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

                                   FORM 10-KSB

(Mark One)
(X)      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
         OF 1934 (FEE REQUIRED) for the fiscal year ended December 31, 2001

( )      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 (NO FEE REQUIRED) for the transition period from
                        to
         --------------    --------------

Commission File No. 0-15227

                              THE DWYER GROUP, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

          Delaware                                            73-0941783
-------------------------------                          --------------------
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                          Identification Number)


                         1010 N. University Parks Drive
                                Waco, Texas 76707
              -----------------------------------------------------
              (Address and zip code of principal executive offices)

                                 (254) 745-2400
                 -----------------------------------------------
                 (Issuer's telephone number including area code)

       Securities registered under Section 12(b) of the Exchange Act: None

   Securities registered under Section 12(g) of the Exchange Act: Common Stock
                                ($.10 par value)

         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
[ ]

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

         Issuer's revenues for its most recent fiscal year:     $22,364,577

         Approximate aggregate market value of the voting stock held by
nonaffiliates computed by average bid and asked prices of such stock, as of
March 15, 2002: $27,991,725

         Aggregate number of shares of Common Stock outstanding as of the close
of business on March 15, 2002: 6,997,931


                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None


   Transitional Small Business Disclosure Format (check one): [ ] Yes [ X ] No


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                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                           PAGE
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<S>                                                                        <C>
PART I

Item 1.    DESCRIPTION OF BUSINESS...........................................1
           General...........................................................1
           Franchise Operations..............................................2
           Marketing.........................................................6
           Competition.......................................................7
           Trade Names and Service Marks.....................................8
           Regulation........................................................9
           Employees.........................................................9

Item 2.    DESCRIPTION OF PROPERTY..........................................10

Item 3.    LEGAL PROCEEDINGS................................................10

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............10

PART II

Item 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........11

Item 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS.............................12

Item 7.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................16

Item 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE.........................................16

PART III

Item 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
               COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT............17

Item 10.   EXECUTIVE COMPENSATION...........................................19

Item 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...21

Item 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................23

Item 13.   EXHIBITS AND REPORTS ON FORM 8-K.................................23
</Table>


<PAGE>

                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS

GENERAL

         The Dwyer Group, Inc. and its wholly owned subsidiaries (the "Company")
provide a diverse array of specialty services internationally through its
service-based, brand-name franchising businesses. The Company currently owns six
such businesses, which service an aggregate of over 750 franchises located in
the United States and Canada, and through their master licensees, approximately
250 franchisees in 16 other countries. The Company has positioned itself as a
consolidator of franchising businesses in order to benefit from economies of
scale achievable through the pooling of resources. The Company believes that
franchisees are attracted to the Company's franchise opportunities because of
the depth of the Company's support services, a commitment to its mission and
vision, its brands, its code of values and the reputation of its management
team.

         In 2001 and 2000, the Company operated its businesses through the
following wholly owned subsidiaries - See "Management's Discussion and Analysis
- Results of Operations":

         o        Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of
                  plumbing repair and drain cleaning services under the service
                  mark "Mr. Rooter"(R). In 2001, Mr. Rooter accounted for
                  approximately 31.9% of the Company's consolidated revenues.

         o        Rainbow International Carpet Dyeing and Cleaning Co.
                  ("Rainbow") is a franchisor of carpet cleaning, dyeing, air
                  duct cleaning, and restoration services under the service mark
                  "Rainbow International" (R). In 2001, Rainbow accounted for
                  approximately 15.1% of the Company's consolidated revenues.

         o        Mr. Electric Corp. ("Mr. Electric") is a franchisor of
                  electrical repair and service businesses under the service
                  mark "Mr. Electric"(R). In 2001, Mr. Electric accounted for
                  approximately 9.0% of the Company's consolidated revenues.

         o        Synergistic International, Inc. ("Glass Doctor") is a
                  franchisor of Glass Doctor (R), a service concept whose
                  business is the replacement of automobile, residential and
                  commercial glass. In 2001, Glass Doctor accounted for
                  approximately 14.3% of the Company's consolidated revenues.

         o        Aire Serv Heating & Air Conditioning, Inc. ("Aire Serv") is a
                  franchisor of heating, ventilating and air conditioning
                  service businesses under the service mark "Aire Serv" (R). In
                  2001, Aire Serv accounted for approximately 6.1% of the
                  Company's consolidated revenues.

         o        Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of major
                  household appliance service and repair businesses under the
                  service mark "Mr. Appliance"(R). In 2001, Mr. Appliance
                  accounted for approximately 1.7% of the Company's consolidated
                  revenues.

         o        The Dwyer Group National Accounts, Inc. ("National Accounts")
                  solicits commercial national account customers who can call a
                  toll-free 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.
                  In 2001, National Accounts accounted for approximately 14.8%
                  of the Company's consolidated revenues.

         o        The Dwyer Group Canada, Inc. ("TDG Canada") markets and
                  services certain of the Company's franchise concepts in
                  Canada. Currently, those concepts are: Mr. Rooter, Mr.
                  Electric, Rainbow and Aire Serv. In 2001, TDG Canada accounted
                  for approximately 3.0% of the Company's consolidated revenues.

         Mr. Rooter, Mr. Electric, Mr. Appliance, Aire Serv, Rainbow and Glass
Doctor are referred to as the Company's "franchise concepts", or "franchising
businesses".

         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 the Company was reincorporated as a
Delaware corporation. In 1993, the Board of Directors approved a plan to convert
the Company into a


                                       1
<PAGE>

holding company and to form a new subsidiary to operate the Mr. Rooter business.
In that same year, this new subsidiary was incorporated in Texas under the name
Mr. Rooter Corporation and the Company was renamed The Dwyer Group, Inc.

         The Company's principal executive offices are located at 1010 North
University Parks Drive, Waco, Texas 76707, and its telephone number is (254)
745-2400. All references herein to the Company include Rainbow, Mr. Rooter, Aire
Serv, Mr. Electric, Mr. Appliance, Glass Doctor, TDG Canada and National
Accounts unless the context otherwise requires.

FRANCHISE OPERATIONS

         The Company's goal is to build upon its successful system of
franchising businesses in order to develop strong new franchises and provide
them with ongoing franchise support.

         The franchising industry in which the Company operates is fragmented,
consisting mainly of small, single-service or single-concept franchising
companies. The Company's philosophy is to be a multi-concept franchisor by
bringing its franchising expertise to bear on a number of businesses in various
service fields. The Company applies franchise systems management and marketing
skills in order to maximize the profitability of its franchised businesses.
Thus, instead of franchising only one line of business, the Company's philosophy
is to benefit from economies of scale by the pooling of resources.

         The Company's primary sources of revenues are initial franchise fees
paid by new franchisees and ongoing royalties based on the sales volume of
franchisees.

         Initial franchise fees and royalty rates varies for each franchise
concept varies, and are described in the following sections related to each
concept. In general, the Company at its discretion, may finance up to 80% of the
franchise fee and may give a discount if the franchise fee is paid in full upon
the signing of the agreement.

         In addition to royalties, each franchisee is required to contribute to
a national advertising fund maintained by each franchise concept. Expenditures
from each such fund are used to develop and place advertising and to create
marketing materials and programs which will benefit all franchisees operating
under the particular franchise concept. Such funds are maintained separately
from the Company's funds and are not reflected on the Company's books.

         In order to encourage business owners to convert their businesses to
one of the Company's franchise concepts the Company maintains a "roll-in"
program whereby new franchisees can roll-in sales from their existing business
and pay reduced royalty and advertising fee rates on the existing sales. The
franchisee may also receive a discount on the initial franchise fee based on the
amount of sales "rolled-in".

         The Company, as a consolidator of franchising businesses, believes that
its existing broad base of franchisees, the diversity of services provided by
its current operations, its centralized financial, marketing, training and
support staff, and the adaptability and versatility of its established operating
system, have positioned it to capitalize on the projected opportunities for
growth in the franchising industry. In addition, the Company believes that the
franchise sales and operations expertise developed by its management over many
years provides the Company with a competitive advantage.

         Each of the Company's franchising businesses requires the franchise
owners and/or key employees to undergo training at the Company's Headquarters
located in Waco, Texas prior to commencing operations. The training program
differs depending upon the type of franchise purchased. For example, Rainbow
franchisees are taught how to dye, clean, deodorize and repair carpets, clean
upholstery and perform restoration services. Mr. Rooter, Aire Serv, Mr.
Electric, Mr. Appliance, and Glass Doctor, on the other hand, are primarily
"conversion" franchisors, which recruit existing people operating in the
"trades" and teach them an improved business methodology. All of the Company's
franchisees receive extensive instruction with respect to broad-based marketing
techniques, as well as guidelines and methods for hiring and managing personnel,
providing quality customer service and managing the financial aspects of their
businesses, among other things. In addition, the Company's training program,
which utilizes proprietary motivational techniques developed by the Company,
educates each franchisee about the extensive support services offered by the
Company and how to best take advantage of them.


                                       2
<PAGE>

         Following completion of the Company's initial training course (which
represents the fulfillment of the services required to be provided for revenue
recognition), the Company's franchisees continue to receive a broad range of
services and support from the Company on an ongoing basis. Each of the Company's
franchising businesses also provide numerous follow-up training sessions for its
franchisees each year at various locations around the United States. In
addition, the Company employs directors of franchise systems management on the
staff of each of its franchising businesses whose sole responsibility is to
assist the Company's franchisees and provide them with support. Each franchisee
is contacted by such a director approximately once a month (more often when
necessary) to discuss marketing techniques and business development.
Furthermore, each of the Company's franchising businesses provides its
franchisees with an updated Confidential Operations Manual, which serves as a
reference guide for all aspects of their franchise operations. The Company
believes that its proactive support philosophy with respect to its franchisees
is one of its primary distinguishing features.

         Pursuant to foreign master license agreements, the Company licenses
individuals and/or other legal entities, which are typically residents of the
foreign country, the rights to use the Company's trademarks and systems and to
grant franchise rights in their defined geographic territory. Foreign franchise
rights are sold based upon the population of the territory, the estimated number
of potential franchises that could be sold in such territory and the
relationship of that foreign territory's gross national product per capita to
that of the United States.

         Each of the heads of the Company's franchise subsidiaries receives, in
addition to salary, bonus compensation based on the overall performance of the
subsidiary or subsidiaries for which he is responsible. Thus, the emphasis is on
profitable growth, not just sales.

Mr. Rooter

         Mr. Rooter is a franchisor of plumbing repair and drain cleaning
services under the service mark "Mr. Rooter(R)" and related trade and service
marks. In 1989, when Mr. Rooter was acquired by the Company, there were 22 Mr.
Rooter franchises in operation. By the end of 2001, Mr. Rooter had a total of
205 franchises in the United States and Canada, and through master franchise
licensees, 67 franchises in six other countries. Mr. Rooter has shown
significant growth in revenues from royalties paid by franchisees (from $234,000
in 1989 to $5,450,000 in 2001).

         Mr. Rooter franchisees are required to operate their franchises in
accordance with specified methods, techniques and standards and with specified
equipment, within a designated geographic territory. Franchisees are typically
able to service their territory by establishing only one service center within
such territory. Mr. Rooter emphasizes and promotes fast, efficient and high
quality service, seven days a week, using modern equipment to perform
residential, commercial and industrial drain cleaning and plumbing repair.

         A new franchisee pays an initial franchise fee of $225 for each 1,000
of the franchise territory's population, with a minimum initial fee of $22,500.
In general, Mr. Rooter sells its franchises to licensed plumbers. No training is
provided on the technical aspects of operating a plumbing or drain cleaning
business. Instead, Mr. Rooter concentrates its training and support efforts on
marketing, customer service, pricing, profitability, growth of the business and
personnel management. Each franchisee is required to maintain an advertisement
in the Yellow Pages of the telephone directory serving the franchised territory.
Extensive ongoing support emphasizing the development of the franchisee's
marketing and business management skills is provided through training meetings
and toll-free telephone support from Company personnel.

         In addition to the initial franchise fee, under the terms of Mr.
Rooter's standard franchise agreement, a franchisee pays a weekly royalty which
ranges from 3% to 7% of gross sales, depending on weekly gross sales volume. In
addition to the weekly royalty, the franchisees generally pay an advertising fee
equal to 2% of their gross sales. For "roll-in" business, the franchisee pays a
2% royalty and a 1% advertising fee for the first year of operation. On a yearly
basis, Mr. Rooter sets a maximum National Advertising Fund contribution per
individual franchisee. From time-to-time, Mr. Rooter advertises nationally on
network radio and television.

         The term of the initial franchise agreement is ten years, which (for
franchise agreements dated prior to 2000) may be renewed for additional five
year terms at the option of the franchisee upon certain conditions, including
payment of a $2,500 renewal fee. In 2000, Mr. Rooter changed its renewal terms
for new franchisees to include ten year renewal periods and a $750 renewal fee.
Mr. Rooter may terminate a franchise agreement in the event that a franchisee
breaches the terms of the agreement.


                                       3
<PAGE>

Rainbow

         Rainbow is a franchisor of carpet and upholstery cleaning and dyeing,
air duct cleaning, and restoration service businesses. At December 31, 2001,
Rainbow had 278 franchises in the United States and Canada, and 150 franchises
through master franchise licensees in nine other countries.

         Rainbow offers individual franchises for the operation of a carpet and
upholstery cleaning, dyeing and related services business (such related services
include, but are not limited to, air duct cleaning, problem odor removal, carpet
repair, drapery cleaning and water and smoke damage restoration) for residential
and commercial locations. The franchised business often begins as a single truck
operation which can later be expanded into a multi-truck operation as the
franchisee builds a customer base.

         The initial franchise fee is a minimum of $15,900, based on a territory
population of approximately 100,000. The fee is increased by $159 for each
additional 1,000 of population contained in the franchise territory. During the
term of the agreement, the franchisee is generally required to pay Rainbow a
continuing royalty of 7% of weekly gross sales plus a national advertising fee
of 2% of weekly gross sales. Franchisees may be eligible to receive a rebate of
up to 50% of royalties paid upon satisfying certain conditions. For "roll-in"
business, the franchisee pays a 2% royalty and a 1% advertising fee for the
first year of operation. On a yearly basis, Rainbow sets a maximum National
Advertising Fund contribution per individual franchisee. The term of the initial
franchise agreement is ten years, with a mutual option to renew and no renewal
fee (for franchise agreements dated prior to 2000). In 2000, Rainbow changed the
renewal fee to $750 for new franchisees. From time-to-time, Rainbow advertises
nationally on network television.

         No previous knowledge, experience or skills in the carpet cleaning or
dyeing business are required prior to purchasing a Rainbow franchise. Instead,
new franchisees are thoroughly trained on all aspects of the business under an
operating system that the Company believes has proven to be successful. Beyond
initial business and technical training, extensive ongoing support emphasizing
the development of the franchisee's marketing and business management skills is
provided by individually assigned franchise systems managers, through training
meetings and toll-free telephone support. Ongoing technical training is handled
in the same manner.

Mr. Electric

         Mr. Electric is a franchisor of electrical repair and service
businesses under the service mark "Mr. Electric(P)". Mr. Electric began
operations in September of 1994, and at December 31, 2001, had 107 franchises in
the United States and Canada, and through master licensees, 26 franchise
operations in two other countries.

         The minimum initial franchise fee is $19,500, based on a territory
population of approximately 100,000. The fee is increased by $195 for each
additional 1,000 of population contained in the franchise territory.

         The initial franchise agreement term is ten years. For franchise
agreements dated prior to 2000, an election to renew the contract may be made by
the franchisee for additional five-year periods upon certain conditions and
payment of a $2,500 renewal fee. For agreements dated in 2000 and beyond, the
renewal period is ten years with a $750 renewal fee.

         During the term of the franchise agreement, the franchisee is required
to pay Mr. Electric (i) a royalty fee ranging from 3% to 6% of weekly gross
sales, based on weekly gross sales volume and (ii) an advertising fee equal to
2% of weekly gross sales. For "roll-in" business, the franchisee pays a 2%
royalty and a 1% advertising fee for the first year of operation. In addition,
franchisees are required to engage in local promotion of the services and
products available, as well as maintain an advertisement in the Yellow Pages of
their local telephone directory. The franchisees receive extensive instruction
with respect to broad-based marketing techniques, as well as guidelines and
methods for hiring and managing personnel, providing quality customer service
and managing the financial aspects of their businesses, among other things. They
do not receive any technical training from Mr. Electric. Beyond initial business
training, extensive ongoing support emphasizing the development of the
franchisee's marketing and business management skills is provided by
individually assigned franchise systems managers, through training meetings and
toll-free telephone support from Company personnel. From time-to-time, Mr.
Electric advertises nationally on cable television networks.


                                       4
<PAGE>

Aire Serv

         Aire Serv is a franchisor of heating, ventilating and air conditioning
service businesses providing installation, maintenance, repair and related
services of residential and commercial heating and air conditioning equipment.
At December 31, 2001, Aire Serv had 62 franchises in the United States and
Canada and, through master licensees, seven franchises operating in two other
countries.

         The minimum initial franchise fee is $17,500, based on a territory
population of approximately 100,000. The initial franchise fee is increased by
$175 for each additional 1,000 of population contained in the franchise
territory. New franchisees are also required to pay $10,000 for a variety of
start-up items including marketing and advertising materials, an administrative
start-up package and computer software.

         The initial franchise agreement term is ten years. For franchise
agreements dated prior to 2000, an election to renew the contract may be made by
the franchisee for additional five-year periods upon certain conditions and
payment of a $2,500 renewal fee. For agreements dated in 2000 and beyond, the
renewal period is ten years with a $750 renewal fee.

         During the term of the franchise agreement, the franchisee is required
to pay to Aire Serv (i) a continuing royalty fee ranging from 2.5% to 4.5% of
weekly gross sales, based on weekly gross sales volume and (ii) an advertising
fee equal to 2% of the franchisee's weekly gross sales. For "roll-in" business,
the franchisee pays a 2.5% royalty fee and a 2% advertising fee for the first
year of operation. If the amount of existing business "rolled-in" is large
enough, the reduced rate may apply for the life of the franchise agreement. The
franchisee is also required to maintain an advertisement in the Yellow Pages of
their local telephone directory. The franchisees receive extensive instruction
with respect to broad-based marketing techniques, as well as guidelines and
methods for hiring and managing personnel, providing quality customer service
and managing the financial aspects of their businesses, among other things. They
do not receive any technical training from Aire Serv. Beyond initial business
training, extensive ongoing support emphasizing the development of the
franchisee's marketing and business management skills is provided by
individually assigned franchise systems managers and through regional training
meetings and toll-free telephone support from Company personnel. From
time-to-time, Aire Serv advertises nationally on cable television networks.

Mr. Appliance

         Mr. Appliance is a franchisor of major household appliance service and
repair businesses. Mr. Appliance was organized in January of 1996, and at
December 31, 2001, had 38 franchises, in the United States and one other
country.

         The minimum initial franchise fee is $13,500, based on a territory
population of approximately 100,000. The initial franchise fee is increased by
$135 for each additional 1,000 of population contained in the franchise
territory. The franchisee receives an advertising and marketing package, and
other start-up materials (for which they are charged separately).

         The initial franchise agreement term is ten years. For franchise
agreements dated prior to 2000, an election to renew the contract may be made by
the franchisee for additional five-year periods upon certain conditions and
payment of a $2,500 renewal fee. For agreements dated in 2000 and beyond, the
renewal period is ten years with a $750 renewal fee.

         During the term of the franchise agreement, the franchisee is required
to pay to Mr. Appliance (i) a royalty fee ranging from 3% to 6% of weekly gross
sales, based on weekly gross sales volume and (ii) an advertising fee equal to
2% of weekly gross sales. For "roll-in" business, the franchisee pays a 2%
royalty and a 1% advertising fee for the first year of operation. Franchisees
are also required to engage in local promotion of the services and products
available, as well as maintain an advertisement in the Yellow Pages of their
local telephone directory. The franchisee is provided with a computerized
business package which standardizes the operation of their business. The
franchisees receive extensive instruction with respect to broad-based marketing
techniques, as well as guidelines and methods for hiring and managing personnel,
providing quality customer service and managing the financial aspects of their
businesses, among other things. Beyond initial business training, extensive
ongoing support emphasizing the development of the franchisee's marketing and
business management skills is provided through regional training meetings and
toll-free telephone support from Company personnel.


