-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NwokxRIZ/9h4uBOHclJqD0t1fmO9pTDhs5PB+5h/t0E2hWWBSMxPXQXXp15Zeeme TW3UVDrUuDeclulbAaejOw== 0000950134-97-007586.txt : 19971024 0000950134-97-007586.hdr.sgml : 19971024 ACCESSION NUMBER: 0000950134-97-007586 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19971023 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BESTWAY INC CENTRAL INDEX KEY: 0000004344 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 810332743 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-08568 FILM NUMBER: 97699540 BUSINESS ADDRESS: STREET 1: 7800 STEMMONS STE 320 CITY: DALLAS STATE: TX ZIP: 75247 BUSINESS PHONE: 2146306655 MAIL ADDRESS: STREET 1: 7800 STEMMONS FRWY SUITE 320 CITY: DALLAS STATE: TX ZIP: 75217 FORMER COMPANY: FORMER CONFORMED NAME: BESTWAY RENTAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMARCO RESOURCES CORP DATE OF NAME CHANGE: 19880403 10-K 1 FORM 10-K FOR FISCAL YEAR END - JULY 31, 1997 1 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, 1997 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) 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 --- --- The aggregate market value of voting stock held by non affiliates of the registrant as of October 21, 1997 was approximately $4,302,123. The number of shares of Common Stock, $.01 par value, outstanding as of July 31, 1997, was 1,749,967. Registrants Proxy Statement for 1997 is incorporated by reference in Part III, Items 10-13 of this Form 10-K. 1 2 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PART I Page - ------ ------ Item 1. Business 3 - 4 Item 2. Properties 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 PART II - ------- 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 6 - 10 Item 8. Financial Statements and Supplementary Data 11 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 11 PART III - -------- Item 10. Directors and Executive Officers of the Registrant 11 Item 11. Executive Compensation 11 Item 12. Security Ownership of Certain Beneficial Owners and Management 11 Item 13. Certain Relationships and Related Transactions 11 PART IV - ------- Item 14. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 INDEX Consolidated Financial Statements F-1
2 3 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS General Bestway, 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 sixty-three stores located in the states of Alabama, Arkansas, Georgia, Mississippi, North Carolina, South Carolina and Tennessee. The stores operations are controlled and monitored through the Company's management information system networked with its home office in Dallas, Texas. 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. 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. 3 4 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- Personnel At July 31, 1997, the Company employed approximately 288 full-time employees, of which 16 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. Company Stores The number of stores operated by the Company has increased from 62 as of July 31, 1996 to 63 as of July 31, 1997. The following table shows the number of stores opened, acquired and combined during the year.
Number of Stores ---------------- Open at July 31, 1996 62 Opened 2 Acquired 0 Combined (1) -- Open at July 31, 1997 63 ==
Regulation Federal Regulation Although certain proposed federal regulations are under consideration, no federal legislation has been enacted regulating rental-purchase transactions. As of July 31, 1997, 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-judgment clauses. 4 5 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- 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, 1997, are as follows:
State Number of Stores ----- ---------------- Alabama 16 Arkansas 1 Georgia 2 Mississippi 17 North Carolina 5 South Carolina 7 Tennessee 15 -- 63 ==
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 HOLDER MATTERS The Company's Common Stock began trading on the Nasdaq Small-Cap Market on December 19, 1995 under the symbol "BSTW". Prior thereto, the Company's Common Stock was quoted in the "pink sheets" and was traded on a limited basis. The following table sets forth, for the periods indicated, the high and low sales price per share of the Common Stock as reported on the Nasdaq Small-Cap Market.
Year ended July 31, 1997 ------------------------ High Low ---- --- First Quarter $9 1/2 $6 1/2 Second Quarter $9 1/4 $6 1/2 Third Quarter $6 1/2 $6 Fourth Quarter $8 1/2 $6
5 6 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS MATTERS, Continued At July 31, 1997, there were 487 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. ITEM 6. SELECTED FINANCIAL DATA
Fiscal year ended July 31, ---------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Revenues from continuing operations $ 24,662,812 $ 18,923,852 $ 16,423,262 $ 16,369,149 $ 12,436,708 Income from continuing operations before tax and extraordinary item 320,004 902,903 1,072,112 722,902 843,606 Current income tax expense 34,322 49,099 101,047 35,319 5,245 Deferred income tax expense (benefit) 119,622 321,574 (2,013,784) -- -- Loss on capital restructure -- -- -- -- 381,755 Loss from discontinued operations, net of taxes -- 394,568 -- -- -- Net income 166,060 137,662 2,984,849 687,583 456,606 Net income per common and common equivalent share .10 .09 1.99 .46 1.22 Cash flows provided by operation 9,895,993 7,365,631 6,542,227 6,370,945 5,619,132 Total assets 18,373,967 18,925,440 13,709,895 11,083,279 8,614,802 Notes payable 8,171,945 9,048,928 6,070,302 6,485,659 4,617,688 Stockholders' equity 7,594,500 7,417,190 6,041,293 3,060,154 2,372,571
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements that involve risks and uncertainties. The actual future results of the Company could differ materially from those statements. The following discussion and analysis should be read in conjunction with the information set forth under Item 6, "Selected Financial Data," and the financial statements of the Company and the accompanying notes thereto included elsewhere in this Report. The Company currently operates 63 rental-purchase stores located in seven states. The number of stores operated by the Company has increased from 35 as of July 31, 1995 to 63 as of July 31, 1997. During the year ended July 31, 1997, the Company opened two new store locations and combined two existing stores into one store. 6 7 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Results of Operations for the Fiscal Year Ended July 31, 1997 Compared to 1996 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, ------------------- 1997 1996 ------ ------ Revenues: Rental income 98.9% 98.9% Sales of merchandise 1.1 1.1 ----- ----- Total revenues 100.0 100.0 Cost and operating expenses: Depreciation and amortization Rental merchandise 22.0 23.5 Other 6.4 5.9 Cost of merchandise sold 1.1 1.1 Salaries and wages 25.8 25.0 Advertising 3.2 3.7 Occupancy 5.6 4.9 Other operating expenses 29.8 27.8 Equity in loss of partnership 0.8 -- Write-off of investment in partnership 0.9 -- Interest expense 3.1 3.1 Loss on sale of property and equipment -- 0.2 ----- ----- Total cost and operating expenses 98.7 95.2 ----- ----- Income before continuing operations and income tax provision 1.3 4.8 ----- ----- Current income tax expense 0.1 0.2 Deferred income tax expense 0.5 1.7 ----- ----- 0.6 1.9 ----- ----- Income from continuing operations 0.7 2.9 ----- ----- Discontinued operations: Loss from discontinued business, net of taxes -- 0.8 Loss on disposal of business, net of taxes -- 1.3 ----- ----- Loss from discontinued operations -- 2.1 ----- ----- Net income 0.7% 0.8% ===== =====
7 8 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Total revenue increased $5,738,960 or 30.3% to $24,662,812 as compared to $18,923,852 in fiscal year 1996. The increase was due to the inclusion of the operating results for the stores acquired and opened during fiscal year 1996 and operations for two internal new store openings during fiscal year 1997. The stores acquired and opened in 1996 accounted for $5,791,059, internal new store openings, which were opened during the fourth quarter, accounted for $20,376, and the Company's same stores experienced revenue losses of $72,475 for the year. Although many of the acquired stores are operating at revenue levels below that of the Company's existing stores, the majority are profitable. While the additions of these stores has increased the level of other operating expenses as a percentage of revenue due to the relatively fixed nature of these expenses, management expects to realize increased profitability from these stores by implementing certain programs aimed at increasing operating efficiencies including the realignment of its current districts to provide more focus on under performing stores and the additions of key management personnel. The Company receives rental revenues from various products including televisions and video cassette recorders, household appliances, as well as home furniture and jewelry. In fiscal year 1997, approximately 19% of the Company's rental revenue was derived from appliances, 24% from home furniture, 31% from electronics, 10% from various other products including jewelry and 16% from various services and charges to rental customers including reinstatement fees, club program and liability waiver fees. Total costs and operating expenses increased $6,321,859 or 35.1% to $24,342,808 from $18,020,949. Costs and operating expenses associated with the Company's core business increased $5,898,299 and as a percentage of total revenues increased to 97.0% from 95.2%. This increase is primarily the result of other operating and occupancy expenses associated with the stores acquired and opened in 1996 and operating losses from the two new internal stores opened during the fourth quarter. Other operating expenses increased $2,077,171 to $7,341,042 from $5,263,871 and as a percentage of total revenues increased 2.0% to 29.8% from 27.8%. Occupancy expense increased $460,606 to $1,391,811 from $931,205 and as a percentage of total revenues increased .7% to 5.6% from 4.9%. The stores acquired and opened in 1996 operated at