What changed in this filing

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Item 9A. Controls and Procedures

2023-06-14 compared with 2022-06-14 · 674 added, 367 removed, 1183 unchanged (47% of the section changed)

3 unchanged sentences

controls and procedures (as defined in Rules 13a- 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the “Exchange Act,”) as of the end of the period covered by this Annual Report on Form 10-K.

Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated

to our management, including our CEO, CFO and CAO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

on this evaluation, our CEO, CFO and CAO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2022.

our management, including our CEO, CFO and CAO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

this evaluation, our CEO, CFO and CAO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023.

Management’s Annual Report on Internal Control over Financial Reporting

2 unchanged sentences

reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles.

Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2022 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in

Internal Control—Integrated Framework (2013).

Control—Integrated Framework (2013).

Based on its assessment, our management, including our CEO and CFO, has concluded that our internal control over financial reporting was effective as of March 31, 2023.

The effectiveness of our internal control over financial reporting as of March 31, 2023 has been audited by the Company’s independent registered public accounting firm, Ernst & Young LLP.

Their assessment is

included in the accompanying Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.

Their assessment is included

in the accompanying Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting.

Change in Internal Control Over Financial Reporting

10 unchanged sentences

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls.

The design of any system of controls also is based in

part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;

over time, controls may become inadequate because

of changes in conditions, or the degree of compliance with policies or procedures may deteriorate.

The design of any system of controls also is based in part

upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;

over time, controls may become inadequate because of

changes in conditions, or the degree of compliance with policies or procedures may deteriorate.

Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

17 unchanged sentences

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

Consolidated Statements of Shareholders’ Equity

12 unchanged sentences

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”).

Incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998

(the “1998 Form 10-K”).

Amendment to Certificate of Incorporation of the Company

Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on November 25, 2003.

Incorporated by reference to Exhibit C to the Company’s proxy statement on Schedule 14A filed with the SEC on

November 25, 2003.

Amended and Restated By-Laws of the Company

10 unchanged sentences

Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on February 1, 2022.

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q filed on August 9, 2022.

2004 Non-Employee Director Stock Option Plan

Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders Meeting.

Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A for the 2004 Annual Shareholders

2010 Incentive Award Plan

10 unchanged sentences

Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed on July 24, 2020.

2022 Incentive Award Plan

Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed

on July 29, 2022.

Form of Convertible Promissory Note

Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on March 31, 2023.

Form of Common Stock Warrant

Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on March 31, 2023.

First Amended and Restated Convertible Promissory note

Filed herewith.

First Amended and Restated Common Stock Warrant

Filed herewith.

Form of Indemnification Agreement for officers and directors

2 unchanged sentences

Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed January 7, 2009.

Description of Exhibit

Method of Filing

Employment Agreement, dated as of May 18, 2012, between Motorcar Parts of America, Inc., and Selwyn Joffe

6 unchanged sentences

Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on August 12, 2013.

Description of Exhibit

Method of Filing

Revolving Credit, Term Loan and Security Agreement, dated as of June 3, 2015, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank, National Association, as

3 unchanged sentences

National Association, as administrative agent

Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on November 9, 2015.

Incorporated by reference to Exhibit 10.2 to the Quarterly Report on

Form 10-Q filed on November 9, 2015 .

Consent and Second Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of May 19, 2016, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC

Bank, National Association, as administrative agent

Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed on August 9, 2016.

Third Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of March 24, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank, National

Association, as administrative agent

Incorporated by reference to Exhibit 10.38 to Annual Report on Form 10-K filed on June 14, 2017.

Fourth Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of April 24, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank, National

Association, as administrative agent

Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 27, 2017.

Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form

10-Q filed on August 9, 2016.

Third Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of March 24, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto, and PNC Bank,

National Association, as administrative agent

Incorporated by reference to Exhibit 10.38 to Annual Report on Form

10-K filed on June 14, 2017.

Fourth Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of April 24, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank,

National Association, as administrative agent

Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K

filed on April 27, 2017.

Description of Exhibit

Method of Filing

Fifth Amendment to Revolving Credit, Term Loan and Security Agreement, dated as of July 18, 2017, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank, National

1 unchanged sentence

Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on July 24, 2017.

Amended and Restated Credit Facility, dated as of June 5, 2018, among Motorcar Parts of America, Inc., each lender from time to time party thereto and PNC Bank, National Association, as administrative agent

Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on August 9, 2018 .

Description of Exhibit

Method of Filing

First Amendment to Amended and Restated Loan Agreement, dated as of November 14, 2018, among Motorcar Parts of America, Inc., D & V Electronics Ltd., each lender from time to time party thereto, and PNC

Bank, National Association, as administrative agent

First Amendment to Amended and Restated Loan Agreement, dated as of November 14, 2018, among Motorcar Parts of America, Inc., D & V Electronics Ltd., each lender from time to time party thereto, and

PNC Bank, National Association, as administrative agent

Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 20, 2018 .

2 unchanged sentences

Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed on February 11, 2019.

Second Amendment to Amended and Restated Loan Agreement, dated as of June 4, 2019, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from

time to time party thereto, and PNC Bank, National Association, as administrative agent

Second Amendment to Amended and Restated Loan Agreement, dated as of June 4, 2019, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender

from time to time party thereto, and PNC Bank, National Association, as administrative agent

Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 7, 2019.

5 unchanged sentences

Incorporated by reference to exhibit 10.1 to the Quarterly Report filed on August 10, 2020.

Third Amendment to Amended and Restated Loan Agreement, dated as of May 28, 2021, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from

time to time party thereto, and PNC Bank, National Association, as administrative agent

Third Amendment to Amended and Restated Loan Agreement, dated as of May 28, 2021, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender

from time to time party thereto, and PNC Bank, National Association, as administrative agent

Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on June 2, 2021.

Description of Exhibit

Method of Filing

Amendment No.

1 unchanged sentence

Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed on August 9, 2021.

Fourth Amendment to Amended and Restated Loan Agreement, dated as of November 3, 2022, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party

thereto, and PNC Bank, National Association, as administrative agent

Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on November 9, 2022.

Fifth Amendment to Amended and Restated Loan Agreement, dated as of February 3, 2023, among Motorcar Parts of America, Inc., D&V Electronics Ltd., Dixie Electric Ltd., Dixie Electric Inc., each lender from time to time party

thereto, and PNC Bank, National Association, as administrative agent

Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on February 9, 2023.

Note Purchase Agreement

Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 31, 2023.

Registration Rights Agreement

Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on March 31, 2023.

Sixth Amendment to Amended and Restated Loan Agreement, dated as of May 28, 2021, among Motorcar Parts of America, Inc., D & V Electronics Ltd., Dixie Electric Ltd., and Dixie Electric Inc., each lender from time to time party

thereto, and PNC Bank, National Association, as administrative agent

Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on March 31, 2023.

Amendment No.

6 to Employment Agreement, dated March 29, 2023, between Motorcar Parts of America, Inc.

and Selwyn Joffe.

Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on March 31, 2023.

First Amendment to Note Purchase Agreement

Filed herewith.

List of Subsidiaries

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Filed herewith.

Description of Exhibit

Method of Filing

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002

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(Principal Accounting Officer)

/s/ Scott Adelson

June 14, 2022

Scott Adelson

/s/ Rudolph Borneo

1 unchanged sentence

Rudolph Borneo

/s/ Philip Gay

June 14, 2022

/s/ Duane Miller

June 14, 2022

/s/ Jeffrey Mirvis

June 14, 2022

Jeffrey Mirvis

/s/ David Bryan

3 unchanged sentences

Joseph Ferguson

/s/ Barbara Whittaker

/s/ Philip Gay

June 13, 2023

Barbara Whittaker

/s/ Jeffrey Mirvis

June 13, 2023

Jeffrey Mirvis

/s/ Jamy Rankin

June 13, 2023

/s/ Douglas Trussler

June 13, 2023

Douglas Trussler

/s/ Patricia Warfield

1 unchanged sentence

Patricia Warfield

/s/ Barbara Whittaker

June 13, 2023

Barbara Whittaker

MOTORCAR PARTS OF AMERICA, INC.

AND SUBSIDIARIES

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Income

Consolidated Statements of Shareholders’ Equity

6 unchanged sentences

We have audited Motorcar Parts of America, Inc.

and subsidiaries’ internal control over financial reporting as of March 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring

Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

and subsidiaries’ internal control over financial reporting as of March 31, 2023, based on criteria established in

Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Motorcar Parts of America, Inc.

and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting

as of March 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 31, 2022 and 2021, the related consolidated statements of

operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2022, and the related notes and financial statement schedule and our report dated June 14, 2022 expressed an

unqualified opinion thereon.

and subsidiaries (the Company) maintained,

in all material respects, effective internal control over financial reporting as of March 31, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the

Company as of March 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2023, and the related notes and

financial statement schedule and our report dated June 13, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report

on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to

be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal

control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and

Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in

all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the

assessed risk, and performing such other procedures as we considered necessary in the circumstances.

