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, 2022

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

FOR THE TRANSITION PERIOD FROM TO

Commission File No. 001-33861

MOTORCAR PARTS OF AMERICA, INC.

(Exact name of registrant as specified in its charter)

New York	11-2153962
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2929 California Street, Torrance, California	90503
---	---
(Address of principal executive offices)	(Zip Code)

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

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

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	MPAA	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

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

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

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

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

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

There were 19,227,146 shares of Common Stock outstanding at August 2, 2022.

MOTORCAR PARTS OF AMERICA, INC.

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive (Loss) Income	6
	Condensed Consolidated Statements of Shareholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	27
	Item 4. Controls and Procedures	27
PART II — OTHER INFORMATION
	Item 1. Legal Proceedings	29
	Item 1A. Risk Factors	29
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	29
	Item 5. Other Information	29
	Item 6. Exhibits	30
	SIGNATURES	32

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.

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

			March 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	9,217,000		$	23,016,000
Short-term investments	1,995,000			2,202,000
Accounts receivable — net	73,030,000			85,075,000
Inventory	405,205,000			385,504,000
Contract assets	27,783,000			27,500,000
Prepaid expenses and other current assets	11,705,000			13,688,000
Total current assets	528,935,000			536,985,000
Plant and equipment — net	49,384,000			51,062,000
Operating lease assets	80,157,000			81,997,000
Long-term deferred income taxes	27,046,000			26,982,000
Long-term contract assets	306,953,000			310,255,000
Goodwill and intangible assets — net	6,548,000			7,004,000
Other assets	1,403,000			1,413,000
TOTAL ASSETS	1,000,426,000		$	1,015,698,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	173,818,000		$	168,435,000
Customer finished goods returns accrual	28,793,000			38,086,000
Contract liabilities	43,645,000			42,496,000
Revolving loan	146,000,000			155,000,000
Other current liabilities	11,279,000			11,930,000
Operating lease liabilities	6,653,000			6,788,000
Current portion of term loan	3,670,000			3,670,000
Total current liabilities	413,858,000			426,405,000
Term loan, less current portion	12,097,000			13,024,000
Long-term contract liabilities	173,045,000			172,764,000
Long-term deferred income taxes	121,000			126,000
Long-term operating lease liabilities	79,552,000			80,803,000
Other liabilities	6,987,000			7,313,000
Total liabilities	685,660,000			700,435,000
Commitments and contingencies
Shareholders’ equity:
Preferred stock; par value 0.01 per share, 5,000,000 shares authorized; none issued	-			-
Series A junior participating preferred stock; par value 0.01 per share, 20,000 shares authorized; none issued	-			-
Common stock; par value 0.01 per share, 50,000,000 shares authorized; 19,214,978 and 19,104,751<br> shares issued and outstanding at June 30, 2022 and March 31, 2022, respectively	192,000			191,000
Additional paid-in capital	227,729,000			227,184,000
Retained earnings	92,779,000			92,954,000
Accumulated other comprehensive loss	(5,934,000	)		(5,066,000	)
Total shareholders’ equity	314,766,000			315,263,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	1,000,426,000		$	1,015,698,000

All values are in US Dollars.

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

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended<br><br> <br>June 30,
	2022			2021
Net sales	$	163,985,000		$	149,034,000
Cost of goods sold		133,683,000			125,463,000
Gross profit		30,302,000			23,571,000
Operating expenses:
General and administrative		13,634,000			12,486,000
Sales and marketing		5,542,000			5,368,000
Research and development		3,113,000			2,501,000
Foreign exchange impact of lease liabilities and forward contracts		678,000			(2,533,000	)
Total operating expenses		22,967,000			17,822,000
Operating income		7,335,000			5,749,000
Interest expense, net		6,921,000			3,941,000
Income before income tax expense		414,000			1,808,000
Income tax expense		589,000			947,000
Net (loss) income	$	(175,000	)	$	861,000
Basic net (loss) income per share	$	(0.01	)	$	0.05
Diluted net (loss) income per share	$	(0.01	)	$	0.04
Weighted average number of shares outstanding:
Basic		19,123,354			19,054,481
Diluted		19,123,354			19,659,057

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

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)

	Three Months Ended<br><br> <br>June 30,
	2022			2021
Net (loss) income	$	(175,000	)	$	861,000
Other comprehensive (loss) income, net of tax:
Foreign currency translation (loss) gain		(868,000	)		1,833,000
Total other comprehensive (loss) income, net of tax		(868,000	)		1,833,000
Comprehensive (loss) income	$	(1,043,000	)	$	2,694,000

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

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited)

	Common Stock
	Shares		Amount		Additional<br><br> <br>Paid-in<br><br> <br>Capital			Retained<br><br> <br>Earnings			Accumulated<br><br> <br>Other<br><br> <br>Comprehensive<br><br> <br>(Loss) Income			Total
Balance at March 31, 2022		19,104,751	$	191,000	$	227,184,000		$	92,954,000		$	(5,066,000	)	$	315,263,000
Compensation recognized under employee stock plans		-		-		1,249,000			-			-			1,249,000
Exercise of stock options, net of shares withheld for employee taxes		25,543		-		191,000			-			-			191,000
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes		84,684		1,000		(895,000	)		-			-			(894,000	)
Foreign currency translation		-		-		-			-			(868,000	)		(868,000	)
Net loss		-		-		-			(175,000	)		-			(175,000	)
Balance at June 30, 2022		19,214,978	$	192,000	$	227,729,000		$	92,779,000		$	(5,934,000	)	$	314,766,000
	Common Stock
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Shares		Amount		Additional<br><br> <br>Paid-in<br><br> <br>Capital			Retained<br><br> <br>Earnings		Accumulated<br><br> <br>Other<br><br> <br>Comprehensive<br><br> <br>(Loss) Income			Total
Balance at March 31,2021		19,045,386	$	190,000	$	223,058,000		$	85,593,000	$	(7,696,000	)	$	301,145,000
Compensation recognized under employee stock plans		-		-		1,576,000			-		-			1,576,000
Exercise of stock options, net of shares withheld for employee taxes		19,837		-		354,000			-		-			354,000
Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes		35,869		1,000		(543,000	)		-		-			(542,000	)
Foreign currency translation		-		-		-			-		1,833,000			1,833,000
Net income		-		-		-			861,000		-			861,000
Balance at June 30, 2021		19,101,092	$	191,000	$	224,445,000		$	86,454,000	$	(5,863,000	)	$	305,227,000

