1
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 June 30, 1997
[ ] 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
--- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
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 June 30, 1997 4,514,918
Transitional Small Business Disclosure Format (check one);
Yes No X
---
2
MOTORVAC TECHNOLOGIES, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,559,989 $ 1,982,031
Accounts receivable, net of allowance for doubtful accounts of
$14,952 (December 31, 1996) and $16,527 (June 30, 1997) 1,220,029 1,758,812
Inventories, net of reserve of $40,000 (December 31, 1996) and
$50,486 (June 30, 1997) 1,165,411 1,217,154
Other current assets 459,465 406,311
------------ ------------
Total Current Assets 5,404,894 5,364,308
PROPERTY AND EQUIPMENT net 259,651 234,619
INTANGIBLE ASSETS, (net of accumulated amortization of $516,983
(December 31, 1996) and $699,428 (June 30, 1997) 1,307,460 1,125,015
Other Assets 17,227 0
------------ ------------
$ 6,989,232 $ 6,723,942
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable and other current liabilities $ 894,612 $ 999,280
Short term note payable to bank 1,500,000 790,000
------------ ------------
Total Current Liabilities 2,394,612 1,789,280
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 10,000,000 shares authorized; and
4,514,918 issued and outstanding at December 31, 1996 and
June 30, 1997, respectively 45,149 45,149
Additional paid-in capital 16,523,553 16,523,553
Accumulated Deficit (11,974,082) (11,634,040)
------------ ------------
Total stockholders' Equity 4,594,620 4,934,662
$ 6,989,232 $ 6,723,942
============ ============
3
MOTORVAC TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
NET SALES $2,691,124 $1,823,311 $4,717,907 $3,170,840
COST OF SALES 1,620,487 1,092,121 2,569,688 1,824,426
---------- ---------- ---------- ----------
GROSS PROFIT 1,070,637 731,190 2,148,219 1,346,414
OPERATION EXPENSES 880,703 1,012,697 1,819,316 1,974,053
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 189,934 (281,507) 328,903 (627,639)
INTEREST, NET (7,500) 35,900 (11,534) 181,765
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 197,434 (317,407) 340,437 (809,404)
PROVISION FOR INCOME TAXES 1,195 395
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 196,239 $ (317,407) $ 340,042 $ (809,404)
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE AND COMMON SHARE
EQUIVALENT $ 0.04 $ (0.08) $ 0.08 $ (0.22)
========== ========== ========== ==========
WEIGHTED AVERAGE OUTSTANDING COMMON AND COMMON
EQUIVALENT SHARES 4,514,918 4,144,564 4,514,918 3,723,223
========== ========== ========== ==========
4
MOTORVAC TECHNOLOGIES, INC.
STATEMENT OF CASH FLOW
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
CASH FLOW FROM OPERATION ACTIVITIES:
Net Income (Loss) $ 196,239 $ (317,407) $ 340,042 $ (809,404)
Adjustments to reconcile net income (loss) to
net cash used in operation activities:
Depreciation and amortization 120,209 116,523 239,993 231,719
Net change in operation assets and
liabilities:
Accounts receivable (461,608) 258,249 (538,783) (250,377)
Inventories 13,090 11,201 (51,743) 100,641
Other current assets, intangibles and other
assets (11,679) 293,249 70,381 42,150
Interest payable to related parties (769,139) (623,236)
Accounts payable and other current
liabilities (218) (282,997) 104,668 (127,428)
---------- ---------- ---------- ----------
Net cash provided by (used in) operation
activities (143,967) (690,321) 164,558 (1,435,935)
---------- ---------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of equipment (19,974) (15,074) (32,516) (27,384)
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from issuance of 1,210,000 common
stock 5,156,054 5,156,054
Proceeds from issuance of notes payable to
related parties 680,000
Payments to ex-licensor (89,701) (113,757)
Payments of notes to related parties (223,572) (123,572)
Decrease in loan payable to bank (410,000) (710,000)
---------- ---------- ---------- ----------
Net cash provided by (used in) by financing
activities (410,000) 4,842,781 (710,000) 5,598,725
NET DECREASE IN CASH (573,941) 4,137,386 (577,958) 4,135,406
CASH, Beginning of period 2,555,972 3,028 2,559,989 5,008
---------- ---------- ---------- ----------
CASH, End of period $1,982,031 $4,140,414 $1,982,031 $4,140,414
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid $ 15,344 $ 836,423 $ 38,100 $ 836,423
========= ========= ========= =========
Income taxes paid $ 1,195 $ $ 395 $
========= ========= ========= =========
