<PAGE>
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                 FORM 10-QSB/A

(Mark One)
X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
-
   ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.


_  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)

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

                 1010 N. University Parks Dr., Waco, TX  76707
                 ---------------------------------------------
             (ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)


                                (817)  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 October 31, 1996
------------------------------                   -------------------------------
Common stock, $.10 par value                                           7,113,127


TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):   Yes    No  X
                                                                ___    ___
<PAGE>
 
                             THE DWYER GROUP, INC.

                                     INDEX


<TABLE>
<CAPTION>

PART I  -  FINANCIAL INFORMATION                                                        PAGE NO.
 
    Item 1.  Financial Statements
    ------
<S>                                                                                     <C> 
             Consolidated Balance Sheets as of September 30, 1996 (unaudited)
             and December 31, 1995........................................................3 - 4
 
             Consolidated Statements of Income for the Three Months and
             Nine Months Ended September 30, 1996 and 1995 (unaudited)........................5
 
             Consolidated Statements of Cash Flows for the Nine Months
             September 30, 1996 and 1995 (unaudited)......................................6 - 7
 
             Notes to Consolidated Financial Statements...................................8 - 9
 
    Item 2.  Management's Discussion and Analysis of Financial
    ------   Condition and Results of Operations........................................10 - 12
 
PART II  -  OTHER INFORMATION
 
    Item 1.  Legal Proceedings...............................................................13
    ------
    
    Item 2.  Changes in Securities...........................................................13
    ------
 
    Item 3.  Defaults Upon Senior Securities.................................................13
    ------
 
    Item 4.  Submission of Matters to a Vote of Security Holders.............................13
    ------
 
    Item 5.  Other Information...............................................................13
    ------
 
    Item 6.  Exhibits and Reports on Form 8-K................................................13
    ------ 
 
</TABLE>

                                       2
<PAGE>
 
                    THE DWYER GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                    ASSETS
<TABLE>
<CAPTION>
                                                                              (UNAUDITED)    DECEMBER 31,
                                                                            SEPTEMBER 30,       1995     
                                                                                1996       RESTATED NOTE 4
                                                                            -------------  ---------------
<S>                                                                         <C>            <C>
       CURRENT ASSETS:
        Cash and cash equivalents                                             $ 1,337,662    $ 3,446,166
        Short-term investments                                                  1,084,061      1,000,000
        Marketable securities                                                     686,182            ---
        Trade accounts receivable, net of allowance for                                   
            doubtful accounts of $443,462 and $491,613, respectively              709,487        696,389
        Accounts receivable from related parties                                  200,119        825,029
        Accrued interest receivable                                               161,388        150,748
        Trade notes receivable, current portion                                   813,035        826,418
        Inventories                                                               160,440        136,728
        Prepaid expenses                                                          774,814        148,854
        Federal income tax receivable                                             157,863        646,641
        Notes receivable from related parties, current portion                    445,285            ---
                                                                              -----------    -----------
                                                                                          
       TOTAL CURRENT ASSETS                                                     6,530,336      7,876,973
       ACCOUNTS RECEIVABLE FROM                                                           
       RELATED PARTIES, long term portion                                         895,891         97,916
                                                                                          
       PROPERTY AND EQUIPMENT, at cost less                                               
         accumulated depreciation                                               1,236,520      1,472,863
                                                                                          
       ASSETS HELD FOR SALE                                                       340,249        398,651
                                                                                          
       TRADE NOTES RECEIVABLE, long-term portion,                                         
         net of allowance for doubtful notes of $894,730 and                              
         $855,849,  respectively                                                4,835,039      4,478,071
                                                                                          
       PURCHASED FRANCHISE RIGHTS, at cost less                                           
         accumulated amortization of $444,662 and $331,466, respectively        1,225,604      1,306,456
                                                                                          
       PATENTS AND TRADEMARKS, at cost less                                               
         accumulated amortization of $31,585 and $24,150,                                 
         respectively                                                             149,815        139,160
                                                                                          
