ufab-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1


(Mark One)
☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2020


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number: 001-37480

UNIQUE FABRICATING, INC.

(Exact name of registrant as specified in its Charter)

Delaware

46-1846791

(State or other jurisdiction of
incorporation or organization)

(IRS Employer
Identification No.)

800 Standard Parkway

Auburn Hills, MI 48326

(248) 853-2333

(Address including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.001 per share	UFAB	NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of March 29, 2021, the registrant had 9,779,147 shares of common stock outstanding.

EXPLANATORY NOTE

On March 31, 2021, the Audit Committee of the Board of Directors of Unique Fabricating, Inc. (the “Company”), after consultation with management and discussions with Deloitte & Touche LLP, the Company’s independent registered public accounting firm, concluded that the Company’s previously issued 2020 quarterly condensed consolidated financial statements for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 (collectively, the “Relevant Periods”) should be restated to reflect the impact of certain errors the Company has identified and, accordingly, should no longer be relied upon. This Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q (the “Form 10-Q/A) for the three and six months ended June 30, 2020, which was originally filed with the U.S. Securities and Exchange Commission (“SEC”) on August 13, 2020 (the “Original Form 10-Q”), restates the Company's condensed consolidated financial statements as of and for the three and six months ended June 30, 2020, and amends the related Notes and disclosures thereto. The following items in the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2020 were impacted by the errors:

Condensed Consolidated
Balance Sheet:

Condensed Consolidated
Statement of Operations:

Condensed Consolidated
Statement of Stockholders’ Equity:

Condensed Consolidated
Statement of Cash Flows

Cash and cash equivalents

Net sales

Net loss – three months ended March 31, 2020

Net loss

Inventory, net

Cost of sales

Deferred income taxes

Prepaid expenses and other

Gross profit

Accumulated deficit balance – March 31, 2020

Inventory

Total current assets

Selling, general, and administrative expenses

Prepaid expenses and other assets

Property, plant, and equipment, net

Total stockholders' equity balance – March 31, 2020

Accrued and other liabilities

Deferred tax asset

Operating loss

Net cash provided by operating activities

Total assets

(Loss) before income tax benefit

Net loss – three months ended June 30, 2020

Capital expenditures

Accrued compensation

Income tax benefit

Net cash provided by (used in) investing activities

Other accrued liabilities

Net loss

Accumulated deficit balance – June 30, 2020

Total current liabilities

Net loss per basic and diluted share

Net increase (decrease) in cash and cash equivalents

Total liabilities

Total stockholders' equity balance – June 30, 2020

Accumulated deficit

Cash and cash equivalents at end of period

Total stockholders’ equity

Total liabilities and stockholders’ equity

See Note 17 for a quantification of the effects of the restatement.

Background of Restatement

In connection with preparing its financial statements for the year ended December 31, 2020, the Company identified errors that were not detected as a result of the previously identified material weakness within certain controls and as a result the Company has concluded it is necessary to restate the Quarterly Reports on Form 10-Q for the Relevant Periods. The Company believes that the material weakness identified in its Annual Report on Form 10-K/A for the fiscal year ended December 29, 2019, which related to limited finance staffing levels that were not commensurate with the Company’s complexity and its financial accounting and reporting requirements, combined with changes in its operations as a result of the COVID-19 pandemic, including accounting and finance personnel working remotely, contributed to the errors and the failure of the Company to identify and correct the errors in a timely manner. The most significant errors are directly attributable to the quarterly period ended on March 31, 2020; however, the errors were not identified and confirmed until the Company began preparing its financial statements for the year ended December 31, 2020.

Items Amended by this Filing

The following items included in the Original Form 10-Q are amended by this Form 10-Q/A:

▪Part I, Item 1 – Financial Statements;

▪Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations;

▪Part I, Item 4 – Controls and Procedures; and

▪Part II, Item 6 – Exhibits

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by the Company’s principal executive officer and principal financial officer are filed as exhibits 31.1, 31.2, 32.1 and 32.2 to this Form 10-Q/A.

The Company is concurrently filing an amended Quarterly Report on Form 10-Q/A for each of the quarters ended March 31, 2020, and September 30, 2020.

Table of Contents

UNIQUE FABRICATING, INC.

FORM 10-Q

TABLE OF CONTENTS


			Page
Part I.	Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of June 30, 2020 (as restated ) and as of December 29, 2019	2
		Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 (as restated ) and three and six months ended June 30, 2019	3
		Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2020 (as restated ) and the three and six months ended June 30, 2019	4
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 (as restated ) and six months ended June 30, 2019	5
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.	Item 3. Quantitative and Qualitative Disclosures About Market Risk	33
	Item 4.	Controls and Procedures	34
Part II.	Other Information
	Item 1.	Legal Proceedings	34
	Item 1A.	Risk Factors	35
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
	Item 3.	Defaults Upon Senior Securities	35
	Item 4.	Mine Safety Disclosures	35
	Item 5.	Other Information	35
	Item 6.	Exhibits	36
		Signatures	37

Table of Contents

Part I – FINANCIAL INFORMATION

Item 1. Financial Statements

UNIQUE FABRICATING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited – dollars in thousands)


	June 30, 2020		December 29, 2019
	(as restated, see Note 17)
Assets
Current assets
Cash and cash equivalents	$	4,098	$	650
Accounts receivable, net of reserves of approximately $0.7 million and $0.9 million at June 30, 2020 and December 29, 2019, respectively	15,683		24,701
Inventory, net	14,810		13,047
Prepaid expenses and other current assets:
Prepaid expenses and other	3,574		2,108
Refundable taxes	1,391		1,049
Assets held for sale	—		1,003
Total current assets	39,556		42,558
Property, plant, and equipment, net	22,779		23,415
Goodwill	22,111		22,111
Intangible assets	9,625		11,625
Other assets
Operating leases	10,965		—
Investments, at cost	1,054		1,054
Deposits and other assets	227		226
Deferred tax asset	1,219		679
Total assets	$	107,536	$	101,668
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,784	$	9,324
Current maturities of long-term debt	2,847		2,847

Accrued compensation	1,144		1,225
Other accrued liabilities	4,543		1,979
Total current liabilities	16,318		15,375
Long-term debt, net of current maturities	37,794		33,220
Line of credit	9,874		11,418
Other long-term liabilities:
Deferred tax liability	—		1,324
Other liabilities	10,659		871
Total liabilities	74,645		62,208
Stockholders’ equity:
Common stock, $0.001 par value: 15,000,000 shares authorized and 9,779,147 and 9,779,147 issued and outstanding at June 30, 2020 and December 29, 2019, respectively	10		10
Additional paid-in-capital	46,066		46,011
Accumulated deficit	(13,185)		(6,561)
Total stockholders’ equity	32,891		39,460
Total liabilities and stockholders’ equity	$	107,536	$	101,668

The accompanying notes are an integral part of these Condensed Consolidated Statements.

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UNIQUE FABRICATING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited – dollars in thousands, except per share amounts)


	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019		Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
	(as restated, see Note 17)				(as restated, see Note 17)
Net sales	$	14,975	$	38,889	$	49,636	$	78,356
Cost of sales	13,134		30,677		42,204		61,844
Gross profit	1,841		8,212		7,432		16,512
Selling, general, and administrative expenses	6,343		7,424		12,227		14,696
Impairment	—		6,760		—		6,760
Restructuring expenses	273		734		1,193		825
Operating loss	(4,775)		(6,706)		(5,988)		(5,769)
Other income (expense):

Other, net	18		25		(6)		43
Interest expense	(623)		(1,332)		(2,289)		(2,432)
Other expense, net	(605)		(1,307)		(2,295)		(2,389)
(Loss) before income tax (benefit)	(5,380)		(8,013)		(8,283)		(8,158)
Income tax (benefit)	(1,058)		(389)		(1,659)		(346)
Net loss	$	(4,322)	$	(7,624)	(6,624)		$	(7,812)
Net loss per share:
Basic	$	(0.44)	$	(0.78)	$	(0.68)	$	(0.80)
Diluted	$	(0.44)	$	(0.78)	$	(0.68)	$	(0.80)
Dividends declared per share	$	—	$	—	$	—	$	0.05

The accompanying notes are an integral part of these Condensed Consolidated Statements.

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UNIQUE FABRICATING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited – dollars in thousands)


	Number of Shares of Common Stock	Common Stock		Additional Paid-In Capital		Retained Earnings		Total
Balance - December 30, 2018	9,779,147	$	10	$	45,882	$	2,997	$	48,888
Net loss	—	—		—		(189)		(189)
Stock option expense	—	—		33		—		33

Cash dividends paid	—	—		—		(489)		(489)
Balance - March 31, 2019	9,779,147	10		45,915		2,319		48,243
Net loss	—	—		—		(7,624)		(7,624)
Stock option expense	—	—		65		—		65


Balance - June 30, 2019	9,779,147	$	10	$	45,980	$	(5,305)	$	40,684


	Number of Shares of Common Stock	Common Stock		Additional Paid-In Capital		Accumulated Deficit		Total
Balance - December 29, 2019	9,779,147	$	10	$	46,011	$	(6,561)	$	39,460
Net loss (as restated, see Note 17)	—	—		—		(2,302)		(2,302)
Stock option expense	—	—		23		—		23

Balance - March 31, 2020 (as restated, see Note 17)	9,779,147	10		46,034		(8,863)		37,181
Net loss (as restated, see Note 17)	—	—		—		(4,322)		(4,322)
Stock option expense	—	—		32		—		32
Balance - June 30, 2020 (as restated, see Note 17)	9,779,147	$	10	$	46,066	$	(13,185)	$	32,891

The accompanying notes are an integral part of these Condensed Consolidated Statements.

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UNIQUE FABRICATING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited – dollars in thousands)


	Six Months Ended
	June 30, 2020		June 30, 2019
	(as restated, see Note 17)
Cash Flows from Operating Activities:
Net loss	$	(6,624)	$	(7,812)
Adjustments to reconcile net loss to net cash provided by operating activities:
Impairment of goodwill	—		6,760

Depreciation and amortization	3,458		3,404
Amortization of debt issuance costs	74		89
Loss on sale of assets	108		5
Bad debt adjustment	554		122
Loss on derivative instrument	598		665
Stock option expense	55		98
Deferred income taxes	(1,864)		(728)

Accounts receivable	8,464		2,576
Inventory	(1,694)		1,064
Prepaid expenses and other assets	(1,809)		(97)

Accounts payable	(1,228)		(107)
Accrued and other liabilities	(601)		(956)
Other, net	1,202		—
Net cash provided by operating activities	693		5,084
Cash Flows from Investing Activities:
Capital expenditures	(760)		(1,880)
Proceeds from sale of property, plant and equipment	884		41
Net cash provided by (used in) investing activities	124		(1,839)
Cash Flows from Financing Activities:
Net change in bank overdraft	(311)		557
Payments on term loans	(1,474)		(2,638)
Proceeds from capital expenditure line	—		1,300
Payments on revolving credit facilities	(12,310)		(15,189)
Proceeds from revolving credit facilities	10,727		12,858

Distribution of cash dividends	—		(489)
Proceeds from PPP loan	5,999		—
Net cash provided by (used in) financing activities	2,631		(3,600)
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents	3,448		(355)
Cash and cash equivalents at beginning of period	650		1,410
Cash and cash equivalents at end of period	$	4,098	$	1,055
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,219	$	1,909
Cash paid for Income taxes	$	209	$	292

The accompanying notes are an integral part of these Condensed Consolidated Statements.

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UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

Unique Fabricating, Inc. (the “Company”) engineers and manufactures components for customers in the transportation, appliance, medical, and consumer markets. The Company’s solutions are comprised of multi-material foam, rubber, and plastic components and utilized in noise, vibration and harshness (“NVH”) management, acoustical management, water and air sealing, decorative and other functional applications. Unique leverages proprietary manufacturing processes, including die cutting, thermoforming, compression molding, fusion molding, and reaction injection molding to manufacture a wide range of products including air management products, heating ventilating and air conditioning (“HVAC”), seals, fender stuffers, air ducts, acoustical insulation, door water shields, gas tank pads, light gaskets, topper pads, mirror gaskets, glove box liners personal protection equipment, and packaging. The Company operates as one reportable segment and is headquartered in Auburn Hills, Michigan.

