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 JUNE 30, 2023

☐
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 19,595,355 shares of Common Stock outstanding at August 2, 2023.

MOTORCAR PARTS OF AMERICA, INC.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
 
 
4
 
4
 
5
 
6
 
7
 
8
 
9
 
24
 
30
 
31
     
PART II — OTHER INFORMATION
 
 
32
 
32
 
32
 
32
 
32
 
 33
 
36

2
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
PART I — FINANCIAL INFORMATION

Item 1.
Financial Statements

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

 
June 30, 2023
    
March 31, 2023
  
ASSETS
  
(Unaudited)
        
Current assets:
            
Cash and cash equivalents
  
$
10,887,000
    
$
11,596,000
  
Short-term investments
    
2,159,000
      
2,011,000
  
Accounts receivable — net
    
146,645,000
      
119,868,000
  
Inventory
    
364,187,000
      
356,254,000
  
Contract assets
    
27,732,000
      
25,443,000
  
Prepaid expenses and other current assets
    
20,566,000
      
22,306,000
  
Total current assets
    
572,176,000
      
537,478,000
  
Plant and equipment — net
    
44,244,000
      
46,052,000
  
Operating lease assets
    
88,760,000
      
87,619,000
  
Long-term deferred income taxes
    
32,417,000
      
32,625,000
  
Long-term contract assets
    
314,463,000
      
318,381,000
  
Goodwill and intangible assets — net
    
5,046,000
      
5,348,000
  
Other assets
    
1,081,000
      
1,062,000
  
TOTAL ASSETS
  
$
1,058,187,000
    
$
1,028,565,000
  
LIABILITIES AND SHAREHOLDERS’  EQUITY
                
Current liabilities:
                
Accounts payable and accrued liabilities
  
$
142,965,000
    
$
141,766,000
  
Customer finished goods returns accrual
    
33,378,000
      
37,984,000
  
Contract liabilities
    
49,003,000
      
40,340,000
  
Revolving loan
    
167,000,000
      
145,200,000
  
Other current liabilities
    
5,170,000
      
4,871,000
  
Operating lease liabilities
    
8,914,000
      
8,767,000
  
Current portion of term loan
    
12,020,000
      
3,664,000
  
Total current liabilities
    
418,450,000
      
382,592,000
  
Term loan, less current portion
    
-
      
9,279,000
  
Convertible notes, related party
     31,252,000
       30,994,000  
Long-term contract liabilities
    
194,708,000
      
193,606,000
  
Long-term deferred income taxes
    
1,985,000
      
718,000
  
Long-term operating lease liabilities
    
77,013,000
      
79,318,000
  
Other liabilities
    
11,340,000
      
11,583,000
  
Total liabilities
    
734,748,000
      
708,090,000
  
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; 19,599,145 and 19,494,615 shares issued and outstanding at June 30, 2023 and March 31, 2023, respectively
    
196,000
      
195,000
  
Additional paid-in capital
    
232,866,000
      
231,836,000
  
Retained earnings
    
87,337,000
      
88,747,000
  
Accumulated other comprehensive income (loss)
    
3,040,000
      
(303,000
)
Total shareholders’ equity
    
323,439,000
      
320,475,000
  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  
$
1,058,187,000
    
$
1,028,565,000
  

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
  
 
June 30,
  
   
2023
    
2022
  
             
Net sales
  
$
159,705,000
    
$
163,985,000
  
Cost of goods sold
    
133,138,000
      
133,683,000
  
Gross profit
    
26,567,000
      
30,302,000
  
Operating expenses:
                
General and administrative
    
12,602,000
      
13,634,000
  
Sales and marketing
    
5,419,000
      
5,542,000
  
Research and development
    
2,375,000
      
3,113,000
  
Foreign exchange impact of lease liabilities and forward contracts
    
(4,270,000
)
    
678,000
  
Total operating expenses
    
16,126,000
      
22,967,000
  
Operating income
    
10,441,000
      
7,335,000
  
Other expenses:
                
Interest expense, net
    
11,720,000
      
6,921,000
  
Change in fair value of compound net derivative liability
     140,000       -  
Total other expenses
     11,860,000       6,921,000  
(Loss) income before income tax (benefit) expense    
(1,419,000
)
    
414,000
  
Income tax (benefit) expense    
(9,000
)
    
589,000
  
Net loss  
$
(1,410,000
)
  
$
(175,000
)
Basic net loss per share
  
$
(0.07
)
  
$
(0.01
)
Diluted net loss per share
  
$
(0.07
)
  
$
(0.01
)
Weighted average number of shares outstanding:
                
Basic
    
19,508,626
      
19,123,354
  
Diluted
    
19,508,626
      
19,123,354
  

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 Income (Loss)
(Unaudited)

   
Three Months Ended
  
 
June 30,
  
   
2023
    
2022
  
             
Net loss
  
$
(1,410,000
)
  
$
(175,000
)
Other comprehensive income (loss), net of tax:
                
Foreign currency translation gain (loss)
    
3,343,000
      
(868,000
)
Total other comprehensive income (loss), net of tax
    
3,343,000
      
(868,000
)
Comprehensive income (loss)
  
$
1,933,000
    
$
(1,043,000
)

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
Income (Loss)
    
Total
  
                                     
Balance at March 31, 2023
    
19,494,615
    
$
195,000
    
$
231,836,000
    
$
88,747,000
    
$
(303,000
)
  
$
320,475,000
  
Compensation recognized under employee stock plans
    
-
      
-
      
1,310,000
      
-
      
-
      
1,310,000
  
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes
    
104,530
      
1,000
      
(280,000
)
    
-
      
-
      
(279,000
)
Foreign currency translation
    
-
      
-
      
-
      
-
      
3,343,000
      
3,343,000
  
Net loss
    
-
      
-
      
-
      
(1,410,000
)
    
-
      
(1,410,000
)
Balance at June 30, 2023
    
19,599,145
    
$
196,000
    
$
232,866,000
    
$
87,337,000
    
$
3,040,000
    
$
323,439,000
  

 
Common Stock
                          
   
Shares
    
Amount
    
Additional
Paid-in
Capital
    
Retained
Earnings
    
Accumulated
Other
Comprehensive
 Income (Loss)
   
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
  

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)

    Three Months Ended  

 
June 30,
  
   
2023
    
2022
  
Cash flows from operating activities:
            
Net loss
 
$
(1,410,000
)
  
$
(175,000
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation and amortization
    
3,033,000
      
3,124,000
  
Amortization of interest
    
713,000
      
306,000
  
Accrued interest on convertible notes, related party
     800,000       -  
Amortization of core premiums paid to customers
    
2,490,000
      
2,863,000
  
Amortization of finished goods premiums paid to customers
    
167,000
      
181,000
  
Noncash lease expense
    
2,504,000
      
1,939,000
  
Foreign exchange impact of lease liabilities and forward contracts
    
(4,270,000
)
    
678,000
  
Change in fair value of compound net derivative liability
     140,000       -  
(Gain) loss on short-term investments
    
(121,000
)
    
294,000
  
Net provision for inventory reserves
    
3,366,000
      
3,942,000
  
Net provision for customer payment discrepancies and credit losses
    
1,159,000
      
300,000
  
Deferred income taxes
    
1,595,000
      
(62,000
)
Share-based compensation expense
    
1,310,000
      
1,249,000
  
Loss on disposal of plant and equipment
    
1,000
      
9,000
  
Changes in operating assets and liabilities:
                
Accounts receivable
    
(27,518,000
)
    
11,427,000
  
Inventory
    
(10,782,000
)
    
(24,252,000
)
Prepaid expenses and other current assets
    
2,391,000
      
1,122,000
  
Other assets
    
16,000
      
6,000
  
Accounts payable and accrued liabilities
    
927,000
      
5,898,000
  
Customer finished goods returns accrual
    
(4,679,000
)
    
(9,289,000
)
Contract assets
    
(792,000
)
    
(37,000
)
Contract liabilities
    
9,320,000
      
1,384,000
  
Operating lease liabilities
    
(1,863,000
)
    
(1,446,000
)
Other liabilities
    
1,033,000
      
(443,000
)
Net cash used in operating activities
    
(20,470,000
)
    
(982,000
)
Cash flows from investing activities:
                
Purchase of plant and equipment
    
(40,000
)
    
(1,375,000
)
Purchase of short-term investments
    
(27,000
)
    
(86,000
)
Net cash used in investing activities
    
(67,000
)
    
(1,461,000
)
Cash flows from financing activities:
                
Borrowings under revolving loan
    
26,000,000
      
13,000,000
  
Repayments of revolving loan
    
(4,200,000
)
    
(22,000,000
)
Repayments of term loan
    
(938,000
)
    
(938,000
)
Payments for debt issuance costs
    
(418,000
)
    
(21,000
)
Payments on finance lease obligations
    
(492,000
)
    
(604,000
)
Exercise of stock options, net of cash used to pay employee taxes
    
-
      
191,000
  
Cash used to net share settle equity awards
    
(279,000
)
    
(894,000
)
Net cash provided by (used in) financing activities
    
19,673,000
      
(11,266,000
)
Effect of exchange rate changes on cash and cash equivalents
    
155,000
      
(90,000
)
Net decrease in cash and cash equivalents
    
(709,000
)
    
(13,799,000
)
Cash and cash equivalents — Beginning of period
    
11,596,000
      
23,016,000
  
Cash and cash equivalents  — End of period
  
$
10,887,000
    
$
9,217,000
  
Supplemental disclosures of cash flow information:
                
Cash paid for interest, net
  
$
10,120,000
    
$
6,548,000
  
Cash paid for income taxes, net of refunds
    
645,000
      
712,000
  
Cash paid for operating leases
    
3,081,000
      
2,647,000
  
Cash paid for finance leases
    
554,000
      
672,000
  
Plant and equipment acquired under finance leases
    
31,000
      
75,000
  
Assets acquired under operating leases
    
-
      
144,000
  
Non-cash capital expenditures
    
-
      
401,000
  
Debt issuance costs included in accounts payable and accrued liabilities
     187,000       -  

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
June 30, 2023
(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) light duty and heavy duty 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, brake shoes, and brake master cylinders, and (iv) other products, which include (a) turbochargers and (b) test solutions and diagnostic equipment including: (i) applications for combustion engine vehicles, including bench top testers for alternators and starters, (ii) equipment for the pre- and post-production of electric vehicles, and (iii) software emulation of power systems applications for the electrification of all forms of transportation (including automobiles, trucks, the emerging electrification of systems within the aerospace industry, and electric vehicle charging stations).