Conversion of Preferred Series A Stock to
Common Stock (net) $4,659,499 $4,659,499
========= ========= ========= =========
Conversion of Preferred Series B Stock to
Common Stock (net) $2,170,425 $2,170,425
========= ========= ========= =========
Conversion of Notes Payable to Related Parties
to Common Stock $4,410,300 $4,410,300
========= ========= ========= =========
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Notes to Unaudited Financial Statements:
1. Basis of Presentation
The information set forth in these financial statements as of June 30,
1997 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 June 30, 1997 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. Litigation
As of June 30, 1997, the Company is involved in various lawsuits,
claims and inquiries arising from transactions entered into in the
ordinary course of business. While the Company's future liability with
respect to these matters cannot be predicted with certainty, it is the
opinion of the management, after consultation with outside counsel,
that any liability from lawsuits 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:
December 31, 1996 June 30, 1997
----------------- -------------
Materials and supplies 710,174 771,747
Work in process 74,962 103,098
Finished product 420,335 392,795
Reserve (40,000) (50,486)
---------- ----------
1,165,411 1,217,154
========== ==========
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4. Recent Accounting Pronouncements
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128),
applicable to entities with publicly-held common stock or potential
common stock. This Statement supersedes APB Opinion No. 15, "Earnings
Per Share" (Opinion 15) and requires dual presentation of basic and
diluted EPS for entities with complex capital structures. Basic EPS
excludes dilution and replaces primary EPS. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Opinion 15. FAS 128 is
effective for financial statements issued for periods ending after
December 15, 1997. Pro forma EPS amounts calculated under FAS 128 are
as follows:
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
1997 1996 1997 1996
--------- --------- --------- --------
Net Earnings Per Common
Share:
Basic $0.04 $(0.08) $0.08 $(0.22)
Diluted $0.04 $(0.08) $0.08 $(0.22)
Shares Used in Per Share
Calculation
Basic 4,514,918 4,144,564 4,514,918 3,723,223
Diluted 4,514,918 4,144,564 4,514,918 3,723,223
7
MOTORVAC TECHNOLOGIES, INC.
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 primarily for
the automotive after-market repair and service industry. The Company markets and
sells its fuel system cleaning 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 six months ended June 30, 1997 and for the three
months ended June 30, 1997, as compared to the Company's results of operations
for the six months ended June 30, 1996, and for the three months ended June 30,
1996. On May 1, 1996, the Company consummated an initial public offering (the
"IPO") of 1,100,000 shares of its common stock, resulting in gross proceeds of
approximately $5,912,500. On June 13, 1996, the Company completed the sale of an
additional 110,000 shares of its Common Stock upon exercise of the underwriter's
overallotment option (the "Overallotment"), resulting in gross proceeds to the
Company of approximately $591,250.
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 (the "Exchange Act"), 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, and pricing trends in the automotive after-market industry in
general, and in the specific markets in which the Company is active. 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.
8
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1997 and 1996
Net Sales. Net sales for the three months ended June 30, 1997 increased
$867,813 (approximately 47.6%) to $2,691,124 from $1,823,311 for the three
months ended June 30, 1996. This sales increase was due to increases in the
number of MotorVac CarbonClean Systems sold, from 885 systems for the three
months ended June 30, 1996 to 1,314 systems sold for the three months ended June
30, 1997, and the increase from 11,357 equivalent cases of detergent sold during
the three months ended June 30, 1996, to 13,701 equivalent cases of detergent
sold for the three months ended June 30, 1997.
For the three months ended June 30, 1997, Domestic sales were
$2,095,728 and International sales were $595,396. For the three months ended
June 30, 1996, Domestic sales were $1,368,218, and International sales were
$455,093.
