WEISS & YOURMAN
KEVIN J. YOURMAN (147159)
MICHELLE R. JOHNSON (181789)
10940 Wilshire Blvd.
24th Floor
Los Angeles, CA 90024
Telephone: 310/208-2800
WEISS & YOURMAN
JOSEPH H. WEISS
551 Fifth Avenue, Suite 1600
New York, NY 10176
Telephone: 212/682-3025
Attorneys for Plaintiff
MIKE DESIDERIO, On behalf of Himself and All Others Similarly situated, Plaintiff, vs. MOTORCAR PARTS & ACCESSORIES, INC., RICHARD MARKS and MEL MARKS, Defendants. ______________________________________ |
) ) ) ) ) ) ) ) ) ) ) ) ) |
CASE NO. CLASS ACTION CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS JURY TRIAL DEMANDED |
1. For over three years, defendants have concealed from plaintiff,
class members, and the investing public the fact that they have
continuously been committing gross violations of the federal securities
laws, including misleading the public as to the financial and
business conditions of defendant Motorcar Parts & Accessories,
Incorporated ("Motorcar" or the "Company").
2. Specifically, as stated in greater detail below, defendants
concealed from their shareholders accounting irregularities which
have caused an extraordinary overstatement of the Company's earnings
over the past three years. In addition, throughout the Class Period
(as defined below) defendants continuously disseminated materially
false and misleading statements regarding the Company's current
financial performance and future business prospects.
3. As a result of defendants' deceptive and illegal conduct, plaintiff
and other class members purchased their Motorcar shares at grossly
inflated prices. Had plaintiff and the other class members been
aware of the true condition of Motorcar, they would not have purchased
their Motorcar shares, or at least not at the inflated prices
at which they purchased those shares.
4. This court has jurisdiction over the subject matter of this
action pursuant to 28 U.S.C. §1331 and §1337, and Section
27 of the Securities Exchange Act of 1934 (the "Exchange
Act") (15 U.S.C. §78aa).
5. This action arises under Sections 10(b) and 20(a) of the Exchange
Act and Rule 10b-5 promulgated thereunder (17 C.F.R. §240.10b-5).
6. Venue is proper in this district pursuant to Section 27 of
the Exchange Act and 28 U.S.C. §1391(b). Motorcar is headquartered
in this district, at 2727 Maricopa Street, Torrance, California,
90503, and the acts charged herein, including the dissemination
of materially false and misleading information, occurred in this
district.
7. In connection with the acts alleged in this complaint, the
defendants, directly or indirectly, used the means and instrumentalities
of interstate commerce, including, but not limited to, the mails,
interstate telephone communications and the facilities of the
national securities markets.
8. Plaintiff Mike Desiderio purchased 1000 shares of Motorcar
common stock on February 25, 1999 and was damaged thereby.
9. Defendant Motorcar is a leading manufacturer and distributor
of replacement alternators and starters for cars and light trucks.
10. Defendant Richard Marks is President and Chief Operating Officer
of Motorcar. Defendant Richard Marks sold 150,000 shares of Motorcar
stock in the Company's November, 1997 offering, for nearly $2.5
million.
11. Defendant Mel Marks founded Motorcar in 1968. He has served
as the Company's Chief Executive Officer and Chairman of the Board
of Directors since that time. Defendant Mel Marks sold 100,000
shares of Motorcar stock in the Company's November, 1997 offering,
for over $1.6 million.
12. Defendants Richard Marks and Mel Marks (the "Individual
Defendants") were at relevant times during the Class Period
controlling persons of Motorcar within the meaning of Section
20(a) of the Exchange Act. In addition, the Individual Defendants
had the power and influence, and exercised such power and influence,
to cause Motorcar to engage in the unlawful practices complained
of herein. Because of their executive, managerial and/or directorial
positions with Motorcar, the Individual Defendants had access
to the adverse, non-public information about the business, finances
and future business prospects of Motorcar as particularized herein
and acted to misrepresent, misstate or conceal such information
from plaintiff, class members and the investing public.
13. The Individual Defendants participated in the wrongdoing complained
of herein in order to, among other things, inflate and maintain
the price of the common stock of the Company, and conceal the
adverse facts concerning the Company's operations, businesses,
management, financial condition and future prospects, so that
they could, among other things, (i) protect and enhance their
positions as officers and/or directors of Motorcar and the substantial
compensation and prestige they obtained thereby; (ii) enhance
the value of their personal holdings of Motorcar common stock,
and.(iii) dispose of millions of dollars worth of Motorcar stock.
14. Defendants are liable, jointly and severally, as direct participants
in the wrongs complained of herein. Defendants had a duty to promptly
disseminate accurate and truthful information with respect to
Motorcar's business, operations, financial condition and future
prospects or to cause and direct that such information be disseminated
so that the market price of Motorcar stock would be based on truthful
and accurate information.
