<PAGE>
Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1995 Commission file number 0-15227
------------- -------
THE DWYER GROUP, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-0941783
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1010 N. University Parks Dr., Waco, TX 76707
---------------------------------------------
(Address and zip code of principal executive offices)
(817) 745-2400
---------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, Par Value $.10
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 twelve months (or for shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 10, 1995
------------------------------ ------------------------------
Common stock, $.10 par value 7,113,127
<PAGE>
THE DWYER GROUP, INC.
Index
<TABLE>
<S> <C>
Part I - Financial Information Page
Item 1. Financial Statements
------
Consolidated Balance Sheets June 30, 1995
(unaudited) and December 31, 1994 (audited) 3 - 4
Consolidated Statements of Operations
Three Months and Six Months Ended June 30,
1995 and 1994 (unaudited) 5
Consolidated Statements of Cash Flows Six
Months Ended June 30, 1995 (unaudited) and
December 31, 1994 (Audited) 6 - 7
Notes to Consolidated Financial Statements 8 - 13
Item 2. Management's Discussion and 14 - 17
------ Analysis of Financial Condition
and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings 18
------
Item 2. Changes in Securities 18
------
Item 3. Defaults Upon Senior Securities 18
------
Item 4. Submission of Matters to a Vote 18
------ of Security Holders
Item 5. Other Information 18
------
Item 6. Exhibits and Reports on Form 8-K 18
------
</TABLE>
2
<PAGE>
PART 1
FINANCIAL INFORMATION
The Dwyer Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Consolidated Balance Sheets
-------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 3,719,029 $ 4,819,795
Trade accounts receivable, net of
allowance for doubtful accounts of
$283,981 and $364,839, respectively 826,738 781,201
Accounts receivable from related parties 600,289 340,903
Note receivable from related party 864,000 -
Accrued interest receivable 7,262 38,500
Trade notes receivable, current portion 1,105,539 1,059,069
Note receivable - other, current portion 7,611 10,150
Inventories 177,021 159,838
Prepaid expenses and other 324,523 107,254
----------- -----------
TOTAL CURRENT ASSETS 7,632,012 7,316,710
ACCOUNTS RECEIVABLE FROM
RELATED PARTIES, long-term portion 110,916 130,916
PROPERTY AND EQUIPMENT, at
cost less accumulated depreciation 1,201,112 1,034,846
FRANCHISES HELD FOR RESALE 716,399 25,815
TRADE NOTES RECEIVABLE, long-term
portion, net of allowance for doubtful notes
of $391,872 and $421,797, respectively 6,215,529 5,969,771
PURCHASED FRANCHISE RIGHTS, at cost
less accumulated amortization of $252,970
and $180,540, respectively 1,344,083 1,436,164
PATENTS AND TRADEMARKS, at cost less
accumulated amortization of $30,489 and
$16,303, respectively 98,179 92,294
NOTES RECEIVABLE FROM
RELATED PARTIES 1,636,369 1,525,597
NOTES RECEIVABLE - OTHER 16,727 19,672
INVESTMENTS, equity method 444,657 492,300
OTHER ASSETS 304,461 93,454
----------- -----------
$19,720,444 $18,137,539
=========== ===========
</TABLE>
3
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Consolidated Balance Sheets (Continued)
-------------------------------------------------------------------------------
(Unaudited)
June 30, December 31,
1995 1994
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable 672,082 747,567
Accrued liabilities 527,415 673,468
Income tax payable 36,356 370,271
Other payables 175,823 179,634
Current maturities of long-term debt 136,129 157,555
Franchise resale liability 447,077 -
----------- -----------
TOTAL CURRENT LIABILITIES 1,994,882 2,128,495
LONG-TERM DEBT, less current
maturities 289,875 355,546
DEFERRED FRANCHISE SALES
REVENUE 3,449,570 3,496,382
FRANCHISEE FUNDS HELD FOR
ADVERTISING 425,164 292,995
DEFERRED TAX LIABILITY 84,320 22,702
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value - shares
authorized, 500,000; outstanding, none - -
Common stock, authorized 15,000,000
and 15,000,000 shares of $.10 par value;
issued 7,235,552 and 7,234,552 shares
at June 30, 1995 and December 31,
1994, respectively 723,556 723,456
Additional paid-in capital 8,941,029 7,989,489
Retained earnings 3,894,447 3,266,463
Treasury stock, at cost (122,425 and
137,425 shares at June 30, 1995 and
December 31, 1994, respectively) (82,399) (137,989)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,476,633 11,841,419
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $19,720,444 $18,137,539
=========== ===========
</TABLE>
See accompanying notes to consolidated Financial Statements.
