UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)QUARTERLY REPORT PURSUANT TO SECTION
Quarterly Report Pursuant to Section 13 ORor 15(d) OF THE SECURITIES EXCHANGE ACT OFof the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 29, 2019
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-20200331_g1.jpg
Delaware46-1846791
(State or other jurisdiction of

incorporation or organization)
(IRS Employer

Identification No.)

Unique Fabricating, Inc.
800 Standard Parkway
Auburn Hills,, MI48326
(248)-(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 classTrading SymbolSymbol(s)Name of each exchange on which registered
Common Stock, par value $.001 per shareUFABNYSE 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. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 November 7, 2019,June 11, 2020, the registrant had 9,779,147 shares of common stock outstanding.


Table of Contents

UNIQUE FABRICATING, INC.
FORM 10-Q
TABLE OF CONTENTS

Page


i
1

Table of Contents

Part I – FINANCIAL INFORMATION
ITEMItem 1. FINANCIAL STATEMENTS    Financial Statements 
UNIQUE FABRICATING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited – dollars in thousands)
  March 31,
2020
December 29,
2019
Assets  
Current assets  
Cash and cash equivalents$1,759  $650  
Accounts receivable, net of reserves of approximately $0.8 million and $0.9 million at March 31, 2020 and December 29, 2019, respectively24,806  24,701  
Inventory, net15,259  13,047  
Prepaid expenses and other current assets:  
Prepaid expenses and other3,295  2,108  
Refundable taxes1,207  1,049  
Assets held for sale1,003  1,003  
Total current assets47,329  42,558  
Property, plant, and equipment, net23,096  23,415  
Goodwill22,111  22,111  
Intangible assets10,639  11,625  
Other assets
Operating leases11,421  —  
Investments, at cost1,054  1,054  
Deposits and other assets226  226  
Deferred tax asset679  679  
Total assets$116,555  $101,668  
Liabilities and Stockholders’ Equity  
Current liabilities:  
Accounts payable$14,956  $9,324  
Current maturities of long-term debt2,847  2,847  
Accrued compensation764  1,225  
Other accrued liabilities3,403  1,979  
Total current liabilities21,970  15,375  
Long-term debt, net of current maturities31,819  33,220  
Line of credit11,750  11,418  
Other long-term liabilities:
Deferred tax liability874  1,324  
Other liabilities11,796  871  
Total liabilities78,209  62,208  
Stockholders’ equity:
Common stock, $0.001 par value: 15,000,000 shares authorized and 9,779,147 and 9,779,147 issued and outstanding at March 31, 2020 and December 29, 2019, respectively10  10  
Additional paid-in-capital46,034  46,011  
Accumulated deficit(7,698) (6,561) 
Total stockholders’ equity38,346  39,460  
Total liabilities and stockholders’ equity$116,555  $101,668  
The accompanying notes are an integral part of these Condensed Consolidated Balance Sheets (Unaudited)Statements.
2
  September 29,
2019
 December 30,
2018
Assets  
  
Current assets  
  
Cash and cash equivalents$1,527,065
 $1,409,593
Accounts receivable – net27,852,600
 30,831,182
Inventory – net14,532,549
 16,285,507
Prepaid expenses and other current assets:  
  
Prepaid expenses and other2,606,478
 2,511,486
Refundable taxes1,405,034
 983,073
Total current assets47,923,726
 52,020,841
Property, plant, and equipment – net24,991,472
 25,077,745
Goodwill22,110,782
 28,871,179
Intangible assets– net12,598,169
 15,568,383
Other assets   
Investments – at cost1,054,120
 1,054,120
Deposits and other assets225,057
 198,854
Deferred tax asset744,920
 496,181
Total assets$109,648,246
 $123,287,303
Liabilities and Stockholders’ Equity  
  
Current liabilities  
  
Accounts payable$12,805,366
 $11,465,222
Current maturities of long-term debt2,947,498
 3,350,000
Income taxes payable
 40,634
Accrued compensation2,329,549
 2,848,282
Other accrued liabilities1,731,984
 1,432,109
Total current liabilities19,814,397
 19,136,247
Long-term debt – net of current portion33,432,062
 34,667,768
Line of credit-net14,453,598
 17,904,869
Other long-term liabilities1,037,994
 395,154
Deferred tax liability1,470,413
 2,295,105
Total liabilities70,208,464
 74,399,143
Stockholders’ Equity   
Common stock, $0.001 par value – 15,000,000 shares authorized and 9,779,147 and 9,779,147 issued and outstanding at September 29, 2019 and December 30, 2018, respectively9,780
 9,780
Additional paid-in-capital45,998,996
 45,881,848
Retained earnings(6,568,994) 2,996,532
Total stockholders’ equity39,439,782
 48,888,160
Total liabilities and stockholders’ equity$109,648,246
 $123,287,303

See Notes to Condensed Consolidated Financial Statements.


UNIQUE FABRICATING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited – dollars in thousands, except per share amounts)


  Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Net sales$34,976  $39,467  
Cost of sales27,901  31,167  
Gross profit7,075  8,300  
Selling, general, and administrative expenses5,865  7,273  
Restructuring expenses920  91  
Operating income290  936  
Other income (expense):  
Other, net(24) 18  
Interest expense(1,666) (1,100) 
Other expense, net(1,690) (1,082) 
(Loss) before income tax (benefit) expense(1,400) (146) 
Income tax (benefit) expense(263) 43  
Net loss$(1,137) $(189) 
Net loss per share:  
Basic$(0.12) $(0.02) 
Diluted$(0.12) $(0.02) 
Dividends declared per share$—  $0.05  


The accompanying notes are an integral part of these Condensed Consolidated StatementsStatements.
3

Table of Operations (Unaudited)


See Notes to Condensed Consolidated Financial Statements.


UNIQUE FABRICATING, INC.
Condensed Consolidated Statements of Stockholders’ Equity  (Unaudited)CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited – dollars in thousands)
 Number of Shares Common Stock 
Additional
Paid-In
Capital
 Retained Earnings Total
Balance - December 31, 20179,757,563
 $9,758
 $45,712,568
 $5,159,753
 $50,882,079
Net income
 
 
 1,511,889
 1,511,889
Stock option expense
 
 33,260
 
 33,260
Exercise of warrants and options for common stock9,000
 9
 29,991
 
 30,000
Cash dividends paid
 
 
 (1,465,000) (1,465,000)
Balance - April 1, 20189,766,563
 $9,767
 $45,775,819
 $5,206,642
 $50,992,228
Net income
 
 
 1,751,009
 1,751,009
Stock option expense
 
 32,680
 
 32,680
Exercise of warrants and options for common stock5,024
 5
 3,995
 
 4,000
Cash dividends paid
 
 
 (1,465,223) (1,465,223)
Balance - July 1, 20189,771,587
 $9,772
 $45,812,494
 $5,492,428
 $51,314,694
Net income
 
 
 626,823
 626,823
Stock option expense
 
 32,681
 
 32,681
Exercise of warrants and options for common stock
 
 
 
 
Cash dividends paid
   
 (1,465,681) (1,465,681)
Balance - September 30, 20189,771,587
 $9,772
 $45,812,494
 $5,492,428
 $50,508,517


Number of Shares of Common StockCommon StockAdditional
Paid-In
Capital
Retained EarningsTotal
Balance - December 30, 20189,779,147  $10  $45,882  $2,997  $48,888  
Net loss—  —  —  (189) (189) 
Stock option expense—  —  33  —  33  
Cash dividends paid—  —  —  (489) (489) 
Balance - March 31, 20199,779,147  $10  $45,915  $2,319  $48,243  

 Number of Shares Common Stock 
Additional
Paid-In
Capital
 Retained Earnings Total
Balance - December 30, 20189,779,147
 $9,780
 $45,881,848
 $2,996,532
 $48,888,160
Net loss
 
 
 (189,117) (189,117)
Stock option expense
 
 32,681
 
 32,681
Cash dividends paid
 
 
 (488,957) (488,957)
Balance - April 1, 20199,779,147
 $9,780
 $45,914,529
 $2,318,458
 $48,242,767
Net (loss) income
 
 
 (7,623,295) (7,623,295)
Stock option expense
 
 65,681
 
 65,681
Balance - June 30, 20199,779,147
 $9,780
 $45,980,210
 $(5,304,837) $40,685,153
Net (loss) income
 
 
 (1,264,157) (1,264,157)
Stock option expense
 
 18,786
 
 18,786
Balance - September 29, 20199,779,147
 $9,780
 $45,998,996
 $(6,568,994) $39,439,782
Number of Shares of Common StockCommon StockAdditional
Paid-In
Capital
Accumulated DeficitTotal
Balance - December 29, 20199,779,147  $10  $46,011  $(6,561) $39,460  
Net loss—  —  —  (1,137) (1,137) 
Stock option expense—  —  23  —  23  
Cash dividends paid—  —  —  —  —  
Balance - March 31, 20209,779,147  $10  $46,034  $(7,698) $38,346  
 

See Notes to
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



UNIQUE FABRICATING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited – dollars in thousands)

  Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Cash Flows from Operating Activities    
Net loss$(1,137) $(189) 
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization1,751  1,702  
Amortization of debt issuance costs37  44  
Loss on sale of assets12  (7) 
Bad debt adjustment213  61  
Loss on derivative instrument614  272  
Stock option expense23  33  
Deferred income taxes(450) (114) 
Accounts receivable(318) 528  
Inventory(2,266) 415  
Prepaid expenses and other assets(1,344) 251  
Accounts payable5,968  62  
Accrued and other liabilities(848) (1,487) 
Other, net593  —  
Net cash provided by operating activities2,848  1,571  
Cash Flows from Investing Activities    
Capital expenditures(296) (870) 
Proceeds from sale of property, plant and equipment  
Net cash used in investing activities(291) (863) 
Cash Flows from Financing Activities    
Net change in bank overdraft(335) 1,355  
Payments on term loans(1,425) (1,925) 
Proceeds from capital expenditure line—  700  
(Payments on) proceeds from revolving credit facilities, net312  (454) 
Distribution of cash dividends—  (489) 
Net cash used in financing activities(1,448) (813) 
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents1,109  (105) 
Cash and cash equivalents at beginning of period650  1,410  
Cash and cash equivalents at end of period$1,759  $1,305  
Supplemental disclosure of cash flow information:    
Cash paid for interest$1,513  $1,051  
Cash paid for Income taxes$241  $133  

The accompanying notes are an integral part of these Condensed Consolidated StatementsStatements.
5

Table of Cash Flows (Unaudited)Contents
  Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
Cash flows from operating activities  
   
Net (loss) income$(9,076,569) $3,889,721
Adjustments to reconcile net income to net cash provided by operating activities:  
   
Impairment of goodwill6,760,397
 
Inventory allowance1,741,924
 
Depreciation and amortization5,139,638
 4,947,495
Amortization of debt issuance costs133,112
 106,609
Loss on sale of assets4,959
 5,179
Bad debt adjustment191,363
 (52,483)
Loss (gain) on derivative instrument745,803
 (5,645)
Stock option expense117,148
 98,621
Deferred income taxes(1,073,431) 27,797
Changes in operating assets and liabilities that provided (used) cash:  
   
Accounts receivable2,787,219
 (3,902,083)
Inventory11,034
 (1,176,587)
Prepaid expenses and other assets(646,119) (445,198)
Accounts payable336,821
 2,708,213
Accrued and other liabilities(259,492) 614,747
Net cash provided by operating activities6,913,807
 6,816,386
Cash flows from investing activities  
   
Purchases of property and equipment(2,129,658) (4,691,424)
Proceeds from sale of property and equipment41,548
 28,205
Net cash used in investing activities(2,088,110) (4,663,219)
Cash flows from financing activities  
   
Net change in bank overdraft1,003,323
 (364,849)
Payments on term loans and note payable(3,012,500) (2,962,477)
Proceeds from capital expenditure line1,300,000
 
(Repayment) proceeds from revolving credit facilities, net(3,510,091) 5,088,039
Proceeds from exercise of stock options and warrants
 34,000
Distribution of cash dividends(488,957) (4,395,904)
Net cash used in financing activities(4,708,225) (2,601,191)
Net increase (decrease) in cash and cash equivalents117,472
 (448,024)
Cash and cash equivalents – beginning of period1,409,593
 1,430,937
Cash and cash equivalents – end of period$1,527,065
 $982,913
Supplemental disclosure of cash flow Information – cash paid for

  
   
Interest$3,442,309
 $2,304,312
Income taxes$356,964
 $1,178,482
See Notes to Condensed Consolidated Financial Statements.
UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)


Note 1 —1. Nature of Business and Significant Accounting PoliciesBasis of Presentation

Nature of Business — UFI Acquisition, Inc. (“UFI”), a Delaware corporation, was formed on January 14, 2013, for the purpose of acquiring
Unique Fabricating, Inc. (the “Company”) engineers and its subsidiaries (“Unique Fabricating”) (collectively, the “Company” or “Unique”) on March 18, 2013.manufactures multi-material foam, rubber, and plastic components utilized in noise, vibration and harshness, acoustical management, water and air sealing, decorative and other functional applications. The Company operates as 1 operating and reportable segment to fabricate and broker foam and rubber products, which are primarily sold to original equipment manufacturers (“OEMs”) and tiered suppliers in the automotive, appliance, water heater and heating, ventilation and air conditioning (HVAC) industries. In September 2014, UFI changed its name to Unique Fabricating, Inc. which is now the parent company of the consolidated group. As a result of the name change, the subsidiary previously named Unique Fabricating, Inc. became Unique Fabricating NA, Inc.segment.

Basis of Presentation — 
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). TheCertain information furnishedand footnote disclosures normally included in the consolidated financial statements includes normal recurring adjustmentsprepared in accordance with generally accepted accounting principals have been condensed or omitted pursuant to such rules and reflects all adjustments which are, inregulations. In the opinion of management, the accompanying condensed consolidated financial statements contain all material adjustments (consisting only of normal recurring adjustments) necessary forto present fairly the fair presentationconsolidated financial position of such financial statements.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. TheseThe condensed consolidated financial statements included herein should be read in conjunction with the notes to the condensed consolidated financial statements as of and the notes thereto included in the Company’s Annual Report on Form 10-K/A for the year ended December 30, 2018 included in the Companys’s annual report on Form 10-K for such period.29, 2019.

Going Concern
Principles of Consolidation — The Company’s condensed consolidated financial statements includeare prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the accountsrealization of assets and the satisfaction of liabilities in the normal course of business. Refer to Note 6 for discussion of the Company’s financial covenant compliance.
As of March 31, 2020, the Company was in compliance with its financial covenants. However, due to the impact of the COVID-19 pandemic on the Company and all subsidiaries over whichthe global automotive industry, the Company exercises control. All intercompany transactionsprojected it would not be in compliance with its financial covenants related to the Bank EBITDA for the twelve months ended June 30, 2020. In response to the anticipated impact of COVID-19, on April 23, 2020, the US Borrower and balancesthe CA Borrower (together the “Borrowers”) entered into the Seventh Amendment (the “Seventh Amendment”) to the Credit Agreement and Loan Documents. The Seventh Amendment, among other things, (i) permits additional indebtedness in the form of unsecured loans authorized pursuant to and in compliance with the CARES Act under the Paycheck Protection Program of the U.S. Small Business Administration, in an aggregate amount not to exceed $6.0 million; (ii) defers the June 30, 2020 principal payments on the US Term Loan, CA Term Loan, and CAPEX Loan, with the deferred principal amounts payable at the existing maturity dates; (iii) waives the requirement to test Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the fiscal quarter ending June 30, 2020; (iv) allows the release of the lien on the Evansville, Indiana property and for the net cash proceeds from its sale to be applied against any outstanding balance on the Revolver, which will not permanently reduce the Revolving Credit Aggregate Commitment; (v) adds a weekly requirement for the Borrowers to deliver a 13-week cash flow forecast until September 30, 2020; and (vi) adds a 1.0% LIBOR Floor and 2.0% Base Rate Floor.
While the Seventh Amendment waives the requirement to test the Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the second quarter of 2020, it does not waive these requirements for periods after the second quarter of 2020. Bank EBITDA, as defined, for the twelve months ended September 30, 2020, December 31, 2020, and March 31, 2021 is likely to result in the Company not being in compliance with its financial covenants, as these periods will include the financial results of the second quarter of 2020 which will be materially impacted by the COVID-19 pandemic. Absent an amendment or waiver, failure to be in compliance with the Company’s financial covenants would constitute a default when reported. Such a default, if not cured or waived, would allow the lenders to accelerate the maturity of the debt, making it due and payable at that time. If the maturity of the debt were accelerated, the Company would not have sufficient available liquidity to repay such debt within one year after the date that the financial statements are issued. This condition raises substantial doubt about the Company’s ability to continue as a going concern.
The Company has been eliminated upon consolidation.actively discussing the impact the COVID-19 pandemic is expected to have on the Company’s ability to meet its financial covenants with the Administrative Agent and the need to modify the covenant terms through the periods that the Company believes may be impacted. The Company believes it is probable that the Company will obtain an amendment modifying the covenant terms prior to triggering a default. As a result, the Company has concluded that it’s plans to obtain covenant relief are probable of being achieved, to alleviating substantial doubt about the Company’s ability to continue as a going concern.
6


UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fiscal Years
 — The
Change in Quarter and Year-End
Historically, the Company’s quarterly periods endended on the Sunday closest to the end of the calendar quarterly period. For 2019, the quarterquarters and year to date period, which were 13 and 39 weeks, respectively, ended on March 31, June 30, September 29, 2019, and for 2018,December 29, 2019. On March 13, 2020, the Company’s board of directors approved changing our quarterly periods to match calendar quarterly periods. The Company expects the impact of this change on our 2020 result of operations to be immaterial. All year, quarter, and three month references prior to 2020 relate to the Company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, quarter and three months ended is used throughout this Quarterly Report on Form 10-Q to date period, whichrepresent both the current year calendar quarterly periods and the prior year fiscal year periods.
Concentration Risks
The Company is exposed to significant concentration risks as follows:
Customer and Credit — During the three months ended March 31, 2020 and three months ended March 31, 2019, the Company’s net sales were 13derived from customers principally engaged in the North American automotive industry.  The following table presents the Company's sales directly and 39 weeks, respectively, ended on September 30, 2018. Fiscal year 2018 ended on Sunday, December 30, 2018.indirectly to General Motors Company (GM), Fiat Chrysler Automobiles (FCA), and Ford Motor Company (Ford) as a percentage of total net sales:

  Three Months Ended March 31, 2020Three Months Ended March 31, 2019
General Motors Company17 %18 %
Fiat Chrysler Automobiles14 %15 %
Ford Motor Company10 %11 %
No customer represented more than 10 percent of direct Company sales for the three months ended March 31, 2020. GM accounted for 9 percent of direct Company sales for the three months ended March 31, 2020.
Cash and Cash EquivalentsLabor Markets — At March 31, 2020, of the Company’s hourly plant employees working in the United States manufacturing facilities, 40 percent were covered under a collective bargaining agreement which expires in August 2022 while another 6 percent were covered under a separate collective bargaining agreement that expires in February 2023.
International Operations— The Company considers all highly liquid investments with an original maturity of three months or less to be cashmanufactures and cash equivalents.

