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 SEPTEMBER 30, 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 19,422,181 shares of Common Stock outstanding at November 2, 2022.

MOTORCAR PARTS OF AMERICA, INC.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
 
 
4
 
4
 
5
 
6
 
7
 
8
 
9
 
22
 
31
 
31
 
 
 
PART II — OTHER INFORMATION
 
 
33
 
33
 
33
 
33
 
34
 
36

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

 
September 30, 2022
    
March 31, 2022
  
ASSETS
  
(Unaudited)
        
Current assets:
            
Cash and cash equivalents
  
$
7,611,000
    
$
23,016,000
  
Short-term investments
    
1,989,000
      
2,202,000
  
Accounts receivable — net
    
79,861,000
      
85,075,000
  
Inventory
    
401,202,000
      
385,504,000
  
Contract assets
    
33,861,000
      
27,500,000
  
Prepaid expenses and other current assets
    
15,511,000
      
13,688,000
  
Total current assets
    
540,035,000
      
536,985,000
  
Plant and equipment — net
    
47,853,000
      
51,062,000
  
Operating lease assets
    
77,965,000
      
81,997,000
  
Long-term deferred income taxes
    
28,150,000
      
26,982,000
  
Long-term contract assets
    
313,188,000
      
310,255,000
  
Goodwill and intangible assets — net
    
6,046,000
      
7,004,000
  
Other assets
    
1,476,000
      
1,413,000
  
TOTAL ASSETS
  
$
1,014,713,000
    
$
1,015,698,000
  
LIABILITIES AND SHAREHOLDERS’  EQUITY
                
Current liabilities:
                
Accounts payable and accrued liabilities
  
$
169,518,000
    
$
168,435,000
  
Customer finished goods returns accrual
    
27,516,000
      
38,086,000
  
Contract liabilities
    
50,213,000
      
42,496,000
  
Revolving loan
    
163,000,000
      
155,000,000
  
Other current liabilities
    
4,841,000
      
11,930,000
  
Operating lease liabilities
    
6,752,000
      
6,788,000
  
Current portion of term loan
    
3,670,000
      
3,670,000
  
Total current liabilities
    
425,510,000
      
426,405,000
  
Term loan, less current portion
    
11,171,000
      
13,024,000
  
Long-term contract liabilities
    
181,145,000
      
172,764,000
  
Long-term deferred income taxes
    
115,000
      
126,000
  
Long-term operating lease liabilities
    
78,359,000
      
80,803,000
  
Other liabilities
    
7,715,000
      
7,313,000
  
Total liabilities
    
704,015,000
      
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; 19,423,148 and 19,104,751 shares issued and outstanding at September 30, 2022 and March 31, 2022, respectively
    
194,000
      
191,000
  
Additional paid-in capital
    
229,489,000
      
227,184,000
  
Retained earnings
    
86,262,000
      
92,954,000
  
Accumulated other comprehensive loss
    
(5,247,000
)
    
(5,066,000
)
Total shareholders’ equity
    
310,698,000
      
315,263,000
  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  
$
1,014,713,000
    
$
1,015,698,000
  

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

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

 
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
   
2022
    
2021
    
2022
    
2021
  
                         
Net sales
  
$
172,543,000
    
$
175,548,000
     $ 336,528,000     $ 324,582,000  
Cost of goods sold
    
146,027,000
      
139,597,000
       279,710,000
       265,060,000
  
Gross profit
     26,516,000
       35,951,000
       56,818,000
       59,522,000
  
Operating expenses:
                                
General and administrative
    
14,846,000
      
14,465,000
       28,480,000
       26,951,000
  
Sales and marketing
    
6,066,000
      
5,520,000
       11,608,000
       10,888,000
  
Research and development
    
2,670,000
      
2,495,000
       5,783,000
       4,996,000
  
Foreign exchange impact of lease liabilities and forward contracts
    
1,082,000
      
3,917,000
       1,760,000       1,384,000  
Total operating expenses
    
24,664,000
      
26,397,000
       47,631,000
       44,219,000
  
Operating income
    
1,852,000
      
9,554,000
       9,187,000
       15,303,000
  
Interest expense, net
    
9,283,000
      
3,620,000
       16,204,000
       7,561,000
  
(Loss) income before income tax (benefit) expense
    
(7,431,000
)
    
5,934,000
       (7,017,000 )     7,742,000
  
Income tax (benefit) expense
    
(914,000
)
    
2,251,000
       (325,000 )     3,198,000
  
Net (loss) income
  
$
(6,517,000
)
  
$
3,683,000
     $ (6,692,000 )   $ 4,544,000  
Basic net (loss) income per share
  
$
(0.34
)
  
$
0.19
     $ (0.35 )   $ 0.24  
Diluted net (loss) income per share
  
$
(0.34
)
  
$
0.19
     $ (0.35 )   $ 0.23  
Weighted average number of shares outstanding:
                                
Basic
    
19,272,557
      
19,135,356
       19,197,181
       19,094,904
  
Diluted
    
19,272,557
      
19,619,774
       19,197,181
       19,638,045
  

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

5
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)

   
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
 
2022
    
2021
    
2022
    
2021
  
                         
Net (loss) income
  
$
(6,517,000
)
  
$
3,683,000
     $ (6,692,000 )   $ 4,544,000  
Other comprehensive income (loss), net of tax:
                                
Foreign currency translation gain (loss)
    
687,000
      
611,000
       (181,000 )     2,444,000  
Total other comprehensive income (loss), net of tax
    
687,000
      
611,000
       (181,000 )     2,444,000  
Comprehensive (loss) income
  
$
(5,830,000
)
  
$
4,294,000
     $ (6,873,000 )   $ 6,988,000  

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

6
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  

 
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  

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

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

 
Six Months Ended
September 30,
  
   
2022
    
2021
  
Cash flows from operating activities:
            
Net (loss) income
 
$
(6,692,000
)
  
$
4,544,000
  
Adjustments to reconcile net (loss) income to net cash used in operating activities:
                
Depreciation and amortization
    
6,214,000
      
6,364,000
  
Amortization of interest
    
698,000
      
856,000
  
Amortization of core premiums paid to customers
    
5,759,000
      
5,543,000
  
Amortization of finished goods premiums paid to customers
    
349,000
      
324,000
  
Noncash lease expense
    
3,873,000
      
3,656,000
  
Gain due to the change in the fair value of the contingent consideration
    
-
      
70,000
  
Foreign exchange impact of lease liabilities and forward contracts
    
1,760,000
      
1,384,000
  
Loss (gain) on short-term investments
    
387,000
      
(175,000
)
Net provision for inventory reserves
    
8,715,000
      
6,305,000
  
Net provision for customer payment discrepancies and credit losses
    
1,012,000
      
961,000
  
Deferred income taxes
    
(1,230,000
)
    
(434,000
)
Share-based compensation expense
    
2,500,000
      
3,427,000
  
Loss on disposal of plant and equipment
    
16,000
      
34,000
  
Changes in operating assets and liabilities:
                
Accounts receivable
    
3,370,000
      
1,403,000
  
Inventory
    
(26,286,000
)
    
(34,185,000
)
Prepaid expenses and other current assets
    
(3,039,000
)
    
(859,000
)
Other assets
    
(70,000
)
    
108,000
  
Accounts payable and accrued liabilities
    
4,176,000
      
(21,512,000
)
Customer finished goods returns accrual
    
(10,533,000
)
    
3,005,000
  
Contract assets, net
    
(15,556,000
)
    
(47,006,000
)
Contract liabilities, net
    
16,126,000
      
45,087,000
  
Operating lease liabilities
    
(3,249,000
)
    
(2,701,000
)
Other liabilities
    
(5,254,000
)
    
(538,000
)
Net cash used in operating activities
    
(16,954,000
)
    
(24,339,000
)
Cash flows from investing activities:
                
Purchase of plant and equipment
    
(2,644,000
)
    
(3,238,000
)
Purchase of short-term investments
    
(173,000
)
    
(245,000
)
Net cash used in investing activities
    
(2,817,000
)
    
(3,483,000
)
Cash flows from financing activities:
                
Borrowings under revolving loan
    
40,000,000
      
57,000,000
  
Repayments of revolving loan
    
(32,000,000
)
    
(21,000,000
)
Repayments of term loan
    
(1,875,000
)
    
(1,875,000
)
Payments for debt issuance costs
    
(21,000
)
    
(1,102,000
)
Payments on finance lease obligations
    
(1,223,000
)
    
(1,427,000
)
Exercise of stock options, net of cash used to pay employee taxes
    
777,000
      
432,000
  
Cash used to net share settle equity awards
    
(969,000
)
    
(1,745,000
)
Net cash provided by financing activities
    
4,689,000
      
30,283,000
  
Effect of exchange rate changes on cash and cash equivalents
    
(323,000
)
    
(73,000
)
Net (decrease) increase in cash and cash equivalents
    
(15,405,000
)
    
2,388,000
  
Cash and cash equivalents — Beginning of period
    
23,016,000
      
15,523,000
  
Cash and cash equivalents  — End of period
  
$
7,611,000
    
$
17,911,000
  
Supplemental disclosures of cash flow information:
                
Cash paid for interest, net
  
$
15,343,000
    
$
6,654,000
  
Cash paid for income taxes, net of refunds
    
12,336,000
      
4,525,000
  
Cash paid for operating leases
    
5,642,000
      
5,207,000
  
Cash paid for finance leases
    
1,355,000
      
1,613,000
  
Plant and equipment acquired under finance leases
    
529,000
      
252,000
  
Assets acquired under operating leases
    
967,000
      
15,953,000
  
Non-cash capital expenditures
    
272,000
      
198,000
  

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

8
MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 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 Novel Coronavirus (“COVID-19”)

The outbreak of the COVID-19 pandemic continues to adversely impact the U.S. and global economies – creating uncertainty regarding the potential effects on the Company’s employees, supply chain, operations, and customer demand. The COVID-19 pandemic could impact the Company’s operations and the operations of its customers, suppliers, and vendors because of quarantines, facility closures, travel, and logistics restrictions. The extent to which the COVID-19 pandemic impacts the Company will depend on numerous factors and future developments, which are highly uncertain and cannot be predicted, including, but not limited to: (i) the severity of the virus, (ii) the occurrence and duration of additional spikes in infections, (iii) the effects of the pandemic on customers, suppliers, and vendors, (iv) the remedial actions and stimulus measures adopted by local, state and federal governments, (v) the availability and acceptance of vaccines, and (vi) the extent to which normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, 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 six months ended September 30, 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.

9
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.

3. Accounts Receivable — Net

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

Accounts receivable — net is comprised of the following:

 
  
September 30, 2022
    
March 31, 2022
  
Accounts receivable — trade
  
$
101,989,000
    
$
98,734,000
  
Allowance for credit losses
    
(242,000
)
    
(375,000
)
Customer payment discrepancies
    
(1,604,000
)
    
(1,375,000
)
Customer returns RGA issued
    
(20,282,000
)
    
(11,909,000
)
Total accounts receivable — net
  
$
79,861,000
    
$
85,075,000
  

The following table provides a roll-forward of the allowance for credit losses that is deducted from accounts receivable to present the net amount expected to be collected.

