<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
---------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---
ACT OF 1934 FOR THE TRANSITION PERIOD FROM
----------------
COMMISSION FILE NUMBER..................................0-15227
THE DWYER GROUP, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Delaware 73-0941783
- -------- ----------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1010 N. University Parks Dr., Waco, TX 76707
---------------------------------------------
(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
(817) 745-2400
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at April 30, 1996
- ------------------------------ -----------------------------
Common stock, $.10 par value 7,113,127
</TABLE>
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes No X
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<PAGE>
THE DWYER GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
------
Consolidated Balance Sheets as of March 31, 1996 (unaudited)
and December 31, 1995........................................ 3-4
Consolidated Statements of Income for the Three Months
Ended March 31, 1996 and 1995 (unaudited).................... 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1995 (unaudited).................... 6 - 7
Notes to Consolidated Financial Statements................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 9 - 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ 11
Item 2. Changes in Securities........................................ 11
Item 3. Defaults Upon Senior Securities.............................. 11
Item 4. Submission of Matters to a Vote of Security Holders.......... 11
Item 5. Other Information............................................ 11
Item 6. Exhibits and Reports on Form 8-K............................. 11
</TABLE>
2
<PAGE>
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,330,730 $ 3,446,166
Short-term investments 1,000,000 1,000,000
Trade accounts receivable, net of allowance for
doubtful accounts of $543,338 and $491,613,
respectively 934,124 696,389
Accounts receivable from related parties 1,026,069 825,029
Accrued interest receivable 180,085 150,748
Trade notes receivable, current portion 507,950 826,418
Inventories 168,007 136,728
Prepaid expenses 209,821 148,854
Federal income tax receivable 264,000 646,641
----------- -----------
TOTAL CURRENT ASSETS 7,620,786 7,876,973
ACCOUNTS RECEIVABLE FROM
RELATED PARTIES, long term portion 97,916 97,916
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation 1,467,447 1,472,863
ASSETS HELD FOR SALE 1,032,386 1,187,101
TRADE NOTES RECEIVABLE, long-term portion,
net of allowance for doubtful notes of $859,334 and
$855,849, respectively 5,104,410 4,478,071
PURCHASED FRANCHISE RIGHTS, at cost less
accumulated amortization of $369,198 and $331,466,
respectively 1,299,786 1,337,518
PATENTS AND TRADEMARKS, at cost less
accumulated amortization of $27,177 and $24,150, 117,155 108,098
respectively
NOTES RECEIVABLE FROM RELATED PARTIES 649,412 653,403
INVESTMENT, equity method 418,379 428,423
OTHER ASSETS 302,664 199,778
----------- -----------
TOTAL ASSETS $18,110,341 $17,840,144
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Trade accounts payable $ 834,982 $ 883,307
Accounts payable to related parties 256,650 222,227
Accrued liabilities 1,168,390 1,262,747
Other payables 72,772 67,759
Current portion of notes payable and capital
lease obligations 226,141 228,170
----------- -----------
TOTAL CURRENT LIABILITIES 2,558,935 2,664,210
NOTES PAYABLE, less current portion 388,937 246,458
DEFERRED FRANCHISE SALES REVENUE 2,491,819 2,652,057
FRANCHISE FUNDS HELD FOR ADVERTISING 394,780 318,447
DEFERRED TAX LIABILITY 58,147 58,147
----------- -----------
TOTAL LIABILITIES 5,892,618 5,939,319
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value - shares authorized, - -
500,000; outstanding, none
Common stock, authorized 15,000,000 shares of
$.10 par value; issued 7,235,552 shares at
March 31, 1996 and December 31, 1995, respectively 723,556 723,556
Additional paid-in capital 8,941,029 8,941,029
Retained earnings 3,068,155 2,751,257
Note receivable from shareholder (418,896) (418,896)
Treasury stock, at cost (122,425 shares at March 31, 1996
and December 31, 1995, respectively) (96,121) (96,121)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,217,723 11,900,825
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,110,341 $17,840,144
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
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<S> <C> <C>
REVENUES:
Royalty income $1,719,559 $1,436,108
Franchise sales 1,087,848 1,350,868
Tax services 333,586 325,574
Product sales 250,987 181,950
Interest and other, net 362,056 309,367
---------- ----------
3,754,036 3,603,867
COSTS AND EXPENSES:
Cost of product sales 129,313 69,768
Cost of tax services 279,753 368,449
General, administrative, selling 2,717,468 2,404,196
Depreciation and amortization 122,144 96,438
Interest 17,707 26,334
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3,266,385 2,965,185
Income before provision for federal
income taxes 487,651 638,682
Provision for federal income taxes 170,753 210,903
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Net income $ 316,898 $ 427,779
========== ==========
Income per common and dilutive share:
Income before federal income taxes $ .06 .09
Provision for federal income taxes (.02) (.03)
---------- ----------
