MPAA 10-K & 10-Q changes, risk factors and insider trading

Developments in global and local economic, political, and social conditions, such as international trade disputes, disruptions from rapid changes in trade policy and new or increased tariffs, a foreign or domestic debt crisis, currency volatility, natural disasters, war, such as the war in Ukraine and the conflictconflicts in Iran, Israel, Gaza and the surrounding areas, epidemics and pandemics, the fear of spread of contagious diseases and civil unrest, may have a material impact on our results of operations and financial condition, and the continuation of or worsening of such conditions could have a similar or worse impact.

A variety of economic, political, and social conditions have led to adverse impacts on the U.S. and global economies and created uncertainty regarding the potential effects of such conditions on our employees, supply chains, operations, and customer demand including international trade disputes, disruptions from rapid changes in trade policy and new or increased tariffs, a foreign or domestic debt crisis, currency volatility, natural disasters, war, such as the war in Ukraine and the conflict in Israel, Gaza and surrounding areas, epidemics and pandemics, the fear of spread of contagious diseases and civil unrest. Certain of these conditions may impact our operations and the operations of our customers, suppliers, and vendors in a number of ways, including but not limited to, the following:

significantly increased costs and uncertainty in future costs due to higher tariff rates charged on components and finished goods by the United StatesU.S. and by other countries, and uncertainty regarding future tariff rates due to rapidly evolving trade policy in the U.S. and the potential for retaliatory tariffs charged by other countries;

Adverse changes in economic conditions, including inflation, slower economic growth and the potential for a recession, increased fuel prices, rapid changes in trade policy, new or increased tariffs, including retaliatory tariffs, global trade disruptions, unemployment levels, decreased availability of consumer credit, taxation or instability in the financial markets or credit markets may either lower demand for our products or increase our operational costs, or both. In addition, rapidly evolving federal, state and local government policies, the results of elections, and other changes in the political landscape could have similar effects, and responding to such changes in policy may divert the attention of senior management from our operations. Such conditions may also materiallyhave a material impact on our customers, suppliers and other parties with whom we do business. Our revenue will be adversely affected if demand for our products declines, including if we are forced to make our products more expensive for customers as a result of increasing costs, including regulatory expenses such as tariffs, and our customers don’t agree towith these increased costs. The impact of unfavorable economic conditions may also impair the ability of our customers to pay for products they have purchased. As a result, reserves for doubtful accounts and write-offs of accounts receivables may increase, and delay or failure to collect a significant portion of amounts due on those receivables could have a material adverse effect upon our business, results of operations, and financial condition. In addition, we also get pressure from our suppliers to pay them faster and from our customers to pay us slower, which impacts our cash flows.

We regularly review our accounts receivable and allowance for credit losses by considering factors such as historical experience, credit quality and age of the accounts receivable, and the current economic conditions that may affect a customer’s ability to pay amounts owed to us. We participate in trade accounts receivable discount programs with our major customers. If the creditworthiness of any of our major customers was downgraded, we could be adversely affected as we may be subjected to higher interest rates on the use of these discount programs or we could be forced to wait longer for payment. In certain cases, we have experienced higher interest rates due to changes in customer credit profiles, which hashave impactedhad an impact on the overall cost of these financing arrangements. Should our customers experience significant cash flow problems, our financial position and results of operations could be materially and adversely affected, and our losses could include the outstanding receivable balance, Used Cores expected to be returned by customers, and the value of the Remanufactured Cores held at customers’ locations. We maintain an allowance for credit losses that, in our opinion, provides for an adequate reserve to cover losses that may be incurred. However, we cannot assure you that our losses will not exceed our reserve for the reasons and risks above. Changes in terms with, significant allowances for, and collections from these customers could affect our operating results and cash flows.