   
Six Months Ended
  
 
September 30,
  
 
  
2022
    
2021
  
Balance at beginning of period
  
$
375,000
    
$
348,000
  
Provision for expected credit losses
    
11,000
      
17,000
Recoveries
    
-
      
-
  
Amounts written off charged against the allowance
    
(144,000
)
    
(39,000
)
Balance at end of period
  
$
242,000
    
$
326,000
  

10
4. Inventory

Inventory is comprised of the following:

 
  
September 30, 2022
    
March 31, 2022
  
Inventory
            
Raw materials
  
$
148,948,000
    
$
150,414,000
  
Work-in-process
    
7,035,000
      
6,880,000
  
Finished goods
    
243,223,000
      
226,729,000
  
 
    
399,206,000
      
384,023,000
  
Less allowance for excess and obsolete inventory
    
(13,577,000
)
    
(13,520,000
)
Inventory — net
    
385,629,000
      
370,503,000
  
Inventory unreturned
    
15,573,000
      
15,001,000
  
Total inventory
  
$
401,202,000
    
$
385,504,000
  

5. Contract Assets

During the three months ended September 30, 2022 and 2021, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $1,269,000 and $1,687,000, respectively. During the six months ended September 30, 2022 and 2021, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $1,841,000 and $2,671,000, respectively.

Contract assets are comprised of the following:

 
  
September 30, 2022
    
March 31, 2022
  
Short-term contract assets
            
Cores expected to be returned by customers
  
$
22,264,000
    
$
15,778,000
  
Core premiums paid to customers     10,062,000       10,621,000  
Upfront payments to customers
    
958,000
      
517,000
  
Finished goods premiums paid to customers
    
577,000
      
584,000
  
Total short-term contract assets
  
$
33,861,000
    
$
27,500,000
  
                 
Remanufactured cores held at customers’ locations
  
$
262,342,000
    
$
258,376,000
  
Core premiums paid to customers     42,495,000       43,294,000  
Long-term core inventory deposits     5,569,000       5,569,000  
Finished goods premiums paid to customers     2,714,000       2,806,000  
Upfront payments to customers
    
68,000
      
210,000
  
 Total long-term contract assets
  
$
313,188,000
    
$
310,255,000
  

11
6. Significant Customer and Other Information

Significant Customer Concentrations

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

 
Three Months Ended
September 30,
  
Six Months Ended
September 30,
  
 
2022
  
2021
  
2022
  
2021
  
Net sales
                
Customer A
    
39
%
    
40
%
    
38
%
    
37
%
Customer B
    
20
%
    
17
%
    
22
%
    
18
%
Customer C
    
26
%
    
30
%
    
23
%
    
30
%
Customer D
     4 %     2 %     4 %     2 %

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

 
  
September 30, 2022
    
March 31, 2022
  
Accounts receivable - trade
            
Customer A
    
43
%
    
42
%
Customer B
    
20
%
    
21
%
Customer C     2 %     9 %
Customer D
     10 %     5 %

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
September 30,
    
Six Months Ended
September 30,
  
 
  
2022
    
2021
    
2022
    
2021
  
Product line
                                
Rotating electrical products
    
67
%
    
73
%
    
67
%
    
71
%
Wheel hub products
    
11
%
    
11
%
    
11
%
    
12
%
Brake-related products
    
20
%
    
14
%
    
19
%
    
15
%
Other products
    
2
%
    
2
%
    
3
%
    
2
%
 
    
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 six months ended September 30, 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.

12
The Term Loans require quarterly principal payments of $937,500. The Credit Facility bears interest at rates equal to either LIBOR 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 5.32% and 5.62% respectively, at September 30, 2022, and 2.99% and 3.13% respectively, at March 31, 2022.

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 senior leverage ratio financial covenant for the fiscal quarter ending September 30, 2022, (iii) modified the definition of “Consolidated EBITDA”, and (iv) replaces 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.

The Credit Facility, among other things, requires the Company to maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. The Company was in compliance with all financial covenants at September 30, 2022, as amended by the Fourth Amendment.

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

The following summarizes information about the Term Loans:

 
  
September 30, 2022
    
March 31, 2022
  
Principal amount of Term Loans
  
$
15,000,000
    
$
16,875,000
  
Unamortized financing fees
    
(159,000
)
    
(181,000
)
Net carrying amount of Term Loans
    
14,841,000
      
16,694,000
  
Less current portion of Term Loans
    
(3,670,000
)
    
(3,670,000
)
Long-term portion of Term Loans
  
$
11,171,000
    
$
13,024,000
  

Future repayments of the Term Loans are as follows:

Year Ending March 31,
      
2023 - remaining six months
  
$
1,875,000
  
2024
    
3,750,000
  
2025
    
3,750,000
  
2026
    
3,750,000
  
2027
    
1,875,000
  
Total payments
  
$
15,000,000
  

The Company had $163,000,000 and $155,000,000 outstanding under the Revolving Facility at September 30, 2022 and March 31, 2022, respectively. In addition, $6,370,000 was outstanding for letters of credit at September 30, 2022. At September 30, 2022, after certain contractual adjustments, $69,250,000 was available under the Revolving Facility.

13
8. Contract Liabilities

Contract liabilities are comprised of the following:

 
  
September 30, 2022
    
March 31, 2022
  
Short-term contract liabilities
  
   

Customer core returns accruals
  
$
20,984,000
    
$
12,322,000
  
Customer allowances earned
    
18,923,000
      
22,018,000
  
Customer deposits
    
3,876,000
      
3,306,000
  
Accrued core payment
    
2,999,000
      
1,679,000
  
Finished goods liabilities
    
1,771,000
      
1,537,000
  
Core bank liability
   
1,660,000
      
1,634,000
  
      Total short-term contract liabilities
  
$
50,213,000
    
$
42,496,000
  
 
                
Long-term contract liabilities
                
Customer core returns accruals
  
$
155,040,000
    
$
154,940,000
  
Core bank liability
    
14,432,000
      
15,267,000
  
Accrued core payment
    
10,467,000
      
928,000
  
Finished goods liabilities
    
1,206,000
      
1,588,000
  
Customer allowances earned
    
-
      
41,000
  
      Total long-term contract liabilities
  
$
181,145,000
    
$
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 losses of $1,041,000 and $1,746,000 during the three months ended September 30, 2022 and 2021, respectively. During the six months ended September 30, 2022 and 2021, the Company recorded a loss of $1,021,000 and a gain of $1,049,000, 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.

Balance sheet information for leases is as follows:

Leases
  
Classification
  
September 30, 2022
    
March 31, 2022
  
Assets:
  
 
            
Operating
  
Operating lease assets
  
$
77,965,000
    
$
81,997,000
  
Finance
  
Plant and equipment
    
6,543,000
      
7,470,000
  
Total leased assets
  
 
  
$
84,508,000
    
$
89,467,000
  
 
  
 
                
Liabilities:
  
 
                
Current
  
 
                
Operating
  
Operating lease liabilities
  
$
6,752,000
    
$
6,788,000
  
Finance
  
Other current liabilities
    
2,082,000
      
2,330,000
  
Long-term
  
 
                
Operating
  
Long-term operating lease liabilities
    
78,359,000
      
80,803,000
  
Finance
  
Other liabilities
    
2,967,000
      
3,425,000
  
Total lease liabilities
  
 
  
$
90,160,000
    
$
93,346,000
  

14
Lease cost recognized in the condensed consolidated statements of operations is as follows:

   
Three Months Ended
     Six Months Ended
  
 
  
September 30,
     September 30,
  
 
  
2022
    
2021
     2022
     2021
 
Lease cost
                        
Operating lease cost
  
$
3,130,000
    
$
3,149,000
     $
 6,295,000     $
 6,191,000  
Short-term lease cost
    
559,000
      
375,000
       1,013,000       751,000  
Variable lease cost
    
179,000
      
210,000
       364,000       491,000  
Finance lease cost:
                                
Amortization of finance lease assets
    
489,000
      
565,000
       1,028,000       1,064,000  
Interest on finance lease liabilities
    
64,000
      
89,000
       132,000       186,000  
Total lease cost
  
$
4,421,000
    
$
4,388,000
     $
 8,832,000     $
 8,683,000  

Maturities of lease commitments at September 30, 2022 by fiscal year were as follows:

Maturity of lease liabilities
  
Operating Leases
    
Finance Leases
    
Total
  
2023 - remaining six months
  
$
5,925,000
    
$
1,273,000
    
$
7,198,000
  
2024
    
10,488,000
      
1,895,000
      
12,383,000
  
2025
    
10,389,000
      
1,394,000
      
11,783,000
  
2026
    
10,356,000
      
662,000
      
11,018,000
  
2027
    
10,494,000
      
172,000
      
10,666,000
  
Thereafter
    
64,621,000
      
33,000
      
64,654,000
  
Total lease payments
    
112,273,000
      
5,429,000
      
117,702,000
  
Less amount representing interest
    
(27,162,000
)
    
(380,000
)
    
(27,542,000
)
Present value of lease liabilities
  
$
85,111,000
    
$
5,049,000
    
$
90,160,000
  

Other information about leases is as follows:

 
  
September 30, 2022
    
March 31, 2022
  
Lease term and discount rate
            
Weighted-average remaining lease term (years):
            
Finance leases
    
2.8
      
2.9
  
Operating leases
    
9.9
      
10.4
  
Weighted-average discount rate:
                
Finance leases
    
5.4
%
    
5.1
%
Operating leases
    
5.7
%
    
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.

15
The following is a summary of accounts receivable discount programs:

   
Six Months Ended
  
 
  
September 30,
  
 
  
2022
    
2021
  
Receivables discounted
  
$
283,359,000
    
$
268,410,000
  
Weighted average number of days collection was accelerated
    
327
      
333
  
Annualized weighted average discount rate
    
4.4
%
    
1.8
%
Amount of discount recognized as interest expense
  
$
11,293,000
    
$
4,432,000
  

11. Net (Loss) Income per Share

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income 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 (loss) income per share:

 
  
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
 
  
2022
    
2021
    
2022
    
2021
  
Net (loss) income
  
$
(6,517,000
)
  
$
3,683,000
    
$
(6,692,000
)
  
$
4,544,000
  
Basic shares
    
19,272,557
      
19,135,356
      
19,197,181
      
19,094,904
  
Effect of potentially dilutive securities
    
-
      
484,418
      
-
      
543,141
  
Diluted shares
    
19,272,557
      
19,619,774
      
19,197,181
      
19,638,045
  
Net (loss) income per share:
                                
Basic net (loss) income per share
  
$
(0.34
)
  
$
0.19
    
$
(0.35
)
  
$
0.24
  
Diluted net (loss) income per share
  
$
(0.34
)
  
$
0.19
    
$
(0.35
)
  
$
0.23
  

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 (loss) income per share. For the three months ended September 30, 2022 and 2021, there were 1,945,392 and 915,778, respectively, of potential common shares not included in the calculation of diluted net (loss) income per share because their effect was anti-dilutive. For the six months ended September 30, 2022 and 2021, there were 1,945,392 and 707,660, respectively, of potential common shares not included in the calculation of diluted net (loss) income per share because their effect was anti-dilutive.

12. Income Taxes

The Company recorded income tax benefit of $914,000, or an effective tax rate of 12.3%, and income tax expense of $2,251,000, or an effective tax rate of 37.9%, for the three months ended September 30, 2022 and 2021, respectively. The Company recorded income tax benefit of $325,000, or an effective tax rate of 4.6%, and income tax expense of $3,198,000, or an effective tax rate of 41.3%, for the six months ended September 30, 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 September 30, 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 September 30, 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.

16
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 $46,785,000 and $44,968,000 at September 30, 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.

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

 
Loss Recognized as Foreign Exchange Impact of Lease Liabilities and Forward Contracts
  
  
Derivatives Not Designated as
  
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
Hedging Instruments
  
2022
    
2021
     2022
    
2021
  
Forward foreign currency exchange contracts
  
$
(41,000
)
  
$
(2,171,000
)
  
$
(739,000
)
  
$
(2,433,000
)

The fair value of the forward foreign currency exchange contracts of $374,000 and $1,113,000 is included in prepaid expenses and other current assets in the condensed consolidated balance sheets at September 30, 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 six months ended September 30, 2022 and 2021.

