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                       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, 2002

[ ]      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 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. [X]

         Issuer's revenues for its most recent fiscal year: $25,865,984

         Approximate aggregate market value of the voting stock held by
         nonaffiliates computed by average bid and asked prices of such stock,
         as of March 21, 2003: $29,315,313

         Aggregate number of shares of Common Stock outstanding as of the close
         of business on March 21, 2003: 7,063,931

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

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

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                                TABLE OF CONTENTS

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PART I

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

Item 2.    DESCRIPTION OF PROPERTY..........................................................................     9

Item 3.    LEGAL PROCEEDINGS................................................................................     9

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......................................................    17

Item 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.............    17

PART III

Item 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
                        WITH SECTION 16(a) OF THE EXCHANGE ACT..............................................    18

Item 10.   EXECUTIVE COMPENSATION...........................................................................    20

Item 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................    22

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

Item 13.   EXHIBITS AND REPORTS ON FORM 8-K.................................................................    24

Item 14.   CONTROLS AND PROCEDURES..........................................................................    28
</TABLE>

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                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS

GENERAL

         The Dwyer Group, Inc. and its wholly owned subsidiaries (the "Company",
"We", or "Our") provide a diverse array of specialty services internationally
through its service-based, brand-name franchising businesses. We currently own
six such businesses, which service an aggregate of 775 franchisees located in
the United States and Canada, and through their master licensees, nearly 275
franchisees in 15 other countries. We have positioned the Company as a
consolidator of franchising businesses in order to benefit from economies of
scale achievable through the pooling of resources. We believe that franchisees
are attracted to our franchise opportunities because of the depth of our support
services, a commitment to our mission and vision, our brands, our code of values
and the reputation of our management team.

         In 2002 and 2001, we operated our businesses through the following
wholly owned subsidiaries - See "Management's Discussion and Analysis - Results
of Operations":

         -        Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of
                  plumbing repair and drain cleaning services under the service
                  mark "Mr. Rooter"(R). In 2002, Mr. Rooter accounted for
                  approximately 31.1% of our consolidated revenues.

         -        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 2002, Rainbow accounted for
                  approximately 15.0% of our consolidated revenues.

         -        Mr. Electric Corp. ("Mr. Electric") is a franchisor of
                  electrical repair and service businesses under the service
                  mark "Mr. Electric"(R). In 2002, Mr. Electric accounted for
                  approximately 8.8% of our consolidated revenues.

         -        Synergistic International, Inc. ("Glass Doctor") is franchisor
                  of Glass Doctor(R), a service concept whose business is the
                  replacement of automobile, residential and commercial glass.
                  In 2002, Glass Doctor accounted for approximately 16.8% of our
                  consolidated revenues.

         -        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
                  2002, Aire Serv accounted for approximately 6.7% of our
                  consolidated revenues.

         -        Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of major
                  household appliance service and repair businesses under the
                  service mark "Mr. Appliance"(R). In 2002, Mr. Appliance
                  accounted for approximately 2.8% of our consolidated revenues.

         -        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 our
                  network of franchisees or qualified subcontractors. In 2002,
                  National Accounts accounted for approximately 12.8% of our
                  consolidated revenues.

         -        The Dwyer Group Canada, Inc. ("TDG Canada") markets and
                  services certain of our franchise concepts in Canada.
                  Currently, those concepts are: Mr. Rooter, Mr. Electric and
                  Rainbow. In 2002, TDG Canada accounted for approximately 2.4%
                  of our consolidated revenues.

         Mr. Rooter, Mr. Electric, Mr. Appliance, Aire Serv, Rainbow and Glass
Doctor are referred to as our "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 name was changed to Mr. Rooter
Corporation in 1972, and in 1986, was reincorporated as a Delaware corporation.
In 1993, the Board of Directors approved a plan to convert the Company into a
holding company and to form a new subsidiary to operate the Mr. Rooter business.
In that same year, this new subsidiary was incorporated in Texas under the name
Mr. Rooter Corporation and the holding company was renamed The Dwyer Group, Inc.

                                        1

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         Our principal executive offices are located at 1010 North University
Parks Drive, Waco, Texas 76707, and our 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
otherwise indicated.

FRANCHISE OPERATIONS

         Our goal is to build upon our successful system of franchising
businesses, in order to develop strong new franchisees and provide them with
ongoing support.

         The industries in which we operate are fragmented, consisting mainly of
small, independent operators. Our philosophy is own multiple franchise concepts
and bring our franchising expertise to bear on a number of businesses in various
service fields. We apply franchise systems management and marketing skills in
order to maximize the profitability of our franchised businesses. Thus, instead
of franchising only one line of business, our philosophy is to benefit from
economies of scale by the pooling of resources.

         Our 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 vary for each franchise, and
are described in the following sections related to each concept. In general, we
may, at our discretion, 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 fund are used to develop and place advertising and to create marketing
materials and programs that 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 our franchise concepts, we maintain a "roll-in" program whereby a new
franchisee can roll-in sales from their existing business and pay reduced
royalty and advertising fee rates on the existing sales for a limited period of
time. The franchisee may also receive a discount on the initial franchise fee
based on the amount of sales "rolled-in".

         As owner of a number of franchising businesses, we believe that our
existing broad base of franchisees, the diversity of services provided by our
current operations, our centralized financial, marketing, training and support
staff, and the adaptability and versatility of our established operating
systems, have positioned us to capitalize on the projected opportunities for
growth in the franchising industry. In addition, we believe that the franchise
sales and operations expertise developed by our management over many years
provides us with a competitive advantage.

         Each of our franchising businesses requires the franchise owners and/or
key employees to undergo training at our headquarters located in Waco, Texas
prior to beginning 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 our franchisees receive extensive instruction with
respect to broad-based marketing techniques, 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, our
training program educates each franchisee about the extensive support services
we offer and how to best take advantage of them.

         Following completion of initial training (which represents the
fulfillment of the services required to be provided for revenue recognition),
our franchisees continue to receive a broad range of services and support on an
ongoing basis. Each of our franchising businesses also provide numerous
follow-up training sessions for their franchisees at various locations. In
addition, we employ franchise systems managers on the staff of each of our
franchising businesses whose sole responsibility is to assist franchisees and
provide them with support. A manager contacts each franchisee approximately once
a month (more often when necessary) to discuss marketing techniques and business
development. Furthermore, each franchising business provides its franchisees
with a number of manuals, including an updated Confidential Operations Manual,
which serves as a reference guide for all aspects of their franchise operations.
In 2002, we developed a proprietary business management software system,
designed to help our franchisees manage their businesses. We recently began
offering this system to our franchisees. They pay an unrelated third party
installation and ongoing support. We believe that our proactive support
philosophy with respect to our franchisees is one of our primary distinguishing
features.

                                        2

<PAGE>

         Each of the heads of our 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.

         Pursuant to foreign master license agreements, we license individuals
and/or other legal entities, which are typically residents of the foreign
country, the rights to use our 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. In areas other than the United States and Canada, franchises are
generally sold and supported by such "master licensees". Our revenues from these
foreign operations consist of fees charged for the initial sale of a master
license, and a percentage of franchise fees and royalties earned by the master
licensees. Master licensees determine the amount of the franchise fees,
royalties, and advertising fees charged to franchisees in other foreign
countries. They also determine the terms of the franchise agreement and level of
support services.

         The following describes our operations for each franchise concept.
These descriptions apply generally to our operations in the United States and
Canada:

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 we acquired Mr. Rooter, there were 22 Mr. Rooter franchises
in operation. Since that time, Mr. Rooter has shown significant growth in
royalty revenues (from $234,000 in 1989 to $6,117,000 in 2002). By the end of
2002, Mr. Rooter had a total of 200 franchisees in the United States and Canada,
and through master licensees, 70 franchisees in six other countries.

         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 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, in the United States, 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.

Rainbow

         Rainbow is a franchisor of carpet and upholstery cleaning and dyeing,
air duct cleaning, and restoration service businesses. At December 31, 2002,
Rainbow had 252 franchisees in the United States and Canada, and through master
franchise licensees, 157 franchisees in eight other countries.

                                        3

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         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 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 3% to 7% of weekly gross sales plus a national advertising
fee of 2% of weekly gross sales. Certain franchisees who pay royalties at the 7%
rate 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, in the United States, Rainbow advertises
nationally on network television.

         No previous knowledge, experience or skills in the carpet cleaning or
dyeing business is required to purchase a Rainbow franchise. Instead, new
franchisees are thoroughly trained on all aspects of the business under an
operating system that we believe has proven to be successful. Beyond initial
business and technical training, individually assigned franchise systems
managers, through training meetings and toll-free telephone support, provide
extensive ongoing support emphasizing the development of the franchisee's
marketing and business management skills. 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(R)". At December 31, 2002, Mr.
Electric had 110 franchisees in the United States and Canada, and through master
licensees, 39 franchisees in three 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.

         Franchisees receive extensive instruction with respect to broad-based
marketing techniques, 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
time-to-time, in the United States, Mr. Electric advertises nationally on cable
television networks.

Aire Serv

         Aire Serv is a franchisor of heating, ventilating and air conditioning
service businesses providing installation, maintenance, repair and related
services for residential and commercial heating and air conditioning equipment.
At December 31, 2002, Aire Serv had 63 franchisees in the United States and,
through master licensees, 11 franchisees 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.

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         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.

         Franchisees receive extensive instruction with respect to broad-based
marketing techniques, 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 time-to-time, in the United States, 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, 2002, had 50 franchisees, in the United States and one in another
country.

         The minimum initial franchise fee is $15,900, based on a territory
population of approximately 100,000. The initial franchise fee is increased by
$159 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 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.

         Franchisees receive extensive instruction with respect to broad-based
marketing techniques, 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.

Glass Doctor

         Glass Doctor is a franchisor of automobile, residential and commercial
glass replacement businesses. We acquired Glass Doctor in July of 1998, and at
December 31, 2002, Glass Doctor had 100 franchisees, all in the United States.

         The minimum initial franchise fee is $19,900, based on a territory
population of 100,000. The fee is increased by $199 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

                                        5

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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. They receive extensive instruction with respect to
broad-based marketing techniques, 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. From time-to-time, Glass Doctor
advertises nationally on network television.

NATIONAL ACCOUNTS

         National Accounts operates under the name 1-888HANDLED, which is 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 our 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 that 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 our 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 because of 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 begun 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.

         Mr. Electric's marketing strategy is focused on the sale of franchises
to existing electrical contractors and electricians. We believe 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 that 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. We believe 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 repair businesses. 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.

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         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. We believe 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, we 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, we believe 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

         Our markets and those of our franchisees are highly competitive. We
compete directly with other regional and national franchisors that are also
seeking to sell their franchises or business opportunities to prospective
franchisees or investors. Our franchisees generally compete on the basis of
price, training and support services and reputation

         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. We believe that Mr. Rooter is distinguished from
its primary competition because our 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.

         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. We believe
that our service is distinguished from that of our competition due to our
extensive network of highly skilled service professionals associated with our
franchisees.

         In addition, we expect 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
we have access to and may be in a better position to take advantage of these
opportunities. In the event that we succeed in effecting acquisitions, we will,
in all

                                        7

<PAGE>

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

         We believe that our trademarks and service marks are important to the
marketing of the franchises and the sale of services to consumers by the
franchisees. We currently hold the following federally registered trademarks and
service marks: THE DWYER GROUP(R), PROVIDING A WORLD OF SPECIALITY SERVICES(R),
and TOP GUN(R).

         Our subsidiaries currently hold the following federally registered
trademarks and service marks: MR. ROOTER(R), MR. ROOTER (STYLIZED), MR. WINKIE
DEVICE, QUICK-AS-A-WINK(R), BIOCHOICEES(R), AMERICA'S TROUBLE SHOOTER(R), VAN
STRIPE DESIGN FOR MR. ROOTER, HYDROSCRUB(R); 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 TAG
LINE & DEVICE, VAN STRIPE DESIGN FOR MR. ELECTRIC, WE'VE GOT THE POWER TO MAKE
THINGS BETTER(R); RAINBOW INTERNATIONAL(R), RAINBOW INTERNATIONAL CARPET CARE
AND RESTORATION SPECIALIST TAG LINE & DEVICE, VAN STRIPE DESIGN FOR RAINBOW,
RAINBOW INTERNATIONAL CARPET DYEING & CLEANING(R); 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; REFLECTIONS(R), GLASS NOW(R); 1-888-HANDLED(R), HANDLE THE JOB
WITH ONE CALL(R), 1-888HANDLED TAG LINE & DEVICE.