Our industry is highly competitive, and our success depends on our ability to compete with suppliers of automotive aftermarket products, some of which may have substantially greater financial, marketing and other resources than we do. The automotive aftermarket industry is highly competitive, and our success depends on our ability to compete with domestic and international suppliers of automotive aftermarket products. Due to the diversity of our product offering, we compete with several large and medium-sized companies, including (i) Terrepower, First BrandsTerrepower and DRIVDRiV for hard parts, (ii) Burke Porter and Langdi Measurement Control for test solutions and diagnostic equipment, and (iii) a large number of smaller regional and specialty companies. We also face competition from original equipment manufacturers, which, through their automotive dealerships, supply many of the same types of replacement parts we sell. In addition, other overseas competitors, particularly those located in Asia, are increasing their operations and are becoming a significant competitive force.

Because the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage or production shutdown at one or more of our manufacturing and assembly facilities could have adverse effects on our business. Similarly, if one or more of our customers were to experience a work stoppage, that customer would likely halt or limit purchases of our products. In recent years, weWe have alsohad experiencedand could continue to have significant disruptions in the supply of several key components from Asia due to work stoppages, production shutdowns, government closures, and other supply chain issues at many of our suppliers, leading to an adverse effect on our financial results.

In our remanufacturing processes, we obtain Used Cores, primarily through the core exchange programs with our customers, and component parts from third-party manufacturers. To supplement Used Cores received from our customers we purchase Used Cores from core brokers. Historically, the Used Core returned from customers together with purchases from core brokers have provided us with an adequate supply of Used Cores, buthowever, increases or uncertainty in tariff rates and global trade disruptions may cause a significant disruption in the supply of Used Cores, which may cause our operating activities to be materially and adversely impacted. Additionally, increased Used Core acquisitions by existing or new competitors or other changes could further disrupt the supply of Used Cores and increase the significance of such impacts. In addition, a number of the other components used in the remanufacturing process are available from a very limited number of suppliers. We are, as a result, vulnerable to any disruption in component supply and often are forced to purchase new units to obtain particularly difficult to getdifficult-to-get cores, and any meaningful disruption in this supply from uncertainty in tariff rates and global trade disruptions or other factors would materially and adversely impact our operating results. The imposition of tariffs, or even the potential imposition of tariffs areis likely to cause a significant disruption in our manufacturing process, depending on the level and breadth of such tariff.

A significant portion of automotive parts and components we use in our remanufacturing process are imported from suppliers located outside the U.S., including China and other countries in Asia. As a result, we are subject to various risks of doing business in foreign markets and importing products from abroad, such as the following, which we have recently experienced in the last fiscal year:

significant delays in the delivery of cargo due to port security and over-crowdingovercrowding considerations;

Merchandise manufactured offshore represents a significant portion of our total product purchases. Disruptions in the shipping or cost of such merchandise recently have and may continue to or may more significantly decrease our sales and profits. In addition, if imported merchandise continues to become more expensive or less available due to increased tariff rates, trade disputes or other unfavorable impacts, the transition to alternative sources may not occur in time to meet our demands. Merchandise from alternative sources may also be of lesser quality and more expensive than those we currently import. Risks associated with our reliance on imported merchandise include disruptions in the shipping and importation or increase in the costs of imported products. For example, common risks include:

loss of “most favored nation” trading status by the U. S.U.S. in relations to a particular foreign country;