17
14. Fair Value Measurements

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

   
September 30, 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
  
$
1,989,000
    
$
1,989,000
    
$
-
    
$
-
    
$
2,202,000
    
$
2,202,000
    
$
-
    
$
-
  
Prepaid expenses and other current assets
                                                                
   Forward foreign currency exchange contracts
    
374,000
      
-
      
374,000
      
-
      
1,113,000
      
-
      
1,113,000
      
-
  
                                                                 
Liabilities
                                                                
Other current liabilities
                                                                
Deferred compensation
    
1,989,000
      
1,989,000
      
-
      
-
      
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 six months ended September 30, 2022 and 2021, no options to purchase shares of the Company’s common stock were granted. 

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
    
(309,191
)
  
$
6.59
  
Forfeited/Cancelled
    
(92,712
)
  
$
18.70
  
Expired
     (3,000 )   $ 9.85  
Outstanding at September 30, 2022
    
1,290,596
    
$
20.08
  

At September 30, 2022, options to purchase 105,713 shares of common stock were unvested at a weighted average exercise price of $15.17.

At September 30, 2022, there was $480,000 of total unrecognized compensation expense related to unvested stock option awards, which will be recognized over the weighted average remaining vesting period of approximately nine months.

18
Restricted Stock Units and Restricted Stock Awards (collectively “RSUs”)

During the six months ended September 30, 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) 176,353 and 118,928 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
    
276,353
    
$
13.14
  
Vested
    
(174,781
)
  
$
20.51
  
Forfeited/Cancelled
    
(51,652
)
  
$
20.18
  
Outstanding at September 30, 2022
    
448,983
    
$
15.54
  

At September 30, 2022, there was $4,463,000 of unrecognized compensation expense related to RSUs, which will be recognized over the weighted average remaining vesting period of approximately 2.0 years.The Company’s unrecognized compensation expense includes restricted stock awards at target performance level.

Performance Stock Units (“PSUs”)

During the six months ended September 30, 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.

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.

19
The following table summarizes the assumptions used in determining the fair value of the TSR awards:


  
Six Months Ended
September 30,
  
 
  
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
    
(4,808
)
  
$
23.19
  
Outstanding at September 30, 2022
    
205,813
    
$
17.57
  

At September 30, 2022, there was $2,656,000 of unrecognized compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 2.3 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.

The following summarizes the changes in the warranty return accrual:

 
  
Three Months Ended
September 30,
    
Six Months Ended
September 30,
  
 
  
2022
    
2021
    
2022
    
2021
  
Balance at beginning of period
  
$
17,868,000
    
$
20,010,000
    
$
20,125,000
    
$
21,093,000
  
Charged to expense
    
33,895,000
      
30,837,000
      
64,815,000
      
58,098,000
  
Amounts processed
    
(33,302,000
)
    
(29,972,000
)
    
(66,479,000
)
    
(58,316,000
)
Balance at end of period
  
$
18,461,000
    
$
20,875,000
    
$
18,461,000
    
$
20,875,000
  

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.

20

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 six months ended September 30, 2022, the Company did not repurchase any shares of its common stock. As of September 30, 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 September 30, 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.

21
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: (i) brake calipers in August 2019; (ii) alternators and starters for heavy-duty truck, industrial, marine, and agriculture applications, through an acquisition in January 2019; (iii) brake power boosters in August 2016; and (iv) turbochargers through an acquisition in July 2016. In addition, our test solutions and diagnostic equipment include: (a) the design and manufacture of test solutions and diagnostic equipment for alternators, starters, belt-start generators (stop start and hybrid technology), and electric power trains for electric vehicles through an acquisition in July 2017 and (b) the design and manufacture of advanced power emulators (AC and DC) and custom power electronic products for the automotive and aerospace industries through an acquisition in December 2018.

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 Novel Coronavirus (“COVID-19”)

The COVID-19 pandemic has spread globally and created significant volatility, uncertainty and economic disruption in many countries, including the countries in which we operate. National, state and local governments in these countries continue to implement a variety of measures in response that have the effect of restricting or limiting, among other activities, the operations of certain businesses.

22
We continue to experience disruptions with worldwide supply chain and logistics services. We are unable to predict accurately the ultimate long-term impact that COVID-19 will have on our business and financial condition. While the near-term outlook appears positive, any additional government shutdowns or the emergence and spread of new variants of the virus, the likelihood of a resurgence of positive cases, the development, availability and public acceptance of effective treatments and vaccines, the speed at which such vaccines are administered, the efficacy of current vaccines against evolving strains or variants of the virus, could negatively impact our business and financial condition.

There have been no serious outbreaks in any of our production facilities; however, a serious outbreak could affect our production capabilities. We continue to incur costs as a result of COVID-19, including employee costs and other operating costs associated with the provision of personal protective equipment, which have negatively impacted our profitability. These expanded benefits, supply costs and other COVID-19 related costs resulted in total expense, included in cost of goods sold and operating expenses in the condensed consolidated statements of operations, of $762,000 and $955,000 during the three months ended September 30, 2022 and 2021, respectively, and $1,477,000 and $1,809,000 during the six months ended September 30, 2022 and 2021, respectively.

Results of Operations for the Three Months Ended September 30, 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
September 30,
  
   
2022
    
2021
  
Cash flow used in operations
  
$
(15,972,000
)
  
$
(19,600,000
)
Finished goods turnover (annualized) (1)
    
3.3
      
4.8
  


(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 September 30, 2022 was impacted by our investment in inventory to address disruptions related to the worldwide 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
September 30,
  
   
2022
    
2021
  
Net sales
  
$
172,543,000
    
$
175,548,000
  
Cost of goods sold
    
146,027,000
      
139,597,000
  
Gross profit
    
26,516,000
      
35,951,000
  
Gross profit percentage
    
15.4
%
    
20.5
%

23
Net Sales. Our net sales for the three months ended September 30, 2022 were $172,543,000, which represents a decrease of $3,005,000, or 1.7%, from the three months ended September 30, 2021 of $175,548,000, which was positively impacted by $13,740,000 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 $10,735,000, or 6.6%, for the three months ended September 30, 2022, reflecting increasing contributions from our growing brake-related product lines. Sales were negatively impacted in both periods by disruptions with worldwide supply chain and logistics services. In addition, our net sales were further impacted by a certain customer’s inventory reduction initiatives, which is expected to reverse in the second half of fiscal 2023.

Gross Profit. Our gross profit was $26,516,000 for the three months ended September 30, 2022 compared with $35,951,000 for the three months ended September 30, 2021. Our gross margin was 15.4% of net sales for the three months ended September 30, 2022 compared with 20.5% of net sales for the three months ended September 30, 2021. Our gross margin for the three months ended September 30, 2022 reflects (i) higher inflationary costs— including disruptions with worldwide supply chain, logistics services, related higher freight costs, higher wages, (ii) impact for the prior period ended September 30, 2021 in core revenue due to a realignment of inventory at certain customer distribution centers, (iii) changes in product mix, and (iv) severe supply chain shortages of critical components for our diagnostic and heavy duty products. Gross margin is expected to benefit from certain price increases that went into effect at the end of the current fiscal quarter.

Our gross margin was impacted for the three months ended September 30, 2022 and 2021 by higher freight costs, net of certain price increases, of approximately $1,541,000, and $3,085,000, respectively. For the three months ended September 30, 2022 and 2021, we incurred transitory additional expenses of $2,113,000 and $2,367,000, respectively, primarily due to certain costs for disruptions in the supply chain.

Our gross margin for the three months ended September 30, 2022 and 2021 was also impacted by amortization of core and finished goods premiums paid to customers related to new business of $3,064,000 and $3,190,000, respectively. Gross margin for the three months ended September 30, 2021 was further impacted by transition expenses in connection with the expansion of our brake-related operations in Mexico of $797,000.

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 $1,269,000 for the three months ended September 30, 2022. For the three months ended September 30, 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 $3,175,000.

Operating Expenses

The following summarizes operating expenses:

   
Three Months Ended
September 30,
  
   
2022
    
2021
  
General and administrative
  
$
14,846,000
    
$
14,465,000
  
Sales and marketing
    
6,066,000
      
5,520,000
  
Research and development
    
2,670,000
      
2,495,000
  
Foreign exchange impact of lease liabilities and forward contracts
    
1,082,000
      
3,917,000
  
                 
Percent of net sales
                
                 
General and administrative
    
8.6
%
    
8.2
%
Sales and marketing
    
3.5
%
    
3.1
%
Research and development
    
1.5
%
    
1.4
%
Foreign exchange impact of lease liabilities and forward contracts
    
0.6
%
    
2.2
%

24
General and Administrative. Our general and administrative expenses for the three months ended September 30, 2022 were $14,846,000, which represents an increase of $381,000, or 2.6%, from the three months ended September 30, 2021 of $14,465,000. This increase was primarily due to (i) $907,000 of increased expense resulting from foreign currency transactions, (ii) $225,000 of increased expense at our offshore locations, (iii) $157,000 of increased information technology costs in connection with cybersecurity and other productivity tools, (iv) $128,000 of increased professional services, and (v) $75,000 of increased travel costs as some business travel resumed. These increases were partially offset by $600,000 of decreased share-based compensation in connection with equity grants made to employees and $496,000 of decreased employee-related expenses due to our cost-cutting measures.

Sales and Marketing. Our sales and marketing expenses for the three months ended September 30, 2022 were $6,066,000, which represents an increase of $546,000, or 9.9%, from the three months ended September 30, 2021 of $5,520,000. This increase was primarily due to (i) $181,000 of increased commissions due to higher sales, (ii) $168,000 of increased expense for trade shows, (iii) $152,000 of increased employee-related expenses, and (iv) $149,000 of increased travel costs as some business travel resumed. These increases were partially offset by $61,000 of lower marketing and advertising expenses compared with the prior year.

Research and Development. Our research and development expenses for the three months ended September 30, 2022 were $2,670,000, which represents an increase of $175,000, or 7.0%, from the three months ended September 30, 2021 of $2,495,000. This increase was primarily due to (i) $82,000 of increased samples for our core library and other research and development supplies, (ii) $49,000 of increased outside services primarily due to development projects, and (iii) $43,000 of increased employee-related expenses, primarily due to our electric vehicle testing system initiatives.

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts for the three months ended September 30, 2022 was a non-cash loss of $1,082,000 compared with $3,917,000 for the three months ended September 30, 2021. This change was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities which resulted in non-cash losses of $1,041,000 and $1,746,000 for the three months ended September 30, 2022 and 2021, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts which resulted in non-cash losses of $41,000 compared with $2,171,000 for the three months ended September 30, 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 September 30, 2022 was $9,283,000, which represents an increase of $5,663,000, or 156.4%, from interest expense for the three months ended September 30, 2021 of $3,620,000. Of this increase in interest expense, approximately 93% resulted from higher interest rates. Our borrowing and receivable discount programs have interest costs that vary with interest rate movements. During the three months ended September 30, 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 income tax benefit of $914,000, or an effective tax rate of 12.3%, and income tax expense of $2,251,000, or an effective tax rate of 37.9%, for the three months ended September 30, 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 September 30, 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).

25
Results of Operations for the Six Months Ended September 30, 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:

   
Six Months Ended
September 30,
  
   
2022
    
2021
  
Cash flow used in operations
  
$
(16,954,000
)
  
$
(24,339,000
)
Finished goods turnover (annualized) (1)
    
3.3
      
4.6
  


(1)
Annualized finished goods turnover for the fiscal period is calculated by multiplying cost of goods sold for the period by 2 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 six months ended September 30, 2022 was impacted by our investment in inventory to address disruptions related to the worldwide supply chain and logistics challenges to meet higher anticipated future sales.

