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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, 2022

☐ | 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 class | Trading symbol(s) | Name of each exchange on which registered
Common Stock, par value $0.01 per share | MPAA | The 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 19,491,395 shares of Common Stock outstanding at February 2, 2023.

MOTORCAR PARTS OF AMERICA, INC.
TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION |
| Item 1. Financial Statements | 4
| Condensed Consolidated Balance Sheets | 4
| Condensed Consolidated Statements of Operations | 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 | 22
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 30
| Item 4. Controls and Procedures | 30
PART II — OTHER INFORMATION |
| Item 1. Legal Proceedings | 32
| Item 1A. Risk Factors | 32
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 32
| Item 3. Defaults Upon Senior Securities | 32
| Item 5. Other Information | 32
| Item 6. Exhibits | 33
| SIGNATURES | 35

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 Balance Sheets

|  | December 31, 2022 |  |  | March 31, 2022 |
ASSETS |  | (Unaudited) |  |  |  |
Current assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 12,579,000 |  |  | $ | 23,016,000 |
Short-term investments |  |  | 2,169,000 |  |  |  | 2,202,000 |
Accounts receivable — net |  |  | 75,533,000 |  |  |  | 85,075,000 |
Inventory |  |  | 390,574,000 |  |  |  | 385,504,000 |
Contract assets |  |  | 29,072,000 |  |  |  | 27,500,000 |
Prepaid expenses and other current assets |  |  | 26,798,000 |  |  |  | 13,688,000 |
Total current assets |  |  | 536,725,000 |  |  |  | 536,985,000 |
Plant and equipment — net |  |  | 46,693,000 |  |  |  | 51,062,000 |
Operating lease assets |  |  | 85,407,000 |  |  |  | 81,997,000 |
Long-term deferred income taxes |  |  | 26,868,000 |  |  |  | 26,982,000 |
Long-term contract assets |  |  | 314,035,000 |  |  |  | 310,255,000 |
Goodwill and intangible assets — net |  |  | 5,708,000 |  |  |  | 7,004,000 |
Other assets |  |  | 1,138,000 |  |  |  | 1,413,000 |
TOTAL ASSETS |  | $ | 1,016,574,000 |  |  | $ | 1,015,698,000 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  | $ | 144,851,000 |  |  | $ | 168,435,000 |
Customer finished goods returns accrual |  |  | 33,043,000 |  |  |  | 38,086,000 |
Contract liabilities |  |  | 44,512,000 |  |  |  | 42,496,000 |
Revolving loan |  |  | 175,000,000 |  |  |  | 155,000,000 |
Other current liabilities |  |  | 4,430,000 |  |  |  | 11,930,000 |
Operating lease liabilities |  |  | 8,329,000 |  |  |  | 6,788,000 |
Current portion of term loan |  |  | 3,668,000 |  |  |  | 3,670,000 |
Total current liabilities |  |  | 413,833,000 |  |  |  | 426,405,000 |
Term loan, less current portion |  |  | 10,233,000 |  |  |  | 13,024,000 |
Long-term contract liabilities |  |  | 185,859,000 |  |  |  | 172,764,000 |
Long-term deferred income taxes |  |  | 121,000 |  |  |  | 126,000 |
Long-term operating lease liabilities |  |  | 81,512,000 |  |  |  | 80,803,000 |
Other liabilities |  |  | 10,027,000 |  |  |  | 7,313,000 |
Total liabilities |  |  | 701,585,000 |  |  |  | 700,435,000 |
Commitments and contingencies |  |  |  |  |  |  |  |
Shareholders’ equity: |  |  |  |  |  |  |  |
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 |  |  | 230,630,000 |  |  |  | 227,184,000 |
Retained earnings |  |  | 87,288,000 |  |  |  | 92,954,000 |
Accumulated other comprehensive loss |  |  | (3,124,000 | ) |  |  | (5,066,000 | )
Total shareholders’ equity |  |  | 314,989,000 |  |  |  | 315,263,000 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |  | $ | 1,016,574,000 |  |  | $ | 1,015,698,000 |