       NOTES RECEIVABLE FROM RELATED PARTIES,                                             
          long term portion                                                       371,687        653,403
                                                                                          
       INVESTMENT, equity method                                                  389,793        428,423
                                                                                          
       NET DEFERRED TAX ASSET                                                     722,853        217,005
                                                                                          
       OTHER ASSETS                                                               282,100        199,778
                                                                              -----------    -----------
       TOTAL ASSETS                                                           $16,979,887    $17,268,699
                                                                              ===========    ===========
</TABLE>
   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       3
<PAGE>
 
                    THE DWYER GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                  (CONTINUED)
                     LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                              (UNAUDITED)   DECEMBER 31,  
                                                                            SEPTEMBER 30,       1995      
                                                                                1996       RESTATED NOTE 4 
                                                                           --------------  ---------------
<S>                                                                        <C>             <C>
 
       CURRENT LIABILITIES:
 
          Trade accounts payable                                             $   998,702    $   883,307
          Accounts payable to related parties                                     49,798        222,227
          Accrued liabilities                                                    831,466      1,208,409
          Other payables                                                          69,544         67,759
          Current portion of notes payable and capital
            lease obligations                                                    117,027        252,289
                                                                             -----------    -----------
 
       TOTAL CURRENT LIABILITIES                                               2,066,537      2,633,991

       NOTES PAYABLE, less current portion                                       441,028        276,677

       DEFERRED FRANCHISE SALES REVENUE                                        2,398,607      2,652,057
 
       FRANCHISE FUNDS HELD FOR ADVERTISING                                      206,386        318,447
                                                                             -----------    -----------
 
       TOTAL LIABILITIES                                                       5,112,558      5,881,172

       STOCKHOLDERS' EQUITY:
          Preferred stock, $1 par value - shares authorized,
            500,000; outstanding, none                                               ---            ---
          Common stock, authorized 15,000,000 shares of
            $.10 par value; issued 7,235,552 shares at
            September 30, 1996 and December 31, 1995, respectively               723,556        723,556
          Additional paid-in capital                                           8,941,029      8,941,029
          Retained earnings                                                    2,684,029      2,237,959
          Note receivable from shareholder                                      (418,896)      (418,896)
          Unrealized gain in value of marketable securities                       33,732            ---
          Treasury stock, at cost (122,425 shares at September 30, 1996
            and December 31, 1995, respectively)                                 (96,121)       (96,121)
                                                                             -----------    -----------
       TOTAL STOCKHOLDERS' EQUITY                                             11,867,329     11,387,527
                                                                             -----------    -----------
 
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            $16,979,887    $17,268,699
                                                                             ===========    ===========
 
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

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

<TABLE>
<CAPTION>


                                                      NINE MONTHS ENDED SEPTEMBER 30,     THREE MONTHS ENDED SEPTEMBER 30,
                                                                                     
                                                              1996             1995               1996              1995
                                                        -----------     -----------          ----------      -----------
<S>                                                   <C>                <C>                <C>             <C>
 
REVENUES:
  Royalty income                                        $ 5,338,842     $ 4,831,476          $1,778,561        1,725,462
  Franchise sales                                         3,004,973       3,838,783             824,256        1,343,419
  Tax services                                              649,461         607,462             121,273          105,232
  Product sales                                             604,817         515,733             156,816          174,926
  Interest and other, net                                 1,171,172         839,187             551,910          210,347
                                                        -----------     -----------          ----------        ---------
                                                         10,769,265      10,632,641           3,432,816        3,559,386   
                                                                                                                  
COSTS AND EXPENSES:                                                                                               
  Cost of product sales                                     324,925         178,578              77,093           49,675           
  Cost of tax services                                      704,833         987,872             183,151          274,223           
  General, administrative, selling                        8,604,015       8,073,991           3,123,902        2,957,817
  Depreciation and amortization                             385,117         283,529             130,750           93,405
  Interest                                                   53,978          38,076              42,252           10,790
                                                        -----------     -----------          ----------       ----------
                                                         10,072,868       9,562,046           3,557,148        3,385,910
 
