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

Form 10-Q

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

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 20212022

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

FOR THE TRANSITION PERIOD FROM       TO

Commission File No. 001-33861

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

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareMPAAThe Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☑ No ☐

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

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

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

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

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

There were 19,101,75119,491,395 shares of Common Stock outstanding at February 2, 2022.2023.

MOTORCAR PARTS OF AMERICA, INC.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION 
 
Item 1. Financial Statements (unaudited)
4
 
Condensed Consolidated Balance Sheets
4
 
Condensed Consolidated Statements of IncomeOperations
5
 
Condensed Consolidated Statements of Comprehensive Income (Loss)
6
 
Condensed Consolidated Statements of Shareholders’ Equity
7
 
Condensed Consolidated Statements of Cash Flows
8
 
Notes to Condensed Consolidated Financial Statements
9
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2422
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
3430
 
Item 4. Controls and Procedures
3430
   
PART II — OTHER INFORMATION 
 
Item 1. Legal Proceedings
3632
 
Item 1A. Risk Factors
3632
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
3632
Item 3. Defaults Upon Senior Securities
32
 
Item 5. Other Information
3632
 
Item 6. Exhibits
3733
 3935

2
Table of Contents
MOTORCAR PARTS OF AMERICA, INC.

GLOSSARY

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

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

“Remanufactured Core” — The Used Core underlying an automobile part that has gone through the remanufacturing process and through that process has become part of a newly remanufactured automobile part. The remanufacturing process takes a Used Core, breaks it down into its component parts, replaces those components that cannot be reused and reassembles the salvageable components of the Used Core and additional new components into a remanufactured automobile part. Remanufactured Cores held for sale at our customer locations are included in long-term contract assets. The Remanufactured Core portion of stock adjustment returns are classified as contract assets until we physically receive them.

3
Table of Contents
PART I — FINANCIAL INFORMATION

Item 1.Financial Statements

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Consolidated Balance Sheets

 December 31, 2021  March 31, 2021  December 31, 2022  March 31, 2022 
ASSETS (Unaudited)     (Unaudited)    
Current assets:            
Cash and cash equivalents $7,769,000  $15,523,000  $12,579,000  $23,016,000 
Short-term investments  2,212,000   1,652,000   2,169,000   2,202,000 
Accounts receivable — net  57,691,000   63,122,000   75,533,000   85,075,000 
Inventory  358,738,000   302,913,000   390,574,000   385,504,000 
Contract assets  26,609,000   26,940,000   29,072,000   27,500,000 
Prepaid expenses and other current assets  11,743,000   12,706,000   26,798,000   13,688,000 
Total current assets  464,762,000   422,856,000   536,725,000   536,985,000 
Plant and equipment — net  50,636,000   53,854,000   46,693,000   51,062,000 
Operating lease assets  82,029,000   71,513,000   85,407,000   81,997,000 
Long-term deferred income taxes  20,255,000   19,381,000   26,868,000   26,982,000 
Long-term contract assets  311,756,000   270,213,000   314,035,000   310,255,000 
Goodwill and intangible assets — net  7,341,000   8,534,000   5,708,000   7,004,000 
Other assets  1,501,000   1,531,000   1,138,000   1,413,000 
TOTAL ASSETS $938,280,000  $847,882,000  $1,016,574,000  $1,015,698,000 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable and accrued liabilities $149,314,000  $152,735,000  $144,851,000  $168,435,000 
Customer finished goods returns accrual  37,333,000   31,524,000   33,043,000   38,086,000 
Contract liabilities  40,190,000   41,072,000   44,512,000   42,496,000 
Revolving loan  113,000,000   84,000,000   175,000,000   155,000,000 
Other current liabilities  6,708,000   6,683,000   4,430,000   11,930,000 
Operating lease liabilities  6,444,000   6,439,000   8,329,000   6,788,000 
Current portion of term loan  3,670,000   3,678,000   3,668,000   3,670,000 
Total current liabilities  356,659,000   326,131,000   413,833,000   426,405,000 
Term loan, less current portion  13,951,000   16,786,000   10,233,000   13,024,000 
Long-term contract liabilities  165,599,000   125,223,000   185,859,000   172,764,000 
Long-term deferred income taxes  75,000   73,000   121,000   126,000 
Long-term operating lease liabilities  82,287,000   70,551,000   81,512,000   80,803,000 
Other liabilities  6,589,000   7,973,000   10,027,000   7,313,000 
Total liabilities  625,160,000   546,737,000   701,585,000   700,435,000 
Commitments and contingencies  0
   0
   
   
 
Shareholders’ equity:                
Preferred stock; par value $0.01 per share, 5,000,000 shares authorized; NaN issued
  0   0 
Series A junior participating preferred stock; par value $0.01 per share, 20,000 shares authorized; NaN issued
  0   0 
Common stock; par value $0.01 per share, 50,000,000 shares authorized; 19,100,298 and 19,045,386 shares issued and outstanding at December 31, 2021 and March 31, 2021, respectively
  191,000   190,000 
Preferred stock; par value $0.01 per share, 5,000,000 shares authorized; none issued
  -   - 
Series A junior participating preferred stock; par value $0.01 per share, 20,000 shares authorized; none issued
  -   - 
Common stock; par value $0.01 per share, 50,000,000 shares authorized; 19,490,859 and 19,104,751 shares issued and outstanding at December 31, 2022 and March 31, 2022, respectively
  195,000   191,000 
Additional paid-in capital  225,319,000   223,058,000   230,630,000   227,184,000 
Retained earnings  93,276,000   85,593,000   87,288,000   92,954,000 
Accumulated other comprehensive loss  (5,666,000)  (7,696,000)  (3,124,000)  (5,066,000)
Total shareholders’ equity  313,120,000   301,145,000   314,989,000   315,263,000 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $938,280,000  $847,882,000  $1,016,574,000  $1,015,698,000 

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

4
Table of Contents
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)

 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
 
  2021  2020  2021  2020 
             
Net sales $161,810,000  $122,568,000  $486,392,000  $372,654,000 
Cost of goods sold  129,235,000   98,327,000   394,295,000
   295,300,000
 
Gross profit  32,575,000
   24,241,000
   92,097,000
   77,354,000
 
Operating expenses:                
General and administrative  14,605,000   14,005,000   41,556,000
   38,210,000
 
Sales and marketing  6,274,000   4,698,000   17,162,000
   13,224,000
 
Research and development  2,635,000   2,100,000   7,631,000
   6,014,000
 
Foreign exchange impact of lease liabilities and forward contracts  385,000   (12,455,000)  1,769,000   (21,257,000)
Total operating expenses  23,899,000   8,348,000   68,118,000
   36,191,000
 
Operating income  8,676,000   15,893,000   23,979,000
   41,163,000
 
Interest expense, net  3,949,000   4,051,000   11,510,000
   12,074,000
 
Income before income tax expense  4,727,000   11,842,000   12,469,000
   29,089,000
 
Income tax expense  1,588,000   3,373,000   4,786,000
   8,448,000
 
Net income $3,139,000  $8,469,000  $7,683,000  $20,641,000 
Basic net income per share $0.16  $0.44  $0.40  $1.09 
Diluted net income per share $0.16  $0.44  $0.39  $1.07 
Weighted average number of shares outstanding:                
Basic  19,184,339   19,053,232   19,124,824
   19,016,302
 
Diluted  19,544,174   19,436,793   19,604,780
   19,333,758
 

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

54
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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive IncomeOperations
(Unaudited)

  
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
 
 2021  2020  2021  2020 
             
Net income $3,139,000  $8,469,000  $7,683,000  $20,641,000 
Other comprehensive (loss) income, net of tax:                
Foreign currency translation (loss) gain
  (414,000)  1,614,000   2,030,000
   (90,000)
Total other comprehensive (loss) income, net of tax  (414,000)  1,614,000   2,030,000
   (90,000)
Comprehensive income $2,725,000  $10,083,000  $9,713,000  $20,551,000 
   Three Months Ended   Nine Months Ended 

 December 31,  
December 31,
 
  2022  2021  2022  2021 
             
Net sales $151,819,000  $161,810,000  $488,347,000  $486,392,000 
Cost of goods sold  130,826,000   129,235,000   410,536,000
   394,295,000
 
Gross profit  20,993,000
   32,575,000
   77,811,000
   92,097,000
 
Operating expenses:                
General and administrative  13,599,000   14,605,000   42,079,000
   41,556,000
 
Sales and marketing  5,634,000   6,274,000   17,242,000
   17,162,000
 
Research and development  2,547,000   2,635,000   8,330,000
   7,631,000
 
Foreign exchange impact of lease liabilities and forward contracts  (4,313,000)  385,000   (2,553,000)  1,769,000 
Total operating expenses  17,467,000   23,899,000   65,098,000
   68,118,000
 
Operating income  3,526,000   8,676,000   12,713,000
   23,979,000
 
Interest expense, net  11,471,000   3,949,000   27,675,000
   11,510,000
 
(Loss) income before income tax (benefit) expense  (7,945,000)  4,727,000   (14,962,000)  12,469,000
 
Income tax (benefit) expense  (8,971,000)  1,588,000   (9,296,000)  4,786,000
 
Net income (loss) $1,026,000  $3,139,000  $(5,666,000) $7,683,000 
Basic net income (loss) per share $0.05  $0.16  $(0.29) $0.40 
Diluted net income (loss) per share $0.05  $0.16  $(0.29) $0.39 
Weighted average number of shares outstanding:                
Basic  19,474,871   19,184,339   19,383,531
   19,124,824
 
Diluted  19,634,153   19,544,174   19,383,531
   19,604,780
 

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

6
5
Table of Contents
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ EquityComprehensive Income (Loss)
(Unaudited)

 Common Stock             
  Shares  Amount  
Additional
Paid-in
Capital
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss)
  Total 
                   
Balance at March 31, 2021  19,045,386  $190,000  $223,058,000  $85,593,000  $(7,696,000) $301,145,000 
Compensation recognized under employee stock plans  -   0   1,576,000   0   0   1,576,000 
Exercise of stock options, net of shares withheld for employee taxes  19,837   0   354,000   0   0   354,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  35,869   1,000   (543,000)  0   0   (542,000)
Foreign currency translation  -   0   0   0   1,833,000   1,833,000 
Net income
  -   0   0   861,000   0   861,000 
Balance at June 30, 2021
  19,101,092  $191,000  $224,445,000  $86,454,000  $(5,863,000) $305,227,000 
Compensation recognized under employee stock plans  -   0
   1,851,000
   0
   0
   1,851,000
 
Exercise of stock options, net of shares withheld for employee taxes  7,860
   0
   78,000
   0
   0
   78,000
 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  
63,803
   
1,000
   (1,204,000)  
0
   
0
   (1,203,000)
Foreign currency translation  -
   0
   0
   0
   611,000
   611,000
 
Net income  -
   0
   0
   3,683,000
   0
   3,683,000
 
Balance at September 30, 2021
  19,172,755
  $192,000  $225,170,000  $90,137,000  $(5,252,000) $310,247,000 
Compensation recognized under employee stock plans  -   0   2,030,000   0   0   2,030,000 
Exercise of stock options, net of shares withheld for employee taxes  1,846   0   32,000   0   0   32,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  32,183   0   0   0   0   0 
Repurchase and cancellation of treasury stock, including fees  (106,486)  (1,000)  (1,913,000)  0   0   (1,914,000)
Foreign currency translation  -   0   0   0   (414,000)  (414,000)
Net income  -   0   0   3,139,000   0   3,139,000 
 Balance at December 31, 2021  19,100,298  $191,000  $225,319,000  $93,276,000  $(5,666,000) $313,120,000 

 Common Stock             
  Shares  Amount  
Additional
Paid-in
Capital
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
Income (Loss)
  Total 
                   
Balance at March 31,2020
  18,969,380  $190,000  $218,581,000  $64,117,000  $(7,368,000) $275,520,000 
Compensation recognized under employee stock plans  -   0   1,043,000   0   0   1,043,000 
 Exercise of stock options  3,000   0   20,000   0   0   20,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  29,953   0   (207,000)  0   0   (207,000)
Foreign currency translation  -   0   0   0   (1,263,000)  (1,263,000)
Net loss  -   0   0   (3,012,000)  0   (3,012,000)
Balance at June 30, 2020
  19,002,333  $190,000  $219,437,000  $61,105,000  $(8,631,000) $272,101,000 
Compensation recognized under employee stock plans  -   0   1,218,000   0   0   1,218,000 
Exercise of stock options  6,000   0   73,000   0   0   73,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  18,254   0   (140,000)  0   0   (140,000)
Foreign currency translation  -   0   0   0   (441,000)  (441,000)
Net income  -
   0
   0
   15,184,000
   0
   15,184,000
 
Balance at September 30, 2020
  19,026,587
  $190,000  $220,588,000  $76,289,000  $(9,072,000) $287,995,000 
Compensation recognized under employee stock plans  -   0   1,498,000   0   0   1,498,000 
Exercise of stock options  5,794   0   112,000   0   0   112,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  23,911   1,000   (5,000)  0   0   (4,000)
Foreign currency translation  -   0   0   0   1,614,000   1,614,000 
Net income  -   0   0   8,469,000   0   8,469,000 
 Balance at December 31, 2020  19,056,292  $191,000  $222,193,000  $84,758,000  $(7,458,000) $299,684,000 
   Three Months Ended   Nine Months Ended 
  December 31,  
December 31,
 
 2022  2021  2022  2021 
             
Net income (loss)
 $1,026,000  $3,139,000  $(5,666,000) $7,683,000 
Other comprehensive income (loss), net of tax:                
Foreign currency translation gain (loss)
  2,123,000   (414,000)  1,942,000   2,030,000 
Total other comprehensive income (loss), net of tax  2,123,000   (414,000)  1,942,000   2,030,000 
Comprehensive income (loss)
 $3,149,000  $2,725,000  $(3,724,000) $9,713,000 

