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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

FOR THE FISCAL YEAR ENDED MARCH 31, 2002.

OR

FOR THE TRANSITION PERIOD FROM                              TO                             .

Commission File No. 0-23538

MOTORCAR PARTS & ACCESSORIES, INC.
(Exact name of registrant as specified in its charter)

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

        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 ý    No o

        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. ý

        Issuer's revenues for its most recent fiscal year: $172,040,000

        The aggregate market value, calculated on the basis of the average bid and asked prices of such stock on the Internet Billboard, of Common Stock held by non-affiliates of the Registrant as of June 12, 2002 was approximately $19,915,235.

        There were 7,960,455 shares of Common Stock outstanding at June 13, 2002.

MOTORCAR PARTS & ACCESSORIES, INC.

PART I

Item 1. Business.

General

        The Company is a leading remanufacturer of replacement alternators and starters for imported and domestic cars and light trucks. These vehicles, which are manufactured both in the United States and overseas, include many of the most recognizable brands from companies such as General Motors, Ford, Chrysler, Toyota, Honda, Nissan, Mazda, and Volkswagen. The Company also assembles and distributes starter ignition wire sets for imported and domestic cars and light trucks.

        The Company's products are sold throughout the United States to many of the nation's largest chains of retail automotive stores, including AutoZone, CSK Automotive, The Pep Boys, and Ozark Automotive. The Company also supplies remanufactured alternators and starters to General Motors. These General Motors units are sold through their Service Parts Operation, which includes distribution throughout the United States and Canada. The Company's products are also sold in Mexico through a number of the retail chain stores' distribution channels. During the last several years, the Company's marketing and sales efforts have been principally geared toward automotive chain stores and General Motors' Service Parts Operation, which the Company believes is the fastest growing segment of the automotive after-market industry, and is consistent with its existing targeted customers. During fiscal 2002, 2001 and 2000, approximately 97%, 97% and 89% respectively, of the Company's sales were to automotive chain stores, which is comprised of approximately 5,500 stores and General Motors. The balance of sales went primarily to large warehouse distributors and smaller retail chains as well as the sale of spark plug wire sets, which the Company assembles both in the United States and Malaysia.

The Automotive After-market Industry

        The automotive after-market for alternators and starters has grown in recent years. The Company believes that this growth has resulted from, among other trends, (1) the increased number of vehicles in use, (2) the increased number of miles driven each year and (3) the growth of vehicles at their prime repair age of four years and older. Based upon market information it has reviewed, the Company believes the average age of vehicles in operation in the United States is 9.1 years.

        Two distinct groups of end-users buy replacement automotive parts: (1) individual "do-it-yourself" consumers; and (2) professional "do-it-for-me" installers. The individual consumer market is typically supplied through retailers and retail arms of warehouse distributors. Automotive repair shops generally purchase parts through local independent parts wholesalers, through national warehouse distributors and, at a growing rate, through commercial account programs with automotive parts retailers, aimed at servicing the professional "do-it-for-me" installers. It is through efforts by automotive parts retailers to expand their sales to the professional "do-it-for-me" installers, that the Company sees a portion of its future growth being realized.

        The increasing complexity of cars and light trucks and the number of different makes and models of these vehicles have resulted in a significant increase in the number of different alternators and starters required to service imported and domestic cars and light trucks. To respond to this market development, the Company has had to increase the number of inventory items it maintains in stock. The technology used in alternators and starters has become more advanced in response to the installation in vehicles of an increasing number of electrical components such as cellular telephones, electrically powered windows, air conditioning equipment, high-powered radio and stereo systems and audio/visual equipment. Consequently, per unit sale prices have increased for such alternators and starters.

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        Remanufacturing, which involves the reuse of parts which might otherwise be discarded, creates a supply of parts at a significantly lower cost to the user than newly manufactured parts, and makes available automotive parts which are no longer being manufactured. By making readily available parts for automotive general use, remanufacturing benefits automotive repair shops by relieving them of the need to rebuild worn parts on an individual basis and conserves material which would otherwise be used to manufacture new replacement parts. Most importantly, however, the Company's remanufactured parts are sold at significantly lower prices than competitive new replacement parts.

Company Products

        The Company's primary products are remanufactured replacement alternators and starters for both imported and domestic cars and light trucks. The Company also assembles and distributes ignition wire sets for the automotive after-market for use in a wide variety of makes and models of foreign and domestic vehicles. During fiscal years ending 2002, 2001 and 2000, sales of replacement alternators and starters constituted 99%, 99% and 98% respectively, of the Company's fiscal year 2002, 2001 and 2000 total sales. The balance of the Company's sales was attributable to sales of wire sets. Alternators, starters and ignition wire sets are essential components in all makes and models of vehicles. These products constitute non-elective replacement parts, which are required for a vehicle to operate. Approximately 99% of the Company's products are sold for resale under customer private labels, with the remaining 1% being sold under the Company's brand name, which includes the use of its registered trademark, "MPA". Customers that sell the Company's products under private label include AutoZone, CSK Automotive, The Pep Boys, Ozark Automotive, and General Motors.

        The Company's alternators and starters are produced to meet or exceed automobile manufacturer specifications. The Company remanufactures a broad assortment of alternators and starters in order to accommodate the proliferation of applications and products in use. Currently, the Company provides a full line of approximately 1,481 different alternators and 923 different starters. The Company's alternators and starters are provided for virtually all foreign and domestic manufacturers.

Customers and Customer Concentration

        The Company's products are marketed throughout the United States, Canada and Mexico. The Company's customers consist of many of the largest retail automotive stores and automotive warehouse distributors and General Motors who all sell the Company's products in the United States. The Company also sells its products throughout Canada and Mexico through the Company's current distribution channels. The Company services automotive retail chain store accounts servicing approximately 5,500 retail outlets.

        Many of the largest chains of retail automotive stores in the United States obtain their imported car alternators and starters from the Company. Consequently, a significant percentage of the Company's sales have been concentrated among a relatively small number of customers. The Company's three largest customers, AutoZone, CSK Automotive and Ozark Automotive, accounted for approximately 86% of total net sales during fiscal 2002. Similarly, during fiscal 2001 and 2000, the Company's three largest customers accounted for approximately 69% and 59% respectively, of total net sales. There can no assurance that this concentration of sales among customers will not continue or conversely will increase in the future. The loss of a significant customer or substantial decrease in sales to such a customer would have a material adverse effect on the Company's sales and operating results. In addition, customers may demand price concessions or product returns and allowances from the Company that could adversely affect profit margins. The Company's arrangements with most of its customers are based principally on the receipt of purchase orders.

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Operations of the Company

Cores

        In its remanufacturing operations, the Company obtains used alternators and starters, commonly known as "cores", which are sorted by make and model and stored until needed. When needed for remanufacturing, the cores are completely disassembled into component parts. Components, which can be incorporated into the remanufactured product, are thoroughly cleaned, tested and refinished. All components known to be subject to major wear and those components determined not to be reusable or repairable are replaced by new components. The unit is then reassembled on an assembly line into a finished product. Inspection and testing are conducted at various stages of the remanufacturing process, and each finished product is inspected and tested on equipment designed to simulate performance under operating conditions. Components of cores, which are not used by the Company in its remanufacturing process, are sold as scrap.