2. 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 months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2024. 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, 2023, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 14, 2023.

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, 2023.
3. Accounts Receivable — Net
The Company has trade accounts receivable that result from the sale of goods and services. Accounts receivable — net includes offset accounts related to allowances for credit losses, customer payment discrepancies, and returned goods authorizations (“RGAs”) issued for in-transit unit returns. The Company uses receivable discount programs with certain customers and their respective banks (see Note 10).
Accounts receivable — net is comprised of the following:
 
  
June 30, 2023
    
March 31, 2023
  
Accounts receivable — trade
  
$
165,486,000
    
$
136,076,000
  
Allowance for credit losses
    
(303,000
)
    
(339,000
)
Customer payment discrepancies
    
(2,076,000
)
    
(1,634,000
)
Customer returns RGA issued
    
(16,462,000
)
    
(14,235,000
)
Total accounts receivable — net
  
$
146,645,000
    
$
119,868,000
  
9
4. Inventory
Inventory is comprised of the following:
 
  
June 30, 2023
    
March 31, 2023
  
Inventory
            
Raw materials
  
$
149,545,000
    
$
147,880,000
  
Work-in-process
    
10,097,000
      
7,033,000
  
Finished goods
    
202,874,000
      
201,198,000
  
 
    
362,516,000
      
356,111,000
  
Less allowance for excess and obsolete inventory
    
(16,412,000
)
    
(16,436,000
)
Inventory — net
    
346,104,000
      
339,675,000
  
Inventory unreturned
    
18,083,000
      
16,579,000
  
Total inventory
  
$
364,187,000
    
$
356,254,000
  

5. Contract Assets
During the three months ended June 30, 2023 and 2022, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $778,000 and $572,000, respectively.

Contract assets are comprised of the following:
 
  
June 30, 2023
    
March 31, 2023
  
Short-term contract assets
            
Cores expected to be returned by customers
  
$
15,915,000
    
$
13,463,000
  
Core premiums paid to customers     9,775,000       9,812,000  
Upfront payments to customers
    
1,458,000
      
1,593,000
  
Finished goods premiums paid to customers
    
584,000
      
575,000
  
Total short-term contract assets
  
$
27,732,000
    
$
25,443,000
  
                 
Remanufactured cores held at customers’ locations
  
$
268,906,000
    
$
271,628,000
  
Core premiums paid to customers     36,401,000       38,310,000  
Long-term core inventory deposits     5,569,000       5,569,000  
Finished goods premiums paid to customers     2,651,000       2,530,000  
Upfront payments to customers
    
936,000
      
344,000
  
 Total long-term contract assets
  
$
314,463,000
    
$
318,381,000
  

10
6. Significant Customer and Other Information
Significant Customer Concentrations
The largest customers accounted for the following percentage of consolidated net sales:
   
Three Months Ended
  
 
  
June 30,
  
 
  
2023
    
2022
  
Net sales
            
Customer A
    
34
%
    
37
%
Customer C
   
28
%
    
20
%
Customer B
   
20
%
    
25
%
Customer D
    5 %     4 %

Revenues for Customers A through C were derived from the Hard Parts segment and Test Solutions and Diagnostic Equipment segment. Revenues for Customer D were derived from the Hard Parts segment. See Note 17 for a discussion of the Company’s segments.

The largest customers accounted for the following percentage of accounts receivable – trade:
 
  
June 30, 2023
    
March 31, 2023
  
Accounts receivable - trade
            
Customer A
    
34
%
    
33
%
Customer C
   
30
%
    
21
%
Customer B
   
15
%
    
18
%
Customer D     8 %     12 %

Geographic and Product Information
The Company’s products are sold predominantly in North America and accounted for the following percentages of net sales:
   
Three Months Ended
  
 
  
June 30,
  
 
  
2023
    
2022
  
Product line
            
Rotating electrical products
    
64
%
    
67
%
Brake-related products
    
22
%
    
17
%
Wheel hub products
    
11
%
    
12
%
Other products
    
3
%
    
4
%
 
   
100
%
    
100
%

Significant Supplier Concentrations
The Company had no suppliers that accounted for more than 10% of inventory purchases for the three months ended June 30, 2023 and 2022.
7. Debt


The Company is party to a $268,620,000 senior secured financing, (as amended from time to time, the “Credit Facility”), consisting of a $238,620,000 revolving loan facility (the “Revolving Facility”), subject to certain restrictions, and a $30,000,000 term loan facility (the “Term Loans”). The loans under the Credit Facility mature on May 28, 2026 and the lenders have a security interest in substantially all of the assets of the Company. The interest rate on the Company’s Term Loans and Revolving Facility was 8.52% and 8.46% respectively, at June 30, 2023, and 8.02% and 8.13% respectively, at March 31, 2023.

On August 3, 2023, the Company entered into a seventh amendment to the Credit Facility, which among other things, (i) permits the Company to repay its outstanding balance of Term Loans, (ii) permits the exclusion of quarterly principal payments of Term Loans from the fixed charge coverage ratio (including retrospectively for the prior periods) for all quarters beginning June 30, 2023, (iii) resets the fixed charge coverage ratio financial covenant level for the quarters ending September 30, 2023 and December 31, 2023, (iv) eliminates the senior leverage ratio financial covenant effective with the quarter ended June 30, 2023, (v) extends the minimum undrawn availability financial covenant through the delivery of the June 30, 2024 compliance certificate, and (vi) excludes the amount of all amendment fees and expenses incurred in connection with this amendment as well as prior unamortized fees associated with the Term Loans from bank EBITDA and the fixed charge coverage ratio financial covenant. The modifications to the financial covenants were effective as of June 30, 2023.



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 amended financial covenants as of June 30, 2023.

The following summarizes information about the Term Loans:
 
  
June 30, 2023
    
March 31, 2023
  
Principal amount of Term Loans
  
$
12,187,000
    
$
13,125,000
  
Unamortized financing fees
    
(167,000
)
    
(182,000
)
Net carrying amount of Term Loans
    
12,020,000
      
12,943,000
  
Less current portion of Term Loans
    
(12,020,000
)
    
(3,664,000
)
Long-term portion of Term Loans
  
$
-
    
$
9,279,000
  


On August 3, 2023, the Company repaid the outstanding balance of its Term Loans and wrote-off the remaining unamortized financing fees recorded in connection with the Term Loans.

The Company had $167,000,000 and $145,200,000 outstanding under the Revolving Facility at June 30, 2023 and March 31, 2023, respectively. In addition, $6,370,000 was outstanding for letters of credit at June 30, 2023. At June 30, 2023, after certain contractual adjustments, $65,250,000 was available under the Revolving Facility.

Convertible Notes


On March 31, 2023, the Company entered into a note purchase agreement, (the “Note Purchase Agreement”) with Bison Capital Partners VI, L.P. and Bison Capital Partners VI-A, L.P. (collectively, the “Purchasers”) and Bison Capital Partners VI, L.P., as the purchaser representative (the “Purchaser Representative”) for the issuance and sale of $32,000,000 in aggregate principal amount of convertible notes due in 2029 (the “Convertible Notes”), which was used for general corporate purposes. The Convertible Notes bear interest at a rate of 10.0% per annum, compounded annually, and payable (i) in kind or (ii) in cash, annually in arrears on April 1 of each year, commencing on April 1, 2024. The Convertible Notes have an initial conversion price of approximately $15.00 per share of common stock (“Conversion Option”). Unless and until the Company delivers a redemption notice, the Purchasers of the Convertible Notes may convert their Convertible Notes at any time at their option. Upon conversion, the Convertible Notes will be settled in shares of the Company’s common stock. Except in the case of the occurrence of a fundamental transaction, as defined in the form of convertible promissory note, the Company may not redeem the Convertible Notes prior to March 31, 2026. After March 31, 2026, the Company may redeem all or part of the Convertible Notes for a cash purchase (the “Company Redemption”) price.



On June 8, 2023, the Company entered into the first amendment to the Note Purchase Agreement, which among other things, removed a provision that specified the Purchasers would be entitled to receive a dividend or distribution payable in certain circumstances. This amendment was effective as of March 31, 2023.


12

On August 1, 2023, the Company entered into the second amendment to the Note Purchase Agreement, which amended the definition of “Permitted Restricted Payments” to permit the prepayment of the Company’s Term Loans.



