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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1995
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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
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BESTWAY, INC. (Formerly Bestway Rental, 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
- ------------------------------------ --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 630-6655
----------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
(None) (None)
- --------------------------- -------------------------
Securities registered pursuant to Section 12(g) of the Act:
- -------------------------------------------------------------------------
Common Stock, $.01 par value
(Title of Class)
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
---- ----
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. No stock price information was
available for fiscal years 1995 and 1994.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date 1,500,070 shares outstanding as of July 31, 1995.
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DOCUMENTS INCORPORATED BY REFERENCE
Document Form 10-K Reference
- -------- -------------------
Proxy Statement for 1995 Part III, Items 10-13
2
TABLE OF CONTENTS
PART I Page
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Item 1. Business 3 - 5
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
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Item 5. Market for Registrant's Common Stock and Related Security Holder Matters 5 - 6
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 9
Item 8. Financial Statements and Supplementary Data 9
PART III
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Item 10. Directors and Executive Officers of the Registrant 9
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial Owners and Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV
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Item 14. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
2
3
PART I
ITEM 1. BUSINESS
General
Bestway, Inc., formerly Bestway Rental, Inc., and its consolidated
subsidiaries ("Bestway" or the "Company") has been engaged in the
rental-purchase industry since 1987. The Company owns and operates a total of
thirty-five stores located in the states of Alabama, Mississippi and Tennessee.
The stores operations are controlled and monitored through the Company's
computerized management information system networked with its home office in
Dallas, Texas.
The Company is planning to create an additional line of business for its
current rental-purchase operation by entering what is known as the "Buy Here,
Pay Here" ("BHPH") used car business. To evaluate the viability of the BHPH
business, the Company is in the process of test marketing the concept through
the opening of a single prototype retail sales facility, Bestway Auto Center,
in Tullahoma, Tennessee. The performance will be evaluated over a number of
months before expanding to other locations. Upon proving its success, it is
the Company's intention to open additional BHPH lots in its existing market
areas.
The Company's rental-purchase program offers brand name durable household
goods, electronics, appliances and jewelry to customers on a week-to-week or
month-to-month basis. These products are furnished to customers under
full-service rental agreements which require that the charge for each rental
period be paid in advance, but no additional advance payment or security
deposit is required. At the end of each rental period, the customer has the
option of retaining the product for an additional rental period or returning
the product without further obligation. If the product is returned, it is
serviced and then offered for rent to another customer. The rental agreements
contain options under which customers may own the merchandise under specified
terms. The Company's rental agreements typically have a twelve to twenty-four
month term with weekly or monthly payment options. The most distinguishing
factor of this form of retailing is the cancelability of the rental agreement
at any time without further obligation by returning the product to the dealer.
The industry primarily serves customers in the low to middle income sector who
may have a need for a product, but do not wish or are unable to purchase it for
cash or on credit.
Products
The Company generally purchases products directly from the manufacturers
and local distributors. Products offered by the Company include a variety of
brands, styles and models of television sets, audio equipment, video cassette
recorders, washers and dryers, refrigerators and freezers, microwave ovens,
furniture and jewelry. Although the Company presently expects to continue
relationships with its existing suppliers, there are numerous sources of
products, and the Company does not believe its operations are dependent on any
one or more of its present suppliers.
Advertising
The Company markets its products and services by selecting prominent store
locations in retail shopping areas on main traffic thoroughfares near targeted
customers' residences or job locations. Additionally, the Company solicits new
business by acquainting potential customers with the Company's products and
services through mailing lists and local media advertising programs. The
Company also has programs which reward existing customers with rental discounts
or cash payments for the referral of new customers.
3
4
ITEM 1. BUSINESS, con't.
Competition
The rental-purchase industry is highly competitive. Competition is based
primarily on store location, product selection and availability, customer
service and rental rates and terms. Several of the Company's competitors are
national and regional and some have significantly greater financial and
operating resources and name recognition than the Company. In addition, the
Company faces competition from sources outside the rental-purchase industry,
such as department stores, discount stores and retail outlets. These
competitors may offer an installment sales program or may compete with the
Company simply on the basis of product and price. There is no assurance that
the Company will be able to compete successfully against these competitors.
Because capital and other requirements for entry into the rental- purchase
industry is relatively low, competition may arise from new sources not
currently competing with the Company. Increased competition could have a
material adverse effect on the Company's sales and profitability.
Personnel
At July 31, 1995, the Company employed approximately 170 full-time
employees, of which 13 are located at the corporate office in Dallas, Texas.
The Company has various incentive programs for all personnel. None of the
Company's employees are represented by a labor union. The Company considers
its relations with its employees to be satisfactory.
Regulation
FEDERAL REGULATION Although certain proposed federal regulations are under
consideration, no federal legislation has been enacted regulating rental
purchase transactions. As of September 30, 1994, four bills have been
introduced in Congress that would regulate the rental-purchase industry. Two
of the bills are supported by the Association of Progressive Rental
Organization ("APRO") and mandate certain disclosures to customers similar to
those required by most state legislation. The Company does not believe that
these laws, if enacted, will have a material adverse effect upon the Company's
operations.
The other two bills include certain credit sale requirements and would
subject rental purchase transactions to interest rate, finance charge and fee
limitations, as well as the Federal Truth in Lending Act, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and the Fair Credit
Reporting Act. These bills would also require the lessor to make certain
disclosures to customers about the terms of the rental purchase transaction.
The Company believes that in the event federal legislation is enacted
regulating rental purchase transactions as credit sales, the Company would be
able to adapt to the new laws and remain profitable by repositioning itself as
a rent-to- rent business. However, there can be no assurance that the proposed
legislation, if enacted, would not have a material adverse effect on the
business of the Company.
STATE REGULATION With some variations in individual states, most state
legislation requires the lessor to make prescribed disclosures to a customer
about the rental purchase agreement and transaction. These laws require certain
contractual and advertising disclosures concerning the rental-purchase
agreement and the nature of the transaction and also provide varying levels of
substantive consumer protection, such as requiring a grace period for late
payments and contract reinstatement rights in the event the agreement is
terminated for nonpayment of rentals and, in some instances, limits certain
fees that may be charged. Some states require written disclosure of all
material aspects of the transaction, including the cash price of the
merchandise, the purchase option prices during the term of the agreement and
the total amount of rentals that must be paid in order to acquire ownership of
the merchandise and prohibit confession-of-judgement clauses.
