<PAGE> 1
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 SEPTEMBER 30, 1999.
[ ] 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)
(254) 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 [ ] 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 October 29, 1999
- ---------------------------- -------------------------------
Common stock, $.10 par value 7,179,614
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
<PAGE> 2
THE DWYER GROUP, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999 (unaudited)
and December 31, 1998.............................................................3
Consolidated Statements of Operations for the Three Months Ended
September 30, 1999 and 1998 (unaudited)...........................................4
Consolidated Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998 (unaudited)...........................................5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (unaudited).....................................6
Notes to Condensed Consolidated Financial Statements............................7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................9-12
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> 3
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,134,197 $ 498,199
Marketable securities, available-for-sale 1,277,725 1,973,761
Trade accounts receivable, net of allowance for doubtful
accounts of $226,586 and $175,036, respectively 637,475 684,955
Accounts receivable from related parties 1,084,182 766,623
Accrued interest receivable, including amounts due from
related parties of $188,772 and $149,643, respectively 213,732 199,953
Trade notes receivable, current portion 1,298,805 1,085,810
Inventories 43,172 46,013
Prepaid expenses 397,855 164,937
Notes receivable from related parties, current portion 675,921 660,300
------------ ------------
Total current assets 6,763,064 6,080,551
Property and equipment, net 1,095,573 1,103,862
Notes and accounts receivable from related parties 336,118 460,558
Assets held for sale -- 141,575
Trade notes receivable, net of allowance for doubtful notes of
$810,577 and $941,472, respectively 3,565,720 3,034,485
Goodwill, net 5,464,436 5,599,553
Purchased franchise rights, net 1,028,552 938,823
Covenant not to compete, net 76,665 91,665
Net deferred tax asset 598,639 867,773
Other assets 444,951 398,455
------------ ------------
TOTAL ASSETS $ 19,373,718 $ 18,717,300
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 691,805 $ 326,464
Accounts payable to related parties 13,318 13,723
Accrued liabilities 1,551,727 1,166,439
Litigation reserves 438,676 1,103,211
Current portion of notes payable and capital lease obligations 680,744 534,767
------------ ------------
Total current liabilities 3,376,270 3,144,604
Long-term debt, less current portion 1,217,260 1,799,821
Deferred franchise sales revenue 883,636 1,155,746
Commitments and contingencies
Stockholders' equity:
Preferred stock -- --
Common stock 764,519 722,859
Additional paid-in capital 10,173,855 9,653,691
Retained earnings 3,713,203 2,596,872
Accumulated other comprehensive income (56,818) (61,657)
Treasury stock, at cost (698,207) (294,636)
------------ ------------
Total stockholders' equity 13,896,552 12,617,129
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,373,718 $ 18,717,300
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
3
<PAGE> 4
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Royalties $ 2,319,947 $ 1,978,640
Franchise fees 957,654 418,254
Sales of products and services 362,513 333,128
Tax services -- 13,865
Interest 134,895 151,713
Other 133,569 156,685
----------- -----------
TOTAL REVENUES 3,908,578 3,052,284
COSTS AND EXPENSES:
General, administrative and selling 2,720,845 4,443,231
Costs of product and service sales 312,644 263,268
Cost of tax services -- 11,009
Depreciation and amortization 208,727 195,461
Interest 21,906 27,228
----------- -----------
TOTAL COSTS AND EXPENSES 3,264,122 4,940,197
OPERATING INCOME (LOSS) 644,456 (1,887,913)
----------- -----------
NON-OPERATING INCOME:
Gain on sale of assets -- 1,445,563
Gain on sale of securities -- 14,034
----------- -----------
TOTAL NON-OPERATING INCOME -- 1,459,597
----------- -----------
Income (loss) before income taxes 644,456 (428,316)
Income tax (expense) benefit (222,917) 140,143
----------- -----------
NET INCOME (LOSS) $ 421,539 $ (288,173)
=========== ===========
EARNINGS (LOSS) PER SHARE - BASIC $ 0.06 $ (0.04)
=========== ===========
EARNINGS (LOSS) PER SHARE - DILUTED $ 0.06 $ (0.04)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES 6,940,494 7,025,427
