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, 2000
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 FEBRUARY 29, 2000: 2,208,271
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:
[ ] YES [X] NO
2
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
(UNAUDITED) (AUDITED)
JANUARY 31, 2000 OCTOBER 31, 1999
---------------- -----------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 53,049 $ 128,742
Accounts Receivable:
Franchisees 3,039,116 2,661,751
Other 133,127 200,284
Related Party Receivables 36,503 16,588
Less Allowance for Doubtful Accounts (419,686) (413,083)
----------- -----------
Net Accounts Receivable 2,789,060 2,465,540
Notes Receivable, Current Portion 645,726 645,726
Inventory 22,923 25,070
Prepaid Expenses 37,553 32,312
Income Tax Refund Receivable 533,575 627,437
----------- -----------
TOTAL CURRENT ASSETS 4,081,886 3,924,827
PROPERTY AND EQUIPMENT:
Furniture and Equipment 1,586,576 1,741,832
Less: Accumulated Depreciation (927,200) (999,476)
----------- -----------
NET PROPERTY AND EQUIPMENT 659,376 742,356
OTHER ASSETS
Notes Receivable
Franchisees 2,897,143 2,910,794
Related Party 862,886 767,887
Other Assets 225,219 376,991
Intangible Assets, Less Amortization 29,592 31,025
----------- -----------
NET OTHER ASSETS 4,014,840 4,086,697
TOTAL ASSETS $ 8,756,102 $ 8,753,880
=========== ===========
2
3
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED) (AUDITED)
JANUARY 31, 2000 OCTOBER 31, 1999
---------------- ----------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Other Liabilities $ 2,033,620 $ 1,872,515
Accounts Payable 2,419,586 2,456,742
Accrued Expenses 388,617 410,768
Deferred Revenue 201,069 231,913
----------- -----------
TOTAL CURRENT LIABILITIES
5,042,892 4,971,938
NONCURRENT LIABILITIES
Deferred Revenue 85,000 85,000
Long-term Debt 125,523 199,034
----------- -----------
TOTAL LIABILITIES 5,253,415 5,255,972
----------- -----------
STOCKHOLDER'S EQUITY
Common Stock, $.01 par value; 15,000,000 shares
authorized; 2,208,271 shares issued and
outstanding at January 31, 2000, and
October 31, 1999 22,083 22,083
Additional Paid-In Capital 4,728,395 4,728,395
Retained Earnings (1,189,024) (1,237,103)
Treasury Stock, at cost (26,000 shares) (58,767) (15,467)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,502,687 3,497,908
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 8,756,102 $ 8,753,880
=========== ===========
3
4
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
--------------------------
2000 1999
---------- ----------
REVENUES
Annuity Revenues:
Product Sales to Franchisees $2,141,222 $1,705,305
Service Fees 588,302 551,084
Royalties 781,710 703,994
Marketing Fees 25,700 22,079
---------- ----------
Total Annuity Revenues 3,536,934 2,982,462
Revenue from Company-Owned Subsidiaries 84,494 171,264
Initial Franchise Sales 333,487 101,441
Other Income 122,323 90,363
---------- ----------
TOTAL REVENUES 4,077,238 3,345,530
EXPENSES
Selling, G&A Expenses 2,068,337 1,661,424
Cost of Product Sales 1,822,676 1,411,259
Expenses of Company-Owned Subsidiaries 79,203 197,666
Interest Expense 58,943 54,143
---------- ----------
TOTAL EXPENSES 4,029,159 3,324,492
---------- ----------
NET INCOME $ 48,079 $ 21,038
========== ==========
EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
Basic Earnings $ 0.02 $ 0.01
========== ==========
Common Shares 2,189,759 2,208,271
========== ==========
Diluted Earnings $ 0.02 $ 0.01
========== ==========
Weighted Average Common Shares
And Equivalents 2,239,834 2,212,057
========== ==========
4
5
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(UNAUDITED)
THREE MONTHS ENDED
JANUARY 31,
-------------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 48,079 $ 21,038
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 73,673 90,306
Loss on disposal of Swisher Maids 22,301 --
Changes in Assets and Liabilities -
(Increase) decrease in assets -
Accounts receivable (323,520) (130,029)
Inventory 2,147 2,050
Prepaid expenses (5,241) 3,101
Income tax receivable 93,862 --
Notes receivable -- 348,639
Increase (decrease) in liabilities -
Accounts payable 123,949 (554,237)
Accrued expenses (22,151) 70,498
Deferred revenue (30,844) --
--------- ---------
Total Adjustments (65,824) (169,672)
--------- ---------
NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES (17,745) (148,634)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Disposal of fixed assets, net (56,561) --
Notes receivables issued, net (81,348) --
Proceeds from sale of Swisher Maids 45,000 --
Decrease (increase) in intangible & other assets 151,772 --
--------- ---------
NET CASH (USED)/PROVIDED BY INVESTING ACTIVITIES 58,863 --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of Treasury Stock (43,300) --
Net principal payments under long-term debt obligations (73,511) 17,024
--------- ---------
NET CASH PROVIDED/(USED) BY FINANCING ACTIVITIES (116,811) 17,024
--------- ---------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (75,693) (131,610)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 128,742 183,352
========= =========
CASH AND CASH EQUIVALENTS AT END OF FIRST QUARTER $ 53,049 $ 51,742
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid year to date for -
Interest $ 58,943 $ 50,949
========= =========
Income taxes $ -- $ 17,654
========= =========
5
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 and Pest Control franchise program, (ii) the
introduction of new products to be sold to franchisees, (iii) the continued
successful operation of franchised businesses by Hygiene and Pest Control
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 or are being marketed pursuant to
marketing agreements with the existing 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 and Pest Control 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 Swisher International, Inc. ("the Company")
financial condition as of January 31, 2000 and results of operations for the
quarter ended January 31, 2000 and 1999 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,
1999.
