<PAGE>
EXHIBIT 99.1
Consolidated Balance Sheet and Report of
Independent Certified Public Accountants
MOTORCAR PARTS & ACCESSORIES, INC.
AND SUBSIDIARIES
March 31, 2000
<PAGE>
C O N T E N T S
PAGE
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS...........................3
CONSOLIDATED FINANCIAL STATEMENT
CONSOLIDATED BALANCE SHEET.............................................4
NOTES TO CONSOLIDATED BALANCE SHEET....................................6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Motorcar Parts & Accessories, Inc.
We have audited the accompanying consolidated balance sheet of Motorcar Parts &
Accessories, Inc. and Subsidiaries as of March 31, 2000. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Motorcar Parts & Accessories, Inc.
and Subsidiaries as of March 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note D, the Company changed its method of accounting for
inventory.
/s/ Grant Thorton
--------------------
Grant Thorton
September 15, 2000
Los Angeles, California
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
March 31, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,123,000
Short term investments 224,000
Account receivables, net of allowance for doubtful accounts
are core/warranty returns of $6,717,000 15,263,000
Inventory 36,246,000
Income tax refund receivable 1,173,000
Prepaid expense and other current assets 313,000
----------------
Total current assets 54,342,000
PLANT AND EQUIPMENT, net 11,375,000
DEFERRED TAX ASSET 3,250,000
INCOME TAX REFUND RECEIVABLE 2,486,000
OTHER ASSETS 348,000
----------------
$ 71,801,000
================
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET - CONTINUED
March 31, 2000
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 9,502,000
Accrued liabilities 3,843,000
Line of credit 36,661,000
Current portion of capital lease obligations 1,106,000
----------------
Total current liabilities 51,112,000
CAPITALIZED LEASE OBLIGATIONS, less current portion 3,062,000
OTHER LONG-TERM LIABILITIES 234,000
COMMITMENTS AND CONTINGENCIES -
SHAREHOLDERS' EQUITY:
Preferred Stock, par value $.01 per share, 5,000,000 shares
authorized; none issued -
Series A Junior Participating Preferred Stock; no par value,
20,000 shares authorized; none issued -
Common Stock, par value $.01 per share, 20,000,000 shares
authorized; 6,460,455 shares issued and outstanding 65,000
Additional paid-in capital 51,097,000
Accumulated other comprehensive loss (95,000)
Accumulated deficit (33,674,000)
----------------
Total shareholders' equity 17,393,000
----------------
$ 71,801,000
===============
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED BALANCE SHEET
March 31, 2000
NOTE A - COMPANY BACKGROUND
Motorcar Parts & Accessories, Inc. and its subsidiaries (the "Company")
remanufactures and distributes alternators and starters and assembles and
distributes spark plug wire sets for the automotive aftermarket industry
(replacement parts sold for use on vehicles after initial purchase). These
automotive parts are sold to automotive retail chains and warehouse
distributors throughout the United States.
The Company obtains used alternator and starter kits, commonly known as
cores, primarily from its customers (retailers) as trade-ins and by
purchasing them from vendors (core brokers). The retailers grant credit to
the consumer when the used part is returned to them, and the Company in
turn provides a credit to the retailer upon return to the Company. These
cores are an essential material needed for the remanufacturing operations.
The Company has remanufacturing operations for alternators and starters in
California, Singapore and Malaysia. Assembly operations for spark plug
wire kits are performed in Tennessee.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated balance sheet includes the accounts of
Motorcar Parts & Accessories, Inc. and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
2. CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
3. INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined by
the average cost method, which approximates the first-in, first-out (FIFO)
method. Market is determined by comparison to broker price lists.
6
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
March 31, 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" which requires the use of the liability method of accounting for
income taxes. The liability method measures deferred income taxes by
applying enacted statutory rates in effect at the balance sheet date to
the differences between the tax bases of assets and liabilities and their
reported amounts in the financial statement. The resulting asset or
liability is adjusted to reflect changes in the tax laws as they occur. A
valuation allowance is provided against deferred tax assets when their
estimated realization is uncertain.