                                       5
<PAGE>

Glass Doctor

         Glass Doctor is a franchisor of automobile, residential and commercial
glass replacement businesses. The Company acquired Glass Doctor in July of 1998,
and at December 31, 2001, Glass Doctor had 82 franchises, all in the United
States.

         The minimum initial franchise fee is $19,500, based on a territory
population of 100,000. The fee is increased by $195 for each additional 1,000 of
population in the franchise territory.

         The initial franchise agreement term is ten years. For franchise
agreements dated prior to 2000, an election to renew the contract may be made by
the franchisee for additional five-year periods upon certain conditions and
payment of a $2,500 renewal fee. For agreements dated in 2000 and beyond, the
renewal period is ten years with a $750 renewal fee.

         During the term of the franchise agreement, the franchisee is required
to pay (i) a royalty fee ranging from 3% to 6% of weekly gross sales, based on
weekly gross sales volume and (ii) an advertising fee equal to 2% of weekly
gross sales. For "roll-in" business, the franchisee pays a 2% royalty and a 1%
advertising fee for the first year of operation. Franchisees are also required
to engage in local promotion of their services and to maintain an advertisement
in the Yellow Pages of their local telephone directory. Each new franchisee is
given initial business training and is taught a system for doing business. The
franchisee is provided with a computerized business package which standardizes
the operation of their business. The franchisees receive extensive instruction
with respect to broad-based marketing techniques, as well as guidelines and
methods for hiring and managing personnel, providing quality customer service
and managing the financial aspects of their businesses, among other things. They
do not receive any technical training from Glass Doctor. All franchisees receive
extensive ongoing support emphasizing development of marketing and business
management skills through training meetings and toll-free telephone support from
Company personnel. From time-to-time, Glass Doctor advertises nationally on
network television.

NATIONAL ACCOUNTS

         National Accounts operates under the name 1-888HANDLED, which is also
the toll-free number used by its customers who call for general repair and
24-hour emergency service. Orders are dispatched to and filled through the
Company's network of franchisees or third party qualified subcontractors if a
franchisee is not available to do a particular job. 1-888HANDLED focuses on the
growth and success of the Company's individual franchisees by serving large
nationwide business chains who have need for the various services the
franchisees provide. Target customers include large retail chain store
companies, casualty insurance companies and agents, and others with a potential
for consistent, repeat business.

         When each job is completed, National Accounts bills the customer and
pays the franchisee or subcontractor for their service. Each job is "marked-up"
to cover administrative costs. The major focus of National Accounts is to
provide additional business to the Company's franchisees, which they may not be
able to secure acting independently.

MARKETING

         Mr. Rooter considers the market for the drain cleaning and plumbing
industry to be extensive. It is composed of residential, commercial, industrial
and municipal markets. Mr. Rooter's marketing strategy and efforts are directed
toward the sale of franchised operations in all major population areas. The
franchisees follow specific marketing guidelines provided by Mr. Rooter during
their franchise training sessions and as an ongoing service. These marketing
techniques help the franchisee capture a larger market share, which in turn
provides a more consistent stream of revenue. International expansion has been
targeted through the sale of additional master licenses in selected foreign
countries.

         Rainbow's marketing strategy for franchise sales is based on the sale
of individual franchise territories to business-minded individuals. The primary
lead sources are referrals, print advertising and franchise trade shows.
Recently, contractors have also been targeted with Rainbow's new emphasis on
fire, smoke and water restoration services. International expansion has been
targeted through the sale of additional master licenses in selected foreign
countries. Rainbow has also recently began a program to market franchises to
carpet retailers and plumbing contractors. The market for Rainbow's carpet
cleaning, dyeing and water and fire restoration services extends through the
residential, commercial, industrial and municipal markets.


                                       6
<PAGE>

         Mr. Electric's marketing strategy is focused on the sale of franchises
to existing electrical contractors and electricians. The Company believes that
Mr. Electric's targeted approach supplies a proven system to make an electrical
service and repair business successful. Franchisees receive extensive training
in sales, marketing and business systems which helps them to achieve a greater
market share and increase their gross sales and profits. Mr. Electric is the
only brand-name with national recognition in the residential electrical service
and repair industry.

         Aire Serv's marketing strategy is focused on the sale of franchises to
existing heating and air conditioning contractors. The Company believes that the
heating, ventilating and air conditioning ("HVAC") market is extensive. The Aire
Serv franchisee, equipped with marketing techniques, guidelines and industry
expertise provided by Aire Serv, targets the residential and light commercial
segments of the HVAC market. Aire Serv provides its franchisees with the
critical tools necessary to achieve success as a retailing contractor and works
with the franchisees to implement and execute effective strategies and systems
in these areas.

         Mr. Appliance's marketing strategy is to sell franchises to existing
appliance dealers and appliance servicers. Mr. Appliance provides a proven
system, technical and management support, and training to help make an appliance
repair and service franchise successful. Franchisees receive extensive training
in sales, marketing and business systems.

         Glass Doctor's marketing strategy is to sell franchises to existing
glass installation and/or replacement business owners. Glass Doctor provides an
operating system, technical and management support, and training to help make
such businesses more successful. Franchisees receive extensive training in
sales, marketing and business systems.

         National Accounts marketing strategy for the sale of facilities
maintenance services is focused on the retail merchandising, insurance, and
property management industries. Lead sources include trade associations,
referrals, the internet, and trade shows. The Company believes that the
facilities maintenance industry is extensive, with the potential need for the
services provided by each franchise concept. Due to the intense training
franchisees receive, the Company can offer the facilities maintenance industry
consistent quality for a variety of services through one organization. Because
of the strengths, and the scope of services offered, management believes that
National Accounts has a marketing advantage in developing corporate customers
that the franchisees are not able to develop on the local level. Services
offered through the National Accounts are corrective and preventative
maintenance for plumbing, electrical, heating, ventilating and air conditioning
(HVAC), glass replacement and installation, carpet care and restoration, and
appliance repair. The call center is operated 24 hours per day, 7 days per week
and provides facilities maintenance solutions for both regular and emergency
services.

COMPETITION

         The Company's markets and those of its franchisees are highly
competitive. The Company competes directly with other regional and national
franchisors which are also seeking to sell their franchises or business
opportunities to prospective franchisees or investors.

         Mr. Rooter franchisees compete principally with Roto-Rooter, Inc., a
nationally recognized provider of sewer and drain cleaning services in the
United States, as well as numerous plumbers, small drain cleaning firms and
regional and local firms in other segments of the market, such as septic tank
pumping and hydrojet cleaning. The Company believes that Mr. Rooter is
distinguished from its primary competition because Mr. Rooter franchisees
concentrate on providing plumbing repair while most competitors focus on
providing either drain and sewer cleaning or plumbing services.

         The principal competitors of Rainbow's franchisees are Stanley Steemer
International, Inc., Duraclean International, Inc., Harris Research, Inc.,
Steamatic, Inc., Serv-Pro Industries, Inc. and ServiceMaster Co., all of which
operate on a national basis, as well as independent carpet cleaning and
restoration companies.

         Mr. Electric is the first company to offer franchises in the
residential and light commercial electrical service industry. Local electricians
are Mr. Electric's primary source of competition.

         Local or regional HVAC contractors are Aire Serv's primary source of
competition and, to a lesser extent, national home improvement retailers provide
competition in some markets.

         Mr. Appliance is the first company to offer franchises in the
fragmented appliance repair and service industry. Local appliance repair
businesses are Mr. Appliance's primary competition.


                                       7
<PAGE>

         Glass Doctor competes with local and regional glass replacement
companies as well as large glass manufacturers such as Safelite and other glass
replacement services such as Harmon AutoGlass, Binswanger and Diamond Triumph,
who operate on a national basis.

         The demand for National Accounts facilities maintenance solutions is
extensive. Customers are looking to service providers for more complete
solutions, which makes National Accounts a strong contender in the marketplace.
Competition consists primarily of other third party service providers such as
Total Facility, Primo Services, Best Retail Solutions, and Chain Store
Maintenance Inc. The industry generally competes on the basis of services
offered, price, and value added services, such as customer service follow-up,
reporting capabilities, and the ability to adapt to customers needs. The Company
believes it is distinguished from its competition through the extensive network
of highly skilled service professionals associated with the Company's
franchisees.

         The Company's franchisees generally compete on the basis of price,
training and support services and reputation. Other large companies have entered
the home service market through the acquisition of existing companies.

         In addition, the Company expects to encounter competition in attempting
to acquire franchise companies. Potential competitors, many of which are well
established and have extensive experience in connection with identifying and
effecting business acquisitions, may include other franchise companies,
leveraged acquisition partnerships (leveraged buy-out funds), business
development companies, investment partnerships and corporations (including
venture capital entities), small business investment companies, large industrial
and financial companies seeking acquisitions directly or through affiliates, and
wealthy individuals. These competitors may have greater financial resources than
the Company and may be in a better position to take advantage of these
opportunities. In the event that the Company succeeds in effecting acquisitions,
the Company will, in all likelihood, become subject to intense competition from
competitors of the acquired business. The degree of competition characterizing
the industry of any prospective acquisition candidate cannot be presently
ascertained.

TRADE NAMES AND SERVICE MARKS

         The Company believes that its trademarks and service marks are
important to the marketing of its franchises and the sale of services to
consumers by its franchisees. The Company current holds the following federally
registered trademarks and service marks: THE DWYER GROUP(R), PROVIDING A WORLD
OF SPECIALITY SERVICES(R), PROVIDING YOU A WORLD OF SPECIALTY SERVICES(R), and
TOP GUN(R). The Company, through its subsidiaries currently holds the following
federally registered trademarks and service marks: MR. ROOTER(R), MR. ROOTER
(STYLIZED), MR. WINKIE DEVICE, QUICK-AS-A-WINK(R), BIOCHOICES(R), AMERICA'S
TROUBLE SHOOTER(R), NORTH AMERICA'S TROUBLE SHOOTER(R), VAN STRIPE DESIGN FOR
MR. ROOTER, AIRE SERV(R), AIRE SERV (STYLIZED), VAN STRIPE DESIGN FOR AIRE SERV,
AMERICA'S COMFORT COMPANY(R), YOUR COMFORT COMPANY(R), YOUR COMFORT COMPANY
(STYLIZED), MR. ELECTRIC(R), MR. ELECTRIC (STYLIZED), VAN STRIPE DESIGN FOR MR.
ELECTRIC, RAINBOW INTERNATIONAL(R), RAINBOW INTERNATIONAL CARPET CARE AND
RESTORATION SPECIALIST THE CLEAN EXPERIENCE DEVICE, VAN STRIPE DESIGN FOR
RAINBOW, MR. APPLIANCE(R), MR. APPLIANCE (STYLIZED), VAN STRIPE DESIGN FOR MR.
APPLIANCE, GLASS DOCTOR(R), GLASS DOCTOR DEVICE, WE FIX YOUR PAINES(R),GLASS
DOCTOR (STYLIZED) RUNNING DOCTOR DEVICE, 1-888-HANDLED(R), HANDLE THE JOB WITH
ONE CALL(R) and TOOL DESIGN. The Company has applied for federal registration
and service mark registration on the following: VALUE GLASS(TM),
REFLECTIONS(TM), HYDRO SCRUB(TM), MR. ROOTER HYDRO SCRUB(TM), COMFORT PROTECTION
PLAN(TM), WE TREAT YOUR HOME LIKE IT'S OUR OWN(TM), WE'LL PUT YOU IN YOUR
COMFORT ZONE(TM), MEMBER PLUS PLAN(TM), WE'VE GOT THE POWER TO MAKE THINGS
BETTER(TM), and GLASS NOW(TM). The Company holds a service mark registration for
RAINBOW INTERNATIONAL CARPET DYEING AND CLEANING COMPANY AND DEVICE in sixteen
states and a state service registration for AIRE SERV(TM) AND AIRE SERV
(STYLIZED) in California. In addition, the Company holds copyrights in
connection with all training manuals and materials which it considers
proprietary. The Company also holds numerous foreign trademarks and service
marks related to its franchising concepts.

         There can be no assurance that the Company's marks do not or will not
violate the proprietary rights of others, that the Company's marks would be
upheld if challenged, or that the Company would not be prevented from using its
marks. Any limitations on the use by the Company of its trade names or service
marks and the ability of its franchisees to use such marks would have an adverse
effect on the Company.


                                       8
<PAGE>

REGULATION

         The offer and sale of franchises is subject to extensive federal and
state laws and substantial regulation under such laws by government agencies,
including the Federal Trade Commission (the "FTC") and various state
authorities. Pursuant to FTC regulations, the Company is required to furnish
prospective franchisees with a current franchise offering disclosure document
containing information prescribed by the FTC. The Company uses Uniform Franchise
Offering Circulars to satisfy this disclosure obligation. In addition, in
certain states, the Company is required to register or file with such states and
to provide prescribed disclosure documents.

         The Company is required to update its offering disclosure documents to
reflect the occurrence of material events. The occurrence of any such events may
from time-to-time require the Company to cease offering and selling franchises
until the affected disclosure documents are updated. There can be no assurance
that the Company will be able to update its disclosure documents (or in the case
of any newly acquired franchising business, prepare an adequate disclosure
document) or become registered in certain states in a time frame consistent with
its expansion plans, continue offering and selling franchises or comply with
existing or future franchise regulations in any particular state. The failure to
take any of these actions could have an adverse effect on the Company.

         The Company is also subject to a number of state laws that regulate
certain substantive aspects of the franchisor-franchisee relationship, such as
termination, cancellation or non-renewal of a franchise (including requirements
that "good cause" exist as a basis for such termination and that a franchisee be
given advance notice of, and a right to cure a default prior to termination) and
may require the franchisor to deal with its franchisees in good faith, prohibit
interference with the right of free association among franchisees, and regulate
discrimination among franchisees in charges, royalties or fees. If the Company
is unable to comply with the franchise laws, rules and regulations of a
particular state relating to offers and sales of franchises, the Company will
generally be unable to engage in offering or selling franchises in or from such
state. Amendments to existing statutes and regulations, adoption of new statutes
and regulations and the Company's expansion into new states and foreign
jurisdictions could require the Company to continually alter methods of
operations at costs which could be substantial.

         The Company believes that it is in substantial compliance with all of
the foregoing federal and state franchising laws and the regulations promulgated
thereunder and has obtained all licenses and permits necessary for the conduct
of its business. Failure to comply with such laws and regulations in the future
could subject the Company to civil remedies, including fines or injunctions, as
well as possible criminal sanctions, which would have a material adverse effect
on the Company. The Company's franchisees are also subject to various federal,
state and local laws affecting their franchise businesses, including state and
local licensing, zoning, land use, construction and environmental regulations
and various safety and other standards. The failure of a franchisee to comply
with applicable regulations could interrupt the operations of the affected
franchise or otherwise adversely affect the franchise or the Company.

         In addition, the Company offers and sells franchises in Canada. In
addition to various provincial laws that govern the franchisor-franchisee
relationship, Alberta, Canada and Ontario, Canada have specific franchises laws
concerning pre-sale disclosure and other substantive aspects of the
franchisor-franchisee relationship, such as termination, cancellation or
non-renewal of a franchise.

EMPLOYEES

         As of December 31, 2001, the Company had 125 full-time employees and 7
part-time employees, none of whom belong to unions, as detailed below:

<Table>
<Caption>
                                                  Full-time        Part-time          Total
                                                  ---------        ---------          -----
<S>                                               <C>              <C>               <C>
                  Corporate.................         60                5               65
                  Mr. Rooter................         13                1               14
                  Aire Serv.................          6                0                6
                  Rainbow...................         15                0               15
                  Mr. Electric..............          9                0                9
                  Glass Doctor..............         11                0               11
                  Mr. Appliance.............          4                0                4
                  National Accounts.........          7                1                8

                  Total.....................        125                7              132
</Table>


                                       9
<PAGE>

ITEM 2.   DESCRIPTION OF PROPERTY

         The Company's principal executive and administrative offices are
presently located at 1010 - 1020 N. University Parks Drive, Waco, Texas. In
March 2001, the Company purchased the facilities (land, building and equipment)
from a related party for the appraised value of approximately $3.7 million. See
"Certain Relationships and Related Party Transactions." Management considers the
facilities to be suitable and adequate.

ITEM 3.   LEGAL PROCEEDINGS

         The Company is engaged in various legal proceedings incidental to its
normal business activities. Management has estimated a potential range of loss
due to these proceedings not to exceed $129,500 as of December 31, 2001. The
Company has accrued for this amount at that date.

         In the first quarter of 2001, the Company resolved a lawsuit and agreed
to make payments totaling $150,000. This amount was included in accrued
liabilities at December 31, 2000.

         Also in the first quarter of 2001, the Company settled a lawsuit to
which it was the plaintiff. The net proceeds to the Company approximated
$300,000, which primarily compensated the Company for lost revenues.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of the year ended December 31, 2001.


                     THIS SECTION LEFT INTENTIONALLY BLANK.


                                       10
<PAGE>

                                     PART II


ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock is listed on The Nasdaq Stock Market(SM)
under the symbol "DWYR". The following table sets forth the quarterly high and
low closing sales prices per share of the Company's Common Stock for each
quarter during the last two fiscal years:

<Table>
<Caption>
                                                            HIGH              LOW
                                                            ----              ---
<S>                                                         <C>               <C>
FISCAL YEAR ENDED DECEMBER 31, 2001
         First Quarter                                      $2.63             $1.75
         Second Quarter                                     $2.75             $2.20
         Third Quarter                                      $3.39             $2.46
         Fourth Quarter                                     $4.95             $2.70

FISCAL YEAR ENDED DECEMBER 31, 2000
         First Quarter                                      $4.25             $2.25
         Second Quarter                                     $3.06             $2.31
         Third Quarter                                      $2.69             $2.31
         Fourth Quarter                                     $2.56             $1.63
</Table>

         On March 15, 2002, the closing sales price of the Company's Common
Stock as reported by The Nasdaq Stock Market(SM) was $4.00 per share. As of such
date, there were approximately 400 shareholders of record.

         No cash dividends have been paid by the Company on its Common Stock,
and the Company does not currently intend to pay cash dividends on its Common
Stock, but will retain earnings for the operation and development of its
business.





                     THIS SECTION LEFT INTENTIONALLY BLANK.


                                       11
<PAGE>

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS

         Unless otherwise noted, all dollar amounts are rounded to the nearest
thousand and percentages represent the change from the comparable amount from
the previous year. References to 2000 and 2001 are to the years ended December
31 of each year. Note references refer to Notes to Consolidated Financial
Statements.

RESULTS OF OPERATIONS

         The following table shows the approximate amount (in thousands) and
percentage of the total, of revenues and income (loss) before income taxes of
each of the Company's operating subsidiaries and the parent holding company:


<Table>
<Caption>
                                         YEAR ENDED DECEMBER 31,
                                       --------------------------

                                       2001                  2000
                                       ----                  ----
<S>                              <C>        <C>        <C>        <C>
REVENUES:
Mr. Rooter                       $ 7,134       31.9%   $ 6,294       32.7%
Rainbow                            3,387       15.1      2,868       14.9
Glass Doctor                       3,189       14.3      3,114       16.2
Mr. Electric                       2,020        9.0      1,965       10.2
Aire Serv                          1,367        6.1      1,388        7.2
Mr. Appliance                        371        1.7        363        1.9
National Accounts                  3,311       14.8      2,085       10.8
TDG Canada                           674        3.0        506        2.6
Other(1)                             912        4.1        635        3.5
                                 -------    -------    -------    -------
                                 $22,365      100.0%   $19,218      100.0%
                                 =======    =======    =======    =======

INCOME (LOSS) BEFORE INCOME TAXES:

Mr. Rooter                       $ 2,651      77.3%    $ 2,215       87.5%
Rainbow                              794      23.2         790       31.2
Glass Doctor                         578      16.9         620       24.5
Mr. Electric                         148       4.3          42        1.7
Aire Serv                           (123)     (3.6)       (295)     (11.7)
Mr. Appliance                       (321)     (9.4)       (317)     (12.5)
National Accounts                     25        .7         (80)      (3.2)
TDG Canada                           199       5.8         112        4.4
Other(1)                            (522)    (15.2)       (557)     (21.9)
                                 -------    ----       -------     -----
                                 $ 3,429     100.0%    $ 2,530      100.0%
                                 =======    =====       =======    =====
</Table>

---------------------------

(1)      Includes revenues or income (loss) before income taxes of The Dwyer
         Group, Inc. (parent holding company) which maintains all corporate
         activities and functions (executive, accounting, legal, data processing
         and administration). Revenues are derived primarily from administrative
         fees charged to related parties. A portion of general and
         administrative expenses are allocated to subsidiary companies.