We are exposed to market risk from material movements in foreign exchange rates between the U.S. dollar and the currencies of the foreign countries in which we operate. In fiscal 2025,2026, approximately 29% of our total expenses were in currencies other than the U.S. dollar. As a result of our extensive operations in Mexico, our primary risk relates to changes in the rates between the U.S. dollar and the Mexican peso. To mitigate this currency risk, we enter into forward foreign exchange contracts to exchange U.S. dollars for Mexican pesos. We also enter into forward foreign exchange contracts to exchange U.S. dollars for Chinese yuan in order to mitigate risk related to our purchases and payments to our Chinese vendors. The extent to which we use forward foreign exchange contracts is periodically reviewed in light of our estimate of market conditions and the terms and length of anticipated requirements. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual net cash outflow resulting from funding the expenses of the foreign operations will be materially affected by changes in the exchange rates. We do not engage in currency speculation or hold or issue financial instruments for trading purposes. These contracts generally expire in a year or less. Any change in the fair value of foreign exchange contracts is accounted for as an increase or decrease to foreign exchange impact of lease liabilities and forward contracts in the consolidated statements of operations. We recorded a non-cash gain of $2,515,000, and non-cash losses of $4,179,000, $1,373,000, and a non-cash gain of $2,776,000,$1,373,000, due to the change in the fair value of the forward foreign currency exchange contracts during fiscal 2026, 2025, 2024, and 2023,2024, respectively. In addition, we recorded a gain of $6,409,000, a loss of $11,713,000, and gainsa gain of $5,187,000 and $6,515,000,$5,187,000, in connection with the remeasurement of foreign currency-denominated lease liabilities during fiscal 2026, 2025, and 2024, and 2023, respectively.

We are affected by trade policy, including global tariffs, the North American Free Trade Agreement (“NAFTA”) and the World Trade Organization (the “WTO”).tariffs. In December 2019, the United States, Mexico and Canada signed the amended United States-Mexico-Canada Agreement (the “USMCA”), which replaced NAFTA. In July 2020, the U.S. notified the United Nations of its intention to withdraw from the WTO.. The U.S. government has recently indicated that it intends to negotiate changes to the USMCA in 2026 with the Mexican and Canadian governments. The effects of such negotiations and any changes to the USMCA may negatively impact our operations in Mexico and Canada and may significantly and materially increase our costs by increasing the cost of shipping products from our distribution center or remanufacturing facilities in Mexico and our subsidiaries in Canada. While the U.S. continues to be a member of the WTO, itIt remains difficult to predict what effect the USMCA, the WTOUSMCA or other trade agreements and organizations will have on our business. If the U.S. were to withdraw from or materially modify any other international trade agreements to which it is a party or if the U.S. imposes significant additional tariffs on imports from China or other restrictions, it could have a materially adverse impact on our business, results of operations, and financial condition.

The U.S. government has recently placed increased tariffs on certain goods imported from China and other countries and may impose new tariffs on goods imported from China and other countries, including products that we import. In response, China and other countries have, and may again in the future, impose increased tariffs on a wide range of products imported from the U.S. and adjust the value of its currency. Further, the U.S. government has recently imposed new tariffs on additional countries, including Mexico and Canada from which we remanufacture and distribute products, and we have operations. While such tariffs on Mexico and Canada were paused in connection with an agreement to renegotiate the USMCA, similar tariffs could significantly increase the cost of the products that we import and may materially impact our cost of goods and business.

If renegotiations related to existing or threatened tariffs are unsuccessful or additional tariffs or trade restrictions are implemented by the U.S. or other countries in connection with a global trade war, the resulting escalation of trade tensions could have a material adverse effect on world trade and the global economy. Even in the absence of further tariffs or trade restrictions, the related uncertainty and the market's fear of an economic slowdown could lead to a decrease in consumer spending, and we may experience lower net sales than expected. Reduced net sales may result in reduced operating cash flows if we are not able to appropriately manage inventory levels or leveragereduce expenses.

In addition, some of the domestic and foreign jurisdictions in which we operate could mandate additional ESG disclosure and impose additional requirements on us. For example, in October 2023, California passed twothe billsClimate thatCorporate requireData certainAccountability companiesAct that(“SB-253”), dowhich businessmandates inthe Californiadisclosure toof disclosegreenhouse theirgas GHGemissions, including Scope 1, Scope 2 and Scope 3 emissions; and the Climate-Related Financial Risk Act (“SB-261”), which mandates the disclosure of climate-related financial risksrisks, startingand inmeasures adopted to reduce and adapt to such risks. California has delayed formal rulemaking for SB-253 until the first quarter of 2026. As of the date of this Annual Report, SB-261 is subject to a court injunction on its implementation. We continue to monitor and review developments relating to SB-253 and SB-261. A failure to comply with investor or other stakeholder expectations and standards, which are evolving, or if we are perceived to not have responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, could also cause reputational harm to our business and could cause certain investors to be unwilling to invest in our stock, which could adversely impact our ability to raise capital and could have other material adverse effects on us.