a lower average revenue per store and, therefore, had higher operating and occupancy costs as a percentage of revenues than the Company's existing stores. Costs and operating expenses increased $423,560 or 1.7% as a percentage of total revenues due to losses incurred on the Company's investment in Value Auto Partners, Ltd. (the "Partnership"). As a result of losses incurred by the Partnership, and based on management's assessment of the recoverability of the carrying amount of the investment, during the second quarter management concluded that the investment should be written off. The Company's equity in Partnership losses was $193,981 or .8% as a percentage of total revenues. The write off of the remaining balance of the investment in the Partnership resulted in a pretax loss of $229,579 or .9% as a percentage of total revenues for the year (see Note 11). Depreciation expense related to rental merchandise increased $980,589 to $5,432,915 from $4,452,326, but decreased by 1.5% as a percentage of total revenues primarily due to higher rental rates on rental merchandise. Other depreciation and amortization increased $455,218 to $1,567,194 from $1,111,976 and as a percentage of total revenues increased .5% to 6.4% from 5.9%. Amortization of intangibles increased $212,474 due to intangible assets created by the stores acquired in 1996 while other depreciation increased $242,744. Salaries and wages increased $1,614,663 to $6,349,542 from $4,734,879 and as a percentage of total revenues increased .8% to 25.8% from 25.0% primarily due to the addition of the stores acquired and opened in 1996, increased same store salaries and wages and the addition of key management personnel. The acquired and new locations produced additional salaries and wages of $1,190,424 for the year. Same store salaries and wages increased $140,394 for the year. The additions of key management personnel in operations, real estate management and human resources produced additional salaries and wages of $283,845 for the year. 8 9 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Interest expense increased $187,206 to $756,738 from $569,532 and as a percentage of total revenues remained consistent with the prior year at 3.1%. Financial Condition, Liquidity and Capital Resources For the year ended July 31, 1997, the Company's net cash flows from operating activities was $9,895,993 as compared to $7,365,631 for the year ended July 31, 1996. The increase was primarily due to the stores acquired and opened during fiscal year 1996, two new stores opened in the current year and a decrease in working capital requirements. For the year ended July 31, 1997, the Company's net cash flows provided by (used in) investing activities was $9,001,035 as compared to $8,758,450 for the year ended July 31, 1996. The Company's investing activities reflect significant increases in the purchase of rental units. The increased investing activities were necessary to fund the two new store openings and continuing replacement of rental merchandise that was purchased by customers either by full pay out under the rental agreement or by exercise of the customers early purchase option. For the year ended July 31, 1997, the Company's net cash flows provided by (used in) financing activities was $(865,733) as compared to $1,388,990 for the year ended July 31, 1996. The decrease in financing activities principally reflects increased repayments on the Company's debt. On August 18, 1997, the Company amended its August 19, 1993 Second Amendment to First Amended and Restated Revolving Credit Loan Agreement ("the Agreement") with its senior collateralized lender. In the amendment, the Company extended the maturity date from August 19, 1997 to November 18, 1997. The Company is currently involved in discussions with its senior collateralized lender to extend the maturity date of the Agreement and to renegotiate certain financial covenants. With the Company having available credit of $2,569,973 under the $7,500,000 Agreement at July 31, 1997, management believes the Company has adequate resources to meet its future cash obligations. On May 15, 1997, the Company paid in full a $500,000 subordinated note payable to an affiliate. On August 18, 1997, the Company paid in full a $100,000 subordinated note payable to a director and stockholder. On August 19, 1997, the Company amended its note payable to limited partnership and stockholder dated July 19, 1993. In the amendment, the Company extended the maturity date from August 19, 1997 to August 19, 1999 and increased the interest rate from 4.5% to 6.0% during the first year and 8.0% thereafter. During February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share," effective for periods ending after December 15, 1997. The impact, when adopted, will not be material. 9 10 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued 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, 1996 Compared to 1995 Total revenue increased $2,500,590 or 15.2% to $18,923,852 as compared to $16,423,262 in fiscal year 1995. The increase was due to the inclusion of approximately four months operations for the stores acquired in the All Star Acquisition, one month operations for the stores acquired in the REJA Acquisition, nine months operations for a single store acquisition, operations for four internal new store openings and increased same store revenues. The stores acquired in the All Star Acquisition, which was consummated on April 12, 1996, accounted for $1,647,143 (66%) of the increase, the stores acquired in the REJA Acquisition, which was consummated on July 1, 1996, accounted for $190,384 (8%) of the increase, the single store acquisition, which was consummated on November 8, 1995, accounted for $173,752 (7%) of the increase, internal new store openings, which were opened in September 1995, October 1995 and March 1996, accounted for $443,318 (18%) of the increase, while the Company's same stores accounted for $45,993 (1%) of the increase. The Company receives rental revenues from various products including televisions and video cassette recorders, household appliances, as well as home furniture and jewelry. In fiscal year 1996, approximately 19% of the Company's rental revenue was derived from appliances, 23% from home furniture, 31% from electronics, 12% from various other products such as jewelry and 15% from various services and charges to rental customers including reinstatement fees and liability waiver fees. Total cost and operating expenses increased $2,669,799 or 17.4% to $18,020,949 primarily as a result of the opening of four new stores and costs and operating expenses associated with the All Star and REJA Acquisitions. The four new stores incurred operating losses of approximately $58,000. Total cost and operating expenses increased from 93.5% to 95.2% of total revenues. This 1.7% net increase resulted primarily from a 1.5% increase in other operating expenses as a percentage of total revenues. This increase in other operating expense occurred primarily because of certain indirect acquisition costs of approximately $75,000 relating to the All Star and REJA Acquisitions and a .9% net increase in costs associated with the write-off of rental merchandise as a percentage of total revenues. Salaries and wages increased $720,590 or 17.9% to $4,734,879 and increased from 24.4% to 25.0% of total revenues primarily due to the addition of key management personnel in operations, real estate management and human resource departments added in preparation for expansion. Occupancy expense increased $171,592 or 22.6% to $931,205 and increased from 4.6% to 4.9% of total revenues primarily due to the opening of four new store locations and the All Star and REJA Acquisitions. In fiscal year 1995, the Company formed a new subsidiary, Bestway Auto, Inc., ("Bestway Auto") due to the Company's entry into the retail used car sales and finance business. The Company test marketed the concept through the opening of a single prototype retail sales facility which experienced losses, before income taxes, of $144,111. In February 1996, the Company exchanged cash and its capital stock in Bestway Auto for a 49% Common Stock interest in Value Auto and a non-voting, non-dividend paying Preferred Stock of Value Auto. For the period February 1, 1996 through July 31, 1996, the Company's equity interest in the operating losses of Value Auto was approximately $67,000. Based on Management's assessment of the future operating results of the Company's auto sales business, management has concluded that the Company will abandon the auto sales business and its investment in Value Auto should be written off. (see Note 10). 10 11 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- 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-18 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 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 1997, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required will be contained in the Company's Proxy Statement for the Annual Meeting of Shareholders for 1997, 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 1997, 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 1997, and is incorporated herein by reference. 11 12 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- PART IV ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K (a) The following are filed as Exhibits to this Annual Report filed as Form 10-K for the year ended July 31, 1997. (b) Exhibits Exhibit Number Document 10(1) Fourth Amended and Restated Revolving Credit Note dated August 18, 1997 between Comerica Bank - Texas and Bestway Rental, Inc. 10(2) First Amendment and Restated Promissory Note dated August 19, 1997 between O'Donnell & Masur, L.P. and Bestway, Inc. 21 Subsidiaries 23 Consent of Auditors 27 Financial Data Schedule Filed electronically only, not attached to printed reports (c) Reports on Form 8-K The Company did not file any reports on Form 8-K during the year ended July 31, 1997. 12 13 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- 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 16, 1997 /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 16 day of October 1997.