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

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three Months<br> Ended<br><br> <br>June 30,
	2022			2021
Cash flows from operating activities:
Net (loss) income	$	(175,000	)	$	861,000
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		3,124,000			3,145,000
Amortization of interest		306,000			414,000
Amortization of core premiums paid to customers		2,863,000			2,531,000
Amortization of finished goods premiums paid to customers		181,000			146,000
Noncash lease expense		1,939,000			1,791,000
Gain due to the change in the fair value of the contingent consideration		-			(60,000	)
Foreign exchange impact of lease liabilities and forward contracts		678,000			(2,533,000	)
Loss (gain) on short-term investments		294,000			(5,000	)
Net provision for inventory reserves		3,942,000			3,141,000
Net provision for customer payment discrepancies and credit losses		300,000			229,000
Deferred income taxes		(62,000	)		358,000
Share-based compensation expense		1,249,000			1,576,000
Loss on disposal of plant and equipment		9,000			33,000
Changes in operating assets and liabilities:
Accounts receivable		11,427,000			9,020,000
Inventory		(24,252,000	)		(20,625,000	)
Prepaid expenses and other current assets		1,122,000			281,000
Other assets		6,000			297,000
Accounts payable and accrued liabilities		5,898,000			(10,183,000	)
Customer finished goods returns accrual		(9,289,000	)		3,698,000
Contract assets, net		(37,000	)		(24,857,000	)
Contract liabilities, net		1,384,000			27,880,000
Operating lease liabilities		(1,446,000	)		(1,259,000	)
Other liabilities		(443,000	)		(618,000	)
Net cash used in operating activities		(982,000	)		(4,739,000	)
Cash flows from investing activities:
Purchase of plant and equipment		(1,375,000	)		(1,922,000	)
Purchase of short-term investments		(86,000	)		(167,000	)
Net cash used in investing activities		(1,461,000	)		(2,089,000	)
Cash flows from financing activities:
Borrowings under revolving loan		13,000,000			32,000,000
Repayments of revolving loan		(22,000,000	)		(13,000,000	)
Repayments of term loan		(938,000	)		(938,000	)
Payments for debt issuance costs		(21,000	)		(1,102,000	)
Payments on finance lease obligations		(604,000	)		(678,000	)
Exercise of stock options		191,000			354,000
Cash used to net share settle equity awards		(894,000	)		(542,000	)
Net cash (used in) provided by financing activities		(11,266,000	)		16,094,000
Effect of exchange rate changes on cash and cash equivalents		(90,000	)		94,000
Net (decrease) increase in cash and cash equivalents		(13,799,000	)		9,360,000
Cash and cash equivalents — Beginning of period		23,016,000			15,523,000
Cash and cash equivalents — End of period	$	9,217,000		$	24,883,000
Supplemental disclosures of cash flow information:
Cash paid for interest, net	$	6,548,000		$	3,521,000
Cash paid for income taxes, net of refunds		712,000			1,550,000
Cash paid for operating leases		2,647,000			2,472,000
Cash paid for finance leases		672,000			775,000
Plant and equipment acquired under finance leases		75,000			230,000
Assets acquired under operating leases		144,000			15,718,000
Non-cash capital expenditures		401,000			206,000

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

MOTORCAR PARTS OF AMERICA, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 2022

(Unaudited)

Company Background and Organization

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

Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for segment reporting, the Company has identified its chief operating decision maker (“CODM”), reviewed the documents used by the CODM, and understands how such documents are used by the CODM to make financial and operating decisions. The Company has determined through this review process that its business comprises three separate operating segments. The operating segments meet all the criteria to be aggregated and are presented as such.

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

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

Basis of Presentation and New Accounting Pronouncements

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2023. This report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended March 31, 2022, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 14, 2022.

The accompanying condensed consolidated financial statements have been prepared on a consistent basis with, and there have been no material changes to the accounting policies described in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements that are presented in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

Accounts Receivable — Net

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

Accounts receivable — net is comprised of the following:

	June 30, 2022			March 31, 2022
Accounts receivable — trade	$	94,087,000		$	98,734,000
Allowance for credit losses		(231,000	)		(375,000	)
Customer payment discrepancies		(1,418,000	)		(1,375,000	)
Customer returns RGA issued		(19,408,000	)		(11,909,000	)
Total accounts receivable — net	$	73,030,000		$	85,075,000

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

	Three Months<br> Ended<br><br> <br>June 30,
	2022			2021
Balance at beginning of period	$	375,000		$	348,000
Provision for expected credit losses		12,000			(36,000	)
Recoveries		-			-
Amounts written off charged against the allowance		(156,000	)		(39,000	)
Balance at end of period	$	231,000		$	273,000

Inventory

Inventory is comprised of the following:

	June 30, 2022			March 31, 2022
Inventory
Raw materials	$	146,775,000		$	150,414,000
Work-in-process		6,357,000			6,880,000
Finished goods		248,332,000			226,729,000
		401,464,000			384,023,000
Less allowance for excess and obsolete inventory		(12,704,000	)		(13,520,000	)
Inventory — net		388,760,000			370,503,000
Inventory unreturned		16,445,000			15,001,000
Total inventory	$	405,205,000		$	385,504,000

Contract Assets

During the three months ended June 30, 2022 and 2021, the Company reduced the carrying value of Remanufactured Cores held at customers’ locations by $572,000 and $984,000, respectively.

Contract assets are comprised of the following:

	June 30, 2022		March 31, 2022
Short-term contract assets
Cores expected to be returned by customers	$	16,658,000	$	15,778,000
Upfront payments to customers		460,000		517,000
Finished goods premiums paid to customers		573,000		584,000
Core premiums paid to customers		10,092,000		10,621,000
Total short-term contract assets	$	27,783,000	$	27,500,000
Remanufactured cores held at customers’ locations	$	257,379,000	$	258,376,000
Upfront payments to customers		122,000		210,000
Finished goods premiums paid to customers		2,685,000		2,806,000
Core premiums paid to customers		41,198,000		43,294,000
Long-term core inventory deposits		5,569,000		5,569,000
Total long-term contract assets	$	306,953,000	$	310,255,000

Significant Customer and Other Information

Significant Customer Concentrations

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

	Three Months Ended<br><br> <br>June 30,
	2022			2021
Net sales
Customer A		37	%		34	%
Customer B		25	%		20	%
Customer C		20	%		31	%

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


Accounts receivable - trade
Customer A	43	%	42	%
Customer B	22	%	21	%
Customer C	-	%	9	%

Geographic and Product Information

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

	Three Months Ended<br><br> <br>June 30,
	2022			2021
Product line
Rotating electrical products		67	%		67	%
Wheel hub products		12	%		14	%
Brake-related products		17	%		16	%
Other products		4	%		3	%
		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, 2022 and 2021, respectively.