YEAR ENDED DECEMBER 31, 2001, COMPARED TO YEAR ENDED DECEMBER 31, 2000:

         The Company recorded net income of $2,338,000 or $.33 per share for
2001, as compared to net income of $2,053,000, or $.29 per share for 2000.

         Revenues

         Total revenues for 2001 were $22,365,000, an increase of $3,147,000 or
16%, from $19,218,000 for 2000. Each component increased as follows: royalties -
$1,499,000 (13.2%); franchise fees - $135,000 (3.1%); sales of products and
services - $1,267,000 (59.1%); interest - $54,000 (7.7%); and other revenues -
$80,000 (14.1%). The year 2001 also included a gain on sale of securities of
$112,000.


                                       12
<PAGE>

         Royalty revenues increased by 13% from $11,393,000 in 2000 to
$12,892,000 in 2001. Such revenues increased as follows: Mr. Rooter - $700,000
(14.7%); Rainbow - $282,000 (11.5%); Mr. Electric - $47,000 (4.5%); Glass Doctor
- $483,000 (28.9%); and Mr. Appliance - $12,000 (6.2%). Royalties from Canadian
and certain other foreign operations also increased by $109,000 (24.8%).
Overall, these royalty revenue increases, which coincide with the increased
business revenues of existing franchisees as well as an increase in the number
of franchisees producing revenue, are a direct result of the Company's emphasis
on providing strong franchise support services, and its methods and programs
created to assist franchisees in building successful businesses, along with
continued emphasis on the sale of new franchises. These strategies are very
important to the future of the Company, as royalties are the foundation for the
Company's long-term financial strength. The above increases were partially
offset by a decrease in royalty revenues from Aire Serv of $134,000 (16.0%).

         Franchise sales revenues represent the initial franchise fees paid to
the Company by its franchisees as well as fees charged for foreign master
licenses. These revenues increased from $4,422,000 in 2000 to $4,557,000 in
2001. Increases were recorded by Rainbow - $287,000 (103.5%), Mr. Rooter -
$99,000 (7.9%) and Aire Serv - $92,000 (17.7%). The above increases were
partially offset by decreases from: Glass Doctor - $483,000 (36.5%); Mr.
Electric - $15,000 (1.8%); and Mr. Appliance - $6,000 (3.7%). In addition to the
above, franchise sales from the Company's Canadian and other foreign operations
increased by $161,000 (288%).

         Revenues from sales of products and services increased by $1,267,000
(59.1%) due to increased volume generated by National Accounts.

         Interest revenues increased by $54,000 (7.7%) primarily due to notes
from new franchise sales.

         Costs and Expenses

         During 2001, general, administrative and selling expenses increased by
$1,012,000 (7.7%) as compared to 2000. This increase was primarily a result of
additional costs and personnel associated with the increase in overall revenues.

         The cost of products and service sales increased by $1,010,000 (55.5%),
in proportion to the increase in product sales.

         Depreciation and amortization expense increased by $91,000 (6.7%) due
primarily to amortization of franchise rights purchased in late 2000 and
depreciation related to the facility purchase discussed in Note 9.

         Interest expense increased by $134,000 (43.2%) due to additional debt
resulting from purchase of property partially offset by reduction in existing
debt as described in Note 9.

         In the fourth quarter of 2000, the Company determined that certain tax
credits were available to be applied against taxes incurred for 2000 and prior
years. These credits have the effect of reducing overall tax expense by
providing a deferred tax benefit in 2000. Such benefit of approximately $438,000
was recorded in the fourth quarter of 2000 and approximately $142,000 in the
year of 2001. A reconciliation of income tax expense at the federal statutory
rate to the income tax expense is found in Note 7.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2001, the Company's working capital ratio was 1.5 to 1
compared to 1.2 to 1 at December 31, 2000. The Company had working capital of
$2,043,000 at the end of 2001, as compared to $836,000 at the end of 2000. These
changes are due primarily to a decrease in current maturities of long-term debt
and federal income taxes payable. At December 31, 2001, the Company had cash and
cash equivalents of approximately $790,000 and marketable securities of
approximately $548,000.

         The Company maintains a $500,000 line of credit with its bank to be
used for temporary cash needs. The line expires in May 2002. The Company expects
the line to be renewed for an additional year before its expiration.

         In April of 2001, the Company purchased its principal executive and
administrative facilities (land, buildings and equipment) from a related party
for approximately $3.7 million, which equaled the appraised value of the
facilities. In accordance with generally accepted accounting principles, the
transaction was recorded at the related party's basis of


                                       13
<PAGE>
approximately $2.8 million, with the difference being reflected as a reduction
in stockholder's equity. A portion of the $3.7 million payment was funded by a
$2.9 million bank loan collateralized by the facilities. The related party used
a portion of the monies received in the sale of the facilities to pay off
approximately $2.2 million of related party debt to the Company. The Company is
using the excess cash of approximately $1.5 million netted from the above
transactions for improvements to the property, payment of existing debt, and for
additional working capital.

         Management believes that the Company's cash flow, supplemented by the
Company's positive cash position and available line of credit, will be adequate
to fund the Company's capital requirements over the next year.

         Cash in the amount of $1,007,000 was provided by operating activities
in 2001 as compared to $677,000 used by such activities in 2000. In 2001, cash
was generated primarily by a net profit of $2,338,000, depreciation and
amortization of $1,461,000, a change in the reserve for doubtful accounts of
$480,000, a decrease in accounts and interest receivable of $249,000, and a
decrease in a tax refund receivable of $322,000. These increases were partially
offset by notes received from franchise sales of $2,945,000, an increase in
payables and accrued liabilities of $523,000, an increase in prepaid expenses of
$159,000, and a decrease in deferred franchise sales revenue of $161,000. In
2000, cash was generated primarily by net income of $2,053,000, depreciation and
amortization of $1,370,000, a provision for doubtful accounts of $381,000 and an
increase in accounts payable and accrued liabilities of $505,000. These amounts
were more than offset by notes receivable from franchise sales of $3,242,000, an
increase in accounts receivable of $1,070,000, an increase of $300,000 in
related party receivables and an increase of $313,000 in the deferred tax asset.

         In 2001, the Company used $538,000 in cash for investing activities
versus $709,000 provided from investing activities in 2000. In 2001, cash was
primarily generated by collections on notes receivable of $3,624,000 (of which
$1,917,000 was from related parties), and $159,000 from the sale of marketable
securities. Such increases were more than offset by purchases of property, plant
and equipment for $3,965,000 and the purchase of other assets for $292,000. In
2000, the Company generated $1,562,000 (of which $112,000 was from related
parties) from collections on notes receivable and $407,000 from the sale of
marketable securities. These amounts were partially offset by the cash portion
of the purchase of franchise rights of $481,000, the purchase of property and
equipment for $326,000, and by a loan to a related party of $330,000.

         In 2001, the Company generated $174,000 in cash from financing
activities as compared to $441,000 used for such activities in 2000. Proceeds
from borrowings of $2,853,000 were partially offset by borrowings of $2,679,000.
In 2000, payments on borrowings of $1,525,000 and the purchase of treasury stock
for $19,000 were partially offset by proceeds on borrowings of $1,104,000.

         In 1993, the Company entered into a Franchise Financing Agreement with
Stephens Franchise Financing, which is now SunTrust Credit Corporation
("SunTrust"), pursuant to which SunTrust agreed to extend credit to qualified
Mr. Rooter and Aire Serv franchisees up to an aggregate amount of $10,000,000.
As of December 31, 2001, the aggregate principal amounts of outstanding
franchisee indebtedness under such agreement was approximately $107,000.
Pursuant to the terms of the agreement, the Company is liable for such
franchisee indebtedness in the event a default occurs and the Company has 180
days to correct the default. If the default is not corrected within such time,
the Company is obligated to make the monthly installments on the note until paid
in full or the franchise is sold to another approved party and the debt is
assumed by that party. Approximately $78,000 and $134,000 was paid to SunTrust
during 2001 and 2000, respectively, representing monthly installments on behalf
of franchisees in default. In 1998, management discontinued the practice of
guaranteeing notes to third parties.

         In 1996, The Dwyer Group, Inc., Mr. Rooter, Aire Serv, Mr. Appliance,
and Mr. Electric entered into an agreement with Phoenix Leasing Incorporated
("Phoenix") to finance franchise sales for franchise applicants who meet
Phoenix's qualifications. Phoenix agreed to provide up to $3,000,000 in debt
financing to the franchisees provided that each franchisee's obligations to
Phoenix under its debt financing be guaranteed by the Company. Each month, the
Company receives an Aging Report of the amounts due and owing by the
franchisees. If an Aging Report shows that any franchisee has failed to make all
of the scheduled monthly payments due during any sixty day period, then the
Company, within ten days of delivery of such Aging Report, shall pay all of such
franchisee's delinquent scheduled payments, together with all late charges then
due. In 2001 and 2000, the Company paid approximately $60,000 and $74,000,
respectively, on such delinquent notes. At December 31, 2001, the Company was
contingently liable for approximately $234,000, relating to such notes. The
Company establishes appropriate reserves based on the payment history of the
franchisees. In 1998, management discontinued the practice of guaranteeing notes
to third parties.


                                       14
<PAGE>

         In connection with its franchising activities, the Company regularly
extends credit to prospective franchisees to finance their purchase of
franchises. The repayment of such indebtedness is secured by the assets of such
franchises, including the franchise rights sold to the franchisees. The Company
recognizes franchise sales revenues for the entire sale if the franchisee has
made a down payment in cash of at least 20% of the sales price and has completed
training. The Company also recognizes franchise sales revenues from existing
franchisees buying additional territory who make a cash down payment of less
than 20% but who have an established history of good credit. At December 31,
2001 and 2000, notes receivable (in excess of those recognized as deferred
liabilities), less allowance for doubtful collections, were approximately
$6,509,000 and $5,590,000, respectively. At December 31, 2001, the Company's
allowance for doubtful notes was $1,177,000, which the Company believes is
adequate for the size and nature of its notes receivable.

         The Company is not aware of any trend or event which would potentially
adversely 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.

FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY

         The Company's operating results could vary significantly from period to
period as a result of a variety of factors, including the timing of acquisitions
and/or dispositions; the length of the Company's franchise sales cycles; the
ability of franchisees to collect their receivables and satisfy obligations
under franchise agreements with the Company; seasonal conditions in the markets
in which the Company's franchisees operate and competitive factors. For
instance, Rainbow's revenues have historically decreased during cold weather
months and increased during hot weather months. There can be no assurance that
such factors will not result in significant fluctuations in the Company's
operating results in the future.

INFLATION

         Inflation has not historically had a material effect on the Company's
operations and is not expected to have a material impact on the Company in the
future.

INCOME TAXES

         The Company establishes valuation allowances when necessary to be
applied against its deferred tax asset in accordance with the provisions of SFAS
109, "Accounting for Income Taxes". At December 31, 2001, no such allowance was
recorded. The Company continually reviews the need for a valuation allowance and
is recognizing benefits only as reassessment indicates that it is more likely
than not that the benefits will be realized.

         The Company expects to realize the net deferred asset principally
through the implementation of reasonable tax strategies based on future income
projections.

UNCERTAINTY OF FORWARD-LOOKING STATEMENTS

         This Annual Report contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements other than statements of historical fact included in the
Annual Report, including without limitation, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and plans and objectives for
future performance are forward-looking statements. Forward-looking statements
are commonly identified by the use of such terms and phrases as "intends",
"estimates", "expects", "projects", "anticipates", "foreseeable future",
"seeks", and words or phases of similar import. Such statements are subject to
certain risks, uncertainties or assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected.


                                       15
<PAGE>

FOREIGN OPERATIONS

         The Company operates in 17 foreign countries. Typically, other than in
Canada, 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 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.
However, the Company may sell additional master licenses, which could result in
lump sum payments from the master licensees to the Company.

ACCOUNTING MATTERS

         In June 2001, the Financial Accounting Standards Board finalized FASB
Statement No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

         SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS 142 requires that the Company identify reporting units in
order to assess potential future impairment of goodwill, reassess the useful
lives of other existing recognized intangible assets, and cease amortization of
intangible assets with an indefinite useful life. SFAS 142 requires that an
intangible asset with an indefinite useful life be tested for impairment in
accordance with specified guidelines. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.

         The Company's previous business combinations were accounted for using
the purchase method. As of December 30, 2001, the net carrying amount of
goodwill is $5,030,000. Amortization expense during the year 2001 was $189,000.
Currently, the Company is assessing, but has not yet determined, how the
adoption of SFAS 141 and SFAS 142 will impact its financial position and results
of operations.

         SFAS 143 requires that the fair value for an asset retirement
obligation be recognized in the period in which it is incurred, if a reasonable
estimate of fair value can be made, and that the carrying amount of the asset,
including capitalized asset retirement costs, be tested for impairment. SFAS 143
is effective for fiscal years beginning after June 15, 2002. Management does not
believe this statement will have a material effect on the Companies financial
position or results of operations.

         SFAS 144 prescribes financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of, and
specifies when to test a long-lived asset for recoverability. SFAS 144 is
effective for financial years beginning after December 15, 2001. Management does
not believe this statement will have a material effect on the Companies
financial position or results of operations.

ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements of the Company, together with the
independent auditor's report of BDO Seidman, LLP, appear on pages 30 through 50
of this report. See Index to Financial Statements on page 29 of this report.


ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

         NONE


                                       16
<PAGE>


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

         The directors and executive officers of the Company are as follows:

<Table>
<Caption>
NAME                                      AGE                 POSITION
----                                      ---                 --------
<S>                                      <C>                  <C>
Theresa Dwyer.............................67                  Chairperson of the Board of Directors and Director
Dina Dwyer-Owens..........................39                  President, Chief Executive Officer and Director
Robert Tunmire............................43                  Executive Vice President and Director
Thomas J. Buckley.........................55                  Vice President, Treasurer and Chief Financial Officer
Deborah Wright-Hood.......................40                  V.P. of Administration, Secretary and Assistant Treasurer
Michael Bidwell...........................43                  Chief Operating Officer
Donald J. Dwyer, Jr.......................37                  Director of International Operations and Director
James L. Sirbasku.........................62                  Director
John P. Hayes.............................52                  Director
Donald E. Latin...........................71                  Director
</Table>

         All directors hold office until the next annual meeting of stockholders
or until their successors have been elected and qualified. Officers of the
Company serve at the will of the Board of Directors. No officer or director is
subject to an employment agreement.

         Theresa Dwyer has been Chairperson of the Board of Directors since July
of 1995, and Director of the Company since December of 1994. She is the majority
stockholder of the following privately held companies: Worldwide Refinishing
Systems, Inc., Worldwide Supply, Inc., and Dwyer Real Estate. Mrs. Dwyer also
serves as Managing Partner of Dwyer Investments, Ltd.

         Dina Dwyer-Owens has served as President and Chief Executive Officer
since January 1, 1999 and has been a Director of the Company since 1989. Prior
to that time, she served as Vice President of Operations since September of 1995
after serving as Co-Chairperson of the Board of Directors from December of 1994
to July of 1995. Ms. Dwyer-Owens also served as Secretary of the Company from
1989 through December of 1998. She also serves as Director of Rainbow, Mr.
Rooter and National Accounts. Ms. Dwyer-Owens has approximately 21 years
experience in the franchising industry.

         Robert Tunmire has been Executive Vice President since January 1, 1999.
Prior to that time, he served as President and Chief Executive Officer of the
Company since December of 1994 after serving as Executive Vice President since
June of 1993. Mr. Tunmire also currently serves as President of Glass Doctor.
Mr. Tunmire served as President of the Company, then operating as Mr. Rooter
Corporation, from January of 1992 through May of 1993. From 1989 to 1992, he
served as Vice President of Mr. Rooter. From December of 1980 until May of 1989,
Mr. Tunmire was employed by Rainbow, most recently as Executive Vice President
of Franchise Counseling. He also serves as Director of Mr. Rooter and National
Accounts. Mr. Tunmire has approximately 26 years experience in the franchising
industry.

         Thomas J. Buckley has served as Treasurer and Chief Financial Officer
since August of 1997 and as Vice President since June of 1998. He has also
served as President of Mr. Electric since May of 1999. Prior to employment by
the Company, he served as Chief Financial Officer of Watermarc Food Management
Co. ("Watermarc") since 1994. Mr. Buckley resigned as an officer of Watermarc
effective July 1, 1997. In January of 1999, Watermarc filed for bankruptcy
protection under Chapter XI of the U.S. Bankruptcy Code. From 1990 to 1994, Mr.
Buckley served as Vice President of Finance and Franchising for Western Sizzlin'
Restaurants. Mr. Buckley has also owned and operated his own franchising
business as a regional franchisor of SpeeDee Oil Change & Tune-Up, and has 20
years overall experience in the franchising industry.

         Deborah Wright-Hood has served as Secretary of the Company since
December of 1998 and as Vice President of Administration since June of 1998.
Prior to that time, she was employed by the Company in various capacities since
1985, including Director of Administration since 1994. Ms. Wright-Hood was also
President of Worldwide Supply, Inc.


                                       17
<PAGE>
from 1985 until December of 2000. She also serves as Director of Aire Serv, Mr
Appliance, Mr. Electric, Rainbow and Glass Doctor. Ms. Wright-Hood has over 22
years experience in the franchising industry.

         Michael Bidwell has been Chief Operating Officer since July of 2000,
has been President of Rainbow since July of 1995 and President of Mr. Rooter and
Mr. Appliance since August of 1998. Mr. Bidwell was a Rainbow franchisee in
Tucson, Arizona from April of 1984 to June of 1995, and a Mr. Rooter franchisee
from August of 1992 to June of 1995. From 1986 to June of 1995, Mr. Bidwell
served as President of Ramsoo, Inc., an Arizona corporation, which operated the
Rainbow and Mr. Rooter franchises in Tucson, Arizona. From November of 1987
until July of 1995, Mr. Bidwell was also a franchisee and regional director for
Worldwide Refinishing Systems, Inc., a third party associated with the Company.
Mr. Bidwell also serves as a Director of National Accounts. Mr. Bidwell has over
17 years experience in the franchising industry.

         Donald J. Dwyer, Jr. has served as a Director since May of 1989. Mr.
Dwyer is currently, and has been since 1994, employed by the Company as Director
of International Operations. He previously served as Director of International
Operations for Rainbow from 1987 to 1994. He also serves as Director of Rainbow
and Mr. Rooter. Mr. Dwyer has approximately 18 years experience in the
franchising industry.

         James L. Sirbasku has served as a Director since July of 1994. He has
served as Chairman and Chief Executive Officer of Profiles International, Inc.,
an international company providing pre-employment evaluation systems, since
March of 1991. From 1980 to 1991, Mr. Sirbasku served as President of SMI
International, Inc., a company specializing in franchising businesses. Mr.
Sirbasku has over 27 years experience in the franchising industry.

         John P. Hayes has served as a Director since July of 1994. He founded
and served, from January of 1987 to 1995, as President of The Hayes Group, Inc.,
an international marketing and promotion company specializing in franchised
businesses. Since January of 1996, Mr. Hayes has served as a consultant to
franchisors. Mr. Hayes has approximately 23 years experience in the franchising
industry.