15. Each of the defendants knew of the fact that the illegal acts
and practices and misleading financial statements and omissions
described herein would adversely affect the integrity of the market
for Motorcar common stock and would artificially inflate or maintain
the price of those securities. Each of the defendants, by acting
as herein described, did so knowingly and thereby constituted
a fraud and deceit upon plaintiff and members of the Class plaintiff
seeks to represent.
16. Plaintiff brings this action as a class action pursuant to
Rule 23(a) and (b)(3) of the Federal Rules of Civil Procedure
on behalf of a Class consisting of all persons and entities who
purchased or otherwise acquired Motorcar common stock from August
4, 1996 through August 1, 1999, inclusive (the "Class Period"),
and who were damaged thereby. Excluded from the Class are the
defendants, officers and directors of the Company, members of
their immediate families, and their legal representatives, heirs,
successors or assigns and any entity in which defendants have
or had a controlling interest.
17. During the Class Period, thousands of shares of common stock
of Motorcar were traded on an efficient and developed securities
market. Thousands of brokers nationwide have access to trading
information about Motorcar through the system. Within minutes
of any transaction taking place, this system displays the most
recent trades and prices.
18. The members of the Class are so numerous that joinder of all
members is impracticable. While the exact number of Class members
is unknown to plaintiff at this time and can only be ascertained
through appropriate discovery, plaintiff believes that there are
hundreds, if not thousands, of members of the Class. As of February
9, 1999, there were approximately 6.5 million shares of Motorcar
common stock outstanding and actively traded on the NASDAQ, an
efficient market.
19. Plaintiff's claims are typical of the claims of the members
of the Class as all members of the Class are similarly affected
by defendants' wrongful conduct in violation of federal law that
is complained of herein.
20. Plaintiff will fairly and adequately protect the interests
of the members of the Class and has retained counsel competent
and experienced in class and securities litigation. Plaintiff
has no interests that are adverse or antagonistic to those of
the Class.
21. A class action is superior to other available methods for
the fair and efficient adjudication of this controversy. Because
the damages suffered by many individual Class members may be relatively
small, the expense and burden of individual litigation make it
virtually impossible for the Class members to individually seek
redress for the wrongful conduct alleged herein.
22. Common questions of law and fact exist as to all members of
the Class and predominate over any questions affecting solely
individual members of the Class. Among the questions of law and
fact common to the Class are:
(i ) whether the federal securities laws were violated by defendants'
acts as alleged herein;
(ii) whether defendants participated in and pursued the common
course of conduct complained of herein;
(iii) whether documents, press releases and other statements disseminated
to the investing public and the Company's shareholders during
the Class Period misrepresented material facts about the business,
management, products, markets, financial condition, and business
prospects of Motorcar;
(v) whether defendants failed to correct prior statements when
subsequent events rendered those prior statements untrue or inaccurate;
(vi) whether defendants acted willfully and knowingly in misrepresenting
and/or omitting to state material facts;
(vii) whether the market price of Motorcar's common stock during
the Class Period was artificially inflated due to the misrepresentations
and/or non-disclosures complained of herein; and
(viii) whether the members of the Class have sustained damages,
and, if so, what is the proper measure thereof.
23. Plaintiff will rely, in part, upon the presumption of reliance
established by the fraud-on-the-market doctrine in that:
a. defendants made public misrepresentations or omitted material
facts during the Class Period, as alleged herein;
b. the misrepresentations and/or omissions were material;
c. Motorcar's common stock was traded in an efficient market;
d. The misrepresentations and/or omissions alleged tended to induce
reasonable investors to misjudge the value of Motorcar shares;
and
e. Plaintiff and members of the Class acquired their shares between
the time defendants made the misrepresentations and/or omissions
and the time the truth was revealed, without knowledge of the
falsity of the misrepresentations.
24. Based upon the foregoing, plaintiff and members of the Class
are entitled to a presumption of reliance upon the integrity of
the market for, at least, the purposes of class certification,
as well as for ultimate proof of the claims on their merit. Similarly,
plaintiff and members of the Class are entitled to a presumption
of reliance with respect to the omissions alleged herein.
25. Plaintiff envisions no difficulty in the management of this
litigation as a class action.
Motorcar, a New York corporation, was founded in 1968 by Defendant
Mel Marks, who has served as CEO and Chairman of the Board since
that time. Defendant Richard Marks, Mel Marks' son, joined Motorcar
in 1979 and has served as the Company's President and Chief Operating
Officer since 1987. Both Individual Defendants are major shareholders
in the Company, and both of them are eligible for bonuses under
the Executive and Key Employee Incentive Bonus Plan, under which
no bonuses will be awarded unless the Company's earnings exceed
the prior fiscal year's earnings by a minimum of 20%. Maximum
bonus payments are only payable if fiscal year earnings exceed
the prior fiscal year's earnings by at least 40%. In addition,
both Individual Defendants were major shareholders in two foreign
companies acquired by Motorcar in April, 1997 in a stock for stock
merger agreement. Between them, the Individual Defendants owned
70% of the foreign subsidiaries, MVR Products Co. PTE, Ltd. ("MVR")
and Unijoh Sdn, Bhd ("Unijoh").
