LOS ANGELES — Motorcar Parts of America, Inc. (MPA) has announced financial results for the third quarter of fiscal 2006.

Revenues for the quarter ending Dec. 31, 2005 were $30.3 million, up 25.2 percent from $24.2 million in the same quarter last year. Gross profit and gross margin were $6.9 million and 22.7 percent, respectively, as compared to $8.2 million and 33.8 percent in the third quarter of fiscal 2005. Gross profit in the third quarter of fiscal 2006 was negatively impacted by marketing allowances (accounted for as an offset to sales), which increased $2.3 million over the like quarter in the prior year. The gross margin in the third quarter of fiscal 2005 was positively affected by the recognition of under returned core revenue, which had a greater gross margin percentage than finished goods in that quarter.

Operating income for the third quarter of fiscal 2006 was $3 million, down 25 percent from $4 million in the same quarter in the prior year. Operating expenses declined 5.8 percent in the quarter, reflecting a reduction in the amount of outside professional and consulting fees associated with the SEC’s review of the company’s regulatory filings and the related restatement of its financial statements. In addition, the company did not incur any consulting fees related to its compliance with the Sarbanes-Oxley Act of 2002 in the most recent quarter. These savings were partially offset by additional sales, marketing, and research and development expenses to support new business. Interest expense increased for the third quarter of fiscal 2006 as a result of higher interest rates paid in connection with the company’s discounting arrangements and increased utilization of its line of credit. Net income in the third quarter of fiscal 2006 was $1.2 million, or 14 cents per diluted share, compared to $2.2 million, or 26 cents per diluted share for the same quarter last fiscal year.

Selwyn Joffe, MPA’s chairman, president and CEO, said, “In the third quarter, we achieved significant growth in revenues, returned to positive cash flow from operations and continued to be profitable despite the substantial marketing allowances we incurred. We view these marketing allowances as desirable investments, despite their cash and accounting impact, as we expect them to result in enhanced future revenues and profitability. Our current per unit cost of manufacturing is consistent with our plan. We are pleased with the investments we have made in MPA and are excited about the future.”

For the first nine months of fiscal 2006, revenues were $81 million, up 15.1 percent from the first nine months of fiscal 2005. Gross profit was $18.9 million in the first nine months of fiscal 2006, versus $19.4 million in the first nine months of fiscal 2005. Operating income was $4.7 million, versus $8.7 million in the first nine months of last year. Net income was $1.5 million for the nine months ended December 31, 2005, or 18 cents per diluted share, compared to $4.6 million, or 54 cents per diluted share in the first nine months of fiscal 2005.

Mervyn McCulloch, MPA’s CFO, noted that “In the current nine month period, sales and gross margin were negatively impacted by front-loaded marketing allowances of $4.1 million. In addition, $1.5 million of expenses associated with our accounting restatement and Sarbanes-Oxley compliance and $1.4 million of start-up expenses incurred in connection with our new facilities in Mexico and Nashville also reduced our operating income.”

Financial Condition

As of December 31, 2005, the company reported cash and short term investments of $1.3 million and working capital of $45 million. The company had debt and capital lease obligations of $8 million and shareholders’ equity was $49.4 million.

Business Outlook

“During the most recent quarter, we continued to execute on our strategic initiatives of revenue enhancement, margin expansion and balance sheet strength. We are growing our revenue through both the retail and traditional channels. We are on track with our plans to source a larger percentage of our remanufacturing abroad in order to improve our margins. And we are pleased that we have returned to positive cash flow from operations,” said Joffe. “We are confident that as we begin to realize the benefits of these strategic initiatives, the company will experience increased profitability.”

Restatement of Financial Statements

The financial statements for the nine months ended December 31, 2004 contained in this release have been restated to correct an error in the calculation of core costs for purposes of determining the value of unreturned cores. As previously disclosed, the company’s prior method of valuing unreturned cores was based upon the cost of the cores in its total inventory. The company has concluded that the valuation should instead be based upon the cost for the cores being invoiced and returned during the preceding twelve months.

For more information about MPA, go to: www.motorcarparts.com .

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