MOTORCAR PARTS OF AMERICA INC

Previous wording

With a scalable infrastructure and abundant growth opportunities, we are focused on growing our aftermarket business in the North American marketplace and growing our leadership position in the test solutions and diagnostic equipment market by providing innovative and intuitive solutions to our customers. Our investments in infrastructure and human resources during the past few years reflects the significant expansion of manufacturing capacity to support multiple product lines. These investments included (i) a 410,000 square foot distribution center, (ii) two buildings totaling 372,000 square feet for remanufacturing and core sorting of brake calipers, and (iii) the realignment of production at our original 312,000 square foot facility in Mexico.

Current wording

With a scalable infrastructure and abundant growth opportunities, we are focused on growing our aftermarket business in the North American marketplace and growing our leadership position in the test solutions and diagnostic equipment market by providing innovative and intuitive solutions to our customers. Our on-going investments in global infrastructure and human resources reflects the significant expansion of manufacturing capacity to support multiple product lines. These investments included (i) a 410,000 square foot distribution center, (ii) two buildings totaling 372,000 square feet for remanufacturing and core sorting of brake calipers, and (iii) the realignment of production at our original 312,000 square foot facility in Mexico. In addition, during fiscal 2025, we added a new warehousing and distribution facility in Malaysia to support our future direct shipment programs.

Previous wording

During fiscal 2024, we continued to execute our strategic plan – focusing on meaningful growth and improving profitability by leveraging our offshore infrastructure, industry position and customer relationships. The following significant accomplishments support our optimism moving forward:

Current wording

During fiscal 2025, we continued to focus on strategic growth, improving profitability, and leveraging our industry position as a leading non-discretionary aftermarket parts supplier and customer relationships. The following significant accomplishments support our optimism:

Previous wording

Our business is impacted by various factors within the economy that affect both our customers and our industry, including but not limited to inflation, interest rates, disruptions in the supply chain, fuel costs, wage rates, and other economic conditions. Given the nature of these various factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.

Current wording

Our business is impacted by various factors within the economy that affect both our customers and our industry, including but not limited to foreign currency, evolving tariff policy, inflation, interest rates, and other economic conditions. Given the nature of these various factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future.

Previous wording

The cost to manufacture and distribute our products is impacted by the cost of raw materials, finished goods, labor, and transportation. During fiscal 2024, we experienced increased costs of raw materials, finished goods, higher labor costs in Mexico, and other administrative costs. We can only pass our increased costs onto customers on a limited basis. Future general price inflation and its impact on costs and availability of materials could adversely affect our financial results.

Current wording

The cost to manufacture and distribute our products is impacted by the cost of raw materials, finished goods, labor, and transportation. During fiscal 2025, we continued to experience increased costs of raw materials, finished goods, higher labor costs in Mexico, and other administrative costs. We can only pass our increased costs onto customers on a limited basis. Future general price inflation and its impact on costs and availability of materials could adversely affect our financial results.

Previous wording

Interest rates remain high in an effort to curb on-going inflation. We are experiencing higher interest costs for our accounts receivable discount programs and borrowings under our credit facility, which have interest costs that vary with interest rate movements. The majority of our interest costs result from our accounts receivable discount programs, which had a weighted average discount rate of 6.8% for fiscal 2024 compared with 5.3% for fiscal 2023. These continued higher interest rates and any future increases in interest rates will continue to adversely impact our financial results.

Current wording

Interest rates in the U.S. remain high as a result of the federal government’s efforts to curb on-going inflation. Although interest rates decreased slightly during fiscal 2025, overall, interest costs for our accounts receivable discount programs and borrowings under our credit facility, which have interest costs that vary with interest rate movements, remain high. The majority of our interest costs result from our accounts receivable discount programs, which had a weighted average discount rate of 6.2% for fiscal 2025 compared with 6.8% for fiscal 2024. The weighted average interest on borrowings under our credit facility was 7.46% at March 31, 2025 compared to 8.43% at March 31, 2024. Any future increases in interest rates will continue to adversely impact our financial results.

