<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 September 30, 1999
[ ] 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) 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 September 30, 1999 4,505,099
Transitional Small Business Disclosure Format (check one); Yes No X
--- ---
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
MOTORVAC TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,466,512 $ 1,632,605
Accounts Receivable, net of allowance for doubtful accounts
of $80,000 (September 30, 1999) and $84,662 (December 31, 1998) 1,634,957 866,357
Inventories, net of reserve of $305,597 (September 30, 1999)
and $63,099 (December 31, 1998) 1,680,568 1,667,333
Other Current Assets - (including deposits with vendors of $159,935 at
September 30, 1999, and $196,030 at December 31, 1998) 252,012 275,245
------------ ------------
Total Current Assets 6,034,049 4,441,540
PROPERTY AND EQUIPMENT, net 302,744 242,666
INTANGIBLE ASSETS, net of accumulated amortization of
$1,441,493 (September 30, 1999) and $1,185,155 (December 31, 1998) 482,949 639,288
OTHER ASSETS 17,227 17,227
------------ ------------
$ 6,836,969 $ 5,340,721
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Other Current Liabilities $ 1,310,524 $ 954,567
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 10,000,000 shares authorized;
4,505,099 issued and outstanding (September 30, 1999) and
4,453,918 (December 31, 1998) 45,051 44,539
Additional paid-in capital 16,535,296 16,467,788
Employee Stock Loans (82,000) (78,432)
Accumulated Deficit (10,971,902) (12,047,741)
------------ ------------
Total Stockholders' Equity 5,526,445 4,386,154
------------ ------------
$ 6,836,969 $ 5,340,721
============ ============
</TABLE>
(See Accompanying Notes to Financial Statements)
<PAGE> 3
MOTORVAC TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES $3,882,582 $ 1,854,218 $12,165,740 $ 7,432,297
COST OF SALES 2,268,931 1,142,629 7,432,213 4,263,622
---------- ----------- ----------- -----------
GROSS PROFIT 1,613,651 711,589 4,733,527 3,168,675
OPERATING EXPENSES 1,269,166 1,074,483 3,674,989 3,762,212
---------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 344,485 (362,894) 1,058,538 (593,537)
INTEREST INCOME, NET 24,668 8,468 53,126 39,708
---------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 369,153 (354,426) 1,111,664 (553,829)
PROVISION FOR INCOME TAXES 35,747 -- 35,825 5,650
---------- ----------- ----------- -----------
NET INCOME (LOSS) $ 333,406 $ (354,426) $ 1,075,839 $ (559,479)
========== =========== =========== ===========
BASIC EARNINGS (LOSS) PER SHARE $ 0.07 $ (0.08) $ 0.24 $ (0.12)
========== =========== =========== ===========
WEIGHTED AVERAGE SHARES USED TO CALCULATE BASIC
EARNINGS (LOSS) PER SHARE 4,505,099 4,514,918 4,487,151 4,514,918
========== =========== =========== ===========
DILUTED EARNINGS (LOSS) PER SHARE $ 0.07 $ (0.08) $ 0.24 $ (0.12)
========== =========== =========== ===========
WEIGHTED AVERAGE SHARES USED TO CALCULATE DILUTED
EARNINGS (LOSS) PER SHARE 4,621,352 4,514,918 4,542,710 4,514,918
========== =========== =========== ===========
</TABLE>
(See Accompanying Notes to Financial Statements)
<PAGE> 4
MOTORVAC TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 333,406 $ (354,426) $ 1,075,839 $ (559,479)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 143,130 101,434 382,526 310,465
Loss on disposal of fixed assets -- -- 34,682 --
Net change in operating assets and liabilities:
Accounts receivable 133,845 (77,975) (768,600) 422,482
Inventories 166,490 75,443 (13,235) (468,164)
Other Current Assets 14,061 27,598 23,233 27,124
Accounts payable and other current liabilities 21,817 (91,695) 355,957 (15,297)
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities 812,749 (319,621) 1,090,402 (282,869)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (27,549) (11,741) (220,947) (81,868)
Purchase of Intangible Assets -- -- (100,000) --
----------- ----------- ----------- -----------
Net cash used in Investing activities (27,549) (11,741) (320,947) (81,868)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock 25,476 -- 68,020 --
Advances to employees for stock purchases (1,217) (20,865) (3,568) (50,868)
Net borrowing on line of credit -- 315,000 -- 400,000
----------- ----------- ----------- -----------
Net cash provided by financing activities 24,259 294,135 64,452 349,132
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 809,459 (37,227) 833,907 (15,605)
CASH AND CASH EQUIVALENTS, beginning of period 1,657,053 1,686,742 1,632,605 1,665,120
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,466,512 $ 1,649,515 $ 2,466,512 $ 1,649,515
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ -- $ 2,431 $ 9,819 $ 13,110
=========== =========== =========== ===========
Income taxes paid $ 33,500 $ 24 $ 34,550 $ 7,224
=========== =========== =========== ===========
</TABLE>
(See Accompanying Notes to Financial Statements)
<PAGE> 5
Notes to Unaudited Financial Statements
(for the Three- and Nine-Month Periods Ended September 30, 1999):
1. Basis of Presentation
The information set forth in these financial statements as of
September 30, 1999 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 three- and nine-month periods ended September 30, 1999 are
not necessarily indicative of the results of operations for the full
fiscal year.