4
5
ITEM 1. BUSINESS, con't.
CERTAIN TAX ISSUES The Company follows the standard industry practice of
recording revenues from a rental-purchase agreement over the life of the
agreement. The Company had been advised by APRO that, in connection with tax
audits of certain industry participants, the Internal Revenue Service ("IRS")
had taken the position that rental-purchase transactions should be classified
as installment sales and that the maximum amount under the rental-purchase
agreement should be accrued as income when the contract is signed. APRO funded
a lawsuit challenging the IRS position. The industry position is that
rental-purchase transactions are not properly characterized as installment
sales because the customer has no explicit or implicit legal obligation to
renew the rental-purchase agreement and may return the merchandise at any time.
On August 21, 1995 the IRS issued a bulletin announcing that the
rental-purchase transaction is considered a lease for tax purposes. As a
result, the IRS is in agreement with industry practice on income recognition.
ITEM 2. PROPERTIES
All store locations, with the exception of one, and the home office
facility in Dallas, Texas are leased. Store facilities typically are showroom
locations of approximately 3,700 square feet in retail centers on heavy traffic
thoroughfares near customers' residences or work places. Almost all available
rental merchandise is kept in the showroom area which comprises the majority of
the available square footage. Store location is considered critical to the
success of the store.
The Company's store locations by state at July 31, 1995, are as follows:
State Number of Stores
----- ----------------
Alabama 12
Mississippi 10
Tennessee 13
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35
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ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings other than ordinary routine litigation
incidental to the Company's business to which the Company or any of its
subsidiaries is a party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS
MATTERS
No stock price information was available for fiscal year 1995 and 1994.
The Company was removed from the National Association of Securities Dealers
Automated Quotations system ("NASDAQ") on August 17, 1989 because it did not
meet the minimum capital requirements. The Company's stock is quoted in the
"pink sheets" and is traded on a limited basis. At July 31, 1995, the average
bid and ask prices for the Company's common stock was $4.00 bid and $8.00 ask.
5
6
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS
MATTERS, con't.
At July 31, 1995, there were 589 stockholders of record of the Company's
common stock, calculated based on the number of recordholders.
The Company has not paid cash dividends on its common stock since its
inception and intends to retain earnings for operations. The Company is a
party to a loan agreement which prohibits the payment of cash dividends on
common stock.
On June 6, 1995 the Company amended its Certificate of Incorporation in
order to effect the reverse stock split of each share of common stock, par
value $.01 per share, into one-five hundredth of a fully paid and nonassessable
share of common stock, par value $5.00 per share. In addition, the Company
implemented a Fractional Share Program to permit holders of fewer than 500
shares of common stock to maintain their equity interest in the Company and to
provide funds to the Company for the purpose of paying holders of fractional
interests in reverse split common stock the fair value of their fractional
interests. On June 7, 1995 the Company amended its Certificate of
Incorporation in order to effect a subsequent reclassification pursuant to
which each one share of common stock, par value $5.00 per share, was converted
into ten shares of common stock, par value $.01 per share. Additionally, the
Company decreased the authorized number of shares of common stock from
90,000,000 shares to 20,000,000 shares.
ITEM 6. SELECTED FINANCIAL DATA
Fiscal year
ended July 31,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Revenues from operations $16,423,262 $16,369,149 $12,436,708 $9,518,822 $7,171,150
Income (loss) from continuing
operations before tax (1,166,786)
and extraordinary item 1,072,112 722,902 843,606 197,674 --
Current income tax expense 101,047 35,319 5,245 -- --
Deferred income tax benefit 2,013,784 -- -- -- --
Loss on capital restructure -- -- 381,755 --
Gain on debt restructure,
net of fees -- -- -- 1,963,833 --
Net income (loss) 2,984,849 687,583 456,606 2,161,507 (1,166,786)
Net income (loss) per common
and common equivalent share (1) 1.99 .46 1.22 8.10 (4.45)
Cash flow provided by operations 6,542,227 6,370,945 5,619,132 3,855,181 2,676,505
Total assets 13,709,895 11,083,279 8,614,802 7,255,177 6,262,671
Notes payable 6,070,302 6,485,659 4,617,688 8,167,836 9,996,501
Stockholders' equity/(deficit) 6,041,293 3,060,154 2,372,571 (3,671,089) (5,857,196)
(1) Amounts have been restated to reflect reverse split and subsequent
reclassification
6
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations for the Fiscal Year Ended July 31, 1995 Compared to 1994
The following table sets forth, for the periods indicated, certain items
from the Company's Consolidated Statements of Income, expressed as a percentage
of revenues.
Year Ended
July 31
---------------------------------
1995 1994
---- ----
Revenues
Rental income 99.0% 98.7%
Sales of merchandise 1.0 1.3
----- -----
Total revenues 100.0 100.0
Cost and operating expenses
Depreciation and amortization -
Rental merchandise 24.1 25.6
Other 5.7 4.7
Cost of merchandise sold .9 1.4
Salaries and wages 24.4 24.8
Advertising 4.4 5.0
Rent expense 4.6 4.8
Other operating expenses 26.3 27.5
Interest expense 3.1 2.4
Gain on sale of assets -- (1.2)
Loss on sale of property and equipment -- .6
----- -----
Total cost and operating expenses 93.5 95.6
----- -----
Net income before income tax provision 6.5 4.4
----- -----
Current income tax expense .6 .2
Deferred income tax benefit (12.3) --
----- -----
Total income tax provision (benefit) (11.7) .2
----- -----
Net income 18.2% 4.2%
===== =====
Revenue increased $54,113 or 0.3% to $16,423,262 as compared to $16,369,149
in fiscal year 1994. Same store revenue, which includes all stores opened
prior to fiscal year 1994, increased $773,732 and the Company's Mississippi
stores acquired in fiscal year 1994 and three new stores opened in fiscal 1994
increased $1,081,251 and $517,717, respectively. Additionally, the Company
experienced a decline of $2,278,587 in revenue as a result of the asset
purchase agreement with another rental dealer in which the Company sold
substantially all of the rental inventory being rented by customers pursuant to
rental agreements at four stores in Missouri and two stores in Illinois. The
Company's improved performance is primarily due to the implementation of a
marketing program based on increasing the Company's share of the customer's
business and the implementation of a broad-based training program designed to
improve customer satisfaction skills of the Company's employees and to reduce
employee turnover. The Company receives rental revenue from various products
including televisions and video cassette recorders, household appliances, as
well as home furniture and jewelry. In fiscal year 1995, approximately 18% of
the Company's rental revenue was derived from appliances, 23% from home
furniture, 30% from electronics, 14% from various other products such as
jewelry and 15% from various services and charges to rental customers including
reinstatement fees and liability waiver fees.