4
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Operations (Unaudited)
--------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, Three Months Ended June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Royalty income $3,130,097 $2,485,071 $1,693,989 $1,472,025
Franchise sales 2,495,364 2,338,366 1,144,496 1,660,789
Product sales 340,807 167,157 122,354 167,157
Tax and other services 502,230 502,943 200,658 192,994
Interest and other revenues 604,757 479,649 307,891 236,879
---------- ---------- ---------- ----------
7,073,255 5,973,186 3,469,388 3,729,844
COSTS AND EXPENSES:
Cost of product sales 128,903 73,041 59,134 73,041
Cost of tax services 713,649 563,075 347,320 292,521
General and administrative 5,044,949 3,486,776 2,651,015 1,981,260
Depreciation and amortization 190,124 116,505 102,042 76,267
Interest 98,511 60,896 51,440 53,354
---------- ---------- ---------- ----------
6,176,136 4,300,293 3,210,951 2,476,443
Earnings before income taxes 897,119 1,672,893 258,437 1,253,401
Provision for income taxes 269,136 560,187 58,233 416,161
---------- ---------- ---------- ----------
Net earnings $ 627,983 $1,112,706 $ 200,204 $ 837,240
========== ========== ========== ==========
Earnings per common share:
Primary and Fully Dilutive:
Earnings before income taxes $ .12 $ .27 $ .04 $ .20
Provision for income taxes (.04) (.09) (.01) (.07)
----- ----- ----- -----
Net earnings per share $ .08 $ .18 $ .03 $ .13
===== ===== ===== =====
Weighted average shares outstanding:
Primary 7,488,765 6,269,682 7,494,408 6,287,548
========== ========== ========== ==========
Fully Dilutive 7,496,741 6,280,089 7,510,360 6,287,548
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated Financial Statements.
5
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
--------------------------------------------------------------------------------
Six Months Ended June 30,
1995 1994
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings 627,984 1,112,706
Adjustments to reconcile net earnings
to net earnings provided by operating
activities:
Depreciation and amortization 190,124 116,505
Provision for doubtful accounts and
notes receivable (110,783) 34,729
Notes receivable written off 303,037 -
Income recognized from sales previously
deferred - (86,716)
Sales of franchises for installment
notes receivable (1,343,889) (1,451,650)
Payments received on notes receivable 706,678 323,133
Sale of notes receivable 71,871 -
Cash received on deferred sales (46,812) 6,680
Equity in earnings of investment 29,456 -
Deferred Taxes 61,618 5,336
Changes in assets and liabilities:
Accounts receivable 35,321 (273,239)
Accounts receivable from related parties (239,386) -
Accrued interest receivable 31,238 -
Inventories (17,183) 13,410
Prepaid expenses and other assets (217,269) (142,085)
Notes receivable from related parties (974,772) -
Notes receivable other 5,484 -
Other assets (211,007) -
Accounts payable and accrued
liabilities (221,538) 282,173
Income tax payable (333,915) 155,450
Other payables (3,811) -
Franchise fees held for advertising 132,169 -
---------- ----------
Net cash provided by operating activities (1,525,385) 96,432
---------- ----------
Cash Flows From Investing Activities:
Payments for patents & trademarks (20,071) -
Purchase of property and equipment (251,587) (291,570)
Sale of fixed assets - 78,972
(Acquisition) sale of assets held for resale (690,584) 217,500
Franchise resale liabilities 447,077 -
Purchase franchise rights 19,651 -
Purchase of Ekwill Acquisition
Corporation Assets - (1,035,000)
---------- ----------
Net cash used in investing activities (495,514) (1,030,098)
---------- ----------
