UNIPARTS USA LTD. AND SUBSIDIARY Consolidated Financial Statements With Supplementary Information March 31, 2018 and 2017 With Independent Auditors

Transcription

1 UNIPARTS USA LTD. AND SUBSIDIARY Consolidated Financial Statements With Supplementary Information March 31, 2018 and 2017 With Independent Auditors Report

2 Table of Contents March 31, 2018 and 2017 Page(s) Independent Auditors Report Financial Statements Consolidated Balance Sheets... 3 Consolidated Statements of Income... 4 Consolidated Statements of Changes in Stockholder s Equity... 5 Consolidated Statements of Cash Flows... 6 Notes to Consolidated Financial Statements Supplementary Information Consolidating Schedule - Balance Sheets Consolidating Schedule - Statements of Income Consolidating Computations of Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization (EBITDA)... 21

3 INDEPENDENT AUDITORS REPORT To the Shareholder, Uniparts USA Ltd.: We have audited the accompanying consolidated financial statements of (collectively the Company ) which comprise the consolidated balance sheets as of March 31, 2018 and 2017, and the related consolidated statements of income, changes in stockholder s equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

4 Other Information Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements as a whole. The supplementary Consolidating Schedule Balance Sheets and Consolidating Schedule Income Statements are presented for purposes of additional analysis and are not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. May 23,

5 Consolidated Balance Sheets March 31, 2018 and 2017 Assets Current assets Cash $ 648,841 $ 183,454 Accounts receivable, net 5,176,302 4,351,116 Inventories, net 23,880,197 17,453,829 Prepaid taxes 414, ,320 Prepaid expenses 122, ,679 Other current assets 195, ,156 Total current assets 30,436,994 23,110,554 Property and equipment, net 3,028,075 2,957,462 Goodwill 11,430,929 11,430,929 Liabilities and Stockholder's Equity $ 44,895,998 $ 37,498,945 Current liabilities Lines of credit $ 10,847,812 $ 7,181,424 Accounts payable 3,632,128 3,315,233 Due to related parties 2,945,936 1,396,467 Accrued expenses 873,489 1,523,572 Current portion of long-term debt 429, ,354 Total current liabilities 18,729,107 14,129,050 Long-term liabilities Long-term debt, net of current portion 1,402,307 1,561,501 Deferred rent 187, ,137 Deferred gain-leaseback 95, ,356 Deferred income taxes 1,689,949 2,248,754 Total long-term liabilities 3,375,656 4,268,748 Stockholder's equity Convertible, callable preferred stock, $10 par value, 800,000 shares authorized, issued and outstanding. 8,000,000 8,000,000 Common stock, $10 par value, 300,000 shares authorized; 2,000 shares issued and outstanding. 20,000 20,000 Retained earnings 14,771,235 11,081,147 22,791,235 19,101,147 $ 44,895,998 $ 37,498,945 The Notes to Consolidated Financial Statements are an integral part of these statements. 3

6 Consolidated Statements of Income Revenue, net $ 65,173,102 $ 50,900,042 Cost of goods sold 55,773,397 44,167,930 Gross profit 9,399,705 6,732,112 Selling, general and administrative expenses 4,843,390 4,388,831 Income from operations 4,556,315 2,343,281 Other income (expense) Amortization of gain on dispositions of property and equipment 67,593 67,593 Loss on disposal of property and equipment - (1,872) Interest expense (389,828) (284,116) Total other expense (322,235) (218,395) Income before income tax expense 4,234,080 2,124,886 Income tax expense (benefit) Current 1,102, ,191 Deferred (558,805) 273,037 Total income tax expense 543, ,228 Net income $ 3,690,088 $ 1,320,658 The Notes to Consolidated Financial Statements are an integral part of these statements. 4

7 Consolidated Statements of Changes in Stockholder s Equity Convertible, Callable Total Preferred Common Retained Stockholder's Stock Stock Earnings Equity Balance, March 31, 2016 $ 8,000,000 $ 20,000 $ 9,760,489 $ 17,780,489 Net income - - 1,320,658 1,320,658 Balance, March 31, ,000,000 20,000 11,081,147 19,101,147 Net Income - - 3,690,088 3,690,088 Balance, March 31, 2018 $ 8,000,000 $ 20,000 $ 14,771,235 $ 22,791,235 The Notes to Consolidated Financial Statements are an integral part of these statements. 5

