UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended - July 31, 1997
Commission File Number: 000-21282
SWISHER INTERNATIONAL, INC.
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
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 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.
[ X ] Yes [ ] No
Number of share of Common Stock outstanding as of June 12,
1997: 2,082,213
Transitional Small Business Disclosure Format:
[ ] Yes [ X ] No
PART I - FINANCIAL INFORMATION
Item 1. Financial Information
Financial Statements and Supplementary Data
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Item 2. Management's Discussion and Analysis
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31,
1997 October 31,
(Unaudited) 1996
----------- -----------
ASSETS
------
CURRENT ASSETS:
Cash and Cash Equivalents $ 491,643 $ 1,809,590
Restricted Cash 250,000 260,826
Accounts Receivable:
Franchisees 2,528,095 1,716,049
Other 687,491 495,130
Less Allowance for
Doubtful Accounts (378,648) (100,247)
----------- -----------
Net Accounts Receivable 2,836,938 2,110,932
Notes Receivable, Current Portion 1,209,910 1,023,199
Inventory 167,852 166,042
Prepaid Expenses 388,105 154,586
----------- -----------
TOTAL CURRENT ASSETS 5,344,448 5,525,175
PROPERTY AND EQUIPMENT:
Furniture & Equipment 1,418,022 1,154,491
Less Accumulated Depreciation (558,105) (432,103)
----------- -----------
NET PROPERTY AND EQUIPMENT 859,917 722,388
OTHER ASSETS:
Notes Receivable 2,693,027 2,134,748
Deferred Franchise Costs 103,883 105,040
Intangible Assets, Less Amortization 1,609,404 1,725,360
----------- -----------
NET OTHER ASSETS 4,406,314 3,965,148
----------- -----------
TOTAL ASSETS $10,610,679 $10,212,711
============ ============
(continued)
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
July 31,
1997 October 31,
(Unaudited) 1996
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Line of Credit and
Long-Term Debt, Current Portion $ 1,364,038 $ 1,550,478
Accounts Payable 1,462,386 1,170,438
Accrued Expenses 182,423 181,132
Deferred Revenue 209,324 224,124
Income Taxes Payable 354,331 259,817
----------- -----------
TOTAL CURRENT LIABILITIES 3,572,502 3,385,989
LONG-TERM DEBT 508,350 858,616
DEFERRED INCOME TAXES 96,480 96,480
----------- -----------
TOTAL LIABILITIES 4,177,332 4,341,085
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; 2,082,213 shares
issued and outstanding at July 31,
1997 and 1,935,799 outstanding at
October 31, 1996 20,822 19,359
Additional Paid-In Capital 4,009,123 4,006,659
Retained Earnings 2,403,402 1,845,608
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 6,433,347 5,871,626
----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $10,610,679 $10,212,711
=========== ===========
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------- -------------------------
1997 1996 1997 1996
------------------------- -------------------------
REVENUES:
Annuity Revenues:
Product Sales to Franchisees $ 1,337,989 $ 944,994 $ 3,662,846 $ 2,325,088
Service Fees 473,215 444,935 1,357,947 1,251,738
Royalties 545,712 420,527 1,563,914 1,169,552
Marketing Fees 14,596 12,028 42,995 34,622
----------- ----------- ----------- -----------
Total Annuity Revenues 2,371,512 1,822,484 6,627,702 4,781,000
Revenue from Company
Owned Subsidiaries 425,167 601,517 1,283,346 1,882,225
Initial Franchise Sales:
Swisher Hygiene 185,175 - 530,700 287,161
Surface Doctor 201,900 95,620 436,505 95,620
Gain on Sale of Company-Owned Operations 381,461 94,672 529,643 94,672
Other Income 92,876 275,845 235,067 425,969
----------- ----------- ----------- -----------
TOTAL REVENUES 3,658,091 2,890,138 9,642,963 7,566,647
----------- ----------- ----------- -----------
EXPENSES:
Selling, G & A Expenses:
Corporate & Hygiene Franchising 1,330,739 852,329 3,235,533 2,493,132
Swisher Maid Franchising 28,292 230,370 136,989 452,681
Surface Doctor Franchising 364,346 91,574 1,036,283 91,574
Cost of Product Sales 1,057,407 843,104 2,942,043 2,004,699
Expenses of Company
Owned Subsidiaries 422,784 552,882 1,225,430 1,742,062
Interest Expense 42,144 59,924 136,697 184,806
----------- ----------- ----------- -----------
TOTAL EXPENSES 3,245,712 2,630,183 8,712,975 6,968,954
----------- ----------- ----------- -----------
INCOME BEFORE TAXES AND
NON-RECURRING ITEMS 412,379 259,955 929,988 597,693
NON-RECURRING ITEMS
Loss on sale of assets - - - ( 17,206)
PROVISION FOR INCOME TAXES 163,994 96,069 372,194 227,487
----------- ----------- ----------- -----------