Income (Loss) before provision for federal income taxes     696,397       1,070,595            (124,332)         173,476
Provision (benefit) for federal income taxes                250,327         299,765             (33,672)          30,629
                                                        -----------     -----------          ----------       ----------
                                                                                            
Net income (Loss)                                       $   446,070     $   770,830          $  (90,660)      $  142,847
                                                        ===========     ===========          ==========       ==========
 
Income (Loss) per common and dilutive share:
Income (Loss) before federal income taxes                     $ .09           $ .14               $(.02)           $ .02
Provision (benefit) for federal  income taxes                   .03             .04                (.01)              -  
                                                              -----           -----               -----            -----
 
Net income (Loss) per share                                   $ .06           $ .10               $(.01)           $ .02
                                                              =====           =====               =====            ===== 
Weighted average common and dilutive common
   equivalent shares outstanding:
    Primary                                               7,333,765       7,487,643           7,331,964        7,485,390
                                                          =========       =========           =========        =========
    Fully Dilutive                                        7,347,910       7,492,960           7,331,964        7,485,390
                                                          =========       =========           =========        ========= 
</TABLE>
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                        
                                       5
<PAGE>
 
                    THE DWYER GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<TABLE>
<CAPTION>

                                                        NINE MONTHS ENDED SEPTEMBER 30,
                                                        -------------------------------
                                                            
                                                                     1996        1995
                                                                 --------    -------- 
<S>                                                              <C>         <C>
    CASH FLOWS FROM OPERATING ACTIVITIES:                              
                                                                                               
    Net income                                                   $446,070    $770,830
      Adjustments to reconcile net income to net                                 
      cash provided by operating activities:                                                 
        Depreciation and amortization                             384,028     283,529
        Provision for doubtful accounts and notes                                           
          receivable                                              158,135    (130,423)
        Notes receivable written off                              254,697     367,488
        Income recognized from sales previously deferred         (453,420)        ---
        Sales of franchises for installment notes receivable   (1,287,184) (2,078,723)
        Payments received on notes receivable                     689,603     873,152
        Sales of notes receivable                                     ---     134,376
        Cash received on deferred sales                           238,098      27,539
        Equity in earnings of investment                           38,630      48,137
        Gain on sale of property                                  (52,729)        ---
        Loss on disposal of assets held for sale                    5,751         ---
    Change in assets and liabilities:                             
        Accounts receivable                                        20,382     105,561
        Accrued interest receivable                               (10,640)        ---
        Inventories                                               (23,712)    (10,071)
        Prepaid expenses                                         (625,960)   (127,888)
        Notes receivable other                                        ---       7,295
        Other assets                                              (82,322)   (100,849)
        Deferred tax asset and liability                          140,797      61,618
        Accounts payable and accrued liabilities                 (315,886)    (57,278)
        Accounts payable to related parties                      (172,429)        ---
        Income tax payable                                       (157,863)   (370,271)
        Other payables                                            (74,326)     (4,902)
        Franchisee funds held for advertising                    (112,061)     (8,693)
                                                              ----------- -----------
                                                                 
    Net cash (used in) operating activities                      (992,341)   (209,573)
                                                                  
    CASH FLOWS FROM INVESTING ACTIVITIES:                     
                                                                 
      Purchases of property and equipment                        (275,517)   (341,353)
      Payments for patents and trademarks                         (49,153)    (24,161)
      Proceeds from sales of property & equipment                 318,035       3,790
      Net change in notes and accounts receivable              
        from related parties                                     (336,634) (1,325,568)
      Net (acquisition) of assets held for sale                   (37,983)   (444,251)
      Purchase franchise rights                                       ---      19,651
      Purchase of marketable securities 
        and short term investments                               (770,243)        ---
                                                              ----------- -----------  
    Net cash (used in) investing activities                    (1,151,495) (2,111,892)
                                                  
</TABLE> 
                                                               
                                                               
   The accompanying notes are an integral part of the consolidated financial
                                  statements.