8 Consolidated Statements of Cash Flows Cash flows from operating activities Net income $ 3,690,088 $ 1,320,658 Adjustments to reconcile net income to net cash (used) provided by operating activities: Depreciation 519, ,053 Amortization of debt issue costs 19,783 19,540 Provision for doubtful accounts 25,000 (987) Provision for obsolete inventory 50,000 - Deferred income tax (benefit) expense (558,805) 273,037 Amortization of deferred gain on dispositions of property and equipment (67,593) (67,593) Loss on disposal of property and equipment - 1,872 Change in operating assets and liabilities: Accounts receivable (850,186) 23,377 Inventories (6,476,368) 1,419,336 Prepaid taxes (243,779) 427,550 Prepaid expenses (11,491) (16,283) Other current assets 625,988 (393,306) Accounts payable 316,895 (35,122) Accrued expenses (650,083) (940,432) Due to related parties 1,549,469 (349,160) Deferred rent (107,500) (85,961) Net cash (used) provided by operating activities (2,168,817) 2,096,579 Cash flows from investing activities Purchase of property and equipment (331,170) (119,413) Net cash used by investing activities (331,170) (119,413) Cash flows from financing activities Increase in debt issue costs - (39,323) Proceeds (payments) from bank borrowings on lines of credit, net 3,666,388 (1,317,687) Repayment of capital lease - (27,221) Proceeds from debt 1,710 41,361 Repayment of debt (702,724) (638,655) Net cash provided (used) by financing activities 2,965,374 (1,981,525) Net change in cash 465,387 (4,359) Cash Beginning of year 183, ,813 End of year $ 648,841 $ 183,454 Supplemental disclosure of cash flow information Cash paid for interest $ 370,288 $ 265,421 Cash paid for income taxes $ 862,509 $ 94,501 Supplemental disclosure of non-cash investing activities Equipment acquired through capital expenditures debt facilities $ 259,208 $ 375,156 The Notes to Consolidated Financial Statements are an integral part of these statements. 6

9 Notes to Consolidated Financial Statements 1. Nature of Business The operations of (collectively the Company ) consist of the machining of metal parts and components as well as the purchasing of machine parts from related party and third party vendors for resale. The Company sells its products primarily to agricultural and construction equipment manufacturers in the United States on credit terms the Company establishes with each customer. Uniparts India Limited (the Ultimate Parent ) owns 100% of Uniparts USA Ltd. 2. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Uniparts USA Ltd. (the Parent ) and its wholly owned subsidiary, Uniparts Olsen Inc. (the Subsidiary ). All significant intercompany accounts and transactions have been eliminated. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with maturities of three months or less at the time of acquisition to be cash equivalents for financial statement purposes. Accounts Receivable Accounts receivable are uncollateralized, non-interest bearing customer obligations due under normal trade terms, usually within 30 days of services provided. Customer account balances with invoices dated over 90 days are considered delinquent. The Company applies collections of accounts receivable to specific invoices in accordance with customer specifications, or if unspecified, to the oldest outstanding invoices. The Company carries its accounts receivable at cost less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based on a history of past write-offs and collections, and current credit conditions. The Company will turn an account over for collection or write balances off as uncollectible based on the facts and circumstances of each situation. As of March 31, 2018 and 2017, the allowance for doubtful accounts totaled $75,000 and $50,000, respectively. Inventories Inventories, which consist primarily of construction, agricultural and forestry equipment parts and supplies, are stated at the lower of cost or net realizable value and are net of an allowance for obsolescence. Cost is determined using the average cost method and items are relieved from inventory on a first-in first-out basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. 7