/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/ Teresa A. Sheffield President and Chief Operating Officer - ------------------------- TERESA A. SHEFFIELD /s/ Beth A. Durrett Senior Vice President - Finance - ------------------------- BETH A. DURRETT s/ Joe R. McElroy Vice President - Real Estate - ------------------------- JOE R. MCELROY /s/ Mansel B. Guin Vice President - Field Operations - ------------------------- MANSEL B. GUIN
13 14 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- BESTWAY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No. -------- Report of Independent Accountants F-2 Financial Statements: Consolidated Balance Sheets as of July 31, 1997 and 1996 F-3 Consolidated Statements of Income for the years ended July 31, 1997, 1996 and 1995 F-4 Consolidated Statements of Cash Flows for the years ended July 31, 1997, 1996 and 1995 F-5 Consolidated Statements of Stockholders' Equity for the years ended July 31, 1997, 1996 and 1995 F-6 Notes to Consolidated Financial Statements F-7 - F-18
F-1 15 [COOPERS & LYBRAND L.L.P. LOGO] REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Bestway, Inc. We have audited the accompanying consolidated balance sheets of Bestway, Inc. (the "Company") as of July 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended July 31, 1997. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bestway, Inc. as of July 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended July 31, 1997, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. Dallas, Texas October 7, 1997 F-2 16 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
July 31, 1997 July 31, 1996 ------------- ------------- ASSETS Cash $ 354,738 $ 325,513 Restricted cash 119,342 119,342 Prepaid expenses 127,977 342,912 Deferred income taxes 1,702,080 1,821,701 Investment in partnership -- 423,560 Other assets 68,889 121,473 Rental merchandise, at cost 15,962,450 14,309,351 less accumulated depreciation 5,818,763 4,716,054 ------------ ------------ 10,143,687 9,593,297 ------------ ------------ Property and equipment, at cost 5,019,151 4,768,700 less accumulated depreciation 2,287,383 2,340,664 ------------ ------------ 2,731,768 2,428,036 ------------ ------------ Non-competes, net of amortization 568,841 959,339 Goodwill, net of amortization 2,556,645 2,790,267 ------------ ------------ Total assets $ 18,373,967 $ 18,925,440 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 1,327,216 $ 976,869 Accrued interest - related parties 12,013 12,023 Accrued interest - other 45,250 49,253 Income taxes payable 52,648 66,031 Other accrued liabilities 1,170,395 1,355,146 Notes payable-related parties 3,100,000 3,600,000 Notes payable-other 5,071,945 5,448,928 Commitments and contingencies (Notes 7 and 12) Stockholders' Equity: Preferred Stock, $10.00 par value, 1,000,000 authorized, none issued -- -- Common Stock, $.01 par value, 5,000,000 authorized, 1,749,967 and 1,747,717 issued and outstanding at July 31, 1997 and July 31, 1996, respectively 17,500 17,477 Paid-in capital 16,089,897 16,078,670 Accumulated deficit (8,512,897) (8,678,957) ------------ ------------ Total stockholders' equity 7,594,500 7,417,190 ------------ ------------ Total liabilities and stockholders' equity $ 18,373,967 $ 18,925,440 ============ ============
The accompanying notes are an integral part of the financial statements. F-3 17 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years Ended ------------------------------------------------ July 31, 1997 July 31, 1996 July 31, 1995 ------------- ------------- ------------- Revenues: Rental income $ 24,382,493 $ 18,710,098 $ 16,261,267 Sales of merchandise 280,319 213,754 161,995 ------------ ------------ ------------ 24,662,812 18,923,852 16,423,262 ------------ ------------ ------------ Cost and Operating Expenses: Depreciation and amortization: Rental merchandise 5,432,915 4,452,326 3,959,484 Other 1,567,194 1,111,976 937,690 Cost of merchandise sold 273,898 208,785 140,038 Salaries and wages 6,349,542 4,734,879 4,014,289 Advertising 800,200 709,237 726,967 Occupancy 1,391,811 931,205 759,613 Other operating expenses 7,341,042 5,263,871 4,302,231 Equity in loss of partnership 193,981 -- -- Write off of investment in partnership 229,579 -- -- Interest expense 756,738 569,532 510,838 Loss on sale of property and equipment 5,908 39,138 -- ------------ ------------ ------------ 24,342,808 18,020,949 15,351,150 ------------ ------------ ------------ Income from continuing operations before income tax provision (benefit): 320,004 902,903 1,072,112 ------------ ------------ ------------ Current income tax expense 34,322 49,099 101,047 Deferred income tax expense (benefit) 119,622 321,574 (2,013,784) ------------ ------------ ------------ 153,944 370,673 (1,912,737) ------------ ------------ ------------ Income from continuing operations 166,060 532,230 2,984,849 ------------ ------------ ------------ Discontinued operations (Note 10): Loss from discontinued business (net of income tax benefit of $78,147) -- 156,425 -- Loss on disposal of business (net of income tax benefit of $68,535) -- 238,143 -- ------------ ------------ ------------ Loss from discontinued operations, net -- 394,568 -- ------------ ------------ ------------ Net income $ 166,060 $ 137,662 $ 2,984,849 ============ ============ ============ Net income per share from continuing operations $ .10 $ .34 $ 1.99 ============ ============ ============ Net loss per share from discontinued operations -- (.25) -- ------------ ------------ ------------ Net income per share $ .10 $ .09 $ 1.99 ============ ============ ============ Weighted average common shares outstanding 1,749,780 1,549,619 1,502,239 ============ ============ ============
The accompanying notes are an integral part of the financial statements. F-4 18 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended --------------------------------------------------- July 31, 1997 July 31, 1996 July 31, 1995 ------------- ------------- ------------- Cash flows from operating activities: Net income $ 166,060 $ 137,662 $ 2,984,849 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,000,109 5,564,300 4,897,174 Net book value of rental units retired 1,765,015 1,237,172 775,319 Loss on sale of property and equipment 5,908 39,138 -- Loss on discontinued operations -- 394,568 -- Loss on equity investment in partnership 193,981 -- -- Loss on partnership investment 229,579 -- -- Deferred income taxes 119,622 321,574 (2,013,784) Other -- -- (3,710) Changes in operating assets and liabilities other than cash: Prepaid expenses 214,935 (212,911) 20,971 Other assets 52,584 75,140 (179,426) Accounts payable 350,347 (147,613) (68,639) Income taxes payable (13,383) (1,841) 49,742 Other accrued liabilities (188,764) (41,558) 79,731 ------------- ------------ ----------- Total adjustments 415,719 (328,783) (97,621) ------------- ------------ ----------- Net cash flows from operating activities 9,895,993 7,365,631 6,542,227 ------------- ------------ ----------- Cash flows from investing activities: Purchase of rental units and equipment (7,746,883) (6,609,139) (5,432,430) Additions to property and equipment (1,311,597) (1,122,102) (668,701) Proceeds from sale of property and equipment 57,445 15,278 30,420 Proceeds from insurance recovery -- 43,254 -- Purchase of investments -- (586,541) -- REJA asset purchase, net of cash acquired -- (499,200) -- ------------- ------------ ----------- Net cash flows used in investing activities (9,001,035) (8,758,450) (6,070,711) ------------- ------------ ----------- Cash flows from financing activities: Proceeds of notes payable 2,325,000 5,025,000 996,800 Repayment of notes payable (3,201,983) (3,636,010) (1,412,157) Stock issuance 11,250 -- -- ------------- ------------ ----------- Net cash flows (used in) provided by financing activities (865,733) 1,388,990 (415,357) ------------- ------------ ----------- Cash at the beginning of the year 325,513 329,342 273,183 ------------- ------------ ----------- Cash at the end of the year $ 354,738 $ 325,513 $ 329,342 ============= ============ ===========
