<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- -
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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
---------------
(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 October 31, 1996
- ------------------------------ -------------------------------
Common stock, $.10 par value 7,113,127
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes No X
___ ___
<PAGE>
THE DWYER GROUP, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
------
<S> <C>
Consolidated Balance Sheets as of September 30, 1996 (unaudited)
and December 31, 1995........................................................3 - 4
Consolidated Statements of Income for the Three Months and
Nine Months Ended September 30, 1996 and 1995 (unaudited)........................5
Consolidated Statements of Cash Flows for the Nine Months
September 30, 1996 and 1995 (unaudited)......................................6 - 7
Notes to Consolidated Financial Statements...................................8 - 9
Item 2. Management's Discussion and Analysis of Financial
------ Condition and Results of Operations........................................10 - 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................................13
------
Item 2. Changes in Securities...........................................................13
------
Item 3. Defaults Upon Senior Securities.................................................13
------
Item 4. Submission of Matters to a Vote of Security Holders.............................13
------
Item 5. Other Information...............................................................13
------
Item 6. Exhibits and Reports on Form 8-K................................................13
------
</TABLE>
2
<PAGE>
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
SEPTEMBER 30, 1995
1996 RESTATED NOTE 4
------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,337,662 $ 3,446,166
Short-term investments 1,084,061 1,000,000
Marketable securities 686,182 ---
Trade accounts receivable, net of allowance for
doubtful accounts of $443,462 and $491,613, respectively 709,487 696,389
Accounts receivable from related parties 200,119 825,029
Accrued interest receivable 161,388 150,748
Trade notes receivable, current portion 813,035 826,418
Inventories 160,440 136,728
Prepaid expenses 774,814 148,854
Federal income tax receivable 157,863 646,641
Notes receivable from related parties, current portion 445,285 ---
----------- -----------
TOTAL CURRENT ASSETS 6,530,336 7,876,973
ACCOUNTS RECEIVABLE FROM
RELATED PARTIES, long term portion 895,891 97,916
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation 1,236,520 1,472,863
ASSETS HELD FOR SALE 340,249 398,651
TRADE NOTES RECEIVABLE, long-term portion,
net of allowance for doubtful notes of $894,730 and
$855,849, respectively 4,835,039 4,478,071
PURCHASED FRANCHISE RIGHTS, at cost less
accumulated amortization of $444,662 and $331,466, respectively 1,225,604 1,306,456
PATENTS AND TRADEMARKS, at cost less
accumulated amortization of $31,585 and $24,150,
respectively 149,815 139,160
NOTES RECEIVABLE FROM RELATED PARTIES,
long term portion 371,687 653,403
INVESTMENT, equity method 389,793 428,423
NET DEFERRED TAX ASSET 722,853 217,005
OTHER ASSETS 282,100 199,778
----------- -----------
TOTAL ASSETS $16,979,887 $17,268,699
=========== ===========
</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) DECEMBER 31,
SEPTEMBER 30, 1995
1996 RESTATED NOTE 4
-------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES:
Trade accounts payable $ 998,702 $ 883,307
Accounts payable to related parties 49,798 222,227
Accrued liabilities 831,466 1,208,409
Other payables 69,544 67,759
Current portion of notes payable and capital
lease obligations 117,027 252,289
----------- -----------
TOTAL CURRENT LIABILITIES 2,066,537 2,633,991
NOTES PAYABLE, less current portion 441,028 276,677
DEFERRED FRANCHISE SALES REVENUE 2,398,607 2,652,057
FRANCHISE FUNDS HELD FOR ADVERTISING 206,386 318,447
----------- -----------
TOTAL LIABILITIES 5,112,558 5,881,172
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
September 30, 1996 and December 31, 1995, respectively 723,556 723,556
Additional paid-in capital 8,941,029 8,941,029
Retained earnings 2,684,029 2,237,959
Note receivable from shareholder (418,896) (418,896)
Unrealized gain in value of marketable securities 33,732 ---
Treasury stock, at cost (122,425 shares at September 30, 1996
and December 31, 1995, respectively) (96,121) (96,121)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 11,867,329 11,387,527
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,979,887 $17,268,699