With a scalable infrastructure and abundant growth opportunities, we arecontinue focusedto focus on growingstrategic growth by leveraging our aftermarketcompetitive business in the North American marketplaceadvantage and growing our leadershipindustry 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 toTo support multipleour productstrategic lines.growth, Thesewe investmentshave 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, and (iii) the realignment of production at our original 312,000 square foot facility in Mexico.Mexico, Inand addition,(iv) duringthe fiscaladdition 2025, we addedof a new warehousing and distribution facility in Malaysia to support our future direct shipment programs.

During fiscal 2025,2026, we continued to focus on strategic growth, improving profitability,profitability and leveraging our industry position aswithin a leadingrapidly changing competitive environment for non-discretionary aftermarket parts supplierand solutions. Our solid financial position, quality products and customer relationships.relationships are key competitive strengths, and we expect to further capitalize on these distinctive qualities in fiscal 2027. The following significant accomplishments support our optimism:

GrossNet profitsales increased 16.14.3 percent to a record $153.8$789.8 million;

Gross marginprofit increased 1.83.9 percentage pointspercent to 20.3a percentrecord $159.9 million;

We generatedGenerated cash from operating activities of approximately $45.5$19.2 million;

We expanded ourExpanded product coverage for starters and alternators, brake calipers, brake pads, brake rotors, brake boosters, brake master cylinders, and wheel hubs with more than 629237 new part numbers -- covering more than approximately 13054 million vehicles in operation in North America for our Hard Parts products;

TheContinued rollmarket outshare ofgains for our JBT-1 bench-top testers continued to gain momentum,testers, with the majority of retail stores in North America deploying our diagnostic units,units; or,and weCommenced believe,direct planningshipments tofrom installour them;distribution center in Malaysia.

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, geopolitical events, 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.

We source the majority of our raw materials and parts from suppliers in a variety of non-U.S. countries.countries, Thewhich currentare U.S. government recently implemented tariffs and announced the possibility of increasing current tariffs or implementing additional ones. We expect these actions and retaliatory tariff adjustments by other countriessubject to impact our business and contribute to inflationary cost increases.tariffs. As a result, we arehave takingtaken actions designed to mitigate the potential impacts of these tariffs, including, but not limited to, passing along price increases to our customers and negotiating cost concessions from our suppliers where possible. Absent any changes in trade regulations, we anticipate inflationary cost increases due to these tariffs and any resulting impact on macroeconomic conditions and our business to continue. There can be no assurance that the recently announcedthese tariffs or future imposition of any additional tariffs, changes thereto, or actions taken by countries in response to thethese tariffs will not have a material adverse effect on our business, results of operations, financial condition, or liquidity in any period or that any actions we take to mitigate the impact of thethese tariffs will be effective.

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 2025,2026, 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 majorityMost of our interest costs result from our accounts receivable discount programs, which had a weighted average discount rate of 5.4% for fiscal 2026 compared with 6.2% for fiscal 2025 compared with 6.8% for fiscal 2024.2025. The weighted average interest on borrowings under our credit facility was 6.79% at March 31, 2026 compared with 7.46% at March 31, 2025 compared to 8.43% at March 31, 2024.2025. Any future increases in interest rates will continue to adversely impact our financial results.

Hard Parts, which includesinclude (i) light duty rotating electric products such as alternators and starters,starters and (ii) wheel hub products, (iii) brake-related products, includingwhich includes brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv)wheel turbochargers,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.