5. DEPRECIATION AND AMORTIZATION
Plant and equipment are stated at cost. Depreciation and amortization are
provided on a straight-line basis in amounts sufficient to relate the cost
of depreciable assets to operations over their estimated service lives,
which range from three to ten years. Leasehold improvements are amortized
over the lives of the respective leases or the service lives of the
improvements, whichever is shorter.
Accelerated depreciation methods are used for tax purposes. A provision
for deferred income taxes relating to depreciation temporary differences
has been recognized.
6. FOREIGN CURRENCY TRANSLATION
For financial reporting purposes, the functional currency of the foreign
subsidiaries is the local currency. The assets and liabilities of foreign
operations are translated at the exchange rate in effect at the balance
sheet date. The accumulated foreign currency translation adjustment is
presented as a component of other comprehensive income or loss.
7. REVENUE RECOGNITION
The Company recognizes revenue when performance by the Company is
complete. For products shipped free-on-board ("FOB") shipping point,
revenue is recognized on the date of shipment. For products shipped FOB
destination, revenues are recognized two days after date of shipment.
Revenue is recognized for the "unit value", representing the
remanufacturing value-added portion, plus the "core value", representing
the assigned value of the core if no trade-in is obtained.
Trade-ins are recorded and a credit is issued upon receipt of cores from
customers. An accrual for trade-ins authorized but not received is
recorded at the balance sheet date.
7
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
March 31, 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
8. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statement. Actual results could differ from those estimates.
9. FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, short-term investments,
accounts receivable, accounts payable, accrued liabilities and debt
approximate their fair value due to the short-term nature of these
instruments. The carrying amounts of long-term receivables, capital lease
obligations and other long-term liabilities approximate their fair value
based on current rates for instruments with similar characteristics.
10.STOCK-BASED COMPENSATION
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 123,
"Accounting for Stock-Based Compensation", which encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation under a fair value based method. The Company has elected to
continue to account for its stock-based employee compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees" and
disclose the pro forma effects on net income and earnings per share had
the fair value of such compensation been expensed. Under the provisions of
APB No. 25, compensation cost for stock options is measured as the excess,
if any, of the quoted market price of the Company's common stock at the
date of the grant over the amount an employee must pay to acquire the
stock.
11.CREDIT RISK
Substantially all of the Company's sales are to leading automotive parts
retailers. Credit risk with respect to trade accounts receivable is
limited due to the Company's credit evaluation process and the nature of
its customers.
8
<PAGE>
NOTE C - REALIZATION OF ASSETS
The accompanying financial statement has been prepared in conformity with
generally accepted accounting principles, which contemplate continuation
of the Company as a going concern. However, the Company has significant
pending litigation and investigations (see Note M).
Recoverability of a major portion of the recorded asset amounts shown in
the accompanying balance sheet is dependent upon continued operations of
the Company. This in turn is dependent upon the Company's ability to meet
its financing requirements on a continuing basis, to maintain present
financing, and to succeed in its future operations.
Management has taken steps to revise its operations and financial
requirements, which it believes are sufficient to provide the Company with
the ability to continue in existence, maintain its financing and return to
profitability. These plans include the consolidation of operations and
reduction of costs. Management also has plans to terminate unprofitable
product lines. Management believes that these changes will allow the
Company to reduce its inventory levels, reduce manufacturing labor and
overhead costs and eliminate low margin products.
NOTE D - INVENTORY
For the year ended March 31, 2000, management adopted a new methodology
for accounting for inventory. Management believes that the new methodology
better reflects the economics of its business while providing a better
measurement under generally accepted accounting principles. Under the
Company's new accounting methodology, in recording core inventory at the
lower of cost or market, the Company determines the market value based on
comparisons to current core broker prices. Such values are normally less
than the core value credited to customers' accounts when cores are
returned to the Company as trade-ins. In prior years when the Company
valued its inventory at the lower of cost or market, cost was determined
using an average weighted cost method and the market value of cores was
determined by the weighted average of the repurchase price of cores
acquired from the Company's customers and the price of cores purchased
from core brokers. Additionally, management reviews core inventory to
identify excess quantities and maturing product lines. An allowance for
obsolescence is provided to reduce the carrying (market) value of
inventory to its estimated market value. As a result of these changes,
inventories at March 31, 2000 were reduced by approximately $33 million.