Previous wording

Our Hard Parts operating segment meets the criteria of a reportable segment. The Test Solutions and Diagnostic Equipment and Heavy Duty segments are not material, are not required to be separately reported, and are included within the “all other” category. See Note 19 of the notes to consolidated financial statements for more information.

Current wording

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 20 of the notes to consolidated financial statements for more information.

Previous wording

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This standard requires us to disclose significant segment expenses that are regularly provided to the CODM and are included within each reported measure of segment operating results. The standard also requires us to disclose the total amount of any other items included in segment operating results, which were not deemed to be significant expenses for separate disclosure, along with a qualitative description of the composition of these other items. In addition, the standard also requires disclosure of the CODM’s title and position, as well as detail on how the CODM uses the reported measure of segment operating results to evaluate segment performance and allocate resources. The standard also aligns interim segment reporting disclosure requirements with annual segment reporting disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact this guidance will have on our financial statement disclosures.

Current wording

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This standard requires us to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and are included within each reported measure of segment operating results. The standard also requires us to disclose the total amount of any other items included in segment operating results, which were not deemed to be significant expenses for separate disclosure, along with a qualitative description of the composition of these other items. In addition, the standard also requires disclosure of the CODM’s title and position, as well as detail on how the CODM uses the reported measure of segment operating results to evaluate segment performance and allocate resources. The standard also aligns interim segment reporting disclosure requirements with annual segment reporting disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The adoption of this guidance as of March 31, 2025 increased our disclosures (see Note 20 of the notes to consolidated financial statements) but did not have any material effect on our consolidated financial statements.

Previous wording

Remanufactured finished goods include: (i) the Used Core cost and (ii) the cost of component raw materials, and allocations of labor and variable and fixed overhead costs (the “Unit Cost”). The allocations of labor and variable and fixed overhead costs are based on the actual use of the production facilities over the prior 12 months which approximates normal capacity. This method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production. In addition, we exclude certain unallocated overhead such as severance costs, duplicative facility overhead costs, start-up costs, training, and spoilage from the calculation and expenses these unallocated overhead costs as period costs. Purchased finished goods also include an allocation of fixed overhead costs.

Current wording

Remanufactured finished goods include: (i) the Used Core cost and (ii) the cost of component raw materials, and allocations of labor and variable and fixed overhead costs (the “Unit Cost”). The allocations of labor and variable and fixed overhead costs are based on the actual use of the production facilities over the prior 12 months which approximates normal capacity. This method prevents the distortion in allocated labor and overhead costs that would occur during short periods of abnormally low or high production. In addition, we exclude certain unallocated overhead such as severance costs, duplicative facility overhead costs, start-up costs, training, and spoilage from the calculation and expense these unallocated overhead costs as period costs. Purchased finished goods also include an allocation of fixed overhead costs.

Previous wording

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 (“Remanufactured Core value”) and the unit portion included in the product (“Unit Value”), for which revenue is recorded based on our then current price list, net of applicable discounts and allowances. The Remanufactured Core value is recorded as a net revenue based upon the estimate of Used Cores that will not be returned by the customer for credit. These estimates are subjective and based on management’s judgment and knowledge of historical, current, and projected return rates. As reconciliations are completed with the customers the actual rates at which Used Cores are not being returned may differ from the current estimates. This may result in periodic adjustments of the estimated contract asset and liability amounts recorded and may impact the projected revenue recognition rates used to record the estimated future revenue. These estimates may also be revised if there are changes in contractual arrangements with customers, or changes in business practices. A significant portion of the remanufactured automotive parts sold to customers are replaced by similar Used Cores sent back for credit by customers under the core exchange programs (as described in further detail below). The number of Used Cores sent back under the core exchange programs is generally limited to the number of similar Remanufactured Cores previously shipped to each customer.