7
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, con't.
Results of Operations for the Fiscal Year Ended July 31, 1995 Compared to 1994
Cost and operating expenses, which primarily consist of depreciation and
amortization, salaries and wages, advertising, other operating expenses and
interest expense decreased to 93.5% from 95.6% of total revenues. The three
new store locations opened in fiscal year 1994 experienced revenues in excess
of direct store operating expenses of approximately $187,000 in fiscal year
1995 compared to losses of approximately $134,000 in fiscal year 1994. Total
store operating margins including the three new stores, Mississippi stores
acquired September 10, 1993 and same stores increased 29.3% as a result of
increased revenues, as well as, better merchandising strategies and due to
upgrading the Company's sales and support resources. Interest expense
increased to 3.1% from 2.4% of total revenues due to increased borrowings for
the purchase of new delivery vans and a 1.5% increase in the interest rate at
July 31, 1995 compared to July 31, 1994.
Based on a positive earnings trend and estimates of future taxable income,
the Company has recognized a portion of its net deferred tax asset through a
$2,013,784 reduction in the valuation allowance. The effect on earnings per
share of this reduction in the valuation allowance is approximately $1.34.
Accordingly, without this reduction earnings per share would have been $.65.
Financial Condition, Liquidity and Capital Resources
The Company's primary source of funds to finance its business has been its
cash flows provided by operating activities and its bank borrowings. The funds
have been used primarily to purchase and carry additional rental merchandise
for existing stores.
On March 15, 1995, the Company amended its August 19, 1993 First Amended
and Restated Revolving Credit Loan Agreement with its senior collateralized
lender. In the amendment, the Company increased the maximum amount available
under the line of credit from $3,000,000 to $4,000,000, extended the maturity
date from August 18, 1995 to August 18, 1996 and reduced the interest rate from
prime plus 2% to prime plus 1.5%.
The Company's net cash flows provided by operating activities was
$6,542,227 compared to $6,370,945 in 1994, a 2.7% increase. Cash flows used in
investing activities was $6,070,711 compared to $8,316,530 in 1994, a 27.0%
decrease. The Company's investing activities primarily reflect its continuing
replacement of rental merchandise that was purchased by customers either by
full pay or under the rental agreement or by exercise of the customers early
purchase option and increased inventory levels to meet the Company's increase
in the number of units on rent. Additions to property and equipment include
the purchase and retrofit of vehicles and leasehold improvements for six of the
Company's existing stores. In addition, the Company implemented a jewelry
program and as a result incurred costs for the design and installation of
jewelry displays in each store.
On August 26, 1995, the Company extended its maturity on the $500,000
subordinated note payable to affiliate dated March 4, 1992 from August 31, 1995
to August 31, 1996. On October 23, 1995, the Company extended its $3,000,000
subordinated note payable to limited partnership and stockholder dated July 19,
1993. The note which matures on July 19, 1996 was extended until August 19,
1997.
With the Company having available credit of $2,049,973 under the $4,000,000
amended line of credit at July 31, 1995 and reporting operating profits and
cash flows, management believes the Company has adequate cash resources to meet
its cash obligations.
8
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, con't.
During March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The standard is effective for financial statements
for fiscal years beginning after December 15, 1995. The Company's analysis of
this new standard indicates that the standard should not have a material effect
on its financial position or results of operations.
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.
Results of Operations for the Fiscal Year Ended July 31, 1994 Compared to 1993
The Company entered into an agreement on September 10, 1993 with another
rental dealer to acquire twelve stores in Mississippi. Of the twelve stores
acquired, three have been consolidated. The Company acquired all of the assets
involved in the daily operations of the stores including all idle rental
inventory, all rental contracts, vehicles, store furniture and fixtures,
computers and leasehold improvements. The Company obtained the seller's former
store locations by assuming the locations lease agreements. Additionally, the
Company opened one new store in October, 1993 in Cookeville, Tennessee and one
new store in November, 1993 in Corinth, Mississippi. On June 16, 1994 the
Company entered into an Asset Purchase Agreement with another rental dealer and
closed four stores in Missouri and two stores in Illinois. The Company sold
substantially all of the rental inventory being rented by customers pursuant
to rental agreements at the stores. As a result, the Company experienced a
gain of $190,095 which is included in cost and operating expenses. All idle
rental inventory was transferred to the Company's existing stores in Alabama,
Mississippi and Tennessee. The Company completed the year with thirty five
stores in operation.
Revenue increased 31.6% to $16,369,149 as compared to $12,436,708 in fiscal
year 1993. Approximately 74.2% of the revenue increase is attributed to the
Mississippi acquisition and approximately 13.9% to new store openings. The
remaining 11.9% is attributed to same store revenue increases due to an
increase of 778 units on rent. The Company receives rental revenue from the
renting of various products including televisions, video cassette recorders,
household appliances, home furniture and jewelry. During fiscal year 1994,
approximately 19% of the Company's rental revenue was derived from appliances,
24% from home furniture, 31% from electronics, 13% from various other products
such as jewelry and 13% from various services and charges to rental customers
including reinstatement fees and liability waiver fees. Sales of merchandise
includes revenue from cash sales of primarily used merchandise.
