DWYER GROUP INC, 10QSB, 1999-08-16

DWYER GROUP INC
10QSB, 1999-08-16
PATENT OWNERS & LESSORS

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<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 JUNE 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

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 July 30, 1999
- ---------------------------- ----------------------------
Common stock, $.10 par value 6,842,210

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes No X
--- ---

<PAGE> 2

THE DWYER GROUP, INC.

INDEX

<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
<S> <C>

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 1999 (unaudited)
and December 31, 1998.............................................................................3

Consolidated Statements of Income for the Three Months Ended
June 30, 1999 and 1998 (unaudited)................................................................4

Consolidated Statements of Income for the Six Months Ended
June 30, 1999 and 1998 (unaudited)................................................................5

Consolidated Statements of Cash Flows for the Six Months
Ended June 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>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,123,308 $ 498,199
Marketable securities, available-for-sale 1,266,941 1,973,761
Trade accounts receivable, net of allowance for doubtful
accounts of $232,891 and $175,036, respectively 742,177 684,955
Accounts receivable from related parties 835,830 766,623
Accrued interest receivable, including amounts due from
related parties of $172,536 and $149,643, respectively 202,942 199,953
Trade notes receivable, current portion 1,271,542 1,085,810
Inventories 50,368 46,013
Prepaid expenses 186,904 164,937
Notes receivable from related parties, current portion 676,567 660,300
------------ ------------
Total current assets 6,356,579 6,080,551

Property and equipment, net 1,103,653 1,103,862
Notes and accounts receivable from related parties 372,562 460,558
Assets held for sale -- 141,575
Trade notes receivable, net of allowance for doubtful notes of
$862,393 and $941,472, respectively 3,508,298 3,034,485
Goodwill, net 5,511,697 5,599,553
Purchased franchise rights, net 1,105,954 938,823
Covenant not to compete, net 81,665 91,665
Net deferred tax asset 788,639 867,773
Other assets 408,729 398,455
------------ ------------

TOTAL ASSETS $ 19,237,776 $ 18,717,300
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable, trade $ 804,649 $ 326,464
Accounts payable to related parties 10,061 13,723
Accrued liabilities 1,808,587 1,166,439
Litigation reserves 497,314 1,103,211
Current portion of notes payable and capital lease obligations 667,382 534,767
------------ ------------
Total current liabilities 3,787,993 3,144,604

Long-term debt, less current portion 1,365,595 1,799,821
Deferred franchise sales revenue 1,083,898 1,155,746

Commitments and contingencies

Stockholders' equity:
Preferred stock -- --
Common stock 722,859 722,859
Additional paid-in capital 9,653,691 9,653,691
Retained earnings 3,291,664 2,596,872
Accumulated other comprehensive income (22,533) (61,657)
Treasury stock, at cost (645,391) (294,636)
------------ ------------
Total stockholders' equity 13,000,290 12,617,129
------------ ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,237,776 $ 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 JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Royalties $ 2,453,799 $ 2,438,513
Franchise fees 1,173,590 421,027
Sales of products and services 311,493 490,672
Tax services -- 240,249
Interest 101,305 135,509
Other 133,788 204,752
----------- -----------
TOTAL REVENUES 4,173,975 3,930,722

COSTS AND EXPENSES:
General, administrative and selling 3,014,513 3,217,869
Costs of product and service sales 261,634 478,154
Cost of tax services -- 214,759
Depreciation and amortization 196,650 186,087
Interest 22,362 21,229
----------- -----------
TOTAL COSTS AND EXPENSES 3,495,159 4,118,098

OPERATING INCOME (LOSS) 678,816 (187,376)
----------- -----------

NON-OPERATING INCOME:
Gain on sale of securities -- 216,346
----------- -----------
TOTAL NON-OPERATING INCOME -- 216,346
----------- -----------

Income before income taxes 678,816 28,970
Income taxes (238,634) (9,059)
----------- -----------

