<PAGE>   1
                       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, 1998

( )      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 [ ] No [X]

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

         Issuer's revenues for its most recent fiscal year:     $14,811,180

         Aggregate market value of the voting stock held by nonaffiliates 
         computed by average bid and asked prices of such stock, as of 
         March 25, 1999:    $5,097,521

         Aggregate number of shares of Common Stock outstanding as of the close
         of business on March 25, 1999:     6,915,710


                       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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<S>        <C>                                                                                                         <C>
PART I

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

PART II

Item 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER  MATTERS...................................................10

Item 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS........................................................................10

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..............................................................24

Item 13.   EXHIBITS, AND REPORTS ON FORM 8-K...........................................................................25
</TABLE>

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                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS

GENERAL

         The Dwyer Group, Inc. and its wholly owned subsidiaries (the "Company")
provide a diverse array of specialty services internationally through its
service-based franchising businesses. The Company currently owns six such
businesses, which service an aggregate of approximately 750 franchises located
in the United States and Canada, and through their master licensees,
approximately 200 franchisees in 15 other countries. The Company has positioned
itself as a consolidator of franchising businesses in order to benefit from
economies of scale achievable through the pooling of resources. The Company
believes that franchisees are attracted to the Company's franchise opportunities
because of the depth of the Company's support services, a commitment to its
mission and vision and the reputation of its management team.

         In 1998, the Company operated its businesses through the following
wholly owned subsidiaries - See "Management's Discussion and Analysis - Results
of Operations":

         o        Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of
                  plumbing repair and drain cleaning services under the service
                  mark "Mr. Rooter"(R). In 1998, Mr. Rooter accounted for
                  approximately 28.4% of the Company's consolidated revenues as
                  compared to 27.5% in 1997.

         o        Rainbow International Carpet Dyeing and Cleaning Co.
                  ("Rainbow") is a franchisor of carpet cleaning, dyeing, air
                  duct cleaning, and restoration services under the service mark
                  "Rainbow International" (R). In 1998, Rainbow accounted for
                  approximately 17.8% of the Company's consolidated revenues as
                  compared to 19.2% in 1997.

         o        Mr. Electric Corp. ("Mr. Electric") is a franchisor of
                  electrical repair and service businesses under the service
                  mark "Mr. Electric"(R). In 1998, Mr. Electric accounted for
                  approximately 8.8% of the Company's consolidated revenues as
                  compared to 6.7% in 1997.

         o        Synergistic International, Inc., which commenced operations in
                  July of 1998, is franchisor of Glass Doctor (R), a service
                  concept whose business is the replacement of automobile,
                  residential and commercial glass. In 1998, Glass Doctor
                  accounted for approximately 5.5% of the Company's consolidated
                  revenues.

         o        Aire Serv Heating & Air Conditioning, Inc. ("Aire Serv") is a
                  franchisor of heating, ventilating and air conditioning
                  service businesses under the service mark "Aire Serv" (R). In
                  1998, Aire Serv accounted for approximately 4.5% of the
                  Company's consolidated revenues as compared to 2.3% in 1997.

         o        Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of major
                  household appliance service and repair businesses under the
                  service mark "Mr. Appliance" (R). In 1998, Mr. Appliance
                  accounted for approximately 1.4% of the Company's consolidated
                  revenues as compared to 2.2% in 1997.

         o        The Dwyer Group National Accounts, Inc. ("National Accounts")
                  solicits commercial national account customers who can call a
                  toll-free number for their general repair and 24-hour
                  emergency service needs. The order is filled through the
                  Company's network of franchisees or qualified subcontractors.
                  In 1998, National Accounts accounted for approximately 10.3%
                  of the Company's consolidated revenues as compared to 5.7% in
                  1997.

         o        The Dwyer Group Canada, Inc. ("TDG Canada") commenced 
                  operations in January of 1998, in order to market and service
                  certain of the Company's franchise concepts in Canada.
                  Currently, those concepts are: Mr. Rooter, Mr. Electric,
                  Rainbow and Aire Serv. In 1998, TDG Canada accounted for
                  approximately 1.8% of the Company's consolidated revenues.

         o        General Business Services, Inc. ("GBS") is a franchisor of
                  businesses which provide management services to small
                  businesses. The business and substantially all of the assets
                  of GBS were sold in July of 



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                  1998. In 1998, GBS accounted for approximately 10.5% of the
                  Company's consolidated revenues as compared to 17.6% in 1997.

         o        Edwin K. Williams & Co. ("EKW") is a franchisor of businesses
                  which provide information systems and financial management
                  services to small businesses. The business and substantially
                  all of the assets of EKW were sold in July of 1998. In 1998,
                  EKW accounted for approximately 5.8% of the Company's
                  consolidated revenues as compared to 12.0% in 1997.

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

         The Company was incorporated in 1970 in the State of Oklahoma under the
name Mr. Rooter Corporation of America, Inc. The Company's name was changed to
Mr. Rooter Corporation in 1972, and in 1986 the Company was reincorporated as a
Delaware corporation. In 1993, the Board of Directors approved a plan to convert
the Company into a holding company and to form a new subsidiary to operate the
Mr. Rooter business. In that same year, this new subsidiary was incorporated in
Texas under the name Mr. Rooter Corporation and the Company was renamed The
Dwyer Group, Inc.

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


FRANCHISE OPERATIONS

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

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

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

         Initial franchise fees and royalty rates for each franchise concept
vary, and are described in the following sections below related to each concept.
In general, the Company at its discretion, may finance a portion of the
franchise fee (30-80%) and may give a discount if the franchise fee is paid in
full upon the signing of the agreement.

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

         During 1998, in order to encourage business owners to convert their
businesses to one of the Company's franchise concepts, the Company formalized a
"roll-in" program whereby new franchisees can roll-in sales from their existing
business, and pay reduced royalty and advertising fee rates on the existing
sales. The franchisee may also receive a discount on the initial franchise fee
based on the amount of sales "rolled-in".

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



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operations expertise developed by its management over many years provides the
Company with a competitive advantage.

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

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

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

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


Mr. Rooter

         Mr. Rooter is a franchisor of plumbing repair and drain cleaning
services under the service mark "Mr. Rooter(R)" and related trade and service
marks. In 1989, when Mr. Rooter was acquired by the Company, there were 22 Mr.
Rooter franchises in operation. By the end of 1998, Mr. Rooter had a total of
203 franchises in the United States and Canada, and through master franchise
licensees, 64 franchises in six other countries. Mr. Rooter has shown
significant growth in revenues from royalties paid by franchisees (from $234,000
in 1989 to $3,424,000 in 1998).

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

         A new franchisee pays an initial franchise fee of $185 for each 1,000
of the franchise territory's population, with a minimum initial fee of $18,500.
In the second quarter of 1999, the minimum fee will increase to $19,500 for the
first 100,000 of population, plus $195 for each additional 1,000 of population.
In general, Mr. Rooter sells its franchises to 



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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. Regional consultants provide support
for franchisees in their region.

         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 6% of gross sales, depending on weekly gross sales volume. In
addition to the weekly royalty, the franchisees 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. From
time-to-time, Mr. Rooter has advertised nationally on network radio and
television.

         The term of the initial franchise agreement is ten years, which may be
renewed for additional five year terms at the option of the franchisee upon
certain conditions, including six months prior notice and payment of a $2,500
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, 1998,
Rainbow had 368 franchises in the United States and Canada, and 121 franchises
through master franchise licensees in 11 other countries.

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

         The initial franchise fee is a minimum of $15,000, with an additional
amount depending upon the population of the franchise territory. As of the
second quarter of 1999, the minimum fee will be increased to $15,900. During the
term of the agreement, the franchisee is required to pay Rainbow a continuing
royalty of 7% of weekly gross sales plus a national advertising fee of 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. The term of the initial
franchise agreement is ten years, with a mutual option to renew and no renewal
fee.

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


Mr. Electric

         Mr. Electric is a franchisor of electrical repair and service
businesses under the service mark "Mr. Electric(R)". Mr. Electric began
operations in September of 1994, and at December 31, 1998, had 67 franchises in
the United States and Canada, and through master licenses, 17 franchise
operations in three foreign countries.

         The minimum initial franchise fee is $15,000, based on a territory
population of approximately 100,000. The fee is increased by $150 for each
additional 1,000 of population contained in the franchise territory. In the
second quarter of 1999, the fee will increase to $17,500 for the first 100,000
in population, plus $175 for each additional 1,000 in population.

         The initial franchise agreement term is ten years. 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.



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         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. 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 regional training meetings and toll-free telephone
support from Company personnel.


Aire Serv

         Aire Serv is a franchisor of heating, ventilating and air conditioning
service businesses providing installation, maintenance, repair and related
services of residential and commercial heating and air conditioning equipment.
At December 31, 1998, Aire Serv had 51 franchises in the United States and one
foreign master franchise licensee.

         The minimum initial franchise fee is $15,000, based on a territory
population of approximately 100,000. The initial franchise fee is increased by
$150 for each additional 1,000 of population contained in the franchise
territory. In the second quarter of 1999, the minimum initial franchise fee will
increase to $25,000, and the franchisee will be provided with a variety of
start-up items including marketing and advertising materials, an administrative
start-up package and computer software.

         The term of an Aire Serv franchise agreement is ten years from the date
specified in the agreement. A franchisee may elect to renew the term of the
franchise for additional five-year periods upon certain conditions and payment
of a $2,500 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% royalty and a 1% advertising fee for the first year of
operation. If the amount of existing business "rolled-in" is large enough, the
reduced rates 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. Beyond initial business training, extensive ongoing support
emphasizing the development of the franchisee's marketing and business
management skills is provided by individually assigned franchise systems
managers and through regional training meetings and toll-free telephone support
from Company personnel.


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, 1998, had 25 franchises, all in the United States.

         The minimum initial franchise fee is $12,500, based on a territory
population of approximately 100,000. The initial franchise fee is increased by
$125 for each additional 1,000 of population contained in the franchise
territory. Beginning in the second quarter of 1999, the minimum initial
franchise fee will be $14,500, increased by $50 for each additional 1,000 of
population contained in the franchise territory. With the increased franchise
fee, the franchisee will receive an advertising and marketing package, and other
start-up materials.

         The initial Mr. Appliance franchise agreement term is ten years from
the date specified in the agreement. 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.

         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 



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maintain an advertisement in the Yellow Pages of their local telephone
directory. The franchisee is provided with a computerized business package which
standardizes the operation of their business. Beyond initial business training,
extensive ongoing support emphasizing the development of the franchisee's
marketing and business management skills is provided through regional training
meetings and toll-free telephone support from Company personnel.


Glass Doctor

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

         The minimum initial franchise fee is $15,000, based on a territory
population of 100,000. The fee is increased by $150 for each additional 1,000 of
population in the franchise territory. In the second quarter of 1999, the fee
will increase to $15,925 for the first 100,000 of population, plus $159 for each
additional 1,000 in population.

         The initial franchise agreement is for ten years. An election to renew
may be made by the franchisee for two additional five year periods upon certain
conditions and payment of a $2,500 renewal fee.

         During the term of the franchise agreement, the franchisee is required
to pay (i) a royalty fee ranging from 3% to 6% of weekly gross sales, based on
weekly gross sales volume and (ii) an advertising fee equal to 2% of weekly
gross sales. For "roll-in" business, the franchisee pays a 2% royalty and a 1%
advertising fee for the first year of operation. Franchisees are also required
to engage in local promotion of their services and to maintain an advertisement
in the Yellow Pages of their local telephone directory. Each new franchisee is
given initial business training and is taught a system for doing business. The
franchisee is provided with a computerized business package which standardizes
the operation of their business. All franchisees receive extensive ongoing
support emphasizing development of marketing and business management skills
through regional training meetings and toll-free telephone support from Company
personnel.


MARKETING

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

         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.

         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 make such
businesses more successful. Franchisees receive extensive training in sales,
marketing and business systems.

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



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

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


COMPETITION

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

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

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

         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.

         Local electricians are Mr. Electric's primary source of competition.

         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 and Harding Glass, who operate on
a national basis.

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

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



                                       7
<PAGE>   10

TRADE NAMES AND SERVICE MARKS

         The Company believes that its trademarks and service marks are
important to the marketing of its franchises and the sale of services to
consumers by its franchisees. The Company currently holds the following
federally registered trademark and service marks: The Dwyer Group(R), Providing
a World of Service(R) and Providing a World of Specialty Services(R) and has
applied for federal trademark registration of the stylized Dwyer Group logo. The
Company, through its subsidiaries, currently holds the following federally
registered trademarks and service marks: "Mr. Rooter"(R), the stylized Mr.
Rooter logo, "Mr. Winkie Design", "Quick-as-a-Wink"(R), "Super Kleens"(R),
BiochoiceES(R), "America's Trouble Shooter"(R), "North America's Trouble
Shooter"(R), "Aire Serv"(R), the stylized Aire Serv logo, "America's Comfort
Company"(R), "Mr. Electric"(R), the stylized Mr. Electric design, the "Rainbow
International Carpet Care & Restoration Services" stylized global device,
"Rainbow International"(R), "Vehicle Stripe Design for Rainbow", "Mr.
Appliance"(R), the stylized Mr. Appliance logo, "Glass Doctor"(R), and the
stylized Glass Doctor logo, "We Fix Your Panes"(R). The Company has applied for
federal trademark and service mark registration for the revised stylized Glass
Doctor logo and the van stripe design for each of Mr. Rooter, Mr. Electric, Mr.
Appliance and Aire Serv. The Company holds a state trademark registration for
"Mr. Rooter" in Texas, a service mark registration for "Rainbow International
Carpet Dyeing & Cleaning Co." in 13 states and a state service mark registration
for Aire Serv and the stylized Aire Serv logo in California. In addition, the
Company holds copyrights in connection with all training manuals and materials
which it considers proprietary. The Company also holds numerous foreign
trademarks and service marks related to its franchising concepts.

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


REGULATION

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

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

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



                                       8
<PAGE>   11

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


EMPLOYEES

         As of December 31, 1998, the Company had 88 full-time employees and 4
part-time employees, none of whom belong to unions, as detailed below:

<TABLE>
<CAPTION>
                                           Full-time     Part-time      Total
                                           ---------     ---------      -----
<S>                                            <C>           <C>         <C>
                  Corporate................... 43 .......... 4 ......... 47
                  Mr. Rooter.................. 12 .......... 0 ......... 12
                  Aire Serv...................  4 .......... 0 .........  4
                  Rainbow..................... 14 .......... 0 ......... 14
                  Mr. Electric................  6 .......... 0 .........  6
                  Glass Doctor................  2 .......... 0 .........  2
                  Mr. Appliance...............  3 .......... 0 .........  3
                  National Accounts...........  4 .......... 0 .........  4

                  Total....................... 88 .......... 4 ......... 92
</TABLE>


ITEM 2.   DESCRIPTION OF PROPERTY

         The Company's principal executive and administrative offices are
presently located at 1010 - 1020 N. University Parks Drive, Waco, Texas. These
facilities are leased from a related party under an operating lease which
expires December 31, 2000. Monthly rental for these offices is approximately
$31,000. See "Certain Relationships and Related Party Transactions."


