MOTORCAR PARTS OF AMERICA INC

Previous wording

With a scalable infrastructure and abundant growth opportunities, we are focused on growing our aftermarket hard parts 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.

Current wording

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.

Previous wording

Hard Parts, which includes (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,

Current wording

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,

Previous wording

Net Sales. Our consolidated net sales for the three months ended December 31, 2025 were $167,697,000, which represents a decrease of $18,479,000, or 9.9%, from the three months ended December 31, 2024 of $186,176,000. This decrease in sales was primarily due to the continued impact of lower purchases by one of our largest customers during the three months ended December 31, 2025 compared with the three months ended December 31, 2024.

Current wording

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.

Previous wording

Gross Profit. Our consolidated gross profit was $32,878,000, or 19.6% of consolidated net sales, for the three months ended December 31, 2025 compared with $44,882,000, or 24.1% of consolidated net sales, for the three months ended December 31, 2024. The decrease of 4.5% in gross margin was primarily due to lower sales as discussed above.

Current wording

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.

Previous wording

In addition, our gross margin for the three months ended December 31, 2025 and 2024 was impacted by (i) the continued amortization of core and finished goods premiums of $2,980,000 and $2,664,000, 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 $554,000 and $758,000, respectively.

Current wording

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.

Previous wording

General and Administrative. Our general and administrative expenses for the three months ended December 31, 2025 were $15,328,000, which represents a decrease of $884,000, or 5.5%, from the three months ended December 31, 2024 of $16,212,000. This decrease was primarily due to $1,225,000 of lower employee incentives partially offset by $397,000 of severance due to headcount reductions.

Current wording

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.

Previous wording

Sales and Marketing. Our sales and marketing expenses for the three months ended December 31, 2025 were $6,350,000, which represents an increase of $729,000, or 13.0%, from the three months ended December 31, 2024 of $5,621,000. This increase was primarily due to (i) $257,000 from increased headcount to support our growth initiatives, (ii) $245,000 of increased advertising expense, and (iii) $212,000 of increased trade show expense.

Current wording

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.

Previous wording

Research and Development. Our research and development expenses for the three months ended December 31, 2025 were $3,460,000, which represents an increase of $452,000, or 15.0%, from the three months ended December 31, 2024 of $3,008,000. This increase was primarily due to (i) $205,000 for engineering-related professional services, (ii) $123,000 for increased headcount to support our new product introductions, and (iii) $110,000 of increased expense for supplies and our sample library.

Current wording

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.

Previous wording

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts were a non-cash gain of $594,000 compared with a non-cash loss of $2,460,000 for the three months ended December 31, 2025 and 2024, respectively. This change during the three months ended December 31, 2025 compared with the three months ended December 31, 2024 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, which resulted in a non-cash gain of $1,183,000 compared with a non-cash loss of $1,875,000, respectively, due to foreign currency exchange rate fluctuations and (ii) the forward foreign currency exchange contracts, which resulted in non-cash losses of $589,000 and $585,000, 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 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.

Previous wording

Consolidated Operating Income. Our consolidated operating income for the three months ended December 31, 2025 was $8,334,000 compared with $17,581,000 for the three months ended December 31, 2024. This decrease was primarily due to the impact of lower sales partially offset by the foreign exchange remeasurement of lease liabilities and forward contracts, as discussed above.

Current wording

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.

Previous wording

Interest Expense, net. Our interest expense for the three months ended December 31, 2025 was $10,901,000, which represents a decrease of $3,534,000, or 24.5%, from interest expense for the three months ended December 31, 2024 of $14,435,000. This decrease was primarily due to (i) lower utilization of our accounts receivable discount programs, (ii) lower average outstanding balances under our credit facility, and (iii) lower interest rates on both our credit facility and accounts receivable discount programs.

Current wording

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.

Previous wording

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 was a non-cash gain of $3,910,000 and $260,000 for the three months ended December 31, 2025 and 2024, respectively.

Current wording

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.

Previous wording

Income Tax. We recorded income tax expense of $5,552,000, or an effective tax rate of 67.5%, and $1,849,000, or an effective tax rate of (10.9)%, for the nine months ended December 31, 2025 and 2024, respectively. The effective tax rate for the nine months ended December 31, 2025, 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.

Current wording

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.

Previous wording

We had working capital (current assets minus current liabilities) of $166,975,000 and $160,446,000, a ratio of current assets to current liabilities of 1.4:1.0 at December 31, 2025 and 1.5:1.0 at March 31, 2025.

