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BESTWAY, INC. FORM 10-Q
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
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.
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(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
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(Address of principal executive offices) (Zip Code)
(214) 630-6655
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(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, 2000, was 1,696,272.
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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
October 31, 2000
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NOS.
---------
<S> <C> <C>
ITEM 1. Condensed Consolidated Unaudited Financial Statements 3-7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-10
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K, Signatures 11
</TABLE>
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BESTWAY, INC. FORM 10-Q
CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
(UNAUDITED)
OCTOBER 31, JULY 31,
2000 2000
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 564,220 $ 979,042
Prepaid expenses 243,657 176,833
Federal income taxes receivable 304,205 --
Deferred income taxes 556,459 473,739
Other assets 60,223 117,901
Rental merchandise, at cost 25,944,103 25,025,924
less accumulated depreciation 9,167,670 8,771,578
------------ ------------
16,776,433 16,254,346
------------ ------------
Property and equipment, at cost 10,121,837 9,334,006
less accumulated depreciation 4,257,066 4,147,614
------------ ------------
5,864,771 5,186,392
------------ ------------
Non-competes, net of amortization 340,230 378,273
Goodwill, net of amortization 1,987,929 2,051,017
------------ ------------
Total assets $ 26,698,127 $ 25,617,543
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 2,490,646 $ 1,453,892
Accrued interest - related parties 20,667 20,667
Income taxes payable -- 135,796
Other accrued liabilities 1,131,091 1,537,732
Notes payable - related parties 3,000,000 3,000,000
Notes payable - other 11,091,756 10,294,945
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,
1,756,917 issued at October 31, 2000 and July 31, 2000,
respectively 17,569 17,569
Paid-in capital 16,124,578 16,124,578
Less treasury stock, at cost, 60,645 at October 31, 2000 and
55,945 at July 31, 2000 (376,426) (353,301)
Accumulated deficit (6,801,754) (6,614,335)
------------ ------------
Total stockholders' equity 8,963,967 9,174,511
------------ ------------
Total liabilities and stockholders' equity $ 26,698,127 $ 25,617,543
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
BESTWAY, INC. FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
------------------------------
OCTOBER 31, OCTOBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Revenues:
Rental income $ 8,763,521 $ 7,746,826
Sales of merchandise 161,981 77,739
------------ ------------
8,925,502 7,824,565
------------ ------------
Cost and operating expenses:
Depreciation and amortization:
Rental merchandise 1,964,484 1,709,194
Other 481,018 358,923
Cost of merchandise sold 187,441 78,440
Salaries and wages 2,688,402 2,230,018
Advertising 429,637 406,411
Occupancy 627,957 531,091
Other operating expenses 2,538,091 2,241,263
Interest expense 300,695 231,279
Gain on sale of property and equipment (22,082) (9,588)
------------ ------------
9,195,643 7,777,031
------------ ------------
Income (loss) from operations before
income tax provision (270,141) 47,534
------------ ------------
Income tax expense (benefit) (82,720) 24,748
------------ ------------
Net income (loss) $ (187,421) $ 22,786
============ ============
Basic and diluted net income (loss) per share $ (.11) $ 0.01
============ ============
Weighted average common shares outstanding 1,697,339 1,744,484
============ ============
Diluted weighted average common shares outstanding 1,697,339 1,768,536
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
BESTWAY, INC. FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
For the three months ended October 31, 2000
<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, 2000 1,756,917 $ 17,569 $ 16,124,578 (55,945) $ (353,301) $ (6,614,333)
Treasury stock purchases -- -- -- (4,700) (23,125) --
Net loss for the three months
ended October 31, 2000 -- -- -- -- -- (187,421)
------------ ------------ ------------ ------------ ------------ ------------
Balance at October 31, 2000 1,756,917 $ 17,569 $ 16,124,578 (60,645) $ (376,426) $ (6,801,754)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
BESTWAY, INC. FORM 10-Q
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
------------------------------
OCTOBER 31, OCTOBER 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (187,421) $ 22,786
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 2,445,502 2,068,117
Net book value of rental units retired 691,947 434,920
Gain on sale of property and equipment (22,082) (9,588)
Deferred income taxes (82,720) 20,982
Changes in operating assets and liabilities other than cash:
Prepaid expenses (66,824) (363,170)
Federal income taxes receivable (304,205) --
Other assets 57,678 33,615
Accounts payable (21,353) 272,134
Income taxes payable (135,796) (52,334)
Other accrued liabilities (406,641) (389,897)
------------ ------------
Total adjustments (877,141) (499,652)
------------ ------------
Net cash flows from operating activities 1,968,085 2,037,565
------------ ------------
Cash flows from investing activities:
Purchase of rental units and equipment (2,120,426) (2,783,187)
Additions to property and equipment (1,085,555) (1,048,563)
Proceeds from sale of property and equipment 49,388 12,084
Asset purchase net of cash acquired -- (92,578)
------------ ------------
Net cash flows used in investing activities (3,156,593) (3,912,244)
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable 1,100,000 1,650,000
Repayment of notes payable (303,189) (2,916)
Treasury stock purchase (23,125) (23,887)
------------ ------------
Net cash flows provided by financing activities 773,686 1,623,197
------------ ------------
Cash at beginning of period 979,042 812,179
------------ ------------
Cash at end of period $ 564,220 $ 560,697
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE> 7
BESTWAY, INC. FORM 10-Q
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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1. REFERENCE TO PREVIOUS DISCLOSURES
The condensed 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 2000
Form 10-K, particularly with regard to disclosure relating to significant
accounting policies. The year-end condensed consolidated balance sheet
data was derived from audited financial statements, but does not include
all disclosures required by generally accepted accounting principles.