The accompanying notes are an integral part of the financial statements. F-5 19 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For years ended July 31, 1997, 1996, and 1995
Common Stock ------------------------------ Paid-in Accumulated Shares Amount Capital Deficit ------------ ------------ ------------ ------------ 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) ------------ ------------ ------------ ------------ Stock issued in acquisitions 247,647 2,476 1,235,759 -- Net income for the year ended July 31, 1996 -- -- -- 137,662 ------------ ------------ ------------ ------------ Balance at July 31, 1996 1,747,717 17,477 16,078,670 (8,678,957) ------------ ------------ ------------ ------------ Stock options exercised 2,250 23 11,227 -- Net income for the year ended July 31, 1997 -- -- -- 166,060 ------------ ------------ ------------ ------------ Balance at July 31, 1997 1,749,967 $ 17,500 $ 16,089,897 $ (8,512,897) ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements. F-6 20 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation The consolidated financial statements of Bestway, Inc. (the "Company"), include the Company's wholly-owned operating subsidiaries, Bestway Rental, Inc. which operates under the registered trade name "Bestway Rent-To-Own," U.S. Credit-Service Corporation and Westdale Data Service, Inc. Intercompany balances and transactions have been eliminated in the consolidated financial statements. The Company owns and operates a total of sixty-three stores located in various states. The store operations are controlled and monitored through the Company's management information system networked with its home office in Dallas, Texas. The Company's store locations by state as of July 31, 1997, are as follows:
State Number of Stores ----- ---------------- Alabama 16 Arkansas 1 Georgia 2 Mississippi 17 North Carolina 5 South Carolina 7 Tennessee 15 -- 63 ==
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 1997, approximately 19% of the Company's rental revenue was derived from appliances, 24% from home furniture, 31% from electronics, 10% from various other products such as jewelry and 16% from various services and charges to rental customers including reinstatement fees, club fees and liability waiver fees. In fiscal year 1996, approximately 19% of the Company's rental revenue was derived from appliances, 23% from home furniture, 31% from electronics, 12% from various other products such as jewelry and 15% 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. F-7 21 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued 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. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and on deposit, and highly liquid instruments with maturities of three months or less when purchased. The carrying amount of cash and cash equivalents is the estimated fair value at July 31, 1996 and 1997. Restricted Cash Amount represents escrow money deposited in connection with the sale of certain stores in 1994. Disbursements were to be made from this account to satisfy any taxes owed by the Company, any claims of third parties against the assets which were the Company's responsibility, or to satisfy any indemnification rights as specified in the Asset Purchase Agreement. An assessment against the Company was made by the Illinois Department of Revenue relating to alleged unpaid sales tax. The Company has filed a petition with the Board of Appeals of the Illinois Department of Revenue seeking equitable adjustment of the alleged tax. As a result, the amount remains in escrow pending the outcome of the petition. Intangible Assets Goodwill represents the cost in excess of the fair value of net tangible assets of acquired businesses and is being amortized on a straight-line basis over 20 years. Accumulated amortization of goodwill was $1,802,843 and $1,569,221 at July 31, 1997 and 1996, respectively. The non-competes represents the allocation of the purchase price from the September 10, 1993 acquisition of 12 stores in Mississippi, the April 12, 1996 acquisition of 15 stores in Georgia, North Carolina and South Carolina and the July 1, 1996 acquisition of 8 stores in Arkansas and Mississippi and is being amortized on a straight-line basis over periods from 2 to 5 years. Accumulated amortization of the non-competes was $952,398 and $561,900, at July 31, 1997 and 1996, 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. Earnings Per Common Share Earnings per common share is based on the weighted average of common shares outstanding during the period and the effect of considering common stock equivalents (stock options) under the treasury stock method. Primary and fully diluted earnings per common share are not shown because the effect of the stock options is immaterial. F-8 22 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued During February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share," effective for periods ending after December 15, 1997. The impact of this statement, when adopted, will not be material. Advertising Costs Advertising costs are expensed as incurred. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets, particularly deferred tax assets, and liabilities, disclosure of contingent assets and liabilities and reported amounts of revenues and expenses. Actual results could differ from those estimates. 2. ACQUISITIONS: On April 12, 1996, the Company acquired substantially all of the assets and certain liabilities of All Star Rental, Inc. a privately-owned South Carolina corporation ("All Star"). The assets acquired by the Company included the idle inventory, rental contracts, vehicles, store furniture and fixtures, computers and leasehold improvements. In addition, the Company assumed the leases for 15 of All Star's former store locations. The Company delivered to All Star 115,647 non-registered shares of the Company's Common Stock valued at $578,235. The aggregate purchase price in connection with the acquisition was based on a multiple of average monthly revenues less certain assumed liabilities. The acquisition has been accounted for under the purchase method and, accordingly, the operating results of All Star are included in the accompanying consolidated financial statements from the date of acquisition. The acquisition resulted in $1,226,283 of intangible assets. These items are being amortized on a straight-line basis over periods not exceeding 20 years. On July 1, 1996, the Company acquired substantially all of the assets of REJA, Inc., a privately-owned Arkansas corporation ("REJA"). The assets acquired by the Company primarily include the idle inventory, rental contracts, vehicles, store furniture and fixtures, computers and leasehold improvements. In addition, the Company assumed the leases for 8 of REJA's former store locations. The Company delivered to REJA 132,000 non-registered shares of the Company's Common Stock valued at $660,000 and $500,000 cash, as the aggregate purchase price in connection with the acquisition. The acquisition has been accounted for under the purchase method and, accordingly, the operating results of REJA are included in the accompanying consolidated financial statements from the date of acquisition. The acquisition resulted in $314,829 of intangible assets. These items are being amortized on a straight-line basis over periods not exceeding 20 years. The following summary reflects the unaudited condensed pro forma revenues, costs and operating expenses and presents the results of the operations of the Company assuming these acquisitions had been consummated as of the first day of the Company's fiscal year ended July 31, 1995 and are as follows:
July 31, 1996 July 31, 1995 ------------- ------------ (Unaudited) (Unaudited) Revenues $ 25,381,168 $ 24,738,588 Costs and operating expenses 24,693,047 21,513,003 ------------- ------------ Net income from continuing operations $ 688,121 $ 3,225,585 ============= ============ Net income per share from continuing operations $ .39 $ 1.84 ============= ============
