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 - JULY 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 AUGUST 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 JULY 31,
1998 OCTOBER 31,
(UNAUDITED) 1997
------------ --------------
CURRENT ASSETS:
Cash and Cash Equivalents $ 112,050 $ 662,880
Restricted Cash 257,902 257,902
Accounts Receivable:
Franchisees 3,451,274 2,994,399
Other 998,223 284,200
Related Party Receivables 386,243 370,138
Less Allowance for Doubtful Accounts (422,446) (172,000)
------------ ------------
Net Accounts Receivable 4,413,294 3,476,737
Notes Receivable, Current Portion 905,158 1,015,564
Inventory 89,815 88,786
Prepaid Expenses 143,441 184,508
Deferred Income Taxes 3,000 3,000
------------ ------------
TOTAL CURRENT ASSETS 5,924,660 5,689,377
PROPERTY AND EQUIPMENT:
Furniture & Equipment 1,920,852 1,760,087
Less Accumulated Depreciation (848,000) (652,901)
------------ ------------
NET PROPERTY AND EQUIPMENT 1,072,852 1,107,186
OTHER ASSETS:
Notes Receivable
Franchisees 1,927,561 1,862,590
Related Party 1,355,242 950,388
Deferred Franchise Costs 24,265 77,957
Intangible Assets, Less Amortization 2,433,623 2,563,452
------------ ------------
NET OTHER ASSETS 5,740,691 5,454,387
------------ ------------
TOTAL ASSETS $ 12,738,203 $ 12,250,950
============ ============
(continued)
3
SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY JULY 31,
1998 OCTOBER 31,
(UNAUDITED) 1997
------------- -----------
CURRENT LIABILITIES:
Line of Credit and
Long-Term Debt, Current Portion $ 2,190,472 $ 1,978,984
Accounts Payable 3,169,717 2,041,705
Accrued Expenses 144,991 222,548
Deferred Revenue 272,803 329,198
Income Taxes Payable -- 109,823
----------- -----------
TOTAL CURRENT LIABILITIES 5,777,983 4,682,258
NON-CURRENT LIABILITIES
Deferred Revenue 338,375 --
LONG-TERM DEBT 1,175,387 1,476,689
DEFERRED INCOME TAXES 100,000 100,000
----------- -----------
TOTAL LIABILITIES 7,391,745 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; 2,222,271 shares issued and
outstanding at July 31, 1998 and 2,122,271
outstanding at October 31, 1997 22,223 21,223
Additional Paid-In Capital 4,448,223 4,128,723
Retained Earnings 876,012 1,842,057
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,346,458 5,992,003
----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $12,738,203 $12,250,950
=========== ===========
4
SWISHER INTERNATIONAL INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
--------------------------------- -----------------------------
1998 1997 1998 1997
--------------------------------- -----------------------------
Revenues:
Annuity Revenues:
Product Sales to Franchisees $ 1,856,720 $ 1,337,989 $ 5,014,144 $ 3,662,846
Service Fees 529,692 473,215 1,546,374 1,357,947
Royalties 688,524 545,712 1,915,934 1,563,914
Marketing Fees 20,669 14,596 57,879 42,995
------------ ------------ ------------ ------------
Total Annuity Revenues 3,095,605 2,371,512 8,534,331 6,627,702
Revenue from Company-Owned Subsidiaries 535,418 425,167 1,507,199 1,283,346
Initial Franchise Sales:
Swisher Hygiene 374,000 185,175 469,558 530,700
Surface Doctor -- 201,900 365,245 436,505
Swisher Pest Control -- -- 18,000 --
Gain on Sale of Company-Owned Operations -- 381,461 -- 529,643
Other Income 65,311 92,876 212,561 235,067
------------ ------------ ------------ ------------
TOTAL REVENUES 4,070,334 3,658,091 11,106,894 9,642,963
------------ ------------ ------------ ------------
Expenses:
Selling, G & A Expenses:
Corporate & Hygiene Franchising 1,742,797 1,330,739 4,708,648 3,235,533
Swisher Maid Franchising 20,060 28,292 51,276 136,989
Surface Doctor 203,396 364,346 1,045,916 1,036,283
Swisher Pest Control 136,356 -- 473,359 --
Cost of Product Sales 1,627,429 1,057,407 4,235,172 2,942,043
Expenses of Company-Owned Subsidiaries 579,184 422,784 1,561,558 1,225,430
Interest Expense 99,492 42,144 255,616 136,697
------------ ------------ ------------ ------------
TOTAL EXPENSES 4,408,714 3,245,712 12,331,545 8,712,975
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES AND
NON-RECURRING ITEMS (338,380) 412,379 (1,224,651) 929,988
PROVISION FOR INCOME TAXES (70,000) 163,994 (258,609) 372,194
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (268,380) $ 248,385 $ (966,042) $ 557,794
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
BASIC EARNINGS (LOSS) (0.12) 0.12 (0.44) 0.28
============ ============ ============ ============
COMMON SHARES 2,222,271 2,082,271 2,172,086 2,005,669
============ ============ ============ ============
DILUTED EARNINGS (LOSS) (0.12) 0.10 (0.44) 0.22
============ ============ ============ ============
COMMON SHARES AND EQUIVALENTS 2,222,271 2,514,826 2,172,086 2,514,826
