Edgar Filing: MOTORCAR PARTS AMERICA INC

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File No. 001-33861

MOTORCAR PARTS OF AMERICA, INC.

(Exact name of registrant as specified in its charter)

New York		11-2153962
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2929 California Street, Torrance, California		90503
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (310) 212-7910

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐	Accelerated filer ☑
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

There were 18,809,102 shares of Common Stock outstanding at December 31, 2018.

MOTORCAR PARTS OF AMERICA, INC.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements	4
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Comprehensive Income (Loss)	6
	Consolidated Statements of Cash Flows	7
	Condensed Notes to Consolidated Financial Statements	8
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	52
	Item 4. Controls and Procedures	53

PART II — OTHER INFORMATION
	Item 1. Legal Proceedings	54
	Item 1A. Risk Factors	54
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54
	Item 6. Exhibits	55
SIGNATURES		57

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MOTORCAR PARTS OF AMERICA, INC.

GLOSSARY

The following terms are frequently used in the text of this report and have the meanings indicated below.

“Used Core” — An automobile part which has been used in the operation of a vehicle. Generally, the Used Core is an original equipment (“OE”) automobile part installed by the vehicle manufacturer and subsequently removed for replacement. Used Cores contain salvageable parts which are an important raw material in the remanufacturing process. We obtain most Used Cores by providing credits to our customers for Used Cores returned to us under our core exchange program. Our customers receive these Used Cores from consumers who deliver a Used Core to obtain credit from our customers upon the purchase of a newly remanufactured automobile part. When sufficient Used Cores cannot be obtained from our customers, we will purchase Used Cores from core brokers, who are in the business of buying and selling Used Cores. The Used Cores purchased from core brokers or returned to us by our customers under the core exchange program, and which have been physically received by us, are part of our raw material and work-in-process inventory. Used Cores returned by consumers to our customers but not yet returned to us are classified as contract assets until we physically receive these Used Cores.

“Remanufactured Core” — The Used Core underlying an automobile part that has gone through the remanufacturing process and through that process has become part of a newly remanufactured automobile part. The remanufacturing process takes a Used Core, breaks it down into its component parts, replaces those components that cannot be reused and reassembles the salvageable components of the Used Core and additional new components into a remanufactured automobile part. Upon adoption of Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contract with Customers, (“ASC 606”) on April 1, 2018, the Remanufactured Cores at our facilities, which were previously segregated from cores held at customers’ locations, were reclassified from long-term core inventory to our on-hand finished goods inventory. Remanufactured Cores held for sale at our customer locations are included in long-term contract assets. In addition, upon the adoption of ASC 606, the Remanufactured Core portion of stock adjustment returns are classified as contract assets until we physically receive them.

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PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	September 30, 2018			March 31, 2018
ASSETS	(Unaudited)			(As Adjusted)
Current assets:				(Note 4)
Cash and cash equivalents	$	6,175,000		$	13,049,000
Short-term investments		3,230,000			2,828,000
Accounts receivable — net		56,085,000			63,174,000
Inventory— net		188,287,000			161,210,000
Inventory unreturned		9,100,000			7,508,000
Contract assets (see Note 8)		24,272,000			23,206,000
Income tax receivable		11,572,000			7,972,000
Prepaid expenses and other current assets		10,200,000			8,608,000
Total current assets		308,921,000			287,555,000
Plant and equipment — net		30,512,000			28,322,000
Long-term deferred income taxes		7,345,000			6,698,000
Long-term contract assets (see Note 8)		230,438,000			222,731,000
Goodwill		2,551,000			2,551,000
Intangible assets — net		3,380,000			3,766,000
Other assets		866,000			804,000
TOTAL ASSETS	$	584,013,000		$	552,427,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	92,663,000		$	73,273,000
Accrued liabilities		10,622,000			12,048,000
Customer finished goods returns accrual		19,961,000			17,805,000
Contract liabilities (see Note 11)		31,488,000			32,603,000
Revolving loan		52,906,000			54,000,000
Other current liabilities		4,970,000			4,471,000
Current portion of term loan		3,685,000			3,068,000
Total current liabilities		216,295,000			197,268,000
Term loan, less current portion		26,032,000			13,913,000
Long-term contract liabilities (see Note 11)		52,535,000			48,183,000
Long-term deferred income taxes		211,000			226,000
Other liabilities		6,776,000			5,957,000
Total liabilities		301,849,000			265,547,000
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; par value $.01 per share, 20,000 shares authorized; none issued		-			-
Common stock; par value $.01 per share, 50,000,000 shares authorized; 18,799,477 and 18,893,102 shares issued and outstanding at September 30, 2018 and March 31, 2018, respectively		188,000			189,000
Additional paid-in capital		211,593,000			213,609,000
Retained earnings		77,274,000			78,510,000
Accumulated other comprehensive loss		(6,891,000	)		(5,428,000	)
Total shareholders’ equity		282,164,000			286,880,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	584,013,000		$	552,427,000

The accompanying condensed notes to consolidated financial statements are an integral part hereof.