NET INCOME $ 440,182 $ 19,911
=========== ===========

EARNINGS PER SHARE - BASIC $ 0.06 $ 0.00
=========== ===========

EARNINGS PER SHARE - DILUTED $ 0.06 $ 0.00
=========== ===========

WEIGHTED AVERAGE COMMON SHARES 6,883,531 6,775,427
=========== ===========

WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
DILUTIVE COMMON SHARES 7,029,425 7,037,791
=========== ===========
</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>
SIX MONTHS ENDED JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Royalties $ 4,445,238 $ 4,292,376
Franchise fees 1,952,424 1,042,506
Sales of products and services 742,656 1,215,001
Tax services -- 659,369
Interest 231,014 302,128
Other 264,443 390,905
----------- -----------
TOTAL REVENUES 7,635,776 7,902,285

COSTS AND EXPENSES:
General, administrative and selling 5,524,363 6,132,480
Costs of product and service sales 618,228 1,017,466
Cost of tax services -- 483,071
Depreciation and amortization 366,405 339,705
Interest 51,895 35,862
----------- -----------
TOTAL COSTS AND EXPENSES 6,560,891 8,008,584

OPERATING INCOME (LOSS) 1,074,885 (106,299)
----------- -----------

NON-OPERATING INCOME:
Gain on sale of securities -- 317,374
----------- -----------
TOTAL NON-OPERATING INCOME -- 317,374
----------- -----------

Income before income taxes 1,074,885 211,075
Income taxes (380,093) (71,003)
----------- -----------

NET INCOME $ 694,792 $ 140,072
=========== ===========

EARNINGS PER SHARE - BASIC $ 0.10 $ 0.02
=========== ===========

EARNINGS PER SHARE - DILUTED $ 0.10 $ 0.02
=========== ===========

WEIGHTED AVERAGE COMMON SHARES 6,920,053 6,775,427
=========== ===========

WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
DILUTIVE COMMON SHARES 7,071,038 6,974,166
=========== ===========
</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>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Operating activities:
Net income for the period $ 694,792 $ 140,072
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 366,405 341,991
Provision for doubtful accounts 204,392 (15,022)
Notes received for franchise sales (1,254,854) (533,370)
Change in deferred tax asset 79,134 (19,180)
Other adjustments -- (20,407)
Changes in assets and liabilities:
Accounts and interest receivable (60,211) 24,031
Net change in receivables / payables to related parties (72,869) (48,968)
Inventories (4,355) (27,441)
Prepaid expenses (21,967) (233,217)
Accounts payable and accrued liabilities 1,277,281 111,655
Litigation reserves (605,897) --
Deferred franchise sales revenue (52,469) (131,887)
Other 41,325 19,812
----------- -----------
Net cash provided by (used in) operating activities 590,707 (391,931)
----------- -----------

Investing activities:
Collections of notes receivable 348,668 934,414
Purchases of property and equipment (155,289) (358,402)
Purchases of franchise rights (210,788) (586,564)
Acquisition of other assets (27,273) (17,186)
Sale of other assets 141,575 --
Sale of marketable securities 706,820 205,694
Increase (decrease) in unrealized gain on marketable securities (31,726) (68,655)
Collections on notes receivable from related parties 71,729 74,665
----------- -----------
Net cash provided by investing activities 843,716 183,966
----------- -----------

Financing activities:
Purchases of treasury stock (350,755) --
Proceeds from borrowings -- 62,465
Payments on borrowings (458,559) (86,881)
----------- -----------
Net cash used in financing activities (809,314) (24,416)
----------- -----------

Net increase (decrease) in cash and cash equivalents 625,109 (232,381)
Cash and cash equivalents, beginning of period 498,199 1,568,187
----------- -----------

Cash and cash equivalents, end of period $ 1,123,308 $ 1,335,806
=========== ===========
</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., which was incorporated in
July 1998, 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") was incorporated
in January 1998 in order to market and service 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 (the "Company"). All significant intercompany
balances and transactions have been eliminated.

