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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-April 30, 1999
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 June 4, 1999: 2,208,271
Transitional Small Business Disclosure Format:
[ ] Yes [X] No
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
UPART I FINANCIAL INFORMATION
ASSETS (UNAUDITED)
APRIL 30, OCTOBER 31,
1999 1998
----------- ------------
Current Assets
Cash and Cash Equivalents $ 92,977 $ 183,352
Restricted Cash 272,989 272,989
Accounts Receivable:
Franchisees 2,736,228 3,097,024
Other 85,258 124,759
Related Party Receivables 169,575 160,000
Less Allowance for Doubtful Accounts (425,371) (596,000)
----------- ------------
Net Accounts Receivable 2,565,690 2,785,783
Notes Receivable, Current Portion 626,703 713,729
Inventory 61,928 63,978
Prepaid Expenses 133,123 55,380
Income Tax Refund Receivable 628,484 628,484
----------- ------------
TOTAL CURRENT ASSETS 4,381,894 4,703,695
PROPERTY AND EQUIPMENT
Furniture & Equipment 1,822,453 1,788,021
Less Accumulated Depreciation (938,331) (773,832)
----------- ------------
NET PROPERTY AND EQUIPMENT 884,122 1,014,189
OTHER ASSETS
Notes Receivable
Franchisees 2,854,980 3,230,435
Related Party 645,880 645,880
Other Assets 437,298 436,096
Intangible Assets, Less Amortization 728,140 744,768
----------- ------------
NET OTHER ASSETS 4,666,298 5,057,179
----------- ------------
TOTAL ASSETS $ 9,932,314 $ 10,775,063
=========== ============
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (UNAUDITED)
APRIL 30, OCTOBER 31,
1999 1998
----------- ------------
CURRENT LIABILITIES
Other Liabilities $ 2,635,832 $ 2,782,387
Accounts Payable 2,078,722 2,598,022
Accrued Expenses 148,450 403,364
Deferred Revenue 196,757 145,521
----------- ------------
TOTAL CURRENT LIABILITIES 5,059,761 5,929,294
NONCURRENT LIABILITIES
Defered Revenue 550,800 550,800
Long-term Debt 314,641 384,203
----------- ------------
TOTAL NONCURRENT LIABILITIES 865,441 935,003
TOTAL LIABILITIES 5,925,202 6,864,297
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value; 15,000,000 shares -- --
authorized; 2,208,271 shares issued and
outstanding at April 30, 1999 and October 31, 1998 22,083 22,083
Additional Paid-In Capital 4,728,395 4,728,395
Retained Earnings (743,366) (839,712)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 4,007,112 3,910,766
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,932,314 $ 10,775,063
=========== ============
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
------------------------------- ----------------------------
1999 1998 1999 1998
---------- ----------- ---------- -----------
REVENUES
Annuity Revenues:
Product Sales to Franchisees $1,816,631 $ 1,630,024 $3,521,935 $ 3,157,424
Service Fees 535,583 531,379 1,086,666 1,016,682
Royalties 729,550 649,109 1,433,544 1,227,410
Marketing Fees 21,100 19,500 43,179 37,210
---------- ----------- ---------- -----------
Total Annuity Revenues 3,102,864 2,830,012 6,085,324 5,438,726
Revenue from Company-Owned Operations 159,929 528,261 331,193 971,781
Initial Franchise Sales: 419,193 315,158 520,634 478,803
Other Income 161,887 80,234 252,250 147,250
---------- ----------- ---------- -----------
Total Other Revenue 741,009 923,653 1,104,077 1,597,834
TOTAL REVENUES 3,843,873 3,753,665 7,189,401 7,036,560
EXPENSES
Selling, G & A Expenses 1,843,345 2,179,416 3,504,769 4,176,591
Cost of Product Sales 1,687,772 1,404,110 3,099,031 2,607,743
Expenses of Company-Owned Operations 168,372 500,454 366,037 982,374
Interest Expense 69,076 69,916 123,219 156,123
---------- ----------- ---------- -----------
TOTAL EXPENSES 3,768,565 4,153,896 7,093,056 7,922,831
Income/(Loss) Before Taxes and
Nonrecurring Items $ 75,308 $ (400,231) $ 96,345 $ (886,271)
---------- ----------- ---------- -----------
Income Tax Expense/(Benefit) -- (52,319) -- (188,609)
NET INCOME/(LOSS) $ 75,308 $ (347,912) $ 96,345 $ (697,662)
========== =========== ========== ===========
EARNINGS/(LOSS) PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
Basic Earnings/(Loss) $ 0.03 $ (0.16) $ 0.04 $ (0.33)
========== =========== ========== ===========
Common Shares 2,208,271 2,169,998 2,208,271 2,145,735
========== =========== ========== ===========
Diluted Earnings/(Loss) $ 0.03 $ (0.16) $ 0.04 $ (0.33)
========== =========== ========== ===========
Weighted Average Common Shares and
Equivalents 2,220,771 2,169,998 2,217,810 2,145,735
========== =========== ========== ===========
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(UNAUDITED)