ReportableImprovements Segmentto Income Tax Disclosures

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”) (Subtopic 220-40). This standard requires us to disclose, in the footnotes at each interim and annual reporting period, information about expenses by the nature of the expense in addition to certain disclosures about selling expenses. Entities are required to include the following relevant expense captions: (i) purchase of inventory, (ii) employee compensation, (iii) depreciation, (iv) intangible asset amortization, and (v) depreciation, depletion and amortization recognized as part of oil and gas producing activities. In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) Clarifying the Effective Date, which is intended to clarify the effective date of ASU No. 2024-03. As clarified in ASU 2025-01, the new guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027.2027, Earlywith early adoption is permitted. We are currently evaluating the impact this guidance will have on our financial statement disclosures.

In November 2024, the FASB issued ASU 2024-04, Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which seeks to clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. This guidance is effective for annual periods beginning after December 15, 2025, including interim periods within those fiscal years.years, Earlywith early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated financial statements and disclosures.

We record an allowance for potentially excess and obsolete inventory based upon recent sales history, the quantity of inventory on-hand, and a forecast of potential use of the inventory. We periodically review inventory to identify excess quantities and part numbers that are experiencing a reduction in demand. Any part numbers with quantities identified during this process are reserved for at rates based upon our judgment, historical rates, and consideration of possible scrap and liquidation values which may be as high as 100% of cost if no liquidation market exists for the part. As a result of this process, we recorded reserves for excess and obsolete inventory of $18,964,000$19,002,000 and $17,372,000$18,964,000 at March 31, 20252026 and 2024,2025, respectively. This increase in the reserve was primarily due to excess inventory of certain finished goods on hand at March 31, 2025 compared with March 31, 2024.

Inventory unreturned represents our estimate, based on historical data and prospective information provided directly by the customer, of finished goods shipped to customers that we expect to be returned, under our general right of return policy, after the balance sheet date. Inventory unreturned includes only the Unit Cost of a finished goods.good. The return rate is calculated based on expected returns within the normal operating cycle, which is generally one year. As such, the related amounts are classified in current assets. Inventory unreturned is valued in the same manner as our finished goods inventory.

Contract assets consists of: (i) the core portion of the finished goods shipped to customers, (ii) upfront payments to customers in connection with customer contracts, (iii) core premiums paid to customers, and (iv) finished goods premiums paid to customers, and (v) long-term core inventory deposits.customers.

Finished goods premiums paid to customers represent the difference between the finished good acquisition price paid to customers, generally in connection with new business, and the related finished good cost, which is treated as an asset and recognized as a reduction of revenue through the later of the date at which related revenue is recognized or the date at which the sales incentive is offered. We consider, among other things, the length of our largest ongoing customer relationships, duration of customer contracts, and the average life of vehicles on the road in determining the appropriate period of time over which to amortize these premiums. Finished goods premiums are amortized over a period typicallyof ranging from sixup to eight years, adjusted for specific circumstances associated with the arrangement. Finished goods premiums are recorded as long-term contract assets. Finished goods premiums expected to be amortized within our normal operating cycle, which is generally one year, are classified as short-term contract assets.

Accrued core payments represent the salesagreed upon price of Remanufactured Cores purchased from customers, generally in connection with new business, which are held by these customers and remain on their premises. The sales price of these Remanufactured Cores will be realized when our relationship with a customer ends, a possibility that we consider remote based on existing long-term customer agreements and historical experience. The payments to be made to customers for purchases of Remanufactured Cores within our normal operating cycle, which is generally one year, are considered short-term contract liabilities and the remainder are recorded as long-term contract liabilities.

Net Sales. Our consolidated net sales for fiscal 20252026 were $757,354,000,$789,806,000, which represents an increase of $39,670,000,$32,452,000, or 5.5%,4.3%, from fiscal 20242025 of $717,684,000$757,354,000. dueThe toincrease strongin demandour sales for bothfiscal our2026 rotatingcompared electricwith andfiscal brake-related2025 productincludes lines.the recognition of remanufactured core revenue of $34,714,000 in connection with the realignment of inventory at certain customers’ distribution centers.