=========== ===========
WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
DILUTIVE COMMON SHARES 7,238,614 7,131,575
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
4
<PAGE> 5
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Royalties $ 6,765,186 $ 6,271,016
Franchise fees 2,910,078 1,460,760
Sales of products and services 1,105,169 1,548,129
Tax services -- 673,234
Interest 365,909 453,841
Other 398,012 547,590
------------ ------------
TOTAL REVENUES 11,544,354 10,954,569
COSTS AND EXPENSES:
General, administrative and selling 8,245,208 10,575,711
Costs of product and service sales 930,872 1,280,734
Cost of tax services -- 494,080
Depreciation and amortization 575,132 535,166
Interest 73,801 63,090
------------ ------------
TOTAL COSTS AND EXPENSES 9,825,013 12,948,781
OPERATING INCOME (LOSS) 1,719,341 (1,994,212)
------------ ------------
NON-OPERATING INCOME:
Gain on sale of assets -- 1,445,563
Gain on sale of securities -- 331,408
------------ ------------
TOTAL NON-OPERATING INCOME -- 1,776,971
------------ ------------
Income (loss) before income taxes 1,719,341 (217,241)
Income tax (expense) benefit (603,010) 69,140
------------ ------------
NET INCOME (LOSS) $ 1,116,331 $ (148,101)
============ ============
EARNINGS (LOSS) PER SHARE - BASIC $ 0.16 $ (0.02)
============ ============
EARNINGS (LOSS) PER SHARE - DILUTED $ 0.16 $ (0.02)
============ ============
WEIGHTED AVERAGE COMMON SHARES 6,924,096 6,859,676
============ ============
WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
DILUTIVE COMMON SHARES 7,123,264 7,027,551
============ ============
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
5
<PAGE> 6
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net income (loss) for the period $ 1,116,331 $ (148,101)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 575,132 535,166
Gain on sale of assets -- (1,445,562)
Provision for doubtful accounts 132,882 210,779
Notes received for franchise sales (1,842,534) (812,814)
Change in deferred tax asset 269,134 (170,950)
Other adjustments -- 16,879
Changes in assets and liabilities:
Accounts and interest receivable 33,701 75,219
Net change in receivables / payables to related parties (317,964) (150,328)
Inventories 2,841 (23,908)
Prepaid expenses (232,918) (86,384)
Accounts payable and accrued liabilities 924,018 731,913
Litigation reserves (664,535) --
Deferred franchise sales revenue 216,469 (183,330)
Other 6,650 115,698
----------- -----------
Net cash provided by (used in) operating activities 219,207 (1,335,723)
----------- -----------
Investing activities:
Collections of notes receivable 476,477 1,098,236
Proceeds from sale of assets 141,575 3,609,793
Acquisition of business -- (3,225,000)
Purchases of property and equipment (242,945) (420,899)
Purchases of franchise rights (210,788) (586,564)
Acquisition of other assets (68,917) (49,710)
Sale of marketable securities 809,759 --
Purchase of marketable securities (113,723) (350,544)
Increase (decrease) in unrealized gain on marketable securities (31,746) (27,191)
Collections on notes receivable from related parties 108,819 115,069
----------- -----------
Net cash provided by investing activities 868,511 163,190
----------- -----------
Financing activities:
Purchases of treasury stock (403,571) --
Proceeds from exercise of stock options 561,824 --
Proceeds from borrowings -- 62,465
Payments on borrowings (609,973) (131,532)
----------- -----------
Net cash used in financing activities (451,720) (69,067)
----------- -----------
Net increase (decrease) in cash and cash equivalents 635,998 (1,241,600)
Cash and cash equivalents, beginning of period 498,199 1,568,187
----------- -----------
Cash and cash equivalents, end of period $ 1,134,197 $ 326,587
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited).
6
<PAGE> 7
THE DWYER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION
The Dwyer Group, Inc. is a holding company for service-based businesses
providing specialty services internationally through franchising. The condensed
consolidated financial statements include the accounts of The Dwyer Group, Inc.
and its wholly-owned subsidiaries (the "Company") which include the following:
o Rainbow International Carpet Dyeing and Cleaning Co. ("Rainbow") is a
franchisor of carpet cleaning, dyeing, air duct cleaning, and
restoration services under the service mark "Rainbow International"
(R).
o Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of plumbing
repair and drain cleaning services under the service mark "Mr.