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. Inventories
Inventories, which include materials, supplies, labor and
manufacturing overhead, are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Materials and supplies $ 1,093,002 $ 878,548
Work in process 31,903 45,731
Finished product 861,260 806,153
Reserve (305,597) (63,099)
----------- -----------
$ 1,680,568 $ 1,667,333
=========== ===========
</TABLE>
3. Earnings Per Share
Earnings per share calculations were computed by dividing net
earnings by the corresponding weighted average number of common
shares outstanding for the period. The dilutive effect of the
potential exercise of outstanding options to purchase shares of
common stock is calculated using the treasury stock method.
4. Comprehensive Income
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 was effective for the year
beginning January 1, 1998. The Company had no items of other
comprehensive income, as defined, for the three- or nine-month
periods ended September 30, 1999.
<PAGE> 6
5. Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and for hedging activities. The
Statement of Financial Accounting Standards (SFAS) No. 133 was
effective for fiscal years beginning after June 15, 1999. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 defers the effective date
of SFAS No. 133 for one year to fiscal years beginning after June
15, 2000. The Company is currently evaluating the impact of the
pronouncement.
6. Segment Information
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 was
effective for the year beginning January 1, 1998.
Approximately 71% and 77% of the Company's net sales were made to
one customer during the three months ended September 30, 1999 and
1998, respectively, and 73% and 78% for the nine-month periods ended
September 30, 1999 and 1998, respectively.
The Company sells its products through distributors in the domestic
(defined as U.S. and Canada) and the international marketplace. The
Company sells four types of products (percentages of sales for the
nine months ended September 30, 1999 and 1998 are indicated):
vehicle engine decarbonizing machines (31% and 45%), detergent for
use in the decarbonizing machines (15% and 22%), leak detection
system (7% and 0%), and vehicle transmission flush machines (44% and
27%); an additional 3% and 6% of sales is for machine parts. The
sales process is structured geographically between domestic and
international sales. All machine products are produced at, or
distributed from, the same plant. The Company's major customers
typically purchase all four product types. The Company uses
information based on products and geographic location; however, the
business activities are managed as a single segment. For the three
and nine months ended September 30, 1999 and 1998, net sales by
region were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------------ ------------------
<S> <C> <C>
North America $3,386,217 $1,534,267
South and Central America 105,432 37,829
Europe 75,422 66,819
Middle East and Africa -- 66,925
Asia 315,511 148,378
---------- ----------
$3,882,582 $1,854,218
========== ==========
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
----------------- -----------------
<S> <C> <C>
North America $11,042,725 $5,633,409
South and Central America 253,957 140,194
Europe 178,891 442,959
Middle East and Africa 21,213 101,771
Asia 668,954 1,113,964
----------- ----------
$12,165,740 $7,432,297
=========== ==========
</TABLE>
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 unique solutions for the service and repair of
automotive fluid systems. Product lines include the MotorVac CarbonClean System
for the diagnosis, maintenance and repair of internal combustion engine fuel
systems, the TRANSTECH(TM) System for the replacement of automatic transmission
fluid, and the Leakchek(TM) System for diagnosing fluid and vapor leaks, and the
Coolant Clean(TM) coolant system flush machine. The Company's Automotive
Solutions division markets and sells the Carbon Tune System for the rapid
cleaning of engine fuel systems, primarily for the automotive after-market quick
service industry, and the TRANSTECH System to National accounts. The Company
markets and sells its machines and detergents through various distribution
channels, both in the United States and Canada ("Domestic") under the trade
names MotorVac, TRANSTECH and Carbon Tune, 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 threeand nine-month periods ended September 30,
1999, as compared to the Company's results of operations for the same periods
ended September 30, 1998.