         Donald E. Latin has served as a Director since July of 1995. He founded
and, since 1986, has served as President of D. Latin and Company, Inc., an
investment banking company which provides such corporate finance services as:
the raising of capital, mergers and acquisitions, valuation of businesses,
fairness opinions, and other financial advisory services.

         Dina Dwyer-Owens, Deborah Wright-Hood and Donald J. Dwyer, Jr. are the
children of Theresa Dwyer and the late founder, Donald J. Dwyer.

BOARD PARTICIPATION AND STRUCTURE

         The Board of Directors met four times during 2001 and additionally took
action 54 times by means of written consent. Each director attended all of the
meetings with the exception of Mr. Sirbasku, who was not present at two of the
meetings. Non-employee directors are reimbursed for expenses incurred for their
attendance at Board of Directors meetings and are eligible to receive stock
options.

         The Audit Committee, comprised of Ms. Dwyer-Owens and Messrs. Hayes,
Latin and Sirbasku, met twice during 2001. Each member attended all of the
meetings with the exception of Mr. Sirbasku, who was not present at either of
the meetings.

SECTION 16(a)  BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the officers and directors of the Company and persons who beneficially
own more than ten percent of the Company's Common Stock to file reports of
securities ownership and changes in such ownership with the Securities and
Exchange Commission (the "SEC"). Officers, directors, and greater than 10
percent beneficial owners also are required by rules promulgated by the SEC to
furnish the Company with copies of all Section 16(a) forms they file.

         Based solely on its review of the copies of such forms received by it
with respect to the fiscal year ended December 31, 2001, or written
representations from certain reporting persons, the Company believes that all
filing


                                       18
<PAGE>
requirements applicable to its directors, officers and persons who own more than
ten percent of a registered class of the Company's equity securities have been
complied with.

ITEM 10.   EXECUTIVE COMPENSATION

         Summary Compensation Table. The following information sets forth
compensation earned by the Company's Chief Executive Officer and all other of
its named executive officers whose annual compensation exceeded $100,000 in
2001, for services rendered for the Company and its Subsidiaries during the
fiscal years indicated:

                           SUMMARY COMPENSATION TABLE
<Table>
<Caption>
                                                                                   LONG TERM
                                               ANNUAL COMPENSATION               COMPENSATION
                                           ------------------------------    ---------------------
        NAME AND                                                             SECURITIES UNDERLYING
   PRINCIPAL POSITION            YEAR      SALARY($)  BONUS($)   OTHER($)          OPTIONS
   ------------------            ----      ---------  --------   --------    ---------------------
<S>                              <C>       <C>        <C>        <C>         <C>
Dina Dwyer-Owens,                2001      $152,942   $ 19,615      --                  --
   President and CEO             2000       142,822     40,172      --                  --
                                 1999        81,125        300      --                  --

Robert Tunmire,                  2001(1)   $128,124   $175,566      --                  --
   Executive Vice President      2000(1)    125,716    132,650      --                  --
                                 1999(1)    125,215    104,932      --                  --

Thomas J. Buckley,               2001      $126,500   $ 33,065      --              25,000
   Vice President & Chief        2000       126,890     68,072      --               5,000
   Financial Officer             1999       112,692      1,555      --              12,000

Michael Bidwell,                 2001      $130,062   $119,424      --                  --
   Chief Operating Officer       2000       117,756    235,372      --               5,000
                                 1999       117,305     96,816      --              16,000

Deborah Wright-Hood              2001      $100,486   $ 11,038      --                  --
   Secretary & Vice              2000        87,000     19,149      --                  --
   President of                  1999        74,889      1,647      --                  --
   Administration
</Table>

--------------------------
(1)      Includes salary plus commissions from franchise sales.




                     THIS SECTION LEFT INTENTIONALLY BLANK.


                                       19
<PAGE>



The following table sets forth information regarding options granted to the
named executive officers during the fiscal year ended December 31, 2001:

                        OPTION GRANTS IN LAST FISCAL YEAR

<Table>
<Caption>
                                  NUMBER OF            PERCENT OF TOTAL
                                  SECURITIES          OPTIONS GRANTED TO            EXERCISE
                                  UNDERLYING               EMPLOYEES                 OR BASE                EXPIRATION
           NAME                OPTIONS GRANTED          IN FISCAL YEAR              PRICE(1)                   DATE
           ----                ---------------         -----------------            ---------               ----------
<S>                            <C>                     <C>                          <C>                     <C>
Dina Dwyer-Owens                     ----                    ----                     ----                     ----
Robert Tunmire                       ----                    ----                     ----                     ----
Thomas J. Buckley                   25,000                   17.1%                    $2.25                   3/1/11
Michael Bidwell                      ----                    ----                     ----                     ----
</Table>

-----------------------
(1)      Reflects the per share exercise price, which is equal to or greater
         than the closing market price of the underlying security on the date of
         grant.

The following table shows option exercises during the year ended December 31,
2001 and the value of unexercised options at December 31, 2001 for the named
executive officers who exercised options during 2001 or who had unexercised
options at December 31, 2001:


                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR END OPTION VALUES

<Table>
<Caption>
                                                                             NUMBER OF
                                                                             SECURITIES
                                                                             UNDERLYING                 VALUE OF
                                                                             UNEXERCISED             UNEXERCISED IN-
                                                                          OPTIONS AT FISCAL         THE-MONEY OPTIONS
                                                                              YEAR END             AT FISCAL YEAR END
                              SHARES ACQUIRED                               (EXERCISABLE/             (EXERCISABLE/
           NAME                 ON EXERCISE         VALUE REALIZED         UNEXERCISABLE)          UNEXERCISABLE)(1)
           ----               ---------------       --------------         -------------           -------------------
<S>                           <C>                   <C>                    <C>                     <C>
Dina Dwyer-Owens                    ----                 ----                5,000 / -0-              $15,375 / $0
Robert Tunmire                      ----                 ----               100,000 / -0-             $245,000 / $0
Thomas J. Buckley                   ----                 ----              66,164 / 55,041         $201,908 / $156,482
Michael Bidwell                     ----                 ----              72,400 / 23,600         $173,397 / $67,783
</Table>


-----------------------------

(1)      The closing price of the Common Stock on December 31, 2001 was $4.95
         per share.




                     THIS SECTION LEFT INTENTIONALLY BLANK.


                                       20
<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth as of December 31, 2001, certain
information regarding the beneficial ownership of Common Stock by (i) each of
named executive officers, (ii) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (iii) each director
of the Company and (iv) all directors and officers as a group:


<Table>
<Caption>
                                                                          BENEFICIAL OWNERSHIP(1)

NAME AND ADDRESS OF BENEFICIAL OWNER                                   NUMBER OF SHARES   PERCENT(2)
------------------------------------                                   ----------------   -----------
<S>                                                                    <C>                <C>
Dwyer Investments, Ltd.(4)                                                 3,800,706         54.3%
Donald J. Dwyer Family Trust(4)                                              115,659          1.7%
Theresa Dwyer(3)(5)(6)(7)                                                  4,305,853         61.5%
Donald J. Dwyer, Jr.(3)(7)(8)(9)                                             685,422          9.8%
Dina Dwyer-Owens(3)(8)(10)                                                   569,191          8.1%
Robert Tunmire (3)(8)(11)                                                    683,934          9.6%
Deborah Wright-Hood(3)(8)                                                    562,460          8.0%
Thomas Buckley(3)(12)                                                        101,864          1.4%
John Hayes(13)                                                                45,386            *
James Sirbasku(14)                                                            25,000            *
Donald E. Latin(15)                                                           21,500            *
Michael Bidwell(3)(16)                                                       114,145          1.6%
Darren Dwyer(3)(8)                                                           533,391          7.6%
Douglas Dwyer(3)(8)                                                          550,773          7.9%
Donna Dwyer-Van Zandt(3)(8)                                                  560,055          8.0%
Renaissance Capital Growth & Income Fund III(17)                             675,000          9.6%
All officers and directors as a group (nine persons)(5)(6)(18)             4,804,005         64.5%
</Table>

----------------------
*Less than 1%.

(1)      Each beneficial owner's percentage ownership is determined by including
         shares over which the person has voting power or dispositive power and
         by assuming that options that are held by such person (but not those
         held by any other person) and which are exercisable, have been
         exercised. Except as noted, the Company believes that all persons named
         in the table have voting and dispositive power with respect to all
         shares of Common Stock beneficially owned by them.

(2)      Based on a total of 6,997,931 shares of Common Stock outstanding prior
         to the exercise of any outstanding options or warrants.

(3)      The principal business address of each of these individuals is c/o the
         Company, 1010 N. University Parks Drive, Waco, Texas 76707.

(4)      Mr. Dwyer, former Chairman of the Board, President and CEO of the
         Company, died December 4, 1994. On April 10, 1997, his Estate
         distributed 4,077,501 shares of Common Stock beneficially owned by the
         Estate to Ms. Theresa Dwyer with the remaining 115,423 shares
         distributed to the Donald J. Dwyer Family Trust (the "Trust), of which
         Ms. Theresa Dwyer and Mr. Donald Dwyer, Jr. are Co-Trustees. On
         September 4, 1997, Ms. Theresa Dwyer contributed 3,899,182 beneficially
         owned shares, and the Trust contributed 115,092 beneficially owned


                                       21
<PAGE>
         shares, to Dwyer Investments, Ltd. (the "Partnership") in exchange for
         equity interests. On April 10, 1998, Ms. Dwyer sold 13.3% limited
         partnership interests in the Partnership to The Donald J. Dwyer, Jr.
         GST Trust, The Donna Dwyer-Van Zandt GST Trust, The Deborah Wright-Hood
         GST Trust, The Dina Dwyer-Owens GST Trust, The Darren Dwyer GST Trust,
         The Douglas Dwyer GST Trust, (each individual is trustee of their
         generation-skipping trusts), and to Mr. Robert Tunmire, individually,
         each acquiring a 13.3% limited partnership interest. Ms. Dwyer, as
         managing partner, has sole dispositive power over the stock owned by
         the Partnership. The principal address for the Partnership and the
         Trust is c/o the Company, 1010 N. University Parks Drive, Waco, Texas,
         76707.

(5)      Includes beneficial ownership of 295,000 shares of Common Stock
         acquired in 1999 pursuant to a stock option agreement with the Company.

(6)      Includes 3,800,706 shares of Common Stock of the Partnership over which
         Ms. Theresa Dwyer has sole dispositive power as Managing Partner.

(7)      Includes 115,659 shares of Common Stock of the Trust over which Ms.
         Theresa Dwyer and Donald J. Dwyer, Jr., have shared voting power as
         Co-Trustees.

(8)      Includes 533,215 shares of Common Stock of the Partnership over which
         the individual has full voting power, but no dispositive power.

(9)      Includes 5,000 shares of Common Stock now exercisable under an
         Incentive Stock Option Plan.

(10)     Includes 5,000 shares of Common Stock now exercisable under an
         Incentive Stock Option Plan.

(11)     Includes 100,000 shares of Common Stock now exercisable under an
         Incentive Stock Option Plan.

(12)     Includes 71,864 shares of Common Stock now exercisable or exercisable
         within 60 days under an Incentive Stock Option Plan and 30,000 warrants
         purchased from an unrelated third party in 2000.

(13)     Includes 45,136 shares of Common Stock now exercisable or exercisable
         within 60 days pursuant to options granted Mr. Hayes. The principal
         business address of Mr. Hayes is 6612 Dupper Court, Dallas, Texas
         75252.

(14)     Includes 20,000 shares of Common stock now exercisable or exercisable
         within 60 days pursuant to options granted Mr. Sirbasku. The principal
         business address of Mr. Sirbasku is 5205 Lakeshore Drive, Waco, TX
         76710.

(15)     Includes 11,000 shares of Common Stock now exercisable pursuant to
         options granted Mr. Latin. The principal business address of Mr. Latin
         is 3102 Maple Avenue, Suite 450, Dallas, TX 75201.

(16)     Includes 72,400 shares of Common Stock now exercisable under an
         Incentive Stock Option Plan and 30,000 warrants purchased from an
         unrelated third party in 2000.

(17)     The principal business address of Renaissance Capital Growth & Income
         Fund III, Inc. is c/o Renaissance Capital Group, Inc., 8080 N. Central
         Expressway, Suite 210, Dallas, TX 75206.

(18)     Includes 395,700 shares of Common Stock now exercisable or exercisable
         within 60 days under an Incentive Stock Option Plan and 60,000 warrants
         exercisable by officers of the Company.


                                       22
<PAGE>

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

         The Company engages in a number of transactions with its Chair of the
Board and majority stockholder, Ms. Theresa Dwyer ("Ms. Dwyer"), and with
entities controlled by Ms. Dwyer ("Affiliates"). Such affiliates are: Dwyer Real
Estate ("DRE"), Worldwide Supply, Inc. ("WWS") and Worldwide Refinishing
Systems, Inc. ("WWR").

         In April of 2001, the Company purchased its principal executive and
administrative facilities (land, buildings and equipment) from Ms. Dwyer for
approximately $3.7 million, which equaled the appraised value of the facilities.
In accordance with generally accepted accounting principles, the transaction was
recorded at her basis of approximately $2.8 million, with the difference being
reflected as a reduction in stockholders' equity. A portion of the $3.7 million
payment was funded by a $2.9 million bank loan collateralized by the facilities.
Ms. Dwyer used a portion of the monies received in the sale of the facilities to
pay off approximately $2.2 million of related party debt to the Company. The
Company is using the excess cash of approximately $1.5 million netted from the
above transactions for improvements to the property, payment of existing debt,
and for additional working capital.

         In addition to rent, the Company receives repairs and maintenance,
promotional materials and other services from DRE and WWS. The Company expensed
approximately $288,000 for these rents and services in 2001, and $425,000 in
2000.

         The Company recognized income from DRE, WWS and WWR for accounting,
legal and administrative services, interest income, product sales commissions,
rent, and management fees of approximately $479,000 in 2001, and $612,000 in
2000. In addition, from time-to-time, the Company and the Affiliates have made
advances to each other, which generally have not had specific repayment terms
and have been reflected in the Company's financial statements as accounts
receivable or payable from related parties. These advances typically result from
the payment of an invoice by one entity for services or items performed or
delivered on behalf of the Company and one or more of the Affiliates. The
company that pays the invoice is eventually reimbursed by the other companies
for the appropriate amount based on a pro rata allocation of the services
provided to each company.

         The Company paid Don Latin, an independent director, approximately
$33,000 in 2001 and $31,000 in 2000 for consulting services. In addition, John
Hayes, another independent director provides consulting services regarding
public relations, marketing and special projects to the Company. The Company
paid approximately $108,000 and $113,000, in 2001 and 2000, respectively, for
these services.

         At December 31, 2001 and 2000, the Company had accounts, interest and
notes receivable from related parties totaling approximately $490,000 and
$2,679,000, respectively, the majority of which was due from WWS, WWR, and Don
Dwyer Estate. Ms. Dwyer has guaranteed payment of all amounts due from these
affiliates.

         Dina Dwyer-Owens, Deborah Wright-Hood, Donald J. Dwyer, Jr., Darren
Dwyer, Douglas Dwyer, and Donna Dwyer-Van Zandt are the children of Ms. Dwyer
and the late founder, Donald J. Dwyer, Sr.

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

    (a)  Documents filed as a part of this report:

1.       Financial Statements

                  The Consolidated Financial Statements of the Company are
                  included in Part II, Item 7. See index on page 27.

2.       Exhibits

     3.1      Certificate of Incorporation, as amended(1)

     3.2      Certificate of Amendment of Certificate of Incorporation filed
              June 12, 1987(2)

     3.3      Certificate of Amendment of Certificate of Incorporation filed May
              8, 1988(2)

     3.4      Certificate of Amendment of Certificate of Incorporation filed
              July 30, 1993(2)

     3.5      Bylaws(1)

     4.1      Form of Representative's Warrant Agreement, including
              Representative's Warrant(2)

     4.2      Warrants to Purchase Common Stock issued to Norcross Securities,
              Inc. (2)


                                       23
<PAGE>

    10.1      Stock Option Plan, as amended, and form of Employee Stock Option
              Agreement (1)

    10.2      Form of Rainbow International Carpet Dyeing and Cleaning Co.
              License Agreement (2)

    10.3      Form of Mr. Rooter Corporation Franchise Agreement(2)

    10.4      Form of General Business Services License Agreement(2)

    10.5      Form of Aire Serv Corporation Franchise Agreement(2)

    10.6      Certificate of Registration of Service Mark "MR. ROOTER"(1)

    10.7      Certificate of Registration of Service Mark "QUICK-AS-A-WINK"(1)

    10.8      Certificate of Registration of Mr. Rooter logo(1)

    10.9      Certificate of Registration of Service Mark "Super Kleens" logo(1)

    10.10     Certificate of Registration for Service Mark "America's Trouble
              Shooter"(1)

    10.11     Certificate of Registration of Trademark "MR. ROOTER" issued by
              Office of Consumer and Corporate Affairs in Canada(1)

    10.12     Lease Agreement between Donald J. Dwyer and Mr. Rooter
              Corporation, dated December 20, 1991(2)

    10.13     Lease Agreement between Donald J. Dwyer and Rainbow International
              Carpet Dyeing and Cleaning Training Center, commencing January 1,
              1993(2)

    10.14     Lease Agreement between Donald J. Dwyer and Rainbow International
              Carpet Dyeing and Cleaning Waco Franchise, commencing January 1,
              1993(2)

    10.15     Lease Agreement between Donald J. Dwyer and General Business
              Services, dated August 31, 1993(2)

    10.16     Lease Agreement between Donald J. Dwyer and Rainbow International,
              dated September 1, 1993(2)

    10.17     Lease Agreement between Donald J. Dwyer and The Dwyer Group, Inc.,
              dated February 18, 1994(2)

    10.18     Agreement and Plan of Reorganization and Share Exchange(3)

    10.19     Agreement for Purchase and Sale of Assets of National
              Manufacturing & Supply Corporation(4)

    10.20     Franchisee Financing Agreement dated July 2, 1993, with Addendum
              dated December 23, 1993(4)

    10.21     Shareholders' Voting Proxy and Stock Sale Agreement, between
              Donald J. Dwyer, Sr. and Vernon Lee Russell and wife, Sylvia
              Russell, and the Company(5)

    10.22     Stock Purchase Agreement between Donald J. Dwyer, Sr., Vernon Lee
              Russell and Sylvia Russell(5)

    10.23     Stock Option Agreement between the Company and Donald J. Dwyer(5)

    10.24     Incentive Stock Option Agreement between the Company and John
              Appel for 25,000 shares of the Company's Common Stock(4)

    10.25     Incentive Stock Option Agreement between the Company and Douglas
              C. Holsted for 12,500 shares of the Company's Common Stock(1)

    10.26     Incentive Stock Option Agreement between the Company and Dina
              Dwyer-Owens for 2,500 shares of the Company's Common Stock(1)

    10.27     Incentive Stock Option Agreement between the Company and Robert A.
              Tunmire for 50,000 shares of the Company's Common Stock(1)

    10.28     Employment Contract between the Company and Donald J. Dwyer(1)

    10.29     Guaranty Agreement, executed December 1, 1982 by Rainbow
              International Carpet Dyeing and Cleaning Company(2)

    10.30     Guaranty Agreement, executed May 1, 1984 by Rainbow International
              Carpet Dyeing and Cleaning Company(2)

    10.31     Promissory Note, executed January 7, 1993, by and between Pride
              Venture Capital, Inc. and GTL Services, Ltd.(2)

    10.32     Form of Affiliate Transactions Agreement(2)

    10.33     Stock Purchase Agreement dated May 14, 1994 by and between The
              Dwyer Group, Inc., Co Data AG and Central Data BV(6)

    10.34     Irrevocable Stock or Bond Power, Note and Security Agreement,
              dated May 25, 1994, by and between Christian Mission Concerns, as
              lender, and the Company, as borrower(2)