ITEM 3.   LEGAL PROCEEDINGS

         The Company is engaged in various legal proceedings incidental to its
normal business activities. Management has estimated a potential range of loss
due to these proceedings not to exceed $1.1 million. The Company has accrued for
its estimate of such losses, of which approximately $1.0 million was expensed in
1998, when such losses became probable. In the first quarter of 1999, the
Company resolved a lawsuit and a potential lawsuit and made payments of 
$575,000. This amount was included in the accrual at December 31, 1998.


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

         No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of the year ended December 31, 1998.



                                       9
<PAGE>   12

                                     PART II


ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Company's Common Stock is listed on The Nasdaq Stock MarketSM under
the symbol "DWYR". The Nasdaq Stock MarketSM, which began operation in 1971, is
the world's first electronic securities market and the fastest growing stock
market in the U.S. Nasdaq utilizes today's information technologies - computers
and telecommunications - to unite its participants in a screen-based, floorless
market. It enables market participants to compete with each other for investor
orders in each Nasdaq security and, through the use of Nasdaq WorkstationII(TM)
and other automated systems, facilitates the trading and surveillance of
thousands of securities. This competitive marketplace, along with the many
products and services available to issuers and their shareholders, attracts
today's largest and fastest growing companies to Nasdaq. These include industry
leaders in computers, pharmaceuticals, telecommunications, biotechnology, and
financial services. More domestic and foreign companies list on Nasdaq than on
all other U.S. stock markets combined.

         The following table sets forth the quarterly high and low sales prices
per share of the Company's Common Stock as reported by The Nasdaq Stock
MarketSM, for each quarter during the last two fiscal years. These per share
quotations represent inter-dealer prices and do not include retail mark-ups,
mark-downs or commissions and may not represent actual transactions.

<TABLE>
<CAPTION>
                                             HIGH              LOW
                                             ----              ---
<S>                                          <C>               <C>  
FISCAL YEAR ENDED DECEMBER 31, 1998

         First Quarter                       $2.19             $1.75
         Second Quarter                      $3.25             $2.00
         Third Quarter                       $2.44             $1.38
         Fourth Quarter                      $2.00             $1.63


FISCAL YEAR ENDED DECEMBER 31, 1997

         First Quarter                       $2.25             $1.38
         Second Quarter                      $2.13             $1.50
         Third Quarter                       $2.19             $1.63
         Fourth Quarter                      $2.38             $1.75
</TABLE>


         On March 25, 1999, the closing sales price of the Company's Common
Stock as reported by The Nasdaq Stock MarketSM was $1.88 per share. As of such
date, there were approximately 400 shareholders of record.

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


ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS

         Unless otherwise noted, all dollar amounts are rounded to the nearest
thousand. Percentages represent the change from the comparable amount from the
previous year. References to 1997 and 1998 are to the years ended December 31 of
each year. Note references refer to Notes to Consolidated Financial Statements.



                                       10
<PAGE>   13

RESULTS OF OPERATIONS

         The following table shows the approximate amount (in thousands) and
percentage of the total, of revenues and operating income (loss) of each of the
Company's operating subsidiaries.

                             YEAR ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                          1998                        1997
                                          ----                        ----
<S>                              <C>             <C>         <C>             <C>  
REVENUES:

Mr. Rooter ...................   $  4,205        28.4%       $  4,249        27.5%
Rainbow ......................      2,639        17.8           2,961        19.2
Glass Doctor (1) .............        817         5.5              --          --
Aire Serv ....................        669         4.5             350         2.3
Mr. Electric .................      1,304         8.8           1,029         6.7
Mr. Appliance ................        202         1.4             335         2.2
National Accounts ............      1,527        10.3             885         5.7
TDG Canada (2) ...............        271         1.8              --          --
GBS (3) ......................      1,553        10.5           2,710        17.6
EKW (3) ......................        856         5.8           1,846        12.0
Other (4) ....................        768         5.2           1,067         6.8
                                 --------     -------        --------     -------
                                 $ 14,811       100.0%       $ 15,432       100.0%
                                 ========     =======        ========     =======

NET OPERATING INCOME (LOSS) (5):

Mr. Rooter ...................   $    507       (30.5)%      $  1,303       124.5%
Rainbow ......................        274       (16.5)            637        60.9
Glass Doctor (1) .............        132        (7.9)             --          --
Aire Serv ....................       (671)       40.4            (690)      (65.9)
Mr. Electric .................       (563)       33.8             (95)       (9.1)
Mr. Appliance ................       (352)       21.2            (186)      (17.8)
National Accounts ............        (57)        3.5              40         3.8
TDG Canada (2) ...............        (24)        1.4              --          --
GBS (3) ......................       (205)       12.4            (449)      (42.9)
EKW (3) ......................        (79)        4.8             188        18.0
Other (4) ....................       (622)       37.4             299        28.5
                                 --------     -------        --------     -------
                                 $ (1,660)      100.0%       $  1,047       100.0%
                                 ========     =======        ========     =======
</TABLE>

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

(1)     Glass Doctor was acquired in July of 1998.

(2)     TDG Canada was formed in February of 1998.

(3)     GBS and EKW were sold in July of 1998.

(4)     Includes revenues or operating income (loss) of The Dwyer Group, Inc.
        (parent holding company) which maintains all corporate activities and
        functions (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.

(5)     Before gain on sales of securities, gain on sale of assets and income
        taxes.



                                       11
<PAGE>   14

YEAR ENDED DECEMBER 31, 1998, COMPARED TO YEAR ENDED DECEMBER 31, 1997:

         The Company recorded a net profit of $53,000 or $.01 per share for
1998, as compared to a net profit of $747,000, or $.11 per share for 1997.

         Revenues

         Total revenues for 1998 were $14,811,000, a decrease of $621,000 or
4.0%, from $15,432,000 for 1997. This decrease is comprised of the following
components: royalties increased $461,000 (5.8%); franchise fees decreased
$941,000 (27.6%); sales of products and services increased $297,000 (19.0%); tax
services decreased by $109,000 (13.9%); interest decreased by $62,000 (9.5%);
and other revenues decreased by $267,000 (26.8%).

         Royalty revenues increased from $8,022,000 in 1997 to $8,483,000 in
1998. Increases occurred in: Mr. Rooter - $201,000 or 7.9%; Mr. Electric -
$178,000 or 81.1%; Aire Serv - $90,000 or 57.5%; and Mr. Appliance - $53,000 or
278.9%. Overall, these royalty revenue increases, which coincide with the
increased business revenues of existing franchisees as well as an increase in
the number of franchisees producing revenue, are a direct result of the
Company's emphasis on providing strong franchise support services, and its
methods and programs created to assist franchisees in building successful
businesses, along with continued emphasis on the sale of new franchises. These
strategies are very important to the future of the Company, as royalties are the
foundation for the Company's long-term financial strength. The Company also
added $588,000 to royalties by the purchase of Glass Doctor in July of 1998, and
$237,000 by the purchase of Canadian franchise rights in the first quarter of
1998. Partially offsetting the above increases were decreases in royalties from
GBS - $383,000 (37.6%); EKW - $355,000 (40.0%); and Rainbow $148,000 (6.2%). The
decreases in GBS and EKW were due to the sale of these franchise concepts in
July of 1998. The decrease in Rainbow is due to a decline in the number of
existing franchisees and a slowdown in the sale of new franchises. To combat
this decline, Rainbow has hired additional staff to sell new franchises and is
implementing programs intended to increase the retail sales generated by its
franchisees.

         Franchise sales revenues represent the initial franchise fees paid to
the Company by its individual and regional franchisees as well as fees charged
for foreign master licenses. These revenues decreased from $3,415,000 in 1997 to
$2,475,000 in 1998. Decreases occurred in Mr. Rooter - $223,000 (28.9%); Mr.
Appliance - $188,000 (61.4%); Rainbow - $132,000 (36.4%); GBS - $592,000
(80.0%); and EKW - $312,000 (90.0%). The decreases in GBS and EKW were due to
the sale of these concepts in July of 1998. Franchising of these concepts was
de-emphasized earlier in 1998, in anticipation of the sale. In the second half
of 1998, in an effort to combat the declining franchise sales in the remaining
concepts noted above, the Company realigned its franchise sales department to
provide for a more efficient and focused sales process and revamped its
franchise sales system in order to increase the quality and quantity of new
franchisees. The Company has experienced increases in overall franchise sales in
the fourth quarter of 1998, and the first quarter of 1999. Partially offsetting
the above noted decrease was $226,000 in franchise sales attributable to Glass
Doctor, an increase in Mr. Electric - $63,000 (8.8%); and an increase in Aire
Serv - $218,000 (127.1%). The significant increase in Aire Serv is due primarily
to the Company's "roll-in" program, whereby an existing business owner can
"roll-in" existing sales to the franchise at reduced rates. The program has
attracted a number of new franchisee and has now been formalized and extended to
all of the Company's franchise concepts.

         Revenues from sales of products and services increased by $297,000
(19.0%) due to increased revenues from National Accounts of approximately
$700,000, partially offset by a decrease in revenues from GBS and EKW of
approximately $400,000 due to the sale of these businesses in July of 1998.

         Revenues from tax services decreased by $109,000 (14%) due to the sale
         of GBS in July of 1998.

         Interest revenues decreased by $63,000 (9.5%) primarily due to a
         decrease in notes receivable from franchisees.

         Other revenues decreased by $267,000 (26.8%) due to a decrease in
         commissions received from related parties for the sale of franchises
         and a decrease in management fees received from related parties due to
         a reduction in work performed.




                                       12
<PAGE>   15

         Costs and Expenses

         General, administrative and selling expenses increased by $1,892,000
(16.1%). This increase is generally made up of the following:

         o        An increase of $256,000 in overhead associated with Mr. Rooter
                  due to increased business activity. Mr. Rooter's overhead was
                  reduced significantly in the fourth quarter of 1998.

         o        An increase of $292,000 in overhead associated with Mr.
                  Electric due to increased business activity.

         o        An increase of $157,000 in overhead associated with National
                  Accounts due to increase business activity.

         o        Overhead of $432,000 associated with Glass Doctor, which was
                  acquired in July of 1998.

         o        Overhead of $159,000 associated with TDG Canada, which was
                  formed in February of 1998.

         o        An increase of $333,000 in corporate overhead, generally due
                  to personnel additions. Corporate overhead was reduced
                  significantly in the fourth quarter of 1998.

         o        An increase of approximately $1 million in legal expenses due
                  to litigation accruals related to lawsuits to which the
                  Company is a party.

         o        An increase of approximately $600,000 in bad debt expense due
                  to collection experiences and increased reserves for
                  guarantees of third party debt.

         o        A decrease of $774,000 due to the sale of GBS in July of 1998.

         o        A decrease of $484,000 due to the sale of EKW in July of 1998.

         The cost of products and service sales increased by $428,000 (38.5%)
due to costs associated with increased revenues from National Accounts,
partially offset by costs associated with the decrease in revenues from GBS and
EKW. Costs increased by a greater percentage than revenues due to a lower profit
margin on National Accounts revenues as compared to GBS and EKW.

         The cost of tax service revenues decreased by $412,000 (45.5%) due to
the sale of GBS in July of 1998, along with operational efficiencies introduced
by management.

         Depreciation and amortization expense increased by $139,000 (25.0%) due
to amortization of intangible assets acquired in 1998, partially offset by
decreases related to the sale of GBS and EKW.

         Interest expense increased by $38,000 (64.3%) due to a note payable
related to the acquisition of Glass Doctor.

         In 1998, the Company recorded a gain of $1,446,000 on the sale of GBS
and EKW as described in Note 4.

         In 1998, the Company sold marketable securities and reported a gain of
$333,000. Such gain in 1997 amounted to $78,000.


LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1998, the Company's working capital ratio was 1.9 to 1
compared to 3.4 to 1 at December 31, 1997. The Company had working capital of
$2,936,000 at the end of 1998, as compared to $5,489,000 at the end of 1997.
These changes are due primarily to the sale of GBS and EKW and to the increase
in reserves and accruals as described in "Results of Operations".



                                       13
<PAGE>   16

         The sale of GBS and EKW reduced current assets by $746,000 and current
liabilities by $288,000, thus reducing working capital by $458,000. Legal
accruals made in 1998 increased current liabilities by approximately $1 million
and reserves for guarantees of third party debt increased current liabilities by
approximately $300,000. It is expected that the Company will make cash payments
against such accruals and reserves in upcoming years. For 1999, management
expects to fund working capital requirements primarily through operating cash
flow. At December 31, 1998, the Company had cash and cash equivalents of
approximately $500,000 and marketable securities of approximately $2 million.
Management believes that the Company's cash flow, supplemented by the Company's
positive cash position will be adequate to fund the Company's capital
requirements.

         Net cash used by operating activities for 1998 totaled $1,949,000 as
compared to $453,000 in 1997, primarily due to a reduction in net income of
$694,000 and income tax payments of approximately $450,000 made in 1998.

         In 1997, the Company generated $419,000 in cash from investing
activities versus $1,425,000 in 1998. In 1998, the Company acquired Glass Doctor
for $3,225,000, property and equipment for $461,000 and franchise rights for
$587,000. These purchases were offset by proceeds from the sale of assets of
$3,610,000 and by collections of notes receivable of $1,475,000 (of which
$151,000 was from related parties). The Company also generated $686,000 in cash
from a net sale of marketable securities in 1998. In 1997, The Company generated
$857,000 from collections on notes receivable (of which $134,000 was from
related parties) and $200,000 from the sale of assets. These amounts were
partially offset by purchases of property and equipment of $173,000 and net
purchases of marketable securities of $455,000.

         In addition to the $3,225,000 cash portion of the purchase price paid 
for Glass Doctor, the Company also executed an unsecured note payable to the
seller in the amount of $1,900,000. The note bears interest at 5.5% per annum
and is payable in quarterly installments through July of 2002.

         The Company used $ 218,000 in cash for financing activities in 1997,
for a reduction of net borrowings. In 1998, $545,000 was used for such
activities, $345,000 to reduce net borrowings and $200,000 for the purchase of
treasury stock.