Those standards require that we plan and perform the audit to obtain reasonable assurance about

whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating

the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s 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

generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and

that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

A company’s 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 generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the

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

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of

financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become

inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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.

/s/ Ernst & Young LLP

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Motorcar Parts of America, Inc.

and subsidiaries (the Company) as of March 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss),

shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the “consolidated financial

statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the

three years in the period ended March 31, 2022, in conformity with U.S.

and subsidiaries (the Company) as of March 31, 2023 and 2022, the

related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2023, and the related notes and financial statement schedule listed in the Index at

Item 15 (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2023 and 2022, and

the results of its operations and its cash flows for each of the three years in the period ended March 31, 2023, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of March 31, 2022, based on criteria established in

Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated June 14, 2022 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over

financial reporting as of March 31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated June 13, 2023

expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and

are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our responsibility is to express an opinion on the Company’s financial statements based

on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities

and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether

due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures

included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

Those standards require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,

and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or

disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial

statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be

communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit

matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the

accounts or disclosures to which they relate.

Contractual Agreements with Core Exchange Programs

Description of the Matter

As more fully described in Note 2 to the consolidated financial statements, the Company enters into contractual arrangements with customers (core exchange programs) which represent the majority of the Company’s sales for products that

contain remanufactured cores.

At March 31, 2022, contract assets and contract liabilities related to core exchange programs recorded on the consolidated balance sheet were $337,755,000 and $215,260,000, respectively.

Auditing contract assets and contract liabilities related to the core exchange programs involved complex auditor judgment due to the unique terms of each customer arrangement which impact the completeness, existence, valuation and

classification of contract assets and liabilities.

As more fully described in Note 2 to the consolidated financial statements, the Company enters into contractual arrangements with customers (core exchange

programs) which represent the majority of the Company’s sales for products that contain remanufactured cores.

At March 31, 2023, contract assets and contract liabilities related to core exchange programs recorded on the consolidated balance

sheet were $343,824,000 and $233,946,000, respectively.

Auditing contract assets and contract liabilities related to the core exchange programs involved complex auditor judgment due to the unique terms of each customer

arrangement which impact the completeness, existence, valuation and classification of contract assets and liabilities.

How We Addressed the

Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of contracts with customers, management’s assessment of the accounting for core exchange programs, including

unique contractual terms, and management’s review of the related contract assets and liabilities including controls over the completeness and accuracy of data.

Our audit procedures to test the contract assets and contract liabilities related to core exchange programs included, among others, (i) reviewing agreements and amendments for significant customers, (ii) testing the completeness of

management’s identification of contractual terms, (iii) evaluating the consistency of the accounting treatment with the Company’s policies;

and (v) testing the completeness and accuracy of the underlying data used in management’s analyses.

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s review of contracts with customers,

management’s assessment of the accounting for core exchange programs, including unique contractual terms, and management’s review of the related contract assets and liabilities including controls over the completeness and accuracy of

Our audit procedures to test the contract assets and contract liabilities related to core exchange programs included, among others, (i) reviewing agreements and

amendments for significant customers, (ii) testing the completeness of management’s identification of contractual terms, (iii) evaluating the consistency of the accounting treatment with the Company’s policies;

and (v) testing the

completeness and accuracy of the underlying data used in management’s analyses.

Marketing Allowances

1 unchanged sentence

As more fully described in Note 2 and Note 14 to the consolidated financial statements, revenue is recognized net of applicable marketing allowances.

These marketing allowances vary by contract and can include (i) the issuance of a

specified amount of credits against receivables, (ii) support for research or marketing efforts, (iii) discounts granted in connection with shipments of product, and (iv) other marketing, research, store expansion or product development

At March 31, 2022, marketing allowances recorded on the Company’s consolidated balance sheet was $22,059,000, which is presented within contract liabilities.

Auditing the completeness of marketing allowances was complex because marketing allowances vary by contract and could be impacted by unrecorded marketing allowances provided to customers.

marketing allowances vary by contract and can include (i) the issuance of a specified amount of credits against receivables, (ii) support for research or marketing efforts, (iii) discounts granted in connection with shipments of product,

and (iv) other marketing, research, store expansion or product development support.

At March 31, 2023, marketing allowances recorded on the Company’s consolidated balance sheet was $19,997,000, which is presented within contract

Auditing the completeness of marketing allowances was complex because marketing allowances vary by contract and could be impacted by unrecorded marketing

allowances provided to customers.

How We Addressed the

1 unchanged sentence

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the marketing allowances processes.

For example, we tested controls over management’s review of contracts with customers

containing marketing allowances, management’s review of the completeness and accuracy of data used in the marketing accrual analysis at period end and management’s review of credits issued to customers subsequent to the balance sheet date.

Our audit procedures to test marketing allowances included, among others, reviewing significant contracts with customers, obtaining confirmations of contractual terms and conditions from a sample of the Company’s customers, and testing

credits issued or payments made to customers throughout the year.

We tested the completeness and accuracy of data used in the calculation of the marketing allowance by agreeing contractual terms to the underlying agreements.

In addition, we

evaluated the relationship between revenue and marketing allowances and assessed subsequent events to determine whether there was any new information that would require adjustments to the amounts recorded.

For example, we

tested controls over management’s review of contracts with customers containing marketing allowances, management’s review of the completeness and accuracy of data used in the marketing accrual analysis at period end and management’s review

of credits issued to customers subsequent to the balance sheet date.

Our audit procedures to test marketing allowances included, among others, reviewing significant contracts with customers, obtaining confirmations of contractual

terms and conditions from a sample of the Company’s customers, and testing credits issued or payments made to customers throughout the year and subsequent to year-end.

We tested the completeness and accuracy of data used in the calculation

of the marketing allowance by agreeing contractual terms to the underlying agreements.

In addition, we evaluated the relationship between revenue and marketing allowances and assessed subsequent events to determine whether there was any new

information that would require adjustments to the amounts recorded.

/s/ Ernst & Young LLP

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1,028,565,000

1,015,698,000

LIABILITIES AND SHAREHOLDERS’ EQUITY

10 unchanged sentences

Term loan, less current portion

Convertible notes, related party

Contract liabilities, less current portion

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1,028,565,000

1,015,698,000

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

1 unchanged sentence

AND SUBSIDIARIES

Consolidated Statements of

Statements of

Years Ended March 31,

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Interest expense, net

Income (loss) before income tax expense (benefit)

Income tax expense(benefit)

Net income (loss)

Basic net income (loss) per share

Diluted net income (loss) per share

(Loss) income before income tax expense

Income tax expense

Net (loss) income

Basic net (loss) income per share

Diluted net (loss) income per share

Weighted average number of shares outstanding:

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Consolidated Statements of

Comprehensive Income (Loss)

Comprehensive Income

Years Ended March 31,

Net income (loss)

Net (loss) income

Other comprehensive income (loss), net of tax:

1 unchanged sentence

Total other comprehensive income (loss), net of tax

Comprehensive income (loss)

Comprehensive income

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

1 unchanged sentence

AND SUBSIDIARIES

Consolidated Statements of

Statements of

Shareholders’ Equity

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Capital Common

Retained Earnings

Comprehensive

Loss (Income)

Balance at March 31, 2020

Compensation recognized under employee stock plans

Exercise of stock options, net of shares withheld for employee taxes

Exercise of stock options

Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes

Repurchase and cancellation of treasury stock, including fees

Foreign currency translation

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Compensation recognized under employee stock plans

Exercise of stock options, net of shares withheld for employee taxes

Exercise of stock options, net of shares withheld for employee taxes and net share settlement of

exercise price

Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes

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Compensation recognized under employee stock plans

Exercise of stock options, net of shares withheld for employee taxes

Exercise of stock options, net of shares withheld for employee taxes and net share settlement of

exercise price

Issuance of common stock upon vesting of RSUs, net of shares withheld for employee taxes

Repurchase and cancellation of treasury stock, including fees

Foreign currency translation

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AND SUBSIDIARIES

Consolidated Statements of

Statements of

Years Ended March 31,

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Net (loss) income

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Depreciation and amortization

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Amortization of interest on contract liabilities, net

Accrued interest on convertible notes, related party

Amortization of core premiums paid to customers

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Foreign currency remeasurement loss (gain)

Loss (gain) due to the change in the fair value of the contingent consideration

Gain on short-term investments

Loss due to the change in the fair value of the contingent consideration

Loss (gain) on short-term investments

Net provision for inventory reserves

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Proceeds from sale of plant and equipment

(Payments for) redemptions of short term investments

Redemptions of (payments for) short term investments

Net cash used in investing activities

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Repayments of term loan

Proceeds from issuance of convertible notes, related party

Payments for debt issuance costs

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Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents — Beginning of year

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Non-cash capital expenditures

Debt issuance costs included in accounts payable and accrued liabilities

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

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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.

and its subsidiaries (the “Company”, or “MPA”) is a leading supplier of automotive aftermarket non-discretionary

replacement parts, and test solutions and diagnostic equipment.