Net income per share $ .04 $ .06
========== ==========
Weighted average common and dilutive common
equivalent shares outstanding 7,456,806 7,468,119
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 316,898 $ 427,779
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 122,144 88,082
Provision for doubtful accounts and notes
receivable 18,647 (163,531)
Notes receivable written off - 159,494
Income recognized from sales previously deferred (340,486) (343,659)
Sales of franchises for installment notes receivable (693,746) (736,695)
Payments received on notes receivable 529,017 595,144
Sales of franchises on which revenues were deferred 183,335 322,561
Equity in earnings of investment 10,495 1,740
Other 5,001 19,041
Change in assets and liabilities:
Accounts receivable (252,897) (48,344)
Accrued interest receivable (29,337) (20,051)
Inventories (31,279) (19,131)
Prepaid expenses (60,967) (195,360)
Federal income tax receivable 382,641 -
Other assets (102,886) -
Deferred tax asset and liability - 63,476
Accounts payable and accrued liabilities (142,682) (305,948)
Accounts payable to related parties 34,423 -
Income tax payable - (162,848)
Other payables 5,013 (2,483)
Franchisee funds held for advertising 76,333 10,702
---------- ----------
Net cash provided by (used in) operating activities 29,667 (310,031)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (69,906) (200,053)
Payments for patents and trademarks (12,084) 4,877
Net change in notes and accounts receivable
from related parties (197,049) (218,167)
Acquisition of equity investment (6,514) -
Acquisition of assets held for sale - 70,333
Payments on notes receivable other - 3,680
---------- ----------
Net cash used in investing activities (285,553) (339,330)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
6
<PAGE>
THE DWYER GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issued 274,009 -
Principal payments of debt (133,559) (47,572)
Purchase of treasury stock - (171,906)
---------- ----------
Net cash provided by (used in) financing activities 140,450 (219,478)
---------- ----------
Net decrease in cash and cash equivalents (115,436) (868,839)
---------- ----------
Cash and cash equivalents, at beginning of year 3,446,166 4,819,795
---------- ----------
Cash and cash equivalents, at March 31 $3,330,730 $3,950,956
========== ==========
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING ACTIVITIES:
Transfer from notes receivable to assets held
for sale $ 77,138 -
Additions to notes receivable from sales of
assets held for sale $ 226,852 -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
7
<PAGE>
THE DWYER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
A. PRINCIPLES OF CONSOLIDATION
---------------------------
The accompanying consolidated financial statements include The Dwyer
Group, Inc. and its subsidiaries (the "Company"). All significant
intercompany balances and transactions have been eliminated.
B. INTERIM DISCLOSURES
-------------------
The information as of March 31, 1996 and for the three months ended March
31, 1996 and 1995 is unaudited, but in the opinion of management,
reflects all adjustments, which are of a normal recurring nature,
necessary for a fair presentation of financial position and results of
operations for the interim periods. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
The results of operations for the three months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the fiscal
year ending December 31, 1996.
C. RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to the 1995 consolidated
financial statements to conform to the presentation used in the 1996
consolidated financial statements. These reclassifications had no effect
on stockholders' equity or net income.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. EARNINGS PER COMMON SHARE
-------------------------
Earnings per share of common stock is computed by dividing net income by
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.
NOTE 3. RECENT ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
Of" is required to be implemented for fiscal years beginning after
December 15, 1995. Accordingly, the Company is implementing this
pronouncement during the fiscal year ending December 31, 1996. The
effect of this pronouncement on the Company's consolidated financial
condition and results of operations is not considered to be material.
8
<PAGE>
THE DWYER GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's working capital ratio was approximately 3.0 to 1 at March
31, 1996, and December 31, 1995, respectively. In addition, the Company
had working capital of approximately $5,062,000 at March 31, 1996 as
compared to approximately $5,213,000 at December 31, 1995. For the
remainder of fiscal 1996 management expects to fund working capital
requirements primarily through operating cash flow. At March 31, 1996 and
December 31, 1995, the Company had cash and cash equivalents of
$3,331,000 and $3,446,000, respectively.
Net trade accounts receivable increased approximately $238,000 from
December 31, 1995 to March 31, 1996. $173,000 of the increase can be
attributed to the operations of General Business Services ("GBS") which
has significant billings during the tax season.
Trade notes receivable increased approximately $308,000 (5.8%) coinciding
with approximately $1,100,000 in franchise sales for the first quarter of
1996. The Company will finance a portion of franchise sales if the buyer
is qualified.
