<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE QUARTERLY PERIOD ENDED - JANUARY 31, 1999
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, NC 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 MARCH 10, 1999: 2,208,271
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:
[ ] YES [X] NO
<PAGE> 2
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JANUARY 31, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 51,742 $ 183,352
Restricted Cash 272,989 272,989
Accounts Receivable:
Franchisees 3,119,081 3,097,024
Other 119,060 124,759
Related Party Receivables 161,542 160,000
Less Allowance for Doubtful Accounts (483,871) (596,000)
----------- -----------
NET ACCOUNTS RECEIVABLE 2,915,812 2,785,783
Notes Receivable, Current Portion 647,194 713,729
Inventory 61,928 63,978
Prepaid Expenses 52,279 55,380
Income tax refunds receivable 628,484 628,484
----------- -----------
TOTAL CURRENT ASSETS 4,630,428 4,703,695
PROPERTY AND EQUIPMENT
Furniture & Equipment 1,788,021 1,788,021
Less Accumulated Depreciation (856,083) (773,832)
----------- -----------
NET PROPERTY AND EQUIPMENT 931,938 1,014,189
OTHER ASSETS
Notes Receivable
Franchisees 2,948,331 3,230,435
Related Party 645,880 645,880
Other assets 436,096 436,096
Intangible Assets, Less Amortization 736,713 744,768
----------- -----------
NET OTHER ASSETS 4,767,020 5,057,179
----------- -----------
TOTAL ASSETS $10,329,386 $10,775,063
=========== ===========
</TABLE>
2
<PAGE> 3
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
JANUARY 31, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit/long-term debt, current portion $ 2,841,709 $ 2,782,387
Accounts payable 2,043,785 2,598,022
Accrued expenses 473,862 403,364
Deferred revenue 145,521 145,521
Income taxes payable - -
----------- -----------
TOTAL CURRENT LIABILITIES 5,504,877 5,929,294
NONCURRENT LIABILITIES
Deferred revenue 550,800 550,800
Long-term debt 341,905 384,203
Deferred income taxes - -
----------- -----------
TOTAL LIABILITIES 6,397,582 6,864,297
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value; 15,000,000 shares
authorized; 2,208,271 shares issued and
outstanding at January 31, 1999 and
October 31, 1998. 22,083 22,083
Additional Paid-In Capital 4,728,395 4,728,395
Retained Earnings (818,674) (839,712)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,931,804 3,910,766
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,329,386 $10,775,063
=========== ===========
</TABLE>
3
<PAGE> 4
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
Annuity Revenues:
Product Sales to Franchisees $1,705,305 $1,527,399
Service Fees 551,084 485,303
Royalties 703,994 578,302
Marketing Fees 22,079 17,710
---------- ----------
TOTAL ANNUITY REVENUES 2,982,462 2,608,714
Revenue from Company-Owned Subsidiaries 171,264 443,520
Initial Franchise Sales: 101,441 163,645
Other Income 90,363 67,016
---------- ----------
TOTAL REVENUES 3,345,530 3,282,895
---------- ----------
EXPENSES
Selling, G & A Expenses 1,661,424 1,997,178
Cost of Product Sales 1,411,259 1,203,632
Expenses of Company-Owned Subsidiaries 197,666 481,919
Interest Expense 54,143 86,207
---------- ----------
TOTAL EXPENSES 3,324,492 3,768,936
---------- ----------
INCOME/(LOSS) BEFORE TAXES AND NONRECURRING ITEMS 21,038 (486,041)
Income Tax Expense/(Benefit) - (136,290)
---------- ----------
NET INCOME/(LOSS) $ 21,038 $ (349,751)
========== ==========
EARNINGS/(LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
Basic Earnings/(Loss) $ 0.01 $ (0.16)
========== ==========
Common Shares 2,208,271 2,122,271
========== ==========
Diluted Earnings/(Loss) $ 0.01 $ (0.16)
========== ==========
Weighted Average Common Shares and Equivalents 2,212,057 2,122,271
========== ==========
</TABLE>
4
<PAGE> 5
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 21,038 $ (349,751)
Adjustments to reconcile net income to net cash
provided (used) by operating activities -
Depreciation and amortization 90,306 116,419
Change in Assets and Liabilities -
(Increase) decrease in assets -
Accounts receivable (130,029) (241,874)
Inventory 2,050 3,242
Prepaid expenses 3,101 (333,546)
Deferred franchise costs - 5,161
Notes receivable 348,639 184,515
Increase (decrease) in liabilities -
Accounts payable (554,237) 142,471
Accrued expenses 70,498 (88,763)
Income taxes payable - (109,823)
Deferred revenue - (2,895)
Total Adjustments (169,672) (325,093)
