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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, 1998.
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.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
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<S> <C>
Delaware 73-0941783
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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1010 N. University Parks Dr., Waco, TX 76707
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(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
(254) 745-2400
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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(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 No X
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 November 10, 1998
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Common Stock, $.10 Par Value 7,076,460
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes No X
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Three Months Ended Nine Months Ended
September 30, September 30,
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1998 1997 1998 1997
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Revenues $ 3,132,284 $ 4,305,117 $ 11,748,476 $ 12,318,100
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Net Income (Loss) $ (267,292) $ 105,296 $ (250,541) $ 339,935
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Basic Earnings (Loss) Per Share $ (.04) $ .01 $ (.03) $ .05
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Diluted Earnings (Loss) Per Share $ (.04) $ .01 $ (.03) $ .05
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On July 24, 1998, the Company issued 333,333 shares of its common stock in
connection with the purchase of the assets of Glass Doctor Corporation and
Glassmarks, Inc.
On September 28, 1998, the Company announced an authorization for the repurchase
of up to 100,000 of the Company's common stock in the open market or in private
transactions. As of November 13, 1998, the Company had repurchased 32,300 such
shares at an average purchase price of $1.71 per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Unless otherwise noted, all dollar amounts are rounded to the nearest thousand.
Percentages represent the change from the comparable amount from the previous
year. Note references refer to Notes to Condensed Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital ratio was approximately 1.9 to 1 at September 30,
1998 as compared to 3.4 to 1 at December 31, 1997. The Company had working
capital of approximately $2.8 million at September 30, 1998 as compared to
approximately $5.5 million at December 31, 1997. These changes are due primarily
to the sale of GBS and EKW and to the establishment of expense reserves as
described below in "Results of Operations". For the remainder of fiscal 1998
management expects to fund working capital requirements primarily through
operating cash flow. At September 30, 1998 and December 31, 1997, the Company
had cash and cash equivalents of approximately $.3 million and $1.6 million,
respectively, and marketable securities of approximately $2.7 million and $2.3
million, respectively.
Cash used in operating activities increased from $856,000 for the first nine
months of 1997 to $1,336,000 for the same period in 1998 primarily due to a
reduction in net income. In the first nine months of 1997, the Company generated
$164,000 in cash from investing activities versus $163,000 for the same period
in 1998. In 1998, the Company acquired a business for $3,225,000, property and
equipment for $421,000 and franchise rights for $587,000. These purchases were
offset by proceeds from the sale of assets of $3,610,000 and an increase in the
collection of notes receivable of $606,000. The Company used $173,000 in cash
for financing activities for the first nine months of 1997 (all for payments on
borrowings) and used $69,000 for such activities in 1998 ($132,000 for payments
on borrowings, partially offset by $62,000 in proceeds from new borrowings).
The Company is not aware of any trend or event which would potentially adversely
affect its liquidity. In the event such a trend would develop, management
believes that the Company has sufficient funds available to satisfy the working
capital needs of the business.
YEAR 2000 COMPLIANCE
The Company initiated a program in 1996 to assess its internal information
technology systems to upgrade those systems for the next stage of the Company's
growth and to make them Year 2000 compliant. The Company expects this program to
be completed by the third quarter of 1999.
In 1996, the Company determined that its accounting system was not Year 2000
compliant and that the Company's servers also required upgrading in order to be
Year 2000 compliant.
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During 1996 and 1997, the Company purchased new Year 2000 compliant accounting
software, servers, network operating systems and software applications. All of
the new equipment and software has been installed and implemented, except that
the module of the accounting package that is used to process royalty payments
from the franchisees is in the testing phase. Implementation of the royalty
module is scheduled to be complete by the third quarter of 1999.
In 1998, the Company performed an inventory of all of its personal computers,
workstations and related software for Year 2000 compliance. The Company
formulated a replacement schedule for all non-compliant personal computers and
software, which the Company expects to complete by the third quarter of 1999.
Also in 1998, the Company determined that its telephone switch (PBX) and its
voice mail system are not Year 2000 compliant. The Company plans to replace the
telephone switch and the voice mail system by the third quarter of 1999 with
Year 2000 compliant systems.
Also in 1998, the Company purchased a software application from Pivotal
Software, Inc. called Relationship 99, an information management program which
facilitates and enhances all aspects of the Company's operations and integrates
with the Company's accounting software, data bases and other applications. While
this software is Year 2000 compliant, it was not purchased specifically to meet
the Company's Year 2000 compliance requirements.
To date, the Company has relied on representations from suppliers that its
information technology systems are Year 2000 compliant. The Company plans to
test its systems for Year 2000 compliance during the second and third quarters
of 1999.
Aside from the Company's telephone system, the Company's other non-information
technology systems (i.e. embedded systems contained in the Company's buildings,
plant, equipment and other infrastructure) do not impact regular operations of
the Company.
Fees from franchisees constitute the Company's principle source of revenue. The
Company is currently assessing the information technology and non-information
technology systems used by franchisees. The Company is also continuing to
identify third party vendors and service providers whose non-compliant systems
could have an impact on the Company and assess their compliance status. The
Company expects that these assessments will be completed by the end of the
second quarter of 1999.
The Company expects its total cost to address the Year 2000 issue to be
approximately $250,000, of which approximately $75,000 has been expended through
October of 1998. The Company expects to incur the balance of such costs to
complete the compliance plan in 1999. The balance of such costs is expected to
be funded through operating cash flows. The Company has been expensing and
capitalizing the costs to complete the compliance plan in accordance with
appropriate accounting principles. The above described costs do not include
$250,000 for the Pivotal Relationship99 system.
The Company does not expect the Year 2000 issue to pose significant operational
or financial problems for the Company. The Company bases this expectation on the
progress it has made in upgrading its internal information systems and the fact
that it is a service business that does not depend heavily on machinery that
might have embedded technology nor on suppliers of goods for resale. In
addition, the Company's franchisees are in service businesses. Nevertheless, the
Year 2000 issue could have a material impact on the Company's operations and
financial condition in the future in the event the Company or its key suppliers,
such as banks, public utilities or telecommunications services, or a significant
number of the Company's franchisees, are unable to resolve the Year 2000 issue
in a timely manner; or if the Company becomes the subject of litigation or other
proceedings regarding any Year 2000-related events. The amount of potential loss
cannot be reasonably estimated at this time.
The Company has not developed contingency plans as of this date. As the Year
2000 compliance program proceeds, contingency plans will be prepared, updated
and implemented as necessary to address the risks identified, including a plan
for a yet to be determined worst case scenario. No contingency plans are being
developed for the availability of key public services and utilities.
RESULTS OF OPERATIONS
For the nine months ended September 30, 1998, compared to the nine months ended
September 30, 1997.
Total revenues decreased $42,000 (.4%) to $10,955,000 in 1998 from $10,997,000
in 1997. This decrease is comprised of decreases in franchise fees of $1,009,000
(40.9%), in interest of $54,000 (10.6%) and in other revenues of $169,000
(23.6%), offset by increases in royalties of $482,000 (8.3%) and in sales of
products and services of $718,000 (86.5%).
Royalty revenues increased primarily due to higher system-wide sales within a
number of the Company's franchise concepts. Significant increases were as
follows: Mr. Rooter $248,000 (11.0%), Mr. Electric $172,000 (99.7%), Aire Serv
$47,000 (38.3%)
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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.
Date: March 10, 1999 The Dwyer Group, Inc.
By: \s\ THOMAS BUCKLEY
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Thomas Buckley
Vice President and Chief Financial Officer
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