UNIQUE FABRICATING, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

This Management's Discussion and Analysis of Financial Condition and Results of
Operation is intended to provide a reader of our financial statements with a
narrative from the perspective of our management on our financial condition,
results of operations, liquidity, and certain other factors that may affect our
future results. You should read the following discussion and analysis of our
financial condition and results of operations in conjunction with the
accompanying unaudited condensed consolidated financial statements and the
related notes to unaudited condensed consolidated financial statements included
elsewhere in this document as well as the consolidated financial statements and
the related notes to consolidated financial statements for the year ended
December 31, 2021 included in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission (the "SEC"). Our actual results and the
timing of events could differ materially from those discussed in forward-looking
statements contained herein. Factors that could cause or contribute to these
differences include those discussed below as well as in our Annual Report on
Form 10-K and in other filings by us with the SEC, particularly in "Risk
Factors" and "Special Note Regarding Forward-Looking Statements." We make no
guarantees regarding outcomes, and assume no obligation to update the
forward-looking statements herein, except as may be required by law.

Forward-looking statements

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

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

presentation basis

The Company's operations are classified in one reportable business segment.
Although we have expanded the products that we manufacture and sell to include
components used in the appliance, medical and consumer/off-road markets,
products for these industries are manufactured at facilities that also
manufacture or are capable of manufacturing products for the automotive
industries. Our manufacturing locations have capabilities to produce diverse
products utilizing multiple processes to serve various markets. The
manufacturing operations for our transportation, appliance, medical and
consumer/off-road products share management and labor forces and use common
personnel and strategies for new product development, marketing and the sourcing
of raw materials.

Overview

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

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

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The Company derives most of its net sales from the sales of foam, rubber
plastic, and tape adhesive related automotive products. These products are
produced by a variety of manufacturing processes including die cutting,
compression molding, thermoforming, reaction injection molding and fusion
molding. We believe the Company has a broader array of processes and materials
utilized than any of its direct competitors, based on our product offerings. By
sealing out air, noise and water intrusion, and by providing sound absorption
and blocking, the Company's products improve the interior comfort of a vehicle,
increasing perceived vehicle quality and the overall experience of its
passengers. The Company's products perform similar functions for appliances,
medical, and consumer/off-road systems, improving thermal characteristics,
reducing noise and prolonging equipment life. We primarily operate within the
highly competitive and cyclical automotive parts industry.

The Company's condensed consolidated financial statements are prepared in
accordance with U.S. generally accepted accounting principles applicable to a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.

RECENT DEVELOPMENTS

Coronavirus

The COVID-19 pandemic's adverse impact on the global economy has persisted
through 2022. The supply chain constraints, increasing raw material costs, and
limited labor availability have continued to hinder the results of our
operations, cash flows, and financial position. While the COVID-19 pandemics
effects on the global economy are not expected to be permanent, the duration of
the lingering consequences cannot be accurately estimated.

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.

Goodwill Impairments

The Company experienced a sustained decline in market capitalization through the
second quarter of 2022 representing a potential indicator of impairment.
Furthermore, the Company continues to experience repercussions from the global
semiconductor shortage, the most impactful being the decline in sales to our
automotive customers, as North American automotive production volumes have been
lower than pre-pandemic levels. The Company identified these circumstances and
concluded it was more likely than not that the fair value of its reporting unit
is less than its carrying amount, and performed an interim quantitative
assessment. The quantitative assessment was performed as of June 30, 2022,
utilizing the income approach. The analysis required the comparison of the
Company's carrying value with its fair value, with an impairment recorded for
any excess of carrying value over the fair value. As a result, the Company
recorded a $12.2 million impairment charge for the three months ended June 30,
2022.

During three months ended September 30, 2022, the Company experienced another
sharp decline in market capitalization representing another potential indicator
of impairment. The repercussions from the global semiconductor shortage have
continued, the most impactful being the sustained depressed sales volume to our
automotive customers. The Company concluded it was more likely than not that the
fair value of its reporting unit is less than its carrying amount, and performed
another interim quantitative assessment. This quantitative assessment was
performed as of September 30, 2022, utilizing the income approach. As a result,
the Company recorded a total of $17.0 million impairment charges on the
condensed consolidated statement of operations for the nine months ended
September 30, 2022, including the $12.2 million impairment charge for the three
months ended June 30, 2022, and a $4.8 million impairment charge for the three
months ended September 30, 2022.