        The majority of the cores remanufactured by the Company are obtained from customers as trade-ins, which are credited against future purchases. The Company's customers offer consumers a credit to exchange their used units at the time of purchase. To a lesser extent, the Company also purchases cores in the open market from core brokers, who are dealers specializing in buying and selling cores. Although the Company believes that the open market does not and will continue not to be a primary source of cores, this market offers a supplemental source for maintaining stock balance. Other materials and components used in remanufacturing are also purchased in the open market. The ability to obtain cores of the types and quantities required by the Company is essential to the Company's ability to meet demand.

        The price of a finished product sold to the Company's customers is generally comprised of a separately invoiced amount for the core included in the product ("core value") and an amount for remanufacturing ("value added"). Upon receipt of a core from a customer, the Company generally gives a credit to the customer for the core value originally invoiced with respect to that core. Typically, the core value credit given to a customer exceeds the market value of the core accepted as a trade-in. The Company records this difference in cost of sales. The Company generally limits core returns to cores sold to the specific customer, which are in remanufacturable condition. Core values fluctuate on the basis of several economic factors, including market availability, seasonality and demand.

Production Process

        The initial step in the Company's remanufacturing process begins with the receipt of cores from various sources, including trade-ins from customers and purchases in the open market. The cores are assessed and evaluated for inventory control purposes and then sorted by part number. Each core is completely disassembled into all of its fundamental components. The components are cleaned in a process that employs customized equipment and cleaning materials. The cleaning process is accomplished in accordance with the required specifications of the particular component.

        After the cleaning process is complete, the component parts are inspected and tested as prescribed by the Company's rigorous and QS 9000 approved quality control program. (QS 9000, is an internationally recognized, world class, automotive quality system.) This program, which is implemented throughout the operational process, is known as statistical process control. Upon passage of all tests, which are monitored by designated quality control personnel, the components are ready for assembly into required units. Each fully assembled unit is then subjected to additional testing to ensure performance and quality. Finished products are then either stored in the Company's warehouse facility or packaged for immediate delivery. To maximize manufacturing efficiency, the Company stores component parts ready for assembly in its warehousing facilities. The Company's management information systems, including hardware and software, facilitate the remanufacturing process from cores

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to finished products. The complete remanufacturing process from core disassembly through final assembly and testing takes approximately three days.

        The Company generally assembles ignition wires from components manufactured by third parties. The assembly process involves the cutting of predetermined lengths of wire, which have been manufactured to the Company's specifications, and the attaching of terminals and boots to the ends of such wire. Ultimately, the final product is tested and packaged under the customer's private label.

        The Company also conducts business through two wholly owned foreign subsidiaries, MVR Products Pte Limited ("MVR"), which operates a shipping and receiving warehouse, testing facility and maintains office space in Singapore and Unijoh Sdn, Bhd ("Unijoh"), which conducts remanufacturing operations in Malaysia, similar to those conducted by the Company at its remanufacturing facility in Torrance. These foreign operations are conducted with quality control standards and other internal controls similar to those currently implemented at the Company's remanufacturing facilities in Torrance. The facilities of MVR and Unijoh are located approximately one hour drive apart. The Company believes that the operations of its foreign subsidiaries are important because of the lower labor costs experienced by these entities in the same remanufacturing process. The foreign subsidiaries produced in fiscal 2002, 2001 and 2000 approximately 195,000, 197,000, and 209,000 units, respectively, or about 9% of the Company's total production for each of the last three years.

Product Warranty

        The Company has a warranty policy that it believes is typical for the remanufactured automotive replacement parts industry. Like other re-manufacturers, the Company only accepts product warranties from on-going customers. If a customer ceases doing business with the Company, the Company recognizes no further obligations to that customer with respect to product warranties and hence, no additional warranty returns would be accepted by the Company. This is standard industry practice. The customer would ordinarily send any returnable products to a new remanufacturer maintaining the same policy, which remanufacturer would accept the product warranty and grant appropriate credits regardless of whether the units were originally purchased from that new remanufacturer. The Company generally follows this industry practice and provides the same warranty and trade-in rights when it takes over businesses that had previously been supported by another remanufacturer.

        As a result of this product warranty policy, the Company accounts for product warranties on a current basis. No reserve is made for future product warranties since there is no on-going obligation to accept such warranties in the absence of continuing sales to the returning customer. The Company believes that its warranty rate has been consistent with rates generally experienced in its industry.

Marketing and Distribution

        The Company markets and distributes its products regionally through salaried personnel. The Company's products are sold principally under private label names.

        The Company focuses its sales efforts on automotive retail chains, which the Company believes constitutes the dominant distribution channel in the Company's market. The Company also sells its alternators and starters to General Motors. Products are delivered directly by or on behalf of the Company to the chain's distribution centers which then deliver the merchandise directly to the retail stores for purchase by consumers or, in the case of General Motors, to its Service Parts Operation for distribution. The Company believes that it has obtained significant marketing, distribution and manufacturing efficiencies by focusing its sales efforts on chains of automotive retail stores.

        The Company prepares and publishes a comprehensive catalog of its alternators and starters, and a detailed technical glossary and explanation guide. The Company believes that it maintains one of the market's most extensive catalog and product identification systems, offering one of the widest varieties

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of alternators and starters available in that market. The Company further believes that certain of its customers' use of and reliance on the catalog and product identification system provide incentives to those customers to continue to purchase products from the Company.

Change in Accounting for Inventory; Stock Adjustments

        Effective April 1, 1999, management adopted a new methodology for accounting for inventory. Management believes that the new methodology better reflects the economics of its business while providing a better measurement under generally accepted accounting principles. Under the Company's new accounting methodology, in recording core inventory at the lower of cost or market, the Company determines the market value based upon comparisons to current core broker prices. Beginning with fiscal year 2001, management refined this policy to reduce the standard cost for cores when purchases of any particular core is greater than 25% of the total number of that particular core on hand. Such values are normally less than the core value credited to customers' accounts when cores are returned to the Company as trade-ins. In prior years, when the Company valued its inventory at the lower of cost or market, cost was determined using an average weighted cost method and the market value of cores was determined by the weighted average of the repurchase price of cores acquired from the Company's customers and the price of cores purchased from core brokers. Additionally, management reviews core inventory to identify excess quantities and maturing product lines. An allowance for obsolescence is provided to reduce the carrying (market) value to its estimated market value.

        In addition to the change in its Company's policy of accounting for cores, the Company recently modified its accounting for stock adjustments. Under the terms of certain Company agreements with its customers and industry practice, the Company's customers from time to time are allowed stock adjustments when the inventory level of certain product lines exceed their anticipated levels of sales to their end-user customers. These adjustments are made by the Company's acceptance into inventory of these customer's overstocks, and they do not come at any specific time during the year and can have a distorting effect on the financial statements.

        Historically, the Company charged a portion of stock adjustment returns against net sales and expensed the balance as cost of goods sold when the returns were made. In the third quarter of fiscal 2001, because of an unprecedented large return from one customer the Company recognized adjustments of $898,000. Due to current and expected changes in customer return practices, in the fourth quarter of fiscal 2001, the Company began to provide for a monthly $75,000 allowance to address the anticipated impact of stock adjustments. The adjustments recognized and the allowance that was established resulted in gross profit and net income decreasing by $1,123,000 during fiscal year 2001. Currently, the Company accrues $75,000 monthly and the cost associated with stock adjustments, are charged against this allowance. As of March 31, 2002, the balance in the stock adjustment reserve account was $609,000. This allowance will be reviewed quarterly looking back at a rolling 12 months to determine if the monthly accrual should be adjusted. Use of this estimating technique in fiscal 2000 would not have had a material impact on the Company's results of operation.