26. On May 20, 1996, Motorcar reported record sales and earnings
for the fifth consecutive year. The Company reported a net income
increase of 127% and a net sales increase of 59% for the year
ended March 31, 1996, and increases of 137% and 58% in net income
and net sales, respectively, for the quarter:
Motorcar Parts & Accessories, Inc. (Nasdaq-NNM: MPAA)
today reported its fifth consecutive year of record revenue and
earnings for the year ended March 31, 1996.
The company generated record net income for the year ended
March 31, 1996 of $3,646,000, a 127% increase as compared
with net income of $1,606,000 a year earlier. Earnings per
share for the recent year was a record $0.93 per share as compared
to $0.49 per share for the prior year, giving effect to the
issuance by the company in November 1995 of 1,500,000 shares
in the company's second public offering. Net sales of the
recent year were $44,913,000, a 59% increase over net sales
of $28,257,000 a year earlier.
The company generated record net income for the three-months
ended March 31, 1996 of $1,261,000, a 137% increase as compared
with net income of $531,000 in the same period a year earlier.
Earnings per share for the recent three-month period was a
record $0.26 per share as compared to $0.16 per share for
the same three-month period a year earlier, giving effect to
the issuance by the company in November 1995 of 1,500,000 shares
in the Company's second public offering. Net sales for the
recent three-month period were $13,706,000, a 58% increase
over net sales of $8,651,000 for the comparable period a year
earlier.1
27. On August 1, 1996, Motorcar again announced record revenue
and earnings. The Company reported a 97% increase in net income
and a 58% increase in net sales for the quarter ended June 30,
1996, resulting in a correspondingly significant increase in earnings
per share:
Motorcar Parts & Accessories, Inc. (Nasdaq NNM: MPAA)
today reported record revenue and earnings for the quarter ended
June 30,1996.
The Company generated record net income for the quarter
ended June 30, 1996 of $1,037,000, a 97% increase as compared
with net income of $526,000 in the comparable quarter of the
prior year. Earnings per share for the recent quarter were
$.21 per share as compared to $.16 per share for the comparable
quarter of the prior year, giving effect to the issuance by the
Company in November 1995 of 1,500,000 shares in the Company's
second public offering. Net sales for the recent quarter were
$18,375,000, a 58% increase over net sales of $11,632,000
for the comparable quarter of the prior year.
28. On November 13, 1996, Motorcar reported record sales and earnings
for the six month and three month periods ended September 30,
1996. The announced six month net income and net sales increases
were 79% and 45%, respectively, and the three month net income
and net sales increases were 67% and 36%, respectively:
Motorcar Parts & Accessories, Inc. (Nasdaq-NNM: MPAA) today reported record revenue and earnings for both the six-month and three-month periods ended September 30, 1996.
The Company realized record net income for the six months ended September 30, 1996 of $2,431,000, a 79% increase as compared with net income of $1,360,000 in the same period a year earlier. Earnings per share for the period were $.49 as compared to $.41 for the comparable period of the prior year, giving effect to the issuance by the Company in November 1995 of 1,500,000 shares in the Company's second public offering. Net sales for the six months ended September 30, 1996 were $39,740,000, a 45% increase over net sales of $27,329,000 for the comparable period a year earlier.
The Company realized record net income for the three months ended September 30, 1996 of $1,394,000, a 67% increase as compared with net income of $834,000 in the same period a year earlier. Earnings per share for the three months ended September 30, 1996 were $.28 as compared to $.25 for the comparable period of the prior year, giving effect to the issuance by the Company in November 1995 of 1,500,000 shares in the Company's second public offering. Net sales for the three months ended September 30, 1996 were $21,365,000, a 36% increase over net sales of $15,697,000 for the comparable period a year earlier.
Mel Marks, Chairman of the Board and Chief Executive Officer
of the Company, noted: "We are extremely pleased with the
continued record results of operations of the Company, particularly
as the Company's inventory at September 30, 1996 increased only
3.6% over its inventory at June 30, 1996 while net sales increased
16.3% during the period."