The Company’s Convertible Notes are comprised of the following:



   
June 30, 2023
    
March 31, 2023
 
             
Principal amount of Convertible Notes
  
$
32,000,000
    
$
32,000,000
  
Less: unamortized debt discount attributed to Compound Net Derivative Liability
    
(8,229,000
)
    
(8,430,000
)
Less: unamortized debt discount attributed to debt issuance costs
    
(1,089,000
)
    
(1,006,000
)
Carrying amount of the Convertible Notes
    
22,682,000
      
22,564,000
  
Plus: Compound Net Derivative Liability
    
8,570,000
      
8,430,000
  
Net carrying amount of Convertible Notes, related party
  
$
31,252,000
    
$
30,994,000
  



In connection with the Note Purchase Agreement, the Company entered into common stock warrants (the “Warrants”) with the Purchasers, which mature on March 30, 2029. The fair value of the Warrants, using Level 3 inputs and the Monte Carlo simulation model, was zero at June 30, 2023 and March 31, 2023.



The Company Redemption option has been combined with the Conversion Option as a compound net derivative liability (the “Compound Net Derivative Liability”). The Compound Net Derivative Liability has been recorded within convertible note, related party in the condensed consolidated balance sheets at June 30, 2023 and March 31, 2023. The fair value of the Conversion Option and the Company Redemption option using Level 3 inputs and the Monte Carlo simulation model was a liability of $10,800,000 and $10,400,000, and an asset of $2,230,000 and $1,970,000 at June 30, 2023 and March 31, 2023, respectively. During the three months ended June 30, 2023, the Company recorded $140,000 as the change in fair value of the Compound Net Derivative Liability in the condensed consolidated statement of operations and condensed consolidated statement of cash flows.



The Convertible Notes also contain additional features, such as, default interest and options related to a fundamental transaction, which were not separately accounted for as the value of such features were not material at June 30, 2023 and March 31, 2023.



Interest expense related to the Convertible Notes is as follows:


   
Three Months Ended
  
   
June 30,
  
   
2023
  
       
Contractual interest expense
  
$
800,000
  
Accretion of debt discount
    
201,000
  
Amortization of issuance costs
    
27,000
  
Total interest expense
  
$
1,028,000
  



There are no future payments required under the Convertible Notes prior to their maturity, therefore, the principal amount of the Convertible Notes plus interest payable in kind, assuming no early redemption or conversion has occurred, of $56,704,000 would be paid on March 30, 2029.
13
8. Contract Liabilities
Contract liabilities are comprised of the following:
 
  
June 30, 2023
    
March 31, 2023
  
Short-term contract liabilities
  
   

Customer allowances earned
  
$
23,518,000
    
$
19,997,000
  
Customer core returns accruals
    
16,259,000
      
11,112,000
  
Accrued core payment
    
3,141,000
      
3,056,000
  
Customer deposits
    
3,037,000
      
3,232,000
  
Core bank liability
    
1,699,000
      
1,686,000
  
Finished goods liabilities
   
1,349,000
      
1,257,000
  
      Total short-term contract liabilities
  
$
49,003,000
    
$
40,340,000
  
Long-term contract liabilities
                
Customer core returns accruals
  
$
171,982,000
    
$
170,420,000
  
Core bank liability
    
13,152,000
      
13,582,000
  
Accrued core payment
    
9,213,000
      
9,171,000
  
Finished goods liabilities
    
361,000
      
433,000
  
      Total long-term contract liabilities
  
$
194,708,000
    
$
193,606,000
  

9. Leases
The Company leases various facilities in North America and Asia under operating leases expiring through August 2033. The Company has material nonfunctional currency leases that could have a material impact on the Company’s condensed consolidated statements of operations. As required for other monetary liabilities, lessees remeasure foreign currency-denominated lease liabilities using the exchange rate at each reporting date, but the lease assets are nonmonetary assets measured at historical rates and are not affected by subsequent changes in the exchange rates. In connection with the remeasurement of these leases, the Company recorded a gain of $3,770,000 and $20,000 during the three months ended June 30, 2023 and 2022, respectively. 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
  
June 30, 2023
    
March 31, 2023
  
Assets:
  
 
            
Operating
  
Operating lease assets
  
$
88,760,000
    
$
87,619,000
  
Finance
  
Plant and equipment
    
5,001,000
      
5,549,000
  
Total leased assets
  
 
  
$
93,761,000
    
$
93,168,000
  
 
  
 
                
Liabilities:
  
 
                
Current
  
 
                
Operating
  
Operating lease liabilities
  
$
8,914,000
    
$
8,767,000
  
Finance
  
Other current liabilities
    
1,802,000
      
1,851,000
  
Long-term
  
 
                
Operating
  
Long-term operating lease liabilities
    
77,013,000
      
79,318,000
  
Finance
  
Other liabilities
    
2,333,000
      
2,742,000
  
Total lease liabilities
  
 
  
$
90,062,000
    
$
92,678,000
  

14
Lease cost recognized in the condensed consolidated statements of operations is as follows:
   
Three Months Ended
  
 
  
June 30,
  
 
  
2023
    
2022
  
Lease cost
            
Operating lease cost
  
$
3,742,000
    
$
3,165,000
  
Short-term lease cost
    
293,000
      
454,000
  
Variable lease cost
    
186,000
      
185,000
  
Finance lease cost:
                
Amortization of finance lease assets
    
403,000
      
539,000
  
Interest on finance lease liabilities
    
62,000
      
68,000
  
Total lease cost
  
$
4,686,000
    
$
4,411,000
  

Maturities of lease commitments at June 30, 2023 by fiscal year were as follows:
Maturity of lease liabilities
  
Operating Leases
    
Finance Leases
    
Total
  
2024 - remaining nine months
  
$
10,383,000
    
$
1,521,000
    
$
11,904,000
  
2025
    
12,352,000
      
1,576,000
      
13,928,000
  
2026
    
12,042,000
      
844,000
      
12,886,000
  
2027
    
10,822,000
      
353,000
      
11,175,000
  
2028
    
10,725,000
      
194,000
      
10,919,000
  
Thereafter
    
53,929,000
      
2,000
      
53,931,000
  
Total lease payments
    
110,253,000
      
4,490,000
      
114,743,000
  
Less amount representing interest
    
(24,326,000
)
    
(355,000
)
    
(24,681,000
)
Present value of lease liabilities
  
$
85,927,000
    
$
4,135,000
    
$
90,062,000
  

Other information about leases is as follows:
 
  
June 30, 2023
    
March 31, 2023
  
Lease term and discount rate
            
Weighted-average remaining lease term (years):
            
Finance leases
    
2.7
      
2.9
  
Operating leases
    
8.9
      
9.0
  
Weighted-average discount rate:
                
Finance leases
    
5.9
%
    
5.9
%
Operating leases
    
5.8
%
    
5.8
%

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:
   
Three Months Ended
  
 
  
June 30,
  
 
  
2023
    
2022
  
Receivables discounted
  
$
104,332,000
    
$
142,624,000
  
Weighted average number of days collection was accelerated
    
337
      
327
  
Annualized weighted average discount rate
    
6.4
%
    
3.7
%
Amount of discount recognized as interest expense
  
$
6,252,000
    
$
4,874,000
  

11. Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options, Warrants, and Convertible Notes (as defined in Note 7), 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 per share:
   
Three Months Ended
  
 
  
June 30,
  
 
  
2023
    
2022
  
Net loss
  
$
(1,410,000
)
  
$
(175,000
)
Basic shares
    
19,508,626
      
19,123,354
  
Effect of potentially dilutive securities
    
-
      
-
  
Diluted shares
    
19,508,626
      
19,123,354
  
Net loss per share:
                
Basic net loss per share
  
$
(0.07
)
  
$
(0.01
)
Diluted net loss per share
  
$
(0.07
)
  
$
(0.01
)


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 per share. For the three months ended June 30, 2023 and 2022, there were 2,067,168 and 2,301,901, respectively, of potential common shares not included in the calculation of diluted net loss per share because their effect was anti-dilutive. In addition, for the three months ended June 30, 2023, there were 2,186,667 of potential common shares not included in the calculation of diluted loss per share under the “if-converted” method for the Convertible Notes because their effect was anti-dilutive. The potential common shares related to the Warrants issued in connection with the Convertible Notes (see Note 7) are anti-dilutive until they become exercisable and as of June 30, 2023, the Warrants were not exercisable.
12. Income Taxes

The Company recorded an income tax benefit of $9,000, or an effective tax rate of 0.6%, and income tax expense of $589,000, or an effective tax rate of 142.3%, for the three months ended June 30, 2023 and 2022, 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 June 30, 2023, was primarily impacted by (i) foreign income taxed at rates that are different from the federal statutory rate, (ii) non-deductible executive compensation under Internal Revenue Code Section 162(m), and (iii) specific jurisdictions that the Company does not expect to recognize the benefit of losses.

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 June 30, 2023, the Company is not under any examination in any material jurisdiction, and remains subject to examination from the years ended March 31, 2018. 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 $50,125,000 and $48,486,000 at June 30, 2023 and March 31, 2023, respectively. These contracts generally have a term of one year or less, at rates agreed at the inception of the contracts. The counterparty to these derivative transactions 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:

 
Gain (Loss) Recognized as Foreign Exchange Impact of Lease Liabilities and Forward Contracts
  
   
Three Months Ended
  
  Derivatives Not Designated as
  
June 30,
  
Hedging Instruments
  
2023
    
2022
  
Forward foreign currency exchange contracts
  
$
500,000
 
$
(698,000
)

The fair value of the forward foreign currency exchange contracts of $4,389,000 and $3,889,000 is included in prepaid expenses and other current assets in the condensed consolidated balance sheets at June 30, 2023 and March 31, 2023, 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 three months ended June 30, 2023 and 2022.