Net Sales and Gross Profit

The following summarizes net sales and gross profit:

   
Six Months Ended
September 30,
  
   
2022
    
2021
  
Net sales
  
$
336,528,000
    
$
324,582,000
  
Cost of goods sold
    
279,710,000
      
265,060,000
  
Gross profit
    
56,818,000
      
59,522,000
  
Gross profit percentage
    
16.9
%
    
18.3
%

Net Sales. Our net sales for the six months ended September 30, 2022 were $336,528,000, which represents an increase of $11,946,000, or 3.7%, from the six months ended September 30, 2021 of $324,582,000, which was positively impacted by $13,740,000 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 $25,686,000, or 8.3%, for the six months ended September 30, 2022, reflecting increasing contributions from our growing brake-related product lines. Sales were negatively impacted in both periods by disruptions with worldwide supply chain and logistics services. In addition, our net sales were further impacted by a certain customer’s inventory reduction initiatives, which is expected to reverse in the second half of fiscal 2023.

Gross Profit. Our gross profit was $56,818,000 for the six months ended September 30, 2022 compared with $59,522,000 for the six months ended September 30, 2021.  Our gross margin was 16.9% of net sales for the six months ended September 30, 2022 compared with 18.3% of net sales for the six months ended September 30, 2021.
Our gross margin for the six months ended September 30, 2022 reflects (i) higher inflationary costs— including disruptions with worldwide supply chain, logistics services, related higher freight costs, higher wages, (ii) impact for the for the prior period ended September 30, 2021 in core revenue due to a realignment of inventory at certain customer distribution centers, (iii) changes in product mix, and (iv) severe supply chain shortages of critical components for our diagnostic and heavy duty products. Gross margin is expected to benefit from certain price increases that went into effect at the end of the current fiscal quarter.

Our gross margin was impacted for the six months ended September 30, 2022 and 2021 by higher freight costs, net of certain price increases, of approximately $3,290,000, and $6,075,000, respectively. For the six months ended September 30, 2022 and 2021, we incurred transitory additional expenses of $2,912,000 and $4,138,000, respectively, primarily due to certain costs for disruptions in the supply chain.

26
Our gross margin for the six months ended September 30, 2022 and 2021 was also impacted by amortization of core and finished goods premiums paid to customers related to new business of $6,108,000 and $5,867,000, respectively. Gross margin for the six months ended September 30, 2021 was further impacted by transition expenses in connection with the expansion of our brake-related operations in Mexico of $2,744,000.

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 $1,841,000 for the six months ended September 30, 2022. For the six months ended September 30, 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 $2,191,000.

Operating Expenses

The following summarizes operating expenses:

   
Six Months Ended
September 30,
  
   
2022
    
2021
  
             
General and administrative
  
$
28,480,000
    
$
26,951,000
  
Sales and marketing
    
11,608,000
      
10,888,000
  
Research and development
    
5,783,000
      
4,996,000
  
Foreign exchange impact of lease liabilities and forward contracts
    
1,760,000
      
1,384,000
  
                 
Percent of net sales
                
                 
General and administrative
    
8.5
%
    
8.3
%
Sales and marketing
    
3.4
%
    
3.4
%
Research and development
    
1.7
%
    
1.5
%
Foreign exchange impact of lease liabilities and forward contracts
    
0.5
%
    
0.4
%

General and Administrative. Our general and administrative expenses for the six months ended September 30, 2022 were $28,480,000, which represents an increase of $1,529,000, or 5.7%, from the six months ended September 30, 2021 of $26,951,000. This increase was primarily due to (i) $1,727,000 of increased expense resulting from foreign currency transactions, (ii) $430,000 of increased professional services, (iii) $319,000 of increased information technology costs in connection with cybersecurity and other productivity tools, (iv) $155,000 of increased travel costs as some business travel resumed, and (v) $88,000 of increased expense at our offshore locations. These increases were partially offset by $927,000 of decreased share-based compensation in connection with equity grants made to employees and $395,000 of decreased employee-related expenses due to our cost-cutting measures.

Sales and Marketing. Our sales and marketing expenses for the six months ended September 30, 2022 were $11,608,000, which represents an increase of $720,000, or 6.6%, from the six months ended September 30, 2021 of $10,888,000. This increase was primarily due to (i) $418,000 of increased commissions due to higher sales, (ii) $267,000 of increased travel costs as some business travel resumed, (iii) $170,000 of increased employee-related expenses, and (iv) $159,000 of increased expense for trade shows. These increases were partially offset by $267,000 of lower marketing and advertising expenses compared with the prior year.

Research and Development. Our research and development expenses for the six months ended September 30, 2022 were $5,783,000, which represents an increase of $787,000, or 15.8%, from the six months ended September 30, 2021 of $4,996,000. This increase was primarily due to (i) $419,000 of increased employee-related expenses, primarily due to our electric vehicle testing system initiatives, (ii) $206,000 of increased samples for our core library and other research and development supplies, and (iii) $130,000 of increased outside services primarily due to development projects.

27
Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts for the six months ended September 30, 2022 was a non-cash loss of $1,760,000 compared with $1,384,000 for the six months ended September 30, 2021. This change was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities which resulted in a non-cash loss of $1,021,000 compared with a non-cash gain of $1,049,000 for the six months ended September 30, 2022 and 2021, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts which resulted in non-cash losses of $739,000 compared with $2,433,000 for the six months ended September 30, 2022 and 2021, respectively, due to the changes in their fair values.

Interest Expense

Interest Expense, net. Our interest expense for the six months ended September 30, 2022 was $16,204,000, which represents an increase of $8,643,000, or 114.3%, from interest expense for the six months ended September 30, 2021 of $7,561,000. Of this increase in interest expense, approximately 95% resulted from higher interest rates. Our borrowing and receivable discount programs have interest costs that vary with interest rate movements. During the six months ended September 30, 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 $325,000, or an effective tax rate of 4.6%, and income tax expense of $3,198,000, or an effective tax rate of 41.3%, for the six months ended September 30, 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 six months ended September 30, 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 $114,525,000 and $110,580,000, a ratio of current assets to current liabilities of 1.3:1.0, at September 30, 2022 and March 31, 2022, respectively. The increase in working capital reflects our investment in inventory to address disruptions related to the worldwide supply chain and logistics challenges to meet higher anticipated sales.

We generated cash during the six months ended September 30, 2022 from the use of our receivable discount programs and credit facility. 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.

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 September 30, 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 September 30, 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.

28
Cash Flows

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

   
Six Months Ended
September 30,
  
   
2022
    
2021
  
Cash flows (used in) provided by:
            
Operating activities
  
$
(16,954,000
)
  
$
(24,339,000
)
Investing activities
    
(2,817,000
)
    
(3,483,000
)
Financing activities
    
4,689,000
      
30,283,000
  
Effect of exchange rates on cash and cash equivalents
    
(323,000
)
    
(73,000
)
                 
Net (decrease) increase in cash and cash equivalents
  
$
(15,405,000
)
  
$
2,388,000
  
                 
                 
Additional selected cash flow data:
                
Depreciation and amortization
  
$
6,214,000
    
$
6,364,000
  
Capital expenditures
    
2,644,000
      
3,238,000
  

Net cash used in operating activities was $16,954,000 and $24,339,000 during the six months ended September 30, 2022 and 2021, respectively. The reduction in cash used in operations was due primarily to lower inventory purchases during the six months ended September 30, 2022 as compared with the prior year. In addition, cash used in operating activities was positively impacted by the timing of supplier payments. We continue to manage our working capital to maximize our operating cash flow.

Net cash used in investing activities was $2,817,000 and $3,483,000 during the six months ended September 30, 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 $4,689,000 and $30,283,000 during the six months ended September 30, 2022 and 2021, respectively. The change in our financing activities resulted from lower borrowing and higher repayments under our credit facility during the six months ended September 30, 2022. In addition, we paid $1,102,000 for debt issuance costs in connection with the third amendment to the credit facility in the prior year.

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 LIBOR 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 5.32% and 5.62% respectively, at September 30, 2022, and 2.99% and 3.13% respectively, at March 31, 2022.

29
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 senior 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.

The Credit Facility, among other things, requires us to maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all financial covenants as of September 30, 2022, as amended by the Fourth Amendment.

The following summarizes the financial covenants required under the Credit Facility, as amended by the Fourth Amendment:

   
Financial covenants
required under the
Credit Facility, as
Amended by the Fourth
Amendment
    
Calculation as of
September 30, 2022
  
Maximum senior leverage ratio
    
3.25
      
3.19
  
Minimum fixed charge coverage ratio
    
1.01
      
1.04
  

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

We had $163,000,000 and $155,000,000 outstanding under the Revolving Facility at September 30, 2022 and March 31, 2022, respectively. In addition, $6,370,000 was outstanding for letters of credit at September 30, 2022. At September 30, 2022, after certain contractual adjustments, $69,250,000 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.

The following is a summary of the receivable discount programs:

     
Six Months Ended
September 30,
   
   
2022
    
2021
  
Receivables discounted
  
$
283,359,000
    
$
268,410,000
  
Weighted average number of days collection was accelerated
    
327
      
333
  
Annualized weighted average discount rate
    
4.4
%
    
1.8
%
Amount of discount recognized as interest expense
  
$
11,293,000
    
$
4,432,000
  

30
Capital Expenditures and Commitments

Capital Expenditures

Our total capital expenditures, including finance leases and non-cash capital expenditures were $2,782,000 and $2,829,000 for the six months ended September 30, 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 $6,200,000 of capital expenditures primarily to support our current operations and our growth initiates, including purchases of equipment during fiscal 2023. We fund these expenditures primarily from our working capital and leasing.

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.
 
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 September 30, 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:
 
31
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 September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

32
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 September 30, 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)
  
                         
July 1 - July 31, 2022:
                        
Open market and privately negotiated purchases
    
-
    
$
-
      
-
    
$
18,255,000
  
August 1 - August 31, 2022:
                                
Open market and privately negotiated purchases
    
-
    
$
-
      
-
      
18,255,000
  
September 1 - September 30, 2022:
                                
Open market and privately negotiated purchases
    
-
    
$
-
      
-
      
18,255,000
  
                                 
Total
    
0
              
0
    
$
18,255,000
  


(1)
As of September 30, 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 September 30, 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 5.
Other Information

None.

33
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
  
         
3.4
  
Amendment to Certificate of Incorporation of the Company
  
         
3.5
  
Amendment to Certificate of Incorporation of the Company
  
         
3.6
  
Amended and Restated By-Laws of Motorcar Parts of America, Inc.
  
         
3.7
  
Certificate of Amendment of the Certificate of Incorporation of the Company
  
         
3.8
  
Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on June 9, 2016
  
         
3.9
  
Amendment to the Amended and Restated By-Laws of the Company
  
         
3.10
  
Third Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on January 26, 2022
  
         
4.1
  
Description of the  Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
  
         
4.2
  
2004 Non-Employee Director Stock Option Plan
  
         
4.3
  
2010 Incentive Award Plan
  
         
4.4
  
Amended and Restated 2010 Incentive Award Plan
  

34
Number          
  
Description of Exhibit          
  
Method of Filing
4.5
  
Second Amended and Restated 2010 Incentive Award Plan
  
         
4.6
  
2014 Non-Employee Director Incentive Award Plan
  
         
4.7
  
Third Amended and Restated 2010 Incentive Award Plan
  
         
4.8
  
Fourth Amended and Restated 2010 Incentive Award Plan
  
         
4.9
  
2022 Incentive Award Plan
  
         
 
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
  
Filed herewith
         
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
  
Filed herewith.
         
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
  
Filed herewith.
         
 
Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
  
Filed herewith.
         
 
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.
         
