<PAGE>   1

                     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 JUNE 30, 1998. 


  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)

<TABLE>
<S>                                                                                           <C>
Delaware                                                                                                                73-0941783
--------                                                                                                                ----------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)                                (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>



                  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
                                                             ---    ---

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 July 31, 1998
----------------------------                        ----------------------------
Common stock, $.10 par value                                           7,108,760



     TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): Yes     No  X
                                                                    ---    ---

<PAGE>   2




                              THE DWYER GROUP, INC.

                                      INDEX




<TABLE>
<CAPTION>
PART I  -  FINANCIAL INFORMATION                                                                           PAGE NO.
<S>                                                                                                            <C>
     Item 1.    Financial Statements

                Condensed Consolidated Balance Sheets as of June 30, 1998 (unaudited)
                and December 31, 1997.............................................................................3

                Consolidated Statements of Income for the Three Months Ended
                June 30, 1998 and 1997 (unaudited)................................................................4

                Consolidated Statements of Income for the Six Months Ended
                June 30, 1998 and 1997 (unaudited)................................................................5

                Condensed Consolidated Statements of Cash Flows for the Six Months
                Ended June 30, 1998 and 1997 (unaudited)..........................................................6

                Notes to Condensed Consolidated Financial Statements............................................7-8

     Item 2.    Management's Discussion and Analysis of Financial
                Condition and Results of Operations............................................................9-11


PART II  -  OTHER INFORMATION

     Item 1.    Legal Proceedings................................................................................12

     Item 2.    Changes in Securities............................................................................12

     Item 3.    Defaults Upon Senior Securities..................................................................12

     Item 4.    Submission of Matters to a Vote of Security Holders..............................................12

     Item 5.    Other Information................................................................................12

     Item 6.    Exhibits and Reports on Form 8-K.................................................................12
</TABLE>


                                       2
<PAGE>   3
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                                    JUNE 30,        DECEMBER 31,
          ASSETS                                                                      1998              1997
                                                                                  ------------      ------------
                                                                                  (Unaudited)
<S>                                                                               <C>               <C>         
Current assets:

       Cash and cash equivalents                                                  $  1,335,806      $  1,568,187
       Marketable securities, available-for-sale                                     2,121,396         2,327,090
       Trade accounts receivable, net of allowance for doubtful
             accounts of $189,462 and $265,923, respectively                         1,017,000         1,070,573
       Accounts and interest receivable from related parties                           763,510           844,256
       Accrued interest receivable                                                      43,675            14,133
       Trade notes receivable, current portion                                       1,026,652         1,115,707
       Inventories                                                                     334,192           306,751
       Prepaid expenses                                                                609,773           376,556
       Notes receivable from related parties, current portion                          154,159           142,723
                                                                                  ------------      ------------
          Total current assets                                                       7,406,163         7,765,976

Property and equipment, net                                                          1,235,901         1,070,375
Notes and accounts receivable from related parties                                   1,042,004         1,268,015
Assets held for sale                                                                   176,575           166,575
Trade notes receivable, net of allowance for doubtful notes of
             $585,668 and $816,054, respectively                                     3,266,045         3,760,824
Purchased franchise rights, net                                                      2,143,646         1,446,251
Investment, equity method                                                              430,716           418,117
Net deferred tax asset                                                                 448,959           429,779
Other assets                                                                           206,171           212,124
                                                                                  ------------      ------------

TOTAL ASSETS                                                                      $ 16,356,181      $ 16,538,036
                                                                                  ============      ============

          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
       Accounts payable, trade                                                    $    788,620      $    774,197
       Accounts payable to related parties                                              13,611            44,237
       Accrued liabilities                                                           1,332,333         1,235,101
       Current portion of notes payable and capital lease obligations                  169,891           224,963
                                                                                  ------------      ------------
          Total current liabilities                                                  2,304,456         2,278,498

Long-term debt, less current portion                                                   517,773           487,116
Deferred franchise sales revenue                                                     1,229,198         1,539,085

Commitments and contingencies

Stockholders' equity:
       Preferred stock                                                                    --                --
       Common stock                                                                    689,526           689,526
       Additional paid-in capital                                                    9,020,358         9,020,358
       Retained earnings                                                             2,683,684         2,543,612
       Unrealized gain on available-for-sale securities                                  5,357            74,012
       Treasury stock, at cost                                                         (94,171)          (94,171)
                                                                                  ------------      ------------
          Total stockholders' equity                                                12,304,754        12,233,337
                                                                                  ------------      ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                        $ 16,356,181      $ 16,538,036
                                                                                  ============      ============
</TABLE>




     See notes to condensed consolidated financial statements (unaudited).