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

<TABLE>
<CAPTION>
                                                 NINE MONTHS ENDED SEPTEMBER 30,
                                                 ------------------------------
 
                                                            1996           1995
                                                            ----           ----
<S>                                                         <C>           <C>
       CASH FLOWS FROM FINANCING ACTIVITIES:
 
          Proceeds from debt issued                      379,209            ---
          Additional paid in capital                         ---        950,000
          Proceeds from redemption of stock options          ---          1,640
          Principal payments of debt                    (343,877)       (93,638)
          Purchase of treasury stock                         ---       (189,410)
          Sale of treasury stock                             ---        245,861
                                                      ----------    -----------
 
             Net cash provided by (used in) financing 
              activities                                  35,332        914,453

       Net decrease in cash and cash equivalents      (2,108,504)    (1,407,012)
 
       Cash and cash equivalents, at beginning of year 3,446,166      4,819,795
                                                      ----------    -----------
 
       Cash and cash equivalents, at September 30     $1,337,662    $ 3,412,783
                                                      ==========    ===========
 
       Supplemental schedule of non cash investing 
        activities:

       Additions to notes receivable from sales of 
        assets held for sale                          $  293,000

</TABLE> 

   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                       7
<PAGE>
 
                    THE DWYER GROUP, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



 NOTE 1.  BASIS OF PRESENTATION


 A.  ORGANIZATION
     ------------

 The Dwyer Group, Inc. (the "Parent") 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").  All material
 intercompany accounts and transactions have been eliminated in consolidation.

 The Company was incorporated in 1970 in the State of Oklahoma under the name
 Mr. Rooter Corporation of America, Inc.  The Company's name was changed to Mr.
 Rooter Corporation in 1972, and in 1986 it was reincorporated as a Delaware
 corporation.  Until May 1, 1993, the Company operated in two segments:
 franchising plumbing repair and sewer and drain cleaning services as well as
 manufacturing and selling sewer and drain cleaning equipment and supplies.  On
 May 1, 1993, substantially all of the assets of the manufacturing operations
 were sold.

 On March 1, 1993, the Company, through Rooter's wholly-owned subsidiary Aire
 Serv Heating and Air Conditioning, Inc. ("Aire Serv"), began to grant licenses
 to operate air conditioning and heating repair services under the trade name
 Aire Serv.

 On September 1, 1993, the Company acquired all of the shares of common stock of
 Rainbow International Carpet Dyeing & Cleaning Co. ("Rainbow"), and General
 Business Services, Inc. ("GBS") from its majority stockholder for 8,070,000
 shares (4,035,000 shares after reverse split) of common stock.  With the
 acquisition of GBS, the Company began operating in another segment, tax
 services, through GBS's wholly-owned subsidiary, General Tax Services, Inc.
 ("GTS").  These acquisitions have been accounted for similar to a pooling of
 interests because all companies were under common control.

 Following the acquisition of Rainbow and GBS, the Board of Directors approved a
 plan to convert the Company into a holding company and to form a new subsidiary
 to operate the Mr. Rooter business.  On July 30, 1993, this new subsidiary was
 incorporated in Texas under the name Mr. Rooter Corporation and the Company was
 renamed The Dwyer Group, Inc.

 Effective May 1, 1994, the Company acquired Edwin K. Williams & Co. ("EKW"), a
 wholly-owned subsidiary of Ekwill Acquisition Corporation ("Ekwill"), a
 California corporation, for approximately $1,150,000 cash by purchasing all of
 the outstanding capital stock of Ekwill from Ekwill's two shareholders.  The
 acquisition of Ekwill has been accounted for using the purchase method of
 accounting; accordingly, assets acquired and liabilities assumed were recorded
 at their estimated fair values.

