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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2021
or
☐ 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)
UFAB-20210930_G1.JPG
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 October 29, 2021, the registrant had 11,733,147 shares of common stock outstanding.
UNIQUE FABRICATING, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
2
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6
23
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34
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35
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37

1
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements    
UNIQUE FABRICATING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited – dollars in thousands)
   September 30, 2021 December 31, 2020
Assets   
Current assets   
Cash and cash equivalents $ 1,146  $ 760 
Accounts receivable, net of reserves of approximately $1.2 million and $1.2 million at September 30, 2021 and December 31, 2020, respectively
25,582  23,759 
Inventory, net 16,982  11,951 
Prepaid expenses and other current assets:   
Prepaid expenses and other 2,591  5,643 
Refundable taxes 4,486  4,027 
Total current assets 50,787  46,140 
Property, plant, and equipment, net 22,393  22,383 
Goodwill 16,996  22,111 
Intangible assets 5,668  7,605 
Other assets
Operating leases 10,360  10,415 
Investments, at cost 1,054  1,054 
Deposits and other assets 564  579 
Deferred tax asset 1,572  893 
Total assets $ 109,394  $ 111,180 
Liabilities and Stockholders’ Equity   
Current liabilities:   
Accounts payable $ 13,306  $ 10,892 
Current maturities of long-term debt 30,373  35,864 
Income taxes payable 421  204 
Revolver, current maturities 17,156  11,494 
Accrued compensation 1,263  792 
Other accrued liabilities 4,288  4,551 
Total current liabilities 66,807  63,797 
Long-term debt, net of current maturities —  2,999 
Other long-term liabilities:
Other liabilities 9,987  10,519 
Total liabilities 76,794  77,315 
Stockholders’ equity:
Common stock, $0.001 par value: 15,000,000 shares authorized and 11,733,147 and 9,779,147 issued and outstanding at September 30, 2021 and December 31, 2020, respectively
12  10 
Additional paid-in-capital 50,293  46,126 
Accumulated deficit (17,705) (12,271)
Total stockholders’ equity 32,600  33,865 
Total liabilities and stockholders’ equity $ 109,394  $ 111,180 
The accompanying notes are an integral part of these Condensed Consolidated Statements.
2
UNIQUE FABRICATING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited – dollars in thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,
   2021 2020 2021 2020
Net sales $ 29,909  $ 35,550  $ 95,603  $ 85,186 
Cost of sales 26,629  27,342  81,845  69,546 
Gross profit 3,280  8,208  13,758  15,640 
Selling, general, and administrative expenses 5,741  6,381  17,636  18,608 
Impairment 5,115  —  5,115  — 
Restructuring expenses —  —  —  1,193 
Operating income (loss) (7,576) 1,827  (8,993) (4,161)
Other income (expense):   
Other, net 6,041  32  6,080  26 
Interest expense (843) (711) (2,305) (3,000)
Other expense, net 5,198  (679) 3,775  (2,974)
Income (Loss) before income taxes (2,378) 1,148  (5,218) (7,135)
Income tax expense (benefit) (522) 152  216  (1,507)
Net income (loss) $ (1,856) $ 996  $ (5,434) $ (5,628)
Net income (loss) per share:   
Basic $ (0.19) $ 0.10  $ (0.55) $ (0.58)
Diluted $ (0.19) $ 0.10  $ (0.55) $ (0.58)

The accompanying notes are an integral part of these Condensed Consolidated Statements.
3
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 		Accumulated Deficit Total
Balance - December 31, 2020 9,779,147  $ 10  $ 46,126  $ (12,271) $ 33,865 
Net loss —  —  —  (1,069) (1,069)
Stock option expense —  —  27  —  27 
Balance - March 31, 2021 9,779,147  $ 10  $ 46,153  $ (13,340) $ 32,823 
Net loss —  —  —  (2,509) (2,509)
Stock option expense —  —  256  —  256 
Balance - June 30, 2021 9,779,147  $ 10  $ 46,409  $ (15,849) $ 30,570 
Net loss —  —  —  (1,856) (1,856)
Stock option expense —  —  49  —  49 
Issuance of common stock and warrants 1,954,000  2  3,835  —  3,837 
Balance - September 30, 2021 11,733,147  $ 12  $ 50,293  $ (17,705) $ 32,600 

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 —  —  —  (2,302) (2,302)
Stock option expense —  —  23  —  23 
Balance - March 31, 2020 9,779,147  $ 10  $ 46,034  $ (8,863) $ 37,181 
Net loss —  —  —  (4,322) (4,322)
Stock option expense —  —  32  —  32 
Balance - June 30, 2020 9,779,147  $ 10  $ 46,066  $ (13,185) $ 32,891 
Net (loss) income —  —  —  996  996 
Stock option expense —  —  33  —  33 
Balance - September 30, 2020 9,779,147  $ 10  $ 46,099  $ (12,189) $ 33,920 


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

4
UNIQUE FABRICATING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited – dollars in thousands)
Nine Months Ended September 30,
   2021 2020
Cash Flows from Operating Activities:      
Net loss $ (5,434) $ (5,628)
Adjustments to reconcile net loss to net cash provided by operating activities:      
Impairment of goodwill 5,115  — 
Depreciation and amortization 4,271  5,211 
Amortization of debt issuance costs 158  111 
Loss on sale of assets (12) 118 
Bad debt adjustment (197) — 
Loss (gain) on derivative instrument (412) 469 
Gain on forgiveness of debt (6,000) — 
Stock option expense 332  88 
Accrued in-kind interest on long term debt 25  — 
Deferred income taxes (679) (1,845)
Changes in operating assets and liabilities that provided (used) cash:
Accounts receivable (1,626) (2,300)
Inventory (5,031) 781 
Prepaid expenses and other assets 2,608  (2,576)
Accounts payable 3,125  3,563 
Other assets and liabilities, net 154  1,867 
Net cash provided by (used for) operating activities (3,603) (141)
Cash Flows from Investing Activities:      
Capital expenditures (2,432) (1,382)
Proceeds from sale of property, plant and equipment 100  883 
Net cash provided by (used for) investing activities (2,332) (499)
Cash Flows from Financing Activities:      
Net change in bank overdraft (710) (289)
Payments on term loans and capital expenditure line (2,597) (2,186)
Payments on revolving credit facilities (30,087) (19,281)
Proceeds from revolving credit facilities 35,671  17,530 
Proceeds from the issuance of common stock and warrants 4,044  — 
Debt issuance costs —  (151)
Proceeds from PPP Note —  5,999 
Net cash provided by financing activities 6,321  1,622 
Cash and cash equivalents:
Net increase in cash and cash equivalents 386  982 
Cash and cash equivalents at beginning of period 760  650 
Cash and cash equivalents at end of period $ 1,146  $ 1,632 
Supplemental disclosure of cash flow information:      
Cash paid for interest $ 2,178  $ 3,034 
Cash paid for income taxes $ 761  $ 329 

The accompanying notes are an integral part of these Condensed Consolidated Statements.
5
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 / off-road 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. The Company 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 principles 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 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 for the year ended December 31, 2020.
Going Concern
The Company’s condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
As of December 31, 2020 and March 31, 2021, the Company was in violation of its financial covenants, as defined in the Company’s Credit Agreement (Note 7). The Company entered into a forbearance agreement and First and Second Amendments to the forbearance agreement, providing a period through and including February 28, 2022. During this period the Company was able to borrow on its revolving line of credit, subject to the terms and conditions to making a revolving credit advance, including availability, and the lenders agreed, subject to the terms of the forbearance agreement, as amended, to forbear from enforcing their rights or seeking to collect payment of the Company’s debt or disposing of the collateral securing the debt. The forbearance agreement, as amended, contains certain financial covenants with which we are required to comply, commencing with the nine-month period ended September 30, 2021, through and including the twelve-month period ending February 28, 2022.
As of September 30, 2021, the Company was in violation of its financial covenants as set forth by the forbearance agreement, as amended. Failure to be in compliance with the Company’s financial covenants constitutes an event of default. Such a default, if not waived by our lenders, allows the lenders to accelerate the maturity of the debt, making it immediately due and payable. Accordingly, all debt subject to the Credit Agreement, totaling $47.5 million, has been classified as current as of September 30, 2021. The Company does not have sufficient cash and cash equivalents on hand or available liquidity to repay such debt or meet its obligations as they become due through twelve months from date of issuance of these condensed consolidated financial statements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
In response to these conditions, the Company is discussing with its bank lenders entering into an amendment and waiver to cure the covenant defaults. There is not any assurance that the lenders will waive such non compliance or agree to an amendment to the current provisions. Even if the lenders were to agree to waive the failure to comply as of September 30, 2021, there cannot be any assurance that, at any future date at which compliance is measured, we will be able to comply with the covenants contained in the forbearance agreement, as amended, given the industry-wide and other challenges that we face, as described elsewhere herein, or that our lenders would waive a default if that were to occur. Furthermore, there can be no assurance that the Company will be able to enter into an amendment or waiver with the lenders or if it enters into an amendment, what the terms, restrictions, and covenants of the amendment will contain. These plans have not been finalized and are not within the
6
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Company’s control, and therefore cannot be deemed probable. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Private Placement of Securities
On September 21, 2021, the Company issued 1,954,000 shares of common stock at a price of $2.25 per share for gross proceeds of $4.4 million in an offering exempt from registration under the Securities Act of 1933, as amended. The Company received net proceeds of $4.0 million after payment of selling commissions equal to 8% of the gross proceeds to Taglich Brothers, Inc., the placement agent for the Offering. Further, the Company paid the placement agent’s Offering expenses of $44,000. Taglich Brothers, Inc. also received warrants to purchase 156,320 shares of common stock, exercisable for five years, at a price per share of $3.12 (the “Warrants”).
The Company intends to utilize the net proceeds for general corporate purposes and initially reduced borrowings under its revolving credit facility, which subject to availability and compliance with the terms of the revolving line of credit, as amended, including by the Forbearance Agreement, may be reborrowed by the Company. Borrowings reported at September 30, 2021 reflects the reduction from offering proceeds. As of September 30, 2021, the Company was not in compliance with financial covenants, but through the date hereof has continued to borrow under the revolving line of credit. There can be no assurance that it will continue to be able to borrow under the revolving line of credit.

Concentration Risks
The Company is exposed to significant concentration risks as follows:
Customer and Credit — During the three and nine months ended September 30, 2021 and September 30, 2020, the Company’s net sales were principally derived from customers engaged in the North American automotive industry.  The following table presents the Company's sales directly to General Motors Company (“GM”), Yanfeng Automotive Interiors, Stellantis N.V. (formerly Fiat Chrysler Automobiles), and Ford Motor Company (“Ford”) as a percentage of total net sales:
Three Months Ended September 30, Nine Months Ended September 30,
   2021 2020 2021 2020
General Motors Company 5  % 11  % 7  % 10  %
Yanfeng Automotive Interiors 10  % 8  % 8  % 7  %
Stellantis N.V. 8  % 6  % 7  % 6  %
Ford Motor Company 3  % 6  % 4  % 6  %
Furthermore, the Company had additional sales to the customers listed in the above table indirectly through other customers.
Labor Markets — At September 30, 2021, of the Company’s hourly plant employees working in the United States manufacturing facilities, 30% were covered under a collective bargaining agreement which expires in August 2022 while another 12% were covered under a separate collective bargaining agreement that expires in February 2023. The remaining US employees and employees in Canada and Mexico are not part of a union.
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 and Canada:
   Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Mexico 23  % 12  % 24  % 17  %
Canada 8  % 6  % 9  % 8  %
7
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents the percentage of the Company's total net sales represented by net sales from operations located in Mexico and Canada:
Three Months Ended September 30, Nine Months Ended September 30,
   2021 2020 2021 2020
Mexico 24  % 23  % 25  % 22  %
Canada 8  % 8  % 9  % 8  %

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, respectively, 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 $10.9 million of non-cancelable future rental obligations as of September 30, 2021, as shown in Note 12.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). The guidance simplifies accounting for income taxes by removing certain exceptions. This new guidance is effective for fiscal years beginning after December 15, 2020 for public companies. The Company adopted this guidance on a prospective basis and there was no material impact.
In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform”. The ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or any other reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period. Therefore, it will be in effect for a limited time through December 31, 2022. The Company is currently assessing which contracts may be affected.
8
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 nine months ended September 30, 2021 and 2020:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(dollars in thousands)
Net Sales
Transportation $ 26,124  $ 31,731  $ 84,741  $ 74,718 
Appliance 3,104  3,280  9,247  8,191 
Other 681  539  1,615  2,277 
Total $ 29,909  $ 35,550  $ 95,603  $ 85,186 
General Recognition Policy
Revenue is recognized by the Company once all performance obligations under the terms of a contract with a Company's customer is 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.
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:
   September 30,
2021 		December 31,
2020
(dollars in thousands)
Raw materials $ 11,361  $ 7,366 
Work in progress 1,157  1,225 
Finished goods 4,464  3,360 
Total inventory $ 16,982  $ 11,951 
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 at September 30, 2021 and $0.4 million at December 31, 2020.
Included in inventory are assets located in Mexico with a carrying amount of $4.6 million at September 30, 2021 and $3.1 million at December 31, 2020, and assets located in Canada with a carrying amount of $1.4 million at September 30, 2021 and $1.1 million at December 31, 2020.

9
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:
September 30,
2021 		December 31,
2020 		Depreciable
Life – Years
(dollars in thousands)
Land $ 538  $ 538    
Buildings 7,629  6,923 
23 – 40
Shop equipment 25,998  23,436 
7 – 10
Leasehold improvements 1,283  1,245 
3 – 10
Office equipment 3,049  2,331 
3 – 7
Mobile equipment 50  152  3
Construction in progress 609  2,315 
Total cost 39,156  36,940    
Less: Accumulated depreciation 16,763  14,557 
Net property, plant, and equipment, net $ 22,393  $ 22,383 
Depreciation expense was $0.8 million and $2.3 million for the three and nine months ended September 30, 2021, respectively, and $0.7 million and $2.2 million for the three and nine months ended September 30, 2020, respectively.
Included in property, plant, and equipment, net are assets located in Mexico with a carrying amount of $3.6 million and $3.7 million at September 30, 2021 and December 31, 2020, respectively, and assets located in Canada with a carrying amount of $0.4 million and $0.4 million at September 30, 2021 and December 31, 2020, respectively.

6. Goodwill
Changes in the carrying amount of goodwill are as follows:
(dollars in thousands)
Balance at December 31, 2020
Goodwill $ 28,871 
Accumulated impairment losses (6,760)
Net beginning balance 22,111 
Goodwill impairment (5,115)
Balance at September 30, 2021 $ 16,996 
Goodwill Impairment
The Company experienced a sustained decline in market capitalization through the third quarter of 2021 representing a potential indicator of impairment. Furthermore, the Company continues to experience the repercussions from the global semiconductor shortage. The most impactful being the decline in sales to our automotive customers, as North American automotive production volumes continue to decrease. The Company identified these circumstances and concluded it was more likely than not the fair value of the goodwill was impaired, and performed an interim quantitative assessment. The quantitative assessment was performed as of September 30, 2021, utilizing a combination of the income and market approaches. The analysis required the comparison of the Company’s carrying value with it’s fair value, with an impairment recorded for any excess of carrying value over the fair value. The discounted cash flow method was used to determine the fair value of the reporting unit under the income approach. Key assumptions used in the discounted cash flow analysis included a discount rate of 14.8%, a terminal growth rate for cash flows of 3%, and EBITDA margin of 10.8% by 2025. The guideline public company method was used to determine the fair value of the reporting unit under the market approach. Key assumptions used in this method included revenue and EBITDA multiples for each guideline company. The results of the quantitative analysis performed indicated the carrying value of the reporting unit exceeded the fair value of the reporting unit as of September 30, 2021. As a result, the Company recorded a $5.1 million impairment charge for the three and nine months ended September 30, 2021.
10
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7. Long-term Debt
The Company’s long-term debt consists of the following:
   September 30,
2021 		December 31,
2020
(dollars in thousands)
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 was forgiven during the third quarter of 2021.
$ —  $ 5,999 
US Term Loan, payable to lenders in quarterly installments of $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 5.5% per annum at September 30, 2021. At September 30, 2021, the balance of the US Term Loan is presented net of a debt discount of $0.1 million from costs paid to or on behalf of the lenders.
21,116  22,768 
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 5.5% per annum at September 30, 2021. At September 30, 2021, 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.
8,156  8,876 
Capital expenditure line payable to lenders in quarterly installments of 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 5.5% per annum at September 30, 2021.
1,101  1,220 
Total debt excluding Revolver 30,373  38,863 
Less current maturities 30,373  35,864 
Long-term debt – Less current maturities $ —  $ 2,999 
As of September 30, 2021 and December 31, 2020, the fair value of the Company’s debt approximates book value based on the variable terms.
The Company’s financial results for the six months ended December 31, 2020 and nine months ended March 31, 2021 resulted in violations of certain of its financial covenants, as defined in the Company’s Credit Agreement. The Company had been actively discussing its results and the Company’s failure to meet its financial covenants with the Administrative Agent and entered into a forbearance agreement, providing a period commencing on April 9, 2021 and through and including June 15, 2021, during which the Company was able to borrow on its Revolver, subject to the terms and conditions to making a revolving credit advance, including availability, and the Lenders agreed, subject to the terms of the forbearance agreement, to forbear from enforcing their rights or seeking to collect payment of the Company’s debt or disposing of the collateral securing the debt.
On June 14, 2021 the Company entered into the First Amendment to Forbearance Agreement, which among other things, extended the forbearance period from June 15, 2021 to February 28, 2022. On September 21, 2021, the Company entered into the Second Amendment to Forbearance Agreement, which among other things, makes changes to the calculations of financial covenants, contains revised requirements for Minimum Liquidity and Minimum Consolidated EBITDA, as defined, for the monthly periods through and including February 28, 2022, and revises the Revolving Credit Aggregate Commitment from $30 million to $27 million.
As of September 30, 2021, the Company was not in compliance with its financial covenants, principally as a result of industry wide conditions, which contributed to adversely affecting our net sales. Failure to be in compliance with the Company’s financial covenants constitutes an event of default. Such a default, if not waived by our lenders, allows the lenders to accelerate the maturity of the debt, making it immediately due and payable. Accordingly, all debt subject to the Credit Agreement, totaling $47.5 million, has been classified as current as of September 30, 2021. Through the date hereof, the Company has continued to borrow under the revolving line of credit. There can be no assurance that it will continue to be able to borrow under the revolving line of credit.
In response to this condition, the Company is discussing with the Lenders entering into an amendment and waiver to cure the defaults. There can be no assurance that the Company will be able to enter into an amendment or waiver with the Lenders or if
11
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
it enters into an amendment, what the terms, restrictions, and covenants of the amendment will contain. As a result of the default all debt subject to the Credit Agreement is classified as current maturities of long-term debt as of September 30, 2021.
Credit Agreement
On November 8, 2018, Unique Fabricating NA, Inc. (the “US Borrower”) and Unique-Intasco Canada, Inc. (the “CA Borrower” and together with the US Borrower, the “Borrowers”) and Citizens Bank, National Association (“Citizens”), acting as lender and Administrative Agent, and other lenders (collectively, the “Lenders”), entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated the Original Credit Agreement entered into on April 29, 2016 (as amended, the “Original Credit Agreement”). The Amended and Restated Credit Agreement is a five year agreement and provided for borrowings up to an aggregate principal amount of $73.0 million. The Amended and Restated Credit Agreement, which is a senior secured credit facility, was comprised of a revolving line of credit of up to $30.0 million (the “Revolver”) to the US Borrower, a $26.0 million principal amount term loan (the “US Term Loan”) to the US Borrower, a $12.0 million principal amount term loan (the “CA Term Loan”) to the CA Borrower, and 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 to the US Borrower (the “Capital Expenditure Line”). The Amended and Restated Credit Agreement has a maturity date for all borrowings of November 7, 2023.
The Amended and Restated Credit Agreement requires quarterly principal payments for the US Term Loan, which commenced on December 31, 2018, of $337.5 thousand through September 30, 2020, $575.0 thousand thereafter through September 30, 2021, and $812.5 thousand thereafter through November 7, 2023 with a lump sum due at maturity. The Amended and Restated Credit Agreement requires quarterly principal payments for the CA Term Loan, which commenced on December 31, 2018, of $375.0 thousand with a lump sum due at maturity. The Capital Expenditure Line requires quarterly principal payments of 7.5% of the outstanding balance per annum beginning on December 31, 2019 through September 30, 2020, 10% per annum beginning December 31, 2020 through September 30, 2021, 12.5% per annum beginning December 31, 2021 and thereafter through November 7, 2023 with a lump sum due at maturity.
In addition, the Amended and Restated Credit Agreement allows for increases in the principal amount of the Revolver and the 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.
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. Additionally, the 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 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.
Due to the impact of the COVID-19 pandemic on the Company and the global automotive industry, the Company anticipated that the 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 Borrowers entered into the Seventh Amendment (the “Seventh Amendment”) to the Credit Agreement. The Seventh Amendment, among other things, (i) permitted 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) deferred the June 30, 2020 principal payments on the US Term Loan, CA Term Loan, and Capital Expenditure Line, with the deferred principal amounts payable at the existing maturity dates; (iii) waived the requirement to test Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the fiscal quarter ended June 30, 2020; (iv) allowed 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, without permanently reducing the Revolving Credit Aggregate Commitment; (v) added a weekly requirement for the Borrowers to deliver a 13-week cash flow forecast until September 30, 2020; and (vi) added 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 Amended and Restated Credit Agreement and Loan Documents, as amended. The Eighth Amendment, among other things, amended the definition of Consolidated EBITDA and made changes to the calculations of financial covenants. The Eighth Amendment permitted distributions by US Borrower to the Company to be declared and made only after December 31, 2021 provided certain conditions are satisfied.
12
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On April 9, 2021, the Company entered into a Forbearance Agreement, providing a period commencing through and including June 15, 2021, during which the Company was able to borrow on its Revolver, subject to the terms and conditions to making a revolving credit advance, including availability, and the Lenders agreed, subject to the terms of the forbearance agreement, to forbear from enforcing their rights or seeking to collect payment of the Company’s debt or disposing of the collateral securing the debt.
On June 14, 2021, the Company entered into a First Amendment to Forbearance Agreement with respect to the Amended and Restated Credit Agreement, as amended, among the Borrowers, certain of their subsidiaries, with the Lenders. The First Amendment to the Forbearance Agreement extended the previously agreed to forbearance period from June 15, 2021 to February 28, 2022. During the extended period, the Company could continue to be able to borrow under the Revolver, subject to availability and the satisfaction of certain other conditions. The First Amendment suspended the testing of the Total Leverage Ratio and the Debt Service Ratio during the forbearance period, contained revised requirements for Minimum Liquidity and Minimum Consolidated EBITDA, as defined, for the monthly periods through and including February 28, 2022, made changes to the calculations of financial covenants, established certain financial reporting requirements to the Lenders, provided an alternative to the LIBOR rate, and required that the Company engage a financial advisor on or before June 25, 2021. The Company was required to comply with the revised covenants contained in the First Amendment beginning with July 31, 2021.
On September 21, 2021, the Company entered into the Second Amendment to Forbearance Agreement, which among other things, makes changes to the calculations of financial covenants, contains revised requirements for Minimum Liquidity and Minimum Consolidated EBITDA, as defined, for the monthly periods through and including February 28, 2022, and revises the Revolving Credit Aggregate Commitment from $30 million to $27 million.
The Credit Agreement, as amended, currently bears 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. As stated above, the Seventh Amendment added a 1.0% LIBOR Floor and 2.0% Base Rate Floor.
The First Amendment to the Forbearance Agreement increased the per annum interest rate from 4.25% to 4.50% for the duration of the Forbearance Period. Furthermore, the First Amendment imposes Payment in Kind (“PIK”) additional interest of 0.5% per annum on all outstanding debt subject to the Credit Agreement, which is payable on February 28, 2022 or earlier in the event of a Forbearance Termination event, as defined.
As of September 30, 2021, $17.3 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 5.50% percent per annum at September 30, 2021, and is secured by substantially all of the Company’s assets. At September 30, 2021, the maximum additional available borrowings under the Revolver was $7.4 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.
Paycheck Protection Program Note
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 was unsecured, bore 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.
On August 9, 2021, the Company received notification that the SBA approved the Company’s PPP Loan forgiveness application for the entire PPP Loan, including accrued interest. The Company recognized a gain on the forgiveness of the principal loan balance in the amount of $6.0 million and $0.1 million for the accrued interest, in the three and nine months ended September, 30, 2021 in other income on the consolidated statement of operations.
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
13
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30, 2021 and December 31, 2020, unamortized debt issuance costs were $0.3 million and $0.4 million, respectively, while amounts paid to or on behalf of lenders presented as unamortized debt discounts were $0.2 million and $0.3 million, respectively.
Amortization expense of both debt issuance costs and debt discounts has been recognized as a component of interest expense in the amounts of $0.1 million and $0.2 million for the three and nine months ended September 30, 2021, respectively, and $0.04 million and $0.1 million for the three and nine months ended September 30, 2020, respectively.
Covenant Compliance
The Amended and Restated Credit agreement, as further amended and forbore by the Forbearance Agreement, as amended, contains the following financial covenants:
Maximum Total Leverage Ratio
The Total Leverage Ratio, as defined in the Credit Agreement, as amended, may not exceed (i) 3.75 to 1.00, with respect to the fiscal quarter ended as of September 30, 2020; (ii) 3.50 to 1.00, with respect to the fiscal quarter ended December 31, 2020; (iii) 3.25 to 1.00, with respect to the fiscal quarters ended March 31, 2021 and June 30, 2021; and (iv) 3.00 to 1.00, with respect to each fiscal quarter thereafter. For purposes of calculating the Total Leverage Ratio, “Consolidated EBITDA”, as defined, shall be determined (i) with respect to the fiscal quarter ended as of September 30, 2020, for the single fiscal quarter then ended, multiplied by 4,(ii) with respect to the fiscal quarter ended as of December 31, 2020, for the two fiscal quarters then ended, multiplied by 2, (iii) with respect to the fiscal quarter ended as of March 31, 2021, for the three fiscal quarters then ended, multiplied by 4/3, and (iv) with respect to each fiscal quarter thereafter, for the four fiscal quarters then ended. Also, for purposes of calculating the Total Leverage Ratio, the PPP Note is excluded from Total Debt for all periods until a determination of forgiveness is made. However, testing of the Total Leverage Ratio is suspended during the Forbearance Period through February 28, 2022.
Minimum Debt Service Coverage Ratio
The Debt Service Coverage Ratio may not be less than 1.20 to 1.00, to be measured, as of the end of each fiscal quarter. Notwithstanding anything to the contrary set forth in the definition of "Debt Service Coverage Ratio," such calculation shall be made (i) with respect to the fiscal quarter ended as of September 30 2020, for the single fiscal quarter then ended, (ii) with respect to the fiscal quarter ended as of December 31, 2020, for the two fiscal quarters then ended, (iii) with respect to the fiscal quarter ended as of March 31, 2021, for the three fiscal quarters then ended, and (iv) with respect to the last day of each fiscal quarter thereafter, for the four fiscal quarters then ended. However, testing of the Minimum Debt Service Coverage Ratio is suspended during the Forbearance Period through February 28, 2022.
Minimum Liquidity
The Second Amendment to the Forbearance Agreement eliminated the Minimum Liquidity covenant of the previous Amendment to the Forbearance Agreement as well as of the Amended and Restated Credit Agreement and replaced it with the following:
Date of Determination Minimum Liquidity
September 30, 2021 $3,000,000
October 31, 2021 $3,000,000
November 30, 2021 $3,000,000
December 31, 2021 $3,000,000
January 31, 2022 $3,000,000
February 28, 2022 $3,000,000
As of September 30, 2021, the Company was in compliance with this covenant.
Minimum Consolidated EBITDA
The Second Amendment to the Forbearance Agreement eliminated the Minimum Consolidated EBITDA covenant of the previous Amendment to the Forbearance Agreement as well as of the Amended and Restated Credit Agreement and replaced it with the following:
14
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Date of Determination Measurement Period Minimum Consolidated EBITDA
September 30, 2021
Trailing 9 months
$2,500,000
October 31, 2021
Trailing 10 months
$3,000,000
November 30, 2021
Trailing 11 months
$3,700,000
December 31, 2021
Trailing 12 months
$4,100,000
January 31, 2022
Trailing 12 months
$4,200,000
February 20, 2022
Trailing 12 months
$4,700,000
As of September 30, 2021, the Company was not in compliance with this covenant.
Future Maturities
Maturities on the Company’s Credit Agreement and other long term debt obligations for the remainder of the current fiscal year and future fiscal years are as follows:
Future Maturities
(dollars in thousands)
2021 $ 48,020 
Total 48,020 
Discounts (211)
Debt issuance costs (280)
Total debt, net $ 47,529 

8. 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 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 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 expiring. Since June 28, 2019, the notional amount then decreased each quarter by $0.2 million until September 30, 2020 when the notional amount increased to $17.5 million due to the interest rate swap from 2017 expiring. The notional amount then decreases each quarter by $0.4 million until December 31, 2021, and then decreases each subsequent quarter by $0.6 million until it expires on November 8, 2023.
At September 30, 2021, the fair value of all swaps was in a net liability position of $0.8 million and is included in other long term liabilities in the condensed consolidated balance sheets. The Company paid $0.1 million and $0.4 million in net monthly settlements with respect to the interest rate swaps for the three and nine months ended September 30, 2021, respectively. At September 30, 2020, the fair value of the swaps was a net liability of $1.3 million, which was included in other long term liabilities in the condensed consolidated balance sheet. The Company paid $0.1 million and $1.1 million in net monthly settlements in respect to the interest rate swaps for the three and nine months ended September 30, 2020, respectively. Both the change in fair value and the net monthly settlements were included in interest expense in the condensed consolidated statements of operations.

15
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. 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 moved existing Bryan production to its manufacturing facilities in Querétaro, Mexico and LaFayette, Georgia. 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. The restructuring activities described above were completed as of June 30, 2020. The Company has not incurred any restructuring costs in 2021.
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.
The restructuring activities described above were completed in 2020, the Company has not incurred any restructuring costs in 2021. The Company had $0.4 million and $0.7 million of remaining lease payments for a warehouse near the Evansville, Indiana facility as of September 30, 2021 and December 31, 2020, respectively. The Company has secured a sublease of roughly 11% of the facility.
The table below summarizes the activity in the restructuring liability for the nine months ended September 30, 2020:
Employee Termination Benefits Liability Other Exit Costs Liability Total
(dollars in thousands)
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  956  1,356 
Accrual balance at September 30, 2020 $ 38  $ 352  $ 390 

16
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. 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.
On June 11, 2021, the compensation committee of the board of directors approved the issuance of 38,943 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $3.31 per share with a weighted average grant date fair value of $1.64 per share. These options vested immediately upon issuance.
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 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 May 4, 2021, the compensation committee of the board of directors approved the issuance of 139,278 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $4.51 per share with a weighted average grant date fair value of $2.28 per share. 20% of these options vested immediately and the remainder vest in 20% tranches on each of May 4, 2022, 2023, 2024, and 2025, respectively.
On June 11, 2021, the compensation committee of the board of directors approved the issuance of 59,254 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $3.31 per share with a weighted average grant date fair value of $1.64 per share. These options vested immediately upon issuance.
17
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 31, 2020 726,500  $ 4.53  7.2 $ 1,484 
Granted 237,475  $ 4.01  4.3   
Exercised —  $ —  0
Forfeited or expired 58,906  $ 9.08  0 — 
Outstanding at September 30, 2021 905,069  $ 4.21  7.4 $ 183 
Vested and exercisable at September 30, 2021 444,527  $ 5.11  6.2 $ 57 
————————————
(1)    The aggregate intrinsic value above is obtained by subtracting the 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. There is no intrinsic value if the exercise price exceeds the fair value of the underlying shares. The estimated fair value of the shares is based on the closing price of the stock of $3.30 as of September 30, 2021 and $5.50 as of December 31, 2020.
The Company recorded stock-based compensation expense of $49 thousand and $332 thousand for the three and nine months ended September 30, 2021, respectively, and $33 thousand and $88 thousand for the three and nine months ended September 30, 2020, respectively. Stock compensation expense is included in the condensed consolidated statements of operations, as a component of selling, general, and administrative expenses. The income tax (expense) benefit related to share based compensation expense was immaterial for all periods presented.
As of September 30, 2021, there was $641 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 3.9 years.

11. 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.  
Income tax (benefit) expense for the three and nine months ended September 30, 2021 was $(0.5) million and $0.2 million, respectively, compared to $0.2 million and $(1.5) million for the three and nine months ended September 30, 2020, respectively.
During the three and nine months ended September 30, 2021, the effective tax rate was 22% and (4)%, respectively. The differences between the effective tax rates and the statutory rate of 21% were primarily due to the impairment of taxable goodwill impairment of the Company’s Canadian business, a valuation allowance in the U.S. and earnings in Mexico and Canada, which both have higher statutory income tax rates than the U.S.

12. 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
18
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 nine months ended September 30, 2021 were immaterial. Prior to September 30, 2021, the Company signed a lease extension for one of our buildings in Queretaro, Mexico. This extension led to the Company recognizing an additional ROU asset and related liability of $1.6 million.
Leased assets and liabilities included within the condensed consolidated balance sheets consist of the following:
Classification September 30, 2021
(dollars in thousands)
Right-of-Use-Assets
Operating Operating leases $ 10,360 
Liabilities
Current
Operating Other accrued liabilities $ 1,928 
Non-current
Operating Other liabilities 8,971 
Total lease liabilities $ 10,899 
Lease costs included in the condensed consolidated statements of operations consist of the following:
Classification Nine Months Ended September 30, 2021
(dollars in thousands)
Lease cost Cost of sales, selling expenses and general and administrative expense $ 2,015 
Maturity of the Company’s lease liabilities as of September 30, 2021 is as follows:
Lease Liability Maturities
(dollars in thousands)
2021 (remainder) $ 764 
2022 2,435 
2023 1,757 
2024 1,672 
2025 1,665 
Thereafter 5,695 
Total lease payments 13,988 
Less: interest 3,089 
Present value of lease payments $ 10,899 
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:
September 30, 2021
Weighted average remaining lease term (years) 7.1
Weighted average discount rate 6.3  %
19
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Lease costs included in the condensed consolidated statements of cash flows are as follows:
Nine Months Ended September 30, 2021
(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases $ 2,603 

13. 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% of an employee’s contribution up to the first 3% of each employee’s total compensation and 50% for the next 2% 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 $0.3 million for the three and nine months ended September 30, 2021 and $0.1 million and $0.3 million for the three and nine months ended September 30, 2020.

14. 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 $300 thousand 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 (“Taglich”). The Company incurred management fees of $56 thousand for the three months ended March 31, 2021, however, the Forbearance Agreement suspended any further management fee payments until the expiration of the Forbearance Period on February 28, 2022. The Company incurred management fees of $56 thousand and $170 thousand for the three and nine months ended September 30, 2020, 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, 2022. 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.
On September 21, 2021, the Company issued common stock in an offering exempt from registration under the Securities Act of 1933. Taglich Brothers, Inc. acted as placement agent in this offering and received selling commissions equal to 8% of the gross proceeds, approximately, and expenses of $44 thousand. Taglich Brothers also received warrants to purchase 156,320 shares of common stock, exercisable for five years, at a price per share of $3.12.
Beginning in February 2021, the Company began utilizing the services of Engauge Workforce Solutions LLC (“Engauge”), a manufacturing and distribution staffing agency. Ms. Kim Korth, a member of the Company’s Board of Directors, is also the Managing Director of Engauge. In March 2021, the Company entered into an agreement with Engauge for its services. The agreement is for an initial term of 12 months and will continue on a month-to-month basis after the initial term. The Company may terminate the agreement, without penalty, following the initial term with 60 days written notice. The Company has incurred fees for Engauge’s services through September 30, 2021 of $518 thousand.
15. 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.
20
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 variable and fixed interest rates, the scheduled balance of principal outstanding, yield curves and other information readily available in the market. Please refer to Note 8 for more information on the Company’s interest rate swap.
The Company assess goodwill for impairment on at least an annual basis, and more frequently whenever events or changes in circumstances indicate a potential impairment. The goodwill impairment analysis is based on Level 3 inputs, including forecasted EBITDA margins and future cash flows. Please refer to Note 6 for more information on the Company’s goodwill impairment analysis completed as of September 30, 2021.

16. 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.
The following table sets forth the reconciliation of the numerator and the denominator of basic and diluted loss per share for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(dollars in thousands, except per share amounts)
Numerator:
Net income (loss) $ (1,856) $ 996  $ (5,434) $ (5,628)
Denominator:
Weighted average shares outstanding, basic 9,970,299 9,779,147 9,843,565 9,779,147
Dilutive effect of stock-based awards — 48,197 — —
Weighted average share outstanding, diluted 9,970,299 9,827,344 9,843,565 9,779,147
Basic loss per share $ (0.19) $ 0.10  $ (0.55) $ (0.58)
Diluted loss per share $ (0.19) $ 0.10  $ (0.55) $ (0.58)
21
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The effect of certain common stock equivalents were excluded from the computation of weighted average diluted shares outstanding for the three months and nine months ended September 30, 2020, as inclusion would have resulted in anti-dilution. A summary of these anti-dilutive common stock equivalents is provided in the table below:
Nine Months Ended September 30,
2021 2020
Number of options 905,069  698,980 
Exercise price of options
$2.36 - $12.58
$2.36 - $12.58
Warrants(1)
156,320 
Exercise price of warrants $3.12
_________________________________
(1) Includes warrants to purchase 156,320 shares of common stock issued to the underwriters of the Company's equity issuance in September 2021 with an exercise price of $3.12 per share of common stock which expired on September 21, 2026.

17. 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.

22
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. 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 31, 2020 included in our Annual Report on Form 10-K 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 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 and in particular the section entitled “Risk Factors” of the Annual Report on Form 10-K 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
The Company’s operations are classified in one reportable business segment. Although we have expanded the products that we manufacture and sell to include components used in the appliance, medical and consumer/off-road markets, products for these industries are manufactured at facilities that also manufacture or are capable of manufacturing products for the automotive industries. Our manufacturing locations have capabilities to produce diverse products utilizing multiple processes to serve various markets. The manufacturing operations for our transportation, appliance, medical and consumer/off-road 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” or “Unique”) engineers and manufactures components for customers in the transportation, appliance, medical, and consumer/off-road markets. The Company’s solutions are comprised of multi-material foam, rubber, and plastic components and utilized in NVH management, acoustical management, water and air sealing, decorative and other functional applications. The Company 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, 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 is headquartered in Auburn Hills, Michigan.
The Company 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.
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The Company 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 the Company 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, the Company’s products improve the interior comfort of a vehicle, increasing perceived vehicle quality and the overall experience of its passengers. The Company’s products perform similar functions for appliances, medical, and consumer/off-road systems, improving thermal characteristics, reducing noise and prolonging equipment life. We primarily operate within the highly competitive and cyclical automotive parts industry.
The Company’s condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
As of December 31, 2020 and March 31, 2021, the Company was in violation of its financial covenants, as defined in the Company’s Credit Agreement (Note 7). The Company entered into a forbearance agreement and First and Second Amendments to the forbearance agreement, providing a period through and including February 28, 2022, during which the Company was able to borrow on its revolving line of credit, subject to the terms and conditions to making a revolving credit advance, including availability, and the lenders agreed, subject to the terms of the forbearance agreement, as amended, to forbear from enforcing their rights or seeking to collect payment of the Company’s debt or disposing of the collateral securing the debt. The forbearance agreement, as amended, contains certain financial covenants with which we are required to comply, commencing with the nine-month period ended September 30, 2021, through and including the twelve-month period ending February 28, 2022.
As of September 30, 2021, the Company was in violation of its financial covenants as set forth by the forbearance agreement, as amended. Failure to be in compliance with the Company’s financial covenants constitutes an event of default. Such a default, if not waived by our lenders, allows the lenders to accelerate the maturity of the debt, making it immediately due and payable. Accordingly, all debt subject to the Credit Agreement, totaling $47.5 million, has been classified as current as of September 30, 2021. The Company does not have sufficient cash and cash equivalents on hand or available liquidity to repay such debt or meet its obligations as they become due through twelve months from date of issuance of these condensed consolidated financial statements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
In response to these conditions, the Company is discussing with its bank lenders entering into an amendment and waiver to cure the covenant defaults. There is not any assurance that the lenders will waive such non compliance or agree to an amendment to the current provisions. Even if the lenders were to agree to waive the failure to comply as of September 30, 2021, there cannot be any assurance that, at any future date at which compliance is measured, we will be able to comply with the covenants contained in the forbearance agreement, as amended, given the industry-wide and other challenges that we face, as described elsewhere herein, or that our lenders would waive a default if that were to occur. Furthermore, there can be no assurance that the Company will be able to enter into an amendment or waiver with the lenders or if it enters into an amendment, what the terms, restrictions, and covenants of the amendment will contain. These plans have not been finalized and are not within the Company’s control, and therefore cannot be deemed probable. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
Recent Developments
COVID-19 Pandemic
The Company’s operations continue to be adversely affected by the COVID-19 pandemic. In response to the continued impact that 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, in April 2020 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. The Company applied for forgiveness of the loan in the fourth quarter of 2020. On August 9, 2021, the Company received notification that the SBA approved the Company’s PPP Loan forgiveness application for the entire PPP Loan, including accrued interest. The forgiveness of the PPP Loan has been recognized as of the Company’s third quarter ended September 30, 2021.
The adverse impacts of the COVID-19 pandemic led to a significant slowdown in North American vehicle production in the first half of 2020 and beyond, as many automotive companies idled their facilities or reduced production. Increased consumer demand and vehicle production schedules in the second half of 2020 were unexpected in certain areas of the automotive supply chain. This surge in demand, as well as a significant increase in consumer demand for personal electronics led to a worldwide semiconductor supply shortage in early 2021, which has continued through the third quarter of 2021, resulting in decreased demand for our products as automotive OEMs have canceled or reduced planned production. In addition to the uncertainty in our customers’ release schedules, we have experienced longer lead-times, higher costs, and delays in procuring raw materials
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due to shortages initially because of extreme weather patterns in early 2021 that impacted petroleum refining operations in Texas. The higher costs and delays in procuring raw materials have persisted throughout the remainder of the year. As a result, we are currently experiencing incremental costs relating to these supply chain related disruptions. We are continuing to work closely with our suppliers and customers to attempt to minimize the potential adverse impacts on us and we are monitoring closely supply disruptions and customer vehicle production schedules. The magnitude of the adverse impact on our financial condition, results of operations and cash flows to date have been significant and the effect on future results and operations will depend on the duration and unpredictability of the supply shortages, North American vehicle production schedules and supply chain impacts, as to which we cannot be certain at this time.
The Company continues to monitor the COVID-19 pandemic and related developments and will continue to follow health and safety guidelines issued by various governmental entities in the jurisdictions where we operate in order to protect our employees.
Goodwill Impairment
The Company experienced a sustained decline in market capitalization through the third quarter of 2021 representing a potential indicator of impairment. Furthermore, the Company continues to experience the repercussions from the global semiconductor shortage. The most impactful being the decline in sales to our automotive customers, as North American automotive production volumes continue to decrease. The Company identified these circumstances as indicators of impairment and performed an interim quantitative assessment. The quantitative assessment was performed as of September 30, 2021, utilizing a combination of the income and market approaches. The results of the quantitative analysis performed indicated that the carrying value of the reporting unit exceeded the fair value of the reporting unit as of September 30, 2021. As a result, there was a $5.1 million impairment charge recognized during the three and nine months ended September 30, 2021.

Comparison of Results of Operations for the Three Months Ended September 30, 2021 and September 30, 2020
Net Sales
Three Months Ended September 30, 2021 Three Months Ended September 30, 2020
(dollars in thousands)
Net sales $ 29,909  $ 35,550 
Net sales for the quarter ended September 30, 2021 were approximately $29.9 million compared to $35.6 million for the quarter ended September 30, 2020, representing a decrease of 15.9%. This decrease in net sales quarter over quarter is driven by the impact the COVID-19 pandemic has had on the supply chain and on semiconductor supply shortages, which have resulted in canceled or reduced planned production schedules by our customers in the North American automotive market.
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:
Three Months Ended September 30, 2021 Three Months Ended September 30, 2020
Amount As % of net sales Amount As % of net sales
(dollars in thousands)
Materials $ 15,932  53.3  % $ 17,794  50.1  %
Direct labor and benefits 5,369  18.0  % 4,910  13.8  %
Manufacturing overhead 4,577  15.3  % 3,990  11.2  %
Sub-total 25,878  86.5  % 26,694  75.1  %
Depreciation 751  2.5  % 648  1.8  %
Cost of Sales $ 26,629  89.0  % $ 27,342  76.9  %
Gross Profit $ 3,280  11.0  % $ 8,208  23.1  %
Cost of sales as a percentage of net sales for the quarter ended September 30, 2021 increased compared to the quarter ended September 30, 2020. The increase in cost of sales as a percentage of net sales was due to decreased operating leverage as a result of lower net sales and higher overhead costs including utility costs, packaging / supply costs, health insurance, and freight. Material costs rose due to price and freight cost increases from our vendors driven by supply shortages. During the third
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quarter of 2021, direct labor costs and direct labor as a percentage of net sales were negatively impacted by inefficiencies resulting from customer order release cancellations and reductions due to the previously mentioned sudden supply shortages with short notice, which prevented us from adjusting our staffing levels. Manufacturing overhead was negatively impacted by higher employee related costs, including salaries, employer taxes, and health and welfare benefits.
Gross Profit
Gross profit as a percentage of net sales, or gross margin, for the three months ended September 30, 2021 was 11.0% compared to 23.1% for the three months ended September 30, 2020. The decrease in gross profit is the result of lower sales combined with the operating inefficiencies as a result of supply chain constraints and the semiconductor chip shortages, and their impact on demand for our products from our customers as well as higher input costs including raw material, freight, and labor costs.
Selling, General and Administrative Expenses
Three Months Ended September 30, 2021 Three Months Ended September 30, 2020
(dollars in thousands)
Selling, general, and administrative expenses, excluding depreciation and amortization expenses $ 5,173  $ 5,276 
Depreciation and amortization 568  1,105 
Selling, general, and administrative expenses $ 5,741  $ 6,381 
Selling, general, and administrative expenses as a percentage of net sales 19.2  % 17.9  %
Selling, general, and administrative expenses for the quarter ended September 30, 2021 decreased $0.6 million to $5.7 million compared to $6.4 million for the quarter ended September 30, 2020. The decrease was primarily related to a reduction in amortization expense compared to the third quarter of 2020 due to certain intangible assets becoming fully amortized in the first quarter of 2021, resulting in $0.5 million lower amortization expense in the third quarter of 2021. Additionally, salaries and related taxes and benefits decreased when compared to the third quarter of 2020 as efforts to reduce headcount and increase efficiencies were implemented. These decreases were partially offset by increased legal and professional service fees in the third quarter of 2021 in support of our negotiating and entering into the forbearance agreement and continued negotiations with our lenders in addition to the costs associated with remediating the material weaknesses in our internal control over financial reporting previously identified in our Annual Report on Form 10-K for the year ended December 31, 2020.
Operating Income (Loss)
Operating loss for the three months ended September 30, 2021 was $(7.6) million, or 25.3% of net sales, compared to an operating income of $1.8 million, or 5.1% of net sales, for the three months ended September 30, 2020. The operating loss is primarily driven by a non-cash goodwill impairment charge of $5.1 million recorded during the third quarter of 2021, lower sales volumes due to lower demand from our customers as a result of supply chain constraints and the ongoing semiconductor shortages, and the rising input costs as described previously. The goodwill impairment charge is reflective of our current operating environment and market conditions.
Non-Operating Expense / Income
Non-operating income for the three months ended September 30, 2021 was $5.2 million compared to non-operating expense of $0.7 million for the three months ended September 30, 2020. The non-operating income is the result of full forgiveness of the PPP loan together with accrued interest on such loan resulting in a gain on debt extinguishment of $6.1 million in the third quarter of 2021. This was partially offset by higher interest expense due to higher borrowings on our Revolver and higher interest rates as a result of our forbearance agreement, as amended, during the third quarter of 2021 compared to 2020.
Income (Loss) Before Income Taxes
As a result of the foregoing factors, our net income before income taxes decreased $3.5 million to a loss of $(2.4) million for the three months ended September 30, 2021 compared to income of $1.1 million in 2020. This change is the result of the non-cash goodwill impairment charge of $5.1 million and lower gross profit, partially offset by lower selling, general and administrative expenses, and the $6.1 million gain on debt extinguishment related to the forgiveness of our PPP Loan.
Income Tax Provision
During the three months ended September 30, 2021, income tax benefit was $0.5 million, and the effective income tax rate was 22%. The Company had income tax benefit in the 2021 third quarter due to valuation allowance in the U.S. and goodwill impairment tax effects allocated to our Canadian business. The valuation allowance in the U.S. resulted in the non-recognition of tax benefits for net operating losses at our U.S. locations.
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Net Income (Loss)
Net Loss for the three months ended September 30, 2021 was $(1.9) million compared to net income of $1.0 million for the three months ended September 30, 2020. The decrease in net income is primarily the result of forgiveness of the PPP loan and accrued interest offset by the decrease in sales compared to the third quarter of 2020 and the goodwill impairment charge of $5.1 million.

Comparison of Results of Operations for the Nine Months Ended September 30, 2021 and September 30, 2020
Net Sales
Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
(dollars in thousands)
Net sales $ 95,603  $ 85,186 
Net sales for the nine months ended September 30, 2021 were approximately $95.6 million compared to $85.2 million for the nine months ended September 30, 2020, representing an increase of 12.2%. The increase in net sales for the nine months ended September 30, 2021 was primarily caused by the effects of the COVID-19 pandemic on net sales in 2020, which idled our automotive customers’ facilities for the majority of the second quarter of 2020. However, our net sales continue to be less than in comparable periods in recent years prior to the COVID-19 pandemic as a result of decreased demand for our products as automotive OEMs cancelled or reduced planned production due to semiconductor and other supply shortages.
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:
Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
Amount As % of net sales Amount As % of net sales
(dollars in thousands)
Materials $ 50,065  52.4  % $ 43,381  50.9  %
Direct labor and benefits 15,300  16.0  % 13,186  15.5  %
Manufacturing overhead 14,326  15.0  % 11,075  13.0  %
Sub-total 79,691  83.4  % 67,642  79.4  %
Depreciation 2,154  2.3  % 1,904  2.2  %
Cost of Sales $ 81,845  85.6  % $ 69,546  81.6  %
Gross Profit $ 13,758  14.4  % $ 15,640  18.4  %
Cost of sales as a percentage of net sales for the nine months ended September 30, 2021 increased to 85.6% from 81.6% for the nine months ended September 30, 2020. Material costs have been negatively impacted in 2021 due to price increases from our vendors and increased freight costs driven by supply chain constraints. Direct labor costs as a percentage of net sales were negatively impacted by inefficiencies resulting from customer release cancellations and reductions due to the previously described sudden supply shortages. The increase in manufacturing overhead as a percentage of net sales was due to higher overhead costs including utility costs, packaging / supply costs, health insurance, and freight as well as an increase in employee related costs, including salaries, employer taxes, and health and welfare benefit costs.
Gross Profit
Gross profit for the nine months ended September 30, 2021 decreased $1.9 million to $13.8 million compared to $15.6 million for the nine months ended September 30, 2020. The decrease in gross profit is the result of supply chain constraints and semiconductor chip shortages, and their impact on customer releases as well as higher material and labor costs.
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Selling, General and Administrative Expenses
Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
(dollars in thousands)
Selling, general, and administrative expenses, excluding depreciation and amortization expenses $ 15,519  $ 15,301 
Depreciation and amortization 2,117  3,307 
Selling, general, and administrative expenses $ 17,636  $ 18,608 
Selling, general, and administrative expenses as a percentage of net sales 18.4  % 21.8  %
Selling, general, and administrative expenses for the nine months ended September 30, 2021 decreased $1.0 million to $17.6 million compared to $18.6 million for the nine months ended September 30, 2020. This decrease is primarily related to the completion of amortization of certain customer relationships and of non-patented technology, lower people costs, including salaries, employer taxes and benefits, and favorable accounts receivable reserves all partially offset by increased legal and professional fees in 2021 in support of our forbearance agreement and continued negotiations with our lenders in addition to the costs associated with remediating the material weaknesses in our internal control over financial reporting previously identified in our Annual Report on Form 10-K for the year ended December 31, 2020.
Operating Income (Loss)
Operating loss for the nine months ended September 30, 2021 was $(9.0) million, or 9.4% of net sales compared to an operating loss of $(4.2) million, or 4.9% of net sales for the nine months ended September 30, 2020. The increased operating loss in the current year is primarily driven by goodwill impairment charge of $5.1 million, increased input costs and inefficiencies due to changes in planned customer production schedules, offset by the restructuring expenses in 2020 that did not recur in 2021.
Non-Operating Expense / Income
Non-operating income for the nine months ended September 30, 2021 was $3.8 million compared to a non-operating expense of $3.0 million for the nine months ended September 30, 2020. The change in non-operating expense / income is primarily driven by full forgiveness of the PPP loan and accrued interest and reduced mark to market adjustments on our interest rate swap compared to last year. These benefits were partially offset by higher interest expense due to higher borrowings and interest rates on our Revolver during the third quarter of 2021 compared to 2020.
Income (Loss) Before Income Taxes
As a result of the foregoing factors, our loss before income taxes decreased $1.9 million to $(5.2) million for the nine months ended September 30, 2021 compared to a loss of $(7.1) million in 2020.
Income Tax Provision
During the nine months ended September 30, 2021, income tax expense was $0.2 million, and the effective income tax rate was (4)%, compared to an income tax benefit of $1.5 million and an effective income tax rate of 21% during the nine months ended September 30, 2020. The Company had income tax expense in the nine months ended September 30, 2021 due to operating income in our non-U.S. locations, which was offset by goodwill impairment tax effects allocated to our Canadian business. The valuation allowance in the U.S. resulted in the non-recognition of tax benefits for net operating losses at our U.S. locations.
Net Income (Loss)
Net loss for the nine months ended September 30, 2021 was $(5.4) million compared to a net loss of $(5.6) million during the nine months ended September 30, 2020. The decrease in net loss is primarily the result of forgiveness of the PPP loan and accrued interest, and restructuring charges in 2020 that did not recur. These benefits were almost entirely offset by the goodwill impairment charge of $5.1 million recorded in the third quarter of 2021 and increased input costs and inefficiencies due to changes in planned customer production schedules.
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 September 30, 2021 and December 31, 2020, we had a cash balance of $1.1 million and $0.8 million, respectively. As of September 30, 2021 and December 31, 2020, we had $7.4 million and $5.7 million, respectively, available to be borrowed under our revolving credit facility. Our ability to borrow, however, under the revolving line of credit is dependent on the Forbearance Agreement which expires in February 2022, including our compliance with its terms. As of September 30, 2021,
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we were not in compliance with financial covenants in the forbearance agreement. Since that date, the lenders have allowed the Company to continue to borrow under the revolving line of credit. There can be no assurance that they will continue to do so.
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. 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 Amended and Restated Credit Agreement and Loan Documents. Refer to Note 7 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 revolving line of credit (“Revolver”), while not permanently reducing the Revolving Credit Aggregate Commitment, as defined.
On August 7, 2020, the Company entered into the Eighth Amendment. The Eighth Amendment to the Amended and Restated Credit Agreement and Loan Documents, among other things, amended the definition of Consolidated EBITDA and made changes to the calculations of financial covenants. 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 Company’s financial results for the six months ended December 31, 2020, nine months ended March 31, 2021, and nine months ended September 30, 2021 resulted in violations of the following financial covenants: (1) Maximum Total Leverage Ratio; (2) Minimum Debt Service Coverage Ratio; and (3) Minimum Consolidated EBITDA; as defined in the Company’s Amended and Restated Credit Agreement. The Company entered into a Forbearance Agreement, providing a period commencing on April 9, 2021 and through and including June 15, 2021, during which the Company was able to borrow on its Revolver, subject to the terms and conditions to making a revolving credit advance, including availability, and the Lenders agreed, subject to the terms of the Forbearance Agreement, to forbear from enforcing their rights or seeking to collect payment of the Company’s debt or disposing of the collateral securing the debt. However, entering into the forbearance agreement did not alleviate the substantial doubt about the Company’s ability to continue as a going concern.
On June 14, 2021 the Company entered into the First Amendment to the Forbearance Agreement, which among other things, extended the forbearance period from June 15, 2021 to February 28, 2022 and waived the testing of the Maximum Total Leverage Ratio and Minimum Debt Service Coverage ratios for the duration of the Forbearance Period. The First Amendment also substituted Minimum Liquidity and Minimum Consolidated EBITDA requirements which are tested monthly beginning with the month ending July 31, 2021. During the extended period, the Company will continue to be able to borrow under the revolving line of credit, subject to availability and satisfaction of certain other conditions. The Company intends to use the forbearance period to continue negotiations with the Lenders to enter into an amendment and waiver to cure the defaults. During the forbearance period, the Company may not make any payment, transfer, or distribution out of the ordinary course of business or payments, including salary or compensation or distributions to or for the benefit of any member, owner, or director other than normal and customary employment salaries which do not exceed sums paid for similar positions in the Company’s marketplace.
On September 21, 2021 the Company entered into the Second Amendment to Forbearance Agreement, which among other things, makes changes to the calculations of financial covenants, contains revised requirements for Minimum Liquidity and Minimum Consolidated EBITDA, as defined, for the monthly periods through and including February28, 2022, and revises the Revolving Credit Aggregate Commitment from $30 million to $27 million. As of September 30, 2021, the Company was not in compliance with the consolidated EBITDA covenant, principally as a result of industry wide conditions which contributed to adversely affecting our net sales. The Company is discussing with its bank lenders this failure to comply but there is not any assurance that the lenders will waive such non compliance or agree to an amendment to the current provisions. Even if the lenders were to agree to waive the failure to comply as of September 30, 2021, there cannot be any assurance that, at any future date at which compliance is measured, we will be able to comply with these covenants contained in the forbearance agreement, as amended, given the industry-wide and other challenges that we face, as described elsewhere herein, or that our lenders would waive a default if that were to occur.
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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 the Second Amendment to the forbearance agreement, a non-GAAP measure, for the nine months ended September 30, 2021:
Nine Months Ended September 30, 2021
(dollars in thousands)
Net income (loss) $ (5,434)
Plus:
Interest expense 2,305 
Income tax expense 216 
Depreciation and amortization 4,271 
Impairment of goodwill 5,115 
Non-cash stock awards 332 
Non-recurring expenses (a)
14 
Severance costs (b)
155 
Gain on extinguishment of debt (6,072)
Forbearance agreement fees (c)
731 
Consolidated EBITDA, as defined $ 1,633 
_________________________________
(a)    Represents any other non-recurring, non-cash gains during such period, including without limitation, (i) gains from the sale or exchange of assets other than in the ordinary course of business, and (ii) gains from early extinguishment of Indebtedness or Hedging Agreements
(b) Represents costs incurred with respect to employee severance payments made to terminated employees of US Borrower in aggregate amount not to exceed Four Hundred Fifty Thousand and 00/100 Dollars ($450,000) during US Borrower’s 2021 fiscal year and the two-month period ending February 28, 2022
(c)    Represents costs and expenses incurred in connection with the Forbearance Agreement, the First Amendment to Forbearance Agreement, Second Amendment to Forbearance Agreement, and risk mitigation costs in an aggregate amount not to exceed $1,000,000, including the Lenders’ and Agent’s legal fees and the Financial Advisor’s fees
Refer to Note 7, “Long-term Debt,” in Part 1, Item 1, included within this quarterly report on Form 10-Q for the third quarter ended September 30, 2021 for additional information.
Capital Expenditures
In 2021, we plan to spend approximately $4.0 million in capital expenditures, of which $2.4 million was spent through September 30, 2021, 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.
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, 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 DSCR, as defined, is greater than 1.10 to 1.00, and Borrower is in compliance with financial covenants, before and after giving effect to the distributions. The Forbearance Agreement, as amended, does not permit the payment of dividends and if we are able to enter into a waiver of our existing defaults and amendments to our Amended and Restated Credit Agreement, it is likely that the amendments will restrict or prohibit dividends.
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Cash Flow Data
The following table presents cash flow data for the periods presented:
Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020
(dollars in thousands)
Cash flows provided by (used in):
Operating activities $ (3,603) $ (141)
Investing activities $ (2,332) $ (499)
Financing activities $ 6,321  $ 1,622 
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; loan forgiveness; 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 nine months ended September 30, 2021, net cash used by operating activities was $3.6 million, compared to net cash used by operating activities of $0.1 million for the nine months ended September 30, 2020. The increase in cash used by operating activities was primarily attributable to increased inventory levels driven by delays in customers releasing orders.
Investing Activities
Cash provided by or used in investing activities consists principally of purchase and sale of property, plant and equipment.
During the nine months ended September 30, 2021 and September 30, 2020, we made capital expenditures of $2.4 million and $1.4 million, respectively. We plan to spend a total of approximately $4.0 million in capital expenditures during 2021, including the $2.4 million spent through September 30, 2021.
Financing Activities
Cash flows provided by or used in financing activities consists primarily of borrowings and payments under our senior credit facilities, proceeds from the issuance of common stock, debt issuance costs, proceeds from any exercise of stock options and warrants, and distribution of cash dividends.
During the nine months ended September 30, 2021, we had net cash provided by financing activities of $6.3 million compared to $1.6 million during the nine months ended September 30, 2020. Driving the cash inflows during the nine months ended September 30, 2021 was proceeds from borrowings under the Company’s line of credit and proceeds from the issuance of common stock and warrants.
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 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 condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statements of stockholders’ equity or condensed consolidated cash flows.
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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-Kfor the year ended December 31, 2020. 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.
Goodwill Impairment
The Company assess goodwill for impairment on at least an annual basis, and more frequently whenever events or changes in circumstances indicate a potential impairment. Throughout 2021, the Company’s common stock share price and market capitalization have declined. The Company also continues to experience the repercussions from the global semiconductor shortage, the most impactful being the decline in sales to our automotive customers, as North American automotive production volumes continue to decrease. Further, the Company has experienced increased input costs (labor, material, freight, packaging, etc.) throughout the year. Material costs have continued to rise, as have shipping costs.
The Company identified these circumstances and concluded it was more likely than not the fair value of the Company was impaired, and performed an interim quantitative assessment. The Company performed an interim quantitative assessment as of September 30, 2021, using a combination of the income and market approaches. The analysis required the comparison of the Company’s carrying value with it’s fair value, with an impairment recorded for any excess of carrying value over the fair value. The discounted cash flow method was used to determine the fair value of the reporting unit under the income approach. Key assumptions used in the analysis included a discount rate of 14.8%, a terminal growth rate for cash flows of 3%, and EBITDA margins of 10.8% by 2025. The guideline public company method was used to determine the fair value of the reporting unit under the market approach. Key assumptions used in this method included revenue and EBITDA multiples for each guideline company. The results of the quantitative analysis performed indicated the carrying value of the reporting unit exceeded the fair value of the reporting unit as of September 30, 2021. As a result, the Company recorded a $5.1 million impairment charge.
Future events and changing market conditions may require a re-evaluation of the assumptions used in the determination of the fair value of the Company. Key assumptions include those used in the expected EBITDA margins and cash flows, as well as other assumptions with respect to those out of the Company’s control, such as discount rates and market multiple comparables.
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
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monthly settlement based on the notional amount in effect. The notional amount at the effective date was $1.90 million which decreased by $0.10 million each quarter until it expired 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 increased by $0.04 million each quarter until June 29, 2018 when the notional amount increased to $17.5 million due to the interest rate swap from 2016 described above expiring. The notional amount then decreased each quarter by $0.1 million until September 30, 2020 when the notional amount increased 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 September 30, 2021, the fair value of all swaps was in a net liability position of $0.8 million and is included in other accrued liabilities and other long term liabilities in the condensed consolidated balance sheets.
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.

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,” at 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 weaknesses 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 for the year ended December 31, 2020, the Company’s disclosure controls and procedures were not effective as of September 30, 2021 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 that 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.
Notwithstanding the conclusion by our CEO and CFO that our Disclosure Controls as of September 30, 2021 were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described more fully under Item 9A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, management believes that the consolidated financial statements and related financial information included in this Quarterly Report on Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows as of the date presented, and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
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 for the year ended December 31, 2020, the Company identified deficiencies that constitute material weaknesses related to limited finance staffing levels that are not commensurate with the Company’s complexity and its financial accounting and reporting requirements. The material weaknesses continued to exist as of the end of the period covered by this Quarterly Report.
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Remediation Plan for Material Weaknesses 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 for the year ended December 31, 2020. The Company hired a third-party firm to assist with the Company’s remediation efforts, and with their assistance, the Company has completed a gap analysis of its internal control over financial reporting and has been implementing certain new or redesigned controls. The Company has begun the process of assessing if the new or redesigned controls implemented as part of its remediation efforts are operating effectively. Accordingly, while the Company believes it has made significant progress with its remediation activities, we have concluded that as of September 30, 2021, the material weaknesses have not yet been remediated.
Changes in Internal Control over Financial Reporting
Other than the ongoing steps being taken to remediate the material weaknesses described above and under “Item 9A. Controls and Procedures-Internal Control Over Financial Reporting” in the 2020 Form 10-K, there were no changes during the three and nine months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable

Item 1A. Risk Factors
The Company’s cash flows from operations and borrowings under our Amended and Restated Credit agreement, may not be sufficient to cover the Company’s liquidity needs.
Our principal sources of liquidity are cash flows from operations and borrowings under our Amended and Restated Credit Agreement from our senior lenders. As of September 30, 2021 we had $7.4 million, available to be borrowed under our revolving credit facility and approximately $1.1 million cash and cash equivalents. Our ability to borrow, however, under the revolving line of credit is dependent on our compliance with the forbearance agreement, as amended, which currently expires in February 2022. As of September 30, 2021, we were not in compliance with financial covenants in the forbearance agreement. The Company intends to continue negotiations with the Lenders to enter into an amendment and waiver to cure the defaults. Until such time as an amendment is granted, and there is no guarantee that an amendment will be granted, the Company must manage it’s liquidity needs with cash flows from operations and remaining availability, if any, subject to the Amended and Restated Credit Agreement and the Forbearance Agreement. To date, the failure to comply with financial covenants has not resulted in the Company not being able to borrow under the revolving line of credit. There can be no assurance that will continue to be the case or that such sources will be available to us or sufficient to fund our operating and other requirements even if our lenders agree to amend the Amended and Restated Credit agreement or forbearance agreement.
Management has determined there are conditions that raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP, applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
As of December 31, 2020, and March 31, 2021, and September 30, 2021, the Company was in violation of a number of its loan covenants. The Company entered into a forbearance agreement and First and Second Amendments to the forbearance agreement, providing a period through and including February 28, 2022, during which the Company was able to borrow on its revolving line of credit, subject to the terms and conditions to making a revolving credit advance, including availability, and the lenders agreed, subject to the terms of the forbearance agreement, as amended, to forbear from enforcing their rights or seeking to collect payment of the Company’s debt or disposing of the collateral securing the debt. Our forbearance agreement, as amended, contains certain financial covenants with which we are required to comply, commencing with the nine-month period ended September 30, 2021, through and including the twelve-month period ending February 28, 2022.
As of September 30, 2021, the Company was in violation of its financial covenants as set forth by the forbearance agreement, as amended. Failure to be in compliance with the Company’s financial covenants constitutes an event of default. Such a default, if not waived by our lenders, allows the lenders to accelerate the maturity of the debt, making it immediately due and payable. Accordingly, all debt subject to the Credit Agreement, totaling $47.5 million, has been classified as current as of September 30, 2021. The Company does not have sufficient cash and cash equivalents on hand or available liquidity to repay such debt or
34
meet its obligations as they become due through twelve months from date of issuance of these condensed consolidated financial statements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
In response to this condition, the Company is discussing with its bank lenders to enter into an amendment and waiver to cure the defaults. There is not any assurance that the lenders will waive such non compliance or agree to an amendment to the current provisions. Even if the lenders were to agree to waive the failure to comply as of September 30, 2021, there cannot be any assurance that, at any future date at which compliance is measured, we will be able to comply with these covenants contained in the forbearance agreement, as amended, given the industry-wide and other challenges that we face, as described elsewhere herein, or that our lenders would waive a default if that were to occur. There can be no assurance that the Company will be able to enter into an amendment or waiver with the lenders or if it enters into an amendment, what the terms, restrictions, and covenants of the amendment will contain. These plans have not been finalized and are not within the Company’s control, and therefore cannot be deemed probable. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3. Defaults Upon Senior Securities
The Company’s financial results for the six months ended December 31, 2020, nine months ended March 31, 2021, and nine months ended September 30, 2021 have resulted in violations of certain of its financial covenants, as defined in the Company’s Credit Agreement. Please refer to Note 7 for further discussion of the defaults.

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* 
 
31.2* 
 
32.1**
 
32.2**
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: November 15, 2021 By: /s/ Brian P. Loftus
Brian P. Loftus
Chief Financial Officer
(Principal Financial and Accounting Officer)


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