         In 1993, the Company entered into a Franchise Financing Agreement with
Stephens Franchise Financing, which is now SunTrust Credit Corporation
("SunTrust"), pursuant to which SunTrust agreed to extend credit to qualified
Mr. Rooter and Aire Serv franchisees up to an aggregate amount of $10,000,000.
As of December 31, 1998, the aggregate principal amounts of outstanding
franchisee indebtedness under such agreement was approximately $1,316,000.
Pursuant to the terms of the agreement, the Company is liable for such
franchisee indebtedness in the event a default occurs and the Company has 180
days to correct the default. If the default is not corrected within such time,
the Company is obligated to make the monthly installments on the note until paid
in full or the franchise is sold to another approved party and the debt is
assumed by that party. The Company also has the option of substituting its notes
receivable from franchisees of equal or greater value. During 1998, the Company
did not exchange any such notes. In 1997, the Company exchanged notes
aggregating approximately $29,000. In addition, approximately $84,000 and
$37,000 was paid to SunTrust during 1998 and 1997, respectively, representing
monthly installments on behalf of franchisees in default. In 1998, management
discontinued the practice of guaranteeing franchise notes to third parties.

         In September 1996, The Dwyer Group, Inc., Mr. Rooter, Aire Serv, Mr.
Appliance, and Mr. Electric entered into an agreement with Phoenix Leasing
Incorporated ("Phoenix") to finance franchise sales for franchise applicants who
meet Phoenix's qualifications. Phoenix agreed to provide up to $3,000,000 in
debt financing to the franchisees provided that each franchisee's obligations to
Phoenix under its debt financing be guaranteed by the Company. Each month, the
Company receives an Aging Report of the amounts due and owing by the
franchisees. If an Aging Report shows that any franchisee has failed to make all
of the scheduled monthly payments due during any sixty day period, then the
Company, within ten days of delivery of such Aging Report, shall pay all of such
franchisee's delinquent scheduled payments, together with all late charges then
due. In 1998, the Company paid approximately $39,000 on such delinquent notes.
The Company was not required to make any such payments in 1997. At December 31,
1998, the Company was contingently liable for approximately $688,000, relating
to such notes. In 1998, management discontinued the practice of guaranteeing
franchisee notes to third parties.

         In connection with its franchising activities, the Company regularly
extends credit to prospective franchisees to finance their purchase of
franchises. The repayment of such indebtedness is secured by the assets of such
franchises, including the franchise rights sold to the franchisees. The Company
recognizes franchise sales revenues for the entire sale if the franchisee has
made a down payment in cash of at least 20% of the sales price and has completed
training. The Company also recognizes franchise sales revenues from existing
franchisees buying additional territory who make a cash down payment of less
than 20% but who have an established history of good credit. At December 31,
1998 and 1997, notes receivable (in excess of those recognized as deferred
liabilities), less allowance for doubtful collections, were 



                                       14
<PAGE>   17

approximately $3,302,000 and $3,754,000, respectively. At December 31, 1998, the
Company's allowance for doubtful notes was $941,000, which the Company believes
is adequate for the size and nature of its notes receivable.

         The Company is not aware of any trend or event which would potentially
adversely affect its liquidity. In the event such a trend would develop,
management believes that the Company has sufficient funds available to satisfy
the working capital needs of the business.

YEAR 2000 COMPLIANCE

         The Company initiated a program in 1996 to assess its internal
information technology systems to upgrade those systems for the next stage of
the Company's growth and to make them Year 2000 compliant. The Company expects
this program to be completed by the third quarter of 1999.

         In 1996, the Company determined that its accounting system was not Year
2000 compliant and that the Company's servers also required upgrading in order
to be Year 2000 compliant.

         During 1996 and 1997, the Company purchased new Year 2000 compliant
accounting software, servers, network operating systems and software
applications. All of the new equipment and software has been installed and
implemented, except that the module of the accounting package that is used to
process royalty payments from the franchisees is in the testing phase.
Implementation of the royalty module is scheduled to be complete by the third
quarter of 1999.

         In 1998, the Company performed an inventory of all of its personal
computers, workstations and related software for Year 2000 compliance. The
Company formulated a replacement schedule for all non-compliant personal
computers and software, which the Company expects to complete by the third
quarter of 1999. Also in 1998, the Company determined that its telephone switch
(PBX) and its voice mail system are not Year 2000 compliant. The Company plans
to replace the telephone switch and the voice mail system by the third quarter
of 1999 with Year 2000 compliant systems.

         Also in 1998, the Company purchased a software application from Pivotal
Software, Inc. called Relationship 99, an information management program which
facilitates and enhances all aspects of the Company's operations and integrates
with the Company's accounting software, data bases and other applications. While
this software is Year 2000 compliant, it was not purchased specifically to meet
the Company's Year 2000 compliance requirements.

         To date, the Company has relied on representations from suppliers that
its information technology systems are Year 2000 compliant. The Company plans to
test its systems for Year 2000 compliance during the second and third quarters
of 1999.

         Aside from the Company's telephone system, the Company's other
non-information technology systems (i.e. embedded systems contained in the
Company's buildings, plant, equipment and other infrastructure) do not impact
regular operations of the Company.

         Fees from franchisees constitute the Company's principle source of
revenue. The Company is currently assessing the information technology and
non-information technology systems used by franchisees. The Company is also
continuing to identify third party vendors and service providers whose
non-compliant systems could have an impact on the Company and assess their
compliance status. The Company expects that these assessments will be completed
by the end of the second quarter of 1999.

         The Company expects its total cost to address the Year 2000 issue to be
approximately $250,000, of which approximately $100,000 had been expended
through December of 1998. The Company expects to incur the balance of such costs
to complete the compliance plan in 1999. The balance of such costs is expected
to be funded through operating cash flows. The Company has been expensing and
capitalizing the costs to complete the compliance plan in accordance with
appropriate accounting principles. The above described costs do not include
$250,000 for the Pivotal Relationship99 system.

         The Company does not expect the Year 2000 issue to pose significant
operational or financial problems for the Company. The Company bases this
expectation on the progress it has made in upgrading its internal information
systems and the fact that it is a service business that does not depend heavily
on machinery that might have embedded technology 



                                       15
<PAGE>   18

nor on suppliers of goods for resale. In addition, the Company's franchisees are
in service businesses. Nevertheless, the Year 2000 issue could have a material
impact on the Company's operations and financial condition in the future in the
event the Company or its key suppliers, such as banks, public utilities or
telecommunications services, or a significant number of the Company's
franchisees, are unable to resolve the Year 2000 issue in a timely manner; or if
the Company becomes the subject of litigation or other proceedings regarding any
Year 2000-related events. The amount of potential loss cannot be reasonably
estimated at this time.

         The Company has not developed contingency plans as of this date. As the
Year 2000 compliance program proceeds, contingency plans will be prepared,
updated and implemented as necessary to address the risks identified, including
a plan for a yet to be determined worst case scenario. No contingency plans are
being developed for the availability of key public services and utilities.


FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY

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


INFLATION

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


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.


ACCOUNTING MATTERS

         In June of 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS 130, "Reporting Comprehensive Income," which was adopted by the
Company in fiscal 1998. SFAS 130 establishes standards for reporting
comprehensive income and its components in a financial statement. Comprehensive
income as defined includes all changes in equity (net assets) during a period
from non-owner sources. Examples of items to be included in comprehensive
income, which are excluded from net income, include foreign currency translation
adjustments and unrealized gains and losses on available-for-sale securities.
Accumulated other comprehensive income, as presented on the accompanying
consolidated balance sheets, consists of the net unrealized gains on
available-for-sale securities, net of tax and the cumulative translation
adjustment.

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information". SFAS
No 131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report 



                                       16
<PAGE>   19

selected financial information about operating segments in interim financial
reports to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
disclosure requirements of SFAS No. 131 are effective for financial statements
for financial years beginning after December 15, 1997, and are presented in Note
16 of Notes to Consolidated Financial Statements.


ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements of the Company, together with the
independent auditor's report of BDO Seidman, LLP, appear on pages 30 through 54
of this report. See Index to Financial Statements on page 29 of this report.


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

         NONE




                     THIS SECTION LEFT INTENTIONALLY BLANK.



                                       17
<PAGE>   20

                                    PART III

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

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

<TABLE>
<CAPTION>
NAME                                      AGE                 POSITION
----                                      ---                 --------
<S>                                      <C>                  <C>
Theresa Dwyer.............................64..................Chairperson of the Board of Directors and Director
Dina Dwyer-Owens..........................36..................President, Chief Executive Officer and Director
Robert Tunmire............................40..................Executive Vice President and Director
Thomas J. Buckley.........................52..................Vice President, Treasurer and Chief Financial Officer
Deborah Wright-Hood.......................38..................Vice President of Administration and Assistant Treasurer
Donald J. Dwyer, Jr.......................34..................Director of International Operations and Director
James L. Sirbasku.........................59..................Director
John P. Hayes.............................49..................Director
Donald E. Latin...........................68..................Director
Michael Bidwell...........................40..................President of Rainbow, Mr. Rooter and Mr. Appliance
</TABLE>

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

         Theresa Dwyer has been Chairperson of the Board of Directors since July
of 1995, and Director of the Company since December of 1994. She has been the
majority stockholder and President of the following privately held companies:
Worldwide Cabinet Systems, Inc.; Worldwide Refinishing Systems, Inc.; Worldwide
Whirlpool Systems, Inc.; Worldwide Franchise Consultants, Ltd.; Aames Auto
Leasing, Inc.; and Sun Screen of Austin, Inc. since December of 1994. She also
serves as Vice President of Worldwide Supply, Inc., and Secretary of Dwyer Real
Estate and Development, Inc. Mrs. Dwyer also serves as Managing Partner of Dwyer
Investments, Ltd. Prior to December of 1994 Mrs. Dwyer was self-employed.

         Dina Dwyer-Owens has served as President and Chief Executive Officer
since January 1, 1999 and has been a Director of the Company since 1989. Prior
to that time, she served as Vice President of Operations since September of 1995
after serving as Co-Chairperson of the Board of Directors from December of 1994
to July of 1995. Ms. Dwyer-Owens also served as Secretary of the Company from
1989 through December of 1998. Ms. Dwyer-Owens has been employed by Dwyer Real
Estate and Development, Inc., a real estate concern located in Waco, Texas,
since June of 1981, most recently as President. She also serves as Director to
Rainbow, Mr. Rooter and National Accounts and is President of National Accounts,
Aire Serv and Mr. Electric. Ms. Dwyer-Owens has approximately 18 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 served as President of the Company, then operating as
Mr. Rooter Corporation, from January of 1992 through May of 1993. Mr. Tunmire
also currently serves as President of Glass Doctor. From December of 1980 until
May of 1989, Mr. Tunmire was employed by Rainbow, most recently as Executive
Vice President of Franchise Counseling. Mr. Tunmire has approximately 23 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. Prior to that
time, 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 17
years overall experience in the franchising industry.



                                       18
<PAGE>   21

         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 has also 
been President of Worldwide Supply, Inc. since 1985.

         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. Mr. Dwyer has approximately 18 years
experience in the franchising industry.

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

         John P. Hayes has served as a Director since July of 1994. He founded
and served, from January of 1987 to 1995, as President of The Hayes Group, Inc.,
an international marketing and promotion company specializing in franchised
businesses. Since January of 1996, Mr. Hayes has served as a consultant to
franchisors. Mr. Hayes has approximately 20 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.

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

         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 11 times during 1998 and additionally took
action 56 times by means of written consent. Each director attended all of the
meetings with the exception of Mr. Hayes, who was not present at two of the
meetings; Mr. Sirbasku, who was not present at two of the meetings; Donald
Dwyer, Jr., who not present at one of the meetings; and, Ms. Dwyer, who was not
present at one of the meetings. Non-employee directors are reimbursed for
expenses incurred for their attendance at Board of Directors meetings and are
eligible to receive stock options.

         The Audit Committee, comprised of Ms. Dwyer-Owens and Messrs. Hayes,
Latin and Sirbasku, met twice during 1998. All members attended.


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,



                                       19
<PAGE>   22

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, 1998, or written
representations from certain reporting persons, the Company believes that all
filing requirements applicable to its directors, officers and persons who own
more than ten percent of a registered class of the Company's equity securities
have been complied with, except that during fiscal 1998 the following officers
and directors were late in filing the number of reports indicated as required by
Section 16(a): Messers. Tunmire (1), Donald Dwyer, Jr. (1), Buckley (1), Latin
(1), Hayes (1), Sirbasku (1), Bidwell (2), Ms. Dwyer (1), Ms. Wright-Hood (1),
and Ms. Dwyer-Owens (2). No other officer, director, or ten percent shareholder
was late in filing his or its reports pursuant to Section 16(a).


ITEM 10.   EXECUTIVE COMPENSATION

         Summary Compensation Table. The following information sets forth
compensation earned by the Company's Chief Executive Officer and all other of
its executive officers whose annual compensation exceeded $100,000 in 1998, for
services rendered for the Company and its Subsidiaries during the fiscal years
indicated:

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                    LONG TERM
                                                     ANNUAL COMPENSATION           COMPENSATION
                                             ---------------------------------     ------------
           NAME AND                                                             SECURITIES UNDERLYING
      PRINCIPAL POSITION              YEAR    SALARY($)    BONUS($)   OTHER($)        OPTIONS
      ------------------              ----    ---------    --------   --------        -------
<S>                                   <C>    <C>           <C>          <C>         <C>   
Robert Tunmire,                       1998   $218,616      $ 20,000     --               --
   President & CEO                    1997    205,500(1)         --     --               --
                                      1996    215,818(1)         --     --               --

Donald J. Dwyer, Jr.,                 1998   $108,983(1)   $     --     --               --
   Director of International          1997     63,000(1)      5,398     --               --
   Operations                         1996     53,628(1)         --     --               --

Michael Bidwell,                      1998   $127,083      $ 31,286     --               --
   President of Rainbow, Mr.          1997    121,626        13,170     --           50,000
   Rooter & Mr. Appliance             1996    118,360        44,360     --               --

Thomas J. Buckley (2)                 1998   $103,846      $ 10,000     --           15,000
   Vice President & Chief             1997     38,462            --     --           64,205
   Financial Officer
</TABLE>

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

(1)      Includes salary and any commissions from franchise sales or royalties.
(2)      Mr. Buckley began employment in August, 1997.




                     THIS SECTION LEFT INTENTIONALLY BLANK.