17
14. Fair Value Measurements

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

   
June 30, 2023
    
March 31, 2023
  
         
Fair Value Measurements
          
Fair Value Measurements
  
         
Using Inputs Considered as
          
Using Inputs Considered as
  
   
Fair Value
    
Level 1
    
Level 2
    
Level 3
    
Fair Value
    
Level 1
    
Level 2
    
Level 3
  
Assets
                                                
Short-term investments                                                
 Mutual funds
  
$
2,159,000
    
$
2,159,000
    
$
-
    
$
-
    
$
2,011,000
    
$
2,011,000
    
$
-
    
$
-
  
Prepaid expenses and other current assets                                                                
Forward foreign currency exchange contracts
    
4,389,000
      
-
      
4,389,000
      
-
      
3,889,000
      
-
      
3,889,000
      
-
  
                                                                 
Liabilities
                                                                
Other current liabilities
                                                                
Deferred compensation
    
2,159,000
      
2,159,000
      
-
      
-
      
2,011,000
      
2,011,000
      
-
      
-
  
Convertible notes, related party
                                                                
Compound Net Derivative Liability
     8,570,000       -       -       8,570,000       8,430,000       -       -       8,430,000  

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).

Compound Net Derivative Liability
The Company estimates the fair value of the Compound Net Derivative Liability (see Note 7) using Level 3 inputs and the Monte Carlo simulation model at the balance sheet date. The Monte Carlo simulation model requires the input of subjective assumptions including the expected volatility of the underlying stock. These subjective assumptions are based on both historical and other information. Changes in the values assumed and used in the model can materially affect the estimate of fair value. This amount is recorded within convertible notes, related party in the condensed consolidated balance sheets at June 30, 2023 and March 31, 2023. Any changes in the fair value of the Compound Net Derivative Liability are recorded in change in fair value of compound net derivative liability in the condensed consolidated statements of operations.
The following assumptions were used to determine the fair value of the Compound Net Derivative Liability:
   
June 30, 2023
    
March 31, 2023
  
Risk free interest rate
    
4.09
%
    
3.64
%
Cost of equity
    
22.30
%
    
21.80
%
Weighted average cost of capital     14.70 %     14.60 %
Expected volatility of MPA common stock     50.00 %     50.00 %
EBITDA volatility     40.00 %     35.00 %

18
The following summarizes the activity for Level 3 fair value measurements:
   
Three Months Ended
  
   
June 30,
  

 
2023
  
Beginning balance
  
$
8,430,000
  
Changes in fair value of Compound Net Derivative Liability included in earnings
    
140,000
  
Ending balance
  
$
8,570,000
  

During the three months ended June 30, 2023, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these instruments. The carrying amounts of the revolving loan, term loan and other long-term liabilities approximate their fair value based on the variable nature of interest rates and current rates for instruments with similar characteristics. At June 30, 2023 and March 31, 2023, the net carrying amount of the Convertible Notes was $31,252,000 and $30,994,000, respectively, with unamortized debt discounts and debt issuance costs of $9,318,000 and $9,436,000, respectively, and Compound Net Derivative Liability of $8,570,000 and $8,430,000, respectively. The estimated fair value of the Company’s Convertible Notes was $32,752,000 using Level 3 inputs at June 30, 2023. The net carrying amount of the Convertible Notes approximated their fair value at March 31, 2023, as they were issued on March 31, 2023.

15. Share-based Payments

Stock Options

During the three months ended June 30, 2023 and 2022, no options to purchase shares of the Company’s common stock were granted.

The following is a summary of stock option transactions:

   
Number of
    
Weighted Average
  
 
  
Shares
    
Exercise Price
  
Outstanding at March 31, 2023
    
1,232,745
    
$
20.20
  
Granted
    
-
    
$
-
  
Exercised
    
-
 
$
-
  
Forfeited/Cancelled
    
(97,683
)
  
$
19.34
  
Expired     -   $ -  
Outstanding at June 30, 2023
    
1,135,062
    
$
20.28
  

At June 30, 2023, options to purchase 1,009 shares of common stock were unvested at a weighted average exercise price of $17.38.

At June 30, 2023, there was $1,000 of total unrecognized compensation expense related to unvested stock option awards, which will be recognized over the weighted average remaining vesting period of approximately two months.

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

During the three months ended June 30, 2023, no RSUs were granted by the Company. During the three months ended June 30, 2022, 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 and (ii) 176,590 of time-based vesting restricted stock units, respectively, based on the closing market price on the grant date.

19
The following is a summary of non-vested RSUs:

 
  
Number of
Shares
    
Weighted Average
Grant Date Fair
Value
  
Outstanding at March 31, 2023
    
429,354
    
$
15.07
  
Granted
    
-
    
$
-
  
Vested
    
(147,215
)
  
$
15.66
  
Forfeited/Cancelled
    
(76,585
)
  
$
13.23
  
Outstanding at June 30, 2023
    
205,554
    
$
15.33
  

At June 30, 2023, there was $2,484,000 of unrecognized compensation expense related to RSUs, which will be recognized over the weighted average remaining vesting period of approximately 1.5 years.

Performance Stock Units (“PSUs”)

During the three months ended June 30, 2023, the Company granted 533,856 PSUs, which vest, subject to continued employment, as follows: (i) if the stock price is greater than or equal to $10.00 per share, then 1/3 of the grant will vest, (ii) if the stock price is greater than or equal to $15.00 per share then the next 1/3 of the grant will vest, and (iii) if the stock price is greater than or equal to $20.00 per share then the final 1/3 of the grant will vest. Recipients are eligible to vest in between 50% and 150% of the third tranche by achieving a stock price between $17.50 and $25.00 per share (each stock price target must be met for thirty consecutive trading days). The Company calculated the fair value of these PSUs individually for each tranche using the Monte Carlo Simulation Model at the grant date.  Compensation cost is recognized over the estimated derived service period. Compensation cost related to these awards will not be adjusted even if the market condition is not met.

During the three months ended June 30, 2022, the Company granted 126,028 PSUs (at target performance levels), which 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 at the grant date is 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.

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.

20
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 a market condition is determined using the Monte Carlo simulation model. The following table summarizes the assumptions used in determining the fair value of the awards subject to market conditions:

    Three Months Ended  
   
June 30,
  
   
2023
    
2022
  
Risk free interest rate
    
4.32
%
    
3.35
%
Expected life in years
     0.8-1.8       3  
Expected volatility of MPA common stock
    
54.20
%
    
51.30
%
Expected average volatility of peer companies
    
-
 %    
62.70
%
Average correlation coefficient of peer companies
    
-
 %    
27.50
%
Expected dividend yield
    
-
      
-
  
Grant date fair value
  
$
3.57-5.06
    
$
16.02
  

The following is a summary of non-vested PSUs:

 
  
Number of
Shares
    
Weighted Average
Grant Date Fair
Value
  
Outstanding at March 31, 2023
    
192,696
    
$
17.48
  
Granted
    
533,856
    
$
4.20
  
Vested
    
-
    
$
-
  
Forfeited
    
-
    
$
-
  
Outstanding at June 30, 2023
    
726,552
    
$
7.73
  

At June 30, 2023, there was $3,827,000 of unrecognized compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 1.7 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 returns:

   
Three Months Ended
  
 
  
June 30,
  
 
  
2023
    
2022
  
Balance at beginning of period
  
$
19,830,000
    
$
20,125,000
  
Charged to expense
    
31,112,000
      
30,920,000
  
Amounts processed
    
(34,265,000
)
    
(33,177,000
)
Balance at end of period
  
$
16,677,000
    
$
17,868,000
  

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, and its compliance with law, code, and regulations related to all matters including but not limited to environmental, information security, taxes, levies, tariffs and such.

21

17. Segment Information

Effective as of the fourth quarter of fiscal 2023, the Company revised its segment reporting as it determined that its three operating segments no longer met the criteria to be aggregated. The Company recast its prior year segment disclosures to conform to the current year’s presentation.

The Company’s three operating segments are:

•
Hard Parts, including (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv) turbochargers,

•
Test Solutions and Diagnostic Equipment, including (i) applications for combustion engine vehicles, including bench top testers for alternators and starters, (ii) equipment for the pre- and post-production of electric vehicles, and (iii) software emulation of power systems applications for the electrification of all forms of transportation (including automobiles, trucks, the emerging electrification of systems within the aerospace industry, and electric vehicle charging stations), and

•
Heavy Duty, including non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications.



