<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A-1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1998
Commission File Number: 0-21282
SWISHER INTERNATIONAL, INC.
-------------------------------
(Name of Small Business Issuer)
NEVADA 56-1541396
----------------------- -------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
6849 Fairview Road
Charlotte, North Carolina 28210
-------------------------- ------
(Address of principal executive offices) (Zip Code)
(704) 364-7707
---------------
(Issuer's telephone number)
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 issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Number of shares of Common Stock outstanding as of May 31, 1998: 2,222,271
Transitional Small Business Disclosure Format:
[ ] Yes [X] No
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS April 30, 1998 October 31,
(Unaudited) 1997
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 20,896 $ 662,880
Restricted Cash 257,902 257,902
Accounts Receivable:
Franchisees 3,370,135 2,994,399
Other 351,269 284,200
Related Party Receivables 394,390 370,138
Less Allowance for Doubtful Accounts (324,046) (172,000)
------------ ------------
Net Accounts Receivable 3,791,748 3,476,737
Notes Receivable, Current Portion 834,368 1,015,564
Inventory 94,940 88,786
Prepaid Expenses 568,654 184,508
Deferred Income Taxes 3,000 3,000
------------ ------------
TOTAL CURRENT ASSETS 5,571,508 5,689,377
PROPERTY AND EQUIPMENT:
Furniture & Equipment 1,833,541 1,760,087
Less Accumulated Depreciation (780,629) (652,901)
------------ ------------
NET PROPERTY AND EQUIPMENT 1,052,912 1,107,186
OTHER ASSETS:
Notes Receivable:
Franchisees 1,680,610 1,862,590
Related Party 1,446,638 950,388
Deferred Franchise Costs 48,530 77,957
Intangible Assets, Less Amortization 2,560,862 2,563,452
------------ ------------
NET OTHER ASSETS 5,736,640 5,454,387
------------ ------------
TOTAL ASSETS $ 12,361,060 $ 12,250,950
============ ============
</TABLE>
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
April 30, 1998 October 31,
(Unaudited) 1997
-------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit and
Long-Term Debt, Current Portion $ 2,303,963 $ 1,978,984
Accounts Payable 2,421,517 2,041,705
Accrued Expenses 361,762 222,548
Deferred Revenue 341,311 329,198
Income Taxes Payable -- 109,823
----------- -----------
TOTAL CURRENT LIABILITIES 5,428,553 4,682,258
LONG-TERM DEBT 1,217,669 1,476,689
DEFERRED INCOME TAXES 100,000 100,000
----------- -----------
TOTAL LIABILITIES 6,746,222 6,258,947
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par value; 1,500,000 shares
authorized; none issued -- --
Series A Junior Participating Preferred Stock, par
value $1.00; authorized 100,000 shares; none issued -- --
Common Stock, $.01 par value; 15,000,000 shares authorized;
2,222,271 shares issued and outstanding at April 30, 1998
and 2,122,271 outstanding at October 31, 1997 22,223 21,223
Additional Paid-In Capital 4,448,220 4,128,723
Retained Earnings 1,144,395 1,842,057
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,614,838 5,992,003
----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $12,361,060 $12,250,950
=========== ===========
</TABLE>
3
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
----------------------------- ---------------------------
1998 1997 1998 1997
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Annuity Revenues:
Product Sales to Franchisees $ 1,630,024 $ 1,352,781 $ 3,157,424 $ 2,324,857
Service Fees 531,379 450,991 1,016,682 884,732
Royalties 649,109 500,797 1,227,410 1,018,202
Marketing Fees 19,500 14,314 37,210 28,399
----------- ----------- ----------- ------------
Total Annuity Revenues 2,830,012 2,318,883 5,438,726 4,256,190
Revenue From Company-Owned Subsidiaries 528,261 400,634 971,781 858,179
Initial Franchise Sales:
Swisher Hygiene 20,558 95,525 20,558 345,525
Surface Doctor 294,600 159,605 440,245 234,605
Swisher Pest Control -- -- 18,000 --
Gain on Sale of Company-Owned Operations -- 38,804 -- 148,182
Other Income 80,234 83,201 147,250 142,191
----------- ----------- ----------- ------------
TOTAL REVENUES 3,753,665 3,096,652 7,036,560 5,984,872
----------- ----------- ----------- ------------
EXPENSES:
Selling, G & A Expenses:
Corporate & Hygiene 1,626,608 975,025 2,927,346 1,904,794
Swisher Maid 11,994 34,864 31,216 108,697
Surface Doctor 378,326 357,499 881,026 671,937
Swisher Pest Control 162,488 -- 337,003 --
Cost of Product Sales 1,404,110 1,052,487 2,607,743 1,884,636
Expenses of Company-Owned Subsidiaries 500,454 386,774 982,374 802,646
Interest Expense 69,916 45,476 156,123 94,553
----------- ----------- ----------- ------------
TOTAL EXPENSES 4,153,896 2,852,125 7,922,831 5,467,263
----------- ----------- ----------- ------------
