<PAGE>
EXHIBIT 99.1
Consolidated Financial Statements and Report of
Independent Certified Public Accountants
MOTORCAR PARTS & ACCESSORIES, INC.
AND SUBSIDIARIES
March 31, 2000 and 1999
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
PAGE
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..............................................................3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS...............................................................................4
CONSOLIDATED STATEMENT OF OPERATIONS......................................................................6
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND
COMPREHENSIVE LOSS........................................................................................7
CONSOLIDATED STATEMENT OF CASH FLOWS......................................................................8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................................................9
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Motorcar Parts & Accessories, Inc.
We have audited the accompanying consolidated balance sheets of Motorcar Parts &
Accessories, Inc. and Subsidiaries as of March 31, 2000 and 1999, and the
related consolidated statements of operations, shareholders' equity and
comprehensive loss and cash flows for the year ended March 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the consolidated financial position of Motorcar Parts &
Accessories, Inc. and Subsidiaries as of March 31, 2000 and 1999, and the
consolidated results of their operations and their consolidated cash flows for
the year ended March 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note E, the Company changed its method of accounting for
inventory.
/s/ Grant Thornton LLP
November 29, 2000
Los Angeles, California
3
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and 1999
<TABLE>
<CAPTION>
ASSETS
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,123,000 $ 945,000
Short term investments - Deferred compensation plan assets 224,000 970,000
Accounts receivable, net of allowances of $6,717,000 and
$17,180,000 in 2000 and 1999, respectively 15,263,000 11,620,000
Inventory, net of allowances of $5,256,000 and $17,064,000 in
2000 and 1999, respectively 36,246,000 68,337,000
Income tax refund receivable 1,173,000 1,990,000
Prepaid expenses and other current assets 313,000 450,000
------------ ------------
Total current assets 54,342,000 84,312,000
PLANT AND EQUIPMENT, net 11,375,000 12,435,000
DEFERRED TAX ASSET 3,250,000 3,250,000
INCOME TAX REFUND RECEIVABLE 2,486,000 2,437,000
OTHER ASSETS 348,000 1,005,000
------------ ------------
$ 71,801,000 $103,439,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - CONTINUED
March 31, 2000 and 1999
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
2000 1999
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 9,502,000 $ 18,245,000
Accrued liabilities 3,843,000 4,694,000
Line of credit 36,661,000 29,223,000
Deferred compensation 234,000 1,077,000
Current portion of capital lease obligations 1,106,000 1,012,000
------------- -------------
Total current liabilities 51,346,000 54,251,000
CAPITAL LEASE OBLIGATIONS, less current portion 3,062,000 3,528,000
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 65,000
Additional paid-in capital 51,281,000 51,281,000
Accumulated other comprehensive loss (95,000) (72,000)
Accumulated deficit (33,858,000) (5,614,000)
------------- -------------
Total shareholders' equity 17,393,000 45,660,000
------------- -------------
$ 71,801,000 $ 103,439,000
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended March 31, 2000
<TABLE>
<S> <C>
NET SALES $ 194,293,000
COST OF GOODS SOLD 188,097,000
-------------
Gross margin 6,196,000
-------------
OPERATING EXPENSES
General and administrative 11,832,000
Sales and marketing 1,864,000
Research and development 714,000
Provision for doubtful accounts 321,000
-------------
Total operating expenses 14,731,000
-------------
OPERATING LOSS (8,535,000)
OTHER EXPENSE (INCOME)
Interest expense 3,227,000
Interest income (47,000)
-------------
LOSS BEFORE INCOME TAX BENEFIT AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (11,715,000)
Income tax benefit 1,173,000
-------------
LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (10,542,000)
Cumulative effect of accounting change (17,702,000)
-------------
NET LOSS $ (28,244,000)
=============
Basic and diluted loss per share before cumulative effect of accounting change $ (1.63)
Cumulative effect of accounting change (2.74)
-------------
Basic and diluted loss per share $ (4.37)
=============
Weighted average common shares outstanding 6,460,455
=============
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS
For the Year Ended March 31, 2000
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------
ACCUMULATED
ADDITIONAL OTHER
NUMBER PAID-IN COMPREHENSIVE ACCUMULATED COMPREHENSIVE
OF SHARES AMOUNT CAPITAL LOSS DEFICIT TOTAL LOSS
------------- ------------ ------------- ---------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE -
MARCH 31, 1999 6,460,455 $65,000 $51,281,000 $ (72,000) $ (5,614,000) $45,660,000
Translation adjustment - - - 2,000 - 2,000 $2,000
Unrealized loss on
investments - - - (25,000) - (25,000) (25,000)
Net loss - - - - (28,244,000) (28,244,000) (28,244,000)
----------------
Comprehensive loss - - - - - - $(28,267,000)
------------- ------------ ------------- ---------------- ------------- ------------ ================
BALANCE -
MARCH 31, 2000 6,460,455 $65,000 $51,281,000 $(95,000) $(33,858,000) $(17,393,000)
============= ============ ============= ================ ============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended March 31, 2000
