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 MARCH 31, 2003.
[ ] 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 (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1010 N. University Parks Dr., Waco, TX 76707
--------------------------------------------
(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
(254) 745-2400
--------------
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- --------------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER
FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check whether the issuer is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). 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 May 12, 2003
- ------------------------------ ---------------------------
Common stock, $.10 par value 7,063,931
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes [ ] No [X]
THE DWYER GROUP, INC.
INDEX
<Table>
<Caption>
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2003 (unaudited)
and December 31, 2002 (audited)...................................................................3
Consolidated Statements of Income for the Three Months Ended
March 31, 2003 and 2002 (unaudited)...............................................................4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2003 and 2002 (unaudited).........................................................5
Notes to Condensed Consolidated Financial Statements............................................6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................9-11
Item 3. Controls and Procedures..........................................................................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
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2003 2002
-------------- --------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,459,200 $ 1,486,256
Marketable securities, available-for-sale 579,231 572,070
Trade accounts receivable, net of allowance for doubtful
accounts of $485,397 and $375,996, respectively 1,477,356 1,852,834
Accounts receivable from related parties 151,643 116,901
Accrued interest receivable 74,171 69,344
Trade notes receivable, current portion, net of allowance for
doubtful accounts of $92,630 and $92,065, respectively 2,249,161 2,209,542
Inventories 58,667 74,885
Prepaid expenses 647,356 470,762
Notes receivable from related parties, current portion 183,286 184,384
-------------- --------------
Total current assets 6,880,071 7,036,978
Property and equipment, net 4,222,573 4,086,419
Notes and accounts receivable from related parties 75,484 75,484
Trade notes receivable, net of allowance for doubtful notes of
$1,693,664 and $1,635,787 respectively 7,035,342 6,587,095
Goodwill, net 5,030,081 5,030,081
Purchased franchise rights, net 2,699,977 2,877,346
Net deferred tax asset 844,311 846,568
Other assets 613,481 631,391
-------------- --------------
TOTAL ASSETS $ 27,401,320 $ 27,171,362
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 591,821 $ 898,424
Accrued liabilities 1,229,668 957,305
Accrued interest 277,701 283,758
Accrued payroll 850,671 675,528
Deferred franchise sales revenue 173,073 302,142
Federal income taxes payable 283,527 89,149
Current maturities of long-term debt 656,694 1,117,312
-------------- --------------
Total current liabilities 4,063,155 4,323,618
Long-term debt, less current portion 2,530,170 2,690,761
Deferred franchise sales revenue 61,171 82,592
Stockholders' equity:
Common stock 771,122 771,122
Additional paid-in capital 9,112,248 9,112,248
Retained earnings 12,073,397 11,469,780
Accumulated other comprehensive income 209 (68,607)
Treasury stock, at cost (1,210,152) (1,210,152)
-------------- --------------
Total stockholders' equity 20,746,824 20,074,391
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,401,320 $ 27,171,362
============== ==============
</Table>
See notes to condensed consolidated financial statements (unaudited).
3
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONDENSED STATEMENT OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
------------------------------
2003 2002
------------- -------------
REVENUES:
Royalties $ 3,464,068 $ 2,956,917
Franchise fees 1,839,498 1,593,587
Sales of products and services 642,257 948,133
Interest 222,906 177,600
Other 210,245 190,072
------------- -------------
TOTAL REVENUES 6,378,974 5,866,309
COSTS AND EXPENSES:
General, administrative and selling 4,478,219 3,846,171
Costs of product and service sales 545,643 776,341
Depreciation and amortization 353,436 316,833
Interest 55,777 51,484
------------- -------------
TOTAL COSTS AND EXPENSES 5,433,075 4,990,829
Income before income taxes 945,899 875,480
Income taxes (342,282) (317,746)
------------- -------------
NET INCOME $ 603,617 $ 557,734
============= =============
EARNINGS PER SHARE - BASIC $ 0.09 $ 0.08
============= =============
EARNINGS PER SHARE - DILUTED $ 0.08 $ 0.08
============= =============
WEIGHTED AVERAGE COMMON SHARES 7,063,931 6,997,931
============= =============
WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
DILUTIVE COMMON SHARES 7,420,748 7,436,346
============= =============
</Table>
See notes to condensed consolidated financial statements (unaudited).