</TABLE>
6
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
--------------------------------------------------------------------------------
Six Months Ended June 30,
1995 1994
---- ----
<S> <C> <C>
Cash Flows From Financing Activities:
Principal payments of debt (87,097) (843,360)
Additional paid in capital 951,540 -
Proceeds from debt issued - 1,685,000
(Purchase) sale of stock 100 -
Sale of treasury stock 55,590 -
----------- ----------
Net cash used in financing
activities 920,133 841,640
----------- ----------
Net Decrease In Cash and Cash Equivalents (1,100,766) (92,026)
Cash and Cash Equivalents, at January 1 4,819,795 1,213,123
----------- ----------
Cash and Cash Equivalents, at June 30 $ 3,719,029 $1,121,097
=========== ==========
</TABLE>
January 1, 1994 adjusted for cash and cash equivalents acquired ($43,043) in
conjunction with the May 1994 acquisition of Ekwill Acquisition Corporation.
See accompanying notes to consolidated Financial Statements.
7
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
A. Organization
------------
The Dwyer Group, Inc. (the "Parent") is a holding company for service-based
businesses providing specialty services internationally through franchising. The
consolidated financial statements include the accounts of The Dwyer Group, Inc.
and its wholly-owned Subsidiaries (the "Company"). All material intercompany
accounts and transactions have been eliminated in consolidation.
The Company was incorporated in 1970 in the State of Oklahoma under the name
Mr. Rooter Corporation of America, Inc. The Company's name was changed to
Mr. Rooter Corporation in 1972, and in 1986 it was reincorporated as a Delaware
corporation. Until May 1, 1993, the Company operated in two segments:
franchising plumbing repair and sewer and drain cleaning services as well as
manufacturing and selling sewer and drain cleaning equipment and supplies. On
May 1, 1993, substantially all of the assets of the manufacturing operations
were sold.
On March 1, 1993, the Company, through Rooter's wholly-owned subsidiary Aire
Serv Heating and Air Conditioning, Inc. ("Aire Serv"), began to grant licenses
to operate air conditioning and heating repair services under the trade name
Aire Serv.
On June 1, 1993, the Company acquired all of the shares of common stock of
Rainbow International Carpet Dyeing & Cleaning Co. ("Rainbow"), and General
Business Services, Inc. ("GBS") from its majority stockholder for 8,070,000
shares (4,035,000 shares after reverse split) of common stock. With the
acquisition of GBS, the Company began operating in another segment, tax
services, through GBS's wholly-owned subsidiary, General Tax Services, Inc.
("GTS"). These acquisitions have been accounted for similar to a pooling of
interests because all companies were under common control.
Following the acquisition of Rainbow and GBS, the Board of Directors approved a
plan to convert the Company into a holding company and to form a new subsidiary
to operate the Mr. Rooter business. On July 30, 1993, this new subsidiary was
incorporated in Texas under the name Mr. Rooter Corporation and the Company was
renamed The Dwyer Group, Inc.
Effective May 1, 1994, the Company acquired Edwin K. Williams & Co. ("EKW"), a
wholly-owned subsidiary of Ekwill Acquisition Corporation ("Ekwill"), a
California corporation, for approximately $1,150,000 cash by purchasing all of
the outstanding capital stock of Ekwill from Ekwill's two shareholders. The
acquisition of Ekwill has been accounted for using the purchase method of
accounting; accordingly, assets acquired and liabilities assumed were recorded
at their estimated fair values.