Federal income tax receivable decreased $383,000 due to the receipt of
approximately $212,000 in federal income tax refunds from the Internal
Revenue Service and the first quarter 1996 federal income tax provision
of approximately $171,000.
Accounts receivable from related parties increased $201,000, whereas
accounts payable to related parties increased $34,000. This net $167,000
related party receivable increase relates to shared expenses and
administrative fees billed to related parties by the Company during the
first quarter of 1996.
RESULTS OF OPERATIONS
---------------------
Revenues increased approximately $150,000 (4.2%) for the three months
ended March 31, 1996 when compared to the first quarter of 1995. The
increase in revenues is mainly attributable to increases in: royalty
income of $283,000 (19.7%); product sales of $69,000 (37.9%); and
interest and other income of $53,000 (17.0%). These revenue increases
were partially offset by decreased franchise sales of approximately
$263,000 (19.5%) for the three months ended March 31, 1996 when compared
to the first quarter of 1995.
Mr. Rooter contributed the most significant growth with approximately
$220,000 (49.0%) in increased royalty revenue for the three months ended
March 31, 1996 when compared to 1995. Aire Serv and Mr. Electric produced
royalty income increases of $37,000 (91.4%) and $14,000 (2,014.0%),
respectively.
For the quarter ended March 31, 1996, Mr. Electric, Rainbow and Aire
Serv produced franchise sales increases of $73,000 (94.1%), $20,000
(15.3%), and $16,000 (18.4%), respectively, when compared to 1995. These
franchise sales increases were partially offset by decreases in GBS and
Mr. Rooter franchise sales of approximately $273,000 (35.4%) and $100,000
(35.3%), respectively.
E.K.Williams and GBS produced approximately $251,000 in product sales for
the three months ended March 31, 1996 when compared to $182,000 for the
first quarter of 1995, a $69,000 (58.8%) increase. EKW and GBS sell
products such as manual record keeping systems and forms to its
franchisees and outside customers.
Interest and other revenues increased approximately $53,000 primarily due
to increased corporate administrative fees charged to related parties.
9
<PAGE>
THE DWYER GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
---------------------------------
General, administrative and selling expenses increased $313,000 (13.0%)
in the first quarter of 1996 compared to the first quarter of 1995. This
increase is primarily due to: $210,000 of additional employee costs in
the first quarter of 1996 as a result of the 1995 restructuring of the
administrative, franchise sales and franchise management departments of
the operating subsidiaries and the 1995 creation of several new corporate
departments; $69,000 of additional and notes receivable bad debt reserve,
and $36,000 of increased convention expenses regarding the Company's
annual convention to occur in Las Vegas in August 1996.
Cost of tax services decreased $89,000 (24.1%) for the first quarter of
1996 compared to the same 1995 period. This is a positive result when
compared to the corresponding $8,000 (2.5%) increase in tax service
revenues for the same periods and reflects the Company's cost cutting
program initiated during the fourth quarter of 1995.
The excess of the expense increase over the revenue increase in the March
31, 1996 quarter as compared to the March 31, 1995 quarter resulted in a
$111,000 (25.9%) decline in net income. Net income per share decreased
to $.04 per share for the quarter ended March 31, 1996 compared to $.06
per share for the first quarter of 1995.
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 fourteen (14) countries.
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 1996, the Company may produce additional
master license sales which could result in each case in a one time, lump
sum payment from the master licensee to 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 when the Company's stock price rises.
10
<PAGE>
PART II
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) Reports on From 8-K
NONE
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The Dwyer Group, Inc.
By:\s\Robert Tunmire
-----------------
Robert Tunmire
President and Chief
Executive Officer
Date: May 13, 1996 \s\ Robert Tunmire
------------ --------------------------------
Robert Tunmire, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1996 \s\ Stephen E. Beatty
------------ --------------------------------
Stephen E. Beatty, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,330,730
<SECURITIES> 0
<RECEIVABLES> 10,166,638
<ALLOWANCES> 1,402,672
<INVENTORY> 168,007
<CURRENT-ASSETS> 7,620,786
<PP&E> 2,229,554
<DEPRECIATION> 762,106
<TOTAL-ASSETS> 18,110,341
<CURRENT-LIABILITIES> 2,558,935
<BONDS> 615,078
0
0
<COMMON> 723,556
<OTHER-SE> 11,494,167
<TOTAL-LIABILITY-AND-EQUITY> 18,110,341
<SALES> 1,338,835
<TOTAL-REVENUES> 3,754,036
<CGS> 129,313
<TOTAL-COSTS> 3,266,385
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 70,851
<INTEREST-EXPENSE> 17,707
<INCOME-PRETAX> 487,651
<INCOME-TAX> 170,753
<INCOME-CONTINUING> 316,898
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316,898
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