F-9 23 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following:
July 31, July 31, 1997 1996 -------- -------- Building and leaseholds $ 1,760,843 $ 1,669,922 Vehicles 2,045,072 1,746,181 Furniture and fixtures 680,543 596,233 Computer equipment 532,693 756,364 ----------- ----------- 5,019,151 4,768,700 Accumulated depreciation (2,287,383) (2,340,664) ----------- ----------- $ 2,731,768 $ 2,428,036 =========== ===========
4. NOTES PAYABLE:
Notes payable consists of the following: Years Ended ------------------------- July 31, July 31, 1997 1996 ---- ---- Senior Collateralized Debt Revolving Credit Loan Agreement dated August 19, 1993, amended April 12, 1996, interest payable monthly at prime plus 1.5%; note matures on August 18, 1997; note collateralized by substantially all the Company's assets $4,930,027 $5,055,027 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, as amended, matures on August 19, 1997 100,000 100,000
F-10 24 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 4. NOTES PAYABLE, Continued
Years Ended ------------------------ July 31, July 31, 1997 1996 ---- ---- Note payable to affiliate dated March 4, 1992, interest payable monthly at prime plus 1.5%; note, as amended, matures on August 31, 1997; affiliate has as one of its directors and shareholders the Company's CEO and Chairman of the Board of Directors -- 500,000 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 -- 156,196 Note payable to individual dated July 15, 1992, principal payable monthly, interest payable monthly at 9% per annum; note matures on July 15, 1997 -- 59,359 Note payable to bank dated April 11, 1994, principal payable monthly, interest payable monthly at 9% per annum; note matures on April 15, 2006 127,880 137,080 Notes payable due in monthly installments ranging from $800 to $1,400 including interest at an average of 9% per annum through fiscal year 1998 14,038 41,266 ---------- ---------- $8,171,945 $9,048,928 ========== ==========
At July 31, 1997 and 1996 the prime rate was 8.50% and 8.25%, respectively. On August 18, 1997, the Company amended its August 19, 1993 Second Amendment to First Amended and Restated Revolving Credit Loan Agreement with its senior collateralized lender. In the amendment, the Company extended the maturity date from August 18, 1997 to November 18, 1997. The loan agreement includes restrictive covenants, the most restrictive of which prohibits the payment of dividends. At July 31, 1997, the Company had the capacity to borrow $2,569,973 under the $7,500,000 amended line of credit. The Company is currently in discussions with its senior collateralized lender to extend the maturity date of the Agreement and to renegotiate certain financial covenants. On August 18, 1997, the $100,000 subordinated note payable dated July 19, 1993 maturing August 19, 1997 was paid in full. On May 15, 1997, the $500,000 subordinated note payable dated March 4, 1992 maturing August 31, 1997 was paid in full. On August 19, 1997, the Company amended its subordinated note payable to limited partnership and stockholder dated July 19, 1993. In the amendment, the Company extended the maturity date from August 19, 1997 to August 19, 1999 and increased the interest rate from 4.5% to 6.0% during the first year and 8.0% thereafter. F-11 25 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 4. NOTES PAYABLE, Continued: At July 31, 1997, the carrying value of the Company's notes payable approximated fair value, estimated primarily based on the borrowing rates available to the Company for debt with similar terms and average maturities. Following is a summary of maturities of notes payable, as amended, for each of the periods ending July 31: 1998 $5,054,133 1999 11,013 2000 3,012,046 2001 14,328 2002 14,520 Thereafter 65,905 ---------- $8,171,945 ==========
5. INCOME TAXES: 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 carryforwards and the excess of book amortization over tax. In fiscal 1995, based on a positive earnings trend and estimates of future taxable income, the Company 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 was approximately $1.34. Accordingly, without this reduction earnings per share would have been $.65. In fiscal 1996 and 1997, the valuation allowance was reduced $147,231 and $384,238, respectively as a result of the expiration of investment tax credit carryforwards. The provisions (benefit) for income tax on income from continuing operations consists of the following for the years ended July 31:
1997 1996 1995 ---- ---- ---- Current: Federal $ 15,180 $ 16,848 $ 9,482 State 19,142 32,251 91,565 -------- --------- -------------- 34,322 49,099 101,047 Deferred: Federal 131,933 329,081 (2,001,430) State (12,311) (7,507) (12,354) -------- --------- -------------- 119,622 321,574 (2,013,784) -------- --------- -------------- Total income tax provision (benefit) $153,944 $ 370,673 $ (1,912,737) ======== ========= ==============
F-12 26 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 5. INCOME TAXES, Continued: Significant components of the Company's deferred income tax assets at July 31, 1997 and 1996, respectively, are as follows:
1997 1996 ---- ---- Net operating loss carryforward $1,250,741 $1,544,210 Investment tax credit carryforward 36,733 420,971 Minimum tax credit carryover 58,674 12,452 Property and equipment -- 36,705 Unrealized loss 145,545 59,154 Intangible assets 261,655 169,180 ---------- ---------- Total deferred tax assets 1,753,348 2,242,672 Property and equipment 14,535 -- ---------- ---------- Total deferred tax liabilities 14,535 -- ---------- ---------- Valuation allowance (36,733) (420,971) ---------- ---------- Net deferred tax asset $1,702,080 $1,821,701 ========== ==========
The following is the reconciliation of the U.S. statutory tax rate to the Company's effective tax rate on income from continuing operations for the years ended July 31:
1997 1996 1995 ---- ---- ---- Federal income tax at statutory rate of 34% $ 108,801 $ 306,987 $ 364,518 Goodwill amortization 58,152 58,152 58,152 Alternative minimum tax -- -- 17,484 State income tax (8,413) 13,205 60,432 Utilization of net operating loss carryforward -- -- (433,198) Change of estimate of deferred tax asset valuation allowance -- -- (2,013,784) Other (4,596) (7,671) 33,659 --------- --------- ----------- (Benefit) provision for income tax $ 153,944 $ 370,673 $(1,912,737) ========= ========= ===========
During 1997 and 1996, the net operating loss carryforwards were reduced by $293,469 and $380,848, respectively. At July 31, 1997, the Company has net operating loss carryforwards of approximately $3,678,700 expiring from 2002 to 2006. The Company has investment tax credit carryforwards of approximately $36,700 which expire between 1998 and 2001. F-13 27 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 6. 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, 1997, $123,000 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, 1997, 1996 and 1995 was $30,000, respectively. Interest expense relating to notes payable to affiliates amounted to approximately $192,000 for the years ended July 31, 1997, 1996, and 1995, respectively. 7. LEASES: The Company leases all store facilities, with the exception of one, under operating leases with terms ranging from one to ten years. Many leases contain escalation clauses, and some provide for contingent rentals based on percentages of gross revenue or increases in the consumer price index. Minimum lease obligations for the Company at July 31, 1997 by fiscal year are as follows: 1998 $1,134,657 1999 920,026 2000 746,852 2001 541,321 2002 441,503 Thereafter 1,074,685 ---------- $4,859,044 ==========