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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2018		2017		2018			2017
			(As Adjusted)					(As Adjusted)
Net sales	$	127,939,000	$	110,261,000	$	219,607,000		$	204,956,000
Cost of goods sold		102,228,000		84,234,000		177,544,000			153,077,000
Gross profit		25,711,000		26,027,000		42,063,000			51,879,000
Operating expenses:
General and administrative		8,997,000		8,615,000		21,088,000			14,503,000
Sales and marketing		4,537,000		3,457,000		8,929,000			6,851,000
Research and development		1,784,000		1,240,000		3,520,000			2,242,000
Total operating expenses		15,318,000		13,312,000		33,537,000			23,596,000
Operating income		10,393,000		12,715,000		8,526,000			28,283,000
Interest expense, net		5,699,000		3,522,000		10,774,000			6,836,000
Income (loss) before income tax expense (benefit)		4,694,000		9,193,000		(2,248,000	)		21,447,000
Income tax expense (benefit)		1,181,000		3,598,000		(266,000	)		8,032,000
Net income (loss)	$	3,513,000	$	5,595,000	$	(1,982,000	)	$	13,415,000
Basic net income (loss) per share	$	0.19	$	0.30	$	(0.10	)	$	0.72
Diluted net income (loss) per share	$	0.18	$	0.29	$	(0.10	)	$	0.69
Weighted average number of shares outstanding:
Basic		18,878,674		18,718,709		18,887,214			18,687,179
Diluted		19,319,465		19,356,809		18,887,214			19,371,144

The accompanying condensed notes to consolidated financial statements are an integral part hereof.

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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended September 30,					Six Months Ended September 30,
	2018			2017		2018			2017
				(As Adjusted)					(As Adjusted)
Net income (loss)	$	3,513,000		$	5,595,000	$	(1,982,000	)	$	13,415,000
Other comprehensive (loss) income, net of tax:
Unrealized gain on short-term investments (net of tax of $0, $40,000, $0 and $78,000)		-			60,000		-			116,000
Foreign currency translation (loss) gain		(2,000	)		608,000		(717,000	)		837,000
Total other comprehensive (loss) gain, net of tax		(2,000	)		668,000		(717,000	)		953,000
Comprehensive income (loss)	$	3,511,000		$	6,263,000	$	(2,699,000	)	$	14,368,000

The accompanying condensed notes to consolidated financial statements are an integral part hereof.

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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended September 30,
	2018			2017
Cash flows from operating activities:				(As Adjusted)
Net (loss) income	$	(1,982,000	)	$	13,415,000
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation		2,834,000			1,828,000
Amortization of intangible assets		384,000			325,000
Amortization and write-off of debt issuance costs		647,000			426,000
Amortization of interest on contract liabilities, net		513,000			269,000
Gain due to change in fair value of the warrant liability		-			(2,313,000	)
Gain on short-term investments		(180,000	)		-
Net provision for inventory reserves		5,285,000			3,258,000
Net provision for customer payment discrepancies		274,000			604,000
Net provision for (recovery of) doubtful accounts		206,000			(2,000	)
Deferred income taxes		(667,000	)		(207,000	)
Share-based compensation expense		2,121,000			1,744,000
Loss on disposal of plant and equipment		11,000			7,000
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		6,598,000			2,819,000
Inventory		(32,380,000	)		(28,552,000	)
Inventory unreturned		(1,592,000	)		(123,000	)
Income tax receivable		(3,595,000	)		(3,985,000	)
Prepaid expenses and other current assets		(658,000	)		(2,645,000	)
Other assets		(79,000	)		(20,000	)
Accounts payable and accrued liabilities		17,840,000			(3,764,000	)
Customer finished goods returns accrual		2,156,000			(4,246,000	)
Contract assets, net		(8,773,000	)		6,882,000
Contract liabilities, net		2,724,000			5,837,000
Other liabilities		1,904,000			295,000
Net cash used in operating activities		(6,409,000	)		(8,148,000	)
Cash flows from investing activities:
Purchase of plant and equipment		(5,259,000	)		(2,460,000	)
Purchase of business, net of cash acquired		-			(4,974,000	)
Change in short-term investments		(222,000	)		(226,000	)
Net cash used in investing activities		(5,481,000	)		(7,660,000	)
Cash flows from financing activities:
Borrowings under revolving loan		35,200,000			52,000,000
Repayments of revolving loan		(36,294,000	)		(27,000,000	)
Borrowings under term loan		13,594,000			-
Repayments of term loan		(782,000	)		(1,563,000	)
Payments for debt issuance costs		(1,757,000	)		(443,000	)
Payments on capital lease obligations		(711,000	)		(392,000	)
Exercise of stock options		244,000			295,000
Cash used to net share settle equity awards		(320,000	)		(594,000	)
Settlement of warrant		-			4,000,000
Repurchase of common stock, including fees		(4,062,000	)		(4,476,000	)
Net cash provided by financing activities		5,112,000			21,827,000
Effect of exchange rate changes on cash and cash equivalents		(96,000	)		42,000
Net (decrease) increase in cash and cash equivalents		(6,874,000	)		6,061,000
Cash and cash equivalents — Beginning of period		13,049,000			9,029,000
Cash and cash equivalents — End of period	$	6,175,000		$	15,090,000
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest, net	$	9,534,000		$	6,121,000
Income taxes, net of refunds		3,263,000			11,672,000
Non-cash investing and financing activities:
Plant and equipment acquired under capital lease	$	-		$	498,000