Debt

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

The Term Loans require quarterly principal payments of $937,500. The Credit Facility bears interest at rates equal to either LIBOR plus a margin of 2.25%, 2.50% or 2.75% or a reference rate plus a margin of 1.25%, 1.50% or 1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.375% to 0.50%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on the Company’s Term Loans and Revolving Facility was 3.82% and 4.20% respectively, at June 30, 2022, and 2.99% and 3.13% respectively, at March 31, 2022.

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

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

The following summarizes information about the Term Loans:

	June 30, 2022			March 31, 2022
Principal amount of Term Loans	$	15,937,000		$	16,875,000
Unamortized financing fees		(170,000	)		(181,000	)
Net carrying amount of Term Loans		15,767,000			16,694,000
Less current portion of Term Loans		(3,670,000	)		(3,670,000	)
Long-term portion of Term Loans	$	12,097,000		$	13,024,000

Future repayments of the Term Loans are as follows:

Year Ending March 31,
2023<br> - remaining nine months	$	2,812,000
2024		3,750,000
2025		3,750,000
2026		3,750,000
2027		1,875,000
Total payments	$	15,937,000

The Company had $146,000,000 and $155,000,000 outstanding under the Revolving Facility at June 30, 2022 and March 31, 2022, respectively. In addition, $6,370,000 was outstanding for letters of credit at June 30, 2022. At June 30, 2022, after certain contractual adjustments, $86,250,000 was available under the Revolving Facility.

Contract Liabilities

Contract liabilities are comprised of the following:

	June 30, 2022		March 31, 2022
Short-term contract liabilities
Customer core returns accruals	$	17,533,000	$	12,322,000
Customer allowances earned		18,698,000		22,018,000
Customer deposits		2,507,000		3,306,000
Finished goods liabilities		1,582,000		1,537,000
Core bank liability		1,647,000		1,634,000
Accrued core payment		1,678,000		1,679,000
Total short-term contract liabilities	$	43,645,000	$	42,496,000
Long-term contract liabilities
Customer core returns accruals	$	156,153,000	$	154,940,000
Customer allowances earned		-		41,000
Finished goods liabilities		1,202,000		1,588,000
Core bank liability		14,851,000		15,267,000
Accrued core payment		839,000		928,000
Total long-term contract liabilities	$	173,045,000	$	172,764,000

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 gains of $20,000 and $2,795,000 during the three months ended June 30, 2022 and 2021, 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, 2022		March 31, 2022
Assets:
Operating	Operating lease assets	$	80,157,000	$	81,997,000
Finance	Plant and equipment		7,027,000		7,470,000
Total leased assets		$	87,184,000	$	89,467,000
Liabilities:
Current
Operating	Operating lease liabilities	$	6,653,000	$	6,788,000
Finance	Other current liabilities		2,185,000		2,330,000
Long-term
Operating	Long-term operating lease liabilities		79,552,000		80,803,000
Finance	Other liabilities		3,035,000		3,425,000
Total lease liabilities		$	91,425,000	$	93,346,000

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

	Three Months Ended<br><br> <br>June 30,
	2022		2021
Lease cost
Operating lease cost	$	3,165,000	$	3,042,000
Short-term lease cost		454,000		376,000
Variable lease cost		185,000		281,000
Finance lease cost:
Amortization of finance lease assets		539,000		499,000
Interest on finance lease liabilities		68,000		97,000
Total lease cost	$	4,411,000	$	4,295,000

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

Maturity of lease liabilities	Operating Leases			Finance Leases			Total
2023<br> - remaining nine months	$	8,804,000		$	1,884,000		$	10,688,000
2024		10,073,000			1,762,000			11,835,000
2025		10,143,000			1,263,000			11,406,000
2026		10,358,000			570,000			10,928,000
2027		10,496,000			106,000			10,602,000
Thereafter		64,621,000			5,000			64,626,000
Total lease payments		114,495,000			5,590,000			120,085,000
Less amount representing interest		(28,290,000	)		(370,000	)		(28,660,000	)
Present value of lease liabilities	$	86,205,000		$	5,220,000		$	91,425,000

Other information about leases is as follows:


Lease term and discount rate
Weighted-average remaining lease term (years):
Finance leases	2.8		2.9
Operating leases	10.2		10.4
Weighted-average discount rate:
Finance leases	5.1	%	5.1	%
Operating leases	5.7	%	5.7	%

Accounts Receivable Discount Programs

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

The following is a summary of accounts receivable discount programs:

	Three Months<br> Ended<br><br> <br>June 30,
	2022			2021
Receivables discounted	$	142,624,000		$	146,669,000
Weighted average days		327			329
Annualized weighted average discount rate		3.7	%		1.8	%
Amount of discount recognized as interest expense	$	4,874,000		$	2,473,000

Net (Loss) Income per Share

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

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

	Three Months Ended<br><br> <br>June 30,
	2022			2021
Net (loss) income	$	(175,000	)	$	861,000
Basic shares		19,123,354			19,054,481
Effect of potentially dilutive securities		-			604,576
Diluted shares		19,123,354			19,659,057
Net (loss) income per share:
Basic net (loss) income per share	$	(0.01	)	$	0.05
Diluted net (loss) income per share	$	(0.01	)	$	0.04

Potential common shares that would have the effect of increasing diluted net income per share or decreasing diluted net loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted net (loss) income per share. For the three months ended June 30, 2022 and 2021, there were 2,301,901 and 634,832, respectively, of potential common shares not included in the calculation of diluted net (loss) income per share because their effect was anti-dilutive.

Income Taxes

The Company recorded income tax expense of $589,000, or an effective tax rate of 142.3%, and $947,000, or an effective tax rate of 52.4%, for the three months ended June 30, 2022 and 2021, respectively. Effective tax rates are based on current annual projections and any changes in future periods could result in an effective tax rate that is materially different from the current estimate. The effective tax rate for the three months ended June 30, 2022, was primarily impacted by (i) specific jurisdictions that the Company does not expect to recognize the benefit of losses, (ii) foreign income taxed at rates that are different from the federal statutory rate, and (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m).

The Company and its subsidiaries file income tax returns in the U.S. federal, various state, and foreign jurisdictions with varying statutes of limitations. At June 30, 2022, the Company is not under examination in any jurisdiction, and remain subject to examination from the years ended March 31, 2017. The Company believes no significant changes in the unrecognized tax benefits will occur within the next 12 months.