This Quarterly Report on Form 10-QSB contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, 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, 1998, 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
<PAGE> 8
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 September 30, 1999 and 1998
Net Sales. Net sales for the three months ended September 30, 1999
increased $2,028,364 (approximately 109%) to $3,882,582 from $1,854,218 for the
three months ended September 30, 1998. This sales increase was due primarily to
higher Domestic sales of TRANSTECH machines (with an approximate increase of
$1,325,000), and the new LeakChek System machines (with an approximate increase
of $850,000).
For the three months ended September 30, 1999, Domestic sales were
approximately $2,724,000, International sales were approximately $494,000 and
Automotive Solutions' sales were approximately $664,000. For the three months
ended September 30, 1998, Domestic sales were approximately $1,512,000,
International sales were approximately $320,000, and Automotive Solutions' sales
were approximately $22,000. Domestic sales increased primarily due to an
increase (approximately $1,325,000) in TRANSTECH sales, which benefited from an
updated model which provides enhanced capability, and from increased sales
(approximately $850,000) of the LeakChek machine.
Cost of Sales. Cost of sales for the three months ended September
30, 1999 increased by $1,126,302 (approximately 99%) to $2,268,931 from
$1,142,629 for the three months ended September 30, 1998. The primary reason for
the increase was increased costs related to the sales increases described above;
also contributing to the increase was the change in product mix and increased
inventory reserve costs.
Gross Profit. Gross profit for the three months ended September 30,
1999 increased by $902,062 to $1,613,651 from $711,589 for the three months
ended September 30, 1998. Gross profit, as a percentage of sales, increased 3.2%
to 41.6% from 38.4% for the three months ended September 30, 1998. The increase
in gross margin percentage was impacted positively 6.7% by a reduction in
warranty cost, and negatively impacted 3.0% due primarily to higher margin
detergent sales representing a smaller percentage of sales in the current
quarter.
Operating Expenses. Operating expenses increased by $194,683
(approximately 18%) from $1,074,483 for the three months ended September 30,
1998, to $1,269,166 for the three months ended September 30, 1999. As a
percentage of sales, operating expenses decreased to 33% of sales for the three
months ended September 30, 1999, compared to 58% for the three months ended
September 30, 1998. The decrease as a percentage of sales was due to the sales
growth percentage being larger than the percentage growth in operating expenses.
The increase in operating expenses is accounted for by several expense items,
including commissions, bonus and rent.
Operating Income. As a result of the above, operating income for the
three months ended September 30, 1999 of $344,485 increased by $707,379 from an
operating loss of $362,894 for the three months ended September 30, 1998.
<PAGE> 9
Comparison of Nine Months Ended September 30, 1999 and 1998
Net Sales. Net sales for the nine months ended September 30, 1999
increased $4,733,443 (approximately 64%) to $12,165,740 from $7,432,297 for the
nine months ended September 30, 1998. This sales increase was due primarily to
higher (approximately $3,300,000) sales of TRANSTECH machines, and to higher
(approximately $850,000) sales of the LeakChek machine.
For the nine months ended September 30, 1999, Domestic sales were
approximately $9,187,000, International sales were approximately $1,123,000, and
Automotive Solutions' sales were approximately $1,856,000. For the nine months
ended September 30, 1998, Domestic sales were approximately $5,602,000,
International sales were approximately $1,799,000, and Automotive Solutions
sales were approximately $31,000. International sales declined, due primarily to
lower sales in the Asia region; Domestic sales increased due to growth in
TRANSTECH and LeakChek sales.
Cost of Sales. Cost of sales for the nine months ended September 30,
1999 increased by $3,168,591 (approximately 74%) to $7,432,213 from $4,263,622
for the nine months ended September 30, 1998. The primary reason for the
increase was increased costs related to the sales increases.
Gross Profit. Gross profit for the nine months ended September 30,
1999 increased by $1,564,852 to $4,733,527 from $3,168,675 for the nine months
ended September 30, 1998. Gross profit, as a percentage of sales, decreased 3.7%
to 38.9% from 42.6% for the nine months ended September 30, 1998. Several
factors accounted for the decrease in gross margin. Higher margin detergent
products were a lower percentage of sales, 14%, for the nine months ended
September 30, 1999, compared to 22% for the nine months ended September 30,
1998; this accounted for 1.2% of the gross margin decrease. An increase in
inventory reserves accounted for 1.9% of the gross margin decrease and higher
operating expenses, such as rent and supplies, accounted for 1.7% of the gross
margin decrease. Offsetting these cost increases were reductions in warranty
expense of 1.1%.
