income tax expense .2 .3
Deferred income tax expense 1.0 1.2
------ ------
Net Income 1.5% 2.5%
====== ======
</TABLE>
Page 9 of 12
<PAGE> 10
BESTWAY, INC. FORM 10-Q
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, con't.
Total revenue increased $22,421 or 0.4% to $6,092,177 as compared to
$6,069,756 in the quarter ended October 31, 1996. The increase was due to the
inclusion of the operating results for two internal new store openings during
the fourth quarter of fiscal year 1997 and operating results from a single new
internal store opening during the first quarter of fiscal year 1998 offset by a
decrease in same store revenue. The two internal new store openings during the
fourth quarter of 1997 accounted for $74,930 and the single new internal store
opening during the first quarter of 1998 accounted for $9,188. The Company's
same stores experienced revenue losses of $61,697 for the quarter, of which
$59,790 was attributable to the 1997 Acquisitions. Same store revenues
represents revenues earned in stores that were opened by the Company for the
entire three-month period ending October 31, 1997 and 1996. Although many stores
from the 1997 Acquisitions are operating at revenue levels below that of the
Company's existing stores, the majority are profitable. While the additions of
these stores has increased the level of other operating expenses as a percentage
of revenue due to the relatively fixed nature of these expenses, management
expects to realize increased profitability from these stores by implementing
certain programs aimed at increasing operating efficiencies including the
realignment of its districts to provide more focus on under performing stores.
Total costs and operating expenses increased $104,879 or 1.8% to
$5,929,655 from $5,824,776. This increase is primarily the result of salaries
and wages, occupancy expense and other operating expenses associated with the
1997 Acquisitions, operating losses from the two new internal stores opened
during the fourth quarter of fiscal year 1997 and operating losses from the
single new internal store opened this quarter.
Salaries and wages increased $101,122 to $1,623,843 from $1,522,721 and
as a percentage of total revenues increased 1.6% to 26.7% from 25.1%. The three
internal new store locations produced additional salaries and wages of $30,159
for the quarter. Same store salaries and wages increased $81,496 for the
quarter, of which $9,594 was attributable to the 1997 Acquisitions. Occupancy
expense increased $51,692 to $378,280 from $326,588 and as a percentage of total
revenues increased 0.8% to 6.2% from 5.4% Other operating expenses increased
$39,373 to $1,736,304 from $1,696,931 and as a percentage of total revenues
increased 0.6% to 28.5% from 27.9%. The two internal new store openings during
the fourth quarter of fiscal year 1997 and the single new internal store opened
this quarter operated at a lower average revenue per store and, therefore, had
higher occupancy and other operating costs as a percentage of revenues than the
Company's existing same stores.
Depreciation expense related to rental merchandise decreased $79,353 to
$1,310,042 from $1,389,395 and as a percentage of total revenues decreased 1.4%
to 21.5% from 22.9% primarily due to higher rental rates on rental merchandise.
Page 10 of 12
<PAGE> 11
BESTWAY, INC. FORM 10-Q
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, con't.
Financial Condition, Liquidity and Capital Resources
For the quarter ended October 31, 1997, the Company's net cash flows
from operating activities was $1,923,029 as compared to $2,596,992 for the
quarter ended October 31, 1996. The decrease was primarily due to an increase in
working capital requirements.
For the quarter ended October 31, 1997, the Company's net cash flows
used in investing activities was $2,816,610 as compared to $3,143,155 for the
quarter ended October 31, 1996. The Company's investing activities reflects a
$337,466 decrease in additions to property and equipment and a $16,919 decrease
in the purchase of rental units primarily as a result of the 1997 Acquisitions.
For the quarter ended October 31, 1997, the Company's net cash flows
provided by financing activities was $1,063,485 as compared to $836,433 for the
quarter ended October 31, 1996. The increase in financing activities principally
reflects increased borrowings on the Company's debt.
On August 18, 1997, the Company amended its August 19, 1993 Second
Amendment to First Amended and Restated Revolving Credit Loan Agreement (the
"Agreement") with its senior collateralized lender. In the amendment, the
Company extended the maturity date from August 19, 1997 to November 18, 1997. On
November 18, 1997, the Company further amended the Agreement. Pursuant to the
Third Amendment to the Agreement, the Company, among other things, increased the
maximum amount of revolving credit under such loan Agreement from $7,500,000 to
$8,500,000 and extended the maturity date of such Agreement by two years from
November 18, 1997 to November 30, 1999.
With the Company having available credit of approximately $2,400,000
under the $8,500,000 Agreement, as amended on November 18, 1997, management
believes the Company has adequate resources to meet its future cash obligations.
On August 18, 1997, the Company paid in full a $100,000 subordinated
note payable to a director and stockholder.
On August 19, 1997, the Company amended its note payable to limited
partnership and stockholder dated July 19, 1993. In the amendment, the Company
extended the maturity date by two years from August 19, 1997 to August 19, 1999
and increased the interest rate from 4.5% to 6.0% during the first year and 8.0%
thereafter.
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
effective for periods ending after December 15, 1997. The impact of this
statement, when adopted, will not be material.
Page 11 of 12
<PAGE> 12
BESTWAY, INC. FORM 10-Q
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, SIGNATURES
(a) Exhibits required by Item 601 of Regulation S-K
27 Financial Data Schedule
Filed electronically only, not attached to
printed reports
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter ended October 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BESTWAY, INC.
December 15, 1997 /s/ Beth A. Durrett
-------------------
Beth A. Durrett
Senior Vice President - Finance
(Principal Financial Officer and duly
authorized to sign on behalf of the
Registrant)
Page 12 of 12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 643,984
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 17,980,167
<CURRENT-ASSETS> 0
<PP&E> 5,247,812
<DEPRECIATION> 8,487,599
<TOTAL-ASSETS> 20,247,737
<CURRENT-LIABILITIES> 0
<BONDS> 9,235,430
0
0
<COMMON> 17,500
<OTHER-SE> 7,670,296
<TOTAL-LIABILITY-AND-EQUITY> 20,247,737
<SALES> 0
<TOTAL-REVENUES> 6,092,177
<CGS> 0
<TOTAL-COSTS> 1,361,879
<OTHER-EXPENSES> 4,379,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188,467
<INCOME-PRETAX> 162,522
<INCOME-TAX> 69,226
<INCOME-CONTINUING> 93,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,296
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
