UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

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

FOR THE FISCAL YEAR ENDED MARCH 31, 2006

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

FOR THE TRANSITION PERIOD FROM                      TO                     

MOTORCAR PARTS OF AMERICA, INC.

(Exact name of registrant as specified in its charter)

New York		11-2153962
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		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 if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

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 o No þ

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o       Accelerated filer o       Non-accelerated filer þ

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

As of September 30, 2005, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $61,455,000 based on the closing inter-dealer quotation as tracked on the Pink Sheets.

There were 8,324,455 shares of Common Stock outstanding at July 10, 2006.

DOCUMENTS INCORPORATED BY REFERENCE: None

 

 

TABLE OF CONTENTS

PART II
Item 6. Selected Financial Data			3
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3
Item 9A. Controls and Procedures			14
PART IV
Item 15. Exhibits and Financial Statement Schedules			F-1
SIGNATURES			F-33
EXHIBIT 21.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1

EXPLANATORY NOTE

     Explanatory Note: This Form 10-K/A amends our report on Form 10-K for the fiscal year ended March 31, 2006 to restate our consolidated financial statements for the fiscal years ended March 31, 2006, 2005 and 2004 that were included in that Form 10-K. This restatement is being made to correct errors which occurred when (i) we incorrectly recorded a duplicative entry that continued to recognize a gross profit impact resulting from the accrual for certain cores authorized to be returned, but still in-transit to us from our customers, (ii) we incorrectly recorded core charge revenue when the amount of revenue was not fixed and determinable and (iii) we did not appropriately accrue losses for all probable customer payment discrepancies. The impact of the duplicative entry “(i)” above on the accumulated deficit at March 31, 2003 is a decrease of $865,000. The revenue entry “(ii)”  and customer payment discrepancies entry “(iii)” above did not impact periods prior to April 1, 2003. We intend to file a Form 10-Q/A to restate the interim financial information contained in Form 10-Q for the period ended June 30, 2006 and will restate financial statements for other interim periods as we file Forms 10-Q in the future. Management believes this Form 10-K/A and its planned future filings are appropriate. However, we continue to evaluate this conclusion regarding filings for periods prior to March 31, 2006.

     Except as required to reflect the effects of these restatements, no attempt has been made in this Form 10-K/A to modify or update other disclosures presented in the original report on Form 10-K. Accordingly, this Form 10-K/A, including the financial statements and notes thereto included herein, generally do not reflect events occurring after the date of the original filing of the Form 10-K or modify or update those disclosures affected by subsequent events. Consequently, all other information not affected by the restatement is unchanged by this Form 10-K/A and reflects the disclosures made at the time of the original filing of the Form 10-K on July 13, 2006. For a description of subsequent events, this Form 10-K/A should be read in conjunction with our filings made subsequent to July 13, 2006, including our report on Form
10-Q/A for the quarter ended June 30, 2006 and each of our reports on Form 8-K filed since July 13, 2006.

MOTORCAR PARTS OF AMERICA, INC.

Unless the context otherwise requires, all references in this Annual Report on Form 10-K/A to “the Company,” “we,” “us,” and “our” refer to Motorcar Parts of America, Inc. and its subsidiaries. This Form 10-K/A may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve risks and uncertainties. Our actual results may differ significantly from the results discussed in any forward-looking statements. Discussions containing such forward-looking statements may be found in the material set forth under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as within this Form 10-K/A generally.

     We file annual, quarterly and special reports, proxy statements and other information with the SEC. Our SEC filings are available free of charge to the public over the Internet at the SEC’s website at www.sec.gov. Our SEC filings are also available on our website www.motorcarparts.com. You may also read and copy any document we file with the SEC at its public reference rooms in Washington, D.C., New York, NY and Chicago, IL. Please call the SEC at (800) SEC-0330 for further information on the public reference rooms.

PART II

Item 6 Selected Financial Data

     The following selected historical consolidated financial information as of and for each of the years ended March 31, 2006, 2005, 2004, 2003 and 2002, has been derived from and should be read in conjunction with our consolidated financial statements and related notes thereto. Income statement data for the fiscal years ended March 31, 2006, 2005, 2004, 2003 and 2002 have been restated. Balance sheet data as of March 31, 2006, 2005, 2004, 2003 and 2002 have also been restated. Management believes this Form 10-K/A and its planned future filings are appropriate. However, we continue to evaluate this conclusion regarding filings for periods prior to March 31, 2006.

		Fiscal Year Ended March 31,
Income Statement Data (as restated)		2006				2005				2004				2003				2002
Net sales		$	108,397,000			$	96,719,000			$	80,349,000			$	83,969,000			$	87,059,000
Operating income			6,298,000				13,438,000				9,232,000				7,521,000				10,962,000
Net income			2,085,000				7,281,000				5,400,000				10,994,000				11,499,000
Basic net income per share		$	0.25			$	0.89			$	0.67			$	1.38			$	1.59
Diluted net income per share		$	0.25			$	0.85			$	0.64			$	1.29			$	1.48

		As of March 31,
Balance Sheet Data (as restated)		2006				2005				2004				2003				2002
Total assets		$	101,136,000			$	85,647,000			$	62,150,000			$	57,604,000			$	69,250,000
Working capital			46,430,000				44,266,000				36,272,000				26,455,000				5,672,000
Line of credit			6,300,000				—				3,000,000				9,932,000				28,029,000
Capital lease obligations — less current portion			4,857,000				938,000				1,247,000				209,000				915,000
Shareholders’ equity			51,595,000				48,670,000				40,835,000				35,775,000				24,777,000

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

Disclosure Regarding Private Securities Litigation Reform Act of 1995

     This report contains certain forward-looking statements with respect to our future performance that involve risks and uncertainties. Various factors could cause actual results to differ materially from those projected in such statements. These factors include, but are not limited to: concentration of sales to certain customers, changes in our relationship with any of our customers, including the increasing customer pressure for lower prices and more favorable payment and other terms, the increasing strain on our cash position, our ability to achieve positive cash flows from operations, potential future changes in our accounting policies that may be made as a result of an SEC review of our previously filed public reports, restatements of our previously issued financial statements to correct errors in the application of generally accepted accounting principles, our failure to meet the financial covenants or the other obligations set forth in our bank credit agreement and the bank’s refusal to waive any such defaults, any meaningful difference between projected production needs and ultimate sales to our customers, increases in interest rates, changes in the financial condition of any of our major customers, the impact of high gasoline prices, the potential for changes in consumer spending, consumer preferences and general economic conditions, increased competition in the automotive parts industry, difficulty in obtaining component parts or increases in the costs of those parts, political or economic instability in any of the foreign

countries where we conduct operations, unforeseen increases in operating costs and other factors discussed herein and in our other filings with the SEC.

Management Overview

     Sales in the retail and traditional markets in our product category have remained relatively steady in recent years. Both markets continue to experience consolidation. We make it a priority to focus our efforts on those customers we believe will be successful in the industry and will provide a strong distribution base for our future. We operate in a very competitive environment, where our customers expect us to provide quality products, in a timely manner at a low cost. To meet these expectations while maintaining or improving gross margins, we have focused on ongoing changes and improvements to make our remanufacturing processes more efficient. Our movement to “lean manufacturing” cells, increased production in Malaysia, establishment of a production facility in northern Mexico, utilization of advanced inventory tracking technology and development of in-store testing equipment reflect this focus. During fiscal 2006, we opened our new remanufacturing facility in Mexico. We believe that production in Mexico lowers our production costs now that we have achieved an efficient level of production and absorbed the training time, cell transfer and other start-up production costs. As we ramped up production in Mexico earlier in fiscal 2006, however, these production inefficiencies and start-up costs adversely impacted our profit margins. In addition, we have experienced and expect to continue to experience an adverse impact on our profit margins as duplicate domestic overhead costs are slowly pared down.

     Our sales are concentrated among a very few customers, and these key customers regularly seek more favorable pricing, marketing allowances, delivery and payment terms as a condition to the continuation of our existing business or an expansion of a particular customer’s business.

     To partially offset some of these customer demands, we have sought to position ourselves as a preferred supplier by working closely with our key customers to satisfy their particular needs and entering into longer-term preferred supplier agreements. While these longer-term agreements strengthen our customer relationships and improve our overall business base, they require a substantial amount of working capital to meet ramped up production demands and typically include marketing and other allowances that meaningfully limit the near-term revenues and associated cash flow from these new or expanded arrangements.

     To grow our revenue base, we have been seeking to broaden our retail distribution network and have expanded our reach into the traditional warehouse and professional installer markets. We continue to expand our product offerings to respond to changes in the marketplace, including those related to the increasing complexity of automotive electronics.