 Effective September 1, 1994, EKW purchased 33 1/3% of the capital stock of
 Service Station Computer Systems, Inc. ("SSCS") for $500,000 cash.  The
 investment in SSCS has been accounted for under the equity method.

 On September 6, 1994, the Company formed a new wholly-owned subsidiary.  Mr.
 Electric Corp. ("Electric"), is a Texas corporation engaged in franchising
 electrical contracting service businesses.

 B.  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.

 C.  INTERIM DISCLOSURES
     -------------------

 The information as of September 30, 1996 and for the nine months ended
 September 30, 1996 and 1995 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 and results of operations for the
 interim periods.  The accompanying 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, 1995.

                                       8
<PAGE>
 
 The results of operations for the nine months ended September 30, 1996 are not
 necessarily indicative of the results to be expected for the fiscal year ending
 December 31, 1996.

 D.  RECLASSIFICATIONS
     -----------------

 Certain reclassifications have been made to the 1995 consolidated financial
 statements to conform to the presentation used in the 1996 consolidated
 financial statements.  These reclassifications had no effect on stockholders'
 equity or net income.


 NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 A.  EARNINGS PER COMMON SHARE
     -------------------------

 Earnings per share of common stock is computed by dividing net income by the
 weighted average number of shares and common equivalent shares outstanding
 during each of the periods.  Earnings per share include the dilutive effect of
 unexercised stock options and warrants.

 B.  MARKETABLE SECURITIES
     ---------------------

 Statement of Financial Accounting Standards No. 115, "Accounting for Certain
 Investments in Debt and Equity Securities" requires that equity securities
 management has designated as available for sale be carried at fair value.
 Changes in the fair value of marketable securities are presented in the
 stockholders' equity section of the balance sheet under the caption "Unrealized
 gain in value of marketable securities".


 NOTE 3.  RECENT ACCOUNTING STANDARDS


 Statement of Financial Accounting Standards No. 121, "Accounting for the
 Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" is
 required to be implemented for fiscal years beginning after December 15, 1995.
 Accordingly, the Company is implementing this pronouncement during the fiscal
 year ending December 31, 1996.  The effect of this pronouncement on the
 Company's consolidated financial condition and results of operations is not
 considered to be material.


 NOTE 4.   PRIOR PERIOD ADJUSTMENT AND RESTATEMENT OF PREVIOUSLY ISSUED 
           FINANCIAL RESULTS


 In connection with the December 31, 1996 year end accounting closing and
 subsequent analyses performed, it was determined that an error had been made
 relating to the carrying value of certain nonoperating individual franchises
 and regional franchises held for sale at December 31, 1995 and at September 30,
 1996. Accordingly, the Company has restated its previously issued consolidated
 financial statements for the year ended December 31, 1995 to correct the error.
 The adjustments to these assets reduced previously reported total assets at
 December 31, 1995 by $571,445, reduced assets held for resale by $788,450,
 reduced liabilities by $58,147, reduced retained earnings by $513,298 and
 increased the previously reported net loss for the year ended December 31, 1995
 by $513,298. The net loss per share for the year ended December 31, 1995
 increased by $.07 per share.

 The Company has amended its previously issued September 30, 1996 10-QSB to
 incorporate the restated consolidated balance sheet for the year ended December
 31, 1995 and to correct the Company's previously issued consolidated financial
 statements for the quarter and nine months ended September 30, 1996 for the
 aforementioned error, (which also applied to the carrying values of certain
 nonoperating franchises held for sale during fiscal 1996) and to report:
 adjusted vacation and legal accruals; the discounted value of a 0% interest
 note receivable; and the assumption of a residence in Waco, Texas and related
 mortgage note payable.

