<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 October 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
October 31, 1999, was 1,756,917.
<PAGE> 2
BESTWAY, INC. FORM 10-Q
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QUARTERLY REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED
October 31, 1999
<TABLE>
<S> <C> <C>
PART I - FINANCIAL INFORMATION PAGE NOS.
ITEM 1. Consolidated Unaudited Financial Statements 3 - 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8 - 12
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K, Signatures 13
</TABLE>
<PAGE> 3
BESTWAY, INC. FORM 10-Q
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)
------------------------------
OCTOBER 31, JULY 31,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 560,697 $ 812,179
Prepaid expenses 535,396 172,226
Deferred income taxes 850,170 871,152
Other assets 29,587 63,202
Rental merchandise, at cost 22,751,998 20,164,761
less accumulated depreciation 7,660,433 7,339,287
------------ ------------
15,091,565 12,825,474
------------ ------------
Property and equipment, at cost 8,205,454 7,247,516
less accumulated depreciation 3,581,179 3,398,724
------------ ------------
4,624,275 3,848,792
------------ ------------
Non-competes, net of amortization 278,932 262,783
Goodwill, net of amortization 2,299,517 2,362,604
------------ ------------
Total assets $ 24,270,139 $ 21,218,412
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 3,232,671 $ 1,384,696
Accrued interest - related parties 20,667 20,667
Income taxes payable 4,072 56,406
Other accrued liabilities 1,151,104 1,541,001
Notes payable-related parties 3,000,000 3,000,000
Notes payable-other 7,891,096 6,244,012
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,
1,756,917 issued at October 31, 1999 and July 31, 1999,
respectively 17,569 17,569
Paid-in capital 16,124,578 16,124,578
Less treasury stock, at cost, 14,900 at October 31, 1999 and
11,200 at July 31, 1999, respectively (90,128) (66,241)
Accumulated deficit (7,081,490) (7,104,276)
------------ ------------
Total stockholders' equity 8,970,529 8,971,630
------------ ------------
Total liabilities and stockholders' equity $ 24,270,139 $ 21,218,412
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
------------------------------
OCTOBER 31, OCTOBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Rental income $ 7,746,826 $ 6,779,651
Sales of merchandise 77,739 52,921
------------ ------------
7,824,565 6,832,572
------------ ------------
Cost and operating expenses:
Depreciation and amortization:
Rental merchandise 1,709,194 1,489,358
Other 358,923 348,418
Cost of merchandise sold 78,440 56,716
Salaries and wages 2,230,018 1,839,534
Advertising 406,411 303,123
Occupancy 531,091 411,290
Other operating expenses 2,241,263 1,973,747
Interest expense 231,279 185,078
Gain on sale of property and equipment (9,588) (6,270)
------------ ------------
7,777,031 6,600,994
------------ ------------
Income from operations before
income tax provision 47,534 231,578
------------ ------------
Current income tax expense 3,766 17,746
Deferred income tax expense 20,982 92,741
------------ ------------
Net income $ 22,786 $ 121,091
============ ============
Basic and diluted net income per share $ 0.01 $ 0.07
============ ============
Weighted average common shares outstanding 1,744,484 1,751,592
============ ============
Diluted weighted average common shares outstanding 1,768,536 1,789,660
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
For the three months ended October 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
--------------------- PAID-IN --------------------- ACCUMULATED
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT
--------- -------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1999 1,756,917 $ 17,569 $ 16,124,578 (11,200) $ (66,241) $(7,104,276)
Treasury stock purchases -- -- -- (3,700) (23,887) --
Net income for the three months
ended October 31, 1999 -- -- -- -- -- 22,786
--------- -------- ------------ --------- --------- -----------
Balance at October 31, 1999 1,756,917 $ 17,569 $ 16,124,578 (14,900) $ (90,128) $(7,081,490)