Financial Risk Management and Derivatives

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

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

The Company had forward foreign currency exchange contracts with a U.S. dollar equivalent notional value of $46,450,000 and $44,968,000 at June 30, 2022 and March 31, 2022, respectively. These contracts generally have a term of one year or less, at rates agreed at the inception of the contracts. The counterparty to this derivative transaction is a major financial institution with investment grade credit rating; however, the Company is exposed to credit risk with this institution. The credit risk is limited to the potential unrealized gains (which offset currency fluctuations adverse to the Company) in any such contract should this counterparty fail to perform as contracted. Any changes in the fair values of forward foreign currency exchange contracts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of operations.

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

	Loss Recognized as Foreign Exchange Impact of Lease Liabilities and Forward Contracts
	Three Months Ended
Derivatives Not Designated as	June 30,
Hedging Instruments	2022			2021
Forward foreign currency exchange contracts	$	(698,000	)	$	(262,000	)

The fair value of the forward foreign currency exchange contracts of $415,000 and $1,113,000 is included in prepaid expenses and other current assets in the condensed consolidated balance sheets at June 30, 2022 and March 31, 2022, respectively. The changes in the fair values of forward foreign currency exchange contracts are included in “foreign exchange impact of lease liabilities and forward contracts” in the condensed consolidated statements of cash flows for the three months ended June 30, 2022 and 2021.

Fair Value Measurements

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

	June 30, 2022								March 31, 2022
			Fair Value Measurements<br><br> <br>Using Inputs Considered as								Fair Value Measurements<br><br> <br>Using Inputs Considered as
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Assets
Short-term investments
Mutual funds	$	1,995,000	$	1,995,000	$	-	$	-	$	2,202,000	$	2,202,000	$	-	$	-
Prepaid expenses and other current assets
Forward foreign currency exchange contracts		415,000		-		415,000		-		1,113,000		-		1,113,000		-
Liabilities
Other current liabilities
Deferred compensation		1,995,000		1,995,000		-		-		2,202,000		2,202,000		-		-

Short-term Investments and Deferred Compensation

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

Forward Foreign Currency Exchange Contracts

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

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

Share-based Payments

Stock Options

During the three months ended June 30, 2022 and 2021, no options to purchase shares of the Company’s common stock were granted.

The following is a summary of stock option transactions:

			Weighted Average<br><br> <br>Exercise Price
Outstanding at March 31, 2022	1,695,499		$	17.53
Granted	-		$	-
Exercised	(25,543	)	$	7.46
Forfeited/Cancelled	(60,723	)	$	15.73
Expired	(3,000	)	$	9.85
Outstanding at June 30, 2022	1,606,233		$	17.76

At June 30, 2022, options to purchase 197,032 shares of common stock were unvested at a weighted average exercise price of $17.25.

At June 30, 2022, there was $666,000 of total unrecognized compensation expense related to unvested stock option awards, which will be recognized over the weighted average remaining vesting period of approximately one year.

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

During the three months ended June 30, 2022 and 2021, the Company granted (i) performance-based restricted stock awards which had a threshold performance level of 33,333 shares, a target performance level of 66,667 shares, and a maximum performance level of 100,000 shares at the grant date for both periods and (ii) 176,590 and 118,673 of time-based vesting restricted stock units, respectively, based on the closing market price on the grant date.

The following is a summary of non-vested RSUs:

			Weighted Average<br><br> <br>Grant Date Fair<br><br> <br>Value
Outstanding at March 31, 2022	399,063		$	19.98
Granted	276,590		$	13.14
Vested	(149,313	)	$	20.63
Forfeited/Cancelled	(41,293	)	$	20.72
Outstanding at June 30, 2022	485,047		$	15.82

At June 30, 2022, there was $5,818,000 of unrecognized compensation expense related to RSUs, which will be recognized over the weighted average remaining vesting period of approximately 2.0 years. The Company’s unrecognized compensation expense includes restricted stock awards at target performance level.

Performance Stock Units (“PSUs”)

During the three months ended June 30, 2022 and 2021, the Company granted 126,028 and 84,593 PSUs (at target performance levels), respectively, which typically cliff vest after three-years subject to continued employment. These awards are contingent and granted separately for each of the following metrics: adjusted EBITDA, net sales, and relative total shareholder return (“TSR”). Compensation cost is determined at the grant date and recognized on a straight-line basis over the requisite service period to the extent the conditions are deemed probable. The number of shares earned at the end of the three-year period will vary, based only on actual performance, from 0% to 150% of the target number of PSUs granted. PSUs are not considered issued or outstanding ordinary shares of the Company.

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

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

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

	Three Months Ended<br><br> June 30,
	2022			2021
Risk free interest rate		3.35	%		0.47	%
Expected life in years		3			3
Expected volatility of MPA common stock		51.30	%		53.70	%
Expected average volatility of peer companies		62.70	%		59.30	%
Average correlation coefficient of peer companies		27.50	%		26.70	%
Expected dividend yield		-			-
Grant date fair value	$	16.02		$	26.89

The following is a summary of non-vested PSUs:

		Weighted Average<br><br> <br>Grant Date Fair<br><br> <br>Value
Outstanding at March 31, 2022	84,593	$	23.19
Granted	126,028	$	14.00
Vested	-	$	-
Forfeited	-	$	-
Outstanding at June 30, 2022	210,621	$	17.70

At June 30, 2022, there was $3,033,000 of unrecognized compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 2.5 years.

Commitments and Contingencies

Warranty Returns

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

The following summarizes the changes in the warranty return accrual:

	Three Months Ended<br><br> <br>June 30,
	2022			2021
Balance at beginning of period	$	20,125,000		$	21,093,000
Charged to expense		30,920,000			27,261,000
Amounts processed		(33,177,000	)		(28,344,000	)
Balance at end of period	$	17,868,000		$	20,010,000

Contingencies

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

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, 2022, the Company did not repurchase any shares of its common stock. As of June 30, 2022, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in the Company’s Credit Facility. The Company retired the 837,007 shares repurchased under this program through June 30, 2022. The Company’s share repurchase program does not obligate it to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

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

The following discussion and analysis presents factors that Motorcar Parts of America, Inc. and its subsidiaries (“our,” “we” or “us”) believe are relevant to an assessment and understanding of our consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with our March 31, 2022 audited consolidated financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 14, 2022.