NET INCOME $ 248,385 $ 163,886 $ 557,794 $ 353,000
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT
PRIMARY EARNINGS $ 0.11 $ 0.09 $ 0.25 $ 0.19
=========== =========== =========== ===========
COMMON SHARES AND EQUIVALENTS 2,478,403 1,853,015 2,423,524 1,853,015
=========== =========== =========== ===========
FULLY DILUTED EARNINGS $ 0.11 $ 0.09 $ 0.25 $ 0.19
=========== =========== =========== ===========
COMMON SHARES AND EQUIVALENTS 2,481,051 1,853,015 2,514,826 1,853,015
=========== =========== =========== ===========
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
July 31,
------------------------------
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 557,794 $ 353,000
Adjustments to reconcile net income
to net cash provided (used) by
operating activities-
Depreciation and amortization 189,794 105,957
(Gain) on financed sales of
Company Operations (520,479) -
Change in Assets and Liabilities-
(Increase) decrease in assets-
Accounts receivable (726,006) (577,142)
Inventory (1,810) (81,096)
Prepaid expenses (233,519) (70,289)
Deferred franchise costs 1,157 9,025
Notes receivable (224,511) (383,610)
Increase (decrease) in liabilities-
Accounts payable 291,948 215,860
Accrued expenses 1,291 31,088
Income taxes payable 94,514 160,890
Deferred revenue (14,800) 27,965
------------ ------------
Total Adjustments (1,142,421) (561,352)
------------ ------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (548,627) (208,352)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (263,531) (128,455)
Sale of fixed assets - 336,935
Decrease (increase) in intangible
& other assets 52,164 (981,686)
------------ ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (211,367) (773,206)
------------ ------------
(continued)
</TABLE)
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Nine Months Ended
July 31,
------------------------------
1997 1996
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net principal payments under long-term
debt obligations (536,706) (60,971)
Proceeds from stock transactions 3,927 925,159
Decrease in restricted cash 10,826 200,000
------------ ------------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (521,953) 1,064,188
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,317,947) 82,630
CASH AND CASH EQUIVALENTS,
Beginning of year 1,809,590 930,492
------------ ------------
CASH AND CASH EQUIVALENTS,
End of third quarter $ 491,643 $ 1,013,122
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid year to date for -
Interest $ 149,804 $ 185,777
============ ============
Income taxes $ 277,680 $ 30,497
============ ============
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL :
The financial information for the periods ended July 31, 1997 and 1996
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 July 31, 1997 and 1996, and the
results of its operations and its cash flows for the nine-month period then
ended.
The Company operates in two principal business segments: "Franchise
Operations," which includes Initial Franchise Sales and Annuity Revenues
(Service Fees, Product Sales, Royalties, and Marketing Fees), and "Company
Operations," which includes the Company's hygiene operations located in
Space Coast, FL; and Tulsa, OK; and the Company's residential maids
operations located in Charlotte, NC and Scottsdale, AZ. Subsidiaries
are actively engaged in providing hygiene services and maid services
directly to customers in the same manner as franchisees.
On July 30, 1996, the Company entered into an Asset Purchase Agreement
with Professional Carpet Systems, Inc. ("PCS") and Old Dixie Supply
Company to acquire substantially all of the assets of an operating division
of PCS known as Surface Doctor. The purchase price paid for the assets
consisted of 200,000 shares of the Company's restricted Common Stock, an
Option to purchase 75,000 shares of the Company's Common Stock at an exercise
price of $6.00 per share, and the assumption of approximately $82,000 in
liabilities relating to the Surface Doctor business.
Surface Doctor has conducted business as a franchisor since November 1993
and currently has approximately 116 domestic and 12 foreign franchisees which
provide kitchen and bath restoration services, particularly with respect to
resurfacing appliances, counter tops and fixtures. Franchisees provide such
services in designated markets to the apartment industry, hotels, other
commercial customers and homeowners. Surface Doctor's revenues are derived
from franchise sales, royalty fees, marketing fees, and sales of supplies.