Seasonality of Business

        Due to the nature and design as well as the current limits of technology, alternators and starters traditionally fail when operating in extreme conditions. That is, during summer months, when the temperature typically increases over a sustained period of time, alternators and starters are more apt to fail and thus, an increase in demand for the Company's products typically occurs. Similarly, during winter months, when the temperature is colder, alternators and starters tend to fail and require replacing immediately, since these parts are mandatory for the operation of the vehicle. As such, summer months tend to show an increase in overall volume with a few spikes in the winter.

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Competition

        The automotive after-market industry of remanufacturers and rebuilders of alternators and starters for imported and domestic cars and light trucks is highly competitive. The Company's direct competitors include two other large remanufacturers and a number of small regional rebuilders.

        The reputation for quality and customer service, which a supplier enjoys, is a significant factor in a purchaser's decision as to which product lines to carry in the limited space available. The Company believes that these factors favor the Company, which provides quality replacement automotive products, rapid and reliable delivery capabilities and promotional support. In this regard, there is increasing pressure from customers, particularly the large ones that the Company sells to, for suppliers to provide "just-in-time" delivery, which allows delivery on an as-needed basis to promptly meet customer orders. The Company believes that its ability to provide "just-in-time" delivery distinguishes it from many of its competitors and provides a significant competitive advantage and may also represent a barrier to entry to current or future competitors.

        In addition, price is a very important competitive factor. The concentration of the Company's sales among a small group of customers has increasingly limited the Company's ability to negotiate favorable prices for its products.

        The Company's products have not been patented nor does the Company believe that its products are patentable. The Company will continue to attempt to protect its proprietary processes and other information by relying on trade secret laws and non-disclosure and confidentiality agreements with certain of its employees and other persons who have access to its proprietary processes and other information.

Governmental Regulation

        The Company's operations are subject to federal, state and local laws and regulations governing, among other things, emissions to air, discharge to waters, and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. The Company believes that its business, operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. Potentially significant expenditures, however, could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future.

Employees

        The Company has approximately 805 full-time employees. Of the Company's employees, 63 are considered administrative personnel and 7 are sales personnel. None of the Company's employees is a party to any collective bargaining agreement. The Company has not experienced any work stoppages and considers its employee relations to be satisfactory.

Item 2. Properties.

        The Company presently maintains facilities in Torrance, California, and Nashville, Tennessee. The Company has completed the consolidation of its two Torrance facilities into a single building containing an aggregate of approximately 227,000 square feet. The Company recently negotiated a new lease extending the lease term for an additional five years commencing April 1, 2002 and ending March 31, 2007 and providing for a base rental rate of $94,358 per month. This represents an increase of $29,587 per month or a 45.7% increase in the rent the Company had been paying during the prior lease term for the single facility it has continued to utilize. However, when compared to the total monthly rent the Company previously paid for both buildings in Torrance prior to their consolidation, this new rent

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represents a decrease in total rent payments of $18,014 per month. The Company believes that cost and efficiencies realized from being located in a single building were equally the reason for this consolidation. The Company believes that its facilities are sufficient to satisfy its foreseeable production requirements. In fiscal 2001, the Company recorded restructuring expenses of $914,000, of which $738,000 was related primarily to future rent expense and $176,000 was a write-down of tenant improvements.

        The Company has approximately 1,000 square feet of office space in Nashville, Tennessee. This office is used for managing the purchasing activities of the Company.

        In addition, the Company's subsidiaries have facilities at locations in Singapore and Malaysia. The Company has moved a portion of its operation for the assembly of spark plug wire sets to Malaysia and plans to have essentially all spark plug wire assembly operations moved to Malaysia by the second quarter of fiscal 2003.

Item 3. Legal Proceedings.

        The Company has settled the class action lawsuit that had been filed against the Company in the United States District Court, Central District of California, Western Division. The class action lawsuit alleged that, over a four-year period during 1996 to 1999, the Company misstated earnings in violation of securities laws. Under the terms of the settlement agreement, the class action plaintiffs will receive $7,500,000. Of this amount, the Company's directors and officer's insurance carrier paid $6,000,000 and the Company has paid the balance. Final approval of this settlement was entered into Court Records on September 18, 2001 and all parties have exchanged releases in connection with this settlement.

        To finance the Company's portion of the settlement, the Company and Mel Marks, the Company's founder and a board member, entered into a stock purchase agreement. Under the terms of this agreement, Mr. Marks purchased shares of the Company's common stock, which were issued on September 19, 2001. The total purchase price for the stock was $1,500,000. The price per share was $1.00. The valuation firm that the Company engaged to render a fairness opinion of this transaction concluded that this price per share was fair to the Company's shareholders, from a financial point of view. For purposes of this determination, the fairness of the transaction was evaluated as of November 30, 2000, the date that Mr. Marks agreed to provide $1,500,000 to the Company to finance a portion of the class action settlement. (The Company's stock closed on November 30, 2000 at $1.00 per share.) On that date, the Company did not have the resources to pay their portion of the settlement from operating cash flow and was required to raise these funds from an external source.

        On January 20, 2000, the Securities and Exchange Commission issued a formal order of investigation with respect to the Company. In this order, the SEC authorized an investigation into, among other things; the accuracy of the financial information previously filed with the Commission and potential deficiencies in the Company's records and system of internal control. The SEC investigation is proceeding. There can be no assurance with respect to the outcome of the SEC's investigation. The United States Attorney's Office for the Central District of California is conducting a similar investigation.

        In addition, the Company has not filed a number of periodic reports that it is obligated to file under the Securities Exchange Act of 1934. However, the Company is current with all of its reporting to the SEC for the past 12 months. The SEC is aware of this failure and has reminded the Company that it has the authority to revoke or suspend the Company's registration under the Securities Exchange Act of 1934 as a result of this failure, which SEC action would prevent sales of the Company's common stock through broker/dealers.

        The Company is subject to various other lawsuits and claims in the normal course of business. Management does not believe that the outcome of these matters will have a material adverse effect on its financial position or future results of operations.

Item 4. Submission of Matters to a Vote of Security Holders.

        None.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

        The Company's Common Stock, par value $0.01 per share (the "Common Stock"), is currently de-listed from the National Association of Securities Dealers' Automated Quotation ("NASDAQ") system. As such, and until the Company regains listing status, the Company's stock can be tracked on the Internet billboard. Trading on the Internet Billboard can be sporadic, and this may not constitute an established trading market for the Common Stock. The following table sets forth the high and low bid prices for the Common Stock during each quarter of fiscal 2000, 2001 and 2002 as tracked on the Internet billboard. The prices reflect inter-dealer quotations and may not represent actual transactions and do not include any retail mark-ups, markdowns or commissions.

        As of March 31, 2002, there were 7,960,455 shares of Common Stock outstanding held by 51 holders of record.

        The Company has never declared or paid dividends on its Common Stock.