The Company’s Hard Parts operating segment meets the criteria of a reportable segment while Test Solutions and Diagnostic Equipment and Heavy Duty are not material, are not required to be separately reported, and are included within the “all other” category.
22

Financial information relating to the Company’s segments is as follows:
   
Three Months Ended June 30, 2023
  
   
Hard Parts
    
All Other
    
Total
  
Net sales to external customers
  
$
149,747,000
    
$
9,958,000
    
$
159,705,000
  
Intersegment sales
    
132,000
      
95,000
      
227,000
  
Operating income (loss)
    
11,506,000
      
(1,079,000
)
    
10,427,000
  
Depreciation and amortization
    
2,679,000
      
354,000
      
3,033,000
  
Segment assets
    
1,063,301,000
      
52,368,000
      
1,115,669,000
  
Capital expenditures
    
40,000
      
-
      
40,000
  


   
Three Months Ended June 30, 2022
  
   
Hard Parts
    
All Other
    
Total
  
Net sales to external customers
  
$
152,428,000
    
$
11,557,000
    
$
163,985,000
  
Intersegment sales
    
147,000
      
142,000
      
289,000
  
Operating income (loss)
    
9,611,000
      
(2,280,000
)
    
7,331,000
  
Depreciation and amortization
    
2,751,000
      
373,000
      
3,124,000
  
Segment assets
    
1,005,718,000
      
44,530,000
      
1,050,248,000
  
Capital expenditures
    
1,342,000
      
33,000
      
1,375,000
  


   
Three Months Ended
  
   
June 30,
  
Net sales
  
2023
    
2022
  
Total net sales for reportable segment
  
$
149,879,000
    
$
152,575,000
  
Other net sales
    
10,053,000
      
11,699,000
  
Elimination of intersegment net sales
    
(227,000
)
    
(289,000
)
Total consolidated net sales
  
$
159,705,000
    
$
163,985,000
  


   
Three Months Ended
  
   
June 30,
  
Profit or loss
  
2023
    
2022
  
Total operating income for reportable segment
  
$
11,506,000
    
$
9,611,000
  
Other operating loss
   
(1,079,000
)
    
(2,280,000
)
Elimination of intersegment operating income
    
14,000
      
4,000
  
Interest expense, net
    
(11,720,000
)
    
(6,921,000
)
Change in fair value of compound net derivative liability
    
(140,000
)
    
-
  
Total consolidated (loss) income before income tax (benefit) expense
  
$
(1,419,000
)
  
$
414,000
  


Assets
  
June 30, 2023
    
March 31, 2023
  
Total assets for reportable segment
  
$
1,063,301,000
    
$
1,032,739,000
  
Other assets
    
52,368,000
      
49,778,000
  
Elimination of intersegment assets
    
(57,482,000
)
    
(53,952,000
)
Total consolidated assets
  
$
1,058,187,000
    
$
1,028,565,000
  


18. 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 months ended June 30, 2023, the Company did not repurchase any shares of its common stock. As of June 30, 2023, $18,745,000 has been 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 June 30, 2023. 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.
19. Related Party Transactions
Lease
In December 2022, the Company entered into an operating lease for its 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by a member of management. The lease, which commenced January 1, 2023, has an initial term of one year with a base rent of approximately $27,000 per month and includes options to renew for up to four years. The rent expense recorded by the Company for the related party lease was $81,000 for the three months ended June 30, 2023.
23
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, 2023 audited consolidated financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 14, 2023.

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. 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, 2023, 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

With a scalable infrastructure and abundant growth opportunities, we are focused on growing our aftermarket business in the North American marketplace and growing our leadership position in the test solutions and diagnostic equipment market by providing innovative and intuitive solutions to our customers. Our investments in infrastructure and human resources during the past few years reflects the significant expansion of manufacturing capacity to support multiple product lines. 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 original 312,000 square foot facility in Mexico.

Segment Reporting

Effective as of the fourth quarter of fiscal 2023, we revised our segment reporting as we determined that our three operating segments no longer met the criteria to be aggregated. We recast our prior year segment disclosures to conform to the current year’s presentation.

Our three operating segments are as follows:


 •
Hard Parts, including (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv) turbochargers,

•
Test Solutions and Diagnostic Equipment, including (i) applications for combustion engine vehicles, including bench top testers for alternators and starters, (ii) equipment for the pre- and post-production of electric vehicles, and (iii) software emulation of power systems applications for the electrification of all forms of transportation (including automobiles, trucks, the emerging electrification of systems within the aerospace industry, and electric vehicle charging stations), and

•
Heavy Duty, including non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications.

Our Hard Parts operating segment meets the criteria of a reportable segment. The Test Solutions and Diagnostic Equipment and Heavy Duty segments are not material, are not required to be separately reported, and are included within the “all other” category. See Note 17 of the notes to condensed consolidated financial statements for more information.

24
Results of Operations for the Three Months Ended June 30, 2023 and 2022

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
June 30,
   
   
2023
    
2022
  
Consolidated cash flow used in operations
  
$
(20,470,000
)
  
$
(982,000
)
Consolidated finished goods turnover (annualized) (1)
    
3.5
      
3.1
  

  (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.

Net Sales and Gross Profit

The following summarizes net sales and gross profit:

     
Three Months Ended
June 30,
   
   
2023
    
2022
  
Net sales
  
$
159,705,000
    
$
163,985,000
  
Cost of goods sold
    
133,138,000
      
133,683,000
  
Gross profit
    
26,567,000
      
30,302,000
  
Gross profit percentage
    
16.6
%
    
18.5
%

Net Sales. Our net sales for the three months ended June 30, 2023 were $159,705,000, which represents a decrease of $4,280,000, or 2.6%, from the three months ended June 30, 2022 of $163,985,000. Sales for the three months ended June 30, 2023 were impacted by the purchasing patterns of certain of our largest customers, which were partially offset by growing sales of our brake-related products.

Gross Profit. Our gross profit was $26,567,000, or 16.6% of net sales, for the three months ended June 30, 2023 compared with $30,302,000, or 18.5% of net sales, for the three months ended June 30, 2022. This change in our gross margin for the three months ended June 30, 2023 compared with the three months ended June 30, 2022 was due primarily to changes in product mix and (i) additional expenses of $1,984,000 and $799,000, respectively, primarily due to certain costs for disruptions in the supply chain, (ii) amortization of core and finished goods premiums paid to customers related to new business of $2,657,000 and $3,044,000, respectively, and (iii) the non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $778,000 and $572,000, respectively.

25
Operating Expenses

The following summarizes operating expenses:

     
Three Months Ended
June 30,
   
   
2023
    
2022
  
General and administrative
  
$
12,602,000
    
$
13,634,000
  
Sales and marketing
    
5,419,000
      
5,542,000
  
Research and development
    
2,375,000
      
3,113,000
  
Foreign exchange impact of lease liabilities and forward contracts
    
(4,270,000
)
    
678,000
  
                 
Percent of net sales
                
                 
General and administrative
    
7.9
%
    
8.3
%
Sales and marketing
    
3.4
%
    
3.4
%
Research and development
    
1.5
%
    
1.9
%
Foreign exchange impact of lease liabilities and forward contracts
    
(2.7
)%
    
0.4
%

General and Administrative. Our general and administrative expenses for the three months ended June 30, 2023 were $12,602,000, which represents a decrease of $1,032,000, or 7.6%, from the three months ended June 30, 2022 of $13,634,000. This decrease was primarily due to the favorable foreign currency exchange rates during the three months ended June 30, 2023 as compared with the three months ended June 30, 2022.

Sales and Marketing. Our sales and marketing expenses for the three months ended June 30, 2023 were $5,419,000, which represents a decrease of $123,000, or 2.2%, from the three months ended June 30, 2022 of $5,542,000. This decrease was primarily due to $258,000 of decreased employee-related expenses due to our cost-cutting measures partially offset by $172,000 of increased commissions.

Research and Development. Our research and development expenses for the three months ended June 30, 2023 were $2,375,000, which represents a decrease of $738,000, or 23.7%, from the three months ended June 30, 2022 of $3,113,000. This decrease was primarily due to (i) $427,000 of decreased employee-related expenses due to our cost-cutting measures, (ii) $178,000 of decreased outside services, and (iii) $121,000 of decreased purchases of samples for our core library and other research and development supplies.

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts for the three months ended June 30, 2023 was a non-cash gain of $4,270,000 compared with a non-cash loss of $678,000 for the three months ended June 30, 2022. This change was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in non-cash gains of $3,770,000 and $20,000 for the three months ended June 30, 2023 and 2022, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in a non-cash gain of $500,000 compared with a non-cash loss of $698,000 for the three months ended June 30, 2023 and 2022, respectively, due to the changes in their fair values.

Operating Income

Consolidated Operating Income. Our consolidated operating income for the three months ended June 30, 2023 was $10,441,000, which represents an increase of $3,106,000, or 42.3%, from the three months ended June 30, 2022 of $7,335,000. Operating income increased primarily due to lower operating expenses partially offset by decreased gross profit as discussed above.

26
Interest Expense

Interest Expense, net. Our interest expense for the three months ended June 30, 2023 was $11,720,000, which represents an increase of $4,799,000, or 69.3%, from interest expense for the three months ended June 30, 2022 of $6,921,000. This increase was primarily due to higher interest rates on our borrowing and accounts receivable discount programs, which have variable interest rates. Interest expense for the three months ended June 30, 2023 was further impacted by interest expense incurred on the Convertible Notes.

Change in Fair Value of Compound Net Derivative Liability

Change in Fair Value of Compound Net Derivative Liability. Our change in fair value of compound net derivative liability for the three months ended June 30, 2023 was a non-cash loss of $140,000 associated with the Convertible Notes issued on March 31, 2023.

Provision for Income Taxes

Income Tax. We recorded an income tax benefit of $9,000, or an effective tax rate of 0.6%, and income tax expense of $589,000, or an effective tax rate of 142.3%, for the three months ended June 30, 2023 and 2022, 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 June 30, 2023, was primarily impacted by (i) foreign income taxed at rates that are different from the federal statutory rate, (ii) non-deductible executive compensation under Internal Revenue Code Section 162(m), and (iii) specific jurisdictions that we do not expect to recognize the benefit of losses.