These replacement parts are primarily sold to automotive retail chain stores and warehouse distributors throughout North America and to major automobile manufacturers for both their

aftermarket programs and warranty replacement programs (“OES”).

The Company’s test solutions and diagnostic equipment primarily serves the global automotive component and powertrain testing market.

The Company’s products include (i) light duty and

heavy duty rotating electrical products such as alternators and starters, (ii) wheel hub assemblies and bearings, (iii) brake-related products, which include brake calipers, brake boosters, brake rotors, brake pads, brake shoes, and brake master

cylinders, and (iv) other products, which include (a) turbochargers and (b) test solutions and diagnostic equipment including:

(i) applications for combustion engine vehicles, including bench top testers for alternators and starters, (ii) test

solutions and diagnostic equipment for the pre- and post-production of electric vehicles, (iii) software emulation of power systems applications for the electrification of all forms of transportation (including automobiles, trusts and the emerging

electrification of systems within the aerospace industry, such as electric vehicle charging stations).

The Company primarily ships its products from its facilities, including the Company’s 410,000 square foot distribution center in Tijuana, Mexico, and various third-party warehouse distribution centers in North America.

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

The outbreak of the COVID-19 pandemic continues to adversely impact the U.S.

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.

Summary of Significant Accounting Policies

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued guidance that simplifies the accounting for income taxes, eliminates certain exceptions within

Accounting Standards Codification (“ASC”) 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application.

This guidance is effective for annual and interim periods in fiscal years beginning after December

The adoption of this guidance on April 1, 2021 did not have any material impact on the Company’s consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the presentation of the prior year consolidated financial statements to conform to the current year presentation.

Principles of Consolidation

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Segment Reporting

Pursuant to the guidance provided under the FASB 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.

All of the operating segments meet all the aggregation criteria and are aggregated.

The Company’s three operating segments are as follows:

Hard Parts , including (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii)

brake-related products, including brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv) turbochargers,

Test Solutions and

Diagnostic Equipment , including (i) applications for combustion engine vehicles, including bench top testers for

alternators and starters, (ii) test solutions and diagnostic equipment for the pre- and post-production of electric vehicles, (iii) software emulation of power systems applications for the electrification of all forms of

transportation (including automobiles, trucks and the emerging electrification of systems within the aerospace industry, such as electric vehicle charging stations), and

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

agricultural applications.

Prior to the fourth quarter of fiscal 2023, the Company’s

operating segments met the aggregation criteria and were aggregated.

Effective as of the fourth quarter of fiscal 2023, the Company revised its segment reporting as it determined that its three operating segments no longer met the criteria to be aggregated.

The Company’s Hard Parts operating segment meets the criteria of a reportable segment.

The Test Solutions and

Diagnostic Equipment and Heavy Duty are not material, are not separately reportable, and are included within the “all other” category.

See Note 19 for more information.

Cash and Cash Equivalents

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reserved for at rates based upon management’s judgment, historical rates, and consideration of possible scrap and liquidation values which may be as high as 100 % of cost if no liquidation market exists for the part.

As a result of this process, the Company recorded reserves for excess and obsolete inventory of $ 13,520,000 and $ 13,246,000 at March

31, 2022 and 2021, respectively.

As a result of this process, the Company recorded reserves for excess and obsolete inventory of $ 16,436,000 and $ 13,520,000 at March 31, 2023 and 2022,

respectively.

This increase in the reserve was primarily due to excess inventory of certain finished goods on hand at March 31, 2023 compared with March 31, 2022 .

The Company records vendor discounts as a reduction of inventories and are recognized as a reduction to cost of sales as the inventories are sold.

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which is generally one year.

Upfront payments to customers represent the marketing allowances, such as sign-on bonuses, slotting fees, and promotional allowances provided by the

Upfront payments to customers represent marketing allowances, such as sign-on bonuses, slotting fees, and promotional allowances provided by the

Company to its customers.

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Core premiums paid to customers represent the difference between the Remanufactured Core acquisition price paid to customers, generally in connection

with new business, and the related Used Core cost, which is treated as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered.

Company considers, among other things, the length of its largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these

with new business, and the related Used Core cost.

The core premiums are treated as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is

The Company considers, among other things, the length of its largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to

amortize these premiums.

These core premiums are amortized over a period typically ranging from six to eight years , adjusted for specific circumstances associated with the arrangement.

Core premiums are recorded as long-term contract assets.

Core premiums expected to be amortized

within the Company’s normal operating cycle, which is generally one year, are classified as short-term contract assets.

Core premiums

expected to be amortized within the Company’s normal operating cycle, which is generally one year, are classified as short-term contract assets.

Finished goods premiums paid to customers represent the difference between the finished good acquisition price paid to customers, generally in connection with new business,

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in determining the appropriate period of time over which to amortize these premiums.

Finished goods premiums are amortized over a period typically ranging from six to eight years , adjusted for specific circumstances associated with the

Finished goods premiums are recorded as long-term contract assets.

Finished goods premiums expected to be amortized within our normal operating cycle,

which is generally one year, are classified as short-term contract assets.

Finished goods premiums are amortized over a period typically ranging from six to eight years , adjusted for specific circumstances associated with the arrangement.

Finished goods

premiums are recorded as long-term contract assets.

Finished goods premiums expected to be amortized within our normal operating cycle, which is generally one year,

are classified as short-term contract assets.

Long-term core inventory deposits represent the cost of Remanufactured Cores the Company has purchased from customers, which are held by the customers

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using the exchange rate at each reporting date, but the lease assets are nonmonetary assets measured at historical rates, which are not affected by subsequent changes in the exchange rates.

The Company recorded gains of $ 1,989,000 and $ 9,893,000 during the years

ended March 31, 2022 and 2021, respectively, and a loss of $ 11,710,000 during the year ended March 31, 2020, which are included in “foreign

exchange impact of lease liabilities and forward contracts” in the consolidated statements of operations.

The Company recorded gains of $ 6,515,000 , $ 1,989,000 and $ 9,893,000 during the years ended March 31, 2023, 2022 and 2021, respectively, which are included in foreign exchange impact of lease liabilities and

forward contracts in the consolidated statements of operations.

See Note 10 for additional information regarding the Company’s leases.

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Debt Issuance Costs

Debt issuance costs include fees and costs incurred to obtain financing.

Debt issuance costs related to the Company’s term loans are presented in the balance sheet as a

direct deduction from the carrying amount of the term loans.

Debt issuance costs related to the Company’s revolving loan are presented in prepaid expenses and other current assets in the accompanying consolidated balance sheets, regardless of whether

or not there are any outstanding borrowings under the revolving loan.

These fees and costs are amortized using the straight-line method, which approximates the effective interest rate method, over the terms of the related loans and are included in

interest expense in the Company’s consolidated statements of operations.

D ebt issuance costs include fees and costs incurred to obtain financing.

Debt issuance costs related to the Company’s term loans and convertible notes are presented in the balance sheet as a direct deduction from carrying

amounts of the respective debt.

Debt issuance costs related to the Company’s revolving loan are presented in prepaid expenses and other current assets in the accompanying consolidated balance sheets, regardless of whether or not there are any

outstanding borrowings under the revolving loan.

These fees and costs are amortized using the straight-line method, which approximates the effective interest rate method, over the terms of the related loans and notes and are included in interest

expense in the Company’s consolidated statements of operations .

Foreign Currency Translation

For financial reporting purposes, the functional currency of the foreign subsidiaries is the local currency.

The assets and liabilities of foreign operations for which the

local currency is the functional currency are translated into the U.S.

dollar at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at average exchange rates during the year.

The accumulated foreign

currency translation adjustment is presented as a component of comprehensive income or loss in the consolidated statements of shareholders’ equity.

During the years ended March 31, 2022 and 2021, aggregate foreign currency transaction gains of $ 239,000 and $ 1,144,000 , respectively, and a

loss of $ 789,000 for the year ended March 31, 2020, were recorded in general and administrative expenses.