SIX MONTHS ENDED
APRIL 30,
1999
----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 96,345
Adjustments to reconcile net income to net cash
provided (used) by operating activities -
Depreciation and amortization 181,128
Change in Assets and Liabilities -
(Increase) decrease in assets -
Accounts receivable 220,093
Inventory 2,050
Prepaid expenses (77,743)
Deferred franchise costs (1,202)
Notes receivable 462,481
Increase (decrease) in liabilities -
Accounts payable (519,300)
Accrued expenses (254,914)
Income taxes payable --
Deferred revenue 51,236
---------
Total Adjustments 63,829
---------
NET CASH (USED)/PROVIDED BY OPERATING ACTIVITIES 160,174
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (34,432)
Decrease (increase) in intangible & other assets --
---------
NET CASH (USED)/PROVIDED BY INVESTING ACTIVITIES (34,432)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in restricted cash --
Net principal payments under long-term debt obligations (216,117)
---------
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES (216,117)
---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (90,375)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 183,352
---------
CASH AND CASH EQUIVALENTS AT END OF SECOND QUARTER 1999 $ 92,977
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid year to date for -
Interest $ 96,498
=========
Income taxes $ 17,654
=========
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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, 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, 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 April
30, 1999 and the Company's results of operations for the quarter ended April 30,
1999 and 1998 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, 1998.
General:
The financial information for the three and six month periods ended
April 30, 1999 and 1998 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 changed the focus of the development of the Swisher Pest
Control Division in the first quarter of fiscal 1999 to include expanding the
Pest Control business through the Hygiene franchise system as an additional
service. This change in focus reduces the number of existing Pest Control
franchisees, with the expectation that the change will result in a profitable
method of expanding the system with a reduction of overhead expenses. Based on
the existing agreements with the Pest Control franchisees, which may have
included certain incentives, the reduction in existing franchisees is expected
to have minimal impact on the financial performance of the division in 1999.
While the Company may continue to pursue adding independent Pest Control
franchisees to the system, this change in strategy will facilitate a reduction
in overhead expenses from fiscal 1998.
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
Management's Discussion and Analysis
ITEM 2. FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GENERAL: (CONTINUED)
The Company recorded net operating income of $75,000 and $96,000 for
the three and six-month periods ended April 30, 1999. These increases of
$423,000 and $794,000, or 122% and 114%, respectively over losses of $400,000
and $698,000 during the same period in 1998 represent the continued efforts of
management to focus on core business activities, to develop growth in domestic
and international sales and to control overhead operating costs. Tax benefits of
$52,000 and $189,000 are included in the prior year comparative numbers.
REVENUE:
Total revenues of $3,844,000 and $7,189,000 for the three and six-month
periods ended April 30, 1999 represent increases of $90,000 and $153,000 over
1998 fiscal comparative periods. Second quarter and year-to-date increases of
$328,000 and $702,000 in Annuity revenues (Product sales, Service and Marketing
Fees and Royalties) were offset by decreases of $368,000 and $641,000 in revenue
from Company-Owned operations. Second quarter increases of $104,000, or 33% in
initial franchise sales helped minimize the effects of losses associated with
Company-owned operations.
The reduction in revenue from Company-owned operations includes
comparison to the prior year first and second quarter activity from the Pest
Control business in Monroe, NC and the Hygiene business in Tulsa, OK, both of
which were sold during the fourth quarter of fiscal 1998. Additionally, the
Company continues to market its two remaining Company-owned Hygiene operations
in West Virginia and Florida to better focus attention on its primary business
as a franchisor.