                                       3
<PAGE>   4
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED
                                                           JUNE 30,
                                                 ----------------------------
                                                      1998             1997
                                                 -----------      -----------
<S>                                              <C>              <C>        
REVENUES:
     Royalties                                   $ 2,438,513      $ 1,938,315
     Franchise fees                                  421,027          498,462
     Sales of products and services                  490,672          325,991
     Tax services                                    240,249          212,712
     Interest                                        135,509          175,790
     Other                                           204,752          259,454
                                                 -----------      -----------
        TOTAL REVENUES                             3,930,722        3,410,724

COSTS AND EXPENSES:
     General, administrative and selling           3,217,869        2,615,395
     Costs of product and service sales              478,154          230,145
     Cost of tax services                            214,759          205,364
     Depreciation and amortization                   186,087          136,954
     Interest                                         21,229           12,499
                                                 -----------      -----------
        TOTAL COSTS AND EXPENSES                   4,118,097        3,200,357
                                                 -----------      -----------

OPERATING INCOME (LOSS)                             (187,376)         210,367
                                                 -----------      -----------
NON-OPERATING INCOME:
     Gain on sale of securities                      216,346             --
                                                 -----------      -----------
        TOTAL NON-OPERATING INCOME                   216,346             --
                                                 -----------      -----------

Income before income taxes                            28,970          210,367
Income taxes                                          (9,059)         (74,439)
                                                 -----------      -----------

NET INCOME                                       $    19,911      $   135,928
                                                 ===========      ===========


EARNINGS (LOSS) PER SHARE - BASIC                $      0.00      $      0.02
                                                 ===========      ===========

EARNINGS (LOSS) PER SHARE - DILUTED              $      0.00      $      0.02
                                                 ===========      ===========

WEIGHTED AVERAGE COMMON SHARES                     6,775,427        6,854,352
                                                 ===========      ===========

WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
         DILUTIVE COMMON SHARES                    7,037,791        6,893,652
                                                 ===========      ===========
</TABLE>


     See notes to condensed consolidated financial statements (unaudited).

                                       4
<PAGE>   5
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                       SIX MONTHS ENDED
                                                           JUNE 30,
                                                 ----------------------------
                                                     1998             1997
                                                 -----------      -----------
<S>                                              <C>              <C>        
REVENUES:
     Royalties                                   $ 4,292,376      $ 3,781,990
     Franchise fees                                1,042,506        1,408,667
     Sales of products and services                1,215,001          491,222
     Tax services                                    659,369          564,992
     Interest                                        302,128          351,840
     Other                                           390,905          476,944
                                                 -----------      -----------
        TOTAL REVENUES                             7,902,285        7,075,655

COSTS AND EXPENSES:
     General, administrative and selling           6,132,480        5,552,593
     Costs of product and service sales            1,017,466          340,850
     Cost of tax services                            483,071          522,107
     Depreciation and amortization                   339,705          268,294
     Interest                                         35,862           23,112
                                                 -----------      -----------
        TOTAL COSTS AND EXPENSES                   8,008,583        6,706,956

OPERATING INCOME (LOSS)                             (106,299)         368,699
                                                 -----------      -----------

NON-OPERATING INCOME:
     Gain on sale of securities                      317,374               --
                                                 -----------      -----------
        TOTAL NON-OPERATING INCOME                   317,374               --
                                                 -----------      -----------

Income before income taxes                           211,075          368,699
Income taxes                                         (71,003)        (128,273)
                                                 -----------      -----------

NET INCOME                                       $   140,072      $   240,426
                                                 ===========      ===========

EARNINGS (LOSS) PER SHARE - BASIC                $      0.02      $      0.05
                                                 ===========      ===========

EARNINGS (LOSS) PER SHARE - DILUTED              $      0.02      $      0.05
                                                 ===========      ===========

WEIGHTED AVERAGE COMMON SHARES                     6,775,427        6,891,434
                                                 ===========      ===========

WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
         DILUTIVE COMMON SHARES                    6,974,166        6,940,101
                                                 ===========      ===========
</TABLE>

     See notes to condensed consolidated financial statements (unaudited).


