EXHIBIT 99.1
INTERIM FINANCIAL INFORMATION FOR THE NINE MONTHS ENDED
DECEMBER 31, 2000
(Unaudited)
MOTORCAR PARTS & ACCESSORIES, INC.
Consolidated Balance Sheets
DECEMBER 31, MARCH 31,
2000 2000
---------------- --------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 63,000 $ 1,123,000
Short term investments - Deferred compensation plan assets 210,000 224,000
Accounts receivable - net 16,384,000 15,263,000
Inventory - net 33,214,000 36,246,000
Income tax refund receivable 1,167,000 1,173,000
Prepaid expenses and other current assets 360,000 313,000
---------------- --------------
Total current assets 51,398,000 54,342,000
Plant and equipment - net 9,507,000 11,375,000
Deferred tax asset 3,250,000 3,250,000
Income tax refund receivable 2,486,000 2,486,000
Other assets 324,000 348,000
---------------- --------------
TOTAL $ 66,965,000 $ 71,801,000
================ ==============
LIABILITIES
Current liabilities:
Accounts payable $ 10,100,000 $ 9,502,000
Accrued liabilities 2,501,000 3,843,000
Line of credit 34,047,000 36,661,000
Deferred compensation 218,000 234,000
Current portion of capital lease obligations 1,106,000 1,106,000
---------------- --------------
Total current liabilities 47,972,000 51,346,000
Capitalized lease obligations, less current portion 2,264,000 3,062,000
SHAREHOLDERS' EQUITY
Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none issues -- --
Common stock; par value $.01 per share, 20,000,000 shares authorized;
6,460,455 shares issued and outstanding at September 30, 2000 and
March 31, 2000 65,000 65,000
Additional paid-in capital 51,281,000 51,281,000
Accumulated other comprehensive loss (79,000) (95,000)
Accumulated deficit (34,538,000) (33,858,000)
---------------- --------------
Total shareholders' equity 16,729,000 17,393,000
---------------- --------------
TOTAL $ 66,965,000 $ 71,801,000
================ ==============
The accompanying condensed notes to financial statements are an integral part
hereof.
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MOTORCAR PARTS & ACCESSORIES, INC.
Consolidated Statements of Operations
(Unaudited)
NINE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2000 2000
----------------- -----------------
Net sales $124,334,000 $ 38,969,000
Cost of goods sold 113,197,000 35,365,000
----------------- -----------------
Gross profit 11,137,000 3,604,000
Operating expenses:
General and administrative 7,614,000 3,804,000
Research and development 363,000 97,000
Sales and marketing 864,000 270,000
----------------- -----------------
Total operating expenses 8,841,000 4,171,000
----------------- -----------------
Operating income (loss) 2,296,000 (567,000)
Interest expense - net 2,976,000 957,000
----------------- -----------------
Net loss $ (680,000) $ (1,524,000)
================= =================
Basic net loss per share $ (0.11) $ (0.24)
================= =================
Weighted average number of shares outstanding
Basic 6,460,455 6,460,455
The accompanying condensed notes to financial statements are an integral part
hereof.
Page 10
MOTORCAR PARTS & ACCESSORIES, INC.
Consolidated Statement of Cash Flows
(Unaudited)
NINE MONTHS
ENDED
DECEMBER 31,
2000
-----------------
Cash flows from operating activities:
Net loss $ (680,000)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 2,200,000
(Increase) decrease in:
Accounts receivable (1,121,000)
Inventory 3,032,000
Prepaid expenses and other current assets (47,000)
Other assets 24,000
Increase (decrease) in:
Accounts payable and accrued expenses (760,000)
Income tax refund receivable 6,000
-----------------
Net cash provided by operating activities 2,654,000
-----------------
Cash flows from investing activities:
Purchase of property, plant and equipment (332,000)
Change in short term investments 14,000
-----------------
Net cash used by investing activities (318,000)
-----------------
Cash flows from financing activities:
Net repayments under line of credit (2,614,000)
Payments on capital lease obligation (798,000)
-----------------
Net cash used by financing activities (3,412,000)
-----------------
Effect of exchange rate on cash 16,000
-----------------
Net decrease in cash and cash equivalents (1,060,000)
Cash and cash equivalents - beginning of period 1,123,000
-----------------
Cash and cash equivalents - end of period $ 63,000
=================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,968,000
=================
The accompanying condensed notes to financial statements are an integral part
hereof.