B. INTERIM DISCLOSURES

The information as of June 30, 1999 and for the three months ended June 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 six months ended June 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 condensed consolidated
financial statements to conform to the presentation used in the 1999 condensed
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 Six Months Ended
June 30, 1998 June 30, 1998
------------------ -------------
<S> <C> <C>
Revenues $ 4,260,722 $ 8,616,192
================== =============
Net Income (Loss) $ 46,196 $ 16,751
================== =============
Basic Earnings Per Share $ .01 $ .00
================== =============
Diluted Earnings Per Share $ .01 $ .00
================== =============
</TABLE>

NOTE 5. COMMON STOCK

In September 1998, the Company authorized the repurchase of up to 100,000 of the
Company's common stock in the open market or in private transactions and
subsequently increased that amount to 350,000 shares. As of July 30, 1999, the
Company had repurchased 270,550 shares at an average purchase price of $1.95. Of
such shares 158,650 have been purchased in 1999.

NOTE 6. COMPREHENSIVE INCOME

The Company's comprehensive income was as follows:

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income $ 440,182 $ 19,911 $ 694,792 $ 140,072
Other comprehensive income (loss):
Increase (decrease) in unrealized gains on securities 6,464 (126,511) (31,746) (68,655)
Foreign currency translation adjustments 42,530 -- 70,870 --
--------- --------- --------- ---------

Net other comprehensive income (loss) 48,994 (126,511) 39,124 (68,655)
--------- --------- --------- ---------

Total comprehensive income (loss) $ 489,176 $(106,600) $ 733,916 $ 71,417
========= ========= ========= =========
</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 1.7 to 1 at June 30, 1999
as compared to 1.9 to 1 at December 31, 1998. The Company had working capital of
approximately $2.6 million at June 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 June 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 $591,000 for the six months
ended June 30, 1999. Cash was generated by net income of $695,000 plus
depreciation and amortization of $366,000 and a provision for doubtful accounts
of $204,000. Cash was also provided by an increase in accounts payable and
accrued liabilities of $1,277,000. The above was partially offset by $606,000 in
cash used to reduce litigation reserves and $1,255,000 in notes received for
franchise sales. Cash of $844,000 was provided by investing activities primarily
from the sale of marketable securities of $707,000, the sale of other assets of
$142,000 and collections on notes receivable of $349,000, partially offset by
purchases of property and equipment of $155,000 and purchases of franchise
rights of $211,000. Cash of $809,000 was used in financing activities, $351,000
for the purchase of treasury stock and $459,000 for payments on 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.

RESULTS OF OPERATIONS

For the six months ended June 30, 1999, compared to the six months ended June
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 decreased by $266,000 (3.4%) to $7,636,000 from
$7,902,000 in 1998. This decrease is due primarily to a decrease in tax services
of $659,000 and a decrease in the sale of products and services of $472,000.
Both such decreases were due to the absence of GBS and EKW in 1999. Interest
revenues declined by $71,000 and other revenues decreased by $126,000. The above
decreases were partially offset by an increase of $910,000 in franchise fees and
an increase of $153,000 in royalties.

Royalties increased for each franchise concept included in both years. Such
increases were as follows:

<TABLE>
<S> <C> <C>
Mr. Rooter........... $204,000........... 12%
Aire Serv............ $137,000........... 167%
Rainbow.............. $111,000........... 11%
Mr. Electric......... $ 86,000........... 42%
Mr. Appliance........ $ 22,000........... 72%
</TABLE>

Royalties from Canadian operations increased by $64,000 and Glass Doctor added
$633,000 in royalty revenues. The above increases were partially offset by a
decrease of $1,104,000 due to the absence of GBS and EKW in 1999.

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

9
<PAGE> 10

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>
Aire Serv............. $260,000.......... 177%
Mr. Rooter............ $114,000.......... 48%
Mr. Electric.......... $ 62,000.......... 22%
Mr. Appliance......... $ 16,000.......... 34%
Rainbow............... $ 3,000.......... 2%
</TABLE>

Canadian operations generated $67,000 in franchise fees with no comparable
amount in 1998 and the Company recorded $573,000 in franchise fee revenues from
Glass Doctor in 1999. The above increases were partially offset by a decrease of
$185,000 due to the absence of GBS and EKW in 1999.