                                       5

<PAGE>   6
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                         SIX MONTHS ENDED JUNE 30,
                                                                        ----------------------------
                                                                           1998             1997
                                                                        -----------      -----------
<S>                                                                     <C>              <C>        
Operating activities:

     Net income for the period                                          $   140,072      $   240,426
     Adjustments to reconcile net income to
                  net cash used in operating activities:
        Depreciation and amortization                                       341,991          268,294
        Change in reserve for doubtful accounts                             (15,022)        (275,487)
        Notes received for franchise sales                                 (533,370)        (367,987)
        Change in deferred tax asset                                        (19,180)          50,724
        Other adjustments                                                   (20,407)           2,861
    Changes in assets and liabilities:
        Accounts and interest receivable                                     24,031         (196,295)
        Net change in receivables / payables to related parties             (48,968)          84,848
        Inventories                                                         (27,441)         (91,418)
        Prepaid expenses                                                   (233,217)        (136,515)
        Federal income tax receivable                                            --          258,701
        Accounts payable and accrued liabilities                            111,655         (131,822)
        Deferred franchise sales revenue                                   (131,887)        (398,003)
        Other assets                                                             --          124,095
        Other                                                                19,812          142,088
                                                                        -----------      -----------
  Net cash used in operating activities                                    (391,931)        (425,490)
                                                                        -----------      -----------

Investing activities:
    Collections of notes receivable                                         934,414          270,566
    Proceeds from sale of notes receivable                                       --          217,556
    Purchases of property and equipment                                    (358,402)         (71,780)
    Purchases of franchise rights                                          (586,564)              --
    Acquisition of other assets                                             (17,186)              --
    Net (increase) decrease in marketable securities                        205,694         (250,000)
    Increase (decrease) in unrealized gain on marketable securities         (68,655)         118,603
    Collections on notes receivable from related parties                     74,664           72,337
    Other                                                                        --           (9,865)
                                                                        -----------      -----------
  Net cash provided by investing activities                                 183,966          347,417
                                                                        -----------      -----------

Financing activities:
    Proceeds from borrowings                                                 62,465               --
    Payments on borrowings                                                  (86,881)        (145,151)
                                                                        -----------      -----------
  Net cash used in financing activities                                     (24,416)        (145,151)
                                                                        -----------      -----------

Net decrease in cash and cash equivalents                                  (232,381)        (223,224)
Cash and cash equivalents, beginning of period                            1,568,187        1,820,167
                                                                        -----------      -----------

Cash and cash equivalents, end of period                                $ 1,335,806      $ 1,596,943
                                                                        ===========      ===========
</TABLE>


     See notes to condensed consolidated financial statements (unaudited).

                                       6
<PAGE>   7



                     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
consolidated financial statements include the accounts of The Dwyer Group, Inc.
and its wholly-owned subsidiaries (the "Company") which include the following:

         o        Rainbow International Carpet Dyeing and Cleaning Co.
                  ("Rainbow") is a franchisor of carpet cleaning, dyeing, air
                  duct cleaning, and restoration services.

         o        Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of
                  plumbing repair and drain cleaning services under the service
                  mark "Mr. Rooter"(R).

         o        General Business Services, Inc. ("GBS") is a franchisor of
                  business management service to small businesses. Such business
                  management services include, among others, business
                  counseling, tax counseling, accounting services and products,
                  financial counseling and personnel services.

         o        Edwin K. Williams & Co. ("EKW") is a franchisor of information
                  systems and financial management services, specifically
                  designed to meet the special needs of small businesses. Its
                  financial management services include, among others,
                  accounting and bookkeeping services and systems, financial
                  management analysis, payroll processing, and tax preparation
                  and planning services.