     A significant amount of management’s time at the start of the fiscal year 2006 was focused on responding to the SEC’s questions and comments with respect to our previously filed financial reports, and we have incurred significant general and administrative expenses in connection with those efforts and the associated restatement of our financial statements. We believe we have now substantially resolved the SEC’s inquiries concerning our previously filed public reports (although the SEC has not provided us with any confirmation in this regard).

General

     The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere herein.

Critical Accounting Policies

     We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or GAAP. Our significant accounting policies are discussed in detail below and in Note C to our consolidated financial statements.

     In preparing our consolidated financial statements, it is necessary that we use estimates and assumptions for matters that are inherently uncertain. We base our estimates on historical experiences and reasonable assumptions. Our use of estimates and assumptions affects the reported amounts of assets, liabilities and the amount and timing of revenues and expenses we recognize for and during the reporting period. Actual results may differ from estimates.

Revenue Recognition

     We recognize revenue when our performance is complete, and all of the following criteria established by Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition have been met:

	•		Persuasive evidence of an arrangement exists,
	•		Delivery has occurred or services have been rendered,
	•		The seller’s price to the buyer is fixed or determinable, and
	•		Collectibility is reasonably assured.

     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 the date of shipment based on our experience regarding the length of transit duration. We include shipping and handling charges in the gross invoice price to customers and classify the total amount as revenue in accordance with Emerging Issues Task Force (“EITF”) 00-10, “Accounting for Shipping and Handling Fees and Costs.” Shipping and handling costs are recorded in cost of sales.

Revenue Recognition; Net-of-Core-Value Basis

     The price of a finished product sold to customers is generally comprised of separately invoiced amounts for the core included in the product (“core value”) and for the value added by remanufacturing (“unit value”). The unit value is recorded as revenue in accordance with our net-of-core-value revenue recognition policy. This revenue is recorded based on our then current price list, net of applicable discounts and allowances. We do not recognize the core value as revenue when the finished products are sold.

Stock Adjustments; General Right of Return

     Under the terms of certain agreements with our customers and industry practice, our customers from time to time are allowed stock adjustments when their inventory quantity of certain product lines exceeds the anticipated quantity of sales to end-user customers. Stock adjustment returns are not recorded until they are authorized by us and they do not occur at any specific time during the year. We provide for a monthly allowance to address the anticipated impact of stock adjustments based on customer’s inventory levels, movement and timing of stock adjustments. Our estimate of the impact on revenues and cost of goods sold of future inventory overstocks is made at the time revenue is recognized for individual sales and is based on the following factors:

	•		The amount of the credit granted to a customer for inventory overstocks is negotiated between our customers and us and may be different than the total sales value of the inventory returned based on our price lists;
	•		The product mix of anticipated inventory overstocks often varies from the product mix sold; and
	•		The standard costs of inventory received will vary based on the part numbers received.

     In addition to stock adjustment returns, we also allow our customers to return goods to us that their end-user customers have returned to them. This general right of return is allowed regardless of whether the returned item is defective. We seek to limit the aggregate of customer returns, including slow moving and other inventory, to 20% of unit sales. We provide for such anticipated returns of inventory in accordance with Statement of Financial Accounting Standards No. 48, “Revenue Recognition When Right of Return Exists” by reducing revenue and cost of sales for the unit value based on a historical return analysis and information obtained from customers about current stock levels.

Core Inventory Valuation

     We value cores at the lower of cost or market. To take into account the seasonality of our business, the market value of cores is recalculated at March and September of each year. The semi-annual recalculation in March reflects the higher seasonal demand which typically precedes the warm summer months and the semi-annual recalculation in September reflects the lower seasonal demand which normally precedes the colder months. Because March generally represents the high point in the core broker market, we revalue cores using the high core broker price. In September, we revalue our cores to high core broker price plus a factor to allow for the temporary decrease in market value during the slower season.

Accounting for Under Returns of Cores

     Based on our experience, contractual arrangements with customers and inventory management practices, we receive and purchase a used but remanufacturable core from customers for more than 90% of the remanufactured alternators or starters we sell to customers. However, both the sales and receipt of cores throughout the year are seasonal with the receipt of cores lagging sales. Our customers typically return less cores during the months of April through September (the first six months of the fiscal year) and return more cores during the months of October through March (the last six months of the fiscal year). In accordance with our net-of-core-value revenue recognition policy, when we ship a product, we record an amount to the inventory unreturned account for the standard cost of the core expected to be returned. We generally limit core returns to the number of similar cores previously shipped to each customer.

     When we ship a product, we invoice certain customers for the core portion of the product at full sales price. For cores invoiced at full sales price, we recognize core charge revenue based upon an estimate of the rate at which our customers will pay cash for cores in lieu of returning cores for credits.

Sales Incentives

     We provide various marketing allowances to our customers, including sales incentives and concessions. Voluntary marketing allowances related to a single exchange of product are recorded as a reduction of revenues at the time the related revenues are recorded or when such incentives are offered. Other marketing allowances, which may only be applied against future purchases, are recorded as a reduction to revenues in accordance with a schedule set forth in the relevant contract. Sales incentive amounts are recorded based on the value of the incentive provided.

Accounting for Deferred Taxes

     The valuation of deferred tax assets and liabilities is based upon management’s estimate of current and future taxable income using the accounting guidance in SFAS 109, “Accounting for Income Taxes.” For fiscal 2006 and 2005 management determined that there was no valuation allowance necessary for deferred tax assets.

Financial Risk Management and Derivatives

     We are exposed to market risk from material movements in foreign exchange rates between the U.S. dollar and the currencies of the foreign countries in which we operate. Our primary risk relates to changes in the rates between the U.S. dollar and the Mexican peso associated with our growing operations in Mexico. To mitigate the risk of currency fluctuation between the U.S. dollar and the Mexican peso, in August 2005 we began to enter into forward foreign exchange contracts to exchange U.S. dollars for Mexican pesos. The extent to which we use forward foreign exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in the exchange rates. We do not engage in currency speculation or hold or issue financial instruments for trading purposes. These contracts expire in a year or less. Any changes in fair values of foreign exchange contracts are accounted for as an increase or offset to general and administrative expenses in current period earnings. For fiscal 2006, the net effect of the foreign exchange contracts was to reduce general and administrative expenses by approximately $36,000.

Results of Operations

     The following table summarizes certain key operating data for the periods indicated:

		Fiscal Year Ended March 31,
(As Restated)		2006				2005				2004
Gross profit			23.4	%			29.6	%			26.6	%
Cash flow from operations		$	(11,040,000	)		$	4,447,000			$	15,152,000
Finished goods turnover (1)			2.35				3.00				4.87
Finished goods turnover, excluding POS inventory (2)			4.42				5.23				N/A
Return on equity (3)			4.3	%			17.8	%			15.1	%

     Following is our results of operation, reflected as a percentage of net sales:

		Fiscal Year Ended March 31,
		2006				2005				2004
Net Sales			100.0	%			100.0	%			100.0	%
Cost of Goods Sold			76.6	%			70.4	%			73.4	%
Gross Profit			23.4	%			29.6	%			26.6	%
General and Administrative Expenses			13.2	%			12.0	%			11.9	%
Sales and Marketing Expenses			3.3	%			2.9	%			2.5	%
Research and Development			1.1	%			0.8	%			0.7	%
Operating Income			5.8	%			13.9	%			11.5	%
Interest Expense, net of Interest Income			2.7	%			1.8	%			1.2	%
Income Before Income Taxes			3.1	%			12.1	%			10.3	%
Provision for Income Tax			1.2	%			4.6	%			3.6	%
Net Income			1.9	%			7.5	%			6.7	%

Fiscal 2006 compared to Fiscal 2005

     Net Sales. Gross sales in fiscal 2006 increased by approximately $24,179,000 or 18.2% primarily due to the ramp up in sales to one of the largest automobile manufacturers that distributes our products directly to the professional installer market. Gross sales also increased due to an increase of $2,295,000 in revenue from unreturned cores and an increase in royalty income of $281,000. The stock adjustment and other returns which offset gross sales increased $1,238,000 due primarily to the increase in gross sales in fiscal 2006 over fiscal 2005. For fiscal 2006 and 2005, we recorded a reduction in gross sales of $18,620,000 and $11,996,000 respectively attributable to discounts and allowances. The increase of $6,624,000 or 55.2% in fiscal 2006 over fiscal 2005 included $4,094,000 of front loaded marketing allowances we provided for new business from several of our customers. The remainder of the increase in discounts and allowances was due to the impact of increased unit sales on existing discount programs and additional short term discounts that we provided to respond to continuing competitive pressures. As a result of these factors, net sales for fiscal 2006 increased $11,678,000 or 12.1% to $108,397,000 over the net sales for fiscal 2005 of $96,719,000.