INCOME BEFORE TAXES AND NON-RECURRING ITEMS (400,231) 244,527 (886,271) 517,609
PROVISION FOR INCOME TAXES (52,319) 97,710 (188,609) 208,200
----------- ----------- ----------- ------------
NET INCOME $ (347,912) $ 146,817 $ (697,662) $ 309,409
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT BASIC EARNINGS $ (0.16) $ 0.07 $ (0.33) $ 0.16
=========== =========== =========== ===========
COMMON SHARES 2,169,998 1,992,490 2,145,735 1,966,942
=========== =========== =========== ===========
DILUTED EARNINGS $ (0.16) $ 0.06 $ (0.33) $ 0.13
=========== =========== =========== ===========
COMMON SHARES AND EQUIVALENTS 2,169,998 2,398,958 2,145,735 2,386,308
=========== =========== =========== ===========
</TABLE>
4
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $(697,662) $ 309,409
Adjustments to Reconcile Net Income to Net Cash
provided (used) by operating activities -
Depreciation and amortization 257,956 147,750
Change in Assets and Liabilities -
(Increase) decrease in assets -
Accounts receivable (315,011) (526,205)
Inventory (6,154) (16,486)
Prepaid expenses (384,146) (90,610)
Deferred franchise costs 29,427 (29,691)
Notes receivable (133,074) (364,819)
Increase (decrease) in liabilities -
Accounts payable 379,813 385,910
Accrued expenses 139,214 (40,891)
Income taxes payable (109,823) 112,800
Deferred revenue 12,113 (14,801)
--------- ----------
Total Adjustments (129,685) (437,043)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (827,347) (127,634)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (73,454) (172,271)
Decrease (increase) in intangible & other assets (127,638) 4,624
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (201,092) (167,647)
--------- ---------
</TABLE>
5
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
-----------------------------
1998 1997
---------- ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in restricted cash $ -- $ 10,826
Net - proceeds from stock transactions 320,497 3,927
Net principal payments under long-term debt
obligations 65,958 (945,387)
----------- -----------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES 386,455 (930,634)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (641,984) (1,225,915)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 662,880 1,809,590
----------- -----------
CASH AND CASH EQUIVALENTS, END OF SECOND QUARTER $ 20,896 $ 583,675
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid year to date for -
Interest $ 171,364 $ 84,502
=========== ===========
Income taxes $ 330,000 $ 94,500
=========== ===========
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
"FORWARD-LOOKING" INFORMATION
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act and are subject to the safe harbors created thereby. These forward-looking
statements include the plans and objectives of management for future
operations, including plans and objectives relating to (i) the continued
expansion of the Company's Hygiene, Maids, Pest Control and Surface Doctor
franchise programs, (ii) the introduction of new products to be sold to
franchisees, (iii) the continued successful operation of franchised businesses
by Hygiene, Surface Doctor, Pest Control and Maids franchisees, (iv) successful
collection of the Company's notes receivable, particularly those executed by
franchisees in the payment of initial franchise fees, (v) the Company's ability
to re-sell certain Hygiene businesses which have been repurchased from
franchisees and (vi) the Company's ability to expand into international and new
domestic markets. The forward-looking statements included herein are based on
current expectations that involve a number of risks and uncertainties. These
forward-looking statements were based on assumptions that the Company would
continue to develop and introduce new products on a timely basis, that
competitive conditions within the Company's markets would not change materially
or adversely, that demand for the Company's Hygiene, Maids, Pest Control and
Surface Doctor franchises would remain strong, and that there would be no
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the forward-looking information will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved.
THE FOLLOWING ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AS OF
APRIL 30, 1998 AND THE COMPANY'S RESULTS OF OPERATIONS FOR THE QUARTER AND SIX
MONTH PERIOD ENDED APRIL 30, 1998 AND 1997 SHOULD BE READ IN CONJUNCTION WITH
THE COMPANY'S FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. ALTHOUGH
THE COMPANY BELIEVES THAT THE DISCLOSURES PRESENTED BELOW ARE ADEQUATE TO MAKE
THE INTERIM FINANCIAL STATEMENTS PRESENTED NOT MISLEADING, IT IS SUGGESTED THAT
THESE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BE READ IN
CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
OCTOBER 31, 1997.