        The declaration of dividends in the future will be at the discretion of the Board of Directors and will depend upon the earnings, capital requirements and financial position of the Company, general economic conditions, state law requirements and other relevant factors. In addition, the Company's agreement with its lender prohibits payment of dividends without the bank's prior consent, except dividends payable in Common Stock.

        During fiscal year 2002, the Company sold 1,500,000 shares of unregistered securities. As noted in the discussion under the caption "Item 3—Legal Proceedings", the Company sold these 1,500,000 shares of its Common Stock for $1,500,000 in cash. The proceeds of this stock sale were used to pay the Company's portion of the settlement of the class action lawsuit against the Company. The shares were sold to Mr. Marks without registration under the Securities Act of 1933 due to reliance upon an exemption from registration provided under Section 4(2) of the Securities Act of 1933 and Regulation D issued by the Securities and Exchange Commission.

Item 6. Selected Financial Data.

        The following selected financial data has been derived from the Company's audited financial statements. The Income Statement Data relating to the fiscal years 2002, 2001, and 2000 and the Balance Sheet Data as of March 31, 2002 and 2001 should be read in conjunction with the Company's audited financial statements and notes thereto appearing elsewhere herein. The Company has not included financial statements at the period March 31, 1999 and 1998 in this Form 10-K because the Company has not restated these financial statements to give effect to the change in the Company's

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method of accounting for inventory or any adjustments that might result from an audit or review of these statements.

(1)

Effective April 1, 1999, the Company changed their method of valuing inventory and recorded a cumulative effect of accounting change of $17,702,000, which is reflected in the March 31, 2002 Consolidated Statement of Operations.

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

General

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

Results of Operations

Fiscal 2002 compared to Fiscal 2001

        Net sales for fiscal 2002 were $172,040,000, an increase of $11,341,000 or 7.1% from the prior years' sales of $160,699,000. Of this increase in net sales, $6,200,000 was due to the Company's expansion into new product lines; $1,500,000 was a direct result of increased sales to existing customers; and $3,600,000 was related to a decrease in warranty and sales returns attributable to the engineering department's focus on warranty reductions. The engineering department's focus on quality-related issues includes, but is not limited to: (1) Failure Mode Analysis, (2) Root Cause Analysis and (3) Durability Testing which resulted in improved processes and better quality componentry.

        Cost of goods sold, as a percentage of net sales, decreased in fiscal 2002 to 88.0%—an improvement of 4.6% from 92.6% for fiscal 2001. This percentage decrease is principally attributable to a reduction in material costs, freight costs and labor costs associated with greater manufacturing efficiencies and improved productivity due to the Company's consolidation of its facilities.

        Under the terms of certain agreements with its customers and industry practice, the Company's customers from time to time are allowed stock adjustments when the inventory level of certain product lines exceed the anticipated level of sales to end-user customers. These adjustments are made when the Company accepts into inventory these customers' overstocks, which do not occur at any specific time during the year. Due to current and expected changes in customer return practices, in the fourth quarter of fiscal 2001, the Company began to provide for a monthly allowance to address the

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anticipated impact of stock adjustments. During the fiscal year 2002, the Company expensed $898,000 in cost of goods sold as an additional allowance for stock adjustments. The allowance for stock adjustments was $609,000 and $225,000 as of March 31, 2002 and 2001 respectively. The allowance policy is reviewed quarterly looking back at a trailing 12 months to determine if the monthly accrual should be adjusted.

        The Company provides for potential excess and obsolete inventory based upon historical usage and a product's life cycle. This reserve account decreased in fiscal 2002 by $428,000 from $3,874,000 in fiscal year 2001 to $3,451,000 in fiscal year 2002. This decrease was due to the increased quality of the inventory on hand and the continued focus on sale or scrap of obsolete inventory.

        The Company adjusts the value of cores in three ways, (1) when purchases constitute 25% or more of quantity on hand, then a weighted average cost is applied, (2) cores not adjusted for purchases in #1, are adjusted every six months by obtaining core broker prices. All cores that have a 35% or greater price difference are adjusted, and (3) a valuation reserve has been set up for those cores not adjusted by the above policies. This reserve is based upon the estimated life cycle for cores of 25 years. This reserve account decreased in fiscal year 2002 by $110,000 from $379,000 in fiscal year 2001 to $264,000 in fiscal 2002. This decrease was principally the result of the Company continuing to decrease its core inventory by selling and scrapping cores.

        General and administrative expense for fiscal 2002 was $7,203,000, which represents a decrease of $1,088,000 or 13%, from the prior year's expense of $8,291,000. As a percentage of net sales, general and administrative expense for fiscal 2002 was 4.2%, which is a decrease of 1% from fiscal year 2001. The key contributors to the $1,088,000 decrease from fiscal 2001 were: (1) a reduction in the Company's legal and accounting fees of nearly $1,400,000, primarily due to the termination of the class action lawsuit during fiscal 2002 and the reduction in the legal fees and significant accounting costs associated with that litigation, (2) a decrease of nearly $500,000 in executive salaries and related expenses, (3) a reduction in rent expense of over $145,000 due to the Company's consolidation of its operations in California into a single facility in fiscal 2002 and accounted for the rent of the vacated building as a restructuring cost totaling $914,000 that was recorded in fiscal 2001, and (4) a decrease in bank fees of $155,000, all of which were partially offset by an increase in bonuses paid to executive officers and other Company employees of nearly $1,300,000.

        Selling expenses decreased $49,000 or 4% in fiscal 2002 to $1,167,000 from $1,216,000 in fiscal 2001. This decrease was principally the result of a reduction in outside commissions paid of over $100,000 and a decrease in other selling expenses offset by an increase in employee bonuses of $90,000.

        In fiscal 2001, the Company established a $1,500,000 reserve in connection with the settlement of the class action litigation against the Company. For additional information, see the discussion under the caption "Item 3—Legal Proceedings". The Company also recorded $914,000 in restructuring expenses and related asset impairment charges during the year ended March 31, 2001 in connection with the consolidation of business operations into one location in California from two in California and one in Tennessee. These expenses consist primarily of future rent expense of $738,000 and write down of tenant improvements of $176,000.

        Research and development expenses increased by $80,000 or 16.9% in fiscal 2002 to $552,000 over the $472,000 spent in fiscal 2001. This increase of $80,000 consists principally of (1) an increase in supplies of nearly $60,000 and (2) an increase of over $20,000 in hourly wages paid.

        Provision for doubtful accounts expense for fiscal 2002 was $412,000 compared to ($36,000) for fiscal 2001. This increase from the prior year of $448,000 was principally the result of the resolution of certain shipping and pricing issues with current and former customers that resulted in a write-down of certain receivables. Approximately $70,000 was the result of one of the Company's customers filing for bankruptcy.

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        Net interest expense for fiscal 2002 was $3,556,000. This was a decrease of $144,000 or 3.9% from fiscal 2001, net interest expense of $3,700,000. This decrease is principally the result of (1) generally lower interest rates, and (2) a reduction in the principal balance outstanding; however, these reductions were partially offset when the Company amended its loan agreement with its bank in May, 2001. As part of this amendment, the Company re-priced 400,000 warrants previously issued to the bank. This resulted in a one-time charge of $360,000.