10 Notes to Consolidated Financial Statements Property and Equipment Property and equipment is carried at cost less accumulated depreciation. Leasehold improvements are amortized over the shorter of the term of the lease or the life of the assets. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets as follows: Years Shop equipment 3-25 Office equipment 3-7 Computer equipment 5 Furniture and fixtures 7 Vehicle 5 Building 39 Software 5 Expenditures for maintenance and repairs are charged to expense as incurred. Goodwill The Company adopted the accounting pronouncement which permits management to evaluate goodwill when internal and external factors exist which indicate that the book value of goodwill could be impaired. Prior to the adoption of the accounting pronouncement relating to goodwill, the Company recorded accumulated amortization of goodwill of $1,567,464. Management has determined that no impairment analysis was required and believes goodwill is not impaired as of March 31, 2018 and Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used in determining, among other items, accounts receivable allowances, inventory valuation (which includes allowance for obsolescence and standard labor and overhead rates capitalized in inventory), goodwill impairment, medical insurance accruals, useful lives of tangible assets, provisions for warranty costs and deferred income taxes. Actual results could differ from those estimates. Unamortized Debt Issue Costs Debt issue costs included in other current assets in the consolidated balance sheet, represent costs associated with the renewal of the Subsidiary s line of credit and are amortized to interest expense using a method which approximates the effective interest method over the terms of the related borrowings. All debt issuance costs were fully amortized as of March 31, Valuation of Long-Lived Assets The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Management has determined that no assessment was required for the periods presented in these consolidated financial statements. Fair Value of Financial Instruments The carrying value of financial instruments including cash, accounts receivable and accounts payable approximates fair value due to the short maturity of these instruments. The carrying amounts of long-term debt approximate fair value as the interest rates used approximate current interest rates available. 8

11 Notes to Consolidated Financial Statements Revenue Recognition The Company recognizes revenue, net of sales discounts, at the time the price is fixed or determinable, collectability is reasonably assured and title passes to the customer which is based on the terms of the customer s specific agreement and is generally when products are received. Warranties Provisions for warranty costs are recognized at the date of sale of the relevant products, at management s best estimate of the expenditure required to settle the Company s obligation, net of warranties provided by suppliers. Shipping and Handling Costs The Company classifies freight billed to customers as sales revenue, which is generally included in the list price to the customer, and classifies the related freight costs as cost of goods sold. Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the consolidated financial statement carrying amounts and the tax basis of existing assets and liabilities. Deferred income taxes result primarily from temporary differences related to accounts receivable, inventory, net property and equipment, net goodwill, accrued expenses and deferred rent for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax expense or benefit is recognized as a result of the change in the deferred tax assets or liabilities during the year. Income taxes are allocated between the members of the consolidated group based on their individual taxable income. Current and deferred taxes are allocated to the Company using the separate return method. This method allocates income taxes to each member of the consolidated group as if it were a separate tax payer. Other non-consolidated state income taxes are also computed on a separate company basis. The Company files tax returns in the U.S. federal jurisdiction as well as various states. Furthermore, the Company has no income tax related penalties or interest for the periods reported in these consolidated financial statements. The Company has not recognized any uncertain tax positions in the consolidated financial statements at March 31, 2018 and Effects of Recently Issued Accounting Pronouncements In January 2017, the Financial Accounting Standards Board ( FASB") issued Accounting Standards Update Simplifying the Test for Goodwill Impairment (Topic 350) ( ASU ) to simplify how an entity is required to test goodwill for impairment by eliminating the second step in the two step goodwill impairment test. ASU is effective for fiscal years beginning after December 15, Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, The Company is currently evaluating the impact on the financial statements of the possible adoption of the guidance in ASU and does not believe adoption will have a material impact on the financial statements. 9

12 Notes to Consolidated Financial Statements In February 2016, the FASB issued Accounting Standards Update Leases (Topic 842) ( ASU ) to provide guidance on recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, Early application of the amendments in ASU is permitted for all entities. The Company is currently evaluating the impact on the financial statements of the possible adoption of the alternative guidance in ASU and has not determined the potential impact of adoption at this time. In May 2014, the FASB issued Accounting Standards Update Revenue from Contracts with Customers (Topic 606) ( ASU ) as updated by additional ASU s, which provides accounting guidance for all revenue arising from contracts with customers and affects all entities that enter into contracts to provide goods or services to their customers. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets, such as property and equipment, including real estate. ASU is effective for nonpublic entities with a fiscal year beginning after December 15, The Company is currently evaluating the impact of applying this new guidance on their prospective consolidated financial statements. 3. Inventories The composition of inventories as of March 31, 2018 is as follows: Obsolescence Net Total Allowance Amount Raw materials $ 4,438,943 $ -- $ 4,483,943 Work-in-process 2,668, ,000 2,568,777 Finished goods 15,502, ,000 15,202,578 Supplies 1,669, ,669,899 $ 24,280,197 $ 400,000 $ 23,880,197 The composition of inventories as of March 31, 2017 is as follows: Obsolescence Net Total Allowance Amount Raw materials $ 2,742,831 $ -- $ 2,742,831 Work-in-process 2,194, ,000 2,094,001 Finished goods 11,121, ,000 10,871,795 Supplies 1,745, ,745,202 $ 17,803,829 $ 350,000 $ 17,453,829 10