8
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (continued)
Effective September 1, 1994, EKW purchased 33 1/3% of the capital stock of
Service Station Computer Systems, Inc. ("SSCS") for $500,000 cash. The
investment in SSCS has been accounted for under the equity method.
On September 6, 1994, the Company formed a new wholly-owned subsidiary.
Mr. Electric Corporation, ("Electric"), is a Texas corporation engaged in
franchising electrical contracting service businesses.
B. Inventories
-----------
Inventories are stated at the lower of cost or market and consist of finished
goods available for sale. Cost is determined using the average cost and
first-in, first-out ("FIFO") methods.
C. Property and Equipment
----------------------
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the respective assets, ranging from three to forty years.
D. Earnings Per Common Share
-------------------------
Earnings per share of common stock is computed based on the weighted average
number of shares and common equivalent shares outstanding during each of the
periods. Earnings per share include the dilutive effect of unexercised stock
options and warrants.
E. Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less and money market funds to be cash equivalents.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risks on
cash and cash equivalents.
F. Franchise Operations
--------------------
Revenues from the sale of regional franchise agreements and individual
franchises in the United States and master license agreements in foreign
countries are generally recognized, net of an allowance for uncollectible
amounts, when substantially all significant services to be provided by the
Company have been performed. Regional franchise agreements grant the regional
franchisee the right to sell individual franchises for the Company in the
regional franchisee's territory. The regional franchisee generally receives a
commission on individual franchises sold as well as a share of future
9
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
F. Franchise Operations (continued)
--------------------------------
royalties received by the Company from franchisees in the regional franchisee's
territory. Interest on notes receivable - franchise fees is accrued and recorded
as income, net of an allowance for uncollectible amounts, when due. In
situations, however, where revenue from such sales is collectible over an
extended period of time, down payments are not sufficient and/or collectibility
is not reasonably certain, revenue is recognized on the installment method as
amounts are collected. Interest on notes receivable - franchise fees resulting
from sales recorded on the installment method is recorded when received.
Revenue from franchise royalties is generally recognized, net of an allowance
for uncollectible amounts, when due from the franchisees. For Rainbow, however,
royalties are recognized when reported and paid to the Company. The Company
collects and holds in escrow 2% of Rooter and Aire Serv franchisee's sales to be
used for an advertising campaign. The current portion of these funds,
(approximately $150,000 at June 30, 1995 and December 31,1994, respectively) is
included in other payables.
Revenue from product sales is recognized when orders are shipped. Revenue from
tax services is recognized upon the completion of the tax service. For master
license agreements, revenues are recognized upon completion of all significant
initial services provided to the master licensee and upon satisfaction of all
material conditions of the master license.
G. Franchises Held For Resale
--------------------------
On occasion, the Company purchases operating franchise territories from existing
franchisees, which it markets to new franchisees. The acquisition is recorded as
an asset held for resale at the lower of cost or fair market value. Any gain or
loss realized when the territory is sold is included in revenue from franchise
sales.
H. Income Taxes
------------
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 required
a change from the deferred method to the liability method for accounting for
income taxes. Under the liability method, deferred taxes are recognized for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.
The Company files a consolidated tax return on behalf of itself and its
Subsidiaries. Income tax expense is allocated to the Parent and the Subsidiaries
as if they filed separate tax returns.
10
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
I. Intangible Assets
-----------------
The costs of intangible assets are amortized using the straight-line method over
their estimated lives of seven to fifteen years.
Note 2. Reorganization and Acquisition of Affiliates
In June, 1993, the Company acquired two corporations, Rainbow and GBS,
controlled by its majority stockholder and Chairman for approximately 8,070,000
shares (4,035,000 shares after reverse split) of common stock. GBS was purchased
by the stockholder on January 11, 1993. Prior to the acquisition, both companies
were "S" corporations with income taxable to the stockholder not to the
corporation. The acquisitions are accounted for in a manner similar to pooling
of interests.