Cost and operating expenses were $15,646,247 as compared to $11,593,102 in
fiscal year 1993, a 34.9% increase. Most of the increase relates directly to
the increase in revenues, as well as expenses relating to the closing of the
four stores in Missouri and two stores in Illinois. Interest expense decreased
this year due to the Company's capital restructure on July 19, 1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is hereby made to the Consolidated Financial Statements and notes
thereto appearing at pages F-1 to F-15 hereof.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required will be contained in the Company's Proxy Statement
for the Annual Meeting of Shareholders for 1995, and is incorporated herein by
reference.
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10
ITEM 11. EXECUTIVE COMPENSATION
The information required will be contained in the Company's Proxy Statement
for the Annual Meeting of Shareholders for 1995, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required will be contained in the Company's Proxy Statement
for the Annual Meeting of Shareholders for 1995, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required will be contained in the Company's Proxy Statement
for the Annual Meeting of Shareholders for 1995, and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Reference is made to Index to Consolidated Financial Statements
appearing at F-1 of this report
(b) Reports on Form 8-K - None
(c) Exhibits
Exhibit
Number Document
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3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-laws Incorporation (2)
4.3 Specimen of certificate representing Common Stock, $.01 par value,
of the Company (3)
4.4 Bestway, Inc. Incentive Stock Option Plan (3)
4.5 Form of Incentive Stock Option Agreement pursuant to Incentive
Stock Option Plan (3)
21 Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
Filed electronically only, not attached to printed reports
(1) Filed as exhibits to Form 8-K on September 2, 1993, incorporated
herein by reference.
(2) Filed as exhibits to Form 10-K for year ended December 31, 1984,
incorporated herein by reference.
(3) Filed as exhibits to Form S-8 on June 22, 1995, incorporated herein by
reference.
10
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SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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.
October 27, 1995 /s/ R. Brooks Reed
----------------------------------------
R. BROOKS REED, CHAIRMAN OF THE BOARD
OF DIRECTORS AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the 27th day of October, 1995.
/s/ R. Brooks Reed Chairman of the Board of Directors
- ----------------------------------- and Chief Executive Officer
R. BROOKS REED
/s/ Jack E. Meyer Director
- -----------------------------------
JACK E. MEYER
/s/ James A. O'Donnell Director
- -----------------------------------
JAMES A. O'DONNELL
/s/ Beth A. Durrett Vice President - Controller
- -----------------------------------
BETH A. DURRETT
/s/ Teresa A. Sheffield Vice President - Marketing
- -----------------------------------
TERESA A. SHEFFIELD
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BESTWAY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
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Report of Independent Accountants F-2
Financial Statements:
Consolidated Balance Sheets as of July 31, 1995 and 1994 F-3
Consolidated Statements of Income for the years ended July 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for the years ended July 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Stockholders' Equity for the years ended July 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7 - F-15
F-1
13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Bestway, Inc.:
We have audited the accompanying consolidated balance sheets of Bestway, Inc. as
of July 31, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended July 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bestway, Inc. as
of July 31, 1995 and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended July 31, 1995,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
October 25, 1995
F-2
14
BESTWAY, INC.
Consolidated Balance Sheets
July 31, 1995 July 31, 1994
------------- -------------
ASSETS
Cash $ 329,342 $ 273,183
Restricted cash 119,342 119,342
Prepaid expenses 129,311 150,282
Deferred tax asset 2,013,784 --
Other assets 209,506 30,080
Rental merchandise, at cost 10,596,609 9,100,959
less accumulated depreciation 4,189,727 3,380,582
----------- ------------
6,406,882 5,720,377
----------- ------------
Property and equipment, at cost 3,584,071 2,955,411
less accumulated depreciation 1,702,486 1,140,357
----------- ------------
1,881,585 1,815,054
----------- ------------
Non-compete, net of amortization 581,977 765,759
Goodwill, net of amortization 2,038,166 2,209,202
----------- ------------
Total assets $13,709,895 $ 11,083,279
=========== ============
LIABILITIES AND EQUITY
Accounts payable $ 718,861 $ 702,439
Accrued interest - related parties 12,013 12,013
Accrued interest - other 22,043 17,715
Income taxes payable 85,061 35,319
Other accrued liabilities 760,322 769,980
Notes payable-related parties 3,600,000 3,600,000
Notes payable-other 2,470,302 2,885,659
Commitments and contingencies
Stockholders' Equity
Preferred stock $10.00 par value
1,000,000 authorized, none issued -- --
Common Stock, $.01 par value, 20,000,000 authorized,
1,500,070 issued and outstanding at July 31, 1995 and
1,505,276 at July 31, 1994 (as restated) 15,001 15,053
Paid-in capital 14,842,911 14,846,569
Accumulated deficit (8,816,619) (11,801,468)
----------- ------------
Total equity 6,041,293 3,060,154
----------- ------------
Total liabilities and equity $13,709,895 $ 11,083,279
=========== ============
The accompanying notes are an integral part of the financial statements.
F-3
15
BESTWAY, INC.
Consolidated Statements of Income
Fiscal Years Ended
------------------------------------------------------------
July 31, 1995 July 31, 1994 July 31, 1993
------------- ------------- -------------
Revenues
Rental income $16,261,267 $16,162,227 $12,312,262
Sales of merchandise 161,995 206,922 124,446
----------- ----------- -----------
16,423,262 16,369,149 12,436,708
----------- ----------- -----------
Cost and Operating Expenses
Depreciation and amortization -
Rental merchandise 3,959,484 4,177,992 3,103,770
Other 937,690 766,665 491,416
Cost of merchandise sold 140,038 226,734 124,625
Salaries and wages 4,014,289 4,051,757 2,945,048
Advertising 726,967 818,366 508,826
Rent expense 759,613 779,785 499,164
Other operating expenses 4,302,231 4,514,984 3,192,040
Interest expense 510,838 399,883 728,213
Gain on sale of assets -- (190,095) --
Loss on sale of property and equipment -- 100,176 --
----------- ----------- -----------
15,351,150 15,646,247 11,593,102
----------- ----------- -----------
Income before income tax provision (benefit): 1,072,112 722,902 843,606
----------- ----------- -----------
Current income tax expense 101,047 35,319 5,245
Deferred income tax benefit (2,013,784) -- --
----------- ----------- -----------
(1,912,737) 35,319 5,245
----------- ----------- -----------
Income before extraordinary item 2,984,849 687,583 838,361
----------- ----------- -----------
Extraordinary items -
Loss on capital restructure -- -- 381,755
----------- ----------- -----------
Net income $ 2,984,849 $ 687,583 $ 456,606
=========== =========== ===========
Earnings per share before extraordinary item(1) $ 1.99 $ .46 $ 2.24
----------- ----------- -----------
Extraordinary item -- -- (1.02)
----------- ----------- -----------
Net income per share (1) $ 1.99 $ .46 $ 1.22
----------- ----------- -----------
Weighted average common shares outstanding (1) 1,502,239 1,505,276 374,059
=========== =========== ===========
(1) As restated, see Note 9 in the accompanying financial statements.