                                       20
<PAGE>   23

The following table sets forth information regarding options granted to the
named executive officers during the fiscal year ended December 31, 1998:

                        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>
Robert Tunmire                        --                 --                   --                    --
Donald J. Dwyer, Jr                   --                 --                   --                    --
Thomas J. Buckley                 15,000                 11.6%             $   1.94            8/25/08
Michael Bidwell                       --                 --                   --                    --
</TABLE>

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

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

The following table shows option exercises during the year ended December 31,
1998 and the value of unexercised options at December 31, 1998 for the named
executive officers who exercised options during 1998 or who had unexercised
options at December 31, 1998.

                 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>
Robert Tunmire                     --                    --                 130,100 / -0-             $10,837 / -0-
Donald J. Dwyer, Jr.               --                    --                 2,000/ 3,000               $250 / $405
Michael Bidwell                    --                    --                45,000 / 30,000            $600 / $2,400
Thomas J. Buckley                  --                    --                12,841 / 56,364           $1,541 / $8,264
</TABLE>


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


(1)     The closing price of the Common Stock on December 31, 1998 was $2.00 per
        share.




                     THIS SECTION LEFT INTENTIONALLY BLANK.



                                       21
<PAGE>   24

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth as of December 31, 1998, certain
information regarding the beneficial ownership of Common Stock by (i) each of
named executive officers, (ii) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (iii) each director
of the Company and (iv) all directors and officers as a group:

<TABLE>
<CAPTION>
                                                                                      BENEFICIAL OWNERSHIP(1)
                                                                                      -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER                                            NUMBER OF SHARES         PERCENT(2)
------------------------------------                                            ----------------         ----------

<S>                                                                                <C>                     <C>  
Dwyer Investments, Ltd.(4)(5)                                                       3,900,736               55.0%
Donald J. Dwyer Family Trust(4)                                                       110,683                1.6%
Theresa Dwyer(3)(6)                                                                 3,902,036               55.8%
Donald J. Dwyer, Jr.(3)(7)(8)(9)                                                      672,920                9.6%
Dina Dwyer-Owens(3)(8)(10)                                                            558,773                8.0%
Robert Tunmire(3)(8)(11)                                                              675,692                9.5%
Deborah Wright-Hood(3)(8)(12)                                                         559,042                8.0%
Thomas Buckley(3)(13)                                                                  12,841                 *
John Hayes(14)                                                                         22,534                 *
James Sirbasku(15)                                                                     17,000                 *
Donald E. Latin(16)                                                                    17,000                 *
Michael Bidwell(3)(17)                                                                 46,745                 *
Darren Dwyer(3)(8)                                                                    524,973                7.5%
Douglas Dwyer(3)(8)                                                                   538,305                7.7%
Donna Dwyer-Van Zandt(3)(8)                                                           551,637                7.9%
Renaissance Capital Growth & Income Fund III(18)                                      675,000                9.6%
All officers and directors as a group (nine persons)(5)(6)(19)                      4,227,263               58.7%
</TABLE>

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

*Less than 1%.


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

(2)     Based on a total of 6,999,360 shares of Common Stock outstanding prior
        to the exercise of any outstanding options or warrants.

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

(4)     Mr. Dwyer, former Chairman of the Board, President and CEO of the
        Company, died December 4, 1994. On April 10, 1997, his Estate
        distributed 4,077,501 shares of Common Stock beneficially owned by the
        Estate to Ms. Theresa Dwyer with the remaining 115,423 shares
        distributed to the Donald J. Dwyer Family Trust (the "Trust), of 



                                       22
<PAGE>   25

        which Ms. Theresa Dwyer and Mr. Donald Dwyer, Jr. are Co-Trustees. On
        September 4, 1997, Ms. Theresa Dwyer contributed 3,899,182 beneficially
        owned shares, and the Trust contributed 115,092 beneficially owned
        shares, to Dwyer Investments, Ltd. (the "Partnership") in exchange for
        equity interests. On April 10, 1998, Ms. Dwyer sold 13.3% limited
        partnership interests in the Partnership to Mr. Donald J. Dwyer, Jr.,
        Ms. Donna Dwyer-Van Zandt, Ms. Deborah Wright-Hood, Ms. Dina
        Dwyer-Owens, Mr. Darren Dwyer, Mr. Douglas Dwyer, as trustees of various
        generation-skipping trusts, and to Mr. Robert Tunmire, individually,
        each acquiring a 13.3% limited partnership interest. Ms. Dwyer, as
        managing partner, has sole dispositive power over the stock owned by the
        Partnership. The principal address for the Partnership and the Trust is
        c/o the Company, 1010 N. University Parks Drive, Waco, Texas, 76707.

(5)     The number of shares beneficially owned includes 90,000 Option Shares
        (held by the Partnership), currently exercisable pursuant to a Stock
        Option Agreement dated April 28, 1989.

(6)     Includes 3,900,736 shares of Common Stock of the Partnership over which
        Ms. Theresa Dwyer has sole dispositive power as Managing Partner.

(7)     Includes 110,683 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 524,973 shares of Common Stock of the Partnership over which
        the individual has full voting power, but no dispositive power.

(9)     Includes 3,000 shares of Common Stock now exercisable or exercisable
        within 60 days under an Incentive Stock Option Plan.

(10)    Includes 4,500 shares of Common Stock now exercisable or exercisable
        within 60 days under an Incentive Stock Option Plan.

(11)    Includes 130,000 shares of Common Stock now exercisable or exercisable
        within 60 days under an Incentive Stock Option Plan.

(12)    Includes 5,000 shares of Common Stock now exercisable or exercisable
        within 60 days under an Incentive Stock Option Plan.

(13)    Includes 12,841 shares of Common Stock now exercisable or exercisable
        within 60 days under an Incentive Stock Option Plan.

(14)    Includes 22,284 shares of Common Stock now exercisable or exercisable
        within 60 days pursuant to options granted Mr. Hayes. The principal
        business address of Mr. Hayes is 6612 Dupper Court, Dallas, Texas 75252.

(15)    Includes 12,000 shares of Common stock now exercisable or exercisable
        within 60 days pursuant to options granted Mr. Sirbasku. The principal
        business address of Mr. Sirbasku is 5205 Lakeshore Drive, Waco, TX
        76710.

(16)    Includes 12,000 shares of Common Stock now exercisable or exercisable
        within 60 days pursuant to options granted Mr. Latin. The principal
        business address of Mr. Latin is 600 N. Pearl Street, Suite 2250,
        Dallas, TX 75201.

(17)    Includes 45,000 shares of Common Stock now exercisable or exercisable
        within 60 days under an Incentive Stock Option Plan.

(18)    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.

(19)    Includes 201,725 shares of Common Stock now exercisable or exercisable
        within 60 days under an Incentive Stock Option Plan.



                                       23
<PAGE>   26

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

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

         The Company currently leases its principal executive and administrative
facilities from an Affiliate under a lease expiring December 31, 2000, requiring
a monthly lease payment of approximately $31,000. In addition to rent, the
Company pays for repairs and maintenance, promotional materials and other
services from Affiliates. The Company expensed approximately $592,000 for such
rent and services in 1998 and $757,000 in 1997.

         The Company recognized income from Affiliates for accounting, legal and
administrative services, interest income, product sales, commissions and
management fees totaling approximately $630,535 in 1998 and $779,000 in 1997.

         In addition, from time-to-time, the Company and its Affiliates have
made advances to each other, which generally have not had specific repayment
terms and have been reflected in the Company's financial statements as accounts
receivable or payable from related parties. These advances typically result from
the payment of an invoice by one entity for services or items performed or
delivered on behalf of the Company and one or more of its Affiliates. The
company that pays the invoice is reimbursed by the other companies for the
appropriate amount based on a pro rata allocation of the services provided to
each company.

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

         In January 1998, the Company agreed to purchase Rainbow International
Carpet Dyeing and Cleaning, Ltd., ("Rainbow Canada") from Ms. Dwyer, for a
purchase price of $250,000. Rainbow Canada owns the Rainbow franchise rights for
Canada and currently has 20 franchisees generating royalties of approximately
$55,000 per year. The Company believes that the purchase price approximates the
price that would have been paid to an unrelated third party in a similar
transaction.

         In 1993, the Company, Rainbow, and Mr. Dwyer entered into a
reorganization agreement (the "Reorganization Agreement") pursuant to which Mr.
Dwyer was issued 4,035,555 shares of the Company's common stock in exchange for
all of the outstanding stock of Rainbow and GBS (the "Exchange"), and GBS and
Rainbow became wholly owned subsidiaries of the Company. Of the shares issued,
340,300 shares were placed in escrow (the "Escrow Shares") until such time as
GBS met certain earnings requirements. However the material definitive terms of
the escrow were never resolved.

         Ms. Dwyer, and Donald J. Dwyer, Jr., were appointed and qualified as
the personal representatives of Mr. Dwyer's Estate (the "Estate") and are now
serving as co-trustees of the Dwyer Family Trust (the "Trust"). In lieu of the
escrow arrangement contemplated by the Reorganization Agreement, and in order to
more accurately represent the intent of the parties, the Company and personal
representatives of Mr. Dwyer, the Estate and the Trust, entered into an
Agreement relating to the Escrow Shares, effective as of June 1, 1993 (the
"Agreement"). The Agreement provides for the cancellation of the Escrow Shares
and such shares have been returned to the authorized but unissued shares of the
Company's Common Stock as of June 1, 1993. Pursuant to the Agreement, 340,300
new shares of Common Stock (the "Contingent Shares") were reserved by the
Company's Board of Directors out of the Company's authorized but unissued Common
Stock and could have been issued to the successors and assigns of Mr. Dwyer if
certain earnings targets were achieved by GBS or if GBS was sold to a third
party in certain transactions as provided in the Agreement.

         In July of 1998, the Company sold GBS as described in Note 4. GBS had
not achieved the required earnings targets and the gain on the sale did not
reach the required threshold amount. Therefore, the Contingent Shares were not
issued and are no longer reserved out of the Company's authorized but unissued
Common Stock.

         The Company paid Don Latin, an independent director, $31,400 and
$30,000 for consulting services in 1998 and 1997, respectively. In addition, the
Company uses the consulting services of another independent director, John
Hayes, regarding public relations, marketing and special projects for the
Company. The Company paid approximately $110,000 for Mr. Hayes' services in both
1998 and 1997.



                                       24
<PAGE>   27
         At December 31, 1998 and 1997, the Company had accounts, interest and
notes receivable from related parties totaling approximately $2,037,000 and
$2,255,000, respectively, the majority of which was due from Affiliates. Ms.
Dwyer has guaranteed payment of all amounts due from Affiliates.


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 29.

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)
    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)
</TABLE>



                                       25
<PAGE>   28

<TABLE>

<S>           <C>
    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)
    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)
</TABLE>


                                       26
<PAGE>   29

<TABLE>

<S>           <C>
    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 Dwyer Group, Inc. (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.
    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.
    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.
    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.
    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.
    21.1*     List of Subsidiaries
    27*       Financial Data Schedules
</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).

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

(b)      Reports on Form 8-K

         (1)      Filed October 19, 1998 - Amended 8-K reporting the sale of
                  substantially all of the assets of two of the Company's
                  subsidiaries, General Business Services, Inc. and Edwin K.
                  Williams & Co., including pro forma financial information.



                                       27
<PAGE>   30

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
29th day of March, 1999.


                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                          March 29, 1999
-----------------------------                                 Board of Directors and Director
Theresa Dwyer                                                 

/s/ Dina Dwyer-Owens                                          President and Chief                         March 29, 1999
-----------------------------                                 Executive Officer
Dina Dwyer-Owens                                              (Principal Executive Officer)

/s/ Robert Tunmire                                            Executive Vice President                    March 29, 1999
-----------------------------
Robert Tunmire

/s/ Thomas J. Buckley                                         Vice President, Chief                       March 29, 1999
-----------------------------                                 Financial Officer and 
Thomas J. Buckley                                             Treasurer (Principal Financial 
                                                              and Accounting Officer)

/s/ James Sirbasku                                            Director                                    March 29, 1999
James Sirbasku

/s/ Donald J. Dwyer, Jr.                                      Director                                    March 29, 1999
-----------------------------
Donald J. Dwyer, Jr.

/s/ John P. Hayes                                             Director                                    March 29, 1999
-----------------------------
John P. Hayes

/s/ Donald E. Latin                                           Director                                    March 29, 1999
-----------------------------
Donald E. Latin
</TABLE>



                                       28
<PAGE>   31

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                     Page
                                                                                                                     ----
<S>                                                                                                                   <C>
Report of Independent Certified Public Accountants.....................................................................30

Consolidated Balance Sheets as of December 31, 1998 and 1997........................................................31-32

Consolidated Statements of Income for the years ended December 31, 1998 and 1997.......................................33

Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the
     years ended December 31, 1998 and 1997............................................................................34

Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997...................................35

Notes to Consolidated Financial Statements..........................................................................36-54
</TABLE>



                                       29
<PAGE>   32

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, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity and comprehensive income
(loss), 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 generally accepted auditing
standards. 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, 1997 and 1998, and the consolidated results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.