On May 14, 1994 (effective May 1, 1994) the Company acquired EKW, a Colorado
corporation and wholly-owned subsidiary of Ekwill, a California corporation, for
approximately $1,150,000 by purchasing all of the outstanding capital stock of
Ekwill from Ekwill's two shareholders CO Data AG, a Swiss company and Central
Data BV, a Dutch company, neither of which is affiliated with the Company. The
acquisition was financed by a short-term loan from an unaffiliated entity at an
annual interest rate of 12%, and repaid in August 1994. EKW grants licenses for
the operation of business consulting services (counseling in finance,
accounting, bookkeeping, tax matters and profit development) to small
businesses. The acquisitions of EKW and Ekwill have been accounted for as a
purchase and their results of operations have been included in the consolidated
financial statements from the effective date of acquisition, May 1, 1994. The
cost of the acquisition was allocated on the basis of the estimated fair value
of the assets acquired and liabilities assumed. This allocation resulted in
allocation to purchased franchise rights of approximately $681,000. The
purchased franchise rights are being amortized over 10 years on a straight-line
basis.
On September 14, 1994, E.K. Williams acquired 33 1/3% of the outstanding Capital
Stock of Service Station Computer Systems, Inc. ("SSCS") for
This portion intentionally left blank.
11
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 2. Reorganization and Acquisition of Affiliates (continued)
$500,000 cash. SSCS is a private concern headquartered in Salinas, California
who develops and provides computerized bookkeeping products to conventional
service stations, self-serve stations and convenience store operations. The
investment in SSCS has been accounted for using the equity method of accounting.
The cost of SSCS in excess of amounts attributable to tangible assets at
September 1, 1994 (acquisition date) was approximately $257,000 and is being
amortized to operations over an 8 year period using the straight-line method.
Note 3: Statements of Cash Flows
Cash payments for interest for the six months ended June 30, 1995 and 1994
amount to $26,690 and $31,497 respectively. For the same periods, cash payments
for income taxes were $642,000 and $401,000 respectively.
Note 4. Trade Note Receivable - Franchise Fees and Deferred Franchise
Sales Revenue
The Company receives various notes from the sale of new franchises. These
installment notes receivable are generally collateralized by the rights to the
related franchise territory sold, and bear interest at approximately market
rates prevailing at the dates of the transactions. A summary of such notes
receivable as of June 30, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Amounts due within one year $1,105,539 $1,059,069
Amounts due after one year, net of
allowance for uncollectible amounts
of $391,872 and $421,797,
respectively $6,215,529 $5,969,771
---------- ----------
Total notes receivable $7,321,068 $7,028,840
========== ==========
</TABLE>
At June 30, 1995 and December 31, 1994, the amounts of deferred revenue from
franchise sales were $3,449,570 and $3,496,382, respectively. Fees from
franchise sales accounted for by the installment method are collectible in the
years 1994 through 2004.
12
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
--------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (Unaudited)
--------------------------------------------------------------------------------
Note 5. Property and Equipment
A summary of property and equipment as of June 30, 1995 and December 31, 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 97,159 $ 97,159
Building and Improvements 437,183 405,543
Machinery and Equipment 808,905 103,930
Furniture and Fixtures 383,315 868,343
Vehicles 12,286 12,286
---------- ----------
1,738,848 1,487,261
Less accumulated depreciation 537,736 452,415
---------- ----------
$1,201,112 $1,034,846
========== ==========
</TABLE>
This portion intentionally left blank.