Fiscal 2001 compared to Fiscal 2000

        Net sales for fiscal 2001 were $160,699,000, a decrease of $33,594,000 or 17.3% from the prior years' sales of $194,293,000. This decrease in net sales was principally the result of the Company eliminating an unprofitable line of domestic business and discontinuing sales to certain warehouse distributor customers in fiscal 2001.

        Cost of goods sold for fiscal 2001 decreased as a percentage of net sales by 4.2% to 92.6% in fiscal 2001 from 96.8% in fiscal 2000. This improvement is related to all categories—from material to direct labor to overhead—and is the result of the Company eliminating an unprofitable line of domestic business in fiscal 2001.

        General and administrative expense, for fiscal 2001 was $8,291,000, a decrease from fiscal 2000 of $3,541,000 or 29.9%. The key contributors to this decrease, were: (1) a reduction in outside services related to the implementation of a new computer system of $780,000 in fiscal 2000, (2) a one-time adjustment of $1,150,000 to fixed assets and accumulated depreciation based upon a review of the fixed assets register and (3) a reduction of legal and accounting costs of $1,350,000. The remaining decrease in general and administrative expenses of $261,000 consists of a number of other items including reductions in executive salaries, travel and insurance.

        Selling expenses decreased $648,000 or more than 34% in fiscal 2001 to $1,216,000 from $1,864,000 in fiscal 2000. This decrease is primarily attributable to a reduction in sales personnel and related expenses and the reduction of expenses related to participating at trade shows. Since approximately 99% of the Company's private label sales are to large national retailers, the Company realized there was no need for brand name recognition. By eliminating the cost of these trade shows, the Company saved over $166,000 from the previous year.

        Research and development expenses decreased by $242,000 or 33.9% from $714,000 in fiscal 2000 to $472,000 in fiscal 2001. The key contributors to this decrease were reductions in wages, expendable tools and supplies.

        Provision for doubtful accounts expense for fiscal 2001 was ($36,000) compared to $312,000 for fiscal 2000. The net recovery in fiscal 2001 as compared to fiscal 2000 was the result of the Company favorably settling various customer accounts.

        Net interest expense was $3,700,000 for fiscal 2001. This was an increase of $520,000 or 16.4% over fiscal 2000 of $3,180,000. This increase is due to generally higher interest rates, coupled with a 1% interest rate increase charged by the bank in connection with the default waivers that the bank granted the Company in September 2000.

Liquidity and Capital Resources

        The Company has financed its working capital needs through the use of its bank credit facility and the cash flow generated from operations. The Company currently has available bank debt of $32,750,000 under two separate credit facilities—a revolving line of credit facility of up to $24,750,000 and an $8,000,000 term loan. The interest rate for these two facilities is 1.75% and 2.00%, respectively, above the bank's prime rate of lending which was 4.75% on March 31, 2002. On March 31, 2002, the interest rates for the line of credit facility and the term loan were 6.50% and 6.75%, respectively.

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        On June 25, 2002, the Company and the bank agreed to extend the credit agreement to April 30, 2003. The new agreement calls for a restructuring fee of 3% or $982,500 fully earned, but only $327,500 or 1% of which is payable at closing. The balance of this restructuring fee of $655,000 is deferred until December 15, 2002. If both the term loan of $8,000,000 and the line of credit facility of $24,750,000 are fully repaid before December 15, 2002 then the unpaid restructuring fee of $655,000 will be waived. The term loan provides for principal reduction payments on the 15^th of every month of $500,000 each for June 2002 through October 2002; $750,000 each for November and December of 2002; $1,000,000 in January 2003 and $1,500,000 each for February 2003 through April 2003. In addition, $1,000,000 of the April 2003 payment is to be applied to the line of credit facility and both loans provide a 1.5% per annum commitment fee on the unused portion, which is payable monthly.

        The Company's liquidity has also been impacted by the extension in payment terms that it has afforded a number of its key customers. This extension is an important factor behind the $10,551,000 increase in accounts receivable at March 31, 2002 when compared to the accounts receivable balance at March 31, 2001. The Company has recently entered into an agreement with one of its customer's bank whereby the Company may have the option to sell this customer's receivables to the bank, at an agreed upon discount. While this agreement may reduce the Company's working capital needs, there can be no assurance in this regard.

Disclosure Regarding Private Securities Litigation Reform Act of 1995

        This report contains certain forward-looking statements with respect to the future performance of the Company 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 the Company's relationship with any of its customers, the Company's failure to meet the financial covenants or the other obligations set forth in its bank credit agreement and the bank's refusal to waive any such defaults, the Company's ability to refinance its bank debt at maturity, the potential for changes in consumer spending, consumer preferences and general economic conditions, increased competition in the automotive parts remanufacturing industry, unforeseen increases in operating costs associated with and the anticipated savings from the Company's consolidation of facilities and other factors discussed herein and in the Company's other filings with the Securities and Exchange Commission.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

        Quantitative Disclosures.    The Company is subject to interest rate risk on its existing debt and any future financing requirements. The Company's variable rate debt relates to borrowings under the Credit Facility (see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources").

        The following table presents the weighted-average interest rates expected on the Company's existing debt instruments.

13

Principal (Notional) Amount by Expected Maturity Date

(As of March 31, 2002)

*

As noted in the discussion under the caption "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources", the spread above the bank's prime rate can increase or decrease depending upon changes in the ratio of the Company's funded debt to cash flow.

        Qualitative Disclosures.    The Company's primary exposure relates to (1) interest rate risk on its long-term and short-term borrowings, (2) the Company's ability to pay or refinance its borrowings at maturity at market rates and (3) the impact of interest rate movements on the Company's ability to meet interest expense requirements and exceed financial covenants. While the Company cannot predict or mange its ability to refinance existing debt or the impact interest rate movements will have on its existing debt, management evaluates the Company's financial position on an on-going basis.

Item 8. Financial Statements and Supplementary Data.

        The information required by this item is set forth in the Consolidated Financial Statements, commencing on page F-1 included herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        None.

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PART III

Item 10. Directors and Executive Officers of the Registrant.

        The directors and executive officers of the Company, their ages and present positions with the Company are as follows:

*

Member of Audit and Compensation Committees

**

All directors are elected for a term of one-year. Commencement date is the date of the annual shareholders meeting.

Information about Directors and Nominees

        All directors of the Company hold office until the next annual meeting of shareholders and until their successors have been elected and qualified. The officers of the Company are elected by the Board of Directors at the first meeting after each annual meeting of the Company's shareholders and hold office until their resignation, removal from office or death.

        The following is a brief summary of the background of each director:

        Selwyn Joffe has been a director of the Company since June 1994, a member of the Company's audit and compensation committees since July 1994, and has served as a consultant to the Company since September 1995. In November 1999, Mr. Joffe was elected to his current position as Chairman of the Board of Directors of the Company. Mr. Joffe is currently Chairman and CEO of Protea Group, Inc. a company specializing in consulting and acquisition services. From September 2000 to December 2001, Mr. Joffe served as President and CEO of Netlock Technologies, a company that specializes in securing network communications. In 1997, Mr. Joffe co-founded Palace Entertainment, a roll-up of amusement parks and served as its President and COO until August 2000. Prior to founding of Palace Entertainment, Mr. Joffe was the President and CEO of Wolfgang Puck Food Company from 1989 to 1996. Mr. Joffe is a graduate of Emory University in Atlanta with degrees in both Business and Law and is a member of the Georgia State Bar as well as a Certified Public Accountant.