Accounts Receivable — Accounts receivable are stated at the invoiced amount and do not bear interest. The allowance for doubtful accounts is management’s best estimatesells products outside of the amountUnited 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 probable credit losses infunds; 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 existing accounts receivable. Management determines the allowance based on historical write-off experience and an understanding of individual customer payment history and financial condition. 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. The allowance for doubtful accounts was $849,423 and $684,996 at September 29, 2019 and December 30, 2018, respectively.

Inventory — Inventory is stated at the lower of cost or market, with cost determined on the first in, first out method (FIFO). Inventory acquired as part of a business combination is recorded at its estimated fair value at the timepercentage of the business combination. The Company periodically evaluates inventory for obsolescence, excess quantities, slow moving goodsCompany's total production in Mexico, Canada, and other impairments of value and establishes reserves for any identified impairments.foreign markets:

  Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Mexico23 %19 %
Canada%%
Other— %%
Valuation of Long-Lived Assets — The carrying value of long-lived assets held for use is periodically evaluated when events or circumstances warrant such a review. The carrying value of a long-lived asset held for use is considered impaired whenfollowing table presents the anticipated separately identifiable undiscounted cash flows from the asset are less than the carrying valuepercentage of the asset. In that event, a loss is recognized based on the amountCompany's total net sales represented by which the carrying value exceeds the fair value of the long-lived asset. The Company determined that no impairment indicators were presentnet sales from customers located in Mexico, Canada, and all originally assigned useful lives remained appropriate during the 13 and 39 weeks ended September 29, 2019 and 13 and 39 weeks ended September 30, 2018, respectively.other foreign countries:

  Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Mexico23 %18 %
Canada%%
Other— %%
Property, Plant, and Equipment — Property, plant, and equipment purchases are recorded at cost. Property, plant, and equipment acquired as part of a business combination are recorded at estimated fair value at the time of the business combination. Depreciation is calculated using the straight line method over the estimated useful life of each asset. Leasehold
7

UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes(Unaudited)
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 Financial Statements (Unaudited)

improvementsBalance Sheets, and lease liabilities, which are depreciated overreflected in the shorterOther Accrued Liabilities on the Condensed Consolidated Balance Sheets. This guidance was effective for the Company as of January 1, 2020. Adoption of the estimated useful lifenew standard resulted in the recording of right-of-use assets and liabilities of $12.1 million and $12.8 million as of January 1, 2020. The FASB has issued further ASUs related to the standard providing an optional transition method allowing entities to not recast comparative periods. The Company elected the practical expedients upon transition that retained the lease classification and initial direct costs for any leases that exist prior to adoption of the asset or the period of the related leases. Upon retirement or disposal, the initial cost or valuation and accumulated depreciation are removed from the accounts, and any gain or loss is included in net income. Repair and maintenance costs are expensed as incurred.

Intangible Assets — The Company does not hold any intangible assets with indefinite lives. Identifiable intangible assets recognized as part of a business combination are recorded at their estimated fair value at the time of the business combination. Acquired intangible assets subject to amortization are amortized on a straight line basis, which approximates the pattern in which the economic benefit of the respective intangible is realized, over their respective estimated useful lives. Amortizable intangible assets are reviewed for impairment whenever events or circumstances indicate that the related carrying amount may be impaired. The remaining useful lives of intangible assets are reviewed to determine whether events and circumstances warrant a revision to the remaining period of amortization. The Company determined that no impairment indicators were present and all originally assigned useful lives remained appropriate during the 13 and 39 weeks ended September 29, 2019 and 13 and 39 weeks ended September 30, 2018, respectively.

Goodwill — Goodwill represents the excess of the acquisition cost of consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed from business combinations at the date of acquisition. Goodwill is not amortized, but rather is assessed at least on an annual basis for impairment. If it is determined that it is more likely than not that the fair value is greater than the carrying value of a reporting unit then a qualitative assessment may be used for the annual impairment test. Otherwise, a one-step process is used which requires estimating the fair value of each reporting unit compared to its carrying value. If the carrying value exceeds the estimated fair value, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.standard. The Company has 1 reporting unit and operating segment for goodwill testing purposes.

During the second quarterapproximately $12.3 million of 2019, the Company experienced a decline in market capitalization, which is a potential indicator of impairment. As a result, the Company performed an interim quantitative assessmentnoncancelable future rental obligations as of June 30, 2019, utilizing a combination of the income and market approaches, which were weighted evenly. The results of the quantitative analysis performed indicated the carrying value of the reporting unit exceeded the fair value of the reporting unitMarch 31, 2020, as of June 30, 2019. A goodwill impairment charge of $6,760,397 was recognized during the 39 weeks ended September 29, 2019 and 0 impairment charges recognized during the 13 weeks ended September 29, 2019 and 13 and 39 weeks ended September 30, 2018, respectively. Key assumptions used in the analysis were a discount rate of 12.5%, EBITDA margin and a terminal growth rate of 2.0%. No such indicators of impairment were identified during the 13 weeks ended September 29, 2019.

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

At September 29, 2019 and December 30, 2018, debt issuance costs were $322,973 and $381,793, respectively, while amounts paid to or on behalf of lenders presented as debt discounts were $407,938 and $482,232, respectively. On November 8, 2018, the Company amended its current Credit Agreement (the “Amended and Restated Credit Agreement”), which increased the Company's term loan debt and is further described in Note 6. The Company reviewed this amendment for extinguishment accounting and concluded that as of the date of the amendment $59,110 of the remaining $172,600 debt issuance costs not amortized on the revolving debt facility qualified for extinguishment accounting and were recognized as a loss on extinguishment immediately. The remaining unamortized debt issuance costs not extinguished on the old revolving debt facility and all of the of remaining unamortized debt issuance costs on the term loans did not meet extinguishment accounting and therefore were carried forward to the new revolving debt facility and term loans.

Amortization expense of both debt issuance costs and debt discounts has been recognized as a component of interest expense in the amounts of $44,369 and $133,112 for the 13 and 39 weeks ended September 29, 2019, and $35,536 and $106,609 for the 13 and 39 weeks ended September 30, 2018, respectively.

11.
Investments — Investments in entities in which the Company has less than a 20 percent interest or is not able to exercise significant influence are carried at cost, as there is not a readily determined fair value for these investments. Dividends received are included in income, except for those dividends received in excess of the Company’s proportionate share of accumulated
UNIQUE FABRICATING, INC.3. Revenues

Notes to Condensed Consolidated Financial Statements (Unaudited)

earnings, which are applied as a reduction of the cost of the investment. Impairment losses due to a decline in the value of the investment that is other than temporary are recognized when incurred. NaN dividend income or impairment loss was recognized for the 13 and 39 weeks ended September 29, 2019 and 13 and 39 weeks ended September 30, 2018, respectively.

Accounts Payable — Under the Company’s cash management system, checks issued but not yet presented to the Company’s bank frequently result in overdraft balances for accounting purposes and are classified as accounts payable on the consolidated balance sheets. Accounts payable included $2,639,254 and $1,802,712 of checks issued in excess of available cash balances at September 29, 2019 and December 30, 2018, respectively.

Stock Based Compensation — The Company accounts for its stock based compensation using the fair value of the award estimated at the grant date of the award. The Company estimates the fair value of awards, consisting of stock options, using the Black Scholes option pricing model. Compensation expense is recognized in earnings using the straight line method over the vesting period, which represents the requisite service period.

Revenue Recognition — The following table presents the Company's net sales disaggregated by major sales channel for the 13three months ended March 31, 2020 and 39 weeks ended September 29, 2019:2019 (in thousands):

 Thirteen Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 29, 2019
Net Sales
 
Automotive$33,432,013
 $100,964,000
HVAC, water heater, and appliances3,096,874
 10,354,874
Other2,020,957
 5,586,957
Total$38,549,844
 $116,905,831


Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Net Sales
Transportation$32,012  $34,015  
Appliance2,779  3,754  
Other185  1,698  
Total$34,976  $39,467  
General Recognition Policy

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

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

8

UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, as noted above in the Accounts Receivable section, 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. The allowance for doubtful account balances are noted above in the Accounts Receivable section.






UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Practical Expedients

The Company elects the practical expedient to expense costs incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include sales commissions as the Company has determined annual compensation is commensurate with annual sales activities.

The Company elects the practical expedient that does not require the Company to adjust consideration for the effects of a significant financing component when the period between shipment of its products and customer’s payment is one year or less.

Shipping and Handling — Shipping and handling costs are included in costs of sales as they are incurred.

Income Taxes — A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the period. Deferred tax liabilities or assets are recognized for the estimated future tax effects of temporary differences between financial reporting and tax accounting measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company also evaluates the need for valuation allowances to reduce the deferred tax assets to realizable amounts. Management evaluates all positive and negative evidence and uses judgment regarding past and future events, including operating results, to help determine when it is more likely than not that all or some portion4. Inventory
Inventories consist of the deferred tax assets may not be realized. When appropriate, a valuation allowance is recorded against deferred tax assets to reserve for future tax benefits that may not be realized.following (in thousands):

The Company recognizes the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. The Company assesses all tax positions for which the statute of limitations remain open. The Company had 0 unrecognized tax benefits as of September 29, 2019 and September 30, 2018. The Company recognizes any penalties and interest when necessary as income tax expense. There were 0 penalties or interest recorded during the 13 and 39 weeks ended September 29, 2019 or September 30, 2018, respectively.

Foreign Currency Adjustments — The Company’s functional currency for all operations worldwide is the United States dollar. Nonmonetary assets and liabilities of foreign operations are remeasured at historical rates and monetary assets and liabilities are remeasured at exchange rates in effect at the end of each reporting period. Income statement accounts are remeasured at average exchange rates for the year. Gains and losses from translation of foreign currency financial statements into United States dollars are classified in other income in the consolidated statements of operations.

Concentration Risks — The Company is exposed to various significant concentration risks as follows:

Customer and Credit — During the 13 and 39 weeks ended September 29, 2019 and 13 and 39 weeks ended September 30, 2018, the Company’s net sales were derived from customers principally engaged in the North American automotive industry.  The following table presents the Company's sales directly and indirectly to General Motors Company (GM), Fiat Chrysler Automobiles (FCA), and Ford Motor Company (Ford) as a percentage of total net sales:
  Thirteen Weeks Ended September 29, 2019 Thirteen Weeks Ended September 30, 2018 Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
General Motors Company (GM)17% 15% 18% 14%
Fiat Chrysler Automobiles (FCA)15% 16% 15% 16%
Ford Motor Company (Ford)14% 10% 12% 11%


No customer represented more than 10 percent of direct Company sales for the 13 weeks ended September 29, 2019. GM accounted for 10 percent of direct Company sales for the 39 weeks ended September 29, 2019. No customer represented more than 10 percent of direct Company sales for the 13 and 39 weeks ended September 30, 2018.

GM accounted for more than 8 percent of direct accounts receivable as of September 29, 2019. GM accounted for 14 percent of direct accounts receivable as of December 30, 2018.

UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Labor Markets — At September 29, 2019, of the Company’s hourly plant employees working in the United States manufacturing facilities, 32 percent were covered under a collective bargaining agreement which expires in August 2022 while another 6 percent were covered under a separate collective bargaining agreement that expires in February 2023. On October 18, 2019, subsequent to the end of the third quarter, the Company's hourly plant employees in Bryan, Ohio voted to unionize with a contract to be negotiated during the fourth quarter of 2019.

Foreign Currency Exchange — The expression of assets and liabilities in a currency other than the Company's functional currency, which is the United States dollar, gives rise to exchange gains and losses when such assets and obligations are paid in another currency. Foreign currency exchange rate adjustments (i.e., differences between amounts recorded and actual amounts owed or paid) are reported in the consolidated statements of operations as the foreign currency fluctuations occur. Foreign currency exchange rate adjustments are reported in the consolidated statements of cash flows using the exchange rates in effect at the time of the cash flows. At September 29, 2019, the Company’s exposure to assets and liabilities denominated in another currency was not significant. To the extent there is a fluctuation in the exchange rates, the amount of local currency to be paid or received to satisfy foreign currency obligations in 2019 may increase or decrease.

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 Company's production in Mexico, Canada, and other foreign markets:

  Thirteen Weeks Ended September 29, 2019 Thirteen Weeks Ended September 30, 2018 Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
Mexico19% 17% 19% 18%
Canada7% 10% 7% 10%
Other% % % %

The following table presents the Company's sales derived from customers located in Mexico, Canada, and other foreign countries:
  Thirteen Weeks Ended September 29, 2019 Thirteen Weeks Ended September 30, 2018 Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
Mexico19% 18% 18% 17%
Canada7% 9% 9% 10%
Other1% 2% 1% 2%


Derivative Financial Instruments — All derivative instruments are required to be reported on the consolidated balance sheets at fair value unless the transactions qualify and are designated as normal purchases or sales. Changes in fair value are reported currently through earnings unless they meet hedge accounting criteria. See Note 7 for further information regarding the Company's derivative instrument makeup.

Use of Estimates — The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements  —

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, Topic 606. This ASU superseded most of the existing guidance on revenue recognition in ASC Topic 605, Revenue Recognition, and established a broad principle that would require an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

services. The Company adopted the new accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments to all contracts using the modified retrospective method in its first quarter of 2019. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of Topic 606 to have a material impact to its net income on an ongoing basis. The Company did not record a cumulative adjustment related to the adoption of ASU 2014-09, and the effects of adoption were not significant.
In January 2016, the FASB issued guidance, together with related, subsequently issued guidance, that addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among other provisions, the guidance requires certain equity securities to be measured at fair value, with changes in fair value recognized in earnings. For equity securities without readily determinable fair values, entities may elect to measure these securities at cost minus impairment, if any, adjusted for changes in observable prices. The guidance should be applied through a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption, except for equity securities without readily determinable fair values, to which the guidance should be applied prospectively. The Company adopted this guidance on January 1, 2018 and concluded this did not have a material effect on its consolidated financial statements. The Company does have a cost method investment in its consolidated financial statements, and there is not a readily determinable value for this investment.

In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede the current lease requirements in Topic 840. The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for short-term leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet. The reporting of lease related expenses in the consolidated statements of operations and cash flows will be generally consistent with current guidance. The ASU is effective for the Company for financial statements issued for fiscal years beginning after December 15, 2019. The Company believes the impact that the adoption of this guidance will have on its consolidated financial statements will be to materially increase assets and liabilities on the consolidated balance sheet, but it is not expected to materially impact the consolidated statements of operations.

Note 2 — Business Combinations

The Company intends to continue to selectively pursue opportunistic acquisitions that provide additional products and processes, as well as entrance into new growth markets. There were 0 new acquisitions for the 13 and 39 weeks ended September 29, 2019 or for the 13 and 39 weeks ended September 30, 2018.

Note 3 — Inventory

Inventory consists of the following:
  September 29,
2019
 December 30,
2018
Raw materials$8,375,838
 $9,562,962
Work in progress534,472
 547,729
Finished goods5,622,239
 6,174,816
Total inventory$14,532,549
 $16,285,507


  March 31,
2020
December 29,
2019
Raw materials$9,460  $7,963  
Work in progress618  129  
Finished goods5,181  4,955  
Total inventory$15,259  $13,047  
The Company periodically evaluates inventory for obsolescence, excess quantities, slow moving goods and other impairments of value and establishes reserves for any identified impairments. The allowance for obsolete inventory was $2,350,600$0.9 million and $557,066$1.0 million at SeptemberMarch 31, 2020 and December 29, 2019, and December 30, 2018, respectively. During the third quarter of 2019, the Company increased the inventory allowance by $1,741,924 which is included in cost of sales in the condensed consolidated statement of operations. This was due to the loss of business from the end of life of certain programs coupled with the on-going implementation of the Company's new Enterprise Resource Planning (ERP) system providing more detailed information that led the Company to review estimated future demand in the next twelve months. No similar increase to the inventory allowance occurred during the 13 and 39 weeks ended September 30, 2018.

UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Included in inventory are assets located in Mexico with a carrying amount of $3,148,569$3.2 million at September 29, 2019March 31, 2020 and $3,340,748$3.6 million at December 30, 2018,29, 2019, and assets located in Canada with a carrying amount of $1,045,303$1.2 million at September 29, 2019March 31, 2020 and $1,177,256$1.0 million at December 30, 2018.29, 2019.