The assets and liabilities of foreign operations for which the local currency is the functional currency are translated into the U.S.

dollar at the exchange rate in effect at the balance sheet date, while revenues and expenses are translated at

average exchange rates during the year.

The accumulated foreign currency translation adjustment is presented as a component of comprehensive income or loss in the consolidated statements of shareholders’ equity.

During the year ended March 31,

2023, aggregate foreign currency transaction losses of $ 1,401,000 and gains of $ 239,000 and $ 1,144,000 for the years ended March 31, 2022 and 2021,

respectively, were recorded in general and administrative expenses .

Revenue Recognition

Revenue is recognized when performance obligations under the terms of a contract with its customers are satisfied;

generally, this occurs with the transfer of control of

its products.

Revenue is recognized when performance obligations under the terms of a contract with the Company’s customers are satisfied;

generally, this occurs with the transfer of

control of its products.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services.

Revenue is recognized net of all anticipated returns, marketing allowances, volume discounts, and other forms of variable consideration .

Revenue is recognized either when products are shipped or when delivered, depending on the applicable contract

Revenue is recognized either when products are shipped or when delivered, depending on the applicable

contract terms.

The price of a finished remanufactured product sold to customers is generally comprised of separately invoiced amounts for the Remanufactured Core included in the product

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Advertising expenses for the years ended March 31, 2023, 2022 and 2021 were $ 606,000 , $ 1,007,000 , and $ 507,000 , respectively.

Net Income (Loss) Per Share

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

net income (loss) per share includes the effect, if any, from the potential exercise or conversion of securities, such as stock options and warrants, which would result in the issuance of incremental shares of common stock to the extent such impact

is not anti-dilutive.

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

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, warrants, and Convertible Notes (as defined in Note 8), 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.

Years Ended March 31,

Net income (loss)

Effect of dilutive stock options and warrants

Net (loss) income

Effect of dilutive stock options

Diluted shares

Net income (loss) per share:

Basic net income (loss) per share

Diluted net income (loss) per share

Net (loss) income per share:

Basic net (loss) income per share

Diluted net (loss) income per share

Potential common shares that would have the effect of increasing diluted net income per share or decreasing diluted net loss per share are considered to be anti-dilutive

and as such, these shares are not included in calculating diluted net income (loss) per share.

and as such, these shares are not included in calculating diluted net (loss) income per share.

For the years ended March 31, 2023, 2022 and 2021, there were 1,854,795 ,

725,998 , and 1,279,251 ,

respectively, of potential common shares not included in the calculation of diluted net income (loss) per share because their effect was anti-dilutive.

respectively, of potential common shares not i ncluded in the calculation of diluted net (loss) income per share because their effect was

anti-dilutive.

In addition, for the year ended March 31, 2023, there were 5,846 of potential common shares not included in the

calculation of diluted net (loss) income per share in under the “if-converted” method for the Convertible Notes because their effect was anti-dilutive .

The potential common shares related to the Warrants (as defined below) issued in connection with the Convertible Notes (see Note 8) are anti-dilutive until

they become exercisable and as of March 31, 2023, the Warrants were not exercisable.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make

estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes.

The preparation of consolidated financial statements in conformity with accounting principles generally

accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes.

Actual results could differ from those estimates.

On an on-going basis, the Company evaluates its estimates, including

allowances for credit losses, valuation of inventory, valuation of long-lived assets, goodwill and intangible assets, depreciation and amortization of long-lived assets, litigation matters, valuation of deferred tax assets, share-based compensation,

sales returns and other customer marketing allowances, and the incremental borrowing rate used in determining the present value of lease liabilities.

Although the Company does not believe that there is a reasonable likelihood that there will be a

material change in the future estimate or in the assumptions used in calculating the estimate, unforeseen changes in the industry, or business could materially impact the estimate and may have a material adverse effect on its business, financial

condition and results of operations.

on-going basis, the Company evaluates its estimates, including allowances for credit losses, valuation of inventory, valuation of long-lived assets, goodwill and intangible assets, depreciation and amortization of long-lived assets, litigation

matters, valuation of deferred tax assets, share-based compensation, sales returns and other customer marketing allowances, the incremental borrowing rate used in determining the present value of lease liabilities, and valuation of the embedded

derivatives in connection with the convertible notes.

Although the Company does not believe that there is a reasonable likelihood that there will be a material change in the future estimate or in the assumptions used in calculating the estimate,

unforeseen changes in the industry, or business could materially impact the estimate and may have a material adverse effect on its business, financial condition and results of operations .

Financial Instruments

The carrying amounts of cash, short-term investments, 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 current rates for instruments with similar characteristics.

amounts of cash, short-term investments, 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 current rates for instruments with similar characteristics.

The carrying amount of the convertible notes approximated their fair value as they were issued and sold on March 31, 2023 .

Share-Based Payments

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The majority of the Company’s sales are to leading automotive aftermarket parts suppliers.

Management believes the credit risk with respect to trade

accounts receivable is limited due to the Company’s credit evaluation process, the nature of its customers, and its accounts receivable discount programs.

However, should the Company’s customers experience significant cash flow problems, its

financial position and results of operations could be materially and adversely affected, and the maximum amount of loss that would be incurred would be the outstanding receivable balance, Used Cores expected to be returned by customers, and the value

of the Remanufactured Cores held at customers’ locations.

The Company maintains an allowance for credit losses that, in its opinion, provides for an adequate reserve to cover losses that may be incurred.

The Company participates in trade accounts receivable

discount programs with its major customers.

If the creditworthiness of any of its customers was downgraded, the Company could be adversely affected, in that it may be subjected to higher interest rates on the use of these discount programs or it

could be forced to wait longer for payment.

Should the Company’s customers experience significant cash flow problems, its financial position and results of operations could be materially and adversely affected, and the maximum amount of loss that

would be incurred would be the outstanding receivable balance, Used Cores expected to be returned by customers, and the value of the Remanufactured Cores held at customers’ locations.

The Company maintains an allowance for credit losses that, in

its opinion, provide for an adequate reserve to cover losses that may be incurred.

Deferred Compensation Plan

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The plan’s assets consist primarily of mutual funds and are recorded at market value with any unrealized gain or loss recorded as general and administrative expense.

The carrying value of plan assets was $ 2,202,000 and $ 1,652,000 , and the deferred

The carrying value of plan assets were $ 2,011,000 and $ 2,202,000 , and the deferred

compensation liability, which is included in other current liabilities in the accompanying consolidated balance sheets, was $ 2,011,000 and

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of $ 75,000 , $ 119,000 and $ 96,000 , respectively.

During the year ended March 31, 2022, the Company did no t

redeem any of its short-term investments for the payment of deferred compensation liabilities.

During the year ended March 31, 2021, the Company redeemed $ 46,000

of its short-term investments for the payment of deferred compensation liabilities.

During the year ended March 31, 2023, the Company redeemed $ 297,000 of its short-term investments for the payment of deferred compensation liabilities.

During the year ended March 31, 2022, the Company did no t redeem any of its short-term investments for the payment of deferred compensation liabilities.

The following summarizes the gain (loss) on the Company’s equity investments:

Years Ended March 31,

Net gain recognized on equity securities

net gain recognized on equity securities sold

Unrealized gain (loss) recognized on equity securities still held

Net (loss) gain recognized on equity securities

net (loss) gain recognized on equity securities sold

Unrealized (loss) gain recognized on equity securities still held

Comprehensive Income or Loss

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The Company had goodwill of $ 3,205,000 at March 31, 2023

and 2022 , which was comprised of $ 2,551,000 for the Hard Parts

segment and $ 654,000 for all others, respectively.

Intangible Assets

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Developed technology

During the years ended March 31, 2022 and 2021, the Company retired $ 136,000 and $ 291,000 , respectively, of fully amortized intangible assets.

D uring the year ended March 31, 2023, the Company did no t retire any fully amortized intangible assets.

During the year ended March 31, 2022 the Company retired $ 136,000 of fully amortized intangible assets .

Amortization expense for acquired intangible assets is as follows:

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Total accounts receivable — net

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

During the year ended March 31, 2021, the Company wrote off amounts previously fully reserved for in connection the bankruptcy filing of one of its customers.

Years Ended March 31,

Balance at beginning of period

Provision for expected credit losses

Amounts written off charged against the allowance

Balance at end of period

Inventory is comprised of the following:

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Cores expected to be returned by customers

Core premiums paid to customers

Upfront payments to customers

Finished goods premiums paid to customers

Core premiums paid to customers

Total short-term contract assets

Remanufactured cores held at customers’ locations

Upfront payments to customers

Finished goods premiums paid to customers

Core premiums paid to customers

Long-term core inventory deposits

Finished goods premiums paid to customers

Upfront payments to customers

Total long-term contract assets

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sublimit for borrowings by Canadian borrowers, and a $ 20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $ 30,000,000 term loan facility (the “Term Loans”).