         We hold numerous foreign trademarks and service marks related to the
franchising concepts, including DRAIN DOCTOR in the United Kingdom and certain
other foreign countries. In addition, Rainbow International Carpet Dyeing &
Cleaning Company holds a copyright in connection with training material.

         We have applied for federal registration and service mark registration
on the following: PROVIDING YOU A WORLD OF SPECIALTY SERVICES(TM), @ YOUR
SERVICE(TM); NO ORDINARY PLUMBER(TM); COMFORT PROTECTION PLAN(TM), WE TREAT YOUR
HOME LIKE IT'S OUR OWN(TM), MEMBER PLUS PLAN(TM), SUN & SNOW FLAKE DESIGN;
RAINBOW SPIRAL GLOBE DEVICE and RAINBOW INTERNATIONAL(TM).

         Our subsidiaries hold a service mark registration for RAINBOW
INTERNATIONAL CARPET DYEING AND CLEANING COMPANY AND GLOBE DEVICE in sixteen
states, a state service registration for RAINBOW INTERNATIONAL CARPET DYEING AND
CLEANING in Arizona, and state service registrations for AIRE SERV & DEVICE and
AIRE SERV in California.

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

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, we are required to furnish prospective
franchisees with a current franchise offering disclosure document containing
information prescribed by the FTC. We use 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.

         We are required to update our offering disclosure documents to reflect
the occurrence of material events. The occurrence of any such events may from
time-to-time require us to cease offering and selling franchises until the
affected disclosure documents are updated. There can be no assurance that we
will be able to update our 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 our
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.

                                        8

<PAGE>

         We are 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 we are unable
to comply with the franchise laws, rules and regulations of a particular state
relating to offers and sales of franchises, we 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
our expansion into new states and foreign jurisdictions could require us to
continually alter methods of operations at costs which could be substantial.

         In addition, we offer and sell franchises in Canada. In addition to
various provincial laws that govern the franchisor-franchisee relationship, the
Canadian provinces of Alberta and Ontario have specific franchise 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, 2002, the Company had 125 full-time employees and 13
part-time employees (none belonging to unions) as detailed below:

<TABLE>
<CAPTION>
                                Full-time          Part-time          Total
                                ---------          ---------          -----
<S>                             <C>                <C>                <C>
Corporate.....................     52............     9.............   61
Mr. Rooter....................     16............     0.............   16
Aire Serv.....................      8............     0.............    8
Rainbow.......................     15............     0.............   15
Mr. Electric..................     10............     0.............   10
Glass Doctor..................     11............     1.............   12
Mr. Appliance.................      6............     0.............    6
National Accounts.............      7............     3.............   10

Total.........................    125............    13.............  138
</TABLE>

ITEM 2.   DESCRIPTION OF PROPERTY

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

         In December 2002, we purchased a house and vacant property adjacent to
our principal executive and administrative facilities from a related party for
approximately $332,000, which equaled the independently appraised value of the
assets. This entire purchase was funded through the forgiveness of related party
debt. See "Certain Relationships and Related Party Transactions."

ITEM 3.   LEGAL PROCEEDINGS

         We are engaged in various legal proceedings incidental to our normal
business activities. We do not believe that the resolution of these proceedings
will have a material impact on our operations, liquidity or cash flow.

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

         In the third quarter of 2002, we settled a lawsuit in which we were the
plaintiff. The net proceeds approximated $75,000, which primarily compensated us
for legal expenses.

                                        9

<PAGE>

         In the fourth quarter of 2002, we resolved a lawsuit and agreed to make
payments totaling $80,000. This amount was included in accrued liabilities at
December 31, 2001.

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

         No matters were submitted to a vote of our shareholders during the
fourth quarter of the year ended December 31, 2002.

                     THIS SECTION LEFT INTENTIONALLY BLANK.

                                       10

<PAGE>

                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our 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 our Common Stock for each quarter during the last two
fiscal years:

<TABLE>
<CAPTION>
                                                            HIGH              LOW
                                                            ----              ---
<S>                                                         <C>               <C>
FISCAL YEAR ENDED DECEMBER 31, 2002
         First Quarter                                      $4.79             $3.75
         Second Quarter                                     $5.00             $3.85
         Third Quarter                                      $4.38             $3.35
         Fourth Quarter                                     $4.05             $3.55

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
</TABLE>

         On March 21, 2003, the closing sales price of our Common Stock as
reported by The NASDAQ Stock Market(SM) was $4.15 per share. As of such date,
there were approximately 400 shareholders of record.

         No cash dividends have been paid on our Common Stock, and we do not
currently intend to pay cash dividends. We intend to retain cash for the
operation and development of our 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 2002 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 our operating subsidiaries and the parent holding company:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                             -----------------------
                                                          2002                          2001
                                                          ----                          ----
<S>                                                <C>           <C>           <C>               <C>
REVENUES:
Mr. Rooter                                         $  8,047       31.1%        $  7,134            31.9%
Rainbow                                               3,892       15.0            3,387            15.1
Glass Doctor                                          4,340       16.8            3,189            14.3
Mr. Electric                                          2,282        8.8            2,020             9.0
Aire Serv                                             1,733        6.7            1,367             6.1
Mr. Appliance                                           715        2.8              371             1.7
National Accounts                                     3,298       12.8            3,311            14.8
TDG Canada                                              624        2.4              674             3.0
Other (1)                                               935        3.6              912             4.1
                                                   --------      -----         --------           -----
                                                   $ 25,866      100.0%        $ 22,365           100.0%
                                                   ========      =====         ========           =====
</TABLE>

<TABLE>
<S>                                                <C>           <C>           <C>                <C>
INCOME (LOSS) BEFORE INCOME TAXES:
Mr. Rooter                                         $  3,215       69.4%        $  2,651            77.3%
Rainbow                                                 833       18.0              794            23.2
Glass Doctor                                            978       21.1              578            16.9
Mr. Electric                                             41         .9              148             4.3
Aire Serv                                               (29)       (.6)            (123)           (3.6)
Mr. Appliance                                          (157)      (3.4)            (321)           (9.4)
National Accounts                                       (14)       (.3)              25              .7
TDG Canada                                              264        5.7              199             5.8
Other (1)                                              (502)     (10.8)            (522)          (15.2)
                                                   --------      -----         --------           -----
                                                   $  4,629      100.0%        $  3,429           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, 2002, COMPARED TO YEAR ENDED DECEMBER 31, 2001:

         We recorded net income of $2,946,000 or $.40 per diluted share for
2002, as compared to net income of $2,338,000, or $.33 per share for 2001.

         Revenues

         Total revenues for 2002 were $25,866,000, an increase of $3,501,000 or
16%, from $22,365,000 for 2001. Each component increased as follows: royalties -
$1,530,000 (11.9%); franchise fees - $1,739,000 (38.2%); sales of products and
services - $176,000 (5.2%); interest - $74,000 (9.8%); and other revenues -
$94,000 (14.7%). Revenues in 2001 included a gain on sale of securities of
$112,000.

                                       12

<PAGE>

         Royalty revenues increased by 11.9% to $14,442,000 in 2002 from
$12,892,000 in 2001. Royalties from each franchise concept increased as follows:
Mr. Rooter - $667,000 (12.2%); Rainbow - $177,000 (6.5%); Mr. Electric -
$126,000 (11.4%); Glass Doctor - $287,000 (13.3%); Aire Serv - $88,000 (12.6%);
and Mr. Appliance - $67,000 (33.0%). Royalties from Canadian and certain other
foreign operations also increased by $118,000 (21.4%). 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 our emphasis on providing strong
franchise support services, and our 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 our future,
as royalties are the foundation of our long-term financial strength.

         Franchise sales revenues represent the initial franchise fees paid by
franchisees as well as fees charged for foreign master licenses. These revenues
increased to $6,296,000 in 2002 from $4,557,000 in 2001. Increases were recorded
by Glass Doctor - $643,000 (76.7%); Rainbow - $324,000 (57.3%); Aire Serv -
$269,000 (43.8%); Mr. Appliance - $267,000 (184%); Mr. Rooter - $230,000
(17.1%); and Mr. Electric - $104,000 (12.6%). The above increases were partially
offset by a decrease in franchise sales revenues from Canadian and other foreign
operations of $99,000 (45.6%).

         Revenues from sales of products and services increased by $176,000
(5.2%) due to increased volume generated by National Accounts.

         Interest revenues increased by $74,000 (9.8%) primarily due to notes
from new franchise sales.

         Costs and Expenses

         During 2002, general, administrative and selling expenses increased by
$2,230,000 (15.7%) as compared to 2001. 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 $147,000 (5.2%), in
proportion to the increase in product sales.

         Depreciation and amortization expense decreased by $111,000 (7.6%) due
primarily to a change in accounting rules associated with amortization of
goodwill, partially offset by increased depreciation expense on facilities
purchased in April 2001.

         Interest expense increased by $35,000 (8.0%) due to additional debt
resulting from the purchase of property, partially offset by a reduction in
existing debt as described in Note 9.

         A tax benefit of $142,000 was recorded in 2001 as a result of a tax
credit applied to prior years. A reconciliation of income tax expense at the
federal statutory rate to income tax expense is found in Note 7.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 2002, our working capital ratio was 1.6 to 1 compared
to 1.5 to 1 at the end of 2001. We had working capital of $2,713,000 at the end
of 2002, as compared to $2,043,000 at the end of 2001. At December 31, 2002, we
had cash and cash equivalents of approximately $1,486,000 and marketable
securities of approximately $572,000.

         We maintain a $1,000,000 line of credit with our bank to be used for
temporary cash needs. Of this amount, $650,000 was available at December 31,
2002. The line expires in May 2003. We expect the line to be renewed at similar
terms for an additional year prior to its expiration.

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

                                       13

<PAGE>

         In December 2002, we purchased a house and vacant property adjacent to
our principal executive and administrative facilities from a related party for
approximately $332,000, which equaled the appraised value of the assets. In
accordance with generally accepted accounting principles, the transaction was
recorded at the related party's basis of approximately $75,000, with the
difference being reflected as a reduction in stockholders' equity. This entire
purchase was funded through the forgiveness of related party debt.

         We believe that our cash flow, supplemented by our positive cash
position and available line of credit, will be adequate to fund our capital
requirements over the next year.

         Cash in the amount of $492,000 was provided by operating activities in
2002 as compared to $1,007,000 in 2001. In 2002, cash was generated primarily by
net income of $2,946,000, depreciation and amortization of $1,350,000, a change
in the reserve for doubtful accounts of $1,178,000, an increase in accounts
payable and accrued liabilities of $418,000, and an increase in accrued interest
payable of $180,000. These amounts were partially offset by notes received from
franchise sales of $4,207,000, an increase in notes received other than for
franchise sales of $914,000, and an increase of $184,000 in the deferred tax
asset. 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 $2,145,000, 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 2002, cash in the amount of $1,024,000 was provided by investing
activities. Cash was primarily generated by collections on notes receivable of
$2,142,000. This amount was more partially offset by purchases of property and
equipment for $1,012,000 and the purchase of franchise rights and other assets
for $129,000. In 2001, cash in the amount of $538,000 was used in investing
activities. 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 amounts 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 2002, cash in the amount of $820,000 was used in financing
activities. Payments on borrowings of $1,446,000 were partially offset by
borrowings of $510,000 and proceeds from the exercise of stock options of
$116,000. In 2001, cash in the amount of $174,000 was provided by financing
activities. Cash was generated from borrowings of $2,853,000, which was
partially offset by payments on borrowings of $2,679,000.