Occupancy expense under operating leases for the years ended July 31, 1997, 1996 and 1995 was $1,391,811, $931,205 and $759,613, respectively. F-14 28 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 8. SUPPLEMENTAL DATA TO STATEMENT OF CASH FLOWS: Cash interest payments for the years ended July 31, 1997, 1996 and 1995 are $760,745, $542,835 and $506,508, respectively. Cash tax payments for the years ended July 31, 1997, 1996 and 1995 are $47,706, $50,940 and $30,074, respectively. In fiscal year 1996, the Company delivered 247,647 shares of its Common Stock valued at $1,238,235 in connection with the acquisitions of All Star Rental, Inc. and REJA, Inc. Additionally, the Company assumed liabilities totaling $2,733,493 and paid cash, net of cash acquired, of $499,200 in connection with the acquisitions (see Note 2). 9. 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 such exercise can not at any time be less than 25 shares unless the remaining shares that have become so purchasable are less than 25 shares. All options granted to the employees have an exercise price no less than the fair market value of the stock at grant date. The options vest under one of the following conditions: (i) one-third each year, beginning on the first anniversary of the date of grant, (ii) one-half each year, beginning on the first anniversary of the date of grant, or (iii) one-fourth each year, beginning on the first anniversary of the date of grant. The Company applies APB Opinion 25 and related Interpretations in accounting for the Plan. In 1995, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") which, if fully adopted by the Company, would change the methods the Company applies in recognizing the cost of the Plan. Adoption of the cost recognition provisions of SFAS No. 123 is optional and the Company has decided not to elect these provisions of SFAS 123. However, pro forma disclosures as if the Company adopted the cost recognition provisions of SFAS 123 in 1995 are required by SFAS 123 and are presented below. In accordance with APB 25, the Company has not recognized any compensation cost for the stock options granted. F-15 29 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 9. INCENTIVE PLANS, Continued A summary of the status of the Company's stock options as of July 31, 1997, 1996 and 1995 and the changes during the year ended on those dates is presented below:
Stock Options 1997 1996 1995 --------------------- --------------------- -------------------- Weighted Weighted Weighted # Shares Average # Shares Average # Shares Average Underlying Exercise Underlying Exercise Underlying Exercise Options Prices Options Prices Options Prices ---------- -------- ---------- --------- ---------- -------- Outstanding at beginning of year 117,650 $ 5.00 117,650 -- -- -- Granted 72,000 $ 6.19 -- -- -- $ 5.00 Exercised 2,250 $ 5.00 -- -- -- -- Forfeited 2,750 $ 5.00 -- -- -- -- Expired -- -- -- -- -- -- Outstanding at end of year 184,650 $ 5.47 117,650 $ 5.00 117,650 $ 5.00 Exercisable at end of year 52,575 $ 5.00 29,413 $ 5.00 -- -- Available for grant at end of year 40,350 107,350 107,350 Weighted-average fair value of options granted $ 2.46 -- --
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants in 1997: dividend yield of 0.00%; risk-free interest rate ranges from 6.03% to 6.54%; the expected life of options is 5 years; and a volatility of 32.6% for all grants. Pro Forma Net Income and Net Income Per Common Share Had the compensation cost for the Company's stock-based compensation plan been determined consistent with SFAS No. 123, the Company's net income and net income per common share for 1996 and 1997 would approximate the pro forma amounts below:
Stock Options As Reported Pro Forma As Reported Pro Forma 7/31/97 7/31/97 7/31/96 7/31/96 ------- ------- ------- ------- Net Income $166,060 $152,201 $137,662 $137,662 Net income per common share $ 0.10 $ 0.09 $ 0.09 $ 0.09
The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. SFAS No. 123 does not apply to awards granted prior to the 1996 fiscal year. 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 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, 1997, no additional or matching contributions have been made to the Savings Plan by the Company. All assets of the Savings Plan are held in trust. F-16 30 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 10. DISCONTINUED OPERATIONS: In fiscal year 1995, the Company formed a new subsidiary, Bestway Auto, Inc., ("Bestway Auto") due to the Company's entry into the retail used car sales and finance business. The Company test marketed the concept through the opening of a single prototype retail sales facility which experienced operating losses for the first six months of fiscal year 1996. In December 1995, management made the decision to dispose of Bestway Auto's assets and in the process create a potential for a future opportunity in an operating used car business. On February 1, 1996 the Company exchanged $137,200 in cash and its capital stock in Bestway Auto for a 49% Common Stock interest in Value Auto, and non-voting, non-dividend paying Preferred Stock in Value Auto. For the period February 1, 1996 through July 31, 1996, Value Auto generated net losses amounting to approximately $136,000 and the Company's equity in such losses amounted to approximately $67,000. As a result of the losses incurred by both Bestway Auto and Value Auto and management's assessment of future operating results for the Company's auto sales business, management concluded that the Company would abandon the auto sales business and its investment in Value Auto would be written off. The operations of Bestway Auto and Value Auto have been accounted for as a discontinued operation and, accordingly, the Company's equity in their operating results and the loss on disposal are segregated and reported as discontinued operations in the accompanying Consolidated Statement of Income. Summarized results of Bestway Auto and Value Auto are as follows:
Value Auto Bestway Auto February 1, 1996 - August 1, 1995 - July 31, 1996 February 1, 1996 ------------------ ---------------- Revenues $3,079,689 $207,468 Costs and expenses 3,239,426 351,579 ---------- -------- Loss before income taxes (159,737) (144,111) Income tax benefit 23,961 54,186 ---------- -------- Net loss $ (135,776) $(89,925) ========== ========
11. INVESTMENT IN PARTNERSHIP On October 19, 1995, the Company became a 50% limited partner in a newly formed partnership, Value Auto Partners, Ltd. (the "Partnership"). The purpose of the Partnership is to engage in the financing of used cars. The Company accounted for its Partnership interest by the equity method. As of January 31, 1997, the Company had contributed $437,500 to the Partnership and had received distributions of approximately $14,000. The Company's equity in Partnership losses was $193,981 for the six months ended January 31, 1997. As a result of losses incurred by the Partnership, and based on management's assessment of the recoverability of the carrying amount of the investment, management concluded that the investment should be written off. Accordingly, during the second quarter the Company recorded a pretax charge of $229,579 which represented the remaining carrying amount of its investment in the Partnership. The charge resulted in a deferred tax benefit of $86,322. Subsequently, there has been no changes in the status of the Partnership which would impact the Company's decision to write off the investment. F-17 31 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (Continued) 11. INVESTMENT IN PARTNERSHIP, Continued Shown below is the unaudited summarized financial information related to the Partnership at the time of the write-off: For the period ended January 31, 1997: Revenues $ 51,905 Costs and expenses 439,867 ----------- Net loss $ (387,962) =========== At January 31, 1997: Assets $ 1,516,532 =========== Liabilities 1,301,961 Partners' capital 214,571 ----------- $ 1,516,532 ===========
12. CONTINGENCIES: The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. Management believes that the final outcome of such matters will not have a material adverse effect on the financial position, results of operations or liquidity of the Company. F-18 32 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- INDEX TO EXHIBITS
Exhibit Number Document - ------- -------- 10(1) Fourth Amended and Restated Revolving Credit Note dated August 18, 1997 between Comerica Bank - Texas and Bestway Rental, Inc. 10(2) First Amendment and Restated Promissory Note dated August 19, 1997 between O'Donnell & Masur, L.P. and Bestway, Inc. 21 Subsidiaries 23 Consent of Auditors 27 Financial Data Schedule Filed electronically only, not attached to printed reports
EX-10.(1) 2 4TH AMENDED/RESTATED REVOLVING CREDIT NOTE 1 EXHIBIT 10.1 FOURTH AMENDED AND RESTATED REVOLVING CREDIT NOTE Dallas, Texas $7,500,000.00 August 18, 1997 FOR VALUE RECEIVED, BESTWAY, INC., a Delaware corporation and BESTWAY RENTAL, INC., a Tennessee corporation, K.C. RESOURCE SERVICE CORPORATION, a Missouri corporation, and U.S. CREDIT-SERVICE CORPORATION, a Missouri corporation (each individually a "MAKER" and jointly and severally, the "MAKERS"), jointly and severally promise to pay to the order of COMERICA BANK-TEXAS (the "BANK") at 1601 Elm Street, Dallas, Texas 75201, on November 18, 1997 (unless sooner due under the terms of the Loan Agreement, as that term is defined below) the principal sum of Seven Million Five Hundred Thousand No/100 Dollars ($7,500,000.00) or, if less, the aggregate unpaid principal sum shown on the schedule(s) which, at the sole option of the Bank, may be attached hereto and made a part hereof. The unpaid principal amount of this Note shall bear interest and be payable as provided in that certain First Amended and Restated Revolving Credit Agreement, dated August 19, 1993, between the Makers and the Bank (as amended from time to time, the "LOAN AGREEMENT") and this Note is the Revolving Credit Note referred to in the Loan Agreement. Interest shall be payable to the extent accrued on the first day of each calendar month, beginning September 1, 1997, until maturity (whether by acceleration or otherwise) and, from and after such maturity, on demand. This Note is secured by the Collateral described in the Loan Agreement, which Loan Agreement, as it may be amended from time to time, is by this reference incorporated herein and made a part hereof. Reference is hereby made to the Loan Agreement for a statement of its terms and conditions, including those conditions under which this Note may be paid prior to its due date or its due date accelerated. Unless otherwise defined herein, capitalized terms herein shall have the meanings given such terms in the Loan Agreement. If an Event of Default occurs and is not cured within the time, if any, provided for by the Loan Agreement and is continuing, the Bank may exercise any one or more of the rights (including the right to accelerate this Note and any other Indebtedness under the Loan Agreement, and remedies granted by the Loan Agreement, or given to a secured party under applicable law. The Bank is hereby granted a security interest in all property of each Maker at any time in the possession of the Bank and in all balances of deposit accounts of each Maker from time to time with the Bank. If an Event of Default occurs and is not cured within the time, if any, provided for by the Loan Agreement, then the Bank, upon the occurrence and continuance of any such Event of Default, or after the expiration of any time provided for cure, may at its option and without prior notice to the Makers declare the principal of and interest on this Note to be immediately due and payable and may set off against the principal of and interest on this Note (i) any amount owing by the Bank to either Maker, (ii) any property of either Maker in the 2 possession of the Bank, and (iii) any amount in any deposit account of either Maker with the Bank. No agreements, conditions, provisions or stipulations contained in this Note or in any other agreement between the Makers and the Bank, or the occurrence of an Event of Default, or the exercise by the Bank of the right to accelerate the payment of the Maturity of principal and interest, or to exercise any option whatsoever contained in this Note or any other agreement between the Makers and the Bank, or the arising of any contingency whatsoever, shall entitle the Bank to collect, in any event, interest exceeding the maximum rate of nonusurious interest allowed from time to time by applicable state or federal laws as now or as may hereinafter be in effect (the "MAXIMUM LEGAL RATE") and in no event shall the Makers be obligated to pay interest exceeding such Maximum Legal Rate, and all agreements, conditions or stipulations, if any, which may in any event or contingency whatsoever operate to bind, obligate or compel the Makers to pay a rate of interest exceeding the Maximum Legal Rate shall be without binding force or effect, at law or in equity, to the extent only of the excess of interest over such Maximum Legal Rate. In the event any interest is charged in excess of the Maximum Legal Rate (the "EXCESS"), the Makers acknowledge and stipulate that any such charge shall be the result of any accidental and bona fide error, and such Excess shall be, first, applied to reduce the principal of any obligations due, and, second, returned to the Makers, it being the intention of the parties hereto not to enter at any time into an usurious or otherwise illegal relationship. The parties hereto recognize that with fluctuations in the prime commercial interest rate from time to time announced by the Bank such unintentional result could inadvertently occur. By the execution of this Note, the Makers covenant that (a) the credit or return of any Excess shall constitute the acceptance by the Makers of such Excess, and (b) the Makers shall not seek or pursue any other remedy, legal or equitable, against the Bank based, in whole or in part, upon the charging or receiving of any interest in excess of the Maximum Legal Rate. For the purpose of determining whether or not any Excess has been contracted for, charged or received by the Bank, all interest at any time contracted for, changed or received by the Bank in connection with the Makers' obligations shall be amortized, prorated, allocated and spread in equal or unequal parts during the entire term of this Note. If at any time the rate of interest payable hereunder shall be computed on this basis of the Maximum Legal Rate, any subsequent reduction in the Contract Rate shall not reduce such interest thereafter payable hereunder below the amount computed on the basis of the Maximum Legal Rate until the aggregate amount of such interest accrued and payable under this Note equals the total amount of interest which would have accrued if such interest had been at all times computed solely on the basis of the Contract Rate. Unless preempted by federal law, the rate of interest from time to time in effect hereunder shall not exceed the "indicated rate ceiling " from time to time in effect under Chapter 1 of the Texas Credit Code (Vernon's Texas Civil Statutes), Section (a)(1), Article 5069-1.04, as amended. The provisions of this Note governing the interest shall be deemed to be incorporated into every document or communication relating to the obligations which sets forth or prescribes any account, right or claims or alleged account, right or claim of the Bank with respect to the Makers (or any other obligor in respect of the obligations), whether or not any provisions of this Note is referred to therein. All such documents and communications and all figures set forth therein shall, for the purpose of computing the extent of the obligations asserted by the Bank -2- 3 thereunder, be automatically recomputed by the Makers or any other obligor, and by any court considering the same, to give effect to the adjustments or credits required by this Note. If the applicable state or federal law is amended in the future to allow a greater rate of interest to be charged under this Note than is