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

7
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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash FlowsShareholders’ Equity
(Unaudited)

 
Nine Months Ended
December 31,
 
  2021  2020 
Cash flows from operating activities:      
Net income
 $7,683,000  $20,641,000 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:        
Depreciation and amortization  9,591,000   8,090,000 
Amortization of interest  1,189,000   1,059,000 
Amortization of core premiums paid to customers  8,497,000   4,269,000 
Amortization of finished goods premiums paid to customers  516,000   0 
Noncash lease expense  5,533,000   5,239,000 
Loss (gain) due to the change in the fair value of the contingent consideration  60,000   (45,000)
Foreign exchange impact of lease liabilities and forward contracts  1,769,000   (21,257,000)
Gain on short-term investments  (245,000)  (398,000)
Net provision for inventory reserves  9,293,000   8,937,000 
Net provision for customer payment discrepancies and credit losses  1,690,000   242,000 
Deferred income taxes  (877,000)  2,866,000 
Share-based compensation expense  5,457,000   3,759,000 
Loss on disposal of plant and equipment  33,000   9,000 
Changes in operating assets and liabilities:        
Accounts receivable  3,626,000   47,066,000 
Inventory  (65,303,000)  (68,723,000)
Prepaid expenses and other current assets  187,000   982,000 
Other assets  7,000   1,067,000 
Accounts payable and accrued liabilities  (877,000)  46,198,000 
Customer finished goods returns accrual  5,807,000   8,844,000 
Contract assets, net  (50,225,000)  (18,126,000)
Contract liabilities, net  38,828,000   28,492,000 
Operating lease liabilities  (4,219,000)  (4,710,000)
Other liabilities  (194,000)  (2,017,000)
Net cash (used in) provided by operating activities  (22,174,000)  72,484,000 
Cash flows from investing activities:        
Purchase of plant and equipment  (5,111,000)  (12,043,000)
Proceeds from sale of plant and equipment
  0
   7,000
 
Change in short-term investments  (315,000)  (259,000)
Net cash used in investing activities  (5,426,000)  (12,295,000)
Cash flows from financing activities:        
Borrowings under revolving loan  62,000,000   0 
Repayments of revolving loan  (33,000,000)  (93,000,000)
Repayments of term loan  (2,813,000)  (2,813,000)
Payments for debt issuance costs  (1,148,000)  0 
Payments on finance lease obligations  (2,074,000)  (1,775,000)
Exercise of stock options  464,000   205,000 
Cash used to net share settle equity awards  (1,745,000)  (351,000)
Repurchase of common stock, including fees
  (1,914,000)  0 
Net cash provided by (used in) financing activities  19,770,000   (97,734,000)
Effect of exchange rate changes on cash and cash equivalents  76,000   729,000 
Net decrease in cash and cash equivalents  (7,754,000)  (36,816,000)
Cash and cash equivalents — Beginning of period  15,523,000   49,616,000 
Cash and cash equivalents  — End of period $7,769,000  $12,800,000 
Supplemental disclosures of cash flow information:        
Cash paid for interest, net $10,348,000  $11,222,000 
Cash paid for income taxes, net of refunds  5,987,000   2,048,000 
Cash paid for operating leases  7,969,000   8,087,000 
Cash paid for finance leases  2,343,000   2,049,000 
Plant and equipment acquired under finance leases  601,000   3,334,000 
Assets acquired under operating leases  16,141,000   15,630,000 
Non-cash capital expenditures  430,000   923,000 

 Common Stock             
  Shares  Amount  
Additional
Paid-in
Capital
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
 (Loss) Income
  Total 
                   
Balance at March 31, 2022  19,104,751  $191,000  $227,184,000  $92,954,000  $(5,066,000) $315,263,000 
Compensation recognized under employee stock plans  -   -   1,249,000   -   -   1,249,000 
Exercise of stock options, net of shares withheld for employee taxes  25,543   -   191,000   -   -   191,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  84,684   1,000   (895,000)  -   -   (894,000)
Foreign currency translation  -   -   -   -   (868,000)  (868,000)
Net loss
  -   -   -   (175,000)  -   (175,000)
Balance at June 30, 2022
  19,214,978  $192,000  $227,729,000  $92,779,000  $(5,934,000) $314,766,000 
Compensation recognized under employee stock plans  -   -   1,251,000   -   -   1,251,000 
Exercise of stock options, net of shares withheld for employee taxes  193,378   2,000   584,000   -   -   586,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  14,792   -   (75,000)  -   -   (75,000)
Foreign currency translation  -   -   -   -   687,000   687,000 
Net loss
  -   -   -   (6,517,000)  -   (6,517,000)
Balance at September 30, 2022
  19,423,148  $194,000  $229,489,000  $86,262,000  $(5,247,000) $310,698,000 
Compensation recognized under employee stock plans  -   -   1,021,000   -   -   1,021,000 
Exercise of stock options, net of shares withheld for employee taxes  14,058   -   121,000   -   -   121,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  53,653   1,000   (1,000)  -   -   - 
Foreign currency translation  -   -   -   -   2,123,000   2,123,000 
Net income  -   -   -   1,026,000   -   1,026,000 
 Balance at December 31, 2022  19,490,859  $195,000  $230,630,000  $87,288,000  $(3,124,000) $314,989,000 


 Common Stock             
  Shares  Amount  
Additional
Paid-in
Capital
  
Retained
Earnings
  
Accumulated
Other
Comprehensive
 (Loss) Income
  Total 
                   
Balance at March 31,2021
  19,045,386  $190,000  $223,058,000  $85,593,000  $(7,696,000) $301,145,000 
Compensation recognized under employee stock plans  -   -   1,576,000   -   -   1,576,000 
Exercise of stock options, net of shares withheld for employee taxes  19,837   -   354,000   -   -   354,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  35,869   1,000   (543,000)  -   -   (542,000)
Foreign currency translation  -   -   -   -   1,833,000   1,833,000 
Net income
  -   -   -   861,000   -   861,000 
Balance at June 30, 2021
  19,101,092  $191,000  $224,445,000  $86,454,000  $(5,863,000) $305,227,000 
Compensation recognized under employee stock plans  -   -   1,851,000   -   -   1,851,000 
Exercise of stock options, net of shares withheld for employee taxes  7,860   -   78,000   -   -   78,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  63,803   1,000   (1,204,000)  -   -   (1,203,000)
Foreign currency translation  -   -   -   -   611,000   611,000 
Net income  -   -   -   3,683,000   -   3,683,000 
Balance at September 30, 2021
  19,172,755  $192,000  $225,170,000  $90,137,000  $(5,252,000) $310,247,000 
Compensation recognized under employee stock plans  -   -   2,030,000   -   -   2,030,000 
Exercise of stock options, net of shares withheld for employee taxes
  1,846   -   32,000   -   -   32,000 
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes  32,183   -   -   -   -   - 
Repurchase and cancellation of treasury stock, including fees
  (106,486)  (1,000)  (1,913,000)  -   -   (1,914,000)
Foreign currency translation  -   -   -   -   (414,000)  (414,000)
Net income  -   -   -   3,139,000   -   3,139,000 
 Balance at December 31, 2021  19,100,298  $191,000  $225,319,000  $93,276,000  $(5,666,000) $313,120,000 

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

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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)

   Nine Months Ended 

 December 31, 
  2022  2021 
Cash flows from operating activities:      
Net (loss) income $(5,666,000) $7,683,000 
Adjustments to reconcile net (loss) income to net cash used in operating activities:        
Depreciation and amortization  9,322,000   9,591,000 
Amortization of interest  1,131,000   1,189,000 
Amortization of core premiums paid to customers  8,670,000   8,497,000 
Amortization of finished goods premiums paid to customers  513,000   516,000 
Noncash lease expense  5,955,000   5,533,000 
Gain due to the change in the fair value of the contingent consideration  -   60,000 
Foreign exchange impact of lease liabilities and forward contracts  (2,553,000)  1,769,000 
Loss (gain) on short-term investments  281,000   (245,000)
Net provision for inventory reserves  14,248,000   9,293,000 
Net provision for customer payment discrepancies and credit losses  1,250,000   1,690,000 
Deferred income taxes  212,000   (877,000)
Share-based compensation expense  3,521,000   5,457,000 
Loss on disposal of plant and equipment  17,000   33,000 
Changes in operating assets and liabilities:        
Accounts receivable  7,560,000   3,626,000 
Inventory  (20,888,000)  (65,303,000)
Prepaid expenses and other current assets  (12,696,000)  187,000 
Other assets  314,000   7,000 
Accounts payable and accrued liabilities  (19,518,000)  (877,000)
Customer finished goods returns accrual  (5,054,000)  5,807,000 
Contract assets, net  (14,486,000)  (50,225,000)
Contract liabilities, net  14,700,000   38,828,000 
Operating lease liabilities  (5,135,000)  (4,219,000)
Other liabilities  (3,126,000)  (194,000)
Net cash used in operating activities  (21,428,000)  (22,174,000)
Cash flows from investing activities:        
Purchase of plant and equipment  (3,607,000)  (5,111,000)
Purchase of short-term investments  (248,000)  (315,000)
Net cash used in investing activities  (3,855,000)  (5,426,000)
Cash flows from financing activities:        
Borrowings under revolving loan  58,000,000   62,000,000 
Repayments of revolving loan  (38,000,000)  (33,000,000)
Repayments of term loan  (2,813,000)  (2,813,000)
Payments for debt issuance costs  (376,000)  (1,148,000)
Payments on finance lease obligations  (1,842,000)  (2,074,000)
Exercise of stock options, net of cash used to pay employee taxes
  898,000   464,000 
Cash used to net share settle equity awards  (969,000)  (1,745,000)
Repurchase of common stock, including fees
  -   (1,914,000)
Net cash provided by financing activities  14,898,000   19,770,000 
Effect of exchange rate changes on cash and cash equivalents  (52,000)  76,000 
Net decrease in cash and cash equivalents  (10,437,000)  (7,754,000)
Cash and cash equivalents — Beginning of period  23,016,000   15,523,000 
Cash and cash equivalents  — End of period $12,579,000  $7,769,000 
Supplemental disclosures of cash flow information:        
Cash paid for interest, net $26,425,000  $10,348,000 
Cash paid for income taxes, net of refunds  13,135,000   5,987,000 
Cash paid for operating leases  8,760,000   7,969,000 
Cash paid for finance leases  2,042,000   2,343,000 
Plant and equipment acquired under finance leases  609,000   601,000 
Assets acquired under operating leases  7,530,000   16,141,000 
Non-cash capital expenditures  77,000   430,000 

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

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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 20212022
(Unaudited)

1. Company Background and Organization

Motorcar Parts of America, Inc. and its subsidiaries (the “Company”, or “MPA”) is a leading supplier of automotive aftermarket non-discretionary replacement parts, and test solutions and diagnostic equipment. These replacement parts are primarily sold to automotive retail chain stores and warehouse distributors throughout North America and to major automobile manufacturers for both their aftermarket programs and warranty replacement programs (“OES”). The Company’s test solutions and diagnostic equipment primarily serves the global automotive component and powertrain testing market. The Company’s products include (i) rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake-related products, which include brake calipers, brake boosters, brake rotors, brake pads, and brake master cylinders, and (iv) other products, which include (a) turbochargers and (b) test solutions and diagnostic equipment used for electric vehicle powertrain development and manufacturing including electric motor test systems, e-axle test systems, advanced power emulators, charging unit test systems, test systems for alternators and starters, belt starter generators, and bench-top testers, used by the automotive retail segment.and specialized test services for electric vehicle inverters.

Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for segment reporting, the Company has identified its chief operating decision maker (“CODM”), reviewed the documents used by the CODM, and understands how such documents are used by the CODM to make financial and operating decisions. The Company has determined through this review process that its business comprises 3three separate operating segments. Two of theThe operating segments meet all the aggregation criteria to be aggregated and are aggregated. The remaining operating segment does not meet the quantitative thresholds for individual disclosure and the Company has combined its operating segments into 1 reportable segment.presented as such.

Impact of the Novel Coronavirus (“COVID-19”)COVID-19 Pandemic

The outbreak of the COVID-19 pandemic continues to adversely impact the U.S. and global economies – creating uncertainty regarding the potential effects on the Company’s employees, supply chain operations,disruptions, rate of inflation, increasing interest rates, and customer demand. The COVID-19 pandemic could impact the Company’s operations and the operations of its customers, suppliers, and vendors because of quarantines, facility closures, travel, and logistics restrictions. The extent to which the COVID-19 pandemic impactsthese may impact the Company will depend on numerous factors and future developments, which are highly uncertain and cannot be predicted, including, but not limited to: (i) the severity of the virus, (ii) the occurrence and duration of additional spikes in infections, (iii) the effects of the pandemic on customers, suppliers, and vendors, (iv) the remedial actions and stimulus measures adopted by local, state and federal governments, (v) the availability and acceptance of vaccines, and (vi) the extent to which normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, thepredicted. The Company may continue to experience adverse impacts to its business because of an economic recession or depression that has occurred or may occur in the future.

2. Basis of Presentation and New Accounting Pronouncements

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended December 31, 20212022 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2022.2023. This report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2021,2022, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 14, 2021.2022.

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The accompanying condensed consolidated financial statements have been prepared on a consistent basis with, and there have been no material changes to except as noted below, the accounting policies described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements that are presented in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021.2022.

Recently Adopted Accounting Pronouncements

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Income Taxes
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In December 2019, the FASB issued guidance that simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application. This guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2020. The adoption of this guidance on April 1, 2021 did not have any material impact on the Company’s consolidated financial statements.