         In 1993, we entered into a Franchise Financing Agreement with Stephens
Franchise Financing, which is now SunTrust Credit Corporation ("SunTrust"),
under 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,
2002, the aggregate principal amounts of outstanding franchisee indebtedness
under such agreement was approximately $11,000. Under the terms of the
agreement, we guarantee such franchisee indebtedness in the event a default
occurs and we have 180 days to correct the default. If the default is not
corrected within such time, we are 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 $35,000 and $78,000 was
paid to SunTrust during 2002 and 2001, respectively, representing monthly
installments on behalf of franchisees in default. We establish 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 met
Phoenix's qualifications. Phoenix agreed to provide up to $3 million in
financing to the franchisees provided that we guarantee each franchisee's
obligations to Phoenix. We receive from Phoenix 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 we, within ten days of delivery of such Aging Report, shall pay
all of such franchisee's delinquent scheduled payments, together with all late
charges. We paid approximately $84,000 and $60,000 on such delinquent notes in
2002 and 2001, respectively. At December 31, 2002, we were contingently liable
for approximately $48,000 relating to such notes. In 1998, management
discontinued the practice of guaranteeing franchisee notes to third parties.

         In connection with our franchising activities, we regularly extend
credit to prospective franchisees to finance their purchase of franchises. The
assets of such franchises, including the franchise rights sold to the
franchisees, secure the repayment of such indebtedness. We recognize 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. We also
recognize franchise sales revenues from existing franchisees buying additional
territory who make a cash down payment of less than 20% but who

                                       14

<PAGE>

have an established history of good credit. At December 31, 2002 and 2001, notes
receivable (in excess of those recognized as deferred liabilities), less
allowance for doubtful collections, were approximately $8,710,000 and
$6,733,000, respectively. Our allowance for doubtful notes was $1,728,000 and
$1,176,000 for 2002 and 2001 respectively, which we believe is adequate for the
size and nature of our notes receivable.

         We are not aware of any trend or event that would potentially adversely
affect our liquidity. In the event such a trend would develop, we believe that
we have sufficient funds available to satisfy the working capital needs of the
business.

FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY

         Our 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 our franchise sales cycles; the ability of
franchisees to collect their receivables and satisfy obligations under our
franchise agreements; seasonal conditions in the markets in which our
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 our operating results in the future.

INFLATION

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

INCOME TAXES

         We establish valuation allowances when necessary, to be applied against
our deferred tax asset in accordance with the provisions of SFAS 109,
"Accounting for Income Taxes". At December 31, 2002, no such allowance was
recorded. We continually review the need for a valuation allowance and we
recognize benefits only as reassessment indicates that it is more likely than
not that the benefits will be realized.

         We expect 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.

  FOREIGN OPERATIONS

         We operate in 16 foreign countries. Typically, other than in Canada,
foreign franchises are sold and managed by a master licensee in that country.
Royalties from master licenses are generally recorded as revenues when received,
due to the difficulty sometimes experienced in foreign countries when attempting
to transfer such funds to the United States. We do not depend on foreign
operations, and such operations do not have a material impact on our cash flow.
However, we may sell additional master licenses, which could result in lump sum
payments from new master licensees.

ACCOUNTING MATTERS

         In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations (SFAS 143). This statement 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. Adoption of this standard will not have any immediate effect on
our consolidated financial statements.

                                       15

<PAGE>

         In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 145, Rescission of Statement of
Financial Accounting Standards No. 4, 44, and 64, Amendment of Statement of
Financial Accounting Standards No. 13, and Technical Corrections (SFAS 145).
This statement eliminates the current requirement that gains and losses on debt
extinguishment must be classified as extraordinary items in the income
statement. Instead, such gains and losses will be classified as extraordinary
items only if they are deemed to be unusual and infrequent, in accordance with
the current GAAP criteria for extraordinary classification. In addition, SFAS
145 eliminates an inconsistency in lease accounting by requiring that
modifications of capital leases that result in reclassification as operating
leases be accounted for consistent with sale-leaseback accounting rules. The
statement also contains other nonsubstantive corrections to authoritative
accounting literature. The changes related to debt extinguishment are effective
for fiscal years beginning after May 15, 2002, and the changes related to lease
accounting are effective for transactions occurring after May 15, 2002. Adoption
of this standard will not have any immediate effect on our consolidated
financial statements. We will apply this guidance prospectively.

         In June 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146), which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. We will
adopt the provisions of SFAS 146 for restructuring activities initiated after
December 31, 2002. SFAS 146 requires that the liability for costs associated
with an exit or disposal activity be recognized when the liability is incurred.
Under EITF No. 94-3, a liability for an exit cost was recognized at the date of
a company's commitment to an exit plan. SFAS 146 also establishes that the
liability should initially be measured and recorded at fair value. Accordingly,
SFAS 146 may affect the timing of recognizing future restructuring costs as well
as the amount recognized. Adoption of this standard will not have any immediate
effect on our consolidated financial statements.

         In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, Gurantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others, which
disclosures are effective for financial statements issued after December 15,
2002. Information on our gurantees, including amounts paid on guarantees and
outstanding balances is, detailed in Note 10.

         In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 148, Accounting for Stock-Based
Compensation - Transition and Disclosure (SFAS 148), which amended Statement of
Financial Accounting Standards 123, Accounting for Stock-Based Compensation
(SFAS 123). The new standard provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. Additionally, the statement amends the disclosure
requirements of SFAS 123 to require prominent disclosures in the annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
statement is effective for financial statements with fiscal years ending after
December 15, 2002. In compliance with SFAS 148, we have elected to continue to
follow the intrinsic value method in accounting for our stock-based employee
compensation arrangement as defined by Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and have made the applicable
disclosures in Note 2.

         In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51, Consolidated Financial
Statements (FIN No. 46). FIN No. 46 explains how to identify variable interest
entities and how an enterprise assesses its interests in a variable interest
entity, to decide whether to consolidate that entity. The Interpretation
requires existing unconsolidated variable interest entities to be consolidated
by their primary beneficiaries if the entities do not effectively disperse risks
among parties involved. FIN No. 46 is effective immediately for variable
interest entities created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. The
Interpretation applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1, 2003. Adoption of this
standard will not have any immediate effect on our consolidated financial
statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         We have identified certain accounting policies as critical to our
business and to the results of our operations, certain of which entail
significant estimates. These critical policies are further discussed below.

         Revenues from the sale of individual franchises in the United States
and Canada, 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 us have been performed. Regional
franchise agreements have been sold in the past which grant

                                       16

<PAGE>

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 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.

         Our policy for valuation of our allowance accounts, including our notes
receivable allowance and our accounts receivable allowance, requires us to
estimate the collectibility of the assets associated with these allowances,
based on payment history. These estimates are reviewed monthly and changes made
based on any new information we have at the time. If our underlying assumptions
for these estimates change then we could be required to record additional
reserves or lower the reserves as appropriate.

         In conjunction with the implementation of the new accounting rules for
goodwill, we completed a goodwill impairment review for Glass Doctor, the
reporting unit that has all of our recorded goodwill, as of January 1, 2002 and
December 31, 2002, and found no impairment. According to our accounting policy
under the new rules, we will perform a similar review as of the last day of the
year, or earlier if indicators of potential impairment exist. Our impairment
review process is based on a discounted multiple of royalties which involves our
estimate of future royalty revenues for four years, as well as appropriate
discount rates. These estimates are consistent with the plans and estimates we
use to manage the underlying business. The estimates we use assume continuation
of the growth rate of existing franchisees and the addition of new franchisees.
If we fail to achieve our assumed growth rates or experience a significant
decrease in our royalty stream, we may incur charges for impairment of goodwill
in the future.

         Also in conjunction with the new accounting rules, we reviewed the
useful lives of our other intangible assets and found no impairment or change in
their useful lives. In the future we may incur charges if the useful life of any
such asset changes or if an asset becomes impaired.

CONTRACTUAL OBLIGATIONS AND CONTINGENT LIABILITIES AND COMMITMENTS

         We have contractual obligations and commitments primarily in regards to
payment of debt and lease arrangements.

<TABLE>
<CAPTION>
                                                                    PAYMENTS DUE BY PERIOD
                                                                    ----------------------
                                                                                               Beyond
                                                2003        2004        2005       2006         2007          Total
                                                ----        ----        ----       ----         ----          -----
<S>                                           <C>         <C>         <C>         <C>        <C>            <C>
Contractual Obligations
   Long-Term Debt                             $ 1,117     $    468    $    257    $  1,966   $      ---     $   3,808
   Operational Lease Commitments                 ----         ----        ----        ----         ----          ----
                                              -------     --------    --------    --------   ----------     ---------

Total Contractual Obligations                 $ 1,117     $    468    $    257    $  1,966   $    1,117     $   3,808
                                              =======     ========    ========    ========   ==========     =========
</TABLE>

         There was $350,000 in outstanding borrowings under our revolving credit
facility at December 31, 2002. See Note 8 for more information.

ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Our consolidated financial statements, together with the independent
auditor's report of BDO Seidman, LLP, appear on pages 34 through 56 of this
report. See Index to Financial Statements on page 33 of this report.

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

         NONE

                                       17

<PAGE>

                                    PART III

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

         Our directors and executive officers are as follows:

<TABLE>
<CAPTION>
NAME                                      AGE                                         POSITION
----                                      ---                                         --------
<S>                                       <C>                       <C>
Theresa Dwyer..........................   68   ..................   Chairperson of the Board of Directors and Director
Dina Dwyer-Owens.......................   40   ..................   President, Chief Executive Officer and Director
Robert Tunmire.........................   44   ..................   Executive Vice President and Director
Thomas J. Buckley......................   56   ..................   Vice President, Treasurer and Chief Financial Officer
Deborah Wright-Hood....................   41   ..................   V.P. of Administration, Secretary and Assistant Treasurer
Michael Bidwell........................   44   ..................   Chief Operating Officer
Donald J. Dwyer, Jr....................   38   ..................   Director of International Operations and Director
Burton D. Cohen........................   63   ..................   Director
John P. Hayes..........................   53   ..................   Director
Donald E. Latin........................   72   ..................   Director
</TABLE>

         All directors hold office until the next annual meeting of stockholders
or until their successors have been elected and qualified. Officers 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 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 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 22 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 27 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 also served as
President of Mr. Electric from May of 1999 to May of 2002. 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 21 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. 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 23 years experience in the franchising
industry.

                                       18

<PAGE>

         Michael Bidwell has been Chief Operating Officer since July of 2000,
has been President of Mr. Rooter and Mr. Appliance since August of 1998. He also
served as President of Rainbow from July of 1995 to February of 2002. 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
related party to the Company. Mr. Bidwell also serves as a Director of National
Accounts. Mr. Bidwell has over 18 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 19 years experience in the
franchising industry.

         Burton D. Cohen has served as a director since May of 2002. Since July
of 1999, Mr. Cohen has served as a business consultant. In July of 1999, he
retired as Senior Vice President and Chief Franchising Officer of McDonald's
Corporation, a position he held since 1980. In that role, he was responsible for
overseeing McDonald's franchising activities worldwide. During that time, he
also served as Advisory Member of McDonald's Corporation Board of Directors. Mr.
Cohen was with McDonald's for a total of 35 years. Prior to 1980, he served as
Assistant General Counsel and Director of McDonald's corporate legal department.

         John P. Hayes has served as a Director since July of 1994. He founded
and served, from 1987 to 1995, as President of The Hayes Group, Inc., an
international marketing and promotion company specializing in franchised
businesses. Since 1996, Mr. Hayes has served as a consultant to franchisors. Mr.
Hayes has approximately 24 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 seven times during 2002 and additionally
took action 51 times by means of written consent. Each director attended all of
the meetings with the exception of James L. Sirbasku (a member of the Board
until May of 2002), who was not present at three 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 Messrs. Hayes, Latin and Cohen, met
twice during 2002. Mr. Cohen replaced Mr. Sirbasku in May of 2002. Each member
attended all of the meetings with the exception of Mr. Sirbasku, who was not
present at one of the meetings and Mr. Cohen, who was elected subsequent to one
of the meetings and therefore did not attend that meeting.

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, 2002, or written
representations from certain reporting persons, we believe that all filing
requirements applicable to our directors, officers and persons who own more than
ten percent of a registered class of our equity securities have been complied
with.