Note 4 —5. Property, Plant, and Equipment, Net
Property, plant, and equipment, net consists of the following:
 September 29,
2019
 December 30,
2018
 
Depreciable
Life – Years
Land$1,663,153
 $1,663,153
   
Buildings6,898,455
 6,898,455
 23 – 40
Shop equipment23,121,164
 21,165,566
 7 – 10
Leasehold improvements1,211,680
 1,130,507
 3 – 10
Office equipment1,671,924
 1,650,626
 3 – 7
Mobile equipment189,575
 282,805
 3
Construction in progress1,520,040
 1,514,082
  
Total cost36,275,991
 34,305,194
   
Accumulated depreciation11,284,519
 9,227,449
  
Net property, plant, and equipment$24,991,472
 $25,077,745
  

following (in thousands):

March 31,
2020
December 29,
2019
Depreciable
Life – Years
Land$1,663  $1,663    
Buildings5,934  5,934  23 – 40
Shop equipment23,053  22,982  7 – 10
Leasehold improvements1,225  1,234  3 – 10
Office equipment1,858  1,866  3 – 7
Mobile equipment160  190  3
Construction in progress1,888  1,543  
Total cost35,781  35,412    
Less: Accumulated depreciation12,685  11,997  
Net property, plant, and equipment, net$23,096  $23,415  
Depreciation expense was $738,632 and $2,169,422$0.7 million for the 13three months ended March 31, 2020, and 39 weeks ended September 29, 2019, respectively, and $647,541 and $1,872,531$0.7 million for the 13 and 39 weeksthree months ended September 30, 2018, respectively.

March 31, 2019.
Included in property, plant, and equipment are assets located in Mexico with a carrying amount of $3,991,934$4.1 million and $3,209,973$4.1 million at September 29, 2019March 31, 2020 and December 30, 2018,29, 2019, respectively, and assets located in Canada with a carrying amount of $599,553$0.6 million and $656,183$0.6 million at SeptemberMarch 31, 2020 and December 29, 2019, and December 30, 2018, respectively.

Note 5 — Intangible Assets

Intangible assets of the Company consist of the following at September 29, 2019:
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Weighted Average
Life – Years
Customer contracts$26,523,065
 $17,467,982
 8.16
Trade names4,673,044
 1,642,500
 16.43
Non-compete agreements1,161,790
 1,136,175
 2.53
Unpatented technology$1,534,787
 $1,047,860
 5.00
Total$33,892,686
 $21,294,517
  

Intangible assets of the Company consist of the following at December 30, 2018:
 Gross Carrying
Amount
 Accumulated
Amortization
 Weighted Average
Life – Years
Customer contracts$26,523,065
 $14,936,128
 8.16
Trade names4,673,044
 1,452,276
 16.43
Non-compete agreements1,161,790
 1,117,626
 2.53
Unpatented technology1,534,787
 $818,273
 5.00
Total$33,892,686
 $18,324,303
  


9
The weighted average amortization period for all intangible assets is 8.96 years. Amortization expense for intangible assets totaled $996,729 and $2,970,216 for the 13 and 39 weeks ended September 29, 2019, respectively, and $1,014,136 and $3,074,964 for the 13 and 39 weeks ended September 30, 2018, respectively.


UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)

Estimated amortization expense is as follows for the remainder of the current fiscal year and future fiscal years are as follows:
2019$985,888
20203,913,627
20212,455,712
20221,305,314
2023978,787
Thereafter2,958,841
Total$12,598,169



Note 6 —6. Long-term Debt

Credit Agreement

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

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

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

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

Amended and Restated Credit Agreement

On November 8, 2018, the US Borrower and the CA Borrower entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), which amended and restated the existing Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Amended and Restated Credit Agreement which is a five year agreement, among other things, increased the principal amount of US Term Loan borrowings to $26.0 million, created a two year line to fund capital expenditures of up to $2.5 million through November 8, 2019 and $5.0 million thereafter through November 8, 2020, and extended the maturity dates of all borrowings from April 28, 2021 to November 7, 2023. The Amended and Restated Credit Agreement provides for borrowings of up to $30.0 million under the Revolver, subject to availability under the terms of the Amended and Restated Credit Agreement, and left the principal amount on the CA Term Loan at approximately $12.0 million, the same as it was under the previous Credit Agreement. The Amended and Restated Credit Agreement combined
UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

the previous US Term Loan and US Term Loan II (the “New US Term Loan”), and increased the aggregate principal amount to $26.0 million from $15.9 million, in total, fromfor the previous US Term Loan and Term Loan II. The increase in the principal amount effected by the New U.S. Term Loan replaced and termed-out outstanding borrowings under the Revolver. The Amended and Restated Credit Agreement changes the quarterly principal payments of the New US Term Loan to $337,500$337.5 thousand through September 30, 2020, $575,000$575.0 thousand thereafter through September 30, 2021, and $812,500$812.5 thousand thereafter with a lump sum due at maturity. Finally, the agreement made certain changes to the Company's covenants and financial covenant ratios.

The Revolver, New US Term Loan, and CA Term Loan all mature on November 7, 2023 and bear interest at the Company's election of either (i) the greater of the Prime Rate or the Federal Funds Effective Rate (the “Base Rate”) or (ii) the LIBOR rate, plus an applicable margin ranging from 1.75% to 3.25% per annum in the case of the Base Rate and 2.75% to 4.25% per annum in the case of the LIBOR rate, in each case, based on senior leverage ratio thresholds, measured quarterly, as increased by the Waiver and Fourth Amendment to the Amended and Restated Credit Agreement which is further described below. The fair value of debt at March 31, 2020 under the Revolver, New US Term Loan and CA Term Loan approximates book value based on the variable terms.

10

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

As of September 29, 2019, $14,776,571March 31, 2020, $11.6 million was outstanding under the Revolver. This amount is gross of debt issuance costs which are further described in Note 1.the next section. The Revolver had an effective interest rate of 6.362%5.92% percent per annum at September 29, 2019,March 31, 2020, and is secured by substantially all of the Company’s assets. At September 29, 2019,March 31, 2020, the maximum additional available borrowings under the Revolver was $10,001,372,$11.7, million which includes a reduction for a $100,000$0.1 million letter of credit issued for the benefit of the landlord of one of the Company’s leased facilities, and a reduction of the borrowing base capacityfacilities. The maximum amount available was further subject to $24,877,944 under the borrowing base restrictions, resulting in a net availability of the Amended and Restated Credit Agreement.

$6.9 million.

Long term debt consists of the following:
following (in thousands):
  September 29,
2019
 December 30,
2018
New US Term Loan, payable to lenders in quarterly installments of $337,500 through September 30, 2020, $575,000 through September 30, 2021, and $812,500 through November 7, 2023 with a lump sum due at maturity. The effective interest rate was 6.362% per annum at September 29, 2019. At September 29, 2019, the balance of the New US Term Loan is presented net of a debt discount of $283,743 from costs paid to or on behalf of the lenders.$24,703,756
 $25,664,582
CA Term Loan, payable to lenders in quarterly installments of $375,000 through November 7, 2023, with a lump sum due at maturity. The effective interest rate was 6.362% per annum at September 29, 2019. At September 29, 2019, the balance of the CA Term Loan is presented net of a debt discount of $124,195 from costs paid to or on behalf of the lenders.10,375,804
 $11,853,186
  March 31,
2020
December 29,
2019
New US Term Loan, payable to lenders in quarterly installments of $0.3 million through September 30, 2020, $0.6 million through September 30, 2021, and $0.8 million through November 7, 2023 with a lump sum due at maturity. The effective interest rate was 5.853% per annum at March 31, 2020. At March 31, 2020, the balance of the New US Term Loan is presented net of a debt discount of $0.3 million from costs paid to or on behalf of the lenders.$23,725  $24,383  
CA Term Loan, payable to lenders in quarterly installments of $0.4 million through November 7, 2023, with a lump sum due at maturity. The effective interest rate was 5.853% per annum at March 31, 2020. At March 31, 2020, the balance of the CA Term Loan is presented net of a debt discount of $0.1 million from costs paid to or on behalf of the lenders.$9,641  $10,384  
Capital expenditure line payable to lenders in quarterly installments of 7.5% per annum of the outstanding principal balance commencing December 31, 2019 through September 30, 2020, 10% per annum through September 30, 2021, and 12.5% per annum through November 7, 2023 with a lump sum due at maturity. The effective interest rate was 5.862% per annum at March 31, 2020.1,300  1,300  
Total debt excluding Revolver34,666  36,067  
Less current maturities2,847  2,847  
Long-term debt – Less current maturities$31,819  $33,220  
Note payable to the seller of former owner of business Unique acquired in 2014 which is unsecured and subordinated to the Credit Agreement. Interest accrued monthly at an annual rate of 6.00%. The note payable was paid in full on February 6, 2019.
 500,000
Capital expenditure line payable to lenders in quarterly installments of 7.5% per annum of the outstanding principal balance commencing December 31, 2019 through September 30, 2020, 10% per annum through September 30, 2021, and 12.5% per annum through November 7, 2023 with a lump sum due at maturity. The effective interest rate was 6.362% per annum at September 29, 2019.1,300,000
 
Total debt excluding Revolver36,379,560
 38,017,768
Less current maturities2,947,498
 3,350,000
Long-term debt – Less current maturities$33,432,062
 $34,667,768


Debt Issuance Costs
Debt issuance costs represent legal, consulting, and other financial costs associated with debt financing and are reported netted against the related debt instrument. Amounts paid to or on behalf of lenders are presented as a debt discount and are also shown as a reduction of the associated debt instrument. Debt issuance costs on term debt are amortized using the straight line basis over the term of the related debt (which is immaterially different from the required effective interest method) while those related to revolving debt are amortized using a straight line basis over the term of the related debt.
At March 31, 2020 and December 29, 2019, debt issuance costs were $0.3 million and $0.3 million, respectively, while amounts paid to or on behalf of lenders presented as debt discounts were $0.4 million and $0.4 million, respectively. On November 8, 2018, the Company amended its Credit Agreement, to increase the Company's term loan debt. The Company reviewed this amendment for extinguishment accounting and concluded that there were 0 remaining debt issuance costs not amortized on the revolving debt facility qualified for extinguishment accounting and recognized a loss on extinguishment immediately. The remaining unamortized debt issuance costs not extinguished on the old revolving debt facility and all of the of remaining unamortized debt issuance costs on the term loans did not meet extinguishment accounting and therefore were carried forward to the new revolving debt facility and term loans.
Amortization expense of both debt issuance costs and debt discounts has been recognized as a component of interest expense in the amounts of $0.04 million for the three months ended March 31, 2020, and $0.04 million for the three months ended March 31, 2019, respectively.
11

UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)


Covenant Compliance

The Amended and Restated Credit Agreement contains customary negative covenants and requires that the Company comply with various financial covenants, including a total leverage ratio and debt service coverage ratio, as defined in the Amended and Restated Credit Agreement. As of December 30, 2018,29, 2019, the Company was in compliance with these financial covenants. Additionally, the New US Term Loan and CA Term Loan each contains a clause, effective December 30, 2018, that requires an excess cash flow payment to be made to the lenders to reduce the New US Term Loan and CA Term Loan if the Company’s cash flow exceeds certain thresholds as defined by the Amended and Restated Credit Agreement. No payments were required to be made in the 13 and 39 weeksthree months ended September 29, 2019.

March 31, 2020.
As of March 31, 2019, the Company was not in compliance with the total leverage ratio financial covenant. As a result of this non-compliance, on May 7, 2019, the US Borrower and the CA Borrower entered into the Waiver and First Amendment (the “First Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The First Amendment temporarily waived the default on the March 31, 2019 covenant violation until the earlier of June 15, 2019 and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as necessary taking into account the Borrowers current and future financial condition. As a result of this waiver, the lenders did not accelerate the maturity of the debt.

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

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

On July 16, 2019, the Company entered into the Waiver and Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders.  The Fourth Amendment provided a permanent waiver by the Lenders and Agent with respect to the Borrower's non-compliance with the total leverage ratio financial covenant, as defined as of March 31, 2019. The Fourth Amendment also revised the definition of consolidated EBITDA and certain financial covenants, including the maximum total leverage ratio and the minimum debt service coverage ratio, as well as adding the requirement that the Company maintain minimum liquidity and minimum unadjusted consolidated EBITDA, each as defined. The Fourth Amendment permits distributions as long as the Borrower is in compliance with specified conditions including that the Borrower's liquidity, as defined, is not less than $5 million after giving effect to the distribution, total leverage ratio is not more than 2.00 to 1.00, post distribution, debt service coverage ratio ("DSCR"), as defined, is not greater than 1.10 to 1.00, and Borrower is in compliance with financial convenants,covenants, before and after giving effect to the distributions. The Company is compliant with the covenants set forth in the Waiver and Fourth Amendment as of September 29, 2019.

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

The Company is compliant with the covenants set forth in the Fifth Amendment as of March 31, 2020.
On April 3, 2020, the company entered into the Sixth Amendment to the Credit Agreement and Loan Documents (the “Sixth Amendment”). The Sixth Amendment, amended the definition of consolidated EBITDA to include, as an addition to consolidated net income, an amount equal to $0.6 million resulting from a non-cash inventory write-off taken during the third fiscal quarter in fiscal 2019, amended the definition of “fiscal year” to reflect that we changed our fiscal year to end on December 31, commencing with the 2020 fiscal year, eliminate the requirement for a monthly Covenant Compliance Report and provide for payment of the Capex Loan principal installment that was due December 31, 2019, but was not paid due to an internal system miscalculation by the Agent.
As of March 31, 2020, the Company was in compliance with its financial covenants. However, due to the impact of the COVID-19 pandemic on the Company and the global automotive industry, the Company anticipated that it was likely that the Bank EBITDA for the twelve months ended June 30, 2020 was likely to result in the Company not being in compliance with its
12

UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
financial covenants. In response to the anticipated impact of COVID-19, on April 23, 2020, the US Borrower and the CA Borrower (together the “Borrowers”) entered into the Seventh Amendment (the “Seventh Amendment”) to the Credit Agreement and Loan Documents. The Seventh Amendment, among other things, (i) permits additional indebtedness in the form of unsecured loans authorized pursuant to and in compliance with the CARES Act under the Paycheck Protection Program of the U.S. Small Business Administration, in an aggregate amount not to exceed $6.0 million; (ii) defers the June 30, 2020 principal payments on the US Term Loan, CA Term Loan, and CAPEX Loan, with the deferred principal amounts payable at the existing maturity dates; (iii) waives the requirement to test Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the fiscal quarter ending June 30, 2020; (iv) allows the release of the lien on the Evansville, Indiana property and for the net cash proceeds from its sale to be applied against any outstanding balance on the Revolver, which will not paypermanently reduce the Revolving Credit Aggregate Commitment; (v) adds a dividend duringweekly requirement for the remainderBorrowers to deliver a 13-week cash flow forecast until September 30, 2020; and (vi) adds a 1.0% LIBOR Floor and 2.0% Base Rate Floor. Refer to Note 1 for discussion of 2019.

future covenant compliance and consideration of our ability to continue as a going concern.
Maturities on the Company’s Amended and Restated Credit Agreement and other long term debt obligations for the remainder of the current fiscal year and future fiscal years are as follows:follows (in thousands):
TABLE OF CONTENTS
2020$1,506  
20214,176  
20224,912  
202336,464  
2024—  
Thereafter—  
Total47,058  
Discounts(359) 
Debt issuance costs(284) 
Total debt – Net$46,415  
UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

2019$337,500
20203,193,125
20214,175,625
20224,912,500
202338,945,319
Thereafter
Total51,564,069
Discounts(407,938)
Debt issuance costs(322,973)
Total debt – Net$50,833,158


Note 7 —7. Derivative Financial Instruments

Interest Rate Swap

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

Effective June 30, 2016, as required under the Credit Agreement entered into during April 2016, the Company entered into an interest rate swap which requires the Company to pay a fixed rate of 1.055 percent per annum while receiving a variable rate per annum based on the one month LIBOR for a net monthly settlement based on the notional amount. The notional amount at the effective date was $16,681,250$16.7 million which decreased by $318,750$0.3 million each quarter until June 30, 2017, and thereafter decreased by $425,000$0.4 million each quarter until June 29, 2018, when it began decreasing by $531,250$0.5 million per quarter until it expired on June 28, 2019.

Effective October 2, 2017, as required under the Second Amendment to the Credit Agreement, the Company entered into another interest rate swap withwhich requires the Company to pay a fixed rate of 1.093 percent per annum while receiving a variable interest rate per annum based on the one month LIBOR, for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $1,900,000$1.9 million which decreases by $100,000$0.1 million each quarter until it expires on September 30, 2020.

Effective November 30, 2018, as required under the Amended and Restated Credit Agreement, the Company entered into another interest rate swap that requires the Company to pay a fixed rate of 3.075 percent per annum while receiving a variable interest rate per annum based on the one month LIBOR for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $5,037,500$5.0 million which increased by $378,125$0.4 million each quarter until June 28, 2019
13

UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
when the notional amount increased to $17,540,625$17.5 million due to the interest rate swap from 2016 described above expiring. TheSince June 28, 2019, the notional amount then decreasesdecreased each quarter by $153,125$0.2 million until September 30, 2020 when the notional amount increases to $17,475,000$17.5 million due to the interest rate swap from 2017 above expiring. The notional amount then decreases each quarter by $431,250$0.4 million until December 31, 2021, then decreases each subsequent quarter by $609,375$0.6 million until it expires on November 8, 2023

At September 29, 2019,March 31, 2020, the fair value of all swaps was in a net liability position of $1,037,994$1.5 million and is included in other accrued liabilities and other long term liabilities in the condensed consolidated balance sheet.sheets. The Company paid $22,279 and received $63,761 in the aggregate,$0.8 million in net monthly settlements with respect to the interest rate swaps for the 13 and 39 weeksthree months ended September 29,March 31, 2020. At March 31, 2019, respectively. At September 30, 2018, the fair value of the swaps was $164,965,a net liability of $0.6 million, of which $0.04 million was included in current assets in the condensed consolidated balance sheets and $0.6 million was included in other long-term assetsliabilities in the condensed consolidated balance sheets. The Company received $35,659 and  $84,554 with$0.05 million in net monthly settlements in respect to the interest rate swaps for the 13 and 39 weeksthree months ended September 30, 2018, respectively.March 31, 2019. Both the change in fair value and the net monthly settlements were included in interest expense in the condensed consolidated statements of operations.

