<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, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 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 March 31, 2000 4,528,958
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>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,191,646 $ 1,943,586
Accounts Receivable, net of allowance for doubtful
accounts of $40,000 (March 31, 2000) and $30,000
(December 31, 1999) 1,789,594 1,668,395
Inventories, net of reserve of $204,100 (March 31, 2000)
and $200,000 (December 31, 1999) 2,198,475 2,474,919
Other Current Assets - including deposits with vendors of
$198,384 (March 31, 2000) and $109,356 (December 31, 1999) 340,658 204,514
------------ ------------
Total Current Assets 6,520,373 6,291,414
PROPERTY AND EQUIPMENT, net 260,069 294,734
TRADEMARKS AND PATENTS, net of accumulated amortization of
$1,355,355 (March 31, 2000) and $1,507,741 (December 31, 1999) 335,096 416,702
MARKETING RIGHTS, net of accumulated amortization of $45,000
(March 31, 2000) and $33,750 (December 31, 1999) 180,000 191,250
OTHER ASSETS 58,123 21,133
------------ ------------
$ 7,353,661 $ 7,215,233
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and Other Current Liabilities $ 1,171,952 $ 1,289,931
Short-term note payable to employee -- 50,000
------------ ------------
Total Current Liabilities 1,171,952 1,339,931
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock, $.01 par value; 10,000,000 shares authorized;
4,528,958 (March 31, 2000) and 4,527,536 (December 31, 1999)
issued and outstanding 45,290 45,275
Additional paid-in capital 16,556,221 16,561,353
Employee Stock Loans (84,420) (83,216)
Accumulated Deficit (10,335,382) (10,648,110)
------------ ------------
Total Stockholders' Equity 6,181,709 5,875,302
------------ ------------
$ 7,353,661 $ 7,215,233
============ ============
</TABLE>
(See Accompanying Notes to Financial Statements)
2
<PAGE> 3
MOTORVAC TECHNOLOGIES, INC.
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
MARCH 31, MARCH 31,
2000 1999
---------- ----------
<S> <C> <C>
NET SALES $3,711,938 $4,053,760
COST OF SALES 2,079,616 2,609,430
---------- ----------
GROSS PROFIT 1,632,322 1,444,330
OPERATING EXPENSES 1,341,032 1,170,768
---------- ----------
INCOME FROM OPERATIONS 291,290 273,562
INTEREST INCOME, NET 28,438 11,358
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 319,728 284,920
PROVISION FOR INCOME TAXES 7,000 1,050
---------- ----------
NET INCOME $ 312,728 $ 283,870
========== ==========
BASIC EARNINGS PER SHARE $ 0.07 $ 0.06
========== ==========
WEIGHTED AVERAGE SHARES USED TO CALCULATE BASIC
EARNINGS PER SHARE 4,528,958 4,464,918
========== ==========
DILUTED EARNINGS PER SHARE $ 0.07 $ 0.06
========== ==========
WEIGHTED AVERAGE SHARES USED TO CALCULATE DILUTED
EARNINGS PER SHARE 4,695,082 4,473,869
========== ==========
</TABLE>
(See Accompanying Notes to Financial Statements)
3
<PAGE> 4
MOTORVAC TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, MARCH 31,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 312,728 $ 283,870
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 136,179 112,599
Loss on disposal of property 50,000
Accrued interest receivable from stock loans (1,204)
Net change in operating assets and liabilities:
Accounts receivable (121,199) (1,586,269)
Inventories 276,444 (458,253)
Other current assets and other assets (173,134) (105,055)
Accounts payable and other current liabilities (117,979) 1,207,362
----------- -----------
Net cash provided by (used in) operating activities 311,835 (495,746)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,658) (125,554)
----------- -----------
Net cash used in investing activities (8,658) (125,554)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (35,722)
Issuance of common stock 30,605 11,000
Advances to key employees for stock purchases (1,160)
Proceeds from issuance of notes payable to bank 650,000
Payment of notes payable to employee (50,000)
----------- -----------
Net cash (used in) provided by financing activities (55,117) 659,840
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 248,060 38,540
CASH AND CASH EQUIVALENTS, beginning of year 1,943,586 1,632,605
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 2,191,646 $ 1,671,145
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ -- $ 4,147
=========== ===========
Income taxes paid $ 6,400 $ 1,050
=========== ===========
</TABLE>
(See Accompanying Notes to Financial Statements)
4
<PAGE> 5
Notes to Unaudited Financial Statements
(for the Three-Month Period Ended March 31, 2000):
1. Basis of Presentation
The information set forth in these financial statements as of March 31, 2000
is unaudited and may be subject to 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 periods indicated. Results of operations for the interim
three-month period ended March 31, 2000 are not necessarily indicative of
the results 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. These
financial statements should be read in conjunction with the audited
financial statements included in the Company's Form 10-KSB for the year
ended December 31, 1999, as filed with the SEC.