                                       19

<PAGE>

ITEM 10.   EXECUTIVE COMPENSATION

         Summary Compensation Table. The following information sets forth
compensation earned by our Chief Executive Officer and all other of its named
executive officers whose annual compensation exceeded $100,000 in 2002, for
services rendered 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,                   2002         $ 170,779        $  55,842          ----                 ----
   President and CEO                2001           152,942           19,615          ----                 ----
                                    2000           142,822           40,172          ----                 ----

Robert Tunmire,                     2002     (1) $ 195,604        $ 178,385          ----                 ----
   Executive Vice President         2001     (1)   128,124          175,566          ----                 ----
                                    2000     (1)   125,716          132,650          ----                 ----

Thomas J. Buckley,                  2002         $ 131,515        $  92,486          ----                5,000
   Vice President & Chief           2001           126,500           33,065          ----               25,000
   Financial Officer                2000           126,890           68,072          ----                5,000

Michael Bidwell,                    2002         $ 127,024        $ 117,313          ----                5,000
   Chief Operating Officer          2001           130,062          119,424          ----                 ----
                                    2000           117,756          235,372          ----                5,000

Deborah Wright-Hood                 2002         $ 106,999        $  24,116          ----                 ----
   Secretary & Vice                 2001           100,486           11,038          ----                 ----
   President of                     2000            87,000           19,149          ----                 ----
   Administration
</TABLE>

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

(1)      Includes salary plus commissions from franchise sales.

         The following table sets forth information regarding options granted to
the named executive officers during the fiscal year ended December 31, 2002:

                        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                 5,000                     3.2%                     $4.05                  2/28/12
Michael Bidwell                   5,000                     3.2%                     $4.05                  2/28/12
Deborah Wright-Hood                ----                    ----                       ----                     ----
</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.

                                       20

<PAGE>

         In relation to the Company's stock option plan, the following table
shows option exercises during the year ended December 31, 2002 and the value of
unexercised options at December 31, 2002 for the named executive officers who
exercised options during 2002 or who had unexercised options at December 31,
2002:

                 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-               $9,775 / $0
Robert Tunmire                      ----                 ----               100,000 / -0-             $133,000 / $0
Thomas J. Buckley                   ----                 ----              90,405 / 35,800         $172,333 / $50,308
Michael Bidwell                     ----                 ----              86,600 / 14,400         $109,141 / $16,269
</TABLE>

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

(1)      The closing price of our Common Stock on December 31, 2002 was $3.83
         per share.

                     THIS SECTION LEFT INTENTIONALLY BLANK.

                                       21

<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth as of December 31, 2002, certain
information regarding the beneficial ownership of Common Stock by (i) each of
the 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               53.8%
Donald J. Dwyer Family Trust (4)                                                      115,659                1.6%
Theresa Dwyer (3) (5) (6) (7)                                                       4,236,853               60.0%
Donald J. Dwyer, Jr. (3) (7) (8) (9)                                                  685,422                9.7%
Dina Dwyer-Owens (3) (8) (9)                                                          569,015                8.0%
Robert Tunmire (3) (8) (10)                                                           683,934                9.6%
Deborah Wright-Hood (3) (8)                                                           562,284                8.0%
Thomas Buckley (3) (11)                                                               127,105                1.8%
John Hayes (12)                                                                        60,670                  *
Burton D. Cohen (13)                                                                      ---                  *
Donald E. Latin (14)                                                                   32,500                  *
Michael Bidwell (3) (15)                                                              129,345                1.8%
Darren Dwyer (3) (8)                                                                  533,215                7.6%
Douglas Dwyer (3) (8)                                                                 550,597                7.8%
Donna Dwyer-Van Zandt (3) (8)                                                         559,879                7.9%
Renaissance Capital Growth & Income Fund III (16)                                     675,000                9.6%
All officers and directors as a group (ten people) (5) (6) (17)                     4,729,735               63.5%
</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 exercisable options that are held by such person (but
         not those held by any other person) have been exercised. Except as
         noted, we believe that all persons named in the table have voting or
         dispositive power (as noted) with respect to all shares of Common Stock
         beneficially owned by them.

(2)      Based on a total of 7,063,931 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 in 1994. In 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. Also in 1997, Ms. Theresa Dwyer contributed
         3,899,182 beneficially owned shares, and the Trust contributed 115,092
         beneficially owned shares, to Dwyer Investments, Ltd. (the
         "Partnership") in exchange for equity interests. In 1998, Ms. Theresa
         Dwyer sold 13.3% limited

                                       22

<PAGE>

         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.
         Ms. Theresa 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 100,000 shares of Common Stock now exercisable under an
         Incentive Stock Option Plan.

(11)     Includes 93,405 shares of Common Stock now exercisable or exercisable
         within 60 days under an Incentive Stock Option Plan.

(12)     Includes 60,420 shares of Common Stock now exercisable or exercisable
         within 60 days pursuant to stock options. The principal business
         address of Mr. Hayes is 6612 Dupper Court, Dallas, Texas 75252.

(13)     The principal business address of Mr. Cohen is 300 Cedar Avenue,
         Highland Park, IL 60035.

(14)     Includes 22,000 shares of Common Stock now exercisable or exercisable
         within 60 days pursuant to stock options. The principal business
         address of Mr. Latin is 3102 Maple Avenue, Suite 450, Dallas, TX 75201.

(15)     Includes 97,600 shares of Common Stock now exercisable or exercisable
         within 60 days under an Incentive Stock Option Plan.

(16)     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.

(17)     Includes 383,425 shares of Common Stock now exercisable or exercisable
         within 60 days under an Incentive Stock Option Plan.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

         We engage in a number of transactions with our Chairperson of the Board
and majority stockholder, Ms. Theresa Dwyer ("Ms. Dwyer"), and with entities
controlled by Ms. Dwyer ("Affiliates").

         In 2001, we purchased our principal executive and administrative
facilities (land, buildings and equipment) from Ms. Dwyer for approximately $3.7
million, which equaled the independently 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. We used 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 December of 2002, we purchased a house and vacant property adjacent
to our principal executive and administrative facilities from Ms. Dwyer for
approximately $332,000, which equaled the independently appraised value of the
assets. In accordance with generally accepted accounting principles, the
transaction was recorded at her basis of

                                       23

<PAGE>

approximately $75,000, with the difference being reflected as a reduction in
stockholders' equity. This entire purchase was funded through the forgiveness of
related party debt.

         We receive promotional materials and services from Affiliates. We
expensed approximately $106,000 for these services in 2002, and $288,000 in
2001.

         We recognized income from Affiliates for accounting, administrative
services, interest income, product sales commissions and management fees of
approximately $390,000 in 2002, and $479,000 in 2001. In addition, from
time-to-time, we have made advances to the Affiliates, which generally have not
had specific repayment terms and have been reflected in our financial statements
as accounts receivable or notes receivable 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 ourselves and one or more of its
Affiliates. The company that pays the invoice is reimbursed by the other
companies for the appropriate amount based on a pro rata allocation of the
services provided to each company.

         We paid an independent director approximately $33,000 in 2002 and
$33,000 in 2001, for board fees. In addition, another independent director
provides consulting services regarding public relations, marketing and special
projects. We paid approximately $106,000 in 2002 and $108,000 in 2001 for these
services and board fees. In addition, we paid a new independent director
approximately $16,000 in 2002 for board fees.

         At December 31, 2002 and 2001, we had accounts, interest and notes
receivable from related parties totaling approximately $377,000 and $490,000,
respectively, the majority of which was due from Affiliates. Ms. Dwyer has
guaranteed payment of all amounts due from 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 33.

2.       Exhibits

<TABLE>
<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)
</TABLE>

                                       24

<PAGE>

<TABLE>
<S>       <C>
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)

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)
</TABLE>

                                       25

<PAGE>

<TABLE>
<S>       <C>
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)

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
</TABLE>

                                       26

<PAGE>

<TABLE>
<S>       <C>
          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)

10.85*    Form of Stock Option Agreement dated April 29, 2002 by and between the Company and Burt Cohen for 40,000 shares of
          the Company's Common Stock.

10.86*    Form of Stock Option Agreement dated September 5, 2002 by and between the Company and Burt Cohen for 10,000 shares
          of the Company's Common Stock.

10.87*    Form of Stock Option Agreement dated September 5, 2002 by and between the Company and Don Latin for 10,000 shares
          of the Company's Common Stock.

21.1*     List of Subsidiaries

23.1*     Consent of Independent Certified Public Accountants related to S-8 filing

99.1*     Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002.

99.2*     Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002.
</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).

(16)     Incorporated by reference to the Registrant's Form 10-KSB for its
         fiscal year ended December 31, 2001 (SEC File No. 0-15227).

                                       27

<PAGE>

(b)      Reports on Form 8-K

         (1)      None

ITEM 14.   CONTROLS AND PROCEDURES

         We maintain controls and procedures designed to ensure that we are able
to collect the information we are required to disclose in our reports we file
with the SEC, and to process, summarize and disclose this information within the
time periods specified in the rules of the SEC. Our Chief Executive Officer and
Chief Financial Officer are responsible for establishing and maintaining these
procedures, and, as required by the rules of the SEC, evaluate their
effectiveness. Based on their evaluation of our disclosure controls and
procedures which took place as of a date within 90 days of the filing date of
this report, the Chief Executive Officer and Chief Financial Officer believe
that these procedures are effective to ensure that we are able to collect,
process, and disclose the information we are required to disclose in the reports
we file with the SEC within the required time periods.

         We maintain a system of internal controls designed to provide a
reasonable assurance that: transactions are executed in accordance with
management's general or specific authorization; transactions are recorded as
necessary (1) to permit preparation of financial statements in conformity with
generally accepted accounting principles, and (2) to maintain accountability for
assets; access to assets is permitted only in accordance with managements
general or specific authorization; and the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

         Since the date of the most recent evaluation of our internal controls
by the Chief Executive Officer and Chief Financial Officer, there have been no
significant changes in such controls or in other factors that could have
significantly affected those controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.

                     THIS SECTION LEFT INTENTIONALLY BLANK.

                                       28

<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
21st day of March 2003.

                  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                       Chairperson of the Board                      March 21, 2003
------------------------                of Directors and Director
Theresa Dwyer

/s/ Dina Dwyer-Owens                    President, Chief                              March 21, 2003
-----------------------                 Executive Officer, and Director
Dina Dwyer-Owens                        (Principal Executive Officer)

/s/ Robert Tunmire                      Executive Vice President                      March 21, 2003
------------------------                and Director
Robert Tunmire

/s/ Thomas J. Buckley                   Vice President, Chief                         March 21, 2003
------------------------                Financial Officer and Treasurer
Thomas J. Buckley                       (Principal Financial and Accounting Officer)

/s/ Burton D. Cohen                     Director                                      March 21, 2003
------------------------
Burton D. Cohen

/s/ Donald J. Dwyer, Jr.                Director                                      March 21, 2003
------------------------
Donald J. Dwyer, Jr.

/s/ John P. Hayes                       Director                                      March 21, 2003
------------------------
John P. Hayes

/s/ Donald E. Latin                     Director                                      March 21, 2003
------------------------
Donald E. Latin
</TABLE>

                                       29

<PAGE>

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                    AS ADOPTED PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Dwyer Group, Inc. (the "Company") on
Form 10-KSB for the year ending December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Dina Dwyer-Owens,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

         (1)  The Report fully complies with the requirements of section 13(a)
              or 15(d) of the Securities Exchange Act of 1934; and

         (2)  The information contained in the Report fairly presents, in all
              material respects, the financial condition and results of
              operations of the Company.

By: \s\ Dina Dwyer-Owens
    --------------------
Dina Dwyer-Owens
Chief Executive Officer
March 21, 2003

         A signed original of this written statement required by Section 906 has
         been provided to The Dwyer Group, Inc. and will be retained by The
         Dwyer Group, Inc., and furnished to the Securities and Exchange
         Commission or its staff upon request.

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                    AS ADOPTED PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Dwyer Group, Inc. (the "Company") on
Form 10-KSB for the year ending December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Thomas Buckley,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

         (1)  The Report fully complies with the requirements of section 13(a)
              or 15(d) of the Securities Exchange Act of 1934; and

         (2)  The information contained in the Report fairly presents, in all
              material respects, the financial condition and results of
              operations of the Company.

By: \s\ Thomas Buckley
    ------------------
Thomas Buckley
Vice President and Chief Financial Officer
March 21, 2003

         A signed original of this written statement required by Section 906 has
         been provided to The Dwyer Group, Inc. and will be retained by The
         Dwyer Group, Inc.,and furnished to the Securities and Exchange
         Commission or its staff upon request.

                                       30

<PAGE>

                      CERTIFICATION PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002

I, Dina Dwyer-Owens, President and Chief Executive Officer of The Dwyer Group,
Inc., certify that:

         (1)      I have reviewed this Annual Report on Form 10-KSB of The Dwyer
                  Group, Inc.

