<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number: 000-28112
MOTORVAC TECHNOLOGIES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
STATE OF DELAWARE 33-0522018
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1431 S. VILLAGE WAY
SANTA ANA, CALIFORNIA 92705
(Address of Principal Executive Offices)
(714) 558-4822
(Issuer's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Title Date Outstanding
Common Stock, $.01 par value March 31, 1998 4,514,918
Transitional Small Business Disclosure Format (check one);
Yes [ ] No [X]
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOTORVAC TECHNOLOGIES
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,641,430 $ 1,665,120
Accounts Receivable, net of allowance for doubtful accounts
$65,161 (March 31, 1998) and $43,542 (December 31, 1997) 2,122,109 1,763,212
Inventories, net of reserve of $92,353 (March 31, 1998)
and $69,610 (December 31, 1997) 1,141,371 1,197,544
Other Current Assets - (including deposits with vendors of $196,210 at
March 31, 1998, and $133,585 at December 31, 1997) 480,111 394,100
------------ ------------
Total Current Assets 5,385,021 5,019,976
PROPERTY AND EQUIPMENT, net 248,187 231,928
INTANGIBLE ASSETS, net of accumulated amortization of
$946,587 (March 31, 1998) and $867,064 (December 31, 1997) 877,856 957,379
OTHER ASSETS 17,227 17,227
------------ ------------
$ 6,528,291 $ 6,226,510
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Other Current Liabilities $ 1,036,024 $ 1,105,243
Short-term note payable to bank 575,000 250,000
------------ ------------
Total Current Liabilities 1,611,024 1,355,243
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 10,000,000 shares authorized;
4,514,918 issued and outstanding 45,149 45,149
Additional paid-in capital 16,523,553 16,523,553
Employee Stock Loans (53,091) (35,161)
Accumulated Deficit (11,598,344) (11,662,274)
------------ ------------
Total Stockholders' Equity 4,917,267 4,871,267
------------ ------------
$ 6,528,291 $ 6,226,510
============ ============
</TABLE>
(See Acompanying Notes to Financial Statements)
<PAGE> 3
MOTORVAC TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
<S> <C> <C>
NET SALES $ 3,083,615 $ 2,026,783
COST OF SALES 1,720,211 949,201
----------- -----------
GROSS PROFIT 1,363,404 1,077,582
OPERATING EXPENSES 1,312,220 938,613
----------- -----------
INCOME FROM OPERATIONS 51,184 138,969
INTEREST INCOME, NET 16,246 4,034
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 67,430 143,003
PROVISION FOR INCOME TAXES 3,500 (800)
----------- -----------
NET INCOME $ 63,930 $ 143,803
=========== ===========
BASIC EARNINGS PER SHARE $ 0.01 $ 0.03
=========== ===========
WEIGHTED AVERAGE SHARES USED TO CALCULATE BASIC
EARNINGS PER SHARE 4,514,918 4,514,918
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.01 $ 0.03
=========== ===========
WEIGHTED AVERAGE SHARES USED TO CALCULATE DILUTED
EARNINGS PER SHARE 4,514,987 4,514,918
=========== ===========
</TABLE>
(See Acompanying Notes to Financial Statements)
<PAGE> 4
MOTORVAC TECHNOLOGIES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 63,930 $ 143,803
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 104,677 119,784
Net change in operating assets and liabilities:
Accounts receivable (358,897) (77,175)
Inventories 56,173 (64,832)
Other current assets (86,011) 82,059
Accounts payable and other current liabilities (69,219) 104,886
----------- -----------
Net cash (used in) provided by operating activities (289,347) 308,525
CASH FLOWS FROM INVESTING ACTIVITY:
Purchase of property and equipment (41,413) (12,542)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances to employees for stock purchases (17,930) 0
Proceeds from issuance (repayment) of notes payable to bank 325,000 (300,000)
----------- -----------
Net cash provided by (used in) financing activities 307,070 (300,000)
----------- -----------
NET DECREASE IN CASH (23,690) (4,017)
CASH AND CASH EQUIVALENTS, beginning of period 1,665,120 2,559,989
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,641,430 $ 2,555,972
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 7,319 $ 28,256
=========== ===========
Income taxes paid $ 3,350 $ 0
=========== ===========
</TABLE>
(See Accompanying Notes to Financial Statements)
<PAGE> 5
Notes to Unaudited Consolidated Financial Statements
(for the Quarter Ended March 31, 1998):
1. Basis of Presentation
The information set forth in these consolidated financial statements as
of March 31, 1998 is unaudited and may be subject to normal year-end
adjustments. In the opinion of management, the unaudited financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of
MotorVac Technologies, Inc. (the "Company" or "MTI") for the period
indicated. Results of operations for the interim period ended March 31,
1998 are not necessarily indicative of the results of operations for the
full fiscal year.