2. Inventories
Inventories, which include materials, supplies, labor and manufacturing
overhead, are summarized as follows:
March 31, 2000 December 31, 1999
-------------- -----------------
Materials and supplies $ 1,149,333 $ 976,368
Work in process 45,163 89,847
Finished product 1,208,079 1,608,704
Reserve (204,100) (200,000)
----------- -----------
$ 2,198,475 $ 2,474,919
=========== ===========
5
<PAGE> 6
3. Basic and Diluted Earnings Per Common Share
Basic earnings per common share is computed as net income divided by the
weighted average number of common shares outstanding during the period.
Diluted net earnings per common share is computed as net income divided by
the weighted average number of common shares and potential common shares,
using the treasury stock method, outstanding during the period. Common stock
equivalents are excluded from the earnings per share calculation when the
effect would be anti-dilutive. The following table reconciles the numerators
and denominators used in the computation of both basic and diluted earnings
per share:
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
Basic earnings per share:
Numerator:
Net income $ 312,728 $ 283,870
========== ==========
Denominator:
Average common shares 4,528,958 4,464,918
========== ==========
Basic earnings per share $ 0.07 $ 0.06
========== ==========
Diluted earnings per share:
Numerator:
Net income $ 312,728 $ 283,870
========== ==========
Denominator:
Average common shares--basic 4,528,958 4,464,918
Stock option conversion 166,124 8,951
---------- ----------
Average common shares--diluted 4,695,082 4,473,869
========== ==========
Diluted earnings per share $ 0.07 $ 0.06
========== ==========
4. Comprehensive Income
SFAS No. 130 requires that comprehensive income and its components, as
defined in the statement, be reported in a financial statement. In
accordance with SFAS No. 130, the Company considers all changes in equity
from transactions and other events and circumstances, except those resulting
from investments by owners and distributions to owners, to be comprehensive
income. For the quarters ended March 31, 2000 and March 31, 1999, there were
no differences between comprehensive income and net income.
5. Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which the
Company is required to adopt effective in its fiscal year 2000. SFAS No. 133
will require the Company to record all derivatives on its balance sheet at
fair value. The Company does not currently engage in hedging activities but
will continue to evaluate the effects of adopting SFAS No. 133.
6. Segment Information
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires that the Company report certain information about
operating segments.
Approximately 69% and 71% of the Company's net sales were made to one
customer during the three months ended March 31, 2000 and 1999,
respectively.
6
<PAGE> 7
During the three months ended March 31, 2000 and 1999, the Company derived
percentages of total sales from its various product lines as follows:
Three Months Three Months
Ended Ended
Product Line March 31, 2000 March 31, 1999
------------ -------------- --------------
Fuel system cleaning machines 39% 33%
Transmission cleaning machines 36 48
Coolant cleaning machines 5
Engine leak diagnosis machines 5
Parts 3 1
Fuel system cleaning detergents 12 18
--- ---
100% 100%
=== ===
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 customers typically purchase all five
types of machines. The Company uses information based on products and
geographic location; however, the business activities are managed as a
single segment. For the three months ended March 31, 2000 and 1999, net
sales by region were as follows:
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
North America $3,389,824 $3,810,760
South and Central America 66,595 53,007
Europe 7,072 22,883
Middle East and Africa 57,049 16,260
Asia 191,398 150,850
---------- ----------
$3,711,938 $4,053,760
========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
MotorVac Technologies, Inc. (the "Company") designs, develops,
assembles 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. 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. The Company also designs, assembles and
sells the LeakChek leak detection system for the detection of leaks in
automotive systems, and the CoolantClean system for the replacement of coolant.
The Company markets and sells its machines and detergents through various
distribution channels, both in the United States and Canada ("Domestic") under
the tradenames MotorVac, TRANSTECH and Carbon Tune, and outside the United
States and Canada ("International") under the tradename CarbonClean.
7
<PAGE> 8
Except for the historical information contained herein, this report
contains forward-looking statements (identified by the words "estimate,"
"project," "anticipate," "expect," "intend," "believe," "hope" and similar
expressions) which are based upon management's current expectations and speak
only as of the date made. These forward-looking statements are subject to risks,
uncertainties and factors that could cause actual results to differ materially
from the results anticipated in the forward-looking statements. These risks and
uncertainties include, among other things, the size and timing of customer
orders, the ability of the Company's vendors and suppliers to make timely
deliveries, new or increased competition, the risks inherent in the development
and release of new products (such as delays, unforeseen costs and technical
difficulties), seasonality of product purchases, changes in the market for the
Company's products due to technological advances or government regulations
affecting the efficiency of automobile engines or the introduction of
alternative powered motor vehicles, and the Company's dependence on one major
customer.
RESULTS OF OPERATIONS
Net Sales. Net sales for the three months ended March 31, 2000
---------
decreased $341,822 (approximately 8%) to $3,711,938, compared to net sales of
$4,053,760 in the three months ended March 31, 1999. This sales decrease was due
primarily to lower Domestic sales of TRANSTECH machines and detergents. This
decrease was partially offset by sales of new products, primarily coolant
machines and leak detection machines.