3. Accounts Receivable — Net

The Company has trade accounts receivable that result from the sale of goods and services. Accounts receivable — net includes offset accounts related to allowances for credit losses, customer payment discrepancies, and returned goods authorizations (“RGAs”) issued for in-transit unit returns. The Company believes its credit risk with respect to trade accounts receivable is limited due to its credit evaluation process and the long-term nature of its relationships with its largest customers. The Company utilizes a historical loss rate method, adjusted for any changes in economic conditions or risk characteristics, to estimate its expected credit losses each period. When developing an estimate of expected credit losses, the Company considers all available relevant information regarding the collectability of cash flows, including historical information, current conditions, and reasonable and supportable forecasts of future economic conditions over the contractual life of the receivable. The historical loss rate method considers past write-offs of trade accounts receivable over a period commensurate with the initial term of the Company’s contracts with its customers. The Company recognizes the allowance for credit losses at inception and reassesses quarterly based on management’s expectation of the asset’s collectability. The Company’s accounts receivable are short-term in nature and written off only when all collection attempts have failed. The Company uses receivable discount programs with certain customers and their respective banks (see Note 10).

Accounts receivable — net is comprised of the following:

  December 31, 2021  March 31, 2021 
Accounts receivable — trade $71,124,000  $81,549,000 
Allowance for credit losses  (292,000)  (348,000)
Customer payment discrepancies  (1,185,000)  (752,000)
Customer returns RGA issued  (11,956,000)  (17,327,000)
Total accounts receivable — net $57,691,000  $63,122,000 

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The following table provides a roll-forward of the allowance for credit losses that is deducted from accounts receivable to present the net amount expected to be collected. During the nine months ended December 31, 2020, the Company wrote off amounts previously fully reserved for in connection with the bankruptcy filing of one of its customers.

 
Nine Months Ended
December 31,
 
  2021  2020 
Balance at beginning of period $348,000  $4,252,000 
Provision for expected credit losses  (17,000)  74,000 
Recoveries  0   (100,000)
Amounts written off charged against the allowance  (39,000)  (3,898,000)
Balance at end of period $292,000  $328,000 
  December 31, 2022  March 31, 2022 
Accounts receivable — trade $92,112,000  $98,734,000 
Allowance for credit losses  (192,000)  (375,000)
Customer payment discrepancies  (1,446,000)  (1,375,000)
Customer returns RGA issued  (14,941,000)  (11,909,000)
Total accounts receivable — net $75,533,000  $85,075,000 

4. Inventory

Inventory is comprised of the following:

 December 31, 2021  March 31, 2021  December 31, 2022  March 31, 2022 
Inventory            
Raw materials $159,001,000  $128,190,000  $152,094,000  $150,414,000 
Work-in-process  8,048,000   5,233,000   6,512,000   6,880,000 
Finished goods  191,040,000   168,184,000   231,175,000   226,729,000 
  358,089,000   301,607,000   389,781,000   384,023,000 
Less allowance for excess and obsolete inventory  (14,857,000)  (13,246,000)  (15,083,000)  (13,520,000)
Inventory — net  343,232,000   288,361,000   374,698,000   370,503,000 
Inventory unreturned  15,506,000   14,552,000   15,876,000   15,001,000 
Total inventory $358,738,000  $302,913,000  $390,574,000  $385,504,000 

5. Contract Assets

During the three months ended December 31, 20212022 and 2020,2021, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $846,000863,000 and $1,304,000846,000, respectively. During the nine months ended December 31, 20212022 and 2020,2021, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $2,704,000 and $3,517,000, and $3,580,000, respectively.respectively.

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Contract assets are comprised of the following:

 December 31, 2021  March 31, 2021  December 31, 2022  March 31, 2022 
Short-term contract assets            
Cores expected to be returned by customers $14,172,000  $17,657,000  $17,454,000  $15,778,000 
Core premiums paid to customers  9,605,000   10,621,000 
Upfront payments to customers  540,000   684,000   1,454,000   517,000 
Finished goods premiums paid to customers  613,000   405,000   559,000   584,000 
Core premiums paid to customers  11,284,000   8,194,000 
Total short-term contract assets $26,609,000  $26,940,000  $29,072,000  $27,500,000 
                
Remanufactured cores held at customers’ locations $257,609,000  $229,918,000  $265,378,000  $258,376,000 
Upfront payments to customers  231,000   486,000 
Finished goods premiums paid to customers  2,926,000   2,731,000 
Core premiums paid to customers  45,421,000   31,509,000   40,475,000   43,294,000 
Long-term core inventory deposits  5,569,000   5,569,000   5,569,000   5,569,000 
Finished goods premiums paid to customers  2,588,000   2,806,000 
Upfront payments to customers  25,000   210,000 
Total long-term contract assets $311,756,000  $270,213,000  $314,035,000  $310,255,000 

6. Significant Customer and Other Information

Significant Customer Concentrations

The largest customers accounted for the following percentage of net sales:

 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
 
 2021  2020  2021  2020 2022 2021 2022 2021 
Net sales                    
Customer A  38%  35%  38%  42%  36%  38%  38%  38%
Customer B  15%  26%  17%  24%  27%  15%  24%  17%
Customer C  29%  24%  30%  21%  21%  29%  22%  30%
Customer D
  4%  2%  4%  2%

The largest customers accounted for the following percentage of accounts receivable – trade:

December 31, 2021 March 31, 2021  December 31, 2022  March 31, 2022 
Accounts receivable - trade          
Customer A  38%  50%  39%  42%
Customer B  21%  23%  23%  21%
Customer C  1%
  0%  -
%  9%
Customer D
  15%  5%

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Geographic and Product Information

The Company’s products are sold predominantly in the U.S. and accounted for the following percentages of net sales:

 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
  
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
 
 2021  2020  2021  2020  2022  2021  2022  2021 
Product line
                                
Rotating electrical products  68%  72%  69%  76%  66%  68%  67%  69%
Wheel hub products  13%  14%  13%  14%  10%  13%  11%  13%
Brake related products  15%  12%  15%  9%
Brake-related products  20%  15%  19%  15%
Other products  4%  2%  3%  1%  4%  4%  3%  3%
  100%  100%  100%  100%  100%  100%  100%  100%

Significant Supplier Concentrations

The Company had no suppliers that accounted for more than 10% of inventory purchases for the three and nine months ended December 31, 20212022 and 2020.2021.

7. Debt

The Company is party to a $268,620,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders and PNC Bank, National Association, as administrative agent, consisting of (i) a $238,620,000 revolving loan facility, subject to borrowing base restrictions, a $24,000,000 sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term Loans”). The loans under the Credit Facility mature on June 5, 2023.May 28, 2026. The Credit Facility currently permits the payment of up to $29,430,000$29,043,000 of dividends and share repurchases for fiscal year 2022,2023, subject to pro forma compliance with financial covenants. In connection with the Credit Facility, the lenders have a security interest in substantially all of the assets of the Company.

In May 2021, the Company entered into a third amendment to the Credit Facility (the “Third Amendment”). The Third Amendment, among other things, (i) extended the maturity date to May 28, 2026 from June 5, 2023, (ii) modified the fixed charge coverage ratio financial covenant, and (iii) modified the definition of “Consolidated EBITDA”. The Company capitalized $1,148,000 of new debt issuance costs in connection with the Third Amendment.

The Term Loans require quarterly principal payments of $937,500. The Credit Facility bears interest at rates equal to either LIBORSOFR (as defined below) plus a margin of 2.25%, 2.50% or 2.75% or a reference rate plus a margin of 1.25%, 1.50% or 1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.375% to 0.50%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on the Company’s Term Loans and Revolving Facility was 2.85%6.98% and 2.86%7.16% respectively, at December 31, 2021,2022, and 2.62%2.99% and 3.13% respectively, at March 31, 2021.2022.

The Credit Facility, among other things, requires the Company to maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. The Company was in compliance with all financial covenants at December 31, 2021.

In addition, to other covenants, the Credit Facility places limits on the Company’s ability to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, redeem, or repurchase capital stock, alter the business conducted by the Company and its subsidiaries, transact with affiliates, prepay, redeem, or purchase subordinated debt, and amend or otherwise alter debt agreements.

On November 3, 2022, the Company entered into a fourth amendment to the Credit Facility (the “Fourth Amendment”). The Fourth Amendment, among other things, (i) modified the fixed charge coverage ratio financial covenant for the fiscal quarters ending September 30, 2022 and December 31, 2022, (ii) modified the total leverage ratio financial covenant for the fiscal quarter ending September 30, 2022, (iii) modified the definition of “Consolidated EBITDA”, and (iv) replaced LIBOR as the benchmark rate with a replacement benchmark based on the Secured Overnight Financing Rate (“SOFR”) effective beginning November 3, 2022. The modifications to the financial covenants were effective as of September 30, 2022.

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12
As of December 31, 2022, the Company identified certain defaults with respect to the Credit Facility, which arose from non-compliance with certain financial covenants. On February 3, 2023, the Company entered into a fifth amendment to the Credit Facility (the “Fifth Amendment”). The Fifth Amendment, among other things, (i) waived certain existing defaults and events of default arising from non-compliance with the fixed charge coverage ratio and senior leverage ratio financial covenants as of the end of the fiscal quarter ended December 31, 2022, (ii) modified the fixed charge coverage ratio and senior leverage ratio financial covenants for the quarters ending March 31, 2023 and June 30, 2023, (iii) modified the definitions of “Applicable Margin” and “Consolidated EBITDA”, and (iv) added a new minimum undrawn availability financial covenant.

The following summarizes information about the Term Loans:

 December 31, 2021  March 31, 2021  December 31, 2022  March 31, 2022 
Principal amount of Term Loans $17,812,000  $20,625,000  $14,062,000  $16,875,000 
Unamortized financing fees  (191,000)  (161,000)  (161,000)  (181,000)
Net carrying amount of Term Loans  17,621,000   20,464,000   13,901,000   16,694,000 
Less current portion of Term Loans  (3,670,000)  (3,678,000)  (3,668,000)  (3,670,000)
Long-term portion of Term Loans $13,951,000  $16,786,000  $10,233,000  $13,024,000 

Future repayments of the Term Loans are as follows:

Year Ending March 31,      
2022 - remaining three months
 $937,000 
2023  3,750,000 
2023 - remaining three months
 $937,000 
2024  3,750,000   3,750,000 
2025  3,750,000   3,750,000 
2026  3,750,000   3,750,000 
Thereafter  1,875,000 
2027  1,875,000 
Total payments $17,812,000  $14,062,000 

The Company had $113,000,000175,000,000 and $84,000,000$155,000,000 outstanding under the Revolving Facility at December 31, 20212022 and March 31, 20212022, respectively. In addition, $6,409,000$6,370,000 was outstanding for letters of credit at December 31, 2021202.2. At December 31, 20212022, after certain contractual adjustments, $99,908,00057,250,000 was available under the Revolving Facility.

13
8. Contract Liabilities

Contract liabilities are comprised of the following:

 December 31, 2021  March 31, 2021  December 31, 2022  March 31, 2022 
Short-term contract liabilities       
  

Customer allowances earned $18,088,000  $22,018,000 
Customer core returns accruals $13,089,000  $12,710,000   16,901,000   12,322,000 
Customer allowances earned  18,461,000   16,513,000 
Customer deposits  3,747,000   2,234,000   3,236,000   3,306,000 
Accrued core payment  3,015,000   1,679,000 
Core bank liability  1,673,000   1,634,000 
Finished goods liabilities  1,609,000   1,883,000   1,599,000   1,537,000 
Core bank liability  1,622,000   1,585,000 
Accrued core payment
  1,662,000   6,147,000 
Total short-term contract liabilities $40,190,000  $41,072,000  $44,512,000  $42,496,000 
                
Long-term contract liabilities                
Customer core returns accruals $146,837,000  $103,719,000  $160,980,000  $154,940,000 
Customer allowances earned  109,000   313,000 
Finished goods liabilities  1,972,000   2,678,000 
Core bank liability  15,682,000   16,903,000   14,009,000   15,267,000 
Accrued core payment
  999,000   1,610,000   10,045,000   928,000 
Finished goods liabilities  825,000   1,588,000 
Customer allowances earned
  -   41,000 
Total long-term contract liabilities $165,599,000  $125,223,000  $185,859,000  $172,764,000 

14
9. Leases

The Company leases various facilities in North America and Asia under operating leases expiring through August 2033.2033. The Company has material nonfunctional currency leases that could have a material impact on the Company’s condensed consolidated statements of income.operations. As required for other monetary liabilities, lessees remeasure foreign currency-denominated lease liabilities using the exchange rate at each reporting date, but the lease assets are nonmonetary assets measured at historical rates and are not affected by subsequent changes in the exchange rates. In connection with the remeasurement of these leases, the Company recorded a gain of $3,129,000 and a loss of $985,000 and a gain of $8,638,000$985,000 during the three months ended December 31, 2022 and 2021, and 2020, respectivelyand gains of $64,000 and $12,241,000 during. During the nine months ended December 31, 2022 and 2021, the Company recorded gains of $2,108,000 and 2020,$64,000, respectively,. in connection with the remeasurement of these leases. These amounts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of income.operations.

