<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, 1997.
--------------
- -- 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
1010 N. University Parks Dr., Waco, TX 76707
---------------------------------------------
(Address and zip code of principal executive offices)
(817) 745-2400
---------------
(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.
Class Outstanding at April 30, 1997
- ------------------------------ -----------------------------
Common stock, $.10 par value 7,113,127
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
<PAGE>
THE DWYER GROUP, INC.
Index
Part I - Financial Information Page No.
Item 1. Financial Statements
-------
Consolidated Balance Sheets as of
March 31, 1997 (unaudited)
and December 31, 1996.............................. 3 - 4
Consolidated Statements of Income for the
Three Months Ended March 31, 1997 and 1996
(unaudited)........................................ 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1997
and 1996 (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
-------
2
<PAGE>
The Dwyer Group, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
(Unaudited) March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,778,735 $ 1,820,167
Short-term investments, held to maturity 1,084,061 1,084,061
Marketable securities, available for sale 737,717 709,246
Trade accounts receivable, net of allowance for
doubtful accounts of $456,030 and $429,647,
respectively 762,307 616,959
Accounts receivable from related parties 292,720 317,053
Accrued interest receivable 227,347 183,272
Trade notes receivable, current portion 820,509 686,117
Inventories 191,119 143,794
Prepaid expenses 412,853 260,947
Federal income tax receivable 750,729 935,443
Notes receivable from related parties, current
portion 143,642 130,453
----------- -----------
TOTAL CURRENT ASSETS 7,201,739 6,887,512
ACCOUNTS RECEIVABLE FROM
RELATED PARTIES, long term portion 97,290 97,290
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation 1,222,073 1,259,863
ASSETS HELD FOR SALE 452,428 452,428
TRADE NOTES RECEIVABLE, long-term portion,
net of allowance for doubtful notes of $1,635,031
and $1,633,092, respectively 4,664,864 4,521,896
PURCHASED FRANCHISE RIGHTS, at cost less
accumulated amortization of $451,255 and $419,124,
respectively 1,145,798 1,177,929
PATENTS, TRADEMARKS AND OTHER, at cost less
accumulated amortization of $101,907 and $96,077,
respectively 174,318 173,346
NOTES RECEIVABLE FROM RELATED PARTIES,
long term portion 1,267,732 1,316,572
INVESTMENT, equity method 381,696 389,241
NET DEFERRED TAX ASSET 331,384 342,046
OTHER ASSETS 515,369 613,955
----------- -----------
TOTAL ASSETS $17,454,691 $17,232,078
=========== ===========
</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,
1997 1996
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES:
Trade accounts payable $ 1,244,442 $ 1,007,146
Accounts payable to related parties 78,111 61,490
Accrued liabilities 1,046,033 1,149,890
Other payables 27,851 22,527
Current portion of notes payable and capital
lease obligations 272,152 280,689
----------- -----------
TOTAL CURRENT LIABILITIES 2,668,589 2,521,742
NOTES PAYABLE & CAPITAL LEASE OBLIGATIONS
less current portion 563,458 612,381
DEFERRED FRANCHISE SALES REVENUE 2,252,132 2,250,299
FRANCHISE FUNDS HELD FOR ADVERTISING 460,266 459,586
----------- -----------
TOTAL LIABILITIES $ 5,944,445 $ 5,844,008
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, 1997 and December 31, 1996,
respectively 723,556 723,556
Additional paid-in capital 8,941,029 8,941,029
Retained earnings 1,901,336 1,796,836
Unrealized gain on available for sale securities 40,446 22,770
Treasury stock, at cost (122,425 shares at
March 31, 1997 and December 31, 1996,
respectively) (96,121) (96,121)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 11,510,246 11,388,070
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,454,691 $17,232,078
=========== ===========
</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
1997 Restated
---------- ----------
<S> <C> <C>
REVENUES:
Royalty income $1,843,675 $1,734,385
Franchise sales 910,205 1,097,848
Tax services 352,280 333,586
Product sales 165,231 250,987
Interest 176,050 124,395
Other 217,490 237,660
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3,664,931 3,778,861
COSTS AND EXPENSES:
Cost of product sales 110,705 129,313
Cost of tax services 316,743 279,753
General, administrative, selling 2,937,198 2,774,623
Depreciation and amortization 131,340 123,233
Interest 10,613 17,707
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3,506,599 3,324,629
Income before provision for federal
income taxes 158,332 454,232
Provision for federal income taxes 53,834 159,391
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Net income $ 104,498 $ 294,841
========== ==========