The loans under the Credit Facility mature on June 5, 2023 .

The loans under the Credit Facility mature on May 28, 2026 .

The Credit Facility currently permits the payment of up to $ 29,043,000

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In connection with the Credit Facility, the lenders have a security interest in substantially all of the assets of the Company.

May 2021, the Company entered into a third amendment to the Credit Facility (the “Third Amendment”).

The Third Amendment, among other things, (i) extended the maturity date from June 5, 2023 to May 28, 2026 , (ii) modified the fixed charge

coverage ratio financial covenant, and (iii) modified the definition of “Consolidated EBITDA”.

The Company capitalized $ 1,159,000

of new debt issuance costs in connection with the Third Amendment.

The Term Loans require quarterly principal payments of $ 937,500 .

The Credit Facility bears interest at rates equal to either 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.

The Credit Facility bears interest at rates equal to either SOFR (as defined below) plus a margin of 2.75 %, 3.00 % or 3.25 % or a reference rate plus a

margin of 1.75 %, 2.00 % or 2.25 %, in each case depending on the senior leverage ratio as of the applicable measurement date.

There is also a facility fee of 0.375 % to 0.50 %, depending on the senior

leverage ratio as of the applicable measurement date.

The interest rate on the Company’s Term Loans and Revolving Facility was 2.99 % and 3.13 % respectively, at March 31, 2022, and 2.62 % at March 31, 2021.

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 March 31, 2022.

The Company had cash of $ 23,016,000 at March 31, 2022, however, the Credit Facility allows up to $ 6,000,000 of credit for cash when computing the senior leverage ratio.

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 interest rate on the Company’s Term Loans and Revolving Facility was 8.02 % and 8.13 %, respectively, at March 31, 2023, and 2.99 % and 3.13 %, respectively, at March

The Credit Facility, among other things, requires the Company to

maintain certain financial covenants including a maximum senior leverage ratio and a minimum fixed charge coverage ratio.

In addition, the Credit Facility places limits on the Company’s ability to incur liens, incur additional

indebtedness, make loans and investments, engage in mergers and acquisitions, engage in asset sales, redeem, or repurchase capital stock, alter the business conducted by the Company and its subsidiaries, transact with affiliates, prepay, redeem, or

purchase subordinated debt, and amend or otherwise alter debt agreements.

On November 3, 2022, the Company entered into a fourth amendment

to the Credit Facility, which among other things, (i) modified the fixed charge coverage ratio financial covenant for the fiscal quarters ending September 30, 2022 and December 31, 2022, (ii) modified the total leverage ratio financial covenant for

the fiscal quarter ending September 30, 2022, (iii) modified the definition of “Consolidated EBITDA”, and (iv) replaces LIBOR as the benchmark rate with a replacement benchmark based on the Secured Overnight Financing Rate (“SOFR”) effective

beginning November 3, 2022.

The modifications to the financial covenants were effective as of September 30, 2022.

As of December 31, 2022,

the Company identified certain defaults with respect to the Credit Facility, which arose from non-compliance with certain financial covenants.

On February 3, 2023, the Company entered into a fifth amendment to the Credit Facility, which among

other things, (i) waived certain existing defaults and events of default arising from non-compliance with the fixed charge coverage ratio and senior leverage ratio financial covenants as of the end of the fiscal quarter ended December 31, 2022,

(ii) modified the fixed charge coverage ratio and senior leverage ratio financial covenants for the quarters ending March 31, 2023 and June 30, 2023, (iii) modified the definitions of “Applicable Margin” and “Consolidated EBITDA”, and (iv) added

a new minimum undrawn availability financial covenant.

On March 31, 2023, the

Company entered into a sixth amendment to the Credit Facility, which among other things, (i) permitted the issuance of the Convertible Notes (as defined below) and the performance of its respective obligations under the Note Purchase Agreement

(as defined below) and the Convertible Notes, (ii) amended the definition of Consolidated EBITDA, and (iii) amended certain component definitions used in calculating the senior leverage ratio financial covenant to exclude the Convertible Notes.

The Company was in

compliance with all financial covenants as of March 31, 2023.

The Company’s Term Loans are comprised of the following:

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At March 31, 2023, after certain adjustments, $ 87,050,000 was available under the Revolving Facility.

Convertible Notes

On March 31, 2023, the

Company entered into a note purchase agreement (the “Note Purchase Agreement”) with Bison Capital Partners VI, L.P.

and Bison Capital Partners VI-A, L.P.

(collectively, the “Purchasers”) and Bison Capital Partners VI, L.P., as the purchaser

representative (the “Purchaser Representative”) for the issuance and sale of $ 32,000,000 in aggregate principal amount of convertible notes

due in 2029 (the “Convertible Notes”) to be used for general corporate purposes.

The Convertible Notes will bear interest at a rate of 10.0 %

per annum, compounded annually, and payable (i) in kind or (ii) in cash, annually in arrears on April 1 of each year, commencing on April 1, 2024.

On June 8, 2023, the Company entered into the first amendment to the Note Purchase Agreement, which

among other things, removed a provision that specified the Purchasers would be entitled to receive a dividend or distribution payable in certain circumstances.

This amendment was effective as of March 31, 2023.

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

March 31, 2023

Principal amount of Convertible Notes

unamortized debt discount attributed to Compound Net Derivative Liability

unamortized debt discount attributed to debt issuance costs

Carrying amount of the Convertible Notes

Compound Net Derivative Liability

Net carrying amount of Convertible Notes, related party

The aggregate proceeds from

the offering were approximately $ 31,280,000 , net of initial purchasers’ fees and other related expenses.

The initial conversion rate is 66.6667 shares of the Company’s common stock per $ 1,000

principal amount of notes (equivalent to an initial conversion price of approximately $ 15.00 per share of common stock).

At March 31, 2023,

the Company had 28,650,590 shares of its common stock available to be issued if the Convertible Notes were converted.

In connection with the

Note Purchase Agreement, the Company entered into common stock warrants (the “Warrants”) with the Purchasers, which mature on March 30, 2029 .

The Warrants do not become exercisable unless a Company Redemption (as defined below) occurs and the volume weighted average price of the Company’s common stock for 20 consecutive days prior to the redemption is less than $ 15.00 .

The fair value

of the Warrants, using Level 3 inputs and the Monte Carlo simulation model, was zero at March 31, 2023.

The Company estimates the fair

value of the Warrants at each balance sheet date.

Any subsequent changes from the initial recognition in the fair value of the Warrants will be recorded in current period earnings in the consolidated statements of operations.

The Convertible Notes

may be converted, subject to certain conditions, at a conversion price of approximately $ 15.00 (the “Conversion Option”).

Convertible Notes also include a provision for a return of interest (“Return of Interest”), which requires the Purchasers to return 15.0 %

of the interest paid to the Company in certain circumstances.

The Return of Interest provision is accounted for as part of the Conversion Option and if the Conversion Option is exercised in the future, the Return of Interest provision will remain

outstanding until the Purchaser sells all of the underlying stock received upon conversion.

Upon conversion, any value associated with the Return of Interest provision will be reflected as a derivative asset upon conversion, with changes in fair

value being recorded in earnings in the consolidated statements of operations until settlement in connection with the sale of the underlying stock by the Purchaser.

Unless and until the Company delivers a redemption notice, the Purchasers of the

Convertible Notes may convert their Convertible Notes at any time at their option.

Upon conversion, the Convertible Notes will be settled in shares of the Company’s common stock.

The conversion rate and conversion price are subject to customary

adjustments upon the occurrence of certain events.

The Convertible Notes have a stated maturity of March 30, 2029 , subject to earlier

conversion or redemption in accordance with their terms.

If there is a

Fundamental Transaction, as defined in the Form of Convertible Promissory Note, the Company may redeem all or part of the Convertible Notes.

Except in the case of the occurrence of a Fundamental Transaction, the Company may not redeem the

Convertible Notes prior to March 31, 2026.

After March 31, 2026, the Company may redeem all or part of the Convertible Notes for a cash purchase (the “Company Redemption”) price equal to the redemption price plus $ 4,000,000 , but only if (i) it is listed on a national exchange, (ii) there is no “Event of Default” occurring and continuing, and (iii) Adjusted

EBITDA for the prior four quarters is greater than $ 80,000,000 .

The “Redemption Price” shall mean a cash amount equal to the

principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest.