The accompanying condensed notes to consolidated financial statements are an integral part hereof.

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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements

September 30, 2018

(Unaudited)

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP 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 six months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2019. This report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2018, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 14, 2018.

The accompanying consolidated financial statements have been prepared on a consistent basis with, and there have been no material changes to, except as noted below, the accounting policies described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements that are presented in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018.

1. Company Background and Organization

Motorcar Parts of America, Inc. and its subsidiaries (the “Company”, or “MPA”) is a leading manufacturer, remanufacturer, and distributor of aftermarket automotive and light truck applications. The Company also, to a lesser extent, is a manufacturer, remanufacturer, and distributor of heavy duty truck and industrial and agricultural application parts. These replacement parts are sold for use on vehicles after initial vehicle purchase. These automotive parts are sold to automotive retail chain stores and warehouse distributors throughout North America and to major automobile manufacturers for both their aftermarket programs and warranty replacement programs (“OES”). The Company’s products include (i) rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake master cylinders, and (iv) other products which include turbochargers, brake power boosters, and diagnostic equipment. As a result of the July 2017 acquisition of D&V Electronics Ltd. (“D&V”), the Company’s business also now includes developing and selling diagnostics systems for alternators, starters, belt-start generators (stop start and hybrid technology), and electric power trains for electric vehicles.

The Company obtains used automotive parts, commonly known as Used Cores, primarily from its customers under the Company’s core exchange program. It also purchases Used Cores from vendors (core brokers). The customers grant credit to the consumer when the used part is returned to them, and the Company in turn provides a credit to the customers upon return to the Company. These Used Cores are an essential raw material needed for the remanufacturing operations.

The Company has remanufacturing, warehousing and shipping/receiving operations for automotive parts in North America and Asia. In addition, the Company utilizes various third party warehouse distribution centers in North America.

Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) ASC for segment reporting, the Company has identified its chief executive officer as chief operating decision maker (“CODM”), has reviewed the documents used by the CODM, and understands how such documents are used by the CODM to make financial and operating decisions. The Company has determined through this review process that it has one reportable segment for purposes of recording and reporting its financial results.

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2. Impact on Previously Issued Financial Statements for the Correction of an Error

Revision of Prior Period Financial Statements

During the second quarter ended September 30, 2018, the Company identified and corrected immaterial errors that affected previously issued consolidated financial statements. These errors primarily related to historical misapplication of GAAP related to the timing of recognizing certain expenses incurred in connection with allowances paid for core inventory purchase obligations at the start of a new business relationship. The Company previously recorded the difference between the acquisition price of Remanufactured Cores purchased from customers generally in connection with new business, and the related inventory cost as a sales allowance reducing revenue when the purchases were made. These sales allowances are now recorded as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered (as further described under the caption “Contract Assets” in Note 4). The Company also corrected errors resulting from differences between the original cost estimate and the actual cost of the Remanufactured Cores held at customers’ locations.

The Company also corrected other immaterial errors, which primarily relate to bonus accruals and core inventory, and recorded certain adjustments to income taxes, including reflecting the tax effect of the aforementioned adjustments. In addition, the Company reclassified certain customer contract related prepayments from prepaid expenses and other current assets and other assets to contract assets related to the adoption of ASC 606 on April 1, 2018 (see Note 4).

As of June 30, 2018, the cumulative error for all periods previously reported was an understatement of net income of $2,938,000. The Company assessed the materiality, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108, and concluded that these errors were not material to any of its previously issued financial statements. However, the Company determined that the cumulative correction of these errors would have had a material effect on the financial results for the three and six months ended September 30, 2018. Accordingly, in order to correctly present the errors noted above, previously issued financial statements have been revised and are presented as “As Revised” in the tables presented in the following footnotes. In addition, upon the adoption of ASC 606 on April 1, 2018, the Company adjusted its revised consolidated financial statements and related footnotes for the years ended March 31, 2018, and 2017 and applicable interim periods within the fiscal year ended March 31, 2018. These consolidated financial statements and tables are presented as “As Adjusted”.

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The effect of the above corrections on the consolidated statement of operations for the fiscal year ended March 31, 2018 is as follows:

	Year Ended March 31, 2018
Revised Consolidated Statement of Operations Amounts:	As Previously Reported		Adjustment			As Revised

Net sales	$	428,072,000	$	(1,081,000	)	$	426,991,000
Cost of goods sold		322,199,000		(1,750,000	)		320,449,000
Gross profit		105,873,000		669,000			106,542,000
Operating expenses:
General and administrative		35,527,000		(50,000	)		35,477,000
Sales and marketing		15,030,000		-			15,030,000
Research and development		5,692,000		-			5,692,000
Total operating expenses		56,249,000		(50,000	)		56,199,000
Operating income		49,624,000		719,000			50,343,000
Interest expense, net		15,445,000		-			15,445,000
Income before income tax expense (benefit)		34,179,000		719,000			34,898,000
Income tax expense (benefit)		17,863,000		(1,791,000	)		16,072,000
Net income	$	16,316,000	$	2,510,000		$	18,826,000
Basic net income per share	$	0.87	$	0.13		$	1.00
Diluted net income per share	$	0.84	$	0.13		$	0.96

The effect of the above corrections on the consolidated statement of operations for the fiscal year ended March 31, 2017 is as follows:

	Year Ended March 31, 2017
Revised Consolidated Statement of Operations Amounts:	As Previously Reported		Adjustment			As Revised

Net sales	$	421,253,000	$	1,629,000		$	422,882,000
Cost of goods sold		306,207,000		(281,000	)		305,926,000
Gross profit		115,046,000		1,910,000			116,956,000
Operating expenses:
General and administrative		31,124,000		1,000			31,125,000
Sales and marketing		12,126,000		-			12,126,000
Research and development		3,824,000		-			3,824,000
Total operating expenses		47,074,000		1,000			47,075,000
Operating income		67,972,000		1,909,000			69,881,000
Interest expense, net		13,094,000		-			13,094,000
Income before income tax expense		54,878,000		1,909,000			56,787,000
Income tax expense		17,305,000		706,000			18,011,000
Net income	$	37,573,000	$	1,203,000		$	38,776,000
Basic net income per share	$	2.02	$	0.06		$	2.08
Diluted net income per share	$	1.93	$	0.06		$	2.00

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The effect of the above corrections on the consolidated statement of operations for the fiscal year ended March 31, 2016 is as follows:

	Year Ended March 31, 2016
Revised Consolidated Statement of Operations Amounts:	As Previously Reported		Adjustment			As Revised

Net sales	$	368,970,000	$	700,000		$	369,670,000
Cost of goods sold		268,046,000		402,000			268,448,000
Gross profit		100,924,000		298,000			101,222,000
Operating expenses:
General and administrative		49,665,000		298,000			49,963,000
Sales and marketing		9,965,000		-			9,965,000
Research and development		3,008,000		-			3,008,000
Total operating expenses		62,638,000		298,000			62,936,000
Operating income		38,286,000		-			38,286,000
Interest expense, net		16,244,000		-			16,244,000
Income before income tax expense		22,042,000		-			22,042,000
Income tax expense		11,479,000		294,000			11,773,000
Net income	$	10,563,000	$	(294,000	)	$	10,269,000
Basic net income per share	$	0.58	$	(0.02	)	$	0.56
Diluted net income per share	$	0.55	$	(0.02	)	$	0.54

The effect of the above corrections on the consolidated statement of comprehensive income for the fiscal year ended March 31, 2018 is as follows:

	Year Ended March 31, 2018
Revised Consolidated Statement of Comprehensive Income Amounts:	As Previously Reported		Adjustment		As Revised

Net income	$	16,316,000	$	2,510,000	$	18,826,000
Comprehensive income	$	18,329,000	$	2,510,000	$	20,839,000

The effect of the above corrections on the consolidated statement of comprehensive income for the fiscal year ended March 31, 2017 is as follows:

	Year Ended March 31, 2017
Revised Consolidated Statement of Comprehensive Income Amounts:	As Previously Reported		Adjustment		As Revised