=========== ===========
</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>
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
1996 1995 1996 1995
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Royalty income $ 5,338,842 $ 4,831,476 $1,778,561 1,725,462
Franchise sales 3,004,973 3,838,783 824,256 1,343,419
Tax services 649,461 607,462 121,273 105,232
Product sales 604,817 515,733 156,816 174,926
Interest and other, net 1,171,172 839,187 551,910 210,347
----------- ----------- ---------- ---------
10,769,265 10,632,641 3,432,816 3,559,386
COSTS AND EXPENSES:
Cost of product sales 324,925 178,578 77,093 49,675
Cost of tax services 704,833 987,872 183,151 274,223
General, administrative, selling 8,604,015 8,073,991 3,123,902 2,957,817
Depreciation and amortization 385,117 283,529 130,750 93,405
Interest 53,978 38,076 42,252 10,790
----------- ----------- ---------- ----------
10,072,868 9,562,046 3,557,148 3,385,910
Income (Loss) before provision for federal income taxes 696,397 1,070,595 (124,332) 173,476
Provision (benefit) for federal income taxes 250,327 299,765 (33,672) 30,629
----------- ----------- ---------- ----------
Net income (Loss) $ 446,070 $ 770,830 $ (90,660) $ 142,847
=========== =========== ========== ==========
Income (Loss) per common and dilutive share:
Income (Loss) before federal income taxes $ .09 $ .14 $(.02) $ .02
Provision (benefit) for federal income taxes .03 .04 (.01) -
----- ----- ----- -----
Net income (Loss) per share $ .06 $ .10 $(.01) $ .02
===== ===== ===== =====
Weighted average common and dilutive common
equivalent shares outstanding:
Primary 7,333,765 7,487,643 7,331,964 7,485,390
========= ========= ========= =========
Fully Dilutive 7,347,910 7,492,960 7,331,964 7,485,390
========= ========= ========= =========
</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>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $446,070 $770,830
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 384,028 283,529
Provision for doubtful accounts and notes
receivable 158,135 (130,423)
Notes receivable written off 254,697 367,488
Income recognized from sales previously deferred (453,420) ---
Sales of franchises for installment notes receivable (1,287,184) (2,078,723)
Payments received on notes receivable 689,603 873,152
Sales of notes receivable --- 134,376
Cash received on deferred sales 238,098 27,539
Equity in earnings of investment 38,630 48,137
Gain on sale of property (52,729) ---
Loss on disposal of assets held for sale 5,751 ---
Change in assets and liabilities:
Accounts receivable 20,382 105,561
Accrued interest receivable (10,640) ---
Inventories (23,712) (10,071)
Prepaid expenses (625,960) (127,888)
Notes receivable other --- 7,295
Other assets (82,322) (100,849)
Deferred tax asset and liability 140,797 61,618
Accounts payable and accrued liabilities (315,886) (57,278)
Accounts payable to related parties (172,429) ---
Income tax payable (157,863) (370,271)
Other payables (74,326) (4,902)
Franchisee funds held for advertising (112,061) (8,693)
----------- -----------
Net cash (used in) operating activities (992,341) (209,573)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (275,517) (341,353)
Payments for patents and trademarks (49,153) (24,161)
Proceeds from sales of property & equipment 318,035 3,790
Net change in notes and accounts receivable
from related parties (336,634) (1,325,568)
Net (acquisition) of assets held for sale (37,983) (444,251)
Purchase franchise rights --- 19,651
Purchase of marketable securities
and short term investments (770,243) ---
----------- -----------
Net cash (used in) investing activities (1,151,495) (2,111,892)
</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>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt issued 379,209 ---
Additional paid in capital --- 950,000
Proceeds from redemption of stock options --- 1,640
Principal payments of debt (343,877) (93,638)
Purchase of treasury stock --- (189,410)
Sale of treasury stock --- 245,861
---------- -----------
Net cash provided by (used in) financing
activities 35,332 914,453
Net decrease in cash and cash equivalents (2,108,504) (1,407,012)
Cash and cash equivalents, at beginning of year 3,446,166 4,819,795
---------- -----------
Cash and cash equivalents, at September 30 $1,337,662 $ 3,412,783
========== ===========
Supplemental schedule of non cash investing
activities:
Additions to notes receivable from sales of
assets held for sale $ 293,000
</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. 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 September 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.