Cost of Sales. Cost of sales for the three months ended June 30, 1997
increased $528,366 (approximately 48.4%) to $1,620,487 from $1,092,121 for the
three months ended June 30, 1996. The primary reason for this increase was the
increase in sales described above, with minor shifts in product mix.
Gross Profit. Gross profit for the three months ended June 30, 1997
increased by $339,447 (approximately 46.4%) to $1,070,637 from $731,190 for the
three months ended June 30, 1996. The primary reason for the increase is the
sales increase.
Operating Expenses. Operating expenses decreased by $131,994
(approximately 13.0%) from $1,012,697 for the three months ended June 30, 1996,
to $880,703 for the three months ended June 30, 1997. The decrease was primarily
attributable to a net reimbursement from the Company's insurance company of
approximately $82,518 related to litigation expenses incurred in 1996. Net of
this amount, operating expenses decreased by $49,436, or approximately 4.9% due
to a number of smaller items.
Profit (Loss) From Operations. As a result of the above, the profit
from operations for the three months ended June 30, 1997 of $189,934 improved by
$471,441 from a loss of $281,507 for the three months ended June 30, 1996.
Interest. Interest (net) revenue for the three months ended June 30,
1997 of $7,500 improved by $43,400 from a net interest expense of $35,900 for
the three months ended June 30, 1996. The change primarily reflects a decrease
in net borrowings and associated interest expense for the three months ended
June 30, 1997, compared to the same quarter in the prior year.
Net Profit (Loss). The net profit for the three months ended June 30,
1997 of $196,239 improved by $513,646 from a net loss of $317,407 for the three
months ended June 30, 1996.
Comparison of Six Months Ended June 30, 1997 and 1996
Net Sales. Net sales for the six months ended June 30, 1997 increased
$1,547,067 (approximately 48.8%) to $4,717,907 from $3,170,840 for the six
months ended June 30, 1996. This is due to an increase in the number of MotorVac
CarbonClean Systems and equivalent cases of detergent sold.
Domestic sales for the six months ended June 30, 1997 were $3,364,462,
and International sales for the same period were $1,353,445. For the six months
ended June 30, 1996, Domestic sales were $1,762,585, and International sales
were $1,408,255. The primary reason for the increase in Domestic sales was sales
to a major customer. The primary reason for the decline in International sales
was an order shipped to one country in Asia in 1996 for significantly more than
the order shipped to the same country in Asia in 1997.
9
Cost of Sales. Cost of sales for the six months ended June 30, 1997
increased $745,262 (approximately 40.8%) to $2,569,688 from $1,824,426 for the
six months ended June 30, 1996. The primary reason for the increase was the
increase in sales, offset partially by a favorable product mix in the first
quarter of 1997.
Gross Profit. Gross profit for the six months ended June 30, 1997
increased $801,805 (approximately 59.6%) to $2,148,219 from $1,346,414 for the
six months ended June 30, 1996. The primary reason for this increase was the
sales increase discussed above and the product mix improvement of margins.
Operating Expenses. Operating expenses for the six months ended June
30, 1997 of $1,819,316 decreased by $154,737 (approximately 7.8%) from
$1,974,053 for the six months ended June 30, 1996. This decrease was primarily
due to net litigation reimbursements of approximately $185,325, offset partially
by minor other cost increases.
Profit (Loss) From Operations. As a result of the above, the loss from
operations for the six months ended June 30, 1997 improved by $956,542 to a
profit of $328,903 from a loss of $627,639 for the six months ended June 30,
1996.
Interest. Interest (net) revenue for the six months ended June 30, 1997
improved by $193,299 to a net revenue of $11,534 from net interest expense of
$181,765 for the six months ended June 30, 1996. The primary reason for the
improvement is the investment by the Company of its cash and cash equivalents
since the IPO, as well as a reduction of borrowings and related interest expense
for the six months ended June 30, 1997 when compared to the same period in the
prior year.
Net Profit (Loss). The net profit for the six months ended June 30,
1997 improved by $1,149,446 to a profit of $340,042 from a loss of $809,404 for
the six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had working capital of $3,575,028. At
December 31, 1996, the Company had working capital of $3,010,282.