 The effect of the adjustments relating to the activities and results for the
 quarter ended September 30, 1996 (subsequent to the restated balance sheet
 adjustments at December 31, 1995, as stated in the first paragraph above)
 increased previously reported assets by $60,365, increased liabilities by
 $281,994 and reduced previously reported net income for the quarter ended
 September 30, 1996 by $221,629. The net income per share for the quarter ended
 September 30, 1996 decreased from $.02 per share to a net loss per share of
 $.01.

 In total, the effect of these adjustments for the nine months ended September
 30, 1996 (subsequent to the restated balance sheet adjustments at December 31,
 1995, as stated in the first paragraph above) reduced previously reported
 assets by $168,636, increased liabilities by $143,362 and reduced previously
 reported net income by $311,997. The net income per share for the nine months
 ended September 30, 1996 decreased by $.04 per share.

                                       9
<PAGE>
 
 THE DWYER GROUP, INC. AND SUBSIDIARIES

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
 OPERATIONS

 LIQUIDITY AND CAPITAL RESOURCES
 -------------------------------

 The Company's working capital ratio was approximately 3.2 to 1 at September 30,
 1996 as compared to 3.0 to 1 at December 31, 1995. In addition, the Company had
 working capital of approximately $4,464,000 at September 30, 1996 as compared
 to approximately $5,243,000 at December 31, 1995. For the remainder of fiscal
 1996 management expects to fund working capital requirements primarily through
 operating cash flow. At September 30, 1996 and December 31, 1995, the Company
 had cash and cash equivalents of $1,338,000 and $3,446,000, respectively. The
 decrease in cash and cash equivalents since December 31, 1995, is primarily
 attributable to payments of approximately: $479,000 of 1996 estimated federal
 income taxes to the I.R.S; $653,000 to purchase marketable securities; and
 $623,000 of prepaid expenses.

 Trade notes receivable increased approximately $344,000 (6.5%) coinciding with
 approximately $3,100,000 in franchise sales for the first nine months of 1996.
 The Company will finance a portion of franchise sales if the buyer is
 qualified.

 Federal income tax receivable decreased approximately $489,000 primarily due to
 the receipt of approximately $212,000 in federal income tax refunds from the
 Internal Revenue Service and due to the federal income tax provision for the
 nine months ended September 30, 1996.

 Accounts receivable from related parties increased $173,000, whereas accounts
 payable to related parties decreased $172,000.  Related party receivables
 comprise shared expenses and administrative fees billed to related parties by
 the Company during the first nine months of 1996.

 The $723,000 net deferred asset is primarily a result of the recording of
 deferred income tax liabilities in conjunction with an I.R.S. Code Section 481
 adjustment related to an accounting method change for tax purposes and deferred
 tax assets relating to net operating losses and tax credits.


 RESULTS OF OPERATIONS
 ---------------------

 For the nine months ended September 30, 1996, compared to the nine months ended
 -------------------------------------------------------------------------------
 September 30, 1995.
 -------------------

 Total revenues increased $137,000 (1.3%) to $10,769,000 for the nine months
 ended September 30, 1996, from revenues of $10,633,000 for the nine months
 ended September 30, 1995. The increase in revenues is mainly attributable to
 increases in royalty income of $507,000 (10.5%), interest and other revenues of
 $332,000 (39.6%), and product sales of $89,000 (17.3%). These increases were
 partially offset by a decrease in franchise sales of $834,000 (21.7%) for the
 nine months ended September 30, 1996, when compared to the first nine months of
 1995.

 Royalty income of Mr. Rooter accounted for $382,000 (25.9% increase) of the
 total $507,000 increase in royalty income for the nine months ended September
 30, 1996, as compared to the first nine months of 1995. Aire Serv, Mr.
 Electric, and GBS/EKW continued to grow throughout the nine months ended
 September 30, 1996, and contributed approximately $45,000 (29.5% increase),
 $67,000 (796.6% increase), and $35,000 (2.5% increase), respectively, in
 increased royalty income when compared to the same period in 1995.