However, if the volume weighted average price of the Company’s common stock for 20 consecutive days prior to the notice of the Company Redemption is less than $ 15.00 ,

the Purchasers may exercise the warrants and the Company will pay the Redemption Price plus $ 2,000,000 .

However, if the volume

weighted average price of the Company’s common stock is less than $ 8 for 20 days between March 31, 2023 and September 27, 2023, the Company will pay the redemption price plus $ 5,000,000 .

The Conversion

Option and the Company Redemption both met the criteria for bifurcation from the Convertible Notes as derivatives and using the Monte Carlo simulation model were fair valued as a liability of $ 10,400,000 and an asset of $ 1,970,000 at March 31, 2023,

respectively.

The Company Redemption has been combined with the Conversion Option as a compound net derivative liability (the “Compound Net Derivative Liability”).

The Compound Net Derivative Liability has been recorded within convertible note, related party in the consolidated balance sheet at March 31, 2023.

The Company estimates the fair value of the Compound Net

Derivative Liability at each balance sheet date.

Any subsequent changes from the initial recognition in the fair value of the Compound Net Derivative Liability will be recorded in current period earnings in the consolidated statements of

The Convertible

Notes also contain additional features, such as, default interest and options related to a Fundamental Transaction, requiring bifurcation which were not separately accounted for as the value of such features were not material at March 31,

Any subsequent changes from the initial recognition in the fair value of those features will be recorded in current period earnings in the consolidated statements of operations.

The Convertible

Notes include customary provisions relating to the occurrence of Events of Default, which include the following:

(i) certain payment defaults on the Convertible Notes; (ii) certain events of bankruptcy, insolvency and reorganization

involving the Company or any of its subsidiaries;

(iii) the entering of one or more final judgements or orders against the Company or any of its subsidiaries for an aggregate payment exceeding $ 25,000,000 ;

(iv) the acceleration of senior debt;

(v) certain failures of the Company to comply with certain provisions of the Note Purchase Agreement or material

breaches of the Note Purchase Agreement by the Company or any of its subsidiaries;

(vi) any material provision of the Note Purchase Agreement, the Convertible Notes, the guarantee, the subordination agreement, the warrants or the

registration rights agreement, for any reason, ceases to be valid and binding on the Company or any subsidiary, or any subsidiary shall so claim in writing to challenge the validity of or the Company’s liability under the Note Purchase

Agreement, the Convertible Notes, or the registration rights agreement;

or (vii) the Company fails to maintain the listing of its capital stock on a national securities exchange.

Events of Default will be subject to a 30-day cure period except for those related to clause (ii) and (iv) of the preceding sentence.

If an Event of

Default occurs and is continuing, then, the Company shall deliver written notice to the Purchasers within 5 business days of

first learning of such Event of Default.

If an Event of Default involving bankruptcy, insolvency or reorganization events with respect to the Company (and not solely with respect to its significant subsidiary) occurs, then the principal

amount of, and all accrued and unpaid interest on, all of the Convertible Notes then outstanding will immediately become due and payable without any further action.

issuance costs of $ 1,006,000 are presented in the balance sheet as a direct deduction from the carrying amounts of the

Convertible Notes at March 31, 2023.

Debt issuance costs are amortized using the effective interest method through the maturity of the Convertible Note and recorded in interest expense in the consolidated statements of operations.

Debt issuance costs of $ 360,000 allocated to the Compound Net Derivative Liability were immediately expensed to interest

expense in the consolidated statements of operations for the year ended March 31, 2023.

Additionally,

pursuant to the Note Purchase Agreement, subject to certain conditions, the Purchaser Representative shall have the right to nominate one

director to serve (the “Investor Director”) on the Company’s Board of Directors (the “Board”).

If an Investor Director is not currently serving on the Board, and subject to certain other conditions set forth in the Note Purchase

Agreement, the Purchaser Representative shall have the right to designate one person to have observation rights with

respect to all meetings of the Board.

In connection with the Company’s entry into the Note Purchase Agreement, Douglas Trussler was appointed to serve on its Board.

Total contractual interest expense of $ 9,000 related to the Convertible Notes was recognized during the year ended March 31, 2023.

There are no future payments

required under the Convertible Notes prior to their maturity, therefore, the principal amount of the notes plus interest payable in kind, assuming no early redemption or conversion has occurred, of $ 56,704,000 would be paid on March 30, 2029.

Contract Liabilities

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Short-term contract liabilities

Customer core returns accruals

Customer allowances earned

Customer core returns accruals

Customer deposits

Finished goods liabilities

Core bank liability

Accrued core payment

Core bank liability

Finished goods liabilities

Total short-term contract liabilities

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Customer core returns accruals

Customer allowances earned

Finished goods liabilities

Core bank liability

Accrued core payment

Finished goods liabilities

Customer allowances earned

Total long-term contract liabilities

The Company leases various facilities in North America and Asia under operating leases expiring through August 2033.

During the first quarter of fiscal 2022, the Company

renewed the lease for its corporate headquarters in Torrance, California, for an additional 10 -year period, which resulted in an increase

in the operating lease liability of $ 15,537,000 .

The Company also has finance leases for certain office and manufacturing equipment, which

generally range from three to five years .

The Company has material non-functional currency leases, which resulted in a remeasurement gains of $ 1,989,000 and $ 9,893,000 during the years ended March 31, 2022 and

2021, respectively, and a loss of $ 11,710,000 during the year ended March 31, 2020.

These remeasurement gains are included in “foreign

exchange impact of lease liabilities and forward contracts” in the consolidated statements of operations.

The Company also has finance leases for certain office

and manufacturing equipment, which generally range from three to five years .

The Company has material non-functional currency leases, which resulted in a remeasurement gains of $ 6,515,000 , $ 1,989,000 , and $ 9,893,000 during the years ended March 31, 2023, 2022, and 2021, respectively.

These remeasurement gains are included in foreign exchange impact of lease

liabilities and forward contracts in the consolidated statements of operations.

Balance sheet information for leases is comprised of the following:

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The following shows the effect of the Company’s derivative instruments on its consolidated statements of operations:

(Loss) Gain Recognized as Foreign Exchange Impact of Lease Liabilities and Forward Contracts

Gain (Loss) Recognized as Foreign Exchange Impact of Lease Liabilities and Forward Contracts

Derivatives Not Designated as

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Fair Value Measurements

Using Inputs Considered as

Fair Value Measurements

Using Inputs Considered as

Short-term investments

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Forward foreign currency exchange contracts

Accrued liabilities

Short-term contingent consideration

Other current liabilities

Deferred compensation

Convertible notes, related party

Compound Net Derivative Liability

Short-term Investments and Deferred Compensation

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foreign currency dealers (See Note 12).

Contingent Consideration

In December 2018, the Company completed the acquisition of certain assets and assumption of certain liabilities from Mechanical Power Conversion, LLC (“E&M”).

Company was contingently obligated to make additional payments to the former owners of E&M up to an aggregate of $ 5,200,000 over a three-year period.

During the year ended

March 31, 2022, the Company paid $ 977,000 to the former owners of E&M.

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

Compound Net Derivative Liability

In connection with the issuance of the Convertible Notes on March 31, 2023, the Company estimates the fair

value of the Compound Net Derivative Liability (see Note 8) using Level 3 inputs and the Monte Carlo simulation model at the balance sheet date.

The Monte Carlo simulation model requires the input of subjective assumptions including the expected

volatility of the underlying stock.

These subjective assumptions are based on both historical and other information.

Changes in the values assumed and used in the model can materially affect the estimate of fair value.

This amount is recorded

within convertible notes, related party in the consolidated balance sheet at March 31, 2023.

The Company estimates the fair value of the Compound Net Derivative Liability using Level 3 inputs and the Monte Carlo simulation model at each balance

Any subsequent changes from the initial recognition in the fair value of the Compound Net Derivative Liability will be recorded in current period earnings in the consolidated statements of operations.

following assumptions were used to determine the fair value of the Compound Net Derivative Liability:

March 31, 2023

Risk free interest rate

Cost of equity

Weighted average cost of capital

Expected volatility of MPA Common Stock

EBITDA volatility

The following summarizes the activity for Level 3 fair value measurements:

Years Ended March 31,

Consideration

Beginning balance

Changes in revaluation of contingent consideration included in earnings

Changes in revaluation of Compound Net Derivative Liability included in earnings

Exercises/settlements

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similar characteristics.

The carrying amount of the Convertible Notes approximated their fair value as they were issued on March 31, 2023 .

Commitments and Contingencies

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Allowances related to a single exchange of product

Amortization of core premiums paid to customers

Amortization of core premiums paid

Total customer allowances recorded as a reduction of revenues

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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 is disputing 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.

Following an audit in fiscal 2019 (“Audit”), the U.S.