         (2)      Based on my knowledge, this report does not contain any untrue
                  statement of a material fact or omit to state a material fact
                  necessary to make the statements made, in light of the
                  circumstances under which such statements were made, not
                  misleading with respect to the period covered by this report;

         (3)      Based on my knowledge, the financial statements, and other
                  financial information included in this report, fairly present
                  in all material respects the financial condition, results of
                  operations and cash flows of the registrant as of, and for,
                  the periods presented in this report;

         (4)      The registrant's other certifying officer and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and we have:

                  a) designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period for which this report is being prepared;

                  b) evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this report (the "Evaluation Date"); and

                  c) presented in this report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

         (5)      The registrant's other certifying officer and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  function):

                  a) all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

                  b) any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal controls; and

         (6)      The registrant's other certifying officer and I have indicated
                  in this report whether or not there were significant changes
                  in internal controls or in other factors that could
                  significantly affect internal controls subsequent to the date
                  of our most recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.

By: \s\ Dina Dwyer-Owens
    --------------------
Dina Dwyer-Owens
Chief Executive Officer
March 21, 2003

                                       31

<PAGE>

                      CERTIFICATION PURSUANT TO SECTION 302
                        OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas Buckley, Vice President and Chief Financial Officer of The Dwyer
Group, Inc., certify that:

         (1)      I have reviewed this Annual Report on Form 10-KSB of The Dwyer
                  Group, Inc.

         (2)      Based on my knowledge, this report does not contain any untrue
                  statement of a material fact or omit to state a material fact
                  necessary to make the statements made, in light of the
                  circumstances under which such statements were made, not
                  misleading with respect to the period covered by this report;

         (3)      Based on my knowledge, the financial statements, and other
                  financial information included in this report, fairly present
                  in all material respects the financial condition, results of
                  operations and cash flows of the registrant as of, and for,
                  the periods presented in this report;

         (4)      The registrant's other certifying officer and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and we have:

                  a) designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period for which this report is being prepared;

                  b) evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this report (the "Evaluation Date"); and

                  c) presented in this report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

         (5)      The registrant's other certifying officer and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  function):

                  a) all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

                  b) any fraud, whether or not material, that involves
                  management or other employees who have a significant role in
                  the registrant's internal controls; and

         (6)      The registrant's other certifying officer and I have indicated
                  in this report whether or not there were significant changes
                  in internal controls or in other factors that could
                  significantly affect internal controls subsequent to the date
                  of our most recent evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.

By: \s\ Thomas Buckley
    ------------------
Thomas Buckley
Vice President and Chief Financial Officer
March 21, 2003

                                       32

<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                    Page
                                                                                                                    ----
<S>                                                                                                               <C>
Report of Independent Certified Public Accountants............................................................         34

Consolidated Balance Sheets as of December 31, 2002 and 2001..................................................    35 - 36

Consolidated Statements of Income for the years ended December 31, 2002 and 2001..............................         37

Consolidated Statements of Stockholders' Equity and Comprehensive Income for the
     years ended December 31, 2002 and 2001...................................................................         38

Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001..........................         39

Notes to Consolidated Financial Statements....................................................................    40 - 56
</TABLE>

                                       33

<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, 2002 and 2001, 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, 2002 and 2001, 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.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for goodwill in 2002.

BDO SEIDMAN, LLP
Dallas, Texas
February 27, 2003

                                       34

<PAGE>

                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                            --------------------------------
                                                                                2002                2001
                                                                            -------------        -----------

<S>                                                                         <C>                  <C>
CURRENT ASSETS:
       Cash and cash equivalents                                            $   1,486,256        $   790,151
       Marketable securities, available-for-sale                                  572,070            548,089
       Trade accounts receivable, net of allowance for doubtful
             accounts of $375,996 and $471,621, respectively                    1,852,834          1,836,643
       Accounts receivable from related parties                                   116,901            323,507
       Accrued interest receivable                                                 69,344             48,960
       Trade notes receivable, current portion, net of allowance for
             doubtful accounts of $92,065 and $68,600, respectively             2,209,542          1,718,505
       Inventories                                                                 74,885             81,702
       Prepaid expenses                                                           470,762            360,617
       Federal income tax receivable                                                    -              8,017
       Notes receivable from related parties, current portion                     184,384            188,349
                                                                            -------------        -----------

          TOTAL CURRENT ASSETS                                                  7,036,978          5,904,540

PROPERTY AND EQUIPMENT, at cost, net                                            4,086,419          3,592,162

NOTES AND ACCOUNTS RECEIVABLE FROM RELATED PARTIES                                 75,484             85,925

TRADE NOTES RECEIVABLE, net of allowance for doubtful notes of
             $1,635,787 and $1,107,201, respectively                            6,587,095          5,198,414

GOODWILL                                                                        5,030,081          5,030,081

PURCHASED FRANCHISE RIGHTS, net                                                 2,877,346          3,441,492

COVENANT NOT TO COMPETE, net                                                       11,661             31,661

NET DEFERRED TAX ASSET                                                            846,568            662,097

OTHER ASSETS                                                                      619,730            600,090
                                                                            -------------        -----------
TOTAL ASSETS                                                                $  27,171,362        $24,546,462
                                                                            =============        ===========
</TABLE>

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

                                       35

<PAGE>

                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                  (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                            --------------------------------
                                                                                2002                2001
                                                                            -------------        -----------
<S>                                                                         <C>                  <C>
CURRENT LIABILITIES:
       Accounts payable, trade                                              $     898,424        $   464,074
       Accrued liabilities                                                        947,305            944,467
       Accrued interest                                                           283,758            103,646
       Accrued payroll                                                            675,528            656,524
       Deferred franchise sales revenue                                           302,142            245,082
       Litigation reserves                                                         10,000            129,500
       Federal income tax payable                                                  89,149              8,220
       Current maturities of long-term debt                                     1,117,312          1,309,711
                                                                            -------------        -----------

          TOTAL CURRENT LIABILITIES                                             4,323,618          3,861,224

LONG-TERM DEBT, less current maturities                                         2,690,761          3,257,344

DEFERRED FRANCHISE SALES REVENUE                                                   82,592            163,309
                                                                            -------------        -----------

TOTAL LIABILITIES                                                               7,096,971          7,281,877

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;
               7,711,185 and 7,645,185 issued and 7,063,931 and
               6,997,931 outstanding, respectively                                771,122            764,522
       Additional paid-in capital                                               9,112,248          9,257,888
       Retained earnings                                                       11,469,780          8,523,364
       Accumulated other comprehensive loss                                       (68,607)           (71,037)
       Treasury stock, at cost, 647,254 shares in 2002 and 2001                (1,210,152)        (1,210,152)
                                                                            -------------        -----------

TOTAL STOCKHOLDERS' EQUITY                                                     20,074,391         17,264,585
                                                                            -------------        -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $  27,171,362        $24,546,462
                                                                            =============        ===========
</TABLE>

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

                                       36

<PAGE>

                     THE DWYER GROUP,INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                            ---------------------------------
                                                                                2002                2001
                                                                            -------------        ------------
<S>                                                                         <C>                  <C>
REVENUES AND INCOME:
     Royalties                                                              $  14,421,796        $ 12,891,657
     Franchise fees                                                             6,295,992           4,557,359
     Sales of products and services                                             3,585,504           3,409,058
     Interest                                                                     821,867             748,331
     Gain on sale of investments                                                        -             112,270
     Other                                                                        740,825             645,902
                                                                            -------------        ------------
        TOTAL REVENUES AND INCOME                                              25,865,984          22,364,577
                                                                            -------------        ------------

COSTS AND EXPENSES:
     General, administrative and selling                                       16,427,130          14,197,261
     Costs of product and service sales                                         2,979,154           2,832,089
     Depreciation and amortization                                              1,350,086           1,461,160
     Interest                                                                     480,710             445,152
                                                                            -------------        ------------
        TOTAL COSTS AND EXPENSES                                               21,237,080          18,935,662
                                                                            -------------        ------------

Income before income taxes                                                      4,628,904           3,428,915
Income tax expense                                                             (1,682,488)         (1,090,637)
                                                                            -------------        ------------

NET INCOME                                                                  $   2,946,416        $  2,338,278
                                                                            =============        ============

EARNINGS PER SHARE - BASIC                                                  $        0.42        $       0.33
                                                                            =============        ============

EARNINGS PER SHARE - DILUTED                                                $        0.40        $       0.33
                                                                            =============        ============

WEIGHTED AVERAGE COMMON SHARES                                                  7,030,397           6,997,931
                                                                            =============        ============

WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
         DILUTIVE COMMON SHARES                                                 7,405,053           7,180,199
                                                                            =============        ============
</TABLE>

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

                                       37

<PAGE>
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                 FOR THE YEARS ENDED DECEMBER 31,2002 AND 2001

<TABLE>
<CAPTION>
                                                                                                          COMPREHENSIVE
                                                                      STOCKHOLDERS' EQUITY                   INCOME
                                                                   ----------------------------    ---------------------------
                                                                     SHARES          DOLLARS           2001            2002
                                                                   ---------      -------------    ------------    -----------
<S>                                                                <C>            <C>              <C>             <C>
COMMON STOCK
      Balance at January 1,  2001                                  7,645,185      $     764,522
         Issuance of common stock                                     66,000              6,600
                                                                   ---------      -------------
      Balance at December 31, 2002                                 7,711,185      $     771,122
                                                                   =========      =============

ADDITIONAL PAID-IN CAPITAL
      Balance at January 1, 2001                                                  $  10,193,855
        Purchase of land from related party                                            (935,967)
      Balance at December 31, 2001                                                    9,257,888
        Issuance of stock                                                               109,260
        Issuance of warrants                                                              2,100
        Purchase of land from related party                                            (257,000)
                                                                                  -------------
      Balance at December 31, 2002                                                $   9,112,248
                                                                                  =============

RETAINED EARNINGS
      Balance at January 1, 2001                                                  $   6,185,086
         Net income                                                                   2,338,278    $  2,338,278
                                                                                  -------------
      Balance at December 31, 2001                                                    8,523,364
         Net income                                                                   2,946,416                    $ 2,946,416
                                                                                  -------------
      Balance at December 31, 2002                                                $  11,469,780
                                                                                  =============

ACCUMULATED OTHER COMPREHENSIVE LOSS
      Balance at January 1, 2001                                                  $     (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)
                                                                                  -------------
         Increase in carrying value of investments
              (net of tax expense of $1,321)                                              2,565                          2,565
         Foreign currency translation adjustment                                           (135)                          (135)
                                                                                  -------------
      Balance at December 31, 2002                                                $     (68,607)
                                                                                  =============

TREASURY STOCK
      Balance at January 1, 2001                                    (647,254)     $  (1,210,152)

                                                                   ---------      -------------
      Balance at December 31, 2001 and 2002                         (647,254)     $  (1,210,152)
                                                                   =========      =============

TOTAL STOCKHOLDERS' EQUITY                                         7,063,931      $  20,074,391
                                                                   =========      =============    ------------    -----------

TOTAL COMPREHENSIVE INCOME                                                                         $  2,313,478    $ 2,948,846
                                                                                                   ============    ===========
</TABLE>