Employee retention credit

During the second quarter of 2022, the Company recognized an Employee Retention
Credit ("ERC") of $3.0 million on the Company's condensed consolidated
statements of operations. In order to qualify for this COVID pandemic related
relief, the Company had to satisfy certain financial and head count
requirements. During the third quarter of 2021, the Company recorded gross
receipts that represented a 24% decline compared to the same period in 2019.
This decline qualifies the Company for the ERC for wages incurred in the third
quarter of 2021, in accordance with the amendments to the ERC program in the
American Rescue Plan Act. In calculating the qualifying wages, the Company also
determined eligibility to include wages paid to employees providing services and
not providing services. An amendment to the ERC in the Relief Act of 2021 made
this possible if an entity had, on average, 500 or fewer full-time employees in
2019. Considering the two preceding requirements, and with the help of a
professional services firm, the Company confirmed its eligibility for the
benefit during the second quarter of 2022.

Debt financing

The Company completed an offering of $4 million aggregate principal amount in
notes, in two series, bearing pay-in-kind interest at the rate of 12% per annum
on October 7, 2022. Investors in the notes also received warrants for up to an
aggregate of 120,000 shares at an exercise price of $0.52 per share, the closing
sales price of the Company's common stock on the date of

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the closing of the first tranche of the notes offering on October 4, 2022.
Investors will receive warrants to purchase in the aggregate an additional
280,000.00 shares if the notes are not repaid within 12 months. Interest on the
notes through the end of 2022 will be convertible at the holders' option into
common stock at a price equal to the warrant exercise price. The notes are
secured by and will be paid from the expected receipt of the Company's Employee
Retention Credits and any proceeds from the sale of a non-operational financial
asset; one series in the aggregate principal amount of $2,500,000 has a first
priority security interest in the financial asset, and a series in the aggregate
principal amount of $1,500,000 has a first priority security interest the
Company's Employee Retention Credit. The terms of the two series are otherwise
identical. The proceeds of this financing have been used to: reduce by $750,000
the outstanding principal amount of the Company's bank term loans; $1,228,125 to
prepay the December 31, 2022, term loan principal payment; and to reduce by
$2,021,875 outstanding borrowings under the Company's revolving line of credit,
which amount remains available to be reborrowed, subject to the Credit
Agreement.

Taglich Brothers, Inc. served as placement agent for the offering of Notes and
will receive 192,308 shares of the Company's common stock as a placement fee. An
investor also received 38,461 shares of the Company's common stock.

Waiver and Ninth Amendment to Credit Agreement

On November 7, 2022, the Company entered into the Waiver and Ninth Amendment to
Credit Agreement ("Ninth Amendment"). As of December 31, 2020, and March 31,
2021, the Company was in violation of certain of its financial covenants (the
"Specified Defaults"), as defined in the Credit Agreement. As of September 30,
2021, the Company was also in violation of the required Minimum Consolidated
EBITDA covenant, as amended by the Second Amendment to the Forbearance Agreement
dated September 21, 2021 (the "Specified Forbearance Termination Event"). The
Lenders in the Ninth Amendment, among other things, agreed to grant a permanent
waiver of the Specified Defaults and the Specified Forbearance Termination Event
that have occurred prior to the effectiveness of the Ninth Amendment and of any
right the Lenders may have to exercise any of their rights against the Company
as a result.

The Ninth Amendment also requires that the Company repay the outstanding
principal balance of the Loans under the Credit Agreement and all accrued and
unpaid interest thereon on or before February 3, 2023 (subject to extension to
not later than February 28, 2023 if the Company complies with certain conditions
(the "Repayment Date" )). The Company also is required to deliver to the Lenders
by December 9, 2022, non-binding indications of interest from one or more
potential counterparties to one or more refinancing transactions which aggregate
sufficient net proceeds to result in repayment in full of the Loans and other
Indebtedness on or before the Repayment Date (the "Refinancing Transaction").
The Company is further required to deliver by January 16, 2023, at least one
fully executed term sheet with respect to a Refinancing Transaction with a
counterparty that satisfies certain qualifications specified in the Ninth
Amendment. If the Company fails to meet these milestone dates or repay the Loans
or other Indebtedness in full on or before the Repayment Date it will constitute
an event of default under the Credit Agreement.

The Company is also required to arrange for its Mexican subsidiary to grant as security for the repayment of the Loans, in December 8, 2022a first lien, subject only to authorized liens, enforceable under Mexican law over the accounts receivable of such subsidiary.


Comparison of Results of Operations for the Three Months Ended September 30,
2022 and September 30, 2021

Net Sales

                                                         Three Months Ended         Three Months Ended
                                                         September 30, 2022         September 30, 2021
                                                                    (dollars in thousands)
Net sales                                               $          34,503          $          29,909


Net sales for the three months ended September 30, 2022 were approximately $34.5
million compared to $29.9 million for the three months ended September 30, 2021,
representing a increase of 15.4%. The net sales increase was driven by increased
demand for our products from transportation customers as a result of higher
North American light vehicle production and the impact of our increased cost
recovery efforts to pass a portion of our higher manufacturing costs to our
customers. The increase in sales volume in the third quarter of 2022 was
partially offset by the impact of the end of certain customer programs, which
more than offset the impact of new business awards.