29. On February 4, 1997, Motorcar announced record sales and earnings
figures for the nine months and the quarter ended December 31,
1996. The figures included significant increases in earnings per
share as well as a 63% increase in net income ,and a 38% increase
in net sales, a 43% increase in net income and a 28% increase
in net sales, respectively:
The Company realized record net income for the nine months
ended December 31, 1996 of $3,893,000, a 63% increase over
net income of $2,385,000 in the same period a year earlier. Earnings
per share for the recent period were $.78 as compared to $.66
for the comparable period of the prior year, giving effect to
the issuance by the Company in November 1995 of 1,500,000 shares
in the Company's second public offering. Net sales for the
nine months ended December 31, 1996 were $62,263,000, a 38% increase
over net sales of $44,990,000 for the comparable period a year
earlier.
The Company realized record net income for the three months
ended December 31, 1996 of $1,462,000, a 43% increase over
net income of $1,025,000 in the same period a year earlier. Earnings
per share for the three months ended December 31, 1996 were $.29
as compared to $.25 for the comparable period of the prior
year, giving effect to the issuance by the Company in November
1995 of 1,500,000 shares in the Company's second public offering.
Net sales for the three months ended December 31, 1996 were
$22,523,000, a 28% increase over net sales of $17,661,000
for the comparable period a year earlier.
30. On May 25, 1997, Motorcar reported record sales and earnings
for the sixth consecutive year. The Company reported a 30% increase
in net income and a 27% increase in net sales for the quarter
ended March 31, 1997, as well as a 52% increase in net income
and a 35% increase in net sales for fiscal year 1997:
Motorcar Parts & Accessories, Inc. (Nasdaq: MPAA), today reported record results for the fourth quarter and year ended March 31, 1997. This represents the sixth consecutive year of record sales and earnings for the Company.
For the quarter, net income increased 30% to $1.6 million, or $0.33 per share, compared to net income of $1.3 million, or $0.26 per share, during the same period last year. Net sales increased 27% to $24.6 million, from $19.4 million during the comparable period a year earlier.
For the year ended March 31, 1997, net income increased
52% to $5.5 million, or $1.11 per share, compared to net
income of $3.6 million, or $0.93 per share, during fiscal 1996.
As a result of the Company's public offering in November 1995,
weighted average shares outstanding increased 27% to 5,007,000,
compared to 3,939,000 in the prior fiscal year. Net sales
increased 35% to $86.9 million, compared to $64.4 million
for the same period last year.
31. The above statements were false and misleading when made because
the defendants knew that the Company's revenue recognition practices
did not comply with Generally Accepted Accounting Principles ("GAAP"),
that its internal financial controls were seriously lacking, and
that, as a result, revenue was overstated.
32. In April, 1997, Motorcar acquired MVR and Unijoh in a stock
for stock merger. The common stock issued in connection with the
merger was subject to a lock-up arrangement with the Company releasing
for public resale one-fourth of the shares on each of the first
four anniversaries of the acquisition. The Individual Defendants
together owned 70% of both MVR and Unijoh.
33. On August 12, 1997, Motorcar announced results for the first
quarter ended June 30, 1997, including an increase in net sales
of 18.6% and an increase in net income of 12.9%. Specifically:
Motorcar Parts & Accessories, Inc. (Nasdaq: MPAA), today
reported results for the first quarter ended June 30, 1997.
For the first quarter, net sales increased 18.6% to $21.8
million, from $18.4 million during the comparable period last
year. Net income increased 12.9% to $1.17 million, or
$0.23 per share, compared to net income of $1.04 million, or
$0.21 per share, during the same period last year.
Richard Marks, President and Chief Operating Officer of the Company,
said, "We are pleased with our results for the first quarter,
which were in line with our internal plan. Initial shipments
for our new line of domestic alternators and starters were on
track. We also maintained our position in the imported parts
market, despite this being seasonally our smallest quarter."
"Order levels in our imported parts business indicate that
second quarter performance should be strong. As well, second
quarter should be the largest selling season for our new domestic
parts business. Both trends lead us to maintain an optimistic
outlook on the core of our business," Marks added.
Mr. Marks concluded, "As has been our stated objective,
we are aggressively pursuing new market segments which will allow
us to further increase our share of the remanufactured import
parts market, and leverage our existing capabilities in this
core business to establish a solid position in the domestic alternator
and starter market."
34. In an October 16, 1997 PR Newswire release, the Company
announced it had filed a registration statement with the Securities
and Exchange Commission for a public offering of 1.5 million shares
of common stock, with Smith Barney Inc. and A.G. Edwards &
Sons, Inc. to act as managing underwriters in the offering.
35. Motorcar reported second quarter and six months ended September
30, 1997 results on October 30, 1997. The results showed six months
figures with a net sales increase of 27% and a net income increase
of 23.9%, and quarter increases of 34.2% in net sales and 32%
in net income, both figures resulting in dramatic increases in
per share earnings:
Motorcar Parts & Accessories, Inc. (Nasdaq: MPAA), today reported results for the three and six months ended September 30, 1997.