============ ============ ============ ============
5
SWISHER INTERNATIONAL INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
JULY 31,
-----------------------------
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ (966,042) $ 557,794
Adjustments to reconcile net income to net cash
provided (used) by operating activities -
Depreciation and amortization 195,099 189,794
(Gain) on financed sales of Company Operations -- (520,479)
Change in Assets and Liabilities -
(Increase) decrease in assets -
Accounts receivable (936,557) (726,006)
Inventory (1,029) (1,810)
Prepaid expenses 41,067 (233,519)
Deferred franchise costs 53,692 1,157
Notes receivable (359,420) (224,511)
Increase (decrease) in liabilities -
Accounts payable 1,128,011 291,948
Accrued expenses (77,557) 1,291
Income taxes payable (109,823) 94,514
Deferred revenue 281,980 (14,800)
----------- -----------
Total Adjustments 215,462 (1,142,421)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (750,580) (584,627)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (160,765) (263,531)
Decrease (increase) in intangible & other assets 129,829 52,164
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (30,936) (211,367)
----------- -----------
(continued)
6
SWISHER INTERNATIONAL INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(continued)
NINE MONTHS ENDED
JULY 31,
-----------------------------
1998 1997
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in restricted cash $ -- $ 10,826
Proceeds from stock transactions 320,500 3,927
Net principal payments under long-term debt obligations (89,814) (536,706)
----------- -----------
NET CASH (USED) PROVIDED BY FINANCING
ACTIVITIES 230,686 (521,953)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (550,830) (1,317,947)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 662,880 1,809,590
----------- -----------
CASH AND CASH EQUIVALENTS, END OF THIRD QUARTER $ 112,050 $ 491,643
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid year to date for -
Interest $ 270,856 $ 149,804
=========== ===========
Income taxes $ -- $ 277,680
=========== ===========
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, (v) the
Company's ability to re-sell certain Hygiene businesses which have been
repurchased from franchisees and (vi) the Company's ability to expand into
international and new domestic markets. The forward-looking statements included
herein are based on current expectations that involve a number of risks and
uncertainties. These forward-looking statements were based on assumptions that
the Company would continue to develop and introduce new products on a timely
basis, that competitive conditions within the Company's markets would not
change materially or adversely, that demand for the Company's Hygiene, Swisher
Maids, Pest Control and Surface Doctor franchises would remain strong, and that
there would be no material adverse change in the Company's operations or
business. Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although
the Company believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the forward-looking information will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking information included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives or plans of the Company will be achieved.
THE FOLLOWING ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AS OF JULY
31, 1998 AND THE COMPANY'S RESULTS OF OPERATIONS FOR THE QUARTER AND NINE MONTH
PERIOD ENDED JULY 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 July 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 July 31, 1998 and 1997, and the
results of its operations and its cash flows for the nine-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
operation 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 July 31, 1998, a net loss of $268,000 was
recorded, a decrease of $517,000 from the prior year period. The decrease
in net income was caused primarily by an increase in Corporate and
Hygiene expenses of $412,000, Pest Control expenses of $136,000, and a
decrease in product sales gross margin of $51,000. Additionally, the
$381,000 gain on sale of Company-owned operation from the prior year
period did not re-occur in 1998. These decreases in net income were
partially offset by reductions in the income tax provision of $234,000,
and reductions in Surface Doctor selling, general and administrative
expenses of $161,000.
REVENUE :
Revenues in the third quarter ended July 31, 1998 increased 11% to
$4,070,000 compared to prior year third quarter ended July 31, 1997, of
$3,658,000. The major factor in the increase is the continued growth in
Annuity Revenues.