     Cost of Goods Sold. Cost of goods sold as a percentage of net sales increased to 76.6% in fiscal 2006 from 70.4% in fiscal 2005 causing a decrease in the gross profit percentage to 23.4% in fiscal 2006 from 29.6% in fiscal 2005. Approximately 4.3% of the decrease in the gross profit percentage resulted from the $6,565,000 increase in discounts and allowances, which reduce reported sales but do not impact the cost of goods associated with those sales. In addition, facility start-up costs of $699,000 related to our new production location in Tijuana, Mexico and our new distribution center in Nashville, Tennessee contributed to this decrease. These decreases were partially offset by higher unreturned core revenue, which has a higher margin than unit sales, and higher royalty income, which has no associated cost of sales.

     General and Administrative. Our general and administrative expenses increased to $14,337,000 for fiscal 2006 from $11,622,000 for fiscal 2005. This $2,715,000 and 23.4% increase is due to increases in the outside professional and consulting fees of approximately $364,000 associated with the SEC’s review of our SEC filings and the related restatement of our financial statements, administrative start-up costs of approximately $716,000 related to our new production location in Tijuana, Mexico and our new distribution center in Nashville, Tennessee, consulting fees of approximately $300,000 incurred to satisfy the requirements of the Sarbanes-Oxley Act of 2002, and increases in headcount to strengthen the administrative departments and support the additional sales volume. These increases were partially offset by a $188,000 decrease in the expenses associated with our indemnification of Richard Marks, a former officer, in connection with the SEC’s and the United States Attorney’s investigation of him.

     Sales and Marketing. Our sales and marketing expenses increased by $777,000 or 28.2% to $3,536,000 for fiscal 2006 from $2,759,000 for fiscal 2005. This increase is primarily attributable to increases in advertising costs from $87,000 in fiscal 2005 to $320,000 in fiscal 2006 and increases in staffing in the sales and marketing departments to support the increased sales volume and customer base and costs incurred in connection with the printing and electronic conversion of our product catalog.

     Research and Development. Our research and development expenses increased over the prior year by $398,000 or 47.6% to $1,234,000 for fiscal 2006 from $836,000 for fiscal 2005. This increase was attributable to personnel hired and the cost of personnel reassigned to assist with the research and development needs of our new and expanded business.

     Interest Expense. For fiscal 2006, interest expense, net of interest income, was $2,954,000. This represents an increase of $1,262,000 over net interest expense of $1,692,000 for fiscal 2005. This increase was principally attributable to an increase in the average outstanding loan balance on our line of credit and increases in short-term interest rates on both the line of credit and the accounts receivable we discounted under our factoring agreements. Interest expense is comprised principally of interest paid under our bank credit agreement, discounts recognized in connection with our receivables factoring arrangements and interest on our capital leases.

     Income Tax. For fiscal 2006 and 2005, we recognized income tax expense of $1,259,000 and $4,465,000, respectively. During fiscal 2006, we utilized all of our net operating loss carry forwards available for income tax purposes. As a result, we anticipate that our future cash flow will be more significantly impacted by our future tax payments.

Fiscal 2005 compared to Fiscal 2004

     Net Sales. Our net sales for fiscal 2005 were $96,719,000, an increase of $16,370,000 or 20.4 % over fiscal year 2004 net sales of $80,349,000. In addition to increased sales to existing customers, net sales was also positively impacted by a one-time refund of $1,673,000 resulting from a modified arrangement we entered into with a customer in August 2004 that terminated a discount arrangement. In addition, revenues from the under-return of cores by our customers, which are included in net sales, increased by $2,018,000 to $5,046,000 for fiscal year 2005 from $3,028,000 for fiscal 2004. The increase in sales was partially offset by the increase in all marketing allowances, which are accounted for as a reduction to sales, from $7,030,000 in fiscal 2004 to $11,996,000 in fiscal 2005.

     The increase in net sales for the year ended March 31, 2005, did not fully reflect the increased volume in products that we have shipped to our largest customer on a pay-on-scan (“POS”) basis. These shipments resulted in an increase in our pay-on-scan inventory from $2,346,000 at March 31, 2004 to $17,036,000 at March 31, 2005.

     Cost of Goods Sold. Cost of goods sold as a percentage of net sales decreased from 73.4% in fiscal 2004 to 70.4% in fiscal 2005. This percentage was positively impacted by the one-time refund of $1,673,000 noted above, for which there was no cost of goods sold, and higher revenues from core under-returns, which have a higher margin than unit sales. Also, our production in Malaysia increased from 9% of total units produced in fiscal 2004 to 15% of total units produced in fiscal 2005. Because overseas remanufacturing has lower production costs compared to domestic production, this increase in overseas production helped reduce our cost of goods sold as a percentage of net sales during fiscal 2005 compared to fiscal 2004. These positive developments were partially offset by higher per unit remanufacturing costs associated with the ramped up production at our Torrance facility that was made to meet demands associated with the new business we received.

     General and Administrative. Our general and administrative expense for fiscal 2005 was $11,622,000, which represents an increase of $1,993,000 or 20.7%, from fiscal 2004 of $9,629,000. This increase is principally due to an increase of $1,310,000 in outside professional and consulting fees associated with the SEC’s review of our SEC filings and the related restatement of our financial statements, an increase of approximately $809,000 primarily related to higher staffing levels required by new corporate initiatives, approximately $694,000 in expenses we incurred in fiscal 2005 to establish our remanufacturing facility in Mexico, an increase of $140,000 related to the information technology and operating system repairs and maintenance, and approximately $137,000 primarily related to the acquisition of additional software licenses. These increases were partially offset by a $410,000 decrease in the expenses associated with our indemnification of Richard Marks, a former officer, in connection with the SEC’s and the U.S. Attorney’s investigations of him. In addition, fiscal 2004 included a $400,000 contract settlement payment to Richard Marks, who at the request of the Board of Directors, submitted his resignation as an Advisor to the Board and the Chief Executive Officer in September 2003.

     Sales and Marketing. Our sales and marketing expenses increased by $782,000 or 39.6% to $2,759,000 for fiscal 2005 from $1,977,000 for fiscal 2004. This increase is principally attributable to costs incurred in connection with various marketing initiatives undertaken to strengthen our overall market presence and increase our sales to both the retailers and the traditional warehouse market. These initiatives included an update to, and electronic conversion of, our product catalog, and the development of an interactive website for consumer use. In addition, in November 2003 we hired a new senior sales executive, and related support staff, to target the traditional warehouse market. Though the traditional marketplace now represents only a small portion of our business, management believes the traditional channels represent a growth opportunity for us.

     Research and Development. Our research and development expenses increased over the year by $271,000 or 48.0% to $836,000 for fiscal 2005 from $565,000 for fiscal 2004. This increase was primarily attributable to personnel hired to assist with our expanded business.

     Interest Expense. For fiscal 2005, interest expense, net of interest income, was $1,692,000. This represents an increase of $761,000 over net interest expense of $931,000 for fiscal 2004. This increase was principally attributable to an increase in short-term interest rates and an increase of $32,220,000 in the amount of accounts receivables that we discounted under our factoring arrangements. This increase was offset by the payoff of the outstanding loan balance under our line of credit in the first quarter of fiscal 2005. Our outstanding loan balance under this line of credit was $3,000,000 as of March 31, 2004. Interest expense is comprised principally of discounts recognized in connection with our receivables discounting arrangements, interest on our line of credit facility and capital leases.

     Income Tax. For fiscal 2005 and 2004, we recognized income tax expense of $4,465,000 and $2,901,000, respectively. At March 31, 2005, we had available $2,509,000 of federal carry forwards for income tax purposes.

Liquidity and Capital Resources

     We have financed our operations through cash flows from operating activities, the receivable discount programs we have established with two of our customers, a capital financing sale-leaseback transaction with our bank, and the use of our bank credit facility. Our working capital needs have increased significantly in light of the ramped up production demands associated with our new or expanded customer arrangements and the adverse impact that the marketing and other allowances that we have typically granted our customers in connection with these new or expanded relationships have on the near-term revenues and associated cash flow from these arrangements. Since the sales program to one of the world’s largest automobile manufacturers under an agreement we signed with this customer during the fourth quarter of fiscal 2005 was not fully launched in the expected timeframe, the inventory buildup we made in connection with this new agreement put an additional strain on our working capital. Because our net operating loss carry forwards for tax purposes have been utilized, we anticipate that our future cash flow will be negatively impacted by our future tax payments. In addition, the costs associated with the establishment of our Mexican facility and the related remanufacturing inefficiencies and duplicative overhead have put an additional strain on our cash position. Finally while our cash position did benefit from the way in which the purchase of the transition inventory associated with our POS arrangement has been structured, as anticipated, satisfaction of the credit due the customer through the issuance of credits against that customer’s receivables has most recently had a negative impact on our cash flow. Although we cannot provide assurance, we believe our cash and short term investments on hand, cash flows from operations and the availability under our bank credit facility will be sufficient to satisfy our currently expected working capital needs, capital lease commitments and capital expenditure obligations over the next year. We may however, seek additional financing to pursue future business opportunities.

Working Capital and Net Cash Flow

     At March 31, 2006, we had working capital of $46,430,000, a ratio of current assets to current liabilities of 2.1:1 and cash and cash equivalents of $400,000, which compares to working capital of $44,266,000, a ratio of current assets to current liabilities of 2.26:1, and cash and cash equivalents of $6,211,000 at March 31, 2005. Working capital increased primarily due to increases in inventory and unreturned inventory of $15,752,000 and a decrease in credit due customer of $10,750,000 offset by decreases in cash of $5,811,000 and increases in the line of credit of $6,300,000 and accounts payable and accrued liabilities of $8,750,000.

     Our net cash used in operating activities was $11,040,000 for fiscal 2006, compared to net cash provided by operations of $4,447,000 for fiscal 2005. The decrease of $15,487,000 from 2005 to 2006 was primarily due to the impact of the POS arrangement on our cash flow. When the arrangement began, the sales of transition inventory exceeded the amount of the credits provided to the customer and resulted in a net cash inflow of $12,543,000 in fiscal 2005. As sales of transition inventory dropped the amount of credits provided to the customer exceeded these sales and resulted in a net cash outflow of $10,750,000 in fiscal 2006. Cash flow from operating activities was also impacted by the decline in our net income from $7,281,000 in fiscal 2005 to $2,085,000 in fiscal 2006.

     Inventory was notably impacted by our new long term customer arrangements. Inventory increased by a total of $10,143,000 principally due to increased production to meet the product availability requirements of the new business we obtained during the current fiscal year.

     Net accounts receivable decreased by $760,000 as of March 31, 2006 compared to March 31, 2005. The decrease was primarily due to the increases in reserves for stock adjustments and other customer allowances which are netted against accounts receivable.

     The increase in our line of credit of $6,300,000 was largely incurred to finance our satisfaction of the POS transition inventory arrangement discussed above.

     Accounts payable at March 31, 2006 were $21,882,000 compared to $14,502,000 at March 31, 2005. The $7,380,000 increase in accounts payable is consistent with our increased production in fiscal 2006 to meet the increased sales volumes and the product availability requirements of the new business we realized during fiscal 2006.

     Our utilization of federal and state net operating loss carry forwards positively impacted our cash flow by $612,000 during fiscal 2006. At March 31, 2006, we had no remaining net operating loss carry forwards. Because our net operating loss carry forwards for tax purposes have now been fully utilized, we anticipate that our future cash flow will be more significantly impacted by our future tax payments.

     We used net cash in investing activities for fiscal 2006, 2005 and 2004. In fiscal 2006, we obtained net cash from a capital lease agreement with our bank. This agreement provided us with $4,110,000 of equipment financing, payable in monthly installments of $81,000 over the 60 month term of the lease agreement, with a one dollar purchase option at the end of the lease term. This financing arrangement has an effective interest rate of 6.75%. The proceeds were used to pay down the line of credit, which was the source of cash for capital expenditures of $4,372,000 during fiscal 2006. We expect to use cash in investing activities for the foreseeable future.

     Our net cash in flows from financing activity for fiscal 2006 consisted primarily of borrowings under our line of credit totaling $6,300,000 and proceeds from the exercise of stock options of $286,000. These inflows were offset by payments on our capital lease obligations of $1,002,000.

Capital Resources

Line of Credit

     In April 2006, we entered into an amended credit agreement with our bank that increased our credit availability from $15,000,000 to $25,000,000, extended the expiration date of the credit facility from October 2, 2006 to October 1, 2008, and changed the manner in which the margin over the benchmark interest rate is calculated. Starting June 30, 2006, the interest rate will fluctuate based upon the (i) bank’s reference rate or (ii) LIBOR, as adjusted to take into account any bank reserve requirements, plus a margin dependant upon the leverage ratio as noted below:

		Leverage ratio as of the end of the fiscal quarter
		Greater than or
Base Interest Rate Selected by Borrower		equal to 1.50 to 1.00				Less than 1.50 to 1.00
Banks Reference Rate, plus		0.0% per year				-0.25% per year
Bank’s LIBOR Rate, plus		2.0% per year				1.75% per year

     The bank holds a security interest in substantially all of our assets. As of March 31, 2006, we had reserved $4,364,000 of our line for standby letters of credit for worker’s compensation insurance, and $6,300,000 was outstanding under this revolving line of credit.

     The credit agreement as amended includes various financial conditions, including minimum levels of tangible net worth, cash flow, fixed charge coverage ratio, maximum leverage ratios and a number of restrictive covenants, including prohibitions against additional indebtedness, payment of dividends, pledge of assets and capital expenditures as well as loans to officers and/or affiliates. In addition, it is an event of default under the loan agreement if Selwyn Joffe is no longer our CEO.

     Under the amended credit agreement, we have also agreed to pay a quarterly fee, commencing on June 30, 2006 of 0.375% per year if the leverage ratio as of the last day of the previous fiscal quarter was greater than or equal to 1.50 to 1.00 or 0.25% per year if the leverage ratio is less than 1.50 to 1.00 as of the last day of the previous fiscal quarter on any difference between the $25,000,000 commitment and the average of the daily outstanding amount of credit we actually use during each quarter. A fee of $125,000 was charged by the bank in connection with the amendment. The fee is payable in three installments of $41,666, one on the date of the amendment to the credit agreement, one on or before February 1, 2007 and one on or before February 1, 2008.

As of March 31, 2006, we were in default under our loan agreement for failing to maintain a fixed charge coverage ratio of not less than 1.50 to 1.00 as of the last day of the fiscal quarter. On February 12, 2007, the bank provided us with a waiver of this covenant default.

Receivable Discount Program

     Our liquidity has been positively impacted by receivable discount programs we have established with two of our customers. Under this program, we have the option to sell the customers’ receivables to their respective banks at an agreed upon discount set at the time the receivables are sold. The discount has averaged 3.1% during fiscal 2006 and has allowed us to accelerate collection of receivables aggregating $77,683,000 by an average of 189 days. On an annualized basis, the weighted average discount rate on receivables sold to banks during fiscal 2006 was 5.9%. While this arrangement has reduced our working capital needs, there can be no assurance that it will continue in the future. These programs resulted in interest costs of $2,292,000 during fiscal 2006. These interest costs will increase as interest rates rise and as our customers increase their utilization of this discounting arrangement.

Multi-year Vendor Agreements

     We significantly expanded our production during fiscal 2006 to meet our obligations arising under our multi-year vendor agreements. This increased production caused significant increases in our inventories, accounts payable and employee base. With respect to merchandise covered by the pay-on-scan arrangement with our largest customer, the customer is not obligated to purchase the goods we ship to it until that merchandise is purchased by one of its customers. While this arrangement will defer recognition of income from sales to this customer, we do not believe it will ultimately have an adverse impact on our liquidity. In addition, although the significant marketing allowances we have provided our customers as part of these multi-year agreements meaningfully limit the near-term revenues and associated cash flow from these new or expanded arrangements, we believe this incremental business will improve our overall liquidity and cash flow from operations over time.

     As part of our POS arrangement with our largest customer, we agreed to purchase the customer’s inventory of alternators and starters that is being transitioned to a POS basis. The customer is paying us the proceeds from its POS sale of this transition inventory, and we paid for this inventory through the issuance of monthly credits to this customer, that ended in April 2006. Because we collected cash for the transition inventory before we issued the monthly credits to purchase this inventory during the initial phase of this arrangement, this transaction helped finance our inventory build-up to meet production requirements. As anticipated, satisfaction of the credit due customer through the issuance of credits against that customer’s receivables has had a negative impact on our cash flow. While we did not record the approximately $24,000,000 of transition inventory that we purchased or the associated payment liability on our balance sheet, the accounting treatment that we have adopted to account for this purchase resulted in a net liability to this customer of $1,793,000 at March 31, 2006.

     In the fourth quarter of fiscal 2005, we entered into a five-year agreement with one of the largest automobile manufacturers in the world to supply this manufacturer with a new line of remanufactured alternators and starters for the United States and Canadian markets. We have expanded our operations and built-up our inventory to meet the requirements of this contract and have incurred certain transition costs associated with this build-up. As part of the agreement, we agreed to grant this customer $6,000,000 of credits that are being issued as sales to this customer are made. Of the total credits, $3,600,000 was issued during fiscal 2006 and the remaining $2,400,000 is scheduled to be issued in annual payments of $600,000 from fiscal 2007 to fiscal 2010. The agreement also contains other typical provisions, such as performance, quality and fulfillment requirements that we must meet, a requirement that we provide marketing support to this customer and a provision (standard in this manufacturer’s vendor agreements) granting the manufacturer the right to terminate the agreement at any time for any reason. Our cash flow has been adversely impacted by the operational steps we have taken and the marketing allowances we agreed to in order to respond to this opportunity. In addition, sales to this customer during the initial term of this agreement have been below expectations. As a result, the inventory buildup we made in connection with this new agreement has put an additional strain on our working capital. We believe, however, that this new business will improve our overall liquidity over time.

     In March 2005, we entered into a new agreement with one of our major customers. As part of this agreement, our designation as this customer’s exclusive supplier of remanufactured import alternators and starters was extended from February 28, 2008 to December 31, 2012. In addition to customary promotional allowances, we agreed to acquire the customer’s import alternator and starter core inventory by issuing $10,300,000 of credits over a five year period subject to adjustment if our sales to the customer decrease in any quarter by more than an agreed upon percentage. The customer is obligated to repurchase from us the cores in the customer’s inventory upon termination of the agreement for any reason.

     We have long-term agreements with each of our major customers. Under these agreements, which typically have initial terms of at least four years, we are designated as the exclusive or primary supplier for specified categories of remanufactured alternators and starters. In consideration for our designation as a customer’s exclusive or primary supplier, we typically provide the customer with a package of marketing incentives. These incentives differ from contract to contract and can include (i) the issuance of a specified amount of credits against receivables in accordance with a schedule set forth in the relevant contract, (ii) support for a particular customer’s research or marketing efforts that can be provided on a scheduled basis, (iii) discounts that are granted in connection with each individual shipment of product and (iv) other marketing, research, store expansion or product development support. We have also entered into agreements to purchase certain customers’ core inventory and to issue credits to pay for that inventory according to an agreed upon schedule set forth in the agreement. These contracts typically require that we meet ongoing performance, quality and fulfillment requirements, and our contract with one of the largest automobile manufacturers in the world includes a provision (standard in this manufacturer’s vendor agreements) granting the manufacturer the right to terminate the agreement at any time for any reason. Our contracts with major customers expire at various dates ranging from May 2008 through December 2012.

     Our customers continue to aggressively seek extended payment terms, pay-on-scan inventory arrangements, significant marketing allowances, price concessions and other terms adversely affecting our liquidity and reported operating results.

Capital Expenditures and Commitments

     Our capital expenditures were $5,937,000 for fiscal 2006. Approximately $3,043,000 of these expenditures related to our Mexico production facility, with the remainder for recurring capital expenditures.

Contractual Obligations

     The following summarizes our contractual obligations and other commitments as of March 31, 2006, and the effect such obligations could have on our cash flow in future periods:

		Payments due by period
						Less than												More than
Contractual Obligations		Total				1 year				1-3 years				3-5 years				5 years
Long-Term Debt Obligation			—				—				—				—				—
Capital (Finance) Lease Obligations		$	7,291,000			$	1,874,000			$	3,403,000			$	2,014,000				—
Operating Lease Obligations		$	15,636,000			$	2,268,000			$	1,723,000			$	1,591,000			$	10,054,000
Purchase Obligations		$	13,518,000			$	6,491,000			$	4,736,000			$	2,175,000			$	116,000
Other Long-Term Obligations		$	11,675,000			$	3,041,000			$	4,511,000			$	3,178,000			$	945,000
Total		$	48,120,000			$	13,674,000			$	14,373,000			$	8,958,000			$	11,115,000

     Capital Lease Obligations represent amounts due under finance leases of various types of machinery and computer equipment that are accounted for as capital leases.

     Operating Lease Obligations represent amounts due for rent under our leases for office and warehouse facilities in California, Tennessee, Malaysia, Singapore and Mexico.

     Purchase Obligations represent our obligation to issue credits to (i) a large customer for the acquisition of transition inventory from that customer and (ii) another large customer for the acquisition of that customer’s core inventory.

     Other Long-Term Obligations represent commitments we have with certain customers to provide marketing allowances in consideration for supply agreements to provide products over a defined period.

Recent Accounting Pronouncements

     In November 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4” (FAS 151). This Statement adopts the International Accounting Standard Board’s (IASB) view that abnormal amounts of idle capacity and spoilage costs should be excluded from the cost of inventory and expensed when incurred. Additionally, the FASB made the decision to clarify the meaning of the term “normal capacity”. The provisions of FAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15, 2005. We believe this new pronouncement may apply due to our transition of production to offshore locations, but management cannot currently quantify the impact, if any, on our financial statements in future periods.

     In December 2004, the FASB issued the revised Statement No. 123R “Accounting for Stock Based Compensation” (FAS 123R), which addressed the requirement for expensing the cost of employee services received in exchange for an award of an equity

instrument. FAS 123R will apply to all equity instruments awarded, modified or repurchased for fiscal years beginning after June 15, 2005. In April 2005, the SEC adopted a new rule amending the compliance dates for FAS 123R. In accordance with this rule, we will be adopting FAS 123R effective April 1, 2006 using the modified prospective adoption method. We did not modify the terms of any previously granted options in anticipation of the adoption of FAS 123R. We expect the application of the expensing provisions of FAS 123R to result in a pretax compensation expense of approximately $461,000 in fiscal 2007 based on the future vesting schedules of current stock based compensation grants and adjusted for estimated cancellations or forfeitures based on our historical rate for such occurrences.

Item 9A Controls and Procedures

     In connection with the preparation and filing of this amended Annual Report, we completed an evaluation of the effectiveness of our disclosure controls and procedures under the supervision and with the participation of our chief executive officer and chief financial officer. This evaluation was conducted as of the end of the period covered by this amended report, pursuant to the Securities and Exchange Act of 1934, as amended.

     Based on this evaluation, our chief executive officer and chief financial officer concluded that there remain certain deficiencies we consider to be material weaknesses in our disclosure controls and procedures as of the end of the period covered by this report, notwithstanding the improvements we have made in this regard. These deficiencies are discussed below.

     Because we receive a critical remanufacturing component through customer returns and we offer marketing allowances and other incentives that impact revenue recognition, we recognize that the accounting for our operations is more complex than that for many businesses of our size or larger. In addition, the expansion of our overseas operations and the increase in our overall level of activity have put additional strains on our system of disclosure controls and procedures. To address this, we have added an experienced new chief financial officer and a new controller to help assure that we remain current with the relevant accounting literature and official pronouncements and that our disclosure controls and procedures remain effective and up-to-date. Our chief financial officer regularly reviews our accounting controls and procedures to identify and address areas where these controls could be improved.

     During the review of our financial statements for the three and six months ended September 30, 2006, Grant Thornton LLP, our independent auditing firm, notified our Audit Committee and management that they had identified material weaknesses in our internal controls. Grant Thornton noted that (i) we incorrectly recorded a duplicative entry that continued to recognize a gross profit impact resulting from the accrual for certain cores authorized to be returned, but still in-transit to us from our customers, (ii) we incorrectly recorded core charge revenue when the amount of revenue was not fixed and determinable and (iii) we did not appropriately accrue losses for all probable customer payment discrepancies. We believe these errors were mainly attributable to the use of numerous complex spreadsheets and top side adjustments to close the general ledger and prepare financial statements for quarterly and annual reporting periods. The Company’s current staffing levels are not sufficient to fully review all these spreadsheets for accuracy, data integrity and logic.

     As part of our current evaluation of the effectiveness of our disclosure controls and procedures under the supervision and with the participation of our chief executive officer and chief financial officer, we undertook a review of our accounting policies and procedures and the relevant accounting literature and pronouncements, and considered Grant Thornton’s views in this regard, together with our own observations. Based upon this evaluation, we have concluded that there is a material weakness in our disclosure controls and procedures, as summarized above.

     In an on-going effort to remedy these weaknesses, we have increased the active participation of our Audit Committee in the evaluation of our accounting policies and disclosure controls. We have hired additional accounting staff to strengthen the Company’s ability to review the complex spreadsheets, the general ledger close process and assist in the preparation of financial statements. We believe these changes to our disclosure controls and procedures and the ones discussed above will be adequate to provide reasonable assurance that the objectives of these control systems will be met.

     Except as noted in the preceding paragraphs, there have been no changes in our internal control, over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect financial reporting.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

  a. Documents filed as part of this report:

     (1) Index to Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm			F-1
Consolidated Balance Sheets			F-2
Consolidated Statements of Operations			F-3
Consolidated Statement of Shareholders’ Equity			F-4
Consolidated Statements of Cash Flow			F-5
Notes to Consolidated Financial Statements			F-6
(2) Schedules.
Schedule II — Valuation and Qualifying Accounts			F-31

     (3) Exhibits:

Number				Description of Exhibit		Method of Filing
	3.1			Certificate of Incorporation of the Company		Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 declared effective on March 22, 1994 (the “1994 Registration Statement.”)
	3.2			Amendment to Certificate of Incorporation of the Company		Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (No. 33-97498) declared effective on November 14, 1995 (the “1995 Registration Statement”)
	3.3			Amendment to Certificate of Incorporation of the Company		Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997 (the “1997 Form 10-K”)
	3.4			Amendment to Certificate of Incorporation of the Company		Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the “1998 Form 10-K”)
	3.5			Amendment to Certificate of Incorporation of the Company		Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on November 25, 2003.
	3.6			By-Laws of the Company		Incorporated by reference to Exhibit 3.2 to the 1994 Registration Statement.
	4.1			Specimen Certificate of the Company’s Common Stock		Incorporated by reference to Exhibit 4.1 to the 1994 Registration Statement.
	4.2			Form of Underwriter’s Common Stock Purchase Warrant		Incorporated by reference to Exhibit 4.2 to the 1994 Registration Statement.
	4.3			1994 Stock Option Plan		Incorporated by reference to Exhibit 4.3 to the 1994 Registration Statement.
	4.4			Form of Incentive Stock Option Agreement		Incorporated by reference to Exhibit 4.4. to the 1994 Registration Statement.

Number				Description of Exhibit		Method of Filing
	4.5			1994 Non-Employee Director Stock Option Plan		Incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-KSB for the fiscal year ended March 31, 1995.
	4.6			1996 Stock Option Plan		Incorporated by reference to Exhibit 4.6 to the Company’s Registration Statement on Form S-2 (No. 333-37977) declared effective on November 18, 1997 (the “1997 Registration Statement”).
	4.7			Rights Agreement, dated as of February 24, 1998, by and between the Company and Continental Stock Transfer and Trust Company, as rights agent		Incorporated by reference to Exhibit 4.8 to the 1998 Registration Statement.
	4.8			2003 Long Term Incentive Plan		Incorporated by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 filed with the SEC on April 2, 2004.
	4.9			2004 Non-Employee Director Stock Option Plan		Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders Meeting.
	10.1			Amendment to Lease, dated October 3, 1996, by and between the Company and Golkar Enterprises, Ltd. relating to additional property in Torrance, California		Incorporated by reference to Exhibit 10.17 to the December 31, 1996 Form 10-Q.
	10.2			Lease Agreement, dated September 19, 1995, by and between Golkar Enterprises, Ltd. and the Company relating to the Company’s facility located in Torrance, California		1997 Form 10-K. Incorporated by reference to Exhibit 10.18 to the 1995 Registration Statement.
	10.3			Agreement and Plan of Reorganization, dated as of April 1, 1997, by and among the Company, Mel Marks, Richard Marks and Vincent Quek relating to the acquisition of MVR and Unijoh		Incorporated by reference to Exhibit 10.22 to the 1997 Form 10-K.
	10.4			Form of Indemnification Agreement for officers and directors		Incorporated by reference to Exhibit 10.25 to the 1997 Registration Statement.
	10.5			Warrant to Purchase Common Stock, dated April 20, 2000, by and between the Company and Wells Fargo Bank, National Association		Incorporated by reference to Exhibit 10.29 to the 2001 10-K.
	10.6			Amendment No. 1 to Warrant dated May 31, 2001, by and between the Company and Wells Fargo Bank, National Association		Incorporated by reference to Exhibit 10.32 to the 2001 10-K.
	10.7			Form of Employment Agreement dated February 14, 2003 by and between the Company and Selwyn Joffe.		Incorporated by reference to Exhibit 10.42 to the 2003 10-K.
	10.8			Letter Agreement dated July 17, 2002 by and between the Company and Houlihan Lokey Howard & Zukin Capital.		Incorporated by reference to Exhibit 10.43 to the 2003 10-K.
	10.9			Second Amendment to Lease dated March 15, 2002 between Golkar Enterprises, Ltd. and the Company relating to property in Torrance, California		Incorporated by reference to Exhibit 10.44 to the 2003 10-K.
	10.10			Separation Agreement and Release, dated February 14, 2003, between the Company and Anthony Souza		Incorporated by reference to Exhibit 10.45 to the 2003 10-K.

Number				Description of Exhibit		Method of Filing
	10.11			Employment Agreement, dated April 1, 2003 between the Company and Charles Yeagley.		Incorporated by reference to Exhibit 10.46 to the 2003 10-K.
	10.12			Form of Warrant Cancellation Agreement and Release, dated April 30, 2003, between the Company and Wells Fargo Bank, N.A.		Incorporated by reference to Exhibit 10.47 to the 2003 10-K.
	10.13			Form of Agreement, dated June 5, 2002, by and between the Company and Sun Trust Bank.		Incorporated by reference to Exhibit 10.38 to the 2002 10-K.
	10.14			Credit Agreement, dated May 28, 2004, between the Company and Union Bank of California, N.A.		Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2004 (the “2004 10-K”).
	10.15*			Addendum to Vendor Agreement, dated May 8, 2004, between AutoZone Parts, Inc. and the Company.		Incorporated by reference to Exhibit 10.15 to the 2004 10-K.
	10.16			Employment Agreement, dated November 1, 2003, between the Company and Bill Laughlin.		Incorporated by reference to Exhibit 10.16 to the 2004 10-K.
	10.17			Form of Orbian Discount Agreement between the Company and Orbian Corp.		Incorporated by reference to Exhibit 10.17 to the 2004 10-K.
	10.18			Form of Standard Industrial/Commercial Multi-Tenant Lease, dated May 25, 2004, between the Company and Golkar Enterprises, Ltd for property located at 530 Maple Avenue, Torrance, California.		Incorporated by reference to Exhibit 10.18 to the 2004 10-K.
	10.19			Stock Purchase Agreement, dated February 28, 2001 between the Company and Mel Marks.		Incorporated by reference to Exhibit 99.2 to Form 8-K filed with the SEC on March 29, 2001.
	10.20			Build to Suit Lease Agreement, dated October 28, 2004, among Motorcar Parts de Mexico, S.A. de CV, the Company and Beatrix Flourie Geoffroy.		Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on November 2, 2004.
	10.21			Amendment No. 1 to Employment Agreement, dated April 19, 2004, between the Company and Selwyn Joffe.		Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on April 25, 2005.
	10.22			Third Amendment to Credit Agreement dates as of April 10, 2006 between Motorcar Parts of America, Inc. and Union Bank of California, N.A		Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on April 24, 2006
	10.23			Revolving Note dated as of April 10, executed by Motorcar Parts of America. Inc and Union Bank of California. N.A.		Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on April 24, 2006
	10.24			Settlement Agreement and Mutual Release, Secured Promissory Note and Stock Pledge Agreement all dated June 26, 2006, between the Company and Mr. Richard Marks		Incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed on June 28, 2006
	14.1			Code of Business Conduct and Ethics		Incorporated by reference to Exhibit 10.48 to the 2003 10-K.
	18.1			Preferability Letter to the Company from Grant Thornton LLP		Incorporated by reference to Exhibit 18.1 to the 2001 10-K.
	21.1			List of Subsidiaries		Filed herewith.
	31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.		Filed herewith.

Number				Description of Exhibit		Method of Filing
	31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.		Filed herewith.
	32.1			Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.		Filed herewith

SIGNATURES

     Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K/A has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated:

/s/ Selwyn Joffe   Selwyn Joffe		Chief Executive Officer and Director (Principal Executive Officer)		February 12, 2007
/s/ Mervyn McCulloch   Mervyn McCulloch		Chief Financial Officer (Principal Financial and Accounting Officer)		February 12, 2007
/s/ Mel Marks   Mel Marks		Director		February 12, 2007
/s/ Rudolph Borneo   Rudolph Borneo		Director		February 12, 2007
/s/ Philip Gay   Philip Gay		Director		February 12, 2007
/s/ Irv Siegel   Irv Siegel		Director		February 12, 2007

MOTORCAR PARTS OF AMERICA, INC
AND SUBSIDIARIES

March 31, 2006, 2005 and 2004

CONTENTS

		Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			F-1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS			F-2
CONSOLIDATED STATEMENTS OF OPERATIONS			F-3
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY			F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS			F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			F-6
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS			F-31

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Motorcar Parts of America, Inc.

We have audited the accompanying consolidated balance sheets of Motorcar Parts of America, Inc. and Subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Motorcar Parts of America, Inc. and Subsidiaries as of March 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is presented for purposes of additional analysis and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

As discussed in Note B, the accompanying consolidated financial statements have been restated.

/s/ Grant Thornton LLP

Los Angeles, California
June 28, 2006 (except for Note B, as to which the date is February 2, 2007)

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Restated)
March 31,

		2006				2005
ASSETS
Current Assets:
Cash and cash equivalents		$	400,000			$	6,211,000
Short term investments			660,000				503,000
Accounts receivable, net of allowance for doubtful accounts of $26,000 and $20,000 in 2006 and 2005, respectively			13,902,000				14,911,000
Inventory — net			57,881,000				47,335,000
Deferred income tax asset			5,809,000				6,378,000
Inventory unreturned			8,171,000				2,562,000
Prepaid expenses and other current assets			918,000				1,365,000
Total current assets			87,741,000				79,265,000
Plant and equipment — net			12,164,000				5,483,000
Other assets			1,231,000				899,000
TOTAL ASSETS		$	101,136,000			$	85,647,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	21,882,000			$	14,502,000
Accrued liabilities			1,587,000				1,378,000
Accrued salaries and wages			2,267,000				2,235,000
Accrued workers’ compensation claims			3,346,000				2,217,000
Income tax payable			1,021,000				1,036,000
Line of credit			6,300,000				—
Deferred compensation			495,000				450,000
Deferred income			133,000				133,000
Other current liabilities			988,000				89,000
Credit due customer			1,793,000				12,543,000
Current portion of capital lease obligations			1,499,000				416,000
Total current liabilities			41,311,000				34,999,000
Deferred income, less current portion			388,000				521,000
Deferred income tax liability			562,000				519,000
Deferred gain on sale-leaseback			2,377,000				—
Other liabilities			46,000				—
Capital lease obligations, less current portion			4,857,000				938,000
Total liabilities			49,541,000				36,977,000
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, 20,000,000 shares authorized; 8,316,105 and 8,183,955 shares issued and outstanding at March 31, 2006 and 2005, respectively			83,000				82,000
Additional paid—in capital			54,326,000				53,627,000
Accumulated other comprehensive gain (loss)			85,000				(55,000	)
Accumulated deficit			(2,899,000	)			(4,984,000	)
Total shareholders’ equity			51,595,000				48,670,000
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY		$	101,136,000			$	85,647,000

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

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Restated)
Year Ended March 31,

		2006				2005				2004
Net sales		$	108,397,000			$	96,719,000			$	80,349,000
Cost of goods sold			82,992,000				68,064,000				58,946,000
Gross profit			25,405,000				28,655,000				21,403,000
Operating expenses:
General and administrative			14,337,000				11,622,000				9,629,000
Sales and marketing			3,536,000				2,759,000				1,977,000
Research and development			1,234,000				836,000				565,000
Total operating expenses			19,107,000				15,217,000				12,171,000
Operating income			6,298,000				13,438,000				9,232,000
Other (expense) income
Interest expense			(2,974,000	)			(1,794,000	)			(968,000	)
Interest income			20,000				102,000				37,000
Income before income tax expense			3,344,000				11,746,000				8,301,000
Income tax expense			1,259,000				4,465,000				2,901,000
Net income		$	2,085,000			$	7,281,000			$	5,400,000
Basic income per share		$	0.25			$	0.89			$	0.67
Diluted income per share		$	0.25			$	0.85			$	0.64
Weighted average shares outstanding:
Basic			8,251,319				8,151,459				8,023,228
Diluted			8,483,323				8,599,969				8,388,129

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

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders’ Equity (Restated)
For the years ended March 31, 2006, 2005 and 2004

														Accumulated
										Additional				Other
		Common Stock								Paid-in				Comprehensive				Accumulated								Comprehensive
		Shares				Amount				Capital				Income (Loss)				Deficit				Total				Income
Balance at March 31, 2003			7,960,455			$	80,000			$	53,126,000			$	(107,000	)		$	(18,189,000	)		$	34,910,000
Net effect of in-transit core adjustment																			865,000				865,000
Balance at March 31, 2003, as adjusted			7,960,455				80,000				53,126,000				(107,000	)			(17,324,000	)		$	35,775,000
Purchase and cancellation of warrants and options			—				—				(372,000	)			—				(340,000	)			(712,000	)
Exercise of options			204,500				2,000				498,000				—				—				500,000
Tax benefit from employee stock options exercised			—				—				139,000				—				—				139,000
Purchase of common stock			(79,000	)			(1,000	)			(295,000	)			—				—				(296,000	)
Unrealized gain on investments			—				—				—				21,000				—				21,000			$	21,000
Foreign currency translation			—				—				—				8,000				—				8,000				8,000
Net Income			—				—				—				—				5,400,000				5,400,000				5,400,000
Comprehensive Income																										$	5,429,000
Balance at March 31, 2004			8,085,955				81,000			$	53,096,000				(78,000	)			(12,264,000	)			40,835,000
Exercise of options			98,000				1,000				290,000				—				—				291,000
Tax benefit from employee stock options exercised			—				—				241,000				—				—				241,000
Unrealized gain on investments			—				—				—				17,000				—				17,000			$	17,000
Foreign currency translation			—				—				—				6,000				—				6,000				6,000
Net Income			—				—				—				—				7,281,000				7,281,000				7,281,000
Comprehensive Income																										$	7,304,000
Balance at March 31, 2005			8,183,955				82,000				53,627,000				(55,000	)			(4,984,000	)			48,670,000
Exercise of options			132,150				1,000				285,000				—				—				286,000
Tax benefit from employee stock options exercised			—				—				414,000				—				—				414,000
Unrealized gain on investments			—				—				—				76,000				—				76,000			$	76,000
Foreign currency translation			—				—				—				64,000				—				64,000				64,000
Net Income			—				—				—				—				2,085,000				2,085,000				2,085,000
Comprehensive Income																										$	2,225,000
Balance at March 31, 2006			8,316,105			$	83,000			$	54,326,000			$	85,000			$	(2,899,000	)		$	51,595,000

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

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Restated)
Year Ended March 31,

		2006				2005				2004
Cash flows from operating activities:
Net income		$	2,085,000			$	7,281,000			$	5,400,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			2,180,000				1,932,000				2,369,000
Amortization of deferred gain on sale leaseback			(218,000	)			—				—
Provision for (recovery of) inventory reserves and stock adjustments			(159,000	)			812,000				2,566,000
Provision for doubtful accounts			6,000				6,000				13,000
Deferred income taxes			612,000				3,305,000				2,984,000
Tax benefit from employee stock options exercised			414,000				241,000				139,000
Loss on disposal of assets			—				6,000				—
Changes in:
Accounts receivable			760,000				(4,693,000	)			1,178,000
Inventory			(10,143,000	)			(22,328,000	)			(4,758,000	)
Prepaid income tax			—				172,000				(366,000	)
Inventory unreturned			(5,609,000	)			(112,000	)			(276,000	)
Prepaid expenses and other current assets			447,000				(180,000	)			(303,000	)
Other assets			(332,000	)			(130,000	)			338,000
Accounts payable and accrued liabilities			8,750,000				4,029,000				5,678,000
Income tax payable			(16,000	)			792,000				—
Deferred compensation			121,000				191,000				46,000
Deferred income			(133,000	)			554,000				100,000
Credit due customer			(10,750,000	)			12,543,000				—
Other liabilities			945,000				26,000				44,000
Net cash provided by (used in) operating activities			(11,040,000	)			4,447,000				15,152,000
Cash flows from investing activities:
Purchase of property, plant and equipment			(4,372,000	)			(2,549,000	)			(322,000	)
Proceeds from sale-leaseback transaction			4,110,000				—				—
Change in short term investments			(157,000	)			(199,000	)			(126,000	)
Net cash used in investing activities			(419,000	)			(2,748,000	)			(448,000	)
Cash flows from financing activities:
Net borrowings (payments) under the line of credit			6,300,000				(3,000,000	)			(6,932,000	)
Payments on capital lease obligations			(1,002,000	)			(411,000	)			(945,000	)
Repurchase of warrants and stock options			—				—				(1,008,000	)
Exercise of stock options			286,000				291,000				500,000
Net cash provided by (used in) financing activities			5,584,000				(3,120,000	)			(8,385,000	)
Effect of translation adjustment on cash			64,000				2,000				4,000
Net increase (decrease) in cash and cash equivalents			(5,811,000	)			(1,419,000	)			6,323,000
Cash and cash equivalents — beginning of year			6,211,000				7,630,000				1,307,000
Cash and cash equivalents — end of year		$	400,000			$	6,211,000			$	7,630,000
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest		$	2,885,000			$	1,795,000			$	968,000
Income taxes		$	30,000			$	59,000			$	253,000
Non-cash investing and financing activities:
Property acquired under capital lease		$	5,675,000			$	109,000			$	1,577,000

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

Note A — Company Background

Motorcar Parts of America, Inc. and its subsidiaries (the “Company” or “MPA”) remanufacture and distribute alternators and starters for import and domestic cars and light trucks. 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 the United States and Canada. The Company also sells after market replacement alternators and starters to a major automotive manufacturer.