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)
    

35
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: November 9, 2022
By:
/s/ David Lee


David Lee


Chief Financial Officer



Dated: November 9, 2022
By:
/s/ Kamlesh Shah


Kamlesh Shah


Chief Accounting Officer


36
Exhibit 10.1
 
FOURTH AMENDMENT TO AMENDED AND RESTATED
 
LOAN AGREEMENT
 
This FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT, dated as of November 3, 2022 (this “Fourth Amendment”) to that certain Amended and Restated Revolving Credit, Term Loan and Security Agreement, dated as of June 5, 2018 (as amended, restated, amended and restated, refinanced, replaced, supplemented, modified or otherwise changed from time to time, the “Loan Agreement”), by and among Motorcar Parts of America, Inc., a corporation organized under the laws of the State of New York (“MPA”, and together with each Person organized under the laws of a State of the United States joined thereto as a borrower from time to time (other than Dixie US), collectively, the “US Borrowers”, and each, a “US Borrower”), D & V Electronics Ltd., a corporation amalgamated and existing under the laws of the Province of British Columbia (“D&V”), Dixie Electric Ltd., a corporation amalgamated under the laws of Ontario (“Dixie Canada”), Dixie Electric Inc., a Delaware corporation (“Dixie US” and together with D&V, Dixie Canada and each Person organized under the laws of Canada joined thereto as a borrower from time to time, collectively, the “Canadian Borrowers”, and each, a “Canadian Borrower”; the Canadian Borrowers and the US Borrowers are referred to therein each as a “Borrower” and collectively as “Borrowers”), each Person joined thereto as a guarantor from time to time, the financial institutions which are now or which thereafter become a party thereto (collectively, the “Lenders” and each individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as agent for the Lenders (in such capacity, the “Agent”).
 
WHEREAS, Borrowers, Agent and the Lenders wish to amend certain terms and provisions of the Loan Agreement as hereafter set forth.
 
NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto hereby agree as follows:
 
1.           Defined Terms.  Any capitalized term used herein and not defined shall have the meaning assigned to it in the Loan Agreement.
 
2.           Agreement With Respect To Existing LIBOR Rate Loans. From and after the Fourth Amendment Effective Date (as defined herein), (a) no Advance shall be available, requested or made as a LIBOR Rate Loan (as defined in the Loan Agreement prior to giving effect to this Amendment, the “Existing Loan Agreement”), and (b) any request for an Advance as, conversion of an existing Advance to, or continuation of an existing LIBOR Rate Loan as, a LIBOR Rate Loan shall be ineffective; provided that notwithstanding the provisions of the Loan Agreement, the Existing Loan Agreement shall continue to apply to any LIBOR Rate Loan outstanding prior to the Fourth Amendment Effective Date (such LIBOR Rate Loans, the “Existing LIBOR Rate Loans”) solely with respect to “LIBOR Provisions” (as defined below) of the Existing Loan Agreement. Each Existing LIBOR Rate Loan shall be permitted to be maintained as a LIBOR Rate Loan through the last day of the Interest Period (as defined in the Existing Loan Agreement) applicable thereto on the Fourth Amendment Effective Date and upon the expiration such Interest Period (as defined in the Existing Loan Agreement), such Existing LIBOR Rate Loan shall be required to be converted to a Term SOFR Rate Loan or a Domestic Rate Loan in accordance with the Loan Agreement. For purposes of this Section 2, “LIBOR Provisions” means, the definitions of “Alternate Base Rate”, “Alternate Source”; “Business Day”, “Daily LIBOR Rate”, “Floor”, “Interest Period”, “LIBOR Alternate Source”, “LIBOR Rate”; “LIBOR Rate Loan”; “Published Rate”, “Reserve Percentage” and “USD LIBOR” contained in the Existing Loan Agreement, and Sections 2.2 (Procedures for Requesting Revolving Advances; Procedures for Selection of Applicable Interest Rates for All Advances), 3.7 (Increased Costs), 3.8 (Basis For Determining Interest Rate Inadequate or Unfair), 3.9 (Capital Adequacy), 3.10 (Taxes), 3.11 (Replacement of Lenders) and 5.1 (Authority) of the Existing Loan Agreement.
 
3.           Amendments.
 
(a)          Section 1.2 of the Loan Agreement is hereby amended by inserting the following new defined terms in appropriate alphabetical order:
 
“Benchmark Replacement Adjustment” shall mean, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustments, (which may be a positive or negative value or zero) that has been selected by the Agent and the Borrowers giving due consideration to (A) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (B) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated syndicated credit facilities at such time.
 
“Conforming Changes” shall mean, with respect to the Term SOFR Rate or any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Alternate Base Rate,” the definition of “Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Agent decides may be appropriate to reflect the adoption and implementation of the Term SOFR Rate or such Benchmark Replacement and to permit the administration thereof by the Agent in a manner substantially consistent with market practice (or, if the Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Agent determines that no market practice for the administration of the Term SOFR Rate or the Benchmark Replacement exists, in such other manner of administration as the Agent decides is reasonably necessary in connection with the administration of this Agreement and the Other Documents).
 
“Fourth Amendment” shall mean that certain Fourth Amendment to Amended and Restated Loan Agreement dated as of November 3, 2022, by and among Borrowers, Agent and the Lenders party thereto.
 
“Fourth Amendment Effective Date” shall mean the date on which the conditions precedent to the effectiveness of the Fourth Amendment are fulfilled or waived.
 
“Fourth Amendment Fee Letter” shall mean the fee letter dated November 3, 2022 between Agent and Borrowing Agent.
 
“Overnight Bank Funding Rate” shall mean, for any day, the rate per annum (based on a year of 360 days and actual days elapsed) comprised of both overnight federal funds and overnight Eurocurrency borrowings by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the Federal Reserve Bank of New York, as set forth on its public website from time to time, and as published on the next succeeding Business Day as the overnight bank funding rate by such Federal Reserve Bank (or by such other recognized electronic source (such as the Bloomberg Index Services Limited) selected by the Agent for the purpose of displaying such rate); provided, that if such day is not a Business Day, the Overnight Bank Funding Rate for such day shall be such rate on the immediately preceding Business Day; provided, further, that if such rate shall at any time, for any reason, no longer exist, a comparable replacement rate determined by the Agent at such time (which determination shall be conclusive absent manifest error). If the Overnight Bank Funding Rate determined as above would be less than zero, then such rate shall be deemed to be zero. The rate of interest charged shall be adjusted as of each Business Day based on changes in the Overnight Bank Funding Rate without notice to the Borrowers.
 
“Term SOFR Administrator” shall mean CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Agent in its reasonable discretion).
 
“Term SOFR Rate” shall mean, with respect to any Term SOFR Rate Loan for any Interest Period, the interest rate per annum determined by the Agent by dividing (the resulting quotient rounded upwards, at the Agent’s discretion, to the nearest 1/100th of 1%) (A) the Term SOFR Reference Rate for a tenor comparable to such Interest Period on the day (the “Term SOFR Determination Date”) that is two (2) Business Days prior to the first day of such Interest Period, as such rate is published by the Term SOFR Administrator, by (B) a number equal to 1.00 minus the SOFR Reserve Percentage.  If the Term SOFR Reference Rate for the applicable tenor has not been published or replaced with a Benchmark Replacement by 5:00 p.m. (Pittsburgh, Pennsylvania time) on the Term SOFR Determination Date, then the Term SOFR Reference Rate, for purposes of clause (A) in the preceding sentence, shall be the Term SOFR Reference Rate for such tenor on the first Business Day preceding such Term SOFR Determination Date for which such Term SOFR Reference Rate for such tenor was published in accordance herewith, so long as such first preceding Business Day is not more than three (3) Business Days prior to such Term SOFR Determination Date.  If the Term SOFR Rate, determined as provided above, would be less than the SOFR Floor, then the Term SOFR Rate shall be deemed to be the SOFR Floor.  The Term SOFR Rate shall be adjusted automatically without notice to the Borrower on and as of (i) the first day of each Interest Period, and (ii) the effective date of any change in the SOFR Reserve Percentage.
 
“Term SOFR Rate Loan” shall mean an Advance that bears interest based on Term SOFR Rate.
 
“Term SOFR Reference Rate” shall mean the forward-looking term rate based on SOFR.
 
“U.S. Government Securities Business Day” shall mean any day except for (a) a Saturday or Sunday or (b) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
 
(b)          Section 1.2 of the Loan Agreement is hereby further amended by amending and restating the following defined terms in their entirety:
 
“Alternate Base Rate” shall mean, for any day, a rate per annum equal to the highest of (a) the Base Rate in effect on such day, (b) the sum of the Overnight Bank Funding Rate in effect on such day plus one half of one percent (0.5%), and (c) the sum of Daily Simple SOFR in effect on such day plus one percent (1.0%), so long as Daily Simple SOFR is offered, ascertainable and not unlawful; provided, however, that if the Alternate Base Rate as determined above would be less than zero, then such rate shall be deemed to be zero. Any change in the Alternate Base Rate (or any component thereof) shall take effect at the opening of business on the day such change occurs.
 
“Anti-Terrorism Law” shall mean any Law in force or hereinafter enacted related to terrorism, money laundering, or economic sanctions, including the Bank Secrecy Act, 31 U.S.C. § 5311 et seq., the USA PATRIOT Act, the International Emergency Economic Powers Act, 50 U.S.C. 1701, et. seq., the Trading with the Enemy Act, 50 U.S.C. App. 1, et seq., 18 U.S.C. § 2332d, and 18 U.S.C. § 2339b, and any regulations or directives promulgated under these provisions.
 
“Available Tenor” shall mean, as of any date of determination and with respect to the then-current Benchmark, as applicable, (x) if such Benchmark is a term rate or is based on a term rate, any tenor for such Benchmark (or component thereof) that is or may be used for determining the length of an interest period pursuant to this Agreement or (y) otherwise, any payment period for interest calculated with reference to such Benchmark (or a component thereof) that is or may be used for determining any frequency of making payments of interest calculated with reference to such Benchmark pursuant to this Agreement, in each case, as of such date and not including, for the avoidance of doubt, any tenor of such Benchmark that is then-removed from the definition of “Interest Period” pursuant to Section 3.8.2(d).
 
“Benchmark” shall mean, initially, the Term SOFR Rate; provided that if a Benchmark Transition Event has occurred with respect to the Term SOFR Rate or the then-current Benchmark, then “Benchmark” shall mean the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior Benchmark pursuant to Section 3.8.2.
 
“Benchmark Replacement” shall mean, with respect to any Benchmark Transition Event, the first alternative set forth in the order below that can be determined by the Agent for the applicable Benchmark Replacement Date:
 

 (1)
the sum of: (A) Daily Simple SOFR and (B) the SOFR Adjustment;
 

 (2)
the sum of: (A) the alternate benchmark rate that has been selected by the Agent and the Borrowers, giving due consideration to (x) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (y) any evolving or then-prevailing market convention, for determining a benchmark rate as a replacement to the then-current benchmark for U.S. dollar-denominated syndicated credit facilities at such time and (B) the related Benchmark Replacement Adjustment;
 
provided that, if the Benchmark Replacement as determined pursuant to clause (2) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the Other Documents; provided further that any Benchmark Replacement shall be administratively feasible as determined by the Agent in its sole discretion.
 
“Benchmark Replacement Adjustment” shall mean, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustments, (which may be a positive or negative value or zero) that has been selected by the Agent and the Borrowers giving due consideration to (A) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (B) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated syndicated credit facilities at such time.
 
“Benchmark Replacement Date” shall mean a date and time determined by the Agent, which date shall be no later than the earliest to occur of the following events with respect to the then-current Benchmark:
 

 (1)
in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (A) the date of the public statement or publication of information referenced therein and (B) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or
 

 (2)
in the case of clause (3) of the definition of “Benchmark Transition Event,” the date determined by the Agent, which date shall promptly follow the date of the public statement or publication of information referenced therein.
 