Operating Expenses. Operating expenses decreased by $87,223
(approximately 2%) from $3,762,212 for the nine months ended September 30, 1998,
to $3,674,989 for the nine months ended September 30, 1999. The decrease in
expenses for the first nine months of 1999 reflects cost reduction in several
expense areas, primarily sales costs and advertising.
Operating Income. As a result of the above, operating income for the
nine months ended September 30, 1999 of $1,058,538 increased by $1,652,075 from
an operating loss of $593,537 for the nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the Three Months Ended September 30, 1999
The Company's cash balance at September 30, 1999 was $2,466,512.
Cash of $812,749 was provided by operating activities for the three months ended
September 30, 1999. Cash used for investing activities was $27,549 for purchases
of fixed and intangible assets. Cash flow provided by financing activities for
the quarter was $24,259, primarily reflecting the issuance of common stock to
employees and directors under stock purchase plans. The net result was an
increase in cash of $809,459 from the beginning of the quarter. Working capital
as of September 30, 1999, at $4,723,525, increased by $473,246 from the
beginning of the quarter.
On August 4, 1999, the Company obtained from Imperial Bank a
$1,000,000 revolving line of credit, at prime plus 1.5%, expiring August 2,
2000. The credit availability is subject to a credit agreement which requires
the Company to maintain certain financial ratios and levels for working capital,
as well as other covenants, conditions and restrictions. At September 30, 1999,
the Company was in compliance with all
<PAGE> 10
provisions of the Credit Agreement. Credit advances, should they be drawn down,
will be secured by receivables, inventory, equipment and other operating assets.
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.
INFORMATION SYSTEMS AND THE YEAR 2000 ISSUE
The Company is preparing for the impact of the arrival of the Year
2000 on its business, as well as on the businesses of its customers, suppliers
and business partners. The "Year 2000 Issue" is a term used to describe the
problems created by systems that are unable to accurately interpret dates after
December 31, 1999. These problems are derived predominantly from the fact that
many software programs have historically categorized the "year" in a two-digit
format. The Year 2000 issue creates potential risks for the Company with respect
to its business information system. The Company may also be exposed to risks
from third parties with whom the Company interacts who fail to adequately
address their own Year 2000 issues. The Company does not use any other
date-sensitive system in its business operation. None of the Company's products
incorporate date-sensitive devices.
The Company has made an assessment of the ability of its primary
information systems to properly utilize dates beyond year 1999. The results of
this review indicate these systems are Year 2000 compliant, and that no material
system design or correction effort was or will be required.
The Company has retained an information technology consultant to
perform tests to validate Year 2000 compliance on its primary accounting and
business systems. These tests have validated compliance. The Company has also
tested its desktop computer environment and related network structure. These
tests have identified certain routine upgrades which will achieve compliance,
and the Company is proceeding to implement the upgrades. Because the accounting
software system the Company employs is so widely used, and because compliance
tests have been positive, the Company, at this time, does not anticipate any
significant problems in being compliant with respect to its systems, nor will it
require significant expenditures to effect compliance.
However, there can be no assurance that the Company will be
completely successful in its efforts to address Year 2000 issues. If these
issues are not successfully addressed, there could be impairment to management
information systems which could result in lost revenue and negative impact to
profitability.
The Company has contacted its major vendors and customers to assure
that their systems are Year 2000 compliant. These parties have responded that
they all intend to be Year 2000 compliant. There is no assurance that any of
these parties will not have compliance problems. The Company has one customer
that has represented, and is expected to continue to represent, over 50% of its
sales, and has several key vendors whose source and supply may not be easily
replaced. A Year 2000 compliance problem incurred by this customer or key
vendors could have a materially adverse effect on the Company's business.
The Company is evaluating the need for certain contingency plans to
address situations that may result if the Company or any of the third parties
upon which the Company is dependent is unable to achieve Year 2000 readiness.
The Company is also evaluating the need for increasing inventory levels of key
components of its manufactured products. The Company estimates that it has spent
up to $25,000 in operating costs to make corrective changes; it is estimated
that remaining expenses will not exceed $15,000.