BDO SEIDMAN, LLP
Dallas, Texas
March 5, 1999



                                       30
<PAGE>   33
                     THE DWYER GROUP, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                            ---------------------------
                                                                                1998            1997
                                                                            -----------     -----------
<S>                                                                         <C>             <C>        
CURRENT ASSETS:
       Cash and cash equivalents                                            $   498,199     $ 1,568,187
       Marketable securities, available-for-sale                              1,973,761       2,327,090
       Trade accounts receivable, net of allowance for doubtful
             accounts of $175,036 and $265,923, respectively                    684,955       1,070,573
       Accounts receivable from related parties                                 766,623         660,717
       Accrued interest receivable, including amounts due from
             related parties of $149,643 and $183,539, respectively             199,953         197,672
       Trade notes receivable, current portion                                1,085,810       1,115,707
       Inventories                                                               46,013         306,751
       Prepaid expenses                                                         164,937         376,556
       Notes receivable from related parties, current portion                   660,300         142,723
                                                                            -----------     -----------
          TOTAL CURRENT ASSETS                                                6,080,551       7,765,976

PROPERTY AND EQUIPMENT, at cost, net                                          1,103,862       1,070,375

NOTES AND ACCOUNTS RECEIVABLE FROM RELATED PARTIES                              460,558       1,268,015

ASSETS HELD FOR SALE                                                            141,575         166,575

TRADE NOTES RECEIVABLE, net of allowance for doubtful notes of
             $941,472 and $816,054, respectively                              3,034,485       3,760,824

GOODWILL, net                                                                 5,599,553              --

PURCHASED FRANCHISE RIGHTS, net                                                 938,823       1,446,251

COVENENT NOT TO COMPETE, net                                                     91,665              --

INVESTMENT, equity method                                                            --         418,117

NET DEFERRED TAX ASSET                                                          867,773         429,779

OTHER ASSETS                                                                    398,455         212,124
                                                                            -----------     -----------
TOTAL ASSETS                                                                $18,717,300     $16,538,036
                                                                            ===========     ===========
</TABLE>


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



                                       31
<PAGE>   34

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

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31,
                                                                         ------------------------------
                                                                              1998              1997
                                                                         ------------      ------------
<S>                                                                      <C>               <C>         
Current liabilities:
       Accounts payable, trade                                           $    326,464      $    774,197
       Accounts payable to related parties                                     13,723            44,237
       Accrued liabilities                                                  1,166,439         1,068,308
       Litigation reserves                                                  1,103,211           166,793
       Current maturities of long-term debt                                   534,767           224,963
                                                                         ------------      ------------
          TOTAL CURRENT LIABILITIES                                         3,144,604         2,278,498

LONG-TERM DEBT, less current maturities                                     1,799,821           487,116

DEFERRED FRANCHISE SALES REVENUE                                            1,155,746         1,539,085
                                                                         ------------      ------------
TOTAL LIABILITIES                                                           6,100,171         4,304,699

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;
               7,228,585 issued and 6,999,360 outstanding in 1998;
               6,895,252 issued and 6,775,427 outstanding in 1997             722,859           689,526

       Additional paid-in capital                                           9,653,691         9,020,358

       Retained earnings                                                    2,596,872         2,543,612

       Accumulated other comprehensive income (loss)                          (61,657)           74,012

       Treasury stock, at cost, 229,225 shares in 1998 and 119,825
               shares in 1997                                                (294,636)          (94,171)
                                                                         ------------      ------------

TOTAL STOCKHOLDERS' EQUITY                                                 12,617,129        12,233,337
                                                                         ------------      ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $ 18,717,300      $ 16,538,036
                                                                         ============      ============
</TABLE>


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



                                       32

<PAGE>   35



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


<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                    ------------------------------
                                                        1998              1997
                                                    ------------      ------------
<S>                                                 <C>               <C>         
REVENUES:
     Royalties                                      $  8,483,380      $  8,022,283
     Franchise fees                                    2,474,579         3,415,352
     Sales of products and services                    1,858,339         1,561,710
     Tax services                                        673,234           781,788
     Interest                                            594,391           656,935
     Other                                               727,257           993,928
                                                    ------------      ------------
        TOTAL REVENUES                                14,811,180        15,431,996
                                                    ------------      ------------
COSTS AND EXPENSES:
     General, administrative and selling              13,644,074        11,751,752
     Costs of product and service sales                1,540,368         1,112,051
     Cost of tax service revenues                        494,080           905,724
     Depreciation and amortization                       695,526           556,642
     Interest                                             97,134            59,108
                                                    ------------      ------------
        TOTAL COSTS AND EXPENSES                      16,471,182        14,385,277
                                                    ------------      ------------

OPERATING INCOME (LOSS)                               (1,660,002)        1,046,719
                                                    ------------      ------------
OTHER INCOME:
     Gain on sale of assets                            1,445,563                --
     Gain on sale of securities                          332,920            78,356
                                                    ------------      ------------
        TOTAL OTHER INCOME                             1,778,483            78,356
                                                    ------------      ------------

Income before income taxes                               118,481         1,125,075
Income tax expense                                       (65,221)         (378,299)
                                                    ------------      ------------

NET INCOME                                          $     53,260      $    746,776
                                                    ============      ============

EARNINGS PER SHARE - BASIC                          $       0.01      $       0.11
                                                    ============      ============

EARNINGS PER SHARE - DILUTED                        $       0.01      $       0.11
                                                    ============      ============

WEIGHTED AVERAGE COMMON SHARES                         6,910,587         6,774,323
                                                    ============      ============

WEIGHTED AVERAGE COMMON SHARES AND POTENTIAL
         DILUTIVE COMMON SHARES                        7,061,659         6,886,458
                                                    ============      ============
</TABLE>

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



                                       33

<PAGE>   36

                     THE DWYER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                                                             COMPREHENSIVE 
                                                                     STOCKHOLDERS' EQUITY                    INCOME (LOSS)
                                                                 ---------------------------           ---------------------------
                                                                  SHARES          DOLLARS                1997             1998
                                                                 ---------      ------------           ---------      ------------
<S>                                                              <C>            <C>                    <C>            <C> 
COMMON STOCK
      Balance at January 1,1997                                  7,235,552      $    723,556  
         Cancellation of escrow shares                            (340,300)          (34,030)
                                                                 ---------      ------------
      Balance at December 31,1997                                6,895,252           689,526
         Issuance of common stock                                  333,333            33,333
                                                                 ---------      ------------
      Balance at December 31, 1998                               7,228,585           722,859
                                                                 ---------      ------------
ADDITIONAL PAID-IN CAPITAL
      Balance at January 1,1997                                                    8,941,029 
         Issuance of stock from treasury                                               2,600 
         Issuance of options to non-employees                                         76,729 
                                                                                ------------
      Balance at December 31,1997                                                  9,020,358 
         Issuance of common stock                                                    633,333 
                                                                                ------------
      Balance at December 31,1998                                                  9,653,691 
                                                                                ------------
RETAINED EARNINGS
      Balance at January 1, 1997                                                   1,796,836 
         Net income                                                                  746,776         $  746,776
                                                                                ------------
      Balance at December 31, 1997                                                 2,543,612 
         Net income                                                                   53,260                           $  53,260
                                                                                ------------
      Balance at December 31, 1998                                                 2,596,872
                                                                                ------------

ACCUMULATED OTHER COMPREHENSIVE INCOME
      Balance at January 1, 1997                                                      22,770
         Increase in unrealized appreciation in carrying
              value of investments (net of tax of $26,397)                            51,242             51,242
                                                                                ------------
      Balance at December 31, 1997                                                    74,012
         Decrease in unrealized appreciation in carrying
              value of investments (net of tax of $21,774)                           (42,266)                            (42,266)
         Foreign currency translation adjustment                                     (93,403)                            (93,403)
                                                                                ------------
      Balance at December 31, 1998                                                   (61,657)
                                                                                ------------

TREASURY STOCK
      Balance at January 1, 1997                                  (122,425)          (96,121)
         Issuance of stock from treasury                             2,600             1,950
                                                                 ---------      ------------
      Balance at December 31,1997                                 (119,825)          (94,171)
         Purchase of treasury stock                               (109,400)         (200,465)
                                                                 ---------      ------------
      Balance at December 31,1998                                 (229,225)         (294,636)
                                                                 ---------      ------------         ----------         ---------
TOTAL STOCKHOLDERS' EQUITY                                       6,999,360      $ 12,617,129
                                                                 =========      ============

TOTAL COMPREHENSIVE INCOME (LOSS)                                                                    $  798,018         $ (82,409)
                                                                                                     ==========         ========= 
</TABLE>


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



                                       34
<PAGE>   37

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



<TABLE>
<CAPTION>
                                                                          YEARS ENDED DECEMBER 31,
                                                                           1998             1997
                                                                        -----------      -----------
<S>                                                                     <C>              <C>        
Operating activities:
      Net income for the period                                         $    53,260      $   746,776
      Adjustments to reconcile net income to
                  net cash used in operating activities:
        Depreciation and amortization                                       695,526          556,642
        Gain on sale of assets                                           (1,445,562)              --
        Gain on sale of securities                                         (332,920)         (78,346)
        Provision for doubtful accounts                                     531,918           81,760
        Notes received for franchise sales                               (1,546,931)        (473,272)
        Change in deferred tax asset                                       (437,994)         (87,733)
        Other adjustments                                                   (17,273)         169,607
    Changes in assets and liabilities (net of business acquisition
                  and business dispositions):
        Accounts and interest receivable                                     40,414         (468,014)
        Net change in receivables / payables to related parties            (236,402)        (360,917)
        Inventories                                                         (21,053)        (162,957)
        Prepaid expenses                                                     88,935         (115,609)
        Federal income tax receivable                                          --            935,443
        Accounts payable and accrued liabilities                            851,688         (170,265)
        Franchise funds held for advertising                                   --           (459,586)
        Deferred franchise sales revenue                                   (140,615)        (711,214)
        Other                                                               (32,064)         144,450
                                                                        -----------      -----------
  Net cash used in operating activities                                  (1,949,073)        (453,235)
                                                                        -----------      -----------

Investing activities:
    Collections of notes receivable                                       1,323,826          722,994
    Proceeds from sale of assets                                          3,609,793          200,000
    Acquisition of business                                              (3,225,000)              --
    Purchases of property and equipment                                    (460,795)        (172,791)
    Purchases of franchise rights                                          (586,564)              --
    Acquisition of other assets                                             (31,574)         (60,168)
    Purchase of marketable securities                                    (1,168,753)      (1,781,281)
    Sale of marketable securities                                         1,855,002        1,325,844
    Increase (decrease) in unrealized gain on marketable securities         (42,266)          51,242
    Collections on notes receivable from related parties                    150,863          133,577
                                                                        -----------      -----------
  Net cash provided by investing activities                               1,424,532          419,417
                                                                        -----------      -----------

Financing activities:
    Purchases of treasury stock                                            (200,465)              --
    Proceeds from borrowings                                                 55,000           80,500
    Payments on borrowings                                                 (399,983)        (298,662)
                                                                        -----------      -----------
  Net cash used in financing activities                                    (545,448)        (218,162)
                                                                        -----------      -----------

Net decrease in cash and cash equivalents                                (1,069,988)        (251,980)
Cash and cash equivalents, beginning of period                            1,568,187        1,820,167
                                                                        -----------      -----------

Cash and cash equivalents, end of period                                $   498,199      $ 1,568,187
                                                                        ===========      ===========
</TABLE>


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



                                       35
<PAGE>   38

                     THE DWYER GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


A.       Organization and Description of Business

         The Dwyer Group, Inc. (the "Parent") is a holding company for
service-based businesses providing specialty services internationally through
franchising. The consolidated financial statements include the accounts of The
Dwyer Group, Inc. and its wholly-owned subsidiaries (collectively the
"Subsidiaries" and together with the Parent, the "Company"). All material
intercompany accounts and transactions have been eliminated in consolidation.

         The Company was incorporated in 1970 in the State of Oklahoma under the
name Mr. Rooter Corporation of America, Inc. The Company's name was changed to
Mr. Rooter Corporation ("Mr. Rooter") in 1972, and in 1986 it was reincorporated
as a Delaware corporation. In 1993, the Company was renamed The Dwyer Group,
Inc.

         The Company provides a diverse array of specialty services
internationally through its service-based franchising businesses. The Company
currently owns six such businesses, which have an aggregate of approximately 750
franchises located in the United States and Canada, and through their master
licensees, approximately 200 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 the Company's
franchise opportunities because of the depth of the Company's support services,
the commitment of the Company to its mission and vision statements and the
established reputation of its management team.

         In 1997 and 1998, the Company operated its businesses through the
following wholly owned subsidiaries:

         o        Mr. Rooter Corporation ("Mr. Rooter") is a franchisor of
                  plumbing repair and drain cleaning services under the service
                  mark "Mr. Rooter,"(R) with 203 franchise operations in the
                  United States and Canada, and, through master licensees, 64
                  franchises in six foreign countries. In 1998, Mr. Rooter
                  accounted for approximately 28.4% of the Company's
                  consolidated revenues as compared to 27.5% in 1997.

         o        Rainbow International Carpet Dyeing and Cleaning Co.
                  ("Rainbow") is a franchisor of carpet cleaning and dyeing, air
                  duct cleaning, and smoke, fire and water restoration services,
                  with 368 franchises in the United States and Canada and,
                  through master franchise licensees, 121 franchise operations
                  in 11 foreign countries. In 1998, Rainbow accounted for
                  approximately 17.8% of the Company's consolidated revenues as
                  compared to 19.2% in 1997.

         o        Mr. Electric Corp. ("Mr. Electric") is a franchisor of
                  electrical repair and service businesses under the service
                  mark "Mr. Electric"(R). Mr. Electric has 67 franchises in the
                  United States and Canada, and through master licenses, 17
                  franchise operations in three foreign countries. In 1998, Mr.
                  Electric accounted for approximately 8.8% of the Company's
                  consolidated revenues as compared to 6.7% in 1997.

         o        Synergistic International, Inc., which was incorporated in
                  July 1998, is franchisor of Glass Doctor(R), a service concept
                  whose business is the replacement of automobile, residential
                  and commercial glass. The Company purchased the concept in
                  July 1998, from an unrelated third party. Glass Doctor has 31
                  franchisees, all in the United States. In 1998, Glass Doctor
                  accounted for approximately 5.5% of the Company's consolidated
                  revenues.

         o        Aire Serv Heating & Air Conditioning, Inc. ("Aire Serv") is a
                  franchisor of heating, ventilating and air conditioning
                  service businesses under the service mark Aire Serv(R) and has
                  51 franchises in the United States and Canada, and one foreign
                  master licensee. In 1998, Aire Serv accounted for
                  approximately 4.5% of the Company's consolidated revenues as
                  compared to 2.3% in 1997.



                                       36
<PAGE>   39

         o        Mr. Appliance Corp. ("Mr. Appliance") is a franchisor of
                  businesses relating to service and repair of appliances (both
                  residential and commercial). Mr. Appliance(R) began
                  franchising in September 1996, and has 25 franchises in the
                  United States. In 1998, Mr. Appliance accounted for
                  approximately 1.4% of the Company's consolidated revenues as
                  compared to 2.2% in 1997.

         o        The Dwyer Group National Accounts, Inc. ("National Accounts")
                  solicits commercial national account customers who can call a
                  toll-free number for their general repair and 24 hour
                  emergency service needs. The order is filled through the
                  Company's network of franchisees or qualified subcontractors.
                  In 1998, National Accounts accounted for approximately 10.3%
                  of the Company's consolidated revenues as compared to 5.7% in
                  1997.

         o        The Dwyer Group Canada, Inc. ("TDG Canada") was incorporated
                  in January of 1998, in order to market and service certain of
                  the Company's franchise concepts in Canada. Currently, those
                  concepts are: Mr. Rooter, Mr. Electric, Rainbow and Aire Serv.
                  In 1998, TDG Canada accounted for approximately 1.8% of the
                  Company's consolidated revenues.

         o        General Business Services, Inc. ("GBS") is a franchisor of
                  small business management services with approximately 300
                  franchises. Such business management services include, among
                  others, business counseling, tax counseling, accounting
                  services and products, financial counseling and personnel
                  services. In addition, General Tax Services, Inc. ("GTS"), a
                  wholly-owned, non-franchising subsidiary of GBS, provides tax
                  return preparation and tax research services to GBS and EKW
                  franchisees. In July 1998, the Company sold substantially all
                  of the assets and the business of GBS (see Note 4). In 1998,
                  GBS accounted for approximately 10.5% of the Company's
                  consolidated revenues as compared to 17.6% in 1997.

         o        Edwin K. Williams & Co. ("EKW") is a franchisor of information
                  systems and financial management services, specifically
                  designed to meet the special needs of small businesses. EKW
                  has approximately 150 franchises located throughout the United
                  States. Its financial management services include, among
                  others, accounting and bookkeeping services and systems,
                  financial management analysis, payroll processing, and tax
                  preparation and planning services. In July 1998, the Company
                  sold substantially all of the assets and the business of EKW
                  (see Note 4). In 1998, EKW accounted for approximately 5.8% of
                  the Company's consolidated revenues as compared to 12.0% in
                  1997.