Current wording

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 (“Remanufactured Core value”) and the unit portion included in the product (“Unit Value”), for which revenue is recorded based on our then current price list, net of applicable discounts and allowances. The Remanufactured Core value is recorded as revenue based upon the estimate of Used Cores that will not be returned by the customer for credit. These estimates are subjective and based on management’s judgment and knowledge of historical, current, and projected return rates. As reconciliations are completed with the customers the actual rates at which Used Cores are not being returned may differ from the current estimates. This may result in periodic adjustments of the estimated contract asset and liability amounts recorded and may impact the projected revenue recognition rates used to record the estimated future revenue. These estimates may also be revised if there are changes in contractual arrangements with customers, or changes in business practices. A significant portion of the remanufactured automotive parts sold to customers are replaced by similar Used Cores sent back for credit by customers under the core exchange programs (as described in further detail below). The number of Used Cores sent back under the core exchange programs is generally limited to the number of similar Remanufactured Cores previously shipped to each customer.

Previous wording

The customer finished goods returns accrual represents our estimate of our exposure to customer returns, including warranty returns, under our general right of return policy to allow customers to return items that their end user customers have returned to them and from time to time, stock adjustment returns when the customers’ inventory of certain product lines exceeds the anticipated sales to end-user customers. The customer finished goods returns accrual represents the Unit Value of the estimated returns and is classified as a current liability due to the expectation that these returns will occur within the normal operating cycle of one year. Our customer finished goods returns accrual was $38,312,000 and $37,984,000 at March 31, 2024 and 2023, respectively. The change in the customer finished goods returns accrual primarily resulted from the timing of returned goods authorizations (“RGAs”) issued at March 31, 2024 compared with March 31, 2023.

Current wording

The customer finished goods returns accrual represents our estimate of our exposure to customer returns, including warranty returns, under our general right of return policy to allow customers to return items that their end user customers have returned to them and from time to time, stock adjustment returns when the customers’ inventory of certain product lines exceeds the anticipated sales to end-user customers. The customer finished goods returns accrual represents the Unit Value of the estimated returns and is classified as a current liability due to the expectation that these returns will occur within the normal operating cycle of one year. Our customer finished goods returns accrual was $34,411,000 and $38,312,000 at March 31, 2025 and 2024, respectively. The change in the customer finished goods returns accrual primarily resulted from the timing of returned goods authorizations (“RGAs”) issued at March 31, 2025 compared with March 31, 2024.

Previous wording

Realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans. A valuation allowance is established when we believe it is not more likely than not all or some of a deferred tax assets will be realized. In evaluating our ability to recover deferred tax assets within the jurisdiction in which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, past financial performance, and tax planning strategies. Deferred tax assets arising primarily as a result of net operating loss carry-forwards and research and development credits in connection with our Canadian operations have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods. During the year ended March 31, 2024, we recorded a discrete non-cash valuation allowance of $38,009,000 on U.S. federal and various state deferred tax assets that is considered not more likely than not to be realized under U.S. GAAP. Should the actual amount differ from our estimate, the amount of our valuation allowance could be impacted.

Current wording

Realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income based on assumptions that are consistent with our future plans. A valuation allowance is established when we believe it is not more likely than not all or some of a deferred tax assets will be realized. In evaluating our ability to recover deferred tax assets within the jurisdiction in which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, past financial performance, and tax planning strategies. At March 31, 2025 and 2024, we had a valuation allowance on deferred tax assets that is considered not more likely than not to be realized under U.S. GAAP. Should the actual amount differ from our estimate, the amount of our valuation allowance could be impacted.

Previous wording

The following summarizes net sales and gross profit:

Current wording

The following summarizes consolidated net sales and gross profit:

Previous wording

Net Sales. Our consolidated net sales for fiscal 2024 were $717,684,000, which represents an increase of $34,610,000, or 5.1%, from fiscal 2023 of $683,074,000 due to strong demand for both our rotating electric and brake-related product lines.

Current wording

Net Sales. Our consolidated net sales for fiscal 2025 were $757,354,000, which represents an increase of $39,670,000, or 5.5%, from fiscal 2024 of $717,684,000 due to strong demand for both our rotating electric and brake-related product lines.