4
THE DWYER GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED MARCH 31,
------------------------------
2003 2002
------------- -------------
Operating activities:
Net income $ 603,617 $ 557,734
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 353,436 316,833
Change in reserve for doubtful accounts 498,833 222,852
Notes received for franchise sales (1,311,692) (1,267,029)
Notes received other than for franchise sales (220,015) (313,914)
Changes in assets and liabilities:
Accounts and interest receivable 367,256 293,142
Receivables / payables to related parties, net (34,742) (144,554)
Inventories 16,218 4,057
Prepaid expenses (176,594) (393,966)
Deferred tax asset 2,257 (7,122)
Accounts payable and accrued liabilities 329,224 674,798
Deferred franchise sales revenue (150,490) (31,010)
Other 5,038 14,266
------------- -------------
Net cash provided by (used in) operating activities 282,346 (73,913)
------------- -------------
Investing activities:
Collections of notes receivable 568,456 847,656
Purchases of property and equipment (276,468) (544,782)
Sale of property and equipment -- 17,753
Purchases of other assets (5,284) (24,075)
Purchase of marketable securities (3,657) (3,904)
Increase in unrealized gain on marketable securities 27,662 1,333
Collections on notes receivable from related parties 1,098 5,970
------------- -------------
Net cash provided by investing activities 311,807 299,951
------------- -------------
Financing activities:
Proceeds from borrowings -- 160,000
Payments on borrowings (621,209) (552,774)
------------- -------------
Net cash used in financing activities (621,209) (392,774)
------------- -------------
Net decrease in cash and cash equivalents (27,056) (166,736)
Cash and cash equivalents, beginning of period 1,486,256 790,151
------------- -------------
Cash and cash equivalents, end of period $ 1,459,200 $ 623,415
============= =============
</Table>
See notes to condensed consolidated financial statements (unaudited).
5
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:
- 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).
- Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of plumbing
repair and drain cleaning services under the service mark "Mr.
Rooter"(R).
- 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).
- Mr. Electric Corp. ("Mr. Electric") is a franchisor of electrical
repair and service businesses under the service mark "Mr.
Electric"(R).
- Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of major
household appliance service and repair businesses under the service
mark "Mr. Appliance"(R).
- Synergistic International, Inc., ("Glass Doctor"), is franchisor of
Glass Doctor (R), a service concept whose business is the replacement
of automobile, residential and commercial glass.
- 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.
- The Dwyer Group Canada, Inc. ("TDG Canada") markets and services
certain of the Company's franchise concepts in Canada. Currently,
those concepts are Mr. Rooter, Mr. Electric, Rainbow and Mr.
Appliance.
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 March 31, 2003, for the three months ended March 31, 2003
and for the three months ended March 31 2002, 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, 2002, and with other
filings with the U.S. Securities and Exchange Commission.
The results of operations for the three months ended March 31, 2003 are not
necessarily indicative of the results to be expected for the fiscal year ending
December 31, 2003.
6
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.
NEW ACCOUNTING POLICIES
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146), which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. The
Company will adopt the provisions of SFAS 146 for restructuring activities
initiated after December 31, 2002. SFAS 146 requires that the liability for
costs associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit cost was
recognized at the date of a company's commitment to an exit plan. SFAS 146 also
establishes that the liability should initially be measured and recorded at fair
value. Accordingly, SFAS 146 may affect the timing of recognizing future
restructuring costs as well as the amount recognized. Adoption of this standard
did not have any immediate effect on the Company's consolidated financial
statements.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51, Consolidated Financial
Statements (FIN No. 46). FIN No. 46 explains how to identify variable interest
entities and how an enterprise assesses its interests in a variable interest
entity, to decide whether to consolidate that entity. The Interpretation
requires existing unconsolidated variable interest entities to be consolidated
by their primary beneficiaries if the entities do not effectively disperse risks
among parties involved. FIN No. 46 is effective immediately for variable
interest entities created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. The
Interpretation applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1, 2003. Adoption of this
standard did not have any immediate effect on the Company's consolidated
financial statements.
STOCK BASED COMPENSATION
In compliance with SFAS 148, the Company has elected to continue to follow the
intrinsic value method in accounting for our stock-based employee compensation
arrangement as defined by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and have made the applicable disclosures.