        Anthony Souza served as a consultant to the Company from September 1999 through November 1999. In December 1999, Mr. Souza was elected to his current position as President and Chief Executive Officer of the Company responsible for the overall direction of all Company activities relating to Finance, Sales, Marketing, Engineering, and Production Operations as well as their corresponding support functions. From January 1980 to December 1995 Mr. Souza served as the President of TELACU Industries. This entity consisted of numerous subsidiary companies—among them a: Thrift and Loan with branch offices, an Affordable Housing Corporation, a Commercial Real Estate Development Company, a Building Material Company, and an Underground Utility Company. Annual sales for these companies were in excess of $200 million. From January 1996 through August 1999, Mr. Souza was involved in commercial and residential real estate development as well as serving as President of a start-up company in business to sell an innovative potentially life-saving police

15

firearms device. Mr. Souza is a graduate of the University of Southern California and is a licensed Certified Public Accountant in the state of California.

        Mel Marks founded the Company in 1968. Mr. Marks has served as the Company's Chairman of the Board of Directors and Chief Executive Officer from that time until July 1999. Prior to founding the Company, Mr. Marks was employed for over twenty years by Beck/Arnley-Worldparts, a division of Echlin, Inc. (one of the largest importers and distributors of parts for imported cars), where he served as Vice President. Mr. Marks has continued to serve as a consultant and director to the Company since July 1999.

        Murray Rosenzweig is a Certified Public Accountant and has served as director of the Company since February 1994. Mr. Rosenzweig serves as the Chairman of both the audit and compensation committees. Since 1973, Mr. Rosenzweig has been the President and Chief Executive Officer of Linden Maintenance Corp., which operates a large fleet of taxicabs in New York City.

Information About Non-Director Executive Officers

        Chuck Yeagley has been the Company's Chief Financial Officer since June 2000, responsible for all Company Finance issues, including investor relations and through support staff, Product Costing, Cash Flow, Capital Expenditures, Budgeting, Forecasting, and Financial Planning. Mr. Yeagley is also responsible for the management of the Accounting, Purchasing, Information Technology, Material and Human Resource Departments. From 1995 to June 2000, Mr. Yeagley was the Chief Financial Officer for Goldenwest Diamond Corporation—DBA The Jewelry Exchange, which is the largest privately-held manufacturer and retailer of fine jewelry. From July 1979 to December 1994, Mr. Yeagley was a principal in Faulkinbury and Yeagley, a certified public accounting firm that he co-founded. Mr. Yeagley is a Certified Public Accountant and holds a Bachelor of Business Administration Degree with an emphasis in Accounting from Fort Lauderdale University and a Master of Business Administration Degree from Golden Gate University.

        Steven Kratz has been employed by the Company since 1988. Before joining the Company, Mr. Kratz was the General Manager of GKN Products Company, a division of Beck/Arnley-Worldparts. As Senior Vice-President—QA/Engineering, Mr. Kratz heads the Company's quality assurance, research and development and engineering departments.

Section 16(a) Beneficial Ownership Reporting Compliance

        Section 16(a) of the Securities Act of 1934, as amended, requires the Company's directors and executive officers, and persons who own more than ten percent of the Company's Common Stock, to file with the Securities and Exchange Commission (the "SEC") initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company during the fiscal year ended March 31, 2002, there were no late or delinquent filings.

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Item 11. Directors Compensation and Executive Officers

        The following table sets forth information concerning the annual compensation of the Company's Chief Executive Officer and the other most highly compensated executive officers and directors, whose salary and bonus exceeded $100,000 for the 2002 fiscal year and for services in all capacities to the Company during the Company's 2002, 2001 and 2000 fiscal years.

(1)

Includes payments to Protea Group Inc., a Company wholly-owned by Mr. Joffe.

(2)

Employment commenced December 1, 1999.

(3)

Represents deferred compensation distribution.

(4)

Represents reimbursement for health insurance premiums paid by employee.

(5)

Represents value of car allowance.

Compensation of Directors

        Two of the Company's Board members have supplemental compensatory arrangements with the Company. In August 2000, the Company's Board of Directors agreed to engage Mr. Mel Marks to provide consulting services to the Company. Mr. Marks has 45 years of relevant experience in the industry and the Company and has relationships with key industry executives. Mr. Marks was paid an annual consulting fee of $180,000—which was increased in January, 2002 to $250,000 per year. The Company can terminate this arrangement at any time.

        Effective December 1, 1999, the Company entered into a consulting agreement with Mr. Selwyn Joffe, the Chairman of the Board of the Company, pursuant to which he has been retained as a consultant to provide oversight, management, strategic and other advisory services to the Company. The consulting agreement was scheduled to expire on June 1, 2001 but has been extended by mutual agreement through June 1, 2003 and provides for annual compensation to Mr. Joffe in the amount of $160,000. As additional consideration for the consulting services, Mr. Joffe was granted an option to

17

purchase 40,000 shares of the Company's Common Stock pursuant to the Company's 1994 Stock Option Plan. Of these options, 20,000 options were exercisable on the date of grant and the remaining 20,000 options were fully vested on the first anniversary of the date of grant. The options have an exercise price of $2.20 per share and expire ten (10) years after the grant date. Mr. Joffe is currently serving as the Chairman of the Board of Directors.

        Mr. Joffe and the Company entered into an additional consulting services agreement dated as of May 9, 2002, providing for Mr. Joffe to assist the Company in considering and pursuing potential transactions and relationships intended to enhance stockholder value. In connection with this arrangement, the Company has agreed to pay Mr. Joffe $10,000 per month for one year and 1% of the value of any transactions, which close by the second anniversary of the agreement, less any monthly fees, paid.

        In addition, each of the Company's other non-employee directors receives annual compensation of $10,000, is paid a fee of $2,000 for each meeting of the Board of Directors attended and $500 for each meeting of a Committee of the Board of Directors attended and is reimbursed for reasonable out-of-pocket expenses in connection therewith.

        The Company's 1994 Non-Employee Director Stock Option Plan (the "Non-Employee Director Plan") provides that each non-employee director of the Company will be granted thereunder ten-year options to purchase 1,500 shares of Common Stock upon his or her initial election as a director, which options are fully exercisable on the first anniversary of the date of grant. The exercise price of the option will be equal to the fair market value of the Common Stock on the date of grant. The Non-Employee Director Plan, was adopted by the Board of Directors on October 1, 1994, and by the shareholders in August 1995, in order to attract, retain and provide incentive to directors who are not employees of the Company. The Board of Directors does not have the authority, discretion or power to select participants who will receive options pursuant to the Non-Employee Director Plan, to set the number of shares of Common Stock to be covered by each option, to set the exercise price or period within which the options may be exercised or to alter other terms and conditions specified in such plan.