Previous wording

In addition, our gross margin for fiscal 2024 compared with fiscal 2023 was impacted by (i) additional expenses of $7,472,000 and $8,195,000, respectively, primarily due to certain costs for disruptions in the supply chain, (ii) amortization of core and finished goods premiums paid to customers related to new business of $10,963,000 and $11,791,000, respectively, and (iii) the non-cash quarterly revaluation of cores that are part of the finished goods on the customers’ shelves (which are included in contract assets) to the lower of cost or net realizable value, which resulted in a write-down of $5,353,000 and $3,736,000, respectively.

Current wording

In addition, our gross margin for fiscal 2025 compared with fiscal 2024 was impacted by (i) amortization of core and finished goods premiums paid to customers related to new business of $10,738,000 and $10,963,000, 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 $2,805,000 and $5,353,000, respectively.

Previous wording

Sales and Marketing. Our sales and marketing expenses for fiscal 2024 were $22,481,000, which represents an increase of $752,000, or 3.5%, from fiscal 2023 of $21,729,000. This increase was primarily due to (i) the $968,000 employee retention credit recorded in the prior year and (ii) $467,000 of increased commissions due to higher sales. These increases were partially offset by our cost-cutting measures, which included (i) $375,000 of decreased marketing and advertising expenses and (ii) $218,000 of decreased trade show expense.

Current wording

Sales and Marketing. Our sales and marketing expenses were consistent at $22,561,000 for fiscal 2025 compared with $22,481,000 for fiscal 2024.

Previous wording

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts for fiscal 2024 and 2023 were non-cash gains of $3,814,000 and $9,291,000, respectively. This change during fiscal 2024 compared with fiscal 2023 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in non-cash gains of $5,187,000 and $6,515,000, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in a non-cash loss of $1,373,000 compared with a non-cash gain of $2,776,000, respectively, due to the changes in their fair values.

Current wording

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts were a non-cash loss of $15,892,000 compared with a non-cash gain of $3,814,000 for fiscal 2025 and 2024, respectively. This change during fiscal 2025 compared with fiscal 2024 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in a non-cash loss of $11,713,000 compared with a non-cash gain of $5,187,000, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in non-cash losses of $4,179,000 and $1,373,000, respectively, due to the changes in their fair values.

Previous wording

Change in Fair Value of Compound Net Derivative Liability. Our change in fair value of compound net derivative liability for fiscal 2024 was a non-cash gain of $1,020,000 associated with the convertible notes issued on March 31, 2023.

Current wording

Change in Fair Value of Compound Net Derivative Liability. Our change in fair value of compound net derivative liability was a non-cash loss of $60,000 compared with a non-cash gain of $1,020,000 for fiscal 2025 and 2024, respectively, associated with the convertible notes issued on March 31, 2023.

Previous wording

Income Tax. We recorded an income tax expense of $36,176,000, or an effective tax rate of (276.8)%, and $1,098,000, or an effective tax rate of (35.3)%, for fiscal 2024 and 2023, respectively. During fiscal 2024, we recorded a discrete non-cash valuation allowance of $38,009,000 on our U.S. federal and various state deferred tax assets primarily due to recent losses. The effective tax rate for fiscal 2024, was primarily impacted by (i) the valuation allowance on U.S. and Canadian deferred tax assets that we do not expect to be realized, (ii) excess tax benefit from stock-based compensation, (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m), and (iv) foreign income taxed at rates that are different from the federal statutory rate.

Current wording

Income Tax. We recorded a income tax expense of $3,783,000, or an effective tax rate of (24.1)%, and $36,176,000, or an effective tax rate of (276.8)%, for fiscal 2025 and 2024, respectively. The effective tax rate for fiscal 2025 was primarily impacted by (i) the change in valuation allowance, (ii) foreign income taxed at rates that are different from the federal statutory rate, and (iii) non-deductible executive compensation under Internal Revenue Code Section 162(m). Our effective tax rate for fiscal 2024 was primarily impacted by the establishment of a valuation allowance on deferred tax assets that were not expected to be realized.