Note 8 —8. Restructuring

UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company's restructuring activities are undertaken as necessary to implement management's strategy and improve profitability.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. The Company currently expects to cease operations at the Bryan facility by the end of January 2020, and estimates that approximatelyApproximately 43 positions will bewere 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 will movehas moved existing Bryan production to its manufacturing facilities in Queretaro, Mexico and LaFayette, GA. The Company will provide 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 Company expects to incurincurred one-time severance costs as a result of this plant closure of approximately $0.5$0.3 million during the fourth quarter of 2019. The amount of other costs incurred associated with this plant closure, which will primarily consist of preparing and moving existing production equipment and inventory at Bryan to other facilities will beand accelerated depreciation of the building right-of-use lease asset, was approximately $0.8$0.5 million during the first quarter ofthree months ended March 31, 2020.

Evansville Restructuring

On July 16, 2019, the Company made the decision to close its manufacturing facility in Evansville, Indiana. The Company currently expects to ceaseceased operations at the Evansville facility byduring the endfourth quarter of December 2019, and estimates that approximately 47 positions will bewere 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 will movemoved existing Evansville production to its manufacturing facilities in LaFayette, GA, Auburn Hills, MI, and Louisville, KY. The Company will provideprovided 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 CompanyCosts incurred one-time severance costs as a result of this plant closure of $331,416 and $331,416 in the 13three months ended March 31, 2020, which consisted primarily of transportation and 39 weeks ended September 29, 2019, respectively. The amountinstallation of other costs incurred associated with this plant closure, which primarily consistedequipment and the disposal of preparing and moving existing production equipment and inventory at Evansville to other facilities was $518,493 and $518,493$0.4 million in the 13 and 39 weeksthree months ended September 29, 2019.March 31, 2020. All of these costs were recorded to the restructuring expense line in continuing operations in the Company's condensed consolidated statementstatements of operations. 

The Company will incur totalhad $1.0 million and $1.2 million of remaining lease payments for a warehouse near the remaining termEvansville, Indiana facility as of an existing warehouse lease of $1.2 million which will be accrued upon the cease use of the facility in the fourth quarter of 2019.March 31, 2020 and December 29, 2019, respectively. The Company is actively pursuing a sublease of the facility.

14

Departures

On September 30, 2019, subsequent to the endTable of the third quarter, our Chief Financial Officer (CFO) announced his resignation, effective October 11, 2019. The Company's new President and Chief Executive Officer (CEO) will serve as the Interim CFO until such time that a permanent CFO is named. The Company did not incur any restructuring costs in connection with this resignation.Contents

On September 17, 2019, the Company named a new President and Chief Executive Officer of the Company, who began employment with the Company on September 30, 2019, subsequent to the end of the third quarter. The Company did not incur any restructuring costs in connection with this appointment.
UNIQUE FABRICATING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notes to Condensed Consolidated Financial Statements (Unaudited)

On July 30, 2019, our former President and Chief Executive Officer of the Company (CEO), resigned as from the board of directors. The Company did not incur any additional restructuring costs in connection with his resignation from the board of directors.

On May 6, 2019, the former President and CEO of the Company resigned by mutual agreement of both parties. The Company incurred one-time restructuring costs of $140,740 and $720,712 during the 13 and 39 weeks ended September 29, 2019, respectively, in connection with his resignation. Further charges expected to be incurred subsequent to September 29, 2019 are expected to be immaterial.

Salaried Restructuring

On May 15, 2019 and February 1, 2019, the Company announced that in order to reduce fixed costs it would be eliminating a number of salaried positions throughout the Company. The Company provided the affected employees severance pay, health benefits continuation and job search assistance. This reduction took place and the Company incurred restructuring costs of $0 and $244,567 in the 13 and 39 weeks ended September 29, 2019, respectively.

The table below summarizes the activity in the restructuring liability for the 39 weeksthree months ended September 29, 2019.March 31, 2020 (in thousands).

Employee Termination Benefits LiabilityOther Exit Costs LiabilityTotal
Accrual balance at December 29, 2019$438  $116  $554  
Provision for estimated expenses to be incurred—  920  920  
Payments made during the year and asset write offs333  684  1,017  
Accrual balance at March 31, 2020$105  $352  $457  
  Employee Termination Benefits Liability Other Exit Costs Liability Total
Accrual balance at December 31, 2018 $
 $
 $
Provision for estimated expenses to be incurred 1,296,695
 518,493
 1,815,188
Payments made during the period 729,685
 384,243
 1,113,928
Accrual balance at September 29, 2019 567,010
 134,250
 701,260


2018 Restructuring

Fort Smith Restructuring

On February 13, 2018, the Company made the decision to close its manufacturing facility in Fort Smith, Arkansas. The Company ceased operations at the Fort Smith facility in July of 2018, and approximately 20 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 Fort Smith production to its manufacturing facilities in Evansville, Indiana and Monterrey, Mexico. 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 has continuing cash flows from the production being moved to other of its facilities.

In October 2018, the Company sold the building it owned in Fort Smith, which had a net book value of $733,059, for cash proceeds of $876,032 resulting in a gain on the sale of $142,973. The Company did not incur any restructuring costs associated with this closure in the 13 and 39 weeks ended September 29, 2019.

The Company incurred one-time severance costs as a result of this plant closure of $60,423 and $233,782 in the 13 and 39 weeks ended September 30, 2018, respectively. The amount of other costs incurred associated with this plant closure, which primarily consisted of preparing and moving existing production equipment and inventory at Fort Smith to other facilities was $115,103 and $559,461 in the 13 and 39 weeks ended September 30, 2018. All of these costs were recorded to the restructuring expense line in continuing operations in the Company's consolidated statement of operations.

Port Huron Restructuring

On February 1, 2018, the Company made the decision to close its manufacturing facility in Port Huron, Michigan. The Company ceased operations at the Port Huron facility in June of 2018 and 7 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 its facilities. As such, the Company moved existing Port Huron production to our manufacturing facilities in London, Ontario, 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
UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 has continuing cash flows from the production being moved to other of its facilities.  The Company did not incur any restructuring costs associated with this closure in the 13 and 39 weeks ended September 29, 2019.

The Company incurred one-time severance costs as a result of this plant closure of $0 and $64,768 in the 13 and 39 weeks ended September 30, 2018. The amount of other costs incurred associated with this plant closure, which primarily consisted of preparing and moving existing production equipment and inventory at Port Huron to other facilities was $0 and $297,899 in the 13 and 39 weeks ended September 30, 2018. All of these costs were recorded to the restructuring expense line in continuing operations in the Company's consolidated statement of operations.

The table below summarizes the activity in the restructuring liability for the 13 and 39 ended September 30, 2018.
  Employee Termination Benefits Liability Other Exit Costs Liability Total
Accrual balance at January 1, 2018 $
 $
 $
Provision for estimated expenses incurred during the year 298,551
 857,359
 1,155,910
Payments made during the period 298,551
 857,359
 1,155,910
Accrual balance at September 30, 2018 $
 $
 $



Note 9 —9. Stock Incentive Plans

2013 Stock Incentive Plan

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

On July 17, 2013 and January 1, 2014,February 25, 2020, the compensation committee of the board of directors approved the issuance of 375,000 and 120,0007,500 non statutory stock option awards respectively, to employees of the Company withCompany. All of the awards have an exercise price of $3.33$3.32 per share with a weighted average grant date fair value of $0.23 and $0.35 per share, respectively. On April 29, 2016, the Company issued 7,200 non statutory stock option awards to employees of the Company with an exercise price of $12.58 and with a weighted average grant date fair value of $2.80$1.64 per share. On September 15, 2017, the Company issued 5,000 non statutory stock option awards to employees of the Company with an exercise price of $7.65 per shareThese options vest 40% on February 25, 2021 and with a weighted average grant date fair value of $1.41 per share. All 4 grants of the awards vest 20 percent on the grant date and an additional 20 percent20% on each of the first, second, thirdFebruary 25, 2022, 2023, and fourth anniversaries thereafter. Vested awards can only be exercised while the participants are employed by the Company.

2024.
The fair value of each option award is estimated on the grant date using a Black Scholes option pricing model that uses the weighted average assumptions noted in the following table. The expected volatility is based on the historical volatility of the stock of comparable companies. The expected term of the awards was estimated based on findings from academic studies investigating the average holding period for options adjusted for the Company’s size and risk factors. The risk free rate for periods within the contractual life of the option is based on the United States Treasury yield curve in effect at the time of grant.

 September 15, 2017 April 29, 2016 January 1, 2014 July 17, 2013
Expected volatility40.00% 40.00% 34.00% 34.00%
Dividend yield7.00% 5.00% % %
Expected term (in years)5
 5
 4
 4
Risk-free rate1.81% 1.28% 1.27% 0.96%



UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

February 25, 2020
Expected volatility52.00 %
Dividend yield— %
Expected term (in years)6
Risk-free rate1.21 %
On September 30, 2019,April 6, 2020, subsequent to the end of the thirdfirst quarter, the compensation committee of the board of directors approved the issuance of 72,50012,500 non statutory stock option awards respectively, to the Company’s new CEO of the CompanyChief Financial Officer (“CFO”) with an exercise price of $2.89$2.36 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. Vested awards can only be exercised while the participant is employed by the Company.

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.

15

UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On August 17, 2015, the board of directors approved the issuance of stock option awards for 230,000 shares of which 45,000 shares subject to non statutory awards were granted to the board of directors and 185,000 incentive stock options were granted to employees of the Company. All of the awards had an exercise price of $12.50 per share with a weighted average grant date fair value of $2.72 per share. These awards vest 20 percent on the grant date and an additional 20 percent on each of the first, second, third and fourth anniversaries of the grant date thereafter. Vested awards can only be exercised while the participants are employed by the Company.

On November 20, 2015, the board of directors approved the issuance of incentive stock option awards for 15,000 shares to employees of the Company. All of the awards had an exercise price of $11.50 per share with a weighted average grant date fair value of $2.23 per share. The vesting schedule, vesting percentage, and capability of the employees to exercise these options are the same as these for the August 17, 2015 grants discussed above.

On April 29, 2016, the board of directors approved the issuance of stock option awards for 5,000 shares to employees of the Company. All of the awards had an exercise price of $12.58 per share with a weighted average grant date fair value of $2.80 per share. The vesting schedule, vesting percentage, and ability of the employees to exercise these options are the same as these for the November 20 and August 17, 2015 grants described above.

On September 15, 2017, the board of directors approved the issuance of stock option awards for 15,000 shares to employees of the Company. All of the awards had an exercise price of $7.65 per share with a weighted average grant date fair value of $1.41 per share. The vesting schedule, vesting percentage, and ability of the employees to exercise these options are the same as these for the November 20, August 17, 2015, and April 29, 2016 grants discussed above.

On June 11, 2019,February 25, 2020, the compensation committee of the board of directors approved the issuance of 7,500 non statutory stock option awards for 30,000 shares to 1 memberemployees of the board. The award hadCompany. All of the awards have an exercise price of $2.93$3.32 per share with a weighted average grant date fair value of $1.10$1.64 per share. These options vested immediatelyvest 40% on the dateFebruary 25, 2021 and 20% on each of grant as the service conditions required for this award had already been met on the day of the award.

February 25, 2022, 2023, and 2024.
The fair value of each of the option awards described above is estimated on the grant date using a Black Scholes option pricing model that uses the weighted average assumptions noted in the following table. 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.
UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

 June 11, 2019 September 15, 2017 April 29, 2016 November 20, 2015 August 17, 2015
Expected volatility40.00% 40.00% 40.00% 35.00% 38.00%
Dividend yield% 7.00% 5.00% 5.00% 4.80%
Expected term (in years)5
 5
 5
 5
 5
Risk-free rate1.85% 1.81% 1.28% 1.70% 1.58%

February 25, 2020
Expected volatility52.00 %
Dividend yield— %
Expected term (in years)6
Risk-free rate1.21 %
On September 30, 2019, subsequent to the end of the third quarter,February 25, 2020, the compensation committee of the board of directors approved the issuance of 140,000 non statutory15,000 incentive stock option awards to the new CEOemployees of the Company with an exercise price of $2.89 per share. These awards vest 40 percent on September 30, 2020 and an additional 20 percent on each of September 30, 2021, 2022, and 2023 thereafter. Vested awards can only be exercised while the participant is employed by the Company. On September 30, 2019, subsequent to the end of the third quarter, the compensation committee of the board of directors approved the issuance of 72,500 incentive stock option awards to the new CEO of the Company with an exercise price of $2.89$3.32 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. VestedThe Company estimated the grant-date fair value of the awards can only be exercised whilesubject to these market conditions using a Monte Carlo simulation model, using the participantfollowing assumptions: risk free interest rate of 1.21% and annualized volatility of 52.0%.
On April 6, 2020, subsequent to the end of the first quarter, the compensation committee of the board of directors approved the issuance of 25,000 non statutory stock option awards to the Company’s new CFO with an exercise price of $2.36 per share. These awards vest 40 percent on April 6, 2021 and an additional 20 percent on each of April 6, 2022, 2023, and 2024. On April 6, 2020, subsequent to the end of the first quarter, the compensation committee of the board of directors approved the issuance of 12,500 incentive stock option awards to the Company’s new CFO with an exercise price of $2.36 per share. These awards vest 50 percent once the closing price of the Company's common stock is employed byin excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the Company.

closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days.
A summary of option activity under both plans is presented below:
  Number of
Shares
Weighted
Average
Exercise Price
Weighted Average Remaining
Contractual Term
(in years)
Aggregate
Intrinsic Value(1)
(dollars in thousands, except share data and exercise price)
Outstanding at December 29, 2019676,480  $5.48  7.1$471,000  
Granted30,000  $3.32  9.9  
Exercised—  $—  0.0  
Forfeited or expired(2)
95,000  $6.91  0.0
Outstanding at March 31, 2020611,480  $5.15  7.3$—  
Vested and exercisable at March 31, 2020296,480  $7.43  4.9$—  
  
Number of
Shares
 
Weighted
Average
Exercise Price
 
Weighted Average Remaining
Contractual Term
(in years)
 
Aggregate
Intrinsic Value(1)
Outstanding at December 30, 2018563,680
 $7.25
 5.61   
Granted30,000
 $2.93
 10   
Exercised
 $
 0   
Forfeited or expired(2)
192,200
 $
 0  
Outstanding at September 29, 2019401,480
 $5.46
 5.73 $
Vested and exercisable at September 29, 2019343,040
 $5.50
 5.10 $
————————————

(1) The aggregate intrinsic value above is obtained by subtracting the weighted average exercise price from the estimated fair value of the underlying shares and multiplying this result by the related number of options outstanding and exercisable as of the period end date. As of March 31, 2020, there is no intrinsic value as the exercise prices are greater than the fair value. The estimated fair value of the shares is based on the closing price of the stock of $2.34 as of March 31, 2020 and $4.01 as of December 29, 2019.
(1)The aggregate intrinsic value above is obtained by subtracting the weighted average exercise price from the estimated fair value of the underlying shares as of September 29, 2019 and multiplying this result by the related number of options outstanding and exercisable at September 29, 2019. The estimated fair value of the shares is based on the closing price of the stock of $2.85 as of September 29, 2019. As of September 29, 2019 there is no intrinsic value as the exercise prices are greater than the estimated fair value.
(2)Represents shares forfeited by the former CEO in May 2019
(2)  Includes the 65,000 shares forfeited by the Company’s former Chief Financial Officer as a result of his October 2019 departure.

The Company recorded compensation expense of $18,786 and $117,147$22.8 thousand for the 13three months ended March 31, 2020, and 39 weeks ended September 29, 2019, respectively, and $32,681 and $98,621$32.7 thousand for the 13 and 39 weeksthree months ended September 30, 2018, respectively,March 31, 2019, in its condensed consolidated statements of operations, as a component of
16

UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
sales, general and administrative expenses. The income tax (expense) benefit related to share based compensation expense was $3,126 and $24,039immaterial for the 13 and 39 weeks ended September 29, 2019 and $(680) and $15,020 for the 13 and 39 weeks ended September 30, 2018.

all periods presented.
As of September 29, 2019,March 31, 2020, there was $46,355$298.3 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 0.425.2 years.

Note 10 —10. Income Taxes

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

UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Income tax (benefit) expense for the 13 and 39 weeksthree months ended September 29, 2019March 31, 2020 was $(252,270) and $(597,862), respectively,$(0.3) million, compared to $(320,763) and $698,830$0.04 million for the 13 and 39 weeksthree months ended September 30, 2018, respectively.

March 31, 2019.
During the 13 weeksthree months ended September 29, 2019,March 31, 2020 , the differences between the actual effective tax rate of 16.6%22.2% and the statutory rate of 21.0% was primarily due to benefit of tax crredits in the U.S. partially offset by earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S., and U.S. taxation of foreign earnings under the Global Intangible Low-Taxed Income (GILTI) provisions of the Tax Cut and Jobs Act, partially offset by tax credits in the U.S.provisions.

During the 39 weeks ended September 29, 2019, the difference between the actual effective tax rate of 6.8% and statutory rate of 21.0% was primarily due to the impairment of non-deductible goodwill as well as earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S., and U.S. taxation of foreign earnings under the Global Intangible Low-Taxed Income (GILTI) provisions of the Tax Cut and Jobs Act, partially offset by tax credits in the U.S.

During the 13 and 39 weeks ended September 30, 2018, the difference between the actual effective tax rate of (104.8)% and 15.2%, respectively, and the statutory rate of 21.0% was primarily due to provision to return adjustments on the 2017 return related to one-time transition tax expense, research and development credits, and manufacturing incentives in the U.S., partially offset by earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S.