Disclosure Regarding Private Securities Litigation Reform Act of 1995

This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our future performance that involve risks and uncertainties. All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about our strategic initiatives, operational plans and objectives, expectations for economic conditions and recovery and future business and financial performance, as well as statements regarding underlying assumptions related thereto. They include, among others, factors related to the timing and implementation of strategic initiatives, the highly competitive nature of our industry, demand for our products and services, complexities in our inventory and supply chain, challenges with transforming and growing our business and factors related to the current global COVID-19 pandemic. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason. Therefore, you should not place undue reliance on those statements. Please refer to “

Item 1A. Risk Factors

” of our most recent Annual Report on Form 10-K filed with the SEC on June 14, 2022, as updated by our subsequent filings with the SEC, for a description of these and other risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements.

Management Overview

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

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

Pursuant to the guidance provided under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for segment reporting, we have identified our chief operating decision maker (“CODM”), reviewed the documents used by the CODM, and understand how such documents are used by the CODM to make financial and operating decisions. We have determined through this review process that our business comprises three separate operating segments. The operating segments meet all the criteria to be aggregated and are presented as such.

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

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

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

There have been no serious outbreaks in any of our production facilities; however, a serious outbreak could affect our production capabilities. We continue to incur costs as a result of COVID-19, including employee costs and other operating costs associated with the provision of personal protective equipment, which have negatively impacted our profitability. These expanded benefits, supply costs and other COVID-19 related costs resulted in total expense, included in cost of goods sold and operating expenses in the condensed consolidated statements of operations, of $715,000 and $854,000 during the three months ended June 30, 2022 and 2021, respectively.

Results of Operations for the Three Months Ended June 30, 2022 and 2021

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

The following summarizes certain key operating data:

	Three Months Ended<br><br> <br>June 30,
	2022			2021
Cash flow used in operations	$	(982,000	)	$	(4,739,000	)
Finished goods turnover (annualized) (1)		3.1			4.5

(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<br> for the fiscal quarter. We believe this provides a useful measure of our ability to turn our inventory into revenues. The first quarter of fiscal 2023 reflects our investment in inventory to address disruptions related to the worldwide<br> supply chain and logistics challenges to meet higher anticipated future sales.

Net Sales and Gross Profit

The following summarizes net sales and gross profit:

	Three Months Ended<br><br> <br>June 30,
	2022			2021
Net sales	$	163,985,000		$	149,034,000
Cost of goods sold		133,683,000			125,463,000
Gross profit		30,302,000			23,571,000
Gross profit percentage		18.5	%		15.8	%

Net Sales. Our net sales for the three months ended June 30, 2022 were $163,985,000, which represents an increase of $14,951,000, or 10.0%, from the three months ended June 30, 2021 of $149,034,000. While

    our net sales for the quarter increased due to strong demand for our products, we experienced a number of challenges related to the global COVID-19 pandemic, including disruptions with worldwide supply chain and logistics services during both
    periods.

Gross Profit. Our gross profit increased $6,731,000, or 28.6%, to $30,302,000 for the three months ended June 30, 2022 compared with $23,571,000 for the three months ended June

      30, 2021.

Our gross margin was 18.5% of net sales for the three months ended June 30, 2022 compared with 15.8% of net sales for the three months ended June 30, 2021. Despite an increase in the gross margin, our gross margin reflects inflationary costs related to the global pandemic, including disruptions with worldwide supply chain, logistics services, and related higher freight costs.

Our gross margin was impacted for the three months ended June 30, 2022 and 2021 by higher freight costs, net of certain price increases, of approximately $1,749,000, and $2,990,000, respectively. For the three months ended June 30, 2022 and 2021, we incurred additional expenses of $799,000 and $1,771,000, respectively, primarily due to certain costs for disruptions in the supply chain.

Our gross margin for the three months ended June 30, 2022 and 2021 was also impacted by amortization of core and finished goods premiums paid to customers related to new business of $3,044,000 and $2,667,000, respectively. Gross margin for the three months ended June 30, 2021 was further impacted by transition expenses in connection with the expansion of our brake-related operations in Mexico of $1,947,000.

In addition, gross margin was impacted by (i) non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $572,000 and $984,000 for the three months ended June 30, 2022 and 2021, respectively.

Operating Expenses

The following summarizes operating expenses:

	Three Months Ended<br><br> <br>June 30,
	2022			2021
General and administrative	$	13,634,000		$	12,486,000
Sales and marketing		5,542,000			5,368,000
Research and development		3,113,000			2,501,000
Foreign exchange impact of lease liabilities and forward contracts		678,000			(2,533,000	)
Percent of net sales
General and administrative		8.3	%		8.4	%
Sales and marketing		3.4	%		3.6	%
Research and development		1.9	%		1.7	%
Foreign exchange impact of lease liabilities and forward contracts		0.4	%		(1.7	)%

General and Administrative. Our general and administrative expenses for the three months ended June 30, 2022 were $13,634,000, which represents an increase of $1,148,000, or 9.2%, from the three months

    ended June 30, 2021 of $12,486,000. This increase was primarily due to \(i\) $820,000 of increased expense resulting from foreign currency transactions, \(ii\) $302,000 of increased professional services, \(iii\) $162,000 of increased information
    technology costs in connection with cybersecurity and other productivity tools, and \(iv\) $80,000 of increased travel costs as some business travel resumed. These increases were partially offset by $327,000 of decreased share-based compensation in
    connection with equity grants made to employees in fiscal 2023.

Sales and Marketing. Our sales and marketing expenses for the three months ended June 30, 2022 were $5,542,000, which represents an increase of $174,000, or 3.2%, from the three months ended June 30, 2021

    of $5,368,000. This increase was primarily due to \(i\) $236,000 of increased commissions due to higher sales and \(ii\) $118,000 of increased travel costs as some business travel resumed. These increases were partially offset by $207,000 of lower
    marketing and advertising expenses compared with the prior year.

Research and Development. Our research and development expenses for the three months ended June 30, 2022 were $3,113,000, which represents an increase of $612,000, or 24.5%, from the three months ended

    June 30, 2021 of $2,501,000. This increase was primarily due to \(i\) $376,000 of increased employee-related expenses, primarily due to our electric vehicle testing system initiatives, \(ii\) $125,000 of increased samples for our core library and other
    research and development supplies, and \(iii\) $82,000 of increased outside services primarily due to development projects.