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

                                       38

<PAGE>

                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                      YEARS ENDED DECEMBER 31,
                                                                                  -----------------------------
                                                                                     2002               2001
                                                                                  -------------    ------------
<S>                                                                               <C>              <C>
Operating activities:
     Net income                                                                   $   2,946,416    $  2,338,278
     Adjustments to reconcile net income to
                  net cash used in operating activities:
        Depreciation and amortization                                                 1,350,086       1,461,160
        Gain on sale of securities                                                            -        (112,270)
        Change in reserve for doubtful accounts                                       1,178,464         480,300
        Notes received for franchise sales                                           (4,206,774)     (2,145,099)
        Notes received other than franchise sales                                      (914,052)       (799,722)
        Change in deferred tax asset                                                   (184,471)        (50,546)
    Changes in assets and liabilities:
        Accounts and interest receivable                                                (36,575)        248,578
        Receivables / payables to related parties                                      (125,394)         32,422
        Inventories                                                                       6,817          15,667
        Prepaid expenses                                                               (110,145)       (159,325)
        Federal income tax receivable                                                     8,017         103,646
        Accrued interest payable                                                        180,112         322,235
        Accounts payable and accrued liabilities                                        417,621        (523,129)
        Deferred franchise sales revenue                                                (23,660)       (160,683)
        Other                                                                             5,548         (44,124)
                                                                                  -------------    ------------
  Net cash provided by operating activities                                             492,010       1,007,388
                                                                                  -------------    ------------
Investing activities:
    Collections on notes receivable                                                   2,141,871       1,707,371
    Proceeds from sale of assets                                                         24,206               -
    Purchases of property and equipment                                              (1,011,941)     (3,965,023)
    Purchases of franchise rights                                                       (50,000)        (46,367)
    Acquisition of other assets                                                         (78,696)       (292,004)
    Purchase of marketable securities                                                   (15,834)        (18,359)
    Proceeds from sale of marketable securities                                               -         159,262
    Collections on notes receivable from related parties                                 14,406       1,917,114
                                                                                  -------------    ------------
  Net cash provided by (used in) investing activities                                 1,024,012        (538,006)
                                                                                  -------------    ------------
Financing activities:
    Proceeds from exercise of stock options                                             115,860               -
    Proceeds from borrowings                                                            509,881       2,852,800
    Payments on borrowings                                                           (1,445,658)     (2,678,883)
                                                                                  -------------    ------------
  Net cash used in financing activities                                                (819,917)        173,917
                                                                                  -------------    ------------

Net increase in cash and cash equivalents                                               696,105         643,299
Cash and cash equivalents, beginning of period                                          790,151         146,852
                                                                                  -------------    ------------

Cash and cash equivalents, end of period                                          $   1,486,256    $    790,151
                                                                                  =============    ============
</TABLE>

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

                                       39

<PAGE>

                     THE BWYER 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. 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 our wholly-owned subsidiaries. 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, it 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 775 franchisees
located in the United States and Canada, and through its master licensees,
approximately 275 franchisees in 15 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 its franchise opportunities
because of the depth of its support services, its commitment to its mission and
vision statements and the established reputation of its management team.

         In 2002 and 2001, the Company operated its businesses through the
following wholly owned subsidiaries:

         -        Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of
                  plumbing repair and drain cleaning services. As of December
                  31, 2002, Mr. Rooter had 200 franchisees in the United States
                  and Canada, and, through master licensees, 70 franchises in
                  six other countries. In 2002, Mr. Rooter accounted for
                  approximately 31.1% of our consolidated revenues.

         -        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.
                  As of December 31, 2002, Rainbow had 252 franchisees in the
                  United States and Canada and, through master franchise
                  licensees, 153 franchise operations in eight other countries.
                  In 2002, Rainbow accounted for approximately 15.0% of our
                  consolidated revenues.

         -        Mr. Electric Corp. ("Mr. Electric") is a franchisor of
                  electrical repair and service businesses. As of December 31,
                  2002, Mr. Electric had 110 franchises in the United States and
                  Canada, and through master licensees, 33 franchise operations
                  in three other countries. In 2002, Mr. Electric accounted for
                  approximately 8.8% of our consolidated revenues.

         -        Aire Serv Heating & Air Conditioning, Inc. ("Aire Serv") is a
                  franchisor of heating, ventilating and air conditioning
                  service businesses. As of December 31, 2002, Aire Serv had 63
                  franchisees in the United States, and through master
                  licensees, 11 franchisees in two other countries. In 2002,
                  Aire Serv accounted for approximately 6.7% of our consolidated
                  revenues.

         -        Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of
                  businesses relating to service and repair of appliances (both
                  residential and commercial). As of December 31, 2002, Mr.
                  Appliance had 50 franchisees in the United States and one in
                  another country. In 2002, Mr. Appliance accounted for
                  approximately 2.8% of our consolidated revenues.

         -        Synergistic International, Inc., which was incorporated in
                  July 1998, is franchisor of Glass Doctor, a service concept
                  whose business is the replacement of automobile, residential
                  and commercial glass. We purchased the concept in July 1998,
                  from an unrelated third party. As of December 31, 2002, Glass

                                       40

<PAGE>

                  Doctor had 100 franchisees, all in the United States. In 2002,
                  Glass Doctor accounted for approximately 16.8% of our
                  consolidated revenues.

         -        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 our
                  network of franchisees or qualified subcontractors. In 2002,
                  National Accounts accounted for approximately 12.8% of our
                  consolidated revenues.

         -        The Dwyer Group Canada, Inc. ("TDG Canada") was incorporated
                  in January of 1998, in order to market and service certain of
                  our franchise concepts in Canada. Currently, those concepts
                  are: Mr. Rooter, Mr. Electric and Rainbow. In 2002, TDG Canada
                  accounted for approximately 2.4% of our consolidated revenues.

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

         -        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 weekly sales, depending upon the
                  particular franchise concept and upon various other factors.

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

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

B.       Inventories

         Inventories consist of products to be sold to 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 and land 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 2002 or 2001.

                     THIS SECTION LEFT INTENTIONALLY BLANK.

                                       41

<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, 2002
                                                ------------------------------------
                                          Net Income             Shares            Per Share
                                         (Numerator)          (Denominator)          Amount
                                          ---------           -------------          ------
<S>                                      <C>                  <C>                  <C>
Basic EPS                                 $2,946,416             7,030,397            $.42
                                          ==========                                  ====
Effect of dilutive
     warrants and options                                          374,656
                                                                ----------

Diluted EPS                               $2,946,416             7,405,053            $.40
                                          ==========             =========            ====
</TABLE>

<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>

         Options and warrants to purchase 227,250 and 125,000 shares of common
stock were outstanding at year end 2002 and 2001, 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.       Stock Based Compensation

         In compliance with SFAS 148, the Company has elected to continue to
follow the intrinsic value method in accounting for our stock-based employee
compensation arrangement as defined by Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, and have made the applicable
disclosures.

         Had the compensation cost for the Company's stock-based compensation
plans been determined consistent with SFAS 123, net income and earnings per
common share for 2002 and 2001 would approximate the pro forma amounts below:

<TABLE>
<CAPTION>
                                                                          2002              2001
                                                                          ----              ----
<S>                                                                    <C>               <C>
Net income, as reported                                                $2,946,000        $2,338,000
Deduct: Total stock-based employee compensation expense
      determined under fair value based methods for all awards,
      net of tax effects                                                  (64,000)          (74,000)
                                                                       ----------        ----------
Pro forma net income                                                   $2,882,000        $2,264,000
                                                                       ==========        ==========

Net income per share
   Basic, as reported                                                  $      .42        $      .33
   Basic, pro forma                                                    $      .41        $      .32
   Diluted, as reported                                                $      .40        $      .33
   Diluted, pro forma                                                  $      .39        $      .32
</TABLE>

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

                                       42

<PAGE>

F.       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 does not believe that it is exposed to any
significant credit risks on cash and cash equivalents. Cash equivalents
includes, but is not limited to, money market funds of $146,603 at December 31,
2002 and $223,873 at December 31, 2001.

G.       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 us 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 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.

         Revenues from franchise royalties are generally recognized when sales
reports are received from franchisees.

         The Company generally collects and holds in escrow (for each of its
franchise concepts) 2% of each franchisee's sales to be used for national
advertising. Mr. Rooter, Rainbow, Mr. Electric, 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 our financial statements.

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

H.       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, which includes its
domestic Subsidiaries.

I.       Goodwill and Covenant Not to Compete

         Goodwill is the excess of the cost of acquiring Glass Doctor over the
fair value of the net assets acquired. In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 141,
Business Combinations (SFAS 141), and No. 142, Goodwill and Other Intangible
Assets (SFAS 142), effective for years beginning after December 31, 2001. Under
the new rules, goodwill is no longer amortized but is subject to annual
impairment tests in accordance with the statements. Effective January 1, 2002,
the Company adopted the new rules on accounting for goodwill and other
intangible assets. The Company has performed initial and ongoing assessments and
determined that there was no impairment of goodwill at December 31, 2002. As a
result of the adoption of SFAS 142 and the application of the no amortization
provisions of that statement, the Company recorded no amortization of goodwill
for 2002. Prior to 2002, goodwill was being amortized at the rate of
approximately $189,000 per year.

         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 2002 and 2001. Accumulated amortization totaled $88,334 at
December 31, 2002.

                                       43

<PAGE>

         The table below represents (in thousands) a reconciliation for the
years ended December 31, 2002 and 2001, to show the effect of the adoption of
SFAS 142.

<TABLE>
<CAPTION>
                                                   FOR THE YEARS ENDED DECEMBER 31,
                                                   --------------------------------
                                                        2002            2001
                                                        ----            ----
<S>                                                    <C>             <C>
Reported net income                                    $2,946          $2,338
Add: goodwill amortization, net of tax                      -             121
                                                       ------          ------
Adjusted net income                                    $2,946          $2,459
                                                       ======          ======

BASIC EARNINGS PER SHARE:
   Reported net income                                 $  .42          $  .33
   Add: goodwill amortization, net of tax                   -             .02
                                                       ------          ------
   Adjusted net income                                 $  .42          $  .35
                                                       ======          ======
DILUTED EARNINGS PER SHARE:
   Reported net income                                 $  .40          $  .33
   Add: goodwill amortization, net of tax                   -             .02
                                                       ------          ------
   Adjusted net income                                 $  .40          $  .35
                                                       ======          ======
</TABLE>

J.       Purchased Franchise Rights and Other Intangible Assets

         The Company has, from time-to-time, 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 impairment in the
value has occurred and an adjustment is necessary. If an adjustment was
required, a discounted cash flow analysis would be performed and an impairment
loss would be recorded. There was no such impairment recorded in 2002 or 2001.
The Company had an investment of $2,877,346 and $3,441,492 in purchased
franchise rights at December 31, 2002 and 2001, respectively. Accumulated
amortization totaled $2,691,363 at December 31, 2002.

         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.

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 are reported as comprehensive income or
loss. Realized gains and losses are included in income or loss.

         At December 31, 2002 and 2001, the amortized cost and estimated fair
values of marketable securities are shown below.

<TABLE>
<CAPTION>
                      DECEMBER 31, 2002
--------------------------------------------------------------
AMORTIZED          NET UNREALIZED        ESTIMATED FAIR
   COST                LOSSES                VALUE
<S>                <C>                   <C>
$ 575,282              $3,212              $ 572,070
</TABLE>

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

                                       44

<PAGE>

         During 2002, the Company purchased marketable securities at a cost of
$15,831. At December 31, 2002, the estimated fair value of marketable securities
was comprised of $111,878 in U.S. Treasury bills and $460,192 in common stocks
and mutual funds. 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 stock and mutual funds.

L.       Foreign Currency Translation

         Assets and liabilities in foreign currencies are translated into U.S.
dollars at the rates in effect at the balance sheet date. Revenues and expenses
are translated at average rates for the year. The net exchange differences
resulting from these translations are recorded in stockholders' equity. Where
amounts denominated in a foreign currency are converted into dollars by
remittance or repayment, the realized exchange differences are included in
operations.

M.       Accounts Receivable, Notes Receivable and Allowances

         Accounts receivable are generally amounts due from franchisees for
royalties. Such amounts are recorded as a receivable when sales reports are
remitted by the franchisee. Management reviews accounts receivable on a monthly
basis to determine if any receivables will potentially be uncollectible. We
include any accounts receivable balances that are determined to be
uncollectible, along with a general reserve, in the overall allowance for
doubtful accounts. After all attempts to collect a receivable have failed, the
receivable is written off against the allowance. Based on information available
to the Company, management believes that the allowance for doubtful accounts, as
of December 31, 2002, is adequate. However, actual write-off's might exceed the
recorded allowance.

         Notes receivable are generally amounts due from franchisees for
franchise fees or royalties. Such amounts are recorded as a receivable when the
franchise fee is recorded as revenue or when sales reports are remitted by the
franchisee. Management reviews notes receivable on a monthly basis to determine
if any receivables will potentially be uncollectible. We include any accounts
receivable balances that are determined to be uncollectible, along with a
general reserve, in the overall allowance for doubtful accounts. After all
attempts to collect a receivable have failed, the receivable is written off
against the allowance. Based on information available to the Company, management
believes that the allowance for doubtful accounts, as of December 31, 2002, is
adequate. However, actual write-off's might exceed the recorded allowance.