Initial franchise sales increased $104,000 and $42,000, or 33% and 9%,
respectively for three and six months ended April 30, 1999 as compared to fiscal
1998. Included in initial franchise fees of $419,000 were international Hygiene
Master Franchise Licenses in France and Spain and a Surface Doctor Master
Franchise License in Nigeria, which totaled $325,000. Other income, including
late fees, minimum royalty fee assessments and interest income increased $82,000
and $105,000 for the three and six month comparative periods presented.
EXPENSES:
Total pre-tax expenses were $3,769,000 and $7,093,000 for the three and
six month periods ended April 30, 1999, representing decreases of $385,000, or
9% and $830,000, or 10% from 1998 fiscal comparative periods. Selling, general,
and administrative expenses decreased $336,000 and $672,000, respectively.
Expenses of Company-owned operations decreased $332,000 and $616,000 for the
same comparative periods.
The decrease in selling, general, and administrative expenses reflect
reductions in overhead made during the later part of fiscal 1998, particularly
in the Company's Surface Doctor and Pest Control corporate expenses. Additional
reductions in overhead were attained through the consolidation of support
functions related to the conversion to a new accounting/purchasing software
system.
The $332,000 and $616,000 decreases in Company-owned operating expenses
for the three and six month periods presented relate primarily to the sale of
Tulsa, OK, Hygiene and Monroe, NC, Pest Control operations and have a
corresponding decrease in revenues.
The $284,000 and $491,000 increases in the cost of products sold for
the three and six month periods are linked to similar increases in revenue from
products sold. Gross margins for the second quarter and year-to-date decreased
from the prior year comparative periods primarily due to continued shifts in the
mix of products sold, with an increase in the amount of lower margin items being
sold in 1999.
Income:
Net income of $75,000 and $96,000 for the three and six-month periods
ended April 30, 1999 represent increases of $423,000, or 122% and $794,000 or
114% over the three and six-month periods ended April 30, 1998. The basic
earnings per share for the three and six months ended April 30, 1999 were $0.03
and $0.04 per share on 2,208,271 common shares, as compared to a loss per share
of ($0.16) and ($0.33) on 2,122,271 shares and 2,145,735 shares respectively
for the comparable periods in 1998. Diluted earnings were $0.03 and $0.04 on
2,220,771 and 2,217,810 average common shares and common share equivalents in
the three and six months ended April 30, 1999 and a loss of ($0.16) and ($0.33)
on 2,169,998 and 2,145,735 average common shares and common share equivalents
for the comparable prior year period.
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
Management's Discussion and Analysis
ITEM 2. FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
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 and six
month periods, 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 or expected alternative sources 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. The Company's primary lender previously extended the
revolving credit facility through June 30, 1999, at which time the balance will
become due and payable. The Company believes it will be successful in extending
or renewing the existing revolving line of credit, or identifying and obtaining
alternative financing sources. An inability to refinance this credit facility,
as needed, would adversely affect the Company's operations and financial
position.
For the first six months in fiscal year 1999, cash and cash equivalents
decreased $90,000. This decrease is attributed primarily to cash used in debt
servicing of $216,000 and capital expenditures of $34,000 partially offset by
$160,000 in cash provided by operating activities.
Working capital improved $548,000 for the six-month period ended April
30, 1999. Total current liabilities include the outstanding balance on a
commercial revolving line of credit of $1,325,000 and deferred revenue of
$146,000 and exceed total current assets by $678,000.
Total assets of $9,932,000 decreased $843,000 for the six month period
ended April 30, 1999, primarily due to decreases in notes receivable of
$462,000, Net Accounts Receivable of $220,000, Net Property and Equipment of
$130,000 and cash and cash equivalents of $90,000. Total liabilities of
$5,925,000 decreased $939,000, primarily due to a decrease of $519,000 in
accounts payable, $255,000 in Accrued Expenses and a reduction of $147,000 in
other liabilities.
YEAR 2000 COMPLIANCE.
Many existing computer systems and applications and other control
devices use only two digits to identify a year in the date field, without
considering the impact of the upcoming change in the century. The Year 2000
issue is the risk that systems, products and equipment utilizing date-sensitive
software or computer chips with two-digit date fields will fail to properly
recognize the Year 2000. Such failures by the Company's software or hardware or
that of government entities, customers, major vendors and other third parties
with whom the Company has material relationships could result in interruptions
of the Company's business which could have a material adverse effect on the
Company.