13 Notes to Consolidated Financial Statements 4. Property and Equipment Property and equipment consist of the following for the years ended March 31: Leasehold improvements $ 204,167 $ 184,578 Shop equipment 11,536,922 11,182,507 Office equipment 787, ,058 Computer equipment 136, ,940 Software 7,860 7,860 Furniture and fixtures 33,538 33,538 Building 772, ,000 Land 327, ,609 Vehicles 340, ,920 14,147,388 13,557,010 Less: accumulated depreciation 11,119,313 10,599,548 Property and equipment net $ 3,028,075 $ 2,957,462 Total depreciation expense for the years ended March 31, 2018 and 2017 was $519,765 and $500,053 respectively. 5. Risk Concentrations Credit Risk The Company s financial instruments that are exposed to concentration of credit risk consist primarily of trade accounts receivable. The Company's largest customer accounted for approximately 67% and 64% of revenues for the years ended March 31, 2018 and 2017, respectively. Two customers accounted for approximately 60% and 70% of net accounts receivable as of March 31, 2018 and 2017, respectively. Generally, the Company does not obtain security from its customers in support of accounts receivable. Potential losses from concentrations of credit risk with respect to trade accounts receivable are considered to be limited due to the Company s ongoing credit evaluation of its customers. Foreign Risk The Company purchases a significant amount of materials from affiliates located in India. This source of materials may be subject to unpredictable changes and delays due to legal, political, and climate conditions. See Note 13 Related Party Transactions for further information. 11

14 Notes to Consolidated Financial Statements 6. Debt Lines of Credit In March 2018, the Subsidiary modified its revolving line of credit to decrease the total proceeds available from $11,000,000 to $7,500,000 and to extend the term of the line from March 24, 2018 to March 31, Additionally, the Subsidiary must pay a non-usage fee on the average daily unused portion of the facility at a rate of 0.25% per annum, payable in arrears within thirty days of the end of each calendar month for which the fee is due. The line of credit has a variable interest rate calculated as a "floating rate" which is a "base rate" determined by LIBOR plus a variable "margin rate" based on the utilization of the line. The rate at March 31, 2018 and 2017 was approximately 3.78% and 3.35%, respectively. The line is collateralized by substantially all assets of the Subsidiary and cross-collateralized with a term loan at the Subsidiaries bank. This line of credit is secured by a corporate guaranty by the Parent. The Subsidiary has drawn down $5,747,812 and $3,950,174 on the line of credit as of March 31, 2018 and 2017, respectively. Interest expense relating to this line was $168,590 and $102,033 for the years ended March 31, 2018 and 2017, respectively. In March 2018, the Parent modified its revolving line of credit agreement to increase the total proceeds available from $4,000,000 to $7,500,000 and to extend the term of the line from March 24, 2018 to March 31, Additionally, the Parent must pay a non-usage fee on the average daily unused portion of the facility at a rate of 0.25% per annum, payable in arrears within thirty days of the end of each calendar month for which the fee is due. The line of credit has a variable interest rate calculated as a "floating rate" which is a "base rate" determined by LIBOR plus a variable "margin rate" based on the utilization of the line. During 2018 and 2017, the interest rate on this line was approximately 3.78% and 3.23%, respectively. The line is collateralized by substantially all assets of the Parent, cross-collateralized with a term loan at the bank. The Subsidiary has guaranteed the financial performance of the Parent s liabilities at this institution. This line of credit had balances of $5,100,000 and $3,231,250 as of the years ended March 31, 2018 and Interest expense relating to this line was $121,600 and $94,502 for the years ended March 31, 2018 and 2017, respectively. Notes Payable The Subsidiary has an installment loan payable to a bank, due in monthly principal installments of $30,000 through May 1, Interest is charged at a rate of 2.25% plus an adjusted LIBOR. The debt is collateralized by substantially all assets of the Subsidiary. The loan is also secured by a corporate guaranty by the Parent. The Subsidiary has a $2,500,000 capital expenditures non-revolving note facility draw down availability that expires March 24, In March 2018, the agreement was modified to decrease the draw down availability to $1,000,000 and extend the expiration date to March 31, Under the modification, the interest rate that is due monthly decreased from 2.25% to 2.0% plus an adjusted LIBOR. The balance as of each March 24 will be amortized over a 60 month period. All interest and principal is payable in full at the end of the 60 month term. There are four notes that were converted to term loans under the agreement that have varying monthly installments and maturity dates included in the table below. The note payable with a maturity date of March 2024 was drawn down under the modified availability amount, resulting in $624,844 of availability under the current facility. At March 31, 2017, $1,449,976 was available for use under the terms of the predecessor agreement. The debt is collateralized by substantially all assets of the Company. The loan is also secured by a corporate guaranty by the Parent. 12