InGross addition,Profit. ourOur consolidated gross profit was $159,901,000, or 20.2% of consolidated net sales, for fiscal 2026 compared with $153,828,000, or 20.3% of consolidated net sales, for fiscal 2025. Our gross margin for fiscal 20252026 compared with fiscal 20242025 was impacted by (i) continued amortization of core and finished goods premiums paid to customers related to new business of $10,738,000$11,901,000 and $10,963,000,$10,738,000, respectively andrespectively, (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$3,590,000 and $5,353,000,$2,805,000, respectively, (iii) transition expenses of $2,571,000 and $1,298,000, respectively, in connection with our on-going strategy to utilize our global footprint to enhance operating efficiencies, and (iv) net tariff costs paid for products sold before price increases were effective of $2,124,000 and $4,607,000, respectively.

ResearchGeneral and Development.Administrative. Our researchgeneral and developmentadministrative expenses for fiscal 20252026 were $11,405,000,$63,303,000, which represents ana increasedecrease of $1,410,000,$744,000, or 14.1%,1.2%, from fiscal 20242025 of $9,995,000.$64,047,000. This increasedecrease was primarily due to $2,265,000 in decreased severance costs partially offset by $1,087,000 of increased headcount,information supplies,technology costs in connection with cybersecurity and outsideother consultingproductivity services.tools.

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts were a non-cash lossgain of $15,892,000$8,924,000 compared with a non-cash gainloss of $3,814,000$15,892,000 for fiscal 20252026 and 2024,2025, respectively. This change during fiscal 20252026 compared with fiscal 20242025 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities, whichliabilities resulted in a non-cash lossgain of $11,713,000$6,409,000 compared with a non-cash gainloss of $5,187,000,$11,713,000, respectively, due to foreign currency exchange rate fluctuations and (ii) the change in the fair values of forward foreign currency exchange contracts, whichcontracts resulted in a non-cash lossesgain of $4,179,000$2,515,000 andcompared $1,373,000,with respectively,a duenon-cash toloss theof changes$4,179,000, in their fair values.respectively.

With a scalable infrastructure and abundant growth opportunities, we arecontinue focusedto focus on growingstrategic growth by leveraging our aftermarketcompetitive hard parts business in the North American marketplaceadvantage and growing our leadershipindustry 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 toTo support multipleour productstrategic lines.growth, Thesewe investmentshave 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, and (iii) the realignment of production at our original 312,000 square foot facility in Mexico.Mexico, and (iv) the addition of a warehousing and distribution facility in Malaysia to support our direct shipment programs.

Hard Parts, which includesinclude (i) light duty rotating electricelectrical products such as alternators and starters,starters and (ii) wheel hub products, (iii) brake-related products, includingwhich includes brake calipers, brake boosters, brake rotors, brake pads and brake master cylinders, and (iv)wheel turbochargers,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.

Results of Operations for the Three Months Ended DecemberJune 31,30, 20252026 and 20242025

Net Sales. Our consolidated net sales for the three months ended DecemberJune 31,30, 20252026 were $167,697,000,$168,021,000, which represents a decrease of $18,479,000,$20,343,000, or 9.9%,10.8%, from the three months ended DecemberJune 31,30, 20242025 of $186,176,000.$188,364,000. This decrease in sales was primarily due to thelower continued impactsales of lowerrotating purchaseselectrical products partially offset by onestrong ofdemand ourfor largestbrake-related customersproducts during the three months ended DecemberJune 31,30, 20252026 compared with the three months ended DecemberJune 31,30, 2024.2025.

Gross Profit. Our consolidated gross profit was $32,878,000,$27,174,000, or 19.6%16.2% of consolidated net sales, for the three months ended DecemberJune 31,30, 20252026 compared with $44,882,000,$33,917,000, or 24.1%18.0% of consolidated net sales, for the three months ended DecemberJune 31,30, 2024.2025. The decrease of 4.5% inOur gross margin for the three months ended June 30, 2026 was primarilyimpacted due toby lower sales as discussed above.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 DecemberJune 31,30, 20252026 and 20242025 was impacted by (i) the continued amortization of core and finished goods premiums of $2,980,000$3,406,000 and $2,664,000,$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 $554,000$705,000 and $758,000,$1,026,000, respectively.