For the Three Months Ended June 30, 1997
Cash at April 1, 1997 was $2,555,972. Cash used in operating activities
during the three months ended June 30, 1997, which includes current assets and
current liabilities, was $143,967. Cash used in investing activities was
$19,974, which represented the purchase of fixed assets. Cash flow from
financing activities was a reduction of $410,000 which represents decrease in
loan payable to bank. The net decrease in cash for the three months ended June
30, 1997 was $573,941, resulting in ending cash of $1,982,031.
For the Six Months Ended June 30, 1997
Cash at January 1, 1997 was $2,559,989. Cash generated by operating
activities for the six months ended June 30, 1997 was $164,558. Cash used in
investing activities was $32,516, which represents the purchase of fixed assets.
Cash flow from financing activities was a reduction of $710,000 which represents
a decrease in loan payable to bank. The net decrease in cash for the six months
ended June 30, 1997 was $577,958, resulting in ending cash of $1,982,031.
10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 28, 1996, the Company filed a proceeding in the United
States District Court, Northern District of Ohio, Eastern Division, against
Richard R. Green, individually and doing business as P & R Equipment Company,
Gregory M. Phillips, C.S.P. International, Inc. and certain other defendants
(collectively "CSP") seeking compensatory and punitive damages and injunctive
relief for trademark and trade name infringement, breach of contract, unfair
competition, deceptive trade practices, misappropriation of trade secrets,
breach of loyalty, and interference with contracts and business relations. The
foregoing proceeding arises out of actions taken by Messrs. Green, Phillips and
the other named defendants in the foregoing action pursuant to which such
defendants allege that the Company brought the foregoing action for the unlawful
purpose of harassing and injuring the defendants and that the Company is engaged
in unfair competition and attempting to unlawfully restrain trade. Such
defendants have requested compensatory damages in the amount of $500,000,
punitive damages in the amount of $1,000,000 and attorneys' fees and costs. The
Company believes that the defendants' counterclaims are without merit and
intends to prosecute this action vigorously. The Company also has filed an
arbitration action in Orange County, California against Messrs. Phillips and
Green covering substantially the same subject matter as the foregoing
litigation. The Company and CSP each dismissed all actions against each other
effective July 29, 1997.
In addition to the foregoing, the Company, from time to time, is
involved in routine litigation incidental to the conduct of its business. Except
for the litigation described above, there are currently no material pending
legal proceedings to which the Company is a party to or to which any of its
property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of MotorVac Technologies, Inc. (the
"Annual Meeting") was held on May 13, 1997 in Irvine, California. The matters
voted upon at the Annual Meeting and the voting of stockholders with respect
thereto were as follows:
PROPOSAL 1 - ELECTION OF DIRECTORS
Each of the candidates listed below were duly elected to the Board of
Directors at the Annual Meeting by the tally indicated.
Candidate Votes in Favor Votes Withheld Votes Abstained
--------- -------------- -------------- ---------------
Stephen L. Greaves 4,082,237 42,970 0
John I. Leahy 4,082,237 42,970 0
William E. Maya 4,082,237 42,970 0
Lee W. Melody 4,082,237 42,970 0
Ronald J. Monark 4,082,237 42,970 0
Gerald C. Quinn 4,082,237 42,970 0
George A. Schmutz 4,082,237 42,970 0
11
PROPOSAL 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The selection of Deloitte & Touche LLP as independent auditors of the
Company for its fiscal year ending December 31, 1997 was ratified by the tally
indicated.
Votes in Favor Votes Withheld Votes Abstained
-------------- -------------- ---------------
4,062,707 22,600 42,970
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement of Calculation of Net Profit (Loss) Per Share.
27.1 Financial Data Schedule in accordance with Article 5 of Regulation SX.
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1997.
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: July 31, 1997
By: /s/ Allan T. Maguire
--------------------------------
Allan T. Maguire, Vice President
of Finance, Chief Financial Officer,
Treasurer and Secretary
Date: July 31, 1997
12
MOTORVAC TECHNOLOGIES, INC.
EXHIBIT INDEX
11.1 Statement of Calculation of Net Profit (Loss) Per Share.
27.1 Financial Data Schedule in accordance with Article 5 of Regulation SX.