15 Notes to Consolidated Financial Statements Bank loan payable, due in monthly principal installments of $6,000 through March 24, Interest is charged at a rate of 2.25% plus an adjusted LIBOR. The debt is collateralized by substantially all assets of the Company and a corporate guaranty by the Subsidiary. $ 726,000 $ 798,000 Note payable to bank, interest at 5.29%, with fixed monthly payments of $786, including interest, through June of 2021, collateralized by equipment 28,108 35,831 Subsidiary installment loan 30, ,000 Capital expenditure non-revolving notes payable: Note payable of $517,500 due in monthly installments of $8,625 through March , ,125 Note payable of $445,928 due in monthly installments of $7,432 through March , ,743 Note payable of $375,156 due in monthly installments of $6,256 through April , ,156 Note payable of $259,208 due in monthly installments of $4,320 through March ,208-1,832,049 2,273,855 Less: current portion (429,742) (712,354) $ 1,402,307 $ 1,561,501 The installment loans noted above are held with the same financial institution. In connection with the line of credit, installment loans, noted above, the Company is subject to certain restrictive and financial covenants, including limitations on additional borrowing, minimum fixed charge coverage ratio requirements, and maximum funded debt to EBITDA ratio requirements. Additionally, the Company may not redeem any of its equity interests or return any contribution to an owner other than stock dividends. 13

16 Notes to Consolidated Financial Statements Future annual maturities of the long-term debt: Year ending March 31: 2019 $ 429, , , , , Capital Leases $ 1,832,049 The Subsidiary leases certain shop equipment under a capital lease. The economic substance of the lease is that the Subsidiary is financing the acquisition of the assets through the lease, and accordingly, they are recorded in the Subsidiary s assets and liabilities. Equipment held under the capital lease is included in property and equipment. The effective interest rate of the lease was 4.79% and the lease matured on February 15, The following is an analysis of property held under capital lease as of March 31: Equipment held under capital lease $ 135,580 $ 135,580 Less: accumulated depreciation (135,580) (121,056) Equipment held under capital lease, net $ - $ 14,524 Depreciation expense for equipment held under capital lease obligations was $14,524 and 19,369 for the years ended March 31, 2018 and 2017, respectively. 8. Stockholder s Equity Convertible, Callable Preferred Stock All 800,000 shares of preferred stock are convertible, at the option of the holder, into shares of common stock. Each share of preferred stock may be converted into $10 worth of common stock. The number of common shares received will be based on the fair market value of common stock on the date of the conversion. The Company, at its discretion, may call preferred stock at the rate of $10 per share. There are 800,000 shares of preferred stock, $10 par value, authorized, issued and outstanding as of March 31, 2018 and Dividend rights for holders of convertible preferred stock are identical to the dividend rights of common stockholders. Common Stock There are 300,000 shares of common stock, $10 par value, authorized, and 2,000 shares issued and outstanding as of March 31, 2018 and Shares of common and preferred stock have identical ownership interests in the Company. 14