Note 11 — Operating11. Leases

The Company leases office space, production facilitiesrecords a right-of-use (“ROU”) asset and equipment under operating leases with various expiration dates through the year 2024. Thelease liability for substantially all leases for office space and production facilities requirewhich 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 to pay taxes, insurance, utilities and maintenance costs. NaN of the leases for office space and production facilities provide for escalating rents over the life of the respective leases and rentrecognizes lease expense for these leases is recognizedon a straight-line basis over the lease term. The Company has no significant lease agreements in place for which the Company is a lessor. At inception of a contract, the Company considers all relevant facts and circumstances to assess whether or not the contract represents a lease by determining whether or not the contract conveys the right to control the use of an identified asset, either explicit or implicit, for a period of time in exchange for consideration.
The Company leases certain industrial spaces, office space, land, and equipment. Some leases include one or more options to renew, with renewal terms that can extend the lease term from generally one to 5 years. The exercise of lease renewal options is at the Company’s sole discretion, and are included in the lease term only to the extent such renewal options are reasonably certain of being exercised at lease commencement. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. New leased assets obtained in exchange for new operating lease liabilities during the three months ended March 31, 2020, were immaterial. As of March 31, 2020, leases that the Company has signed but have not yet commenced are immaterial.
Leased assets and liabilities included within the condensed consolidated balance sheets consist of the lease on a straight line basis, with the difference between lease payments and rent expense recorded as deferred rent in otherfollowing (in thousands):
ClassificationMarch 31, 2020
Right-of-Use-Assets
OperatingOperating leases$11,421 
Liabilities
Current
OperatingOther accrued liabilities$2,247 
Non-current
OperatingNon-current liabilities10,046 
Total lease liabilities$12,293 
Lease costs included in the condensed consolidated balance sheets. Total rent expense charged tostatements of operations was approximately $762,193consist of the following (in thousands):
ClassificationMarch 31, 2020
Lease costCost of sales, selling expenses and general and administrative expense$795 
17

UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Maturity of the Company’s lease liabilities as of March 31, 2020 is as follows (in thousands):
2020 (remainder)$2,191  
20212,807  
20221,887  
20231,154  
20241,116  
Thereafter6,458  
Total lease payments15,613  
Less: interest3,320  
Present value of lease payments$12,293  
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 $1,748,611 fordiscount rates are as follows:
March 31, 2020
Weighted average remaining lease term (years)7.6
Weighted average discount rate6.3% 
Lease costs included in the 13 and 39 weeks ended September 29, 2019 and $621,986 and $1,956,437 for the 13 and 39 weeks ended September 30, 2018.

Future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excesscondensed consolidated statements of one yearcash flows are as follows at September 29, 2019:(in thousands):
Three months ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases$827 
2019$582,870
20202,334,821
20212,212,300
20221,726,243
20231,175,351
Thereafter7,587,350
Total$15,618,935


Note 12 —12. Retirement Plans

The Company maintains a defined contribution plan covering certain full time salaried employees. Employees can make elective contributions to the plan. The Company contributes a match on 100 percent of an employee’s contribution up to the first 3 percent of each employee’s total compensation and 50 percent for the next 2 percent of each employee’s total compensation. In addition, the Company, at the discretion of the board of directors, may make additional contributions to the plan on behalf of the plan participants. The Company contributed $118,315 and $370,723, respectively,$0.08 million for the 13three months ended March 31, 2020 and 39 weeks ended September 29, 2019 and $125,870 and $385,752, respectively,$0.15 million for the 13 and 39 weeksthree months ended September 30, 2018.March 31, 2019.

The Intasco operations acquired in April 2016 had separate retirement plans. The United States facility in Port Huron, Michigan sponsored a SIMPLE IRA account for qualifying employees. The plan makes a contribution equal to 3 percent of a participant's gross wages to the participating employees' SIMPLE IRA accounts. Contributions by Intasco in the United States totaled $0 for the 13 and 39 weeks ended September 29, 2019, because the plant closed in June of 2018 as noted in Note 8, and $0 and $1,502, respectively, for the 13 and 39 weeks ended September 30, 2018.


The Canadian facility sponsors a retirement plan whereby Intasco makes a matching contribution of participant contributions up to a maximum amount based on the participants' number of years of service. Contributions by Intasco in Canada totaled $8,154 and $37,856, respectively, for the 13 and 39 weeks ended September 29, 2019 and $8,474 and $36,838, respectively, for the 13 and 39 weeks ended September 30, 2018.

Note 13 —13. Related Party Transactions

Effective March 18, 2013, the Company is undera party to a management agreement with a firm related to several stockholders. The agreement initially provided for annual management fees of $300,000$0.3 million and additional fees for assistance provided with acquisitions. Effective upon completion of the Company's initial public offering, the agreement was amended to reduce the annual management fee by an amount equal to the amount, if any, of annual cash retainers and equity awards received as compensation for service on the board of directors to any person who is a related person of Taglich Private Equity, LLC or Taglich Brothers, Inc. The Company incurred management fees of $56,250 and $168,750, respectively,$0.06 million for the 13three months March 31, 2020 and 39 weeks$0.06 million or the three months ended September 29, 2019 and $56,250 and $168,750, respectively, for the 13 and 39 weeks ended September 30, 2018.March 31, 2019. The management agreement had an initial term of five years, expiring on March 18, 2018,2020, and renews automatically annually for additional one year terms. The current term expires on March 18, 2020.2021. The agreement also will terminate on the date that the Taglich Founding Investors or Taglich Equity Investors, each as defined, no longer also collectively own 50% of the equity securities owned by either of them on March 18, 2013.

In 2019, following the May 6, 2019 resignation of the Company’s Chief Executive Officer, the Company entered into a services agreement with 6th Avenue Group, which is a company owned by a Board member of the Company. The services performed have been related to providing assistance for long term strategic planning for the Company as well as aiding in helping the Company with CEO transition services. As previously mentioned in Note 8, the Company's CEO resigned on May 6, 2019. The Company incurred fees to the 6th Avenue Group of $62,500 and $138,319, respectively, for the 13 and 39 weeks ended September 29, 2019. The services provided by 6th Avenue Group are expected to endended in 2019. This On June 11, 2019, this
18

Table of Contents
UNIQUE FABRICATING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Board member as discussed in Note 9, was also awarded stock options for 30,000 shares, which vested immediately and had an exercise price of $2.93 per share, for her services on June 11, 2019.services.


Note 14 —14. Fair Value Measurements

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

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

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

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

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

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

UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Note 15 —15. Earnings Per Share
Basic earnings per share is computed by dividing the net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed giving effect to all potentially weighted average dilutive shares including stock options and warrants. The dilutive effect of outstanding awards, if any, is reflected in diluted earnings per share by application of the treasury stock method.
The following table sets forth the reconciliation of the numerator and the denominator of basic and diluted loss per share for the three months ended March 31, 2020 and 2019 (dollars in thousands, except per share amounts):
Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Numerator:
Net (loss) income$(1,137) $(189) 
Denominator:
Weighted average shares outstanding, basic9,779,1479,779,147
Dilutive effect of stock-based awards
Weighted average share outstanding, diluted9,779,1479,779,147
Basic loss per share$(0.12) $(0.02) 
Diluted loss per share$(0.12) $(0.02) 
19

Table of Contents
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 ended March 31, 2020 and 2019, as inclusion would have resulted in anti-dilution. A summary of these anti-dilutive common stock equivalents is provided in the table below:
Three Months Ended March 31, 2020Three Months Ended March 31, 2019
Number of options611,480  563,680  
Exercise price of options$2.89 - $12.50$3.33 - $12.50
Warrants(1)
142,185  142,185  
Exercise price of warrants$3.33 - $11.88$3.33 - $11.88

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

16. Contingencies

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

17. Subsequent Events
Paycheck Protection Program Loan
On April 24, 2020, the Company entered into a Promissory Note 16 — Earnings Per Share

Basic earnings per share is computed by dividing(“PPP Note”) for $6.0 million with Citizens Bank, National Association, pursuant to 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 applicationU.S. Small Business Administration Paycheck Protection Program under Title I of the treasury stock method.

Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by Congress and signed into law on March 27, 2020. The following table sets forth the computation of basicPPP Note is unsecured, bears interest at 1.00% per annum, with principal and diluted earnings per share.
 Thirteen Weeks Ended September 29, 2019 Thirteen Weeks Ended September 30, 2018 Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
Basic earnings per share calculation:       
Net (loss) income$(1,264,157) $626,823
 $(9,076,569) $3,889,721
Net (loss) income attributable to common stockholders$(1,264,157) $626,823
 $(9,076,569) $3,889,721
Weighted average shares outstanding9,779,147
 9,771,587
 9,779,147
 9,768,649
Net (loss) income per share-basic$(0.13) $0.06
 $(0.93) $0.40
Diluted earnings per share calculation:       
Net (loss) income$(1,264,157) $626,823
 $(9,076,569) $3,889,721
Weighted average shares outstanding9,779,147
 9,771,587
 9,779,147
 9,768,649
Effect of dilutive securities:  
      
Stock options(1)(2)

 146,322
 
 146,642
Warrants(2)

 716
 
 709
Diluted weighted average shares outstanding9,779,147
 9,918,625
 9,779,147
 9,916,000
Net (loss) income per share-diluted$(0.13) $0.06
 $(0.93) $0.39

(1)Due to a net lossinterest payments deferred for the 13first six months, and 39 weeks ended September 29, 2019,matures in two years. The principal is payable in equal monthly installments, with interest, beginning on the effectfirst business day after the end of the deferment period. The PPP Note may be forgiven subject to the terms of the Paycheck Protection Program.
Additionally, certain dilutive securities were excluded fromacts of the computationCompany, including but not limited to: (i) the failure to pay any taxes when due, (ii) becoming the subject of weighted average diluted shares outstanding, as inclusion would have resulted in anti-dilution.

(2)Optionsa proceeding under any bankruptcy or insolvency law, (iii) making an assignment for the benefit of creditors, or (iv) reorganizing, merging, consolidating or otherwise changing ownership or business structure without PPP Lender’s prior written consent, are considered events of default which grant Lender the right to purchase 329,080 sharesseek immediate payment of common stock remaining to be exercisedall amounts owing under the 2013 plan were considered in the computationPPP Note.
20

Table of diluted earnings per share using the treasury stock method in the 2018 calculation. Warrants to purchase 1,185 shares of common stock remaining to be exercised, warrants to purchase 141,000 shares of common stock issued to the underwriters of the Company's IPO in July 2015, options to purchase 220,000 shares of common stock that were granted in August 2015 and November 2015 remaining to be exercised, as discussed in Note 9, under the 2014 plan, options to purchase 7,200 shares of common stock and 5,000 shares of common stock that were granted under the 2013 plan and 2014 plan,Contents
UNIQUE FABRICATING, INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

respectively, in April 2016, and options to purchase 5,000 and 15,000 shares of common stock that were granted under the 2013 plan and 2014 plan, were not included in the computation of diluted earnings per share in the 2019 and 2018 periods because the effect would have been anti-dilutive.

ITEMItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management'sManagement’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 30, 201829, 2019 included in our Annual Report on Form 10-K10-K/A filed with the Securities and Exchange Commission (the "SEC"“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,10-K/A and in other filings by us with the SEC, particularly in “Risk Factors” and “Special Note Regarding Forward-Looking Statements.” We make no guarantees regarding outcomes, and assume no obligation to update the forward-looking statements herein, except as may be required by law.

Forward-Looking Statements

The following discussion contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. These statements are based on management's beliefs and assumptions and on information currently available to us. These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. When used in this document the words “anticipate,” “believe,” “continue,” “could,” “seek,” “might,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “approximately,” “project,” “should,” “will,” “would,” or the negative or plural of these words or similar expressions, as they relate to our company, business and management, are intended to identify forward-looking statements. In light of these risks and uncertainties, the future events and circumstances discussed may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements, including those discussed in our Annual Report on Form 10-K10-K/A and in particular the section entitled “Risk Factors” of the Annual Report on Form 10-K.

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

Basis of Presentation

TheHistorically, the Company’s policy is that quarterly periods endended on the Sunday closest to the end of the calendar quarterly period. The second quarter ofFor 2019, the quarters and year to date period, which were thirteen weeks, respectively, ended on March 31, June 30, September 29, 2019 and the second quarter of 2018 ended on September 30, 2018. The Company’s policy is that fiscal years end annually on the Sunday closest to the end of the calendar year end. Our 2018 fiscal year ended on December 30, 2018 and the current fiscal year will end on December 29, 2019. On March 13, 2020, the Company’s board of directors approved changing our quarterly periods to match calendar quarterly periods. The Company expects the impact of this change on our 2020 result of operations to be immaterial. All year, quarter, and three month references prior to 2020 relate to the Company’s fiscal year and fiscal quarters, unless otherwise stated. For ease of presentation, quarter and three months ended is used throughout this Quarterly Report on Form 10-Q to represent both the current year calendar quarterly periods and the prior year fiscal year periods.
The Company’s operations are aggregated in one reportable business segment. Although we expanded the products that we manufacture and sell to include components used in the appliance, HVAC and water heater industries, products for these industries are manufactured at facilities that also manufacture or are capable of manufacturing products for the automotive industries. All of our manufacturing locations have similar capabilities, and most plants serve multiple markets. The manufacturing operations for our automotive, appliance, HVAC and water heater products share management and labor forces and use common personnel and strategies for new product development, marketing and the sourcing of raw materials.

We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency”; and
disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an “emerging growth company” for up to five years from our initial public offering, or until the earliest to occur of (1) the last day of the first fiscal year in which our total annual gross revenues exceed $1.1 billion, (2) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (3) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three year period.

Our emerging growth status will expire on the first day of the fiscal year 2020, and as such at the time we will no longer be able to take advantage of the exemptions noted above.

Overview

Unique Fabricating is engaged in the engineering and manufacture of multi-material foam, rubber, and plastic components utilized in noise, vibration and harshness, acoustical management, water and air sealing, decorative and other functional applications. The Company combinesUnique has combined a long history of organic growth with some more recent strategic acquisitions to diversify both its product capabilities and the markets served.

it serves.
Unique Fabricating’sFabricating's markets served are the North America automotive and heavyheavy- duty truck markets, as well as the medical, appliance, water heater and HVAC markets. Sales are conducted directly withto major automotive and heavy dutyheavy-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,Michigan; Concord, Michigan,Michigan; LaFayette, Georgia,Georgia; Louisville, Kentucky, Evansville, Indiana, Bryan, Ohio,Kentucky; Monterrey, Mexico,
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Mexico; Queretaro, MexicoMexico; and London, Ontario. The Company also has an independent client sales representative who maintains offices in Baldham, Germany.

Unique Fabricating derives the majoritymost of its net sales from the sales of foam, rubber plastic, and tape adhesive related automotive products. These products are produced fromby a variety of manufacturing processes including die cutting, compression molding, thermoforming, reaction injection molding and fusion molding. We believe the CompanyUnique Fabricating has a broader array of processes and materials utilized than any of its direct competitors, based on our product offerings. By sealing out air, noise and water intrusion, and by providing sound absorption and blocking, Unique Fabricating’s products improve the interior comfort of a vehicle, increasing perceived vehicle quality and the overall experience of its passengers. Unique’sUnique Fabricating’s products perform similar functions for appliances, water heaters and HVAC systems, improving thermal characteristics, reducing noise and prolonging equipment life. We primarily operate within the highly competitive and cyclical automotive parts industry. Through 2016, the industry experienced consistent growth as it recovered from the recession of 2009. However, the industry has been declining somewhat in the years since then.






Recent Developments
COVID-19 Pandemic
Third Quarter Results

ThirdThe Company’s first quarter of 2020 results were adversely affected by the COVID-19 pandemic, which resulted in the idling of most of our automotive customers’ facilities beginning in mid-March 2020. In response to the unprecedented uncertainty related to the impact the COVID-19 pandemic is having on the global automotive industry, the Company has taken actions to reduce costs and increase financial flexibility. These actions include actively managing costs, capital expenditures, and working capital. Additionally, the Company received a numberloan of factors including an overall decreaseapproximately $6.0 million pursuant to the U.S. Small Business Administration Paycheck Protection Program under Title I of the Coronavirus Aid, Relief, and Economic Security Act. Refer to Note 17, Subsequent Events in North American vehicle production, the loss of business due to end of life of certain vehicle platforms and the discontinuation of certain passenger car platforms at a certain OEM, and a UAW strike at a certain OEM. We expect that these factors may continue to adversely affect results through the remainderPart I, Item 1 of this year.Quarterly Report on Form 10-Q for more information on the Paycheck Protection Program loan.
The Company continues to follow guidelines with respect to operating during the COVID-19 pandemic provided by the various governmental entities in the jurisdictions where we operate and is taking additional measures to protect our employees.
DuringDue to the thirdinherent uncertainty of the unprecedented and rapidly evolving situation, the Company is unable to determine the full impact of the COVID-19 pandemic on our business. In the first quarter of 2019,2020, the Company increased the inventory allowance by $1,741,924 which is included in costhad lower sales of sales in the condensed consolidated statement of operations. This wasapproximately $3.2 million due to the loss of business from the end of life of certain programs coupled with the on-going implementation of the Company's new Enterprise Resource Planning (ERP) system providing more detailed information that led the Company to review estimated future demand in the next twelve months. No similar increase to the inventory allowance occurred during the 13 and 39 weeks ended September 30, 2018.

Departures

On September 30, 2019, subsequent to the end of the third quarter, our Chief Financial Officer (CFO) announced his resignation, effective October 11, 2019. The Company's new President and Chief Executive Officer (CEO) will serve as the Interim CFO until such a time that a permanent CFO is named. The Company did not incur restructuring costs in connection with this resignation.

On September 17, 2019, the Company named a new President and CEO of the Company, who began employment with the Company on September 30, 2019, subsequent to the end of the third quarter. The Company did not incur any restructuring costs in connection with this appointment.