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts for the three months ended June 30, 2022 was a non-cash loss of

    $678,000 compared with a non-cash gain of $2,533,000 for the three months ended June 30, 2021. This change was primarily due to \(i\) the remeasurement of our foreign currency-denominated lease liabilities which resulted in non-cash gains of $20,000
    compared with $2,795,000 for the three months ended June 30, 2022 and 2021, respectively, due to foreign currency exchange rate fluctuations and \(ii\) the forward foreign currency exchange contracts which resulted in non-cash losses of $698,000
    compared with $262,000 for the three months ended June 30, 2022 and 2021, respectively, due to the changes in their fair values.

Interest Expense

Interest Expense, net. Our interest expense for the three months ended June 30, 2022 was $6,921,000, which represents an increase of $2,980,000, or 75.6%, from interest expense

    for the three months ended June 30, 2021 of $3,941,000. This increase was primarily due to higher interest rates and increased average borrowing under our credit facility.

Provision for Income Taxes

Income Tax. We recorded income tax expense of $589,000, or an effective tax rate of 142.3%, and $947,000, or an effective tax rate of 52.4%, for the three months ended June 30,

    2022 and 2021, respectively. Effective tax rates are based on current annual projections and any changes in future periods could result in an effective tax rate that is materially different from the current estimate. The effective tax rate for the
    three months ended June 30, 2022, was primarily impacted by \(i\) specific jurisdictions that we do not expect to recognize the benefit of losses, \(ii\) foreign income taxed at rates that are different from the federal statutory rate, and \(iii\)
    non-deductible executive compensation under Internal Revenue Code Section 162\(m\).

Liquidity and Capital Resources

Overview

We had working capital (current assets minus current liabilities) of $115,077,000 and $110,580,000, a ratio of current assets to current liabilities of 1.3:1.0, at June 30, 2022 and March 31, 2022, respectively. The increase in working capital reflects our investment in inventory to address disruptions related to the worldwide supply chain and logistics challenges to meet higher anticipated sales.

We generated cash during the three months ended June 30, 2022 from the use of our receivable discount programs and credit facility. In addition, we have access to our existing cash, as well as our available credit facilities to meet short-term liquidity needs. We believe our cash and cash equivalents, short-term investments, use of receivable discount programs, amounts available under our credit facility, and other sources are sufficient to satisfy our expected future working capital needs, repayment of the current portion of our term loans, and lease and capital expenditure obligations over the next 12 months.

Share Repurchase Program

In August 2018, our board of directors approved an increase in our share repurchase program from $20,000,000 to $37,000,000 of our common stock. As of June 30, 2022, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our credit facility. We retired the 837,007 shares repurchased under this program through June 30, 2022. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

Cash Flows

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

	Three Months Ended<br><br> <br>June 30,
	2022			2021
Cash flows (used in) provided by:
Operating activities	$	(982,000	)	$	(4,739,000	)
Investing activities		(1,461,000	)		(2,089,000	)
Financing activities		(11,266,000	)		16,094,000
Effect of exchange rates on cash and cash equivalents		(90,000	)		94,000
Net (decrease) increase in cash and cash equivalents	$	(13,799,000	)	$	9,360,000
Additional selected cash flow data:
Depreciation and amortization	$	3,124,000		$	3,145,000
Capital expenditures		1,375,000			1,922,000

Net cash used in operating activities was $982,000 and $4,739,000 during the three months ended June 30, 2022 and 2021, respectively. The primary change in our operating activities reflects increased operating results (net income plus the net add-back for non-cash transactions in earnings) and changes in operating assets and liabilities, including the timing of supplier payments and our investments in inventory to support anticipated future demand for our products. We continue to manage our working capital to maximize our operating cash flow.

Net cash used in investing activities was $1,461,000 and $2,089,000 during the three months ended June 30, 2022 and 2021, respectively. The change in our investing activities resulted from decreased capital expenditures due to the completion of our expansion of our brake-related operations in Mexico during the second quarter of fiscal 2022.

Net cash used in financing activities was $11,266,000 compared with net cash provided by financing activities of $16,094,000 during the three months ended June 30, 2022 and 2021, respectively. The change in our financing activities resulted from lower borrowing and higher repayments under our credit facility during the three months ended June 30, 2022. In addition, we paid $1,102,000 for debt issuance costs in connection with the third amendment to the credit facility in the prior year.

Capital Resources

Credit Facility

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

The Term Loans require quarterly principal payments of $937,500. The Credit Facility bears interest at rates equal to either LIBOR plus a margin of 2.25%, 2.50% or 2.75% or a reference rate plus a margin of 1.25%, 1.50% or 1.75%, in each case depending on the senior leverage ratio as of the applicable measurement date. There is also a facility fee of 0.375% to 0.50%, depending on the senior leverage ratio as of the applicable measurement date. The interest rate on our Term Loans and Revolving Facility was 3.82% and 4.20% respectively, at June 30, 2022, and 2.99% and 3.13% respectively, at March 31, 2022.

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

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

	Financial covenants<br><br> <br>required under the<br><br> <br>Credit Facility		Calculation as of<br><br> <br>June 30, 2022
Maximum senior leverage ratio		3.00		2.53
Minimum fixed charge coverage ratio		1.15		1.26

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

We had $146,000,000 and $155,000,000 outstanding under the Revolving Facility at June 30, 2022 and March 31, 2022, respectively. In addition, $6,370,000 was outstanding for letters of credit at June 30, 2022. At June 30, 2022, after certain contractual adjustments, $86,250,000 was available under the Revolving Facility.

Receivable Discount Programs

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

The following is a summary of the receivable discount programs:

	Three Months Ended<br><br> <br>June 30,
	2022			2021
Receivables discounted	$	142,624,000		$	146,669,000
Weighted average days		327			329
Annualized weighted average discount rate		3.7	%		1.8	%
Amount of discount recognized as interest expense	$	4,874,000		$	2,473,000

Capital Expenditures and Commitments

Capital Expenditures

Our total capital expenditures, including finance leases and non-cash capital expenditures were $1,190,000 and $1,622,000 for the three months ended June 30, 2022 and 2021, respectively. These capital expenditures primarily include the purchase of equipment for our current operations. We completed the expansion of our operations in Mexico during the second quarter of fiscal 2022. We expect to incur approximately $9,500,000 of capital expenditures primarily to support our current operations and our growth initiates, including purchases of equipment during fiscal 2023. We fund these expenditures primarily from our working capital and leasing.

Litigation

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

Critical Accounting Policies

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

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

Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Under the supervision and with the participation of management, including our chief executive officer, chief financial officer, and chief accounting officer, we have conducted an evaluation of the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, our chief executive officer, chief financial officer, and chief accounting officer concluded that MPA’s disclosure controls and procedures were effective as of June 30, 2022.