17 Notes to Consolidated Financial Statements 9. Sale-Leaseback In March 2002, Olsen Engineering, LP (predecessor to the Subsidiary) sold its operating facilities to Pin House, LLC resulting in a loss of $648,827 to be recognized over the life of the lease in accordance with generally accepted accounting principles. The owners of Pin House, LLC owned approximately 87% of Olsen Holding, LP, the former 99% limited partner of Olsen Engineering, LP. These facilities were then leased back to Olsen. The accumulated loss recognized through March 2007 was $241,537 for Olsen. The remaining deferred loss of $407,290 will be recognized over the remaining lease period. In August 2004, Pin House, LLC sold the operating facilities to a third party resulting in a gain of $1,505,930. In accordance with generally accepted accounting principles, the gain on the sale-leaseback is recognized over the fifteen-year lease period. The accumulated gain recognized through March 2007 was $259,354 for Pin House, LLC. The remaining deferred gain of $1,246,576 will be recognized over the remaining lease period. The March 31, 2007 combined financial statements reported the deferred gain of $1,246,576 from the leaseback under Pin House. The current year financial statements for the Company reflect the reporting of the Pin House deferred gain. In addition, the deferred loss of $407,290 as of March 31, 2007 has been recorded as a reduction of the deferred gain. The net deferred gain of $839,286 is being amortized by the Company over the remaining twelve year lease term. The gain recognized for each of the years ended March 31, 2018 and 2017 is $67,593. The unrecognized deferred gain with respect to this transaction was $95,763 and $163,356 as of March 31, 2018 and 2017, respectively. 10. Commitments and Contingencies Commitments The Company has various operating equipment leases and two building leases as of March 31, Total lease expense was approximately $770,000 and $720,000 for the years ended March 31, 2018 and 2017, respectively. Under the terms of the building lease, the Subsidiary is responsible for all repairs, maintenance, insurance, real estate taxes and utilities. The following is a schedule by years of future minimum rental payments required under operating leases that have initial or remaining non-cancellable lease terms in excess of one year as of March 31, 2018: Year ending March 31: Equipment Building Total 2019 $ 76,821 $ 1,120,501 $ 1,197, , , , ,329-34, $ 169,200 $ 1,549,446 $ 1,718,646 The Subsidiary has a standby letter of credit for $127,500 with a bank at March 31, 2018 to secure the lease for the building. The letter of credit is secured by all assets of the Subsidiary and through guarantees by both the Parent and Subsidiary. 15

18 Notes to Consolidated Financial Statements The Subsidiary utilized a third party warehouse to manage and store all of its finished goods. The warehouse agreement expired on October 31, The Subsidiary s monthly fee varied as it was determined by space usage and hourly rates for manual laborers and warehouse managers. There was no minimum monthly storage fee. Subsequent to the expiration of the warehouse agreement, the Subsidiary utilizes internal personnel to manage and store the finished goods. Contingencies During the year ended March 31, 2015, a major customer of the Subsidiary (the Customer ) informed the Subsidiary of a warranty claim issue relating to a specific part supplied by the Subsidiary that was not properly heat treated and thus allegedly caused defects in the assembly ultimately sold by the Customer to its end users. Although the Customer had been aware of claims arising from this product for nearly one year, the Subsidiary was first notified of a potential claim in August of 2014, the amount of which was then unknown. Based upon the data provided to the Subsidiary by the Customer in 2015, the Customer experienced the majority of claims relating to this item in 2012 and In 2016, the Subsidiary settled this claim for $1,680,000 and recorded a liability for the full amount in accrued expenses. The Subsidiary outsourced this specific part for heat treating and the Subsidiary expects to be reimbursed $425,000 by its vendor. During the year ended March 31, 2017, the vendor reimbursed the Subsidiary $100,000, with the remaining monthly payments coming in the form of credits for services. As of March 31, 2018 and 2017, the receivable from the vendor was approximately $194,000 and $281,000, respectively, and is included in other receivables. The expense, net of the reimbursement, totaling $1,255,000 was been recorded in cost of goods sold during the year ended March 31, The following is a reconciliation of the changes in the warranty liability as of March 31: Warranty liability, beginning of year $ 68,000 $ 1,680,000 Warranty payments (68,000) (1,612,000) Warranties issued during year - - Adjustments to existing warranties - - Warranty liability, end of year $ - $ 68, Employee Benefits The Company maintains a defined contribution plan (the Plan ) under Section 401(k) of the Internal Revenue Code which covers substantially all regular full-time employees who have attained the defined age and service requirements. The Plan provides for employee and discretionary employer matching contributions. Employer contributions to the Plan for the years ended March 31, 2018 and 2017 were approximately $97,000 and $100,000 respectively. The Subsidiary is self-insured for its group health and dental plan which covers all employees of Uniparts Olsen Inc. and their immediate families up to a maximum annual claim of $80,000 per individual with an aggregate annual ceiling of approximately $1,200,000. Insurance coverage has been obtained for claims in excess of these levels. The amount of expenses relating to the Plan totaled approximately $551,000 and $640,000 for the years ended March 31, 2018 and 2017, respectively. Claims incurred but not reported for which the Subsidiary is liable are approximately $109,000 as of March 31, Claims incurred but not reported for which the Company is liable were approximately $718,000 as of March 31, 2017, of which approximately $537,000 was reimbursed by 16