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

         o        Royalties from existing franchisees based on a percentage of
                  each franchisee's gross sales. These fees range from 2.5% to
                  7.0% of the franchisee's sales, depending upon the particular
                  franchise concept and upon various other factors.

         o        Franchise fees generated from the sale of new franchises.

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


B.       Inventories

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



                                       37
<PAGE>   40

C.       Property and Equipment

         Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the respective assets, ranging from three to forty 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.


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 1998
                                                   --------------------------------
                                            Income              Shares            Per Share
                                          (Numerator)       (Denominator)           Amount
                                          -----------       -------------           ------
<S>                                         <C>               <C>                   <C>  
Basic EPS
    Net Income                              $53,260           6,910,587             $ .01
                                            =======                                 =====

Effect of dilutive securities
     Warrants and options                                       151,072
                                                              ---------

Diluted EPS                                 $53,260           7,061,659             $ .01
                                            =======           =========             =====
</TABLE>

<TABLE>
<CAPTION>
                                                   FOR THE YEAR ENDED DECEMBER 1997
                                                   --------------------------------
                                            Income              Shares            Per Share
                                          (Numerator)       (Denominator)           Amount
                                          -----------       -------------           ------
<S>                                        <C>                <C>                    <C> 
Basic EPS
    Net Income                             $746,776           6,774,323              $.11
                                           ========                                  ====

Effect of dilutive securities
    Warrants and options                                        112,135
                                                              ---------

Diluted EPS                                $746,776           6,886,458              $.11
                                           ========           =========              ====
</TABLE>

         Options and warrants to purchase 595,325 and 542,225 shares of common
stock were outstanding during 1998 and 1997, 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. Of such options and
warrants, 592,825 were still outstanding at the end of 1998.


E.       Cash and Cash Equivalents

         The Company considers all cash and highly liquid investments purchased
with an initial maturity of three months or less to be cash or cash equivalents.
The Company maintains its cash in bank deposit and money market accounts which,
at times, may exceed federally insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
credit risks on cash and cash equivalents. Cash equivalents includes, but is not
limited to, money market funds of $76,703 at December 31, 1998 and $813,974 at
December 31, 1997.



                                       38
<PAGE>   41

F.       Franchise Operations

         Revenues from the sale of regional franchise agreements and individual
franchises in the United States and master license agreements in foreign
countries are generally recognized, net of an allowance for uncollectible
amounts, when substantially all significant services to be provided by the
Company have been performed. Regional franchise agreements 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 is accrued and recorded as income, net of an
allowance for uncollectible amounts, when due. However, in situations where
revenue from such 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.
Interest on trade notes receivable resulting from sales recorded on the
installment method is recorded when received.

         Revenue from franchise royalties is generally recognized when collected
from the franchisees.

         The Company collects and holds in escrow 2% of Rainbow, Mr. Rooter,
Aire Serv, Mr. Appliance, Mr. Electric and Glass Doctor franchisees' sales to be
used for national advertising. In order to accurately reflect the nature of such
advertising funds, the amounts related to such funds are excluded from the
Company's financial statements.

         Revenue from product sales is recognized when orders are shipped.
Revenue from services is recognized upon the completion of the service. For
master license agreements, revenues are recognized upon completion of all
significant initial services provided to the master licensee and upon
satisfaction of all material obligations of the Company under the master license
agreement.


G.       Assets Held for Sale

         At December 31, 1998 and 1997, the Company owned real estate in Waco,
Texas which was held for resale and carried at fair market value.


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 on behalf of itself and its
domestic Subsidiaries.


I.       Goodwill and Covenant Not to Compete

         Goodwill, which is the excess of the cost of acquiring Glass Doctor
over the fair value of the net assets acquired, is being amortized on a
straight-line basis over the expected period to be benefited, which is 30 years.
It is the Company's policy to evaluate the carrying amount of goodwill based on
an evaluation of such factors as the occurrence of a significant adverse event
or change in the environment in which the business operates, or if the expected
future net cash flows, undiscounted and without interest, would be less than the
carrying amount. An impairment loss would be recorded in the period in which
such determination is made based on the fair value of the business. Glass Doctor
was acquired in July of 1998 (see Note 5).
Amortization expense recorded in 1998 was $71,823.

         In connection with the 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 recorded in 1998 was
$8,334. 



                                       39
<PAGE>   42

J.       Purchased Franchise Rights

         The Company may repurchase regional franchise rights. Regional
franchise repurchases are recorded at the lower of cost or fair value based upon
estimated cash flows from existing franchises operating in the region.
Periodically the Company assesses the fair value of these assets based on
estimated, undiscounted future cash flows, to determine if an impairment in the
value has occurred and an adjustment is necessary. If an adjustment is required,
a discounted cash flow analysis is performed and an impairment loss is recorded.
The Company had an investment of $938,823 and $1,446,251 in purchased franchise
rights at December 31, 1998 and 1997, respectively.

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


K.       Equity Method Investments

         In 1994, E.K. Williams acquired 33 1/3% of the outstanding capital
stock of Service Station Computer Systems, Inc. ("SSCS") for $500,000 cash. SSCS
is a private concern headquartered in California which develops and provides
computerized bookkeeping products to conventional service stations, self-serve
stations and convenience store operations. The investment in SSCS has been
accounted for using the equity method of accounting. The cost of SSCS in excess
of amounts attributable to tangible assets at acquisition was approximately
$257,000 which was being amortized to operations over a 10 year period using the
straight-line method. In July 1998, the Company sold this investment for
$200,000 (See Note 4).


L.       Marketable Securities and Certificates of Deposit

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

         At December 31, 1998 and 1997, the amortized cost and estimated fair
values of marketable securities are shown below.

<TABLE>
<CAPTION>
                      DECEMBER 31, 1998
--------------------------------------------------------------
     AMORTIZED         GROSS UNREALIZED      ESTIMATED FAIR
       COST                 GAINS                VALUE
<S>                        <C>                 <C>       
    $1,925,571             $48,100             $1,973,671
</TABLE>

<TABLE>
<CAPTION>
                      DECEMBER 31, 1997
 -------------------------------------------------------------
     AMORTIZED         GROSS UNREALIZED      ESTIMATED FAIR
        COST                GAINS                VALUE
<S>                        <C>                 <C>       
     $2,214,951            $112,139            $2,327,090
</TABLE>


         During 1998, the Company purchased marketable securities at a cost of
$1,168,753 and sold marketable securities receiving proceeds of $1,855,002. At
December 31, 1998, the estimated fair value of marketable securities was
comprised of $1,499,494 in U.S. Treasury bills and $474,267 in common stock and
mutual funds. At December 31, 1997, the estimated value of marketable securities
was comprised of $955,185 in U.S. Treasury bills and $1,371,905 in common stocks
and mutual funds.

         During 1997, the Company received proceeds of $1,166,373 from the
Certificate of Deposit held at December 31, 1996. Also during 1997, the Company
purchased marketable securities at a cost of $1,781,281 and sold marketable
securities receiving proceeds of $1,325,844.

M.       Reclassifications

         Certain reclassifications have been made to prior year financial
statements to conform to 1998 presentation.



                                       40
<PAGE>   43

N.       Use of Estimates

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

O.       New Accounting Standards

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS 130, "Reporting Comprehensive Income," which was adopted by the Company in
fiscal 1998. SFAS 130 establishes standards for reporting comprehensive income
and its components in a financial statement. Comprehensive income as defined
includes all changes in equity (net assets) during a period from non-owner
sources. Examples of items to be included in comprehensive income, which are
excluded from net income, include foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities. Accumulated other
comprehensive income, as presented on the accompanying consolidated balance
sheets, consists of the net unrealized gains on available-for-sale securities,
net of tax and the cumulative translation adjustment.

         In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information". SFAS
No 131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected financial information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The disclosure requirements of SFAS No. 131 are effective
for financial statements for financial years beginning after December 15, 1997
and are reported in Note 16. There was no material impact on the Company's
financial statements resulting from the adoption of SFAS No. 131.


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

A.       Preferred Stock

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

B.       Common Stock

         Treasury Stock

         In December 1994, the Company's Board of Directors authorized the
         repurchase of up to 355,500 shares of its common stock outstanding. At
         December 31, 1996, the Company had 122,425 shares of stock in its
         treasury at a cost of $96,121.

         In June 1997, the Company issued 2,600 shares of treasury stock to
         former employees in connection with their termination of employment,
         leaving a balance of 119,825 shares of stock in its treasury at a cost
         of $94,171.

         In September 1998, the Company's Board of Directors authorized the
         purchase of up to 100,000 shares of its common stock outstanding, and
         in December 1998, increased that amount to 150,000 shares. In the
         fourth quarter of 1998, the Company purchased 109,400 of such shares at
         a cost of $200,465, resulting in a balance of 229,225 shares of stock
         in treasury at a cost of $294,636.



                                       41
<PAGE>   44

         Issuance of Common Stock

         In July 1998, the Company issued 333,333 shares of its common stock in
         connection with the purchase of Glass Doctor (see Note 5).

         Escrow Shares

         In 1993, the Company, Rainbow, and Mr. Donald J. Dwyer, Sr., ("Mr.
         Dwyer") entered into a reorganization agreement ("Reorganization
         Agreement") pursuant to which Mr. Dwyer was issued 4,035,555 shares of
         the Company's common stock, in exchange for all of the outstanding
         stock of Rainbow and GBS (the "Exchange") and GBS and Rainbow became
         wholly owned subsidiaries of the Company. Of the shares issued, 340,300
         shares were placed in escrow (the "Escrow Shares") until such time as
         GBS met certain earnings requirements. However the material definitive
         terms of the escrow were never resolved.

         Theresa Dwyer ("Ms. Dwyer") and her son, Donald J. Dwyer, Jr., were
         appointed and qualified and serve as the personal representatives of
         Mr. Dwyer's Estate (the "Estate") and the Dwyer Family Trust (the
         "Trust"). In lieu of the escrow arrangement contemplated by the
         Reorganization Agreement, and in order to more accurately represent the
         intent of the parties, the Company and personal representatives of Mr.
         Dwyer, the Estate and the Trust, entered into an agreement relating to
         the Escrow Shares, to be effective as of June 1, 1993 (the
         "Agreement").

         The Agreement provided for the cancellation of the Escrow Shares and
         such shares were returned to the authorized but unissued shares of the
         Company's Common Stock as of June 1, 1993. Pursuant to the Agreement,
         340,300 new shares of Common Stock (the "Contingent Shares") were
         reserved by the Company's Board of Directors out of the Company's
         authorized but unissued Common Stock and could have been subsequently
         issued to the successors and assigns of Mr. Dwyer if certain earnings
         targets were achieved by GBS or if GBS was sold to a third party
         resulting in gain in equal to or in excess of an amount specified in
         the Agreement.

         In July of 1998, the Company sold GBS as described in Note 4. GBS had
         not achieved the required earnings targets and the gain on the sale did
         not reach the threshold amount. Therefore, the Contingent Shares were
         not issued and are no longer reserved out of the Company's authorized
         but unissued Common Stock.

C.       Warrants and Non-Employee Stock Options

         In connection with the purchase of Mr. Rooter in 1989, the Company
         issued options to purchase 385,000 shares of the Company's Common Stock
         to Mr. Dwyer, as follows: (1) 135,000 shares at an exercise price of
         $1.00 per share, and (2) 250,000 shares at an exercise price of $1.50
         per share. The options expire on April 28, 1999. In 1994, all of the
         options exercisable at $1.50 per share and 45,000 of the options
         exercisable at $1.00 per share were transferred to an unrelated third
         party. The remaining 90,000 options are now owned by a partnership
         controlled by Ms. Dwyer.

         In connection with a secondary public offering in 1994, the Company
         issued warrants to purchase 125,000 shares of the Company's Common
         Stock at an exercise price of $6.16 per share. Such warrants are
         exercisable until July 19, 1999.

         In July 1996, in connection with a consulting agreement, the Company
         granted options to purchase 25,000 shares of the Company's Common Stock
         at an exercise price of $3.38 per share, to a non-employee of the
         Company. These options vest on a graded schedule of 20% per year
         beginning July 1, 1996, and expire on July 1, 2001.

         In 1996, in connection with the purchase of franchise rights, the
         Company issued options to purchase 28,500 shares of the Company's
         Common Stock, at an exercise price of $2.25 per share, to a
         non-employee of the Company. These options vest on a graded schedule of
         20% per year beginning March 31, 1998 and expire on March 31, 2003.

         In 1997, in connection with a consulting arrangement, the Company
         granted options to purchase the Company's Common Stock to a
         non-employee of the Company under the following terms: (1) 25,000
         shares at an exercise 



                                       42
<PAGE>   45

         price of $3.75 per share until January of 1999, and (2) 5,000 shares at
         an exercise price of $3.00 per share until January of 1999. Such shares
         expired without being exercised.

         In 1997, in connection with the purchase of franchise rights, the
         Company granted options to purchase 60,000 shares of the Company's
         Common Stock at an exercise price of $1.75 per share, to a non-employee
         of the Company. These options expire on April 21, 2002.

         In 1997, the Company issued warrants to two non-employees of the
         Company in connection with a consulting arrangement. The warrants can
         be converted to an aggregate of 109,225 shares of the Company's Common
         Stock, at an exercise price of $4.12 per share. These warrants expire
         in June of 2001.

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

<TABLE>
<CAPTION>
             NUMBER OF WARRANTS     EXERCISE PRICE       EXPIRATION DATE
             ------------------     --------------       ---------------
<S>                 <C>                 <C>              <C> 
                    12,500              $2.63               April 2005
                    16,420              $1.88             December 2007
                    10,000              $2.00               July 2008
</TABLE>


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

         Under the Plan, the Company is authorized to issue up to 700,000 shares
         of Common Stock pursuant to "Awards" granted in the form of incentive
         stock options qualified under Section 422 of the Internal Revenue Code
         of 1986, as amended (the "Code") and nonqualified stock options not
         qualified under Section 422 of the Code. Awards may be granted to
         selected employees, directors or consultants of the Company or any
         subsidiary. In 1998 and 1997, the Company granted both incentive stock
         options and nonqualified stock options.