For the six months ended September 30, 1997, net sales
increased 27.0% to $50.5 million, from $39.7 million during
the comparable period last year. Net income increased 23.9%
to $3.0 million, or $0.58 per share, over $2.4 million, or $0.49
per share, during the same period last year.
For the three months ended September 30, 1997, net sales increased
34.2% to $28.7 million form $21.4 million during the comparable
period last year. Net income increased 32.0% to $1.8 million,
or $0.35 per share, over $1.4 million, or $0.28 per share, during
the same period last year.
36. On November 19, 1997, the Company announced it had completed
its $ 19.8 million public equity offering, after expenses, selling
1.3 million shares of its common stock.
37. On January 26, 1998, Motorcar announced strong increases for
the previous third quarter and nine months, including jumps in
net sales of 35.3 % and in net income of 17.8% for the quarter,
and a net sales increase of 30% and a net income increase of 21.6%
for the nine months ended December 31, 1997:
Motorcar Parts & Accessories, Inc. (Nasdaq: MPAA), today
reported results for the three and nine months ended December
31, 1997.
For the three months ended December 31, 1997, net sales increased
35.3% to $30.5 million, from $22.5 million during the comparable
period last year. Net income increased 17.8% to $ 1.7
million, or $0.29 per share, compared to $1.5 million, or $0.29
per share, during the same period last year. Weighted average
shares outstanding for the three-month period increased 17.2%
to 5,870,000 shares, due to the Company's secondary offering
during the quarter.
For the nine months ended December 31, 1997, net sales increased
30.0% to $80.9 million from $62.3 million during the comparable
period last year. Net income increased 21.6% to $4.7 million,
or $0.87 per share, compared to $3.9 million, or $0.78 per share,
during the same period last year. Weighted average shares outstanding
for the nine-month period increased 8.8% to 50 shares, due to
the Company's secondary offering during the quarter.
Richard Marks, President and Chief Operating Officer, stated,
"We are pleased to report healthy top line growth in excess
of 35% for the third quarter. Our efforts to penetrate the domestic
alternator and starter market is being well received by our customers.
We feel we are well-positioned to gain additional market share
going forward."
38. On June 3, 1998, Motorcar announced fourth quarter and year
end results for fiscal year 1998. The Company reported a net sales
increase of 30% and a net income increase of 14% for the quarter,
and a net sales increase of 30% and a net income increase of 19%
for the year:
Motorcar Parts & Accessories, Inc. (Nasdaq: MPAA), North
America's fastest growing remanufacturer and distributor of replacement
alternators and starters, today reported results for the three
months and year ended March 31, 1998. For the three months
ended March 31, 1998, net sales increased 30% to $ 32.0 million,
from $ 24.6 million during the comparable period last year. Net
income increased 14% to $ 1.9 million, or $ 0.29 per diluted
share, compared to $ 1.6 million, or $ 0.33 per diluted share,
during the same period last year. Weighted average shares outstanding
for the three-month period increased 31% to 6,556,000 shares
from 5,011,000 shares the prior year period. For the year
ended March 31, 1998, net sales increased 30% to $ 113.0
million form $ 86.9 million during the comparable period last
year. Net income increased 19% to $ 6.6 million, or $
1.16 per diluted share, compared to $ 5.5 million, or $ 1.11
per diluted share, during the same period last year. Weighted
average shares outstanding for the twelve-month period increased
14% to 5,693,000 shares from 5,007,000 shares the prior year
period. On November 19, 1997, the Company announced it had completed
a $ 19.8 million public equity offering, after expenses, selling
1.3 million shares of its common stock. Richard Marks, President
and Chief Operating Officer, stated, "We are pleased with
our results for fiscal 1998 which focused on increased capacity
and penetration into the domestic alternator and starter market.
We have been highly successful in both areas. In April, 1998
we opened our new automated high-tech factory that we believe
will significantly enhance our manufacturing capabilities. We
anticipate completion of this factory by the middle of fiscal
1999.
39. The statements in ¶¶ 33, 35, 37 and 38 above were
false and misleading when made because the defendants knew that
the Company's revenue recognition practices did not comply with
Generally Accepted Accounting Principles ("GAAP"), that
its internal financial controls were seriously lacking, and that,
as a result, revenue was overstated.
40. On August 10, 1998, the Company reported first quarter results
for fiscal year 1999, including a net sales increase of 42% and
a net income increase of 38%:
Motorcar Parts & Accessories, Inc. (Nasdaq: MPAA), North
America's fastest growing remanufacturer and distributor of replacement
alternators and starters, today reported results for the three
months ended June 30, 1998.