GENERAL:
The financial information for the periods ended January 31, 2000 and
1999 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.
The Company continues to focus the development of Swisher Pest Control
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.
The Company sold the assets of its Swisher Maids division effective
January 3, 2000. The sale price of the asset sale totaled $140,000, which was
the carrying value of this asset held for sale on the October 31, 1999 balance
sheet. The sale was made to a former employee of the Company and a relative of
the President of the Company.
6
7
ITEM 2. FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GENERAL: (CONTINUED)
The Company recorded operating income (before taxes) of $48,000 for
the three months ended January 31, 2000, representing an increase of $27,000
compared to the prior year period. This increase in income before taxes
resulted from growth in annuity revenue, initial franchisee fees and a
reduction in costs associated with Company-owned operations sold during the
year-ended October 31, 1999.
REVENUE:
Total revenues of $4,077,000 for the first quarter ended January 31,
2000, increased $732,000 or 21.8% from the prior year comparable period.
Product sales to franchisees increased $436,000 over first quarter sales in
1999, with other annuity revenues (service and marketing fees and royalties)
increasing an additional $119,000.
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 $554,000 or
18.6% from the prior year three-month period are a direct reflection of the
growth of the franchise systems, primarily Hygiene.
The reduction of $87,000 in revenue from Company-owned operations is a
result of the sale of the West Virginia franchise during the third quarter of
1999 and the sale of the Swisher Maids Company-owned operation in January 2000.
Revenue from these operations for the prior year three month period is
reflected in the comparisons to the first quarter performance.
Initial franchise sales were $333,000 at January 31, 2000 compared to
$101,000 for the same three-month period in 1999.
EXPENSES:
Total pre-tax expenses were $4,029,000 for the first quarter of 2000,
an increase of $705,000 or 21.2% from the first quarter of 1999. Increases and
decreases in the primary components include, increased selling, general, and
administrative expenses of $407,000, the reduction of expenses related to
Company-owned operations of $118,000, and an increase in the cost of product
sales of $411,000.
The increase in selling, general and administrative expenses primarily
resulted from costs associated with increased travel, lodging and advertising
supporting growth in international sales development, plus additional sales
staffing requirements in support of domestic sales efforts. The decrease in
Company-owned expenses relate to the sale of the West Virginia franchise during
the third quarter of 1999 and the sale of the Swisher Maids Company-owned
operation in January 2000. Expenses from these operations are reflected in the
comparisons to the prior-year first quarter performance. The 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 2000.
INCOME:
Net income of $48,000 for the three months ended January 31, 2000 was
an increase of $27,000 over the prior-year three-month period. The basic
earnings per share for the three months ended January 31, 2000 was $0.02 per
share on 2,189,759 common shares, as compared to $0.01 per share on 2,208,271
shares for the comparable period in 1999. Fully diluted earnings were $0.02 on
2,239,834 average common shares and common share equivalents in the three
months ended January 31, 2000 and $0.01 on 2,212,057 average common shares and
common share equivalents for the comparable prior year period.
7
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 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, it's anticipated cash flow.
For the first three months in fiscal year 2000, cash and cash
equivalents decreased $76,000. This decrease is attributed primarily to cash
used in financing activities of $117,000, which included the purchase of
Treasury Stock and payments under long-term debt obligations.
Working capital improved slightly in the three-month period ending
January 31, 2000, with total current liabilities, including the outstanding
balance on a commercial revolving line of credit of $1,532,000 exceeding total
current assets by $571,000.
Total assets of $8,756,000 at January 31, 2000 remained fairly
constant compared to $8,754,000 at January 31, 1999. Total liabilities of
$5,253,000 also remained fairly constant compared to $5,256,000 at January 31,
1999.
YEAR 2000 COMPLIANCE.
In response to the Year 2000 issue, the Company implemented a
company-wide Year 2000 program designed to identify, assess and address
significant Year 2000 issues. These included the Company's key business
operations, services, business applications, and information technology systems
and facilities. Additional tasking included identification of the Company's
customers, major vendors and other third parties with whom the Company had
material relationships that might have had Year 2000 issues with which to
contend.
Subsequent to year-end, the Company has not yet identified any
significant adverse effects from a year 2000 computer issue, from its systems,
suppliers, or other business partners.
8
9
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
Other Information
PART II OTHER INFORMATION
ITEM 1. Legal proceedings
The Securities and Exchange Commission is continuing its
formal investigation regarding the circumstances surrounding the withdrawal of
the Company's former auditors on February 20, 1998. The effects of this
investigation, if any, are indeterminable.
The Company is subject to legal proceedings and claims, which
arise, in the ordinary course of its business. Although occasional adverse
decisions (or settlements) may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
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 SEC
Form 8-K during the three months ended
January 31, 2000.
9
10
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
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 - March 14, 2000 by: /s/ Patrick L. Swisher
---------------------------------
Patrick L. Swisher
President & Chief Executive
Officer
Date - March 14, 2000 by: /s/ Thomas J. Reiser
---------------------------------
Thomas J. Reiser
Chief Operating Officer
10