 For the nine months ended September 30, 1996, Mr. Rooter produced increased
 franchise sales of $125,000 (20.0%) when compared to the same period in 1995.
 This franchise sales increase was offset by franchise sales decreases in GBS of
 $542,000 (29.2%), Aire Serv of $314,000 (62.3%), Mr. Electric of $163,000
 (30.8%) and Rainbow of $61,000 (18.6%).  The GBS decrease in franchise sales is
 attributable to the strategic decision by the Company to minimize the sale of
 GBS regional franchises during 1996.  Whereas the decline in Aire Serv, Mr.
 Electric and Rainbow franchise sales is primarily attributable to the
 reassessment and

                                      10
<PAGE>
 
 THE DWYER GROUP, INC. AND SUBSIDIARIES

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
 OPERATIONS -  CONTINUED

 RESULTS OF OPERATIONS (CONTINUED)
 ---------------------------------

 resulting realignment of the franchise sales process changing the emphasis in
 the franchisee selection process to a more qualified franchise candidate, which
 ultimately should result in a more successful franchise organization.

 GBS and E.K. Williams added approximately $605,000 in product sales for the
 nine months ended September 30, 1996, when compared to $516,000 in product
 sales for the nine months ended September 30, 1995.  GBS and EKW sell products
 such as record keeping systems and forms to their franchisees.

 The $332,000 (39.6%) increase in interest and other revenues is primarily
 attributable to a $100,000 loss on the sale of an asset recorded for the nine
 months ended September 30, 1995, compared to a $52,000 gain on the sale of an
 asset recorded for the nine months ended September 30, 1996.  In addition,
 charges to related parties increased approximately $143,000 for the nine months
 ended September 30, 1996, as compared to the nine months ended September 30,
 1995.

 Costs and expenses increased $511,000 (5.3%) to $10,073,000 for the nine months
 ended September 30, 1996, from $9,562,000 for the first nine months of 1995.
 The major contributors to these increased expenses is: the increased employee
 costs as a result of the 1995 restructuring of the administrative, franchise
 sales, and franchise management functions of the operating subsidiaries and the
 1995 creation of several new corporate departments and increased accounts and
 note receivable bad debt expense, partially offset by $114,000 lower commission
 expenses due to decreased franchise sales.

 Income before federal income taxes for the first nine months of 1996, decreased
 to $696,000 from $1,071,000 for the first nine months of 1995, a 35.0%
 decrease. For the nine months ended September 30, 1996, the Company achieved
 net income of $446,000 or 6 cents per share as compared to $771,000 or 10
 cents per share for the nine months ended September 30, 1995. The Company is
 using an effective tax rate of 36% for 1996 compared to 28% for 1995.

 For the three months ended September 30, 1996, compared to the three months
 ---------------------------------------------------------------------------
 ended September 30, 1995.
 -------------------------

 Revenues decreased approximately $127,000 (3.6%) for the quarter ended
 September 30, 1996, when compared to the third quarter of 1995. The decrease in
 revenues is mainly attributable to a decrease in franchise sales of $519,000
 (38.6%). This franchise sales decrease was partially offset by increased other
 income of approximately $342,000 (162.4%) and increased royalty income of
 approximately $53,000 (3.1%).

 For the third quarter ended September 30, 1996, when compared to the third
 quarter of 1995, Aire Serv, GBS, Rooter and Mr. Electric reported franchise
 sales decreases of $19,200 (19.7%), $65,000 (12.1%), $238,000 (91.2%), and
 $197,000 (60.8%), respectively.  Whereas the decline in Aire Serv, Mr. Electric
 and Rainbow franchise sales is primarily attributable to the reassessment and
 resulting realignment of the franchise sales process changing the emphasis in
 the franchisee selection process to a more qualified franchise candidate, which
 ultimately should result in a more successful franchise organization.