14
Balance sheet information for leases is as follows:

Leases Classification December 31, 2021  March 31, 2021  Classification December 31, 2022  March 31, 2022 
Assets:                
Operating 
Operating lease assets
 $82,029,000  $71,513,000  
Operating lease assets
 $85,407,000  $81,997,000 
Finance 
Plant and equipment
  7,745,000   8,852,000  
Plant and equipment
  6,157,000   7,470,000 
Total leased assets   $89,774,000  $80,365,000    $91,564,000  $89,467,000 
                    
Liabilities:                    
Current                    
Operating 
Operating lease liabilities
 $6,444,000  $6,439,000  
Operating lease liabilities
 $8,329,000  $6,788,000 
Finance 
Other current liabilities
  2,420,000   2,640,000  
Other current liabilities
  1,910,000   2,330,000 
Long-term                    
Operating 
Long-term operating lease liabilities
  82,287,000   70,551,000  
Long-term operating lease liabilities
  81,512,000   80,803,000 
Finance 
Other liabilities
  3,741,000   4,995,000  
Other liabilities
  2,600,000   3,425,000 
Total lease liabilities   $94,892,000  $84,625,000    $94,351,000  $93,346,000 

Lease cost recognized in the condensed consolidated statements of incomeoperations is as follows:

 Three Months Ended Nine Months Ended
 
 
Three Months Ended
December 31,
 
Nine Months Ended
December 31,
  December 31, December 31,
 
 2021  2020  2021
  2020
  2022  2021 2022
 2021
 
Lease cost                    
Operating lease cost $3,134,000  $2,962,000 $9,325,000  $8,522,000  $3,232,000  $3,134,000 $
9,527,000 $
9,325,000 
Short-term lease cost  361,000   373,000 1,112,000 1,027,000   340,000   361,000 1,353,000 1,112,000 
Variable lease cost  225,000   183,000 716,000 556,000   164,000   225,000 528,000 716,000 
Finance lease cost:                        
Amortization of finance lease assets  515,000   458,000 1,579,000 1,299,000   503,000   515,000 1,531,000 1,579,000 
Interest on finance lease liabilities  83,000   98,000  269,000  274,000   68,000   83,000  200,000  269,000 
Total lease cost $4,318,000  $4,074,000  $13,001,000  $11,678,000  $4,307,000  $4,318,000 $
13,139,000 $
13,001,000 

Maturities of lease commitments at December 31, 2022 by fiscal year were as follows:

Maturity of lease liabilities Operating Leases  Finance Leases  Total 
2023 - remaining three months
 $3,335,000  $600,000  $3,935,000 
2024  13,364,000   1,915,000   15,279,000 
2025  12,498,000   1,414,000   13,912,000 
2026  12,065,000   682,000   12,747,000 
2027  10,782,000   191,000   10,973,000 
Thereafter  64,621,000   44,000   64,665,000 
Total lease payments  116,665,000   4,846,000   121,511,000 
Less amount representing interest  (26,824,000)  (336,000)  (27,160,000)
Present value of lease liabilities $89,841,000  $4,510,000  $94,351,000 

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Maturities of lease commitments at December 31, 2021 by fiscal year were as follows:

Maturity of lease liabilities Operating Leases  Finance Leases  Total 
2022 - remaining three months
 $2,449,000  $714,000  $3,163,000 
2023  11,460,000   2,490,000   13,950,000 
2024  10,014,000   1,688,000   11,702,000 
2025  10,078,000   1,194,000   11,272,000 
2026  10,347,000   507,000   10,854,000 
Thereafter  75,113,000   51,000   75,164,000 
Total lease payments  119,461,000   6,644,000   126,105,000 
Less amount representing interest  (30,730,000)  (483,000)  (31,213,000)
Present value of lease liabilities $88,731,000  $6,161,000  $94,892,000 

Other information about leases is as follows:

 December 31, 2021  March 31, 2021  December 31, 2022  March 31, 2022 
Lease term and discount rate            
Weighted-average remaining lease term (years):            
Finance leases  3.0   3.4   2.7   2.9 
Operating leases  10.6   11.1   9.2   10.4 
Weighted-average discount rate:                
Finance leases  5.2%  5.3%  5.4%  5.1%
Operating leases  5.7%  5.9%  5.8%  5.7%

10. Accounts Receivable Discount Programs

The Company uses receivable discount programs with certain customers and their respective banks. Under these programs, the Company may sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold. These discount arrangements allow the Company to accelerate receipt of payment on customers’ receivables.

The following is a summary of accounts receivable discount programs:

 Nine Months Ended 
 
Nine Months Ended
December 31,
  December 31, 
 2021  2020  2022  2021 
Receivables discounted $418,044,000  $367,102,000  $428,868,000  $418,044,000 
Weighted average days  335   333 
Weighted average number of days collection was accelerated  323   335 
Annualized weighted average discount rate  1.7%  2.1%  5.0%  1.7%
Amount of discount recognized as interest expense $6,798,000  $7,277,000  $19,131,000  $6,798,000 

11. Net Income (Loss) per Share

Basic net income(loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options, which would result in the issuance of incremental shares of common stock to the extent such impact is not anti-dilutive.

16
The following presents a reconciliation of basic and diluted net income (loss) per share:

  
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
 
  2021  2020  2021  2020 
Net income
 $3,139,000  $8,469,000 $7,683,000  $20,641,000 
Basic shares  19,184,339   19,053,232   19,124,824   19,016,302 
Effect of potentially dilutive securities  359,835   383,561   479,956   317,456 
Diluted shares  19,544,174   19,436,793   19,604,780   19,333,758 
Net income per share:
                
Basic net income per share
 $0.16  $0.44 $0.40  $1.09 
Diluted net income per share
 $0.16  $0.44 $0.39  $1.07 
  Three Months Ended  Nine Months Ended
 
 December 31,  December 31, 
  2022  2021  2022  2021 
Net income (loss)
 $1,026,000 $3,139,000  $(5,666,000) $7,683,000 
Basic shares  19,474,871   19,184,339   19,383,531   19,124,824 
Effect of potentially dilutive securities  159,282   359,835   -   479,956 
Diluted shares  19,634,153   19,544,174   19,383,531   19,604,780 
Net income (loss) per share:
                
Basic net income (loss) per share
 $0.05 $0.16  $(0.29) $0.40 
Diluted net income (loss) per share
 $0.05 $0.16  $(0.29) $0.39 

Potential common shares that would have the effect of increasing diluted net income per share or decreasing diluted net loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted net income(loss) per share. For the three months ended December 31, 20212022 and 2020,2021, there were 1,130,6941,201,984 and 1,319,937,1,130,694, respectively, of potential common shares not included in the calculation of diluted net income (loss) per share because their effect was anti-dilutive. For the nine months ended December 31, 20212022 and 2020,2021, there were 720,7561,897,876 and 1,328,437,720,756, respectively, of potential common shares not included in the calculation of diluted net income (loss) per share because their effect was anti-dilutive.

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12. Income Taxes

The Company recorded an income tax benefit of $8,971,000, or an effective tax rate of 112.9%, and income tax expense of $1,588,000, or an effective tax rate of 33.6%, and $3,373,000, or an effective tax rate of 28.5%, for the three months ended December 31, 20212022 and 2020,2021, respectively. The Company recorded an income tax benefit of $9,296,000, or an effective tax rate of 62.1%, and income tax expense of $4,786,000, or an effective tax rate of 38.4%, and $8,448,000, or an effective tax rate of 29.0%, for the nine months ended December 31, 20212022 and 2020,2021, respectively. Effective tax rates are based on current annual projections and any changes in future periods could result in an effective tax rate that is materially different from the current estimate. The effective tax ratesrate for the three and nine months ended December 31, 2021, were2022, was primarily impacted by (i) non-deductible executive compensation under Internal Revenue Code Section 162(m), (ii)specific jurisdictions that the Company does not expect to recognize the benefit of losses, (ii) foreign income taxed at rates that are different from the federal statutory rate, and (iii) specific jurisdictions that the Company does not expect to recognize benefit of losses.non-deductible executive compensation under Internal Revenue Code Section 162(m).

The Company and its subsidiaries file income tax returns in the U.S. federal, various state, and foreign jurisdictions with varying statutes of limitations. At December 31, 2021,2022, the Company is not under examination in any jurisdiction, and remain subject to examination from the years ended March 31, 2017. The Company believes no significant changes in the unrecognized tax benefits will occur within the next 12 months.

13. Financial Risk Management and Derivatives

Purchases and expenses denominated in currencies other than the U.S. dollar, which are primarily related to the Company’s overseas facilities, expose the Company to market risk from material movements in foreign exchange rates between the U.S. dollar and the foreign currencies. The Company’s primary risk exposure is from fluctuations in the value of the Mexican peso and to a lesser extent the Chinese yuan. To mitigate these risks, the Company enters into forward foreign currency exchange contracts to exchange U.S. dollars for these foreign currencies. The extent to which forward foreign currency exchange contracts are used, is modified periodically in response to the Company’s estimate of market conditions and the terms and length of anticipated requirements.

The Company enters into forward foreign currency exchange contracts in order to reduce the impact of foreign currency fluctuations and not to engage in currency speculation. The use of derivative financial instruments allows the Company to reduce its exposure to the risk that the eventual cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in exchange rates between the U.S. dollar and the foreign currencies. The Company does not hold or issue financial instruments for trading purposes. The Company designates forward foreign currency exchange contracts for forecasted expenditure requirements to fund foreign operations.

17
The Company had forward foreign currency exchange contracts with a U.S. dollar equivalent notional value of $44,815,00047,369,000 and $41,819,00044,968,000 at December 31, 20212022 and March 31, 2021,2022, respectively. These contracts generally have a term of one year or less, at rates agreed at the inception of the contracts. The counterparty to this derivative transaction is a major financial institution with investment grade credit rating; however, the Company is exposed to credit risk with this institution. The credit risk is limited to the potential unrealized gains (which offset currency fluctuations adverse to the Company) in any such contract should this counterparty fail to perform as contracted. Any changes in the fair values of forward foreign currency exchange contracts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of income.operations.

17
The following shows the effect of derivative instruments on the condensed consolidated statements of income:operations:

 
Gain (Loss) Recognized as Foreign Exchange Impact
of Lease Liabilities and Forward Contracts
 
 Gain (Loss) Recognized as Foreign Exchange Impact of Lease Liabilities and Forward Contracts  Three Months Ended  Nine Months Ended 
Derivatives Not Designated as
 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
  December 31,  December 31, 
Hedging Instruments 2021  2020  2021
  2020  2022  2021  2022
  2021 
Forward foreign currency exchange contracts $600,000 $3,817,000  $(1,833,000) $9,016,000  $1,184,000 $600,000 $445,000 $(1,833,000)

The fair value of the forward foreign currency exchange contracts of $1,558,000 and $404,000 is included in other current liabilities in the condensed consolidated balance sheet at December 31, 2021. The fair value of the forward foreign currency exchange contracts of $1,429,0001,113,000 is included in prepaid expenses and other current assets in the condensed consolidated balance sheetsheets at December 31, 2022 and March 31, 2021.2022, respectively. The changes in the fair values of forward foreign currency exchange contracts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of cash flows for the nine months ended December 31, 20212022 and 20202021.

14. Fair Value Measurements

The following summarizes financial assets and liabilities measured at fair value, by level within the fair value hierarchy:

 December 31, 2021  March 31, 2021 
     
Fair Value Measurements
Using Inputs Considered as
     
Fair Value Measurements
Using Inputs Considered as
 
  Fair Value  Level 1  Level 2  Level 3  Fair Value  Level 1  Level 2  Level 3 
Assets                        
Short-term investments                        
Mutual funds $2,212,000  $2,212,000  $0  $0  $1,652,000  $1,652,000  $0  $0 
Prepaid expenses and other current assets                                
Forward foreign currency exchange contracts  0   0   0   0   1,429,000   0   1,429,000   0 
                                 
Liabilities                                
Accrued liabilities                                
Short-term contingent consideration  970,000   0   0   970,000   910,000   0   0   910,000 
Other current liabilities                                
Deferred compensation  2,212,000   2,212,000   0   0   1,652,000   1,652,000   0   0 
Forward foreign currency exchange contracts  404,000
   0
   404,000
   0
   0
   0
   0
   0
 
  December 31, 2022  March 31, 2022 
     Fair Value Measurements     Fair Value Measurements 
     Using Inputs Considered as     Using Inputs Considered as 
  Fair Value  Level 1  Level 2  Level 3  Fair Value  Level 1  Level 2  Level 3 
Assets                        
 Short-term investments Mutual funds $2,169,000  $2,169,000  $-  $-  $2,202,000  $2,202,000  $-  $- 
Prepaid expenses and other current assets Forward foreign currency
exchange contracts
  1,558,000   -   1,558,000   -   1,113,000   -   1,113,000   - 
                                 
Liabilities                                
Other current liabilities                                
Deferred compensation  2,169,000   2,169,000   -   -   2,202,000   2,202,000   -   - 

Short-term Investments and Deferred Compensation

The Company’s short-term investments, which fund its deferred compensation liabilities, consist of investments in mutual funds. These investments are classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.

18
Forward Foreign Currency Exchange Contracts

The forward foreign currency exchange contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers (See Note 13).

Contingent Consideration

In December 2018, the Company completed the acquisition of certain assets and assumption of certain liabilities from Mechanical Power Conversion, LLC (“E&M”). In connection with this acquisition, the Company was contingently obligated to make additional payments to the former owners of E&M up to an aggregate of $5,200,000 over a three-year period. The third and final payment of the contingent consideration obligation of $970,000 will be made in the fourth fiscal quarter ending March 31, 2022, as settlement of this obligation. This obligation is recorded in accounts payable and accrued liabilities in the Company’s condensed consolidated balance sheets at December 31, 2021.

The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements:

 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
 
Contingent Consideration 2021  2020  2021  2020 
Beginning balance $980,000  $2,588,000  $910,000  $2,653,000 
Changes in revaluations of contingent consideration included in earnings  (10,000)  20,000   60,000   (45,000)
Ending balance $970,000  $2,608,000  $970,000  $2,608,000 

During the three and nine months ended December 31,2021, the Company had no other significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these instruments. The carrying amounts of the revolving loan, term loan and other long-term liabilities approximate their fair value based on the variable nature of interest rates and current rates for instruments with similar characteristics.