    10.35     Mutual Release by and between General Business Services, Pride
              Venture Capital and GTL Services Ltd., effective June 10, 1994(2)

    10.36     Assignment of Judgments and Claims, executed by and between
              General Business Services, Inc., Pride Venture Capital, Inc., and
              GTL Services, Ltd., dated June 10, 1994(3)

    10.37     Promissory Note, executed June 8, 1994, by and between the Company
              and NationsBank of Texas, N.A.(2)

    10.38     Promissory Note, executed June 9, 1994, by and between the Company
              and Central National Bank(2)

    10.39     Certificate of Registration of Service Mark "Aire Serv", dated
              Jan. 25, 1994(7)

    10.40     Stock Purchase Agreement dated September 14, 1994, by and between
              E.K. Williams & Co. and Service Station Computers Systems, Inc.(7)


                                       24
<PAGE>


    10.41     Stock Option Agreement by and between the Company and James
              Sirbasku for 10,000 shares of the Company's Common Stock(7)

    10.42     Stock Option Agreement by and between the Company and John Hayes
              for 10,000 shares of the Company's Common Stock(7)

    10.43     Stock Option Agreement by and between the Company and Anthony
              DeSio for 10,000 shares of the Company's Common Stock(7)

    10.44     Incentive Stock Option Agreement by and between the Company and
              Matthew Michel(7)

    10.45     Mutual Release by and between General Business Services, Inc., and
              Paul Woody effective June 30, 1996(8)

    10.46     Consulting Agreement by and between General Business Services,
              Inc., E.K. Williams & Co., and Paul Woody effective July 1,
              1996(8)

    10.47     Stock Option Agreement by and between the Company and Paul Woody
              for 25,000 shares of the Company's Common Stock(8)

    10.48     Agreement dated as of June 1, 1993, between the Company and the
              personal representatives of Mr. Donald J. Dwyer, Sr., his Estate
              and the Dwyer Family Trust regarding cancellation of 340,300
              Escrow Shares(9)

    10.49     Form Of Stock Option Agreement by and between the Company and Don
              Latin for 10,000 shares of the Company's Common Stock(10)

    10.50     1997 Stock Option Plan and Form Of Employee Stock Option
              Agreement(10)

    10.51     Form Of Warrant Agreement and Warrant issued to V. Lee Russell(10)

    10.52     Form Of Warrant Agreement and Warrant issued to David B. Duck.(10)

    10.53     Form Of Stock Option Agreement by and between the Company and
              Target Enterprises, Inc. for 28,500 shares of the Company's Common
              Stock.(10)

    10.54     Form Of Stock Option Agreement by and between the Company and John
              Hayes for 11,420 shares of the Company's Common Stock.(10)

    10.55     Asset Purchase Agreement dated July 24, 1998, by and among The
              Dwyer Group, Inc., Glassmarks, Inc., Glass Doctor Corporation and
              Barton G. Tracy.(11)

    10.56     Stock Purchase Agreement dated July 24, 1998, by and between The
              Dwyer Group, Inc., Barton G. Tracy and Glassmarks, Inc.(11)

    10.57     Asset Purchase Agreement by and among Century Business Services,
              Inc., General Business Services, Inc., General Tax Services, Inc.,
              Edwin K. Williams & Co., GBS Acquisition Corp. and The
              Company.(12)

    10.58     Form of Stock Option Agreement dated December 23, 1997, by and
              between the Company and Tom Buckley for 64,205 shares of the
              Company's Common Stock.(13)

    10.59     Form of Stock Option Agreement dated August 25, 1998, by and
              between the Company and Tom Buckley for 15,000 shares of the
              Company's Common Stock.(13)

    10.60     Form of Stock Option Agreement dated January 28, 1998, by and
              between the Company and James Sirbasku for 10,000 shares of the
              Company's Common Stock.(13)

    10.61     Form of Stock Option Agreement dated August 25, 1998, by and
              between the Company and Donald E. Latin for 5,000 shares of the
              Company's Common Stock.(13)

    10.62     Form of Stock Option Agreement dated January 28, 1998, by and
              between the Company and John Hayes for 10,000 shares of the
              Company's Common Stock.(13)

    10.63     Form of Stock Option Agreement dated April 29, 1999 by and between
              the Company and Don Latin for 5,000 shares of the Company's Common
              Stock.(14)

    10.64     Form of Stock Option Agreement dated June 29, 1999 by and between
              the Company and Don Latin for 10,000 shares of the Company's
              Common Stock.(14)

    10.65     Form of Stock Option Agreement dated June 29, 1999 by and between
              the Company and Mike Bidwell for 16,000 shares of the Company's
              Common Stock.(14)

    10.66     Form of Stock Option Agreement dated June 29, 1999 by and between
              the Company and John Hayes for 10,000 shares of the Company's
              Common Stock.(14)

    10.67     Form of Stock Option Agreement dated April 29, 1999 by and between
              the Company and Tom Buckley for 10,000 shares of the Company's
              Common Stock.(14)

    10.68     Form of Stock Option Agreement dated June 29, 1999 by and between
              the Company and Tom Buckley for 2,000 shares of the Company's
              Common Stock.(14)

    10.69     Form of Stock Option Agreement dated January 27, 2000 by and
              between the Company and Tom Buckley for 5,000 shares of the
              Company's Common Stock.(15)

    10.70     Form of Stock Option Agreement dated September 1, 2000 by and
              between the Company and Mike Bidwell for 5,000 shares of the
              Company's Common Stock.(15)

    10.71     Form of Stock Option Agreement dated September 1, 2000 by and
              between the Company and Don Latin for 10,000 shares of the
              Company's Common Stock.(15)

    10.72     Form of Stock Option Agreement dated September 1, 2000 by and
              between the Company and John Hayes for 10,000 shares of the
              Company's Common Stock.(15)


                                       25
<PAGE>
    10.73*    Form of Stock Option Agreement dated June 22, 2001 by and between
              the Company and Don Latin for 10,000 shares of the Company's
              Common Stock.(16)

    10.74*    Form of Stock Option Agreement dated June 22, 2001 by and between
              the Company and Don Latin for 10,000 shares of the Company's
              Common Stock.(16)

    10.75*    Form of Stock Option Agreement dated June 22, 2001 by and between
              the Company and John Hayes for 10,000 shares of the Company's
              Common Stock.(16)

    10.76*    Form of Stock Option Agreement dated October 30, 2001 by and
              between the Company and Jim Sirbasku for 10,000 shares of the
              Company's Common Stock.(16)

    10.77*    Form of Stock Option Agreement dated October 30, 2001 by and
              between the Company and John Hayes for 10,000 shares of the
              Company's Common Stock.(16)

    10.78*    Form of Stock Option Agreement dated October 30, 2001 by and
              between the Company and John Hayes for 10,000 shares of the
              Company's Common Stock.(16)

    10.79*    Form of Stock Option Agreement dated June 22, 2001 by and between
              the Company and Jim Sirbasku for 10,000 shares of the Company's
              Common Stock.(16)

    10.80*    Form of Stock Option Agreement dated June 22, 2001 by and between
              the Company and Tom Buckley for 25,000 shares of the Company's
              Common Stock.(16)

    10.81*    Form of Stock Option Agreement dated February 28, 2002 by and
              between the Company and Don Latin for 5,000 shares of the
              Company's Common Stock.(16)

    10.82*    Form of Stock Option Agreement dated February 28, 2002 by and
              between the Company and John Hayes for 5,000 shares of the
              Company's Common Stock.(16)

    10.83*    Form of Stock Option Agreement dated February 28, 2002 by and
              between the Company and Mike Bidwell for 5,000 shares of the
              Company's Common Stock.(16)

    10.84*    Form of Stock Option Agreement dated February 28, 2002 by and
              between the Company and Tom Buckley for 5,000 shares of the
              Company's Common Stock.(16)

    21.1*     List of Subsidiaries

* Filed herewith.
--------------------------

(1)      Incorporated by reference to the Registrant's Form S-18 registration
         statement (SEC File No. 33-7290-FW).

(2)      Incorporated by reference to the Registrant's Form SB-2 registration
         statement (SEC File No. 33-78814).

(3)      Incorporated by reference to the Registrant's Form 8-K/A dated as of
         June 1, 1993 (SEC File No. 0-15227).

(4)      Incorporated by reference to the Registrant's Form 10-K for its fiscal
         year ended December 31, 1993 (SEC File No. 0-15227).

(5)      Incorporated by reference to the Registrant's Schedule 13D of Donald J.
         Dwyer, dated May 4, 1989, filed May 9, 1989 (SEC File No. 0-15227).

(6)      Incorporated by reference to the Registrant's Form 8-K dated as of May
         14, 1994 (SEC File No. 0-15227).

(7)      Incorporated by reference to the Registrant's Form 10-KSB for its
         fiscal year ended December 31, 1994 (SEC File No. 0-15227).

(8)      Incorporated by reference to the Registrant's Form 10-KSB for its
         fiscal year ended December 31, 1996 (SEC File No. 0-15227).

(9)      Incorporated by reference to the Registrant's Form 8-K dated as of July
         31, 1997 (SEC File No. 0-15227).

(10)     Incorporated by reference to the Registrant's Form 10-KSB for its
         fiscal year ended December 31, 1997 (SEC File No. 0-15227).

(11)     Incorporated by reference to the Registrant's Form 8-K dated as of July
         24, 1998 (SEC File No. 0-15227).

(12)     Incorporated by reference to the Registrant's Form 8-K dated as of July
         31, 1998 (SEC File No. 0-15227).


                                       26
<PAGE>

(13)     Incorporated by reference to the Registrant's Form 10-KSB dated as of
         March 29, 1999 (SEC File No. 0-15227).

(14)     Incorporated by reference to the Registrant's Form 10-QSB dated as of
         July 30, 1999 (SEC File No. 0-15227).

(15)     Incorporated by reference to the Registrant's Form 10-KSB for its
         fiscal year ended December 31, 2000 (SEC File No. 0-15227).

--------------------------

(b)      Reports on Form 8-K

         (1)      None


                                       27
<PAGE>

SIGNATURES


         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Waco and the State of Texas on this
15th day of March, 2002.


                              The Dwyer Group, Inc.


                              By:       /s/ Thomas J. Buckley
                                       ------------------------
                                       Thomas J. Buckley, Vice President,
                                       Chief Financial Officer and Treasurer


         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the date indicated.

<Table>
<Caption>
Signatures                         Title                                       Date
----------                         -----                                       ----
<S>                                <C>                                         <C>
/s/ Theresa Dwyer                  Chair of the Board                          March 15, 2002
---------------------------        of Directors and Director
Theresa Dwyer

/s/ Dina Dwyer-Owens               President and Chief                         March 15, 2002
---------------------------        Executive Officer
Dina Dwyer-Owens                   (Principal Executive Officer)

/s/ Robert Tunmire                 Executive Vice President                    March 15, 2002
---------------------------        and Director
Robert Tunmire

/s/ Thomas J. Buckley              Vice President, Chief                       March 15, 2002
---------------------------        Financial Officer and Treasurer
Thomas J. Buckley                  (Principal Financial and Accounting
                                   Officer)

/s/ James Sirbasku                 Director                                    March 15, 2002
---------------------------
James Sirbasku

/s/ Donald J. Dwyer, Jr.           Director                                    March 15, 2002
---------------------------
Donald J. Dwyer, Jr.

/s/ John P. Hayes                  Director                                    March 15, 2002
---------------------------
John P. Hayes

/s/ Donald E. Latin                Director                                    March 15, 2002
---------------------------
Donald E. Latin
</Table>


                                       28
<PAGE>


INDEX TO FINANCIAL STATEMENTS

<Table>
<Caption>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Certified Public
Accountants..................................................................30

Consolidated Balance Sheets as of December 31, 2001 and 2000............31 - 32

Consolidated Statements of Income for the years ended December 31, 2001
and 2000.....................................................................33

Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the years ended December 31, 2001 and 2000...............................34

Consolidated Statements of Cash Flows for the years ended December 31,
2001 and 2000................................................................35

Notes to Consolidated Financial
Statements..............................................................36 - 50
</Table>


                                       29
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
The Dwyer Group, Inc.
Waco, Texas


We have audited the accompanying consolidated balance sheets of The Dwyer Group,
Inc. and Subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Dwyer Group, Inc. and
Subsidiaries as of December 31, 2001 and 2000, and the consolidated results of
their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.







BDO SEIDMAN, LLP
Dallas, Texas
February 25, 2002



                                       30
<PAGE>
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<Table>
<Caption>
                                                                              DECEMBER 31,
                                                                       -------------------------
                                                                           2001         2000
                                                                       -----------   -----------
<S>                                                                    <C>           <C>
CURRENT ASSETS:
       Cash and cash equivalents                                       $   790,151   $   146,852
       Marketable securities, available-for-sale                           548,089       493,684
       Trade accounts receivable, net of allowance for doubtful
             accounts of $471,621 and $506,143, respectively             1,836,643     1,958,441
       Accounts receivable from related parties                            323,507       355,929
       Accrued interest receivable, including amounts due from
             related parties of $131,613 at December 31, 2000               48,960       175,740
       Trade notes receivable, current portion, net of allowance for
             doubtful accounts of $68,600 and $63,360, respectively      1,718,505     1,520,605
       Inventories                                                          81,702        97,369
       Prepaid expenses                                                    360,617       201,292
       Federal income tax receivable                                         8,017       330,252
       Notes receivable from related parties, current portion              188,349       289,022
                                                                       -----------   -----------

          TOTAL CURRENT ASSETS                                           5,904,540     5,569,186

PROPERTY AND EQUIPMENT, at cost, net                                     3,592,162       981,185

NOTES AND ACCOUNTS RECEIVABLE FROM RELATED PARTIES                          85,925     1,902,366

TRADE NOTES RECEIVABLE, net of allowance for doubtful notes of
             $1,107,201 and $884,403, respectively                       5,198,414     4,638,259

GOODWILL, net                                                            5,030,081     5,218,794

PURCHASED FRANCHISE RIGHTS, net                                          3,441,492     4,242,015

COVENANT NOT TO COMPETE, net                                                31,661        51,661

NET DEFERRED TAX ASSET                                                     662,097       611,551

OTHER ASSETS                                                               600,090       360,183
                                                                       -----------   -----------

TOTAL ASSETS                                                           $24,546,462   $23,575,200
                                                                       ===========   ===========
</Table>


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

                                       31
<PAGE>
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                  (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<Table>
<Caption>
                                                                                          DECEMBER 31,
                                                                                  ----------------------------
                                                                                      2001            2000
                                                                                  ------------    ------------
<S>                                                                               <C>             <C>
CURRENT LIABILITIES:
       Accounts payable, trade                                                    $    464,074    $    432,390
       Accrued liabilities                                                           1,704,637       1,387,248
       Deferred franchise sales revenue                                                245,085         341,311
       Litigation reserves                                                             129,500         345,501
       Federal income tax payable                                                        8,220         560,775
       Current maturities of long-term debt                                          1,309,711       1,665,948
                                                                                  ------------    ------------

          TOTAL CURRENT LIABILITIES                                                  3,861,227       4,733,173

LONG-TERM DEBT, less current maturities                                              3,257,344       2,727,190

DEFERRED FRANCHISE SALES REVENUE                                                       163,309         227,766
                                                                                  ------------    ------------

TOTAL LIABILITIES                                                                    7,281,880       7,688,129

Commitments and contingencies

STOCKHOLDERS' EQUITY:
       Preferred stock, $1 par value - 500,000 shares authorized,
               none outstanding                                                             --              --
       Common stock, $.10 par value - 15,000,000 shares authorized;
               7,645,185 issued and 6,997,931 outstanding in both 2001 and 2000        764,519         764,519
       Additional paid-in capital                                                    9,257,888      10,193,855
       Retained earnings                                                             8,523,364       6,185,086
       Accumulated other comprehensive loss                                            (71,037)        (46,237)
       Treasury stock, at cost, 647,254 shares in 2001 and 2000                     (1,210,152)     (1,210,152)
                                                                                  ------------    ------------

TOTAL STOCKHOLDERS' EQUITY                                                          17,264,582      15,887,071
                                                                                  ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                        $ 24,546,462    $ 23,575,200
                                                                                  ============    ============
</Table>


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

                                       32
<PAGE>
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>
                                                  YEAR ENDED DECEMBER 31,
                                               ----------------------------
                                                  2001             2000
                                               ------------    ------------
<S>                                            <C>             <C>
REVENUES AND INCOME:
     Royalties                                 $ 12,891,657    $ 11,392,596
     Franchise fees                               4,557,359       4,421,977
     Sales of products and services               3,409,058       2,142,354
     Interest                                       748,331         694,740
     Gain on sale of investments                    112,270              --
     Other                                          645,902         566,271
                                               ------------    ------------
        TOTAL REVENUES AND INCOME                22,364,577      19,217,938
                                               ------------    ------------

COSTS AND EXPENSES:
     General, administrative and selling         14,197,261      13,185,138
     Costs of product and service sales           2,832,089       1,821,744
     Depreciation and amortization                1,461,160       1,369,830
     Interest                                       445,152         310,802
                                               ------------    ------------
        TOTAL COSTS AND EXPENSES                 18,935,662      16,687,514
                                               ------------    ------------

Income before income taxes                        3,428,915       2,530,424
Income tax expense                               (1,090,637)       (477,159)
                                               ------------    ------------

NET INCOME                                     $  2,338,278    $  2,053,265
                                               ============    ============


EARNINGS PER SHARE - BASIC                     $       0.33    $       0.29
                                               ============    ============

EARNINGS PER SHARE - DILUTED                   $       0.33    $       0.29
                                               ============    ============

WEIGHTED AVERAGE COMMON SHARES                    6,997,931       6,999,939
                                               ============    ============

WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
         DILUTIVE COMMON SHARES                   7,180,199       7,123,025
                                               ============    ============
</Table>


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


                                       33
<PAGE>
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

<Table>
<Caption>
                                                                                                    COMPREHENSIVE
                                                                  STOCKHOLDERS' EQUITY                 INCOME
                                                              -----------------------------   -----------------------------
                                                                SHARES           DOLLARS        2000               2001
                                                              ----------       ------------   ----------       ------------
<S>                                                           <C>              <C>            <C>              <C>
COMMON STOCK
     Balance at January 1, 2000 and 2001                       7,645,185       $    764,519
        Issuance of common stock
                                                              ----------       ------------
     Balance at December 31, 2000 and 2001                     7,645,185       $    764,519
                                                              ==========       ============

ADDITIONAL PAID-IN CAPITAL
     Balance at January 1, 2000                                                $ 10,183,855
        Issuance of stock                                                                --
        Issuance of warrants                                                         10,000
                                                                               ------------
     Balance at December 31, 2000                                                10,193,855
       Purchase of facilities from related party                                   (935,967)
                                                                               ------------
     Balance at December 31, 2001                                              $  9,257,888
                                                                               ============

RETAINED EARNINGS
     Balance at January 1, 2000                                                $  4,131,821
        Net income                                                                2,053,265       $2,053,265
                                                                               ------------
     Balance at December 31, 2000                                                 6,185,086
        Net income                                                                2,338,278                        $2,338,278
                                                                                -----------
     Balance at December 31, 2001                                               $ 8,523,364
                                                                                ===========

ACCUMULATED OTHER COMPREHENSIVE LOSS
     Balance at January 1, 2000                                                 $  (130,052)
        Increase in carrying value of investments
             (net of tax expense of $4,670)                                           9,066            9,066
        Reclassification adjustment for loss included in                             86,460           86,460
            net income (net of tax benefit of $44,540)
        Foreign currency translation adjustment                                     (11,711)         (11,711)
                                                                                -----------
     Balance at December 31, 2000                                                   (46,237)
                                                                                -----------
        Increase in carrying value of investments
             (net of tax expense of $1,392)                                           2,702                             2,702
        Foreign currency translation adjustment                                     (27,502)                          (27,502)
                                                                                -----------
     Balance at December 31, 2001                                               $   (71,037)
                                                                                ===========