SalesGeneral and Marketing.Administrative. Our salesgeneral and marketingadministrative expenses for the three months ended DecemberJune 31,30, 20252026 were $6,350,000,$15,517,000, which represents an increase of $729,000,$2,837,000, or 13.0%,22.4%, from the three months ended DecemberJune 31,30, 20242025 of $5,621,000.$12,680,000. This increase was primarily due to (i) $257,000$1,192,000 fromof increased headcountshare-based tocompensation support our growth initiatives,and (ii) $245,000$1,145,000 of increased advertising expense,legal and (iii)other $212,000professional of increased trade show expense.services.

ResearchSales and Development.Marketing. Our researchsales and developmentmarketing expenses for the three months ended DecemberJune 31,30, 20252026 were $3,460,000,$6,546,000, which represents an increase of $452,000,$336,000, or 15.0%,5.4%, from the three months ended DecemberJune 31,30, 20242025 of $3,008,000.$6,210,000. 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,advertising and (iii)other $110,000marketing of increased expense for supplies and our sample library.expenses.

Foreign Exchange Impact of Lease Liabilities and Forward Contracts. Our foreign exchange impact of lease liabilities and forward contracts were a non-cash gaingains of $594,000$1,597,000 comparedand with a non-cash loss of $2,460,000$8,348,000 for the three months ended DecemberJune 31,30, 20252026 and 2024,2025, respectively. This change during the three months ended DecemberJune 31,30, 20252026 compared with the three months ended DecemberJune 31,30, 20242025 was primarily due to (i) the remeasurement of our foreign currency-denominated lease liabilities,liabilities which resultedresulting 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 $1,183,000$4,346,000, 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.respectively.

Consolidated Operating Income. Our consolidated operating income for the three months ended DecemberJune 31,30, 20252026 was $8,334,000$3,532,000 compared with $17,581,000$20,069,000 for the three months ended DecemberJune 31,30, 2024.2025. This decrease was primarily due to the impact of lower sales partially offset by the foreign exchange remeasurement of lease liabilities and forward contracts,contracts and other items as discussed above.

Interest Expense, net. Our interest expense for the three months ended DecemberJune 31,30, 20252026 was $10,901,000,$12,044,000, which represents a decrease of $3,534,000,$768,000, or 24.5%,6%, from interest expense for the three months ended DecemberJune 31,30, 20242025 of $14,435,000.$12,812,000. 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.

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 awere non-cash gainlosses of $3,910,000$1,540,000 and $260,000$1,790,000 for the three months ended DecemberJune 31,30, 20252026 and 2024,2025, respectively.

Income Tax. We recorded an income tax benefitexpense of $434,000,$3,369,000, or an effective tax rate of (32.333.5)%, and income tax expense of $1,115,000,$2,425,000, or an effective tax rate of 32.7%,44.4%, for the three months ended DecemberJune 31,30, 20252026 and 2024,2025, respectively. The effective tax rate for the three months ended DecemberJune 31,30, 2025,2026, 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.

We had working capital (current assets minus current liabilities) of $166,975,000$173,010,000 and $160,446,000,$184,386,000, a ratio of current assets to current liabilities of 1.4:1.0 at DecemberJune 31,30, 20252026 and 1.5:1.0 at March 31, 2025.2026.

Our primary source of liquidity was from cash generated from operations and the use of our accounts receivable discount programs and credit facility during the ninethree months ended DecemberJune 31,30, 2025.2026. 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, including lease and capital expenditure obligationsneeds over the next 12 months.

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 ninethree months ended DecemberJune 31,30, 2025,2026, we repurchased 669,472129,523 shares of our common stock for $8,351,000.$1,929,000. As of DecemberJune 31,30, 2025,2026, $31,928,000$36,857,000 has been utilized and $25,072,000$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 2,048,6132,464,272 shares repurchased under this program through DecemberJune 31,30, 2025.2026. 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.