15. Share-based Payments

Stock Options

During the nine months ended December 31, 2022 and 2021, 0no options to purchase shares of the Company’s common stock were granted. The Company granted options to purchase 345,423 shares of common stock during the nine months ended December 31, 2020.

19
18
The following is a summary of stock option transactions:

  
Number of
Shares
  
Weighted Average
Exercise Price
 
Outstanding at March 31, 2021  1,744,885  $17.51 
Granted  0  $0 
Exercised  (30,976) $16.10 
Forfeited  (5,984) $19.81 
Outstanding at December 31, 2021  1,707,925  $17.52 
  
Number of
Shares
  
Weighted Average
Exercise Price
 
Outstanding at March 31, 2022  1,695,499  $17.53 
Granted  -  $- 
Exercised  (323,249) $6.68 
Forfeited/Cancelled
  (101,257) $18.62 
Expired  (3,000) $9.85 
Outstanding at December 31, 2022  1,267,993  $20.22 

At December 31, 2021,2022, options to purchase 317,30999,839 shares of common stock were unvested at a weighted average exercise price of $16.53.$15.16.

At December 31, 2021,2022, there was $1,440,000$295,000 of total unrecognized compensation expense related to unvested stock option awards. Compensation expense related to unvested stock option awards, which will be recognized over the weighted average remaining vesting period of approximately 1.2 years.six months.

Restricted Stock Units and Restricted Stock (collectivelyAwards (collectively “RSUs”)

During the nine months ended December 31, 20212022 and 2020,2021, the Company granted 263,703(i) performance-based restricted stock awards which had a threshold performance level of 33,333 shares, a target performance level of 66,667 shares, and 251,801a maximum performance level of 100,000 shares at the grant date for both periods and (ii) 229,121 and 163,703 of RSUs,time-based vesting restricted stock units, respectively, based on the closing market price on the grant date.

The following is a summary of non-vested RSUs:

  
Number of
Shares
  
Weighted Average
Grant Date Fair
Value
 
Outstanding at March 31, 2021  354,484  $17.22 
Granted  263,703  $21.90 
Vested  (216,617) $17.78 
Forfeited  (1,832) $20.15 
Outstanding at December 31, 2021  399,738  $19.98 
  
Number of
Shares
  
Weighted Average
Grant Date Fair
Value
 
Outstanding at March 31, 2022  399,063  $19.98 
Granted  329,121  $13.46 
Vested  (228,519) $20.08 
Forfeited/Cancelled  (64,921) $19.39 
Outstanding at December 31, 2022  434,744  $15.08 

At December 31, 2021,2022, there was $5,402,000$4,143,000 of unrecognized compensation expense related to these awards,RSUs, which will be recognized over the weighted average remaining vesting period of approximately 1.61.7 years.The Company’s unrecognized compensation expense includes restricted stock awards at the target performance level as deemed probable at quarter-end.

Performance Stock Units (“PSUs”)

In JuneDuring the nine months ended December 31, 2022 and 2021, the Company granted performance-based126,028 and 84,593 PSUs to its executives,(at target performance levels), respectively, which typically cliff vest after three-years subject to continued employment. These awards are contingent and granted separately for each of the following metrics: adjusted EBITDA, net sales, and relative total shareholder return (“TSR”). Compensation cost is determined at the grant date and recognized on a straight-line basis over the requisite service period to the extent the conditions are deemed probable. The number of shares earned at the end of the three-year period will vary, based only on actual performance, from 0% to 150% of the target number of PSUs granted. PSUs are not considered issued or outstanding ordinary shares of the Company.

19
Adjusted EBITDA and net sales are considered performance conditions. The Company will reassess the probability of achieving each performance condition separately each reporting period. TSR is considered a market condition because it measures the Company’s return against the performance of the Russell 3000, excluding companies classified as financials and real estate, over a given period of time. Compensation cost related to the TSR award will not be adjusted even if the market condition is not met.

20
The Company calculated the fair value of the PSUs for each component individually. The fair value of PSUs subject to performance conditions is equal to the closing stock price on the grant date. The fair value of PSUs subject to the market condition is determined using the Monte Carlo valuation model.

The following table summarizes the assumptions used in determining the fair value of the TSR awards:


 
Nine Months Ended
December 31,
  
Nine Months Ended
December 31,
 
 2021  2022  2021
 
Risk free interest rate  0.47% 
3.35%  0.47%
Expected life in years  3   3   3 
Expected volatility of MPA common stock  53.70%  51.30%  53.70%
Expected average volatility of peer companies  59.30%  62.70%  59.30%
Average correlation coefficient of peer companies  26.70%  27.50%  26.70
Expected dividend yield  0   -   - 
Grant date fair value $26.89  $16.02   $26.89 

The following is a summary of non-vested PSUs:

 
Number of
Shares
  
Weighted Average
Grant Date Fair
Value
  
Number of
Shares
  
Weighted Average
Grant Date Fair
Value
 
Outstanding at March 31, 2021  0  $0 
Outstanding at March 31, 2022  84,593  $23.19 
Granted  84,593  $23.19   126,028  $14.00 
Vested  0  $0   -  $- 
Forfeited  0  $0   (15,482) $20.01 
Outstanding at December 31, 2021  84,593  $23.19 
Outstanding at December 31, 2022  195,139  $17.51 

At December 31, 2021,2022, there was $1,609,0002,231,000 of unrecognized compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 2.52.1 years.

16. Commitments and Contingencies


Warranty Returns

The Company allows its customers to return goods that their consumers have returned to them, whether or not the returned item is defective (“warranty returns”). The Company accrues an estimate of its exposure to warranty returns based on a historical analysis of the level of this type of return as a percentage of unit sales. Amounts charged to expense for these warranty returns are considered in arriving at the Company’s net sales.

21
20
The following summarizes the changes in the warranty return accrual:

 
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
  
Three Months Ended
December 31,
  
Nine Months Ended
December 31,
 
 2021  2020  2021  2020  2022  2021  2022  2021 
Balance at beginning of period $20,875,000  $22,499,000  $21,093,000  $18,300,000  $18,461,000  $20,875,000  $20,125,000  $21,093,000 
Charged to expense  30,282,000   26,194,000   88,380,000   80,155,000   31,621,000   30,282,000   96,436,000   88,380,000 
Amounts processed  (32,425,000)  (31,540,000)  (90,741,000)  (81,302,000)  (32,510,000)  (32,425,000)  (98,989,000)  (90,741,000)
Balance at end of period $18,732,000  $17,153,000  $18,732,000  $17,153,000  $17,572,000  $18,732,000  $17,572,000  $18,732,000 

Contingencies

The Company is subject to various lawsuits and claims. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding the Company’s business. Following an audit in fiscal 2019, the U.S. Customs and Border Protection stated that it believed that the Company owed additional duties of approximately $17 million from 2011 through mid-2018 relating to products that it imported from Mexico. The Company does not believe that this amount is correct and believes that it has numerous defenses and intends to dispute this amount vigorously. The Company cannot assure that the U.S. Customs and Border Protection will agree or that it will not need to accrue or pay additional amounts in the future.

22

17. Share Repurchases



In August 2018, the Company’s board of directors approved an increase in its share repurchase program from $20,000,000 to $37,000,000 of its common stock. During the three and nine monthsmonths ended December 31, 2021, the Company repurchased 106,486 shares of its common stock for $1,914,000. During the three and nine months ended December 31, 2020,2022, the Company did 0tnot repurchase any shares of its common stock. As of December 31, 2021,2022, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in the Company’s Credit Facility. The Company retired the 837,007 shares repurchased under this program through December 31, 2021.2022. The Company’s share repurchase program does not obligate it to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

18. Related Party Transactions

Operating Lease

In December 2022, the Company entered into an operating lease for its 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by a member of management. The lease, commencing January 1, 2023, has an initial term of one year with a base rent of approximately $27,000 per month and includes options to renew for up to four years.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis presents factors that Motorcar Parts of America, Inc. and its subsidiaries (“our,” “we” or “us”) believe are relevant to an assessment and understanding of our consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with our March 31, 20212022 audited consolidated financial statements included in our Annual Report on Form 10-K filed with the SECSecurities and Exchange Commission (“SEC”) on June 14, 2021.2022.

Disclosure Regarding Private Securities Litigation Reform Act of 1995

This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our future performance that involve risks and uncertainties. Various factors could cause actual results to differ materially from those expressed or implied by such statements. These factors include,All statements other than statements of historical fact are forward-looking statements, including, but are not limited to:to, statements about our strategic initiatives, operational plans and objectives, expectations for economic conditions and recovery and future business and financial performance, as well as statements regarding underlying assumptions related thereto. They include, among others, factors related to the timing and implementation of strategic initiatives, the highly competitive nature of our industry, demand for our products and services, complexities in our inventory and supply chain, challenges with transforming and growing our business and factors related to the current and future impacts of theglobal COVID-19 public health crisis; concentration of sales to a small number of customers; changes in the financial condition of or our relationship with any of our major customers; increases in the average accounts receivable collection period; the loss of sales to customers; delays in payments by customers; the increasing customer pressure for lower prices and more favorable payment and other terms; lower revenues than anticipated from new and existing contracts; the increasing demands on our working capital; the significant strain on working capital associated with large inventory purchases from customers; lower efficiency or production due to stay at home orders or other restrictions issued by governments due to COVID-19 concerns; any meaningful difference between expected production needs and ultimate sales to our customers; investments in operational changes or acquisitions; our ability to obtain any additional financing we may seek or require; our ability to maintain positive cash flows from operations; our failure to meet the financial covenants or the other obligations set forth in our credit agreement and the lenders’ refusal to waive any such defaults; increases in interest rates; the impact of high gasoline prices; consumer preferences and general economic conditions; increased competition in the automotive parts industry including increased competition from Chinese and other offshore manufacturers; difficulty in obtaining Used Cores and component parts or increases in the costs of those parts; supply chain delays or stoppages due to shipping delays; political, criminal or economic instability in any of the foreign countries where we conduct operations; currency exchange fluctuations; potential tariffs, unforeseen increases in operating costs; risks associated with cyber-attacks; risks associated with conflict minerals; the impact of new tax laws and interpretations thereof; uncertainties affecting our ability to estimate our tax rate and other factors discussed herein and in our other filings with the Securities and Exchange Commission (the “SEC”). These and other risks and uncertainties may cause our actual results to differ materially and adversely from those expected in any forward-looking statements. Readers are directed to risks and uncertainties identified below under “Risk Factors” and elsewhere in this report for additional detail regarding factors that may cause actual results to be different than those expressed in our forward-looking statements.pandemic. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.Therefore, you should not place undue reliance on those statements. Please refer to “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K filed with the SEC on June 14, 2022, as updated by our subsequent filings with the SEC, for a description of these and other risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements.

Management Overview

We have a multi-pronged platform for growth within the automotive aftermarket for non-discretionary replacement hard parts and test solutions. In addition, we offer diagnostic equipment applications focused on the fast evolvingfast-evolving electric mobility markets. Our investments in infrastructure and human resources during the past few years reflects the significant expansion of manufacturing capacity to support multiple product lines and continues to be transformative and scalable. These investments included (i) the opening of a 410,000 square foot distribution center, (ii) two buildings totaling 372,000 square feet for remanufacturing and core sorting of brake calipers, and (iii) the realignment of production at our initial 312,000 square foot facility in Mexico.

Our New products introduced through our growth strategies include (i) rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake-related products, which include brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv) other products,rotors, which include turbochargers and test solutions and diagnostic equipment used for electric vehicle powertrain development and manufacturing including electric motor test systems, e-axle test systems, advanced power emulators, charging unit test systems, test systems for alternators, starters, belt starter generators and bench-top testers used bywere formally introduced during the automotive retail segment.first quarter of fiscal 2023.

24
Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for segment reporting, we have identified our chief operating decision maker (“CODM”), reviewed the documents used by the CODM, and understand how such documents are used by the CODM to make financial and operating decisions. We have determined through this review process that our business comprises three separate operating segments. Two of theThe operating segments meet all the aggregation criteria to be aggregated and are aggregated. The remaining operating segment does not meet the quantitative thresholds for individual disclosure and we have combined our operating segments into a single reportable segment.presented as such.

Impact of the Novel Coronavirus (“COVID-19”)COVID-19 Pandemic

The COVID-19 pandemic has spread globallycontinues to adversely impact the U.S. and created significant volatility,global economies – creating uncertainty and economic disruption in many countries, includingregarding the countries in which we operate. National, state and local governments in these countries continue to implement a variety of measures in response that havepotential effects on the effect of restricting or limiting, among other activities, the operations of certain businesses.

We continue to experience disruptions with worldwide supply chain disruptions, rate of inflation, increasing interest rates, and logistics services.customer demand. We are unable to predict accurately the ultimate long-term impact that COVID-19 will have on our business and financial condition. While the near-term outlook appears positive, any additional government shutdowns or the emergence and spread of new variants of the virus, including the Delta or Omicron variant, the likelihood of a resurgence of positive cases, the development, availability and public acceptance of effective treatments and vaccines, the speed at which such vaccines are administered, the efficacy of current vaccines against evolving strains or variants of the virus, could negatively impact our business and financial condition.

There have been no serious outbreaks in any of our production facilities; however, a serious outbreak could affect our production capabilities. We experienced inefficiencies in operations dueincurred costs related to the implementation of additional personnel safety measures throughout our facilities. These personnel safety measures include adding an additional shift in conjunction with reducing the number of hours in the existing shift, greater spacing (less personnel) in production areas and sanitizing procedures between shifts. High-risk employees at all of our facilities have been required to remain at home; however, they continue to receive their compensation. We also implemented safe work practices across all of our facilities, including work from home rules, staggered shifts, Plexiglas barriers, and many other safety precautions. Our employees have embraced the challenges of working remotely, continuing to operate through constant communication with team members.

Enhanced levels of communication at all levels within the organizationCOVID-19 pandemic, which are critical to address the ever-changing landscape brought on by COVID-19, especially with most of our office staff continuing to work from home. Such efforts have included, additional board check-in meetings and executive committee meetings, as needed, and regular town hall style communications with all employees.

We continue to incur costs as a result of COVID-19, including employee costs, such as expanded benefits and frontline incentives, and other operating costs associated with the provision of personal protective equipment, which have negatively impacted our profitability. These expanded benefits, supply costs and other COVID-19 related costs resulted in total expense, included in cost of goods sold and operating expenses in the condensed consolidated statements of income,operations, of $764,000$396,000 and $1,610,000$764,000 during the three months ended December 31, 20212022 and 2020,2021, respectively, and $2,573,000$1,873,000 and $5,953,000$2,573,000 during the nine months ended December 31, 2022 and 2021, and 2020, respectively. Our Asian subsidiaries received $0 and $24,000 from their local assistance programs during the three months ended December 31, 2021 and 2020, respectively, and $71,000 and $161,000 during the nine months ended December 31, 2021 and 2020, respectively. We received payments from the Canadian Government under the Canadian Emergency Wage Subsidy program of $281,000 and $1,130,000 during the three and nine months ended December 31, 2020, respectively. These payments are recorded as a reduction of cost of goods sold and operating expenses in the condensed consolidated statements of income.

2522
Results of Operations for the Three Months Ended December 31, 20212022 and 20202021

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

The following summarizes certain key operating data:

 
Three Months Ended
December 31,
   
Three Months Ended
December 31,
  
 2021  2020  2022  2021 
Cash flow provided by operations
 
$
2,165,000
 
$
33,154,000
 
Cash flow (used in) provided by operations 
$
(4,474,000
)
 
$
2,165,000
 
Finished goods turnover (annualized) (1)
 
4.0
 
4.0
  
3.1
 
4.0
 


(1)
Annualized finished goods turnover for the fiscal quarter is calculated by multiplying cost of goods sold for the quarter by 4 and dividing the result by the average between beginning and ending non-core finished goods inventory values for the fiscal quarter. Annualized finished goods turnover for the three months ended December 31, 2020 has been updated to conform to the current year presentation for non-core finished goods turnover. We believe this provides a useful measure of our ability to turn our inventory into revenues. Our finished goods turnover ratio for the three months ended December 31, 2022 was impacted by our investment in inventory to address disruptions related to the global supply chain and logistics challenges to meet higher anticipated future sales.

Net Sales and Gross Profit

The following summarizes net sales and gross profit:

 
Three Months Ended
December 31,
   
Three Months Ended
December 31,
  
 2021  2020  2022  2021 
Net sales
 
$
161,810,000
 
$
122,568,000
  
$
151,819,000
 
$
161,810,000
 
Cost of goods sold
 
129,235,000
 
98,327,000
  
130,826,000
 
129,235,000
 
Gross profit
 
32,575,000
 
24,241,000
  
20,993,000
 
32,575,000
 
Gross profit percentage
 
20.1
%
 
19.8
%
 
13.8
%
 
20.1
%

Net Sales. Our net sales for the three months ended December 31, 20212022 were $161,810,000,$151,819,000, which represents an increasea decrease of $39,242,000,$9,991,000, or 32.0%6.2%, from the three months ended December 31, 20202021 of $122,568,000. While our net sales$161,810,000. Sales for the quarter increased across all product lines due to strong demand forthree months ended December 31, 2022 were impacted by (i) inventory reduction initiatives from one of our products, we experienced a numberlargest customers, (ii) changes in the purchasing and return patterns of challenges related to the global COVID-19 pandemic, includingcertain customers, (iii) disruptions with worldwideglobal supply chain and logistics services, during both periods.and (iv) general economic conditions including extreme weather.

Gross Profit. Our gross profit was $20,993,000, or 13.8% of net sales, for the three months ended December 31, 2022 compared with $32,575,000, or 20.1% of net sales, for the three months ended December 31, 2021 compared with $24,241,000, or 19.8% of net sales,2021. Our gross margin for the three months ended December 31, 2020. The increase in our gross profit was primarily due to:2022 reflects (i) growth initiatives in connection with the expansion of our new product lines, in addition to the transition costs incurred in the prior year as discussed below and (ii)higher inflationary costs related to the global pandemic,costs— including disruptions with worldwidethe global supply chain, logistics services, higher wages, (ii) lower absorption of overhead costs as we manage our inventory levels, and related higher freight costs. During the three months ended December 31, 2021 and 2020, higher freight costs, net of certain price increases that went into effect during the current year quarter, impacted gross profit by approximately $1,338,000 and $323,000, respectively.  During the three months ended December 31, 2021, we also incurred additional expenses of $3,006,000 due to COVID-19 related costs for disruptions(iii) changes in the supply chain, increased salaries associated with COVID-19 vulnerable employee pay, and personal protective equipment. During the three months ended December 31, 2020, we incurred additional expenses of $1,052,000 due to increased salaries associated with COVID-19 bonuses, vulnerable employee pay, and personal protective equipment in connection with the COVID-19 pandemic.product mix.

26
Our gross profit for the three months ended December 31, 2022 and 2021 and 2020 was also impacted by (i) additional expenses of $2,370,000 and $3,006,000, respectively, primarily due to certain costs for disruptions in the supply chain, (ii) amortization of core and finished goodgoods premiums paid to customers related to new business of $3,146,000$3,075,000 and $1,528,000, respectively.  During$3,146,000, respectively, and (iii) the three months ended December 31, 2020, gross profit was impacted by $4,217,000 associated with transition and ramp-up expenses in connection with the expansion of our brake-related operations in Mexico.

In addition, gross profit was impacted by (i) non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $863,000 and $846,000, respectively.

Additionally, our gross margin was impacted for the three months ended December 31, 2021 compared with  $1,304,000 for the three months ended December 31, 2020, and (ii) a $688,000 benefit for revised tariffby higher freight costs, recorded during the three months ended December 31, 2020.net of certain price increases, of approximately $1,338,000.

23
Operating Expenses

The following summarizes operating expenses:

 
Three Months Ended
December 31,
   
Three Months Ended
December 31,
  
 2021  2020  2022  2021 
General and administrative
 
$
14,605,000
 
$
14,005,000
  
$
13,599,000
 
$
14,605,000
 
Sales and marketing
 
6,274,000
 
4,698,000
  
5,634,000
 
6,274,000
 
Research and development
 
2,635,000
 
2,100,000
  
2,547,000
 
2,635,000
 
Foreign exchange impact of lease liabilities and forward contracts
 
385,000
 
(12,455,000
)
 
(4,313,000
)
 
385,000
 
          
Percent of net sales          
          
General and administrative
 
9.0
%
 
11.4
%
 
9.0
%
 
9.0
%
Sales and marketing
 
3.9
%
 
3.8
%
 
3.7
%
 
3.9
%
Research and development
 
1.6
%
 
1.7
%
 
1.7
%
 
1.6
%
Foreign exchange impact of lease liabilities and forward contracts
 
0.2
%
 
(10.2
)%
 
(2.8
)%
 
0.2
%

General and Administrative. Our general and administrative expenses for the three months ended December 31, 20212022 were $14,605,000,$13,599,000, which represents an increasea decrease of $600,000,$1,006,000, or 4.3%6.9%, from the three months ended December 31, 20202021 of $14,005,000. The increase in general and administrative expense$14,605,000. This decrease was primarily due to (i) $532,000$1,060,000 of increaseddecreased employee incentives and (ii) $1,009,000 of decreased share-based compensation due toin connection with equity grants made to employees in fiscal 2022, (ii) $486,000 of decreased gain resulting from foreign currency transactions, and (iii) $303,000 of increased professional services.employees. These increasesdecreases were partially offset by $933,000(i) $723,000 of decreased costsincreased severance expense due to headcount reduction and (ii) $375,000 of increased employee-related expense at our offshore locations resulting from our expansion in Mexico and other COVID-19 related costs, such as supply costs and expanded benefits to employees in the prior year.locations.

Sales and Marketing. Our sales and marketing expenses for the three months ended December 31, 20212022 were $6,274,000,$5,634,000, which represents an increasea decrease of $1,576,000,$640,000, or 33.5%10.2%, from the three months ended December 31, 20202021 of $4,698,000. These increases in sales and marketing expense during the three months ended December 31, 2021 were$6,274,000. This decrease was primarily due to (i) $501,000$325,000 of increaseddecreased marketing and advertising expenses, (ii) $325,000 of decreased commissions due to higherlower sales, (ii) $399,000and (iii) $289,000 of increased marketing in connection with new business and advertising expense, (iii) $223,000 of increaseddecreased employee-related expenses primarily due to increased headcount, (iv) $192,000 ofour cost-cutting measures. These decreases were partially offset by $265,000 for increased trade shows expense as normal business operations resume, and (v) $160,000 of increased travel as normal business operations resume.expenses resumed.

Research and Development. Our research and development expenses for the three months ended December 31, 20212022 were $2,635,000,$2,547,000, which represents an increasea decrease of $535,000,$88,000, or 25.5%3.3%, from the three months ended December 31, 20202021 of $2,100,000. These increases in research and development expenses during the three months ended December 31, 2021 were$2,635,000. This decrease was primarily due to (i) $323,000 of increased employee-related expenses, primarily due to increased headcount for our diagnostic business and (ii) $115,000 of increased samples for our core library and other research and development supplies.cost-cutting measures.

27
Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts for the three months ended December 31, 20212022 was a non-cash gain of $4,313,000 compared with a non-cash loss of $385,000 which represents an increase in expense of $12,840,000, or 103.1%, fromfor the non-cash gain for three months ended December 31, 2020 of $12,455,000.2021. This increasechange was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in a non-cash lossgain of $985,000$3,129,000 compared with a non-cash gainloss of $8,638,000$985,000 for the three months ended December 31, 20212022 and 2020,2021, respectively, due to fluctuations in the foreign currency exchange ratesrate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in non-cash gains of $600,000$1,184,000 and $3,817,000$600,000 for the three months ended December 31, 20212022 and 2020,2021, respectively, due to the changes in their fair values.

Interest Expense

Interest Expense, net. Our interest expense for the three months ended December 31, 20212022 was $3,949,000,$11,471,000, which represents a decreasean increase of $102,000,$7,522,000, or 2.5%190.5%, from interest expense for the three months ended December 31, 20202021 of $4,051,000. This decrease was primarily due to lower$3,949,000. Of this increase in interest expense, approximately 98% resulted from higher interest rates onand approximately 73% of this increase resulted from our accounts receivable discount programs.programs utilized by our customers. Our borrowing and receivable discount programs have interest costs that vary with interest rate movements. In addition, our average borrowing under our credit facility increased during the three months ended December 31, 2022 as compared with the three months ended December 31, 2021.

24
Provision for Income Taxes

Income Tax. We recorded an income tax benefit of $8,971,000, or an effective tax rate of 112.9%, and income tax expense of $1,588,000, or an effective tax rate of 33.6%, and $3,373,000, or an effective tax rate of 28.5%, for the three months ended December 31, 20212022 and 2020,2021, respectively. Effective tax rates are based on current annual projections and any changes in future periods could result in an effective tax rate that is materially different from the current estimate. The effective tax rate for the three months ended December 31, 20212022, was primarily impacted by (i) non-deductible executive compensation under Internal Revenue Code Section 162(m) and (ii) foreign income taxed at rates that are different from the federal statutory rate.rate and (ii) non-deductible executive compensation under Internal Revenue Code Section 162(m).

Results of Operations for the Nine Months Ended December 31, 20212022 and 20202021

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

The following summarizes certain key operating data:

 
Nine Months Ended
December 31,
   
Nine Months Ended
December 31,
  
 2021  2020  2022  2021 
Cash flow (used in) provided by operations 
$
(22,174,000
)
 
$
72,484,000
 
Cash flow used in operations 
$
(21,428,000
)
 
$
(22,174,000
)
Finished goods turnover (annualized) (1) 
4.2
 
3.8
  
3.3
 
4.2
 


(1)
Annualized finished goods turnover for the fiscal period is calculated by multiplying cost of goods sold for the period by 1.33 and dividing the result by the average between beginning and ending non-core finished goods inventory values for the fiscal period. Annualized finished goods turnover for the nine months ended December 31, 2020 has been updated to conform to the current year presentation for non-core finished goods turnover. We believe this provides a useful measure of our ability to turn our inventory into revenues. Our finished goods turnover ratio for the nine months ended December 31, 2022 was impacted by our investment in inventory to address disruptions related to the global supply chain and logistics challenges to meet higher anticipated future sales.

28
Net Sales and Gross Profit

The following summarizes net sales and gross profit:

 
Nine Months Ended
December 31,
   
Nine Months Ended
December 31,
  
 2021  2020  2022  2021 
Net sales
 
$
486,392,000
 
$
372,654,000
  
$
488,347,000
 
$
486,392,000
 
Cost of goods sold
 
394,295,000
 
295,300,000
  
410,536,000
 
394,295,000
 
Gross profit
 
92,097,000
 
77,354,000
  
77,811,000
 
92,097,000
 
Gross profit percentage
 
18.9
%
 
20.8
%
 
15.9
%
 
18.9
%

Net Sales. Our net sales for the nine months ended December 31, 20212022 were $486,392,000,$488,347,000, which represents an increase of $113,738,000,$1,955,000, or 30.5%0.4%, from the nine months ended December 31, 20202021 of $372,654,000. While our net sales increased across all product lines due to strong demand for our products, we continued to experience a number of challenges related to the global COVID-19 pandemic, including disruptions with worldwide supply chain and logistics services during both periods. Net sales for the nine months ended December 31, 2021 and 2020 include$486,392,000, which was positively impacted by $13,327,000 and $12,779,000, respectively, in core revenue due to a realignment of inventory at certain customer distribution centers. We expect this realignment will benefitExcluding the core revenue in the prior year, net sales increased $15,282,000, or 3.2%, for the nine months ended December 31, 2022, reflecting increasing sales of our futuregrowing brake-related product lines. This increase in sales as product mix changes.for the nine months ended December 31, 2022 were partially offset by inventory reduction initiatives from one of our largest customers and disruptions with global supply chain and logistics services.

25
Gross Profit. Our gross profit was $77,811,000, or 15.9% of net sales, for the nine months ended December 31, 2022 compared with $92,097,000, or 18.9% of net sales, for the nine months ended December 31, 2021 compared with $77,354,000, or 20.8% of net sales,2021. Our gross margin for the nine months ended December 31, 2020. The decrease in our gross profit was primarily due to:2022 reflects (i) growth initiatives in connection with the expansion of our new product lines, in addition to the transition costs discussed below and (ii)higher inflationary costs related to the global pandemic,costs— including disruptions with worldwidethe global supply chain, logistics services, and related higher freight costs. Duringcosts, higher wages, (ii) impact of core revenue in the prior period due to a realignment of inventory at certain customer distribution centers, and (iii) changes in product mix.

Our gross margin for the nine months ended December 31, 2022 and 2021 and 2020,was impacted by (i) higher freight costs, net of certain price increases, that went into effect during the current year period, impacted gross profit by approximatelyof $3,290,000, and $7,413,000, and $323,000, respectively.  During the nine months ended December 31, 2021, we also incurredrespectively, (ii) additional expenses of $7,144,000 due to COVID-19 relatedcertain costs for disruptions in the supply chain increased salaries associated with COVID-19 vulnerable employee pay,of $5,282,000 and personal protective equipment. During the nine months ended December 31, 2020, we incurred additional expenses of $4,425,000 due to increased salaries associated with COVID-19 bonuses, vulnerable employee pay, and personal protective equipment in connection with the COVID-19 pandemic.

Our gross profit for the nine months ended December 31, 2021 and 2020 was also impacted by (i) transition expenses in connection with the expansion of our brake-related operations in Mexico of $2,744,000 and $11,572,000,$7,144,000, respectively, and (ii)(iii) amortization of core and finished goods premiums paid to customers related to new business of $9,013,000$9,183,000 and $4,269,000,$9,013,000, respectively.

In addition, gross profitmargin was impacted by (i)non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $2,704,000 for the nine months ended December 31, 2022.

For the nine months ended December 31, 2021, gross margin was impacted by non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value and gain due to realignment of inventory at customer distribution centers, which resulted in a net gainsgain of $1,229,000 and $811,000$1,229,000. Gross margin for the nine months ended December 31, 2021 and 2020, respectively, (ii) customer allowances and return accruals related to new businesswas further impacted by transition expenses in connection with the expansion of $307,000 recorded during the nine months ended December 31, 2020, and (iii) a $3,535,000 benefit for revised tariff costs recorded during the nine months ended December 31, 2020.our brake-related operations in Mexico of $2,744,000.

29
Operating Expenses

The following summarizes operating expenses:

 
Nine Months Ended
December 31,
   
Nine Months Ended
December 31,
  
 2021  2020  2022  2021 
            
General and administrative 
$
41,556,000
 
$
38,210,000
  
$
42,079,000
 
$
41,556,000
 
Sales and marketing 
17,162,000
 
13,224,000
  
17,242,000
 
17,162,000
 
Research and development 
7,631,000
 
6,014,000
  
8,330,000
 
7,631,000
 
Foreign exchange impact of lease liabilities and forward contracts 
1,769,000
 
(21,257,000
)
 
(2,553,000
)
 
1,769,000
 
          
Percent of net sales          
          
General and administrative 
8.5
%
 
10.3
%
 
8.6
%
 
8.5
%
Sales and marketing 
3.5
%
 
3.5
%
 
3.5
%
 
3.5
%
Research and development 
1.6
%
 
1.6
%
 
1.7
%
 
1.6
%
Foreign exchange impact of lease liabilities and forward contracts
 
0.4
%
 
(5.7
)%
 
(0.5
)%
 
0.4
%

General and Administrative. Our general and administrative expenses for the nine months ended December 31, 20212022 were $41,556,000,$42,079,000, which represents an increase of $3,346,000,$523,000, or 8.8%1.3%, from the nine months ended December 31, 20202021 of $38,210,000, however, general and administrative expenses as a percentage of net sales decreased to 8.5% for the nine months ended December 31, 2021 from 10.3% for the prior year. The$41,556,000. This increase in general and administrative expense was primarily due to (i) $1,698,000$1,722,000 of increased share-based compensation due to equity grants made to employees in fiscal 2022, (ii) $1,323,000 of increased employee-related expenses, primarily due to the reinstatement of salary reductions in the prior year in response to the COVID-19 pandemic, (iii) $878,000 of decreased gainexpense resulting from foreign currency transactions, and (iv) $454,000(ii) $1,071,000 of increased costsseverance expense due to headcount reduction, (iii) $491,000 of increased employee-related expense at our offshore locations.locations, (iv) $436,000 of increased information technology costs in connection with cybersecurity and other productivity tools, (v) $301,000 of increased professional services, (vi) $299,000 of increased employee-related expense, and (vii) $282,000 of increased general insurance expense. These increases in general and administrative expenses were partially offset by $1,662,000(i) $2,129,000 of decreased professional services.employee incentives and (ii) $1,936,000 of decreased share-based compensation in connection with equity grants made to employees.

Sales and Marketing. Our sales and marketing expenses for the nine months ended December 31, 20212022 were $17,162,000,$17,242,000, which represents an increase of $3,938,000,$80,000, or 29.8%0.5%, from the nine months ended December 31, 20202021 of $13,224,000.$17,162,000. This increase in sales and marketing expense during the nine months ended December 31, 2021 was primarily due to (i) $1,132,000$424,000 for increased trade shows as normal business expenses resumed, (ii) $366,000 of increased travel costs as some business travel resumed, and (iii) $93,000 of increased commissions due to higher sales, (ii) $1,063,000sales. These increases were partially offset by $592,000 of increaseddecreased marketing in connection with new business and advertising expense, (iii)  $971,000expenses and $139,000 of increaseddecreased employee-related expenses primarily due to the reinstatementour cost-cutting measures.

26

Research and Development. Our research and development expenses for the nine months ended December 31, 20212022 were $7,631,000,$8,330,000, which represents an increase of $1,617,000,$699,000, or 26.9%9.2%, from the nine months ended December 31, 20202021 of $6,014,000.$7,631,000. This increase in research and development expenses during the nine months ended December 31, 2021 was primarily due to (i) $1,104,000$356,000 of increased employee-related expenses, primarily due to the reinstatement of salary reductions in the prior year in response to the COVID-19 pandemic and increased headcount during the current year,our electric vehicle testing system initiatives, (ii) $300,000$271,000 of increased samples for our core library and other research and development supplies, and (iii) $159,000$55,000 of increased outside services.services primarily due to development projects.

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts for the nine months ended December 31, 20212022 was a non-cash gain of $2,553,000 compared with a non-cash loss of $1,769,000 which represents an increase in expense of $23,026,000, or 108.3%, fromfor the non-cash gain for nine months ended December 31, 2020 of $21,257,000.2021. This increasechange was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in non-cash gains of $2,108,000 and $64,000 compared with $12,241,000 for the nine months ended December 31, 20212022 and 2020,2021, respectively, due to movements in foreign currency exchange ratesrate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in a non-cash lossgain of $1,833,000$445,000 compared with a non-cash gainloss of $9,016,000$1,833,000 for the nine months ended December 31, 20212022 and 2020,2021, respectively, due to the changes in their fair values.

30
Interest Expense

Interest Expense, net. Our interest expense net,for the nine months ended December 31, 2022 was $27,675,000, which represents an increase of $16,165,000, or 140.4%, from interest expense for the nine months ended December 31, 2021 was $11,510,000, which represents a decrease of $564,000, or 4.7%,$11,510,000. Of this increase in interest expense, approximately 96% resulted from higher interest rates and approximately 76% of this increase resulted from our accounts receivable discount programs utilized by our customers. Our borrowing and receivable discount programs have interest costs that vary with interest rate movements. During the nine months ended December 31, 20202022, utilization of $12,074,000. The decrease in interest expense was primarily due to lower interest rates on both our accounts receivable discount programs and our average borrowing under our credit facility.facility increased.

Provision for Income Taxes

Income Tax. We recorded an income tax benefit of $9,296,000, or an effective tax rate of 62.1%, and income tax expense of $4,786,000, or an effective tax rate of 38.4%, and $8,448,000, or an effective tax rate of 29.0%, for the nine months ended December 31, 20212022 and 2020,2021, respectively. Effective tax rates are based on current annual projections and any changes in future periods could result in an effective tax rate that is materially different from the current estimate. The effective tax rate for the nine months ended December 31, 20212022, was primarily impacted by (i) non-deductible executive compensation under Internal Revenue Code Section 162(m),specific jurisdictions that we do not expect to recognize the benefit of losses, (ii) foreign income taxed at rates that are different from the federal statutory rate, and (iii) specific jurisdictions that we do not expect to recognize the benefit of losses.non-deductible executive compensation under Internal Revenue Code Section 162(m).

Liquidity and Capital Resources

Overview

We had working capital (current assets minus current liabilities) of $108,103,000 compared with $96,725,000,$122,892,000 and $110,580,000, a ratio of current assets to current liabilities of 1.3:1.0, at December 31, 20212022 and March 31, 2021,2022, respectively. The increase in working capital was due primarilyreflects our investment in inventory to address disruptions related to the buildup of our inventoryglobal supply chain and logistics challenges to meet higher anticipated future demand.sales.

We generated cash during the nine months ended December 31, 2021Our primary source of liquidity was from the use of our receivable discount programs and credit facility. As we manage throughfacility during the impacts of the COVID-19 pandemic,nine months ended December 31, 2022. In addition, we have access to our existing cash, as well as our available credit facilities to meet short-term liquidity needs. We believe our cash and cash equivalents, short-term investments, use of receivable discount programs, amounts available under our credit facility, and other sources are sufficient to satisfy our expected future working capital needs, repayment of the current portion of our term loans, and lease and capital expenditure obligations over the next 12 months.

27
As of December 31, 2022, we identified certain defaults with respect to the Credit Facility, which arose from non-compliance with certain financial covenants. On February 3, 2023, we entered into a fifth amendment to the Credit Facility (the “Fifth Amendment”). The Fifth Amendment, among other things, (i) waived certain existing defaults and events of defaults arising from non-compliance with the fixed charge coverage ratio and senior leverage ratio financial covenants as of the end of the fiscal quarter ended December 31, 2022, (ii) modified the fixed charge coverage ratio and senior leverage ratio financial covenant levels for the quarters ending March 31, 2023 and June 30, 2023, (iii) modified the definitions of “Applicable Margin” and “Consolidated EBITDA”, and (iv) added a new minimum undrawn availability financial covenant.

Share Repurchase Program

In August 2018, our board of directors approved an increase in our share repurchase program from $20,000,000 to $37,000,000 of our common stock. As of December 31, 2021,2022, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our credit facility. We retired the 837,007 shares repurchased under this program through December 31, 2021.2022. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

31
Cash Flows

The following summarizes cash flows as reflected in the condensed consolidated statements of cash flows:

 
Nine Months Ended
December 31,
   
Nine Months Ended
December 31,
  
 2021 2020  2022 2021 
Cash flows (used in) provided by:          
Operating activities 
$
(22,174,000
)
 
$
72,484,000
  
$
(21,428,000
)
 
$
(22,174,000
)
Investing activities 
(5,426,000
)
 
(12,295,000
)
 
(3,855,000
)
 
(5,426,000
)
Financing activities 
19,770,000
 
(97,734,000
)
 
14,898,000
 
19,770,000
 
Effect of exchange rates on cash and cash equivalents  
76,000
  
729,000
   
(52,000
)
  
76,000
 
Net decrease in cash and cash equivalents 
$
(7,754,000
)
 
$
(36,816,000
)
 
$
(10,437,000
)
 
$
(7,754,000
)
Additional selected cash flow data:            
Depreciation and amortization 
$
9,591,000
 
$
8,090,000
  
$
9,322,000
 
$
9,591,000
 
Capital expenditures 
5,111,000
 
12,043,000
  
3,607,000
 
5,111,000
 

Net cash used in operating activities was $21,428,000 and $22,174,000 during the nine months ended December 31, 2022 and 2021, compared with net cash provided by operating activities of $72,484,000 during the nine months ended December 31, 2020.respectively. The significant change in our operating activities was due primarily to (i) our continued investmentsreflects a more significant build-up of inventory in inventory to support anticipated future demand for our products, (ii) the timing of supplier paymentsprior year as compared with the priorcurrent year and (iii) an increase in our contract assets and contract liabilities resulting from higher sales. These decreases were partially offset by increasedlower net income and lower accounts payable. We continue to manage our working capital to maximize our operating results (net income plus the net add-back for non-cash transactions in earnings).cash flow.

Net cash used in investing activities was $5,426,000$3,855,000 and $12,295,000$5,426,000 during the nine months ended December 31, 20212022 and 2020,2021, respectively. The significant change in our investing activities was due primarily toresulted from decreased capital expenditures in connection withdue to the completion of our expansion of our brake-related operations in Mexico.Mexico during the second quarter of fiscal 2022.

Net cash provided by financing activities was $14,898,000 and $19,770,000 during the nine months ended December 31, 2022 and 2021, compared with net cash used in financing activities $97,734,000 during the nine months ended December 31, 2020.respectively. The significant change in our financing activities was due mainly to additional net borrowings under our credit facility during the nine months ended December 31, 2021 to support the investment in our inventoryresulted from lower borrowing and growth initiatives compared withhigher repayments under our credit facility during the nine months ended December 31, 2020.2022. In addition, we repurchased 106,486 shares of our common stock for $1,914,000 during the nine months ended December 31, 2021 compared with no share repurchases during the nine months ended December 31, 2020.2021.

28
Capital Resources

Credit Facility

We are party to a $268,620,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $238,620,000 revolving loan facility, subject to borrowing base restrictions, a $24,000,000 sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term Loans”). The loans under the Credit Facility mature on June 5, 2023.May 28, 2026. The Credit Facility currently permits the payment of up to $29,430,000$29,043,000 of dividends and share repurchases for fiscal year 2022, subject to pro forma compliance with financial covenants. In connection with the Credit Facility, the lenders have a security interest in substantially all of our assets.

In May 2021, we entered into a third amendment to the Credit Facility (the “Third Amendment”). The Third Amendment, among other things, (i) extended the maturity date to May 28, 2026 from June 5, 2023, (ii) modified the fixed charge coverage ratio financial covenant, and (iii) modified the definition of “Consolidated EBITDA”. We capitalized $1,148,000 of new debt issuance costs in connection with the Third Amendment.

32
The Term Loans require quarterly principal payments of $937,500. The Credit Facility bears interest at rates equal to either LIBORSOFR (as defined below) plus a margin of 2.25%, 2.50% or 2.75% or a reference rate plus a margin of 1.25%, 1.50% or 1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.375% to 0.50%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on ourthe Company’s Term Loans and Revolving Facility was 2.85%6.98% and 2.86%,7.16% respectively, at December 31, 2021,2022, and 2.62%2.99% and 3.13% respectively, at March 31, 2021.2022.

The Credit Facility, among other things, requires us to maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all financial covenants as of December 31, 2021.

The following summarizes the financial covenants required under the Credit Facility:

  
Financial covenants
required under the
Credit Facility
 
Calculation as of
December 31, 2021		 
Maximum senior leverage ratio
  
3.00
  
1.72
 
Minimum fixed charge coverage ratio
  
1.10
  
1.52
 

In addition, to other covenants, the Credit Facility places limits on our ability to incur liens, incur additional indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, redeem, or repurchase capital stock, alter the business conducted by us and our subsidiaries, transact with affiliates, prepay, redeem, or purchase subordinated debt, and amend or otherwise alter debt agreements.

On November 3, 2022, we entered into a fourth amendment to the Credit Facility (the “Fourth Amendment”). The Fourth Amendment, among other things, (i) modified the fixed charge coverage ratio financial covenant for the fiscal quarters ending September 30, 2022 and December 31, 2022, (ii) modified the total leverage ratio financial covenant for the quarter ending September 30, 2022, (iii) modified the definition of “Consolidated EBITDA”, and (iv) replaced LIBOR as the benchmark rate with a replacement benchmark based on the Secured Overnight Financing Rate (“SOFR”) effective November 3, 2022. The modifications to the financial covenants were effective as of September 30, 2022.

As of December 31, 2022, we identified certain defaults with respect to the Credit Facility, which arose from non-compliance with certain financial covenants. On February 3, 2023, we entered into the Fifth Amendment, which among other things, (i) waived certain existing defaults and events of defaults arising from non-compliance with the fixed charge coverage ratio and senior leverage ratio financial covenants as of the end of the fiscal quarter ended December 31, 2022, (ii) modified the fixed charge coverage ratio and senior leverage ratio financial covenant levels for the quarters ending March 31, 2023 and June 30, 2023, (iii) modified the definitions of “Applicable Margin” and “Consolidated EBITDA”, and (iv) added a new minimum undrawn availability financial covenant.

We had $113,000,000$175,000,000 and $84,000,000$155,000,000 outstanding under the Revolving Facility at December 31, 20212022 and March 31, 2021,2022, respectively. In addition, $6,409,000$6,370,000 was outstanding for letters of credit at December 31, 2021.2022. At December 31, 2021,2022, after certain contractual adjustments, $99,908,000$57,250,000 was available under the Revolving Facility.

Receivable Discount Programs

We use receivable discount programs with certain customers and their respective banks. Under these programs, we have options to sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold. These discount arrangements allow us to accelerate receipt of payment on customers’ receivables. While these arrangements have reduced our working capital needs, there can be no assurance that these programs will continue in the future. Interest expense resulting from these programs would increase if interest rates rise, if utilization of these discounting arrangements expands, if customers extend their payment to us, or if the discount period is extended to reflect more favorable payment terms to customers.

29
The following is a summary of the receivable discount programs:

 
Nine Months Ended
December 31,
   
Nine Months Ended
December 31,
  
 2021 2020  2022 2021 
Receivables discounted
 
$
418,044,000
 
$
367,102,000
  
$
428,868,000
 
$
418,044,000
 
Weighted average days
 
335
 
333
 
Weighted average number of days collection was accelerated 
323
 
335
 
Annualized weighted average discount rate
 
1.7
%
 
2.1
%
 
5.0
%
 
1.7
%
Amount of discount recognized as interest expense
 
$
6,798,000
 
$
7,277,000
  
$
19,131,000
 
$
6,798,000
 

Off-Balance Sheet Arrangements

At December 31, 2021, we had no off-balance sheet financing or other arrangements with unconsolidated entities or financial partnerships (such as entities often referred to as structured finance or special purpose entities) established for purposes of facilitating off-balance sheet financing or other debt arrangements or for other contractually narrow or limited purposes.

33
Capital Expenditures and Commitments

Capital Expenditures

Our total capital expenditures, including finance leases and non-cash capital expenditures were $5,248,000$3,632,000 and $14,223,000$5,248,000 for the nine months ended December 31, 20212022 and 2020,2021, respectively. These capital expenditures primarily include the purchase of equipment for our current operations andoperations. We completed the expansion of our operations in Mexico.Mexico during the second quarter of fiscal 2022. We expect to incur approximately $4,500,000$1,500,000 of capital expenditures for new business initiatives, productionprimarily to support our current operations, including purchases of equipment, and maintenance forduring the remainder of our fiscal year 2022.2023. We have used and expect to continue usingfund these expenditures primarily from our working capital and other available capital resourcesleasing.

Related Party Transactions

Operating Lease

In December 2022, we entered into an operating lease for our 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by a member of management. The lease, commencing January 1, 2023, has an initial term of one year with a base rent of approximately $27,000 per month and includes options to fund these capital expenditures.renew for up to four years.

Litigation

There have been no material changes to our litigation matters that are presented in our Annual Report on Form 10-K for the year ended March 31, 2021,2022, which was filed on June 14, 2021.2022.

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates that are presented in our Annual Report on Form 10-K for the year ended March 31, 2021,2022, which was filed on June 14, 2021, except as discussed below.2022.

Recently Adopted Accounting Pronouncements

Income Taxes

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application. This guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2020. The adoption of this guidance on April 1, 2021 did not have any material impact on our consolidated financial statements.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the information provided in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K as of March 31, 2021,2022, which was filed with the SEC on June 14, 2021.2022.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures
 
We have established disclosure controls and procedures designed to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including our chief executive officer, chief financial officer, and chief accounting officer, as appropriate to allow timely decisions regarding required disclosures.

30
Under the supervision and with the participation of management, including our chief executive officer, chief financial officer, and chief accounting officer, we have conducted an evaluation of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, our chief executive officer, chief financial officer, and chief accounting officer concluded that MPA’s disclosure controls and procedures were effective as of December 31, 2021.2022.

34
Inherent Limitations on Effectiveness of Controls
 
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
 
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America, applying certain estimates and judgments as required.
 
Internal control over financial reporting includes those policies and procedures that:
 
1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Changes in Internal Control Over Financial Reporting
 
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that occurred during the three months ended December 31, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3531
PART II — OTHER INFORMATION

Item 1.Legal Proceedings

There have been no material changes to our litigation matters that are presented in our Annual Report on Form 10-K for the year ended March 31, 2021,2022, which was filed on June 14, 2021.2022.

Item 1A.Risk Factors

There have been no material changes in the risk factors set forth in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021,2022, filed on June 14, 2021.2022.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

Limitation on Payment of Dividends and Share Repurchases

The Credit Facility currently permits the payment of up to $29,430,000$29,043,000 of dividends and share repurchases for fiscal year 2022,2023, subject to pro forma compliance with financial covenants.

Purchases of Equity Securities by the Issuer

Shares repurchased during the three months ended December 31, 20212022 were as follows:

Periods 
Total Number of
Shares Purchased
  
Average Price
Paid Per Share
  
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans
or Programs (1)
  Total Number of Shares Purchased  Average Price Paid Per Share  
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  
Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans
or Programs (1)
 
                  
October 1 - October 31, 2021:         
October 1 - October 31, 2022:         
Open market and privately negotiated purchases - $- - $20,169,000  - 
$
-
 - 
$
18,255,000
 
November 1 - November 30, 2021:         
November 1 - November 30, 2022:         
Open market and privately negotiated purchases - $- - 20,169,000  - 
$
-
 - 
18,255,000
 
December 1 - December 31, 2021:         
December 1 - December 31, 2022:         
Open market and privately negotiated purchases  106,486 $17.97  1,914,000  18,255,000  
-
 
$
-
 
-
 
18,255,000
 
                     
Total  106,486    1,914,000 $18,255,000   
0
    
0
 
$
18,255,000
 


(1)
As of December 31, 2021,2022, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our Credit Facility. We retired the 837,007 shares repurchased under this program through December 31, 2021.2022. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

Item 3.Defaults Upon Senior Securities

As of December 31, 2022, the Company was in default under its financial covenants in its Loan Agreement with PNC Bank, National Association.  As of February 3, 2023, the Company entered into the Fifth Amendment to the Loan Agreement that waived the defaults and amended the applicable margin, financial covenants and other terms.  A copy of the Fifth Amendment is attached to this Form 10-Q as Exhibit 10.2.

Item 5.Other Information

None.
 
3632
Item 6.Exhibits

(a)
Exhibits:

Number
 Description of Exhibit 
Method of Filing
3.1 
Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 declared effective on March 22, 1994 (the “1994 Registration Statement”).
3.2 
Amendment to Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (No. 33-97498) declared effective on November 14, 1995.
3.3 
Amendment to Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
     
3.4 
Amendment to Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the “1998 Form 10-K”).
3.5 
Amendment to Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on November 25, 2003.
3.6 
Amended and Restated By-Laws of Motorcar Parts of America, Inc.
 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on August 24, 2010.
3.7 
Certificate of Amendment of the Certificate of Incorporation of the Company
 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on April 17, 2014.
3.8 
Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on June 9, 2016
 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 14, 2016.
3.9 
Amendment to the Amended and Restated By-Laws of the Company
 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 22, 2017.
3.10
 Third Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on January 26, 2022 
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 1, 2022.
4.1 Description of the  Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 
Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q filed on August 9, 2022.
4.14.2 
2004 Non-Employee Director Stock Option Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders Meeting.
4.24.3 
2010 Incentive Award Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on December 15, 2010.
4.34.4 
Amended and Restated 2010 Incentive Award Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 5, 2013.

3733
Number

Description of Exhibit
 
Method of Filing
4.44.5 
Second Amended and Restated 2010 Incentive Award Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 3, 2014.
4.54.6 
2014 Non-Employee Director Incentive Award Plan
 
Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed on March 3, 2014.
4.64.7 
Third Amended and Restated 2010 Incentive Award Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on November 20, 2017.
4.74.8 
Fourth Amended and Restated 2010 Incentive Award Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on July 24, 2020.
4.9 
2022 Incentive Award Plan
 
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on July 29, 2022.
10.1 
Fourth Amendment No. 5 to EmploymentAmended and Restated Loan Agreement, dated as of June 18, 2021, betweenNovember 3, 2022, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party thereto, and Selwyn JoffePNC Bank, National Association, as administrative agent
 
Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on AugustNovember 9, 2021.2022.
10.2
 
Fifth Amendment to Amended and Restated Loan Agreement, dated as of February 3, 2023, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
 
Filed herewith
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 
Filed herewith.
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 
Filed herewith.
31.3
 
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
 
Filed herewith.
32.1
 
Certifications of Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002
 
Filed herewith.
Number 
Description of Exhibit
 Method of Filing
101.INS 
Inline XBRL Instance Document (the instance document does  not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document).
  
101.SCM
 Inline XBRL Taxonomy Extension Schema Document
  
101.CAL
 Inline XBRL Taxonomy Extension Calculation Linkbase Document  
101.DEF
 Inline XBRL Taxonomy Extension Definition Linkbase Document
  
101.LAB
 Inline XBRL Taxonomy Extension Label Linkbase Document  
101.PRE
 Inline XBRL Taxonomy Extension Presentation Linkbase Document
  
104
 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)  

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SIGNATURES

Pursuant to the requirements 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.

 
MOTORCAR PARTS OF AMERICA, INC.
  
Dated: February 9, 20222023
By:
/s/ David Lee
 
David Lee
 
Chief Financial Officer
  
Dated: February 9, 20222023
By:
/s/ Kamlesh Shah
 
Kamlesh Shah
 
Chief Accounting Officer


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