Inherent Limitations on Effectiveness of Controls

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f).

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America, applying certain estimates and judgments as required.

Internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
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

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

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings

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

Item 1A.	Risk Factors

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

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

Limitation on Payment of Dividends and Share Repurchases

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

Purchases of Equity Securities by the Issuer

Shares repurchased during the three months ended June 30, 2022 were as follows:

Periods		Average Price<br><br> <br>Paid Per Share			Approximate<br><br> <br>Dollar Value of<br><br> <br>Shares That May<br><br> <br>Yet Be Purchased<br><br> <br>Under the Plans<br><br> <br>or Programs (1)
April 1 - April 30, 2022:
Open market and privately negotiated purchases	-	$	-	-	$	18,255,000
May 1 - May 31, 2022:
Open market and privately negotiated purchases	-	$	-	-		18,255,000
June 1 - June 30, 2022:
Open market and privately negotiated purchases	-	$	-	-		18,255,000
Total	0			0	$	18,255,000

(1)

As of June 30, 2022, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our Credit Facility. We retired the 837,007 shares repurchased<br> under this program through June 30, 2022. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions.

Item 5. Other Information

None.

Item 6.	Exhibits
(a)	Exhibits:
---	---
Number	Description of Exhibit	Method of Filing
---	---	---
3.1	Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 declared effective on March 22, 1994 (the “1994 Registration Statement”).
3.2	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (No. 33-97498) declared effective on November 14, 1995.
3.3	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
3.4	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998 (the “1998 Form 10-K”).
3.5	Amendment to Certificate of Incorporation of the Company	Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on November 25, 2003.
3.6	Amended and Restated By-Laws of Motorcar Parts of America, Inc.	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on August 24, 2010.
3.7	Certificate of Amendment of the Certificate of Incorporation of the Company	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on April 17, 2014.
3.8	Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on June 9, 2016	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 14, 2016.
3.9	Amendment to the Amended and Restated By-Laws of the Company	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 22, 2017.
3.10	Third Amendment to the Amended and Restated By-Laws of Motorcar Parts of America, Inc., as adopted on January 26, 2022	Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 1, 2022.
4.1	Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934	Filed herewith.
4.2	2004 Non-Employee Director Stock Option Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders Meeting.
4.3	2010 Incentive Award Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on December 15, 2010.
4.4	Amended and Restated 2010 Incentive Award Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 5, 2013.

Number	Description of Exhibit	Method of Filing
4.5	Second Amended and Restated 2010 Incentive Award Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on March 3, 2014.
4.6	2014 Non-Employee Director Incentive Award Plan	Incorporated by reference to Appendix B to the Proxy Statement on Schedule 14A filed on March 3, 2014.
4.7	Third Amended and Restated 2010 Incentive Award Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on November 20, 2017.
4.8	Fourth Amended and Restated 2010 Incentive Award Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on July 24, 2020.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002	Filed herewith.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002	Filed herewith.
31.3	Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002	Filed herewith.
32.1	Certifications of Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002	Filed herewith.
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)

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, 2022	By:	/s/ David Lee
		David Lee
		Chief Financial Officer
Dated: August 9, 2022	By:	/s/ Kamlesh Shah
		Kamlesh Shah
		Chief Accounting Officer

Exhibit 4.1

DESCRIPTION OF THE REGISTRANT’S SECURITIES

REGISTERED PURSUANT TO SECTION 12 OF THE

SECURITIES EXCHANGE ACT OF 1934

As of March 31, 2022, Motorcar Parts of America, Inc. had one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): its common stock, par value 0.01 per share (“Common Stock”). The following is a brief description of the securities of Motorcar Parts of America, Inc. (the “Company”). This description of the terms of the Company’s stock does not purport to be complete and is subject to and qualified in its entirety by reference to the applicable provisions of the New York Business Corporation Law (“NYBCL”), and the full text of the Company’s certificate of incorporation, as amended to date (the “Certificate of Incorporation”), and the Company’s amended and restated bylaws (“By-laws”), copies of which are incorporated by reference to the Annual Report on Form 10-K for the year ended March 31, 2022. References herein to “we,” “us,” “our” and “our company” refer to Motorcar Parts of America, Inc. and not to any of its subsidiaries.

Authorized Capital Stock

Our authorized capital stock currently consists of 50,000,000 shares of Common Stock, and 5,000,000 shares of preferred stock, par value $0.01 per share. Our Common Stock is listed on The Nasdaq Global Select Market under the trading symbol “MPAA.” As of March 31, 2022, there were 19,104,751 shares of Common Stock issued and outstanding.

Common Stock

Voting Rights. Each stockholder of record is entitled to one vote for each outstanding share of our Common Stock owned by that stockholder on every matter properly submitted to the stockholders for their vote.

Dividends. After satisfaction of the dividend rights of holders of any preferred stock, holders of Common Stock are entitled to any dividend declared by the Company’s board of directors (the “Board of Directors”) out of funds legally available for that purpose. After the payment of liquidation preferences to holders of any preferred stock, holders of Common Stock are entitled to receive, on a pro rata basis, all our remaining assets available for distribution to stockholders in the event of our liquidation, dissolution or winding up.

Other Rights. Holders of Common Stock do not have any preemptive right to become subscribers or purchasers of additional shares of any class of our capital stock. The rights, preferences and privileges of holders of Common Stock are subject to, and may be injured by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future. Our stockholders have no conversion, preemptive or other subscription rights, and there are no sinking fund or redemption provisions applicable to the Common Stock.

Preferred Stock

Our Board of Directors is authorized to issue, without stockholder approval, up to 5,000,000 shares of preferred stock having rights senior to those of our Common Stock. Our Board of Directors has the authority, without further stockholder authorization, to issue from time to time shares of preferred stock in one or more series and to fix the terms, limitations, relative rights and preferences and variations of each series. Any preferred stock, if issued, would have priority over the Common Stock with respect to dividends and other distributions, including the distribution of assets upon liquidation. The issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of Common Stock, could adversely affect the rights and powers, including voting rights, of the Common Stock, and could have the effect of delaying, deterring or preventing a change in control of us or an unsolicited acquisition proposal.

Anti-Takeover Provisions

Some provisions of New York law, our Restated Certificate of Incorporation, as amended, and our By-laws, as amended, may have the effect of delaying, deferring or discouraging another party from acquiring control of us.