For the three months ended June 30, 1998, net sales increased
42% to $ 31.0 million, from $ 21.8 million during the comparable
period last year. Net income increased 38% to $ 1.6 million,
or $ 0.25 per diluted share, compared to $ 1.2 million, or $
0.23 per diluted share, during the same period last year. Weighted
average shares outstanding for the three-month period increased
27% to 6,556,000 shares from 5,152,000 shares the prior year
period.
On November 19, 1997, the Company announced it had completed
a $ 19.8 million public equity offering, after expenses, selling
1.3 million shares of its common stock.
Richard Marks, President and Chief Operating Officer, stated,
"We are extremely pleased with the excellent performance
on both top-line and bottom-line growth the Company has achieved
during this period."
41. On November 10, 1998, Motorcar announced results for the
second quarter and six months ended September 30, 1998. The Company
reported a net sales increase of 32. 8.5% for the six months, and a net sales increase of 25.4%
and net income increase of 5.9% for the quarter:
Motorcar Parts & Accessories, Inc. (Nasdaq: MPAA), today
reported results for the three and six months ended September
30, 1998.
For the six months ended September 30, 1998, net sales increased
32.7% to $67.0 million from $50.5 million during the comparable
period last year. Net income increased 18.5% to $3.6 million,
or $0.54 per share, over $3.0 million, or $0.58 per share, during
the same period last year.
For the three months ended September 30, 1998, net sales increased
25.4% to $36.0 million from $28.7 million during the comparable
period last year. Net income increased 5.9% to $1.9 million
or $0.30 per share, over $1.8 million, or $0.35 per share, during
the same period last year.
Richard Marks, President and Chief Operating Officer, noted:
"The increase in net sales in the recent periods is a function
of the rapid growth and increased market share in the Company's
domestic vehicles business, even though that business represents
lower margins as compared with the Company's traditional imported
vehicles business. The decrease in earnings per share over the
periods reflects the increased number of outstanding shares that
resulted from the Company's underwritten public offering of common
stock in November 1997."
42. Third quarter 1999 and nine months ended December 31, 1998
results were announced February 3, 1999. The Company reported
an increase in net sales of 20.5% and a net income decrease of
4.5% for the nine months, and no change in the net sales and a
decrease of 44.7% in net income for the quarter. The decreased
net income and flat net sales numbers were attributed to a "re-calendarization
of purchasing patterns by a significant customer" and the
increased number of outstanding shares resulting from the public
offering the previous year:
Motorcar Parts & Accessories, Inc. (Nasdaq: MPAA), today
reported results for the nine and three months ended December
31, 1998.
For the nine months ended December 31, 1998, net sales increased
20.5% to $97.5 million from $80.9 million during the comparable
period last year. Net income decreased 4.5% to $4.5 million,
or $0.70 per share, as compared to $4.7 million, or $0.87 per
share, during the same period last year.
Net sales were relatively unchanged at $30.5 million during
both the quarter ended December 31, 1998 and the comparable quarter
last year. Net income decreased 44.7% to $1.0 million,
or $0.15 per share, during the recent quarter as compared to
$1.7 million, or $0.29 per share, during the same quarter last
year.
The increased net sales over the nine-month period reflects
the Company's rapid growth and increased market share in the
domestic vehicles business as partially offset by a one-time
re-calendarization of purchasing patterns by a significant customer
during the third quarter. This re-calendarization fully
offset such growth during the third quarter, resulting in the
flat net sales as compared to the third quarter of the prior
year. The decrease in earnings per share over the periods reflects
the increased number of outstanding shares that resulted from
the Company's underwritten public offering of common stock in
November 1997.
Richard Marks, President and Chief Operating Officer, noted:
"Although the Company's financial results were adversely
impacted by the re-calendarization, there have been several very
positive developments recently. The Company has successfully
completed a significant expansion and modernization of its remanufacturing
facility. Also, the recent exit of a major competitor in the
industry and anticipated greater volume for the Company indicates
increased net sales in the foreseeable future. We believe
that the Company's strategic plan over the last three years generally
has been successfully implemented to expand business into the
CS alternator and other domestic vehicles markets, to increase
capacity and to attract additional volume in all lines for that
capacity. In light of recent developments and the success
of our strategy, we believe that we are well positioned to realize
our potential."
43. The statements in ¶¶ 40-42 above were false and
misleading when made because the defendants knew that the Company's
revenue recognition practices did not comply with Generally Accepted
Accounting Principles ("GAAP"), that its internal financial
controls were seriously lacking, and that, as a result, revenue
was overstated.
44. Contrary to all of the very positive news and financial success
that defendants had been disseminating to the investment community,
on May 24, 1999, the Company shocked the investment community
with the announcement that it expected to report a significant
loss for the fourth quarter 1999, and that it might report a loss
for the entire fiscal year. The market's reaction was swift and
severe. Motorcar shares closed at $7 per share on extraordinary
trading of over 400,000 shares, down over 36% from the previous
day's closing price of $11 per share and down over 65% from Motorcar's
class period high of $20.5 per share. Over the next few days,
another 645,000 shares changed hands, trading as low as $5 3/4
per share.