        In addition, the Company's 1994 Stock Option Plan (the "1994 Stock Option Plan") provides that each non-employee director of the Company receive formula grants of stock options as described below. Each person who served as non-employee director of the Company during all or part of a fiscal year (the "Fiscal Year") of the Company, including March 31 of that Fiscal Year, will receive in that Fiscal Year, an award under the 1994 Stock Option Plan of immediately exercisable ten-year options to purchase 1,500 shares of Common Stock in the Award Date. Each non-employee director who served during the year less than all of the Fiscal Year is awarded one-twelfth of a Full Award for each month or portion thereof that he or she served as a non-employee director of the Company. As formula grants under the 1994 Stock Option Plan, the forgoing grants of options to directors are not subject to the determinations of the Board of Directors or the Compensation Committee.

Compensation Committee; Interlocks and Insider Participation

        The members of the Compensation Committee during Fiscal 2002 were Mssrs. Joffe and Rosenzweig. The Compensation Committee is responsible for developing and making recommendations to the Board with respect to the Company's executive compensation policies. The Compensation Committee is also responsible for evaluating the performance of the Company's chief executive officer and other senior Company officers and to make recommendations concerning the salary, bonuses and stock options to be awarded to these Company officers. For a discussion of the contractual rights that certain Company officers have to bonuses and option grants, see "Employment Agreements" below. Although several key officers were not entitled to a bonus under the terms of their respective employment agreements, during the year ended March 31, 2002, the Compensation Committee decided to provide bonuses to key members of management, in order to retain these employees.

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        No member of the Compensation Committee has a relationship that would constitute as interlocking relationship with executive officers or directors of another entity.

Performance Graph

        The following graph compares the cumulative return to holders of Common Stock for the fiscal years ended March 31, 1998, 1999, 2000, 2001, and 2002 with the National Association of Securities Dealers Automated Quotation ("NASDAQ") Market Index and a peer group index of five competing companies for the same periods. The comparison assumes $100 was invested at the close of business on March 31, 1997 in the Common Stock and in each of the comparison groups, and assumes reinvestment of dividends.

Total Shareholder Returns—Dividends Reinvested

        Annual Return Percentage—Based upon historical performance, the following table depicts the annual percentage return earned in each of the three comparison groups:

19

        Indexed Returns—Based upon historical performance, the following table displays the results of $100 invested at the close of business on March 31, 1997 in the Common Stock of each of the comparison groups and assumes reinvestment of dividends:

Note:    Data complete through last fiscal year
Note:    Corporate Performance Graph with peer group uses peer group performance only (excludes only company)
Note:    Peer group indices uses beginning of period market capitalization weighting
Note:    S& P index returns are calculated by Zacks

Peer Group Population

Champion Parts, Incorporated
Dana Corporation
Hastings Manufacturing Company
Standard Motor Production Company
Superior Industries International, Incorporated

Option Grants in the Last Fiscal Year

        The following table provides summary information regarding stock options granted during the year ended March 31, 2002 to each of the Company's named executive officers. The potential realizable value is calculated assuming that the fair market value of the Company's Common Stock appreciates at the indicated annual rate compounded annually for the entire term of the options, and that the option is exercised and sold on the last day of its term for the appreciated stock price. The assumed rates of appreciation are mandated by the rules of the SEC and do not represent the Company's estimate of the future prices or market value of the Company's Common Stock.

Option Grants in Last Fiscal Year

(1)

The options are exercisable immediately.

        During fiscal 2001, the Board of Directors approved a program to give the Company's executives and other key employees an opportunity to cancel previously granted stock options in exchange for the grant of an equal number of new options in the future (the "Exchange Program"). The Company

20

cancelled outstanding stock options (the "initial options") to purchase an aggregate of 232,350 shares of the Company's common stock that had been granted to these executives. The options covered by such cancellations had exercise prices ranging from $7.25 to $19.06 per share, with a weighted average exercise price of $13.30 per share. The Exchange Program was approved by the Compensation Committee based upon the determination that the initial options no longer provided meaningful incentive for these executives. Subject to their continued employment with the Company, these executives were awarded new stock options (the "new options") to purchase an aggregate of 232,350 shares of common stock six months and one day after the date of the cancellation of the executive's initial options. The following table indicates the impact that this re-pricing had on options held by the five most highly compensated executives of the Company:

Employment Agreements

        The Company has entered into an employment agreement with Mr. Anthony Souza pursuant to which he is employed full-time as the Company's President and Chief Executive Officer. The original agreement, entered into on December 1, 1999, which was scheduled to expire on June 1, 2001, has been extended through mutual consent to June 1, 2003 and provides for an annual base salary of $300,000. As additional consideration for services to be rendered, in January 2000, Mr. Souza was granted a ten-year option to purchase 60,000 shares of the Company's Common Stock, at $2.20 per share, pursuant to the terms of the Company's 1994 Stock Option Plan. In April 2001, Mr. Souza was granted an additional ten-year option to purchase 60,000 shares of the Company's Common Stock at $1.10 per share, pursuant to the terms of the Company's 1994 Stock Option Plan. Furthermore, Mr. Souza is entitled to an incentive bonus ("Bonus") equal to six and two-thirds percent (6²/3%) of the pre-tax income (without giving effect to any tax on such income, whether actual or offset by loss carryovers) earned by the Company in each fiscal year; provided that no bonus shall be payable for any such year unless and until the amount of such pre-tax income in such year shall be at least $1.5 million, without carryover from year to year. The Company's Board of Directors may also grant supplemental bonuses or increase the base salary payable to Mr. Souza. In addition to his cash compensation, Mr. Souza receives an automobile allowance and other benefits, including those generally provided to other employees of the Company.

21

        The Company has entered into an employment agreement with Mr. Richard Marks pursuant to which he is employed full-time as a direct report to the Board of Directors and Chief Executive Officer of the Company. This agreement entered into on January 1, 2000 is scheduled to expire on January 1, 2004 and provides for an annual base salary of $300,000. As an incentive, Mr. Marks shall be paid a bonus ("Bonus") equal to five percent (5%) of the pre-tax income (without giving effect to any tax on such income, whether actual or offset by loss carryovers) earned by the Company in each fiscal year; provided that no bonus shall be payable for any such year and until the amount of such pre-tax income in such year shall be at least $2 million, without carryover from year to year. The Company's Board of Directors may also grant supplemental bonuses or increase the base salary payable to Mr. Marks. In addition to his cash compensation, Mr. Marks receives an automobile allowance and other benefits, including those generally provided to other employees of the Company as well as an allowance for the purpose of obtaining life insurance on the lives of the Employee and his spouse. The agreement further provides, under certain circumstances, that the Company, as liquidated damages or severance pay or both, shall pay Mr. Marks (I) salary through the termination date at the annual rate in effect immediately prior to the termination date and (II) three times the amount of such annual rate. Mr. Richard Marks is the son of Mr. Mel Marks, the Company's founder and a member of its Board of Directors.

        The Company has entered into an employment agreement with Mr. Chuck Yeagley pursuant to which he is employed full-time as the Company's Chief Financial Officer. The agreement, entered into on June 26, 2000 which was scheduled to expire on June 1, 2001, has been extended through mutual consent to May 31, 2003 and provides for an annual base salary of $175,000. As additional consideration for services to be rendered, Mr. Yeagley was granted, for a period of ten years from date of said grant, an option to purchase 25,000 shares of the Company's Common Stock, at $0.93 per share, pursuant to the terms of the Company's 1994 Stock Option Plan. Furthermore, Mr. Yeagley shall be paid an incentive bonus ("Bonus") equal to one percent (1%) of the pre-tax income (without giving effect to any tax on such income, whether actual or offset by loss carryovers) earned by the Company in each fiscal year of the term of this Agreement, provided that no bonus shall be payable for any such year unless and until the amount of such pre-tax income in such year shall be at least $2 million, without carryover from year to year. The Company's Board of Directors may also grant supplemental bonuses or increase the base salary payable to Mr. Yeagley. In addition to his cash compensation, Mr. Yeagley receives an automobile allowance and other benefits, including those generally provided to other employees of the Company.