Liquidity and Capital Resources

Overview

We had working capital (current assets minus current liabilities) of $153,726,000 and $154,886,000, a ratio of current assets to current liabilities of 1.4:1.0, at June 30, 2023 and March 31, 2023, respectively.  The change in our working capital is due to the short-term classification of our term loans as we plan to repay the outstanding balance in August 2023 partially offset by the replenishment of our inventory due to higher sales in the prior year.

We have $32,000,000 of aggregate principal amount of convertible notes outstanding that bear interest at a rate of 10% per year. The convertible notes may either be redeemed for cash, converted into shares of our common stock, or a combination thereof, at our election. The convertible notes will mature on March 30, 2029, unless earlier converted, repurchased or redeemed.

Our primary source of liquidity was from the use of our receivable discount programs and credit facility during the three months ended June 30, 2023. 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, 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 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 June 30, 2023, $18,745,000 had been 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 June 30, 2023. 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.

27
Cash Flows

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

    
Three Months Ended
June 30,
  
   
2023
    
2022
  
Cash flows (used in) provided by:
            
Operating activities
  
$
(20,470,000
)
  
$
(982,000
)
Investing activities
    
(67,000
)
    
(1,461,000
)
Financing activities
    
19,673,000
      
(11,266,000
)
Effect of exchange rates on cash and cash equivalents
    
155,000
      
(90,000
)
Net decrease in cash and cash equivalents
  
$
(709,000
)
  
$
(13,799,000
)
Additional selected cash flow data:
                
Depreciation and amortization
  
$
3,033,000
    
$
3,124,000
  
Capital expenditures
    
40,000
      
1,375,000
  

Net cash used in operating activities was $20,470,000 and $982,000 during the three months ended June 30, 2023 and 2022, respectively. The change in our operating activities reflects our higher accounts receivable balances as we managed the use of our customers’ receivable discount programs and replenishment of inventory due to higher sales in the prior year.

Net cash used in investing activities was $67,000 and $1,461,000 during the three months ended June 30, 2023 and 2022, respectively. The change in our investing activities primarily resulted from decreased capital expenditures.

Net cash provided by financing activities was $19,673,000 compared with cash used in financing activities of $11,266,000 during the three months ended June 30, 2023 and 2022, respectively. The change in our financing activities resulted from increased borrowing and lower repayments under our credit facility as we managed the use of our customers’ receivable discount programs to reduce overall interest expense during the three months ended June 30, 2023.

Capital Resources

Credit Facility

We are party to a $268,620,000 senior secured financing (as amended from time to time, the “Credit Facility”) consisting of a $238,620,000 revolving loan facility (the “Revolving Facility”), subject to certain restrictions, and a $30,000,000 term loan facility (the “Term Loans”). The loans under the Credit Facility mature on May 28, 2026 and the lenders have a security interest in substantially all of our assets. The interest rate on our Term Loans and Revolving Facility was 8.52% and 8.46% respectively, at June 30, 2023, and 8.02% and 8.13% respectively, at March 31, 2023.

On August 3, 2023, we entered into a seventh amendment to the Credit Facility, which among other things, (i) permits us to repay our outstanding balance of Term Loans, (ii) permits the exclusion of quarterly principal payments of Term Loans from the fixed charge coverage ratio (including retrospectively for the prior periods) for all quarters beginning June 30, 2023, (iii) resets the fixed charge coverage ratio financial covenant level for the quarters ending September 30, 2023 and December 31, 2023, (iv) eliminates the senior leverage ratio financial covenant effective with the quarter ended June 30, 2023, (v) extends the minimum undrawn availability financial covenant through the delivery of the June 30, 2024 compliance certificate, and (vi) excludes the amount of all amendment fees and expenses incurred in connection with this amendment as well as prior unamortized fees associated with the Term Loans from bank EBITDA and the fixed charge coverage ratio financial covenant. The modifications to the financial covenants were effective as of June 30, 2023. On August 3, 2023, we repaid the outstanding balance of our Term Loans and wrote-off the remaining unamortized financing fees recorded in connection with the Term Loans.

28
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 amended financial covenants as of June 30, 2023.

We had $167,000,000 and $145,200,000 outstanding under the Revolving Facility at June 30, 2023 and March 31, 2023, respectively. In addition, $6,370,000 was outstanding for letters of credit at June 30, 2023. At June 30, 2023, after certain contractual adjustments, $65,250,000 was available under the Revolving Facility.

Convertible Notes

On March 31, 2023, we entered into a note purchase agreement, (the “Note Purchase Agreement”) with Bison Capital Partners VI, L.P. and Bison Capital Partners VI-A, L.P. (collectively, the “Purchasers”) and Bison Capital Partners VI, L.P., as the purchaser representative (the “Purchaser Representative”) for the issuance and sale of $32,000,000 in aggregate principal amount of convertible notes due in 2029 (the “Convertible Notes”), which was used for general corporate purposes. The Convertible Notes bear interest at a rate of 10.0% per annum, compounded annually, and payable (i) in kind or (ii) in cash, annually in arrears on April 1 of each year, commencing on April 1, 2024. The Convertible Notes have an initial conversion price of approximately $15.00 per share of common stock. (“Conversion Option”). Unless and until we deliver a redemption notice, the Purchasers of the Convertible Notes may convert their Convertible Notes at any time at their option. Upon conversion, the Convertible Notes will be settled in shares of our common stock. Except in the case of the occurrence of a fundamental transaction, as defined in the form of convertible promissory note, we may not redeem the Convertible Notes prior to March 31, 2026. After March 31, 2026, we may redeem all or part of the Convertible Notes for a cash purchase (the “Company Redemption”) price.

On June 8, 2023, we entered into the first amendment to the Note Purchase Agreement, which among other things, removed a provision that specified the Purchasers would be entitled to receive a dividend or distribution payable in certain circumstances. This amendment was effective as of March 31, 2023.

On August 1, 2023, we entered into the second amendment to the Note Purchase Agreement, which amended the definition of “Permitted Restricted Payments” to permit the prepayment of our Term Loans.

In connection with the Note Purchase Agreement, we entered into common stock warrants (the “Warrants”) with the Purchasers, which mature on March 30, 2029. The fair value of the Warrants, using Level 3 inputs and the Monte Carlo simulation model, was zero at June 30, 2023 and March 31, 2023.

The Company Redemption option has been combined with the Conversion Option as a compound net derivative liability (the “Compound Net Derivative Liability”). The Compound Net Derivative Liability has been recorded within convertible note, related party in the condensed consolidated balance sheets at June 30, 2023 and March 31, 2023. The fair value of the Conversion Option and the Company Redemption option using Level 3 inputs and the Monte Carlo simulation model was a liability of $10,800,000 and $10,400,000, and an asset of $2,230,000 and $1,970,000 at June 30, 2023 and March 31, 2023, respectively. During the three months ended June 30, 2023, we recorded $140,000 as the change in fair value of Compound Net Derivative Liability in the condensed consolidated statement of operations and condensed consolidated statement of cash flows.

The Convertible Notes also contain additional features, such as, default interest and options related to a fundamental transaction, which were not separately accounted for as the value of such features were not material at June 30, 2023 and March 31, 2023.

Receivable Discount Programs

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

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

     
Three Months Ended
June 30,
   
   
2023
    
2022
  
Receivables discounted
  
$
104,332,000
    
$
142,624,000
  
Weighted average number of days collection was accelerated
    
337
      
327
  
Annualized weighted average discount rate
    
6.4
%
    
3.7
%
Amount of discount recognized as interest expense
  
$
6,252,000
    
$
4,874,000
  

Capital Expenditures and Commitments

Capital Expenditures

Our total capital expenditures, including finance leases and non-cash capital expenditures were $64,000 and $1,190,000 for the three months ended June 30, 2023 and 2022, respectively. These capital expenditures primarily include the purchase of equipment for our current operations. We expect to incur approximately $5,000,000 of capital expenditures primarily to support our current operations during fiscal 2024. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.

Related Party Transactions

Lease

In December 2022, we entered into an operating lease for our 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by a member of management. The lease, which commenced January 1, 2023, has an initial term of one year with a base rent of approximately $27,000 per month and includes options to renew for up to four years. The rent expense recorded for the related party lease was $81,000 for the three months ended June 30, 2023.

Litigation

We are 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 our business, and our compliance with law, code, and regulations related to all matters including but not limited to environmental, information security, taxes, levies, tariffs and such.

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, 2023, which was filed on June 14, 2023.

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, 2023, which was filed with the SEC on June 14, 2023.

30
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 June 30, 2023.

Inherent Limitations on Effectiveness of Controls
 
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
 
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America, applying certain estimates and judgments as required.
 
Internal control over financial reporting includes those policies and procedures that:
 
1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Changes in Internal Control Over Financial Reporting
 
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) that occurred during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1.
Legal Proceedings

We are 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 our business, and our compliance with law, code, and regulations related to all matters including but not limited to environmental, information security, taxes, levies, tariffs and such.

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, 2023, filed on June 14, 2023.

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 $30,000,000 of dividends and share repurchases for fiscal year 2024, subject to pro forma compliance with amended financial covenants.

Purchases of Equity Securities by the Issuer

Shares repurchased during the three months ended June 30, 2023 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)
  
                         
April 1 - April 30, 2023:
                        
Open market and privately negotiated purchases
    
-
    
$
-
      
-
    
$
18,255,000
  
May 1 - May 31, 2023:
                                
Open market and privately negotiated purchases
    
-
    
$
-
      
-
      
18,255,000
  
June 1 - June 30, 2023:
                                
Open market and privately negotiated purchases
    
-
    
$
-
      
-
      
18,255,000
  
Total
    
0
              
0
    
$
18,255,000
  

  (1)
As of June 30, 2023, $18,745,000 had been 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 June 30, 2023. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

Item 3.
Defaults Upon Senior Securities

None.