N.       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 affect 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.

O.       New Accounting Standards

         In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations (SFAS 143). This statement 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. Adoption of this standard will not have any immediate effect on
our consolidated financial statements.

         In April 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 145, Rescission of Statement of
Financial Accounting Standards No. 4, 44, and 64, Amendment of Statement of
Financial Accounting Standards No. 13, and Technical Corrections (SFAS 145).
This statement eliminates the current requirement that gains and losses on debt
extinguishment must be classified as extraordinary items in the income
statement. Instead, such gains and losses will be classified as extraordinary
items only if they are deemed to be unusual and infrequent, in accordance with
the current GAAP criteria for extraordinary classification. In addition, SFAS
145 eliminates an inconsistency in lease accounting by requiring that
modifications of capital leases that result in reclassification as operating
leases be accounted for consistent with sale-leaseback accounting rules. The
statement also contains other nonsubstantive corrections to authoritative
accounting literature. The changes related to debt extinguishment are effective
for fiscal years

                                       45

<PAGE>

beginning after May 15, 2002, and the changes related to lease accounting are
effective for transactions occurring after May 15, 2002. Adoption of this
standard will not have any immediate effect on our consolidated financial
statements. The Company will apply this guidance prospectively.

         In June 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (SFAS 146), which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. The
Company will adopt the provisions of SFAS 146 for restructuring activities
initiated after December 31, 2002. SFAS 146 requires that the liability for
costs associated with an exit or disposal activity be recognized when the
liability is incurred. Under EITF No. 94-3, a liability for an exit cost was
recognized at the date of a company's commitment to an exit plan. SFAS 146 also
establishes that the liability should initially be measured and recorded at fair
value. Accordingly, SFAS 146 may affect the timing of recognizing future
restructuring costs as well as the amount recognized. Adoption of this standard
will not have any immediate effect on the Company's consolidated financial
statements.

         In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, Gurantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others, which
disclosures are effective for financial statements issued after December 15,
2002. Information on the Company's gurantees, including amounts paid on
guarantees and outstanding balances is detailed in Note 10.

         In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 148, Accounting for Stock-Based
Compensation - Transition and Disclosure (SFAS 148), which amended Statement of
Financial Accounting Standards 123, Accounting for Stock-Based Compensation
(SFAS 123). The new standard provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. Additionally, the statement amends the disclosure
requirements of SFAS 123 to require prominent disclosures in the annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
statement is effective for financial statements with fiscal years ending after
December 15, 2002. In compliance with SFAS 148, the Company has elected to
continue to follow the intrinsic value method in accounting for our stock-based
employee compensation arrangement as defined by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and have made the
applicable disclosures.

         In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of Accounting Research Bulletin No. 51, Consolidated Financial
Statements (FIN No. 46). FIN No. 46 explains how to identify variable interest
entities and how an enterprise assesses its interests in a variable interest
entity, to decide whether to consolidate that entity. The Interpretation
requires existing unconsolidated variable interest entities to be consolidated
by their primary beneficiaries if the entities do not effectively disperse risks
among parties involved. FIN No. 46 is effective immediately for variable
interest entities created after January 31, 2003, and to variable interest
entities in which an enterprise obtains an interest after that date. The
Interpretation applies in the first fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise holds
a variable interest that it acquired before February 1, 2003. Adoption of this
standard will not have any immediate effect on the Company's consolidated
financial statements.

P.       Reclassifications

         Certain prior year amounts have been reclassified to conform to current
year presentation.

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.

                                       46

<PAGE>

B.       Common Stock

         Treasury Stock

         As of December 31, 2002, the company had repurchased a total of 647,254
         shares of treasury stock at a cost of $1,210,152. No purchases were
         made in 2002 or 2001.

C.        Warrants and Non-Employee Stock Options

         Unless otherwise noted, options and warrants described below have not
         been exercised. The Company accounts for warrants and non-employee
         options based on their fair value at the time an agreement is made to
         issue the warrants or options.

         In 1996, in connection with the purchase of franchise rights, the
         Company issued options to purchase 28,500 shares of its Common Stock,
         at an exercise price of $2.25 per share, to a non-employee. These
         options expire in March 2007.

         In 1997, in connection with the purchase of franchise rights, the
         Company granted options to purchase 60,000 shares of its Common Stock
         at an exercise price of $1.75 per share, to a non-employee. Such
         options were purchased by certain officers of the Company in 2000 and
         were exercised in 2002.

         In 1998, the Company issued warrants to purchase our Common Stock to
         former employees 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 its 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.

         In 2000, the Company issued 100,000 warrants to purchase its 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.

         In 2000, the Company agreed to issue 2,000 warrants to one of its
         franchisees who serve as a consultant. 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
         our 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 and expire in
         2010.

         In 2002, the Company issued warrants to purchase our Common Stock to a
         nonaffiliated third party in connection with an investor relations
         contract, as follows:

<TABLE>
<CAPTION>
NUMBER OF WARRANTS                   EXERCISE PRICE                     EXPIRATION DATE
------------------                   --------------                     ---------------
<S>                                  <C>                                <C>
      4,000                              $4.63                            June 2012
      4,000                              $4.30                            September 2012
      4,000                              $4.33                            December 2012
</TABLE>

         In 2002, the Company issued 5,000 warrants to purchase its Common Stock
         to a consultant. The warrants were issued at an exercise price of $3.95
         per share and expire in 2012.

         In 2002, the Company issued 4,000 warrants to purchase its Common Stock
         to a nonaffiliated third party in conjunction with a consulting
         agreement. The warrants were issued at an exercise price of $4.00 per
         share and expire in 2012.

                                       47

<PAGE>

         For warrants issued, an amount approximating their fair value was
         recorded as operating expense and as a contribution to additional
         paid-in capital.

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, 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 we had adopted the provisions are required and are presented
         below.

         Under the Plan, the Company is authorized to issue up to 990,000 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 our
         employees, directors or consultants. In 2002 and 2001, the Company
         granted both incentive stock options and nonqualified stock options.

         Employee Stock Options

         The Company granted a total of 156,250 and 153,875 awards in the form
         of incentive stock options and nonqualified stock options under the
         Plan in 2002 and 2001, respectively. Under the Plan, the options
         granted have contractual terms of 10 years. 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 our stock options as of December 31, 2002
         and 2001, and the changes during the years ended on those dates is
         presented below.

<TABLE>
<CAPTION>
                                                         2002                          2001
                                                         ----                          ----
                                            # 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              720,250        $     2.22           609,375        $2.30
Granted                                       156,250        $     3.97           153,875        $2.42
Exercised                                      (6,000)       $     1.81               ---         N/A
Forfeited                                     (30,250)       $     2.13            (3,000)       $2.87
Expired                                           ---               N/A           (40,000)       $4.06
                                              -------                        ------------
Outstanding at end of year                    840,250        $     2.55           720,250        $2.22
                                              =======                        ============
Exercisable at end of year                    485,500        $     2.19           390,450        $2.20
                                              =======                        ============
</TABLE>

<TABLE>
<CAPTION>
                                                                       2002                          2001
                                                                       ----                          ----
<S>                                                                   <C>                           <C>
Weighted-average grant date fair value of all options
       granted during the year                                        $2.93                         $1.79
</TABLE>

         The fair value of each 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 2002 and 2001: 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 2002 and 2001 grants was 59%.

                                       48

<PAGE>

         The following table summarizes information about stock options
outstanding at December 31, 2002:

<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         608,250         5.4 years         $2.11            444,350             $2.10
$2.51 to $3.75         137,000         7.7 years         $3.36             41,150             $3.26
$3.76 to $4.25          95,000         9.8 years         $4.12               ----               ---
                     ---------                                            -------
                       840,250                                            485,500
                     =========                                            =======
</TABLE>

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>
                                                                                 2002                     2001
                                                                                 ----                     ----
<S>                                                                          <C>                      <C>
Amounts due within one year, net of allowance for doubtful
      Accounts of $92,065 and $68,600 in 2002 and 2001, respectively         $  2,209,542             $  1,718,505
Amounts due after one year, net of allowance for doubtful accounts
     of $1,635,787 and $1,107,201 in 2002 and 2001, respectively                6,587,095                5,198,414
                                                                             ------------             ------------

Total notes receivable                                                       $  8,796,637             $  6,916,919
                                                                             ============             ============
</TABLE>

         Activity in the allowance for doubtful accounts was as follows:

<TABLE>
<CAPTION>
                                                                                 2002                      2001
                                                                                 ----                      ----
<S>                                                                          <C>                      <C>
Balance January 1                                                            $  1,175,801             $   947,763
Provision for doubtful accounts                                                 1,103,059                 433,032
Write-offs                                                                       (551,008)               (204,994)
                                                                             ------------             -----------

Balance, December 31                                                         $  1,727,852             $ 1,175,801
                                                                             ============             ===========
</TABLE>

         At December 31, 2002 and 2001, the amounts of deferred revenue from
franchise sales were $384,734 and $408,394, respectively. Fees from franchise
sales accounted for by the installment method are collectible through 2007.

         At December 31, 2002, interest rates on trade notes receivable ranged
from 6% to 12%.

                     THIS SECTION LEFT INTENTIONALLY BLANK.

                                       49

<PAGE>

NOTE 4.    GOODWILL AND OTHER INTANGIBLE ASSETS

         Intangible assets consist primarily of goodwill, trademarks, and
purchased franchise rights (See Note 1). In accordance with SFAS No. 142, all of
the Company's intangible assets that have definite lives are being amortized on
a straight-line basis over their estimated useful lives and goodwill is
evaluated to determine if fair value of the assets has decreased below its
carrying value. At December 31, 2002, the Company evaluated goodwill and
determined no adjustment to impair goodwill was necessary.

<TABLE>
<CAPTION>
                                                                 2002            2001
                                                              ----------       --------
<S>                                                           <C>              <C>
Goodwill                                                      $    5,678       $  5,678
Accumulated amortization                                             648            648
                                                              ----------       --------
Goodwill, net                                                 $    5,030       $  5,030

Trademarks                                                    $      791       $    709
Accumulated amortization                                             198            148
                                                              ----------       --------
Trademarks, net                                               $      593       $    561

Purchased franchise rights and other intangibles              $    5,580       $  5,365
Accumulated Amortization                                           2,691          1,892
                                                              ----------       --------
Other intangible assets, net                                  $    2,889       $  3,473

Total intangible assets, net                                  $    8,512       $  9,064
                                                              ==========       ========
</TABLE>

         Amortization expense consists of the following:

<TABLE>
<CAPTION>
                                                                 2002            2001
                                                              ----------       --------
<S>                                                           <C>              <C>
Goodwill                                                      $     ----       $    121
Trademarks                                                            50             35
Purchased franchise rights and other intangibles                     815            887
                                                              ----------       --------
Total amortization expense                                    $      865       $  1,043
                                                              ==========       ========
</TABLE>

         The Company's weighted average amortization period for intangible
assets is approximately 10 years. The following table shows the estimated
amortization expense for these assets for each of the five succeeding fiscal
years:

<TABLE>
<S>      <C>
2003     $865
2004     $855
2005     $870
2006     $875
2007     $285
</TABLE>

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

         In 2002, the Company purchased franchise rights from a non-affiliated
third party. The total purchase price of approximately $227,000 was capitalized
as Purchased Franchise Rights. Of such price, $50,000 was paid in cash. The
Company issued a note payable for approximately $177,000 to fund the balance.

                                       50

<PAGE>

NOTE 5.    FAIR VALUE OF FINANCIAL INSTRUMENTS

         Estimated fair values of our financial instruments (all of which are
held for non-trading purposes) are as follows:

<TABLE>
<CAPTION>
                                              DECEMBER 31, 2002                       DECEMBER 31, 2001
                                              -----------------                       -----------------
                                       CARRYING                              CARRYING
                                        AMOUNT             FAIR VALUE         AMOUNT              FAIR VALUE
                                        ------             ----------         ------              ----------
<S>                                    <C>                 <C>               <C>                  <C>
Trade notes receivable                 $8,796,637          $8,729,519         $6,916,919          $6,849,996
Notes payable                          $3,808,073          $3,770,871         $4,567,055          $4,538,444
</TABLE>

         The carrying amount of cash and cash equivalents approximates fair
value. 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 we could borrow additional funds.