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 Corp. ("Electric"), is a Texas corporation engaged in franchising
electrical contracting service businesses.
B. 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.
C. INTERIM DISCLOSURES
-------------------
The information as of September 30, 1996 and for the nine months ended
September 30, 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-KSB for the fiscal
year ended December 31, 1995.
8
<PAGE>
The results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the fiscal year ending
December 31, 1996.
D. 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.
B. MARKETABLE SECURITIES
---------------------
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" requires that equity securities
management has designated as available for sale be carried at fair value.
Changes in the fair value of marketable securities are presented in the
stockholders' equity section of the balance sheet under the caption "Unrealized
gain in value of marketable securities".
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.
NOTE 4. PRIOR PERIOD ADJUSTMENT AND RESTATEMENT OF PREVIOUSLY ISSUED
FINANCIAL RESULTS
In connection with the December 31, 1996 year end accounting closing and
subsequent analyses performed, it was determined that an error had been made
relating to the carrying value of certain nonoperating individual franchises
and regional franchises held for sale at December 31, 1995 and at September 30,
1996. Accordingly, the Company has restated its previously issued consolidated
financial statements for the year ended December 31, 1995 to correct the error.
The adjustments to these assets reduced previously reported total assets at
December 31, 1995 by $571,445, reduced assets held for resale by $788,450,
reduced liabilities by $58,147, reduced retained earnings by $513,298 and
increased the previously reported net loss for the year ended December 31, 1995
by $513,298. The net loss per share for the year ended December 31, 1995
increased by $.07 per share.
The Company has amended its previously issued September 30, 1996 10-QSB to
incorporate the restated consolidated balance sheet for the year ended December
31, 1995 and to correct the Company's previously issued consolidated financial
statements for the quarter and nine months ended September 30, 1996 for the
aforementioned error, (which also applied to the carrying values of certain
nonoperating franchises held for sale during fiscal 1996) and to report:
adjusted vacation and legal accruals; the discounted value of a 0% interest
note receivable; and the assumption of a residence in Waco, Texas and related
mortgage note payable.
The effect of the adjustments relating to the activities and results for the
quarter ended September 30, 1996 (subsequent to the restated balance sheet
adjustments at December 31, 1995, as stated in the first paragraph above)
increased previously reported assets by $60,365, increased liabilities by
$281,994 and reduced previously reported net income for the quarter ended
September 30, 1996 by $221,629. The net income per share for the quarter ended
September 30, 1996 decreased from $.02 per share to a net loss per share of
$.01.
In total, the effect of these adjustments for the nine months ended September
30, 1996 (subsequent to the restated balance sheet adjustments at December 31,
1995, as stated in the first paragraph above) reduced previously reported
assets by $168,636, increased liabilities by $143,362 and reduced previously
reported net income by $311,997. The net income per share for the nine months
ended September 30, 1996 decreased by $.04 per share.
9
<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 3.2 to 1 at September 30,
1996 as compared to 3.0 to 1 at December 31, 1995. In addition, the Company had
working capital of approximately $4,464,000 at September 30, 1996 as compared
to approximately $5,243,000 at December 31, 1995. For the remainder of fiscal
1996 management expects to fund working capital requirements primarily through
operating cash flow. At September 30, 1996 and December 31, 1995, the Company
had cash and cash equivalents of $1,338,000 and $3,446,000, respectively. The
decrease in cash and cash equivalents since December 31, 1995, is primarily
attributable to payments of approximately: $479,000 of 1996 estimated federal
income taxes to the I.R.S; $653,000 to purchase marketable securities; and
$623,000 of prepaid expenses.
Trade notes receivable increased approximately $344,000 (6.5%) coinciding with
approximately $3,100,000 in franchise sales for the first nine months of 1996.
The Company will finance a portion of franchise sales if the buyer is
qualified.
Federal income tax receivable decreased approximately $489,000 primarily due to
the receipt of approximately $212,000 in federal income tax refunds from the
Internal Revenue Service and due to the federal income tax provision for the
nine months ended September 30, 1996.
