<PAGE> 1
BESTWAY, INC. FORM 10-Q
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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 January 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-8568
------
BESTWAY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 81-0332743
- ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7800 Stemmons Freeway, Suite 320 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
January 31, 1999, was 1,744,192.
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BESTWAY, INC. FORM 10-Q
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QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
January 31, 1999
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NOS.
---------
<S> <C> <C>
ITEM 1. Consolidated Unaudited Financial Statements 3-8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-14
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K, Signatures 15
</TABLE>
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<PAGE> 3
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
January 31, 1999 July 31, 1998
---------------- -------------
ASSETS
<S> <C> <C>
Cash $ 697,557 $ 501,119
Prepaid expenses 148,331 182,118
Deferred income taxes 1,110,449 1,269,065
Other assets 81,560 46,773
Rental merchandise, at cost 19,158,790 17,723,833
less accumulated depreciation 6,972,525 6,315,080
------------ ------------
12,186,265 11,408,753
------------ ------------
Property and equipment, at cost 6,248,915 5,366,471
less accumulated depreciation 3,171,544 2,816,429
------------ ------------
3,077,371 2,550,042
------------ ------------
Non-competes, net of amortization 312,605 393,056
Goodwill, net of amortization 2,488,779 2,323,024
------------ ------------
Total assets $ 20,102,917 $ 18,673,950
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 763,985 $ 865,162
Accrued interest - related parties 20,667 15,500
Income taxes payable 40,738 184,419
Other accrued liabilities 987,180 982,464
Notes payable - related parties 3,000,000 3,000,000
Notes payable - other 6,699,652 5,230,043
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,
1,751,592 issued at January 31, 1999 and July 31,
1998, respectively 17,516 17,516
Paid-in capital 16,098,006 16,098,006
Less treasury stock, at cost, 7,400 at January 31, 1999 (40,591) --
Accumulated deficit (7,484,236) (7,719,160)
------------ ------------
Total stockholders' equity 8,590,695 8,396,362
------------ ------------
Total liabilities and stockholders' equity $ 20,102,917 $ 18,673,950
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended Six Months Ended
------------------------- -------------------------
January 31, January 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 6,860,956 $ 6,388,179 $13,640,607 $12,429,746
Sales of merchandise 66,741 66,425 119,662 117,035
----------- ----------- ----------- -----------
6,927,697 6,454,604 13,760,269 12,546,781
----------- ----------- ----------- -----------
Cost and Operating Expenses:
Depreciation and amortization:
Rental merchandise 1,486,451 1,411,462 2,975,809 2,721,504
Other 328,274 386,623 676,692 781,576
Cost of merchandise sold 58,802 52,096 115,518 103,933
Salaries and wages 1,911,714 1,661,992 3,751,248 3,285,835
Advertising 311,132 204,049 614,255 443,864
Occupancy 443,938 396,016 855,228 774,296
Other operating expenses 1,994,687 1,896,175 3,968,434 3,632,479
Interest expense 187,464 218,953 372,542 407,420
Loss on sale of property and equipment 10,764 25,287 4,494 31,401
----------- ----------- ----------- -----------
6,733,226 6,252,653 13,334,220 12,182,308
----------- ----------- ----------- -----------
Income from operations before income tax
provision: 194,471 201,951 426,049 364,473
----------- ----------- ----------- -----------
Current income tax expense 14,763 16,549 32,509 27,644
Deferred income tax expense 74,284 82,070 158,616 140,201
----------- ----------- ----------- -----------
Net income $ 105,424 $ 103,332 $ 234,924 $ 196,628
=========== =========== =========== ===========
Basic and diluted net income per share $ .06 $ .06 $ .13 $ .11
=========== =========== =========== ===========
Weighted average common shares outstanding 1,748,292 1,749,967 1,749,942 1,749,967
=========== =========== =========== ===========
Diluted weighted average common shares
outstanding 1,779,576 1,801,416 1,786,429 1,798,255
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
---------------------------------
January 31, 1999 January 31, 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 234,924 $ 196,628
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,652,501 3,503,080
Net book value of rental units retired 1,260,296 608,695
Loss on sale of property and equipment 4,494 31,401
Deferred income taxes 158,616 140,204
Changes in operating assets and liabilities other than cash:
Prepaid expenses 33,787 (1,479)
Other assets (34,787) (10,932)
Accounts payable (141,197) (76,884)
Income taxes payable (143,681) 23,741
Accrued interest payable 5,167 (41,763)
Other accrued liabilities 4,716 (138,924)
----------- -----------
Total adjustments (275,995) (246,241)
----------- -----------
Net cash flows from operating activities 5,034,836 4,233,767
----------- -----------
Cash flows from investing activities:
Purchase of rental units and equipment (4,733,854) (5,246,235)
Additions to property and equipment (1,039,418) (383,357)
Proceeds from sale of property and equipment 29,752 19,728
Asset purchase net of cash acquired (523,896) --
----------- -----------
Net cash flows used in investing activities (6,267,416) (5,609,864)
----------- -----------
Cash flows from financing activities:
Book overdraft -- 201,573
Proceeds from notes payable 1,925,000 2,121,932
Repayment of notes payable (455,391) (720,016)
Treasury stock purchase (40,591) --
----------- -----------
Net cash flows provided by financing activities 1,429,018 1,603,489
----------- -----------
Cash at beginning of period 501,119 354,738
----------- -----------
Cash at end of period $ 697,557 $ 582,130
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the six months ended January 31, 1999
<TABLE>
<CAPTION>
(Unaudited)
-----------------------------------------------------------------------------------
Common Stock Treasury Stock
------------------------- Paid-In -------------------------- Accumulated
Shares Amount Capital Shares Amount Deficit
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1998 1,751,592 $ 17,516 $16,098,006 -- $ -- $(7,719,160)
Treasury stock purchases -- -- -- (7,400) (40,591) --
Net income for the six months
ended January 31, 1999 -- -- -- -- -- 234,924
----------- ----------- ----------- ----------- ----------- -----------
Balance at January 31, 1999 1,751,592 $ 17,516 $16,098,006 (7,400) $ (40,591) $(7,484,236)
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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BESTWAY, INC. FORM 10-Q
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Reference to Previous Disclosures
The interim consolidated financial statements included herein have been
prepared by the Company without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosure normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. 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 unaudited consolidated
financial statements be read in conjunction with the financial statements and
the notes thereto included in the Company's 1998 Form 10-K, particularly with
regard to disclosure relating to significant accounting policies.
2. Income Per Share
In January 1998, the Company adopted SFAS No. 128, "Earnings Per
Share," resulting in the replacement of primary earnings per share (EPS) with a
newly defined basic EPS and modification to the computation of diluted EPS.
For the three and six months ended January 31, 1999, 55,750 and 27,750
common stock options are excluded from the denominator for the calculation of
diluted net income per share because their effect would be antidilutive.
3. Acquisitions
On January 11, 1999, the Company signed an asset purchase agreement
with King Rental, Inc. to acquire all the assets of two store locations in
Alabama. The Company paid $525,000 in cash for all the assets involved in the
daily operations of the stores including all idle rental inventory and all
rental inventory. Additionally, the Company obtained the seller's former store
locations by assuming the lease agreements. The Company funded the purchase
through borrowings under the Revolving Credit Loan Agreement.
The acquisition has been accounted for under the purchase method and,
accordingly, the operating results from the acquired stores are included in the
accompanying consolidated statements of income from the date of acquisition. The
acquisition resulted in $284,040 of goodwill which is being amortized on a
straight-line basis over 15 years.
4. Common Stock
During the six months ending January 31, 1999, the Company repurchased
7,400 shares of its common stock in the open market at a cost of $40,591 (2,500
shares repurchased for $15,938 and 4,900 shares repurchased for $24,653).
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BESTWAY, INC. FORM 10-Q
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. Subsequent Event
On February 1, 1999, the Company entered into an asset purchase
agreement with Griffin Acceptance Corporation to sell all the assets of one
store location in Mississippi. The Company received $90,000 in cash for all the
assets involved in the daily operations of the store including all rental
inventory being rented by customers. Idle inventory was transferred to the
Company's existing store locations.