NOTE 6.    PROPERTY AND EQUIPMENT

         A summary of property and equipment is as follows:

<TABLE>
<CAPTION>
                                                                        2002             2001
                                                                     ----------       ----------
<S>                                                                  <C>              <C>
Land                                                                 $  834,072       $  814,631
Building and improvements                                             2,626,073        2,018,024
Machinery and equipment                                               2,718,037        2,490,756
Furniture and fixtures                                                  374,619          312,740
                                                                     ----------       ----------
                                                                      6,552,801        5,636,151
Less accumulated depreciation                                         2,466,382        2,043,989
                                                                     ----------       ----------
                                                                     $4,086,419       $3,592,162
                                                                     ==========       ==========
</TABLE>

         Depreciation expense was $484,439 in 2002 and $417,871 in 2001.

NOTE 7.    INCOME TAXES

         Federal income tax expense/benefit for the years ended December 31,
2002 and 2001 was as follows:

<TABLE>
<CAPTION>
                                                   2002                 2001
                                                ----------            ----------
<S>                                             <C>                   <C>
Current domestic tax expense                    $1,756,669            $1,182,266
Current foreign tax expense                        110,290                86,154
Deferred tax benefit                              (184,471)             (177,783)
                                                ----------            ----------

Total tax expense                               $1,682,488            $1,090,637
                                                ==========            ==========
</TABLE>

         A reconciliation of income tax expense at the federal statutory rate to
the income tax provision at our effective rate is as follows for the years ended
December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                   2002                  2001
                                                   ----                  ----
                                                  AMOUNT        %       AMOUNT          %
                                                ----------     ---    ----------       ---
<S>                                             <C>            <C>    <C>              <C>
Federal income tax at statutory rate            $1,573,827      34%   $1,165,831        34%

Reduction in valuation allowance                      ----       0%     (339,611)      (10)%

State & foreign taxes                               25,042      .5%       18,945         1%

Other permanent differences                         83,619       3%      245,472         7%
                                                ----------      --    ----------       ---

Total tax expense                               $1,682,488      37%   $1,090,637        32%
                                                ==========      ==    ==========       ===
</TABLE>

                                       51

<PAGE>

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

<TABLE>
<CAPTION>
                                                   2002                  2001
                                                   ----                  ----
<S>                                             <C>                   <C>
U.S.                                            $3,934,934            $2,535,557
International                                      693,970               893,358
                                                ----------            ----------
Income before income taxes                      $4,628,904            $3,428,915
                                                ==========            ==========
</TABLE>

         The components of deferred income tax assets and liabilities at
December 31, 2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                       2002            2001
                                                    -----------     -----------
<S>                                                 <C>             <C>
Deferred tax liabilities:
   Accelerated depreciation and amortization        $   (86,588)    $   (98,977)
   Intangible assets                                   (356,016)       (224,491)
   Patents and trademarks                                (5,564)         (4,634)
                                                    -----------     -----------
Total deferred tax liabilities                         (448,168)       (328,102)
                                                    -----------     -----------

Deferred tax assets:
   Franchise agreements                                 411,468         266,669
   Reserves                                             676,666         599,409
   Deferred fees                                        104,511          78,698
   Other                                                102,091          45,423
                                                    -----------     -----------
Total deferred tax assets                             1,294,736         990,199
                                                    -----------     -----------

Net deferred income tax asset                       $   846,568     $   662,097
                                                    ===========     ===========
</TABLE>

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

         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 had the effect of reducing overall tax expense by providing
a tax benefit in 2000 and 2001. A benefit of approximately $142,000 was recorded
in 2001.

                     THIS SECTION LEFT INTENTIONALLY BLANK.

                                       52

<PAGE>

NOTE 8.    NOTES PAYABLE

The following notes payable were outstanding at December 31, 2002 and 2001. All
are unsecured unless otherwise noted.

<TABLE>
<CAPTION>
                                                                                                   2002           2001
                                                                                                   ----           ----
<S>                                                                                             <C>             <C>
Variable rate (3.4% at December 31, 2002) 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.                                                               $2,536,059      $2,726,009

Variable rate (4.25% at December 31, 2002) line of credit with a $1,000,000
limit, collateralized by notes receivable. Minimum monthly payment equal to
interest on the outstanding balance. Expires in May 2003.                                          349,881            ----

8% note payable to an individual for the purchase of franchise rights, due in monthly
payments of $8,962 including interest, through September 2005.                                     255,362         347,433

4.25% note payable to a bank, collateralized by notes receivable due in monthly payments
of $10,347 including interest, through January 2005.                                               227,635         329,073

6% note payable to an individual for the purchase of franchise rights, due in monthly
payments of $10,295 including interest, through December 2003.                                     176,795            ----

9% note payable to an individual for the purchase of franchise rights, due in monthly
payments of $55,650 including interest, through February 2003.                                     110,059         736,968

Notes payable to a finance company under performance guarantees, with interest at
approximately 15%, payable in monthly installments through 2003.                                    36,431         152,722

8% note payable to an individual for the purchase of franchise rights.                                 ---         200,000

Other notes payable                                                                                115,851          74,850
                                                                                                ----------      ----------

                                                                                                 3,808,073       4,567,055

Less current portion                                                                             1,117,312       1,309,711
                                                                                                ----------      ----------

Notes payable - long term                                                                       $2,690,761      $3,257,344
                                                                                                ==========      ==========
</TABLE>

         Maturities of notes payable are as follows:

<TABLE>
<S>                      <C>
2003                     $1,117,312
2004                        467,981
2005                        257,281
2006                      1,965,499
                         ----------
                         $3,808,073
                         ==========
</TABLE>

         In 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, 2002 was $283,758. The SWAP
does not qualify for hedge accounting.

                                       53

<PAGE>

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 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 independently 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.
The Company used 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 December of 2002, the Company purchased a house and vacant property
adjacent to our principal executive and administrative facilities from Ms. Dwyer
for approximately $332,000, which equaled the independently appraised value of
the assets. In accordance with generally accepted accounting principles, the
transaction was recorded at her basis of approximately $75,000, with the
difference being reflected as a reduction in stockholders' equity. This entire
purchase was funded through the forgiveness of related party debt.

         The Company receives promotional materials and other services from
Affiliates. The Company expensed approximately $106,000 for these services in
2002, and $288,000 in 2001.

         The Company recognized income from Affiliates for accounting,
administrative services, interest income, product sales commissions and
management fees of approximately $390,000 in 2002, and $479,000 in 2001. In
addition, from time-to-time, the Company has made advances to the Affiliates,
which generally have not had specific repayment terms and have been reflected in
its financial statements as accounts receivable or notes receivable 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 ourselves and
one or more of its Affiliates. The company that pays the invoice is 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 2002
and $33,000 in 2001, for board fees. In addition, another independent director
provides consulting services regarding public relations, marketing and special
projects. The Company paid approximately $106,000 in 2002 and $108,000 in 2001
for these services and board fees. In addition we paid a new independent
director approximately $16,000 in 2002 for board fees.

         At December 31, 2002 and 2001, the Company had accounts, interest and
notes receivable from related parties totaling approximately $377,000 and
$600,000, respectively, the majority of which was due from Affiliates. Ms. Dwyer
has guaranteed payment of all amounts due from Affiliates.

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"), under 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, 2002, the aggregate principal amounts of outstanding franchisee
indebtedness under such agreement was approximately $11,000. Under the terms of
the agreement, the Company guarantees such franchisee indebtedness in the event
a default occurs and it 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 $35,000 and
$128,000 was paid to SunTrust during 2002 and 2001, 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

                                       54

<PAGE>

Phoenix's qualifications. Phoenix agreed to provide up to $3 million in
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 we, within ten days of delivery of such Aging Report,
shall pay all of such franchisee's delinquent scheduled payments, together with
all late charges. The Company paid approximately $84,000 and $60,000 on such
delinquent notes in 2002 and 2001, respectively. At December 31, 2002, the
Company was contingently liable for approximately $48,000 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. The Company matched 10% of the employees' contributions,
with a maximum of $500 per employee in 2002 and $200 per employee 2001. In 2002,
we contributed $32,719 compared to $6,349 in 2001. Each year the Board of
Directors will determine the amount of any Company contribution based upon our
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 $10,000 as of December 31, 2002. The
Company has accrued for this amount at that date.

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. 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 our network of
         franchisees or qualified subcontractors. Service fees are its primary
         source of revenues.

         Information by business segment is set forth below:

<TABLE>
<CAPTION>
                                             2002                           2001
                                         ------------                   ------------
<S>                                      <C>                            <C>
Revenues:
   Franchising                           $ 22,567,990                   $ 19,053,795
   National Accounts                        3,297,994                      3,310,782
                                         ------------                   ------------

      Total                              $ 25,865,984                   $ 22,364,577
                                         ============                   ============

Operating Income (Loss):
   Franchising                           $  4,643,007                   $  3,403,749
   National Accounts                          (14,103)                        25,166
                                         ------------                   ------------

      Total                              $  4,628,904                   $  3,428,915
                                         ============                   ============
</TABLE>

                                       55

<PAGE>

<TABLE>
<CAPTION>
                                                                     NATIONAL
                                            FRANCHISING              ACCOUNTS              TOTAL
                                            ------------             ---------          ------------
2002:
-----
<S>                                         <C>                      <C>                <C>
Identifiable assets                         $ 26,671,363             $ 500,269          $ 27,171,632
Depreciation and amortization               $  1,343,650             $   6,436          $  1,350,086
Net capital expenditures                    $  1,010,811             $   1,130          $  1,011,941
Purchases of franchise rights               $    226,795             $     ---          $    226,795
</TABLE>

<TABLE>
<CAPTION>
                                                                     NATIONAL
                                            FRANCHISING              ACCOUNTS              TOTAL
                                            ------------             ---------          ------------
2001:
-----
<S>                                         <C>                      <C>                <C>
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>

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

(B)      Revenues from Foreign Operations

<TABLE>
<CAPTION>
                                                2002                       2001
                                            ------------               ------------
<S>                                         <C>                        <C>
United States                               $ 24,609,688               $ 20,996,449
Canada                                           624,037                    674,137
Other foreign countries                          632,259                    693,941
                                            ------------               ------------
   Total                                    $ 25,865,984               $ 22,364,577
                                            ============               ============
</TABLE>

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

NOTE 14.    SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                           2002             2001
                                                                       ------------     -----------
<S>                                                                    <C>              <C>
Cash paid for interest                                                 $    300,600     $   341,506
Cash paid for income taxes                                             $  1,686,875     $ 1,733,613
Land received in exchange for related party debt                       $    300,000     $       ---
Note issued for purchase of franchise rights                           $    177,000     $       ---
</TABLE>

NOTE 15.    ACCUMULATED OTHER COMPREHENSIVE LOSS

         The components of accumulated other comprehensive loss at December 31,
2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                                  2002             2001
                                                              ------------     -----------
<S>                                                           <C>              <C>
Foreign currency translation adjustment                       $    (66,460)    $   (66,325)
Unrealized gain (loss) on available for sale securities             (2,147)         (4,712)
                                                              ------------     -----------
    Total                                                     $    (68,607)    $   (71,037)
                                                              ============     ===========
</TABLE>

                                       56

<PAGE>

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)

   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)

<PAGE>

   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)

   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)

<PAGE>

   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)

   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
<PAGE>

            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)

   10.85*   Form of Stock Option Agreement dated April 29, 2002 by and
            between the Company and Burt Cohen for 40,000 shares of the
            Company's Common Stock.

   10.86*   Form of Stock Option Agreement dated September 5, 2002 by and
            between the Company and Burt Cohen for 10,000 shares of the
            Company's Common Stock.

   10.87*   Form of Stock Option Agreement dated September 5, 2002 by and
            between the Company and Don Latin for 10,000 shares of the
            Company's Common Stock.

   21.1*    List of Subsidiaries

   23.1*    Consent of Independent Certified Public Accountants related to
            S-8 filing

   99.1*    Certification by CEO pursuant to 18 U.S.C. Section 1350, as
            adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
            2002.

   99.2*    Certification by CFO pursuant to 18 U.S.C. Section 1350, as
            adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
            2002.

* 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).

(16)     Incorporated by reference to the Registrant's Form 10-KSB for its
         fiscal year ended December 31, 2001 (SEC File No. 0-15227).