In response to the Year 2000 issue, the Company has implemented a Year
2000 program designed to identify, assess and address significant Year 2000
issues. This includes the Company's key business operations, services, business
applications, and information technology systems and facilities. Additional
tasking includes identification of the Company's customers, major vendors and
other third parties with whom the Company has material relationships that may
have Year 2000 issues with which to contend. The Company does not anticipate
spending significant financial resources related to Year 2000 issues.
The Company's Year 2000 readiness program applies to all hardware and
software, whether developed internally or purchased from an outside supplier.
Management has been assured through letters of attestation from most major
software and hardware suppliers that mission critical Company software and
hardware platforms are Year 2000 compliant. The Company believes that if any
systems need to be repaired or replaced the repair or replacement would be
minimal and could be handled within our normal budget for computer system
upgrades and replacements. The Company is encouraging its subsidiaries and
franchisees to take the appropriate precautionary steps necessary to ensure
their computer systems are Year 2000 compliant, well in advance of the January
1, 2000 timeframe.
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
Other Information
PART II OTHER INFORMATION
ITEM 1. Legal proceedings
On September 18, 1998, Brian Cox, individually and on behalf of all
others similarly situated (the "Plaintiffs"), filed a class action law suit
(Case No. 3:98 CV403-MU) (the "Lawsuit") in the U.S. District Court for the
Western District of North Carolina, Charlotte Division, against the Company and
certain current or former officers and directors of the Company including
Patrick L. Swisher, W. Tom Reeder III, D. Chris Lazenby, Garnet R. Mucha and
Charles H. Cendrowski (collectively, the "Individual Defendants"). The Lawsuit
was amended by the Plaintiffs on February 19, 1999 to, among other things, add
the Company's former independent auditors, McGladrey & Pullen LLP, as a
defendant. The Lawsuit, as amended, alleges violations of Section 10 (b) of the
Securities Exchange Act of 1934, as amended, against the Company and the
Individual Defendants and violations of Section 20 (a) of the Exchange Act
against the Individual Defendants. The Plaintiffs are seeking damages for the
alleged violations, attorneys fees in connection with their prosecution of the
Lawsuit and such other relief as a court may deem just and proper.
The facts alleged by the Plaintiffs are substantially similar to the
matters that are asserted by the Company's former auditors in the February 20,
1998 withdrawal letter, filed by the Company on or about February 27, 1998 as an
exhibit to a Current Report on Form 8-K.
The Company has not yet filed a response to the action. The Company
intends to vigorously defend the Lawsuit. At this point, the Company cannot
determine the likelihood of any outcome that would be material to the Company,
or the magnitude of any potential gain or loss arising from the Lawsuit.
On February 17, 1999, the Company filed an action in the United States
District Court for the Western District of North Carolina directly against its
former independent accountants, McGladrey & Pullen, LLP (Civil Action No. 3:99
CV56-MU), alleging, among other things McGladrey & Pullen's negligence in the
conduct of their audits of the Company's financial statements and in the manner
in which they withdrew from their relationship with the Company. McGladrey &
Pullen has not yet filed a response to this action. On April 15, 1999, the
Company dismissed the lawsuit without prejudice in Federal Court without waiving
its right to refile the lawsuit in State Court.
ITEM 2. Changes in Securities
none
ITEM 3. Defaults Upon Senior Securities
none
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
Other Information
PART II OTHER INFORMATION (CONTINUED)
ITEM 4. Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of security holders at
the Annual Meeting of Stockholders on April 23, 1999:
- Number of Directors to be set at a minimum of six with terms
staggered to include the following:
Class of 2000 (1 year term, then 3 year term thereafter.)
- Anne Parrish Corley and John O. Summey, Jr.
Class of 2001 (2 year term, then 3 year term thereafter.)
- Richard G. Long and W. Tom Reeder III
Class of 2002 (3 year term)
- Patrick L. Swisher and M. Hunt Broyhill
Roll Call: Ayes: 1,762,392 Nays: 0 Abstaining: 65,628
- Scharf Pera & Co., Certified Public Accountants to continue to
serve as the Company's external audit firm for the fiscal year
1999.
Roll Call: Ayes: 1,784,826 Nays: 37,120 Abstaining: 6,074
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 has filed no reports on SEC Form 8-K during the
quarter ended April 30, 1999.
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SWISHER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-QSB
Other Information
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 10, 1999 by: /s/ Patrick L. Swisher
----------------------------------------
Patrick L. Swisher
President & Chief Executive Officer
Date - June 10, 1999 by: /s/ Thomas W. Busch
----------------------------------------
Thomas W. Busch
Chief Financial Officer
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