FRANCHISE OPERATIONS. Annuity Revenues for the three-month
period ended July 31, 1998 increased $724,000, or 31%, to
$3,096,000 as compared to prior year third quarter results of
$2,372,000. The majority of the increase related to a $519,000
increase in product sales to franchisees. Revenue derived from
Initial Franchise Sales, including sales of Master Licenses in
three foreign countries, decreased 3% to $374,000 compared to
prior year third quarter sales of $387,000.
COMPANY OPERATIONS. Revenues increased 26% to $535,000 for the
three-months ended July 31, 1998, compared to the prior year
third quarter of $425,000. This increase is primarily
attributable to the addition of the Pest Control operation
located in Monroe, NC.
EXPENSES:
Total pre-tax expenses for the third quarter of 1998 increased 36%
over third quarter 1997, which represents an increase of $1,163,000.
Selling, general and administrative expenses increased by 22% to
$2,103,000 compared to prior year third quarter of $1,723,000. Expenses
of Company-owned subsidiaries increased $156,000 from the prior year's
third quarter.
FRANCHISE OPERATIONS. Expenses for the third quarter of 1998
increased $1,007,000 compared with the third quarter of 1997.
Corporate and Hygiene Franchising expenses increased $412,000
related mainly to computer and other support services necessary
to support the Hygiene system growth. Expenses of $136,000 in
Swisher Pest Control reflect the Company's continued investment
in the start-up of this system. The cost of products for resale
to franchisees increased $570,000 or 54% over the prior year
third quarter and corresponds to a 39% increase in product sales
revenues. A change in the mix of products sold caused a decrease
in the gross margin of $51,000.
COMPANY OPERATIONS. Expenses for the quarter ended July 31,
1998, increased by $156,000 or 37% as compared to third quarter
1997. This increase in expenses is attributable to the addition
of the Company's Monroe, NC, pest control operation. The Company
hygiene, residential maids, and pest control operations are
operated in the same manner as franchise operations.
INCOME:
Net income for the three months ended July 31, 1998, decreased
$517,000 compared to the 1997 third quarter resulting in a net loss of
$268,000. The basic loss per share for the three months ended July 31,
1998, was $(.12) on 2,222,271 common shares, as compared to the same
period last year of $.12 per share on 2,082,271 shares. Fully diluted
(loss) earnings were also $ (0.12) on 2,222,271
9
common shares and equivalents in the three months ended July 31, 1998 and
$.10 on 2,514,826 common shares and equivalents for the comparable prior
year period.
FRANCHISE OPERATIONS. Operating income for the three-month
period ended July 31, 1998 decreased for a loss of $295,000
compared to income for the same period last year of $410,000.
This decrease of $705,000 is mainly attributable to costs
incurred in developing the infrastructure to support growth in
the Hygiene domestic and international systems, establishing the
pest control franchise system, and the absence of a $381,000
gain on sale of company operation which occurred in 1997.
COMPANY OPERATIONS. Operating income for the third quarter 1998,
decreased to a $44,000 loss as compared to income in the third
quarter 1997 of $2,400. This decrease of $46,000 is attributable
to the addition of the Pest Control operation in Monroe, NC.
An income tax benefit of $70,000 was a change of $234,000 from the
third quarter of 1997, while interest expense increased $57,000 from the
prior year third quarter.
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 it's
franchise system.
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 twelve months, and the cash flow anticipated from its future
operations, the Company believes that its future cash flows together with
funds available under its 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, its anticipated cash flow.
For the first nine months in fiscal year 1998, net cash used by
operations and investing activities was approximately $751,000 and
$31,000 respectively. The increase of $231,000 in net cash provided from
financing activities resulted primarily from stock options being
exercised by certain officers and directors in the second quarter of
1998.
Working capital decreased $860,000 during the first nine months of
fiscal year 1998 due principally to the use of $551,000 in cash and cash
equivalents as detailed in the Consolidated Statement of Cash Flows and a
$250,000 increase in the allowance for doubtful accounts.
Total assets increased $487,000 due mainly to an increase in accounts
receivable and prepaids. Total liabilities increased by $1,133,000, which
is reflected in the increase in accounts payable and accrued expenses.
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 report on Form 8-K was filed on May 11, 1998 relating
to the notification of the Company's securities being
delisted from The Nasdaq National Market.
A report on Form 8-K was filed on June 3, 1998 relating
to the earning release for the years ended October 31,
1997 and October 31, 1996.
11
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 21, 1998 by: /s/ Patrick L. Swisher
----------------------
Patrick L. Swisher
Chief Executive Officer
Date - September 21, 1998 by: /s/ Thomas W. Busch
---------------------
Thomas W. Busch
Principal Accounting Officer