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
FOR THE QUARTERLY PERIOD ENDED - JANUARY 31, 1998
COMMISSION FILE NUMBER: 0-21282
SWISHER INTERNATIONAL, INC.
-------------------------------
(NAME OF SMALL BUSINESS ISSUER)
NEVADA 56-1541396
------------------------ ------------------------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
6849 FAIRVIEW ROAD
CHARLOTTE, NORTH CAROLINA 28210
---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(704) 364-7707
---------------------------
(ISSUER'S TELEPHONE NUMBER)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15 (D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH
SHORTER PERIOD THAT THE ISSUER WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS
BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
[X] YES [ ] NO
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MAY 31, 1998 2,222,271
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:
[ ] YES [X] NO
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS January 31,
- ------ 1998 October 31,
(Unaudited) 1997
------------ ------------
CURRENT ASSETS:
Cash and Cash Equivalents $ 74,283 $ 662,880
Restricted Cash 257,902 257,902
Accounts Receivable:
Franchisees 3,035,793 3,067,899
Other 529,075 284,200
Related Party Receivables 394,390 370,138
Less Allowance for Doubtful Accounts (240,646) (172,000)
------------ ------------
Net Accounts Receivable 3,718,612 3,476,737
Notes Receivable, Current Portion 1,042,968 1,015,564
Inventory 85,544 88,786
Prepaid Expenses 518,054 184,508
Deferred Income Taxes 3,000 3,000
------------ ------------
TOTAL CURRENT ASSETS 5,700,363 5,689,377
PROPERTY AND EQUIPMENT:
Furniture & Equipment 1,815,132 1,760,087
Less Accumulated Depreciation (713,257) (652,901)
------------ ------------
NET PROPERTY AND EQUIPMENT 1,101,875 1,107,186
OTHER ASSETS:
Notes Receivable
Franchisees 1,655,671 1,862,590
Related Party 945,388 950,388
Deferred Franchise Costs 72,796 77,957
Intangible Assets, Less Amortization 2,573,952 2,563,452
------------ ------------
NET OTHER ASSETS 5,247,807 5,454,387
------------ ------------
TOTAL ASSETS $ 12,050,045 $ 12,250,950
============ ============
(CONTINUED)
3
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY January 31,
- ------------------------------------ 1998 October 31,
(Unaudited) 1997
------------ ------------
CURRENT LIABILITIES:
Line of Credit and
Long-Term Debt, Current Portion $ 2,321,043 $ 1,978,984
Accounts Payable 2,184,176 2,041,705
Accrued Expenses 133,785 222,548
Deferred Revenue 326,303 329,198
Income Taxes Payable -- 109,823
------------ ------------
TOTAL CURRENT LIABILITIES 4,965,307 4,682,258
LONG-TERM DEBT 1,342,486 1,476,689
DEFERRED INCOME TAXES 100,000 100,000
------------ ------------
TOTAL LIABILITIES 6,407,793 6,258,947
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par value; 1,500,000 shares
authorized; none issued -- --
Series A Junior Participating Preferred stock, par value
$1.00; authorized 100,000 shares; none issued -- --
Common Stock, $.01 par value; 15,000,000 shares
authorized; 2,122,271 shares issued and
outstanding at January 31, 1998 and 2,122,271
outstanding at October 31,1997 21,223 21,223
Additional Paid-In Capital 4,128,723 4,128,723
Retained Earnings 1,492,306 1,842,057
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,642,252 5,992,003
------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 12,050,045 $ 12,250,950
============ ============
4
SWISHER INTERNATIONAL INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
January 31,
-----------------------------
1998 1997
----------- -----------
REVENUES:
Annuity Revenues:
Product Sales to Franchisees $ 1,527,399 $ 972,076
Service Fees 485,303 433,741
Royalties 578,302 517,405
Marketing Fees 17,710 14,085
----------- -----------
Total Annuity Revenues 2,608,714 1,937,307
Revenue from Company-Owned Subsidiaries 443,520 457,545
Initial Franchise Sales:
Swisher Hygiene -- 250,000
Surface Doctor 145,645 75,000
Swisher Pest Control 18,000 --
Gain on Sale of Company-Owned Operations -- 109,378
Other Income 67,016 58,990
----------- -----------
TOTAL REVENUES 3,282,895 2,888,220
----------- -----------
EXPENSES:
Selling, G & A Expenses:
Corporate & Hygiene Franchising 1,300,740 929,769
Swisher Maid Franchising 19,223 73,833
Surface Doctor 502,700 314,438
Swisher Pest Control 174,515 --
Cost of Product Sales 1,203,632 832,149
Expenses of Company-Owned Subsidiaries 481,919 415,872
Interest Expense 86,207 49,077
----------- -----------
TOTAL EXPENSES 3,768,936 2,615,138
----------- -----------
INCOME BEFORE TAXES AND
NON-RECURRING ITEMS (486,041) 273,082
PROVISION FOR INCOME TAXES (136,290) 110,490
----------- -----------
NET INCOME $ (349,751) $ 162,592
=========== ===========
EARNINGS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT
BASIC EARNINGS $ (0.16) $ 0.08
=========== ===========
COMMON SHARES 2,122,271 2,119,846
=========== ===========
DILUTED EARNINGS $ (0.16) $ 0.08
=========== ===========
COMMON SHARES AND EQUIVALENTS 2,122,271 2,119,846
=========== ===========
5
SWISHER INTERNATIONAL INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
January 31,
-------------------------
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $(349,751) $ 162,592
Adjustments to reconcile net income to net cash
provided (used) by operating activities -
Depreciation and amortization 116,419 71,548
(Gain) on financed sales of Company Operations --