Certain amounts in the prior years' Consolidated Financial Statements
have been reclassified to conform to the current fiscal year's
presentation.
Certain information normally included in footnote disclosures to the
financial statements has been condensed or omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
2. Legal Proceedings
As of March 31, 1998, the Company is involved in an arbitration
proceeding. See Part II, Item 1, of this Form 10-QSB. While the
Company's future liability with respect to these matters cannot be
predicted with certainty, it is the opinion of management, after
consultation with outside counsel, that any liability from such
proceedings or claims known to the Company, whether asserted or
unasserted, would not have a material adverse effect on the financial
position or operations of the Company.
3. Inventories
Inventories, which include materials, supplies, labor and manufacturing
overhead, are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
--------------- -----------------
<S> <C> <C>
Materials and supplies 621,563 755,079
Work in process 17,069 17,069
Finished product 595,092 495,006
Reserve (92,353) (69,610)
---------- ----------
1,141,371 1,197,544
========== ==========
</TABLE>
4. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," applicable to entities with other comprehensive
income. This pronouncement is effective for the year beginning January
1, 1998. The Company had no items of other comprehensive income, as
defined, for the three months ended March 31, 1998 or 1997.
<PAGE> 6
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information," which requires that the Company report certain information
about operating segments. This pronouncement is effective for the year
beginning January 1, 1998. The Company designs, assembles, markets and
sells products to the automotive after-market industry. This is
considered to be the Company's only reportable operating segment.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
MotorVac Technologies, Inc. (the "Company") designs, develops,
assembles, markets and sells the MotorVac CarbonClean System for the diagnosis,
maintenance and repair of internal combustion engine fuel systems and the
TransTech System for the replacement of automatic transmission fluid, primarily
for the automotive after-market repair and service industry. The Company markets
and sells its fuel system cleaning machines, transmission service machines and
detergents through various distribution channels, both in the United States and
Canada ("Domestic") under the trade name MotorVac, and outside the United States
and Canada ("International") under the trade name CarbonClean.
The following discussion and analysis addresses the results of the
Company's operations for the three months ended March 31, 1998, as compared to
the Company's results of operations for the three months ended March 31, 1997.
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, and the Company intends that
such forward-looking statements be subject to the safe harbors created thereby.
The Company may experience significant fluctuations in future operating results
due to a number of factors, including, among other things, the size and timing
of customer orders, new or increased competition, delays in new product
enhancements and new product introductions, quality control difficulties,
changes in market demand, market acceptance of new products, product returns,
seasonality in product purchases by distributors and end users, pricing trends
in the automotive after-market industry in general and in the specific markets
in which the Company is active, as well as those discussed in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997, as filed with
the Securities and Exchange Commission. Any of these factors could cause
operating results to vary significantly from prior periods. Significant
variability in orders during any period may have a material adverse impact on
the Company's cash flow or work flow, and any significant decrease in orders
could have a material adverse impact on the Company's results of operations and
financial condition. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any indication of future performance. Fluctuations
in the Company's operating results could cause the price of the Company's Common
Stock to fluctuate substantially.