2. EARNINGS PER COMMON SHARE
Basic net income per common share is based on the weighted average common
shares outstanding during the period. Diluted net income per share
includes common stock equivalents, consisting of stock options, which are
dilutive to net income per share. For the quarters ended October 31, 2000
and 1999, 210,535 and 31,172 shares of common stock options were excluded
from the calculation of diluted income per share because their effect
would be antidilutive.
3. COMMON STOCK
During the three months ending October 31, 2000, the Company repurchased
4,700 shares of its common stock in the open market at a cost of $23,125
(1,500 shares repurchased for $7,125 and 3,200 shares repurchased for
$16,000).
4. RENTAL MERCHANDISE
Rental merchandise rented to customers, or available for rent, is
recorded at cost, net of accumulated depreciation. Merchandise rented to
customers is depreciated on the income-forecast basis over the term of
the rental agreement ranging from 12 to 24 months. Under the
income-forecast basis, merchandise held for rent is not depreciated.
Rental merchandise which is damaged and inoperable, deemed obsolete, or
not returned by the customer after becoming delinquent on payments, is
written-off as such impairment is incurred. For the three months ended
October 31, 2000 and 1999, $351,305 and $347,194, respectively, of such
impairments were incurred and are included in other operating expenses in
the accompanying condensed consolidated statements of income.
5. NEW ACCOUNTING STANDARD
During the first quarter of fiscal year 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The adoption of this
statement had no impact on the Company's consolidated financial
statements as the Company does not currently hold derivative instruments
or engage in hedging activities.
7
<PAGE> 8
BESTWAY, INC. FORM 10-Q
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 Operations,
expressed as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
OCTOBER 31,
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Rental income 98.2% 99.0%
Sales of merchandise 1.8 1.0
-------- --------
Total revenues 100.0 100.0
Cost and operating expenses:
Depreciation and amortization:
Rental merchandise 22.0 21.8
Other 5.4 4.6
Cost of merchandise sold 2.1 1.0
Salaries and wages 30.1 28.5
Advertising 4.8 5.2
Occupancy 7.0 6.8
Other operating expenses 28.4 28.6
Interest expense 3.4 3.0
Gain on sale of property and equipment (0.2) (0.1)
-------- --------
Total cost and operating expenses 103.0 99.4
-------- --------
Income (loss) from operations before income tax provision (3.0) 0.6
-------- --------
Income tax expense (benefit) (.9) 0.3
-------- --------
Net income (loss) (2.1)% 0.3%
======== ========
</TABLE>
8
<PAGE> 9
BESTWAY, INC. FORM 10-Q
For the three months ended October 31, 2000 compared to the three months
ended October 31, 1999, total revenue increased $1,100,937, or 14.1%, to
$8,925,502 from $7,824,565. The increase in total revenue was primarily
attributable to the inclusion of twelve new store openings in fiscal year
2000, the inclusion of five new store openings in the first quarter of
fiscal year 2001, and improved same store revenues offset by decreased
revenue due to selling four store locations and merging one location in
fiscal year 2000. Revenue from the twelve new store openings in fiscal
year 2000 accounted for $1,148,274, or 104.3% of the increase. Revenue
from the five new store openings in the three months ending October 31,
2000 accounted for $121,742, or 11.1% of the increase. The increase in
revenue from new stores is primarily a result of an increase in customers
and the inclusion of a full quarter's results for stores opened in 2000.