19 Notes to Consolidated Financial Statements the stop loss carrier in April Incurred but not reported claims are included in accrued expenses in the accompanying balance sheets. 12. Income Taxes The components of the provision for income taxes consisted of the following for the years ended March 31: Current Federal $ 917,531 $ 461,616 State 185,266 69,575 1,102, ,191 Deferred Federal (574,365) 254,720 State 15,560 18,317 (558,805) 273,037 Provision for income taxes $ 543,992 $ 804,228 The Tax Cuts and Jobs Act was enacted on December 22, The Act reduces the US federal corporate tax rate from 35% to 21%. The Company remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. As a result of the federal corporate tax rate reduction to 21%, certain deferred tax assets and liabilities have been remeasured, which resulted in a reduction in the deferred tax liability of approximately $845,000. Income tax expense differs from the amounts that would be obtained by applying Federal statutory rates to income before income tax expense because no tax benefit has been provided for non-deductible expenses, research and development credits have been used to reduce taxable income, the benefit of prior year accrual to actual deductions and state income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the deferred tax assets and deferred tax liabilities consist of the following amounts as of March 31: Accrued expenses $ 118,114 $ 429,320 Bad debts 18,443 18,445 Inventory 267, ,855 Deferred rent 46, ,876 Deferred gain 23,548 60,262 Goodwill (1,699,083) (2,503,065) Prepaid expenses (6,697) (16,233) Property, plant, and equipment (457,713) (655,214) Net deferred tax liability $ (1,689,949) $ (2,248,754) 17

20 Notes to Consolidated Financial Statements 13. Related Party Transactions The Company purchases materials from entities located in India that share common ownership with the Company. Payments made to these companies amounted to approximately $32,003,000 and $19,913,000 for the years ended March 31, 2018 and 2017, respectively. Additionally, there is approximately $3,900,000 and $2,550,000 due to these related companies which is included in accounts payable and due to related parties as of March 31, 2018 and 2017, respectively. These amounts will be paid under normal trade terms with these affiliated companies. The Company provides minimal services to the aforementioned related companies. As of March 31, 2018 and 2017, receivables due from these companies are immaterial to the consolidated financial statements. 14. Subsequent Events The Company has evaluated subsequent events through May 23, 2018, which is the date these consolidated financial statements were available to be issued. The Company has determined that there are no events requiring recognition or disclosure in these consolidated financial statements. 18