13
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
--------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
--------------------------------------------------------------------------------
Liquidity and Capital Resources
-------------------------------
At June 30, 1995, the Company's working capital ratio was approximately 3.8 to 1
compared to approximately 3.4 to 1 at December 31, 1994. In addition, the
Company had working capital of approximately $5,637,000 at June 30, 1995 as
compared to approximately $5,188,000 at December 31, 1994. For the remainder of
fiscal 1995 management expects to fund working capital requirements primarily
through operating cash flow. At June 30, 1995 and December 31, 1994, the Company
had cash and cash equivalents of $3,719,000 and $4,820,000, respectively. The
decrease in cash and cash equivalents since December 31, 1994 is primarily
attributable to payments of approximately: $642,000 to the Internal Revenue
Service for the Company's 1994 and 1995 federal income tax liabilities; $252,000
for additions to fixed assets; and $248,000 to purchase operating franchise
territories from existing franchisees. The Company's planned capital
expenditures for the remainder of 1995 should not exceed $250,000.
Prepaid expenses increased approximately $217,000 due to prepayments for general
liability and umbrella insurance coverages, corporate training, franchise taxes,
and Rainbow franchisee rebates.
Notes receivable increased approximately $292,000 (4.2%). The Company will
finance a portion of franchise sales if the buyer is qualified.
The $87,000 decrease in notes payable and long-term debts as well as the $75,000
decrease in accounts payable are direct results of the Company's continuing
efforts to decrease debt and vendor payables.
Notes receivable from related parties (current and long-term) increased
approximately $975,000. The primary reason for the increase ($950,000) relates
to the resolution with the estate of the late Donald J. Dwyer of the discrepancy
between the reported amount of life insurance on Mr. Dwyer's life and that which
was actually in force. The face amount of life insurance on Mr. Dwyer's life in
force at the time of his death was less than the $2,000,000 of life insurance in
force as stated at the time of the July 19, 1994 offering of Common Stock. The
actual life insurance in force at the time of Mr. Dwyer's death was $1,050,000,
a portion of which had been borrowed against for the benefit of a wholly-owned
subsidiary of the Company, which owned the policies. On February 10, 1995 the
estate executed a promissory note in the amount of $950,000 bearing interest of
9% per annum payable February 9, 1997 resolving the discrepancy of life
insurance in force and life insurance previously reported to be in force on
Mr. Dwyer's life.
14
<PAGE>
Liquidity and Capital Resources - (continued)
---------------------------------------------
Franchises held for resale increased approximately $691,000 and franchise resale
liability increased approximately $447,000. These increases primarily relate to
the repurchase from existing franchisees and subsequent operation of two
Mr. Rooter and six Aire Serv franchise territories located in the Pacific
Northwest and purchased from existing franchisees.
On June 9, 1995 the Company sold 70,000 shares of Treasury Stock, at $3.50 per
share, to Renaissance Capital Growth & Income Fund III, Inc.
Results of Operations
---------------------
For the six months ended June 30, 1995 compared to the six months ended
-----------------------------------------------------------------------
June 30, 1994.
--------------
Revenues increased approximately $1,100,000 (18.4%) for the six months ended
June 30, 1995 when compared to the six months ended June 30, 1994. The increase
in revenues is mainly attributable to increases in royalty income of $645,000
(26.0%) and franchise sales of $157,000 (6.7%), product sales of $174,000
(103.9%) and interest and other revenues of $125,000 (26.1%).
Royalty income of E. K. Williams, which was acquired in May 1994 and therefore
contributed only two months of operations during the six month period ended
June 30, 1994, accounted for $344,000 of the total $645,000 increase in royalty
income for the six months ended June 30, 1995 as compared to the first six
months of 1994. Rooter and Aire Serv continued to grow throughout the six months
ended June 30, 1995 and contributed approximately $271,000 (40.8% increase) and
$60,017 (334.2% increase), respectively, in increased royalty income when
compared to 1994.
For the six months ended June 30, 1995, GBS produced increased franchise sales
of $511,000 (63.3%) when compared to the same period in 1994. In addition, Mr.