For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
 
“Benchmark Transition Event” shall mean the occurrence of one or more of the following events with respect to the then-current Benchmark:
 

 (1)
a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
 

 (2)
a public statement or publication of information by a Governmental Body having jurisdiction over the Agent, the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
 

 (3)
a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) or a Governmental Body having jurisdiction over the Agent announcing that all Available Tenors of such Benchmark (or such component thereof) are not, or as of a specified future date will not be, representative.
 
For avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
 
“Benchmark Unavailability Period” shall mean, so long as a Benchmark Transition Event has occurred, the period (if any) (x) beginning at the time that a Benchmark Replacement Date pursuant to clauses (1) or (2) of that definition has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Other Document in accordance with Section 3.8.2 and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Other Document in accordance with Section 3.8.2.
 
“Business Day” shall mean any day other than Saturday or Sunday or a legal holiday on which commercial banks are authorized or required by Law to be closed for business in East Brunswick, New Jersey; provided that, when used in connection with an amount that bears interest at a rate based on SOFR or any direct or indirect calculation or determination of SOFR, the term “Business Day” shall mean any such day that is also a U.S. Government Securities Business Day.
 
“Consolidated EBITDA” shall mean, with respect to any Person for any period, (a) the Consolidated Net Income of such Person and its Subsidiaries for such period, plus (b) without duplication, the sum of the following amounts of such Person and its Subsidiaries for such period and to the extent deducted in determining Consolidated Net Income of such Person for such period: (i) Consolidated Net Interest Expense, (ii) income tax expense, (iii) depreciation expense, (iv) amortization expense, (v) severance charges in an aggregate amount not to exceed (A) $1,000,000 for the fiscal year of Borrowers ending on March 31, 2021, (B) $500,000 for the fiscal year of Borrowers ending on March 31, 2022, (C) $700,000 for the fiscal year of Borrowers ending on March 31, 2023, and (D) $100,000 for any fiscal year of Borrowers thereafter, (vi) any non-cash expenses incurred in connection with stock options and other equity-based compensation, (vii) non-cash charges reducing Consolidated Net Income (excluding any non-cash charge that results in an accrual of a reserve for cash charges in any future period) for such period, (viii) standard inventory revaluation write-downs and write-ups; provided, that, commencing with the fiscal quarter ending June 30, 2019, such amounts which may be added back pursuant to this clause (viii) with respect to Eligible Inventory which are not subject to a Repurchase Contract or which are at an MPA location shall be an aggregate amount not to exceed $1,000,000 for each fiscal quarter (any portion of such amount not fully used in any given fiscal quarter may be rolled over to a subsequent fiscal quarter during any four quarter period); provided, further, that, commencing with the fiscal quarter ending March 31, 2020, in no event shall the aggregate amount which may be added back pursuant this proviso to this clause (viii) exceed $4,000,000 for any trailing four quarter period, (ix) non-cash losses on Hedging Agreements, (x) any expenses incurred in connection with stock offerings, (xi) the amount of all costs, fees and expenses incurred in connection with the Transactions, (xii) costs and expenses incurred as a result of any step up accounting adjustments, (xiii) all transactional costs, expenses and charges payable in connection with, any acquisition (whether or not consummated) in an amount not to exceed $700,000 for any fiscal year of Borrowers, (xiv) total of Premium To Inventory Purchases and amortization of Core Premium Asset in an aggregate amount not to exceed (I) $30,000,000 during the period April 1, 2018 through June 30,2021, and (II) $30,000,000 during the term of this Agreement for all periods starting on or after July 1, 2021, (xv) non-capitalized transaction expenses related to the Mexico Business Expansion in an aggregate amount not to exceed $32,000,000 for any periods ending on or prior to September 30, 2021, (xvi) specified investments in Customers which are expensed during such period; provided, however, that commencing April 1, 2018 the aggregate amount of such expense which may be added back pursuant to this clause (xvi) shall not exceed $10,855,000 during the term of this Agreement, (xvii) [reserved] and (xviii) for the period commencing on April 1, 2020 and ending on March 31, 2022, costs and expenses incurred as a result of increased operating costs in connection with the COVID-19 pandemic; provided, that, the aggregate amount which may be added back pursuant to this subclause (xviii) for any given period shall not exceed the aggregate amount disclosed for such costs and expenses in the corresponding 10-Q or 10-K filing (as applicable) for MPA for any such period; provided further, that, notwithstanding the preceding proviso, the aggregate amount which may be added back pursuant to this subclause (xviii) shall not exceed $13,000,000, minus (c) without duplication, the sum of the following amounts of such Person and its Subsidiaries for such period and to the extent included in determining Consolidated Net Income of such Person for such period: (i) non-cash items increasing Consolidated Net Income (other than the accrual of revenue or recording of Receivables in the Ordinary Course of Business ) for such period and (ii) non-cash gains on Hedging Agreements, plus (d) without duplication and to the extent not included in determining Consolidated Net Income of such Person for such period, Internal Revenue Service refunds not to exceed $5,103,000 in the aggregate with respect to any employee retention credits.
 
“Daily Simple SOFR” shall mean for any day (a “SOFR Rate Day”), the interest rate per annum determined by the Agent by dividing (the resulting quotient rounded upwards, at the Agent’s discretion, to the nearest 1/100th of 1%) (A) SOFR for the day (the “SOFR Determination Date”) that is two (2) Business Days prior to (i) such SOFR Rate Day if such SOFR Rate Day is a Business Day or (ii) the Business Day immediately preceding such SOFR Rate Day if such SOFR Rate Day is not a Business Day, by (B) a number equal to 1.00 minus the SOFR Reserve Percentage, in each case, as such SOFR is published by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate) on the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source identified by the Federal Reserve Bank of New York or its successor administrator for the secured overnight financing rate from time to time.  If Daily Simple SOFR as determined above would be less than the SOFR Floor, then Daily Simple SOFR shall be deemed to be the SOFR Floor.  If SOFR for any SOFR Determination Date has not been published or replaced with a Benchmark Replacement by 5:00 p.m. (Pittsburgh, Pennsylvania time) on the second Business Day immediately following such SOFR Determination Date, then SOFR for such SOFR Determination Date will be SOFR for the first Business Day preceding such SOFR Determination Date for which SOFR was published in accordance with the definition of “SOFR”; provided that SOFR determined pursuant to this sentence shall be used for purposes of calculating Daily Simple SOFR for no more than 3 consecutive SOFR Rate Days.  If and when Daily Simple SOFR as determined above changes, any applicable rate of interest based on Daily Simple SOFR will change automatically without notice to the Borrowers, effective on the date of any such change.
 
“Embargoed Property” shall mean any property (a) beneficially owned, directly or indirectly, by a Sanctioned Person; (b) that is due to or from a Sanctioned Person; (c) in which a Sanctioned Person otherwise holds any interest; (d) that is located in a Sanctioned Jurisdiction; or (e) that otherwise would cause any actual or possible violation by the Lenders or Agent of any applicable Anti-Terrorism Law if the Lenders were to obtain an encumbrance on, lien on, pledge of, or security interest in such property or provide services in consideration of such property.
 
“Floor” shall mean the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to the Term SOFR Rate or, if no floor is specified, zero.
 
“Other Documents” shall mean any Mortgage, any Note, the Perfection Certificate, the Fee Letter, the Amendment and Restatement Fee Letter, the Fourth Amendment Fee Letter, any Guaranty, any Guarantor Security Agreement, any Pledge Agreement, any Intellectual Property Security Agreement, any Lender-Provided Interest Rate Hedge, any Lender-Provided Foreign Currency Hedge, the Intercompany Subordination Agreement, the Canadian Documents and any and all other agreements, instruments, estoppel, consents, acknowledgements, postponements, certificates, waivers and documents now or hereafter executed by any Loan Party and/or delivered to Agent or any Lender including those that create or purport to create a Lien in favor of the Agent for the benefit of the Secured Parties, in each case together with all extensions, renewals, amendments, supplements, modifications, substitutions and replacements thereto and thereof.
 
“Relevant Governmental Body” shall mean the Board of Governors of the Federal Reserve System of the United States and/or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System of the United States and/or the Federal Reserve Bank of New York, or any successor thereto.
 
“Reportable Compliance Event” shall mean that (1) any Covered Entity becomes a Sanctioned Person, or is charged by indictment, criminal complaint or similar charging instrument, arraigned, custodially detained, penalized or the subject of an assessment for a penalty or enters into a settlement with an Governmental Body in connection with any sanctions or other Anti-Terrorism Law or Anti-Corruption Law, or any predicate crime to any Anti-Terrorism Law or Anti-Corruption Law, or has knowledge of facts or circumstances to the effect that it is reasonably likely that any aspect of its operations represents a violation  of any Anti-Terrorism Law or Anti-Corruption Law; (2) any Covered Entity engages in a transaction that has caused or may cause the Lenders or Agent to be in violation of any Anti-Terrorism Law, including a Covered Entity’s use of any proceeds of the credit facility to fund any operations in, finance any investments or activities in, or, make any payments to, directly or indirectly, a Sanctioned Jurisdiction or Sanctioned Person; (3) any Collateral becomes Embargoed Property; or (4) any Covered Entity otherwise violates, or reasonably believes that it will violate, any of the representations in Section 5.33 or any covenant in Section 6.22 or Section 7.21.
 
“Revolving Interest Rate” shall mean with respect to Revolving Advances (a) that are Domestic Rate Loans and Swing Loans, an interest rate per annum equal to the sum of the Applicable Margin plus the Alternate Base Rate and (b) that are Term SOFR Rate Loans, an interest rate per annum equal to the sum of the Applicable Margin plus the Term SOFR Rate plus the SOFR Adjustment.
 
“SOFR” shall mean, for any day, a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
 
“SOFR Adjustment” shall mean 10 basis points (0.10%).
 
“SOFR    Floor” shall mean the rate of interest per annum equal to zero basis points (0 %).
 
“SOFR Reserve Percentage” shall mean, for any day, the maximum effective percentage in effect on such day, if any, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to SOFR funding.
 
“Term Loan Rate” shall mean (a) with respect to the portion of the Term Loan that is comprised of Domestic Rate Loans, an interest rate per annum equal to the sum of the Applicable Margin plus the Alternate Base Rate and (b) with respect to the portion of the Term Loan that is comprised of Term SOFR Rate Loans, the sum of the Applicable Margin plus the Term SOFR Rate plus the SOFR Adjustment.
 
(c)          Section 1.2 of the Loan Agreement is hereby further amended by (x) deleting the definitions of “Corresponding Tenor”, “Early Opt-In Election”, “LIBOR Alternate Source”, “LIBOR Rate”, “LIBOR Rate Loan”, “LIBOR Termination Date”, “Published Rate”, “Reference Time”, “SOFR Administrator”, “SOFR Administrator’s Website”, “Term SOFR”, “Term SOFR Notice”, “Term SOFR Termination Event”, and “USD LIBOR”, and (y) deleting all references (1) to “LIBOR Rate”, and inserting in their place and stead references to “Term SOFR Rate”, (2) to “LIBOR Rate Loans”, and inserting in their place and stead references to “Term SOFR Rate Loans”.
 
(d)          Article I of the Loan Agreement is hereby amended by amending Section 1.7 in its entirety as follows:
 
“Section 1.7 Term SOFR Notification.  Section 3.8.2 of this Agreement provides a mechanism for determining an alternate rate of interest in the event that the Term SOFR Rate is no longer available or in certain other circumstances. Agent does not warrant or accept any responsibility for and shall not have any liability with respect to, the administration, submission or any other matter related to the Term SOFR Rate or with respect to any alternative or successor rate thereto, or replacement rate therefore.”
 