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, warehousing and shipping/receiving operations for alternators and starters in California, Singapore, Malaysia, and Mexico. In addition, the Company has a warehouse distribution facility in Nashville, Tennessee and fee warehouse distribution centers in New Jersey and Oregon.

The Company changed its name to Motorcar Parts of America, Inc. from Motorcar Parts & Accessories, Inc. on January 8, 2004. The Company operates in one business segment pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of Enterprise and Related Information.”

Note B — Restatement of Financial Statements for the Fiscal Years Ended March 31, 2006, 2005 and 2004

The consolidated balance sheets as of March 31, 2006 and 2005, the consolidated statements of operations for the fiscal years ended March 31, 2006, 2005 and 2004, and the consolidated statements of cash flows for the fiscal years ended March 31, 2006, 2005 and 2004 have been restated to correct errors which occurred when (i) the Company incorrectly recorded a duplicative entry that continued to recognize a gross profit impact resulting from the accrual for certain cores authorized to be returned, but still in-transit to the Company from its customers, (ii) the Company incorrectly recorded core charge revenue when the amount of revenue was not fixed and determinable and (iii) the Company did not appropriately accrue losses for all probable customer payment discrepancies. The estimated tax effect of the errors noted above is reflected in the restatements and the notes to the financial statements for the periods ended March 31, 2006, 2005, and 2004 have been restated as required to reflect the effect of the restatements noted above.

The impact of these restatements has been reflected throughout the consolidated financial statements and accompanying notes including notes C, E, F, J, O, and T, is as follows:

Consolidated Balance Sheets

		March 31, 2006
		Previously
		Reported				Adjustment				Restated
ASSETS
Current assets:
Cash and cash equivalents		$	400,000							$	400,000
Short term investments			660,000								660,000
Accounts receivable — net, as previously reported			13,775,000
In-transit core adjustment						$	3,098,000
A/R discrepancy adjustment							(1,275,000	)
Core-charge revenue adjustment							(1,696,000	)
Accounts receivable — net, as restated											13,902,000
Inventory — net, as previously reported			59,337,000
In-transit core adjustment							(1,456,000	)
Inventory — net, as restated											57,881,000
Deferred income tax asset			5,809,000								5,809,000
Inventory unreturned, as previously reported			7,052,000
Core-charge revenue adjustment							1,119,000
Inventory unreturned, as restated											8,171,000
Prepaid expenses and other current assets			918,000								918,000
Total current assets			87,951,000				(210,000	)			87,741,000
Plant and equipment — net			12,164,000								12,164,000
Other assets			1,231,000								1,231,000
TOTAL ASSETS		$	101,346,000			$	(210,000	)		$	101,136,000
LIABILITIES
Current liabilities:
Accounts payable		$	21,882,000							$	21,882,000
Accrued liabilities			1,587,000								1,587,000
Accrued salaries and wages			2,267,000								2,267,000
Accrued workers’ compensation claims			3,346,000								3,346,000
Income tax payable, as previously reported			1,094,000
In-transit core adjustment						$	598,000
A/R discrepancy adjustment							(460,000	)
Core-charge revenue adjustment							(211,000	)
Income tax payable, as restated											1,021,000
Line of credit			6,300,000								6,300,000
Deferred compensation			495,000								495,000
Deferred income			133,000								133,000
Other current liabilities			988,000								988,000
Credit due customer			1,793,000								1,793,000
Current portion of capital lease obligations			1,499,000								1,499,000
Total current liabilities			41,384,000				(73,000	)			41,311,000
Deferred income, less current portion			388,000								388,000
Deferred income tax liability			562,000								562,000
Deferred gain on sale-leaseback			2,377,000								2,377,000
Other liabilities			46,000								46,000
Capitalized lease obligations, less current portion			4,857,000								4,857,000
TOTAL LIABILITIES			49,614,000				(73,000	)			49,541,000
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, 20,000,000 shares authorized; 8,316,105 shares issued and outstanding at March 31, 2006			83,000								83,000
Additional paid-in capital			54,326,000								54,326,000
Accumulated other comprehensive loss			85,000								85,000
Accumulated deficit, as previously reported			(2,762,000	)
In-transit core adjustment							1,044,000
A/R discrepancy adjustment							(815,000	)
Core-charge revenue adjustment							(366,000	)
Accumulated deficit, as restated											(2,899,000	)
TOTAL SHAREHOLDERS’ EQUITY			51,732,000				(137,000	)			51,595,000
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY		$	101,346,000			$	(210,000	)		$	101,136,000

Consolidated Balance Sheets (continued)

		March 31, 2005
		Previously
		Reported				Adjustment				Restated
ASSETS
Current assets:
Cash and cash equivalents		$	6,211,000							$	6,211,000
Short term investments			503,000								503,000
Accounts receivable — net, as previously reported			11,513,000
In-transit core adjustment						$	2,663,000
A/R discrepancy adjustment							735,000
Accounts receivable — net, as restated											14,911,000
Inventory — net, as previously reported			48,587,000
In-transit core adjustment							(1,252,000	)
Inventory — net, as restated											47,335,000
Deferred income tax asset			6,378,000								6,378,000
Inventory unreturned, as previously reported			2,409,000
Core-charge revenue adjustment							153,000
Inventory unreturned, as restated											2,562,000
Prepaid expenses and other current assets			1,365,000								1,365,000
Total current assets			76,966,000				2,299,000				79,265,000
Plant and equipment — net			5,483,000								5,483,000
Other assets			899,000								899,000
TOTAL ASSETS		$	83,348,000			$	2,299,000			$	85,647,000
LIABILITIES
Current liabilities:
Accounts payable		$	14,502,000							$	14,502,000
Accrued liabilities			1,378,000								1,378,000
Accrued salaries and wages			2,235,000								2,235,000
Accrued workers’ compensation claims			2,217,000								2,217,000
Income tax payable, as previously reported			183,000
In-transit core adjustment						$	511,000
A/R discrepancy adjustment							284,000
Core-charge revenue adjustment							58,000
Income tax payable, as restated											1,036,000
Deferred compensation			450,000								450,000
Deferred income			133,000								133,000
Other current liabilities			89,000								89,000
Credit due customer			12,543,000								12,543,000
Current portion of capital lease obligations			416,000								416,000
Total current liabilities			34,146,000				853,000				34,999,000
Deferred income, less current portion			521,000								521,000
Deferred income tax liability			519,000								519,000
Capitalized lease obligations, less current portion			938,000								938,000
TOTAL LIABILITIES			36,124,000				853,000				36,977,000
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, 20,000,000 shares authorized; 8,183,955 shares issued and outstanding at March 31, 2005			82,000								82,000
Additional paid-in capital			53,627,000								53,627,000
Accumulated other comprehensive loss			(55,000	)							(55,000	)
Accumulated deficit, as previously reported			(6,430,000	)
In-transit core adjustment							900,000
A/R discrepancy adjustment							451,000
Core-charge revenue adjustment							95,000
Accumulated deficit, as restated											(4,984,000	)
TOTAL SHAREHOLDERS’ EQUITY			47,224,000				1,446,000				48,670,000
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY		$	83,348,000			$	2,299,000			$	85,647,000

Consolidated Statements of Operations

		Year Ended March 31, 2006
		Previously
		Reported				Adjustment				Restated
Net sales, as previously reported		$	112,103,000
A/R discrepancy adjustment						$	(2,010,000	)
Core –charge revenue adjustment							(1,696,000	)
Net sales, as restated										$	108,397,000
Cost of goods sold, as previously reported			84,188,000
In-transit core adjustment							(230,000	)
Core-charge revenue adjustment							(966,000	)
Cost of goods sold, as restated											82,992,000
Gross profit			27,915,000				(2,510,000	)			25,405,000
Operating expenses:
General and administrative			14,337,000								14,337,000
Sales and marketing			3,536,000								3,536,000
Research and development			1,234,000								1,234,000
Total operating expenses			19,107,000				—				19,107,000
Operating income			8,808,000				(2,510,000	)			6,298,000
Interest expense — net			2,954,000								2,954,000
Income before income tax expense			5,854,000				(2,510,000	)			3,344,000
Income tax expense, as previously reported			2,186,000
In-transit core adjustment							86,000
A/R discrepancy adjustment							(744,000	)
Core –charge revenue adjustment							(269,000	)
Income tax expense, as restated											1,259,000
Net income		$	3,668,000			$	(1,583,000	)		$	2,085,000
Basic net income per share		$	0.44			$	0.19			$	0.25
Diluted net income per share		$	0.43			$	0.18			$	0.25
Weighted average shares outstanding:
— basic			8,251,319								8,251,319
— diluted			8,483,323								8,483,323