Item 5.
Other Information

(a)
None.
 
(b)
None.
 
(c)
During the quarter ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as each such term is defined in Item 408 of Regulation S-K.

32
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.
         
 
Amendment to Certificate of Incorporation of the Company
  
Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
         
 
Amendment to Certificate of Incorporation of the Company
  
Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the “1998 Form 10-K”).
         
 
Amendment to Certificate of Incorporation of the Company
  
Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on November 25, 2003.
         
 
Amended and Restated By-Laws of Motorcar Parts of America, Inc.
  
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on August 24, 2010.
         
 
Certificate of Amendment of the Certificate of Incorporation of the Company
  
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on April 17, 2014.
         
 
Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on June 9, 2016
  
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 14, 2016.
         
 
Amendment to the Amended and Restated By-Laws of the Company
  
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 22, 2017.
         
 
Third Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on January 26, 2022
  
Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 1, 2022.
         
 
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
  
Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q filed on August 9, 2022.
         
 
2004 Non-Employee Director Stock Option Plan
  
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders Meeting.
         
 
2010 Incentive Award Plan
  
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on December 15, 2010.
         
 
Amended and Restated 2010 Incentive Award Plan
  
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 5, 2013.

33
Number          
  
Description of Exhibit          
  
Method of Filing          
         
 
Second Amended and Restated 2010 Incentive Award Plan
  
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 3, 2014.
         
 
2014 Non-Employee Director Incentive Award Plan
  
Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed on March 3, 2014.
         
 
Third Amended and Restated 2010 Incentive Award Plan
  
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on November 20, 2017.
         
 
Fourth Amended and Restated 2010 Incentive Award Plan
  
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on July 24, 2020.
         
 
2022 Incentive Award Plan
  
Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on July 29, 2022.
         
 
Form of Convertible Promissory Note
  
Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on March 31, 2023.
         
 
Form of Common Stock Warrant
  
Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on March 31, 2023.
         
 
First Amended and Restated Convertible Promissory Note
  
Incorporated by reference to Exhibit 4.12 to the Annual Report on Form 10-K filed on June 14, 2023.
         
 
First Amended and Restated Common Stock Warrant
  
Incorporated by reference to Exhibit 4.13 to the Annual Report on Form 10-K filed on June 14, 2023.
         
 
Seventh Amendment to Amended and Restated Loan Agreement, dated as of August 3, 2023, among Motorcar Parts of America, Inc., D & V Electronics Ltd., Dixie Electric Ltd., and Dixie Electric Inc., each lender from time to time party thereto, and PNC Bank, National Association, as administrative agent
  
Filed herewith.
         
 
Second Amendment to the Note Purchase Agreement
  
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.

34
Number          
  
Description of Exhibit          
  
Method of Filing          
         
101.INS
  
Inline XBRL Instance Document (the instance document does  not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document).
    
         
101.SCM
  
Inline XBRL Taxonomy Extension Schema Document
    
         
101.CAL
  
Inline XBRL Taxonomy Extension Calculation Linkbase Document
    
         
101.DEF
  
Inline XBRL Taxonomy Extension Definition Linkbase Document
    
         
101.LAB
  
Inline XBRL Taxonomy Extension Label Linkbase Document
    
         
101.PRE
  
Inline XBRL Taxonomy Extension Presentation Linkbase Document
    
         
104
  
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
    

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: August 9, 2023
By:
/s/ David Lee
   
David Lee
   
Chief Financial Officer
     
Dated: August 9, 2023
By:
/s/ Kamlesh Shah
   
Kamlesh Shah
   
Chief Accounting Officer


36
Exhibit 10.1

SEVENTH AMENDMENT TO AMENDED AND RESTATED
LOAN AGREEMENT

This SEVENTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT, dated as of August 3, 2023 (this “Seventh 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”).

BACKGROUND

Borrowers, Agent and the Lenders are party to the Loan Agreement pursuant to which Agent and Lenders provide Borrowers with certain financial accommodations.

Borrowers have requested that Agent and Lenders make certain amendments to the Loan Agreement, and Agent and Lenders agree to do so on the terms and conditions 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.           Amendments. Subject to satisfaction of the conditions precedent set forth in Section 3 below, the Loan Agreement is hereby amended as follows:

(a)          Section 1.2 of the Loan Agreement is hereby amended by inserting the following new defined terms in appropriate alphabetical order:

“Seventh Amendment” means that certain Seventh Amendment to Amended and Restated Loan Agreement, dated as of the Seventh Amendment Effective Date, by and among Borrowers, Agent and the Lenders party thereto.

“Seventh Amendment Effective Date” means August 3, 2023.

“Seventh Amendment Fee Letter” shall mean the fee letter dated as of the Seventh Amendment Effective Date between Agent and Borrowing Agent.

(b)          Section 1.2 of the Loan Agreement is hereby further amended by amending and restating the following defined terms in their entirety as follows:

“Applicable Margin” shall mean, commencing on the Seventh Amendment Effective Date, for Revolving Advances and Swing Loans, the applicable percentage specified below:

APPLICABLE MARGINS FOR
DOMESTIC RATE LOANS
APPLICABLE MARGINS FOR
TERM SOFR RATE LOANS
Revolving Advances, Swing Loans
Revolving Advances
2.25%
3.25%

“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; provided that, with respect to any Revolving Advances outstanding immediately prior to the Seventh Amendment Effective Date which are Term SOFR Rate Loans, the Revolving Interest Rate applicable thereto shall continue to be the “Revolving Interest Rate” established at the time each such Revolving Advance was made until the end of the applicable Interest Period.

(c)          Section 1.2 of the Loan Agreement is hereby further amended by amending the definition of “Consolidated EBITDA” as follows:

(i)          deleting the reference to “and” at the end of clause (b)(xviii) therein and inserting a comma in lieu thereof, and

(ii)         deleting the reference to “minus” at the end of clause (b)(xix) therein and inserting the following in lieu thereof:

“and (xx) fees related to the Term Loan which have been written off during such period, and the amount of all costs, fees and expenses incurred by Borrowers in connection with the Seventh Amendment (including any portion of the fees due and payable under the Seventh Amendment Fee Letter and any legal expenses incurred in connection with the Seventh Amendment, including any fees and legal expenses which have been charged directly as general and administrative expenses on the Borrowers’ profit and loss statement), minus”

2
(d)          Section 1.2 of the Loan Agreement is hereby further amended by inserting the following sentence at the end of the definition of “Fixed Charge Coverage Ratio”:

“Notwithstanding the foregoing, principal payments on the Term Loan (including any principal payments made prior to the Seventh Amendment Effective Date) shall be excluded from any calculation of the Fixed Charge Coverage Ratio (including for purposes of the Compliance Certificate for the fiscal quarter ended June 30, 2023 and for each fiscal quarter ending thereafter).”

(e)          Section 1.2 of the Loan Agreement is hereby further amended by deleting the following defined terms therefrom: “Consolidated Funded Indebtedness” and “Total Leverage Ratio”.

(f)          Section 2.3 of the Loan Agreement is hereby amended by amending and restating the first paragraph thereof in its entirety to provide as follows:

“2.3.          Term Loans. Subject to the terms and conditions of this Agreement, each Lender, severally and not jointly, will make a term loan to MPA in the amount equal to such Lender’s Term Loan Commitment Percentage of $30,000,000 (the “Term Loan”). The Term Loan shall be advanced on the Amendment and Restatement Closing Date and shall be, with respect to principal, payable as follows, subject to acceleration upon the occurrence of an Event of Default under this Agreement or termination of this Agreement: consecutive quarterly installments each in the amount of $937,500 commencing October 1, 2018 and continuing on the first Business Day of each quarter thereafter followed by a final payment of all unpaid principal, accrued and unpaid interest and all unpaid fees and expenses on the last day of the Term; provided, however, that, the Borrowers authorize Agent to charge to US Borrowers’ Account on the Seventh Amendment Effective Date as a Revolving Advance the aggregate amount necessary to repay in full the entire outstanding principal amount of the Term Loan, together with all accrued and unpaid interest and all unpaid fees and expenses thereon.”

(g)          Section 2.21 of the Loan Agreement is hereby amended by deleting the following sentence therefrom: “MPA shall not use the proceeds of any Revolving Advance to prepay the Term Loan.”

(h)          Section 6.5 of the Loan Agreement is hereby amended and restated in its entirety to provide as follows:

“(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, (vi) for the fiscal quarters ending March 31, 2023 and June 30, 2023, a Fixed Charge Coverage Ratio of not less than 1.01 to 1.0, (vii) for the fiscal quarter ending September 30, 2023, a Fixed Charge Coverage Ratio of not less than 1.05 to 1.0, (viii) for the fiscal quarter ending December 31, 2023, a Fixed Charge Coverage Ratio of not less than 1.10 to 1.0, and (ix) for each fiscal quarter ending 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.

3

(b)          [Reserved].

(c)          Minimum Undrawn Availability. Maintain at all times Unsuppressed Undrawn Availability of not less than 17.5% of the Maximum Revolving Advance Amount which, as of the Seventh Amendment Effective Date, equals $41,758,500; provided, however, that compliance with this covenant shall cease to be required if the Compliance Certificates for the fiscal quarters ended June 30, 2023, September 30, 2023, December 31, 2023, March 31, 2024 and June 30, 2024 show compliance with the requirements of Sections 6.5 and 7.7 as of the end of such fiscal quarters.”