Rooter"(R).
o Aire Serv Heating & Air Conditioning, Inc. ("Aire Serv") is a
franchisor of heating, ventilating and air conditioning service
businesses under the service mark "Aire Serv" (R).
o Mr. Electric Corp. ("Mr. Electric") is a franchisor of electrical
repair and service businesses under the service mark "Mr.
Electric"(R).
o Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of major
household appliance service and repair businesses under the service
mark "Mr. Appliance" (R).
o Synergistic International, Inc., is franchisor of "Glass Doctor (R)",
a service concept whose business is the replacement of automobile,
residential and commercial glass.
o The Dwyer Group National Accounts, Inc. ("National Accounts") solicits
national account customers who can call a toll-free phone number for
their general repair and 24-hour emergency service needs. The order is
filled through the Company's network of franchisees or qualified
subcontractors.
o The Dwyer Group Canada, Inc. ("TDG Canada") markets and services
certain of the Company's franchise concepts in Canada. Currently,
those concepts are: Mr. Rooter, Mr. Electric, Rainbow and Aire Serv.
NOTE 2. BASIS OF PRESENTATION
A. PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include The Dwyer
Group, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
B. INTERIM DISCLOSURES
The information as of September 30, 1999 and for the three months and nine
months ended September 30, 1999 and 1998 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 condensed 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, 1998, and with other
filings with the U.S. Securities and Exchange Commission.
The results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the fiscal year ending
December 31, 1999.
7
<PAGE> 8
C. RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to the presentation used in the 1999 consolidated
financial statements. These reclassifications had no effect on stockholders'
equity or net income.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER COMMON SHARE
Basic earnings per share is computed based on the weighted average number of
shares outstanding during each of the periods. Diluted earnings per share
include the dilutive effect of unexercised stock options and warrants.
NOTE 4. BUSINESS ACQUISITION
In July 1998, the Company acquired substantially all of the assets associated
with the Glass Doctor franchise concept. Glass Doctor is a national franchisor
of service centers whose business is the replacement of automobile, residential
and commercial glass. The acquisition was accounted for as a purchase, and
accordingly, the operating results of Glass Doctor have been included in the
accompanying condensed consolidated financial statements since the date of
acquisition.
The unaudited pro forma information for the periods set forth below give effect
to the acquisition as if it had occurred at the beginning of the respective
period. The pro forma information is presented for informational purposes only
and is not necessarily indicative of the results of operations that actually
would have occurred had the transaction been consummated at the beginning of the
period presented nor does the information purport to be indicative of future
results.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues $3,132,284 $11,748,476
========== ===========
Net Income (Loss) $ (267,292) $ (250,541)
========== ===========
Basic Earnings (Loss) Per Share $ (.04) $ (.03)
========== ===========
Diluted Earnings (Loss) Per Share $ (.04) $ (.03)
========== ===========
</TABLE>
NOTE 5. COMMON STOCK
In September 1998, the Company authorized the repurchase of up to 100,000 of its
common stock in the open market or in private transactions and subsequently
increased that amount to 550,000 shares. As of October 29, 1999, the Company had
repurchased 355,446 shares at an average purchase price of $2.02. Of such shares
246,046 have been purchased in 1999.
In September 1999, the Company issued 416,600 shares of its common stock
pursuant to the exercise of stock options by related parties. The Company
received total proceeds of $561,824 in the transactions.