(e)          Article I of the Loan Agreement is hereby amended by adding a new Section 1.8 titled “Conforming Changes Related to Term SOFR Rate” which provides in its entirety as follows:
 
“Section 1.8 Conforming Changes Related to Term SOFR Rate. With respect to the Term SOFR Rate, the Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any Other Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any Other Document; provided that, with respect to any such amendment effected, the Agent shall provide notice to the Borrowers and the Lenders of each such amendment implementing such Conforming Changes reasonably promptly after such amendment becomes effective.
 
(f)          Section 2.2 is hereby amended by adding a new subclause (i) as follows:
 

 “(i)
Anything to the contrary contained herein notwithstanding, neither Agent nor any Lender, nor any of their participants, is required actually to acquire SOFR deposits to fund or otherwise match fund any Obligation as to which interest accrues based on the Term SOFR Rate.  The provisions set forth herein shall apply as if each Lender or its participants had match funded any Obligation as to which interest is accruing based on the Term SOFR Rate by acquiring SOFR deposits for each Interest Period in the amount of the Term SOFR Rate Loans.”
 
(g)          Section 3.2(a) of the Loan Agreement is hereby amended by deleting “Applicable Margin for Revolving Advances consisting of LIBOR Rate Loans” and inserting in is place and stead “Applicable Margin plus the SOFR Adjustment for Revolving Advances consisting of Term SOFR Rate Loans”.
 
(h)          Section 3.7(c) is hereby amended by deleting “or the London interbank LIBOR market”.
 
(i)          Section 3.8 of the Loan Agreement is hereby amended in its entirety to provide as follows:
 
3.8          Alternate Rate of Interest.
 

 3.8.1
Basis For Determining Interest Rate Inadequate or Unfair.  In the event that Agent or any Lender shall have determined that:
 

 (a)
reasonable means do not exist for ascertaining the Term SOFR Rate applicable pursuant to Section 2.2 hereof for any Interest Period; or
 

 (b)
Dollar deposits in the relevant amount and for the relevant maturity are not available with respect to an outstanding Term SOFR Rate Loan, a proposed Term SOFR Rate Loan, or a proposed conversion of a Domestic Rate Loan into a Term SOFR Rate Loan; or
 

 (c)
the making, maintenance or funding of any Term SOFR Rate Loan has been made impracticable or unlawful by compliance by Agent or such Lender in good faith with any Applicable Law or any interpretation or application thereof by any Governmental Body or with any request or directive of any such Governmental Body (whether or not having the force of law); or
 

 (d)
the Term SOFR Rate will not adequately and fairly reflect the cost to such Lender of the establishment or maintenance of any Term SOFR Rate Loan and such Lender has provided notice of such determination to Agent;
 
then Agent shall give Borrowing Agent prompt written or telephonic notice of such determination.  If such notice is given prior to a Benchmark Replacement Date, (i) any such requested Term SOFR Rate Loan shall be made as a Domestic Rate Loan, unless Borrowing Agent shall notify Agent no later than 1:00 p.m. Eastern Standard Time two (2) Business Days prior to the date of such proposed borrowing, that its request for such borrowing shall be cancelled or made as an unaffected type of Term SOFR Rate Loan, (ii) any Domestic Rate Loan or Term SOFR Rate Loan which was to have been converted to an affected type of Term SOFR Rate Loan shall be continued as or converted into a Domestic Rate Loan, or, if Borrowing Agent shall notify Agent, no later than 1:00 p.m. Eastern Standard Time two (2) Business Days prior to the proposed conversion, shall be maintained as an unaffected type of Term SOFR Rate Loan, and (iii) any outstanding affected Term SOFR Rate Loans shall be converted into a Domestic Rate Loan, or, if Borrowing Agent shall notify Agent, no later than 1:00 p.m. Eastern Standard Time two (2) Business Days prior to the last Business Day of the then current Interest Period applicable to such affected Term SOFR Rate Loan, shall be converted into an unaffected type of Term SOFR Rate Loan, on the last Business Day of the then current Interest Period for such affected Term SOFR Rate Loans (or sooner, if any Lender cannot continue to lawfully maintain such affected Term SOFR Rate Loan).  Until such notice has been withdrawn, Lenders shall have no obligation to make an affected type of Term SOFR Rate Loan or maintain outstanding affected Term SOFR Rate Loans and no Borrower shall have the right to convert a Domestic Rate Loan or an unaffected type of Term SOFR Rate Loan into an affected type of Term SOFR Rate Loan.
 
3.8.2          Benchmark Replacement Setting.
 

 (a)
Benchmark Replacement. Notwithstanding anything to the contrary herein or in any Other Document (and any agreement executed in connection with an Interest Rate Hedge shall be deemed not to be an “Other Document” for purposes of this Section 3.8.2, if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred prior to any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (1) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Other Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any Other Document and (y) if a Benchmark Replacement is determined in accordance with clause (2) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Other Document in respect of any Benchmark setting at or after 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any Other Document so long as the Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders.
 

 (b)
Benchmark Replacement Conforming Changes. In connection with the use, administration, adoption or implementation of a Benchmark Replacement, the Agent may make Conforming Changes from time to time and, notwithstanding anything to  the contrary herein or in the Other Documents, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any Other Document.
 

 (c)
Notices; Standards for Decisions and Determinations.  The Agent will promptly notify the Borrowing Agent and the Lenders of (i) the implementation of any Benchmark Replacement, and (ii) the effectiveness of any Conforming Changes in connection with the use, administration, adoption or implementation of a Benchmark Replacement.  The Agent will notify the Borrowing Agent of (x) the removal or reinstatement of any tenor of a Benchmark pursuant to paragraph (d) below and (y) the commencement of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 3.8.2, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or selection, will be conclusive and binding  absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any Other Document except, in each case, as expressly required pursuant to this Section 3.8.2.
 

 (d)
Unavailability of Tenor of Benchmark.  Notwithstanding anything to the contrary herein or in any of the Other Documents, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor of such Benchmark is not or will not be representative, then the Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor, and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not (or is no longer) subject to an announcement that it is not or will not be representative for a Benchmark (including a Benchmark Replacement), then the Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for all Benchmark settings at or after such time to reinstate such previously removed tenor.
 

 (e)
Benchmark Unavailability Period.  Upon the Borrowers’ receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrowers may revoke any pending request for an Advance bearing interest based on the Term SOFR Rate, conversion to or continuation of Advances bearing interest based on the Term SOFR Rate to be made, converted or continued during any Benchmark Unavailability Period and, failing that, the Borrowers will be deemed to have converted any such request into a request for a Domestic Rate Loan. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of the Alternate Base Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of the Alternate Base Rate.
 

 (i)
Section 3.12 is hereby amended in its entirety to provide “Intentionally Omitted”.
 

 (j)
Section 6.5 of the Loan Agreement is hereby amended in its entirety to provide as follows:
 
“6.5.          Financial Covenants.
 

 (a)
Fixed Charge Coverage Ratio.  Cause to be maintained as of the end of each fiscal quarter, (i) beginning with the fiscal quarter ended March 31, 2018, a Fixed Charge Coverage Ratio of not less than 1.15 to 1.0, (ii) commencing with the fiscal quarter ended June 30, 2018, a Fixed Charge Coverage Ratio of not less than 1.1 to 1.0, (iii) for the fiscal quarter ended June 30, 2022, a Fixed Charge Coverage Ratio of not less than 1.15 to 1.0, (iv) for the fiscal quarter ended September 30, 2022, a Fixed Charge Coverage Ratio of not less than 1.01 to 1.0, (v) for the fiscal quarter ended December 31, 2022, a Fixed Charge Coverage Ratio of not less than 1.05 to 1.0, and (vi) commencing with the fiscal quarter ended March 31, 2023 and thereafter, a Fixed Charge Coverage Ratio of not less than 1.15 to 1.0, in each case, measured on a rolling four (4) quarter basis.
 

 (b)
Total Leverage Ratio.  Maintain as of end of each fiscal quarter, (i) beginning with the fiscal quarter ended March 31, 2018, a Total Leverage Ratio of not greater than 2.5 to 1.0, (ii) commencing with the fiscal quarter ended June 30, 2018, a Total Leverage Ratio of not greater than 3.0 to 1.0, (iii) for the fiscal quarter ended September 30, 2022, a Total Leverage Ratio of not greater than 3.25 to 1.0, and (iv) commencing with the fiscal quarter ended December 31, 2022 and thereafter, a Total Leverage Ratio of not greater than 3.0 to 1.0, in each case, measured on a rolling four (4) quarter basis.
 
4.           Conditions to Effectiveness.  The effectiveness of this Fourth Amendment is subject to the fulfillment of each of the following conditions precedent (the date such conditions are fulfilled or are waived by Agent is hereinafter referred to as the “Fourth Amendment Effective Date”):
 
(a)          Representations and Warranties; No Event of Default.  The following statements shall be true and correct: (i) the representations and warranties contained in this Fourth Amendment, ARTICLE V of the Loan Agreement and in each Other Document, certificate, or other writing delivered to Agent or any Lender pursuant hereto or thereto on or prior to the Fourth Amendment Effective Date are true and correct in all material respects (and in all respects if such representation and warranty is already qualified by materiality or by reference to a Material Adverse Effect) on and as of the Fourth Amendment Effective Date as though made on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date (in which case such representation or warranty shall be true and correct in all material respects (and in all respects if such representation and warranty is already qualified by materiality or by reference to a Material Adverse Effect) on and as of such earlier date) and (ii) no Default or Event of Default shall have occurred and be continuing on the Fourth Amendment Effective Date or would result from the Fourth Amendment becoming effective in accordance with its terms.
 
(b)          Execution of Amendment.  Agent and the Lenders shall have executed this Fourth Amendment and shall have received a counterpart to this Fourth Amendment, duly executed by each Loan Party.
 
(c)          Payment of Fees.  Borrowers shall have paid, on or before the Fourth Amendment Effective Date, (i) the amounts set forth in the Fourth Amendment Fee Letter, and (ii) all fees and invoiced costs and expenses (to the extent invoiced at least two (2) Business Days prior to the Fourth Amendment Effective Date) then payable by Borrowers pursuant to the Loan Documents, including, without limitation, Section 16.9 of the Loan Agreement.  All fees under this Section 4(c) shall be fully earned and payable as of the Fourth Amendment Effective Date, and may be charged by Agent to the U.S. Borrower’s Account.
 
(d)          Secretary’s Certificate and Authorizing Resolutions.  Agent shall have received a certificate of the Secretary or Assistant Secretary (or other equivalent officer, partner or manager) of each Loan Party dated as of the date of this Fourth Amendment which shall certify (i) copies of resolutions of such Loan Party, of the board of directors (or other equivalent governing body, member or partner) of such Loan Party authorizing (x) the execution, delivery and performance of this Fourth Amendment and each Other Document executed in connection with this Fourth Amendment to which such Loan Party is a party, and (y) the reaffirmation of the grant by such Loan Party of the security interests in and liens upon the Collateral to secure all of the Obligations (and such certificate shall state that such resolutions have not been amended, modified, revoked or rescinded as of the date of such certificate), (ii) the incumbency and signature of the officers of such Loan Party authorized to execute this Fourth Amendment and such Other Documents, (iii) that the copies of the Organizational Documents delivered to Agent on the Third Amendment Effective Date remain true, correct and complete as of the date of this Amendment (or, to the extent amended after the Third Amendment Effective Date, attaching true, correct and complete copies of such amended Organizational Documents), and (iv) the good standing (or equivalent status) of such Loan Party in its jurisdiction of organization dated not more than thirty (30) days prior to the date of this Fourth Amendment, issued by the Secretary of State or other appropriate official of each such jurisdiction.
 