3.          Conditions to Effectiveness. The effectiveness of this Seventh 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 “Seventh Amendment Effective Date”):

(a)          Representations and Warranties; No Event of Default. After giving effect to this Seventh Amendment, the following statements shall be true and correct: (i) the representations and warranties contained in this Seventh 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 Seventh 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 Seventh 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 Seventh Amendment Effective Date or would result from the Seventh Amendment becoming effective in accordance with its terms.

(b)          Execution of Amendment. Agent and the Lenders shall have executed this Seventh Amendment and shall have received a counterpart to this Seventh Amendment, duly executed by each Loan Party.

(c)          Payment of Fees. Borrowers shall have paid, on or before the Seventh Amendment Effective Date, (i) the amounts set forth in the Seventh 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 Seventh 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 3(c) shall be fully earned and payable as of the Seventh Amendment Effective Date, and may be charged by Agent to the U.S. Borrower’s Account on the Seventh Amendment Effective Date as a Revolving Advance.

4
(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 Seventh 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 Seventh Amendment and each Other Document executed in connection with this Seventh 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 Seventh Amendment and such Other Documents and (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).

(e)          Legal Opinion. Agent shall have received the executed legal opinion of (i) Latham & Watkins LLP, counsel to the Loan Parties and (ii) Stikeman Elliott LLP, Canadian counsel to the Loan Parties in each case, in form and substance reasonably satisfactory to Agent which shall cover such matters incident to the Seventh Amendment as Agent may reasonably require.

(f)          Repayment of the Term Loan. The Borrowers shall have repaid in full the entire outstanding principal amount of the Term Loan in the aggregate amount of $11,250,000, together with all accrued and unpaid interest and all unpaid fees and expenses thereon, which amounts Borrowers authorize Agent to charge to US Borrowers’ Account on the Seventh Amendment Effective Date as a Revolving Advance.

4.
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 Seventh 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.

5
(b)          Authorization, Etc. The execution, delivery and performance by each Loan Party of this Seventh 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 Seventh Amendment by the Loan Parties, and the performance of the Loan Agreement, as amended hereby.

(d)          Enforceability of this Seventh Amendment. This Seventh 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 3(a) of this Seventh Amendment are true and correct.

5.          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 Seventh 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 Seventh Amendment Effective Date directly arising out of, connected with or related to this Seventh 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.

6
6.
No Novation; Reaffirmation and Confirmation.

(a)         This Seventh 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 Seventh 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 Seventh Amendment.

7.
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 Seventh 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 Seventh 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 Seventh 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 Seventh 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.

7
(b)        Counterparts. This Seventh 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 Seventh Amendment by fax or electronic mail shall be equally as effective as delivery of an original executed counterpart of this Seventh 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 Seventh 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 Seventh Amendment.

(e)          Seventh Amendment as Other Document. Each Loan Party hereby acknowledges and agrees that this Seventh 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 Seventh 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 Seventh Amendment (subject to any applicable notice or grace periods under the Loan Agreement).

(f)          Severability. Any provision of this Seventh 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 Seventh 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 SEVENTH 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.]

8
IN WITNESS WHEREOF, the parties hereto have caused this Seventh 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/ Kalina Loukanov
 
Name:
Kalina Loukanov
 
Title:
Acting 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, A DIVISION OF WEBSTER BANK, N.A.
     
     
 
By:
/s/ John R. Saffioti
 
Name:
John R. Saffioti
 
Title:
Director, Asset Based Lending

 
BANK HAPOALIM B.M.
     
     
 
By:
/s/ Thomas J. Vigna
 
Name:
Thomas J. Vigna
 
Title:
Senior Vice President
     
 
By:
/s/ Michael Gorman III
 
Name:
Michael Gorman III
 
Title:
First Vice President

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

 
ISRAEL DISCOUNT BANK OF NEW YORK
     
     
 
By:
/s/ Frank Mancini
 
Name:
Frank Mancini
 
Title:
First Vice President
     
 
By:
/s/ Richard Miller
 
Name:
Richard Miller
 
Title:
Senior Vice President


Exhibit 10.2

SECOND AMENDMENT TO NOTE PURCHASE AGREEMENT

This SECOND AMENDMENT TO NOTE PURCHASE AGREEMENT dated as of August 1, 2023 (this “Amendment”), and amends that certain Note Purchase Agreement dated March 31, 2023, as amended by that First Amendment to Note Purchase Agreement dated June 8, 2023 (as may be further amended from time to time, the “Note Purchase Agreement”) by and among Motorcar Parts of America, Inc., a New York corporation (“Company”), and, severally and not jointly, Bison Capital Partners VI, L.P., a Delaware limited partnership (“Purchaser One”), Bison Capital Partners VI-A, L.P., a Delaware limited partnership (“Purchaser Two”; each of Purchaser One and Purchaser Two is sometimes referred to individually as a “Purchaser” and together as the “Purchasers”), and Bison Capital Partners VI, L.P., a Delaware limited partnership, as the representative of the Purchasers (the “Purchaser Representative”). Capitalized terms used herein without definition shall have the meanings ascribed to them in the Note Purchase Agreement.

W I T N E S S E T H :

WHEREAS, pursuant to Section 10.4 the Note Purchase Agreement, the Note Purchase Agreement may be amended by an instrument in writing, signed by the Company and the Purchaser Representative; and

WHEREAS, the Company, Purchasers and Purchaser Representative have agreed to amend the Note Purchase Agreement as described herein;

NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:


 1.
Amendments.
  (a)
The definition of “Permitted Restricted Payments” contained in the Note Purchase Agreement is hereby amended and restated in its entirety with the following:

“Permitted Restricted Payments” shall mean any of the following: (a) Restricted Payments made by a Group Company to one or more other Group Companies that directly owns Capital Stock in such Group Company, ratably according to their respective holdings of the type of Capital Stock in respect of which such dividend or distribution is being made; (b) Restricted Payments by any Group Company payable solely in the Capital Stock of such Group Company; (c) so long as no Default shall exist or result therefrom, repurchases by the Company of its Capital Stock and/or stock options and/or dividends in an amount up to Twenty Million Dollars ($20,000,000) in the aggregate for such repurchases and/or dividends in any fiscal year (it being understood that with respect to any unused amounts in any fiscal year, an amount equal to fifty percent (50%) of the unused amount from such fiscal year may be carried forward to the immediately subsequent fiscal year; provided, that during such subsequent fiscal year, the Company shall utilize the permitted amount for such fiscal year before using any carried over amount); (d) any payment on or with respect to, or any purchase, redemption, decrease, refinancing, acquisition, or retirement for value of any Senior Debt, and (e) so long as no Default shall exist or result therefrom, any Restricted Payment in an amount not otherwise permitted by this definition, in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in any fiscal year.

2. Limitation of Amendment. This Amendment is effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Transaction Document (as defined in the Note Purchase Agreement), or (b) otherwise prejudice any right or remedy which any Purchaser may now have or may have in the future under or in connection with any Transaction Document.

3. Ratification of the Agreement. The Note Purchase Agreement and the other Transaction Documents are in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Amendment is a Transaction Document and shall form a part of the Note Purchase Agreement for all purposes, and every holder of a Note shall be bound hereby. In furtherance of the foregoing, the Company hereby agrees that the representations and warranties contained in Article 3 of the Note Purchase Agreement regarding the Transaction Documents shall be deemed to include, effective as of the Closing, this Amendment.

4. Effectiveness. The Company, Purchaser Representative and Purchasers agree and acknowledge that this Amendment shall govern and be considered effective as of August 1, 2023.

5. Governing Law. This Amendment and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the internal laws of the State of New York (including Section 5-1401 of the General Obligations Law of the State of New York), without regard to conflicts of laws principles that would require application of another law.

10. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.

 
“Company”
 
MOTORCAR PARTS OF AMERICA, INC.
   
 
By:
 /s/ Selwyn Joffe
   
Name: Selwyn Joffe
   
Title: President and Chief Executive Officer

 
“Purchasers”
 
BISON CAPITAL PARTNERS VI, L.P.
 
By:
Bison Capital Partners V GP, LP
 
Its:
General Partner
   
By:
Bison Capital Partners GP, LLC
   
Its:
General Partner
     
By:
 /s/ Doug Trussler
       
Name: Doug Trussler
       
Title: GP-EVP

 
BISON CAPITAL PARTNERS VI-A, L.P.
 
By:
Bison Capital Partners VI GP, LP
 
Its:
General Partner
   
By:
Bison Capital Partners GP, LLC
   
Its:
General Partner
     
By:
 /s/ Doug Trussler
       
Name: Doug Trussler
       
Title: GP-EVP

 
“Purchaser Representative”
 
BISON CAPITAL PARTNERS VI, L.P.,
 
By:
Bison Capital Partners VI GP, LP
 
Its:
General Partner
   
By:
Bison Capital Partners GP, LLC
   
Its:
General Partner
     
By:
/s/ Doug Trussler
       
Name: Doug Trussler
       
Title: GP-EVP


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: August 9, 2023
/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: August 9, 2023
/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: August 9, 2023
/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 June 30, 2023 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
 
August 9, 2023

In connection with the Quarterly Report of Motorcar Parts of America, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023 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
 
August 9, 2023

In connection with the Quarterly Report of Motorcar Parts of America, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2023 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
 
August 9, 2023

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.