NOTE 6. COMPREHENSIVE INCOME
The Company's comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ 421,539 $ (288,173) $ 1,116,331 $ (148,101)
Other comprehensive income (loss):
Increase (decrease) in unrealized gains on securities -- 41,464 (31,746) (27,191)
Foreign currency translation adjustments (34,285) -- (36,585) --
----------- ----------- ----------- -----------
Net other comprehensive income (loss) (34,285) 41,464 (68,331) (27,191)
----------- ----------- ----------- -----------
Total comprehensive income (loss) $ 387,254 $ (246,709) $ 1,048,000 $ (175,292)
=========== =========== =========== ===========
</TABLE>
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 2.0 to 1 at September 30,
1999 as compared to 1.9 to 1 at December 31, 1998. The Company had working
capital of approximately $3.4 million at September 30, 1999 as compared to
approximately $2.9 million at December 31, 1998. For the remainder of fiscal
1999, management expects to fund working capital requirements primarily through
operating cash flow. At September 30, 1999, the Company had cash and cash
equivalents of approximately $1.1 million, and marketable securities of
approximately $1.3 million.
Net cash provided by operating activities equaled $219,000 for the nine months
ended September 30, 1999. Cash was generated by net income of $1,116,000 plus
depreciation and amortization of $575,000 and a provision for doubtful accounts
of $133,000. Cash was also provided by an increase in accounts payable and
accrued liabilities of $924,000. The above was partially offset by $665,000 in
cash used to reduce litigation reserves and $1,843,000 in notes received for
franchise sales. Cash of $869,000 was provided by investing activities primarily
from the net sale of marketable securities of $696,000, the sale of assets of
$142,000 and collections on notes receivable of $585,000, partially offset by
purchases of property and equipment of $243,000 and purchases of franchise
rights of $211,000. Cash of $452,000 was used in financing activities, $404,000
was used for the purchase of treasury stock and $610,000 for payments on
borrowings, partially offset by $562,000 in proceeds from the exercise of stock
options.
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.
RESULTS OF OPERATIONS
For the nine months ended September 30, 1999, compared to the nine months ended
September 30, 1998.
In July 1998, the Company sold two of its franchising businesses - General
Business Services ("GBS") and E.K. Williams & Co. ("EKW"). In addition, in the
first quarter of 1998, the Company repurchased Canadian franchise rights for its
Mr. Rooter, Mr. Electric and Rainbow International franchise concepts. Also in
July 1998, the Company purchased the Glass Doctor franchise concept.
Total revenues for the period increased by $590,000 (5.4%) to $11,544,000 from
$10,955,000 in 1998. This increase is due primarily to an increase in royalty
revenues of $494,000 and an increase in franchise fee revenues of $1,449,000
partially offset by a decrease in tax services of $673,000 and a decrease in the
sale of products and services of $443,000. The decrease in tax service and sale
of product and service revenues was due to the absence of GBS and EKW in 1999.
Interest revenues declined by $88,000 and other revenues decreased by $150,000.
Royalties increased for each franchise concept included for the full period in
both years. Such increases were as follows:
<TABLE>
<S> <C> <C>
Mr. Rooter........... $299,000 12%
Rainbow.............. $207,000 13%
Aire Serv............ $179,000 105%
Mr. Electric......... $135,000 39%
Mr. Appliance........ $ 32,000 67%
</TABLE>
Royalties from Canadian operations increased by $75,000 and Glass Doctor's
royalties increased by $746,000. The above increases were partially offset by a
decrease of $1,179,000 due to the absence of GBS and EKW in 1999.
9
<PAGE> 10
Overall, these royalty revenue increases, which coincide with the increased
business revenues of existing franchisees as well as an increase in the number
of franchisees producing revenue, are a direct result of the Company's emphasis
on providing strong franchise support services, and its methods and programs
created to assist franchisees in building successful businesses, along with
continued emphasis on the sale of new franchises. These strategies are very
important to the future of the Company, as royalties are the foundation for the
Company's long-term financial strength.
Franchise fee revenues also increased for each franchise concept included in
both years. Such increases are as follows:
<TABLE>
<S> <C> <C>
Mr. Rooter.............. $419,000 131%
Mr. Electric............ $236,000 58%
Aire Serv............... $167,000 52%
Mr. Appliance........... $ 45,000 70%
Rainbow................. $ 27,000 17%
</TABLE>
Canadian operations generated $67,000 in franchise fees with no comparable
amount in 1998, and the Company recorded $671,000 in franchise fee revenues from
Glass Doctor in 1999. The above increases were partially offset by a decrease of
$183,000 due to the absence of GBS and EKW in 1999.