Previous wording

A discussion of the changes in our results of operations for the year ended March 31, 2023, as compared with the year ended March 31, 2022, has been omitted from this Form 10-K but may be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended March 31, 2023, filed with the SEC on June 14, 2023, which is available free of charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “MPAA” or at our internet address, www.motorcarparts.com, by clicking “Investors” located at the top of the page.

Current wording

A discussion of the changes in our results of operations for the year ended March 31, 2024, as compared with the year ended March 31, 2023, has been omitted from this Form 10-K but may be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended March 31, 2024, filed with the SEC on June 11, 2024, and the 10-K/A for the fiscal year ended March 31, 2024 as filed with the SEC on June 28, 2024, which is available free of charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “MPAA” or at our internet address, www.motorcarparts.com, by clicking “Investors/Financials/SEC Filings” located at the top of the page.

Previous wording

We had working capital (current assets minus current liabilities) of $156,034,000 and $154,886,000, a ratio of current assets to current liabilities of 1.4:1.0 at March 31, 2024 and 2023, respectively.

Current wording

We had working capital (current assets minus current liabilities) of $160,446,000 and $156,034,000, a ratio of current assets to current liabilities of 1.5:1.0 at March 31, 2025 and 1.4:1.0 at March 31, 2024.

Previous wording

Our primary source of liquidity was from cash generated from operations during fiscal 2024. We believe cash generated from operations, our cash and cash equivalents, use of accounts receivable discount programs, amounts available under our credit facility, and other sources are sufficient to satisfy our working capital needs, and lease and capital expenditure obligations over the next 12 months.

Current wording

Our primary source of liquidity was from cash generated from operations, the use of our receivable discount programs, and credit facility during fiscal 2025. We believe our cash and cash equivalents, use of receivable discount programs, amounts available under our credit facility, and other sources are sufficient to satisfy our expected future liquidity needs, including lease and capital expenditure obligations over the next 12 months.

Previous wording

Net cash used in investing activities was $479,000 and $4,191,000 for fiscal 2024 and 2023, respectively. The change in our investing activities primarily resulted from decreased capital expenditures.

Current wording

Net cash used in investing activities was $4,469,000 and $479,000 for fiscal 2025 and 2024, respectively. The change in our investing activities primarily resulted from increased capital expenditures.

Previous wording

Net cash used in financing activities was $36,439,000 for fiscal 2024 compared with net cash provided by financing activities of $14,308,000 for fiscal 2023. The change in our financing activities primarily resulted from (i) the net repayment of amounts outstanding under our credit facility of $30,325,000 during fiscal 2024 compared with $13,550,000 during fiscal 2023 and (ii) the payment of debt issuance costs incurred in connection with the amendments to our credit facility and convertible notes during fiscal 2024. During fiscal 2023 we generated proceeds, less debt issuance costs, from the issuance of $32,000,000 in convertible notes issued on March 31, 2023.

Current wording

Net cash used in financing activities was $44,655,000 and $36,439,000 for fiscal 2025 and 2024, respectively. The change in our financing activities primarily resulted from (i) the net repayments of amounts outstanding under our revolving facility of $37,213,000 during fiscal 2025 compared with $17,200,000 during fiscal 2024 and (ii) the repurchase of 542,134 shares of our common stock for $4,832,000 during fiscal 2025. During the prior fiscal year, we paid off our remaining term loans of $13,125,000.

Previous wording

A discussion of the changes in our operating activities, investing activities, and financing activities for the year ended March 31, 2023, as compared with the year ended March 31, 2022, has been omitted from this Form 10-K but may be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended March 31, 2023, filed with the SEC on June 14, 2023, which is available free of charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “MPAA” or at our internet address, www.motorcarparts.com, by clicking “Investors” located at the top of the page.