Electric, which was organized in September 1994, produced $206,000 in franchise
sales for the six months ended June 30, 1995. These franchise sales increases
were partially offset by franchise sale decreases in Rooter and Aire Serv of
approximately $413,000 (53.3%) and $153,000 (27.3%) respectively. These
decreases are primarily attributable to the reorganization and restructure of
the respective franchise sales departments necessitated by the promotion of
Robert Tunmire, to the position of President and CEO of the Company due to the
unexpected death of Donald J. Dwyer in December 1994. Prior to Mr. Tunmire's
promotion to President of the Company, he was President of Mr. Rooter and Aire
Serv, and was actively involved in the daily management and closing of franchise
sales.
E. K. Williams also added approximately $341,000 in product sales for the six
months ended June 30, 1995 when compared to $167,000 in product sales for May
and June 1994, which was subsequent to EKW's acquisition on May 1, 1994. EKW
sells products such as manual record keeping systems and forms to its
franchisees and outside customers.
15
<PAGE>
Results of Operations - (continued)
-----------------------------------
Interest and other revenues increased approximately $125,000 primarily due to
increased interest income of approximately $93,000 from invested cash balances
and interest recognized from notes receivable - related parties.
Costs and expenses increased $1,876,000 (43.6%) for the six months ended June
30, 1995 compared to the first six months of 1994. This cost and expense
increase is also unfavorable when compared to the corresponding 18.4% increase
in revenues. The following costs and expenses were primarily responsible for
this disproportionate increase in costs and expenses: $214,000 in convention
expenses relating to the Company's annual convention which was held in June
1995 compared to August 1994 for the 1994 convention; $200,000 regarding the
estimated loss in the repurchase of two Rooter and six Aire Serv franchise
territories from existing franchisees; $103,000 associated with the additional
administrative, franchise sales, and franchise management staffing of Aire Serv;
$126,000 relating to administrative, franchise sales, and franchise management
employees added to GBS/EKW to achieve required staffing levels; $109,000 in
conjunction with a GBS Field Support Manager (FSM) franchisee training and
support program; $116,000 in increased GBS travel, advertising and postage; and
$194,000 relating to the staffing of the newly created office services,
international marketing, telecommunications and MIS departments. These
additional costs and expenses were incurred to build the Company's
infrastructure to meet the current as well as future needs and demands of the
growing Dwyer organization.
For the three months ended June 30, 1995, compared to the three months ended
----------------------------------------------------------------------------
June 30, 1994.
--------------
Revenues decreased approximately $260,000 (7.0%) for the three months ended
June 30, 1995 when compared to 1994. The decrease in revenues is mainly
attributable to decreases in franchise sales of $516,000 (31.1%) which were
partially offset by increases in royalty income of $222,000 (15.1%).
Rooter, E.K. Williams, Aire Serv and GBS contributed royalty income growth of
$141,000 (40.1%), $68,000 (33.6%), $28,000 (295.5%) and $15,000 (5.7%),
respectively for the three months ended June 30, 1995 when compared to 1994.
This growth was somewhat offset by a $56,000 (8.7%) decrease in Rainbow's
royalty income for the three months ended June 30, 1995 when compared to 1994.
Management anticipates continued overall growth in royalty income for the
remainder of 1995.
For the quarter ended June 30, 1995 when compared to 1994, Rooter, GBS, Aire
Serv and Rainbow reported franchise sales decreases of $433,000 (84.5%),
$148,000 (21.3%), $34,000 (9.6%) and $30,000 (29.5%), respectively. These
franchise sales decreases were partially offset by franchise sales by Mr.
Electric, which began operations in September 1994, of approximately $129,000.
Costs and expenses increased $735,000 (29.7%) in the second quarter of 1995
which is unfavorable when compared to the corresponding 7.0% decrease in
revenues. The major contributors to this increase are: increased convention
expenses relating to the Company's annual convention, which
16
<PAGE>
Results of Operations - (continued)
-----------------------------------
was held in June in 1995 compared to the 1994 convention which was held in
August 1994; $200,000 in estimated losses regarding the repurchase of two Rooter
and six Aire Serv franchise territories from existing franchisees; and
additional expenses associated with the reengineering of the administrative,
franchise sales and franchise management departments of the operating
subsidiaries, as well as the creation and build-up of several corporate
administrative functions.