         o        Aire Serv Heating & Air Conditioning, Inc. ("Aire Serv") is a
                  franchisor of heating, ventilating and air conditioning
                  service businesses.

         o        Mr. Electric Corp. ("Mr. Electric") is a franchisor of
                  electrical repair and service businesses under the service
                  mark "Mr. Electric"(R).

         o        Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of major
                  household appliance service and repair businesses.

         o        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.

         o        The Dwyer Group Canada, Inc. ("TDG Canada") was incorporated
                  in January 1998 in order to market and service certain of the
                  Company's franchise concepts in Canada. Currently, those
                  concepts are: Mr. Rooter, Mr. Electric, Rainbow International
                  and Aire Serv.


NOTE 2.    BASIS OF PRESENTATION

A.       PRINCIPLES OF CONSOLIDATION

The accompanying 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 June 30, 1998 and for the three months and six month
periods ended June 30, 1998 and 1997 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



                                       7
<PAGE>   8

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, 1997.

The results of operations for the three months and six month periods ended June
30, 1998 are not necessarily indicative of the results to be expected for the
fiscal year ending December 31, 1998.

C.       RECLASSIFICATIONS

Certain reclassifications have been made to the 1997 consolidated financial
statements to conform to the presentation used in the 1998 consolidated
financial statements. These reclassifications had no effect on stockholders'
equity or net income.

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.

Effective December 31, 1997, the Company adopted the provisions of SFAS No. 128,
"Earnings Per Share". This statement establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. There was no material impact on the Company's
financial statements resulting from the adoption of SFAS No. 128.

NOTE 4.   PURCHASED FRANCHISE RIGHTS

In February 1998, the Company repurchased all Canadian franchise rights for its
Mr. Rooter and Mr. Electric franchise concepts from its Canadian master
licensee. The purchase price of approximately $600,000 was capitalized as
Purchased Franchise Rights. The purchase is expected to generate additional
revenues to the Company of approximately $250,000 per year.

In March 1998, the Company repurchased Canadian franchise rights for its Rainbow
International franchise concept from a related party. The purchase price of
approximately $250,000 was capitalized as Purchased Franchise Rights. The
purchase is expected to generate additional revenues to the Company of
approximately $50,000 per year.

NOTE 5.   SUBSEQUENT EVENTS

In July 1998, the Company sold two of its franchising subsidiaries, GBS and EKW,
to Century Business Services, Inc. ("Century"), a leading provider of outsourced
business services to medium sized companies throughout the United States. The
Company received $3.8 million in cash and can receive up to 47,407 unregistered
shares of Century common stock (the "Stock") subject to certain contingencies.
The stock to be received is subject to a two-year lock-up agreement. One-half of
the stock will be earned based on the renewal of certain GBS franchisees by
December 31,1998. Management believes that the Company will receive
substantially all of this portion of the Stock by May of 1999. The other half of
the Stock will be held in escrow for two years and 90 days from the date of the
agreement in order to facilitate the payment to Century for any losses incurred
by Century which are subject to indemnification by the Company. At this time
management cannot estimate the amount of this portion of the Stock which will
eventually be received by the Company.

Also in July 1998, the Company acquired the majority of the assets of Glass
Doctor Corporation and Glassmarks, Inc., all of such assets being associated
with the Glass Doctor franchise concept. Glass Doctor is a national franchisor
of service centers whose business is the replacement of automobile, residential
and commercial glass. Glass Doctor's franchise system is currently comprised of
26 franchisees that generate over $33 million per year in system-wide sales. On
a pro forma basis, Glass Doctor would add approximately $1.5 million to the
Company's revenues. The acquisition was funded by a combination of $3.2 million
in cash a note payable and the issuance of 333,333 shares of the Company's
common stock.


                                       8
<PAGE>   9





--------------------------------------------------------------------------------
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.