---------- ----------
NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES (148,634) (674,844)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - (55,045)
Decrease (increase) in intangible & other assets - (66,563)
---------- ----------
NET CASH (USED)/PROVIDED BY INVESTING ACTIVITIES - (121,608)
---------- ----------
Cash Flows From Financing Activities
Decrease in restricted cash - -
Net principal payments under long-term debt obligations 17,024 207,855
---------- ----------
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES 17,024 207,855
---------- ----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (131,610) (588,597)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 183,352 662,880
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF FIRST QUARTER $ 51,742 $ 74,283
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid year to date for -
Interest $ 50,949 $ 71,237
========== ==========
Income taxes $ 17,654 $ 330,000
========== ==========
</TABLE>
5
<PAGE> 6
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
Management's Discussion and Analysis
ITEM 2. 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 is 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, Swisher 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 Swisher 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, Swisher
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
January 31, 1999 and the Company's results of operations for the quarter ended
January 31, 1999 and 1998 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 report on Form 10-KSB for the year ended October 31, 1998.
GENERAL:
The financial information for the periods ended January 31, 1999 and
1998 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 and its results of operations and cash flows.
As part of the Company's organizational restructuring, Company-owned
operations in Hygiene (Tulsa, OK) and Pest Control (Monroe, NC) were sold in
the fourth quarter of fiscal 1998. The Company is actively marketing its
Company-owned Hygiene operations in Florida and West Virginia in order to
better focus attention on its primary business as a franchisor.
The Company changed the focus of the development of Swisher Pest
Control in the first quarter of fiscal 1999, to include expanding the business
through the Hygiene franchise system as an additional service. This change in
focus has reduced the number of existing Pest Control franchisees, with the
expectation the change will be a profitable method of expanding the system with
minimum initial additions to overhead. Based on the existing agreements with
the Pest Control franchisees, which included certain incentives, the reduction
in existing franchisees is expected to have minimal impact on the financial
performance of the division in 1999. While the Company will continue to pursue
adding independent Pest Control franchisees to the system, this change in
strategy will facilitate the recognition of significantly reduced overhead
levels compared to fiscal year 1998.
6
<PAGE> 7
ITEM 2. FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GENERAL: (CONTINUED)
In the second half of 1998 the Company instituted a plan to reorganize
the overhead structure of the Company, particularly in the Surface Doctor and
Pest Control franchise systems. As a result of these efforts and an overall
improvement in managing expenses, the Company recorded operating income (before
taxes) of $21,000 for the three months ended January 31, 1999, representing an
increase of $507,000 from a pre tax loss of $486,000 in the prior year
comparable period. The increase in income before taxes was created by a
combination of a $190,000 increase in Royalties and Service Fees (parts of the
Company's annuity revenues) and a $336,000 decrease in selling, general and
administrative expenses. Net income for the three months ended January 31, 1999
was also $21,000, an increase of $371,000 from the prior year period, which
included a tax benefit of $136,000.
REVENUE:
Total revenues of $3,346,000 for the first quarter ended January 31,
1999 increased $63,000 or 2% from the prior year comparable period. An increase
of $374,000 in Annuity revenues (Product sales, Service and Marketing Fees and
Royalties) was offset by decreases of $273,000 and $62,000 in revenue from
Company-Owned operations and initial franchise sales, respectively.