Current wording

A discussion of the changes in our operating activities, investing activities, and financing activities for the year ended March 31, 2024, as compared with the year ended March 31, 2023, has been omitted from this Form 10-K but may be found in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the annual report on Form 10-K for the year ended March 31, 2024, filed with the SEC on June 11, 2024, and the 10-K/A for the fiscal year ended March 31, 2024, as filed with the SEC on June 28, 2024, which is available free of charge on the SEC’s website at www.sec.gov by searching with our ticker symbol “MPAA” or at our internet address, www.motorcarparts.com, by clicking “Investors/Financials/SEC Filings” located at the top of the page.

Previous wording

We are party to a $268,620,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $238,620,000 revolving loan facility, subject to borrowing base restrictions, a $24,000,000 sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term Loans”). Prior to the eighth amendment discussed below, the loans under the Credit Facility were scheduled to mature on May 28, 2026. In connection with the Credit Facility, the lenders have a security interest in substantially all of our assets.

Current wording

We are party to a $268,620,000 senior secured financing, (as amended from time to time, the “Credit Facility”) with a syndicate of lenders, and PNC Bank, National Association, as administrative agent, consisting of (i) a $238,620,000 revolving loan facility, subject to borrowing base restrictions, a $24,000,000 sublimit for borrowings by Canadian borrowers, and a $20,000,000 sublimit for letters of credit (the “Revolving Facility”) and (ii) a $30,000,000 term loan facility (the “Term Loans”). The Term Loans were repaid during the year ended March 31, 2024. The Credit Facility matures on December 12, 2028. The lenders have a security interest in substantially all of our assets. In June 2024, we enrolled in a feature with our lenders, under which we sweep our cash collections to pay down our revolving facility and borrow on-demand to fund payments. This feature is expected to reduce interest expense on borrowings under the Credit Facility.

Previous wording

We had $128,000,000 and $145,200,000 outstanding under the Revolving Facility at March 31, 2024 and 2023, respectively. In addition, $6,370,000 was outstanding for letters of credit at March 31, 2024. At March 31, 2024, after certain contractual adjustments, $100,915,000 was available under the Revolving Facility. The interest rate on our Revolving Facility was 8.43% and 8.13% respectively, at March 31, 2024 and 2023, respectively.

Current wording

We had $90,787,000 and $128,000,000 outstanding under the Revolving Facility at March 31, 2025 and 2024, respectively. In addition, $7,047,000 was outstanding for letters of credit at March 31, 2025. At March 31, 2025, after certain contractual adjustments, $135,150,000 was available under the Revolving Facility. The interest rate on our Revolving Facility was 7.46% and 8.43%, at March 31, 2025 and 2024, respectively.

Previous wording

The Credit Facility, as amended, requires us to maintain a minimum fixed charge coverage ratio if undrawn availability is less than 22.5% of the aggregate revolving commitments and a specified minimum undrawn availability. During the period ended March 31, 2024, undrawn availability was greater than the 22.5% threshold, therefore, the fixed charge coverage ratio financial covenant was not required to be tested.

Current wording

The Credit Facility requires us to maintain a minimum fixed charge coverage ratio if undrawn availability is less than 22.5% of the aggregate revolving commitments and a specified minimum undrawn availability. During the period ended March 31, 2025, undrawn availability was greater than the 22.5% threshold, therefore, the fixed charge coverage ratio financial covenant was not required to be tested.

Previous wording

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. On June 8, 2023, we entered into the first amendment to the Note Purchase Agreement, which among other things, removed a provision that specified the Purchasers would be entitled to receive a dividend or distribution payable in certain circumstances. This amendment was effective as of March 31, 2023. On August 1, 2023, we entered into the second amendment to the Note Purchase Agreement, which amended the definition of “Permitted Restricted Payments” to permit the prepayment of our Term Loans.

Current wording

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 2024, non-cash accrued interest on the Convertible Notes of $3,209,000 was paid in-kind and is included in the principal amount of Convertible Notes at March 31, 2025.

Previous wording

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 our 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, 2024, we had 28,214,757 shares of our common stock available to be issued if the Convertible Notes were converted.

Current wording

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 our 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, 2025, we had 28,240,973 shares of our common stock available to be issued if the Convertible Notes were converted.