Net cash used in operating activities was $11,303,000 compared with net cash provided by operating activities wasof $23,664,000 and $36,368,000$10,028,000 during the ninethree months ended DecemberJune 31,30, 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 2024,(ii) respectively.the Ourcontinued build-up of our inventory to support future sales. In addition, our operating activities were primarilyfurther impacted by (i) changes in operating results (net income (loss) income 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.

Net cash used in investing activities was $2,146,000$5,169,000 and $1,614,000$806,000 during the ninethree months ended DecemberJune 31,30, 20252026 and 2024,2025, respectively. The change in our investing activities was primarily resulteddue fromto increasedthe capitalpurchase expenditures.of certain intangible assets during the three months ended June 30, 2026.

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.

We had $88,010,000$118,839,000 and $90,787,000$94,668,000 outstanding under the Revolving Facility at DecemberJune 31,30, 20252026 and March 31, 2025,2026, respectively. In addition, $15,470,000 was outstanding for letters of credit at DecemberJune 31,30, 2025.2026. At DecemberJune 31,30, 2025,2026, after certain contractual adjustments, $128,583,000$93,302,000 was available under the Revolving Facility. The interest rate on our Revolving Facility was 6.97%6.83% and 7.46%,6.79%, at DecemberJune 31,30, 20252026 and March 31, 2025,2026, 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 ninethree months ended DecemberJune 31,30, 2025,2026, undrawn availability was greater than the 22.5% threshold,threshold at all times, therefore, the fixed charge coverage ratio financial covenant was not required to be tested.tested at any point during the fiscal quarter.

Convertible NotesNotes, 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 2025,2026, non-cash accrued interest on the Convertible Notes of $3,521,000$3,873,000 was paid in-kind and is included in the principal amount of Convertible Notes at DecemberJune 31,30, 2025.2026. The Convertible Notes have an initial conversion price of $15.00 per share of the Company’sour 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, weWe 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 DecemberJune 31,30, 20252026 and March 31, 2025,2026, 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 DecemberJune 31,30, 20252026 and March 31, 2025.2026.

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 DecemberJune 31,30, 20252026 and March 31, 2025.2026. 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 $19,600,000$20,600,000 and $9,000,000,$16,900,000, and an asset of $11,990,000$12,720,000 and $1,530,000$10,560,000 at DecemberJune 31,30, 20252026 and March 31, 2025,2026, respectively. During the three months ended DecemberJune 31,30, 20252026 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 2024,2025, we recorded a non-cash loss of $140,000$1,540,000 and a non-cash gain of $2,460,000,$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 DecemberJune 31,30, 20252026 and March 31, 2025.2026.

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 DecemberJune 31,30, 2025.2026. 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 DecemberJune 31,30, 20252026 and March 31, 2025,2026, we had $32,632,000$40,982,000 and $33,661,000,$42,076,000, respectively, ofin outstanding supplier obligations confirmed as valid under this program, included in accounts payable in the condensed consolidated balance sheets.

Our total capital expenditures were $4,231,000$904,000 and $2,531,000$2,708,000 for ninethree months ended DecemberJune 31,30, 20252026 and 2024,2025, 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 ninethree months ended DecemberJune 31,30, 20252026 primarily include the purchase of equipment for our current operations and our global growth initiatives.operations. We expect to incur approximately $5,000,000$9,000,000 of capital expenditures primarily to support our globaloperations growth initiatives and maintenance of our facilities and equipment duringin fiscal 2026.2027. We have used and expect to continue using our working capital and additional capital lease obligations to finance these capital expenditures.

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$93,000 for the three months ended DecemberJune 31,30, 20252026 and 2024,2025, 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.

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, tariffsand tariffs. In the opinion of management, such litigation is not expected to have a material effect on our financial condition, results of operations, and such.cash We have an immaterial amount accrued related to these exposures to various lawsuits, claims, examinations, and administrative proceedings.flows.