Income per common and dilutive share:
Income before federal income taxes .02 .06
Provision for federal income taxes ( .01) (.02)
---------- ----------
Net income per share $.01 $ .04
========== ==========
Weighted average common and dilutive common
equivalent shares outstanding:
Primary 7,231,361 7,334,381
========== ==========
Fully Dilutive 7,280,028 7,334,381
========== ==========
</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,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ 104,498 $ 294,842
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 131,339 123,233
Provision for doubtful accounts and notes
receivable 33,263 18,647
Notes receivable issued for franchise sales (469,290) (615,874)
Equity in earnings of investment 7,545 10,495
Loss on disposal of assets held for sale 0 5,001
Write off of deferred revenue 0 (10,737)
Unrealized gains on available for sale securities 40,446 0
Deferred tax asset 10,662 58,147
Change in assets and liabilities:
Accounts receivable (181,828) (252,897)
Accrued interest receivable (44,075) (29,337)
Inventories (47,325) (31,279)
Prepaid expenses (151,906) (60,967)
Federal income tax receivable 184,714 96,127
Other assets 98,586 115,208
Accounts payable and accrued liabilities 133,440 (87,326)
Accounts payable/receivable related parties 40,955 34,423
Other payables 5,324 5,013
Franchisee funds held for advertising 680 76,333
Deferred franchise sales revenue 1,020 (197,151)
--------- ---------
Net cash provided by (used in) operating activities (101,952) (448,099)
Cash Flows from Investing Activities:
Proceeds from sale of notes receivable 31,100 0
Payments received on notes receivable 166,425 532,104
Purchases of property and equipment (57,364) (69,906)
Payments for patents, trademarks & franchise rights (5,025) (12,084)
Net change in notes and accounts receivable
from related parties (24,333) (197,049)
Appreciation of marketable securities, available for
sale (28,471) 0
Acquisition of other assets (6,514)
Payments on notes receivable from related parties 35,651 0
------- --------
Net cash used in investing activities 117,983 246,551
</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
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
Cash Flows from Financing Activities:
Proceeds from debt issued 0 274,009
Principal payments of debt (57,461) (187,897)
---------- ----------
Net cash provided by (used in) financing
activities (57,461) 86,112
---------- ----------
Net decrease in cash and cash equivalent (41,431) (115,436)
---------- ----------
Cash and cash equivalents, at beginning of year 1,820,167 3,446,166
---------- ----------
Cash and cash equivalents, end of year $1,778,736 $3,330,730
========== ==========
</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 Presentations
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, 1997 and for the three months ended March 31,
1997 and 1996 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-KSB for the fiscal year
ended December 31, 1996.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the fiscal year ending
December 31, 1997.
C. Reclassifications
-----------------
Certain reclassifications have been made to the 1996 consolidated financial
statements to conform to the presentation used in the 1997 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.
Statement of Financial Accounting Standards No. 128 "Earnings per Share" is
required to be implemented for financial statements for interim and annual
periods ending after December 15, 1997. The Financial Accounting Standards
Board does not permit early application. Accordingly, the Company will
implement this pronouncement for the fiscal year ending December 31, 1997.
The pro forma earnings per share amounts computed under Statement of Financial
Accounting Standards No. 128 for the three months ended March 31, 1997 and March
31, 1996, respectively, are as follows:
Three Months Ended
March 31, 1997 March 31, 1996
-------------- --------------
Basic earnings per share .01 .04
=== ===
Diluted earnings per share .01 .04
=== ===
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 2.7 to 1 at March 31, 1997
and December 31, 1996, respectively. In addition, the Company had working
capital of approximately $4,533,000 at March 31, 1997 as compared to
approximately $4,366,000 at December 31, 1996. For the remainder of fiscal 1997
management expects to fund working capital requirements primarily through
operating cash flow. At March 31, 1997 and December 31, 1996, the Company had
cash and cash equivalents of $1,779,000 and $1,820,000, respectively.
Net trade accounts receivable increased approximately $145,000 from December 31,
1996 to March 31, 1997. This increase can be attributed primarily to the
operations of General Business Services ("GBS") which has significant billings
during the tax season.