Had the compensation cost for the Company's stock-based compensation plans been
determined consistent with SFAS 123, net income and earnings per common share
for 2003 and 2002 would approximate the pro forma amounts below:
<Table>
<Caption>
2003 2002
---------- ----------
Net income, as reported $ 603,617 $ 557,734
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards,
net of tax effects (16,000) (16,000)
---------- ----------
Pro forma net income $ 587,617 $ 541,734
========== ==========
Net income per share
Basic, as reported $.09 $.08
Basic, pro forma $.09 $.08
Diluted, as reported $.08 $.08
Diluted, pro forma $.08 $.08
</Table>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future results.
7
NOTE 4. SUBSEQUENT EVENTS
On May 12, 2003, the Company announced the signing of a merger agreement whereby
the Company will merge with an affiliate of The Riverside Company, a private
equity firm. Pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), by and among the Company, TDG Holding Company and its wholly owned
subsidiary, TDG Merger Co., TDG Merger Co. will merge with and into the Company.
The Company will survive the merger as a wholly owned subsidiary of TDG Holding
Company. Stockholders of the Company will receive $6.75 in cash for each
outstanding share of Company common stock owned at the effective time of the
merger. The merger is subject to the approval of the Company's stockholders,
regulatory approvals and the satisfaction of other standard conditions. The
merger is also subject to a condition that the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the trailing
twelve months as of the month end immediately preceding the mailing of the proxy
statement be at least $6,460,000. There can be no assurances that the Company
will be able to achieve the required EBITDA.
The Company's Board of Directors formed a special committee, consisting of
non-employee directors who will not be shareholders in or directors of the
Company or TDG Holding Company after the merger, to negotiate the terms of the
merger transaction on behalf of the Company. The Company's Board of Directors,
upon the unanimous recommendation of the special committee, unanimously approved
the Merger Agreement.
Certain significant stockholders of the Company, including the Dwyer family
limited partnership and individual members of the Dwyer family, who collectively
own over 60% of the Company's common stock (on a non-diluted basis), have agreed
to vote in favor of the approval of the merger and the Merger Agreement, subject
to certain exceptions, pursuant to a voting agreement between TDG Holding
Company and such stockholders (the "Voting Agreement"). Certain significant
stockholders of the Company, including senior management, the Dwyer family
limited partnership and members of the Dwyer family, including Dina Dwyer-Owens,
president and CEO, will not have certain of their shares converted into cash in
the merger, but instead will exchange those shares for common shares of TDG
Holding Company immediately prior to the effective time of the merger.
Consummation of the merger transaction will result in the Company's common stock
ceasing to be listed on The NASDAQ National Market and the termination of the
registration of such securities pursuant to the Securities Exchange Act of 1934.
8
ITEM 2. 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 March 31, 2003
as compared to 1.6 to 1 December 31, 2002. The Company had working capital of
$2,817,000 at March 31, 2003 as compared to $2,713,000 at December 31, 2002. For
the remainder of fiscal 2003, management expects to fund working capital
requirements primarily through operating cash flow. At March 31, 2003, the
Company had cash and cash equivalents of $1,459,000, and marketable securities
of $579,000.
In May of 2002, the Company renegotiated a $1,000,000 line of credit with its
bank. Management expects that the line will be renewed for another year in May
of 2003.
Cash in the amount of $282,000 was provided by operating activities in the first
quarter of 2003, as compared to $74,000 used in operating activities for the
same period in 2002. In 2003, cash was generated primarily by a net profit of
$604,000, depreciation and amortization of $353,000, a decrease in accounts and
interest receivable of $367,000, an increase in the reserve for doubtful
accounts of $499,000 and an increase in payables and accrued liabilities of
$329,000, which was partially offset by notes received from franchise sales of
$1,312,000, other notes receivable of $220,000, an increase in receivables from
related parties of $35,000, a decrease in deferred franchise sales of $150,000,
and an increase in prepaid expenses of $177,000. For the same period in 2002,
cash was generated primarily by a net profit of $558,000, depreciation and
amortization of $317,000, a decrease in accounts and interest receivable of
$293,000, an increase in the reserve for doubtful accounts of $223,000, and an
increase in payables and accrued liabilities of $675,000, which was more than
offset by notes received from franchise sales of $1,267,000, other notes
receivable of $314,000, an increase in receivables from related parties of
$145,000, and an increase in prepaid expenses of $394,000.