        The Company has entered into a three year employment agreement dated February 23, 2000 with Mr. Steven Kratz pursuant to which he is employed full-time as the Company's Senior Vice President—QA/Engineering. The agreement expires on February 23, 2003 and provides for an annual base salary of $250,000 and a one-year severance agreement, which guarantees $300,000 to be paid within 60 days of termination. The Company's Board of Directors may also grant bonuses or increase the base salary payable to Mr. Kratz. In addition to his cash compensation, Mr. Kratz has exclusive use of a Company-owned automobile and he receives additional benefits, including those that are generally provided to other employees of the Company. Mr. Kratz has outstanding, options under the 1994 Stock Option Plan to purchase 63,600 shares of Common Stock at an exercise price of $3.15 per share, all of which are fully vested.

        In conformity with the Company's policy, all of its directors and officers execute confidentiality and nondisclosure agreements upon the commencement of employment with the Company. The agreements generally provide that all inventions or discoveries by the employee related to the Company's business and all confidential information developed or made known to the employee during the term of employment shall be the exclusive property of the Company and shall not be disclosed to third parties without prior approval of he Company. The Company's employment agreements with Messrs. Souza, Marks, and Yeagley also contain non-competition provisions that preclude each employee from competing with the Company for a period of two years from the date of termination of his employment. The Company's employment agreement with Mr. Kratz contains a non-competition provision, which precludes him from competing with the Company, for a period of one year from the date of termination of his employment. Public policy limitations and the difficulty of obtaining injunctive relief may impair the Company's ability to enforce the non-competition and nondisclosure covenants made by its employees.

22

Item 12. Security Ownership of Certain Beneficial Owners and Management

        The following table sets forth, as of May 16, 2002, certain information as to the Common Stock ownership of each of the Company's directors and nominees for director, each of the officers included in the Summary Compensation Table below, all executive officers and directors as a group and all persons known by the Company to be the beneficial owners of more than five percent of the Company's Common Stock.

1.

The listed shareholders, unless otherwise indicated in the footnotes below, have direct ownership over the amount of shares indicated in the table.

2.

Includes 1,500,000 shares of common stock, which was issued to Mr. Marks as part of the settlement of the class action lawsuit and 3,000 shares issuable upon exercise of options under the 1994 Stock Option Plan. For additional information, see the discussion under the caption "Item 3—Legal Proceedings".

3.

Includes 125,000 shares issuable upon exercise of currently exercisable options granted under the 1994 Stock Option Plan, 142,857 shares held by The Marks Family Trust, of which Richard Marks is a Trustee and beneficiary and 11,586 shares held by Mr. Marks' wife and their sons.

4.

Includes 120,000 shares issuable upon exercise of options exercisable under the 1994 Stock Option Plan.

5.

Represents 63,600 shares issuable upon exercise of options exercisable under the 1994 Stock Option Plan.

6.

Represents 30,000 shares issuable upon exercise of options exercisable under the 1996 Stock Option Plan (the "1996 Stock Option Plan"); 52,250 shares issuable upon exercise of options exercisable under the 1994 Stock

23

Option Plan; and 4,500 shares issuable upon exercise of currently exercisable options granted under the Non-Employee Director Plan.

7.

Includes 4,500 shares issuable upon exercise of currently exercisable options granted under the Non-Employee Director Plan; 32,500 shares issuable upon exercise of options exercisable under the 1994 Stock Option Plan and 13,000 shares of common stock which were purchased subsequent to the Company's initial public offering.

8.

Represents 25,000 shares issuable upon exercise of currently exercisable under the 1994 Stock Option Plan.

9.

The amount and nature of beneficial ownership of these shares by Dimensional Fund Advisors, Inc. is based solely on the Schedule 13G filings, as submitted to the Company. The Company's Board of Directors has no independent knowledge of the accuracy or completeness of the information set forth in such Schedule 13G filings, but has no reason to believe that such information is not complete or accurate.

10.

Includes the total number of shares of common stock issuable upon exercise of the warrants issued to the bank by the Company, pursuant to an earlier loan agreement.

11.

Includes 335,350 shares issuable upon exercise of currently exercisable options granted under the 1994 Stock Option Plan; 30,000 shares issuable upon exercise of currently exercisable options granted under the 1996 Stock Option Plan; 9,000 shares issuable upon exercise of currently exercisable options granted under the Non-Employee Director Plan; and 1,500,000 shares of new common stock issued to Mr. Mel Marks in return for his cash contribution to assist with the settlement of the class action lawsuit.

12.

Less than 1%.

Item 13. Certain Relationships and Related Transactions

        The Company has entered into consulting agreements with two of the members of its Board of Directors, Selwyn Joffe and Mel Marks. For more information, see the discussion under the caption "Item 11—Compensation of Directors".

        In connection with the settlement of the class action lawsuit, the Company agreed to sell Mel Marks 1,500,000 shares of its Common Stock for a total cash price of $1,500,000. The proceeds from the sale of this stock were used to pay the Company's portion of the settlement of the class action lawsuit against the Company. For additional information, see the discussion under the caption "Item 3—Legal Proceedings".

24

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

a.

Documents filed as part of this report:



(1)

Index to Consolidated Financial Statements:

(2)

Schedules.

None.

(3)

Exhibits:

25

26

27

28

b.

Reports on Form 8-K:

Current Report on Form 8-K, dated on May 2, 2002.

29

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.

POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Anthony Souza his true and lawful attorney-in-fact with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign and all amendments to this Report on Form 10-K and to file same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

30

Consolidated Financial Statements and Report of
Independent Certified Public Accountants

MOTORCAR PARTS & ACCESSORIES, INC
AND SUBSIDIARIES

March 31, 2002, 2001 and 2000

CONTENTS

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
Motorcar Parts & Accessories, Inc.

        We have audited the accompanying consolidated balance sheets of Motorcar Parts & Accessories, Inc. and Subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended March 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material aspects, the consolidated financial position of Motorcar Parts & Accessories, Inc. and Subsidiaries as of March 31, 2002 and 2001, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended March 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

        We have also audited Schedule II of Motorcar Parts and Accessories, Inc. and Subsidiaries for each of the three years in the period ended March 31, 2002. In our opinion, this schedule, when considered in relation to the basic consolidated financial statements taken as whole, presents fairly, in all material respects, the information set forth therein.

/s/ GRANT THORNTON, LLP

Los Angeles, California
June 7, 2002 [Except for Note G, as to which the date is June 25, 2002.]

F-1

PART IV—FINANCIAL INFORMATION

Item 1. Financial Statements.

MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31

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

F-2

MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

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

F-3

MOTORCAR PARTS & ACCESSORIES, INC. AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
For the years ended March 31, 2002, 2001 and 2000