GENERAL:
The financial information for the periods ended April 30, 1998 and
1997 included herein is unaudited but includes all adjustments which, in the
opinion of management of the Company, are necessary to present fairly the
financial position of the Company at April 30, 1998 and 1997, and the results
of its operations and its cash flows for the six-month period then ended.
The Company operates in two principal business areas: "Franchise
Operations," which includes Initial Franchise Sales and Annuity Revenues
(Service Fees, Product Sales to Franchisees, Royalties, and Marketing Fees),
and "Company Operations through Company Owned Subsidiaries," which includes the
Company's hygiene operations located in Space Coast, FL, and Tulsa, OK; the
Company's residential maids operations located in the Charlotte, NC and
Scottsdale, AZ areas, and the Company's pest control operation located in
Monroe, NC. The Company's subsidiaries are actively engaged in providing
hygiene services, pest control, and maid services directly to customers in the
same manner as franchisees. The Company is currently not in compliance with the
FTC Rule on franchise sales due to outstanding reports required to be filed
with the SEC, which affected the Company's ability to sell certain US
franchises in the second quarter. Following the filing of these outstanding
documents with the SEC, the Company expects the return of eligibility to sell
domestic franchises.
7
<PAGE> 8
On March 19, 1998, options for 100,000 shares were exercised by
certain officers and directors of the Company. This transaction created a note
receivable to the Company of approximately $511,000. This is included in the
$1,447,000 long term note receivable related party balance.
For the three months ended April 30, 1998, a net loss of $348,000 was
recorded, a decrease of $495,000 from the prior year period. The decrease in
net income was caused by an increase in Corporate and Hygiene expenses of
$651,000, an increase in Pest Control expenses of $162,000, and a decrease in
product sales gross margin of $74,000. Additionally, the $38,804 gain on sale
of Company-owned operations from the prior year period did not re-occur in
1998. These decreases in net income were partially offset by a reduction in the
income tax provision of $150,000.
REVENUE:
Revenues in the second quarter ended April 30, 1998, increased 21% to
$3,754,000 compared to prior year second quarter ended April 30, 1997, of
$3,097,000. The major factor in the increase is the continued growth in Annuity
Revenues.
FRANCHISE OPERATIONS. Annuity Revenues for the three-month period ended
April 30, 1998, increased 22% to $2,830,000 as compared to prior year second
quarter results of $2,319,000. The majority of the increase related to $277,000
increase in product sales to franchisees. Revenue derived from Initial Franchise
Sales, including sales of Master Licenses in foreign countries, increased 24% to
$315,000 compared to prior year second quarter sales of $255,000.
COMPANY OPERATIONS. Revenues increased 32% to $528,000 for the
three-months ended April 30, 1998, compared to the prior year second quarter of
$400,600. This increase is primarily attributable to the addition of the Pest
Control operation located in Monroe, NC.
EXPENSES:
Total pre-tax expenses for the second quarter of 1998 increased 46%
over second quarter 1997, which represents an increase of $1,302,000. Selling,
general and administrative expenses increased by 59% to $2,179,000 compared to
prior year second quarter of $1,367,000. Expenses of Company-owned subsidiaries
increased $113,700 from the prior year's second quarter.
FRANCHISE OPERATIONS. Expenses for the second quarter of 1998
increased $1,188,000 compared with the second quarter of 1997. Corporate and
Hygiene expenses increased $651,000, approximately $200,000 of this
increase is due to increases in professional fees. Expenses of $162,000 in
Swisher Pest Control reflect the Company's continued investment in the start-up
of this system. The $20,000 increase in Surface Doctor expenses from the prior
year represent the Company's continuing efforts to integrate this system
acquired in July 1996, and the on-going efforts to sell international licenses.
Cost of products for resale to franchisees increased $352,000 or 33% over the
prior year second quarter and corresponds to a 20% increase in product sales
revenues. A change in the mix of products sold caused a decrease in the gross
margin of $74,000.
COMPANY OPERATIONS. Expenses for the quarter ended April 30, 1998,
increased by $114,000 or 29% as compared to second quarter 1997. This increase
in expenses is attributable to the addition of the Company's Monroe, NC, pest
control operation. The Company hygiene, residential maids, and pest control
operations are operated in the same manner as franchise operations.