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(28,244,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,011,000
Provision for doubtful accounts 321,000
Cumulative effect of accounting change 17,702,000
Changes in:
Accounts receivable (3,964,000)
Inventory 14,389,000
Income tax refund receivable 768,000
Prepaid expenses and other current assets 137,000
Other assets 657,000
Accounts payable (8,743,000)
Accrued liabilities (851,000)
Deferred compensation obligation (843,000)
------------
Net cash used in operating activities (5,660,000)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (1,184,000)
Liquidation of investments 721,000
------------
Net cash used by investing activities (463,000)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under the line of credit 7,438,000
Payments on capital lease obligations (1,139,000)
------------
Net cash provided by financing activities 6,299,000
------------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH 2,000
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS: 178,000
Cash and cash equivalents, beginning of year 945,000
------------
Cash and cash equivalents, end of year $ 1,123,000
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 3,081,000
============
Income taxes $ 500
============
Non-cash investing and financing activities:
Property acquired under capital lease $ 767,000
============
</TABLE>
The accompanying notes are an integral part of this statement.
8
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
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 alternators and starters, 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
United States, 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 financial statements include 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
using the average cost method, which approximates the first-in, first-out
(FIFO) method. Beginning with the year ended March 31, 2000, market is
determined by comparison to broker price lists. See Note E regarding the
method used in previous years. The Company provides an allowance for
potentially excess and obsolete inventory based upon historical usage and a
product's life cycle. Inventory costs include material and core components,
labor, freight and overhead.
9
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
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, less accumulated depreciation and
amortization. The cost of additions, improvements, and interest on
construction are capitalized, while maintenance and repairs are charged to
expense when incurred. 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.
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.
10
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
7. REVENUE RECOGNITION - Continued
Trade-ins are recorded in inventory and a credit is issued upon receipt of
cores from customers. An allowance for trade-ins authorized but not
received is recorded as a reduction of the receivable balance at the
balance sheet date. Under the Company's new method of accounting for
inventory, the difference in the amount of credit provided to the customer
and the value of the returned core is charged to cost of goods sold. There
was no difference between the customer credit and core value under the
previous method (See Note E).
8. EARNINGS PER SHARE
Basic loss per share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during each period.
Diluted loss per share includes the effect, if any, from the potential
exercise or conversation of securities, such as stock options and warrants,
which would result in the issuance of incremental shares of common stock.
Diluted loss per share for year ended March 31, 2000 does not include the
effect of 684,750 options outstanding at March 31, 2000 as they were
anti-dilutive.
9. 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.
10. 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.
11
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
11. STOCK-BASED COMPENSATION
The Company has elected to continue to account for its stock-based employee
compensation using the intrinsic value method and to disclose the pro forma
effects on net income and earnings per share had the fair value of such
compensation been expensed. Under the intrinsic value method, 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. Stock-based
compensation cost has not been significant.
12. CREDIT RISK
Substantially all of the Company's sales are to leading national 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.
13. DEFERRED COMPENSATION PLAN
The Company has a deferred compensation plan for certain management. The
plan allows participants to defer salary, bonuses and commission. The
assets of the plan are held in a trust and are subject to the claims of the
Company's general creditors under federal and state laws in the event of
insolvency. Consequently, the trust qualifies as a Rabbi trust for income
tax purposes.
The plan's assets consist primarily of mutual funds. The investments are
classified as "available for sale" and are recorded at market value with
any unrealized gain or loss recorded as a component of shareholders'
equity. Adjustments to the deferred compensation obligation are recorded in
operating expenses.
14. COMPREHENSIVE INCOME - ADOPTION
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income", which establishes standards for the
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income is
defined as the change in equity during a period, resulting from
transactions and other events and circumstances from non-owner sources. The
Company has presented comprehensive loss on the Consolidated Statement of
Shareholders' Equity.