The Company's annuity revenues, consisting of product sales,
royalties, and service and marketing fees, are revenues derived directly from
the Company's franchise systems. The growth of annuity revenues of $374,000 or
14% from the prior year three-month period are a direct reflection of the
growth of the franchise systems, primarily Hygiene.
The reduction of $273,000 in revenue from Company-owned operations is
a result of the sale of the Company's Pest Control business in Monroe, NC and
the Tulsa, OK Hygiene business, with both sales occurring in the fourth quarter
of fiscal 1998. The sales of these two Company-owned operations, included in
the first quarter 1998 financial results, reflects the Company's current intent
to focus on its primary business as a franchisor, and reduce the number of
Company-owned operations.
Initial franchise sales decreased to $62,000 from the prior year
period to $101,000 in the three months ended January 31, 1999. As an offset to
the decrease in initial franchise sales, certain related expenses in personnel,
advertising, and promotion, have also decreased and are reflected in the
decrease in selling, general and administrative expenses.
EXPENSES:
Total pre-tax expenses were $3,324,000 for the first quarter of 1999,
a decrease of $444,000 or 12% from the first quarter of 1998. Selling, general,
and administrative expenses decreased $336,000, expenses related to
Company-owned operations decreased $284,000, interest expense decreased $32,000
and cost of product sales increased $208,000.
The decrease in selling, general, and administrative expenses reflect
reductions in overhead made during the latter part of fiscal 1998, particularly
in the Company's Surface Doctor and Pest Control corporate expenses, and the
nature of certain expenses in 1998 for enhancements to systems and procedures
which were expected to be non-recurring.
The $284,000 decrease in Company-owned expenses relate to the sale of
Tulsa, OK Hygiene and Monroe, NC, Pest Control operations and have a
corresponding decrease in revenue. The $208,000 increase in the cost of
products sold follows a corresponding increase in revenue from products sold.
Gross margin decreased slightly from the prior year primarily due to a change
in the mix of product sold, with an increasing amount of lower margin items
sold in 1999.
INCOME:
Net income of $21,000 for the three months ended January 31, 1999 was
an increase of $371,000 from a net loss of $350,000 from the prior year period.
The basic earnings per share for the three months ended January 31, 1999 was
$0.01 per share on 2,208,271 common shares, as compared to a loss of $0.16 per
share on 2,122,271 shares for the comparable period in 1998. Fully diluted
(loss) earnings were $0.01 on 2,212,057 average common shares and common share
equivalents in the three months ended January 31, 1999 and a loss of $0.16 on
2,122,271 average common shares and common share equivalents for the comparable
prior year period. Interest expense of $54,000 for the three months ended
January 31, 1999 was an improvement of $32,000 from the prior year period.
7
<PAGE> 8
ITEM 2. FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES:
The Company's principal sources of liquidity, both on a short-term and
long-term basis are cash flow from operations and borrowings under a commercial
revolving credit facility. The Company has also received advances on long-term
notes receivable for working capital. Based upon its analysis of its
consolidated financial position, its cash flow during the past three months,
and the cash flow anticipated from its future operations, the Company believes
that its future cash flows together with funds available under its current
credit facility, or expected alternative sources, will be adequate to meet the
financing requirements it anticipates during the next twelve months. There can
be no assurance, however, that future developments and general economic trends
will not adversely affect the Company's operations and, hence, its anticipated
cash flow.
Subsequent to the end of the quarter, on February 17, 1999, the
Company's primary lender extended the credit facility through June 30, 1999, at
which time the balance will become due and payable. The Company believes it will
be successful in identifying and obtaining alternative financing sources to
replace this credit facility prior to its expiration. An inability to refinance
this credit facility, as needed, would adversely affect the Company's operations
and financial position.
For the first three months in fiscal year 1999, cash and cash
equivalents decreased $132,000. This decrease is attributed primarily to cash
used in operating activities of $149,000, which included a decrease of $554,000
in accounts payable, and is further detailed in the consolidated statement of
cash flows.