45. Unfortunately for Motorcar investors, the May 24, 1999 announcement
was only the tip of the iceberg. In a press release issued at
11:51 p.m. Eastern Standard Time on Sunday, August 1, 1999 over
the PR Newswire , defendants disclosed a "comprehensive
investigation" of accounting irregularities that had already
been ongoing for some time. Among other things, the Company revealed
that, as a result of the investigation, it expected to restate
its previously reported financial results for fiscal 1997, 1998,
and the first nine months of fiscal 1999. The Company further
revealed that its independent auditors, Richard A. Eisner &
Company, LLP, had withdrawn their opinion on the Company's financial
statements for the three years ended March 31, 1998, that Chairman
of the Board of Directors Mel Marks had stepped down as Motorcar's
Chief Executive Officer and that the net loss for fiscal 1999
had put it in violation of "certain financial compliance
covenants contained in the Company's revolving credit facility".
Specifically, the article stated that:
Motorcar Parts & Accessories, Inc. (Nasdaq: MPAA) today
announced that in the course of preparing for the reporting of
financial results for the fiscal year ended March 31, 1999, certain
accounting concerns came to the attention of senior management
of the Company and the Board of Directors.
As a result of certain accounting irregularities, principally with respect to the timing of product returns, and other accounting adjustments, the Company expects to restate its previously reported financial results for fiscal 1998 and 1997, as well as for the nine-month period ended December 31, 1998. The Audit Committee has retained Hughes Hubbard & Reed LLP as special counsel to assist it in continuing the investigation commenced by Eisner.
The Company reported unaudited results, subject to adjustment, for the fiscal year ended March 31, 1999. The Company had net sales of approximately $136,244,000 and incurred a net loss of approximately $5,038,000. The fiscal 1999 results include the expected cumulative restatement of net income for the nine months ended December 31, 1998 to approximately $2,169,000 from $4,520,000 as originally reported and the expected restatement of net income for fiscal 1998 and 1997 to approximately $6,017,000 and $2,851,000, respectively. The Company originally reported net income of $6,602,000 and $5,534,000 in fiscal 1998 and 1997, respectively. All of the above amounts are unaudited and subject to adjustment.
Eisner has withdrawn their opinion on the Company's financial
statements for the three years ended March 31, 1998, which
opinion should not be relied upon. In light of the withdrawal
of Eisner's opinion and the fact that the audit for fiscal 1999
has not yet been completed, the Company is presently unable to
file an Annual Report on Form 10-K including financial statements
for fiscal 1999 that would comply with Securities and Exchange
Commission and Nasdaq requirements.
Mel Marks, Chairman of the Board of Directors, has stepped down
as the Company's Chief Executive Officer. Richard Marks, President
and Chief Operating Officer, remains as the Company's senior
executive officer. The Company intends to consider additions
to its executive team.
The net loss for fiscal 1999 results in a violation of certain
financial compliance covenants contained in the Company's revolving
credit facility. The Company has informed representatives of
its lender about these matters and expects to reach a satisfactory
resolution of the situation. The Company continues to be current
in its scheduled payment obligations under the facility.
(Emphasis added).
46. Trading of Motorcar stock was halted by the Nasdaq at 8:30
a.m. Eastern Time on Monday, August 2, 1999, at a last-sale price
of $5 5/32.
47. Defendants' public statements and others of similar import
described above were materially false, misleading and lacking
in reasonable basis in that defendants failed to disclose, inter
alia, that:
(a) revenue, earnings and net income reported were materially
overstated;
(b) the Company lacked a system of internal controls designed
to ensure that the revenue, earnings, and net income reported
were materially correct; and
(c) there was not a reasonable basis for the Company's statements,
made during the Class Period, that the Company's financial growth
was excellent, since irregularities in accounting would prevent
the Company from achieving its goals of financial and business
growth.
48. As a result of Motorcar's irregular accounting activities,
defendants have overstated the revenues and net income of the
Company throughout fiscal 1997, fiscal 1998 and most of fiscal
1999.
49. In ignorance of the adverse facts concerning Motorcar's true
business and financial condition, which were concealed by defendants,
plaintiff and other members of the Class purchased Motorcar common
stock at artificially high prices, relying upon the statements
made and/or upon the integrity of the market and were damaged
thereby.
50. Had plaintiff and the other members of the Class known of
the materially adverse information not disclosed by the defendants,
they would not have purchased Motorcar common stock at the artificially
inflated prices that they did, if at all.