On July 30, 2019, subsequent to our quarter-end, our former President and Chief Executive Officer of the Company (CEO), resigned as a member of the board of directors. The Company did not incur any additional restructuring costs in connection with his resignation from the board of directors.
On May 6, 2019, our former President and CEO resigned by mutual agreement of both parties. The Company incurred one-time restructuring costs of $140,740 and $720,712 during the 13 and 39 weeks ended September 29, 2019, respectively in connection with his resignation. Further charges with respect to his resignation as President and CEO are expected to be incurred in the fourth quarter of 2019 are expected to be immaterial.
Salaried Restructuring

On May 15, 2019 and February 1, 2019, the Company announced that in order to reduce fixed costs it would be eliminating a number of salaried positions throughout the Company. The Company provided the affected employees severance pay, health benefits continuation and job search assistance. This reduction took place and the Company incurred restructuring costs of $0 and $244,567 in the 13 and 39 weeks ended September 29, 2019, respectively.

COVID-19 pandemic.
Bryan Facility Closure

On November 7, 2019, the Company made the decision to close its manufacturing facility in Bryan, Ohio. The Company currently expects to cease operations atclosure of the Bryan facility bywas completed during the endfirst quarter of January 2020, and estimates that approximately 43 positions will be 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.

2020. The Company will move existing Bryanmoved production to its existing manufacturing facilities in Queretaro, Mexico and LaFayette, GA. The Company will provide 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 Company expects to incurincurred one-time severance costs as a result of this plant closure of approximately $0.5$0.3 million during the firstfourth quarter of 2020.2019. The amount of other costs incurred associated with this plant closure, which will primarily consist of preparing and moving existing production equipment and inventory at Bryan to other facilities, will bewas approximately $0.8$0.5 million during the first quarter of 2020.


Evansville Facility Closure

On July 16, 2019, the Company made the decision to close its manufacturing facility in Evansville, Indiana. The Company currently expects to cease operations at the Evansville facility by the end of December 2019, and estimates that approximately 47 positions will be 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 will move existing Evansville production to its manufacturing facilities in LaFayette, GA, Auburn Hills, MI, and Louisville, KY. The Company will provide 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 Company incurred one-time severance costs as a result of this plant closure of $331,416 and $331,416 in the 13 and 39 weeks ended September 29, 2019, respectively. The amount of other costs incurred associated with thisthe Evansville plant closure which primarily consisted of preparing and moving existing production equipment and inventory at Evansville to other facilities, was $518,493 and $518,493$0.4 million in the 13 and 39 weeksthree months ended September 29, 2019.March 31, 2020. All of these costs were recorded asto the restructuring expense line in continuing operations in the Company's condensed consolidated statements of operations.

The Company will incur total lease payments forDuring the remaining term of an existing warehouse lease of $1.2 million which will be accrued upon the cease use of the facility in the fourthfirst quarter of 2019. The Company is actively pursuing a sublease of the facility.

Fort Smith Facility Closure

On February 13, 2018,2020 the Company made the decision to close its manufacturing facility in Fort Smith, Arkansas. The Company ceased operations at the Fort Smith facility in July of 2018, andestimates that it had approximately 20 positions were eliminated$1.3 million lost sales as a result of the closure. The Company's decision resulted from its desirelost business due to streamline operations and to utilize some of the available excess capacity in other of its facilities. The Company moved existing Fort Smith production to our manufacturing facilities in Evansville, Indiana and Monterrey, Mexico. 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 has continuing cash flows from the production being moved to otherfacility closure.
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In October 2018, the Company sold the building it owned in Fort Smith, which had a net book value of $733,059, for cash proceeds of $876,032 resulting in a gain on the sale of $142,973.  The Company did not incur any restructuring costs associated with this closure in the 13 and 39 weeks ended September 29, 2019.

The Company incurred one-time severance costs as a result of this plant closure of $60,423 and $233,782, respectively, in the 13 and 39 weeks ended September 30, 2018. The amount of other costs incurred associated with this plant closure, which primarily consisted of preparing and moving existing production equipment and inventory at Fort Smith to other facilities was $115,103 and $559,461, respectively, in the 13 and 39 weeks ended September 30, 2018. All of these costs were recorded as restructuring expense in continuing operations in the Company's condensed consolidated statements of operations.

Port Huron Facility Closure

On February 1, 2018, the Company made the decision to close its manufacturing facility in Port Huron, Michigan. The Company ceased operations at the Port Huron facility in June of 2018, and 7 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 its facilities.

The Company moved existing Port Huron production to our manufacturing facilities in London, Ontario, 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 has continuing cash flows from the production being moved to other of its facilities. The Company did not incur any restructuring costs associated with this closure in the 13 and 39 weeks ended September 29, 2019.


The Company incurred one-time severance costs as a result of this plant closure of $0 and $64,768, respectively, in the 13 and 39 weeks ended September 30, 2018. The amount of other costs incurred associated with this plant closure, which primarily consisted of preparing and moving existing production equipment and inventory at Port Huron to other facilities was $0 and $297,899, respectively, in the 13 and 39 weeks ended September 30, 2018. All of these costs were recorded as restructuring expense in continuing operations in the Company's condensed consolidated statements of operations.

Impairment of Goodwill

During the second quarter of 2019, the Company experienced a decline in market capitalization, which under applicable accounting standards, is a potential indicator of impairment. As a result, the Company performed an interim quantitative assessment as of June 30, 2019, utilizing a combination of the income and market approaches, which were weighted evenly. The results of the quantitative analysis performed indicated the carrying value of the Company exceeded the fair value of the Company by $6.76 million and, accordingly, an impairment was recorded during the second quarter of 2019. Key assumptions used in the analysis were a discount rate of 12.5%, EBITDA margin and a terminal growth rate of 2.0%. Future events and changing market conditions may, however, lead us to reevaluate the assumptions we have used to test for goodwill impairment, including key assumptions used in our expected EBITDA margins and cash flows, as well as other key assumptions with respect to matters out of our control, such as discount rates and market multiple comparables. Based on the results of the quantitative test, we performed sensitivity analysis around the key assumptions used in the analysis, the results of which were a 50 basis point decline in EBITDA margin used to determine expected future cash flows would have resulted in an additional impairment of approximately $12.3 million. No such indicators of impairment were identified during the 13 weeks ended September 29, 2019.

Tax Cut and JOBS Act

The Tax Cuts and Jobs Act (the “Act”), enacted in December 2017, changed many aspects of U.S. corporate income taxation and included the reduction of the corporate income tax rate from 35% to 21%. The Act also included implementation of a territorial system and imposition of a one-time tax on deemed repatriated earnings of foreign subsidiaries. During 2018, we completed our accounting for the income tax effects of the Act and recorded a benefit of $(80,453) as an adjustment to the provisional estimate of the one-time transition tax expense recorded in 2017. Also during 2018, the Act required a calculation of tax under the Global Intangible Low-Taxed Income (“GILTI”) provisions of the Act, which resulted in a $320,000 expense. The Company calculates the tax impact of GILTI quarterly.

Amended and Restated Credit Agreement

On November 8, 2018, the US Borrower and the CA Borrower, entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), which amended and restated the existing Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Amended and Restated Credit Agreement, among other things increases the principal amount of US Term Loan borrowings to $26.0 million, creates a two year line to fund capital expenditures of up to $2.5 million through November 8, 2019 and $5.0 million thereafter through November 8, 2020, and extends the maturity dates of all borrowings from April 28, 2021 to November 7, 2023. The Amended and Restated Credit Agreement provides for borrowings of up to $30.0 million under the Revolver, subject to availability under the terms of the Amended and Restated Credit Agreement, and left the principal amount on the CA Term Loan the same as at September 30, 2018, approximately $12.0 million, and the same as it was under the previous Credit Agreement. The Amended and Restated Credit Agreement combined the previous US Term Loan and US Term Loan II (the “New US Term Loan”) into one term loan, and increases the aggregate principal amount to $26.0 million from $15.9 million. The increase in the principal amount effected by the New U.S. Term Loan replaced and termed-out outstanding borrowings under the Revolver. The Amended and Restated Credit Agreement changes the quarterly principal payments of the New US Term Loan to $337,500$0.3 million through September 30, 2020, $575,000$0.6 million thereafter through September 30, 2021, and $812,500$0.8 million thereafter though maturity. Finally, the agreement made certain changes to the Company's covenants and financial covenant ratios.

Covenant Compliance

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


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

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

On July 16, 2019, the Company entered into the Waiver and Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders.  The Fourth Amendment provided a permanent waiver by the Lenders and Agent with respect to the US Borrower's non-compliance with the total leverage ratio financial covenant, as defined, as of March 31, 2019. The Fourth Amendment also revised the definition of consolidated EBITDA and certain financial covenants, including the maximum total leverage ratio and the minimum debt service coverage ratio, as well as adding the requirement that the Company maintain minimum liquidity and minimum unadjusted consolidated EBITDA, each as defined. The Fourth Amendment permitspermited distributions as long as the Borrower is in compliance with specified conditions including that the US Borrower's liquidity, as defined, is not less than $5 million after giving effect to the distributions,, total leverage ratio is not more than 2.00 to 1.00, post distribution debt service coverage ratio ("DSCR"), as defined, is not greater than 1.10 to 1.00, and US Borrower is in compliance with financial covenants, before and after giving effect to the distributions. The Company is compliant with the covenants set forth in the Waiver and Fourth Amendment as of September 29, 2019.

On August 7, 2019, the Company entered into the Fifth Amendment to the Credit Agreement and Loan Documents (The "Fifth Amendment"“Fifth Amendment”). The Fifth Amendment amended the definition of unadjusted consolidated EBITDA to include consolidated net income plus the sum of interest expense, tax expense, depreciation and amortization expense, and non-cash impairment charges of goodwill.
As of March 31, 2020, the Company was in compliance with its financial covenants. However, due to the impact of the COVID-19 pandemic on the Company and the global automotive industry, the Company anticipated that it was likely that the Bank EBITDA for the twelve months ended June 30, 2020 is likely to result in the Company not being in compliance with its financial covenants. In response to the anticipated impact of COVID-19, on April 23, 2020, the US Borrower and the CA Borrower (together the “Borrowers”) entered into the Seventh Amendment (the “Seventh Amendment”) to the Credit
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Agreement and Loan Documents. The Seventh Amendment, among other things, (i) permits additional indebtedness in the form of unsecured loans authorized pursuant to and in compliance with the CARES Act under the Paycheck Protection Program of the U.S. Small Business Administration, in an aggregate amount not to exceed $6.0 million; (ii) defers the June 30, 2020 principal payments on the US Term Loan, CA Term Loan, and CAPEX Loan, with the deferred principal amounts payable at the existing maturity dates; (iii) waives the requirement to test Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the fiscal quarter ending June 30, 2020; (iv) allows the release of the lien on the Evansville, Indiana property and for the net cash proceeds from its sale to be applied against any outstanding balance on the Revolver, which will not permanently reduce the Revolving Credit Aggregate Commitment; (v) adds a weekly requirement for the Borrowers to deliver a 13-week cash flow forecast until September 30, 2020; and (vi) adds a 1.0% LIBOR Floor and 2.0% Base Rate Floor.
While the Seventh Amendment waives the requirement to test the Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the second quarter of 2020, it does not waive this requirement for periods after the second quarter of 2020. The Company believes that it is not likely to be in compliance with its financial covenants for the quarters ending June 30, 2020, September 30, 2020, December 31, 2020, and March 31, 2021 as these periods’ twelve month financial results will include the second quarter of 2020 which will be materially impacted by the COVID-19 pandemic. Absent an amendment or waiver, failure to be in compliance with the Company’s financial covenants would constitute a default when reported. Such a default, if not paycured or waived, would allow the lenders to accelerate the maturity of the debt, making it due and payable at that time. If the maturity of the debt were accelerated, the Company would not have sufficient available liquidity to repay such debt within on year after the date that the financial statements are issued. This condition raises substantial doubt about the Company’s ability to continue as a dividend duringgoing concern.
The Company has been actively discussing the remainderimpact that the COVID-19 pandemic is expected to have on the Company’s ability to meet its financial covenants with the Administrative Agent and the need to modify the covenant terms through the periods that the Company believes may be impacted. The Company believes it is probable that the Company will obtain an amendment modifying the covenant terms prior to triggering a default. As a result, the Company has concluded that its plans to obtain covenant relief are probable of 2019.being achieved, alleviating substantial doubt about the Company’s ability to continue as a going concern.

Comparison of Results of Operations for the Thirteen WeeksThree Months Ended September 29,March 31, 2020 and March 31, 2019 and the Thirteen Weeks Ended September 30, 2018

Thirteen Weeks Ended September 29, 2019 and Thirteen Weeks Ended September 30, 2018

Net Sales
 Thirteen Weeks Ended September 29, 2019 Thirteen Weeks Ended September 30, 2018
 (in thousands)
Net sales$38,550
 $42,052

Three Months Ended March 31, 2020Three Months Ended March 31, 2019
(in thousands)
Net sales$34,976  $39,467  
Net sales for the 13 weeksquarter ended September 29, 2019March 31, 2020 were approximately $38.55$35.0 million compared to $42.05$39.5 million for the 13 weeksquarter ended September 30, 2018.March 31, 2019, representing a decrease of 11.4%. The decrease in net sales for the 13 weeksquarter ended September 29, 2019,March 31, 2020, was primarily driven by the endimpact of lifethe COVID-19 pandemic on the global automotive industry, which shut down our automotive customers’ facilities and loss of certain vehicle platforms,revenues from business loss associated with the on-going plant closure at Evansville, Indiana and the prior year plant closures of Ft. Smith, Arkansas, and Port Huron, Michigan, and the United Auto Workers (UAW) strike at a certain OEM.approximately $1.3 million.


Cost of Sales
 Thirteen Weeks Ended September 29, 2019 Thirteen Weeks Ended September 30, 2018
 (in thousands)
Materials$21,101
 $21,439
Direct labor and benefits5,595
 6,910
Manufacturing overhead4,002
 4,605
Sub-total30,698
 32,954
Depreciation678
 574
Cost of Sales31,376
 33,528
Gross Profit$7,174
 $8,524

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 as a percentsales consists of Net Salesthe following major components:
Three Months Ended March 31, 2020Three Months Ended March 31, 2019
AmountAs % of net salesAmountAs % of net sales
(dollars in thousands)
Materials$17,762  50.8 %$20,082  50.9 %
Direct labor and benefits5,692  16.3 %6,124  15.5 %
Manufacturing overhead3,822  10.9 %4,320  10.9 %
Sub-total27,276  78.0 %30,526  77.3 %
Depreciation625  1.8 %641  1.6 %
Cost of Sales$27,901  79.8 %$31,167  79.0 %
Gross Profit$7,075  20.2 %$8,300  21.0 %
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 Thirteen Weeks Ended September 29, 2019 Thirteen Weeks Ended September 30, 2018
Materials54.7% 51.0%
Direct labor and benefits14.5% 16.4%
Manufacturing overhead10.4% 10.9%
Sub-total79.6% 78.3%
Depreciation1.8% 1.4%
Cost of Sales81.4% 79.7%
Gross Profit18.6% 20.3%

Cost of sales as a percentage of net sales for the 13 weeksquarter ended September 29, 2019March 31, 2020 increased 80 basis points to 81.4%79.8% from 79.7%79.0% for the 13 weeksquarter ended September 30, 2018. The increase in cost of salesMarch 31, 2019.
Gross Profit
Gross profit as a percentage of net sales, wasor gross margin, for the quarter ended March 31, 2020 decreased 80 basis points to 20.2%, compared to 21.0% for the quarter ended March 31, 2019. The decrease in gross margin is the result of lower sales volumes primarily attributable to an increase to the inventory allowance of $1.74 million, due to the loss of business from the end of life of certain programs coupled with the on-going implementation of the Company's new Enterprise Resource Planning (ERP) system providing more detailed information that led the Company to review estimated futurelower demand in the next twelve months. Material costs increased to 54.7% of net sales for the 13 weeks ended September 29, 2019 from 51.0% for the 13 weeks ended September 30, 2018our automotive products as a result of an increasethe COVID-19 pandemic, partially offset by efforts to the inventory allowance noted above. Direct laborreduce costs.
Selling, General and benefit costs as a percentage of net sales was 14.5% for the 13 weeks ended September 29, 2019 compared to 16.4% for the 13 weeks ended September 30, 2018 primarily due lower health insurance claims incurred under our self-insured healthAdministrative Expenses
Three Months Ended March 31, 2020Three Months Ended March 31, 2019
(dollars in thousands)
Selling, general, and administrative expenses, excluding depreciation and amortization expenses$4,784  $6,212  
Depreciation and amortization1,082  1,061  
Selling, general, and administrative expenses$5,866  $7,273  
Selling, general, and administrative expenses as a percentage of net sales16.8 %18.4 %
Selling, general, and welfare benefit plans. Manufacturing overhead costs as a percentage of net sales was 10.4% for the 13 weeks ended September 29, 2019 versus 10.9% for the 13 weeks ended September 30, 2018. Depreciation costs increased to 1.8% of net sales for the 13 weeks ended September 29, 2019 compared to 1.4% for the 13 weeks ended September 30, 2018, largely due to the decline in revenues from the third quarter of 2018, as well as the investment in new equipment we made during 2018 to increase our capacity at our manufacturing facilities.

Gross Profit
As a result of the increase in cost of sales as a percentage of sales described above, gross profitadministrative expenses as a percentage of net sales for the 13 weeksquarter ended September 29, 2019March 31, 2020, decreased 160 basis points to 18.6%16.8% from 20.3%18.4% for the 13 weeksquarter ended September 30, 2018.