12
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
15. RECLASSIFICATION
Certain reclassifications have been made to the 2000 balance sheet to
conform with the 1999 presentation.
NOTE C - REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company has incurred a
significant loss during the year ended March 31, 2000, and has significant
pending litigation and investigations (see Note O).
Recoverability of a major portion of the recorded asset amounts shown in
the accompanying consolidated balance sheets 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,
reduction of costs and restructuring its financing. Management also 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.
Management is actively pursuing resolution of the pending litigation and
investigations. Although there can be no assurance as to the financial
impact from these matters, management believes that it will be able to
conclude these matters in a reasonable period.
13
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE D - ACCOUNTS RECEIVABLE
Accounts receivable consists of:
<TABLE>
<CAPTION>
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Gross trade receivables $ 21,980,000 $ 28,800,000
Less
Unprocessed credits for core returns (5,205,000) (15,017,000)
Allowance for discounts (1,329,000) (1,932,000)
Allowance for doubtful accounts (183,000) (231,000)
------------ ------------
$ 15,263,000 $ 11,620,000
============ ============
</TABLE>
NOTE E - INVENTORY AND CHANGE IN ACCOUNTING POLICY
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, the Company recorded
a cumulative effect of accounting change of approximately $17 million. The
cumulative effect of the accounting change is summarized as follows:
<TABLE>
<CAPTION>
Previous New
Method Method Change
------------ ------------ ------------
<S> <C> <C> <C>
Core inventory cost $ 51,480,000 $ 30,973,000 $ 20,507,000
Overhead application 5,196,000 3,461,000 1,735,000
Inventory allowances (12,968,000) (8,428,000) (4,540,000)
------------ ------------ ------------
$ 43,708,000 $ 26,006,000 $ 17,702,000
============ ============ ============
</TABLE>
14
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE E - INVENTORY AND CHANGE IN ACCOUNTING POLICY - Continued
The adjustments to inventory at March 31, 2000 are summarized below:
<TABLE>
<S> <C>
Cumulative effect of accounting change $17,702,000
Effect of accounting change on results of operations for the year
ended March 31, 2000 1,050,000
Decrease to inventory balances at March 31, 1999, primarily
attributable to increases in allowances 12,300,000
--------------
$31,052,000
==============
</TABLE>
The pro forma effect of the change in accounting on the prior year has not
been presented as all adjustments to the Statement of Operations for the
year ended March 31, 1999 have not yet been determined.
Inventory is comprised of the following:
<TABLE>
<CAPTION>
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Raw materials and cores $ 24,393,000 $ 54,587,000
Work-in-process 1,758,000 2,693,000
Finished goods 15,351,000 28,121,000
------------ ------------
41,502,000 85,401,000
Less-allowance for excess and obsolete inventory (5,256,000) (17,064,000)
------------ ------------
$ 36,246,000 $ 68,337,000
============ ============
</TABLE>
15
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE F - PLANT AND EQUIPMENT
Plant and equipment, at cost, are summarized as follows:
<TABLE>
<CAPTION>
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Machinery and equipment $ 11,959,000 $ 11,602,000
Office equipment and fixtures 4,452,000 3,286,000
Leasehold improvements 2,373,000 2,059,000
------------ ------------
18,784,000 16,947,000
Less-accumulated depreciation and amortization (7,409,000) (4,512,000)
------------ ------------
$ 11,375,000 $ 12,435,000
============ ============
</TABLE>
NOTE G - 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 and $4,977,000
and $650,000, respectively, at March 31, 1999.
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>
16
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE H - 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.
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 an
amendment that, among other things, waived the events of default, amended
certain covenants, provided for scheduled monthly mandatory reductions in
the maximum principal amount under the line of credit to $33 million by
March 31, 2001, and extended 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.
17
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE I - ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss consists of the following components:
<TABLE>
<CAPTION>
March 31,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Foreign currency translation $(70,000) $(72,000)
Unrealized losses on investments (25,000) --
-------- --------
$(95,000) $(72,000)
======== ========
</TABLE>
NOTE J - 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 and bonuses based upon
earnings. 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.
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 or 1999.
NOTE K - 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.
18
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE K - COMMITMENTS - Continued
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>
Rent expense for operating leases was $1,539,000 for the year ended March
31, 2000.