Previous wording

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

Current wording

The Convertible Notes may be converted, subject to certain conditions, at an initial conversion price of $15.00, subject to adjustment as provided in the Convertible Notes (the “Conversion Option”). The 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 us in certain circumstances, subject to reduction of the Return of Interest amount in the event that the Return of Interest amount would result in total payments to the Purchasers of less than two times the original principal amount. 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 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. 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.

Previous wording

If there is a Fundamental Transaction, as defined in the Form of Convertible Promissory Note, we may redeem all or part of the Convertible Notes. Except in the case of the occurrence of a Fundamental Transaction, we may not redeem the Convertible Notes prior to March 31, 2026. After March 31, 2026, we may redeem all or part of the Convertible Notes for a cash purchase (the “Company Redemption”) price equal to the redemption price plus $5,000,000, but only if (i) we are 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 our common stock for 20 consecutive days prior to the notice of the Company Redemption is less than $15, the Purchasers may exercise the warrants and we will pay the Redemption Price plus $2,000,000.

Current wording

If there is a Fundamental Transaction, as defined in the Form of Convertible Promissory Note, we may redeem all or part of the Convertible Notes. Except in the case of the occurrence of a Fundamental Transaction, we may not redeem the Convertible Notes prior to March 31, 2026. After March 31, 2026, we may redeem all or part of the Convertible Notes for a cash purchase (the “Company Redemption”) price equal to the Redemption Price (as defined below) plus $5,000,000, but only if (i) we are 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 our common stock for 20 consecutive days prior to the notice of the Company Redemption is less than $15, the Purchasers may exercise the warrants and we will pay the Redemption Price plus $2,000,000.

Previous wording

The Conversion Option and the Company Redemption both met the criteria for bifurcation from the Convertible Notes as derivatives and have been combined 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 sheets. 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 $9,800,000 and $10,400,000, and an asset of $2,390,000 and $1,970,000 at March 31, 2024 and 2023, respectively. We estimate 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 operations. During the year ended March 31, 2024, we recorded a gain of $1,020,000 as the change in fair value of the Compound Net Derivative Liability in the consolidated statement of operations and consolidated statement of cash flows.

Current wording

The Conversion Option and the Company Redemption both met the criteria for bifurcation from the Convertible Notes as derivatives and have been combined 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 sheets. 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 $9,000,000 and $9,800,000, and an asset of $1,530,000 and $2,390,000 at March 31, 2025 and 2024, respectively. We estimate 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 is recorded in current period earnings in the consolidated statements of operations. During the years ended March 31, 2025 and 2024, we recorded a loss of $60,000 and a gain of $1,020,000, respectively, as the change in fair value of the Compound Net Derivative Liability in the consolidated statements of operations and consolidated statements of cash flows.

Previous wording

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, 2024 and 2023. 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.

Current wording

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, 2025 and 2024. Any subsequent changes from the initial recognition in the fair value of those features is recorded in current period earnings in the consolidated statements of operations.

Previous wording

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 us or any of our subsidiaries; (iii) the entering of one or more final judgments or orders against us or any of our subsidiaries for an aggregate payment exceeding $25,000,000; (iv) the acceleration of senior debt; (v) certain failures of us to comply with certain provisions of the Note Purchase Agreement or material breaches of the Note Purchase Agreement by us or any of our 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 us or any subsidiary, or any subsidiary shall so claim in writing to challenge the validity of or our liability under the Note Purchase Agreement, the Convertible Notes, or the registration rights agreement; or (vii) we fail to maintain the listing of our 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.

Current wording

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 us or any of our subsidiaries; (iii) the entering of one or more final judgments or orders against us or any of our subsidiaries for an aggregate payment exceeding $25,000,000; (iv) the acceleration of senior debt or any other debt greater than $25,000,000; (v) certain failures of us to comply with certain provisions of the Note Purchase Agreement or material breaches of the Note Purchase Agreement by us or any of our 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 us or any subsidiary, or any subsidiary shall so claim in writing to challenge the validity of or our liability under the Note Purchase Agreement, the Convertible Notes, or the registration rights agreement; or (vii) we fail to maintain the listing of our 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.