Net income	$	37,573,000	$	1,203,000	$	38,776,000
Comprehensive income	$	34,984,000	$	1,203,000	$	36,187,000

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The effect of the above corrections on the consolidated statement of comprehensive income for the fiscal year ended March 31, 2016 is as follows:

	Year Ended March 31, 2016
Revised Consolidated Statement of Comprehensive Income Amounts:	As Previously Reported		Adjustment			As Revised

Net income	$	10,563,000	$	(294,000	)	$	10,269,000
Comprehensive income	$	8,229,000	$	(294,000	)	$	7,935,000

The effect of the above corrections on the consolidated balance sheet at March 31, 2018 is as follows:

	March 31, 2018
Revised Consolidated Balance Sheet Amounts:	As Previously Reported		Adjustment			As Revised
ASSETS
Income tax receivable	$	7,796,000	$	176,000		$	7,972,000
Prepaid expenses and other current assets		11,491,000		3,613,000			15,104,000
Long-term core inventory — net		301,656,000		(3,362,000	)		298,294,000
Long-term deferred income taxes		10,556,000		(3,619,000	)		6,937,000
Other assets		7,392,000		14,603,000			21,995,000
TOTAL ASSETS	$	494,497,000	$	11,411,000		$	505,908,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accrued liabilities	$	11,799,000	$	249,000		$	12,048,000
TOTAL LIABILITIES	$	219,521,000	$	249,000		$	219,770,000
Retained earnings	$	66,606,000	$	11,162,000		$	77,768,000
TOTAL SHAREHOLDERS’ EQUITY	$	274,976,000	$	11,162,000		$	286,138,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	494,497,000	$	11,411,000		$	505,908,000

The effect of the above corrections on the consolidated balance sheet at March 31, 2017 is as follows:

	March 31, 2017
Revised Consolidated Balance Sheet Amounts:	As Previously Reported		Adjustment			As Revised
ASSETS
Prepaid expenses and other current assets	$	9,848,000	$	3,240,000		$	13,088,000
Long-term core inventory — net		262,922,000		(4,501,000	)		258,421,000
Long-term deferred income taxes		13,546,000		(5,179,000	)		8,367,000
Other assets		6,990,000		15,391,000			22,381,000
TOTAL ASSETS	$	436,139,000	$	8,951,000		$	445,090,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accrued liabilities	$	10,077,000	$	299,000		$	10,376,000
TOTAL LIABILITIES	$	187,458,000	$	299,000		$	187,757,000
Retained earnings	$	50,290,000	$	8,652,000		$	58,942,000
TOTAL SHAREHOLDERS’ EQUITY	$	248,681,000	$	8,652,000		$	257,333,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	436,139,000	$	8,951,000		$	445,090,000

Table of Contents

The effect of the above corrections on the consolidated statement of shareholders’ equity for the fiscal year ended March 31, 2018 is as follows:

	Year Ended March 31, 2018
Revised Consolidated Statement of Shareholders’ Equity Amounts:	As Previously Reported		Adjustment		As Revised

Retained earnings at March 31, 2017	$	50,290,000	$	8,652,000	$	58,942,000
Net income		16,316,000		2,510,000		18,826,000
Retained earnings at March 31, 2018	$	66,606,000	$	11,162,000	$	77,768,000

The effect of the above corrections on the consolidated statement of shareholders’ equity for the fiscal year ended March 31, 2017 is as follows:

	Year Ended March 31, 2017
Revised Consolidated Statement of Shareholders’ Equity Amounts:	As Previously Reported		Adjustment		As Revised

Retained earnings at March 31, 2016	$	11,825,000	$	7,449,000	$	19,274,000
Cumulative effect adjustment		892,000		-		892,000
Net income		37,573,000		1,203,000		38,776,000
Retained earnings at March 31, 2017	$	50,290,000	$	8,652,000	$	58,942,000

The effect of the above corrections on the consolidated statement of shareholders’ equity for the fiscal year ended March 31, 2016 is as follows:

	Year Ended March 31, 2016
Revised Consolidated Statement of Shareholders’ Equity Amounts:	As Previously Reported		Adjustment			As Revised

Retained earnings at March 31, 2015	$	1,262,000	$	-		$	1,262,000
Cumulative effect adjustment of error corrections		-		7,743,000			7,743,000
Net income (loss)		10,563,000		(294,000	)		10,269,000
Retained earnings at March 31, 2016	$	11,825,000	$	7,449,000		$	19,274,000

The effect of the above corrections on the consolidated statement of cash flows for the fiscal year ended March 31, 2018 is as follows:

	Year Ended March 31, 2018
Revised Consolidated Statement of Cash Flow from Operating Activities Amounts:	As Previously Reported			Adjustment			As Revised
Net income	$	16,316,000		$	2,510,000		$	18,826,000
Deferred income taxes		3,055,000			(1,560,000	)		1,495,000
Income tax receivable		(6,081,000	)		(231,000	)		(6,312,000	)
Prepaid expenses and other current assets		(2,507,000	)		(318,000	)		(2,825,000	)
Other assets		(384,000	)		788,000			404,000
Accounts payable and accrued liabilities		(11,621,000	)		(50,000	)		(11,671,000	)
Long-term core inventory		(45,839,000	)		(1,139,000	)		(46,978,000	)
Net cash used in operating activities	$	(13,944,000	)	$	-		$	(13,944,000	)

Table of Contents

The effect of the above corrections on the consolidated statement of cash flows for the fiscal year ended March 31, 2017 is as follows:

	Year Ended March 31, 2017
Revised Consolidated Statement of Cash Flow from Operating Activities Amounts:	As Previously Reported			Adjustment			As Revised
Net income	$	37,573,000		$	1,203,000		$	38,776,000
Deferred income taxes		6,510,000			355,000			6,865,000
Prepaid expenses and other current assets		(4,333,000	)		(549,000	)		(4,882,000	)
Other assets		(3,339,000	)		(1,025,000	)		(4,364,000	)
Accounts payable and accrued liabilities		12,446,000			1,000			12,447,000
Long-term core inventory		(24,964,000	)		(281,000	)		(25,245,000	)
Other liabilities		(1,344,000	)		296,000			(1,048,000	)
Net cash used in operating activities	$	(5,269,000	)	$	-		$	(5,269,000	)

The effect of the above corrections on the consolidated statement of cash flows for the fiscal year ended March 31, 2016 is as follows:

	Year Ended March 31, 2016
Revised Consolidated Statement of Cash Flow from Operating Activities Amounts:	As Previously Reported			Adjustment			As Revised
Net income	$	10,563,000		$	(294,000	)	$	10,269,000
Deferred income taxes		(3,781,000	)		590,000			(3,191,000	)
Prepaid expenses and other current assets		2,765,000			618,000			3,383,000
Other assets		(477,000	)		(1,318,000	)		(1,795,000	)
Accounts payable and accrued liabilities		6,620,000			298,000			6,918,000
Long-term core inventory		(53,408,000	)		402,000			(53,006,000	)
Other liabilities		1,673,000			(296,000	)		1,377,000
Net cash used in operating activities	$	15,334,000		$	-		$	15,334,000

Table of Contents

The effect of the above corrections on the consolidated statement of operations for the three months ended June 30, 2017 is as follows:

	Three Months Ended June 30, 2017
Revised Consolidated Statement of Operations Amounts:	As Previously Reported		Adjustment			As Revised
Net sales	$	95,063,000	$	(824,000	)	$	94,239,000
Cost of goods sold		69,224,000		-			69,224,000
Gross profit		25,839,000		(824,000	)		25,015,000
Operating expenses:
General and administrative		6,187,000		(299,000	)		5,888,000
Sales and marketing		3,394,000		-			3,394,000
Research and development		1,002,000		-			1,002,000
Total operating expenses		10,583,000		(299,000	)		10,284,000
Operating income		15,256,000		(525,000	)		14,731,000
Interest expense, net		3,314,000		-			3,314,000
Income (loss) before income tax expense (benefit)		11,942,000		(525,000	)		11,417,000
Income tax expense (benefit)		4,316,000		(194,000	)		4,122,000
Net income (loss)	$	7,626,000	$	(331,000	)	$	7,295,000
Basic net income (loss) per share	$	0.41	$	(0.02	)	$	0.39
Diluted net income (loss) per share	$	0.39	$	(0.02	)	$	0.38

The effect of the above corrections on the consolidated statements of operations for the three and six months ended September 30, 2017 is as follows:

	Three Months Ended September 30, 2017							Six Months Ended September 30, 2017
Revised Consolidated Statement of Operations Amounts:	As Previously Reported		Adjustment			As Revised		As Previously Reported		Adjustment			As Revised