Customs and Border Protection (“CBP”) stated that it believed that the Company owed additional duties

relating to products that it imported from Mexico from 2011 through mid-2018.

The CBP recently requested that the Company pay additional duties of approximately $ 3,900,000 from 2011 through mid-2018 related to the findings of the Audit.

The Company does not believe that this amount is correct and believes that it has numerous defenses and is disputing

this amount vigorously.

The Company cannot assure that the CBP will agree or that it will not need to accrue or pay additional amounts in the future.

Significant Customer and Other Information

Significant Customer Concentrations

While the Company continually seeks to diversify its customer base, it currently derives, and has historically derived, a substantial portion of its

sales from a small number of large customers.

Any meaningful reduction in the level of sales to any of these customers, deterioration of the financial condition of any of these customers or the loss of any of these customers could have a materially

adverse impact on our business, results of operations, and financial condition.

The Company’s largest customers accounted for the following total percentage of net sales:

Years Ended March 31,

Revenues for Customers A through C were derived from the Hard Parts segment and Test Solutions and Diagnostic Equipment segment.

Revenues for Customer

D were derived from the Hard Parts segment.

The Company’s largest customers accounted for the following total percentage of accounts receivable — trade:

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No suppliers accounted for more than 10% of the Company’s inventory purchases for the years ended March 31, 2023, 2022, and 2021.

The income tax expense (benefit) is as follows:

Domestic and foreign components of income (loss) before income taxes are as follows:

Years Ended March 31,

United States

(Loss) income before income taxes

The income tax expense is as follows:

Years Ended March 31,

Current tax expense

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Total deferred tax benefit

Total income tax expense (benefit)

Total income tax expense

Deferred income taxes consist of the following:

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Inventory adjustments

Intangibles, net

Stock options

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Plant and equipment, net

Intangibles, net

Operating lease

Contract assets

Operating lease assets

Total deferred tax liabilities

Less valuation allowance

As of March 31, 2022, the Company had federal net operating loss carryforwards of $ 789,000 related to its January 2019 acquisition, state net operating loss carryforwards of $ 537,000 and

foreign net operating loss carryforwards of $ 16,709,000 .

The federal net operating loss carryforwards expire beginning in fiscal year 2033 , the state net operating loss carryforwards expire beginning in fiscal year 2033 , and the foreign net operating loss carryforwards expire beginning in fiscal year 2038 .

As of March 31, 2022, the Company also had non-US tax credit carryforwards of $ 2,018,000 , which

will expire beginning in fiscal year 2034 .

A full valuation allowance was established on the federal and foreign net operating loss and

tax credits carryforward as the Company believes it is more likely than not these tax attributes would not be realizable in the future.

As of March 31, 2023, before tax effect, the Company had federal net operating loss carryforwards of $ 1,361,000 related to its January 2019 acquisition, state net operating loss carryforwards of $ 649,000 and foreign net operating loss carryforwards of $ 19,012,000 .

The federal net operating loss

carryforwards expire beginning in fiscal year 2033 , the state net operating loss carryforwards expire beginning in fiscal year 2033 , and the foreign net operating loss carryforwards expire beginning in fiscal year 2038 .

As of March 31, 2023, the Company also had non-US tax credit carryforwards of $ 2,012,000 ,

which will expire beginning in fiscal year 2034 .

A full valuation allowance was established on the federal and foreign net operating loss

and tax credits carryforward as the Company believes it is more likely than not these tax attributes would not be realizable in the future.

The net increase in the valuation allowance was $ 803,000 during the year ended March 31, 2023.

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State income tax rate, net of federal benefit

Excess tax benefit from stock compensation

Foreign income taxed at different rates

Return to provision adjustments

Non-deductible executive compensation

Change in valuation allowance

Net operating loss carryback

Uncertain tax positions

Research and development credit

Other income tax

Net operating loss carryback

The Company and its subsidiaries file income tax returns in the U.S.

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Company recognized interest and penalties of approximately $ 59,000 , $ 112,000 , and $( 16,000 ), respectively.

The Company had

approximately $ 170,000 and $ 58,000

for the payment of interest and penalties accrued at March 31, 2022 and 2021, respectively.

The Company had approximately

$ 229,000 and $ 170,000 for

the payment of interest and penalties accrued at March 31, 2023 and 2022, respectively.

With the exception of its earnings from its Singapore subsidiary, the Company intends to indefinitely reinvest its undistributed earnings from foreign subsidiaries in

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Share-based Payments

At March 31, 2022 , there were 342,000 shares of the Company’s common stock reserved for grants to the Company’s non-employee directors under the 2014 Non-Employee Director Incentive Award Plan (the “2014

Under the 2014 Plan, (i) 82,324 and 69,732

of restricted stock units were outstanding and (ii) 628 and 76,746 shares of common stock were available for grant under this plan at March 31, 2022 and 2021, respectively.

At March 31, 2022, there were 5,150,000 shares of common

stock reserved for grant to all employees of the Company under the 2010 Incentive Award Plan (the “2010 Plan”).

At March 31, 2022 and 2021, respectively, there was (i) 216,739 and 184,752 shares of restricted stock units were outstanding, (ii)

options to purchase 1,674,499 and 1,714,885

shares of common stock were outstanding, (iii) 100,000 and 100,000 restricted shares were outstanding, and (iv) 84,593 and no shares of performance stock units were outstanding under the 2010 Plan.

At March 31, 2022 and 2021, there were 682,160 and 1,267,802 shares of common

stock were available for grant, respectively.

In September 2022, the Company’s

shareholders approved the 2022 Incentive Award Plan (the “2022 Plan”), which replaced the 2010 Incentive Award Plan and the 2014 Non-Employee Director Incentive Award Plan.

Under the 2022 Plan, a total of 924,200 shares of the Company’s common stock were reserved for grants to its employees, non-employee directors, and consultants.

At March 31, 2023, there were 52,768 shares of restricted stock units outstanding and 871,432

shares of common stock were available for grant under this plan.

At March 31, 2023 and 2022, 10,417 and 82,324 of restricted stock

units, respectively, were outstanding under the 2014 Non-Employee Director Incentive Award Plan.

No shares of common stock remain

available for grant under this plan.

At March 31, 2023 and 2022, respectively, there was (i) 266,169

and 216,739 shares of restricted stock units were outstanding, (ii) options to purchase 1,226,745 and 1,674,499 shares of common stock were outstanding,

(iii) 100,000 and 100,000

restricted shares were outstanding, and (iv) 192,696 and 84,593 shares of performance stock units were outstanding under the 2010 Incentive Award Plan.

shares of common stock remain available for grant under this plan.

In addition, at March 31, 2023 and 2022, options to purchase 6,000

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Stock Options

The Company did no t grant any stock

options during the year ended March 31, 2022.

The following summarizes the Black-Scholes option-pricing model assumptions used to derive the weighted average fair value of the stock

options granted during the years ended March 31, 2021 and 2020.

The Company did no t grant any

stock options during the year ended March 31, 2023 and 2022.

The following summarizes the Black-Scholes option-pricing model assumptions used to derive the weighted average fair

value of the stock options granted during the year ended March 31, 2021.

Years Ended March 31,

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Outstanding at March 31, 2022

Forfeited/Cancelled

Outstanding at March 31, 2023

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28.05 to $ 31.13

28.05 to $ 34.17

The aggregate intrinsic values in the above table represent the pre-tax value of all in-the-money options if all such options had been exercised on March 31, 2023 based on

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compensation expense from stock-based compensation granted under the plans, which is related to non-vested shares.

The compensation expense is expected to be recognized over a weighted average vesting period of 1.0 year.

The compensation expense is expected to be recognized over a weighted average vesting period of three months .

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

During the years ended March 31, 2022 and 2021 the Company granted 263,703

and 251,801 shares of RSUs, respectively, with an estimated grant date fair value of $ 5,775,000 and $ 4,150,000 , respectively, which was based on the

closing market price on the date of grant.

During the years ended March 31, 2023 and 2022, the Company granted (i) performance-based restricted stock awards which had a threshold performance level of 33,333 shares, a target performance level of 66,667

shares, and a maximum performance level of 100,000 shares at the grant date for both periods and (ii) 229,121 and 163,703 of time-based vesting

restricted stock units, respectively.

The estimated grant date fair value of the RSUs $ 4,430,000 , $ 5,775,000 , and $ 4,150,000 , for the years ended March 31, 2023,

2022, and 2021, respectively, which was based on the closing market price on the date of grant.

The fair value related to these awards is recognized as compensation expense over the vesting period.

These awards generally vest in three equal installments beginning each anniversary from the grant date, subject to continued employment.