Previous wording

Unamortized debt issuance costs of $1,058,000 and $1,006,000 are presented in the balance sheet as a direct deduction from the carrying amounts of the Convertible Notes at March 31, 2024 and 2023, respectively. Debt issuance costs are amortized using the effective interest method through the maturity of the Convertible Notes and recorded in interest expense in the consolidated statements of operations. The effective interest rate was 18.3% as of March 31, 2024. 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.

Current wording

Unamortized debt issuance costs of $916,000 and $1,058,000 are presented in the balance sheet as a direct deduction from the carrying amounts of the Convertible Notes at March 31, 2025 and 2024, respectively. Debt issuance costs are amortized using the effective interest method through the maturity of the Convertible Notes and recorded in interest expense in the consolidated statements of operations. The effective interest rate was 18.3% as of March 31, 2025 and 2024, respectively. 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.

Previous wording

During fiscal 2024, we launched a supplier finance program as part of our ongoing efforts to improve cash flow and liquidity. This program allows certain of our suppliers to sell their receivables due from us to a participating financial institution at the sole discretion of both the supplier and the financial institution. The program is administered by a third party. 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 on 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. As of March 31, 2024, we had $1,695,000 of outstanding supplier obligations confirmed under this program, included in accounts payable in the consolidated balance sheet.

Current wording

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 increased to $30,000,000 from $15,000,000 during fiscal 2025. 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 March 31, 2025 and 2024, we had $33,661,000 and $1,695,000, respectively, of outstanding supplier obligations confirmed as valid under this program, included in accounts payable in the consolidated balance sheets.

Previous wording

In August 2018, our board of directors approved an increase in our share repurchase program from $20,000,000 to $37,000,000 of our common stock. During fiscal 2024 and 2023, we did not repurchase any shares of our common stock. During fiscal 2022, we repurchased 106,486 shares of our common stock for $1,914,000. As of March 31, 2024, $18,745,000 was utilized and $18,255,000 remains available to repurchase shares under the authorized share repurchase program, subject to the limit in our Credit Facility. We retired the 837,007 shares repurchased under this program through March 31, 2024. 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.

Current wording

In August 2018, our board of directors approved an increase in our share repurchase program from $20,000,000 to $37,000,000 of our common stock. During fiscal 2025, we repurchased 542,134 shares of our common stock for $4,832,000. During fiscal 2024 and 2023, we did not repurchase any shares of our common stock. As of March 31, 2025, $23,577,000 was utilized and $13,423,000 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 1,379,141 shares repurchased under this program through March 31, 2025. 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.

Previous wording

Our total capital expenditures were $1,755,000 for fiscal 2024 and $4,792,000 for fiscal 2023. These capital expenditures include (i) cash paid for the purchase of plant and equipment plant, (ii) equipment acquired under finance leases, and (iii) non-cash capital expenditures. Capital expenditures for fiscal 2024 primarily include the purchase of equipment for our current operations. We expect to incur approximately $7,000,000 of capital expenditures primarily to support our global growth initiatives and current operations during fiscal 2025. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.

Current wording

Our total capital expenditures were $6,066,000 for fiscal 2025 and $1,755,000 for fiscal 2024. These capital expenditures include (i) cash paid for the purchase of plant and equipment, (ii) equipment acquired under finance leases, and (iii) non-cash capital expenditures. Capital expenditures for fiscal 2025 primarily include the purchase of equipment for our current operations and our global growth initiatives. We expect to incur approximately $9,500,000 of capital expenditures primarily to support our global growth initiatives and maintenance of our facilities and equipment during fiscal 2026. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.

Previous wording

(9) Other long-term obligations represent commitments we have with certain customers to provide marketing allowances in consideration for multi-year customer agreements to provide products over a defined period. We are not obligated to provide these marketing allowances should our business relationships end with these customers.

Current wording

(9) Customer allowances earned represent commitments we have with certain customers to provide marketing allowances in consideration for multi-year customer agreements to provide products over a defined period.