Accounts receivable from related parties increased $173,000, whereas accounts
payable to related parties decreased $172,000. Related party receivables
comprise shared expenses and administrative fees billed to related parties by
the Company during the first nine months of 1996.
The $723,000 net deferred asset is primarily a result of the recording of
deferred income tax liabilities in conjunction with an I.R.S. Code Section 481
adjustment related to an accounting method change for tax purposes and deferred
tax assets relating to net operating losses and tax credits.
RESULTS OF OPERATIONS
---------------------
For the nine months ended September 30, 1996, compared to the nine months ended
-------------------------------------------------------------------------------
September 30, 1995.
-------------------
Total revenues increased $137,000 (1.3%) to $10,769,000 for the nine months
ended September 30, 1996, from revenues of $10,633,000 for the nine months
ended September 30, 1995. The increase in revenues is mainly attributable to
increases in royalty income of $507,000 (10.5%), interest and other revenues of
$332,000 (39.6%), and product sales of $89,000 (17.3%). These increases were
partially offset by a decrease in franchise sales of $834,000 (21.7%) for the
nine months ended September 30, 1996, when compared to the first nine months of
1995.
Royalty income of Mr. Rooter accounted for $382,000 (25.9% increase) of the
total $507,000 increase in royalty income for the nine months ended September
30, 1996, as compared to the first nine months of 1995. Aire Serv, Mr.
Electric, and GBS/EKW continued to grow throughout the nine months ended
September 30, 1996, and contributed approximately $45,000 (29.5% increase),
$67,000 (796.6% increase), and $35,000 (2.5% increase), respectively, in
increased royalty income when compared to the same period in 1995.
For the nine months ended September 30, 1996, Mr. Rooter produced increased
franchise sales of $125,000 (20.0%) when compared to the same period in 1995.
This franchise sales increase was offset by franchise sales decreases in GBS of
$542,000 (29.2%), Aire Serv of $314,000 (62.3%), Mr. Electric of $163,000
(30.8%) and Rainbow of $61,000 (18.6%). The GBS decrease in franchise sales is
attributable to the strategic decision by the Company to minimize the sale of
GBS regional franchises during 1996. Whereas the decline in Aire Serv, Mr.
Electric and Rainbow franchise sales is primarily attributable to the
reassessment and
10
<PAGE>
THE DWYER GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
RESULTS OF OPERATIONS (CONTINUED)
---------------------------------
resulting realignment of the franchise sales process changing the emphasis in
the franchisee selection process to a more qualified franchise candidate, which
ultimately should result in a more successful franchise organization.
GBS and E.K. Williams added approximately $605,000 in product sales for the
nine months ended September 30, 1996, when compared to $516,000 in product
sales for the nine months ended September 30, 1995. GBS and EKW sell products
such as record keeping systems and forms to their franchisees.
The $332,000 (39.6%) increase in interest and other revenues is primarily
attributable to a $100,000 loss on the sale of an asset recorded for the nine
months ended September 30, 1995, compared to a $52,000 gain on the sale of an
asset recorded for the nine months ended September 30, 1996. In addition,
charges to related parties increased approximately $143,000 for the nine months
ended September 30, 1996, as compared to the nine months ended September 30,
1995.
Costs and expenses increased $511,000 (5.3%) to $10,073,000 for the nine months
ended September 30, 1996, from $9,562,000 for the first nine months of 1995.
The major contributors to these increased expenses is: the increased employee
costs as a result of the 1995 restructuring of the administrative, franchise
sales, and franchise management functions of the operating subsidiaries and the
1995 creation of several new corporate departments and increased accounts and
note receivable bad debt expense, partially offset by $114,000 lower commission
expenses due to decreased franchise sales.
Income before federal income taxes for the first nine months of 1996, decreased
to $696,000 from $1,071,000 for the first nine months of 1995, a 35.0%
decrease. For the nine months ended September 30, 1996, the Company achieved
net income of $446,000 or 6 cents per share as compared to $771,000 or 10
cents per share for the nine months ended September 30, 1995. The Company is
using an effective tax rate of 36% for 1996 compared to 28% for 1995.
For the three months ended September 30, 1996, compared to the three months
---------------------------------------------------------------------------
ended September 30, 1995.