In the first quarter of 2003, the Company generated $312,000 in cash from
investing activities, primarily from collections of notes receivable of
$568,000, partially offset by purchases of property and equipment for $276,000.
The cash used for the purchases of property and equipment was primarily related
to remodeling the office facilities and upgrades in computer software. For the
same period in 2002, the Company generated $300,000 in cash from investing
activities, primarily from collections of notes receivable of $848,000,
partially offset by purchases of property and equipment for $545,000.
In the first quarter of 2003, the Company used $621,000 in cash for financing
activities for payments on borrowings. For the same period in 2002, the Company
used $393,000 in cash for financing activities for payments on borrowings of
$553,000, partially offset by new borrowings of $160,000.
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 three months ended March 31, 2003, compared to the three months ended
March 31, 2002.
Total revenues for the quarter increased by $513,000 (9%) to $6,379,000 in 2003
from $5,886,000 in 2002. This increase is due to increases in the following
revenue categories: royalties - $507,000 (17%); franchise fees - $246,000 (15%);
interest income - $45,000 (26%); and other - $21,000 (11%); partially offset by
a decrease in sales of products and services - $306,000 (32%).
9
Royalty revenues from the Company's franchise concepts increased as follows:
<Table>
Mr. Rooter $206,000 (15)%
Rainbow $101,000 (18)%
Aire Serv $ 59,000 (43)%
Glass Doctor $ 40,000 (8)%
Mr. Appliance $ 14,000 (25)%
Mr. Electric $ 8,000 (3)%
</Table>
In addition to the above, royalties from the Company's Canadian and certain
other foreign operations increased by $79,000 (58%).
Overall, these royalty revenue increases, which coincide with the increased
business revenues of existing franchisees as well as an increase in the number
of franchisees producing revenue, are a direct result of the Company's emphasis
on providing strong franchise support services, and its methods and programs
created to assist franchisees in building successful businesses, along with
continued emphasis on the sale of new franchises. These strategies are very
important to the future of the Company, as royalties are the foundation for the
Company's long-term financial strength.
The increase in franchise fee revenues was due to increases from each of the
following concepts: Mr. Rooter - $75,000 (12%); Glass Doctor - $309,000 (134%);
Rainbow - $150,000 (124%); Mr. Appliance - $10,000 (10%); and international
operations - $28,000. These increases were partially offset by decreases from
Mr. Electric - $207,000 (66%); and Aire Serv - $119,000 (56%).
Sales of products and services decreased by $306,000 (32%), due to the loss of a
major National Accounts customer.
General and administrative expenses increased by $632,000 (16%), due to
additional costs and personnel associated with the increase in overall revenues
and an increase in bad debt expense in 2003.
Due to the decrease in product and service sales, costs associated with such
sales decreased by $231,000 (30%).
Depreciation and amortization increased by $37,000 (12%) due primarily to
purchases of additional property, plant, and equipment.
The Company reported net income of $604,000 for the quarter ended March 31, 2003
as compared to net income of $558,000 for the same period in 2002.
IMPACT OF INFLATION
Inflation has not had a material impact on the operations of the Company.
FOREIGN OPERATIONS
The Company operates in 16 foreign countries. Typically, other than in Canada,
foreign franchises are sold and managed by a master licensee in that country.
Royalties from master licenses are recorded as received due to the difficulty
sometimes experienced in foreign countries when attempting to transfer such
funds to the United States. The Company does not depend on foreign operations,
and such operations do not have a material impact on its cash flow. The Company
may sell additional master licenses, which could result in lump sum payments
from the master licensees to the Company.
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.
10
CONTRACTUAL OBLIGATIONS AND CONTINGENT LIABILITIES AND COMMITMENTS
We have contractual obligations and commitments primarily in regard to payment
of debt and lease arrangements.
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
----------------------
Beyond
2003 2004 2005 2006 2007 Total
------ ------ ------ ------ ------ ------
Contractual Obligations
Long-Term Debt $ 496 $ 468 $ 257 $1,966 $ -- $3,187
Operational Lease Commitments -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total Contractual Obligations $ 496 $ 468 $ 257 $1,966 $ -- $3,187
====== ====== ====== ====== ====== ======
</Table>
RECENT EVENTS
On May 12, 2003, the Company announced the signing of a merger agreement whereby
the Company will merge with an affiliate of The Riverside Company, a private
equity firm. Pursuant to an Agreement and Plan of Merger (the "Merger
Agreement"), by and among the Company, TDG Holding Company and its wholly owned
subsidiary, TDG Merger Co., TDG Merger Co. will merge with and into the Company.