New York Law

We are subject to Section 912 of the NYBCL, which regulates, subject to some exceptions, acquisitions of New York corporations. In general, Section 912 prohibits us from engaging in a ‘‘business combination’’ with an ‘‘interested shareholder’’ for a period of five years following the date the person becomes an interested shareholder, unless:

•	our Board of Directors approved the business combination or the transaction in which the person became an interested shareholder prior to the date the person attained this status;
•	the holders of a majority of our outstanding voting stock not beneficially owned by such interested shareholder approved such business combination at a meeting called for such<br> purpose no earlier than five years after such interested shareholder attained his status; or
---	---
•	the business combination meets certain valuation requirements.
---	---

Section 912 defines a ‘‘business combination’’ to include, among others:

•	any merger or consolidation involving us and the interested shareholder;
•	any sale, lease, exchange, mortgage, pledge, transfer or other disposition to the interested shareholder of 10% or more of our assets;
---	---
•	the issuance or transfer by us of 5% or more of our outstanding stock to the interested shareholder, subject to certain exceptions;
---	---
•	the adoption of any plan or proposal for our liquidation or dissolution pursuant to any agreement with the interested shareholder;
---	---

•	any transaction involving us that has the effect of increasing the proportionate share of our stock owned by the interested shareholder; and
•	the receipt by the interested shareholder of the benefit of any loans, advances, guarantees, pledges, or other financial benefits provided by or through us.
---	---

In general, Section 912 defines an ‘‘interested shareholder’’ means any person (other than the Company or a subsidiary of the Company) that is (i) the beneficial owner, directly or indirectly, of twenty percent or more of the outstanding voting stock of the Company; or (ii) is an affiliate or associate of the Company and at any time within the five-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of twenty percent or more of the then outstanding voting stock of the Company.

Certificate of Incorporation and By-law Provisions

Our Certificate of Incorporation and By-Laws provide that:

•	the approval of holders of a majority of the shares entitled to vote at an election of directors will be required to amend, alter or repeal our By-Laws;
•	our Board of Directors is expressly authorized to adopt, alter, amend or repeal our By-Laws;
---	---
•	in general, shareholders may not call special meetings of the shareholders or fill vacancies on our Board of Directors;
---	---
•	directors may be removed, with, by the holders of at least a majority of the outstanding shares of capital stock of the Company entitled to vote at an election of directors; and
---	---
•	we will indemnify officers and directors against losses that may be incurred by investigations and legal proceedings resulting from their services to us, which may include services<br> in connection with takeover defense measures.
---	---

Further, we may issue up to 5,000,000 shares of preferred stock in one or more series with such rights, limitations and restrictions, including dividend rights, dividend rates, terms of redemption, conversion rights and liquidation preferences. Although our Board has no present intention of doing so, it could issue shares of preferred stock (within the limits imposed by applicable law) that could, depending on the terms of such series, make it more difficult or discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or other means.

Limitation of Liability

Our Certificate of Incorporation provides for indemnification of directors, officers and other persons to the fullest extent allowed by law. It also provides that a director of the Company shall not be personally liable to the Company or its stockholders for damages for any breach of duty as a director, except if (i) a judgment or final adjudication adverse to the director establishes that his or her acts or omissions were in bad faith or involved intentional misconduct or a knowing violating of law, (ii) the director personally gained in fact a financial profit or other advantage to which the director was not legally entitled, or (iii) the director’s acts violated Section 719 of the New York Business Corporation Law.

Our By-laws, as amended, requires indemnification of an officer or director of the Company who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Company; provided, that no indemnification shall be made to or on behalf of any director or officer if a judgment or other final adjudication adverse to such director or officer establishes that (i) his or her acts were committed in bad faith or were the result of active and deliberate dishonesty and, in either case, were material to the cause of action so adjudicated, or (ii) he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled. The indemnification provided by our amended and restated certificate of incorporation is not exclusive of any other rights to which those seeking indemnification may be entitled under any statute, bylaw, agreement, vote of uninvolved stockholders, directors or otherwise.

Our By-laws also provide that we may advance expenses incurred by a director or officer in defending any actions in advance of their final dispositions and that we may purchase and maintain insurance covering its directors and officers and any other persons to the maximum extent permitted by law.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or controlling persons pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Exhibit 31.1

CERTIFICATIONS

I, Selwyn Joffe, certify that:

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

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, 2022	/s/ Selwyn Joffe
	Selwyn Joffe
	Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, David Lee, certify that:

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

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):

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, 2022	/s/ David Lee
	David Lee
	Chief Financial Officer

Exhibit 31.3

CERTIFICATIONS

I, Kamlesh Shah, certify that:

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

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):

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, 2022	/s/ Kamlesh Shah
	Kamlesh Shah
	Chief Accounting Officer

Exhibit 32.1

CERTIFICATE OF CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND CHIEF

ACCOUNTING OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

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

1.	The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
2.	The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
---	---
/s/ Selwyn Joffe
---
Selwyn Joffe
Chief Executive Officer
August 9, 2022

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

1.	The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
2.	The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
---	---
/s/ David Lee
---
David Lee
Chief Financial Officer
August 9, 2022

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

1.	The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
2.	The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
---	---
/s/ Kamlesh Shah
---
Kamlesh Shah
Chief Accounting Officer
August 9, 2022

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

10-Q

MOTORCAR PARTS OF AMERICA, INC.

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PART I — FINANCIAL INFORMATION

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Item 1A. Risk Factors

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Net Sales. Our net sales for the three months ended June 30, 2022 were $163,985,000, which represents an increase of $14,951,000, or 10.0%, from the three months ended June 30, 2021 of $149,034,000. While

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Gross Profit. Our gross profit increased $6,731,000, or 28.6%, to $30,302,000 for the three months ended June 30, 2022 compared with $23,571,000 for the three months ended June

General and Administrative. Our general and administrative expenses for the three months ended June 30, 2022 were $13,634,000, which represents an increase of $1,148,000, or 9.2%, from the three months

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Sales and Marketing. Our sales and marketing expenses for the three months ended June 30, 2022 were $5,542,000, which represents an increase of $174,000, or 3.2%, from the three months ended June 30, 2021

Research and Development. Our research and development expenses for the three months ended June 30, 2022 were $3,113,000, which represents an increase of $612,000, or 24.5%, from the three months ended

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, 2022 was a non-cash loss of

Interest Expense, net. Our interest expense for the three months ended June 30, 2022 was $6,921,000, which represents an increase of $2,980,000, or 75.6%, from interest expense

Income Tax. We recorded income tax expense of $589,000, or an effective tax rate of 142.3%, and $947,000, or an effective tax rate of 52.4%, for the three months ended June 30,

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