21 SUPPLEMENTARY INFORMATION

22 Consolidating Schedule- Balance Sheets March 31, 2018 Assets Uniparts USA Ltd. Uniparts Olsen Inc. Combined Eliminating Adjustments Consolidated Current assets Cash $ 188,593 $ 460,248 $ 648,841 $ - $ 648,841 Accounts receivable, net 1,262,984 3,913,318 5,176,302-5,176,302 Inventories, net 8,654,572 15,225,625 23,880,197-23,880,197 Prepaid taxes 414, , ,099 Prepaid expenses 34,847 87, , ,170 Deferred income taxes (263) - Other current assets 1, , , ,385 Due from related party - 719, ,205 (719,205) - Total current assets 10,556,846 20,599,616 31,156,462 (719,468) 30,436,994 Property and equipment, net 1,106,618 1,921,457 3,028,075-3,028,075 Other assets Investment in subsidiary 8,367,665-8,367,665 (8,367,665) - Goodwill - 6,909,650 6,909,650 4,521,279 11,430,929 Total other assets 9,474,283 8,831,107 18,305,390 (3,846,386) 14,459,004 Liabilities and Stockholder's Equity $ 20,031,129 $ 29,430,723 $ 49,461,852 $ (4,565,854) $ 44,895,998 Current liabilities Lines of credit $ 5,100,000 $ 5,747,812 $ 10,847,812 $ - $ 10,847,812 Accounts payable - 3,632,128 3,632,128-3,632,128 Due to related parties 3,665,141-3,665,141 (719,205) 2,945,936 Accrued expenses 152, , , ,489 Current portion of long-term debt 80, , , ,742 Total current liabilities 8,997,736 10,450,576 19,448,312 (719,205) 18,729,107 Long-term liabilities Long-term debt, net of current portion 673, ,340 1,402,307-1,402,307 Deferred rent - 187, , ,637 Deferred gain-leaseback - 95,763 95,763-95,763 Deferred income taxes - 1,690,212 1,690,212 (263) 1,689,949 Total long-term liabilities 673,967 2,701,952 3,375,919 (263) 3,375,656 Stockholder's equity Convertible preferred stock, $10 par value, 800,000 shares authorized, issued and outstanding 8,000,000-8,000,000-8,000,000 Common stock, $10 par value, 300,000 shares authorized; 2,000 shares issued and outstanding 20,000-20,000-20,000 Common stock, $1 par value, 1,224,301 shares authorized, issued and outstanding - 1,224,301 1,224,301 (1,224,301) - Additional paid-in capital - 2,680,156 2,680,156 (2,680,156) - Retained earnings 2,339,426 12,373,738 14,713,164 58,071 14,771,235 10,359,426 16,278,195 26,637,621 (3,846,386) 22,791,235 $ 20,031,129 $ 29,430,723 $ 49,461,852 $ (4,565,854) $ 44,895,998 See Independent Auditors Report. 19

23 Consolidating Schedule - Statements of Income Year Ended March 31, 2018 Uniparts USA Ltd. Uniparts Olsen Inc. Combined Eliminating Adjustments Consolidated Revenue, net $ 15,468,786 $ 49,704,316 $ 65,173,102 $ - $ 65,173,102 Cost of goods sold 11,648,575 44,124,822 55,773,397-55,773,397 Gross profit 3,820,211 5,579,494 9,399,705-9,399,705 Selling, general and administrative expenses 2,088,795 2,754,595 4,843,390-4,843,390 Income from operations 1,731,416 2,824,899 4,556,315-4,556,315 Other income (expense) Amortization of deferred gain on dispositions of property and equipment - 67,593 67,593-67,593 Interest expense (159,181) (230,647) (389,828) - (389,828) Total other expense (159,181) (163,054) (322,235) - (322,235) Income before income tax expense 1,572,235 2,661,845 4,234,080-4,234,080 Income tax expense Current 563, ,839 1,102,797-1,102,797 Deferred 8,560 (567,365) (558,805) - (558,805) Total income tax expense 572,518 (28,526) 543, ,992 Net income $ 999,717 $ 2,690,371 $ 3,690,088 $ - $ 3,690,088 See Independent Auditors Report. 20

24 Consolidating Computations of Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization (EBITDA) Year Ended March 31, 2018 Uniparts USA Ltd. Uniparts Olsen Inc. Consolidated Net income $ 999,717 $ 2,690,371 $ 3,690,088 Adjustments Interest expense (includes $19,783 and $19,540, respectively of debt issue costs) 159, , ,828 Income tax (benefit) expense 572,518 (28,526) 543,992 Depreciation and amortization expense 71, , ,765 Total adjustments 802, ,872 1,453,585 EBITDA $ 1,802,430 $ 3,341,243 $ 5,143,673 See Independent Auditors Report. 21