Net sales	$	111,774,000	$	(921,000	)	$	110,853,000	$	206,837,000	$	(1,745,000	)	$	205,092,000
Cost of goods sold		84,612,000		-			84,612,000		153,836,000		-			153,836,000
Gross profit		27,162,000		(921,000	)		26,241,000		53,001,000		(1,745,000	)		51,256,000
Operating expenses:
General and administrative		8,615,000		-			8,615,000		14,802,000		(299,000	)		14,503,000
Sales and marketing		3,457,000		-			3,457,000		6,851,000		-			6,851,000
Research and development		1,240,000		-			1,240,000		2,242,000		-			2,242,000
Total operating expenses		13,312,000		-			13,312,000		23,895,000		(299,000	)		23,596,000
Operating income (loss)		13,850,000		(921,000	)		12,929,000		29,106,000		(1,446,000	)		27,660,000
Interest expense, net		3,522,000		-			3,522,000		6,836,000		-			6,836,000
Income (loss) before income tax expense (benefit)		10,328,000		(921,000	)		9,407,000		22,270,000		(1,446,000	)		20,824,000
Income tax expense (benefit)		4,027,000		(343,000	)		3,684,000		8,343,000		(537,000	)		7,806,000
Net income (loss)	$	6,301,000	$	(578,000	)	$	5,723,000	$	13,927,000	$	(909,000	)	$	13,018,000
Basic net income (loss) per share	$	0.34	$	(0.03	)	$	0.31	$	0.75	$	(0.05	)	$	0.70
Diluted net income (loss) per share	$	0.33	$	(0.03	)	$	0.30	$	0.72	$	(0.05	)	$	0.67

Table of Contents

The effect of the above corrections on the consolidated statement of operations for the three and nine months ended December 31, 2017 is as follows:

	Three Months Ended December 31, 2017									Nine Months Ended December 31, 2017
Revised Consolidated Statement of Operations Amounts:	As Previously Reported			Adjustment			As Revised			As Previously Reported		Adjustment			As Revised
Net sales	$	100,127,000		$	1,586,000		$	101,713,000		$	306,964,000	$	(159,000	)	$	306,805,000
Cost of goods sold		77,583,000			(1,750,000	)		75,833,000			231,419,000		(1,750,000	)		229,669,000
Gross profit		22,544,000			3,336,000			25,880,000			75,545,000		1,591,000			77,136,000
Operating expenses:
General and administrative		11,915,000			-			11,915,000			26,717,000		(299,000	)		26,418,000
Sales and marketing		4,048,000			-			4,048,000			10,899,000		-			10,899,000
Research and development		1,678,000			-			1,678,000			3,920,000		-			3,920,000
Total operating expenses		17,641,000			-			17,641,000			41,536,000		(299,000	)		41,237,000
Operating income		4,903,000			3,336,000			8,239,000			34,009,000		1,890,000			35,899,000
Interest expense, net		3,953,000			-			3,953,000			10,789,000		-			10,789,000
Income before income tax expense (benefit)		950,000			3,336,000			4,286,000			23,220,000		1,890,000			25,110,000
Income tax expense (benefit)		7,756,000			(820,000	)		6,936,000			16,099,000		(1,357,000	)		14,742,000
Net (loss) income	$	(6,806,000	)	$	4,156,000		$	(2,650,000	)	$	7,121,000	$	3,247,000		$	10,368,000
Basic net (loss) income per share	$	(0.36	)	$	0.22		$	(0.14	)	$	0.38	$	0.17		$	0.55
Diluted net (loss) income per share	$	(0.36	)	$	0.22		$	(0.14	)	$	0.37	$	0.17		$	0.53

The effect of the above corrections on the consolidated statement of comprehensive income (loss) for the three months ended June 30, 2017 is as follows:

	Three Months Ended June 30, 2017
Revised Consolidated Statement of Comprehensive Income (Loss) Amounts:	As Previously Reported		Adjustment			As Revised

Net income (loss)	$	7,626,000	$	(331,000	)	$	7,295,000
Comprehensive income (loss)	$	7,911,000	$	(331,000	)	$	7,580,000

The effect of the above corrections on the consolidated statements of comprehensive income (loss) for the three and six months ended September 30, 2017 is as follows:

	Three Months Ended September 30, 2017							Six Months Ended September 30, 2017
Revised Consolidated Statement of Comprehensive Income (Loss) Amounts:	As Previously Reported		Adjustment			As Revised		As Previously Reported		Adjustment			As Revised
Net income (loss)	$	6,301,000	$	(578,000	)	$	5,723,000	$	13,927,000	$	(909,000	)	$	13,018,000
Comprehensive income (loss)	$	6,969,000	$	(578,000	)	$	6,391,000	$	14,880,000	$	(909,000	)	$	13,971,000

The effect of the above corrections on the consolidated statements of comprehensive (loss) income for the three and nine months ended December 31, 2017 is as follows:

	Three Months Ended December 31, 2017								Nine Months Ended December 31, 2017
Revised Consolidated Statement of Comprehensive (Loss) Income Amounts:	As Previously Reported			Adjustment		As Revised			As Previously Reported		Adjustment		As Revised
Net (loss) income	$	(6,806,000	)	$	4,156,000	$	(2,650,000	)	$	7,121,000	$	3,247,000	$	10,368,000
Comprehensive (loss) income	$	(6,476,000	)	$	4,156,000	$	(2,320,000	)	$	8,404,000	$	3,247,000	$	11,651,000

Table of Contents

The effect of the above corrections on the consolidated statement of cash flows for the three months ended June 30, 2017 is as follows:

	Three Months Ended June 30, 2017
Revised Consolidated Statement of Cash Flow from Operating Activities Amounts:	As Previously Reported			Adjustment			As Revised
Net income (loss)	$	7,626,000		$	(331,000	)	$	7,295,000
Prepaid expenses and other current assets		421,000			(55,000	)		366,000
Other assets		608,000			824,000			1,432,000
Accounts payable and accrued liabilities		(5,254,000	)		(299,000	)		(5,553,000	)
Other liabilities		2,324,000			(139,000	)		2,185,000
Net cash used in operating activities	$	(644,000	)	$	-		$	(644,000	)

The effect of the above corrections on the consolidated statement of cash flows for the six months ended September 30, 2017 is as follows:

	Six Months Ended September 30, 2017
Revised Consolidated Statement of Cash Flow from Operating Activities Amounts:	As Previously Reported			Adjustment			As Revised
Net income (loss)	$	13,927,000		$	(909,000	)	$	13,018,000
Prepaid expenses and other current assets		(6,093,000	)		(537,000	)		(6,630,000	)
Other assets		1,198,000			1,745,000			2,943,000
Accounts payable and accrued liabilities		(3,465,000	)		(299,000	)		(3,764,000	)
Net cash used in operating activities	$	(8,148,000	)	$	-		$	(8,148,000	)

The effect of the above corrections on the consolidated statement of cash flows for the nine months ended December 31, 2017 is as follows:

	Nine Months Ended December 31, 2017
Revised Consolidated Statement of Cash Flow from Operating Activities Amounts:	As Previously Reported			Adjustment			As Revised
Net income	$	7,121,000		$	3,247,000		$	10,368,000
Deferred income taxes		(909,000	)		(1,805,000	)		(2,714,000	)
Prepaid expenses and other current assets		(2,093,000	)		448,000			(1,645,000	)
Other assets		289,000			(452,000	)		(163,000	)
Accounts payable and accrued liabilities		(15,647,000	)		(299,000	)		(15,946,000	)
Long-term core inventory		(37,222,000	)		(1,139,000	)		(38,361,000	)
Net cash used in operating activities	$	(9,803,000	)	$	-		$	(9,803,000	)

Table of Contents

The effect of the above corrections on the consolidated statement of operations for the three months ended June 30, 2018 is as follows:

	Three Months Ended June 30, 2018
Revised Consolidated Statement of Operations Amounts:	As Previously Reported			Adjustment			As Revised

Net sales	$	92,565,000		$	(897,000	)	$	91,668,000
Cost of goods sold		75,314,000			2,000			75,316,000
Gross profit		17,251,000			(899,000	)		16,352,000
Operating expenses:
General and administrative		12,340,000			(249,000	)		12,091,000
Sales and marketing		4,392,000			-			4,392,000
Research and development		1,736,000			-			1,736,000
Total operating expenses		18,468,000			(249,000	)		18,219,000
Operating loss		(1,217,000	)		(650,000	)		(1,867,000	)
Interest expense, net		5,075,000			-			5,075,000
Loss before income tax benefit		(6,292,000	)		(650,000	)		(6,942,000	)
Income tax benefit		(1,278,000	)		(169,000	)		(1,447,000	)
Net loss	$	(5,014,000	)	$	(481,000	)	$	(5,495,000	)
Basic net loss per share	$	(0.27	)	$	(0.03	)	$	(0.29	)
Diluted net loss per share	$	(0.27	)	$	(0.03	)	$	(0.29	)

The effect of the above corrections on the consolidated statement of comprehensive loss for the three months ended June 30, 2018 is as follows:

	Three Months Ended June 30, 2018
Revised Consolidated Statement of Comprehensive Loss Amounts:	As Previously Reported			Adjustment			As Revised

Net loss	$	(5,014,000	)	$	(481,000	)	$	(5,495,000	)
Comprehensive loss	$	(5,729,000	)	$	(481,000	)	$	(6,210,000	)

The effect of the above corrections on the consolidated balance sheet at June 30, 2018 is as follows:

June 30, 2018

Restated Consolidated Balance Sheet Amounts:

As Previously

Reported

Adjustment

As Revised

ASSETS