5.           Representations and Warranties.  Each Loan Party represents and warrants as follows:
 
(a)          Organization, Good Standing, Etc.  Each Loan Party (i) is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of the state or jurisdiction of its organization, (ii) has all requisite power and authority to conduct its business as now conducted and as presently contemplated, and to execute and deliver this Fourth Amendment, and to consummate the transactions contemplated hereby and by the Loan Agreement, as amended hereby, and (iii) is duly qualified to do business and is in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary, except (solely for the purposes of this subclause (iii)) where the failure to be so qualified or in good standing could not reasonably be expected to result in a Material Adverse Effect.
 
(b)         Authorization, Etc.  The execution, delivery and performance by each Loan Party of this Fourth Amendment, and the performance of the Loan Agreement, as amended hereby, (i) have been duly authorized by all necessary action, (ii) do not and will not contravene any of its Organizational Documents or any Applicable Law in any material respect or any material Contractual Obligation binding on or otherwise affecting it or any of its properties, (iii) do not and will not result in or require the creation of any Lien (other than pursuant to any Loan Document) upon or with respect to any of its properties, and (iv) do not and will not result in any default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties.
 
(c)         Governmental Approvals.  No authorization or approval or other action by, and no notice to or filing with, any Governmental Body is required in connection with the due execution, delivery and performance of this Fourth Amendment by the Loan Parties, and the performance of the Loan Agreement, as amended hereby.
 
(d)         Enforceability of this Fourth Amendment.  This Fourth Amendment and the Loan Agreement, as amended hereby, when delivered hereunder, will be a legal, valid and binding obligation of each Loan Party, enforceable against such Loan Party in accordance with the terms thereof, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally.
 
(e)          Representations and Warranties; No Event of Default.  The statements in Section 4(a) of this Fourth Amendment are true and correct.
 
6.          Release.  Each Loan Party hereby acknowledges and agrees that:  (a) neither it nor any of its Affiliates has any claim or cause of action against Agent or any Lender (or any of their respective Affiliates, officers, directors, employees, attorneys, consultants or agents) and (b) Agent and each Lender has heretofore properly performed and satisfied in a timely manner all of its obligations to the Loan Parties and their Affiliates under the Loan Agreement and the Other Documents that are required to have been performed on or prior to the date hereof.  Notwithstanding the foregoing, Agent and the Lenders wish (and the Loan Parties agree) to eliminate any possibility that any past conditions, acts, omissions, events or circumstances would impair or otherwise adversely affect any of Agent and the Lenders’ rights, interests, security and/or remedies under the Loan Agreement and the Other Documents.  Accordingly, for and in consideration of the agreements contained in this Fourth Amendment and other good and valuable consideration, each Loan Party (for itself and its Affiliates and the successors, assigns, heirs and representatives of each of the foregoing) (collectively, the “Releasors”) does hereby fully, finally, unconditionally and irrevocably release and forever discharge Agent, each Lender and each of their respective Affiliates, officers, directors, employees, attorneys, consultants and agents (collectively, the “Released Parties”) from any and all debts, claims, obligations, damages, costs, attorneys’ fees, suits, demands, liabilities, actions, proceedings and causes of action, in each case, whether known or unknown, contingent or fixed, direct or indirect, and of whatever nature or description, and whether in law or in equity, under contract, tort, statute or otherwise, which any Releasor has heretofore had or now or hereafter can, shall or may have against any Released Party by reason of any act, omission or thing whatsoever done or omitted to be done on or prior to the Fourth Amendment Effective Date directly arising out of, connected with or related to this Fourth Amendment, the Loan Agreement or any Other Document, or any act, event or transaction related or attendant thereto, or the agreements of Agent or any Lender contained therein, or the possession, use, operation or control of any of the assets of any Loan Party, or the making of Advances, or the management of such Advances or the Collateral.
 
7.           No Novation; Reaffirmation and Confirmation.
 
(a)          This Fourth Amendment does not extinguish the obligations for the payment of money outstanding under the Loan Agreement or discharge or release the lien or priority of any mortgage, security agreement, pledge agreement or any other security therefore.  Nothing herein contained shall be construed as a substitution or novation of the Obligations outstanding under the Loan Agreement or instruments securing the same, which shall remain in full force and effect, except as modified hereby or by instruments executed concurrently herewith.  Nothing expressed or implied in this Fourth Amendment shall be construed as a release or other discharge of the Loan Parties under the Loan Agreement, or the Other Documents, as amended hereby, from any of its obligations and liabilities as “Borrowers” thereunder.
 
(b)          Each Borrower hereby (i) acknowledge and reaffirm its obligations as set forth in each Loan Document, as amended hereby, (ii) agrees to continue to comply with, and be subject to, all of the terms, provisions, conditions, covenants, agreements and obligations applicable to it set forth in each Loan Document, as amended hereby, which remain in full force and effect, and (iii) confirms, ratifies and reaffirms that the security interest granted to Agent, for the benefit of Agent and the Lenders, pursuant to the Loan Documents, as amended hereby, in all of its right, title, and interest in all then existing and thereafter acquired or arising Collateral in order to secure prompt payment and performance of the Obligations, is continuing and is and shall remain unimpaired and continue to constitute a first priority security interest (subject to Permitted Liens) in favor of Agent, for the benefit of Agent and the Lenders, with the same force, effect and priority in effect both immediately prior to and after entering into this Fourth Amendment.
 
8.           Miscellaneous.
 
(a)          Continued Effectiveness of the Loan Agreement and the Other Documents.  Except as otherwise expressly provided herein, the Loan Agreement and the other Loan Documents are, and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects, except that on and after the Fourth Amendment Effective Date (i) all references in the Loan Agreement to “this Agreement”, “hereto”, “hereof”, “hereunder” or words of like import referring to the Loan Agreement shall mean the Loan Agreement as amended by this Fourth Amendment and (ii) all references in the Other Documents to the “Loan Agreement”, “thereto”, “thereof”, “thereunder” or words of like import referring to the Loan Agreement shall mean the Loan Agreement as amended by this Fourth Amendment.  To the extent that the Loan Agreement or any Other Document purports to pledge to Agent, or to grant to Agent, a security interest or lien, such pledge or grant is hereby ratified and confirmed in all respects.  Except as expressly provided herein, the execution, delivery and effectiveness of this Fourth Amendment shall not operate as an amendment of any right, power or remedy of Agent and the Lenders under the Loan Agreement or any Other Document, nor constitute an amendment of any provision of the Loan Agreement or any Other Document.
 
(b)         Counterparts.  This Fourth Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of this Fourth Amendment by fax or electronic mail shall be equally as effective as delivery of an original executed counterpart of this Fourth Amendment.  Original signature pages shall promptly be provided to Agent.
 
(c)          Headings.  Section headings herein are included for convenience of reference only and shall not constitute a part of this Fourth Amendment for any other purpose.
 
(d)          Costs and Expenses.  Borrowers agree to pay on demand all fees, costs and expenses of Agent and the Lenders in connection with the preparation, execution and delivery of this Fourth Amendment.
 
(e)          Fourth Amendment as Other Document.  Each Loan Party hereby acknowledges and agrees that this Fourth Amendment constitutes an “Other Document” under the Loan Agreement.  Accordingly, it shall be an Event of Default under the Loan Agreement if (i) any representation or warranty made by any Loan Party under or in connection with this Fourth Amendment, which representation or warranty is (A) subject to a materiality or a Material Adverse Effect qualification, shall have been incorrect in any respect when made or deemed made, or (B) not subject to a materiality or a Material Adverse Effect qualification, shall have been incorrect in any material respect when made or deemed made or (ii) any Loan Party shall fail to perform or observe any term, covenant or agreement contained in this Fourth Amendment (subject to any applicable notice or grace periods under the Loan Agreement).
 
(f)          Severability.  Any provision of this Fourth Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
 
(g)          Governing Law.  This Fourth Amendment shall be governed by and construed in accordance with, the laws of the State of New York.
 
(h)       Waiver of Jury Trial.  THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS FOURTH AMENDMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
 
[Remainder of page intentionally left blank. Signature pages follow.]
 
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be executed and delivered by their respective duly authorized officers as of the date first written above.
 
 
US BORROWER:
     
 
MOTORCAR PARTS OF AMERICA, INC.
     
 
By:
/s/ Selwyn Joffe
  
 
Name:
Selwyn Joffe
 
Title:
President and Chief Executive Officer

 
CANADIAN BORROWERS:
     
 
D & V ELECTRONICS LTD.
     
 
By:
/s/ William Hardy
  
 
Name:
William Hardy
 
Title:
Chief Executive Officer
     
 
DIXIE ELECTRIC LTD.
     
 
By:
/s/ Selwyn Joffe
  
 
Name:
Selwyn Joffe
 
Title:
Chief Executive Officer
     
 
DIXIE ELECTRIC INC.
     
 
By:
/s/ Selwyn Joffe
  
 
Name:
Selwyn Joffe
 
Title:
Chief Executive Officer

 
AGENT AND LENDER:
   
 
PNC BANK, NATIONAL ASSOCIATION
     
 
By:
/s/ Albert Sarkis
 
Name:
Albert Sarkis
 
Title:
Senior Vice President
 
 
WEBSTER BUSINESS CREDIT CORPORATION
     
 
By:
/s/ Christopher Magnante
 
Name:
Christopher Magnante
 
Title:
Senior Vice President

 
BANK HAPOALIM B.M.
     
 
By:
/s/ Thomas J. Vigna
 
Name:
Thomas J. Vigna
 
Title:
SVP
     
 
By:
/s/ Michael Gorman III
 
Name:
Michael Gorman III
 
Title:
FVP

 
CATHAY BANK
     
 
By:
/s/ James Campbell
 
Name:
James Campbell
 
Title:
First Vice President

 
ISRAEL DISCOUNT BANK OF NEW YORK
     
 
By:
/s/ Frank Mancini
 
Name:
Frank Mancini
 
Title:
First Vice President
     
 
By:
/s/ Eric Serenkin
 
Name:
Eric Serenkin
 
Title:
SVP


Exhibit 31.1

CERTIFICATIONS

I, Selwyn Joffe, certify that:

1. I have reviewed this report on Form 10-Q of Motorcar Parts of America, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused, such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2022
/s/ Selwyn Joffe
 
Selwyn Joffe
 
Chief Executive Officer


Exhibit 31.2

CERTIFICATIONS

I, David Lee, certify that:

1. I have reviewed this report on Form 10-Q of Motorcar Parts of America, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused, such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2022
/s/ David Lee
 
David Lee
 
Chief Financial Officer


Exhibit 31.3

CERTIFICATIONS

I, Kamlesh Shah, certify that:

1. I have reviewed this report on Form 10-Q of Motorcar Parts of America, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused, such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2022
/s/ Kamlesh Shah
 
Kamlesh Shah
 
Chief Accounting Officer


Exhibit 32.1

CERTIFICATE OF CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND CHIEF
ACCOUNTING OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Motorcar Parts of America, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Selwyn Joffe, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

1.
The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2.
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Selwyn Joffe

Selwyn Joffe

Chief Executive Officer

November 9, 2022

In connection with the Quarterly Report of Motorcar Parts of America, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, David Lee, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

1.
The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2.
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ David Lee

David Lee

Chief Financial Officer

November 9, 2022

In connection with the Quarterly Report of Motorcar Parts of America, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), I, Kamlesh Shah, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

1.
The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2.
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Kamlesh Shah

Kamlesh Shah

Chief Accounting Officer

November 9, 2022

The foregoing certifications are being furnished to the Securities and Exchange Commission as part of the accompanying report on Form 10-Q. A signed original of each of these statements has been provided to Motorcar Parts of America, Inc. and will be retained by Motorcar Parts of America, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.