Selling, General and Administrative Expenses
 Thirteen Weeks Ended September 29, 2019 Thirteen Weeks Ended September 30, 2018
 
(in thousands, except SG&A as a
% of net sales)
SG&A, exclusive of depreciation and amortization$5,480
 $6,139
Depreciation and amortization1,058
 1,087
SG&A$6,538
 $7,226
SG&A as a % of net sales16.9% 17.2%

SG&A as a percentage of net sales for the 13 weeks ended September 29, 2019, decreased to 16.9% from 17.2% for the 13 weeks ended September 30, 2018.March 31, 2019. The decrease is primarily related to cost reductions from salaried restructuring completedefforts undertaken to reduce costs including headcount, commissions and professional services, in 2019 as comparedaddition to the 13 weeks ended September 30, 2018.

savings from plant closures.
Operating (Loss) Income

As a result of the above mentioned factors, as well as restructuring expenses of $0.99$0.9 million and $0.1 million for the 13 weeksquarter ended September 29,March 31, 2020 and March 31, 2019, compared to restructuring expenses of $0.18 millionrespectively, operating income for the 13 weeksquarter ended September 30, 2018, operating loss for the 13 weeks ended September 29, 2019March 31, 2020 was $(0.35)$0.3 million, or 0.8% of net sales, compared to operating income of $1.12$0.9 million, or 2.4% of net sales, for the 13 weeksquarter ended September 30, 2018.

March 31, 2019. The decrease in operating income and operating margin are primarily attributable to the lower sales volumes and higher restructuring costs, partially offset by our cost reduction efforts.
Non-Operating Expense

Non-operating expense for the 13 weeksquarter ended September 29, 2019March 31, 2020 was $1.16$1.7 million compared to $0.82$1.1 million for the 13 weeksquarter ended September 30, 2018.March 31, 2019. The change in non-operating expense$0.6 million increase was primarily driven by an increaseattributable to higher settlement costs from our interest rate swap, which is included in interest expense due to higher interest rates in the 13 weeks ended September 29, 2019.accompanying condensed consolidated statements of operations.

(Loss) Income Before Income Taxes

As a result of the foregoing factors, (loss)our loss before income taxes for the 13 weeks ended September 29, 2019 was $(1.52)increased $1.3 million compared to income before income taxes of $0.31$1.4 million for the 13 weeksquarter ended September 30, 2018.

March 31, 2020, compared to $0.1 million in 2019.
Income Tax Provision

During the 13 weeksthree months ended September 29, 2019,March 31, 2020, income tax benefit was $(0.23)$0.3 million, and the effective income tax rate was 16.6%22.21%. The differences between the effective tax rate and the statutory rate of 21.0% arewas primarily due to benefit of tax crredits in the U.S. partially offset by earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S., and U.S. taxation of foreign earnings under the Global Intangible Low-Taxed Income (GILTI) provisions of the Tax Cut and Jobs Act, partially offset by tax credits. These adjustments are explained further in Note 10.

During the 13 weeks ended September 30, 2018, income tax expense was $0.32 million, and the effective income tax rate was (104.8)%. The effective tax rate was lower than the statutory rate of 21.0% primarily due to provision to return adjustments related to one-time transition tax expense, research and development credits, and manufacturing incentives in the U.S.; partially offset by earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S.

provisions.
Net (loss) income

Income
As a result of the inventory allowance, restructuring expenses, lower net sales, and changes in other expenses and benefits discussed above, net loss for the 13 weeksquarter ended September 29, 2019March 31, 2020 was $(1.26)$1.1 million compared to a net incomeloss of $0.63$0.2 million during the 13 weeksquarter ended September 30, 2018.








Thirty-Nine Weeks Ended September 29, 2019 and Thirty-Nine Weeks Ended September 29, 2018

Net Sales
 Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
 (in thousands)
Net sales$116,906
 $135,098

Net sales for the 39 weeks ended September 29, 2019 were approximately $116.9 million compared to $135.1 million for the 39 weeks ended September 30, 2018. The decrease in net sales for the 39 weeks ended September 29, 2019, driven by the end of life of certain vehicle platforms, business loss associated with the on-going plant closure at Evansville, Indiana and the prior year plant closures of Ft. Smith, Arkansas, and Port Huron, Michigan, and the UAW strike at a certain OEM coupled with an overall decline in North American vehicle production of 1.3% as compared to the 39 weeks ended September 30, 2018.

Cost of Sales
 Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
 (in thousands)
Materials$60,940
 $68,122
Direct labor and benefits17,868
 21,068
Manufacturing overhead12,435
 13,475
Sub-total91,243
 102,665
Depreciation1,976
 1,641
Cost of Sales93,219
 104,306
Gross Profit$23,687
 $30,793

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 as a percent of Net Sales
 Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
Materials52.1% 50.4%
Direct labor and benefits15.3% 15.6%
Manufacturing overhead10.6% 10.0%
Sub-total78.0% 76.0%
Depreciation1.7% 1.2%
Cost of Sales79.7% 77.2%
Gross Profit20.3% 22.8%

Cost of sales as a percentage of net sales for the 39 weeks ended September 29, 2019 increased to 79.7% from 77.2% for the 39 weeks ended September 30, 2018. The increase in cost of sales as a percentage of net sales was primarily attributable to an increase to the inventory allowance of $1.74 million, due to the loss of business from the end of life of certain programs coupled with the on-going implementation of the Company's new Enterprise Resource Planning (ERP) system providing more detailed information that led the Company to review estimated future demand in the next twelve months. Material costs increased to 52.1% of net sales for the 39 weeks ended September 29, 2019 from 50.4% for the 39 weeks ended September 30, 2018 as a result of an increase to the inventory allowance noted above. Direct labor and benefit costs as a percentage of net sales was 15.3% for the 39 weeks ended September 29, 2019 compared to 15.6% for the 39 weeks ended September 30, 2018. Manufacturing overhead costs as a percentage of net sales was 10.6% for the 39 weeks ended September 29, 2019 versus 10.0% for the 39 weeks ended September 30, 2018. The increase in manufacturing overhead costs as a percentage of net sales

was primarily due to the decline in sales from the 39 weeks ended September 30, 2018. Depreciation costs increased to 1.7% of net sales for the 39 weeks ended September 29, 2019 compared to 1.2% for the 39 weeks ended September 30, 2018, again largely due to the decline in net sales during the first nine months of 2019, as well as the investment in new equipment we made during 2018 to increase our capacity at our manufacturing facilities.

Gross Profit
As a result of the increase in cost of sales as a percentage of sales described above, gross profit as a percentage of net sales for the 39 weeks ended September 29, 2019 decreased to 20.3% from 22.8% for the 39 weeks ended September 30, 2018.


Selling, General and Administrative Expenses
 Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
 
(in thousands, except SG&A as a
% of net sales)
SG&A, exclusive of depreciation and amortization$18,070
 $19,266
Depreciation and amortization3,164
 3,306
SG&A$21,234
 $22,572
SG&A as a % of net sales18.2% 16.9%

SG&A as a percentage of net sales for the 39 weeks ended September 29, 2019, despite a decline in the amount expensed, increased to 18.2% from 16.9% for the 39 weeks ended September 30, 2018. The increase is primarily related to the decline of overall net sales in the 39 weeks ended September 29, 2019 compared to the 39 weeks ended September 30, 2018.

Operating (Loss) Income

Impairment of goodwill was $6.76 million and restructuring expenses were $1.82 million for the 39 weeks ended September 29, 2019 compared to impairment of goodwill of $0 and restructuring expenses of $1.16 million for the 39 weeks ended September 30, 2018. As a result of the impairment and restructuring expenses, as well as the other factors discussed above, operating loss for the 39 weeks ended September 29, 2019 was $(6.12) million compared to operating income of $7.07 million for the 39 weeks ended September 30, 2018.

Non-Operating Expense

Non-operating expense for the 39 weeks ended September 29, 2019 was $3.56 million compared to $2.48 million for the 39 weeks ended September 30, 2018. The change in non-operating expense was primarily driven by an increase in interest expense due to an unfavorable mark-to-market of $0.75 million on the interest rate swaps entered into during the fourth quarter of 2018, as required under the Amended and Restated Credit Agreement.

(Loss) Income Before Income Taxes

As a result of the foregoing factors, the loss before income taxes for the 39 weeks ended September 29, 2019 was $(9.67) million compared to income before income taxes of $4.59 million for the 39 weeks ended September 30, 2018.

Income Tax Provision

During the 39 weeks ended September 29, 2019 , income tax benefit was $0.60 million, and the effective income tax rate was 6.8%. The differences between the effective tax rate and the statutory rate of 21.0% are primarily due to to permanent differences between book and tax accounting on the impairment of goodwill as well as earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S., and U.S, taxation of foreign earnings under the GILTI provisions of the Act, partially offset by tax credits in the U.S. These adjustments are explained further in Note 10.

During the 39 weeks ended September 30, 2018, income tax expense was $0.69 million and the effective income tax rate was 15.2%. The effective tax rate was lower than the statutory rate of 21.0% primarily due to provision to return adjustments related to one-time transition tax expense, research and development credits, and manufacturing incentives in the U.S.; partially offset by earnings generated in Mexico and Canada, which both have higher statutory income tax rates than the U.S.


Net (loss) income

As a result of the inventory allowance, impairment of goodwill, restructuring expenses, lower net sales, and changes in other expenses and benefits discussed above, net loss for the 39 weeks ended September 29, 2019 was $(9.08) million compared to net income of $3.89 million during the 39 weeks ended September 30, 2018.

March 31, 2019.
Non-GAAP Financial Measures

Adjusted EBITDA

We present Adjusted EBITDA (defined below), a measure that is not in accordance with generally accepted accounting principles in the United States of America (non-GAAP), in this document to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure and it is used by us to facilitate a comparison of our operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business and measures under GAAP can provide alone. Our board and management also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected
25

performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for Company management. In addition, the financial covenants in our new credit facilityAmended and Restated Credit Agreement are based on Adjusted EBITDA subject to dollar limitations on certain adjustments.

We define “Adjusted EBITDA” as earnings before interest expense, income taxes, depreciation and amortization expense, non-cash stock awards, non-recurring integration expense, goodwill impairment, restructuring expenses, and one-time consulting and licensing ERP system implementation costs as we implement a new ERP system at all locations. We believe omitting these items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of property and intangible assets. We believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income (loss) for the periods indicated as a measure of our performance. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

The use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider this performance measure in isolation from, or as an alternative to, GAAP measures such as net income.income (loss). Adjusted EBITDA is not a measure of liquidity under GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include that: (1) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (2) it does not reflect changes in, or cash requirements for, our working capital needs; (3) it does not reflect income tax payments we may be required to make; and (4) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness.

To properly and prudently evaluate our business, we encourage you to review our unaudited condensed consolidated financial statements included elsewhere in this document, our audited consolidated financial statements included in our Annual Report on Form 10-K,10-K/A, and the reconciliation to Adjusted EBITDA from net income, the most directly comparable financial measure presented in accordance with GAAP, set forth in the following table. All of the items included in the reconciliation from net income (loss) to Adjusted EBITDA are either (1) non-cash items or (2) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.






Thirteen and Thirty-Nine Weeks Ended September 29, 2019 and Thirteen and Thirty-Nine Weeks Ended September 30, 2018
 Thirteen Weeks Ended September 29, 2019 Thirteen Weeks Ended September 30, 2018 Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
 (in thousands)
Net income$(1,264) $627
 $(9,077) $3,890
Plus: Interest expense, net1,149
 837
 3,580
 2,433
Plus: Income tax (benefit) expense(252) (321) (598) 699
Plus: Depreciation and amortization1,735
 1,662
 5,140
 4,947
Plus: Non-cash stock award18
 33
 117
 99
Plus: Non-recurring expenses14
 128
 83
 128
Plus: Goodwill impairment
 
 6,760
 
Plus: Restructuring expenses991
 175
 1,815
 1,156
Plus: Transaction fees
 27
 
 27
Plus: One-time consulting and licensing ERP system implementation costs255
 202
 650
 522
Adjusted EBITDA$2,646
 $3,370
 $8,470
 $13,901

Three Months Ended March 31, 2020Three Months Ended March 31, 2019
(dollars in thousands)
Net loss$(1,137) $(189) 
Plus: Interest expense, net1,666  1,100  
Plus: Income tax (benefit) expense(263) 43  
Plus: Depreciation and amortization1,751  1,702  
Plus: Non-cash stock award23  33  
Plus: Restructuring expenses920  91  
Plus: One-time consulting and licensing ERP system implementation costs275  173  
Adjusted EBITDA$3,235  $2,953  
Liquidity and Capital Resources

Our principal sources of liquidity are cash flowflows 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 SeptemberMarch 31, 2020 and December 29, 2019, and December 30, 2018, we had a cash balance of $1.53$1.8 million and $1.41$0.6 million, respectively. Our excess cash
26

balance is swept daily and applied to reduce borrowings under our revolving line of credit, which remains available for re-borrowing, as needed, subject to compliance with the terms of the facility. As of SeptemberMarch 31, 2020 and December 29, 2019, and December 30, 2018, we had $10.4$6.9 million and $11.6$6.8 million, respectively, available to be borrowed under our revolving credit facility, subject to borrowing base restrictions and outstanding letters of credit.facility. At each such date, we were in compliance with all of our debt covenants, as outlined incovenants.
On April 24, 2020, due to the Waiversignificant 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 Fourthsigned 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 AmendedCredit Agreement and RestatedLoan Documents. Refer to Notes 6 and 17 in Part I, Item 1 of this Quarterly Report on Form 10-Q for more discussion of the details related to the PPP Note and Seventh Amendment.The Seventh Amendment, among other things, provided us necessary liquidity by allowing us to take on the additional indebtedness from the PPP Note, deferring the June 30, 2020 principal payments on the US Term Loan, CA Term Loan, and CAPEX Loan, with the deferred principal amounts payable at the existing maturity dates, and by releasing the lien on our Evansville, Indiana property and allowing for the net cash proceeds from its sale, which was completed in June 2020, to be applied against any outstanding balance on our Revolver, while not permanently reducing the Revolving Credit Agreement. WeAggregate Commitment. With the proceeds from the PPP Note and the relief provided in the Seventh Amendment, we believe that ourwe have sufficient sources of liquidity including cash flow from operations, existing cash and our revolving line of credit are sufficient to meet our projected cash requirements for at least the next fifty twofifty-two weeks.

In 2019,2020, we plan to spend approximately $2.33$2.5 million in capital expenditures, of which $2.13$0.3 million was spent through September 29, 2019,March 31, 2020, primarily to add new production equipment as we expand our production capabilities, upgrade existing equipment, and improve our information technology software and hardware throughout our facilities.

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

Covenant Compliance

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


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

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

On July 16, 2019, the Company entered into the Waiver and Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with Citizens acting as Administrative Agent, and the other lenders.  The Fourth Amendment provided a permanent waiver by the Lenders and Agent with respect to the Borrower's non-compliance with the total leverage ratio financial covenant, as defined as of March 31, 2019. The Fourth Amendment also revised the definition of consolidated EBITDA and certain financial covenants, including the maximum total leverage ratio and the minimum debt service coverage ratio, as well as adding the requirement that the Company maintain minimum liquidity and minimum unadjusted consolidated EBITDA, each as defined. The Company is compliant with the covenants set forth in the Waiver and Fourth Amendment as of September 29, 2019.

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

Dividends

The Fourth Amendment permits distributions as long as the Borrower is in compliance with specified conditions including that the Borrower's liquidity, as defined, is not less than $5 million after giving effect to the distributions, total leverage ratio is not more than 2.00 to 1.00, post distribution DSCR, as defined, is not greater than 1.10 to 1.00, and Borrower is in compliance with financial covenants, before and after giving effect to the distributions. The Company will not pay a dividend during the remainder of 2019.2020.

27

Cash Flow Data

The following table presents cash flow data for the periods indicated.
 Thirty-Nine Weeks Ended September 29, 2019 Thirty-Nine Weeks Ended September 30, 2018
Cash flow data(in thousands)
Cash flow provided by (used in):   
Operating activities$6,914
 $6,816
Investing activities(2,088) (4,663)
Financing activities(4,708) (2,601)

Three Months Ended March 31, 2020Three Months Ended March 31, 2019
(in thousands)
Cash flows provided by (used in):
Operating activities$2,848  $1,571  
Investing activities$(291) $(863) 
Financing activities$(1,448) $(813) 
Operating Activities

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


During the 39 weeksthree months ended September 29, 2019,March 31, 2020, net cash provided by operating activities was $6.91$2.8 million, compared to net cash provided by operating activities of $6.82$1.6 million for the 39 weeksthree months ended September 30, 2018.

NetMarch 31, 2019. The increase in cash provided by operations foroperating activities was primarily attributable to delaying payments to our vendors in response to the 39 weeks ended September 29, 2019 was positively impacteduncertainty created by decreases in working capital, primarily in accounts receivable.

Net cash provided by operations for the 39 weeks ended September 30, 2018 was positively impacted by decreases in working capital, primarily in accounts payable and accrued expenses.

COVID-19 pandemic.
Investing Activities

Cash used in investing activities consists principally of purchases of property, plant and equipment.

InDuring the 39 weeksthree months ended September 29,March 31, 2020 and 2019, and 39 weeks ended September 30, 2018, we made capital expenditures of $2.13$0.3 million and $4.69$0.9 million, respectively.

We plan to spend a total of approximately $2.33$2.50 million in capital expenditures during 2019,2020, including the $2.13$0.3 million spent through September 29, 2019.

March 31, 2020.
Financing Activities

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

InDuring the 39 weeksthree months ended September 29, 2019,March 31, 2020, we had outflows of $4.71$1.4 million primarily due to $6.51$1.4 million payment of the principal amount of our term loans and note payable under our new amended and restated senior credit facility and repayments of the revolving credit facility. These outflows were partially offset by $1.3 million net proceeds from borrowings under our capital expenditure line.

As of September 29, 2019, $14.8 million was outstanding under the revolving credit facility, gross of debt issuance costs. Borrowings under the new revolving credit facility are subject to borrowing base restrictions and reduced to the extent of letters of credit issued under the new senior credit facility. As of September 29, 2019, the maximum additional available borrowings under the revolver was $10.0 million, subject to borrowing base restrictions and 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, and a reduction of the borrowing base capacity to $24.9 million under the borrowing base restrictions of the Amended and Restated Credit Agreement. Amounts repaid under the revolving credit facility will be available to be re-borrowed, subject to compliance with the terms of the facility.

In the 39 weeks ended September 30, 2018, we had outflows of $2.60 million primarily due to $2.96 million reduction of the principal amount of our term loans under our new senior credit facility, and $4.40 million for payments of cash dividends. These outflows were partially offset by $5.09 million net proceeds from borrowings under our revolving credit facility.

Credit Agreement

On April 29, 2016, the US Borrower and the CA Borrower and Citizens, acting as lender and Administrative Agent and the other lenders, entered into the Credit Agreement providing for borrowings of up to the aggregate principal amount of $62.00 million. The Credit Agreement was a senior secured credit facility and consisted of a revolving line of credit (the “Revolver”) of up to $30.00 million to the US Borrower, a $17.00 million principal amount term loan to the US Borrower, (the “US Term Loan” and a $15.00 million term loan to the CA Borrower.

On August 18, 2017, the US Borrower and the CA Borrower entered into the Second Amendment (the “Amendment”) to the Credit Agreement, with Citizens, acting as Administrative agent, and other lenders. The Amendment converted $4.00 million of outstanding borrowings under the revolving line of credit under the Credit Agreement into an additional $4.00 million term loan to the US Borrower (the “US Term Loan II”). The conversion of a portion of the outstanding borrowings under the revolving line of credit did not reduce the aggregate amount available to be borrowed under it.


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

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

Amended and Restated Credit Agreement

On November 8, 2018, the US Borrower and the CA Borrower, entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”), which amended and restated the existing Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders. The Amended and Restated Credit Agreement, among other things increased the principal amount of US Term Loan borrowings to $26.0 million, created a two year line to fund capital expenditures of up to $2.5 million through November 8, 2019 and $5.0 million in the aggregate thereafter through November 8, 2020, and extended the maturity dates of all borrowings from April 28, 2021 to November 7, 2023. The Amended and Restated Credit Agreement provides for borrowings of up to $30.0 million under the Revolver, subject to availability, and left the principal amount on the CA Term Loan at approximately $12.0 million on September 30, 2018, the same as it was under the previous Credit Agreement as of the end of the third quarter. The Amended and Restated Credit Agreement combined the previous US Term Loan and US Term Loan II (the “New US Term Loan”), and increased the aggregate principal amount to $26.0 million dollars from $15.9 million. The increase in the principal amount effected by the New U.S. Term Loan replaced and termed-out outstanding borrowings under the Revolver. The Amended and Restated Credit Agreement changes the quarterly principal payments of the New US Term Loan to $337,500 through September 30, 2020, $575,000 thereafter through September 30, 2021, and $812,500 thereafter though maturity. Finally, the agreement made certain changes to the Company's covenants and financial covenant ratios.

The Revolver, New US Term Loan, and CA Term Loan all mature on November 7, 2023 and bear interest at the Company's election of either (i) the greater of the Prime Rate or the Federal Funds Effective Rate (the “Base Rate”) or (ii) the LIBOR rate, plus an applicable margin ranging from 1.75% to 2.75% in the case of the Base Rate and 2.75% to 3.75% in the case of the LIBOR rate, in each case, based on senior leverage ratio thresholds measured quarterly, as amended by the Waiver and Fourth Amendment to the Amended and Restated Credit Agreement. The effective interest rate as of September 29, 2019 was 6.362%.

In addition, the Amended and Restated Credit Agreement allows for increases in the principal amount of the Revolver and New US and CA Term Loans not to exceed $10.00 million, in the aggregate, provided that before and after giving effect to any 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 $2.00 million, in the aggregate, provided that any letter of credit issued will reduce availability under the Revolver.

We are permitted to prepay in part or in full the amounts due under the Amended and Restated Credit Agreement without penalty, provided that with respect to prepayment of the Revolver at least $0.10 million remains outstanding. Our obligations under the Amended and Restated Credit Agreement may be accelerated upon the occurrence of an event of default, which include customary events for a financing arrangement of this type, including, without limitation, payment defaults, defaults in the performance of affirmative or negative covenants (including financial ratio maintenance requirements), bankruptcy or related defaults, defaults on certain other indebtedness, the material inaccuracy of representations or warranties, material adverse changes, and changes related to ownership of the U.S. Borrower or Unique Fabricating, Inc. In the event of an event of default, the interest rate on the Revolver and New US Term Loan and CA Term Loan will increase by 3.0% per annum plus the hen applicable rate. The Amended and Restated Credit Agreement requires that, in addition to scheduled principal payments, we repay both the New US Term Loan and CA Term Loan principal annually in an amount equal to (a) 50% of excess cash flow, as defined, if the total leverage ratio, as defined, as calculated as of the end of such year is greater than or equal to 2.75 to 1.00, or (b) 25% of excess cash flow calculated as of the end of such fiscal year if the total leverage ratio is greater than or equal to 2.00 to 1.00 but less than 2.75 to 1.00.


The US Borrower's obligations under the Amended and Restated Credit Agreement are guaranteed by each of its United States subsidiaries and by Unique Fabricating, Inc. and secured by a first priority security interest in all tangible and intangible assets, including a pledge of capital stock of the United States subsidiaries of the US Borrower and of 65% of the capital stock of the CA Borrower, and by mortgages on our facilities in LaFayette, Georgia, Louisville, Kentucky, and Evansville, Indiana. The US borrower guarantees all of the obligations and liabilities of the CA Borrower. Unique Fabricating, Inc. also pledged all of the capital stock of the US Borrower. The Fourth Amendment provided for the discharge and release of the mortgage on the Ft. Smith, Arkansas facility subject to the application of the net proceeds of its sale to reduce borrowings under the Revolver. The application of the net proceeds did not permanently reduce the amounts that could be borrowed under the Revolver.

Effective June 30, 2016, as required under the Credit Agreement, the Company purchased a derivative financial instrument, in the form of an interest rate swap, for the purpose of hedging certain identifiable transactions in order to mitigate risks related to cash flow variability caused by interest rate fluctuations. The interest rate swap requires the Company to pay a fixed rate of 1.055% per annum while receiving a variable rate of one-month LIBOR. The notional amount at the effective date began at $16.68 million and decreased by $0.32 million each quarter until June 30, 2017, decreased thereafter by $0.43 million per quarter until June 29, 2018, when it began decreasing by $0.53 million until it expires on June 28, 2019. The interest rate swap was recognized at its fair value. Monthly settlement payments due on the interest rate swap and changes in its fair value are recognized as interest expense in the period incurred. Please 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 an interest rate swap which requires the Company to pay a fixed rate of 1.093% per annum while receiving a variable interest rate per annum based on one month LIBOR for a net monthly settlement based on half of the notional amount beginning immediately. The notional amount at the effective date was $1.90 million and decreases by $0.10 million each quarter until it expires on September 30, 2020. The interest rate swap is recognized at its fair value, and monthly settlement payments due on the interest rate swap and changes in its fair value are recognized as interest expense in the period incurred.

Effective November 30, 2018, as required under the Amended and Restated Credit Agreement, the Company entered into another interest rate swap the 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 $5.04 million which increases by $0.38 million each quarter until June 28, 2019 when the notional amount increases to $17.54 million due to the interest rate swap from 2016 above expiring. The notional amount then decreases each quarter by $0.15 million until September 30, 2020 when the notional amount increases to $17.48 million due to the interest rate swap from 2017 above expiring. The notional amount then decreases each quarter by $0.43 million until December 31, 2021, then decreases each subsequent quarter by $0.61 million until it expires on November 8, 2023.The Company has elected not to apply hedge accounting for financial reporting purposes on all of its swaps.

We must comply with a minimum debt service financial covenant and a senior funded indebtedness to EBITDA covenant, as revised under the Waiver and Fourth Amendment (the “Fourth Amendment”) to the Amended and Restated Credit Agreement, with Citizens, acting as Administrative Agent, and the other lenders.  The Fourth Amendment provided a permanent waiver by the Lenders and Agent with respect to the Borrower's failure to maintain a total leverage ratio, as defined, not in excess of 3.50 to 1.00 as of March 31, 2019. The Fourth Amendment also revised the definition of consolidated EBITDA and certain financial covenants, including the maximum total leverage ratio and the minimum debt service coverage ratio, as well as added the requirement that the Company maintain minimum liquidity and minimum unadjusted consolidated EBITDA, each as defined.

The Amended and Restated Credit Agreement also contains customary affirmative covenants, including: (1) maintenance of legal existence and compliance with laws and regulations; (2) delivery of consolidated financial statements and other information; (3) maintenance of properties in good working order; (4) payment of taxes; (5) delivery of notices of defaults, litigation, ERISA events and material adverse changes; (6) maintenance of adequate insurance; and (7) inspection of books and records.

The Amended and Restated Credit Agreement contains customary negative covenants, including restrictions on: (1) the incurrence of additional debt; (2) liens and sale-leaseback transactions; (3) loans and investments; (4) guarantees and hedging agreements; (5) the sale, transfer or disposition of assets and businesses; (6) dividends on, and redemptions of, equity interests and other restricted payments, including dividends and distributions to the issuer by its subsidiaries; (7) transactions with affiliates; (8) changes in the business conducted by us; (9) payment or amendment of subordinated debt and organizational documents; and (10) maximum capital expenditures. The Fourth Amendment prohibits the payment of any dividend, redemption or other payment or distribution by the Borrowers other than distributions to the US Borrower by its subsidiaries,

unless after giving effect to the dividend or other distribution, the post distribution DSCR, as defined, is greater than 1.2 to 1.0, and the US Borrower's liquidity, as defined is no less than $5.0 million, plus Borrowers remain in compliance with the other financial covenants.

loans.
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 consolidated balance sheets, consolidated statements of operations, consolidated statements of stockholders’ equity or consolidated cash flows.

Contractual Obligations and Commitments

The Company's contractual obligations and commitments outstanding as of September 29, 2019March 31, 2020 have not changed materially since the amounts as of December 30, 201829, 2019 as set forth in our Annual Report on Form 10-K.10-K/A. These obligations and commitments relate to operating leases, future debt payments, and a management services agreement.

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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-K.10-K/A. There have been no material changes to our critical accounting policies or uses of estimates since the date of our Annual Report on Form 10-K.

10-K/A.
Recently Issued Accounting Pronouncements

Refer to Note 12 to the condensed consolidated financial statements in Part I Item 1 of this Quarterly Report on Form 10-Q.

ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Fluctuation Risk

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

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

Effective November 30, 2018, as required under the Amended and Restated Credit Agreement, the Company entered into another interest rate swap that requires the Company to pay a fixed rate of 3.075 per annum while receiving a variable interest rate per annum based on one month LIBOR for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $5,037,500$5.0 million which increases by $378,125$0.04 million each quarter until June 29, 2018 when the notional amount increases to $17,540,625$17.5 million due to the interest rate swap from 2016 above expiring. The notional amount then decreases each quarter by $153,125$0.1 million until September 30, 2020 when the notional amount increases to $17,475,000$17.5 million due to the interest rate swap from 2017 above expiring. The notional amount then decreases each quarter by $431,250$0.4 million until December 31, 2021, then decreases each subsequent quarter by $609,375$0.6 million until it expires on November 8, 2023.

At September 29, 2019,March 31, 2020, the fair value of all swaps was in a net liability position of $1,037,994$1.5 million and is included in other accrued liabilities and other long term liabilities in the condensed consolidated balance sheet.

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.




ITEMItem 4. CONTROLS AND PROCEDURES

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 Officers and Chief Financial Officer, 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"), as the end of the quarter covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness in our internal control over financial reporting previously identified and described more fully under Item 9A in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019, the Company’s disclosure controls and procedures were not effective as of March 31, 2020 to ensure information required to be disclosed by our Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.Our management establishes and maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) to ensure that the information we disclose under the Exchange Act is properly and timely reported. We provide this information to our Chief Executive Officer and Interim Chief Financial Officer as appropriate to allow for timely decisions.

Internal Controls Over Financial Reporting
Our controlsA 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 proceduresdescribed more fully under Item 9A in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019, the Company identified a deficiency that constitutes a material weakness related to limited finance staffing levels that are based on assumptions. Additionally, even effective controls and procedures only provide reasonable assurance of achieving their objectives. Accordingly, we cannot guarantee that our controls and procedures will succeed or be adhered to in all circumstances.

We have evaluated our disclosure controls and procedures,not commensurate with the participation,Company’s complexity and under the supervision, of our management, including our Chief Executive Officerits financial accounting and Chief Financial Officer. Based on this evaluation, our Chief Executive and Interim Chief Financial Officer have concluded that our disclosure controls and procedures were effectivereporting requirements. The material weakness continued to exist as of the end of the period covered by this report.Quarterly Report.

The material weakness did not result in any material misstatements of the Company’s financial statements. However, this material weakness could result in the misstatement of relevant account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Plan for Material Weakness in Internal Control over Financial Reporting
The Company continues to take action on the remediation plan more fully described under Item 9A in the Company’s Annual Report on Form 10-K/A for the year ended December 29, 2019. While the Company is moving forward with these remediation activities, additional work needs to be done in this area. Accordingly, we concluded that this material weakness had not yet been remediated as of March 31, 2020.
We will continue to monitor the effectiveness of these and other processes, procedures and controls and make any further changes management determines appropriate.
Changes in Internal Control over Financial Reporting

There were no material changes in the Company's internal controls over financial reporting during the thirty-nine weeksthree months ended September 29, 2019March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. As a result of the COVID-19 pandemic, in March 2020 certain employees of the Company began working and continue to work remotely. Management has taken measures to ensure that our internal controls over financial reporting were not materially affected by employees working remotely. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

PART II

OTHER INFORMATION


ITEMItem 1. LEGAL PROCEEDINGS

Legal Proceedings
Not applicable

ITEMItem 1A. RISK FACTORSRisk Factors

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

Under current accounting standards, ifCOVID-19, and any other outbreaks of contagious diseases or other adverse public health developments in the Company's market capitalization were to decline, this would be consideredUnited States and worldwide, has had a potential indicator of goodwill impairment. Any write-down of goodwill would have a negativematerial adverse effect on our business, financial condition and results of operations. In 2020, COVID-19 has significantly impacted economic activity and markets worldwide, and it could continue to negatively affect our business in a number of ways. These effects include, but are not limited to:
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Disruptions or restrictions on our employees’ ability to work effectively due to illness, travel bans, quarantines, shelter-in-place orders or other limitations.
Temporary closures of our facilities or the facilities of our customers. Net sales to automotive customers, most of whom idled their manufacturing facilities as a result of the COVID-19 pandemic, were approximately 86% of the Company’s net sales during the fiscal year ended December 29, 2019. The closures of our customers’ operations had a substantial adverse effect on our results of operation and financial condition.
In an effort to increase the wider availability of needed medical and other supplies and products, we have elected and may further elect to, or governments may require us to, allocate manufacturing capacity in a way that could adversely affect our regular operations and that may adversely impact our customer and supplier relationships.
Costs incurred and revenues lost during and from the effects of the COVID-19 pandemic likely will not be recoverable.
The failure of third parties on which we rely, including our suppliers, customers, contractors, commercial banks and external business partners, to meet their respective obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties.
The COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both the Company and our customers and suppliers.
The extent to which the COVID-19 pandemic, or other outbreaks of disease or similar public health threats, materially and adversely impacts our business, financial condition and results of operations is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak. In addition, how quickly, and to what extent, normal economic and operating conditions can resume cannot be predicted, and the resumption of normal business operations may be delayed or constrained by lingering effects of the COVID-19 pandemic on our suppliers, third-party service providers, and/or customers.
Going Concern
As discussed in Notes 1 and 6 of the notes to the Company’s condensed consolidated financial statements, as a result of the Company.anticipated effects of the COVID-19 pandemic on our operating results for the second quarter of 2019, it is likely we will not be in compliance with financial covenants in the Amended and Restated Bank Agreement beginning with the quarter ending September 30, 2020. Absent an amendment or waiver, failure to be in compliance with the Company’s financial covenants would constitute a default when reported. Such a default, if not cured or waived, would allow the lenders to accelerate the maturity of the debt, making it due and payable at that time. If the stock price remains belowmaturity of the net book value per share, or other negative business factors exist,debt were accelerated, the Company would not have sufficient available liquidity to repay such debt within one year after the date that the financial statements included in this Report are issued. This condition raises substantial doubt about the Company’s ability to continue as a going concern.
The Company has been actively discussing the impact the COVID-19 pandemic is expected to have on the Company’s ability to meet its financial covenants with the Administrative Agent and the need to modify the covenant terms through the periods that the Company believes may be requiredimpacted. The Company believes it is likely that the Company will obtain an amendment modifying the covenant terms prior to perform another goodwill impairment analysis, which couldtriggering a default. As a result, in an impairmentthe Company has concluded that management’s plans to obtain covenant relief are probable of upbeing achieved , alleviating substantial doubt about the Company’s ability to continue as a going concern. However there cannot be any assurance that the entire balanceCompany will be able to obtain a modification of the covenants prior to triggering a default or that if the Company does obtain such modification that subsequent events, including in particular the extended effects of the pandemic , will not impair the Company’s goodwill.ability to comply with the modified covenants.

ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities and Use of Proceeds
None

ITEMItem 3. DEFAULTS UPON SENIOR SECURITIESDefaults Upon Senior Securities

None.
None

ITEMItem 4. MINE SAFETY DISCLOSURESMine Safety Disclosures

Not applicable.

ITEMItem 5. OTHER INFORMATIONOther Information

31

Not applicable.



ITEMItem 6. EXHIBITSExhibits

Exhibits Index
Exhibit

No.
Description
31.1
Certification of the Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer of the Company,, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer and Chief Financial Officer of the Company,, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS+
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.
*** Previously filed.
+ Filed electronically with the report.





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 7, 2019By:June 26, 2020By:/s/ Byrd Douglas Cain, IIIBrian P. Loftus
Name: Byrd Douglas Cain, IIIBrian P. Loftus
Title:  Chief Executive Officer and Interim Chief Financial Officer (Principal
(Principal
Financial and Accounting Officer)



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