Earning from operations before income taxes decreased approximately $995,000
(79.4%) for the quarter ending June 30, 1995 as compared to the same period in
1994. Net earnings decreased approximately $637,000 (76.1%) or $.10 per share
for the quarter ending June 30, 1995 as compared to the same period in 1994.
Impact of Inflation
-------------------
Inflation has not had a material impact on the operations of the Company.
Foreign Operations
------------------
The Company and its subsidiaries operate in eleven (11) countries. With the
exception of Canada, income from master licenses is recorded as received due to
the difficulty sometimes experienced in foreign countries when attempting to
remove income generated from royalties. The Company does not depend on foreign
operations to have a significant impact on its cash flow. Typically, foreign
franchises are sold and managed by a master licensee in that country. During the
remainder of 1995, the Company anticipates making several master license sales
which could result in one time, lump sums of funds flowing into the Company.
Other Disclosures
-----------------
Weighted average common and dilutive common equivalent shares outstanding have
continued to increase as outstanding stock options held by management and
employees are exercised or become dilutive. This trend could continue if the
Company's stock price rises.
Franchises held for resale at June 30, 1995 include funds expended and
liabilities assumed associated with the buy-back of certain operating franchise
territories from existing franchisees. Such franchise territories are being
marketed to potential new franchisees.
On June 9, 1995 the Company executed a Stock Purchase Agreement with Renaissance
Capital Growth & Income Fund III, Inc. ("Renaissance") for the sale to
Renaissance of 70,000 shares of the Company's treasury stock, with certain
registration rights, for an aggregate consideration of $245,000.
17
<PAGE>
PART 2
OTHER INFORMATION
The Dwyer Group, Inc. and Subsidiaries
--------------------------------------------------------------------------------
Legal Proceedings
--------------------------------------------------------------------------------
NONE
--------------------------------------------------------------------------------
Changes in Securities
--------------------------------------------------------------------------------
(a) NONE
(b) Not applicable.
--------------------------------------------------------------------------------
Defaults Upon Senior Securities
--------------------------------------------------------------------------------
NONE
--------------------------------------------------------------------------------
Submission of Matters to a vote of Security Holders
--------------------------------------------------------------------------------
NONE
--------------------------------------------------------------------------------
Other Information
--------------------------------------------------------------------------------
NONE
--------------------------------------------------------------------------------
Exhibits and Reports on Form 8-K
--------------------------------------------------------------------------------
(a) NONE
(b) NONE
18
<PAGE>
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, in the City of Waco and
the State of Texas on this eighteenth day of August, 1995.
The Dwyer Group, Inc.
By: /s/ Robert Tummire
------------------
Robert Tunmire
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 and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------------------- ---------------------- ----------------------
<S> <C> <C>
/s/ Robert Tunmire President,
------------------- Chief Executive Officer August 18, 1995
Robert Tunmire
/s/ Steve Beatty Treasurer, Principal August 18, 1995
------------------- Financial and Accounting
Steve Beatty Officer
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 3,719,029
<SECURITIES> 0
<RECEIVABLES> 12,066,833
<ALLOWANCES> 675,853
<INVENTORY> 177,021
<CURRENT-ASSETS> 7,632,012
<PP&E> 1,738,848
<DEPRECIATION> 537,736
<TOTAL-ASSETS> 19,720,444
<CURRENT-LIABILITIES> 1,994,882
<BONDS> 289,875
<COMMON> 723,556
0
0
<OTHER-SE> 12,753,077
<TOTAL-LIABILITY-AND-EQUITY> 19,720,444
<SALES> 2,836,171
<TOTAL-REVENUES> 7,073,255
<CGS> 128,903
<TOTAL-COSTS> 6,176,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 83,543
<INTEREST-EXPENSE> 98,511
<INCOME-PRETAX> 897,119
<INCOME-TAX> 269,136
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 627,983
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