-------------------------
Revenues decreased approximately $127,000 (3.6%) for the quarter ended
September 30, 1996, when compared to the third quarter of 1995. The decrease in
revenues is mainly attributable to a decrease in franchise sales of $519,000
(38.6%). This franchise sales decrease was partially offset by increased other
income of approximately $342,000 (162.4%) and increased royalty income of
approximately $53,000 (3.1%).
For the third quarter ended September 30, 1996, when compared to the third
quarter of 1995, Aire Serv, GBS, Rooter and Mr. Electric reported franchise
sales decreases of $19,200 (19.7%), $65,000 (12.1%), $238,000 (91.2%), and
$197,000 (60.8%), respectively. Whereas the decline in Aire Serv, Mr. Electric
and Rainbow franchise sales is primarily attributable to the reassessment and
resulting realignment of the franchise sales process changing the emphasis in
the franchisee selection process to a more qualified franchise candidate, which
ultimately should result in a more successful franchise organization.
Costs and expenses increased approximately $171,000 (15.1%) in the third
quarter of 1996 compared to the third quarter of 1995. This increase is
primarily due to increased bad debt expenses relating to franchises repurchased
and/or cancelled by the Company and the establishment of a vacation accrual in
conjunction with a change in the Company's employee vacation policy.
Income before provision for federal income taxes decreased approximately
$298,000 (171.7%) for the quarter ended September 30, 1996 to a loss of
$124,000 as compared to income before FIT of $173,000 for the same period in
1995. Net income decreased approximately $234,000 (163.5%) to a loss of $91,000
or 1 cent a share for the quarter ended September 30, 1996.
11
<PAGE>
THE DWYER GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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.
THIS PORTION IS INTENTIONALLY LEFT BLANK.
12
<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
The 1995 annual meeting of the stockholders of the Company was held on
June 27, 1996. The following directors were elected at the meeting:
Theresa Dwyer, Donald J. Dwyer, Jr., Dina Dwyer-Owens, John P. Hayes,
Donald E. Latin, James L. Sirbasku, and Robert Tunmire. The election of
directors by the stockholders is for a term of one year, or until the next
annual meeting of the stockholders. Of the 6,089,741 shares present at the
meeting, or through proxy, the following table summarizes the results of
the voting:
<TABLE>
<CAPTION>
Director Name Votes For Against Abstentions
------------- --------- ------- -----------
<S> <C> <C> <C>
Theresa Dwyer 6,062,091 250 27,400
Donald J. Dwyer, Jr. 6,062,091 250 27,400
John P. Hayes 6,062,091 250 27,400
James Sirbasku 6,062,091 250 27,400
Dina Dwyer-Owens 6,062,091 250 27,400
Robert Tunmire 6,062,091 250 27,400
Donald E. Latin 6,062,091 250 27,400
</TABLE>
OTHER INFORMATION
NONE
EXHIBITS AND REPORTS ON FORM 8-K
(a) NONE
(b) Reports on Form 8-K
NONE
13
<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: July 17, 1997 /s/ Robert Tunmire
------------------- ---------------------------------
Robert Tunmire, President and
Chief Executive Officer
(Principal Executive Officer)
Date: July 17, 1997 /s/ Stephen E. Beatty
------------------- ---------------------------------
Stephen E. Beatty, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1996 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,421,723
<SECURITIES> 686,182
<RECEIVABLES> 9,927,986
<ALLOWANCES> 1,338,192
<INVENTORY> 160,440
<CURRENT-ASSETS> 6,530,336
<PP&E> 2,128,463
<DEPRECIATION> 891,943
<TOTAL-ASSETS> 16,979,887
<CURRENT-LIABILITIES> 2,066,537
<BONDS> 558,055
0
0
<COMMON> 723,556
<OTHER-SE> 11,143,773
<TOTAL-LIABILITY-AND-EQUITY> 16,979,887
<SALES> 3,609,790
<TOTAL-REVENUES> 10,769,265
<CGS> 324,925
<TOTAL-COSTS> 10,072,868
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 385,077
<INTEREST-EXPENSE> 53,978
<INCOME-PRETAX> 696,397
<INCOME-TAX> 250,327
<INCOME-CONTINUING> 446,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 446,070
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