TREASURY STOCK
     Balance at January 1, 2000                                 (639,271)      $ (1,190,686)
        Purchase of treasury stock                                (7,983)           (19,466)
                                                              ----------       ------------
     Balance at December 31, 2000 and 2001                      (647,254)      $ (1,210,152)
                                                              ==========       ============

TOTAL STOCKHOLDERS' EQUITY                                     6,997,931       $ 17,264,582
                                                              ==========       ============      -----------      -----------

TOTAL COMPREHENSIVE INCOME                                                                       $ 2,137,080      $ 2,313,478
                                                                                                 ===========      ===========
</Table>


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


                                       34
<PAGE>
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                   YEARS ENDED DECEMBER 31,
                                                                     2001           2000
                                                                  -----------    -----------
<S>                                                               <C>            <C>
Operating activities:
     Net income                                                   $ 2,338,278    $ 2,053,265
     Adjustments to reconcile net income to
                  net cash used in operating activities:
        Depreciation and amortization                               1,461,160      1,369,830
        Gain on sale of securities                                   (112,270)            --
        Change in reserve for doubtful accounts                       480,300        380,645
        Notes received for franchise sales                         (2,944,821)    (3,241,739)
        Change in deferred tax asset                                  (50,546)      (312,538)
        Other adjustments                                             (42,735)        80,286
    Changes in assets and liabilities:
        Accounts and interest receivable                              248,578     (1,070,281)
        Net change in receivables / payables to related parties        32,422       (300,348)
        Inventories                                                    15,667        (65,590)
        Prepaid expenses                                             (159,325)       (16,713)
        Federal income tax receivable                                 322,235        (28,673)
        Accrued interest payable                                      103,646             --
        Accounts payable and accrued liabilities                     (523,129)       504,940
        Deferred franchise sales revenue                             (160,683)       (57,073)
        Other                                                          (1,389)        26,263
                                                                  -----------    -----------
  Net cash provided by (used in) operating activities               1,007,388       (677,186)
                                                                  -----------    -----------

Investing activities:
    Collections on notes receivable                                 1,707,371      1,449,585
    Proceeds from sale of assets                                           --          1,956
    Purchases of property and equipment                            (3,965,023)      (325,716)
    Purchases of franchise rights                                     (46,367)      (481,449)
    Acquisition of other assets                                      (292,004)      (102,955)
    Purchase of marketable securities                                 (18,359)       (22,163)
    Proceeds from sale of marketable securities                       159,262        406,833
    Loans to related parties                                               --       (329,810)
    Collections on notes receivable from related parties            1,917,114        112,298
                                                                  -----------    -----------
  Net cash provided by (used in) investing activities                (538,006)       708,579
                                                                  -----------    -----------

Financing activities:
    Purchases of treasury stock                                            --        (19,466)
    Proceeds from borrowings                                        2,852,800      1,103,502
    Payments on borrowings                                         (2,678,883)    (1,524,960)
                                                                  -----------    -----------
  Net cash provided by (used in) financing activities                 173,917       (440,924)
                                                                  -----------    -----------

Net increase (decrease) in cash and cash equivalents                  643,299       (409,531)
Cash and cash equivalents, beginning of period                        146,852        556,383
                                                                  -----------    -----------

Cash and cash equivalents, end of period                          $   790,151    $   146,852
                                                                  ===========    ===========
</Table>


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


                                       35
<PAGE>

                     THE DWYER GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


A.       Organization and Description of Business

         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 (collectively the
"Subsidiaries" and together with the Parent, 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 ("Mr. Rooter") in 1972, and in 1986 it was reincorporated
as a Delaware corporation. In 1993, the Company was renamed The Dwyer Group,
Inc.

         The Company provides a diverse array of specialty services
internationally through its service-based franchising businesses. The Company
currently owns six such businesses, which have an aggregate of over 750
franchises located in the United States and Canada, and through their master
licensees, approximately 250 franchisees in 16 other foreign countries. The
Company has positioned itself as a consolidator of franchising businesses in
order to benefit from economies of scale achievable through the pooling of
resources. The Company believes that franchisees are attracted to the Company's
franchise opportunities because of the depth of the Company's support services,
the commitment of the Company to its mission and vision statements and the
established reputation of its management team.

         In 2001 and 2000, the Company operated its businesses through the
following wholly owned subsidiaries:

         o        Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of
                  plumbing repair and drain cleaning services under the service
                  mark "Mr. Rooter,"(R)with 205 franchise operations in the
                  United States and Canada, and, through master licensees, 67
                  franchises in six other countries. In 2001, Mr. Rooter
                  accounted for approximately 31.9% of the Company's
                  consolidated revenues.

         o        Rainbow International Carpet Dyeing and Cleaning Co.
                  ("Rainbow") is a franchisor of carpet cleaning and dyeing, air
                  duct cleaning, and smoke, fire and water restoration services,
                  with 278 franchises in the United States and Canada and,
                  through master franchise licensees, 150 franchise operations
                  in nine other countries. In 2001, Rainbow accounted for
                  approximately 15.1% of the Company's consolidated revenues.

         o        Mr. Electric Corp. ("Mr. Electric") is a franchisor of
                  electrical repair and service businesses under the service
                  mark "Mr. Electric"(R). Mr. Electric has 107 franchises in the
                  United States and Canada, and through master licensees, 26
                  franchise operations in two other countries. In 2001, Mr.
                  Electric accounted for approximately 9.0% of the Company's
                  consolidated revenues.

         o        Aire Serv Heating & Air Conditioning, Inc. ("Aire Serv") is a
                  franchisor of heating, ventilating and air conditioning
                  service businesses under the service mark Aire Serv(R) and has
                  62 franchises in the United States and Canada, and through
                  master licensees, seven franchises in two other countries. In
                  2001, Aire Serv accounted for approximately 6.1% of the
                  Company's consolidated revenues.

         o        Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of
                  businesses relating to service and repair of appliances (both
                  residential and commercial). Mr. Appliance(R)has 38 franchises
                  in the United States. In 2001, Mr. Appliance accounted for
                  approximately 1.7% of the Company's consolidated revenues.

         o        Synergistic International, Inc., which was incorporated in
                  July 1998, is franchisor of Glass Doctor(R), a service concept
                  whose business is the replacement of automobile, residential
                  and commercial glass. The Company purchased the concept in
                  July 1998, from an unrelated third party. Glass Doctor has 82


                                       36
<PAGE>
                  franchisees, all in the United States. In 2001, Glass Doctor
                  accounted for approximately 14.3% of the Company's
                  consolidated revenues.

         o        The Dwyer Group National Accounts, Inc. ("National Accounts")
                  solicits commercial national account customers who can call a
                  toll-free 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.
                  In 2001, National Accounts accounted for approximately 14.8%
                  of the Company's consolidated revenues.

         o        The Dwyer Group Canada, Inc. ("TDG Canada") was incorporated
                  in January of 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 and Aire Serv.
                  In 2001, TDG Canada accounted for approximately 3.0% of the
                  Company's consolidated revenues.

The Company's primary sources of revenues are as follows:

         o        Royalties from existing franchisees based on a percentage of
                  each franchisee's gross sales. These fees generally range from
                  2% to 7% of the franchisee's sales, depending upon the
                  particular franchise concept and upon various other factors.

         o        Franchise fees generated from the sale of new franchise
                  territories.

         o        Sales of services to unrelated third parties by National
                  Accounts.

B.       Inventories

         Inventories consist of products to be sold to the Company's franchisees
and are stated at the lower of cost (first-in, first-out method) or market.

C.       Property and Equipment

         Property and equipment is stated at cost less accumulated depreciation,
excluding the facilities purchased from a related party (see Note 9), which was
recorded at the affiliate's basis. Depreciation is recorded using the
straight-line method over the estimated useful lives of the respective assets,
ranging from three to thirty years. The cost of equipment held under capital
leases is equal to the lower of the net present value of the minimum lease
payments or the fair value of the leased property at the inception of the lease.
Amortization of property capitalized under capital leases is included with
depreciation expense.

         The Company reviews the carrying value of property and equipment for
impairment whenever events or changes in circumstances indicate that such
carrying value may not be recoverable. Recoverability of an asset to be held and
used is measured by a comparison of the carrying amount of the asset to the
future net cash flows expected to be generated by the asset. If such asset is
considered to be impaired, the impairment recognized is measured by the amount
by which the carrying value of the asset exceeds the fair value of the asset.
There was no such impairment recorded in 2001 or 2000.





                     THIS SECTION LEFT INTENTIONALLY BLANK.

                                       37
<PAGE>

D.       Earnings Per Share (EPS)

         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.

         Following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computation:

<Table>
<Caption>
                                        FOR THE YEAR ENDED DECEMBER 31, 2001
                                      ---------------------------------------
                                      Net Income       Shares      Per Share
                                      (Numerator)    (Denominator)   Amount
                                      -----------   ------------  -----------
<S>                                   <C>             <C>         <C>
Basic EPS                             $ 2,338,278     6,997,931   $       .33
                                      ===========                 ===========

Effect of dilutive
     warrants and options                               182,268
                                                    -----------

Diluted EPS                           $ 2,338,278     7,180,199   $       .33
                                      ===========   ===========   ===========
</Table>

<Table>
<Caption>
                                       FOR THE YEAR ENDED DECEMBER 31, 2000
                                      -------------------------------------
                                      Net Income     Shares      Per Share
                                      (Numerator) (Denominator)   Amount
                                      ----------- ------------  -----------
<S>                                   <C>          <C>          <C>

Basic EPS                             $2,053,265    6,999,939   $      .29
                                      ==========                ==========

Effect of dilutive
     warrants and options                             123,086
                                                   ----------

Diluted EPS                           $2,053,265    7,123,025   $      .29
                                      ==========   ==========   ==========
</Table>

         Options and warrants to purchase 125,000 and 450,575 shares of common
stock were outstanding at year end 2001 and 2000, respectively, but were not
included in the computation of diluted EPS because their exercise prices were
greater than the average market price of the common shares.

E.       Cash and Cash Equivalents

         The Company considers all cash and highly liquid investments purchased
with an initial maturity of three months or less to be cash or cash equivalents.
The Company maintains its cash in bank deposit and money market accounts which,
at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
credit risks on cash and cash equivalents. Cash equivalents includes, but is not
limited to, money market funds of $161,920 at December 31, 2001 and $28,332 at
December 31, 2000.

F.       Franchise Operations

         Revenues from the sale of individual franchises in the United States
and master license agreements in foreign countries are generally recognized, net
of an allowance for uncollectible amounts, when substantially all significant
services to be provided by the Company have been performed. Regional franchise
agreements have been sold in the past which grant the regional franchisees the
right to sell individual franchises in their territory. The regional franchisees
generally receive commissions on individual franchises sold as well as a share
of royalties collected from franchisees in their territory.

         Interest on trade notes receivable from franchisees is accrued and
recorded as income, net of an allowance for uncollectible amounts, when due. In
situations where revenues from franchise sales is collectible over an extended
period of time, down payments are not sufficient and/or collectibility is not
reasonably certain, revenue is recognized on the


                                       38
<PAGE>
installment method as amounts are collected or when collection is reasonably
assured. Interest on trade notes receivable resulting from sales recorded on the
installment method is recorded when received.

         Revenue from franchise royalties is generally recognized when earned.

         The Company generally collects and holds in escrow (for each of its
franchise concepts) 2% of franchisees' sales to be used for national
advertising. Mr. Rooter, Rainbow and Glass Doctor have a maximum amount per
franchisee to be contributed in a given year. In order to accurately reflect the
nature of such advertising funds, the amounts related to such funds are excluded
from the Company's financial statements.

         Revenue from product sales is recognized when orders are shipped.
Revenue from services is recognized upon completion of the service.

G.       Income Taxes

         Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the basis of property, plant &
equipment, inventory, and accounts and notes receivable for financial and income
tax reporting. The net deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.

         The Company files a consolidated tax return on behalf of itself and its
domestic Subsidiaries.

H.       Goodwill and Covenant Not to Compete

         Goodwill, which is the excess of the cost of acquiring Glass Doctor
over the fair value of the net assets acquired, is being amortized on a
straight-line basis over the expected period to be benefited, which is 30 years.
It is the Company's policy to evaluate the carrying amount of goodwill based on
such factors as the occurrence of a significant adverse event or change in the
environment in which the business operates, or if the expected future net cash
flows, undiscounted and without interest, would be less than the carrying
amount. An impairment loss would be recorded in the period in which such
determination is made based on the fair value of the business. There was no such
impairment recorded in 2001 or 2000. Glass Doctor was acquired in July of 1998.
Amortization expense was $189,268 in 2000 and 2001. Accumulated amortization
totaled $647,962 at December 31, 2001.

         In connection with the Glass Doctor acquisition, the Company also
recorded $100,000 as the value of a covenant not to compete. This amount is
being amortized over five years, the life of the agreement. Amortization expense
was $20,000 in 2001 and 2000. Accumulated amortization totaled $68,334 at
December 31, 2001.

J.       Purchased Franchise Rights and Other Intangible Assets

         The Company, from time-to-time, has repurchased regional franchise
rights. Regional franchise repurchases are recorded at the lower of cost or fair
value based upon estimated cash flows from existing franchises operating in the
region. Periodically, the Company assesses the fair value of these assets based
on estimated, undiscounted future cash flows, to determine if an impairment in
the value has occurred and an adjustment is necessary. If an adjustment is
required, a discounted cash flow analysis would be performed and an impairment
loss would be recorded. There was no such impairment recorded in 2001 or 2000.
The Company had an investment of $3,441,492 and $4,242,015 in purchased
franchise rights at December 31, 2001 and 2000, respectively. Accumulated
amortization totaled $1,891,859 at December 31, 2001.

         The costs of purchased franchise rights are amortized using the
straight-line method over their estimated lives of five to seven years. The
costs of other intangible assets, primarily patents and trademarks, are
amortized over fifteen years.


                                       39
<PAGE>

K.       Marketable Securities

         Marketable securities, available-for-sale are carried at fair value,
with unrealized gains or losses, net of tax, reported in accumulated other
comprehensive income (loss) in stockholders' equity. The increase or decrease in
such gains or losses in a given year is reported as comprehensive income or
loss. Realized gains and losses are included in income or loss.

         At December 31, 2001 and 2000, the amortized cost and estimated fair
values of marketable securities are shown below.

<Table>
<Caption>
                      DECEMBER 31, 2001
--------------------------------------------------------------
<S>                    <C>                   <C>
    AMORTIZED          NET UNREALIZED        ESTIMATED FAIR
       COST                 GAINS                VALUE
    $ 547,718               $ 371              $ 548,089
</Table>

<Table>
<Caption>
                      DECEMBER 31, 2000
--------------------------------------------------------------
<S>                    <C>                   <C>
     AMORTIZED          NET UNREALIZED       ESTIMATED FAIR
       COST                 LOSSES               VALUE
     $ 497,406              $3,722             $ 493,684
</Table>

         During 2001, the Company purchased marketable securities at a cost of
$18,359 and sold marketable securities receiving proceeds of $159,262. At
December 31, 2001, the estimated fair value of marketable securities was
comprised of $211,188 in U.S. Treasury bills and $336,901 in common stocks and
mutual funds. At December 31, 2000, the estimated fair value of marketable
securities was comprised of $207,281 in U.S. Treasury bills and $286,403 in
common stock and mutual funds.

L.       Use of Estimates

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from these
estimates.

M.       New Accounting Standards

         In June 2001, the Financial Accounting Standards Board finalized FASB
Statement No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

         SFAS 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS 142 requires that the Company identify reporting units in
order to assess potential future impairment of goodwill, reassess the useful
lives of other existing recognized intangible assets, and cease amortization of
intangible assets with an indefinite useful life. SFAS 142 requires that an
intangible asset with an indefinite useful life be tested for impairment in
accordance with specified guidelines. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.


                                       40
<PAGE>
         SFAS 143 requires that the fair value for an asset retirement
obligation be recognized in the period in which it is incurred, if a reasonable
estimate of fair value can be made, and that the carrying amount of the asset,
including capitalized asset retirement costs, be tested for impairment. SFAS 143
is effective for fiscal years beginning after June 15, 2002. Management does not
believe this statement will have a material effect on the Company's financial
position or results of operations.

         SFAS 144 prescribes financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of, and
specifies when to test a long-lived asset for recoverability. SFAS 144 is
effective for financial years beginning after December 15, 2001. Management does
not believe this statement will have a material effect on the Company's
financial position or results of operations.

         The Company's previous business combinations were accounted for using
the purchase method. As of December 31, 2001, the net carrying amount of
goodwill is $5,030,081. Amortization expense during the year of 2001 was
$189,268. Currently, the Company is assessing, but has not yet determined, how
the adoption of SFAS 141 and SFAS 142 will impact its financial position and
results of operations.

NOTE 2.    COMMON STOCK, STOCK OPTIONS, WARRANTS AND CERTAIN TRANSACTIONS

A.       Preferred Stock

         The Company has authorized 500,000 shares of $1 par value preferred
         stock, none of which is issued or outstanding. Such preferred stock may
         be issued in one or more classes or series as determined by the Board
         of Directors. The Board has the authority to fix the rights, terms of
         redemption and liquidation preferences of any such series. The Company
         currently has no plans for issuing preferred stock.

B.       Common Stock

         Treasury Stock

         During 2000, the Company repurchased 7,983 shares of stock at a cost of
         $19,466, resulting in a total of 647,254 shares of treasury stock at a
         cost of $1,210,152 as of December 31, 2001.

C.       Warrants and Non-Employee Stock Options

         In 1996, in connection with the purchase of franchise rights, the
         Company issued options to purchase 28,500 shares of the Company's
         Common Stock, at an exercise price of $2.25 per share, to a
         non-employee of the Company. These options vest on a graded schedule of
         20% per year beginning March of 1998 and expire in March of 2003. None
         have been exercised.

         In 1997, in connection with the purchase of franchise rights, the
         Company granted warrants to purchase 60,000 shares of the Company's
         Common Stock at an exercise price of $1.75 per share, to a non-employee
         of the Company. Such warrants were purchased by certain officers of the
         Company in 2000. These warrants expire in April of 2002. None have been
         exercised.

         In 1998, the Company issued warrants to purchase the Company's Common
         Stock to former employees of the Company in connection with severance
         agreements, as follows:

<Table>
<Caption>
         NUMBER OF WARRANTS                   EXERCISE PRICE                     EXPIRATION DATE
         ------------------                   --------------                     ---------------
<S>                                           <C>                                <C>
              12,500                              $2.63                            April 2005
              21,420                              $2.00                           August 2008
</Table>

         In 1999, the Company issued 100,000 warrants to purchase the Company's
         Common Stock to a nonaffiliated third party in connection with the
         purchase of franchise rights. The warrants were issued at an exercise
         price of $3.00 per share and expire in 2005. None have been exercised.


                                       41
<PAGE>

         In 2000, the Company issued 100,000 warrants to purchase the Company's
         Common Stock to a nonaffiliated third party in connection with the
         purchase of franchise rights. The warrants were issued at an exercise
         price of $4.00 per share and expire in 2005. None have been exercised.

         In 2000, the Company agreed to issue 2,000 warrants to one of its
         franchisees who serves as a consultant to the Company. The warrants
         were issued in the first quarter of 2001 at an exercise price of $2.38
         per share and expire in 2010.

         In 2000, the Company also agreed to issue 46,500 warrants to purchase
         the Company's Common Stock to a nonaffiliated third party in connection
         with an investor relations contract. Such warrants were issued in the
         first quarter of 2001 at an exercise price of $3.18 per share. The
         warrants expire in 2010.

         The Company accounts for warrants based on their fair value at the time
         an agreement is made to issue said warrants.

D.       Stock-Based Compensation Plan

         The Company sponsors a stock-based compensation plan (the "Plan"),
         which is described below. The Company applies APB Opinion 25 and
         related interpretations in accounting for the Plan. In 1995, the FASB
         issued FASB Statement No. 123 "Accounting for Stock-Based Compensation"
         ("SFAS 123") which, if fully adopted by the Company, would change the
         methods the Company applies in recognizing the cost of the Plan.
         Adoption of the cost recognition provision of SFAS 123 is optional, and
         the Company has decided not to elect these provisions. However, pro
         forma disclosures as if the Company adopted the provisions are required
         and are presented below.