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MOTORCAR PARTS & ACCESSORIES, INC.
Condensed Notes to Financial Statements
December 31, 2000
(Unaudited)
NOTE 1 - THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
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 after-market
industry (replacement parts sold for use on vehicles after initial purchase).
These automotive parts are sold to automotive chain stores servicing the
Do-it-for-me (DIFM) and Do-it-yourself (DIY) markets throughout the United
States and in Canada as well as aftermarket alternators and starters to a major
automotive manufacturer.
[1] Principles of consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
[2] Basis of presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of Management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month period ended
December 31, 2000 are not necessarily indicative of the results that
may be expected for the year ending March 31, 2001.
[3] Seasonality of business:
Due to the nature and design as well as the current limits of
technology, alternators and starters traditionally fail when operating
in extreme conditions. That is, during summer months, when the
temperature typically increase over a sustained period of time,
alternators and starters are more apt to fail and thus, an increase in
demand for the Company's products occurs. Similarly, during winter
months, when the temperature is colder, alternators and starters tend
to fail and require replacing immediately, since these parts are
mandatory for the operation of the vehicle. As such, summer months tend
to show an increase in overall volume with a few spikes in the winter.
NOTE 2 - INVENTORY
Effective April 1, 1999, 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.
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MOTORCAR PARTS & ACCESSORIES, INC.
Consolidated Notes to Financial Statements
December 31, 2000
(Unaudited)
NOTE 2 - INVENTORY (continued)
An allowance for obsolescence is provided to reduce the carrying
(market) value of inventory to its estimated market value. Because several of
the Company's competitors filed for bankruptcy protection in the late 1990s, the
supply of cores has increased considerably. This has tended to reduce the
carrying value of the Company's inventory.
Inventory is comprised of the following:
December 31, March 31,
2000 2000
------------ ------------
(Unaudited)
Raw materials and cores $ 26,092,000 $ 24,393,000
Work-in-process 1,857,000 1,758,000
Finished goods 9,900,000 15,351,000
Less allowance for excess and obsolete inventory (4,635,000) (5,256,000)
------------ ------------
Total $ 33,214,000 $ 36,246,000
============ ============
NOTE 3 - LINE OF CREDIT
Pursuant to an agreement dated August 1, 1998, as amended on April 15,
1999 and restated on April 20, 2000 and amended September 15, 2000, the Company
has a revolving line of credit with a bank for a credit facility in an aggregate
principal amount not exceeding $36.25 million as of September 30, 2000. The
maximum credit facility is reduced to $35.75 million as of October 31, 2000,
$35.25 million as of November 30, 2000, $34.75 million as of December 31, 2000,
$34.25 as of January 31, 2001, $33.75 million as of February 28, 2001 and $33
million as of March 31, 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, 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. 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.
While the Company has made net payments on its line of credit
totaling $4,250,000 over the eleven months through February 2001, the Company
requested that the bank waive the requirements that the Company make the
permanent reduction in its credit facility of $750,000 (to $33 million) that is
due to be made by March 31, 2001. The Company has also requested that the bank
waive the requirements that the Company use the $1.2 million tax refund it
received in February 2001 to make a permanent reduction in the credit facility
and the requirement that it deposit $500,000 in a non-interest bearing account
as security for the Company's letter of credit facility. The bank has granted
these waiver requests.
In March 2001, the Company and the bank executed a third amendment
to the loan agreement to reflect the bank waivers through January 31, 2001
discussed in this Note 3 and to extend the maturity date of the loan from
March 31, 2001 to May 31, 2001. The terms of this third amendment also
provided for an increase in the effective rate of interest charged by the
bank on credit advances to the Company. Until the escrow account called for
as part of the proposed settlement of the class action litigation (see Note
5) has been established and fully funded, the interest rate increases from
the current rate of the bank's prime rate (9.5% at December 31, 2000) plus 1%
to prime plus 2.5%. Once the escrow account has been established and funded,
the interest rate decreases to prime plus 2.25%. The rate decreases to prime
plus 2% when the class action lawsuit has been finally settled. If the loan
is not paid in full at maturity, the interest rate would increase by an
additional 4%.