NOTE L - MAJOR CUSTOMERS
The Company's three largest customers accounted for the following
percentages of accounts receivable at:
<TABLE>
<CAPTION>
March 31,
----------------------------------------------
Customer 2000 1999
------------------------------------------ -------------------- ---------------------
<S> <C> <C>
A 36% 45%
B 24% 26%
C 16% 4%
-------------------- ---------------------
76% 75%
-------------------- ---------------------
</TABLE>
Customer A accounted for approximately 52%, Customer B accounted for
approximately 17%, and Customer C accounted for approximately 8% of net
sales for the year ended March 31, 2000.
19
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE M - INCOME TAXES
Deferred income taxes consist of the following at:
<TABLE>
<CAPTION>
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Assets
Net operating loss carryforwards $ 3,513,000 $ 2,470,000
Inventory 14,106,000 4,122,000
Allowance for bad debts 634,000 468,000
Inventory capitalization 195,000 238,000
Vacation pay 180,000 120,000
Accrued professional fees 241,000 241,000
Other 28,000 348,000
------------ ------------
$ 18,897,000 $ 8,007,000
Liabilities
State taxes (1,085,000) (423,000)
Accelerated depreciation (1,033,000) (1,131,000)
------------ ------------
Net deferred tax asset 16,779,000 6,453,000
Less - valuation allowance (13,529,000) (3,203,000)
------------ ------------
$ 3,250,000 $ 3,250,000
============ ============
</TABLE>
The benefit for income taxes for the year ended March 31, 2000 consists of
the following:
<TABLE>
<S> <C>
Current:
Federal $1,173,000
State -
Deferred -
------------
$1,173,000
============
</TABLE>
The difference between the tax benefit and the amount that would be
computed by applying the statutory federal income tax rate to income before
taxes for the year ended March 31, 2000 is attributable to the following:
<TABLE>
<S> <C>
Income tax benefit at 34% $ 10,002,000
State and local tax benefit, net of federal benefit 1,471,000
Valuation allowance (10,326,000)
Other 26,000
------------
$1,173,000
============
</TABLE>
20
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE M - INCOME TAXES - Continued
The long-term income tax refund receivable relates to the carryback of tax
losses to prior years. The tax returns for these prior years are currently
under examination by Internal Revenue Service (IRS). The Company has
classified a portion of the receivable as non-current, as there is some
uncertainty as to when the IRS will complete its examination for certain
years.
At March 31, 2000, 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.
NOTE N - 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 receive, upon exercise, shares
of Common Stock having a value equal to twice the exercise price of the
Right.
21
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE N - STOCKHOLDERS' EQUITY - Continued
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.
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.
22
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE N - STOCKHOLDERS' EQUITY - Continued
The following table summarizes 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 $ 9.71 587,084 $10.36
============= =============
</TABLE>
The following table summarizes the activity under these Plans for the year
ended March 31, 2000:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
----------------- -----------------------
<S> <C> <C>
Options outstanding at beginning of year 587,750 $12.16
Granted 185,500 3.13
Exercised - -
Cancelled (88,500) 12.18
-----------------
Options outstanding at end of year 684,750 $ 9.71
=================
Options exercisable at end of year 587,084 $10.36
=================
</TABLE>
As of March 31, 2000, there were 73,250 options available for future grant
under the 1994 Plan, 7,500 options available for future grant under the
Directors Plan, and 15,000 options available for future grant under the
1996 Plan.
23
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE N - STOCKHOLDERS' EQUITY - Continued
The weighted-average fair value at date of grant for options granted during
the year ended March 31, 2000 was $1.16 per option. The fair value of
options at date of grant was estimated using the Black-Scholes option
pricing model utilizing the following assumptions:
Expected option life in years 5 years
Risk-free interest rate 6.0 percent
Expected stock price volatility 35 percent
Expected dividend yield -
Had the Company elected to recognize compensation cost based on the fair
value of the options at the date of grant (See Note B11), net loss for the
year ended March 31, 2000 would have increased by approximately $460,000 to
$28,704,000, or $4.44 per share. Proforma disclosures for the year ended
March 31, 2000 is not likely to be representative of the effect on future
years.
NOTE O - 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. A settlement conference is scheduled for November 30, 2000. 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 cannot
presently be determined.
24
<PAGE>
Motorcar Parts & Accessories, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
March 31, 2000 and 1999
NOTE O - LITIGATION - Continued
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.
25