         Under the Plan, the Company is authorized to issue up to 850,000 shares
         of Common Stock pursuant to "Awards" granted in the form of incentive
         stock options qualified under Section 422 of the Internal Revenue Code
         of 1986, as amended (the "Code") and nonqualified stock options not
         qualified under Section 422 of the Code. Awards may be granted to
         selected employees, directors or consultants of the Company or any
         subsidiary. In 2001 and 2000, the Company granted both incentive stock
         options and nonqualified stock options.

         Employee Stock Options

         The Company granted a total of 153,875 and 58,750 awards in the form of
         incentive stock options and nonqualified stock options under the Plan
         in 2001 and 2000, respectively. Under the Plan, the options granted
         have contractual terms of 10 years. The incentive options granted
         generally vest at the rate of 20% per year, beginning on the first
         anniversary of the date of grant. All options granted have an exercise
         price that is equal to or greater than the fair market value of a share
         of common stock on the grant date.

         A summary of the status of the Company's stock options as of December
         31, 2001 and 2000, and the changes during the years ended on those
         dates is presented below.

<Table>
<Caption>
                                                      2001                         2000
                                                   -----------                  -----------
                                            # of Shares   Weighted      # of Shares     Weighted
                                            Underlying    Average       Underlying       Average
                                              Options  Exercise Prices    Options     Exercise Prices
                                            ---------- ---------------  ------------  ---------------
<S>                                         <C>        <C>              <C>           <C>
Outstanding at beginning of year              609,375      $2.30          598,125        $2.29
Granted                                       153,875      $2.42           58,750        $2.55
Exercised                                          --        N/A               --          N/A
Forfeited                                      (3,000)     $2.87          (42,500)       $2.54
Expired                                       (40,000)     $4.06           (5,000)       $3.00
                                              -------                     -------
Outstanding at end of year                    720,250      $2.22          609,375        $2.30
                                              =======                     =======
Exercisable at end of year                    390,450      $2.20          340,175        $2.48
                                              =======                     =======
</Table>

<Table>
<Caption>
                                                                              2001                          2000
                                                                              ----                          ----
<S>                                                                           <C>                           <C>
        Weighted-average grant date fair value of all options
               granted during the year                                        $1.79                         $1.90
</Table>


                                       42
<PAGE>
         The fair value of each stock option granted is estimated on the date of
         grant using the Black-Scholes option-pricing model with the following
         weighted-average assumptions for grants in 2001 and 2000: dividend
         yield of 0%; risk-free interest rates are different for each grant and
         range from 5.21% to 6.98%; and the expected lives of options are from
         2.5 to 6 years. Volatility of 2000 and 2001 grants was 59%.

         The following table summarizes information about stock options
outstanding at December 31, 2001:

<Table>
<Caption>
                                          OPTIONS OUTSTANDING                                  OPTIONS EXERCISABLE
                             ----------------------------------------------             --------------------------------
                                              Wgtd. Avg.
           Range of            Number          Remaining       Wgtd. Avg.                  Number           Wgtd. Avg.
        Exercise Prices      Outstanding      Contr. Life    Exercise Price             Exercisable       Exercise Price
        ---------------      -----------      -----------    --------------             -----------       --------------
<S>                          <C>              <C>            <C>                        <C>               <C>
        $1.81 to $2.50         634,250         6.3 years        $2.10                      361,500             $2.11
        $2.51 to $3.75          86,000         7.6 years        $3.08                       28,950             $3.41
                               -------                                                     -------
                               720,250                                                     390,450
                               =======                                                     =======
</Table>

       Pro Forma Net Income and Earnings Per Common Share

       Had the compensation cost for the Company's stock-based compensation
       plans been determined consistent with SFAS 123, the Company's net income
       and earnings per common share for 2001 and 2000 would approximate the pro
       forma amounts below:

<Table>
<Caption>
                                                           2001                                  2000
                                                       ------------                           ------------
                                             AS REPORTED          PRO FORMA          AS REPORTED        PRO FORMA
                                             -----------          ---------          -----------        ---------
<S>                                          <C>                  <C>                <C>               <C>
      SFAS 123 Charge                             ---              $116,000             ---              $91,000
      Net Income                              $2,338,000          $2,222,000         $2,053,000         $1,962,000
      Basic Earnings Per Share                   $.33                $.31               $.29               $.28
      Diluted Earnings Per Share                 $.33                $.30               $.29               $.28
</Table>

         The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future results.

NOTE 3. TRADE NOTES RECEIVABLE - FRANCHISE FEES AND DEFERRED FRANCHISE SALES
REVENUE

         The Company receives notes from the sale of new franchises which are
generally collateralized by the rights to the related franchise territory sold,
and bear interest at the approximate market rates prevailing at the dates of the
transactions. A summary of such notes receivable as of December 31, is as
follows:

<Table>
<Caption>

                                                                                2001            2000
                                                                             ----------      ----------
<S>                                                                          <C>             <C>
Amounts due within one year, net of allowance for doubtful
      accounts of $68,600 and $63,360 in 2001 and 2000, respectively         $1,718,505      $1,520,605
Amounts due after one year, net of allowance for doubtful accounts
     of $1,107,201 and $884,403 in 2001 and 2000, respectively                5,198,414       4,638,259
                                                                             ----------      ----------

Total notes receivable                                                       $6,916,919      $6,158,864
                                                                             ==========      ==========
</Table>

         Activity in the allowance for doubtful accounts was as follows:

<Table>
<Caption>
                                                2001           2000
                                            -----------    -----------
<S>                                         <C>            <C>
Balance, January 1                          $   947,763    $   928,520
Provision for doubtful accounts                 433,032        519,554
Write-offs                                     (204,994)      (500,311)
                                            -----------    -----------
Balance, December 31                        $ 1,175,801    $   947,763
                                            ===========    ===========
</Table>


                                       43
<PAGE>
         At December 31, 2001 and 2000, the amounts of deferred revenue from
franchise sales were $408,394 and $569,077, respectively. Fees from franchise
sales accounted for by the installment method are collectible in the years 2002
through 2007.

         At December 31, 2001, interest rates on trade notes receivable ranged
from 6% to 12%.

NOTE 4.    ACQUISITION OF FRANCHISE RIGHTS

         In 2000, the Company purchased franchise rights for three territories
from nonaffiliated third parties. The total purchase price of approximately
$2,693,000 was capitalized as Purchased Franchise Rights. Of such price,
approximately $481,000 was paid in cash. The Company issued notes payable for
approximately $2,192,000, common stock warrants valued at $10,000 and forgave
debt of approximately $10,000 to fund the balance of the total purchase price.

         In 2001, the Company purchased franchise rights from a non-affiliated
third party. The total purchase price of approximately $46,000 was capitalized
as Purchased Franchise Rights, all of which was paid for in cash.

NOTE 5.    FAIR VALUE OF FINANCIAL INSTRUMENTS

         Estimated fair values of the Company's financial instruments (all of
which are held for nontrading purposes) are as follows:

<Table>
<Caption>
                                                   DECEMBER 31, 2001                       DECEMBER 31, 2000
                                                   -----------------                       -----------------
                                             CARRYING                               CARRYING
                                              AMOUNT            FAIR VALUE           AMOUNT            FAIR VALUE
                                              ------            ----------           ------            ----------
<S>                                         <C>                 <C>                <C>                 <C>
     Trade notes receivable                 $6,916,919          $6,849,996         $6,158,864          $6,106,694
     Notes payable                          $4,567,055          $4,538,444         $4,393,138          $4,364,002
</Table>

         The carrying amount approximates fair value of cash and cash
equivalents. The carrying value of accounts receivable, accrued interest
receivable, accounts payable, accrued liabilities, and other payables
approximates fair value because of the relatively short maturities of these
items. The fair value for fixed rate trade notes receivable is estimated using
discounted cash flow analyses, using interest rates currently being offered for
notes with similar terms to franchisees of similar credit quality. The fair
value for notes payable is estimated using discounted cash flow analyses, using
an interest rate at which the Company could borrow additional funds.

NOTE 6.    PROPERTY AND EQUIPMENT

A summary of property and equipment is as follows:

<Table>
<Caption>
                                                    2001         2000
                                                 ----------   ----------
<S>                                              <C>          <C>
       Land                                      $  814,631   $   57,159
       Building and improvements                  2,018,024      184,131
       Machinery and equipment                    2,490,756    2,153,531
       Furniture and fixtures                       312,740      212,869
                                                 ----------   ----------
                                                  5,636,151    2,607,690
       Less accumulated depreciation              2,043,989    1,626,505
                                                 ----------   ----------
                                                 $3,592,162   $  981,185
                                                 ==========   ==========
</Table>

Depreciation expense for the years ended December 31, 2001 and 2000 was $417,871
and $378,859, respectively.


                                       44
<PAGE>

NOTE 7.    INCOME TAXES

         Federal income tax expense/benefit for the years ended December 31,
2001 and 2000 was as follows:

<Table>
<Caption>
                                                              2001           2000
                                                          -----------    -----------
<S>                                                       <C>            <C>
               Current domestic tax expense               $ 1,182,266    $ 1,166,030
               Current foreign tax expense                     86,154         61,665
               Deferred tax expense (benefit)                (177,783)      (750,536)
                                                          -----------    -----------

               Total tax expense                          $ 1,090,637    $   477,159
                                                          ===========    ===========
</Table>

         A reconciliation of income tax expense at the federal statutory rate to
the income tax provision at the Company's effective rate is as follows for the
years ended December 31, 2001 and 2000:

<Table>
<Caption>
                                                            2001                       2000
                                                          ---------                 ---------
                                                    AMOUNT       AMOUNT        AMOUNT        AMOUNT
                                                 -----------    --------     -----------    --------
<S>                                              <C>            <C>          <C>            <C>
Federal income tax at statutory rate             $ 1,165,831          34%    $   860,297          34%
Reduction in valuation allowance                    (339,611)        (10)%      (438,000)        (17)%
State & foreign taxes                                 18,945           1%         10,659           1%
Other permanent differences                          245,472           7%         44,203           2%
                                                 -----------    --------     -----------    --------
Total tax expense                                $ 1,090,637          32%    $   477,159          20%
                                                 ===========    ========     ===========    ========
</Table>

         U.S. and international components of income before income taxes were:

<Table>
<Caption>
                                                 DECEMBER 31,
                                              2001         2000
                                           ----------   ----------
<S>                                        <C>          <C>
U.S.                                       $2,535,557   $2,058,506
International                                 893,358      471,918
                                           ----------   ----------
Income before income taxes                 $3,428,915   $2,530,424
                                           ==========   ==========
</Table>

         The components of deferred income tax assets and liabilities at
December 31, 2001 and 2000 were as follows:

<Table>
<Caption>
                                                          2001           2000
                                                       -----------    -----------
<S>                                                    <C>            <C>
        Deferred tax liabilities:
           Accelerated depreciation and amortization   $   (98,977)   $  (148,872)
           Intangible assets
           Patents and trademarks                         (224,491)      (151,963)
                                                            (4,634)        (5,617)
                                                       -----------    -----------
        Total deferred tax liabilities                    (328,102)      (306,452)
                                                       -----------    -----------

        Deferred tax assets:
           Franchise agreements                            266,669        128,691
           Minimum tax credits                                  --        369,566
           Reserves                                        599,409        663,536
           Deferred fees                                    78,698         95,821
           Other                                            45,423             --
                                                       -----------    -----------
        Total deferred tax assets                          990,199      1,257,614
        Valuation allowance                                     --       (339,611)
                                                       -----------    -----------
        Net deferred income tax asset                  $   662,097    $   611,551
                                                       ===========    ===========
</Table>


                                       45
<PAGE>

         The Company establishes valuation allowances in accordance with the
provisions of SFAS 109, "Accounting for Income Taxes". The Company continually
reviews the adequacy of the valuation allowance and is recognizing benefits only
as reassessment indicates that it is more likely than not that the benefits will
be realized.

         The Company expects to realize the net asset principally through the
implementation of reasonable tax strategies based on future income projections.
The valuation allowance as of December 31, 2000 pertained primarily to the
minimum tax credits available for carryforward.

         In the fourth quarter of 2000, the Company determined that certain tax
credits were available to be applied against taxes incurred for 2000 and prior
years. These credits have the effect of reducing overall tax expense by
providing a deferred tax benefit in the current year. Such benefit of
approximately $142,000 was recorded in the year of 2001.

NOTE 8.    NOTES PAYABLE

The following notes payable were outstanding at December 31, 2001 and 2000. All
are unsecured unless otherwise noted.

<Table>
<Caption>
                                                                                                   2001             2000
                                                                                                ----------       ----------
<S>                                                                                             <C>              <C>
Variable rate (4.1% at December 31, 2001) mortgage note payable to a bank
collateralized by facilities. Monthly payment of $15,900 plus interest, due in
installments through February 2006. Note is subject to an interest rate swap
agreement. See explanation
below.                                                                                          $2,726,009        $      --

9% note payable to an individual for the purchase of franchise rights, due in monthly
payments of $55,650 including interest, through February 2003.                                     736,968        1,310,112

4.75% note payable to a bank, collateralized by notes receivable due in monthly payments
of $10,347 including interest, through January 2005.                                               329,073          426,662

8% note payable to an individual for the purchase of franchise rights, due in monthly
payments of $8,962 including interest, through September 2005.                                     347,433          423,833

8% note payable to an individual for the purchase of franchise rights.  Remaining
principal due in January 2002.                                                                     200,000          400,000

Notes payable to a finance company under performance guarantees, with interest at
approximately 15%, payable in monthly installments through 2002.                                   152,722          325,186

Note payable to an individual pursuant to the acquisition of Glass Doctor, with interest
at 5.5%.                                                                                                --          815,866

Variable rate (9.5% at December 31, 2000) line of credit with a $500,000 limit,
collateralized by notes receivable. Minimum monthly payment equal to interest on
the
outstanding balance.  Expires in May 2002.                                                              --          500,000

Other Notes Payable                                                                                 74,850          191,479
                                                                                                ----------       ----------

                                                                                                 4,567,055        4,393,138

Less current portion                                                                             1,309,711        1,665,948
                                                                                                ----------       ----------

Notes payable - long term                                                                       $3,257,344       $2,727,190
                                                                                                ==========       ==========
</Table>


                                       46
<PAGE>

         Maturities of notes payable are as follows:

<Table>
<S>                                       <C>
                  2002                     $1,309,711
                  2003                        590,421
                  2004                        492,970
                  2005                        353,947
                  2006                      1,805,156
                  2007 and beyond              14,850
                                           ----------
                                           $4,567,055
                                           ==========
</Table>

         During April of 2001, the Company entered into an interest rate swap
agreement ("SWAP") to effectively limit exposures to interest rate movements on
cash flows. The SWAP effectively converts a floating interest rate on the $2.7
million mortgage note described above, to a fixed rate instrument. The SWAP was
entered into for the same period as the note and settles monthly. Changes in the
SWAP's fair value is recognized in earnings as an adjustment to interest
expense, with the fair value of the SWAP recorded on the balance sheet as either
an accrued liability or other asset. Due to the recent declines in interest
rates, the exposure on the SWAP as of December 31, 2001 was $103,646. This
amount also represents the amount of additional interest expense recorded for
the nine months ended December 31, 2001. The SWAP does not qualify for hedge
accounting as defined under SFAS 133 ("Accounting for Derivative Instruments and
Hedge Accounting").

NOTE 9.    RELATED PARTY TRANSACTIONS

         The Company engages in a number of transactions with its Chairperson of
the Board and majority stockholder, Ms. Theresa Dwyer ("Ms. Dwyer"), and with
entities controlled by Ms. Dwyer ("Affiliates").

         In April of 2001, the Company purchased its principal executive and
administrative facilities (land, buildings and equipment) from Ms. Dwyer for
approximately $3.7 million, which equaled the appraised value of the facilities.
In accordance with generally accepted accounting principles, the transaction was
recorded at her basis of approximately $2.8 million, with the difference being
reflected as a reduction in stockholders' equity. A portion of the $3.7 million
payment was funded by a $2.9 million bank loan collateralized by the facilities.
Ms. Dwyer used a portion of the monies received in the sale of the facilities to
pay off approximately $2.2 million of related party debt to the Company. The
Company is using the excess cash of approximately $1.5 million netted from the
above transactions for improvements to the property, payment of existing debt,
and for additional working capital.

         In addition to rent, the Company receives repairs and maintenance,
promotional materials and other services from Affiliates. The Company expensed
approximately $288,000 for these rents and services in 2001, and $425,000 in
2000.

         The Company recognized income from Affiliates for accounting, legal and
administrative services, interest income, product sales commissions and
management fees of approximately $479,000 in 2001, and $612,000 in 2000. In
addition, from time-to-time, the Company and its Affiliates have made advances
to each other, which generally have not had specific repayment terms and have
been reflected in the Company's financial statements as accounts receivable or
payable from related parties. These advances typically result from the payment
of an invoice by one entity for services or items performed or delivered on
behalf of the Company and one or more of its Affiliates. The company that pays
the invoice is eventually reimbursed by the other companies for the appropriate
amount based on a pro rata allocation of the services provided to each company.

         The Company paid an independent director approximately $33,000 in 2001
and $31,000 in 2000, for consulting services. In addition, another independent
director provides consulting services regarding public relations, marketing and
special projects to the Company. The Company paid approximately $108,000 and
$113,000, in 2001 and 2000, respectively, for these services.

         At December 31, 2001 and 2000, the Company had accounts, interest and
notes receivable from related parties totaling approximately $490,000 and
$2,670,000, respectively, the majority of which was due from Affiliates. Ms.
Dwyer has guaranteed payment of all amounts due from Affiliates.


                                       47
<PAGE>

NOTE 10.    CONCENTRATION OF CREDIT RISK AND CONTINGENCIES FROM NOTES RECEIVABLE

         The Company extends credit to individuals to purchase franchises. These
individuals typically operate their franchises as an owner/manager. Generally,
the loans are collateralized by the related franchise territory rights. The
individual's ability to perform is dependent upon the economic condition of the
franchise.

         In 1993, the Company entered into a Franchise Financing Agreement with
Stephens Franchise Financing, which is now SunTrust Credit Corporation
("SunTrust"), pursuant to which SunTrust agreed to extend credit to qualified
Mr. Rooter and Aire Serv franchisees up to an aggregate amount of $10 million.
As of December 31, 2001, the aggregate principal amounts of outstanding
franchisee indebtedness under such agreement was approximately $107,000.
Pursuant to the terms of the agreement, the Company is liable for such
franchisee indebtedness in the event a default occurs and the Company has 180
days to correct the default. If the default is not corrected within such time,
the Company is obligated to make the monthly installments on the note until paid
in full or the franchise is sold to another approved party and the debt is
assumed by that party. The Company also has the option of substituting its notes
receivable from franchisees of equal or greater value. During 2001 and 2000, the
Company did not exchange any such notes. Approximately $128,000 and $78,000 was
paid to SunTrust during 2001 and 2000, respectively, representing monthly
installments on behalf of franchisees in default. The Company establishes
appropriate reserves based on the payment history of the franchisees. In 1998,
management discontinued the practice of guaranteeing franchise notes to third
parties.

         In 1996, The Dwyer Group, Inc., Mr. Rooter, Aire Serv, Mr. Appliance,
and Mr. Electric entered into an agreement with Phoenix Leasing Incorporated
("Phoenix") to finance franchise sales for franchise applicants who meet
Phoenix's qualifications. Phoenix agreed to provide up to $3 million in debt
financing to the franchisees provided that each franchisee's obligations to
Phoenix under its debt financing be guaranteed by the Company. The Company
receives from Phoenix an Aging Report of the amounts due and owing by the
franchisees as of the first day of such month. If an Aging Report shows that any
franchisee has failed to make all of the scheduled monthly payments due during
any sixty day period, then the Company, within ten days of delivery of such
Aging Report, shall pay all of such franchisee's delinquent scheduled payments,
together with all late charges then due. The Company paid approximately $60,000
and $74,000 on such delinquent notes in 2001 and 2000, respectively. At December
31, 2001, the Company was contingently liable for approximately $234,000,
relating to such notes. In 1998, management discontinued the practice of
guaranteeing franchisee notes to third parties.