Working capital improved $351,000 in the three month period ending
January 31, 1999. Total current liabilities include the outstanding balance on
a commercial revolving line of credit of $1,660,000 and deferred revenue of
$146,000 and exceed total current assets by $874,000.
Total assets of $10,329,000 decreased $446,000 in the three months
ended January 31, 1999, primarily due to a decrease of $282,000 in Notes
Receivable and a decrease of $132,000 in cash and cash equivalents. Total
liabilities of $6,398,000 decreased $467,000, primarily due to a decrease of
$554,000 in accounts payable.
In November 1998, Mr. Swisher advanced the Company $275,000, in the
form of a short-term note payable, collateralized by certain anticipated income
tax refunds. Also in November 1998, a pre-payment of $165,000 was received by
the Company towards an outstanding note receivable from the Houston hygiene
franchise. The note receivable due from the Houston Hygiene relates to the
purchase of this franchise from the Company, by a company in which Mr. Swisher
is a majority owner.
YEAR 2000 COMPLIANCE.
Many existing computer systems and applications and other control
devices use only two digits to identify a year in the date field, without
considering the impact of the upcoming change in the century. The Year 2000
issue is the risk that systems, products and equipment utilizing date-sensitive
software or computer chips with two-digit date fields will fail to properly
recognize the Year 2000. Such failures by the Company's software or hardware or
that of government entities, customers, major vendors and other third parties
with whom the Company has material relationships could result in interruptions
of the Company's business which could have a material adverse effect on the
Company.
In response to the Year 2000 issue, the Company has implemented a Year
2000 program designed to identify, assess and address significant Year 2000
issues. This includes the Company's key business operations, services, business
applications, and information technology systems and facilities. Additional
tasking includes identification of the Company's customers, major vendors and
other third parties with whom the Company has material relationships that may
have Year 2000 issues with which to contend.
The Company's Year 2000 readiness program applies to all hardware and
software, whether developed internally or purchased from an outside supplier.
Management has been assured through letters of attestation from most major
software and hardware suppliers that mission critical Company software and
hardware platforms are Year 2000 compliant. The Company believes that if any
systems need to be repaired or replaced the repair or replacement would be
minimal and could be handled within our normal budget for computer system
upgrades and replacements. The Company is encouraging its subsidiaries and
franchisees to take the appropriate precautionary steps necessary to ensure
their computers systems are Year 2000 compliant, well in advance of the January
1, 2000 timeframe.
8
<PAGE> 9
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
Other Information
PART II OTHER INFORMATION
ITEM 1. Legal proceedings
none
ITEM 2. Changes in Securities
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
(1) Exhibits
27 Financial Data Schedule (for SEC use only)
(2) Reports on Form 8-K
The Company filed no reports on Form 8-K for the three
months ended January 31, 1999.
9
<PAGE> 10
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
Other Information
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 - March 15, 1999 by: /s/ Patrick L. Swisher
----------------------
Patrick L. Swisher
President & Chief Executive Officer
Date - March 15, 1999 by: /s/ Thomas W. Busch
----------------------
Thomas W. Busch
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SWISHER
INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-31-1999
<CASH> 324,731
<SECURITIES> 0
<RECEIVABLES> 3,399,683
<ALLOWANCES> 483,871
<INVENTORY> 61,928
<CURRENT-ASSETS> 4,630,428
<PP&E> 1,788,021
<DEPRECIATION> 856,083
<TOTAL-ASSETS> 10,329,386
<CURRENT-LIABILITIES> 5,504,877
<BONDS> 0
0
0
<COMMON> 22,083
<OTHER-SE> 4,728,395
<TOTAL-LIABILITY-AND-EQUITY> 10,329,386
<SALES> 1,705,305
<TOTAL-REVENUES> 3,345,530
<CGS> 1,411,259
<TOTAL-COSTS> 3,324,492
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,143
<INCOME-PRETAX> 21,038
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,038
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