9
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED BALANCE SHEET - CONTINUED
March 31, 2000
<TABLE>
<CAPTION>
NOTE D - INVENTORY - Continued
<S> <C>
Inventory is comprised of the following:
Raw materials and cores $24,393,000
Work-in-process 1,758,000
Finished goods 15,351,000
---------------
41,502,000
Less - allowance for excess and obsolete inventory (5,256,000)
---------------
$36,246,000
===============
NOTE E - PLANT AND EQUIPMENT
Plant and equipment, at cost, are summarized as follows as of March 31, 2000:
Machinery and equipment $11,959,000
Office equipment and fixtures 4,452,000
Leasehold improvements 2,373,000
---------------
18,784,000
Less - accumulated depreciation and amortization (7,409,000)
---------------
$11,375,000
===============
</TABLE>
NOTE F - CAPITAL LEASE OBLIGATIONS
The Company leases various machinery and computer equipment under
agreements accounted for as capital leases. The cost and accumulated
amortization of capital lease assets included in plant and equipment was
$5,744,000 and $1,731,000, respectively, at March 31, 2000.
10
<PAGE>
NOTE F - CAPITAL LEASE OBLIGATIONS - Continued
Future minimum lease payments at March 31, 2000 for the capital leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
----------------------
<S> <C>
2001 $1,381,000
2002 1,381,000
2003 1,318,000
2004 693,000
2005 16,000
-------------
Total minimum lease payments 4,789,000
Less amount representing interest (621,000)
-------------
Present value of future minimum lease payments 4,168,000
Less current maturities (1,106,000)
-------------
$3,062,000
=============
</TABLE>
NOTE G - LINE OF CREDIT
Pursuant to an agreement dated August 1, 1998, as amended on April 15,
1999 and restated on April 20, 2000, the Company has a revolving line of
credit with a bank for a credit facility in an aggregate principal amount
not exceeding $38 million up to June 30, 2000. The maximum credit facility
is reduced to $37.25 million from July 1, 2000 to September 30, 2000,
$36.25 million from October 1, 2000 to December 31, 2000, $35 million from
January 1, 2001 to March 31, 2001 and $34 million from April 1, 2001 to
April 30, 2001. Additional permanent reductions shall be made for 100
percent of the net proceeds from (i) the sale of assets outside the
ordinary course of business, (ii) the issuance of any debt or equity
issued by the Company, (iii) any insurance payments received (exclusive of
Director's and officers' insurance in connection with that certain
litigation pending against the Company identified as JOSEPH L. SHALANT,
IRA ON BEHALF OF HIMSELF AND OTHERS SIMILARLY SITUATED, PLAINTIFF VS.
MOTORCAR PARTS AND ACCESSORIES, INC. ET AL, DEFENDANTS (SEE NOTE N), and
(iv) all local, state or federal tax refunds received. The agreement is
collateralized by a lien on substantially all of the Company's assets.
11
<PAGE>
NOTE G - LINE OF CREDIT - Continued
The agreement expires on April 30, 2001 and provides for interest on
borrowings at the bank's prime rate (9% at March 31, 2000) plus 1%. An
annual commitment fee of .5% is due monthly on the unused portion of the
line of credit. The agreement allows the Company to obtain from the bank
letters of credit and banker's acceptances in an aggregate amount not
exceeding $1,000,000.
In connection with the restated credit agreement, the Company granted to
the bank warrants to purchase 400,000 shares of the Company's common stock
at $2.045 per share, subject to adjustment as defined in the warrant
agreement.
The credit agreement requires the Company to meet certain financial
conditions, including maintenance of certain minimum tangible net worth,
cash flow and profitability measures. In addition, the Company is required
to comply with various non-financial covenants. The Company was not in
compliance with various financial and non-financial covenants at March 31,
2000. Subsequent to year end, the Company and the bank executed a letter
of intent that contemplated, among other things, a waiver of the events of
default, the amendment of certain covenants, scheduled monthly mandatory
reductions in the maximum principal amount under the line of credit to $33
million at March 31, 2001, and the extension of the due date for
submission of audited annual financial statements covering the period
through March 31, 2000. The Company has agreed to provide the bank by
December 15, 2000 with a letter of intent by a third party lender for
refinancing the loan.