Change in Assets and Liabilities -
(Increase) decrease in assets -
Accounts receivable (241,874) (532,785)
Inventory 3,242 1,937
Prepaid expenses (333,546) 2,022
Deferred franchise costs 5,161 (6,930)
Notes receivable 184,515 73,443
Increase (decrease) in liabilities -
Accounts payable 142,472 (407,983)
Accrued expenses (88,763) (61,416)
Income taxes payable (109,823) 1,990
Deferred revenue (2,895) (14,800)
--------- ---------
Total Adjustments (325,093) (872,974)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (674,844) (710,382)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (55,045) (144,029)
Decrease (increase) in intangible & other assets (66,563) 38,319
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (121,608) (105,710)
--------- ---------
(continued)
6
SWISHER INTERNATIONAL INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Three Months Ended
January 31,
-----------------------------
1998 1997
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in restricted cash $ -- 10,826
Net principal payments under long-term debt obligations 207,855 (161,884)
----------- -----------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES 207,855 (151,058)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (588,597) (967,150)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 662,880 1,809,590
----------- -----------
CASH AND CASH EQUIVALENTS, END OF FIRST QUARTER $ 74,283 $ 842,440
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid year to date for -
Interest $ 71,237 $ 44,194
=========== ===========
Income taxes $ 330,000 $ 108,500
=========== ===========
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
"FORWARD-LOOKING" INFORMATION
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act and are
subject to the safe harbors created thereby. These forward-looking statements
include the plans and objectives of management for future operations, including
plans and objectives relating to (i) the continued expansion of the Company's
Hygiene, 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, (iv) the Company's ability to re-sell certain
Hygiene businesses which have been repurchased from franchisees and (v) 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, 1998 AND THE COMPANY'S RESULTS OF OPERATIONS FOR THE QUARTER AND THREE MONTH
PERIOD ENDED JANUARY 31, 1998 AND 1997 SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS REPORT. ALTHOUGH THE
COMPANY BELIEVES THAT THE DISCLOSURES PRESENTED BELOW ARE ADEQUATE TO MAKE THE
INTERIM FINANCIAL STATEMENTS PRESENTED NOT MISLEADING, IT IS SUGGESTED THAT
THESE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BE READ IN
CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
INCLUDED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
OCTOBER 31, 1997.
GENERAL:
The financial information for the periods ended January 31, 1998 and 1997
included herein is unaudited but includes all adjustments which, in the
opinion of management of the Company, are necessary to present fairly the
financial position of the Company at January 31, 1998 and 1997, and the
results of its operations and its cash flows for the three-month period then
ended.
The Company operates in two principal business areas: "Franchise
Operations," which includes Initial Franchise Sales and Annuity Revenues
(Service Fees, Product Sales to Franchisees, Royalties, and Marketing Fees),
and "Company Operations through Company Owned Subsidiaries," which includes
the Company's hygiene operations located in Space Coast, FL; and Tulsa, OK;
the Company's residential maids operations located in the Charlotte, NC and
Scottsdale, AZ areas, and the Company's pest control operations located in
Monroe, NC. The Company's subsidiaries are actively engaged in providing
hygiene services, pest control, and maid services directly to customers in
the same manner as franchisees.
8
For the 3 months ended January 31, 1998 a net loss of $350,000 was recorded,
a decrease of $504,000 from the prior year period. The decrease in net income
was caused by an increase in Corporate and Hygiene expenses of $371,000,
Surface Doctor expenses of $188,000, and Pest Control expenses of $175,000.
Additionally initial franchise sales decreased by $161,000 and the gain on
sale of Company-owned operations of $109,000 from the prior year period which
did not re-occur in 1997. These decreases in net income were partially offset
by increases in product sales (net of product costs) of $184,000 and
reductions of income tax provision of $246,000.
REVENUE:
Revenues in the first quarter ended January 31, 1998, increased 14% to
$3,283,000 as compared to prior year first quarter ended January 31, 1997, of
$2,888,000. The major factor in the increase is the continued growth of in
Annuity Revenues, offset by decreases in Hygiene Initial Franchise Sales and
a gain on the sale of Company owned operations in 1997.
FRANCHISE OPERATIONS. Annuity Revenues for the three-month period
ended January 31, 1998, increased 35% to $2,608,000 as compared to
prior year first quarter results of $1,937,000. The majority of the
increase related to $555, 000 increase in product sales to
franchisees. Revenue derived from Initial Franchise Sales, including
sales of Master Licenses in foreign countries, decreased 50% to
$163,000 compared to prior year first quarter sales of $325,000, which
included a $250,000 U.K. Master License Agreement.