6. New Accounting Standards
During the first quarter of fiscal year 1999, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income", SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" and SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits". The adoption of
these statements had no impact on the Company's consolidated financial
statements.
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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 on Form 10-Q contains various "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements represent the Company's expectations or beliefs concerning future
events. Any forward-looking statements made by or on behalf of the Company are
subject to uncertainties and other factors that could cause actual results to
differ materially from such statements. These uncertainties and other factors
include, but are not limited to, (i) the ability of the Company to acquire
additional rental-purchase stores on favorable terms, (ii) the ability of the
Company to improve the performance of such acquired stores and to integrate such
acquired stores into the Company's operations, and (iii) the impact of state and
federal laws regulating or otherwise affecting the rental-purchase transaction.
Undo reliance should not be placed on any forward-looking statements made by or
on behalf of the Company as such statements speak only as of the date made. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, the
occurrence of future events or otherwise.
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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.
Results of Operations
The following table sets forth, for the periods indicated, certain
items from the Company's unaudited Consolidated Statements of Income, expressed
as a percentage of revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ---------------------
January 31, January 31,
1999 1998 1999 1998
-------- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 99.0% 99.0% 99.1% 99.1%
Sales of merchandise 1.0 1.0 0.9 0.9
-------- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
-------- ----- ----- -----
Cost and Operating Expenses:
Depreciation and amortization:
Rental merchandise 21.5 21.9 21.7 21.7
Other 4.7 6.0 4.9 6.2
Cost of merchandise sold 0.8 0.8 0.8 0.8
Salaries and wages 27.6 25.7 27.3 26.2
Advertising 4.5 3.2 4.5 3.5
Occupancy 6.4 6.1 6.2 6.2
Other operating expenses 28.8 29.4 28.8 29.0
Interest expense 2.7 3.4 2.7 3.2
Loss on sale of property and equipment 0.2 0.4 -- 0.3
-------- ----- ----- -----
Total cost and operating expenses 97.2 96.9 96.9 97.1
-------- ----- ----- -----
Income from operations before income
tax provision 2.8 3.1 3.1 2.9
-------- ----- ----- -----
Current income tax expense 0.2 0.2 0.2 0.2
Deferred income tax expense 1.1 1.3 1.2 1.1
-------- ----- ----- -----
Net income $ 1.5% 1.6% 1.7% 1.6%
======== ===== ===== =====
</TABLE>
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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.
Comparison of Three Months Ended January 31, 1999 and 1998
For the three months ended January 31, 1999 compared to the three
months ended January 31, 1998, total revenue increased $473,093 or 7.3% to
$6,927,697 from $6,454,604. The increase in total revenue was primarily
attributable to the inclusion of two stores purchased in the fourth quarter of
fiscal year 1998, inclusion of two stores purchased in the second quarter of
fiscal year 1999, inclusion of one new store opening in the first quarter of
fiscal year 1999, inclusion of three new store openings in the second quarter of
fiscal year 1999, and improved same store revenues. Revenue from same stores
increased $182,906, or 2.9% and accounted for 38.7% of the increase in total
revenues. The improvement was primarily attributable to an increase in both the
number of items on rent and in revenue earned per item. Revenue from the two
stores purchased in the fourth quarter of fiscal 1998 accounted for $128,576, or
27.2% of the increase. Revenue from the two stores purchased in the second
quarter of fiscal year 1999 accounted for $44,934 or 9.5% of the increase.
Revenue from the one new store opening in the first quarter of fiscal year 1999
accounted for $77,803 or 16.4% of the increase. Revenue from the three new store
openings in the second quarter of fiscal year 1999 accounted for $78,855 or
16.7% of the increase. Revenue decreased $39,981, or 8.5% due to closing one
store location in fiscal year 1998.
For the three months ended January 31, 1999 compared to the three
months ended January 31, 1998, total cost and operating expenses increased
$480,573, or 7.7% to $6,733,226 from $6,252,653 and increased .3% as a
percentage of total revenues to 97.2% from 96.9%.