LIQUIDITY AND CAPITAL RESOURCES

The Company's working capital ratio was approximately 3.2 to 1 at June 30, 1998
as compared to 3.4 to 1 at December 31, 1997. The Company had working capital of
approximately $5.1 million at June 30, 1998 as compared to approximately $5.5
million at December 31, 1997. For the remainder of fiscal 1998 management
expects to fund working capital requirements primarily through operating cash
flow. At June 30, 1998 and December 31, 1997, the Company had cash and cash
equivalents of approximately $1.3 million and $1.6 million, respectively, and
marketable securities of approximately $2.1 million and $2.3 million,
respectively.

Cash used in operating activities decreased from $425,000 for the first six
months of 1997 to $392,000 for the same period in 1998. In the first six months
of 1997, the Company generated $347,000 in cash from investing activities versus
$184,000 for the same period in 1998, a decrease of $163,000. This decrease is
primarily due to the purchase of franchise rights in 1998 ($587,000) and an
increase in purchases of property and equipment ($287,000), partially offset by
an increase in proceeds from notes receivable ($446,000) and a net change in
activity in marketable securities ($268,000). The net change in activity in
marketable securities resulted from the purchase of securities in 1997 and the
sale of securities in 1998. The Company used $145,000 in cash for financing
activities for the first six months of 1997 (all for payments on borrowings) and
used $24,000 for such activities in 1998 ($87,000 for payments on borrowings,
partially offset by $63,000 in proceeds from new borrowings).

As described in Note 5 - "Subsequent Events", in July 1998, the Company sold two
of its subsidiaries and acquired a franchising business. The Company used the
cash proceeds from the sale to fund the cash portion of the purchase.

The Company is not aware of any trend or event which would potentially 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 six months ended June 30, 1998, compared to the six months ended June
30, 1997.

Total revenues increased $826,000 (11.7%) to $7,902,000 in 1998, from
$7,076,,000 in 1997. This increase is due primarily to increases in royalties of
$510,000 (13.5%), in sales of products and services of $724,000 (147.3%) and in
tax services of $94,000 (16.7%), partially offset by decreases in franchise fees
of $366,000 (26.0%), in interest of $50,000 (14.1%) and in other revenues of
$86,000 (18.0%).

Royalty revenues increased due to improved system-wide sales associated with a
number of the Company's franchise concepts, primarily in the second quarter of
the year. Significant increases were as follows: Mr. Rooter $249,000 (16.8%),
Mr. Electric $109,000 (114.5%), GBS $63,000 (11.7%) and EKW $41,000 (9.1%). The
Company also recorded $87,000 in royalties from Canadian franchise rights
purchased in the first quarter of 1998 (see Note 4 of Notes to Condensed
Consolidated Financial Statements).

The sale of products and services increased significantly primarily due to the
growth of the Company's National Accounts program which began operating in late
1996.

Decreases in franchise sales revenues by concept were as follows: Mr. Rooter
$179,000 (43.1%), Mr. Appliance $88,000 (65.1%), Mr. Electric $68,000 (19.5%),
EKW $55,000 (61.1%), GBS $37,000 (19.9%) and Rainbow $24,000 (14.4%). The above
decreases were partially offset by an increase of $86,000 (142.3%) in franchise
sales revenues associated with Aire Serv. The Company has recently realigned its
franchise sales department in an effort to increase franchise sales revenues.

Interest revenues declined primarily due to a reduction in trade notes
receivable. Other revenues declined primarily due to commissions received from
related parties in 1997 for the sale of franchises.


                                       9
<PAGE>   10

General, administrative and selling expenses increased by $580,000 (10.4%). In
the second quarter of 1997, credits were recorded to bad debt expense as a
result of collection actions taken during the first half of the year. These
credits resulted in a net change in bad debt expense of approximately $300,000
from 1997 to 1998. The balance of the overall increase is primarily due to an
increase in the number of corporate personnel with a corresponding increase of
$170,000 payroll costs, and increased operating costs associated with the
Company's relatively new operations; Mr. Appliance, Mr. Electric, National
Accounts and TDG Canada.

The cost of product and service sales increased by $677,000 (198.5%) due to
costs associated with increased revenues from National Accounts and increased
costs associated with the sale of products by GBS.