INCOME:
Net income for the three months ended April 30, 1998, decreased
$495,000 compared to the 1997 second quarter. Net loss was $348,000 for the
quarter ended April 30, 1998, compared to net income of $147,000 in the second
quarter of 1997. The basic loss per share for the three months ended April 30,
1998, was ($0.16) on 2,169,998
8
<PAGE> 9
common shares, as compared to the same period last year of $.07 per share on
1,992,490 shares. Fully diluted (loss) earnings were also $ (0.16) on 2,169,998
common shares and equivalents in the three months ended April 30, 1998 and $.06
on 2,398,958 common shares and equivalents for the comparable prior year
period.
FRANCHISE OPERATIONS. Operating income for the three-month period
ended April 30, 1998 decreased for a loss of $428,000 compared to income for
the same period last year of $231,000. This decrease of $659,000 is mainly
attributable to costs incurred in developing the infrastructure to support
international and pest control franchise sales.
COMPANY OPERATIONS. Operating income for the second quarter 1998,
increased to $28,000 as compared to income in the second quarter 1997 of
$14,000. This increase of $14,000 is attributable to the addition of the Pest
Control operations in Monroe, NC.
An income tax benefit of $52,000 was an improvement of $149,000 from
the second quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES:
The Company has historically financed its growth through cash from
operations. In addition, the Company used the proceeds of a public offering
completed in April 1993 to finance the expansion of its franchise system.
For the first six months in fiscal year 1998, net cash used by
operations and investing activities were approximately $827,000 and $201,000
respectively. The increase of $386,000 in net cash provided from financing
activities resulted primarily from stock options being exercised by certain
officers and directors.
Working capital decreased $882,000 during the first six months of
fiscal year 1998 due principally to the use of $642,000 in cash and cash
equivalents as detailed in the Consolidated Statement of Cash Flows and an
increase of $379,800 in accounts payable due primarily to a 33% increase in the
cost of product sales.
Total assets increased $227,000 due mainly to an increase in accounts
receivable and prepaids. Total liabilities increased by $487,000, which is
reflected in the increase in accounts payable and accrued expenses.
The Company has reviewed the Year 2000 problem as it relates to the
Company's internal systems as well as those of its vendors and determined that
it will not have a material impact on its business, operations nor its
financial condition. Nevertheless, the Company's rapid expansion has resulted
in an increasing number of entities with which the Company does business. While
the Company believes that the Year 2000 issue will not have a material impact
on the Company's internal operations or those of its current vendors, there can
be no guarantee that the systems of other unrelated entities on which its
systems and operations rely, or on which its systems and operations may rely in
the future, will be corrected on a timely basis and will not have a material
adverse impact on the Company.
9
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In August 1997, the previous owners of the Surface Doctor Division
iled suit against certain officers of the Company and the Company. Civil
Action File No. 97-CV-2581 (CC) and Civil Action File No. 1 97-CV-2303-CC were
both filed in the United States District Court for the Northern District of
Georgia, Atlanta Division. These suits were settled during the quarter, without
any adverse effect to the Company. As part of the settlement, the former
director and previous owner of Surface Doctor relinquished back to the Company
options for 75,000 shares of common stock.
ITEM 2. CHANGES IN SECURITIES.
Options for 100,000 shares were exercised by certain officers and
directors on March 19, 1998. The exercising of these options created a note
receivable to the company in the amount of $511,250 and is included in the long
term note receivable related parties balance. A schedule of the options
exercised are as follows:
Pat Swisher - 57,600 shares @ $5.50 per share
Tom Reeder - 19,000 shares @ $5.00 per share
George Moore - 23,400 shares @ $4.25 per share
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(1) Exhibits
27 Financial Data Schedule (for SEC use only).*
(2) Reports on Form 8-K
A report on Form 8-K was filed on February 27, 1998, relating
to the withdrawal of the Company's Certifying Accountants.
A report on Form 8-K was filed on March 13, 1998, relating to
the Company's former Certifying Accountants response to the
Company's report filed on February 27, 1998.
Amendment No. 1 to the report on Form 8-K originally filed
on March 13, 1998, was filed on March 24, 1998, relating to
the withdrawal of the Company's Certifying Accountants.
Amendment No. 2 to the report on Form 8-K originally filed
on March 13, 1998, was filed on April 24, 1998, relating to
retention of new Certifying Accountants for the Company.
* Previously filed.
10
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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.
SWISHER INTERNATIONAL, INC.
Registrant
Date - August 12, 1998 by: /s/ Patrick L. Swisher
-----------------------
Patrick L. Swisher
Chief Executive Officer
Date - August 12, 1998 by: /s/ Thomas W. Busch
----------------------------
Thomas W. Busch
Principal Accounting Officer
11