Interest revenues decreased by $88,000 (19.4%) due to less money being invested
in interest bearing securities during 1999.
Other revenues decreased by $150,000 (27.3%) due to a decrease in related party
management fees resulting from a reduction in the number of entities for which
work was performed.
General and administrative expenses decreased by $2,331,000 (22.0%), partly due
to the sale of GBS and EKW, and partly due to actions taken during the third and
fourth quarters of 1998 which served to reduce expenses. Such expense cuts were
achieved primarily by a reduction in the number of employees and related
expenses. In addition, in the third quarter of 1998, the Company recorded
litigation reserves of approximately $730,000, and experienced an increase in
its bad debt allowance of approximately $200,000 and an increase in its reserve
for guaranteed franchisee notes to unrelated third parties of approximately
$230,000.
As a result of the decline in product and service sales, costs associated with
such sales decreased by $350,000 (27.3%).
There were no tax services in 1999 due to the absence of GBS.
Depreciation and amortization expense increased by $40,000 (7.5%) due to
amortization of Canadian franchise rights and goodwill associated with Glass
Doctor, partially offset by reductions resulting from the sale of GBS and EKW.
Interest expense increased by $11,000 (17.0%) due to a note payable related to
the purchase of Glass Doctor, partially offset by reductions in other notes
payable.
The Company reported net income of $1,116,000 for the nine months ended
September 30, 1999 as compared to a net loss of $148,000 for the same period in
1998.
For the three months ended September 30, 1999, compared to the three months
ended September 30, 1998.
Total revenues for the quarter increased by $856,000 (28.1%) to $3,909,000 in
1999 from $3,052,000 in 1998. This increase is due primarily to an increase of
$341,000 in royalties and an increase of $539,000 in franchise fees. Other
changes in revenues included a decrease of $14,000 in tax services, an increase
of $29,000 in the sale of products and services, a decrease of $17,000 in
interest and a decrease of $23,000 in other revenues.
Royalty revenues increased for each franchise concept included for the full
quarter in both years. Such increases were as follows:
<TABLE>
<S> <C> <C>
Rainbow................ $96,000 17%
Mr. Rooter............. $95,000 12%
Mr. Electric........... $49,000 35%
Aire Serv.............. $43,000 48%
Mr. Appliance.......... $10,000 58%
</TABLE>
10
<PAGE> 11
Royalties from Canadian operations increased by $12,000 and Glass Doctor's
royalties increased by $112,000. The above increases were partially offset by a
decrease of $76,000 due to the absence of GBS and EKW in 1999. Franchise fee
revenues also increased for the below listed franchise concepts, each of which
was included for the full quarter in both years. Such increases are as follows:
<TABLE>
<S> <C> <C>
Mr. Rooter............. $305,000 367%
Mr. Electric........... $174,000 139%
Mr. Appliance.......... $ 29,000 172%
Rainbow................ $ 25,000 137%
</TABLE>
The Company also recorded $98,000 in franchise fee revenues from Glass Doctor in
1999 with no comparable revenues in 1998. The above noted increases were
partially offset by a decrease of $92,000 (53%) in franchise fee revenues from
Aire Serv.
Sales of products and services increased by $29,000 (8.8%) due to the growth of
the Company's National Accounts program.
There were no tax services in 1999 due to the absence of GBS.
Interest revenues decreased due to less money being invested in interest bearing
securities during 1999.
Other revenues decreased due to a decrease in related party management fees
resulting from a reduction in the number of entities for which work was
performed.
General and administrative expenses decreased by $1,722,000 (38.8%), partly due
to the sale of GBS and EKW, and partly due to actions taken by management during
the third and fourth quarters of 1998 which served to reduce expenses. Such
expense cuts were achieved primarily by a reduction in the number of employees
and related expenses. In addition, in the third quarter of 1998, the Company
recorded litigation reserves of approximately $730,000, and experienced an
increase in its bad debt allowance of approximately $200,000 and an increase in
its reserve for guaranteed franchisee notes to unrelated third parties of
approximately $230,000.
Due to the increase in product and service sales, costs associated with such
sales increased by $49,000 (18.8%).
There was no cost of tax services in 1999 due to the absence of GBS.