Interest revenues decreased by $71,000 (23.5%) due to less money being invested
in interest bearing investments during 1999.

Other revenues decreased by $126,000 (32.4%) 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 $608,000 (9.9%), due to the
sale of GBS and EKW, and due to actions taken during the third and fourth
quarters of 1998 which served to increase operational efficiency. Such
efficiencies were achieved primarily by a reduction in the number of employees
and related expenses.

Due to the decline in product and service sales, costs associated with such
sales decreased by $399,000 (39.2%).

There were no tax services in 1999 due to the absence of GBS.

Depreciation and amortization expense increased by $27,000 (7.9%) 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 $16,000 (44.7%) 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 $695,000 for the six months ended June 30,
1999 as compared to net income of $140,000 for the same period in 1998.

For the three months ended June 30, 1999, compared to the three months ended
June 30, 1998.

Total revenues for the quarter increased by $243,000 (6.2%) to $4,174,000 in
1999 from $3,931,000 in 1998. This increase is due to an increase of $753,000 in
franchise fees partially offset by a decrease in tax services of $240,000 and a
decrease in the sale of products and services of $179,000. Both such decreases
were due to the absence of GBS and EKW in 1999. Other changes in revenues
included an increase of $15,000 in royalties, a decrease of $34,000 in interest
fees and a decrease of $71,000 in other revenues.

Royalty revenues increased for each franchise concept included in both years.
Such increases were as follows:

<TABLE>
<S> <C> <C>
Mr. Rooter................. $129,000........... 14%
Rainbow.................... $ 77,000........... 12%
Aire Serv.................. $ 73,000........... 132%
Mr. Electric............... $ 45,000........... 41%
Mr. Appliance.............. $ 11,000........... 64%
</TABLE>

In addition, the Company recorded royalty revenues from Glass Doctor of
$330,000. The above increases were partially offset by a decrease of $650,000
due to the absence of GBS and EKW in 1999.

10
<PAGE> 11

Franchise fee revenues also increased for each franchise concept included in
both years. Such increases are as follows:

<TABLE>
<S> <C> <C>
Aire Serv.................. $178,000........... 230%
Mr. Rooter................. $175,000........... 196%
Mr. Electric............... $172,000........... 210%
Rainbow................... $ 25,000............ 34%
</TABLE>

Mr. Appliance had $35,000 in franchise fees and had no such fees in the second
quarter of 1998. In addition, Canadian operations generated $17,000 in franchise
fees with no comparable amount in 1998. The Company also recorded $249,000 in
franchise fee revenues from Glass Doctor in 1999. The above increases were
partially offset by a decrease of $98,000 due to the absence of GBS and EKW in
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 $203,000 (6.3%), due to the
sale of GBS and EKW, and due to actions taken by management during the third and
fourth quarters of 1998 which served to increase operational efficiency. Such
efficiencies were achieved primarily by a reduction in the number of employees
and related expenses.

Due to the decline in product and service sales, costs associated with such
sales decreased by $217,000 (45.3%).

There was no cost of tax services in 1999 due to the absence of GBS.

Depreciation and amortization increased by $11,000 (5.7%) 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.

The Company reported net income of $440,000 for the quarter ended June 30, 1999
as compared to net income of $20,000 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 17 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. During the remainder
of 1999, the Company may sell additional master licenses which could result in
lump sum payments from the master licensees to the Company.

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 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.

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.

11
<PAGE> 12

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) software
and its voice mail system software are not Year 2000 compliant. The Company
plans to replace such software 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 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 third 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 the end of the third
quarter of 1999.

The Company expects its total cost to address the Year 2000 issue to be
approximately $250,000, of which approximately $150,000 has been expended
through July 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 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, and governmental regulations.