Depreciation of rental merchandise increased $74,989, or 5.3% to
$1,486,451 from $1,411,462 due to an increase in items on rent. Depreciation of
rental merchandise expressed as a percent of total store rental and fee revenue
decreased .4% to 21.5% from 21.9% primarily due to higher rental rates on rental
merchandise. Other depreciation and amortization decreased $58,349, or 15.1% to
$328,274 from $386,623 and as a percentage of total store revenue decreased 1.3%
to 4.7% from 6.0%. The decrease was primarily due to the full amortization of
certain non-competes at the end of fiscal year 1998.
Salaries and wages increased $249,722, or 15.0% to $1,911,714 from
$1,661,992. Salaries and wages expressed as a percent of total store revenue
increased 1.9% to 27.6% from 25.7%. Salaries and wages increased $46,766, or
18.7% of the total increase due to additional personnel for the stores acquired
in the fourth quarter of fiscal 1998 and for the stores acquired in the second
quarter of fiscal 1999. Additional personnel for the four new internal stores
opened in the first and second quarters of fiscal 1999 increased salaries and
wages by $80,826, or 32.4% of the total increase. Salaries and wages increased
$83,172, or 33.3% of the total increase due to additional personnel at the
Company's same stores necessitated by the increase in the number of items on
rent. Advertising expense increased $107,083, or 52.5% to $311,132 from
$204,049. Advertising expense expressed as a percent of total store revenue
increased 1.3% to 4.5% from 3.2% primarily due to the stores acquired in the
fourth quarter of fiscal year 1998, stores acquired in the second quarter of
fiscal year 1999 and the four new internal stores opened in the first and second
quarters of fiscal 1999. Occupancy expense increased $47,922, or 12.1% to
$443,938 from $396,016 and as a percentage of total revenues increased .3% to
6.4% from 6.1%. Other operating expenses increased $98,512, or 5.2% to
$1,994,687 from $1,896,175 and as a percentage of total revenues decreased .6%
to 28.8 from 29.4%. The increase is primarily attributable to the acquired and
new stores offset by a decrease in expenses relating to the write-off of rental
merchandise. Interest expense decreased $31,489, or 14.4% to $187,464 from
$218,953 and as a
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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.
percentage of total store revenue decreased .7% to 2.7% from 3.4% primarily due
to decreased borrowings under the Revolving Credit Loan Agreement.
For the three months ended January 31, 1999, income from operations
before income tax provision decreased $7,480 or 3.7% to $194,471 from $201,951
and as a percentage of total revenues decreased .3% to 2.8% from 3.1%. This
decrease was primarily due to operating losses of $92,972 from the four new
internal store openings during the first and second quarters of fiscal year 1999
offset by improved same store revenues. The new stores operated at a lower
average revenue per store and, therefore, had higher salaries and wages,
advertising and occupancy expenses as a percentage of revenues.
Comparison of Six Months Ended January 31, 1999 and 1998
For the six months ended January 31, 1999 compared to the six months
ended January 31, 1998, total revenue increased $1,213,488, or 9.7% to
$13,760,269 from $12,546,781. The increase in total revenue was primarily
attributable to the inclusion of two stores purchased in the fourth quarter of
fiscal year 1998, inclusion of two stores purchased in the second quarter of
fiscal year 1999, inclusion of one new store opening in the first quarter of
fiscal 1999, inclusion of three new stores openings in the second quarter of
fiscal year 1999, and improved same store revenues. Revenue from same stores
increased $801,395, or 6.4% and accounted for 66.0% of the increase. The
improvement was primarily attributable to an increase in both the number of
items on rent and in revenue earned per item. Revenue from the two stores
purchased in the fourth quarter of fiscal 1998 accounted for $251,478, or 20.7%
of the increase. Revenue from the two stores purchased in the second quarter of
fiscal 1999 accounted for $44,934, or 3.7% of the increase. Revenue from the one
new store opening in the first quarter of fiscal 1999 accounted for $116,922, or
9.6% of the increase. Revenue from the three new store openings in the second
quarter of fiscal 1999 accounted for $78,855, or 6.5% of the increase. Revenue
decreased $80,096, or 6.6% due to closing one store location in fiscal year
1998.