Current wording

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.

Previous wording

Our primary source of liquidity was from cash generated from operations and the use of our receivable discount programs during the nine months ended December 31, 2025. We believe our cash and cash equivalents, use of receivable discount programs, and amounts available under our credit facility are sufficient to satisfy our expected future liquidity needs, including lease and capital expenditure obligations over the next 12 months.

Current wording

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.

Previous wording

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 nine months ended December 31, 2025, we repurchased 669,472 shares of our common stock for $8,351,000. As of December 31, 2025, $31,928,000 has been utilized and $25,072,000 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 2,048,613 shares repurchased under this program through December 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.

Current wording

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.

Previous wording

Net cash provided by operating activities was $23,664,000 and $36,368,000 during the nine months ended December 31, 2025 and 2024, respectively. Our operating activities were primarily impacted by (i) changes in operating results (net income (loss) plus the net add-back for non-cash transactions in earnings) and (ii) changes in our working capital due primarily to the build-up of our inventory to support future sales. We continue to manage our working capital to maximize our operating cash flow.

Current wording

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.

Previous wording

Net cash used in investing activities was $2,146,000 and $1,614,000 during the nine months ended December 31, 2025 and 2024, respectively. The change in our investing activities primarily resulted from increased capital expenditures.

Current wording

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.

Previous wording

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 Credit Facility matures on December 12, 2028. The lenders have a security interest in substantially all of our assets.

Current wording

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.

Previous wording

We had $88,010,000 and $90,787,000 outstanding under the Revolving Facility at December 31, 2025 and March 31, 2025, respectively. In addition, $15,470,000 was outstanding for letters of credit at December 31, 2025. At December 31, 2025, after certain contractual adjustments, $128,583,000 was available under the Revolving Facility. The interest rate on our Revolving Facility was 6.97% and 7.46%, at December 31, 2025 and March 31, 2025, respectively.

Current wording

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.

Previous 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 nine months ended December 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.

Current wording

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.

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. In April 2025, non-cash accrued interest on the Convertible Notes of $3,521,000 was paid in-kind and is included in the principal amount of Convertible Notes at December 31, 2025. The Convertible Notes have an initial conversion price of $15.00 per share of the Company’s 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. Except in the case of the occurrence of a fundamental transaction, as defined in the form of convertible promissory note, we may not redeem the Convertible Notes prior to March 31, 2026. After March 31, 2026, we may redeem all or part of the Convertible Notes for a cash purchase (the “Company Redemption”) price. The effective interest rate was 18.3% as of December 31, 2025 and March 31, 2025, respectively.

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 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.

Previous wording

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 December 31, 2025 and March 31, 2025. 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 $19,600,000 and $9,000,000, and an asset of $11,990,000 and $1,530,000 at December 31, 2025 and March 31, 2025, respectively. During the three months ended December 31, 2025 and 2024, we recorded a non-cash gain of $3,910,000 and $260,000, respectively, as the change in fair value of the Compound Net Derivative Liability in the condensed consolidated statements of operations. During the nine months ended December 31, 2025 and 2024, we recorded a non-cash loss of $140,000 and a non-cash gain of $2,460,000, 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.

Current wording

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.

Previous 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 were $40,000,000 as of December 31, 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 December 31, 2025 and March 31, 2025, we had $32,632,000 and $33,661,000, respectively, of outstanding supplier obligations confirmed as valid under this program, included in accounts payable in the condensed consolidated balance sheets.

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 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.

Previous wording

Our total capital expenditures were $4,231,000 and $2,531,000 for nine months ended December 31, 2025 and 2024, 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 nine months ended December 31, 2025 primarily include the purchase of equipment for our current operations and our global growth initiatives. We expect to incur approximately $5,000,000 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.

Current wording

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.

Previous wording

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 $81,000 for the three months ended December 31, 2025 and 2024, respectively. The rent expense recorded for this related party lease was $280,000 and $243,000 for the nine months ended December 31, 2025 and 2024, respectively.

Current wording

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.

Previous wording

We are subject to various lawsuits and claims. In addition, government agencies and self-regulatory organizations have the ability to conduct periodic examinations of and administrative proceedings regarding our business, and our compliance with law, code, and regulations related to all matters including but not limited to environmental, information security, taxes, levies, tariffs and such. We have an immaterial amount accrued related to these exposures to various lawsuits, claims, examinations, and administrative proceedings.

Current wording

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.