========= ======== ============ ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
BESTWAY, INC. FORM 10-Q
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CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
---------------------------
OCTOBER 31, OCTOBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 22,786 $ 121,091
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,068,117 1,837,776
Net book value of rental units retired 434,920 393,145
Gain on sale of property and equipment (9,588) (6,270)
Deferred income taxes 20,982 92,741
Changes in operating assets and liabilities other than cash:
Prepaid expenses (363,170) 44,515
Other assets 33,615 (51,909)
Accounts payable 272,134 276,055
Accrued interest payable -- 5,167
Income taxes payable (52,334) (101,179)
Other accrued liabilities (389,897) (36,406)
------------ ------------
Total adjustments (499,652) 136,243
------------ ------------
Net cash flows from operating activities 2,037,565 2,574,726
------------ ------------
Cash flows from investing activities:
Purchase of rental units and equipment (2,783,187) (1,536,230)
Additions to property and equipment (1,048,563) (539,764)
Proceeds from sale of property and equipment 12,084 8,450
Asset purchase net of cash acquired (92,578) --
------------ ------------
Net cash flows used in investing activities (3,912,244) (2,067,544)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 1,650,000 --
Repayment of notes payable (2,916) (452,667)
Treasury stock purchase (23,887) --
------------ ------------
Net cash flows (used in) provided by financing activities 1,623,197 (452,667)
------------ ------------
Cash at August 1, 1999 and 1998, respectively 812,179 501,119
------------ ------------
Cash at end of the quarter $ 560,697 $ 555,634
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
BESTWAY, INC. FORM 10-Q
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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1. REFERENCE TO PREVIOUS DISCLOSURES
The 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 1999 Form 10-K, particularly with regard to
disclosure relating to significant accounting policies.
2. INCOME PER SHARE
Basic and diluted income per share is calculated based on the weighted
average common shares outstanding during the period. Common stock
equivalents (stock options) are not included in the calculation of
diluted income per share if their effect would be antidilutive. For the
quarters ended October 31, 1999 and 1998, 31,172 and 9,250 shares,
respectively, of stock options were excluded from the calculation of
diluted income per share.
3. ACQUISITIONS
On October 7, 1999, the Company signed an asset purchase agreement with
Panco Electronics and Appliances, Inc. to acquire all rental contracts
associated with a single store location in Mississippi for approximately
$93,000 in cash.
4. COMMON STOCK
During the three months ending October 31, 1999, the Company repurchased
3,700 shares of its common stock in the open market at a cost of $23,877
(1,700 shares repurchased for $10,887 and 2,000 shares repurchased for
$13,000).
5. NOTE PAYABLE
At October 31, 1999, the Company was in violation of the cash flow
covenant provision of its November 18, 1997 Third Amendment to First
Amended and Restated Revolving Credit Loan Agreement (the "Agreement")
with its senior collateralized lender. The Company obtained a waiver of
such violation from the lender as of October 31, 1999. On November 30,
1999, the Company amended the Agreement to extend the maturity date from
November 30, 1999 to February 29, 2000 and increase the maximum amount of
revolving credit under such loan agreement from $8,500,000 to $9,000,000.
The Company is currently involved in discussions with the lender to
further extend the maturity date of the agreement, extend the maximum
amount of revolving credit and to renegotiate certain financial
covenants. Although there can be no assurances, management does not
anticipate a future violation of any covenants.
7
<PAGE> 8
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.