Upon vesting, these awards may be net share settled to cover the required withholding

tax with the remaining amount converted into an equivalent number of shares of common stock.

Total shares withheld during the years ended March 31, 2022 and 2021 were 84,762 and 22,202 , respectively, based on the value of these awards as

determined by the Company’s closing stock price on the vesting date.

Upon vesting, these awards may be net share

settled to cover the required withholding tax with the remaining amount converted into an equivalent number of shares of common stock.

Total shares withheld during the years ended March 31, 2023 and 2022 were 74,854 and 84,762 , respectively, based on the value of these

awards as determined by the Company’s closing stock price on the vesting date.

The following is a summary of non-vested RSUs:

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Outstanding at March 31, 2022

Forfeited/Cancelled

Outstanding at March 31, 2023

1 unchanged sentence

of unrecognized compensation expense related to these awards, which will be recognized over the remaining vesting period of approximately 1.5

The Company’s unrecognized compensation expense includes restricted stock awards at the target performance level as deemed probable at each quarter-end.

Performance Stock Units (“PSUs”)

In June 2021, the Company granted performance-based PSUs to its executives, 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.

During the years ended March 31, 2023 and 2022, the Company granted 126,028 and 84,593 of performance-based PSUs (at target performance levels), respectively, to its

executives, 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 at 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.

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

Compensation cost related to the TSR award will not be adjusted even if the market condition is not met.

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The following is a summary of non-vested PSUs:

Number of Shares

Weighted Average

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Outstanding at March 31, 2022

Forfeited/Cancelled

Outstanding at March 31, 2023

1 unchanged sentence

of unrecognized compensation expense related to these awards, which will be recognized over the weighted average remaining vesting period of approximately 1.9

Segment Information

Pursuant to the guidance provided

under the Financial Accounting Standards Board Accounting Standards Codification 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 identified its Chief Executive Officer as the CODM.

The criteria the Company used to identify the reportable segments are primarily the nature of the

products the Company sells, the Company’s organizational and management reporting structure, and the operating results that are regularly reviewed by the Company’s CODM to make decisions about the resources to be allocated to the business units

and to assess performance.

The Company’s three operating segments are:

Hard Parts , including (i) light duty rotating electric products such as alternators and starters, (ii) wheel hub products, (iii) brake-related products, including brake calipers, brake boosters,

brake rotors, brake pads and brake master cylinders, and (iv) turbochargers,

Test Solutions and Diagnostic Equipment , including (i) applications for combustion engine vehicles, including bench top testers for alternators and starters, (ii) test solutions and diagnostic

equipment for the pre- and post-production of electric vehicles, (iii) software emulation of power systems applications for the electrification of all forms of transportation (including automobiles, trucks and the emerging electrification

of systems within the aerospace industry, such as electric vehicle charging stations), and

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

Prior to the fourth quarter of fiscal 2023,

the Company’s operating segments met the aggregation criteria and were aggregated.

Effective as of the fourth quarter of fiscal 2023, the Company revised its segment reporting as it determined that its three operating segments no longer met the criteria to be aggregated.

The Company’s Hard Parts operating segment meets the criteria of a reportable segment while Test Solutions

and Diagnostic Equipment and Heavy Duty are not material, are not separately reportable, and are included within the “all other” category.

Financial information relating to the

Company’s segments is as follows:

March 31, 2023

Net sales to external customers

Intersegment sales

Operating income (loss)

Depreciation and amortization

Segment assets

1,032,739,000

1,082,517,000

Capital expenditures

March 31, 2022

Net sales to external customers

Intersegment sales

Operating income (loss)

Depreciation and amortization

Segment assets

1,017,475,000

1,064,963,000

Capital expenditures

March 31, 2021

Net sales to external customers

Intersegment sales

Operating income (loss)

Depreciation and amortization

Capital expenditures

March 31, 2023

March 31, 2022

March 31, 2021

Total net sales for reportable segment

Other net sales

Elimination of intersegment net sales

Total consolidated net sales

Profit or loss

March 31, 2023

March 31, 2022

March 31, 2021

Total operating income for reportable segment

Other operating loss

Elimination of intersegment operating (loss) income

Interest expense, net

Total consolidated (loss) income before income tax expense

March 31, 2023

March 31, 2022

Total assets for reportable segment

1,032,739,000

1,017,475,000

Elimination of intersegment assets

Total consolidated assets

1,028,565,000

1,015,698,000

Share Repurchase Program

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 years

ended March 31, 2022 and 2021, the Company repurchased 106,486 and 54,960 shares of its common stock, respectively, for $ 1,914,000 and

$ 1,139,000 , respectively.

During the year ended March 31, 2020 the Company did no t repurchase any shares of its common stock.

As of March 31, 2022, $ 18,745,000

was utilized and $ 18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in

the Company’s Credit Facility.

During the year ended March 31,

2023 the Company did no t repurchase any shares of its common stock.

During the years ended March 31, 2022 and 2021, the Company

repurchased 106,486 and 54,960

shares of its common stock, respectively, for $ 1,914,000 and $ 1,139,000 , respectively.

As of March 31, 2023, $ 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 March 31, 2023.

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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.

Schedule II —

Valuation and Qualifying Accounts

Related Party Transactions

In December 2022, the Company entered into an operating lease for its 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by a member of management.

The lease, which commenced January 1,

2023, has an initial term of one year with a base rent of approximately $ 27,000 per month and includes options to renew for up to four years .

The rent expense recorded by the Company for the related party lease was $ 82,000 for the year ended March 31, 2023.

Convertible Note and Election of New Director

On March 31, 2023, the Company entered

into the Note Purchase Agreement with Bison Capital Partners VI, L.P.

and Bison Capital Partners VI-A, L.P., and Bison Capital Partners VI, L.P.

as the Purchaser Representative, for the issuance and sale of the Convertible Notes.

In connection

with the issuance of the Convertible Notes and at the recommendation of the Nominating and Corporate Governance Committee of the Board and in connection with the bylaws of the Company, the Board appointed Douglas Trussler, a co-founder of Bison

Capital in 2001, to the Board, effective immediately, to serve until the Company’s 2024 Annual Meeting of Stockholders and until his successor is duly elected and qualified.

Trussler’s compensation will be consistent with the Company’s

previously disclosed standard compensation practices for non-employee directors, which are described in the Company’s Definitive Proxy Statement, filed with the SEC on July 29, 2022.

There are no other transactions between Mr.

Trussler and the

Company that would be reportable under Item 404(a) of Regulation S-K.

Employee Retention Credit

The CARES Act provides an employee retention credit (“ERC”) that is a refundable tax credit against certain employer taxes.

On December 27, 2020, Congress enacted the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which amended and extended ERC availability under Section 2301 of the CARES Act.

As a result, the Company was eligible to claim a refundable tax

credit against the employer share of Social Security taxes equal to seventy percent ( 70 %) of the qualified wages that it paid to its

employees between December 31, 2020 and June 30, 2021.

Qualified wages are limited to $ 10,000 per employee per calendar quarter in 2021

for a maximum ERC per employee of $ 7,000 per calendar quarter in 2021.

In the fourth quarter of the fiscal year ended March 31, 2022, the Company amended certain payroll tax filings and applied

for a refund of $ 5,104,000 .

As of March 31, 2023, the Company determined that all contingencies related to the ERC were resolved and

recorded a $ 5,104,000 receivable which is included in prepaid expenses and other current assets in the accompanying consolidated balance

The $ 5,104,000 of ERCs were recognized as a reduction in employer payroll taxes and allocated to the financial statement captions

from which the employee’s taxes were originally incurred.

As a result, the Company recorded a reduction in expenses of $ 2,034,000 in cost

of goods sold, $ 1,377,000 in general and administrative, $ 968,000 in selling and marketing, and $ 725,000 in research and development, which is reflected in the

accompanying consolidated statement of operations for the year ended March 31, 2023.

In April 2023, the Company received full payment for the ERC receivable.

The refund of employer taxes results in a decrease in deductions included in the Company’s US federal and certain state

income tax returns for the years that it received the payroll tax credits.

The Company is required to amend its US federal and state income tax returns for the years ended March 31, 2022 and 2021 and pay additional income tax for those years.

Company has estimated that this will result in approximately $ 1,250,000 of taxes payable, which is included in other current liabilities

in the consolidated balance sheet at March 31, 2023 and income tax expense in the consolidated statements of operations for the year ended March 31, 2023.

Schedule II — Valuation and Qualifying Accounts

Accounts Receivable — Allowance for credit losses

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Provision for

0 Allowance for excess and obsolete inventory

A llowance for excess and obsolete inventory

Allowance for excess and obsolete inventory

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures