The following discussion and analysis presents factors that Motorcar Parts of America, Inc. and its subsidiaries (“our,” “we” or “us”) believe are relevant to an assessment and understanding of our consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with our March 31, 2026 audited consolidated financial statements included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on June 8, 2026. Disclosure Regarding Private Securities Litigation Reform Act of 1995 This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our future performance that involve risks and uncertainties. All statements other than statements of historical fact are forward-looking statements, including, but not limited to, statements about our strategic initiatives, operational plans and objectives, expectations for economic conditions and recovery and future business and financial performance, as well as statements regarding underlying assumptions related thereto. They include, among others, factors related to the timing and implementation of strategic initiatives, the highly competitive nature of our industry, demand for our products and services, complexities in our inventory and supply chain, challenges with transforming and growing our business. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason. Therefore, you should not place undue reliance on those statements. Please refer to “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K filed with the SEC on June 8, 2026, as updated by our subsequent filings with the SEC, for a description of these and other risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statements. Management Overview With a scalable infrastructure and abundant growth opportunities, we continue to focus on strategic growth by leveraging our competitive advantage and growing our industry position by providing innovative and intuitive solutions to our customers. To support our strategic growth, we have made investments, which included (i) a 410,000 square foot distribution center, (ii) two buildings totaling 372,000 square feet for remanufacturing and core sorting of brake calipers, (iii) the realignment of production at our original 312,000 square foot facility in Mexico, and (iv) the addition of a warehousing and distribution facility in Malaysia to support our direct shipment programs. Segment Reporting Our three operating segments are as follows: ● Hard Parts, which include (i) light duty rotating electrical products such as alternators and starters and (ii) brake-related products, which includes brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and wheel hub assemblies and bearings, ● Test Solutions and Diagnostic Equipment, which includes (i) applications for combustion engine vehicles, including bench-top testers for alternators and starters, (ii) equipment for the pre- and post-production of electric vehicles, and (iii) software emulation of power system applications for the electrification of all forms of transportation (including automobiles, trucks, the emerging electrification of systems within the aerospace industry, and electric vehicle charging stations), and ● Heavy Duty, which includes non-discretionary automotive aftermarket replacement hard parts for heavy-duty truck, industrial, marine, and agricultural applications. Our Hard Parts operating segment meets the criteria of a reportable segment. The Test Solutions and Diagnostic Equipment and Heavy Duty segments are not material, and are not required to be separately reported. See Note 18 of the notes to condensed consolidated financial statements for more information. 26 Table of Contents Results of Operations for the Three Months Ended June 30, 2026 and 2025 The following discussion and analysis should be read together with the financial statements and notes thereto appearing elsewhere herein. The following summarizes certain key consolidated operating data: Three Months Ended June 30, 2026 2025 Cash flow (used in) provided by operations $ (11,303,000 ) $ 10,028,000 Finished goods turnover (annualized) (1) 3.2 4.2 (1) Annualized finished goods turnover for the fiscal quarter is calculated by multiplying cost of goods sold for the quarter by 4 and dividing the result by the average between beginning and ending non-core finished goods inventory values for the fiscal quarter. We believe this provides a useful measure of our ability to turn our inventory into revenues. Net Sales and Gross Profit The following summarizes net sales and gross profit: Three Months Ended June 30, 2026 2025 Net sales $ 168,021,000 $ 188,364,000 Cost of goods sold 140,847,000 154,447,000 Gross profit 27,174,000 33,917,000 Gross margin 16.2 % 18.0 % Net Sales. Our consolidated net sales for the three months ended June 30, 2026 were $168,021,000, which represents a decrease of $20,343,000, or 10.8%, from the three months ended June 30, 2025 of $188,364,000. This decrease in sales was primarily due to lower sales of rotating electrical products partially offset by strong demand for brake-related products during the three months ended June 30, 2026 compared with the three months ended June 30, 2025. Gross Profit. Our consolidated gross profit was $27,174,000, or 16.2% of consolidated net sales, for the three months ended June 30, 2026 compared with $33,917,000, or 18.0% of consolidated net sales, for the three months ended June 30, 2025. Our gross margin for the three months ended June 30, 2026 was impacted by lower sales as discussed above and transition expenses of $2,767,000 in connection with our on-going strategy to utilize our global footprint to enhance operating efficiencies. In addition, our gross margin for the three months ended June 30, 2026 and 2025 was impacted by (i) the continued amortization of core and finished goods premiums of $3,406,000 and $2,847,000, respectively and (ii) the non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $705,000 and $1,026,000, respectively. 27 Table of Contents Operating Expenses The following summarizes our consolidated operating expenses: Three Months Ended June 30, 2026 2025 General and administrative $ 15,517,000 $ 12,680,000 Sales and marketing 6,546,000 6,210,000 Research and development 3,176,000 3,306,000 Foreign exchange impact of lease liabilities and forward contracts (1,597,000 ) (8,348,000 ) Percent of net sales General and administrative 9.2 % 6.7 % Sales and marketing 3.9 % 3.3 % Research and development 1.9 % 1.8 % Foreign exchange impact of lease liabilities and forward contracts (1.0 )% (4.4 )% General and Administrative. Our general and administrative expenses for the three months ended June 30, 2026 were $15,517,000, which represents an increase of $2,837,000, or 22.4%, from the three months ended June 30, 2025 of $12,680,000. This increase was primarily due to (i) $1,192,000 of increased share-based compensation and (ii) $1,145,000 of increased legal and other professional services. Sales and Marketing. Our sales and marketing expenses for the three months ended June 30, 2026 were $6,546,000, which represents an increase of $336,000, or 5.4%, from the three months ended June 30, 2025 of $6,210,000. This increase was primarily due to increased advertising and other marketing expenses. Research and Development. Our research and development expenses for the three months ended June 30, 2026 were $3,176,000, which represents a decrease of $130,000, or 3.9%, from the three months ended June 30, 2025 of $3,306,000. This decrease was primarily due to lower expenses for supplies and our sample library. Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts were non-cash gains of $1,597,000 and $8,348,000 for the three months ended June 30, 2026 and 2025, respectively. This change during the three months ended June 30, 2026 compared with the three months ended June 30, 2025 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities resulting in non-cash gains of $1,681,000 and $4,002,000, respectively, and (ii) the change in the fair values of forward foreign currency exchange contracts resulting in a non-cash loss of $84,000 compared with a non-cash gain of $4,346,000, respectively. Operating Income Consolidated Operating Income. Our consolidated operating income for the three months ended June 30, 2026 was $3,532,000 compared with $20,069,000 for the three months ended June 30, 2025. This decrease was primarily due to the impact of the foreign exchange remeasurement of lease liabilities and forward contracts and other items as discussed above. Interest Expense Interest Expense, net. Our interest expense for the three months ended June 30, 2026 was $12,044,000, which represents a decrease of $768,000, or 6%, from interest expense for the three months ended June 30, 2025 of $12,812,000. This decrease was primarily due to lower utilization of our accounts receivable discount programs. 28 Table of Contents Change in Fair Value of Compound Net Derivative Liability Change in Fair Value of Compound Net Derivative Liability. Our change in fair value of compound net derivative liability associated with the convertible notes issued on March 31, 2023 were non-cash losses of $1,540,000 and $1,790,000 for the three months ended June 30, 2026 and 2025, respectively. Provision for Income Taxes Income Tax. We recorded income tax expense of $3,369,000, or an effective tax rate of (33.5)%, and $2,425,000, or an effective tax rate of 44.4%, for the three months ended June 30, 2026 and 2025, respectively. The effective tax rate for the three months ended June 30, 2026, was primarily impacted by the change in valuation allowance on certain jurisdictions’ deferred tax assets resulting from current year activities and foreign income taxed at rates that are different from the federal statutory rate. Liquidity and Capital Resources Overview We had working capital (current assets minus current liabilities) of $173,010,000 and $184,386,000, a ratio of current assets to current liabilities of 1.4:1.0 at June 30, 2026 and 1.5:1.0 at March 31, 2026. Our primary source of liquidity was from the use of our accounts receivable discount programs and credit facility during the three months ended June 30, 2026. We believe our cash and cash equivalents, use of accounts receivable discount programs, and amounts available under our credit facility are sufficient to satisfy our expected future liquidity needs over the next 12 months. Share Repurchase Program In December 2025, our board of directors approved an increase in our share repurchase program from $37,000,000 to $57,000,000 of our common stock. During the three months ended June 30, 2026, we repurchased 129,523 shares of our common stock for $1,929,000. As of June 30, 2026, $36,857,000 has been utilized and $20,143,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our credit facility and convertible notes. We retired the 2,464,272 shares repurchased under this program through June 30, 2026. Our share repurchase program does not obligate us to acquire any specific number of shares and shares may be repurchased in privately negotiated and/or open market transactions. Cash Flows The following summarizes cash flows as reflected in the condensed consolidated statements of cash flows: Three Months Ended June 30, 2026 2025 Cash flows (used in) provided by: Operating activities $ (11,303,000 ) $ 10,028,000 Investing activities (5,169,000 ) (806,000 ) Financing activities 20,823,000 (6,778,000 ) Effect of exchange rates on cash and cash equivalents 119,000 606,000 Net increase in cash and cash equivalents $ 4,470,000 $ 3,050,000 Additional selected cash flow data: Depreciation and amortization $ 2,742,000 $ 2,449,000 Capital expenditures 1,108,000 807,000 Net cash used in operating activities was $11,303,000 compared with net cash provided by operating activities of $10,028,000 during the three months ended June 30, 2026 and 2025, respectively. The change in our operating activities was primarily due to (i) a decrease in our accounts payable balances during the three months ended June 30, 2026 compared with an increase during the three months ended June 30, 2025 and (ii) the continued build-up of our inventory to support future sales. In addition, our operating activities were further impacted by changes in operating results (net (loss) income plus the net add-back for non-cash transactions in earnings). We continue to manage our working capital to maximize our operating cash flow. 29 Table of Contents Net cash used in investing activities was $5,169,000 and $806,000 during the three months ended June 30, 2026 and 2025, respectively. The change in our investing activities was primarily due to the purchase of certain intangible assets during the three months ended June 30, 2026. Net cash provided by financing activities was $20,823,000 compared with net cash used in financing activities of $6,778,000 during the three months ended June 30, 2026 and 2025, respectively. The change in our financing activities was primarily due to net borrowing of $24,171,000 during the three months ended June 30, 2026 compared with net repayments of $3,931,000 during the three months ended June 30, 2025 under our revolving facility. Capital Resources Credit Facility We have $268,620,000 in senior secured financing (as amended from time to time, the “Credit Facility”) consisting of a $238,620,000 revolving loan facility (the “Revolving Facility”), subject to certain restrictions, and a $30,000,000 term loan facility (the “Term Loans”). The Term Loans were repaid during the year ended March 31, 2024. The lenders have a security interest in substantially all our assets. On August 6, 2026, we entered into a ninth amendment to the Credit Facility, which among other things, (i) extended the maturity date from December 12, 2028 to August 4, 2031; provided, that if any of the Convertible Notes (as defined below) remain outstanding (or were redeemed, repurchased, converted, or otherwise retired other than pursuant to one or more cashless (except for payments in cash for fees, expenses, and to avoid fractional shares not to exceed $250,000 in the aggregate) transactions) on the date that is ninety-one (91) days prior to the then-current stated maturity of the Convertible Notes, and such date is earlier than August 4, 2031, then the Credit Facility shall mature on such earlier date, (ii) amended the definition of consolidated EBITDA, and (iii) amended the definition of suppressed availability. We had $118,839,000 and $94,668,000 outstanding under the Revolving Facility at June 30, 2026 and March 31, 2026, respectively. In addition, $15,470,000 was outstanding for letters of credit at June 30, 2026. At June 30, 2026, after certain contractual adjustments, $93,302,000 was available under the Revolving Facility. The interest rate on our Revolving Facility was 6.83% and 6.79%, at June 30, 2026 and March 31, 2026, respectively. The Credit Facility requires us to maintain; (i) a minimum fixed charge coverage ratio if undrawn availability is less than 22.5% of the aggregate revolving commitments and (ii) a specified minimum undrawn availability. During the three months ended June 30, 2026, undrawn availability was greater than the 22.5% threshold at all times, therefore, the fixed charge coverage ratio financial covenant was not required to be tested at any point during the fiscal quarter. Convertible Notes, Related Party On March 31, 2023, we entered into a note purchase agreement, as amended, (the “Note Purchase Agreement”) with Bison Capital Partners VI, L.P. and Bison Capital Partners VI-A, L.P. (collectively, the “Purchasers”) and Bison Capital Partners VI, L.P., as the purchaser representative (the “Purchaser Representative”) for the issuance and sale of $32,000,000 in aggregate principal amount of convertible notes due in 2029 (the “Convertible Notes”), which was used for general corporate purposes. The Convertible Notes bear interest at a rate of 10.0% per annum, compounded annually, and payable (i) in-kind or (ii) in cash, annually in arrears on April 1 of each year, commencing on April 1, 2024. In April 2026, non-cash accrued interest on the Convertible Notes of $3,873,000 was paid in-kind and is included in the principal amount of Convertible Notes at June 30, 2026. The Convertible Notes have an initial conversion price of $15.00 per share of our common stock, subject to adjustment as provided in the Convertible Notes (“Conversion Option”). Unless and until we deliver a redemption notice, the Purchasers of the Convertible Notes may convert their Convertible Notes at any time at their option. Upon conversion, the Convertible Notes will be settled in shares of our common stock. We may redeem all or part of the Convertible Notes for a cash purchase (the “Company Redemption”) price. The effective interest rate was 18.3% as of June 30, 2026 and March 31, 2026, respectively. In connection with the Note Purchase Agreement, we entered into common stock warrants (the “Warrants”) with the Purchasers, which mature on March 30, 2029. The fair value of the Warrants, using Level 3 inputs and the Monte Carlo simulation model, was zero at June 30, 2026 and March 31, 2026. 30 Table of Contents The Company Redemption option has been combined with the Conversion Option as a compound net derivative liability (the “Compound Net Derivative Liability”). The Compound Net Derivative Liability has been recorded within convertible note, related party in the condensed consolidated balance sheets at June 30, 2026 and March 31, 2026. The fair value of the Conversion Option and the Company Redemption option using Level 3 inputs and the Monte Carlo simulation model was a liability of $20,600,000 and $16,900,000, and an asset of $12,720,000 and $10,560,000 at June 30, 2026 and March 31, 2026, respectively. During the three months ended June 30, 2026 and 2025, we recorded a non-cash loss of $1,540,000 and $1,790,000, respectively, as the change in fair value of the Compound Net Derivative Liability in the condensed consolidated statements of operations and condensed consolidated statements of cash flows. The Convertible Notes also contain additional features, such as, default interest and options related to a fundamental transaction, which were not separately accounted for as the value of such features were not material at June 30, 2026 and March 31, 2026. Accounts Receivable Discount Programs We use accounts receivable discount programs offered by certain customers and their respective banks. Under these programs, we have options to sell those customers’ receivables to those banks at a discount to be agreed upon at the time the receivables are sold. These discount arrangements allow us to accelerate receipt of payment on customers’ receivables. While these arrangements have reduced our working capital needs, there can be no assurance that these programs will continue in the future. Interest expense resulting from these programs would increase if interest rates rise, if utilization of these discounting arrangements expands, if customers extend their payment to us, or if the discount period is extended to reflect more favorable payment terms to customers. The following is a summary of the accounts receivable discount programs: Three Months Ended June 30, 2026 2025 Receivables discounted $ 149,949,000 $ 168,194,000 Weighted average number of days collection was accelerated 347 345 Annualized weighted average discount rate 5.5 % 5.7 % Amount of discount recognized as interest expense $ 7,940,000 $ 9,158,000 Supplier Finance Programs We utilize a supplier finance program, which allows certain of our suppliers to sell their receivables due from us to participating financial institutions at the sole discretion of both the supplier and the financial institutions. The program is administered by a third party. Commitments from participating financial institutions that are available to suppliers under this program were $40,000,000 as of June 30, 2026. We have no economic interest in the sale of these receivables and no direct relationship with the financial institution. Payments to the third-party administrator are based on services rendered and are not related to the volume or number of financing agreements between suppliers, financial institution, and the third-party administrator. We are not a party to agreements negotiated between participating suppliers and the financial institution. Our obligations to our suppliers, including amounts due and payment terms, are not affected by a supplier's decision to participate in this program. We do not provide guarantees and there are no assets pledged to the financial institution or the third-party administrator for the committed payment in connection with this program. At June 30, 2026 and March 31, 2026, we had $40,982,000 and $42,076,000, respectively, in outstanding supplier obligations confirmed as valid under this program, included in accounts payable in the condensed consolidated balance sheets. 31 Table of Contents Capital Expenditures and Commitments Capital Expenditures Our total capital expenditures were $904,000 and $2,708,000 for three months ended June 30, 2026 and 2025, respectively. These capital expenditures include (i) cash paid for the purchase of plant and equipment, (ii) plant and equipment acquired under finance leases, and (iii) accrued capital expenditures. Capital expenditures for the three months ended June 30, 2026 primarily include the purchase of equipment for our current operations. We expect to incur approximately $9,000,000 of capital expenditures primarily to support our operations in fiscal 2027. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures. Related Party Transactions Lease We have an operating lease for our 35,000 square foot manufacturing, warehouse, and office facility in Ontario, Canada, with a company co-owned by a member of management. We renewed this operating lease for an additional three-year period, effective January 1, 2025. The rent expense recorded for this related party lease was $93,000 and $93,000 for the three months ended June 30, 2026 and 2025, respectively. Convertible Note and Election of Director In connection with the issuance and sale of our Convertible Notes on March 31, 2023, the Board appointed Douglas Trussler, a co-founder of Bison Capital, to the Board. Mr. Trussler’s compensation is different from the compensation for other non-employee directors as described in our Definitive Proxy Statement, filed with the SEC on July 29, 2026. Litigation We are subject to various lawsuits and claims. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding our business, and our compliance with law, code, and regulations related to all matters including but not limited to environmental, information security, taxes, levies, and tariffs. In the opinion of management, such litigation is not expected to have a material effect on our financial condition, results of operations, and cash flows. Critical Accounting Policies There have been no material changes to our critical accounting policies and estimates that are presented in our Annual Report on Form 10-K for the year ended March 31, 2026, which was filed with the SEC on June 8, 2026.