The accompanying notes are an integral part of the financial statements.
F-4
16
BESTWAY, INC.
Consolidated Statements of Cash Flows
Fiscal Years Ended
-------------------------------------------------------
July 31, 1995 July 31, 1994 July 31, 1993
------------- ------------- -------------
Cash flows from operating activities:
Net income $2,984,849 $ 687,583 $ 456,606
Depreciation and amortization 4,897,174 4,944,657 3,595,186
Net book value of rental units retired 775,319 989,817 647,097
Gain on sale of assets -- (190,095) --
Loss on sale of property and equipment -- 100,175 --
Deferred income tax benefit (2,013,784) -- --
Extraordinary loss on capital restructure -- -- 381,755
Stock awards -- -- 518,404
Other (3,710) -- --
Changes in asset and liability accounts other than cash:
Prepaid expenses 20,971 (63,551) 5,363
Other assets (179,426) (10,564) 9,547
Accounts payable (68,639) 141,556 (80,013)
Income taxes payable 49,742 30,074 5,245
Other accrued liabilities 79,731 (258,707) 79,942
---------- ---------- ----------
Total adjustments (97,621) (161,192) 20,084
---------- ---------- ----------
Net cash flows from operating activities 6,542,227 6,370,945 5,619,132
---------- ---------- ----------
Cash flows from investing activities:
Purchase of rental units and equipment (5,432,430) (5,468,075) (4,961,222)
Additions to property and equipment (668,701) (1,391,867) (611,065)
Proceeds from sale of property and equipment 30,420 2,500 39,642
Proceeds from sale of assets -- 777,015 --
Investment in restricted cash -- (119,342) --
Mississippi asset purchase -- (2,116,761) --
---------- ---------- ----------
Net cash flows used in investing activities (6,070,711) (8,316,530) (5,532,645)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds of notes payable 996,800 3,088,438 --
Repayment of notes payable (1,412,157) (1,220,467) (2,312)
---------- ---------- ----------
Net cash flows (used in) provided by financing activities (415,357) 1,867,971 (2,312)
---------- ---------- ----------
Cash at the beginning of the year 273,183 350,797 266,622
---------- ---------- ----------
Cash at the end of the year $ 329,342 $ 273,183 $ 350,797
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
F-5
17
BESTWAY, INC.
Consolidated Statements of Stockholders' Equity
For years ended July 31, 1995, 1994 and 1993
Common Stock
---------------------------------- Paid-in Accumulated
Shares (1) Amount (1) Capital (1) Deficit
------------ ---------- ----------- -------------
Balance at July 31, 1992 271,221 $ 2,712 $10,792,670 $(14,466,471)
------------ ----------- ----------- -------------
Capital restructuring 888,452 8,885 3,538,951 1,520,814
Stock awards 345,603 3,456 514,948 --
Net income for the year ended July 31, 1993 -- -- -- 456,606
------------ ----------- ----------- -------------
Balance at July 31, 1993 1,505,276 15,053 14,846,569 (12,489,051)
------------ ----------- ----------- -------------
Net income for the year ended July 31, 1994 -- -- -- 687,583
------------ ----------- ----------- -------------
Balance at July 31, 1994 1,505,276 15,053 14,846,569 (11,801,468)
------------ ----------- ----------- -------------
Stock cancellation (8,950) (89) (13,335) --
Stock awards 3,744 37 9,677 --
Net income for the year ended July 31, 1995 -- -- -- 2,984,849
------------ ----------- ----------- -------------
Balance at July 31, 1995 1,500,070 $ 15,001 $14,842,911 $ (8,816,619)
============ =========== =========== =============
(1) As restated, see Note 9 in the accompanying financial statements.
The accompanying notes are an integral part of the financial statements.
F-6
18
BESTWAY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of Bestway, Inc. (the
"Company") formerly Bestway Rental, Inc. (see Note 9), include the
Company's wholly-owned operating subsidiaries, Bestway Rental, Inc.
(formerly EZY Rental, Inc.) which operates under the registered trade
name "Bestway Rent-To-Own," U.S. Credit-Service Corporation, Westdale
Data Service, Inc. and Bestway Auto, Inc. All intercompany balances and
transactions have been eliminated in the consolidated financial
statements. Prior year equity and earnings per share amounts have been
restated to reflect the current year changes due to the reverse split and
reclassification (see Note 9).
Rental Merchandise, Related Rental Revenue and Depreciation
Rental merchandise is rented to customers pursuant to rental
agreements which provide for either weekly or monthly rental terms with
nonrefundable rental payments for the first week or month collected in
advance. Rental revenue is recognized as collected since at the time of
collection the rental merchandise has been placed in service and costs of
installation and delivery have been incurred. Rental agreements
generally cover a period of 12 to 24 months with a majority of rental
agreements specifying 18 months. At the end of each rental period, the
customer can renew the rental agreement, return the merchandise with no
obligation, or purchase the merchandise by exercising their early
purchase option. Amounts received from such sales are included in
revenue when received. Past due or stolen merchandise is expensed
generally within three months from the due date. The Company receives
rental revenue from various products including televisions and video
cassette recorders, household appliances, as well as home furniture and
jewelry. In fiscal year 1995, approximately 18% of the Company's rental
revenue was derived from appliances, 23% from home furniture, 30% from
electronics, 14% from various other products such as jewelry and 15% from
various services and charges to rental customers including reinstatement
fees and liability waiver fees. In fiscal year 1994, approximately 19%
of the Company's rental revenue was derived from appliances, 24% from
home furniture, 31% from electronics, 13% from various other products
such as jewelry and 13% from various services and charges to rental
customers including reinstatement fees and liability waiver fees.
Merchandise rented to customers, or available for rent, is
recorded at cost net of accumulated depreciation, which equals the
carrying amount, and is classified in the consolidated balance sheets as
rental merchandise. Merchandise rented to customers is depreciated on
the income-forecast basis over the term of the rental agreement ranging
from 12 to 24 months. When not on rent, merchandise is not depreciated.
Sales of Merchandise
Sales of merchandise includes revenue from cash sales of primarily
used merchandise.
Property and Equipment
Property and equipment are recorded at cost. Major improvements
to property and equipment are capitalized. Maintenance and repair
expenditures are charged to expense as incurred. As fixed assets are
sold or retired, the applicable cost and accumulated depreciation are
eliminated from the accounts and any gain or loss is recorded.
Depreciation of property and equipment is provided over the
estimated useful lives, which range from 1 to 10 years of the respective
assets on the straight-line basis.
F-7
19
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, con't.
Restricted Cash
Amount represents escrow money deposited in connection with the
sale of certain stores as required by the Asset Purchase Agreement as
herein defined. Disbursements will be made from this account to satisfy
any taxes owed by the Company, any claims of third parties against the
assets which are the Company's responsibility, or to satisfy any
indemnification rights as specified in the Asset Purchase Agreement.
Upon termination, any amount not payable to third parties will be
returned to the Company.
Intangibles
Goodwill represents the cost in excess of the fair value of net
tangible assets of an acquired business and is being amortized on a
straight-line basis over 20 years. Accumulated amortization of goodwill
was $1,382,539 and $1,211,503 at July 31, 1995 and 1994, respectively.
The non-compete represents the allocation of the purchase price
from the September 10, 1993 acquisition of twelve stores in Mississippi
and is being amortized on a straight-line basis over 5 years.
Accumulated amortization of the non-compete was $336,933 and $153,151, at
July 31, 1995 and 1994, respectively.
The Company continually evaluates the propriety of the carrying
amount of goodwill and other intangibles based on the estimated future
undiscounted cash flows of the related investment, as well as the
amortization period to determine whether current events and circumstances
warrant adjustments to carrying value and/or revised estimates of useful
lives. At this time, the Company believes that no significant impairment
of the goodwill and other intangibles has occurred and that no reduction
of the estimated useful lives is warranted.
Income Taxes
Investment tax credits are accounted for on the "flow-through"
method.
Earning Per Common Share
Earnings per common share have been computed based on the weighted
average common shares outstanding during each period. Prior year
amounts have been restated to reflect the current year changes in equity
due to the reverse split and reclassification. Primary and fully diluted
earnings per share is not shown because the effect of stock options is
immaterial.
Reclassification
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform to the 1995 presentation.
Pre-Opening Costs
The Company capitalizes certain operating costs which are incurred
prior to the opening of a new store. These costs are amortized over a
one-year period. Pre-opening costs related to Bestway Auto, Inc. have
been capitalized and are included in other assets.
Advertising Costs
Advertising costs are expensed as incurred.
F-8
20
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
July 31, July 31,
1995 1994
------------- -------------
Building and leaseholds $1,426,123 $1,164,733
Vehicles 1,036,549 858,307
Furniture 452,691 329,445
Computer equipment 668,708 602,926
----------- ----------
3,584,071 2,955,411
Accumulated depreciation (1,702,486) (1,140,357)
----------- ----------
$1,881,585 $1,815,054
=========== ==========
3. NOTES PAYABLE
Notes payable consists of the following:
Years Ended
-------------------------------------------
July 31, July 31,
1995 1994
-------- ---------
Senior Collateralized Debt
--------------------------
Note payable to bank dated August 19, 1993, amended March
15, 1995, interest payable monthly at prime plus 1.5%;
note matures on August 18, 1996; note collateralized by
substantially all the Company's assets. $1,950,027 $2,198,727
Subordinated Debt
-----------------
Note payable to limited partnership and stockholder dated
July 19, 1993, interest payable quarterly beginning
October 1, 1993 at 4.5% per annum; note, as amended,
matures on August 19, 1997. 3,000,000 3,000,000
Note payable to Director and stockholder dated July 19,
1993, interest payable quarterly beginning October 1,
1993 at 4.5% per annum; note matures on July 19, 1996. 100,000 100,000
Note payable to affiliate dated March 4, 1992, interest
payable monthly at prime plus 1.5%; note, as amended,
matures on August 31, 1996; affiliate has as one of its
directors and shareholders the Company's CEO and
Chairman of the Board of Directors. 500,000 500,000
F-9
21
3. NOTES PAYABLE, con't.
Years Ended
-------------------------------------------
July 31, July 31,
1995 1994
------------ ------------
Other Notes Payable
-------------------
Note payable to bank dated July 1, 1994, principal payable
monthly, interest payable monthly at 9% per annum; note
matures July 1, 1997. 312,391 468,587
Note payable to individual dated July 15, 1992, principal
payable monthly, interest payable monthly at 9% per
annum; note matures on July 15, 1997. 62,389 65,157
Note payable to bank dated April 11, 1994, principal
payable monthly, interest payable monthly at 9% per
annum; note matures on April 15, 2006. 145,495 153,188
---------- ----------
$6,070,302 $6,485,659
========== ==========
At July 31, 1995 and 1994 the prime rate was 8.75% and 7.25%,
respectively.
On August 26, 1995 the $500,000 subordinated note payable dated March 4,
1992 maturing August 31, 1995 was extended until August 31, 1996.
On October 23, 1995 the $3,000,000 subordinated note payable dated July
19, 1993 maturing July 19, 1996 was extended until August 19, 1997.