REVENUE :
Revenues in the third quarter increased 27% to $3,658,091 as compared to
prior year third quarter of $2,890,138. The major factor in the overall
increase is the continued growth in Annuity Revenues.
SEGMENT REVENUES:
"Franchise Operations." Annuity Revenues for the three-month period
ended July 31, 1997, increased 30% to $2,371,512 as compared to prior
year third quarter results of $1,822,484. Revenue derived from Initial
Franchise Sales, including sales of Master Licenses in foreign countries,
increased 305% to $387,075 compared to prior year third quarter sales
of $95,620.
"Company Operations." Revenues decreased 29% for the three-months ended
July 31, 1997, compared to the prior year third quarter. This decrease
is attributable to the sales in July and December 1996 of the Houston, TX
and Jacksonville, FL Hygiene operations and the December 1996 sale of the
Atlanta, GA Surface Doctor operation to franchisees.
EXPENSES:
Total pre-tax expenses for the third quarter of 1997 increased 23% over
third quarter 1996, which represents an increase of $615,529. Selling,
general and administrative expenses increased by 47% to $1,723,377
compared to prior year third quarter of $1,174,273. Expenses of Company-
owned subsidiaries decreased $130,098 from the prior year's third quarter.
SEGMENT EXPENSES:
"Franchise Operations." Expenses for the third quarter of 1997
increased $549,104 compared with the third quarter of 1996. Of this
increase, 50% or $272,772 is attributable to the acquisition and
operation of the Surface Doctor division. The remaining increase of
$276,332 over the prior year third quarter is attributable to the
continuing Hygiene and Maids franchising operations. Cost of products
for resale to franchisees increased $214,304 or 25% over the prior year
third quarter and reflects a 42% increase in product sales revenues.
"Company Operations." Expenses for the quarter ended July 31, 1997,
decreased by $130,098 or 24% as compared to third quarter 1996. This
decrease in expenses is attributable to the sale of the company's
Houston, TX and Jacksonville, FL Hygiene operations to franchisees. The
Company hygiene and residential maids operations are operated in the
same manner as franchise operations. During the current quarter, the
Company sold its Charlotte hygiene operation to a franchisee.
INCOME:
Net Income for the three months ended July 31, 1997, increased
$84,499 or 52% compared to the 1996 third quarter. Net income was
$248,385 for the quarter ended July 31, 1997, compared to third
quarter 1996 of $163,886. Primary earnings per share for the three months
ended July 31, 1997, was $.11 on common shares and common share
equivalents of 2,478,403 as compared to the same period last year of $.09
per share on 1,853,015 shares. FASB 128 regarding computations and
disclosures of earnings per share will not apply to the Company's current
fiscal year.
SEGMENT INCOME:
"Franchise Operations." Operating income for the three-month period
ended July 31, 1997, decreased to $28,535 compared to the same
period last year of $116,648. This decrease of $88,113 is mainly
attributable to costs incurred in developing the infrastructure to
support international franchise sales.
"Company Operations." Operating income for the third quarter 1997
decreased to $2,383 as compared to third quarter 1996 of $48,635.
This decrease of $46,252 is primarily attributable to the sale in July
1996 of the Company owned Houston, TX Hygiene operation and in December
1996 of the Company owned Atlanta, GA Surface Doctor operation.
LIQUIDITY AND CAPITAL RESOURCES:
Working capital decreased $367,240 during the first nine months of 1997
due principally to the use of $1,317,947 in cash and cash equivalents as
detailed in the Consolidated Statement of Cash Flows and an increase of
291,948 in accounts payable due primarily to a 47% increase in the cost of
product sales.
Total assets increased $397,968 due mainly to an increase in notes
receivable from franchisees and master licensees. Total liabilities decreased
by $163,753, which also reflects the use of cash and cash equivalents.
PART II - OTHER INFORMATION
Item 1. Legal proceedings
not applicable
Item 2. Changes in Securities
not applicable
Item 3. Defaults Upon Senior Securities
not applicable
Item 4. Submission of Matters to a Vote of Security Holders
not applicable
Item 5. Other information
not applicable
Item 6. Exhibits and Reports on Form 8-K
(1) Exhibits
none
(2) Reports on Form 8-K
none
- -----------------------------------------------------------------------------
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 - September 15, 1997 Patrick L. Swisher
Patrick L. Swisher
Chief Executive Officer
Date - September 15, 1997 Charles H. Cendrowski
Charles H. Cendrowski
Corporate Controller