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 Operations
(Unaudited)

|  | 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.
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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)

|  | 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.
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MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)

|  | 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, 2022
(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, bench-top testers, 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 three separate operating segments. The operating segments meet all the criteria to be aggregated and are presented as such.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic continues to adversely impact the U.S. and global economies – creating uncertainty regarding the potential effects on the supply chain disruptions, rate of inflation, increasing interest rates, and customer demand. The extent to which these may impact the Company will depend on numerous factors and future developments, which are highly uncertain and cannot be predicted. 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, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 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, 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, 2022.
The accompanying condensed consolidated financial statements have been prepared on a consistent basis with, and there have been no material changes to 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, 2022.
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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 uses receivable discount programs with certain customers and their respective banks (see Note 10).
Accounts receivable — net is comprised of the following:

|  | 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, 2022 |  |  | March 31, 2022 |
Inventory |  |  |  |  |  |
Raw materials |  | $ | 152,094,000 |  |  | $ | 150,414,000 |
Work-in-process |  |  | 6,512,000 |  |  |  | 6,880,000 |
Finished goods |  |  | 231,175,000 |  |  |  | 226,729,000 |
|  |  | 389,781,000 |  |  |  | 384,023,000 |
Less allowance for excess and obsolete inventory |  |  | (15,083,000 | ) |  |  | (13,520,000 | )
Inventory — net |  |  | 374,698,000 |  |  |  | 370,503,000 |
Inventory unreturned |  |  | 15,876,000 |  |  |  | 15,001,000 |
Total inventory |  | $ | 390,574,000 |  |  | $ | 385,504,000 |

5. Contract Assets
During the three months ended December 31, 2022 and 2021, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $863,000 and $846,000, respectively. During the nine months ended December 31, 2022 and 2021, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $2,704,000 and $3,517,000, respectively.
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Contract assets are comprised of the following:

|  | December 31, 2022 |  |  | March 31, 2022 |
Short-term contract assets |  |  |  |  |  |
Cores expected to be returned by customers |  | $ | 17,454,000 |  |  | $ | 15,778,000 |
Core premiums paid to customers |  |  | 9,605,000 |  |  |  | 10,621,000 |
Upfront payments to customers |  |  | 1,454,000 |  |  |  | 517,000 |
Finished goods premiums paid to customers |  |  | 559,000 |  |  |  | 584,000 |
Total short-term contract assets |  | $ | 29,072,000 |  |  | $ | 27,500,000 |
Remanufactured cores held at customers’ locations |  | $ | 265,378,000 |  |  | $ | 258,376,000 |
Core premiums paid to customers |  |  | 40,475,000 |  |  |  | 43,294,000 |
Long-term core inventory deposits |  |  | 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 |  | $ | 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, |
| 2022 |  | 2021 |  | 2022 |  | 2021 |
Net sales |  |  |  |  |  |  |  |
Customer A |  |  | 36 | % |  |  | 38 | % |  |  | 38 | % |  |  | 38 | %
Customer B |  |  | 27 | % |  |  | 15 | % |  |  | 24 | % |  |  | 17 | %
Customer C |  |  | 21 | % |  |  | 29 | % |  |  | 22 | % |  |  | 30 | %
Customer D |  |  | 4 | % |  |  | 2 | % |  |  | 4 | % |  |  | 2 | %

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

|  | December 31, 2022 |  |  | March 31, 2022 |
Accounts receivable - trade |  |  |  |  |  |
Customer A |  |  | 39 | % |  |  | 42 | %
Customer B |  |  | 23 | % |  |  | 21 | %
Customer C |  |  | - | % |  |  | 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, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Product line |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rotating electrical products |  |  | 66 | % |  |  | 68 | % |  |  | 67 | % |  |  | 69 | %
Wheel hub products |  |  | 10 | % |  |  | 13 | % |  |  | 11 | % |  |  | 13 | %
Brake-related products |  |  | 20 | % |  |  | 15 | % |  |  | 19 | % |  |  | 15 | %
Other products |  |  | 4 | % |  |  | 4 | % |  |  | 3 | % |  |  | 3 | %
|  |  | 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, 2022 and 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 May 28, 2026. The Credit Facility currently permits the payment of up to $29,043,000 of dividends and share repurchases for fiscal year 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.
The Term Loans require quarterly principal payments of $937,500. The Credit Facility bears interest at rates equal to either SOFR (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 6.98% and 7.16% respectively, at December 31, 2022, and 2.99% and 3.13% respectively, at March 31, 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. In addition, 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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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, 2022 |  |  | March 31, 2022 |
Principal amount of Term Loans |  | $ | 14,062,000 |  |  | $ | 16,875,000 |
Unamortized financing fees |  |  | (161,000 | ) |  |  | (181,000 | )
Net carrying amount of Term Loans |  |  | 13,901,000 |  |  |  | 16,694,000 |
Less current portion of Term Loans |  |  | (3,668,000 | ) |  |  | (3,670,000 | )
Long-term portion of Term Loans |  | $ | 10,233,000 |  |  | $ | 13,024,000 |

Future repayments of the Term Loans are as follows:

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

The Company had $175,000,000 and $155,000,000 outstanding under the Revolving Facility at December 31, 2022 and March 31, 2022, respectively. In addition, $6,370,000 was outstanding for letters of credit at December 31, 2022. At December 31, 2022, after certain contractual adjustments, $57,250,000 was available under the Revolving Facility.
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8. Contract Liabilities
Contract liabilities are comprised of the following:

|  | December 31, 2022 |  |  | March 31, 2022 |
Short-term contract liabilities |  |  |  |  |  |
Customer allowances earned |  | $ | 18,088,000 |  |  | $ | 22,018,000 |
Customer core returns accruals |  |  | 16,901,000 |  |  |  | 12,322,000 |
Customer deposits |  |  | 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 |  |  | 1,599,000 |  |  |  | 1,537,000 |
Total short-term contract liabilities |  | $ | 44,512,000 |  |  | $ | 42,496,000 |
Long-term contract liabilities |  |  |  |  |  |  |  |
Customer core returns accruals |  | $ | 160,980,000 |  |  | $ | 154,940,000 |
Core bank liability |  |  | 14,009,000 |  |  |  | 15,267,000 |
Accrued core payment |  |  | 10,045,000 |  |  |  | 928,000 |
Finished goods liabilities |  |  | 825,000 |  |  |  | 1,588,000 |
Customer allowances earned |  |  | - |  |  |  | 41,000 |
Total long-term contract liabilities |  | $ | 185,859,000 |  |  | $ | 172,764,000 |

9. Leases
The Company leases various facilities in North America and Asia under operating leases expiring through August 2033. The Company has material nonfunctional currency leases that could have a material impact on the Company’s condensed consolidated statements of 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 during the three months ended December 31, 2022 and 2021, respectively. During the nine months ended December 31, 2022 and 2021, the Company recorded gains of $2,108,000 and $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 operations.
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Balance sheet information for leases is as follows:

Leases |  | Classification |  | December 31, 2022 |  |  | March 31, 2022 |
Assets: |  |  |  |  |  |  |  |
Operating |  | Operating lease assets |  | $ | 85,407,000 |  |  | $ | 81,997,000 |
Finance |  | Plant and equipment |  |  | 6,157,000 |  |  |  | 7,470,000 |
Total leased assets |  |  |  | $ | 91,564,000 |  |  | $ | 89,467,000 |
Liabilities: |  |  |  |  |  |  |  |  |  |
Current |  |  |  |  |  |  |  |  |  |
Operating |  | Operating lease liabilities |  | $ | 8,329,000 |  |  | $ | 6,788,000 |
Finance |  | Other current liabilities |  |  | 1,910,000 |  |  |  | 2,330,000 |
Long-term |  |  |  |  |  |  |  |  |  |
Operating |  | Long-term operating lease liabilities |  |  | 81,512,000 |  |  |  | 80,803,000 |
Finance |  | Other liabilities |  |  | 2,600,000 |  |  |  | 3,425,000 |
Total lease liabilities |  |  |  | $ | 94,351,000 |  |  | $ | 93,346,000 |

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

|  | Three Months Ended |  |  | Nine Months Ended |
|  | December 31, |  |  | December 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Lease cost |  |  |  |  |  |  |  |  |  |  |  |
Operating lease cost |  | $ | 3,232,000 |  |  | $ | 3,134,000 |  |  | $ | 9,527,000 |  |  | $ | 9,325,000 |
Short-term lease cost |  |  | 340,000 |  |  |  | 361,000 |  |  |  | 1,353,000 |  |  |  | 1,112,000 |
Variable lease cost |  |  | 164,000 |  |  |  | 225,000 |  |  |  | 528,000 |  |  |  | 716,000 |
Finance lease cost: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization of finance lease assets |  |  | 503,000 |  |  |  | 515,000 |  |  |  | 1,531,000 |  |  |  | 1,579,000 |
Interest on finance lease liabilities |  |  | 68,000 |  |  |  | 83,000 |  |  |  | 200,000 |  |  |  | 269,000 |
Total lease cost |  | $ | 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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Other information about leases is as follows:

|  | December 31, 2022 |  |  | March 31, 2022 |
Lease term and discount rate |  |  |  |  |  |
Weighted-average remaining lease term (years): |  |  |  |  |  |
Finance leases |  |  | 2.7 |  |  |  | 2.9 |
Operating leases |  |  | 9.2 |  |  |  | 10.4 |
Weighted-average discount rate: |  |  |  |  |  |  |  |
Finance leases |  |  | 5.4 | % |  |  | 5.1 | %
Operating leases |  |  | 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 |
|  | December 31, |
|  | 2022 |  |  | 2021 |
Receivables discounted |  | $ | 428,868,000 |  |  | $ | 418,044,000 |
Weighted average number of days collection was accelerated |  |  | 323 |  |  |  | 335 |
Annualized weighted average discount rate |  |  | 5.0 | % |  |  | 1.7 | %
Amount of discount recognized as interest expense |  | $ | 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.
The following presents a reconciliation of basic and diluted net income (loss) per share:

|  | 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, 2022 and 2021, there were 1,201,984 and 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, 2022 and 2021, there were 1,897,876 and 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%, for the three months ended December 31, 2022 and 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%, for the nine months ended December 31, 2022 and 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 and nine months ended December 31, 2022, was primarily impacted by (i) 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) 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, 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.
The Company had forward foreign currency exchange contracts with a U.S. dollar equivalent notional value of $47,369,000 and $44,968,000 at December 31, 2022 and March 31, 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 operations.
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The following shows the effect of derivative instruments on the condensed consolidated statements of operations:

|  | Gain (Loss) Recognized as Foreign Exchange Impact of Lease Liabilities and Forward Contracts |
|  | Three Months Ended |  |  | Nine Months Ended |
Derivatives Not Designated as |  | December 31, |  |  | December 31, |
Hedging Instruments |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Forward foreign currency exchange contracts |  | $ | 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 $1,113,000 is included in prepaid expenses and other current assets in the condensed consolidated balance sheets at December 31, 2022 and March 31, 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, 2022 and 2021.
14. Fair Value Measurements
The following summarizes financial assets and liabilities measured at fair value, by level within the fair value hierarchy:

|  | 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.
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).
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, no options to purchase shares of the Company’s common stock were granted.
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The following is a summary of stock option transactions:

|  | 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, 2022, options to purchase 99,839 shares of common stock were unvested at a weighted average exercise price of $15.16.
At December 31, 2022, there was $295,000 of total unrecognized compensation expense related to unvested stock option awards, which will be recognized over the weighted average remaining vesting period of approximately six months.
Restricted Stock Units and Restricted Stock Awards (collectively “RSUs”)
During the nine months ended December 31, 2022 and 2021, the Company granted (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 a maximum performance level of 100,000 shares at the grant date for both periods and (ii) 229,121 and 163,703 of 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, 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, 2022, there was $4,143,000 of unrecognized compensation expense related to RSUs, which will be recognized over the weighted average remaining vesting period of approximately 1.7 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”)
During the nine months ended December 31, 2022 and 2021, the Company granted 126,028 and 84,593 PSUs (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.
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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.
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, |
|  | 2022 |  |  | 2021 |
Risk free interest rate |  |  | 3.35 | % |  |  | 0.47 | %
Expected life in years |  |  | 3 |  |  |  | 3 |
Expected volatility of MPA common stock |  |  | 51.30 | % |  |  | 53.70 | %
Expected average volatility of peer companies |  |  | 62.70 | % |  |  | 59.30 | %
Average correlation coefficient of peer companies |  |  | 27.50 | % |  |  | 26.70 |
Expected dividend yield |  |  | - |  |  |  | - |
Grant date fair value |  | $ | 16.02 |  |  | $ | 26.89 |

The following is a summary of non-vested PSUs:

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

At December 31, 2022, there was $2,231,000 of unrecognized compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 2.1 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.
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The following summarizes the changes in the warranty return accrual:

|  | Three Months Ended December 31, |  |  | Nine Months Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Balance at beginning of period |  | $ | 18,461,000 |  |  | $ | 20,875,000 |  |  | $ | 20,125,000 |  |  | $ | 21,093,000 |
Charged to expense |  |  | 31,621,000 |  |  |  | 30,282,000 |  |  |  | 96,436,000 |  |  |  | 88,380,000 |
Amounts processed |  |  | (32,510,000 | ) |  |  | (32,425,000 | ) |  |  | (98,989,000 | ) |  |  | (90,741,000 | )
Balance at end of period |  | $ | 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.
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 months ended December 31, 2022, the Company did not repurchase any shares of its common stock. As of December 31, 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, 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.
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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, 2022 audited consolidated financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 14, 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. All statements other than statements of historical fact are forward-looking statements, including, but not limited 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 global COVID-19 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-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) 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. New products introduced through our growth strategies include brake pads and rotors, which were formally introduced during the first quarter of fiscal 2023.
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. The operating segments meet all the criteria to be aggregated and are presented as such.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic continues to adversely impact the U.S. and global economies – creating uncertainty regarding the potential effects on the supply chain disruptions, rate of inflation, increasing interest rates, and customer demand. We incurred costs related to the COVID-19 pandemic, which are included in cost of goods sold and operating expenses in the condensed consolidated statements of operations, of $396,000 and $764,000 during the three months ended December 31, 2022 and 2021, respectively, and $1,873,000 and $2,573,000 during the nine months ended December 31, 2022 and 2021, respectively.
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Results of Operations for the Three Months Ended December 31, 2022 and 2021
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, |
|  | 2022 |  |  | 2021 |
Cash flow (used in) provided by operations |  | $ | (4,474,000 | ) |  | $ | 2,165,000 |
Finished goods turnover (annualized) (1) |  |  | 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. 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, |
|  | 2022 |  |  | 2021 |
Net sales |  | $ | 151,819,000 |  |  | $ | 161,810,000 |
Cost of goods sold |  |  | 130,826,000 |  |  |  | 129,235,000 |
Gross profit |  |  | 20,993,000 |  |  |  | 32,575,000 |
Gross profit percentage |  |  | 13.8 | % |  |  | 20.1 | %

Net Sales. Our net sales for the three months ended December 31, 2022 were $151,819,000, which represents a decrease of $9,991,000, or 6.2%, from the three months ended December 31, 2021 of $161,810,000. Sales for the three months ended December 31, 2022 were impacted by (i) inventory reduction initiatives from one of our largest customers, (ii) changes in the purchasing and return patterns of certain customers, (iii) disruptions with global supply chain and logistics services, 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. Our gross margin for the three months ended December 31, 2022 reflects (i) higher inflationary costs— including disruptions with the global supply chain, logistics services, higher wages, (ii) lower absorption of overhead costs as we manage our inventory levels, and (iii) changes in product mix.
Our gross profit for the three months ended December 31, 2022 and 2021 was 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 goods premiums paid to customers related to new business of $3,075,000 and $3,146,000, respectively, and (iii) the 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 by higher freight costs, net of certain price increases, of approximately $1,338,000.
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Operating Expenses
The following summarizes operating expenses:

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

General and Administrative. Our general and administrative expenses for the three months ended December 31, 2022 were $13,599,000, which represents a decrease of $1,006,000, or 6.9%, from the three months ended December 31, 2021 of $14,605,000. This decrease was primarily due to (i) $1,060,000 of decreased employee incentives and (ii) $1,009,000 of decreased share-based compensation in connection with equity grants made to employees. These decreases were partially offset by (i) $723,000 of increased severance expense due to headcount reduction and (ii) $375,000 of increased employee-related expense at our offshore locations.
Sales and Marketing. Our sales and marketing expenses for the three months ended December 31, 2022 were $5,634,000, which represents a decrease of $640,000, or 10.2%, from the three months ended December 31, 2021 of $6,274,000. This decrease was primarily due to (i) $325,000 of decreased marketing and advertising expenses, (ii) $325,000 of decreased commissions due to lower sales, and (iii) $289,000 of decreased employee-related expenses due to our cost-cutting measures. These decreases were partially offset by $265,000 for increased trade shows as normal business expenses resumed.
Research and Development. Our research and development expenses for the three months ended December 31, 2022 were $2,547,000, which represents a decrease of $88,000, or 3.3%, from the three months ended December 31, 2021 of $2,635,000. This decrease was primarily due to our cost-cutting measures.
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, 2022 was a non-cash gain of $4,313,000 compared with a non-cash loss of $385,000 for the three months ended December 31, 2021. This change was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in a non-cash gain of $3,129,000 compared with a non-cash loss of $985,000 for the three months ended December 31, 2022 and 2021, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in non-cash gains of $1,184,000 and $600,000 for the three months ended December 31, 2022 and 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, 2022 was $11,471,000, which represents an increase of $7,522,000, or 190.5%, from interest expense for the three months ended December 31, 2021 of $3,949,000. Of this increase in interest expense, approximately 98% resulted from higher interest rates and approximately 73% 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. 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.
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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%, for the three months ended December 31, 2022 and 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, 2022, was primarily impacted by (i) foreign income taxed at rates that are different from the federal statutory rate and (ii) non-deductible executive compensation under Internal Revenue Code Section 162(m).
Results of Operations for the Nine Months Ended December 31, 2022 and 2021
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, |
|  | 2022 |  |  | 2021 |
Cash flow used in operations |  | $ | (21,428,000 | ) |  | $ | (22,174,000 | )
Finished goods turnover (annualized) (1) |  |  | 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. 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.

Net Sales and Gross Profit
The following summarizes net sales and gross profit:

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

Net Sales. Our net sales for the nine months ended December 31, 2022 were $488,347,000, which represents an increase of $1,955,000, or 0.4%, from the nine months ended December 31, 2021 of $486,392,000, which was positively impacted by $13,327,000 in core revenue due to a realignment of inventory at certain customer distribution centers. Excluding 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 growing brake-related product lines. This increase in sales 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.
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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. Our gross margin for the nine months ended December 31, 2022 reflects (i) higher inflationary costs— including disruptions with the global supply chain, logistics services, related higher freight costs, 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 was impacted by (i) higher freight costs, net of certain price increases, of $3,290,000, and $7,413,000, respectively, (ii) additional expenses due to certain costs for disruptions in the supply chain of $5,282,000 and $7,144,000, respectively, (iii) amortization of core and finished goods premiums paid to customers related to new business of $9,183,000 and $9,013,000, respectively.
In addition, 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, 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 gain of $1,229,000. Gross margin for the nine months ended December 31, 2021 was further impacted by transition expenses in connection with the expansion of our brake-related operations in Mexico of $2,744,000.
Operating Expenses
The following summarizes operating expenses:

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

General and Administrative. Our general and administrative expenses for the nine months ended December 31, 2022 were $42,079,000, which represents an increase of $523,000, or 1.3%, from the nine months ended December 31, 2021 of $41,556,000. This increase was primarily due to (i) $1,722,000 of increased expense resulting from foreign currency transactions, (ii) $1,071,000 of increased severance expense due to headcount reduction, (iii) $491,000 of increased employee-related expense at our offshore 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 were partially offset by (i) $2,129,000 of decreased 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, 2022 were $17,242,000, which represents an increase of $80,000, or 0.5%, from the nine months ended December 31, 2021 of $17,162,000. This increase was primarily due to (i) $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. These increases were partially offset by $592,000 of decreased marketing and advertising expenses and $139,000 of decreased employee-related expenses due to our cost-cutting measures.
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Research and Development. Our research and development expenses for the nine months ended December 31, 2022 were $8,330,000, which represents an increase of $699,000, or 9.2%, from the nine months ended December 31, 2021 of $7,631,000. This increase was primarily due to (i) $356,000 of increased employee-related expenses, primarily due to our electric vehicle testing system initiatives, (ii) $271,000 of increased samples for our core library and other research and development supplies, and (iii) $55,000 of increased outside 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, 2022 was a non-cash gain of $2,553,000 compared with a non-cash loss of $1,769,000 for the nine months ended December 31, 2021. This change 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 for the nine months ended December 31, 2022 and 2021, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in a non-cash gain of $445,000 compared with a non-cash loss of $1,833,000 for the nine months ended December 31, 2022 and 2021, respectively, due to the changes in their fair values.
Interest Expense
Interest Expense, net. Our interest expense 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 of $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, 2022, utilization of our accounts receivable discount programs and our average borrowing under our credit 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%, for the nine months ended December 31, 2022 and 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, 2022, was primarily impacted by (i) 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) 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 $122,892,000 and $110,580,000, a ratio of current assets to current liabilities of 1.3:1.0, at December 31, 2022 and March 31, 2022, respectively. The increase in working capital reflects our investment in inventory to address disruptions related to the global supply chain and logistics challenges to meet higher anticipated sales.
Our primary source of liquidity was from the use of our receivable discount programs and credit facility during the 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.
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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, 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, 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.
Cash Flows
The following summarizes cash flows as reflected in the condensed consolidated statements of cash flows:

|  | Nine Months Ended December 31, |
|  | 2022 |  |  | 2021 |
Cash flows (used in) provided by: |  |  |  |  |  |
Operating activities |  | $ | (21,428,000 | ) |  | $ | (22,174,000 | )
Investing activities |  |  | (3,855,000 | ) |  |  | (5,426,000 | )
Financing activities |  |  | 14,898,000 |  |  |  | 19,770,000 |
Effect of exchange rates on cash and cash equivalents |  |  | (52,000 | ) |  |  | 76,000 |
Net decrease in cash and cash equivalents |  | $ | (10,437,000 | ) |  | $ | (7,754,000 | )
Additional selected cash flow data: |  |  |  |  |  |  |  |
Depreciation and amortization |  | $ | 9,322,000 |  |  | $ | 9,591,000 |
Capital expenditures |  |  | 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, respectively. The change in our operating activities reflects a more significant build-up of inventory in the prior year as compared with the current year partially offset by lower net income and lower accounts payable. We continue to manage our working capital to maximize our operating cash flow.
Net cash used in investing activities was $3,855,000 and $5,426,000 during the nine months ended December 31, 2022 and 2021, respectively. The change in our investing activities primarily resulted from decreased capital expenditures due to the completion of our expansion of our brake-related operations in 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, respectively. The change in our financing activities resulted from lower borrowing and higher repayments under our credit facility during the nine months ended December 31, 2022. In addition, we repurchased 106,486 shares of our common stock for $1,914,000 during the nine months ended December 31, 2021.
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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 May 28, 2026. The Credit Facility currently permits the payment of up to $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.
The Term Loans require quarterly principal payments of $937,500. The Credit Facility bears interest at rates equal to either SOFR (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 6.98% and 7.16% respectively, at December 31, 2022, and 2.99% and 3.13% respectively, at March 31, 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. In addition, 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 $175,000,000 and $155,000,000 outstanding under the Revolving Facility at December 31, 2022 and March 31, 2022, respectively. In addition, $6,370,000 was outstanding for letters of credit at December 31, 2022. At December 31, 2022, after certain contractual adjustments, $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.
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The following is a summary of the receivable discount programs:

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

Capital Expenditures and Commitments
Capital Expenditures
Our total capital expenditures, including finance leases and non-cash capital expenditures were $3,632,000 and $5,248,000 for the nine months ended December 31, 2022 and 2021, respectively. These capital expenditures primarily include the purchase of equipment for our current operations. We completed the expansion of our operations in Mexico during the second quarter of fiscal 2022. We expect to incur approximately $1,500,000 of capital expenditures primarily to support our current operations, including purchases of equipment, during the remainder of fiscal 2023. We fund these expenditures primarily from our working capital and leasing.
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 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, 2022, which was filed on June 14, 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, 2022, which was filed on June 14, 2022.

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, 2022, which was filed with the SEC on June 14, 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.
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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, 2022.
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, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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, 2022, which was filed on June 14, 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, 2022, filed on June 14, 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 $29,043,000 of dividends and share repurchases for fiscal year 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, 2022 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) |
October 1 - October 31, 2022: |  |  |  |  |  |  |  |  |  |  |  |
Open market and privately negotiated purchases |  |  | - |  |  | $ | - |  |  |  | - |  |  | $ | 18,255,000 |
November 1 - November 30, 2022: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Open market and privately negotiated purchases |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | 18,255,000 |
December 1 - December 31, 2022: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Open market and privately negotiated purchases |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | 18,255,000 |
Total |  |  | 0 |  |  |  |  |  |  |  | 0 |  |  | $ | 18,255,000 |

| (1) | As of December 31, 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, 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.
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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.
4.2 |  | 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.
4.3 |  | 2010 Incentive Award Plan |  | Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on December 15, 2010.
4.4 |  | 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.

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Number |  | Description of Exhibit |  | Method of Filing
4.5 |  | 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.
4.6 |  | 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.
4.7 |  | 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.
4.8 |  | 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 to Amended and Restated Loan Agreement, dated as of November 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 PNC Bank, National Association, as administrative agent |  | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on November 9, 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, 2023 | By: | /s/ David Lee
| David Lee
| Chief Financial Officer
Dated: February 9, 2023 | By: | /s/ Kamlesh Shah
| Kamlesh Shah
| Chief Accounting Officer

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