12
<PAGE> 13

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.

- --------------------------------------------------------------------------------
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:

10.63 Form of Stock Option Agreement dated April 29, 1999
by and between the Company and Don Latin for 5,000
shares of the Company's Common Stock.

10.64 Form of Stock Option Agreement dated June 29, 1999 by
and between the Company and Don Latin for 10,000
shares of the Company's Common Stock.

10.65 Form of Stock Option Agreement dated June 29, 1999 by
and between the Company and Mike Bidwell for 16,000
shares of the Company's Common Stock.

10.66 Form of Stock Option Agreement dated June 29, 1999 by
and between the Company and John Hayes for 10,000
shares of the Company's Common Stock.

10.67 Form of Stock Option Agreement dated April 29, 1999
by and between the Company and Tom Buckley for 10,000
shares of the Company's Common Stock.

10.68 Form of Stock Option Agreement dated June 29, 1999 by
and between the Company and Tom Buckley for 2,000
shares of the Company's Common Stock.

27 Financial Data Schedule

(b) Reports on 8-K

NONE

13
<PAGE> 14

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: July 30, 1999 The Dwyer Group, Inc.

By: /s/ Thomas Buckley
-----------------------------
Thomas Buckley
Vice President and Chief
Financial Officer

<PAGE> 15

EXHIBIT INDEX

<TABLE>
Exhibit
No. Description
----- -----------
<S> <C>
10.63 Form of Stock Option Agreement dated April 29, 1999
by and between the Company and Don Latin for 5,000
shares of the Company's Common Stock.

10.64 Form of Stock Option Agreement dated June 29, 1999 by
and between the Company and Don Latin for 10,000
shares of the Company's Common Stock.

10.65 Form of Stock Option Agreement dated June 29, 1999 by
and between the Company and Mike Bidwell for 16,000
shares of the Company's Common Stock.

10.66 Form of Stock Option Agreement dated June 29, 1999 by
and between the Company and John Hayes for 10,000
shares of the Company's Common Stock.

10.67 Form of Stock Option Agreement dated April 29, 1999
by and between the Company and Tom Buckley for 10,000
shares of the Company's Common Stock.

10.68 Form of Stock Option Agreement dated June 29, 1999 by
and between the Company and Tom Buckley for 2,000
shares of the Company's Common Stock.

27 Financial Data Schedule
</TABLE>

<PAGE> 1
EXHIBIT 10.63

THE DWYER GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT

1. Grant of Option. Pursuant to The Dwyer Group, Inc. 1997 Stock Option
Plan (the "Plan") for employees and directors of The Dwyer Group, Inc., a
Delaware corporation (the "Company") and its subsidiaries, the Company grants to

DONALD E. LATIN
(the "Option Holder")

an incentive stock option to purchase from the Company a total of 5,000 shares
of Common Stock, $0.10 par value, of the Company at $1.94 per share (being the
fair market value per share of the Common Stock on the date of this grant), in
the amounts, during the periods and upon the terms and conditions set forth in
this Agreement.

2. Time of Exercise. Except only as specifically provided elsewhere in
this Agreement, the Option Holder may exercise this option only in the following
cumulative installments:

1,000 PER YEAR BEGINNING 4/29/2000

In the event of the Option Holder's termination of employment for whatever
cause, the option will be exercisable only to the extent that the Option Holder
could have exercised it on the date of his termination of employment.

3. Subject to Plan. This option and the grant and exercise thereof are
subject to the terms and conditions of the Plan, which is incorporated herein by
reference and made a part hereof, but the terms of the Plan shall not be
considered an enlargement of any benefits under this Agreement. In addition,
this option is subject to any rules and regulations promulgated pursuant to the
Plan, now or hereafter in effect.

4. Term. This option will terminate at the first of the following:

(a) 5 p.m. on April 29, 2009.

<PAGE> 2

(b) 5 p.m. on the date one year following the date the Option
Holder's employment or directorship with the Company and its
subsidiaries terminates by reason of the Option Holder's death
or disability.