         Employee Stock Options

         The Company granted a total of 129,500 and 137,045 awards in the form
         of incentive stock options and nonqualified stock options under the
         Plan in 1998 and 1997, respectively. Under the Plan, the options
         granted have contractual terms of 10 years. The incentive options
         granted generally vest at the rate of 20% per year, beginning on the
         first anniversary of the date of grant. All options granted have an
         exercise price that is equal to or greater than the fair market value
         of a share of common stock on the grant date.



                     THIS SECTION LEFT INTENTIONALLY BLANK.



                                       43
<PAGE>   46

         A summary of the status of the Company's stock options as of December
         31, 1998 and 1997, and the changes during the years ended on those
         dates is presented below.

<TABLE>
<CAPTION>
                                                               1998                                   1997
                                                               ----                                   ----
                                                   # 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 the year           437,646             $2.41             449,826             $3.05
      Granted                                        129,500             $1.93             137,045             $1.94
      Exercised                                           --              N/A                   --              N/A
      Forfeited                                      (60,420)            $2.09             (40,000)            $3.33
      Expired                                             --              N/A             (109,225)            $4.12
                                                     -------                               -------                 
      Outstanding at end of year                     506,726             $2.32             437,646             $2.41
                                                     =======                               =======
      Exercisable at end of year                     263,326             $2.63             208,517             $2.71
                                                     =======                               =======

<CAPTION>

                                                                               1998                    1997
                                                                               ----                    ----
<S>                                                                           <C>                     <C>  
      Weighted-average grant date fair value of all options
             granted during the year                                          $1.34                   $1.26
</TABLE>


         The fair value of each stock option granted is estimated on the date of
         grant using the Black-Scholes option-pricing model with the following
         weighted-average assumptions for grants in 1998 and 1997: dividend
         yield of 0%; risk-free interest rates are different for each grant and
         range from 5.21% to 6.98%; the expected lives of options are from 2.5
         to 6 years; and volatility of 50% for all grants.

         The following table summarizes information about stock options
         outstanding at December 31, 1998:

<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>                 <C>  
        $1.64 to $4.25         506,726         7.2 years          $2.32                   263,326             $2.63
</TABLE>

         Pro Forma Net Income (Loss) and Earnings (Loss) Per Common Share

         Had the compensation cost for the Company's stock-based compensation
         plans been determined consistent with SFAS 123, the Company's net
         income (loss) and earnings (loss) per common share for 1998 and 1997
         would approximate the pro forma amounts below:

<TABLE>
<CAPTION>
                                                                       FOR THE YEAR ENDED DECEMBER 31,
                                                AS REPORTED            PRO FORMA           AS REPORTED         PRO FORMA
                                                -----------            ---------           -----------         ---------
                                                    1998                  1998                1997               1997
                                                    ----                  ----                ----               ----
<S>                                              <C>                    <C>                <C>                 <C>     
SFAS 123 Charge                                  $     --               $ 65,000           $      --           $101,000
APB25 Charge                                           --                     --                  --                 --
Net Income (Loss)                                $ 53,000               ($12,000)          $ 747,000           $646,000
Earnings (Loss) Per Common Share                 $    .01               $    .00           $     .11           $    .10
</TABLE>

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




                                       44
<PAGE>   47


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

         The Company receives various notes from the sale of new franchises.
These notes receivable 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>
                                                                                1998                     1997
                                                                                ----                     ----
<S>                                                                          <C>                     <C>       
Amounts due within one year                                                  $1,085,810              $1,115,707
Amounts due after one year, net of allowance for uncollectible amounts
     of $941,472 and $816,054 in 1998 and 1997, respectively                  3,034,485               3,760,824
                                                                             ----------              ----------

Total notes receivable                                                       $4,120,295              $4,876,531
                                                                             ==========              ==========
</TABLE>

         Activity in the allowance for uncollectible amounts was as follows:

<TABLE>
<CAPTION>
                                                                             1998                     1997
                                                                             ----                     ----
<S>                                                                        <C>                     <C>       
Balance, January 1                                                         $ 816,054               $1,633,092
Provision for doubtful accounts                                              531,918                   81,760
Write-offs                                                                  (406,500)                (898,798)
                                                                           ---------               ----------
Balance, December 31                                                       $ 941,472               $  816,054
                                                                           =========               ==========
</TABLE>

         At December 31, 1998 and 1997, the amounts of deferred revenue from
franchise sales were $1,155,746 and $1,539,085, respectively. Fees from
franchise sales accounted for by the installment method are collectible in the
years 1999 through 2007.

         At December 31, 1998, interest rates on trade notes receivable ranged
from 7% to 12%.

NOTE 4.    DISPOSITION OF ASSETS

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

         Also in July of 1998, the Company sold its minority interest in Service
Station Computer Systems, Inc. (SSCS), an additional asset of EKW, for $150,000
in cash and a note with a present value of $45,000.

         The Company recorded a gain on the sale of the assets net of the
liabilities assumed by Century. The gain was calculated as follows:

<TABLE>
<S>                     <C>                                 <C>        
      Net cash proceeds (1)                                 $ 3,609,793
      Century Stock (2)                                         178,500
      Note receivable                                            45,000
                                                            -----------
      Total proceeds                                          3,833,293

      Less:  Net book value of assets sold and
                 liabilities assumed                         (2,387,730)
                                                            -----------
      Pre-tax gain on sale                                  $ 1,445,563
                                                            ===========
</TABLE>



                                       45
<PAGE>   48


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

(1)      Includes $3.8 million received from Century plus $150,000 in cash
         received from a third party for SSCS, less $281,000 paid to obtain
         releases from certain Regional Master Licensees and $59,000 in legal
         fees associated with the transaction.

(2)      Includes 47,407 shares of Century stock valued at $16.88 per share,
         less: (a) 5,000 shares issued to a former employee of GBS/EKW in
         connection with the sale, (b) the shares which are held in escrow for
         possible indemnification by the Company, (c) an amount estimated for
         non-renewing franchisees of GBS, and (d) 35% discount on remaining
         shares due to marketability restrictions.

         The unaudited pro forma information for the periods set forth below
give effect to the disposition as if it had occurred at the beginning of the
respective periods. The pro forma information is presented for informational
purposes only and is not necessarily indicative of the results of operations
that actually would have occurred had the transaction been consummated at the
beginning of the periods presented nor does the information purport to be
indicative of future results.

<TABLE>
<CAPTION>
                                                     Year Ended
                                                    December 31,
                                                    ------------
                                             1998                  1997
                                             ----                  ----
<S>                                      <C>                   <C>        
     Revenues                            $10,956,519           $10,875,554
                                         ===========           ===========
     Net Income                          $   240,877           $   922,400
                                         ===========           ===========
     Basic Earnings  Per Share           $       .03           $       .14
                                         ===========           ===========
     Diluted Earnings  Per Share         $       .03           $       .13
                                         ===========           ===========
</TABLE>


NOTE 5.    BUSINESS ACQUISITION

         In July of 1998, the Company acquired substantially all of the assets
of Glass Doctor Corporation and Glassmarks, Inc., all of such assets being
associated with the Glass Doctor franchise concept. Glass Doctor is a national
franchisor of service centers whose business is the replacement of automobile,
residential and commercial glass. At the time of acquisition, Glass Doctor's
franchise system was comprised of 26 franchisees in the United States that were
generating over $33 million per year in system-wide sales. On a pro forma basis,
Glass Doctor would add approximately $1.5 million to the Company's annual
revenues. The acquisition was funded by a combination of $3.225 million in cash,
a note payable of $1.9 million and the issuance of 333,333 shares of the
Company's common stock valued at the then current market share price of $2 per
share. A recap of the total purchase price follows:

<TABLE>
<S>                                               <C>       
         Cash to seller                           $3,225,000
         Note to seller                            1,900,000
         Common stock issued                         666,666
         Misc. acquisition costs                     111,195
                                                  ----------
                                                  $5,902,861
                                                  ==========
</TABLE>


         The acquisition was accounted for as a purchase, and accordingly, the
operating results of Glass Doctor have been included in the accompanying
consolidated financial statements since the date of acquisition. The aggregate
acquisition cost was allocated to the net assets of the Company based upon their
respective fair market values, with the excess recorded as goodwill. The
allocation of the purchase price based on the estimated fair value of the assets
acquired is as follows:

<TABLE>
<S>                                              <C>        
         Tangible assets, net of liabilities     $   131,485
         Covenant Not to Compete                     100,000
         Goodwill                                  5,671,376
                                                 -----------
                                                 $ 5,902,861
                                                 ===========
</TABLE>

         The unaudited pro forma information for the periods set forth below
give effect to the acquisition as if it had occurred at the beginning of the
respective periods. The pro forma information is presented for informational
purposes 



                                       46
<PAGE>   49

only and is not necessarily indicative of the results of operations that
actually would have occurred had the transaction been consummated at the
beginning of the periods presented nor does the information purport to be
indicative of future results.

<TABLE>
<CAPTION>
                                                         Year Ended
                                                        December 31,
                                                        ------------
                                                1998                   1997
                                                ----                   ----
<S>                                         <C>                    <C>        
     Revenues                               $ 15,605,087           $17,137,138
                                            ============           ===========
     Net Income (Loss)                      $    (49,179)          $   444,774
                                            ============           ===========
     Basic Earnings (Loss) Per Share        $       (.01)          $       .06
                                            ============           ===========
     Diluted Earnings (Loss) Per Share      $       (.01)          $       .06
                                            ============           ===========
</TABLE>


NOTE 6.    ACQUISITION OF FRANCHISE RIGHTS

         In February of 1998, the Company repurchased all Canadian franchise
rights for its Mr. Rooter and Mr. Electric franchise concepts from its Canadian
master licensee, a nonaffiliated third party. The purchase price of
approximately $600,000 was capitalized as Purchased Franchise Rights.

         In March of 1998, the Company repurchased Canadian franchise rights for
its Rainbow International franchise concept from a related party. The purchase
price of approximately $250,000 was capitalized as Purchased Franchise Rights.


NOTE 7.    FAIR VALUE OF FINANCIAL INSTRUMENTS

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

<TABLE>
<CAPTION>
                                     DECEMBER 31, 1998                  DECEMBER 31, 1997
                                     -----------------                  -----------------
                                  CARRYING                           CARRYING
                                   AMOUNT      FAIR VALUE             AMOUNT       FAIR VALUE
                                   ------      ----------             ------       ----------
<S>                              <C>           <C>                 <C>             <C>        
     Trade notes receivable      $4,120,295    $3,936,688          $ 4,831,397     $ 4,708,614
     Notes payable               $2,334,588    $2,161,482          $   712,079     $   671,362
</TABLE>

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

NOTE 8.    PROPERTY AND EQUIPMENT

A summary of property and equipment is as follows:

<TABLE>
<CAPTION>
                                                1998                   1997
                                                ----                   ----
<S>                                         <C>                    <C>       
       Land                                 $   57,159             $   57,159
       Building and improvements               180,720                185,380
       Machinery and equipment               1,706,740              1,652,465
       Furniture and fixtures                  198,149                300,444
                                            ----------             ----------
                                             2,142,768              2,195,448
       Less accumulated depreciation         1,038,906              1,125,073
                                            ----------             ----------
                                            $1,103,862             $1,070,375
                                            ==========             ==========
</TABLE>

Depreciation expense for the years ended December 31, 1998 and 1997 was $367,288
and $374,070, respectively.



                                       47
<PAGE>   50

NOTE 9.    INCOME TAXES

         Federal income tax expense/benefit for the years ended December 31,
1998 and 1997 was as follows:

<TABLE>
<CAPTION>
                                                                 1998                   1997
                                                                 ----                   ----
<S>                                                           <C>                  <C>       
               Current tax expense                            $  503,215           $  506,931

               Deferred tax expense                             (437,994)            (128,632)
                                                              ----------           ----------
               Total tax expense                              $   65,221           $  378,299
                                                              ==========           ==========
</TABLE>

         A reconciliation of income tax expense at the federal statutory rate to
the income tax provision at the Company's effective rate is as follows for the
years ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                         1998                             1997
                                                         ----                             ----
                                                AMOUNT         PERCENT           AMOUNT          PERCENT
                                                ------         -------           ------          -------
<S>                                            <C>                 <C>         <C>                 <C>
Federal income tax at statutory rate           $40,284             34%         $ 382,499           34%
Utilization of tax loss carryforward                --                           (63,900)          (6%)
Goodwill amortization not deductible
    for tax purposes                                --                            10,200            1%
State income tax                                 6,200              5%            49,500            5%
Other permanent differences                     18,737             16%                --           --
                                               -------             --          ---------          ---  
Total tax expense/(benefit)                    $65,221             55%         $ 378,299           34%
                                               =======             ==          =========          ===  
</TABLE>


         The components of deferred income tax assets and liabilities at
December 31, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
                                                        1998             1997
                                                    -----------      -----------
<S>                                                 <C>              <C>         
Deferred tax liabilities:
   Accelerated depreciation and amortization        $   142,644)     $   (84,725)
   Franchise agreements                                      --         (161,851)
   Intangibles                                          (27,253)              --
   IRC Section 481 Adjustment (change in             
    accounting method)                                       --         (210,252)
                                                    -----------      -----------
Total deferred income tax liabilities                  (169,897)        (456,828)

Deferred tax assets:
   Accrued expenses                                          --          128,029
   Patents and trademarks                                21,282               --
   Franchise agreements                                  15,266               --
   Net operating losses and tax credits                 807,566          841,592
   Reserves                                             864,652          586,788
   Deferred fees                                         89,108          105,144
   Other                                                 17,407            2,665
                                                    -----------      -----------
Total deferred tax assets                             1,815,281        1,664,218
                                                    -----------      -----------
Valuation allowance                                    (777,611)        (777,611)
                                                    -----------      -----------
Net deferred income tax asset                       $   867,773      $   429,779
                                                    ===========      =========== 
</TABLE>



                                       48
<PAGE>   51

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

         The Company expects to realize the net asset principally through the
implementation of reasonable tax strategies based on future income projections.
The valuation allowance as of December 31, 1998 and 1997 pertains primarily to
the alternative minimum tax net operating losses available for carryforward.
Management has determined it is unlikely that this component of the deferred tax
asset will be realized.