Assumptions relating to the foregoing involve judgments with respect to,
among other things, future economic, competitive and market conditions, all of
which are difficult or impossible to predict accurately, and many of which are
beyond the control of the Company. In addition, the business and operations of
the Company are subject to substantial risks which increase the uncertainty
inherent in the forward-looking statements. In light of the significant
uncertainties inherent in the forward-looking information included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives or plans of the Company will be
achieved.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1998 and 1997
Net Sales. Net sales for the three months ended March 31, 1998 increased
$1,056,832 (approximately 52%) to $3,083,615 from $2,026,783 for the three
months ended March 31, 1997. This sales increase was due primarily to Domestic
sales of the Company's new TransTech product.
<PAGE> 8
For the three months ended March 31, 1998, Domestic sales were
$2,309,021 and International sales were $774,594. For the three months ended
March 31, 1997, Domestic sales were $1,268,734, and International sales were
$758,049.
Cost of Sales. Cost of sales for the three months ended March 31, 1998
increased by $771,010 (approximately 81%) to $1,720,211 from $949,201 for the
three months ended March 31, 1997. The primary reason for the increase was
increased costs related to the sales increase described above.
Gross Profit. Gross profit for the three months ended March 31, 1998
increased by $285,822 (approximately 27%) to $1,363,404 from $1,077,582 for the
three months ended March 31, 1997. The primary reason for the increase was the
sales increase discussed above. Gross profit, as a percentage of sales,
decreased approximately 9% to 44.2% for quarter ended March 31, 1998, from 53%
for the quarter ended March 31, 1997. The decrease was primarily attributable to
increased sales of relatively lower margin products in the current quarter
compared to the first quarter of 1997 and increased warranty costs, as a
percentage of sales, accrued in the current quarter compared to the quarter
ended March 31, 1997
Operating Expenses. Operating expenses increased by $373,607
(approximately 40%) from $938,613 for the three months ended March 31, 1997, to
$1,312,220 for the three months ended March 31, 1998. The increase was primarily
attributable to approximately $103,000 in net litigation recovery recognized in
the quarter ended March 31, 1997, as well as increased sales expenses and
support costs incurred in the quarter ended March 31, 1998 in connection with
the sales increase described above.
Interest. Net interest income for the three months ended March 31, 1998
of $16,246 increased by $12,212 from net interest income of $4,034 for the three
months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
For the Three Months Ended March 31, 1998
Cash at March 31, 1998 was $1,641,430. Cash of $289,347 was used by
operating activities for the quarter ended March 31, 1998. Cash flow generated
from financing activities for the quarter was $307,070, reflecting borrowing on
a note payable to a bank. The net result was a decrease in cash of $23,690 from
the beginning of the quarter. Working capital, at $3,773,997, improved by
$109,264 from the beginning of the period.
The Company maintains a $1,500,000 revolving line of credit expiring
June 30, 1998 at the bank's prime rate. The line is secured by a certificate of
deposit of $1,500,000 expiring the same date. At March 31, 1998, $575,000 was
outstanding under the line.
The Company presently expects that current cash resources and the
available capacity under the line of credit, together with cash generated from
operations, will be sufficient to meet its operating and capital requirements
for the next twelve months. There can be no assurances that additional capital
will be available to the Company on favorable terms or at all.
For the Three Months Ended March 31, 1997
Cash at January 1, 1997 was $2,559,989. Cash generated in operating
activities during the three months ended March 31, 1997, which included current
assets and current liabilities, was $308,525. Cash used in investing activities
during this period was $12,542, which primarily represented the purchase of
fixed assets. Cash used in financing activities was $300,000 which reflected the
pay-down of an outstanding loan payable to the bank. The net decrease in cash
for the three months ended March 31, 1997 was $4,017, resulting in ending cash
and cash equivalent balance of $2,555,972 on March 31, 1997.