(c) 5 p.m. on the 30th day following the date the Option Holder's
employment or directorship with the Company and its
subsidiaries terminates for a reason other than death or
disability.

5. Who May Exercise. Except in the case of death or disability of the
Option Holder, this option may be exercised only by the Option Holder. If the
Option Holder dies or becomes disabled prior to the termination date specified
in Section 4 hereof without having exercised the option as to all of the shares
covered thereby, the option may be exercised at any time prior to the earlier of
the dates specified in Section 4(a) and (b) hereof by (i) the Option Holder's
estate or a person who acquired the right to exercise the option by bequest or
inheritance or by reason of the death of the Option Holder in the event of the
Option Holder's death, or (ii) the Option Holder or his personal representative
in the event of the Option Holder's disability, subject to the other terms of
this Agreement, the Plan and applicable laws, rules and regulations.

6. Restrictions on Exercise. This option:

(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;

(b) may not be exercised in whole or in part and no cash or
certificates representing shares subject to such option shall
be delivered, if any requisite approval or consent of any
governmental authority of any kind having jurisdiction over
the exercise of options shall not have been secured; and

(c) may be exercised only if at all times during the period
beginning with the date of the granting of the option and
ending on the 30th day prior to the date of exercise the
Option Holder was an employee of either the Company or a
subsidiary of the Company; provided, if the Option Holder's
continuous employment is terminated by death or disability, or
if the Option Holder dies or becomes disabled within said
period, this option may be exercised in accordance with
Section 5.

7. Manner of Exercise. Subject to such administrative regulations as
the Committee administering the Plan may from time to time adopt, the Option
Holder or beneficiary shall, in order to exercise this option, give written
notice to the Company of the exercise price and the number of shares which he
will purchase. Any notice shall include full payment in United States dollars of
the applicable option exercise price and an undertaking to furnish or execute
such documents as the Company in its discretion shall deem necessary (i) to
evidence such exercise, in whole or in part, of

<PAGE> 3

the option evidenced by this Agreement, (ii) to determine whether registration
is then required under the Securities Act of 1933, or any other law, as then in
effect, and (iii) to comply with or satisfy the requirements of the Securities
Act of 1933, or any other law, as then in effect.

8. Non-Assignability. This option is not assignable or transferable by
the Option Holder except by will or by the laws of descent and distribution.

9. Rights of Stockholder. The Option Holder will have no rights as a
stockholder with respect to any shares covered by this option until the issuance
of a certificate or certificates to the Option Holder for the shares. Except as
otherwise provided in Section 10 hereof, no adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.

10. Capital Adjustments. The number of shares of Common Stock covered
by this option, and the option price thereof, shall be subject to such
adjustments as the Board of Directors of the Company deems appropriate to
reflect any stock dividend, stock split, share combination, exchange of shares,
recapitalization, merger, consolidation, separation, reorganization, liquidation
or the like, of or by the Company.

In the event the Company shall be a party to any merger, consolidation
or corporate reorganization, as the result of which the Company shall be the
surviving corporation the rights and duties of the Option Holder and the Company
shall not be affected in any manner. In the event the Company shall sell all or
substantially all of its assets or shall be a party to any merger, consolidation
or corporate reorganization, as the result of which the Company shall not be the
surviving corporation, or in the event any other person or entity acquires 100%
of the outstanding Common Stock of the Company (the transaction being
collectively referred to as the "transaction"), then the Company shall notify
the Option Holder that his option evidenced by this Agreement is accelerated
effective as of the effective date of the transaction whether or not such option
shall then be exercisable under the terms of this Agreement. The Option Holder
may exercise any portion of the option as he may desire and deposit with the
Company the requisite cash to purchase in full and not in installments the
Common Stock thereby exercised, in which case the Company shall, prior to the
effective date of the transaction, issue all Common Stock thus exercised, which
shall be treated as issued stock for purposes of the transaction.