For the six months ended January 31, 1999 compared to January 31, 1998,
total cost and operating expenses increased $1,151,912, or 9.5% to $13,334,220
from $12,182,308 and decreased .2% as a percentage of total revenues to 96.9%
from 97.1%. This increase was primarily the result of salaries and wages and
advertising expenses associated with the stores acquired and opened in the
fourth quarter of fiscal year 1998 and the first six month of fiscal year 1999.
Depreciation of rental merchandise increased $254,305, or 9.3% to
$2,975,809 from $2,721,504. Depreciation of rental merchandise expressed as a
percent of total store rental and fee revenue remained even at 21.7%. Other
depreciation and amortization decreased $104,884, or 13.4% to $676,692 from
$781,576 and as a percentage of total store revenue decreased 1.3% to 4.9% from
6.2%. The decrease was primarily due to the full amortization of certain
non-competes at the end of fiscal year 1998.
Salaries and wages increased $465,413, or 14.2% to $3,751,248 from
$3,285,835. Salaries and wages expressed as a percent of total store revenue
increased 1.1% to 27.3% from 26.2%. Salaries and wages increased $78,503, or
16.9% of the total increase due to additional personnel for the stores acquired
in the fourth quarter of fiscal 1998 and for the stores acquired in the second
quarter of fiscal 1999. Additional personnel for the four
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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.
new internal stores opened in the first and second quarters of fiscal 1999
increased salaries and wages by $104,921, or 22.5% of the total increase.
Salaries and wages increased by $162,742, or 35.0% of the total increase due to
additional personnel at the Company's same stores necessitated by the increase
in the number of items on rent. Advertising expense increased $170,391, or 38.4%
to $614,255 from $443,864. Advertising expense expressed as a percent of total
store revenue increased 1.0% to 4.5% from 3.5% primarily due to the stores
acquired in the fourth quarter of fiscal year 1998, stores acquired in the
second quarter of fiscal 1999 and the four new internal stores opened in the
first and second quarters of fiscal 1999. Occupancy expense increased $80,932,
or 10.5% to $855,228 from $774,296 and as a percentage of total revenues
remained even at 6.2%. Other operating expenses increased $335,955, or 9.2% to
$3,968,434 from $3,632,479 and as a percentage of total revenue decreased .2% to
28.8% from 29.0%. The increase is primarily attributable to the acquired and new
stores. Interest expense decreased $34,878, or 8.6% to $372,542 from $407,420
and as a percentage of total store revenue decreased .5% to 2.7% from 3.2%
primarily due to decreased borrowings under the Revolving Credit Loan Agreement.
For the six months ended January 31, 1999, income from operations
before income tax provision increased $61,576 or 16.9% to $426,049 from $364,463
and as a percentage of total revenues increased .2% to 3.1% from 2.9%. This
increase was primarily due to increased same store revenues offset by operating
losses of $125,239 from the four new internal store openings during the first
and second quarters of fiscal year 1999. The new stores operated at a lower
average revenue per store and, therefore, had higher salaries and wages and
advertising expenses as a percentage of revenues.
Financial Condition, Liquidity and Capital Resources
For the six months ended January 31, 1999 the Company's net cash flows
from operating activities was $5,034,836 as compared to $4,233,767 for the six
months ended January 31, 1998. The increase was primarily due to increased cash
flow from two stores acquired in the fourth quarter of fiscal year 1998, and
increased cash flow from four new internal store openings during the first and
second quarters of fiscal 1999.
For the six months ended January 31, 1999 the Company's net cash flows
used in investing activities was $6,267,416 as compared to $5,609,864 for the
six months ended January 31, 1998. The Company's investing activities reflects a
$523,986 outflow, net of cash acquired, for the two store acquisition during the
second quarter, a $656,061 increase in additions to property and equipment
primarily for the four new internal store openings during the first and second
quarters of fiscal year 1999 and a $512,381 decrease in the purchase of rental
units and equipment.
For the six months ended January 31, 1999 the Company's net cash flows
provided by financing activities was $1,429,018 as compared to $1,603,489 for
the six months ended January 31, 1998. The decrease in financing activities
principally reflects decreased borrowings on the Company's debt.
With the Company having available credit of approximately $1,900,000
under the $8,500,000 Revolving Credit Loan Agreement, management believes the
Company has adequate resources to meet its future cash obligations.