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 17, 1998, the Company was served with a Demand for Arbitration
filed with the American Arbitration Association at its Irvine office by Max Q
Systems, Claimant. The dispute arises out of a License Agreement, dated January
1, 1994, between the Company as licensee and the Claimant as licensor. The
Claimant alleges that the Company failed to pay royalties as agreed under the
License Agreement and seeks payment of $20,000 plus royalties. On April 14,
1998, the Company filed a counter claim Demand for Arbitration alleging that it
was justified in terminating royalty payments due to breaches under the License
Agreement by the Claimant, and seeking damages of $100,000. The dispute is
scheduled for arbitration in June 1998.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Net proceeds from the Company's Initial Public Offering in April 1996
totaled $5,153,474. Through March 31, 1998, such proceeds were used as
follows:
<TABLE>
<S> <C> <C>
Direct or indirect payments to directors, officers, Direct or indirect
general partners of the issuer or their associates; payments to others
to persons owning 10% or more of any class of (X if estimate)
equity securities of the issuer and to affiliates of
the issuer. (X if estimate)
Repayment of
Indebtedness 123,572 1,250,000
Working Capital 1,302,044
Repayment of Interest
on Indebtedness 836,428
Investments:
- - Short Term CD's 1,500,000
- - Other Cash and
Cash Equivalents 141,430
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement of Calculation of Basic and Diluted Net
Income Per Share.
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1998.
<PAGE> 10
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MOTORVAC TECHNOLOGIES, INC.,
a Delaware corporation
By: s/ Lee W. Melody
--------------------------------------
Lee W. Melody, President and
Chief Executive Officer
Date: May 14, 1998
--------------
By: s/ David P. Nelson
---------------------------------------
David P. Nelson
Chief Accounting Officer
Date: May 14, 1998
---------------
<PAGE> 11
MOTORVAC TECHNOLOGIES, INC.
EXHIBIT INDEX
11.1 Statement of Calculation of Basic and Diluted Net Income Per Share.
27.1 Financial Data Schedule.
<PAGE> 1
EXHIBIT 11.1
MOTORVAC TECHNOLOGIES,INC.
CALCULATION OF BASIC AND DILUTED NET INCOME PER SHARE
FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
MARCH 31 MARCH 31
1998 1997
---------- ----------
<S> <C> <C>
Net Income $ 63,930 $ 143,803
========== ==========
Weighted Average Outstanding Common and
Common Equivalent Shares:
Common Stock Outstanding, December 31, 1997 and December 31,1996 4,514,918 4,514,918
Common stock equivalents:
Incremental shares, assuming exercise of options grants
outstanding at March 31, 1998 and March 31, 1997
(eliminated if dilutive to EPS) 69 0
Weighted Average Outstanding Common and
Common Equivalent Shares 4,514,987 4,514,918
========== ==========
Net Income per Share $ 0.01 $ 0.03
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MOTORVAC TECHNOLOGIES, INC. FOR
THE PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,641,430
<SECURITIES> 0
<RECEIVABLES> 2,187,270
<ALLOWANCES> 65,161
<INVENTORY> 1,141,371
<CURRENT-ASSETS> 5,385,021
<PP&E> 676,785
<DEPRECIATION> 428,598
<TOTAL-ASSETS> 6,528,291
<CURRENT-LIABILITIES> 1,611,024
<BONDS> 0
0
0
<COMMON> 45,149
<OTHER-SE> 4,872,118
<TOTAL-LIABILITY-AND-EQUITY> 6,528,291
<SALES> 3,083,615
<TOTAL-REVENUES> 3,083,615
<CGS> 1,720,211
<TOTAL-COSTS> 1,720,211
<OTHER-EXPENSES> 1,312,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (16,246)
<INCOME-PRETAX> 67,430
<INCOME-TAX> 3,500
<INCOME-CONTINUING> 63,930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,930
<EPS-PRIMARY> .01<F1>
<EPS-DILUTED> .01
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