<PAGE> 4

11. Law Governing. This Agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.

12. Date of Grant. The date of grant of this option is April 29, 1999.

IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Option Holder, to evidence his
consent and approval of all the terms hereof, has duly executed this Agreement,
as of the date specified in Section 12 hereof.

THE DWYER GROUP, INC.

By:
------------------------------

---------------------------------
Donald E. Latin, Option Holder

<PAGE> 1
EXHIBIT 10.64

THE DWYER GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT

DONALD E. LATIN
(the "Option Holder")

an incentive stock option to purchase from the Company a total of 10,000 shares
of Common Stock, $0.10 par value, of the Company at $1.97 per share (being the
fair market value per share of the Common Stock on the date of this grant), in
the amounts, during the periods and upon the terms and conditions set forth in
this Agreement.

2. Time of Exercise. Except only as specifically provided elsewhere in
this Agreement, the Option Holder may exercise this option only in the following
cumulative installments:

2,000 PER YEAR BEGINNING 6/29/2000

4. Term. This option will terminate at the first of the following:

(a) 5 p.m. on June 29, 2009.
<PAGE> 2

(c) 5 p.m. on the 30th day following the date the Option Holder's
employment or directorship with the Company and its
subsidiaries terminates for a reason other than death or
disability.

6. Restrictions on Exercise. This option:

(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;

<PAGE> 3

8. Non-Assignability. This option is not assignable or transferable by
the Option Holder except by will or by the laws of descent and distribution.

<PAGE> 4

11. Law Governing. This Agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.

12. Date of Grant. The date of grant of this option is June 29, 1999.

THE DWYER GROUP, INC.

By:
--------------------------------

-----------------------------------
Donald E. Latin, Option Holder

<PAGE> 1
EXHIBIT 10.65

THE DWYER GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT

MIKE BIDWELL
(the "Option Holder")

an incentive stock option to purchase from the Company a total of 16,000 shares
of Common Stock, $0.10 par value, of the Company at $1.97 per share (being the
fair market value per share of the Common Stock on the date of this grant), in
the amounts, during the periods and upon the terms and conditions set forth in
this Agreement.

2. Time of Exercise. Except only as specifically provided elsewhere in
this Agreement, the Option Holder may exercise this option only in the following
cumulative installments:

3,200 PER YEAR BEGINNING 6/29/2000

4. Term. This option will terminate at the first of the following:

(a) 5 p.m. on June 29, 2009.

<PAGE> 2

(c) 5 p.m. on the 30th day following the date the Option Holder's
employment or directorship with the Company and its
subsidiaries terminates for a reason other than death or
disability.

6. Restrictions on Exercise. This option:

(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;

<PAGE> 3

8. Non-Assignability. This option is not assignable or transferable by
the Option Holder except by will or by the laws of descent and distribution.

<PAGE> 4

11. Law Governing. This Agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.

12. Date of Grant. The date of grant of this option is June 29, 1999.

THE DWYER GROUP, INC.

By:
---------------------------

------------------------------
Mike Bidwell, Option Holder

<PAGE> 1
EXHIBIT 10.66

THE DWYER GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT

JOHN HAYES
(the "Option Holder")

2. Time of Exercise. Except only as specifically provided elsewhere in
this Agreement, the Option Holder may exercise this option only in the following
cumulative installments:

2,000 PER YEAR BEGINNING 6/29/2000

4. Term. This option will terminate at the first of the following:

(a) 5 p.m. on June 29, 2009.

<PAGE> 2

(c) 5 p.m. on the 30th day following the date the Option Holder's
employment or directorship with the Company and its
subsidiaries terminates for a reason other than death or
disability.

6. Restrictions on Exercise. This option:

(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;

<PAGE> 3

8. Non-Assignability. This option is not assignable or transferable by
the Option Holder except by will or by the laws of descent and distribution.

<PAGE> 4

11. Law Governing. This Agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.

12. Date of Grant. The date of grant of this option is June 29, 1999.

THE DWYER GROUP, INC.