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MOTORCAR PARTS & ACCESSORIES, INC.
Consolidated Notes to Financial Statements
December 31, 2000
(Unaudited)
NOTE 3 - LINE OF CREDIT (continued)
As part of the recently-executed third amendment to the Company's loan
agreement, the bank also agreed to extend the March 31, 2001 maturity date to
May 31, 2001. The bank is considering the Company's request that the maturity
date be extended for an additional year. The Company believes that, if an
additional extension is granted, the bank may require a significant increase in
the interest rate paid by the Company on borrowed funds. Although the Company is
investigating other sources of financing with potential lenders, the Company
believes that its most recently reported results will make it more difficult to
arrange this replacement financing. The failure to successfully negotiate an
extension of the maturity date of its current bank loan or arrange replacement
financing could have a material adverse impact on the Company.
NOTE 4 -STOCK ADJUSTMENTS
Stock adjustments are allowed under the terms of certain company
agreements and industry practice. The customers request stock adjustments when
the inventory level of certain product lines exceeds their anticipated level of
sales to their end-user customers. These adjustments do not come at any specific
time during the year and can have a distorting effect on the financial
statements.
Historically, the Company charged a portion of these returns against
net sales and expensed the balance as cost of goods sold when the returns are
made. To refine its method of accounting for stock adjustments, the Company now
provides for an allowance to address the anticipated impact of stock
adjustments. These adjustments resulted in net income and gross profit
decreasing by $898,000 for the nine months ended December 31, 2000, of which
$180,000 related to the first quarter of fiscal year 2001. There was no
significant impact on the prior years or the second quarter of 2001. The Company
will accrue an additional amount monthly and the costs associated with stock
adjustments will be charged against this allowance. This policy will be reviewed
quarterly looking back at a rolling 12 months to determine if the monthly
accrual should be adjusted.
NOTE 5 -LITIGATION
The Company is a defendant in a class action lawsuit pending in the
United States District Court, Central District of California. The complaint in
the class action alleges that, over a three year period, the Company misstated
earnings in violation of securities laws. The complaint seeks damages on behalf
of all investors who purchased common stock of the Company from August 1, 1996
to July 30, 1999. The Company's Directors and Officers insurance carrier has
also filed a claim against the Company and certain of its officers that seeks to
rescind coverage for the claims made against the Company and certain of its
officers in the class action lawsuit. The Company, counsel for the class action
plaintiffs and counsel for the insurance carrier are currently engaged in
discussions to determine whether the class action lawsuit can be settled. The
terms of a tentative settlement that is currently under discussion include the
payment of $7,500,000 to the plaintiffs in the class action. Of this amount,
$6,000,000 would be paid by the Company's directors and officers insurance
carrier, and the balance would be paid by the Company. In connection with the
payment by the insurance carrier, the Company's directors and officers insurance
would be cancelled.
Page 14
NOTE 5 -LITIGATION (continued)
To finance the Company's portion of the settlement plan, the Company
and Mel Marks, the Company's founder and a board member, have entered into the
stock purchase agreement that is filed as Exhibit 99.2 to this 8-K. Under the
terms of this agreement, Mr. Marks is expected to purchase shares of the Company
common stock, and the total purchase price for this stock would be $1,500,000.
The price per share is expected to be $1.00. If the valuation firm that the
Company engages to evaluate the fairness of the transaction concludes that this
price per share is not fair to the Company's shareholders, from a financial
point of view, the price per share will be increased to a price that the
valuation firm determines would be fair. For purposes of this determination, the
fairness of the transaction will be evaluated as of November 30, 2000, the date
that Mr. Marks agreed to provide $1,500,000 to the Company to finance a portion
of the class action settlement.
While management is hopeful that tentative settlement can be finalized,
there can be no assurances that settlement will be finalized or that such a
settlement would be approved by the court. In the absence of final resolution of
the litigation and in view of the position articulated by the Directors and
Officers insurance carrier, continued litigation of the class action lawsuit
could have a materially adverse effect on the Company.
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. 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.
Page 15