For the three months ended March 31, 2000, Domestic sales (exclusive of
Automotive Solutions sales) were down 18% to approximately $2,718,000 (73% of
net sales), International sales were up 33% to approximately $322,000 and
Automotive Solutions sales were up 37% to approximately $672,000 (18% of net
sales). For the three months ended March 31, 1999, Domestic sales (exclusive of
Automotive Solutions sales) were approximately $3,321,000 (82% of net sales),
International sales were approximately $243,000 (6% of net sales), and
Automotive Solutions were approximately $490,000 (12% of net sales). Domestic
sales declined due to lower sales to the Company's largest customer, Snap-on,
Inc., which accounted for 69% of net sales in the first quarter of 2000,
compared to 71% of net sales in the first quarter of 1999. The Company believes
that the lower level of sales during the quarter are an issue of order timing
and are not indicative of weakening longer-term market trends.
Cost of Sales. Cost of sales for the three months ended March 31, 2000
-------------
decreased by $529,814 (approximately 20%) to $2,079,616 from $2,609,430 for the
three months ended March 31, 1999. The primary reason for the decrease was the
sales decrease described above.
Gross Profit. Gross profit for the three months ended March 31, 2000
------------
increased by $187,992 to $1,632,322 from $1,444,330 for the three months ended
March 31, 1999. Gross profit, as a percentage of sales, increased 8.4 percentage
points to 44.0% from 35.6% for the three months ended March 31, 1999.
Approximately 2.3 percentage points of the increase were due to proportionately
larger sales of higher-margin products for the three months ended March 31,
2000, compared to the quarter ended March 31, 1999. Approximately 3.3 percentage
points of the increase in gross margin were due to decreased warranty costs, and
approximately 1.4 percentage points of the increase was due to lower inventory
obsolescence costs.
Operating Expenses. Operating expenses increased by $170,264
------------------
(approximately 15%) from $1,170,768 for the three months ended March 31, 1999,
to $1,341,032 for the three months ended March 31, 2000. The increase in
expenses for the current quarter reflects cost increases in several expense
areas, including salary expenses for various sale and administrative functions,
bad debt expenses, depreciation, consulting and research and development costs.
Interest Income, Net. Net interest income increased by $17,080 (150% in
--------------------
the first quarter of 2000 compared to the first quarter of 1999 due to a higher
level of invested funds.
8
<PAGE> 9
Net Income. First quarter 2000 net income increased by $28,858 to
----------
$312,728 ($0.07 per share) compared to net income of $283,870 ($0.06 per share)
reported in the first quarter of 1999, despite lower net sales in 2000 due to
the improved gross margins and increased net interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance at March 31, 2000 was $2,191,646. Cash of
$311,835 was generated by operating activities for the three months ended March
31, 2000. Cash used for investing activities was $8,658. Cash flow used in
financing activities for the quarter was $55,117. The net result was an increase
in cash of $248,060 for the three months ended March 31, 2000. Working capital
as of March 31, 2000, at $5,348,421, increased by $396,938 from the beginning of
the period.
In August 1999, the Company obtained from Imperial Bank a $1,000,000
revolving line of credit, which bears interest of prime plus 1.5% and matures
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 March 31,
2000, the Company was in compliance with all 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 did not use the
line of credit during the quarter ended March 31, 2000.
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.
STOCK REPURCHASE PROGRAM
In September 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. Through March 31, 2000, an aggregate of 71,200 shares of
Common Stock have been repurchased for aggregate consideration of $92,097. There
were 10,200 shares purchased during the quarter ended March 31, 2000, for an
aggregate consideration of $35,722.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 -- Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 2000.
9
<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 10, 2000
By: /s/ David P. Nelson
----------------------------------
David P. Nelson
Chief Financial Officer
Date: May 10, 2000
10
<PAGE> 11
MOTORVAC TECHNOLOGIES, INC.
EXHIBIT INDEX
27.1 -- Financial Data Schedule.
<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 MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,191,646
<SECURITIES> 0
<RECEIVABLES> 1,829,594
<ALLOWANCES> 40,000
<INVENTORY> 2,198,475
<CURRENT-ASSETS> 6,520,373
<PP&E> 730,854
<DEPRECIATION> 470,785
<TOTAL-ASSETS> 7,353,661
<CURRENT-LIABILITIES> 1,171,952
<BONDS> 0
0
0
<COMMON> 45,290
<OTHER-SE> 6,136,419
<TOTAL-LIABILITY-AND-EQUITY> 7,353,661
<SALES> 3,711,938
<TOTAL-REVENUES> 3,711,938
<CGS> 2,079,616
<TOTAL-COSTS> 2,079,616
<OTHER-EXPENSES> 1,341,032
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (28,438)
<INCOME-PRETAX> 319,728
<INCOME-TAX> 7,000
<INCOME-CONTINUING> 312,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 312,728
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