Revenue from same stores improved $269,880, or 3.7% and accounted for
24.5% of the increase. Same store revenues represent those revenues
earned in stores that were operated by the Company for the entire three
months ending October 31, 2000 and 1999. The improvement was primarily
attributable to an increase in both the number of items on rent and in
revenue earned per item. Revenue decreased $438,959, or 39.9%, due to
selling four locations and merging one location in fiscal year 2000,
respectively.
Total costs and operating expenses increased $1,418,612, or 18.2%, to
$9,195,643 from $7,777,031 and increased 3.6% as a percentage of total
revenues to 103.0% from 99.4%. The increase was primarily the result of
expenses associated with the twelve stores opened in fiscal year 2000 and
five store openings in the three months ending October 31, 2000,
respectively.
Depreciation of rental merchandise increased $255,290, or 14.9% to
$1,964,484 from $1,709,194. Depreciation of rental merchandise expressed
as a percent of total revenue increased .2% to 22.0% from 21.8%. Other
depreciation and amortization increased $122,095, or 34.0% to $481,018
from $358,923 and as a percentage of total revenue increased .8% to 5.4%
from 4.6%.
Salaries and wages increased $458,384, or 20.6% to $2,688,402 from
$2,230,018 and as a percentage of total store revenue increased 1.6% to
30.1% from 28.5%. Additional personnel for the five new internal stores
opened in the three months ending October 31, 2000 increased salaries and
wages by $108,464, or 23.6%. Salaries and wages increased $233,510, or
50.9% of the total increase due to additional personnel for the twelve
new internal stores opened in fiscal year 2000. Salaries and wages
increased $170,884, or 37.3% of the total increase due to higher staffing
costs associated with higher turnover in same stores during the three
months ending October 31, 2000. Salaries and wages decreased $92,473, or
20.1%, due to selling four locations and merging one location in fiscal
year 2000. Occupancy expense increased $96,866, or 18.2% to $627,957 from
$531,091 and as a percentage of total revenue increased .2% to 7.0% from
6.8% primarily due to the five new store openings in the three months
ending October 31, 2000 and the twelve new store openings in fiscal year
2000, respectively. Other operating expenses increased $296,828, or 13.2%
to $2,538,091 from $2,241,263 and as a percentage of total revenues
decreased .2% to 28.4% from 28.6%. The increase was primarily
attributable to the five new stores opened in the three months ending
October 31, 2000 and the twelve new stores opened in fiscal year 2000.
Interest expense increased $69,416, or 30.0% to $300,695 from $231,279
and as a percentage of total revenue increased .4% to 3.4% from 3.0%. The
increase in interest expense is primarily attributable to the
indebtedness related to the internal new store locations in the three
months ending October 31, 2000 and fiscal year 2000, respectively.
9
<PAGE> 10
BESTWAY, INC. FORM 10-Q
For the three months ending October 31, 2000 compared to the three months
ending October 31, 1999, income from operations before income tax
provision decreased $317,675, or 668% to a loss of $270,141 compared to a
profit of $47,534. Income from operations before income tax provision as
a percentage of total revenues decreased 3.6% to a negative 3.0% from
.6%. The Company experienced operating losses of $204,639 from the five
new stores opened in the three months ending October 31, 2000 and
operating losses of $56,522 from three of the twelve new stores opened in
the fourth quarter of fiscal year 2000. 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 revenues.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the three months ending October 31, 2000, the Company's net cash
flows from operating activities was $1,968,085 as compared to $2,037,565
for the three months ending October 31, 1999. The decrease was primarily
due to increased outflow for working capital requirements.
For the three months ending October 31, 2000, the Company's net cash
flows used in investing activities was $3,156,593 as compared to
$3,912,244 for the three months ending October 31, 1999. The Company's
investing activities reflects a $662,761 decrease in the purchase of
rental units and equipment and a $36,992 increase in additions to
property and equipment primarily for the five new internal store openings
during the three months ending October 31, 2000.
For the three months ending October 31, 2000, the Company's net cash
flows provided by financing activities was $773,686 as compared to
$1,623,197 for the three months ending October 31, 1999. The decrease in
financing activities principally reflects decreased borrowings on the
Company's debt.
With the Company having available credit of approximately $3,132,000
under the $17,500,000 Revolving Credit Loan Agreement, management
believes the Company has adequate resources to meet its future cash
obligations.
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.
NEW ACCOUNTING STANDARD
During the first quarter of fiscal year 2000, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The adoption of this
statement had no impact on the Company's consolidated financial
statements as the Company does not currently hold derivative instruments
or engage in hedging activities.
10
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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 October 31, 2000.
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, 2000
/s/ Beth A. Durrett
-----------------------
Beth A. Durrett
Chief Financial Officer
(Principal Financial Officer and duly authorized
to sign on behalf of the Registrant)
11
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>