COMPANY OPERATIONS. Revenues decreased 3% for the three-months ended
January 31, 1998, compared to the prior year first quarter. This
decrease is attributable to the sales in December 1996 of the
Jacksonville, FL Hygiene operations and of the Atlanta, GA Surface
Doctor operation, and the July 1997 sale of the Charlotte, NC Hygiene
operations to franchisees. The sales of the Jacksonville and Atlanta
operations produced a gain of $109,000 in 1997, with no comparable
gain or sales in the 1998 three month period.
EXPENSES:
Total pre-tax expenses for the first quarter of 1998 increased 44% over
first quarter 1997, which represents an increase of $1,154,000. Selling,
general and administrative expenses increased by 52% to $1,997,000 compared
to prior year first quarter of $1,318,000. Expenses of Company-owned
subsidiaries increased $66,000 from the prior year's first quarter.
FRANCHISE OPERATIONS. Expenses for the first quarter of 1998 increased
$1,087,000 compared with the first quarter of 1997. Expenses of
$175,000 in Swisher Pest Control reflect the Company's continued
investment in the start-up of this system.. The $188,000 increase in
Surface Doctor expenses from the prior year represent the Company's
continuing efforts to integrate this system acquired in July 1996, and
the on-going efforts to sell international licenses. Cost of products
for resale to franchisees increased $371,000 or 45% over the prior
year first quarter and corresponds to a 57% increase in product sales
revenues.
COMPANY OPERATIONS. Expenses for the quarter ended January 31, 1998,
increased by $66,000 or 16% as compared to first quarter 1997. This
increase in expenses is attributable to the addition of the Company's
Charlotte, NC, pest control operation. The Company hygiene,
residential maids, and pest control operations are operated in the
same manner as franchise operations.
9
INCOME:
Net income for the three months ended January 31, 1997, decreased $502,000
compared to the 1997 first quarter. Net loss was $350,000 for the quarter
ended January 31, 1998, compared to net income of $163,000 in the first
quarter of 1997. The basic loss per share for the three months ended January
31, 1998, was $(.16) on 2,122,271 common shares, as compared to net income in
the same period last year of $.08 per share on 2,119,846 shares. The fully
diluted loss was also $ (0.16) on 2,122,271 common shares and equivalents in
the three months ended January 31, 1998 and net income of $.08 on 2,119,846
common shares and equivalents for the comparable prior year period.
FRANCHISE OPERATIONS. Operating income for the three-month period
ended January 31, 1998 decreased for a loss of $448,000 compared to
income for the same period last year of $231,000. This decrease of
$679,000 is mainly attributable to costs incurred in developing the
infrastructure to support international and pest control franchise
sales.
COMPANY OPERATIONS. Operating income for the first quarter 1998,
decreased for a loss of $38,000 as compared to income in the first
quarter 1997 of $42,000. This decrease of $80,000 is primarily
attributable to the sale in July 1997 of the Company owned Charlotte,
NC Hygiene operation.
An income tax benefit of $136,000 was an improvement of $247,000 from the
first quarter of 1997
LIQUIDITY AND CAPITAL RESOURCES:
The Company has historically financed its growth through cash from
operations. In addition, the Company used the proceeds of a public offering
completed in April 1993 to finance the expansion of its franchise system. In
the first three months of fiscal year 1998, approximately $675,000 net cash
used by operations resulted primarily from a net loss of ($350,000) combined
with increases of $242,000 in accounts receivable and $334,000 in prepaid
expenses partially offset by a decrease of $185,000 in notes receivable. An
increase of approximately $208,000 in net cash provided from financing
activities resulted primarily from an increase in borrowings on the Company's
line of credit.
Working capital decreased $376,000 during the first three months of fiscal
1998 due principally to the use of $588,000 in cash and cash equivalents as
detailed in the Consolidated Statement of Cash Flows and an increase of
$142,000 in accounts payable due primarily to a 45% increase in the cost of
product sales.
Total assets decreased $201,000 due mainly to a decrease in cash and cash
equivalents. Total liabilities decreased by $149,000 which also reflects the
use of cash and cash equivalents.
The Company has reviewed the Year 2000 problem as it relates to the
Company's internal systems as well as those of its vendors and determined
that it will not have a material impact on its business, operations nor its
financial condition. Nevertheless, the Company's rapid expansion has resulted
in an increasing number of entities with which the Company does business.
While the Company believes that the Year 2000 issue will not have a material
impact on the Company's internal operations or those of its current vendors,
there can be no guarantee that the systems of other unrelated entities on
which its systems and operations rely, or on which its systems and operations
may rely in the future, will be corrected on a timely basis and will not have
a material adverse impact on the Company.
10
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
A second amendment to Form 8-K dated July 30, 1996 was filed
on December 9, 1997 relating to the acquisition of Surface
Doctor.
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 - June 30, 1998 by: /s/ Patrick L. Swisher
-------------------------------------
Patrick L. Swisher
Chief Executive Officer
Date - June 30, 1998 by: /s/ Thomas W. Busch
-------------------------------------
Thomas W. Busch
Principal Accounting Officer