NOTE 11.    EMPLOYEE BENEFIT PLANS

         The Company sponsors a 401(k) plan covering all full-time employees who
have attained age 21 and completed 90 days of service. Plan participants may
contribute up to 15% of their annual compensation before taxes for investment in
several investment alternatives. Employees are fully vested with respect to
their contributions. In 2001 and 2000, the Company matched 10% of the employees
contributions, with a maximum of $200 per employee. In 2001 the Company
contributed $6,349 compared to $7,685 in 2000. Each year the Board of Directors
will determine the amount of any Company contribution based upon the Company's
profitability.

NOTE 12.    LITIGATION

         The Company is engaged in various legal proceedings incidental to its
normal business activities. Management has estimated a potential range of loss
due to these proceedings not to exceed $129,500 as of December 31, 2001. The
Company has accrued for this amount at that date.

         In the first quarter of 2001, the Company resolved a lawsuit and agreed
to make payments totaling $150,000. This amount was included in accrued
liabilities at December 31, 2000.


                                       48
<PAGE>

NOTE 13.    BUSINESS SEGMENTS AND FOREIGN OPERATIONS

(A)      Business Segments

         The Company has adopted Statement of Financial Standards No. 131,
         Disclosure about Segments of an Enterprise and Related Information.

         The Company operates in two principal areas, each of which is a
         reportable segment: Franchising and National Accounts. Each of these
         are strategic business units that offer different services and are
         managed separately based on the fundamental differences in their
         operations.

         The Company's Franchising segment engages in the selling of new
         franchises and the servicing of existing franchises, with its primary
         source of revenues being franchise fees and royalties.

         National Accounts solicits commercial accounts for their general repair
         and emergency service needs. The order is filled through the Company's
         network of franchisees or qualified subcontractors. Service fees are
         its primary source of revenues.

         Information by business segment is set forth below:

<Table>
<Caption>
                                                  2001           2000
                                              ------------   ------------
         <S>                                  <C>            <C>
         Revenues:
            Franchising                       $ 19,053,795   $ 17,132,838
            National Accounts                    3,310,782      2,085,100
                                              ------------   ------------

               Total                          $ 22,364,577   $ 19,217,938
                                              ============   ============

         Operating Income (Loss):
            Franchising                       $  3,403,749   $  2,610,517
            National Accounts                       25,166        (80,093)
                                              ------------   ------------

               Total                          $  3,428,915   $  2,530,424
                                              ============   ============
</Table>

<Table>
<Caption>
                                                         NATIONAL
                                          FRANCHISING    ACCOUNTS     TOTAL
                                          -----------    --------  -----------
<S>                                       <C>           <C>        <C>
2001:
Identifiable assets                       $24,043,622   $502,840   $24,546,462
Depreciation and amortization             $ 1,457,313   $  3,847   $ 1,461,160
Net capital expenditures                  $ 3,957,852   $  7,171   $ 3,965,023
Purchases of franchise rights             $    46,367   $     --   $    46,367
</Table>

<Table>
<Caption>
                                                         NATIONAL
                                          FRANCHISING    ACCOUNTS     TOTAL
                                          -----------    --------  -----------
<S>                                       <C>           <C>        <C>
2000:
Identifiable assets                       $23,270,950   $304,250   $23,575,200
Depreciation and amortization             $ 1,367,463   $  2,367   $ 1,369,830
Net capital expenditures                  $   324,481   $  1,235   $   325,716
Purchases of franchise rights             $ 2,692,738   $     --   $ 2,692,738
</Table>

         All of the Company's interest income and interest expense is associated
with Franchising.


                                       49
<PAGE>

(B)      Revenues from Foreign Operations

<Table>
<Caption>
                                        2001          2000
                                    -----------   -----------
<S>                                 <C>           <C>
United States                       $20,996,499   $18,241,440
Canada                                  674,137       505,580
Other foreign countries                 693,941       470,918
                                    -----------   -----------
   Total                            $22,364,577   $19,217,938
                                    ===========   ===========
</Table>

         All of the Company's long-lived assets are associated with United
States and Canadian operations.

NOTE 14.    SUPPLEMENTAL CASH FLOW

<Table>
<Caption>
                                                           2001         2000
                                                        ----------   ----------
<S>                                                     <C>          <C>
Cash paid for interest                                  $  341,506   $  310,260
Cash paid for income taxes                              $1,733,613   $  200,000
Notes and warrants issued and debt forgiven
    for the purchase of franchise rights                $       --   $2,211,000
</Table>

NOTE 15.    ACCUMULATED OTHER COMPREHENSIVE LOSS

         The components of accumulated other comprehensive loss at December 31,
2001 and 2000 were as follows:

<Table>
<Caption>
                                                            2001        2000
                                                          --------    --------
<S>                                                       <C>         <C>
Foreign currency translation adjustment                   $(66,325)   $(38,823)
Unrealized gain (loss) on available for sale securities     (4,712)     (7,414)
                                                          --------    --------
    Total                                                 $(71,037)   $(46,237)
                                                          ========    ========
</Table>



                     THIS SECTION LEFT INTENTIONALLY BLANK.


                                       50
<PAGE>

                               INDEX TO EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER                          DESCRIPTION
-------                         -----------
<S>           <C>
     3.1      Certificate of Incorporation, as amended(1)

     3.2      Certificate of Amendment of Certificate of Incorporation filed
              June 12, 1987(2)

     3.3      Certificate of Amendment of Certificate of Incorporation filed May
              8, 1988(2)

     3.4      Certificate of Amendment of Certificate of Incorporation filed
              July 30, 1993(2)

     3.5      Bylaws(1)

     4.1      Form of Representative's Warrant Agreement, including
              Representative's Warrant(2)

     4.2      Warrants to Purchase Common Stock issued to Norcross Securities,
              Inc.(2)

    10.1      Stock Option Plan, as amended, and form of Employee Stock Option
              Agreement (1)

    10.2      Form of Rainbow International Carpet Dyeing and Cleaning Co.
              License Agreement (2)

    10.3      Form of Mr. Rooter Corporation Franchise Agreement(2)

    10.4      Form of General Business Services License Agreement(2)

    10.5      Form of Aire Serv Corporation Franchise Agreement(2)

    10.6      Certificate of Registration of Service Mark "MR. ROOTER"(1)

    10.7      Certificate of Registration of Service Mark "QUICK-AS-A-WINK"(1)

    10.8      Certificate of Registration of Mr. Rooter logo(1)

    10.9      Certificate of Registration of Service Mark "Super Kleens" logo(1)

    10.10     Certificate of Registration for Service Mark "America's Trouble
              Shooter"(1)

    10.11     Certificate of Registration of Trademark "MR. ROOTER" issued by
              Office of Consumer and Corporate Affairs in Canada(1)

    10.12     Lease Agreement between Donald J. Dwyer and Mr. Rooter
              Corporation, dated December 20, 1991(2)

    10.13     Lease Agreement between Donald J. Dwyer and Rainbow International
              Carpet Dyeing and Cleaning Training Center, commencing January 1,
              1993(2)

    10.14     Lease Agreement between Donald J. Dwyer and Rainbow International
              Carpet Dyeing and Cleaning Waco Franchise, commencing January 1,
              1993(2)

    10.15     Lease Agreement between Donald J. Dwyer and General Business
              Services, dated August 31, 1993(2)

    10.16     Lease Agreement between Donald J. Dwyer and Rainbow International,
              dated September 1, 1993(2)

    10.17     Lease Agreement between Donald J. Dwyer and The Dwyer Group, Inc.,
              dated February 18, 1994(2)

    10.18     Agreement and Plan of Reorganization and Share Exchange(3)

    10.19     Agreement for Purchase and Sale of Assets of National
              Manufacturing & Supply Corporation(4)
</Table>


<PAGE>

<Table>
<S>           <C>
    10.20     Franchisee Financing Agreement dated July 2, 1993, with Addendum
              dated December 23, 1993(4)

    10.21     Shareholders' Voting Proxy and Stock Sale Agreement, between
              Donald J. Dwyer, Sr. and Vernon Lee Russell and wife, Sylvia
              Russell, and the Company(5)

    10.22     Stock Purchase Agreement between Donald J. Dwyer, Sr., Vernon Lee
              Russell and Sylvia Russell(5)

    10.23     Stock Option Agreement between the Company and Donald J. Dwyer(5)

    10.24     Incentive Stock Option Agreement between the Company and John
              Appel for 25,000 shares of the Company's Common Stock(4)

    10.25     Incentive Stock Option Agreement between the Company and Douglas
              C. Holsted for 12,500 shares of the Company's Common Stock(1)

    10.26     Incentive Stock Option Agreement between the Company and Dina
              Dwyer-Owens for 2,500 shares of the Company's Common Stock(1)

    10.27     Incentive Stock Option Agreement between the Company and Robert A.
              Tunmire for 50,000 shares of the Company's Common Stock(1)

    10.28     Employment Contract between the Company and Donald J. Dwyer(1)

    10.29     Guaranty Agreement, executed December 1, 1982 by Rainbow
              International Carpet Dyeing and Cleaning Company(2)

    10.30     Guaranty Agreement, executed May 1, 1984 by Rainbow International
              Carpet Dyeing and Cleaning Company(2)

    10.31     Promissory Note, executed January 7, 1993, by and between Pride
              Venture Capital, Inc. and GTL Services, Ltd.(2)

    10.32     Form of Affiliate Transactions Agreement(2)

    10.33     Stock Purchase Agreement dated May 14, 1994 by and between The
              Dwyer Group, Inc., Co Data AG and Central Data BV(6)

    10.34     Irrevocable Stock or Bond Power, Note and Security Agreement,
              dated May 25, 1994, by and between Christian Mission Concerns, as
              lender, and the Company, as borrower(2)

    10.35     Mutual Release by and between General Business Services, Pride
              Venture Capital and GTL Services Ltd., effective June 10, 1994(2)

    10.36     Assignment of Judgments and Claims, executed by and between
              General Business Services, Inc., Pride Venture Capital, Inc., and
              GTL Services, Ltd., dated June 10, 1994(3)

    10.37     Promissory Note, executed June 8, 1994, by and between the Company
              and NationsBank of Texas, N.A.(2)

    10.38     Promissory Note, executed June 9, 1994, by and between the Company
              and Central National Bank(2)

    10.39     Certificate of Registration of Service Mark "Aire Serv", dated
              Jan. 25, 1994(7)

    10.40     Stock Purchase Agreement dated September 14, 1994, by and between
              E.K. Williams & Co. and Service Station Computers Systems, Inc.(7)
</Table>

<PAGE>

<Table>
<S>           <C>
    10.41     Stock Option Agreement by and between the Company and James
              Sirbasku for 10,000 shares of the Company's Common Stock(7)

    10.42     Stock Option Agreement by and between the Company and John Hayes
              for 10,000 shares of the Company's Common Stock(7)

    10.43     Stock Option Agreement by and between the Company and Anthony
              DeSio for 10,000 shares of the Company's Common Stock(7)

    10.44     Incentive Stock Option Agreement by and between the Company and
              Matthew Michel(7)

    10.45     Mutual Release by and between General Business Services, Inc., and
              Paul Woody effective June 30, 1996(8)

    10.46     Consulting Agreement by and between General Business Services,
              Inc., E.K. Williams & Co., and Paul Woody effective July 1,
              1996(8)

    10.47     Stock Option Agreement by and between the Company and Paul Woody
              for 25,000 shares of the Company's Common Stock(8)

    10.48     Agreement dated as of June 1, 1993, between the Company and the
              personal representatives of Mr. Donald J. Dwyer, Sr., his Estate
              and the Dwyer Family Trust regarding cancellation of 340,300
              Escrow Shares(9)

    10.49     Form Of Stock Option Agreement by and between the Company and Don
              Latin for 10,000 shares of the Company's Common Stock(10)

    10.50     1997 Stock Option Plan and Form Of Employee Stock Option
              Agreement(10)

    10.51     Form Of Warrant Agreement and Warrant issued to V. Lee Russell(10)

    10.52     Form Of Warrant Agreement and Warrant issued to David B. Duck.(10)

    10.53     Form Of Stock Option Agreement by and between the Company and
              Target Enterprises, Inc. for 28,500 shares of the Company's Common
              Stock.(10)

    10.54     Form Of Stock Option Agreement by and between the Company and John
              Hayes for 11,420 shares of the Company's Common Stock.(10)

    10.55     Asset Purchase Agreement dated July 24, 1998, by and among The
              Dwyer Group, Inc., Glassmarks, Inc., Glass Doctor Corporation and
              Barton G. Tracy.(11)

    10.56     Stock Purchase Agreement dated July 24, 1998, by and between The
              Dwyer Group, Inc., Barton G. Tracy and Glassmarks, Inc.(11)

    10.57     Asset Purchase Agreement by and among Century Business Services,
              Inc., General Business Services, Inc., General Tax Services, Inc.,
              Edwin K. Williams & Co., GBS Acquisition Corp. and The
              Company.(12)

    10.58     Form of Stock Option Agreement dated December 23, 1997, by and
              between the Company and Tom Buckley for 64,205 shares of the
              Company's Common Stock.(13)

    10.59     Form of Stock Option Agreement dated August 25, 1998, by and
              between the Company and Tom Buckley for 15,000 shares of the
              Company's Common Stock.(13)
</Table>

<PAGE>

<Table>
<S>           <C>
    10.60     Form of Stock Option Agreement dated January 28, 1998, by and
              between the Company and James Sirbasku for 10,000 shares of the
              Company's Common Stock.(13)

    10.61     Form of Stock Option Agreement dated August 25, 1998, by and
              between the Company and Donald E. Latin for 5,000 shares of the
              Company's Common Stock.(13)

    10.62     Form of Stock Option Agreement dated January 28, 1998, by and
              between the Company and John Hayes for 10,000 shares of the
              Company's Common Stock.(13)

    10.63     Form of Stock Option Agreement dated April 29, 1999 by and between
              the Company and Don Latin for 5,000 shares of the Company's Common
              Stock.(14)

    10.64     Form of Stock Option Agreement dated June 29, 1999 by and between
              the Company and Don Latin for 10,000 shares of the Company's
              Common Stock.(14)

    10.65     Form of Stock Option Agreement dated June 29, 1999 by and between
              the Company and Mike Bidwell for 16,000 shares of the Company's
              Common Stock.(14)

    10.66     Form of Stock Option Agreement dated June 29, 1999 by and between
              the Company and John Hayes for 10,000 shares of the Company's
              Common Stock.(14)

    10.67     Form of Stock Option Agreement dated April 29, 1999 by and between
              the Company and Tom Buckley for 10,000 shares of the Company's
              Common Stock.(14)

    10.68     Form of Stock Option Agreement dated June 29, 1999 by and between
              the Company and Tom Buckley for 2,000 shares of the Company's
              Common Stock.(14)

    10.69     Form of Stock Option Agreement dated January 27, 2000 by and
              between the Company and Tom Buckley for 5,000 shares of the
              Company's Common Stock.(15)

    10.70     Form of Stock Option Agreement dated September 1, 2000 by and
              between the Company and Mike Bidwell for 5,000 shares of the
              Company's Common Stock.(15)

    10.71     Form of Stock Option Agreement dated September 1, 2000 by and
              between the Company and Don Latin for 10,000 shares of the
              Company's Common Stock.(15)

    10.72     Form of Stock Option Agreement dated September 1, 2000 by and
              between the Company and John Hayes for 10,000 shares of the
              Company's Common Stock.(15)

    10.73*    Form of Stock Option Agreement dated June 22, 2001 by and between
              the Company and Don Latin for 10,000 shares of the Company's
              Common Stock.(16)

    10.74*    Form of Stock Option Agreement dated June 22, 2001 by and between
              the Company and Don Latin for 10,000 shares of the Company's
              Common Stock.(16)

    10.75*    Form of Stock Option Agreement dated June 22, 2001 by and between
              the Company and John Hayes for 10,000 shares of the Company's
              Common Stock.(16)

    10.76*    Form of Stock Option Agreement dated October 30, 2001 by and
              between the Company and Jim Sirbasku for 10,000 shares of the
              Company's Common Stock.(16)

    10.77*    Form of Stock Option Agreement dated October 30, 2001 by and
              between the Company and John Hayes for 10,000 shares of the
              Company's Common Stock.(16)

    10.78*    Form of Stock Option Agreement dated October 30, 2001 by and
              between the Company and John Hayes for 10,000 shares of the
              Company's Common Stock.(16)

    10.79*    Form of Stock Option Agreement dated June 22, 2001 by and between
              the Company and Jim Sirbasku for 10,000 shares of the Company's
              Common Stock.(16)
</Table>

<PAGE>

<Table>
<S>           <C>
    10.80*    Form of Stock Option Agreement dated June 22, 2001 by and between
              the Company and Tom Buckley for 25,000 shares of the Company's
              Common Stock.(16)

    10.81*    Form of Stock Option Agreement dated February 28, 2002 by and
              between the Company and Don Latin for 5,000 shares of the
              Company's Common Stock.(16)

    10.82*    Form of Stock Option Agreement dated February 28, 2002 by and
              between the Company and John Hayes for 5,000 shares of the
              Company's Common Stock.(16)

    10.83*    Form of Stock Option Agreement dated February 28, 2002 by and
              between the Company and Mike Bidwell for 5,000 shares of the
              Company's Common Stock.(16)

    10.84*    Form of Stock Option Agreement dated February 28, 2002 by and
              between the Company and Tom Buckley for 5,000 shares of the
              Company's Common Stock.(16)

    21.1*     List of Subsidiaries
</Table>

* Filed herewith.
--------------------------

(1)      Incorporated by reference to the Registrant's Form S-18 registration
         statement (SEC File No. 33-7290-FW).

(2)      Incorporated by reference to the Registrant's Form SB-2 registration
         statement (SEC File No. 33-78814).

(3)      Incorporated by reference to the Registrant's Form 8-K/A dated as of
         June 1, 1993 (SEC File No. 0-15227).

(4)      Incorporated by reference to the Registrant's Form 10-K for its fiscal
         year ended December 31, 1993 (SEC File No. 0-15227).

(5)      Incorporated by reference to the Registrant's Schedule 13D of Donald J.
         Dwyer, dated May 4, 1989, filed May 9, 1989 (SEC File No. 0-15227).

(6)      Incorporated by reference to the Registrant's Form 8-K dated as of May
         14, 1994 (SEC File No. 0-15227).

(7)      Incorporated by reference to the Registrant's Form 10-KSB for its
         fiscal year ended December 31, 1994 (SEC File No. 0-15227).

(8)      Incorporated by reference to the Registrant's Form 10-KSB for its
         fiscal year ended December 31, 1996 (SEC File No. 0-15227).

(9)      Incorporated by reference to the Registrant's Form 8-K dated as of July
         31, 1997 (SEC File No. 0-15227).

(10)     Incorporated by reference to the Registrant's Form 10-KSB for its
         fiscal year ended December 31, 1997 (SEC File No. 0-15227).

(11)     Incorporated by reference to the Registrant's Form 8-K dated as of July
         24, 1998 (SEC File No. 0-15227).

(12)     Incorporated by reference to the Registrant's Form 8-K dated as of July
         31, 1998 (SEC File No. 0-15227).

(13)     Incorporated by reference to the Registrant's Form 10-KSB dated as of
         March 29, 1999 (SEC File No. 0-15227).

(14)     Incorporated by reference to the Registrant's Form 10-QSB dated as of
         July 30, 1999 (SEC File No. 0-15227).

(15)     Incorporated by reference to the Registrant's Form 10-KSB for its
         fiscal year ended December 31, 2000 (SEC File No. 0-15227).