The Company will survive the merger as a wholly owned subsidiary of TDG Holding
Company. Stockholders of the Company will receive $6.75 in cash for each
outstanding share of Company common stock owned at the effective time of the
merger. The merger is subject to the approval of the Company's stockholders,
regulatory approvals and the satisfaction of other standard conditions. The
merger is also subject to a condition that the Company's earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the trailing
twelve months as of the month end immediately preceding the mailing of the proxy
statement be at least $6,460,000. There can be no assurances that the Company
will be able to achieve the required EBITDA.
The Company's Board of Directors formed a special committee, consisting of
non-employee directors who will not be shareholders in or directors of the
Company or TDG Holding Company after the merger, to negotiate the terms of the
merger transaction on behalf of the Company. The Company's Board of Directors,
upon the unanimous recommendation of the special committee, unanimously approved
the Merger Agreement.
Certain significant stockholders of the Company, including the Dwyer family
limited partnership and individual members of the Dwyer family, who collectively
own over 60% of the Company's common stock (on a non-diluted basis), have agreed
to vote in favor of the approval of the merger and the Merger Agreement, subject
to certain exceptions, pursuant to a voting agreement between TDG Holding
Company and such stockholders (the "Voting Agreement"). Certain significant
stockholders of the Company, including senior management, the Dwyer family
limited partnership and members of the Dwyer family, including Dina Dwyer-Owens,
president and CEO, will not have certain of their shares converted into cash in
the merger, but instead will exchange those shares for common shares of TDG
Holding Company immediately prior to the effective time of the merger.
Consummation of the merger transaction will result in the Company's common stock
ceasing to be listed on The NASDAQ National Market and the termination of the
registration of such securities pursuant to the Securities Exchange Act of 1934.
11
ITEM 3. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of filing this Quarterly Report on Form
10-QSB, we carried out an evaluation, under the supervision of management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a - 14. Based on that evaluation, our
Chief Executive Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in our periodic SEC filings. Subsequent to
the date of that evaluation, there have been no significant changes in our
internal controls or in other factors that could significantly affect internal
controls, nor were any corrective actions required with regard to significant
deficiencies and material weaknesses.
THIS SECTION LEFT INTENTIONALLY BLANK.
12
PART II
OTHER INFORMATION
THE DWYER GROUP, INC. AND SUBSIDIARIES
ITEM 1 - LEGAL PROCEEDINGS
NONE
ITEM 2 - CHANGES IN SECURITIES
(a) NONE
(b) Not applicable.
(c) NONE
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5 - OTHER INFORMATION
NONE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Agreement and Plan of Merger, dated as of May 11, 2003, among The
Dwyer Group, Inc., TDG Holding Company, and TDG Merger Co.
(incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K dated May 11, 2003).
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on 8-K
The Company filed a report on Form 8-K on March 7, 2003, for the purpose of
filing a press release related to operating results.
13
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: May 12, 2003 The Dwyer Group, Inc.
By: /s/ Thomas Buckley
------------------------------------
Thomas Buckley
Vice President and Chief
Financial Officer
14
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Dina Dwyer-Owens, President and Chief Executive Officer of The Dwyer Group,
Inc., certify that:
(1) I have reviewed this quarterly report on Form 10-QSB of The Dwyer
Group, Inc.
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
By: /s/ Dina Dwyer-Owens
------------------------
Dina Dwyer-Owens
Chief Executive Officer
May 12, 2003
15
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas Buckley, Vice President and Chief Financial Officer of The Dwyer
Group, Inc., certify that:
(1) I have reviewed this quarterly report on Form 10-QSB of The Dwyer
Group, Inc.
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
(6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
By: /s/ Thomas Buckley
----------------------
Thomas Buckley
Vice President and Chief Financial Officer
May 12, 2003
16
EXHIBIT INDEX
<Table>
2.1 Agreement and Plan of Merger, dated as of May 11, 2003, among The
Dwyer Group, Inc., TDG Holding Company, and TDG Merger Co.
(incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K dated May 11, 2003).
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>