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
--------------------
OCTOBER 31,
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Rental income 99.0% 99.2%
Sales of merchandise 1.0 0.8
-------- --------
Total revenues 100.0 100.0
Cost and operating expenses:
Depreciation and amortization:
Rental merchandise 21.8 21.8
Other 4.6 5.1
Cost of merchandise sold 1.0 0.8
Salaries and wages 28.5 26.9
Advertising 5.2 4.4
Occupancy 6.8 6.0
Other operating expenses 28.6 28.9
Interest expense 3.0 2.7
(Gain) loss on sale of property and equipment (0.1) --
-------- --------
Total cost and operating expenses 99.4 96.6
-------- --------
Income from operations before income tax provision 0.6 3.4
-------- --------
Current income tax expense -- 0.3
Deferred income tax expense 0.3 1.3
-------- --------
Net income 0.3% 1.8%
======== ========
</TABLE>
8
<PAGE> 9
BESTWAY, INC. FORM 10-Q
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For the three months ended October 31, 1999 compared to the three months
ended October 31, 1998, total revenue increased $991,993, or 14.5% to
$7,824,565 from $6,832,572. The increase in total revenue was primarily
attributable to the inclusion of two stores purchased in the second
quarter of fiscal year 1999, inclusion of ten new store openings in
fiscal year 1999, inclusion of five new store openings in the first
quarter of fiscal year 2000, and improved same store revenues. Revenue
from same stores increased $501,319 or 8.1% and accounted for 50.5% of
the increase. Same store revenues represent those revenues earned in
stores that were operated by the Company for the entire quarter ending
October 31, 1999 and 1998. 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 second quarter of
fiscal year 1999 accounted for $281,286, or 28.4% of the increase.
Revenue from the ten new store openings in fiscal year 1999 accounted for
$759,191, or 76.5% of the increase. Revenue from the five new store
openings during the first quarter of fiscal year 2000 accounted for
$81,748, or 8.2% of the increase. Revenue decreased $631,551 or 63.6%
due to closing and merging five store locations in fiscal year 1999 and
selling three stores in fiscal year 1999, respectively.
9
<PAGE> 10
BESTWAY, INC. FORM 10-Q
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Total costs and operating expenses increased $1,176,037, or 17.8% to
$7,777,031 from $6,600,994 and increased 2.8% as a percentage of total
revenues to 99.4% from 96.6%. The increase was primarily the result of
expenses associated with the two stores acquired, ten new stores opened
in fiscal year 1999, and five new stores opened in the first quarter of
fiscal year 2000.
Depreciation of rental merchandise increased $219,836, or 14.8% to
$1,709,194 from $1,489,358. Depreciation of rental merchandise expressed
as a percent of total store revenue remained constant at 21.8%. Other
depreciation and amortization increased $10,505, or 3.0% to $358,923 from
$348,418 and as a percentage of total store revenue decreased 0.5% to
4.6% from 5.1%.
Salaries and wages increased $390,484, or 21.2% to $2,230,018 from
$1,839,534 and as a percentage of total store revenue increased 1.6% to
28.5% from 26.9%. Salaries and wages increased $45,952, or 11. 8% of the
increase for the stores acquired in the second quarter of fiscal year
1999. Additional personnel for the ten new internal stores opened in
fiscal year 1999 and the five new internal stores opened in the first
quarter of fiscal year 2000 increased salaries and wages by $348,964, or
89.4%. Advertising expense increased $103,288, or 34. 1% to $406,411 from
$303,123, Advertising expense expressed as a percent of total store
revenue increased .8% to 5.2% from 4.4% primarily due to the stores
acquired in the second quarter of 1999 and the ten and five new internal
stores opened in fiscal year 1999 and the first quarter of fiscal year
2000, respectively. Occupancy expense increased $119,801, or 29. 1% to
$531,091 from $411,290 and as a percentage of total revenues increased
.8% to 6.8% from 6. 0% primarily due to stores opened in fiscal year 1999
and fiscal year 2000. Other operating expenses increased $267,516, or
13.6% to $2,241,263 from $1,973,747 and as a percentage of total revenues
decreased .3% to 28.6% from 28.9%. The increase was primarily
attributable to the stores opened in fiscal year 1999 and fiscal year
2000 offset by a decreases in expenses relating to the write-off of
rental merchandise and insurance premiums.