On March 15, 1995, the Company amended its August 19, 1993 First Amended
and Restated Revolving Credit Loan Agreement with its senior collateralized
lender. In the amendment, the Company increased the maximum amount available
under the line of credit from $3,000,000 to $4,000,000, extended the maturity
date from August 18, 1995 to August 18, 1996 and reduced the interest rate from
prime plus 2% to prime plus 1.5%. The loan agreement includes restrictive
covenants, the most restrictive of which prohibits the payment of dividends.
Following is a summary of maturities of notes payable, as amended, for
each of the periods ending July 31:
1996 $ 267,639
1997 2,674,788
1998 3,010,068
1999 10,057
2000 11,956
Thereafter 95,794
----------
$6,070,302
==========
F-10
22
4. INCOME TAXES
As of August 1, 1992, the Company adopted SFAS No. 109,
"Accounting For Income Taxes". There was no cumulative effect adjustment
upon adoption and there was no effect on net earnings for the years ended
July 31, 1993 and 1994 due to the valuation allowance which offset the
deferred tax asset. Deferred tax assets are reduced by a valuation
allowance if, based on available evidence, it is more likely than not
that some portion of all of the deferred tax assets will not be realized.
The valuation allowance for deferred tax assets decreased by $2,604,882
in 1995 due to a realization of a portion of the Company's net deferred
tax assets and a change in estimate regarding the future realization of
remaining net operating loss carryfowards and the excess of book
amortization over tax. Based on a positive earnings trend and estimates
of future taxable income, the Company has recognized a portion of its net
deferred tax asset through a $2,013,784 reduction in the valuation
allowance. The effect on earnings per share of this reduction in the
valuation allowance is $1.34. Accordingly, without this reduction
earnings per share would have been $.65.
The provisions (benefit) for income tax consists of the following for the
years ended July 31:
1995 1994 1993
----- ----- -----
Current:
Federal $9,482 $ 15,632 $5,245
State 91,565 19,687 --
----------- --------- ------
101,047 35,319 $5,245
Deferred:
Federal (2,001,430) -- --
State (12,354) -- --
----------- --------- ------
(2,013,784) -- --
----------- --------- ------
Total income tax provision (benefit) $(1,912,737) $ 35,319 $5,245
=========== ========= ======
Significant components of the Company's deferred income tax assets
at July 31, 1995 and 1994, respectively, are as follows:
1995 1994
---- ----
Net operating loss carryforward $1,925,058 $2,358,256
Investment tax credit carryforward 568,208 780,120
Non-compete agreement 88,726 34,714
---------- ----------
Total deferred tax assets 2,581,992 3,173,090
Valuation allowance (568,208) (3,173,090)
---------- ----------
Net deferred tax asset $2,013,784 $ --
========== ==========
F-11
23
4. INCOME TAXES, con't.
The following is the reconciliation of the U.S. statutory tax rate
to the Company's effective tax rate on income for the years ended July
31:
1995 1994 1993
---- ---- ----
Federal income tax at statutory rate of 34% $ 364,518 $233,778 $ 285,043
Goodwill amortization 58,152 58,152 58,152
Alternative minimum tax 17,484 15,632 5,245
State income tax 60,432 19,687 --
Utilization of net operating loss carryforward (433,198) (291,930) (343,195)
Deferred tax benefit (2,013,784) -- --
Other 33,659 -- --
----------- -------- ---------
(Benefit) provision for income tax $(1,912,737) $ 35,319 $ 5,245
=========== ======== =========
At July 31, 1995, the Company has net operating loss carryforwards
of $5,661,936 expiring from 2002 to 2007. The Company has investment tax
credit carryforwards of $568,208 which expire between 1996 and 2002.
5. RELATED PARTY TRANSACTIONS
The Company has a consulting agreement with a former owner of one
of the Company's operating subsidiaries. As of July 31, 1995, $183,000
recorded in other accrued liabilities in the Company's financial
statements remains to be paid over 11 years. If, however, the market
price of the Company's common stock reaches $50.00 per share, the Company
has no further obligation under this consulting agreement. Consulting
fees paid for the years ended July 31, 1995, 1994 and 1993 was $30,000,
respectively.
6. LEASES
The Company leases all store facilities, with the exception of
one, under operating leases with terms from one to five years. Minimum
lease obligations for the Company at July 31, 1995 by fiscal year are as
follows:
1996 $679,519
1997 482,975
1998 352,363
1999 196,356
2000 126,553
Thereafter 62,993
----------
$1,900,759
==========
Rent expense under operating leases for the years ended July 31,
1995, 1994 and 1993 was $759,613, $779,785 and $499,164, respectively .
7. SUPPLEMENTAL DATA TO STATEMENT OF CASH FLOWS
Cash interest payments for the years ended July 31, 1995, 1994 and
1993 are $506,508, $370,159 and $256,860, respectively. Cash tax
payments for the years ended July 31, 1995, 1994 and 1993 are $30,074,
$5,245 and $0, respectively.
F-12
24
7. SUPPLEMENTAL DATA TO STATEMENT OF CASH FLOWS, con't.
On July 19, 1993, the Company transacted a capital debt to equity
restructure whereby subordinated principal debt of $3,547,836 and related
accrued interest of $1,992,171 was exchanged for 888,452 shares of the
Company's common stock (see Note 12).
8. INCENTIVE PLANS
STOCK OPTION PLAN The Company has a stock option plan (the
"Plan") for officers and employees of the Company or its affiliates,
under which the maximum number of shares which may be granted in the
aggregate is 225,000 of the Company's common stock. The Plan, which
became effective June 30, 1995, provides for the options to be granted,
become exercisable, and terminate upon terms established by the Board of
Directors (the "Committee"). Shares become exercisable from time to time
(but not sooner than six months after the date of grant) over such period
and upon such terms as the Committee may determine, but not at any time
as to less than 25 shares unless the remaining shares that have become so
purchasable are less than 25 shares.
As of July 31, 1995, the Committee approved the following grants
of options under the Plan:
Number of Shares of Common
Name and Position Stock Underlying Option (1)
----------------- ---------------------------
Executive officer 60,800
Non-executive employees as a group 42,600
--------
103,400
========
(1) The exercise price of such options is $5.00 per share.
The options are exercisable as to 25% of the shares on the first
anniversary of the date of grant and as to an additional 25% of the
shares on each of the second, third and fourth anniversary dates of the
date of grant.
401(K) PLAN The Company established a Retirement Savings Plan
(the "Savings Plan"), effective as of September 1, 1994, which is
intended to qualify under Section 401(K) of the Internal Revenue Code
"the Code". Employees who have been employed with the Company for one
year or more are eligible for participation in the Savings Plan.
Employees may elect to reduce up to 15% of their annual compensation
(subject to certain limitations under the Code) by having such amounts
contributed to the Savings Plan. The Company has made no additional or
matching contribution to the Savings Plan. The Board intends to conduct
a review at the end of each fiscal year to determine whether the Company
will make any additional or matching contribution to the Savings Plan.
As of July 31, 1995, no additional or matching contributions were made to
the Savings Plan by the Company. All assets of the Savings Plan are held
in trust.
9. CORPORATE NAME AND EQUITY CHANGES
In an effort to better reflect the nature of the Company's future
operations and enhance the Company's image in the securities markets and
improve the marketability of the common stock, the Board of Directors
authorized, after receiving consent from a majority of the stockholders,
amendments to the articles of incorporation. The amendments permitted a
change from the name of Bestway Rental, Inc. to Bestway, Inc., a decrease
in the number of shares via a reverse split of each share of common
stock, par value $.01 per share, into one-five hundredth of a share, par
value $5.00 per share, a subsequent reclassification of each share of
common stock par value $5.00 per share, into ten shares and a decrease in
the authorized number of shares outstanding from 90,000,000 shares to
20,000,000 shares. On June 6, 1995, the name change, the reverse split
and a decrease in the number of authorized shares became effective. On
June 7, 1995 the reclassification became effective.
F-13
25
9. CORPORATE NAME AND EQUITY CHANGES, con't.
Due to the Company's entry into the used car sales business, on a
trial basis, the Company formed a new subsidiary, Bestway Auto, Inc.
Since the Company name, Bestway Rental, Inc., reflected only the existing
operations of the Company, management believes it was appropriate and in
the best interest of the Company to change its name to "Bestway, Inc."
The Company will continue to do business in the rental-purchase industry
as Bestway Rental, Inc.
10. MISSISSIPPI ASSET PURCHASE
On September 10, 1993 the Company acquired for approximately
$2,000,000 a substantial portion of the assets of Action Television
Rental, Inc. and virtually all of the assets of A-1 TV Rental, Inc., both
privately-owned Mississippi corporations in an asset purchase transaction
from an individual.
The purchase price was funded from the Company's senior
collateralized line of credit. The Company acquired all of the assets
involved in the daily operations of the stores including all idle rental
inventory, all rental contracts, vehicles, store furniture and fixtures,
computers and leasehold improvements. Additionally, the Company obtained
the seller's former store locations by assuming the twelve locations
lease agreements.
The unaudited condensed pro forma statement of revenues and costs
and expenses present the results of the operations of the Company
assuming the transaction had been consummated as of the first day of the
Company's fiscal year ended July 31, 1993 and are as follows:
July 31, 1993
-------------
Revenues $15,485,253
Costs and operating expenses 14,285,148
-----------
Net income $ 1,200,105
===========
Net income per share $ .80
===========
Weighted average common shares outstanding 1,505,276
===========
The impact of one and one-half month's activity on the July 31,
1994 income statement is not significant. Accordingly, such information
has not been provided.
11. SALE OF RENTAL INVENTORY
On June 16, 1994 the Company entered into an asset purchase
agreement with another renter dealer (the "Asset Purchase Agreement").
In conjunction with the agreement, the Company closed four stores in
Missouri and two stores in Illinois. The Company sold substantially all
of the rental inventory being rented by customers. Idle inventory was
transferred to the Company's existing store locations. As a result of
this transaction, the Company experienced a gain of approximately
$190,100 on the sale of the rental inventory. A loss of approximately
$76,000 for lease termination fees and write offs of leasehold
improvements is included in loss on sale of property and equipment in the
income statement.
F-14
26
12. EXTRAORDINARY ITEM
On July 19, 1993, the Company restructured certain indebtedness
which was held by O&M, a venture capital firm that is the Company's
largest stockholder. The Company exchanged 888,452 shares of the
Company's common stock for a portion of the O&M debt in the aggregate
principal amount of $3,547,836 and related accrued interest of
$1,992,171. As a result, the Company reduced its indebtedness with O&M
to a principal amount of $3,000,000 payable on July 19, 1996.
Furthermore, the exchange resulted in O&M increasing its beneficial
ownership of common stock from approximately 35% to approximately 65%.
The Company also issued 109,658 shares of common stock to R. Brooks
Reed, the Chairman of the Company's Board of Directors and its Chief
Executive Officer, 13,271 shares of common stock to Jack E. Meyer, a
Director of the Company, and an aggregate of 72,674 shares to certain key
employees as selected by the Company's Board of Directors. As a result
of the restructure, the Company eliminated its negative net worth of
$3,671,089 at July 31, 1992 and realized a positive net worth of
$2,372,571 as of July 31, 1993.
F-15
27
INDEX TO EXHIBITS
Exhibit
Number Document
------- --------
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-laws Incorporation (2)
4.3 Specimen of certificate representing Common Stock, $.01 par value,
of the Company (3)
4.4 Bestway, Inc. Incentive Stock Option Plan (3)
4.5 Form of Incentive Stock Option Agreement pursuant to Incentive
Stock Option Plan (3)
21 Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
Filed electronically only, not attached to printed reports
(1) Filed as exhibits to Form 8-K on September 2, 1993, incorporated
herein by reference.
(2) Filed as exhibits to Form 10-K for year ended December 31, 1984,
incorporated herein by reference.
(3) Filed as exhibits to Form S-8 on June 22, 1995, incorporated herein by
reference.