NOTE H - ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive income consists of the following
components:
<TABLE>
<S> <C>
Foreign currency translation $(70,000)
Unrealized losses on investments (25,000)
------------
$(95,000)
============
</TABLE>
NOTE I - EMPLOYMENT AGREEMENTS AND BONUS PLAN
The Company has employment agreements with key employees, expiring at
various dates through January 1, 2004. The employment agreements provide
for annual base salaries aggregating $850,000. In addition, some of these
employees were granted options pursuant to the Company's stock option
plans for the purchase of 130,000 shares of common stock at exercise
prices ranging from $2.50 to $18.50 per share.
12
<PAGE>
NOTE I - EMPLOYMENT AGREEMENTS AND BONUS PLAN - Continued
One such employment agreement provides for the employee to receive an
amount equal to three times the annual base salary of $300,000 if the
employee voluntarily terminates the agreement for good reason. Good reason
is defined by the occurrence of any one of a number of circumstances after
a change in control of the Company.
The Company has established a bonus plan for the benefit of executives and
certain key employees. The bonus is calculated as a percentage of the base
salary ranging from 14% to 50%. The bonus percentage varies according to
the percentage increase in earnings before income taxes and other
predetermined parameters. No accrual for bonuses was recorded at March 31,
2000.
NOTE J - COMMITMENTS
The Company leases office and warehouse facilities in California and
Tennessee under operating leases expiring through 2002. Certain leases
contain escalation clauses for real estate taxes and operating expenses.
At March 31, 2000, the future minimum rental payments under the above
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
---------------------------
<S> <C>
2001 $1,688,000
2002 1,622,000
--------------
$3,310,000
==============
</TABLE>
13
<PAGE>
NOTE K - MAJOR CUSTOMERS
The Company's three largest customers accounted for the following
percentage of accounts receivable at March 31, 2000:
CUSTOMER PERCENTAGE
-------- ----------
A 36%
B 24
C 16
---------------
76%
===============
NOTE L - INCOME TAXES
<TABLE>
<CAPTION>
Deferred income taxes consist of the following at March 31, 2000:
<S> <C>
Assets
Net operating loss carryforwards $ 3,513,000
Inventory 14,106,000
Allowance for bad debts 634,000
Inventory capitalization 195,000
Vacation pay 180,000
Accrued professional fees 241,000
Other 28,000
-------------
18,897,000
Liabilities
State taxes (1,085,000)
Accelerated depreciation (1,033,000)
Net deferred tax asset 16,779,000
Less - valuation allowance (13,529,000)
-------------
$ 3,250,000
=============
</TABLE>
The Company has federal and state net operating loss carryforwards of
approximately $13,918,000 and $10,880,000, respectively, which expire in varying
amounts through 2020.
14
<PAGE>
NOTE M - STOCKHOLDERS' EQUITY
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
In a Rights Agreement dated February 24, 1998, between the Company and
Continental Stock Transfer & Trust, the Company authorized 20,000 shares of
Series A Junior Participating Preferred Stock. The Series A Junior
Participating Preferred Stock has preferential voting, dividend and
liquidation rights over the Common Stock.
On February 24, 1998, the Company declared a dividend distribution to the
holders of record at the close of business on March 12, 1998 of one Right
on each share of Common Stock.
Each Right, when exercisable, entitles the registered holder thereof to
purchase from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock at a price of $65 per one one-thousandth of a
share (subject to adjustment).
The Rights will not be exercisable or transferable apart from the Common
Stock until an Acquiring Person, as defined in the Rights Agreement,
without the prior consent of the Company's Board of Directors, acquires 20%
or more of the outstanding shares of the Common Stock or announces a tender
offer that would result in 20% ownership. The Company is entitled to redeem
the Rights, at $.001 per Right, any time until ten days after a 20%
position has been acquired. Under certain circumstances, including the
acquisition of 20% of the Common Stock, each Right now owned by a potential
Acquiring Person will entitle its holder to received, upon exercise, shares
of Common Stock having a value equal to twice the exercise price of the
Right.