For the quarter ended October 31, 1999 compared to the quarter ended
October 31, 1998, income from operations before income tax provision
decreased $184,044, or 79.5% to $47,534 from $231,578 and as a percentage
of total revenues decreased 2.8% to .6% from 3.4%. The decrease was
primarily due to operating losses of $273,424 from the ten and five new
stores opened in fiscal year 1999 and fiscal year 2000, respectively. The
new stores operated at a lower average revenue per store as compared to
the Company's existing stores and, therefore, had higher salaries and
wages, advertising and occupancy expenses as a percentage of total
revenues.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended October 31, 1999, the Company's net cash flows from
operating activities was $2,037,565 as compared to $2,574,726 for the
quarter ended October 31, 1998. The decrease was primarily due to a
decrease in net income as a result of opening new stores in fiscal year
1999 and fiscal year 2000.
10
<PAGE> 11
BESTWAY, INC. FORM 10-Q
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For the quarter ended October 31, 1999, the Company's net cash flows used
in investing activities was $3,912,244 as compared to $2,067,544 for the
quarter ended October 31, 1998. The Company's investing activities
reflects a $508,799 increase in additions to property and equipment for
the five internal store openings during the quarter, and a $1,246,957
increase in the purchase of rental units and equipment.
For the quarter ended October 31, 1999, the Company's net cash flows
provided by financing activities was $1,623,197 and compared to a
decrease of $452,667 for the quarter ended October 31, 1998. The increase
in financing activities principally reflects increased borrowings on the
Company's debt.
At October 31, 1998, the Company was in violation of the cash flow
coverage covenant provision of its Revolving Credit Loan Agreement (the
"Agreement"). The Company obtained a waiver of such violation from the
lender as of October 31, 1999. On November 30, 1999, the Company amended
the Agreement dated November 18, 1997. In the Amendment, the Company
extended the maturity date from November 30, 1999 to February 29, 2000
and increased the maximum amount of revolving credit under such loan
Agreement from $8,500,000 to $9,000,000. The Company is currently
involved in discussions with the lender and expects to further extend the
maturity date of the Agreement and to renegotiate certain financial
covenants. Although there can be no assurances, management does not
anticipate a future violation of any covenants.
With the Company having available credit of approximately $713,000 under
the $8,500,000 Revolving Credit Loan Agreement, management believes the
Company has adequate resources to meet its future cash obligations.
On October 7, 1999, the Company signed an asset purchase agreement with
Panco Electronics and Appliances, Inc. to acquire all rental contracts
associated with a single store location in Mississippi.
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 adverse 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.
11
<PAGE> 12
BESTWAY, INC. FORM 10-Q
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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 all of its critical hardware to be
Year 2000 compliant.
As part of the Year 2000 readiness process significant services
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. The Company has begun to
develop contingency plans for its Year 2000 issues. The Company's
contingency planning is primarily focused on precautionary measures
associated with significant service providers, vendors and suppliers.
12
<PAGE> 13
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) Report on Form 8-k
The Company did not file any reports on Form 8-k during the
quarter ended October 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.
December 15, 1999
/s/ Beth A. Durrett
----------------------
Beth A. Durrett
Chief Financial Officer
(Principal Financial Officer and duly authorized
to sign on behalf of the Registrant)
13
<PAGE> 14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------ --------
<S> <C>
27 Financial Data Schedule
Filed Electronically only, not attached to printed reports
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 560,697
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 22,751,998
<CURRENT-ASSETS> 0
<PP&E> 8,205,454
<DEPRECIATION> 11,241,612
<TOTAL-ASSETS> 24,270,139
<CURRENT-LIABILITIES> 0
<BONDS> 10,891,096
0
0
<COMMON> 17,569
<OTHER-SE> 8,952,960
<TOTAL-LIABILITY-AND-EQUITY> 24,270,139
<SALES> 0
<TOTAL-REVENUES> 7,824,565
<CGS> 0
<TOTAL-COSTS> 1,709,194
<OTHER-EXPENSES> 5,836,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,279
<INCOME-PRETAX> 47,534
<INCOME-TAX> 24,748
<INCOME-CONTINUING> 22,786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,786
<EPS-BASIC> .01
<EPS-DILUTED> 0
</TABLE>