         At December 31, 1998, the Company has available unused preacquisition
alternative minimum tax carryforwards of Ekwill Acquisition Corporation
("Ekwill"), of which EKW is a wholly owned subsidiary. This alternative minimum
tax carryforward has no expiration date. These preacquisition carryforwards may
be used only to offset taxable income, if any, of Ekwill and may not be used to
offset future taxable income of any other member of the group with which Ekwill
files a consolidated return. The amount of the preacquisition carryforwards
which may be applied in any one year is limited to the lesser of Ekwill's
taxable income or $67,000, as applied on a cumulative basis. Carryovers have
only been recognized for financial reporting purposes to the extent of Ekwill's
taxable temporary differences. To the extent that the carryovers exceed Ekwill's
taxable temporary differences, a valuation allowance has been created.




                     THIS SECTION INTENTIONALLY LEFT BLANK.



                                       49
<PAGE>   52

NOTE 10.    NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

         The following notes payable and capital lease obligations were
outstanding at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                                             1998         1997
                                                                                         ----------     --------
<S>                                                                                      <C>            <C>     
Note payable to an individual pursuant to the acquisition of Glass Doctor, with
interest at 5 1/2%, payable in quarterly installments of $140,108, with the
remaining balance due in July 2002                                                       $1,786,017     $     --

Notes payable to a finance company under performance guarantees, with interest
at approximately 15%, payable in monthly installments through 2001                          205,000           --

9.25% mortgage loan from a bank, due in monthly installments of $1,593 per
month, including interest, through September 2006, with a final payment of
$139,798 in October 2006, collateralized by property in Waco, Texas                         148,860      153,978

Note payable with no interest to an individual. Minimum payments of $1,000 per
month with a balloon of the remaining balance due November 2002                             103,850      115,850

Obligations under capital leases, interest of approximately 13.5%, due in
monthly installments through December 2000                                                   40,660       60,706

10% note payable to a finance company, assumed in 1996 pursuant to a regional
franchise repurchase, due in installments through October 2000                               22,507       44,263

12.5% note payable to a finance company, assumed in 1997 pursuant to a
performance guarantee, due in monthly payments of $787 per month including
interest, through December, 2000                                                             18,582       24,604

10% note payable to an employee due in monthly payments through June 1999                     6,998       18,426

13.2% notes payable to a finance company, assumed in 1997 pursuant to a
performance guaranty, due in monthly payments of $798 per month, including interest           2,114        9,329

Notes payable with no interest to individual third parties with aggregate
payments of $6,333 per month                                                                     --      164,423

Note payable under a $300,000 line of credit, interest at the Wall Street
Journal prime rate plus 1% (9.5% at December 31, 1997). Collateralized by notes
receivable                                                                                       --       80,500

Note payable with no interest to an individual pursuant to the purchase of a
regional franchise, payable in $10,000 quarterly installments during 1998                        --       40,000
                                                                                         ----------     --------
                                                                                          2,334,588      712,079

Less current portion                                                                        534,767      224,963
                                                                                         ----------     --------
Notes payable and capital lease obligations - long term                                  $1,799,821     $487,116
                                                                                         ==========     ========
</TABLE>



                                       50
<PAGE>   53

Maturities of notes payable and capital lease obligations are as follows:
<TABLE>

               <S>                        <C>     
                  1999                     $  534,767
                  2000                        794,302
                  2001                        648,072
                  2002                        301,597
                  2003                         12,000
                  2004 and beyond              43,850
                                           ----------
                                           $2,334,588
                                           ==========
</TABLE>


NOTE 11.    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"). The Company currently leases
its principal executive and administrative facilities from an Affiliate, under
an operating lease which expires on December 31, 2000, requiring monthly lease
payments of approximately $31,000. In addition to rent, the Company receives
repairs and maintenance, promotional materials and other services from entities
controlled by its majority stockholder. The Company expensed approximately
$592,000 for these rents and services in 1998, and $757,000 in 1997.

         The Company recognized income from Affiliates for accounting, legal and
administrative services, interest income, product sales commissions and
management fees of approximately $631,000 in 1998, and $779,000 in 1997. In
addition, from time to time, the Company and its Affiliates have made advances
to each other, which generally have not had specific repayment terms and have
been reflected in the Company's financial statements as accounts receivable or
payable from related parties. These advances typically result from the payment
of an invoice by one entity for services or items performed or delivered on
behalf of the Company and one or more of its Affiliates. The company that pays
the invoice is eventually reimbursed by the other companies for the appropriate
amount based on a pro rata allocation of the services provided to each company.

         In January 1998, the Company agreed to purchase an Affiliate, Rainbow
International Carpet Dyeing and Cleaning, Ltd., ("Rainbow Canada"), from Ms.
Dwyer, for a purchase price of $250,000. Rainbow Canada owns the Rainbow
franchise rights for Canada and currently has 20 franchisees currently
generating royalties of approximately $55,000 per year. The Company believes
that the purchase price approximates the price that would be paid to an
unrelated third party in a similar transaction.

         In 1998 and 1997, the Company paid an independent director $31,400 and
$30,000, respectively, for consulting services. In addition another independent
director provides consulting services regarding public relations, marketing and
special projects to the Company. The Company paid approximately $110,000, in
both 1998 and 1997, for this independent director's services.

         In 1997, the Company entered into an agreement with related parties
regarding cancellation of certain shares of the Company's Common Stock. See Note
2(B) - "Escrow Shares".

         At December 31, 1998 and 1997, the Company had accounts, interest and
notes receivable from related parties totaling approximately $2,037,000 and
$2,255,000, respectively, the majority of which was due from Affiliates. Ms.
Dwyer has guaranteed payment of all amounts due from Affiliates.



                                       51
<PAGE>   54

NOTE 12.    CONCENTRATION OF CREDIT RISK AND CONTINGENCIES FROM NOTES RECEIVABLE

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

         In 1993, the Company entered into a Franchise Financing Agreement with
Stephens Franchise Financing, which is now SunTrust Credit Corporation
("SunTrust"), pursuant to which SunTrust agreed to extend credit to qualified
Mr. Rooter and Aire Serv franchisees up to an aggregate amount of $10,000,000.
As of December 31, 1998, the aggregate principal amounts of outstanding
franchisee indebtedness under such agreement was approximately $1,316,000.
Pursuant to the terms of the agreement, the Company is liable for such
franchisee indebtedness in the event a default occurs and the Company has 180
days to correct the default. If the default is not corrected within such time,
the Company is obligated to make the monthly installments on the note until paid
in full or the franchise is sold to another approved party and the debt is
assumed by that party. The Company also has the option of substituting its notes
receivable from franchisees of equal or greater value. During 1998, the Company
did not exchange any such notes. In 1997, the Company exchanged notes
aggregating approximately $29,000. In addition, approximately $84,000 and
$37,000 was paid to SunTrust during 1998 and 1997, respectively, representing
monthly installments on behalf of franchisees in default. In 1998, management
discontinued the practice of guaranteeing franchise notes to third parties.

         In September 1996, The Dwyer Group, Inc., Mr. Rooter, Aire Serv, Mr.
Appliance, and Mr. Electric entered into an agreement with Phoenix Leasing
Incorporated ("Phoenix") to finance franchise sales for franchise applicants who
meet Phoenix's qualifications. Phoenix agreed to provide up to $3,000,000 in
debt financing to the franchisees provided that each franchisee's obligations to
Phoenix under its debt financing be guaranteed by the Company. The Company
receives from Phoenix an Aging Report of the amounts due and owing by the
franchisees as of the first day of such month. If an Aging Report shows that any
franchisee has failed to make all of the scheduled monthly payments due during
any sixty day period, then the Company, within ten days of delivery of such
Aging Report, shall pay all of such franchisee's delinquent scheduled payments,
together with all late charges then due. In 1998, the Company paid approximately
$39,000 on such delinquent notes. The Company was not required to make any such
payments in 1997. At December 31, 1998, the Company was contingently liable for
approximately $688,000, relating to such notes. In 1998, management discontinued
the practice of guaranteeing franchisee notes to third parties.


NOTE 13.    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 did not make any contributions to the plan
during 1998 or 1997. Each year the Board of Directors will determine the amount
of any Company contribution based upon the Company's profitability.


NOTE 14.    COMMITMENT AND CONTINGENCIES

         The Company leases its facilities from an Affiliate under an operating
lease expiring December 31, 2000. The approximate minimum rental commitments
under operating leases are as follows:

<TABLE>
<CAPTION>
         For Years Ending
         ----------------
<S>                       <C>       
         1999              $  372,000
         2000                 372,000
                           ----------
                           $  744,000
                           ==========
</TABLE>

         Rent paid to the Affiliate in both 1998 and 1997 was approximately
$372,000.



                                       52
<PAGE>   55

NOTE 15.    LITIGATION

The Company and its subsidiaries are parties to various legal proceedings
incidental to its normal business activities; many of which are covered by
insurance. Management of the Company does not believe that the outcome of each
such proceeding or all of them combined will have a material adverse affect on
the Company or its consolidated financial position. Management has estimated
that the potential loss due to these proceedings does not exceed $1.1 million.
The Company has accrued for its estimate of such losses, of which approximately
$1.0 million was expensed in 1998, when such losses became probable. In the
first quarter of 1999, the Company resolved a lawsuit and a potential lawsuit 
and made payments of $575,000. This amount was included in the accrual at 
December 31, 1998.


NOTE 16.    BUSINESS SEGMENTS AND FOREIGN OPERATIONS

(A)      Business Segments

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

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

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

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

         Information by business segment is set forth below:

<TABLE>
<CAPTION>
                                                     1998                            1997
                                                     ----                            ----
<S>                                                <C>                            <C>        
         Revenues:
            Franchising                           $ 13,284,506                   $ 14,547,407
            National Accounts                        1,526,674                        884,589
                                                  ------------                   ------------

               Total                              $ 14,811,180                   $ 15,431,996
                                                  ============                   ============

         Operating Income (Loss):
            Franchising                           $ (1,602,708)                  $    980,800
            National Accounts                          (57,294)                        65,919
                                                  ------------                   ------------

               Total                              $ (1,660,002)                  $  1,046,719
                                                  ============                   ============
</TABLE>



                                       53
<PAGE>   56

<TABLE>
<CAPTION>
                                                                              NATIONAL
                                                      FRANCHISING             ACCOUNTS               TOTAL
                                                      -----------             --------               -----
<S>                                                   <C>                      <C>                <C>        
         1998:
         -----
         Identifiable assets                          $18,426,523              $290,777           $18,717,300
         Depreciation and amortization                    693,339                 2,187               695,526
         Income tax expense (benefit)                    (544,921)              (19,480)             (564,401)
         Net capital expenditures                         462,565                 3,798               466,363

         1997:
         -----
         Identifiable assets                          $16,170,306              $367,730           $16,538,036
         Depreciation and amortization                    552,838                 3,804               556,642
         Income tax expense                               333,472                22,412               355,884
         Net capital expenditures                         162,264                10,527               172,791
</TABLE>

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


(B)      Revenues from Foreign Operations

<TABLE>
<CAPTION>
                                                     1998                       1997
                                                  -----------                -----------
<S>                                               <C>                        <C>        
            United States                         $14,149,391                $15,077,111
            Canada                                    248,183                    108,799
            Other foreign countries                   413,606                    246,086
                                                  -----------                -----------
               Total                              $14,811,180                $15,431,996
                                                  ===========                ===========
</TABLE>

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

Note 17. Supplemental Cash Flow

<TABLE>
<CAPTION>
                                                    1998                      1997
                                                  ---------                ---------
<S>                                               <C>                      <C>        
            Cash paid for interest                $  80,762                $  59,108
            Cash paid for income taxes            $ 450,000                $ 300,000
            Value of common stock
               issued for acquisition             $ 666,666               
            Value of stock received
               for sale of assets                 $ 178,500 
</TABLE>



                                       54
<PAGE>   57
                               INDEX TO EXHIBITS
<TABLE>
<CAPTION>

EXHIBIT
NUMBER        DESCRIPTION
-------       -----------
<S>           <C>
     3.1      Certificate of Incorporation, as amended (1)
     3.2      Certificate of Amendment of Certificate of Incorporation filed June 12, 1987 (2)
     3.3      Certificate of Amendment of Certificate of Incorporation filed May 8, 1988 (2)
     3.4      Certificate of Amendment of Certificate of Incorporation filed July 30, 1993 (2)
     3.5      Bylaws (1)
     4.1      Form of Representative's Warrant Agreement, including Representative's Warrant (2)
     4.2      Warrants to Purchase Common Stock issued to Norcross Securities, Inc. (2)
    10.1      Stock Option Plan, as amended, and form of Employee Stock Option Agreement (1)
    10.2      Form of Rainbow International Carpet Dyeing and Cleaning Co. License Agreement (2)
    10.3      Form of Mr. Rooter Corporation Franchise Agreement (2)
    10.4      Form of General Business Services License Agreement (2)
    10.5      Form of Aire Serv Corporation Franchise Agreement (2)
    10.6      Certificate of Registration of Service Mark "MR. ROOTER" (1)
    10.7      Certificate of Registration of Service Mark "QUICK-AS-A-WINK" (1)
    10.8      Certificate of Registration of Mr. Rooter logo (1)
    10.9      Certificate of Registration of Service Mark "Super Kleens" logo (1)
    10.10     Certificate of Registration for Service Mark "America's Trouble Shooter" (1)
    10.11     Certificate of Registration of Trademark "MR. ROOTER" issued by Office of Consumer and Corporate
              Affairs in Canada (1)
    10.12     Lease Agreement between Donald J. Dwyer and Mr. Rooter Corporation, dated December 20, 1991 (2)
    10.13     Lease Agreement between Donald J. Dwyer and Rainbow International Carpet Dyeing and Cleaning Training
              Center, commencing January 1, 1993 (2)
    10.14     Lease Agreement between Donald J. Dwyer and Rainbow International Carpet Dyeing and Cleaning Waco
              Franchise, commencing January 1, 1993 (2)
    10.15     Lease Agreement between Donald J. Dwyer and General Business Services, dated August 31, 1993 (2)
    10.16     Lease Agreement between Donald J. Dwyer and Rainbow International, dated September 1, 1993 (2)
    10.17     Lease Agreement between Donald J. Dwyer and The Dwyer Group, Inc., dated February 18, 1994 (2)
    10.18     Agreement and Plan of Reorganization and Share Exchange (3)
    10.19     Agreement for Purchase and Sale of Assets of National Manufacturing & Supply Corporation (4)
    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)
</TABLE>



<PAGE>   58

<TABLE>

<S>           <C>
    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)
    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)
</TABLE>


<PAGE>   59

<TABLE>

<S>           <C>
    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 Dwyer Group, Inc. (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.
    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.
    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.
    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.
    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.
    21.1*     List of Subsidiaries
    27*       Financial Data Schedules
</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).