 Costs and expenses increased approximately $171,000 (15.1%) in the third
 quarter of 1996 compared to the third quarter of 1995. This increase is
 primarily due to increased bad debt expenses relating to franchises repurchased
 and/or cancelled by the Company and the establishment of a vacation accrual in
 conjunction with a change in the Company's employee vacation policy.

 Income before provision for federal income taxes decreased approximately
 $298,000 (171.7%) for the quarter ended September 30, 1996 to a loss of
 $124,000 as compared to income before FIT of $173,000 for the same period in
 1995. Net income decreased approximately $234,000 (163.5%) to a loss of $91,000
 or 1 cent a share for the quarter ended September 30, 1996.

                                      11
<PAGE>
 
 THE DWYER GROUP, INC. AND SUBSIDIARIES

 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
 OPERATIONS -  CONTINUED


 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 fourteen (14) countries.  Income
 from master licenses is recorded as received due to the difficulty sometimes
 experienced in foreign countries when attempting to remove income generated
 from royalties.  The Company does not depend on foreign operations to have a
 significant impact on its cash flow.  Typically, foreign franchises are sold
 and managed by a master licensee in that country.  During the remainder of
 1996, 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.


 OTHER DISCLOSURES
 -----------------

 Weighted average common and dilutive common equivalent shares outstanding have
 continued to increase as outstanding stock options held by management and
 employees are exercised or become dilutive.  This trend could continue when the
 Company's stock price rises.



                   THIS PORTION IS INTENTIONALLY LEFT BLANK.

                                      12
<PAGE>
 
                                    PART II
                               OTHER INFORMATION


 THE DWYER GROUP, INC. AND SUBSIDIARIES

 LEGAL PROCEEDINGS

      NONE


 CHANGES IN SECURITIES

      (a)  NONE

      (b)  Not applicable.

 DEFAULTS UPON SENIOR SECURITIES

      NONE

 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      The 1995 annual meeting of the stockholders of the Company was held on
      June 27, 1996. The following directors were elected at the meeting:
      Theresa Dwyer, Donald J. Dwyer, Jr., Dina Dwyer-Owens, John P. Hayes,
      Donald E. Latin, James L. Sirbasku, and Robert Tunmire. The election of
      directors by the stockholders is for a term of one year, or until the next
      annual meeting of the stockholders. Of the 6,089,741 shares present at the
      meeting, or through proxy, the following table summarizes the results of
      the voting:
<TABLE>
<CAPTION>
 
  Director Name           Votes For   Against  Abstentions
  -------------           ---------   -------  -----------
  <S>                     <C>        <C>      <C>
  Theresa Dwyer           6,062,091      250       27,400
  Donald J. Dwyer, Jr.    6,062,091      250       27,400
  John P. Hayes           6,062,091      250       27,400
  James Sirbasku          6,062,091      250       27,400
  Dina Dwyer-Owens        6,062,091      250       27,400
  Robert Tunmire          6,062,091      250       27,400
  Donald E. Latin         6,062,091      250       27,400
 
</TABLE>

 OTHER INFORMATION

      NONE

 EXHIBITS AND REPORTS ON FORM 8-K

      (a)  NONE

      (b)  Reports on Form 8-K

           NONE

                                      13
<PAGE>
 
                                  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.


                          The Dwyer Group, Inc.


                          By:/s/Robert Tunmire
                             -----------------
                              Robert Tunmire
                          President and Chief Executive Officer



 Date:  July 17, 1997                /s/    Robert Tunmire
      -------------------            ---------------------------------
                                     Robert Tunmire, President and
                                     Chief Executive Officer
                                     (Principal Executive Officer)



 Date:  July 17, 1997                /s/    Stephen E. Beatty
      -------------------            ---------------------------------
                                     Stephen E. Beatty, Treasurer and
                                     Chief Financial Officer
                                     (Principal Financial and Accounting
                                     Officer)


                                      14