Depreciation and amortization increased by $71,000 (26.6%) due to amortization
of Canadian franchise rights acquired in 1998 and due to amortization and
depreciation of property and equipment purchased during 1997 and 1998.

In 1998, the Company sold marketable securities and recorded a gain of $317,000
on such sales.

Net income for the six months ended June 30,1998 was $140,000 as compared to
$240,000 for the same period last year.

For the three months ended June 30, 1998, compared to the three months ended
June 30, 1997.

Total revenues increased by $520,000 (15.2%) to $3,931,000 in 1998, from
$3,411,000 for 1997. This increase is due primarily to increases in royalties of
$500,000 (25.8%) and in sales of products and services of $165,000 (50.5%),
partially offset by decreases in franchise fees of $77,000 (15.5%), in interest
of $40,000 (22.9%) and other revenues of $55,000 (21.1%).

Royalty revenues increased during the period due to improved system-wide sales
associated with a number of the Company's franchise concepts. Significant
royalty increases were as follows: Mr. Rooter $172,000 (23.6%), Mr. Electric
$54,000 (96.9%), GBS $99,000 (38.7%) and EKW $55,000 (23.7%). The Company also
recorded $87,000 in royalties from Canadian franchise rights purchased in the
first quarter of 1998 (see Note 4 of Notes to Condensed Consolidated Financial
Statements).

The sale of products and services increased significantly due to the growth of
the Company's National Accounts program which began operating in late 1996.
Interest revenues declined primarily due to a reduction in trade notes
receivable. Other revenues decreased due to commissions received from related
parties in 1997 for the sale of franchises.

General, administrative and selling expenses increased by $602,000 (23.0%). In
the second quarter of 1997, credits were recorded to bad debt expense as a
result of collection actions taken during the first half of the year. These
credits resulted in a net change in bad debt expense of approximately $300,000
from 1997 to 1998. The balance of the overall increase is primarily due to an
increase in the number of corporate personnel with a corresponding increase in
payroll costs, and increased operating costs associated with the Company's
relatively new operations; Mr. Appliance, Mr. Electric, National Accounts and
TDG Canada.

The cost of product and service sales increased by $248,000 (107.8%) due to
costs associated with increased revenues from National Accounts and increased
costs associated with the sale of products by GBS.

Depreciation and amortization increased by $49,000 (35.9%) due to amortization
of Canadian franchise rights acquired in 1998 and due to amortization and
depreciation of property and equipment purchased during 1997 and 1998.

In 1998, the Company sold marketable securities and recorded a gain of $216,000
on such sales.

Net income was $20,000 for the quarter ended June 30,1998 as compared to
$136,000 for the same period in 1997.

IMPACT OF INFLATION

Inflation has not had a material impact on the operations of the Company.

FOREIGN OPERATIONS

The Company and its subsidiaries operate in 17 foreign countries. Typically,
foreign franchises are sold and managed by a master licensee in that country.
Royalty revenues from master licenses are recorded as received due to the
difficulty sometimes 



                                       10
<PAGE>   11

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. During the remainder
of 1998, the Company may produce additional master license sales which could
result in each case in a one time, lump sum payment from the master licensee 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 from time to time 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.


                                       11
<PAGE>   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.

--------------------------------------------------------------------------------
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:

                  Financial Data Schedule


         (b)      Reports on 8-K

                  Filed July 30, 1998 - Reported the sale of the majority of the
                  assets of two of the Company's subsidiaries, General Business
                  Services, Inc. and Edwin K. Williams & Co.

                  Filed August 7, 1998 - Reported the acquisition of the
                  majority of the assets of Glass Doctor Corporation and
                  Glassmarks, Inc., all of such assets being associated with the
                  Glass Doctor franchise concept.



                                       12
<PAGE>   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: August 12, 1998               The Dwyer Group, Inc.


                                      By: /s/ Thomas Buckley
                                          ------------------
                                              Thomas Buckley
                                              Vice President and Chief Financial
                                              Officer


                                       13

<PAGE>   14
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                               EXHIBIT
-------                              -------
  <S>                        <C> 
  27                         Financial Data Schedule
</TABLE>