presently allowed by applicable state of federal law, then the limitation of interest hereunder shall be increased to the maximum rate of interest allowed by applicable state or federal law, as amended, which increase shall be effective hereunder on the effective date of such amendment, and all interest charges owing to the Bank by reason thereof shall be payable upon demand. The provision of Chapter 15 of the Texas Credit Code (Vernon's Texas Code Statutes), Article 5069-15, as amended, are specifically declared by the parties hereto not to be applicable to this Note or any of the other agreements executed in connection herewith or therewith or to the transactions contemplated hereby or thereby. The Makers and all guarantors and endorsers (i) waive presentment, demand, protest and notice of dishonor, (ii) agree that no extension or indulgence to the Makers or release or nonenforcement of any security, whether with or without notice, shall affect the obligations of any guarantor or endorser, and (iii) agree to reimburse the holder of this Note for any and all costs and expenses (including, but not limited to, reasonable attorney fees) incurred in collecting or attempting to collect any and all principal of and interest on this Note. This Note is given in renewal and extension (but not as a novation) of that certain Third Amended and Restated Revolving Credit Note dated April 12, 1996, in the original principal amount of $7,500,000, executed by Makers and payable to the order of the Bank, and this Note is entitled to all benefits of all Collateral securing such prior note. IN WITNESS WHEREOF, the Makers have executed this Note the 18th day of August, 1997. BESTWAY, INC. By: /s/ BETH A. DURRETT ----------------------- Beth A. Durrett Vice President BESTWAY RENTAL, INC. By: /s/ BETH A. DURRETT ---------------------- Beth A. Durrett Vice President -3- 4 K.C. RESOURCE SERVICE CORPORATION By: /s/ BETH A. DURRETT ------------------------------ Beth A. Durrett Vice President U.S. CREDIT-SERVICE CORPORATION By: /s/ BETH A. DURRETT ------------------------------ Beth A. Durrett Vice President -4- EX-10.(2) 3 1ST AMENDMENT/RESTATED PROMISSORY NOTE, 08/19/97 1 EXHIBIT 10.2 THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS PROMISSORY NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THIS PROMISSORY NOTE UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL OF THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. FIRST AMENDMENT AND RESTATED PROMISSORY NOTE $3,000,000 Dallas, Texas August 19, 1997 For value received the undersigned BESTWAY, INC. a Delaware corporation (the "Maker"), hereby promises to pay to O'Donnell & Masur, L.P. (the "Payee"), in lawful money of the United States of America, the principal sum of THREE MILLION DOLLARS AND NO/CENTS ($3,000,000), with interest on the unpaid principal balance thereof from the date of advancement until default or maturity equal to the rate of 6.0% per annum during the first year, and 8% per annum thereafter, calculated on the basis of the actual number of calendar days elapsed but computed as if each year consisted of 360 days. Accrued interest shall be due and payable quarter-annually on the first day of January, April, July and October of each calendar year beginning on October 1, 1997 and continuing regularly and quarter-annually thereafter until this Note is paid in full. The principal of this Note and all accrued but unpaid interest shall be due and payable on August 19, 1999. The Maker may at any time and from time to time prepay all or any part of the unpaid principal balance of this Note without premium or penalty. Each payment received by the Payee shall be applied first to late charges and collection expenses, if any, then to the payment of accrued but unpaid interest due hereunder, and then to the reduction of the unpaid principal balance hereof. If the Maker defaults in the timely payment of any installment of principal or interest due hereunder and such default shall continue uncured for 15 days after the Maker has received written notice of such default from the Payee, the Payee may, at the Payee's option, exercise any or all of the rights, powers and remedies afforded herein or by law, including, without limitation, the right to declare the unpaid principal balance of this Note, together will all accrued but unpaid interest on such principal balance, immediately due and payable. 1 2 The failure by the Payee to exercise any right, power or remedy upon the occurrence of a default by the Maker shall not constitute a waiver of the right to exercise the same or any other right, power or remedy at any subsequent time in respect to any other default. The acceptance by the Payee of any payment hereunder which is less than payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise of any such right, power or remedy without the written consent of the Payee, except as and to the extent otherwise provided by law. Except as may be otherwise provided herein, the makers, signers, sureties, guarantors and endorsers of this Note severally waive demand, presentment, notice of dishonor, notice of intent or demand or accelerate payment hereof, notice of acceleration, diligence in collecting, grace, notice and protest and agree to one or more extension for any period or periods of time and partial payments, before or after maturity, without prejudice to the holder. If this Note shall be collected by legal proceedings or through a probate or bankruptcy court, or shall be placed in the hand of an attorney for collection after default or maturity, the Maker agrees to pay all costs of collection, including reasonable attorney's fees. This Note and the Maker's obligations hereunder shall be subordinated, at the option of the Maker, to any other current or future indebtedness of the Maker at any time of from time to time designated by the Maker as senior indebtedness and the Payee agrees to execute a subordination agreement subordinating the indebtedness evidenced by this Note on terms reasonably requested by the holder of any such senior indebtedness of the Maker. The Payee may not sell, transfer or assign this Note or any of its right hereunder without the written consent of the Maker, and the Maker shall in no event be obligated to make payments hereunder to anyone other than the Payee, its successors and permitted assigns. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO CONFLICT OF LAWS RULES OR CHOICE OF LAWS RULES THEREOF. EXECUTED as of the date first above written. THE MAKER BESTWAY, INC. By: /s/ BETH A. DURRETT ------------------------------------- Name: Beth A. Durrett ----------------------------------- Title: Vice President - Finance ---------------------------------- 2 EX-21 4 LIST OF SUBSIDIARIES OF REGISTRANT 1 BESTWAY, INC. FORM 10-K - -------------------------------------------------------------------------------- EXHIBIT 21 BESTWAY, INC. Subsidiaries July 31, 1997
Subsidiary State of Incorporation - ------------------------------- ---------------------- Bestway Rental, Inc. Tennessee U.S. Credit-Service Corporation Missouri Westdale Data Service, Inc. Texas
EX-23 5 CONSENT OF COOPERS & LYBRAND L.L.P. 1 EXHIBIT 23 [COOPERS & LYBRAND L.L.P. LETTERHEAD] CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement of Bestway, Inc. on Form S-8 (Registration No. 33-60471) of our report dated October 7, 1997, on our audits of the consolidated financial statements of Bestway, Inc. as of July 31, 1997 and 1996 and for the years ended July 31, 1997, 1996 and 1995, which report is included in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. Dallas, Texas October 7, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUL-31-1997 AUG-01-1996 JUL-31-1997 474,080 0 0 0 15,962,450 0 5,019,151 8,106,146 18,373,967 0 8,171,945 0 0 17,500 7,577,000 18,383,967 0 24,662,812 0 5,432,915 18,153,155 0 756,738 320,004 153,944 166,060 0 0 0 166,060 .10 0 Company adopted unclassified balance sheet in 1989
-----END PRIVACY-ENHANCED MESSAGE-----