Trade notes receivable increased approximately $277,000 (5.3%) coinciding with
approximately $469,000 in notes receivable issued for franchise sales for the
first quarter of 1997 which were partially offset by payments received on notes
receivable of $166,000 and from the sale of notes receivable of $31,000,
respectively. The Company will finance a portion of franchise sales if the
buyer is qualified.
Federal income tax receivable decreased $185,000 due to the receipt of
approximately $131,000 in federal income tax refunds from the Internal Revenue
Service and the first quarter 1997 federal income tax provision of approximately
$54,000.
Prepaid expenses increased approximately $152,000 from December 31, 1996 to
March 31, 1997, primarily due to annually amortizable expenditures for
insurance, International Franchise Association dues and NASDAQ fees in addition
to prepaid professional fees relating to the selection and installation of new
accounting software.
Results of Operations
- ---------------------
Revenues decreased approximately $114,000 (3.0%) for the three months ended
March 31, 1997 when compared to the first quarter of 1996. The decrease in
revenues is mainly attributable to decreases in franchise sales of $188,000
(17.1%) and product sales of $86,000 (34.2%). These revenue decreases were
partially offset by increased royalty income of approximately $109,000 (6.3%)
for the three months ended March 31, 1997 when compared to the first quarter of
1996.
Mr. Rooter, GBS and Mr. Electric contributed the most significant growth in
royalty income of $72,000 (10.5%), $47,000 (19.6%) and $25,000 (164.7%),
respectively, for the three months ended March 31, 1997 when compared to 1996.
These royalty income increases were partially offset by a decrease in Aire Serv
royalty income of approximately $43,000 (55.8%).
For the quarter ended March 31, 1997, GBS, Rainbow, Aire Serv and Mr. Electric
franchise sales decreased $238,000 (47.8%), $31,000 (20.3%), $20,000 (26.8%),
and $18,000 (12.1%), respectively, when compared to 1996. These franchise sales
decreases were partially offset by increases in Mr. Rooter franchise sales of
approximately $67,000 (30.2%) and Mr. Appliance franchise sales of $53,000. Mr.
Appliance began franchising in September 1996.
E.K.Williams and GBS produced approximately $165,000 in product sales for the
three months ended March 31, 1997 compared to $251,000 for the first quarter of
1996, an $86,000 (34.2%) decrease. EKW and GBS sell products such as manual
record keeping systems and forms to its franchisees and outside customers.
Interest income increased approximately $52,000 primarily due to increased
interest income from related parties' notes receivable.
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 $163,000 (5.9%) in the
first quarter of 1997 compared to the first quarter of 1996. This increase is
primarily due to unanticipated increased 1996 audit costs of approximately
$100,000 and $88,000 of Mr. Appliance total G&A expenses since Mr. Appliance did
not begin franchising until September 1996.
As a result of the decreased revenues and increased costs, net income declined
$190,000 (64.6%) in the March 31, 1997 quarter as compared to the March 31, 1996
quarter. Net income per share decreased to $.01 per share for the quarter ended
March 31, 1997 compared to $.04 per share for the first quarter of 1996.
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 16 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 1997, 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.
This portion has been left intentionally blank.
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 Form 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 14, 1997 /s/ Robert Tunmire
------------ ------------------------------------
Robert Tunmire, President and
Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1997 /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,
1997 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,862,796
<SECURITIES> 737,717
<RECEIVABLES> 11,118,201
<ALLOWANCES> 2,091,061
<INVENTORY> 191,119
<CURRENT-ASSETS> 7,201,739
<PP&E> 2,110,361
<DEPRECIATION> 888,288
<TOTAL-ASSETS> 17,454,691
<CURRENT-LIABILITIES> 2,668,589
<BONDS> 835,610
0
0
<COMMON> 723,556
<OTHER-SE> 10,786,690
<TOTAL-LIABILITY-AND-EQUITY> 17,454,691
<SALES> 1,075,436
<TOTAL-REVENUES> 3,664,931
<CGS> 110,705
<TOTAL-COSTS> 3,506,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 33,264
<INTEREST-EXPENSE> 10,613
<INCOME-PRETAX> 158,332
<INCOME-TAX> 53,834
<INCOME-CONTINUING> 104,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,498
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