Depreciation and amortization increased by $13,000 (6.8%) due to amortization of
Canadian franchise rights and goodwill associated with Glass Doctor.
The Company reported net income of $422,000 for the quarter ended September 30,
1999 as compared to a net loss of $288,000 for the same period in 1998.
IMPACT OF INFLATION
Inflation has not had a material impact on the operations of the Company.
FOREIGN OPERATIONS
The Company operates in 16 foreign countries. Typically, foreign franchises are
sold and managed by a master licensee in that country. Royalty revenues from
master licenses are recorded as received due to the difficulty sometimes
experienced in foreign countries when attempting to transfer such funds to the
United States. The Company does not depend on foreign operations, and such
operations do not have a material impact on its cash flow. The Company may sell
additional master licenses which could result in lump sum payments from the
master licensees to the Company.
11
<PAGE> 12
YEAR 2000 COMPLIANCE
The Company initiated a program in 1996 to assess its internal information
technology systems in order 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 year end.
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.
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 year end.
In 1998, the Company performed an inventory of all of its personal computers,
workstations and related software for Year 2000 compliance. The Company has now
replaced all non-compliant personal computers and software. Also in 1998, the
Company determined that its telephone switch (PBX) software and its voice mail
system software are not Year 2000 compliant. The Company will replace such
software by year end with Year 2000 compliant systems.
Also in 1998, the Company purchased a software application from Pivotal
Software, Inc. called Relationship99, 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 fourth quarter 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 significantly 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 its 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 assessing their compliance status. The
Company expects that these assessments will be completed by year end.
The Company expects its total cost to address the Year 2000 issue to be
approximately $250,000, of which approximately $200,000 has been expended
through October 1999. 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 or
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.
Management does not expect the Year 2000 issue to pose significant operational
or financial problems for the Company. This expectation is based on the progress
the Company has made in upgrading 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.
FORWARD-LOOKING STATEMENTS
The Company cautions readers that various factors could cause the actual results
of the Company to differ materially from those indicated by forward-looking
statements made from time-to-time in news releases, reports, proxy statements,
registration
12
<PAGE> 13
statements and other written communications (including the preceding sections of
this Management's Discussion and Analysis), as well as oral statements made by
representatives of the Company. Except for historical information, matters
discussed in such oral and written communications are forward-looking statements
that involve risks and uncertainties, including, but not limited to, general
business conditions, the impact of competition, taxes, inflation, governmental
regulations, and Year 2000 related issues.
13
<PAGE> 14
PART II
OTHER INFORMATION
THE DWYER GROUP, INC. AND SUBSIDIARIES
ITEM 1 - LEGAL PROCEEDINGS
NONE
ITEM 2 - CHANGES IN SECURITIES
(a) NONE
(b) Not applicable.
(c) NONE
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5 - OTHER INFORMATION
NONE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on 8-K
NONE
14
<PAGE> 15
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: November 15, 1999 The Dwyer Group, Inc.
By: /s/ Thomas Buckley
------------------------------------------
Thomas Buckley
Vice President and Chief Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 JUL-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 1,134,197 0
<SECURITIES> 1,277,725 0
<RECEIVABLES> 3,234,194 0
<ALLOWANCES> 226,586 0
<INVENTORY> 43,172 0
<CURRENT-ASSETS> 6,763,064 0
<PP&E> 1,095,573 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 19,373,718 0
<CURRENT-LIABILITIES> 3,376,270 0
<BONDS> 0 0
0 0
0 0
<COMMON> 764,519 0
<OTHER-SE> 13,132,033 0
<TOTAL-LIABILITY-AND-EQUITY> 19,373,718 0
<SALES> 1,105,169 362,513
<TOTAL-REVENUES> 11,544,354 3,908,578
<CGS> 0 0
<TOTAL-COSTS> 9,825,013 3,264,122
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 73,801 21,906
<INCOME-PRETAX> 1,719,341 644,456
<INCOME-TAX> 603,010 222,917
<INCOME-CONTINUING> 1,116,331 421,539
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,116,331 421,539
<EPS-BASIC> .16 .06
<EPS-DILUTED> .16 .06
</TABLE>