<PAGE> 11
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks if it borrows funds, related
to fluctuations in variable interest rates on its revolving line of credit. For
variable rate debt, changes in interest rates generally do not influence fair
market value, but do affect future earnings and cash flows. The Company, at
September 30, 1999, was not borrowing under the line.
The Company does not use interest rate swaps, futures contracts or
options on futures, or other types of derivative financial instruments. The
Company does not believe that future market risks arising from holdings of its
financial instruments will have a material impact on its financial position or
results of operations.
STOCK REPURCHASE PROGRAM
On September 24, 1998, the Board of Directors announced approval of
the repurchase and cancellation of up to 451,492 shares of the Company's Common
Stock, which, at that time, constituted approximately 10% of the Company's
outstanding shares. New shares of Common Stock were reserved for issuance under
a stock compensation plan pursuant to which participating directors may elect to
receive shares of Common Stock of the Company in lieu of such directors' annual
retainer and meeting attendance fees, and for an employee stock purchase plan
for participating employees and officers of the Company. Stock purchases under
the repurchase program commenced October 2, 1998, and through December 31, 1998,
an aggregate of 61,000 shares of Common Stock have been repurchased for
aggregate consideration of $56,375. There were no stock purchases during the
quarter and nine months ended September 30, 1999.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Net proceeds from the Company's Initial Public Offering effective as of
April 25, 1996 (File No.: 333-1866-LA) totaled $5,153,474. Through
September 30, 1999, such proceeds were used as follows:
<TABLE>
<CAPTION>
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning Direct or
10% or more of any class of Indirect
equity securities of the issuer Payment to
and to affiliates of the issuer. Others
(X if estimate) (X if estimate) Total
-------------------------------- --------------- -----
<S> <C> <C> <C>
Repayment of
Indebtedness 123,572 1,500,000 1,623,572
Working Capital 226,962 226,962
Repayment of Interest
on Indebtedness 836,428 836,428
Investments:
Short Term CD's,
Other Cash and
Cash Equivalents 2,466,512 2,466,512
---------
Total 5,153,474
=========
</TABLE>
<PAGE> 12
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 September
30, 1999.
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: November 10, 1999
By: /s/ David P. Nelson
----------------------------
David P. Nelson
Chief Financial Officer
Date: November 10, 1999
<PAGE> 13
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 (LOSS) PER SHARE
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Income (Loss) $ 333,406 $ (354,426) $1,075,839 $ (559,479)
========== =========== ========== ===========
Basic Net Income (loss) Per Share
Weighted Average Outstanding Common Shares 4,505,099 4,514,918 4,487,151 4,514,918
========== =========== ========== ===========
Basic Net Income (loss) per share $ 0.07 $ (0.08) $ 0.24 $ (0.12)
========== =========== ========== ===========
Diluted Net Income (Loss) per share
Weighted Average Outstanding Common Shares 4,505,099 4,514,918 4,487,151 4,514,918
Incremental Shares, assuming exercise of
option grants outstanding at September 30,
1999 and September 30, 1998
(eliminated if dilutive to EPS) 116,253 -- 55,559 --
Weighted Average Outstanding Common and
Common Equivalent Shares 4,621,352 4,514,918 4,542,710 4,514,918
========== =========== ========== ===========
Diluted Net Income (Loss) per share $ 0.07 $ (0.08) $ 0.24 $ (0.12)
========== =========== ========== ===========
</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 QUARTER
ENDED SEPTEMBER, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,466,512
<SECURITIES> 0
<RECEIVABLES> 1,634,957
<ALLOWANCES> 0
<INVENTORY> 1,680,568
<CURRENT-ASSETS> 6,034,049
<PP&E> 705,679
<DEPRECIATION> 402,935
<TOTAL-ASSETS> 6,836,969
<CURRENT-LIABILITIES> 1,310,524
<BONDS> 0
0
0
<COMMON> 45,051
<OTHER-SE> 5,481,394
<TOTAL-LIABILITY-AND-EQUITY> 6,836,969
<SALES> 3,882,582
<TOTAL-REVENUES> 3,882,582
<CGS> 2,268,931
<TOTAL-COSTS> 2,268,931
<OTHER-EXPENSES> 1,269,166
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (24,668)
<INCOME-PRETAX> 369,153
<INCOME-TAX> 35,747
<INCOME-CONTINUING> 333,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 333,406
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