51. Plaintiff repeats and realleges the allegations above as though
fully set forth herein. During the Class Period, the defendants,
and each of them, carried out a plan, scheme and course of conduct
which was intended to and, throughout the Class Period, did: (i)
deceive the investing public, including plaintiff and the other
class members, as alleged herein; (ii) artificially inflate and
maintain the market price of Motorcar; and (iii) cause plaintiff
and other members of the Class to purchase Motorcar securities
at inflated prices. In furtherance of this unlawful scheme, plan
and course of conduct, defendants, and each of them, took the
actions set forth herein.
52. Defendants (a) employed devices, schemes, and artifices to
defraud; (b) made untrue statements of material fact and/or omitted
to state material facts necessary to make the statements not misleading;
and (c) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon the purchasers of the Company's
stock in an effort to maintain artificially high market prices
for Motorcar securities in violation of section 10(b) of the Exchange
Act and
Rule 10b-5.
53. The statements made by defendants during the Class Period
were materially false and misleading because at the time they
were made, the Company and persons acting as corporate officers
knew, but failed to disclose, the matters set forth herein.
54. In ignorance of the artificially high market prices of Motorcar's
publicly traded securities, and relying directly on defendants
or indirectly on the false and misleading statements made by defendants,
upon the integrity of the market in which the securities trade,
on the integrity of the regulatory process and the truth of representations
made to appropriate agencies throughout the Class Period and/or
on the absence of material adverse information that was known
to defendants but not disclosed in public statements by defendants
during the Class Period, plaintiff and the other members of the
Class acquired Motorcar securities during the Class Period at
artificially high prices and were damaged thereby.
55. Had plaintiff and the other members of the Class and the marketplace
known of the true financial condition, business prospects and
character of leadership of Motorcar which were not disclosed by
defendants, plaintiff and other members of the Class would not
have purchased or otherwise acquired their Motorcar securities
during the Class Period, or would not have done so at the artificially
inflated prices which they paid. Hence, plaintiff and the Class
were damaged by defendants' violations of Section 10(b) and Rule
10b-5.
56. Plaintiff incorporates by reference the above paragraphs above
as if set forth fully herein. This Count is asserted against the
Individual Defendants.
57. The Individual Defendants acted as controlling persons of
Motorcar within the meaning of Section 20 of the Exchange Act
as alleged herein. By reasons of their executive, managerial and/or
directorial positions with Motorcar, the Individual Defendants
had the power and authority to cause the Company to engage in
the wrongful conduct complained of herein.
58. By reasons of the aforementioned wrongful conduct, the Individual
Defendants are liable pursuant to Section 20(a) of the Exchange
Act. As a direct and proximate result of their wrongful conduct,
plaintiff and the other members of the Class suffered damages
in connection with purchasing the Company's securities during
the Class period.
WHEREFORE, plaintiff prays for relief and judgment, as follows:
(i) Determining that this action is a proper class action, certifying
plaintiff as class representative under Rule 23 of the Federal
Rules of Civil Procedure and his counsel as class counsel;
(ii) Awarding compensatory damages in favor of plaintiff and the
other class members against all defendants, jointly and severally,
for all damages sustained as a result of defendants' wrongdoing,
in an amount to be proven at trial, including interest thereon;
(iii) Awarding plaintiff and the Class their reasonable costs
and expenses incurred in this action, including counsel fees and
expert fees; and
(iv) Such other and further relief as the Court may deem just
and proper.
DATED: August 4, 1999
WEISS & YOURMAN
KEVIN J. YOURMAN
MICHELLE R. JOHNSON
By: _________________________
Kevin J. Yourman
10940 Wilshire Blvd.
24th Floor
Los Angeles, CA 90024
Telephone: 310/208-2800
WEISS & YOURMAN
JOSEPH H. WEISS
551 Fifth Avenue, Suite 1600
New York, NY 10176
Telephone: 212/682-3025
STULL, STULL & BRODY
MICHAEL D. BRAUN
10940 Wilshire Blvd.
Suite 2300
Los Angeles, CA 90024
Telephone: 310/209-2468
Attorneys for Plaintiff
Plaintiff hereby demands a trial by jury pursuant to Rule
38(b) of the Federal Rules of Procedure.
DATED: August 4, 1999
WEISS & YOURMAN
KEVIN J. YOURMAN
MICHELLE R. JOHNSON
By: _________________________
Kevin J. Yourman
10940 Wilshire Blvd.
24th Floor
Los Angeles, CA 90024
Telephone: 310/208-2800
WEISS & YOURMAN
JOSEPH H. WEISS
551 Fifth Avenue, Suite 1600
New York, NY 10176
Telephone: 212/682-3025
STULL, STULL & BRODY
MICHAEL D. BRAUN
10940 Wilshire Blvd.
Suite 2300
Los Angeles, CA 90024
Telephone: 310/209-2468
Attorneys for Plaintiff
Source: http://www.secfraud.com/