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements contain all material adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company, its results of operations, and its cash flows. The interim results for the periods presented may not be indicative of the Company's actual annual results. The Company’s Statement of Cash Flows, presented above, has been recast to show the gross movements of payments on and proceeds from our revolving credit facility. The Company’s management believes this presentation provides a more transparent view of the activity, as such prior periods have been recast for comparability. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019.

Change in Quarter and Year-End

Historically, the Company’s quarterly periods ended on the Sunday closest to the end of the calendar quarterly period. For 2019, the quarters and year to date period, which were 13 weeks, respectively, ended on March 31, June 30, September 29, and December 29, 2019. On March 13, 2020, the Company’s board of directors approved changing our quarterly periods to match calendar quarterly periods. The Company expects the impact of this change on our 2020 result of operations to be immaterial. All year, quarter, and three month references prior to 2020 relate to the Company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, three and six months ended is used throughout this Quarterly Report on Form 10-Q to represent both the current year calendar quarterly periods and the prior year fiscal year periods.

Concentration Risks

The Company is exposed to significant concentration risks as follows:

Customer and Credit — During the three and six months ended June 30, 2020 and three and six months ended June 30, 2019, the Company’s net sales were derived from customers principally engaged in the North American automotive industry. The following table presents the Company's sales directly and indirectly to General Motors Company (GM), Fiat Chrysler Automobiles (FCA), and Ford Motor Company (Ford) as a percentage of total net sales:


	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019		Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
General Motors Company	16	%	17	%	16	%	18	%
Fiat Chrysler Automobiles	11	%	16	%	15	%	15	%
Ford Motor Company	12	%	12	%	14	%	11	%

No customer represented more than 10% of direct Company sales for the three and six months ended June 30, 2020. GM accounted for 7% of direct Company sales for the three and six months ended June 30, 2020.

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UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Labor Markets — At June 30, 2020, of the Company’s hourly plant employees working in the United States manufacturing facilities, 38% were covered under a collective bargaining agreement which expires in August 2022 while another 6% were covered under a separate collective bargaining agreement that expires in February 2023.

International Operations — The Company manufactures and sells products outside of the United States primarily in Mexico and Canada. Foreign operations are subject to various political, economic and other risks and uncertainties inherent in foreign countries. Among other risks, the Company’s operations may be subject to the risks of: restrictions on transfers of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; political conditions; and governmental regulations. The following table presents the percentage of the Company's total production in Mexico, Canada, and other foreign markets:


	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019		Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
Mexico	20	%	19	%	22	%	19	%
Canada	12	%	8	%	9	%	7	%
Other	—	%	1	%	—	%	—	%

The following table presents the percentage of the Company's total net sales represented by net sales from customers located in Mexico, Canada, and other foreign countries:


	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019		Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
Mexico	17	%	17	%	21	%	18	%
Canada	9	%	10	%	8	%	10	%
Other	—	%	1	%	—	%	1	%

2. New Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses,” which introduced new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities, and net investments in leases as well as reinsurance and trade receivables. In November 2018, the FASB issued ASU 2018-19, which clarifies that operating lease receivables are outside the scope of the new standard. In November 2019, the FASB issued ASU 2019-10, which established the effective date of the new standard for smaller reporting companies as fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact, if any the adoption of the new credit losses model will have on its financial statements.

In February 2016, the FASB issued ASU 2016-2, Leases (Topic 842). This update requires lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases of greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. We have identified our existing lease contracts and calculated the right of use assets, which are reflected in Other Assets on the Condensed Consolidated Balance Sheets, and lease liabilities, which are reflected in the Other Accrued Liabilities on the Condensed Consolidated Balance Sheets. This guidance was effective for the Company as of January 1, 2020. Adoption of the new standard resulted in the recording of right-of-use assets and liabilities of $12.1 million and $12.8 million as of January 1, 2020. The FASB has issued further ASUs related to the standard providing an optional transition method allowing entities to not recast comparative periods. The Company elected the practical expedients upon transition that retained the lease classification and initial direct costs for any leases that exist prior to adoption of the standard. The Company has approximately $11.9 million of non-cancelable future rental obligations as of June 30, 2020, as shown in Note 11.

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UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Revenues

The following table presents the Company's net sales disaggregated by major sales channel for the three and six months ended June 30, 2020 and 2019 (in thousands):


	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019		Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
Net Sales
Transportation	$	11,290	$	33,517	$	42,986	$	67,532
Appliance	2,132		3,504		4,912		7,258
Other	1,553		1,868		1,738		3,566
Total	$	14,975	$	38,889	$	49,636	$	78,356

General Recognition Policy

Revenue is recognized by the Company once all performance obligations under the terms of a contract with the Company's customers are satisfied. Generally this occurs with the transfer of control to a customer of its transportation, appliance, and other products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products. The Company’s payment terms vary by the type and location of its customers and the products offered. The term between invoicing and when payment is due is not significant.

In general for sales arrangements, the Company deems control to transfer at a single point in time and recognizes revenue when it ships products from its manufacturing facilities to its customers. Once a product has shipped, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The Company considers control to transfer upon shipment because the Company has a present right to payment at that time, the customer has legal title to the asset, and the customer has significant risks and rewards of ownership of the asset. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

Contract Balances

The timing of revenue recognition, billings and cash collections and payments results in billed accounts receivable. The Company does not have deferred revenue. Additionally, management reviews the allowance for doubtful accounts at regular intervals. Account balances are charged off against the allowance when management determines it is probable the receivable will not be recovered.

4. Inventory

Inventories consist of the following (in thousands):


	June 30, 2020		December 29, 2019
Raw materials	$	9,455	$	7,963
Work in progress	718		129
Finished goods	4,637		4,955
Total inventory	$	14,810	$	13,047

The Company periodically evaluates inventory for obsolescence, excess quantities, slow moving goods and other impairments of value and establishes reserves for any identified impairments. The allowance for obsolete inventory was $0.9 million and $1.0 million at June 30, 2020 and December 29, 2019, respectively.

Included in inventory are assets located in Mexico with a carrying amount of $4.1 million at June 30, 2020 and $3.6 million at December 29, 2019, and assets located in Canada with a carrying amount of $1.1 million at June 30, 2020 and $1.0 million at December 29, 2019.

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UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Property, Plant, and Equipment, Net

Property, plant, and equipment, net consists of the following (in thousands):


	June 30, 2020		December 29, 2019		Depreciable Life – Years
Land	$	1,663	$	1,663
Buildings	5,798		5,934		23 – 40
Shop equipment	23,037		22,982		7 – 10
Leasehold improvements	1,248		1,234		3 – 10
Office equipment	1,829		1,866		3 – 7
Mobile equipment	153		190		3
Construction in progress	2,302		1,543
Total cost	36,030		35,412
Less: Accumulated depreciation	13,250		11,997
Net property, plant, and equipment, net	$	22,779	$	23,415

Depreciation expense was $0.7 million and $1.4 million for the three and six months ended June 30, 2020, respectively, and $0.7 million and $1.4 million for the three and six months ended June 30, 2019 respectively.

Included in property, plant, and equipment are assets located in Mexico with a carrying amount of $4.0 million and $4.1 million at June 30, 2020 and December 29, 2019, respectively, and assets located in Canada with a carrying amount of $0.6 million and $0.6 million at June 30, 2020 and December 29, 2019, respectively.

6. Long-term Debt

Credit Agreement

On April 29, 2016, Unique Fabricating NA, Inc. (the “US Borrower”) and Unique-Intasco Canada, Inc. (the “CA Borrower”) and Citizens Bank, National Association (“Citizens”), acting as lender and Administrative Agent, and other lenders, entered into a credit agreement (the “Credit Agreement”) providing for borrowings of up to the aggregate principal amount of $62.0 million. The Credit Agreement was a senior secured credit facility and consisted of a revolving line of credit of up to $30.0 million (the “Revolver”) to the US Borrower, a $17.0 million principal amount term loan (the “US Term Loan”) to the US Borrower, and a $15.0 million principal amount term loan (the “CA Term Loan”) to the CA Borrower. At Closing, the US Term Loan and the CA Term Loan were fully funded and the US Borrower borrowed approximately $22.9 million under the Revolver.

On August 18, 2017, the US Borrower and the CA Borrower entered into the Second Amendment (the “Amendment”) to the Credit Agreement, with Citizens, acting as Administrative Agent, and other lenders. The Amendment converted $4.0 million of outstanding borrowings under the Revolver into an additional $4.0 million term loan to the US Borrower (the “US Term Loan II”). The conversion of a portion of the outstanding borrowings under the Revolver did not reduce the aggregate amount available to be borrowed under it.

On August 8, 2018, the US Borrower and the CA Borrower entered into the Fourth Amendment (the “Fourth Amendment”) to the Credit Agreement, with Citizens, acting as Administrative Agent, and other lenders. The Fourth Amendment required the Company to use the net proceeds from the sale of the Ft. Smith, Arkansas building to reduce the outstanding borrowings under the Revolver. The application of the net proceeds did not permanently reduce the amounts that could be borrowed under the Revolver. The Fourth Amendment also eased, for the fiscal quarter ended September 30, 2018, the financial covenant ratio which determined the Company's ability to pay dividends.

On September 20, 2018, the US Borrower and the CA Borrower entered into the Fifth Amendment (the “Fifth Amendment”) to the Credit Agreement, with Citizens, acting as Administrative Agent, and other lenders. The Fifth Amendment temporarily increased the maximum amount that could be borrowed under the Revolver to $32.5 million from its then maximum of $30.0 million. This increase implemented by the Fifth Amendment was effective until October 31, 2018, at which point the maximum amount that could be borrowed under the Revolver reverted back to $30.0 million and was replaced by the Amended and Restated Credit Agreement described below.

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Amended and Restated Credit Agreement

On November 8, 2018, the US Borrower and the CA Borrower entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), which amended and restated the existing Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Amended and Restated Credit Agreement which is a five year agreement, among other things, increased the principal amount of US Term Loan borrowings to $26.0 million, created a two year line to fund capital expenditures of up to $2.5 million through November 8, 2019 and $5.0 million thereafter through November 8, 2020, and extended the maturity dates of all borrowings from April 28, 2021 to November 7, 2023. The Amended and Restated Credit Agreement provides for borrowings of up to $30.0 million under the Revolver, subject to availability under the terms of the Amended and Restated Credit Agreement, and left the principal amount on the CA Term Loan at approximately $12.0 million, the same as it was under the previous Credit Agreement. The Amended and Restated Credit Agreement combined the previous US Term Loan and US Term Loan II (the “New US Term Loan”), and increased the aggregate principal amount to $26.0 million from $15.9 million, in total, for the previous US Term Loan and Term Loan II. The increase in the principal amount effected by the New U.S. Term Loan replaced and termed-out outstanding borrowings under the Revolver. The Amended and Restated Credit Agreement changes the quarterly principal payments of the New US Term Loan to $337.5 thousand through September 30, 2020, $575.0 thousand thereafter through September 30, 2021, and $812.5 thousand thereafter with a lump sum due at maturity. Finally, the agreement made certain changes to the Company's covenants and financial covenant ratios.

The Revolver, New US Term Loan, and CA Term Loan all mature on November 7, 2023 and bear interest at the Company's election of either (i) the greater of the Prime Rate or the Federal Funds Effective Rate (the “Base Rate”) or (ii) the LIBOR rate, plus an applicable margin ranging from 1.75% to 3.25% per annum in the case of the Base Rate and 2.75% to 4.25% per annum in the case of the LIBOR rate, in each case, based on senior leverage ratio thresholds, measured quarterly, as increased by the Waiver and Fourth Amendment to the Amended and Restated Credit Agreement which is further described below. The fair value of debt at June 30, 2020 under the Revolver, New US Term Loan and CA Term Loan approximates book value based on the variable terms.

In addition, the Amended and Restated Credit Agreement allows for increases in the principal amount of the Revolver and the New US and CA Term Loans not to exceed a $10.0 million principal amount, in the aggregate, provided that before and after giving effect to the proposed increase (and any transactions to be consummated using proceeds of the increase), the total leverage and debt service coverage ratios do not exceed specified amounts. The Amended and Restated Credit Agreement also provides for the issuance of letters of credit with a face amount of up to a $2.0 million, in the aggregate, provided that any letter of credit that is issued will reduce availability under the Revolver.

As of June 30, 2020, $10.1 million was outstanding under the Revolver. This amount is gross of debt issuance costs which are further described in the next section. The Revolver had an effective interest rate of 5.00% percent per annum at June 30, 2020, and is secured by substantially all of the Company’s assets. At June 30, 2020, the maximum additional available borrowings under the Revolver was $13.5 million which includes a reduction for a $0.1 million letter of credit issued for the benefit of the landlord of one of the Company’s leased facilities. The maximum amount available was further subject to borrowing base restrictions, resulting in a net availability of $0.7 million.

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Long term debt consists of the following (in thousands):


	June 30, 2020		December 29, 2019
U.S. Small Business Administration Paycheck Protection Program loan (PPP Note), payable in equal monthly installments on the first day after the deferment period. The PPP Note is unsecured and bears interest at 1% per annum. The PPP Note may be forgiven subject to the terms of the Paycheck Protection Program.	$	5,999	$	—
New US Term Loan, payable to lenders in quarterly installments of $0.3 million through September 30, 2020, $0.6 million through September 30, 2021, and $0.8 million through November 7, 2023 with a lump sum due at maturity. The effective interest rate was 5% per annum at June 30, 2020. At June 30, 2020, the balance of the New US Term Loan is presented net of a debt discount of $0.3 million from costs paid to or on behalf of the lenders.	23,743		24,383
CA Term Loan, payable to lenders in quarterly installments of $0.4 million through November 7, 2023, with a lump sum due at maturity. The effective interest rate was 5% per annum at June 30, 2020. At June 30, 2020, the balance of the CA Term Loan is presented net of a debt discount of $0.1 million from costs paid to or on behalf of the lenders.	9,648		10,384
Capital expenditure line payable to lenders in quarterly installments of 7.5% per annum of the outstanding principal balance commencing December 31, 2019 through September 30, 2020, 10% per annum through September 30, 2021, and 12.5% per annum through November 7, 2023 with a lump sum due at maturity. The effective interest rate was 5% per annum at June 30, 2020.	1,251		1,300
Total debt excluding Revolver	40,641		36,067
Less current maturities	2,847		2,847
Long-term debt – Less current maturities	$	37,794	$	33,220

Debt Issuance Costs

Debt issuance costs represent legal, consulting, and other financial costs associated with debt financing and are reported netted against the related debt instrument. Amounts paid to or on behalf of lenders are presented as a debt discount and are also shown as a reduction of the associated debt instrument. Debt issuance costs on term debt are amortized using the straight line basis over the term of the related debt (which is immaterially different from the required effective interest method) while those related to revolving debt are amortized using a straight line basis over the term of the related debt.

At June 30, 2020 and December 29, 2019, debt issuance costs were $0.3 million and $0.3 million, respectively, while amounts paid to or on behalf of lenders presented as debt discounts were $0.3 million and $0.4 million, respectively. On November 8, 2018, the Company amended its Credit Agreement, to increase the Company's term loan debt. The Company reviewed this amendment for extinguishment accounting and concluded that there were no remaining debt issuance costs not amortized on the revolving debt facility qualified for extinguishment accounting and recognized a loss on extinguishment immediately. The remaining unamortized debt issuance costs not extinguished on the old revolving debt facility and all of the of remaining unamortized debt issuance costs on the term loans did not meet extinguishment accounting and therefore were carried forward to the new revolving debt facility and term loans.

Amortization expense of both debt issuance costs and debt discounts has been recognized as a component of interest expense in the amounts of $0.04 million and $0.1 million for the three and six months ended June 30, 2020, respectively, and $0.04 million and $0.1 million for the three and six months ended June 30, 2019, respectively.

Covenant Compliance

The Amended and Restated Credit Agreement contains customary negative covenants and requires that the Company comply with various financial covenants, including a total leverage ratio and debt service coverage ratio, as defined in the Amended and Restated Credit Agreement. As of June 30, 2020, the Company was in compliance with these financial covenants. Additionally, the New US Term Loan and CA Term Loan each contains a clause, effective December 30, 2018, that requires an excess cash flow payment to be made to the lenders to reduce the New US Term Loan and CA Term Loan if the Company’s cash flow exceeds certain thresholds as defined by the Amended and Restated Credit Agreement. No payments were required to be made in the three and six months ended June 30, 2020.

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As of March 31, 2019, the Company was not in compliance with the total leverage ratio financial covenant. As a result of this non-compliance, on May 7, 2019, the US Borrower and the CA Borrower entered into the Waiver and First Amendment (the “First Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The First Amendment temporarily waived the default on the March 31, 2019 covenant violation until the earlier of June 15, 2019 and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as necessary taking into account the Borrowers current and future financial condition. As a result of this waiver, the lenders did not accelerate the maturity of the debt.

On June 14, 2019, the Company entered into the Waiver and Second Amendment (the “Second Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Second Amendment revised the waiver period as defined with respect to the March 31, 2019 covenant violation and resulting default until the earlier of June 30, 2019 (which was June 15, 2019 under the First Amendment to the Amended and Restated Credit Agreement) and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as necessary taking into account the Borrowers current and future financial condition.

On June 28, 2019, the Company entered into the Waiver and Third Amendment (the “Third Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Third Amendment revised the waiver period as defined with respect to the March 31, 2019 covenant violation and resulting default until the earlier of July 22, 2019 (which was June 30, 2019 under the Second Amendment to the Amended and Restated Credit Agreement) and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as necessary taking into account the Borrowers current and future financial condition.

On July 16, 2019, the Company entered into the Waiver and Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Fourth Amendment provided a permanent waiver by the Lenders and Agent with respect to the Borrower's non-compliance with the total leverage ratio financial covenant, as defined as of March 31, 2019. The Fourth Amendment also revised the definition of consolidated EBITDA and certain financial covenants, including the maximum total leverage ratio and the minimum debt service coverage ratio, as well as adding the requirement that the Company maintain minimum liquidity and minimum unadjusted consolidated EBITDA, each as defined. The Fourth Amendment permits distributions as long as the Borrower is in compliance with specified conditions including that the Borrower's liquidity, as defined, is not less than $5 million after giving effect to the distribution, total leverage ratio is not more than 2.00 to 1.00, post distribution, debt service coverage ratio ("DSCR"), as defined, is not greater than 1.10 to 1.00, and Borrower is in compliance with financial covenants, before and after giving effect to the distributions.

On August 7, 2019, the Company entered into the Fifth Amendment to the Credit Agreement and Loan Documents (the “Fifth Amendment”). The Fifth Amendment amended the definition of unadjusted consolidated EBITDA to include consolidated net income plus the sum of interest expense, tax expense, depreciation and amortization expense, and non-cash impairment charges of goodwill. The Company is compliant with the covenants set forth in the Fifth Amendment as of June 30, 2020.

On April 3, 2020, the Company entered into the Sixth Amendment to the Credit Agreement and Loan Documents (the “Sixth Amendment”). The Sixth Amendment, amended the definition of consolidated EBITDA to include, as an addition to consolidated net income, an amount equal to $0.6 million resulting from a non-cash inventory write-off taken during the third fiscal quarter in fiscal 2019, amended the definition of “fiscal year” to reflect that we changed our fiscal year to end on December 31, commencing with the 2020 fiscal year, eliminated the requirement for a monthly Covenant Compliance Report and provided for payment of the Capex Loan principal installment that was due December 31, 2019, but was not paid due to an internal system miscalculation by the Agent.

As of March 31, 2020, the Company was in compliance with its financial covenants. However, due to the impact of the COVID-19 pandemic on the Company and the global automotive industry, the Company anticipated that it was likely that the Bank EBITDA for the twelve months ended June 30, 2020 was likely to result in the Company not being in compliance with its financial covenants. In response to the anticipated impact of COVID-19, on April 23, 2020, the US Borrower and the CA Borrower (together the “Borrowers”) entered into the Seventh Amendment (the “Seventh Amendment”) to the Credit Agreement and Loan Documents. The Seventh Amendment, among other things, (i) permits additional indebtedness in the form of unsecured loans authorized pursuant to and in compliance with the CARES Act under the Paycheck Protection Program of the U.S. Small Business Administration, in an aggregate amount not to exceed $6.0 million; (ii) defers the June 30, 2020 principal payments on the US Term Loan, CA Term Loan, and CAPEX Loan, with the deferred principal amounts payable at the existing maturity dates; (iii) waives the requirement to test Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the fiscal quarter ending June 30, 2020; (iv) allows the release of the lien on the Evansville, Indiana property and for the net cash proceeds from its sale to be applied against any

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outstanding balance on the Revolver, which will not permanently reduce the Revolving Credit Aggregate Commitment; (v) adds a weekly requirement for the Borrowers to deliver a 13-week cash flow forecast until September 30, 2020; and (vi) adds a 1.0% LIBOR Floor and 2.0% Base Rate Floor.

On August 7, 2020, the Company entered into the Eighth Amendment (the “Eighth Amendment”) to the Credit Agreement and Loan Documents, as amended. The Eighth Amendment to the Credit Agreement and Loan Documents, among other things, amended the definition of Consolidated EBITDA and made changes to the calculations of financial covenants. The definition of Consolidated EBITDA has been amended to include as an addition to Consolidated Net Income (i) costs and expenses incurred in connection with the Eighth Amendment not to exceed $175,000, (ii) restructuring expenses not to exceed $500,000 in any 12 month period, (iii) costs incurred with respect to the purchase and implementation of the ERP system not to exceed (A) $200,000 during each fiscal quarter in 2020 and (B) $100,000 during each fiscal quarter in 2021, and (iv) to the extent added in calculating Consolidated Net Income any portion of the PPP loan that has been forgiven and cancelled. The Eighth Amendment also amended the calculation of certain financial covenants based upon 12 month results to effectively exclude results of the quarter ended June 30, 2020. The calculation of Maximum Total Leverage Ratio has been amended, commencing with the quarter ending September 30, 2020 and through and including the quarter ending March 31, 2021, to annualize Consolidated EBITDA for the periods beginning July 1, 2020 through the date of calculation. The calculation of Minimum Debt Service Coverage Ratio for the quarters ended September 30, 2020, December 31, 2020 and March 31, 2021 are based upon results for one, two and three quarters, respectively. The Eighth Amendment further adds a Minimum Liquidity requirement to be calculated monthly through June 30, 2021 and Minimum Consolidated EBITDA for each measurement period, as defined, through June 30, 2021. The Eighth Amendment permits distributions by US Borrower to the Parent to be declared and made only after December 31, 2021 provided certain conditions are satisfied.

Maturities on the Company’s Amended and Restated Credit Agreement and other long term debt obligations for the remainder of the current fiscal year and future fiscal years are as follows (in thousands):


2020	$	1,782
2021	5,375
2022	6,112
2023	35,744
2024	1,200
Thereafter	900
Total	51,113
Discounts	(334)
Debt issuance costs	(264)
Total debt, net	$	50,515

Paycheck Protection Program Loan

On April 24, 2020, the Company entered into a Promissory Note (“PPP Note”) for $6.0 million with Citizens Bank, National Association, (“PPP Lender”) pursuant to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program under Title I of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by Congress and signed into law on March 27, 2020. On June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”) and on June 5, 2020 it was signed into law. The PPP Flexibility Act modified certain provisions of the CARES Act. The PPP Note is unsecured, bears interest at 1.00% per annum, with principal and interest payments deferred until the earlier of (i) the PPP Lender receiving the forgiveness amount from the SBA or (ii) August 12, 2021. The PPP Note matures on April 24, 2022. The principal is payable in equal monthly installments, with interest, beginning on the first business day after the end of the deferment period. The PPP Note may be forgiven subject to the terms of the Paycheck Protection Program and PPP Flexibility Act.

Additionally, certain acts of the Company, including but not limited to: (i) the failure to pay any taxes when due, (ii) becoming the subject of a proceeding under any bankruptcy or insolvency law, (iii) making an assignment for the benefit of creditors, or (iv) reorganizing, merging, consolidating or otherwise changing ownership or business structure without PPP Lender’s prior written consent, are considered events of default which grant Lender the right to seek immediate payment of all amounts owing under the PPP Note. As of June 30, 2020, none of the circumstances listed above exist at the Company.

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7. Derivative Financial Instruments

Interest Rate Swap

The Company holds a derivative financial instrument, in the form of an interest rate swap, as required by its Credit Agreement and Amended and Restated Credit Agreement, for the purpose of hedging certain identifiable transactions in order to mitigate risks relating to the variability of future earnings and cash flows caused by interest rate fluctuations. The Company has elected not to apply hedge accounting for financial reporting purposes. The interest rate swap is recognized in the accompanying condensed consolidated balance sheets at its fair value. Monthly settlement payments due on the interest rate swap and changes in its fair value are recognized currently in net income as interest expense in the accompanying condensed consolidated statements of operations.

Effective June 30, 2016, as required under the Credit Agreement entered into during April 2016, the Company entered into an interest rate swap which requires the Company to pay a fixed rate of 1.055 percent per annum while receiving a variable rate per annum based on the one month LIBOR for a net monthly settlement based on the notional amount. The notional amount at the effective date was $16.7 million which decreased by $0.3 million each quarter until June 30, 2017, and thereafter decreased by $0.4 million each quarter until June 29, 2018, when it began decreasing by $0.5 million per quarter until it expired on June 28, 2019.

Effective October 2, 2017, as required under the Second Amendment to the Credit Agreement, the Company entered into another interest rate swap which requires the Company to pay a fixed rate of 1.093 percent per annum while receiving a variable interest rate per annum based on the one month LIBOR, for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $1.9 million which decreases by $0.1 million each quarter until it expires on September 30, 2020.

Effective November 30, 2018, as required under the Amended and Restated Credit Agreement, the Company entered into another interest rate swap that requires the Company to pay a fixed rate of 3.075 percent per annum while receiving a variable interest rate per annum based on the one month LIBOR for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $5.0 million which increased by $0.4 million each quarter until June 28, 2019 when the notional amount increased to $17.5 million due to the interest rate swap from 2016 described above expiring. Since June 28, 2019, the notional amount then decreased each quarter by $0.2 million until September 30, 2020 when the notional amount increases to $17.5 million due to the interest rate swap from 2017 above expiring. The notional amount then decreases each quarter by $0.4 million until December 31, 2021, then decreases each subsequent quarter by $0.6 million until it expires on November 8, 2023

At June 30, 2020, the fair value of all swaps was in a net liability position of $1.5 million and is included in other accrued liabilities and other long term liabilities in the condensed consolidated balance sheets. The Company paid $0.2 million and $1.0 million in net monthly settlements with respect to the interest rate swaps for the three and six months ended June 30, 2020, respectively. At June 30, 2019, the fair value of the swaps was a net liability of $1.0 million, which was included in other long term liabilities in the condensed consolidated balance sheet. The Company received $0.04 million and $0.09 million in net monthly settlements in respect to the interest rate swaps for the three and six months ended June 30, 2019. Both the change in fair value and the net monthly settlements were included in interest expense in the condensed consolidated statements of operations.

8. Restructuring

The Company's restructuring activities are undertaken as necessary to implement management's strategy and improve operating results. The restructuring activities generally relate to realignment of existing manufacturing capacity and closure of facilities and other exit or disposal activities, either in the normal course of business or pursuant to specific restructuring programs.

2019 Restructurings

Bryan Restructuring

On November 7, 2019, the Company made the decision to close its manufacturing facility in Bryan, Ohio. Approximately 43 positions were eliminated as a result of the closure. The Company's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of our facilities.

The Company has moved existing Bryan production to its manufacturing facilities in Querétaro, Mexico and LaFayette, Georgia. The Company will provide the affected employees severance pay, health benefits continuation, and job search

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assistance. The Company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations and the Company will have continuing cash flows from the production being moved to other facilities within the Company.

The Company incurred one-time severance costs as a result of this plant closure of approximately $0.3 million during the fourth quarter of 2019. The amount of other costs incurred associated with this plant closure, which primarily consist of preparing and moving existing production equipment and inventory at Bryan to other facilities and accelerated depreciation of the building right-of-use lease asset, was approximately $0.6 million during the six months ended June 30, 2020.

Evansville Restructuring

On July 16, 2019, the Company made the decision to close its manufacturing facility in Evansville, Indiana. The Company ceased operations at the Evansville facility during the fourth quarter of 2019, and approximately 47 positions were eliminated as a result of the closure. The Company's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of our facilities.

The Company moved existing Evansville production to its manufacturing facilities in LaFayette, Georgia, Auburn Hills, Michigan, and Louisville, Kentucky. The Company provided the affected employees severance pay, health benefits continuation, and job search assistance. The Company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations and the Company will have continuing cash flows from the production being moved to other facilities within the Company.

Costs incurred in the six months ended June 30, 2020, which consisted primarily of transportation and installation of equipment and the disposal of equipment and inventory was $0.5 million. Also included in this amount is a non-cash loss related to the loss on the sale of the Evansville building. All of these costs were recorded to the restructuring expense line in continuing operations in the Company's condensed consolidated statements of operations.

The Company had $0.9 million and $1.2 million of remaining lease payments for a warehouse near the Evansville, Indiana facility as of June 30, 2020 and December 29, 2019, respectively. The Company has actively secured a sublease of roughly 15% of the facility.

The table below summarizes the activity in the restructuring liability for the six months ended June 30, 2020 (in thousands).


	Employee Termination Benefits Liability		Other Exit Costs Liability		Total
Accrual balance at December 29, 2019	$	438	$	116	$	554
Provision for estimated expenses to be incurred	—		1,193		1,193
Payments made during the year and asset write offs	400		838		1,238
Accrual balance at June 30, 2020	$	38	$	470	$	508

9. Stock Incentive Plans

2013 Stock Incentive Plan

The Company’s board of directors approved a stock incentive plan (the “Plan”) in 2013. The Plan permits the Company to grant 495,000 non statutory or incentive stock options to the employees, directors and consultants of the Company. 495,000 shares of unissued common stock are reserved for the Plan. The board of directors has the authority to determine the participants to whom stock options shall be awarded as well as any restrictions to be placed upon the awards. The exercise price cannot be less than the fair value of the underlying shares at the time the stock options are issued and the maximum length of an award is ten years.

The fair value of each option award is estimated on the grant date using a Black Scholes option pricing model that uses the weighted average assumptions noted in the following tables. The expected volatility is based on the historical volatility of the stock of comparable companies. The expected term of the awards was estimated based on findings from academic studies investigating the average holding period for options adjusted for the Company’s size and risk factors. The risk free rate for periods within the contractual life of the option is based on the United States Treasury yield curve in effect at the time of grant.

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On February 25, 2020, the compensation committee of the board of directors approved the issuance of 7,500 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $3.32 per share with a weighted average grant date fair value of $1.64 per share. These options vest 40% on February 25, 2021 and 20% on each of February 25, 2022, 2023, and 2024.


	February 25, 2020
Expected volatility	52.00	%
Dividend yield	—	%
Expected term (in years)	6
Risk-free rate	1.21	%

On April 6, 2020, the compensation committee of the board of directors approved the issuance of 12,500 non statutory stock option awards to the Company’s new Chief Financial Officer (“CFO”) with an exercise price of $2.36 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days.


	April 6, 2020
Expected volatility	76.00	%
Dividend yield	—	%
Expected term (in years)	6
Risk-free rate	0.51	%

2014 Omnibus Performance Award Plan

In 2014, the board of directors and stockholders adopted the Unique Fabricating, Inc. 2014 Omnibus Performance Award Plan, or the 2014 Plan. The 2014 Plan provides for the grant of cash awards, stock options, stock appreciation rights, or SARs, shares of restricted stock and restricted stock units, or RSUs, performance shares and performance units. The 2014 Plan originally authorized the grant of awards relating to 250,000 shares of our common stock. In the event of any transaction that causes a change in capitalization, the Compensation Committee, such other committee administering the 2014 Plan or the board of directors will make such adjustments to the number of shares of common stock delivered, and the number and/or price of shares of common stock subject to outstanding awards granted under the 2014 Plan, as it deems appropriate and equitable to prevent dilution or enlargement of participants’ rights. An amendment approved in March of 2016 by our board of directors which was approved by our stockholders at our annual meeting of stockholders in June 2016, increased the number of shares authorized for grant of awards under the 2014 Plan to a total of 450,000 shares of our common stock. In July 2020, an additional amendment was approved at our annual meeting of stockholders, which increased the number of shares authorized for grant of awards under the 2014 Plan to a total of 700,000 shares of our common stock.

The fair value of each of the option awards described below is estimated on the grant date using a Black Scholes option pricing model that uses the weighted average assumptions noted in the following tables. The expected volatility is based on the historical volatility of the stock of comparable companies. The expected term of the awards was estimated based on findings from academic studies investigating the average holding period for options for adjusted for the Company’s size and risk factors. The risk free rate for periods within the contractual life of the option is based on the United States Treasury yield curve in effect at the time of grant.

On February 25, 2020, the compensation committee of the board of directors approved the issuance of 15,000 incentive stock option awards to employees of the Company with an exercise price of $3.32 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. The Company estimated the grant-date fair value of the awards subject to these market conditions using a Monte Carlo simulation model, using the following assumptions: risk free interest rate of 1.21% and annualized volatility of 52.0%. Also on February 25, 2020, the compensation committee of the board of directors approved the issuance of 7,500 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $3.32 per share with a weighted average grant date fair value of $1.64 per share. These options vest 40% on February 25, 2021 and 20% on each of February 25, 2022, 2023, and 2024.

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	February 25, 2020
Expected volatility	52.00	%
Dividend yield	—	%
Expected term (in years)	6
Risk-free rate	1.21	%

On April 6, 2020, the compensation committee of the board of directors approved the issuance of 25,000 non statutory stock option awards to the Company’s new CFO with an exercise price of $2.36 per share. These awards vest 40 percent on April 6, 2021 and an additional 20 percent on each of April 6, 2022, 2023, and 2024. On April 6, 2020, the compensation committee of the board of directors approved the issuance of 12,500 incentive stock option awards to the Company’s new CFO with an exercise price of $2.36 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days.


	April 6, 2020
Expected volatility	76.00	%
Dividend yield	0.00	%
Expected term (in years)	6
Risk-free rate	0.51	%

A summary of option activity under both plans is presented below:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value(1)
	(dollars in thousands, except share data and exercise price)
Outstanding at December 29, 2019	676,480	$	5.48	7.1	$	471,000
Granted	80,000	$	2.72	9.7
Exercised	—	$	—	0.0
Forfeited or expired(2)	95,000	$	6.91	0.0
Outstanding at June 30, 2020	661,480	$	4.94	7.3	$	—
Vested and exercisable at June 30, 2020	296,480	$	7.43	4.6	$	—

————————————

(1) The aggregate intrinsic value above is obtained by subtracting the weighted average exercise price from the estimated fair value of the underlying shares and multiplying this result by the related number of options outstanding and exercisable as of the period end date. As of June 30, 2020, there is no intrinsic value as the exercise prices are greater than the fair value. The estimated fair value of the shares is based on the closing price of the stock of $3.19 as of June 30, 2020 and $4.01 as of December 29, 2019.

(2) Includes the 65,000 shares forfeited by the Company’s former Chief Financial Officer as a result of his October 2019 departure.

The Company recorded compensation expense of $31.8 thousand and $54.6 thousand for the three and six months ended June 30, 2020, and $65.7 thousand and $98.4 thousand for the three and six months ended June 30, 2019, in its condensed consolidated statements of operations, as a component of sales, general and administrative expenses. The income tax (expense) benefit related to share based compensation expense was immaterial for all periods presented.

As of June 30, 2020, there was $332.5 thousand of total unrecognized compensation cost related to non-vested stock option awards under the plans. That cost is expected to be recognized over a weighted average period of 5.3 years.

10. Income Taxes

For interim tax reporting we estimate our annual effective tax rate and apply it to our year to date income before income taxes. The tax effects of unusual or infrequently occurring items, including changes in judgment about valuation allowances and the effect of changes in tax laws or rates, are reported in the interim period in which they occur, if applicable.

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UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Income tax (benefit) expense for the three and six months ended June 30, 2020 was $(1.1) million and $(1.7) million, respectively, compared to $(0.4) million and $(0.3) million for the three and six months ended June 30, 2019, respectively.

During the three and six months ended June 30, 2020, the effective tax rates were 19.7% and 20.0%, respectively. The differences between the effective tax rates and the statutory rate of 21.0% were primarily due to benefit of tax credits in the U.S. partially offset by earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S., and U.S. taxation of foreign earnings under the Global Intangible Low-Taxed Income (GILTI) provisions.

11. Leases

The Company records a right-of-use (“ROU”) asset and lease liability for substantially all leases for which it is a lessee, in accordance with ASC 842. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has no significant lease agreements in place for which the Company is a lessor. At inception of a contract, the Company considers all relevant facts and circumstances to assess whether or not the contract represents a lease by determining whether or not the contract conveys the right to control the use of an identified asset, either explicit or implicit, for a period of time in exchange for consideration.

The Company leases certain industrial spaces, office space, land, and equipment. Some leases include one or more options to renew, with renewal terms that can extend the lease term from generally one to 5 years. The exercise of lease renewal options is at the Company’s sole discretion, and are included in the lease term only to the extent such renewal options are reasonably certain of being exercised at lease commencement. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. New leased assets obtained in exchange for new operating lease liabilities during the three and six months ended June 30, 2020, were immaterial. As of June 30, 2020, leases that the Company has signed but have not yet commenced are immaterial.

Leased assets and liabilities included within the condensed consolidated balance sheets consist of the following (in thousands):

Classification

June 30, 2020

Right-of-Use-Assets

Operating

Operating leases

10,965

Liabilities

Current

Operating

Other accrued liabilities

2,815

Non-current

Operating

Non-current liabilities

9,076

Total lease liabilities

11,891

Lease costs included in the condensed consolidated statements of operations consist of the following (in thousands):

Classification

June 30, 2020

Lease cost

Cost of sales, selling expenses and general and administrative expense

1,605

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UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Maturity of the Company’s lease liabilities as of June 30, 2020 is as follows (in thousands):


2020 (remainder)	$	1,516
2021	2,838
2022	1,979
2023	1,203
2024	1,116
Thereafter	6,458
Total lease payments	15,110
Less: interest	3,220
Present value of lease payments	$	11,891

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Remaining lease term and discount rates are as follows:


	June 30, 2020
Weighted average remaining lease term (years)	7.4
Weighted average discount rate	6.4	%

Lease costs included in the condensed consolidated statements of cash flows are as follows (in thousands):


	Six Months Ended June 30, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases	$	1,602

12. Retirement Plans

The Company maintains a defined contribution plan covering certain full time salaried employees. Employees can make elective contributions to the plan. The Company contributes a match on 100 percent of an employee’s contribution up to the first 3 percent of each employee’s total compensation and 50 percent for the next 2 percent of each employee’s total compensation. In addition, the Company, at the discretion of the board of directors, may make additional contributions to the plan on behalf of the plan participants. The Company contributed $0.1 million and $0.2 million for the three and six months ended June 30, 2020 and $0.1 million and $0.3 million for the three and six months ended June 30, 2019, respectively.

13. Related Party Transactions

Effective March 18, 2013, the Company is a party to a management agreement with a firm related to several stockholders. The agreement initially provided for annual management fees of $0.3 million and additional fees for assistance provided with acquisitions. Effective upon completion of the Company's initial public offering, the agreement was amended to reduce the annual management fee by an amount equal to the amount, if any, of annual cash retainers and equity awards received as compensation for service on the board of directors to any person who is a related person of Taglich Private Equity, LLC or Taglich Brothers, Inc. The Company incurred management fees of $0.1 million and $0.1 million for the three and six months ended June 30, 2020, respectively and $0.1 million for and $0.1 million the three and six months ended June 30, 2019, respectively. The management agreement had an initial term of five years, expiring on March 18, 2020, and renews automatically annually for additional one year terms. The current term expires on March 18, 2021. The agreement also will terminate on the date that the Taglich Founding Investors or Taglich Equity Investors, each as defined, no longer also collectively own 50% of the equity securities owned by either of them on March 18, 2013.

In 2019, following the May 6, 2019 resignation of the Company’s Chief Executive Officer, the Company entered into a services agreement with 6th Avenue Group, which is a company owned by a Board member of the Company. The services performed have been related to providing assistance for long term strategic planning for the Company as well as aiding in helping the

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UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Company with CEO transition services. The services provided by 6th Avenue Group ended in 2019. On June 11, 2019, this Board member was also awarded stock options for 30,000 shares, which vested immediately and had an exercise price of $2.93 per share, for her services.

14. Fair Value Measurements

Financial instruments consist of cash equivalents, accounts receivable, accounts payable and debt. The carrying amount of all significant financial instruments approximates fair value due to either the short maturity or the existence of variable interest rates that approximate prevailing market rates.

Accounting standards require certain other items be reported at fair value in the financial statements and provides a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the valuation techniques and inputs used to measure fair value.

Fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. Level 2 inputs may include quoted prices for similar items in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related item. Level 3 fair value measurements are based primarily on management’s own estimates using inputs such as pricing models, discounted cash flow methodologies or similar techniques taking into account the characteristics of the item.

In instances whereby inputs used to measure fair value fall into different levels of the fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each item.

The Company measures its interest rate swaps at fair value on a recurring basis based primarily on Level 2 inputs using an income model based on disparity between variance and fixed interest rates, the scheduled balance of principal outstanding, yield curves and other information readily available in the market.

15. Earnings Per Share

Basic earnings per share is computed by dividing the net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed giving effect to all potentially weighted average dilutive shares including stock options and warrants. The dilutive effect of outstanding awards, if any, is reflected in diluted earnings per share by application of the treasury stock method.

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UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table sets forth the reconciliation of the numerator and the denominator of basic and diluted loss per share for the three and six months ended June 30, 2020 and 2019 (dollars in thousands, except per share amounts):


	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019		Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
Numerator:
Net (loss)	$	(4,322)	$	(7,624)	$	(6,624)	$	(7,812)
Denominator:
Weighted average shares outstanding, basic	9,779,147		9,779,147		9,779,147		9,779,147
Dilutive effect of stock-based awards	—		—		—		—
Weighted average share outstanding, diluted	9,779,147		9,779,147		9,779,147		9,779,147

Basic loss per share	$	(0.44)	$	(0.78)	$	(0.68)	$	(0.80)
Diluted loss per share	$	(0.44)	$	(0.78)	$	(0.68)	$	(0.80)

The effect of certain common stock equivalents were excluded from the computation of weighted average diluted shares outstanding for the three and six months ended June 30, 2020 and 2019, as inclusion would have resulted in anti-dilution. A summary of these anti-dilutive common stock equivalents is provided in the table below:


	Six Months Ended June 30, 2020	Six Months Ended June 30, 2019
Number of options	661,480	593,680
Exercise price of options	$2.36 - $12.58	$7.65 - $12.58
Warrants(1)	142,185	142,185
Exercise price of warrants	$3.33 - $11.88	$3.33 - $11.88

_________________________________

(1) Includes warrants to purchase 141,000 shares of common stock issued to the underwriters of the Company's IPO in July 2015 with an exercise price of $11.88 per share of common stock and an expiration date of July 7, 2020.

16. Contingencies

The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of loss can be made. While uncertainties are inherent in the final outcome of such matters, the Company believes that there are no pending proceedings in which the Company is currently involved that will have a material effect on its financial position, results of operations or cash flow.

17. Restatement

Subsequent to the issuance of the Company’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2020, the Company’s management identified errors impacting certain accounts. The errors were not detected on a timely basis due to control failures related to account reconciliation preparation and review. As a result, the Company’s condensed consolidated financial statements and corresponding notes for the three and six months ended June 30, 2020 have been restated from the amounts previously reported to reflect the correct balances as presented below.

Condensed Consolidated Balance Sheet as of June 30, 2020:


	June 30, 2020
	As Previously Reported		Adjustments		As Restated
	(dollars in thousands)


Cash and cash equivalents	$	4,737	$	(639)	$	4,098

Inventory, net	$	15,137	$	(327)	$	14,810

Prepaid expenses and other	$	3,654	$	(80)	$	3,574


Total current assets	$	40,602	$	(1,046)	$	39,556
Property, plant, and equipment, net	$	22,815	$	(36)	$	22,779






Deferred tax asset	$	926	$	293	$	1,219
Total assets	$	108,325	$	(789)	$	107,536





Accrued compensation	$	993	$	151	$	1,144
Other accrued liabilities	$	4,312	$	231	$	4,543
Total current liabilities	$	15,936	$	382	$	16,318





Total liabilities	$	74,263	$	382	$	74,645



Accumulated deficit	$	(12,014)	$	(1,171)	$	(13,185)
Total stockholders’ equity	$	34,062	$	(1,171)	$	32,891
Total liabilities and stockholders’ equity	$	108,325	$	(789)	$	107,536

Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2020:


	Three Months Ended June 30, 2020						Six Months Ended June 30, 2020
	As Previously Reported		Adjustments		As Restated		As Previously Reported		Adjustments		As Restated
	(dollars in thousands, except per share amounts)
Net sales	$	14,759	$	216	$	14,975	$	49,736	$	(100)	$	49,636
Cost of sales	$	13,019	$	115	$	13,134	$	40,921	$	1,283	$	42,204
Gross profit	$	1,740	$	101	$	1,841	$	8,815	$	(1,383)	$	7,432
Selling, general, and administrative expenses	$	6,281	$	62	$	6,343	$	12,146	$	81	$	12,227


Operating loss	$	(4,814)	$	39	$	(4,775)	$	(4,524)	$	(1,464)	$	(5,988)





(Loss) before income tax (benefit)	$	(5,420)	$	40	$	(5,380)	$	(6,819)	$	(1,464)	$	(8,283)
Income tax (benefit)	$	(1,103)	$	45	$	(1,058)	$	(1,366)	$	(293)	$	(1,659)
Net loss	$	(4,317)	$	(5)	$	(4,322)	$	(5,453)	$	(1,171)	$	(6,624)
Net loss per share:
Basic	$	(0.44)	$	—	$	(0.44)	$	(0.56)	$	(0.12)	$	(0.68)
Diluted	$	(0.44)	$	—	$	(0.44)	$	(0.56)	$	(0.12)	$	(0.68)

Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2020:


	As Previously Reported		Adjustments		As Restated
	(dollars in thousands)
Accumulated deficit:
Net loss – three months ended March 31, 2020	$	(1,137)	$	(1,165)	$	(2,302)
Accumulated deficit balance – March 31, 2020	$	(7,697)	$	(1,166)	$	(8,863)
Net loss – three months ended June 30, 2020	$	(4,317)	$	(5)	$	(4,322)
Accumulated deficit balance – June 30, 2020	$	(12,014)	$	(1,171)	$	(13,185)
Total stockholders' equity:
Net loss – three months ended March 31, 2020	$	(1,137)	$	(1,165)	$	(2,302)
Total stockholders' equity balance – March 31, 2020	$	38,347	$	(1,166)	$	37,181
Net loss – three months ended June 30, 2020	$	(4,317)	$	(5)	$	(4,322)
Total stockholders' equity balance – June 30, 2020	$	34,062	$	(1,171)	$	32,891

Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2020:


	Six Months Ended June 30, 2020
	As Previously Reported		Adjustments		As Restated
	(dollars in thousands)
Cash Flows from Operating Activities:
Net loss	$	(5,453)	$	(1,171)	$	(6,624)
Adjustments to reconcile net loss to net cash provided by operating activities:








Deferred income taxes	$	(1,571)	$	(293)	$	(1,864)


Inventory	$	(2,021)	$	327	$	(1,694)
Prepaid expenses and other assets	$	(1,889)	$	80	$	(1,809)


Accrued and other liabilities	$	(983)	$	382	$	(601)

Net cash provided by operating activities	$	1,368	$	(675)	$	693
Cash Flows from Investing Activities:
Capital expenditures	$	(796)	$	36	$	(760)

Net cash provided by (used in) investing activities	$	88	$	36	$	124










Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents	$	4,087	$	(639)	$	3,448

Cash and cash equivalents at end of period	$	4,737	$	(639)	$	4,098

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operation is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The Management’s Discussion and Analysis has been revised for the effects of the restatement, refer to Note 17in Part I, Item 1of this Quarterly Report for a quantification of the effects of the restatement. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes to unaudited condensed consolidated financial statements included elsewhere in this document as well as the consolidated financial statements and the related notes to consolidated financial statements for the year ended December 29, 2019 included in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”). Our actual results and the timing of events could differ materially from those discussed in forward-looking statements contained herein. Factors that could cause or contribute to these differences include those discussed below as well as in our Annual Report on Form 10-K/A and in other filings by us with the SEC, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” We make no guarantees regarding outcomes, and assume no obligation to update the forward-looking statements herein, except as may be required by law.

Forward-Looking Statements

The following discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. These statements are based on management's beliefs and assumptions and on information currently available to us. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. When used in this document the words “anticipate,” “believe,” “continue,” “could,” “seek,” “might,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “approximately,” “project,” “should,” “will,” “would,” or the negative or plural of these words or similar expressions, as they relate to our company, business and management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the future events and circumstances discussed may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements, including those discussed in our Annual Report on Form 10-K/A and in particular the section entitled “Risk Factors” of the Annual Report on Form 10-K/A and in other filings by us with the SEC.

Forward-looking statements speak only as of the date of this Form 10-Q filing. Except as required by law, we assume no obligation to publicly update or revise any forward-looking statement to reflect actual results, changes in assumptions based on new information, future events or otherwise. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Basis of Presentation

Historically, the Company’s quarterly periods ended on the Sunday closest to the end of the calendar quarterly period. For 2019, the quarters and year to date period, which were thirteen weeks, respectively, ended on March 31, June 30, September 29, and December 29, 2019. On March 13, 2020, the Company’s board of directors approved changing our quarterly periods to match calendar quarterly periods. The Company expects the impact of this change on our 2020 result of operations to be immaterial. All year, quarter, and three month references prior to 2020 relate to the Company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, quarter and three months ended is used throughout this Quarterly Report on Form 10-Q to represent both the current year calendar quarterly periods and the prior year fiscal year periods.

The Company’s operations are aggregated in one reportable business segment. Although we expanded the products that we manufacture and sell to include components used in the appliance, consumer and medical industries, products for these industries are manufactured at facilities that also manufacture or are capable of manufacturing products for the transportation industries. All of our manufacturing locations have similar capabilities, and most plants serve multiple markets. The manufacturing operations for our transportation, appliance, and other products share management and labor forces and use common personnel and strategies for new product development, marketing and the sourcing of raw materials.

Overview

Unique Fabricating, Inc. (the “Company”) engineers and manufactures components for customers in the transportation, appliance, medical, and consumer markets. The Company’s solutions are comprised of multi-material foam, rubber, and plastic components and utilized in noise, vibration and harshness (NVH) management, acoustical management, water and air sealing, decorative and other functional applications. Unique leverages proprietary manufacturing processes, including die cutting, thermoforming, compression molding, fusion molding, and reaction injection molding to manufacture a wide range of products including air management products, heating ventilating and air conditioning (HVAC), seals, fender stuffers, air ducts, acoustical

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insulation, door water shields, gas tank pads, light gaskets, topper pads, mirror gaskets, glove box liners personal protection equipment, and packaging. The Company is headquartered in Auburn Hills, Michigan.

Unique Fabricating serves the North American transportation market, which includes automotive and heavy-duty trucks, as well as the appliance, medical, and consumer markets. Sales are conducted directly to major automotive and heavy-duty truck, appliance, water heater and HVAC manufacturers, referred throughout this report as OEMs, or indirectly through the Tier 1 suppliers of these OEMs. The Company has its principal executive offices in Auburn Hills, Michigan and has sales, engineering and production facilities in Auburn Hills, Michigan; Concord, Michigan; LaFayette, Georgia; Louisville, Kentucky; Monterrey, Mexico; Querétaro, Mexico; and London, Ontario. The Company also has an independent client sales representative who maintains offices in Baldham, Germany.

Unique Fabricating derives most of its net sales from the sales of foam, rubber plastic, and tape adhesive related automotive products. These products are produced by a variety of manufacturing processes including die cutting, compression molding, thermoforming, reaction injection molding and fusion molding. We believe Unique Fabricating has a broader array of processes and materials utilized than any of its direct competitors, based on our product offerings. By sealing out air, noise and water intrusion, and by providing sound absorption and blocking, Unique Fabricating’s products improve the interior comfort of a vehicle, increasing perceived vehicle quality and the overall experience of its passengers. Unique Fabricating’s products perform similar functions for appliances, water heaters and HVAC systems, improving thermal characteristics, reducing noise and prolonging equipment life.

Recent Developments

COVID-19 Pandemic

The Company’s first half of 2020 results were adversely affected by the COVID-19 pandemic, which resulted in the idling of most of our automotive customers’ facilities beginning in mid-March 2020 and continuing until June. In response to the unprecedented uncertainty related to the impact the COVID-19 pandemic is having on the global automotive industry, the Company has taken actions to reduce costs and increase financial flexibility. These actions include actively managing costs, capital expenditures, and working capital. Additionally, the Company received a loan of approximately $6.0 million pursuant to the U.S. Small Business Administration Paycheck Protection Program under Title I of the Coronavirus Aid, Relief, and Economic Security Act. Refer to Note 6, in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on the Paycheck Protection Program loan.

The Company continues to follow guidelines with respect to operating during the COVID-19 pandemic provided by the various governmental entities in the jurisdictions where we operate and is taking additional measures to protect our employees.

Bryan Facility Closure

On November 7, 2019, the Company made the decision to close its manufacturing facility in Bryan, Ohio. The closure of the Bryan facility was completed during the first quarter of 2020. The Company moved production to its existing manufacturing facilities in Querétaro, Mexico and LaFayette, Georgia. The Company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations and the Company will have continuing cash flows from the production being moved to other facilities within the Company.

The Company incurred one-time severance costs as a result of this plant closure of approximately $0.3 million during the fourth quarter of 2019. The amount of other costs incurred associated with this plant closure, which primarily consist of preparing and moving existing production equipment and inventory at Bryan to other facilities, was approximately $0.6 million during the first half of 2020.

Evansville Facility Closure

On July 16, 2019, the Company made the decision to close its manufacturing facility in Evansville, Indiana. The Company ceased operations at the Evansville facility in December 2019, which resulted in the elimination of approximately 47 positions as a result of the closure. The Company's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in other of our facilities.

The Company moved existing Evansville production to its manufacturing facilities in LaFayette, Georgia; Auburn Hills, Michigan; and Louisville, Kentucky. The Company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations and the Company will have continuing cash flows from the production that was moved to other facilities within the Company.

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The amount of other costs incurred associated with the Evansville plant closure was $0.6 million in the six months ended June 30, 2020. All of these costs were recorded to the restructuring expense line in continuing operations in the Company's condensed consolidated statements of operations.

Amended and Restated Credit Agreement

On November 8, 2018, the US Borrower and the CA Borrower, entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), which amended and restated the existing Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Amended and Restated Credit Agreement, among other things increases the principal amount of US Term Loan borrowings to $26.0 million, creates a two year line to fund capital expenditures of up to $2.5 million through November 8, 2019 and $5.0 million thereafter through November 8, 2020, and extends the maturity dates of all borrowings from April 28, 2021 to November 7, 2023. The Amended and Restated Credit Agreement provides for borrowings of up to $30.0 million under the Revolver, subject to availability under the terms of the Amended and Restated Credit Agreement, and left the principal amount on the CA Term Loan the same as at September 30, 2018, approximately $12.0 million, and the same as it was under the previous Credit Agreement. The Amended and Restated Credit Agreement combined the previous US Term Loan and US Term Loan II (the “New US Term Loan”) into one term loan, and increases the aggregate principal amount to $26.0 million from $15.9 million. The increase in the principal amount effected by the New U.S. Term Loan replaced and termed-out outstanding borrowings under the Revolver. The Amended and Restated Credit Agreement changes the quarterly principal payments of the New US Term Loan to $0.3 million through September 30, 2020, $0.6 million thereafter through September 30, 2021, and $0.8 million thereafter though maturity. Finally, the agreement made certain changes to the Company's covenants and financial covenant ratios.

Covenant Compliance

As of March 31, 2019, the Company was not in compliance with the total leverage ratio financial covenant. As a result of this non-compliance, on May 7, 2019, the US Borrower and the CA Borrower entered into the waiver and First Amendment (the “First Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The First Amendment temporarily waived the default on the March 31, 2019 covenant violation until the earlier of June 15, 2019 and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as necessary taking into account the Borrowers then existing and future financial condition.

On June 14, 2019, the Company entered into the Second Amendment (the “Second Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Second Amendment revised the waiver period as defined with respect to the March 31, 2019 covenant violation and resulting default until the earlier of June 30, 2019 (which was June 15, 2019 under the First Amendment to the Amended and Restated Credit Agreement) and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as are necessary taking into account the Borrowers current and future financial condition.

On June 28, 2019, the Company entered into the Third Amendment (the “Third Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Third Amendment revised the waiver period as defined with respect to the March 31, 2019 covenant violation and resulting default until the earlier of July 22, 2019 (which was June 30, 2019 under the Second Amendment to the Amended and Restated Credit Agreement) and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as are necessary taking into account the Borrowers current and future financial condition.

On July 16, 2019, the Company entered into the Waiver and Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Fourth Amendment provided a permanent waiver by the Lenders and Agent with respect to the US Borrower's non-compliance with the total leverage ratio financial covenant, as defined, as of March 31, 2019. The Fourth Amendment also revised the definition of consolidated EBITDA and certain financial covenants, including the maximum total leverage ratio and the minimum debt service coverage ratio, as well as adding the requirement that the Company maintain minimum liquidity and minimum unadjusted consolidated EBITDA, each as defined. The Fourth Amendment permited distributions as long as the Borrower is in compliance with specified conditions including that the US Borrower's liquidity, as defined, is not less than $5 million after giving effect to the distributions,, total leverage ratio is not more than 2.00 to 1.00, post distribution debt service coverage ratio ("DSCR"), as defined, is not greater than 1.10 to 1.00, and US Borrower is in compliance with financial covenants, before and after giving effect to the distributions.

On August 7, 2019, the Company entered into the Fifth Amendment to the Credit Agreement and Loan Documents (The “Fifth Amendment”). The Fifth Amendment amended the definition of unadjusted consolidated EBITDA to include consolidated net income plus the sum of interest expense, tax expense, depreciation and amortization expense, and non-cash impairment charges of goodwill.

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As of March 31, 2020, the Company was in compliance with its financial covenants. However, due to the impact of the COVID-19 pandemic on the Company and the global automotive industry, the Company anticipated that it was likely that the Bank EBITDA for the twelve months ended June 30, 2020 is likely to result in the Company not being in compliance with its financial covenants. In response to the anticipated impact of COVID-19, on April 23, 2020, the US Borrower and the CA Borrower (together the “Borrowers”) entered into the Seventh Amendment (the “Seventh Amendment”) to the Credit Agreement and Loan Documents. The Seventh Amendment, among other things, (i) permits additional indebtedness in the form of unsecured loans authorized pursuant to and in compliance with the CARES Act under the Paycheck Protection Program of the U.S. Small Business Administration, in an aggregate amount not to exceed $6.0 million; (ii) defers the June 30, 2020 principal payments on the US Term Loan, CA Term Loan, and CAPEX Loan, with the deferred principal amounts payable at the existing maturity dates; (iii) waives the requirement to test Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the fiscal quarter ending June 30, 2020; (iv) allows the release of the lien on the Evansville, Indiana property and for the net cash proceeds from its sale to be applied against any outstanding balance on the Revolver, which will not permanently reduce the Revolving Credit Aggregate Commitment; (v) adds a weekly requirement for the Borrowers to deliver a 13-week cash flow forecast until September 30, 2020; and (vi) adds a 1.0% LIBOR Floor and 2.0% Base Rate Floor.

Comparison of Results of Operations for the Three Months Ended June 30, 2020 and June 30, 2019

Net Sales


	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019
	(in thousands)
Net sales	$	14,975	$	38,889

Net sales for the quarter ended June 30, 2020 were approximately $15.0 million compared to $38.9 million for the quarter ended June 30, 2019, representing a decrease of 61%. The decrease in net sales for the quarter ended June 30, 2020 was primarily driven by the impact of the COVID-19 pandemic on the global automotive industry, which continued to idle our automotive customers’ facilities. This curtailment of automotive shipments was partially offset by new personal protective equipment (“PPE”) product sales for the healthcare and manufacturing sectors.

Cost of Sales

The major components of cost of sales are raw materials purchased from third parties, direct labor and benefits, and manufacturing overhead, including facility costs, utilities, supplies, repairs and maintenance, insurance, freight costs of products shipped to customers and depreciation. Cost of sales consists of the following major components:

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	Three Months Ended June 30, 2020				Three Months Ended June 30, 2019
	Amount		As % of net sales		Amount		As % of net sales
	(dollars in thousands)
Materials	$	6,983	46.6	%	$	19,758	50.8	%
Direct labor and benefits	2,491		16.6	%	6,150		15.8	%
Manufacturing overhead	3,029		20.2	%	4,112		10.6	%
Sub-total	12,503		83.5	%	30,020		77.2	%
Depreciation	631		4.2	%	657		1.7	%
Cost of Sales	$	13,134	87.7	%	$	30,677	78.9	%
Gross Profit	$	1,841	12.3	%	$	8,212	21.1	%

Cost of sales as a percentage of net sales for the quarter ended June 30, 2020 increased significantly as compared to the quarter ended June 30, 2019. The increase in cost of sales as a percentage of net sales was caused by fixed manufacturing costs which could not be reduced and were not offset by net sales. Contributing to the decrease in material cost as a percent of net sales was the lower material content required for the production of PPE. The increase in direct labor and benefits as a percent of net sales is primarily attributable to the Company continuing to provide health and other employee benefits to its U.S. workforce during COVID-19 induced production disruption and providing our idled workforce in Mexico with partial wage continuation thought the government ordered shutdown of production.

Gross Profit

Gross profit as a percentage of net sales, or gross margin, for the quarter ended June 30, 2020 was 12.3% compared to 21.1% for the quarter ended June 30, 2019. The decrease in gross margin is driven by lost contribution margin on the $23.9 million lower net sales resulting from the COVID-19 pandemic.

Selling, General and Administrative Expenses


	Three Months Ended June 30, 2020			Three Months Ended June 30, 2019
	(dollars in thousands)
Selling, general, and administrative expenses, excluding depreciation and amortization expenses	$	5,230		$	6,379
Depreciation and amortization	1,113			1,045
Selling, general, and administrative expenses	$	6,343		$	7,424
Selling, general, and administrative expenses as a percentage of net sales	42.4		%	19.1		%

Selling, general, and administrative expenses for the quarter ended June 30, 2020, decreased $1.1 million to $6.3 million compared to $7.4 million for the quarter ended June 30, 2019. The decrease in selling, general, and administrative spent was caused by several cost reductions including management of headcount, commissions, and professional services in addition to savings resulting from plant closures. These cost reductions were partially offset by $0.3 million of salaried severance. The significant change in selling, general, and administrative expenses as a percentage of net sales is primarily attributable to the $23.9 million lower net sales as a result of the COVID-19 pandemic.

Operating Income

Operating loss for the quarter ended June 30, 2020 was $4.8 million, or (31.9)% of net sales, compared to operating loss of $6.7 million, or (17.2)% of net sales, for the quarter ended June 30, 2019. The decrease in operating loss is attributable to the impact of the $23.9 million lower net sales, offset by the $6.8 million impairment charge in 2019 that did not recur in 2020, $1.1 million lower selling, general, and administrative expenses, and $0.5 million lower restructuring expenses compared to the second quarter of 2019.

Non-Operating Expense

Non-operating expense for the quarter ended June 30, 2020 was $0.6 million compared to $1.3 million for the quarter ended June 30, 2019. The $0.7 million decrease was primarily driven by reduced debt levels, $0.3 million lower expenses related to our interest rate swap compared to the second quarter of 2019, and the composition of our debt compared to last year, as the PPP loan has a lower interest rate compared to the Revolver.

Income Before Income Taxes

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As a result of the foregoing factors, our loss before income taxes decreased $2.6 million to $5.4 million for the quarter ended June 30, 2020 compared to $8.0 million in 2019.

Income Tax Provision

During the three months ended June 30, 2020, income tax benefit was $1.1 million, and the effective income tax rate was 19.7%. The differences between the effective tax rate and the statutory rate of 21% was primarily due to benefit of tax credits in the U.S. partially offset by earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S., and U.S. taxation of foreign earnings under the Global Intangible Low-Taxed Income (GILTI) provisions.

Net Income

Net loss for the quarter ended June 30, 2020 was $4.3 million compared to a net loss of $7.6 million the quarter ended June 30, 2019. The decrease in net loss was primarily due to the $6.8 million impairment of goodwill recognized in the second quarter of 2019 which did not recur in 2020. Further reducing the net loss was $1.1 million lower selling, general, and administrative expenses in the second quarter of 2020. These impacts, however, were not sufficient to overcome the lost contribution margin on $23.9 million lower net sales.

Comparison of Results of Operations for the Six Months Ended June 30, 2020 and June 30, 2019

Net Sales


	Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
	(in thousands)
Net sales	$	49,636	$	78,356

Net sales for the six months ended June 30, 2020 were approximately $49.6 million compared to $78.4 million for the six months ended June 30, 2019, representing a decrease of (36.7)%. The decrease in net sales for the six months ended June 30, 2020, was primarily caused by the COVID-19 pandemic, which idled our automotive customers’ facilities beginning at the end of the first quarter and continuing for the majority of the second quarter. This decrease was partially offset by new personal protective equipment products for the healthcare and manufacturing sectors.

Cost of Sales


	Six Months Ended June 30, 2020				Six Months Ended June 30, 2019
	Amount		As % of net sales		Amount		As % of net sales
	(dollars in thousands)
Materials	$	25,587	51.5	%	$	39,840	50.8	%
Direct labor and benefits	8,348		16.8	%	12,273		15.7	%
Manufacturing overhead	7,013		14.1	%	8,432		10.8	%
Sub-total	40,948		82.5	%	60,545		77.3	%
Depreciation	1,256		2.5	%	1,299		1.7	%
Cost of Sales	$	42,204	85.0	%	$	61,844	78.9	%
Gross Profit	$	7,432	15.0	%	$	16,512	21.1	%

Cost of sales as a percentage of net sales for the six months ended June 30, 2020 increased to 85.0% from 78.9% for the six months ended June 30, 2019. The increase in cost of sales as a percentage of net sales was caused by fixed manufacturing costs which could not be reduced and were not offset by net sales.

Gross Profit

Gross profit for the six months ended June 30, 2020 decreased $9.1 million to $7.4 million compared to $16.5 million for the six months ended June 30, 2019. The decrease in gross profit is the result of lower sales volumes due to the COVID-19 pandemic and the subsequent loss in contribution margin.

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Selling, General and Administrative Expenses


	Six Months Ended June 30, 2020			Six Months Ended June 30, 2019
	(dollars in thousands)
Selling, general, and administrative expenses, excluding depreciation and amortization expenses	$	10,025		$	12,590
Depreciation and amortization	2,202			2,106
Selling, general, and administrative expenses	$	12,227		$	14,696
Selling, general, and administrative expenses as a percentage of net sales	24.6		%	18.8		%

Selling, general, and administrative expenses for the six months ended June 30, 2020, decreased $2.5 million to $12.2 million, compared to $14.7 million for the six months ended June 30, 2019. The decrease is primarily related to efforts undertaken to reduce costs including management headcount, commissions and professional services, in addition to savings from plant closures, which were partially offset by $0.3 million of salaried severance costs.

Operating Income

Operating loss for the six months ended June 30, 2020 was $6.0 million, or (12.1)% of net sales, compared to operating loss of $5.8 million, or (7.4)% of net sales, for the six months ended June 30, 2019. The decrease in operating loss is primarily driven by a $6.8 million impairment charge to goodwill in 2019 that did not recur in 2020, offset by the decline in net sales driven by the impact of COVID-19 and higher production costs related to the previously completed facility closures.

Non-Operating Expense

Non-operating expense for the six months ended June 30, 2020 was $2.3 million compared to $2.4 million for the six months ended June 30, 2019.

Income Before Income Taxes

As a result of the foregoing factors, our loss before income taxes decreased $(0.1) million to $8.3 million for the six months ended June 30, 2020 compared to $8.2 million in 2019.

Income Tax Provision

During the six months ended June 30, 2020, income tax benefit was $1.7 million, and the effective income tax rate was 20.0%. The differences between the effective tax rate and the statutory rate of 21% was primarily due to benefit of tax credits in the U.S. partially offset by earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S., and U.S. taxation of foreign earnings under the Global Intangible Low-Taxed Income (GILTI) provisions.

Net Income

Net loss for the six months ended June 30, 2020 was $6.6 million compared to a net loss of $7.8 million during the six months ended June 30, 2019. This decrease in net loss is primarily caused by impairment charges in 2019 that did not recur, the recognition of a higher income tax benefit in 2020, and cost cutting initiatives discussed above, which were all offset by the contribution margin lost on $23.9 million lower net sales.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flows from operations and borrowings under our Credit Agreement from our senior lenders.

Our primary uses of cash are payment of vendors, payroll, operating costs, capital expenditures and debt service. As of June 30, 2020 and December 29, 2019, we had a cash balance of $4.1 million and $0.7 million, respectively. Our excess cash balance is swept daily and applied to reduce borrowings under our revolving line of credit, which remains available for re-borrowing, as needed, subject to compliance with the terms of the facility. As of June 30, 2020 and December 29, 2019, we had $0.7 million and $6.8 million, respectively, available to be borrowed under our revolving credit facility. At December 29, 2019, we were in compliance with all of our debt covenants and our lenders agreed to amend the credit agreement so at June 30, 2020 the need to comply with such covenants was waived.

Our Debt

On April 24, 2020, due to the significant impact the COVID-19 pandemic was having on our business, our subsidiary, Unique Fabricating NA, Inc., entered into a Promissory Note for approximately $6.0 million (the “PPP Note”), pursuant to the U.S.

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Small Business Administration Paycheck Protection Program under Title I of the CARES Act passed by Congress and signed into law on March 27, 2020. Prior to entering into the PPP Note, on April 23, 2020, we entered into the Seventh Amendment to the Credit Agreement and Loan Documents. Refer to Note 6 in Part I, Item 1 of this Quarterly Report on Form 10-Q for more discussion of the details related to the PPP Note and Seventh Amendment. The Seventh Amendment, among other things, provided us necessary liquidity by allowing us to take on the additional indebtedness from the PPP Note, deferring the June 30, 2020 principal payments on the US Term Loan, CA Term Loan, and CAPEX Loan, with the deferred principal amounts payable at the existing maturity dates, and by releasing the lien on our Evansville, Indiana property and allowing for the net cash proceeds from its sale, which was completed in June 2020, to be applied against any outstanding balance on our Revolver, while not permanently reducing the Revolving Credit Aggregate Commitment. With the proceeds from the PPP Note and the relief provided in the Seventh Amendment, we believe we have sufficient sources of liquidity to meet our projected cash requirements for at least the next fifty-two weeks.

On August 7, 2020, the Company entered into the Eighth Amendment. The Eighth Amendment to the Credit Agreement and Loan Documents, among other things, amended the definition of Consolidated EBITDA and made changes to the calculations of financial covenants. The definition of Consolidated EBITDA has been amended to include as an addition to Consolidated Net Income (i) costs and expenses incurred in connection with the Eighth Amendment not to exceed $175,000, (ii) restructuring expenses not to exceed $500,000 in any 12 month period, (iii) costs incurred with respect to the purchase and implementation of the ERP system not to exceed (A) $200,000 during each fiscal quarter in 2020 and (B) $100,000 during each fiscal quarter in 2021, and (iv) to the extent added in calculating Consolidated Net Income any portion of the PPP loan that has been forgiven and cancelled. The Eighth Amendment also amended the calculation of certain financial covenants based upon 12 month results to effectively exclude results of the quarter ended June 30, 2020. The calculation of Maximum Total Leverage Ratio has been amended, commencing with the quarter ending September 30, 2020 and through and including the quarter ending March 31, 2021, to annualize Consolidated EBITDA for the periods beginning July 1, 2020 through the date of calculation. The calculation of Minimum Debt Service Coverage Ratio for the quarters ended September 30, 2020, December 31, 2020 and March 31, 2021 are based upon results for one, two and three quarters, respectively. The Eighth Amendment further adds a Minimum Liquidity requirement to be calculated monthly through June 30, 2021 and Minimum Consolidated EBITDA for each measurement period, as defined, through June 30, 2021. Based on the terms of the Eighth Amendment, the Company believes it has sufficient levels of liquidity going forward.

The following is a reconciliation of net income, as reported, which is a U.S. GAAP measure of our operating results, to Consolidated EBITDA, as defined in our Credit Agreement, a non-GAAP measure:


	Three Months Ended June 30, 2020		Three Months Ended June 30, 2019		Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
	(dollars in thousands)
Net loss	$	(4,322)	$	(7,624)	$	(6,624)	$	(7,812)
Plus: Interest expense, net	623		1,332		2,289		2,432
Plus: Income tax (benefit) expense	(1,058)		(389)		(1,659)		(346)
Plus: Depreciation and amortization	1,765		1,702		3,458		3,404
Plus: Non-cash stock award	32		66		55		98
Plus: Non-recurring expenses	—		68		—		68
Plus: Goodwill impairment	—		6,760		—		6,760
Plus: Restructuring expenses	273		734		1,193		825

Plus: One-time consulting and licensing ERP system implementation costs	184		221		459		395
Adjusted EBITDA	$	(2,503)	$	2,870	$	(829)	$	5,824

In 2020, we plan to spend approximately $2.5 million in capital expenditures, of which $0.8 million was spent through June 30, 2020, primarily to add new production equipment as we expand our production capabilities, upgrade existing equipment, and improve our information technology software and hardware throughout our facilities.

While we believe we have sufficient liquidity and capital resources to meet our current operating requirements and planned capital expenditures, we may elect to pursue additional growth opportunities that could require additional debt or equity financing. If we are unable to secure additional financing at favorable terms in order to pursue such additional growth opportunities, our ability to pursue such opportunities would be materially adversely affected.

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Dividends

The Eighth Amendment permits distributions only after December 31, 2021 as long as the Borrower is in compliance with specified conditions including that the Borrower's liquidity, as defined, was not less than $5 million after giving effect to the distributions, total leverage ratio was not more than 2.00 to 1.00, post distribution DSCR, as defined, was not greater than 1.10 to 1.00, and Borrower was in compliance with financial covenants, before and after giving effect to the distributions.

Cash Flow Data

The following table presents cash flow data for the periods presented:


	Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
	(in thousands)
Cash flows provided by (used in):
Operating activities	$	693	$	5,084
Investing activities	$	124	$	(1,839)
Financing activities	$	2,631	$	(3,600)

Operating Activities

Cash provided by operating activities consists of: net income adjusted for non-cash items; including depreciation and amortization; gain or loss on sale of assets; inventory reserve; goodwill impairment; gain or loss on derivative instruments; bad debt adjustments; stock option expense; changes in deferred income taxes; accrued and other liabilities; prepaid expenses and other assets; and the effect of working capital changes. The primary factors affecting cash inflows and outflows are accounts receivable, inventory, prepaid expenses and other assets, and accounts payable and accrued interest.

During the six months ended June 30, 2020, net cash provided by operating activities was $0.7 million, compared to net cash provided by operating activities of $5.1 million for the six months ended June 30, 2019. The decrease in cash provided by operating activities was primarily attributable to lower sales resulting from the COVID-19 pandemic, which in turn resulted in lower profitability.

Investing Activities

Cash provided by or used in investing activities consists principally of purchase and sale of property, plant and equipment.

During the six months ended June 30, 2020 and 2019, we made capital expenditures of $0.8 million and $1.9 million, respectively. We plan to spend a total of approximately $2.5 million in capital expenditures during 2020, including the $0.8 million spent through June 30, 2020. The sale of a building at the Evansville, Indiana facility resulted in an additional $0.8 million of cash provided.

Financing Activities

Cash flows provided by or used in financing activities consists primarily of borrowings and payments under our new and old senior credit facilities, debt issuance costs, proceeds from any exercise of stock options and warrants, and distribution of cash dividends.

During the six months ended June 30, 2020, we had net cash provided by financing activities of $2.6 million compared to a use of $3.6 million during the six months ended June 30, 2019. Driving the cash inflows during the six months ended June 30, 2020 was the proceeds from the PPP Note the Company received in April 2020, please refer to Note 6 for additional discussion of the PPP Note and our other debt.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.

Indemnification Agreements

In the normal course of business, we provide customers with indemnification provisions of varying scope against claims of intellectual property infringement by third parties arising from the use of our products. Historically, costs related to these indemnification provisions have not been significant and we are unable to estimate the maximum potential impact of these indemnification provisions on our future results of operations. In addition, we have entered into indemnification agreements with directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made

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upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations, consolidated statements of stockholders’ equity or consolidated cash flows.

Contractual Obligations and Commitments

The Company's contractual obligations and commitments outstanding as of June 30, 2020 have not changed materially since the amounts as of December 29, 2019 as set forth in our Annual Report on Form 10-K/A. These obligations and commitments relate to operating leases, future debt payments, and a management services agreement.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect amounts reported in those statements. We have made our best estimates of certain amounts contained in our consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. However, application of our accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. Management believes that the estimates, assumptions, and judgments involved in the accounting policies that have the most significant impact on our consolidated financial statements are discussed in the Critical Accounting Policies section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report on Form 10-K/A. There have been no material changes to our critical accounting policies or uses of estimates since the date of our Annual Report on Form 10-K/A.

Recently Issued Accounting Pronouncements

Refer to Note 2 to the condensed consolidated financial statements in Part I Item 1 of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate and foreign exchange risks.

Interest Rate Fluctuation Risk

Our borrowings under our Credit Agreement bear interest at fluctuating rates. In order to mitigate, in part, the potential effects of the fluctuating rates, effective June 30, 2016, we entered into a interest rate swap with a notional amount initially of $16.68 million, which decreased by $0.32 million each quarter until June 30, 2017, and began decreasing by $0.43 million each quarter until June 29, 2018, when it began decreasing by $0.53 million per quarter until the swap terminated on June 28, 2019. The interest rate swap required the Company to pay a fixed rate of 1.055 percent per annum while receiving a variable rate per annum based upon the one month LIBOR rate for a net monthly settlement based on the notional amount in effect. This swap terminated an old swap that we entered into on January 17, 2014 under our old senior credit facility. See Note 7 of our consolidated financial statements for further information.

Effective October 2, 2017, as required under the Second Amendment to the Credit Agreement, as discussed in Note 7 of our consolidated financial statements, the Company entered into another interest rate swap that requires the Company to pay a fixed rate of 1.093% percent per annum while receiving a variable interest rate per annum based on one month LIBOR for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $1.90 million which decreases by $0.10 million each quarter until it expires on September 30, 2020.

Effective November 30, 2018, as required under the Amended and Restated Credit Agreement, the Company entered into another interest rate swap that requires the Company to pay a fixed rate of 3.075 per annum while receiving a variable interest rate per annum based on one month LIBOR for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $5.0 million which increases by $0.04 million each quarter until June 29, 2018 when the notional amount increases to $17.5 million due to the interest rate swap from 2016 above expiring. The notional amount then decreases each quarter by $0.1 million until September 30, 2020 when the notional amount increases to $17.5 million due to the interest rate swap from 2017 above expiring. The notional amount then decreases each quarter by $0.4 million until December 31, 2021, then decreases each subsequent quarter by $0.6 million until it expires on November 8, 2023.

We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended ("Exchange Act") referred to herein as “Disclosure Controls,” as the end of the quarter covered by this report. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness in our internal control over financial reporting previously identified and described more fully under Item 9A in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019, the Company’s disclosure controls and procedures were not effective as of June 30, 2020 to ensure information required to be disclosed by our Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. Our management establishes and maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) to ensure that the information we disclose under the Exchange Act is properly and timely reported. We provide this information to our Chief Executive Officer and Chief Financial Officer as appropriate to allow for timely decisions.

Internal Controls Over Financial Reporting

A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis.

As previously identified and described more fully under Item 9A in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019, the Company identified a deficiency that constitutes a material weakness related to limited finance staffing levels that are not commensurate with the Company’s complexity and its financial accounting and reporting requirements. The material weakness continued to exist as of the end of the period covered by this Quarterly Report.

The material weakness did not result in any material misstatements of the Company’s financial statements for the year ended December 29, 2019 or any quarterly period during that year. However, this material weakness could result in the misstatement of relevant account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected and did have such a result on interim consolidated financial statements during the 2020 fiscal year.

Remediation Plan for Material Weakness in Internal Control over Financial Reporting

The Company continues to take action on the remediation plan more fully described under Item 9A in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019. While the Company is moving forward with these remediation activities, additional work needs to be done in this area. Accordingly, we concluded that this material weakness had not yet been remediated as of June 30, 2020.

We will continue to monitor the effectiveness of these and other processes, procedures and controls and make any further changes management determines appropriate.

Changes in Internal Control over Financial Reporting

There were no material changes in the Company's internal controls over financial reporting during the three and six months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. As a result of the COVID-19 pandemic, in March 2020 certain employees of the Company began working and continue to work remotely. Management has taken measures to ensure that our internal controls over financial reporting were not materially affected by employees working remotely. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

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Item 1A. Risk Factors

The coronavirus (COVID-19) pandemic, has and will continue to materially and adversely affect our business, financial condition and results of operations.

The recent outbreak of COVID-19, and any other outbreaks of contagious diseases or other adverse public health developments in the United States and worldwide, has had a material adverse effect on our business, financial condition and results of operations. In 2020, COVID-19 has significantly impacted economic activity and markets worldwide, and it could continue to negatively affect our business in a number of ways. These effects include, but are not limited to:

▪Disruptions or restrictions on our employees’ ability to work effectively due to illness, travel bans, quarantines, shelter-in-place orders or other limitations.

▪Temporary closures of our facilities or the facilities of our customers. Net sales to automotive customers, most of whom idled their manufacturing facilities as a result of the COVID-19 pandemic, were approximately 86% of the Company’s net sales during the fiscal year ended December 29, 2019. The closures of our customers’ operations had a substantial adverse effect on our results of operation and financial condition.

▪In an effort to increase the wider availability of needed medical and other supplies and products, we have elected and may further elect to, or governments may require us to, allocate manufacturing capacity in a way that could adversely affect our regular operations and that may adversely impact our customer and supplier relationships.

▪Costs incurred and revenues lost during and from the effects of the COVID-19 pandemic likely will not be recoverable.

▪The failure of third parties on which we rely, including our suppliers, customers, contractors, commercial banks and external business partners, to meet their respective obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties.

▪The COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both the Company and our customers and suppliers.

The extent to which the COVID-19 pandemic, or other outbreaks of disease or similar public health threats, materially and adversely impacts our business, financial condition and results of operations is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the COVID-19 pandemic on our suppliers, third-party service providers, and/or customers.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

Exhibit Index


Exhibit No.						Description
31.1*						Certification of the Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of the Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of the Chief Executive Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of the Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS+						XBRL Instance Document
101.SCH+						XBRL Taxonomy Extension Schema Document
101.CAL+						XBRL Taxonomy Calculation Linkbase Document
101.DEF+						XBRL Taxonomy Definition Linkbase Document
101.LAB+						XBRL Taxonomy Label Linkbase Document
101.PRE+						XBRL Taxonomy Presentation Linkbase Document

* Filed herewith.

** Pursuant to Item 601(b)(32)(ii) of Regulation S-K(17 C.F.R 229.601(b)(32)(ii)), this certification is deemed furnished, not filed, for purposes of section 18 of the Exchange Act, nor is it otherwise subject to liability under that section. It will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except if the registrant specifically incorporates it by reference.

+ Filed electronically with the report.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

UNIQUE FABRICATING, INC.

Date:

April 15, 2021

By:

/s/ Brian P. Loftus

Brian P. Loftus

Chief Financial Officer
(Principal Financial and Accounting Officer)