On January 11, 1999, the Company signed an asset purchase agreement
with King Rentals, Inc. to acquire all the assets of two store locations in
Alabama. The Company paid $525,000 in cash for all the assets involved in the
daily operations of the stores including all idle rental inventory and all
rental
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<PAGE> 14
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.
inventory. Additionally, the Company obtained the seller's former store
locations by assuming the lease agreements. The Company funded the purchase
through borrowings under the Revolving Credit Agreement.
Inflation
Although the Company cannot precisely determine the effects of
inflation on its business, it is management's belief that the effects on
revenues and operating results have not been significant.
Year 2000
The Company is coordinating the identification, evaluation, and
implementation of changes to computer systems and applications necessary to
achieve a year 2000 date conversion with no effect on customers or disruption to
business operations. These actions are necessary to ensure that the systems and
applications will recognize and process the year 2000 and beyond. The principal
areas of risk identified by the Company are purchased software, computer
hardware and systems other than information technology systems.
The Company uses purchased software programs for a variety of
functions, including general ledger, accounts payable, payroll, fixed assets and
treasury. Currently, the Company's general ledger, accounts payable, payroll and
fixed assets systems are year 2000 compliant. The Company is coordinating with
banks with which it does business to ensure the compliance of the electronic
transfer software used by each bank as well as the compliance of each bank's
internal systems. Additionally, the Company has upgraded all software for
individual workstations and laptops to be year 2000 compliant.
The Company believes it has identified all computer hardware used in
connection with its operations that must be modified, upgraded or replaced. The
Company has upgraded certain of its hardware to be year 2000 compliant and is
currently working with outside consultants to modify, replace or upgrade its
remaining hardware identified as adversely affected.
The Company has identified systems other than information technology
systems that may be affected by the year 2000 problem including telephone
systems, alarm systems, fax machines and merchandise rented by the Company. The
Company has ensured the year 2000 readiness for certain of these items and is in
the process of completing any modifications or replacements necessary to make
all items year 2000 compliant.
As part of the year 2000 readiness process significant service
providers, vendors, suppliers and customers that are believed to be critical to
business operations after January 1, 2000, have been identified and steps are
underway in the attempt to reasonably ascertain their stage of year 2000
readiness. The failure to correct a material year 2000 problem could result in
the interruption in, or a failure of, certain normal business activities and
operations, liquidity and financial condition. The Company does not expect the
year 2000 problem to have a material impact on the Company; however, due to
general uncertainty inherent in the year 2000 problem, resulting in part from
the uncertainty of the year 2000 readiness of third party suppliers, year 2000
failures may have a material impact on the Company. The Company has incurred
approximately $5,000 of compliance costs to date and the total cost of
compliance and its effect on the Company's future results of operations is not
expected to be material. Based on the Company's current state of year 2000
readiness, no contingency plan is deemed necessary at this time.
14 of 15
<PAGE> 15
BESTWAY, INC. FORM 10-Q
- --------------------------------------------------------------------------------
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) Report on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended January 31, 1999.
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.
March 17, 1999
/s/ Beth A. Durrett
-------------------------------
Beth A. Durrett
Chief Financial Officer
(Principal Financial Officer and duly
authorized to sign on behalf of the
Registrant)
15 0f 15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 697,557
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 19,158,790
<CURRENT-ASSETS> 0
<PP&E> 6,248,915
<DEPRECIATION> 10,144,069
<TOTAL-ASSETS> 20,102,917
<CURRENT-LIABILITIES> 0
<BONDS> 9,699,652
0
0
<COMMON> 17,516
<OTHER-SE> 8,573,179
<TOTAL-LIABILITY-AND-EQUITY> 20,102,917
<SALES> 0
<TOTAL-REVENUES> 13,760,269
<CGS> 0
<TOTAL-COSTS> 2,975,809
<OTHER-EXPENSES> 9,985,869
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 372,542
<INCOME-PRETAX> 426,049
<INCOME-TAX> 191,125
<INCOME-CONTINUING> 234,924
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 234,924
<EPS-PRIMARY> .13
<EPS-DILUTED> 0
</TABLE>