By:
-----------------------------

--------------------------------
John Hayes, Option Holder

<PAGE> 1
EXHIBIT 10.67

THE DWYER GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT

TOM BUCKLEY
(the "Option Holder")

an incentive stock option to purchase from the Company a total of 10,000 shares
of Common Stock, $0.10 par value, of the Company at $1.94 per share (being the
fair market value per share of the Common Stock on the date of this grant), in
the amounts, during the periods and upon the terms and conditions set forth in
this Agreement.

2. Time of Exercise. Except only as specifically provided elsewhere in
this Agreement, the Option Holder may exercise this option only in the following
cumulative installments:

2,000 PER YEAR BEGINNING 4/29/2000

4. Term. This option will terminate at the first of the following:

(a) 5 p.m. on April 29, 2009.

<PAGE> 2

(c) 5 p.m. on the 30th day following the date the Option Holder's
employment or directorship with the Company and its
subsidiaries terminates for a reason other than death or
disability.

6. Restrictions on Exercise. This option:

(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;

<PAGE> 3

8. Non-Assignability. This option is not assignable or transferable by
the Option Holder except by will or by the laws of descent and distribution.

<PAGE> 4

11. Law Governing. This Agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.

12. Date of Grant. The date of grant of this option is April 29, 1999.

THE DWYER GROUP, INC.

By:
------------------------------------

---------------------------------------
Tom Buckley, Option Holder

<PAGE> 1
EXHIBIT 10.68

THE DWYER GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT

TOM BUCKLEY
(the "Option Holder")

an incentive stock option to purchase from the Company a total of 2,000 shares
of Common Stock, $0.10 par value, of the Company at $1.97 per share (being the
fair market value per share of the Common Stock on the date of this grant), in
the amounts, during the periods and upon the terms and conditions set forth in
this Agreement.

2. Time of Exercise. Except only as specifically provided elsewhere in
this Agreement, the Option Holder may exercise this option only in the following
cumulative installments:

400 PER YEAR BEGINNING 6/29/2000

4. Term. This option will terminate at the first of the following:

(a) 5 p.m. on June 29, 2009.

<PAGE> 2

(c) 5 p.m. on the 30th day following the date the Option Holder's
employment or directorship with the Company and its
subsidiaries terminates for a reason other than death or
disability.

6. Restrictions on Exercise. This option:

(a) may be exercised only with respect to full shares and no
fractional share of stock shall be issued;

<PAGE> 3

8. Non-Assignability. This option is not assignable or transferable by
the Option Holder except by will or by the laws of descent and distribution.

<PAGE> 4

11. Law Governing. This Agreement is intended to be performed in the
State of Texas and shall be construed and enforced in accordance with and
governed by the laws of such State.

12. Date of Grant. The date of grant of this option is June 29, 1999.

THE DWYER GROUP, INC.

By:
-------------------------

----------------------------
Tom Buckley, Option Holder

<ARTICLE> 5

<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 APR-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 1,123,308 0
<SECURITIES> 1,266,941 0
<RECEIVABLES> 3,052,491 0
<ALLOWANCES> 405,427 0
<INVENTORY> 50,368 0
<CURRENT-ASSETS> 6,356,579 0
<PP&E> 1,103,653 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 19,237,776 0
<CURRENT-LIABILITIES> 3,787,993 0
<BONDS> 0 0
0 0
0 0
<COMMON> 722,859 0
<OTHER-SE> 12,277,431 0
<TOTAL-LIABILITY-AND-EQUITY> 19,237,776 0
<SALES> 7,140,318 3,590,461
<TOTAL-REVENUES> 7,635,776 3,930,722
<CGS> 618,228 692,913
<TOTAL-COSTS> 6,560,891 4,118,098
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 51,895 21,229
<INCOME-PRETAX> 1,074,885 28,970
<INCOME-TAX> 380,093 9,059
<INCOME-CONTINUING> 694,792 19,911
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 694,792 19,911
<EPS-BASIC> .10 .00
<EPS-DILUTED> .10 .00

</TABLE>