Holders of a Right will be entitled to buy stock of an Acquiring Person at
a similar discount if, after the acquisition of 20% or more of the
Company's outstanding shares of Common Stock, the Company is involved in a
merger or other business combination transaction with another person in
which it is not the surviving company, its common shares are changed or
converted, or the Company sells 50% or more of its assets or earning power
to another person. The Rights expire on March 12, 2008 unless earlier
redeemed by the Company.
15
<PAGE>
NOTE M - STOCKHOLDERS' EQUITY - Continued
STOCK OPTIONS
In January 1994, the Company adopted the 1994 Stock Option Plan (the "1994
Plan"), under which it was authorized to issue non-qualified stock options
and incentive stock options to key employees, directors and consultants to
purchase up to an aggregate of 720,000 shares of the Company's common
stock. The term and vesting period of options granted is determined by a
committee of the Board of Directors with a term not to exceed ten years.
In June 1998, the Plan was amended to increase the authorized number of
shares issued to 960,000. As of March 31, 2000, there were 662,250 options
outstanding under this plan and 73,250 options were available for grant.
In August 1995, the Company adopted the Nonemployee Director Stock Option
Plan (the "Directors Plan") which provides for the granting of options to
directors to purchase a total of 15,000 shares of the Company's common
stock. Options to purchase 7,500 shares have been granted under the
Directors Plan as of March 31, 2000.
In September 1997, the Company adopted the 1996 Stock Option Plan (the
"1996 Plan"), under which it is authorized to issue non-qualified stock
options and incentive stock options to key employees, consultants and
directors to purchase a total of 30,000 shares of the company's common
stock. The term and vesting period of options granted is determined by a
committee of the Board of Directors with a term not to exceed ten years.
Options to purchase 15,000 shares have been granted under the 1996 Plan as
of March 31, 2000.
The following table summaries information about the options outstanding at
March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- ----------------------------
Weighted Average Weighted
----------------------------- Average
Range of Exercise Remaining Exercise
Exercise Prices Shares Price Life in years Shares Price
------------------ ------------- ----------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$ 2.50 to $ 2.88 175,000 $ 2.61 6 years 112,500 $ 2.67
$ 6.00 to $ 9.00 67,600 $ 7.89 4 years 67,600 $ 7.89
$10.63 to $15.63 371,400 $ 11.75 6 years 336,234 $ 11.76
$17.32 to $19.13 70,750 $ 18.28 8 years 70,750 $ 18.28
------------- -------------
684,750 587,084
============= =============
</TABLE>
16
<PAGE>
NOTE N - LITIGATION
The Company is a defendant in a class action lawsuit pending in the United
States District Court, Central District of California, Western Division.
The complaint alleges that the Company misstated its earnings in violation
of securities laws over a three-year period and seeks damages on behalf of
all persons who purchased the Company's common stock from August 1, 1996
to July 30, 1999. The Company's answer to the complaint has not yet been
served. The outcome of this lawsuit cannot presently be determined.
The Company's insurance carrier has filed a claim against the Company and
certain officers concerning the coverage under its Directors and Officers
(D&O) liability policy. The claim purports to invalidate coverage for
claims made against the Company's officers in the securities fraud matter
described above. On or about July 17, 2000 the parties entered into a
stipulation and order to stay the action for four months to allow the
Company time to resolve the securities action. The Company's deadline for
responding to the claim is November 17, 2000. Based on the opinion of
legal counsel, management believes that the Company and the officers are
covered under the Company's D&O policy. The outcome of this matter can not
presently be determined.
The Company is subject to an investigation by the Securities and Exchange
Commission (SEC) relating to the same issues involved in the
above-mentioned lawsuit. Management is cooperating with these
investigations. The outcome of these investigations cannot presently be
determined.
The Company is subject to various other lawsuits and claims in the normal
course of business. Management does not believe that the outcome of these
matters will have a material adverse effect on its financial position or
future results of operations.
17