Cost of sales

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

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                                     Three Months Ended September 30, 2022               Three Months Ended September 30, 2021
                                       Amount               As % of net sales              Amount               As % of net sales
                                                                      (dollars in thousands)
Materials                        $         19,102                      55.4  %       $         15,932                      53.3  %
Direct labor and benefits                   6,243                      18.1  %                  5,369                      18.0  %
Manufacturing overhead                      5,316                      15.4  %                  4,577                      15.3  %
Sub-total                                  30,661                      88.9  %                 25,878                      86.5  %
Depreciation                                  793                       2.3  %                    751                       2.5  %
Cost of Sales                    $         31,454                      91.2  %       $         26,629                      89.0  %
Gross Profit                     $          3,049                       8.8  %       $          3,280                      11.0  %


Cost of sales as a percentage of net sales for the three months ended September
30, 2022 increased compared to the three months ended September 30, 2021. The
increase in cost of sales was primarily the result of increased material costs
due to inflation.

Gross Profit

Gross profit as a percentage of net sales, or gross margin, for the three months
ended September 30, 2022 was 8.8% compared to 11.0% for the three months ended
September 30, 2021. Gross profit and gross margin in the three months ended
September 30, 2022, were both negatively impacted by higher raw material costs
as compared to the three months ended September 30, 2021.

Selling, general and administrative expenses

                                                               Three Months Ended             Three Months Ended
                                                               September 30, 2022             September 30, 2021
                                                                           

(in thousands of dollars) Selling, general and administrative expenses, excluding depreciation and amortization expenses

                      $           4,132              $           5,173
Depreciation and amortization                                             301                            568
Selling, general, and administrative expenses               $           4,433              $           5,741

Selling, general and administrative expenses as a percentage of net sales

                                                  12.8      %                    19.2      %


Selling, general, and administrative expenses for the three months ended
September 30, 2022 decreased $1.3 million to $4.4 million compared to $5.7
million for the three months ended September 30, 2021. The decrease in selling,
general, and administrative expenses during the three months ended September 30,
2022 was driven by decreased salary and healthcare expenses as a result of our
2021 cost reduction activities and lower intangible asset amortization as
certain assets became fully amortized.

Operating loss

Operating loss for the three months ended September 30, 2022 was $6.2 million,
or 18.0% of net sales, compared to an operating loss of $7.6 million, or 25.3%
of net sales, for the three months ended September 30, 2021. The decrease in
operating loss was primarily attributable to the lower selling, general, and
administrative costs discussed above and less goodwill impairment during the
three months ended September 30, 2022.

Other income (expenses), net

Other income (expense), net for the three months ended September 30, 2022 was an
expense of $0.6 million compared to income of $5.2 million for the three months
ended September 30, 2021. The increase in expense as compared to the three
months ended September 30, 2021 was related to the Company's gain on debt
extinguishment due to the forgiveness of the PPP loan, which was fully forgiven,
including accrued interest, during the three months ended September 30, 2021.

Loss before income taxes

As a result of the foregoing factors, our net loss before income taxes increased
$4.5 million to a loss of $6.8 million for the three months ended September 30,
2022 compared to a loss of $2.4 million during the three months ended September
30, 2021.

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Provision for income tax

During the three months ended September 30, 2022, income tax expense was $3.7
million, and the effective income tax rate was (54)%, compared to income tax
benefit of $0.5 million for the three months ended September 30, 2021. The
differences between the effective tax rate and the statutory tax rate of 21%
were primarily related to valuation allowances in Canada and Mexico, recognized
during the three months ended September 30, 2022.

Net loss

Net loss for the three months ended September 30, 2022 was $10.6 million
compared to a net loss of $1.9 million for the three months ended September 30,
2021. The increase in net loss is attributable to the benefit from PPP loan
forgiveness during the three months ended September 30, 2021 and the income tax
expense recognized for the valuation allowances realized in Canada and Mexico
during the three months ended September 30, 2022, slightly offset by decreased
selling, general, and administrative costs.


Comparison of Results of Operations for the Nine Months Ended September 30, 2022
and September 30, 2021

Net Sales
                                                         Nine Months Ended         Nine Months Ended
                                                        September 30, 2022         September 30, 2021
                                                                    (dollars in thousands)
Net sales                                               $        104,847          $          95,603


Net sales for the nine months ended September 30, 2022 were approximately $104.8
million compared to $95.6 million for the nine months ended September 30, 2021,
representing an increase of 9.7%. The increase in net sales for the nine months
ended September 30, 2022 was primarily caused by increased demand for our
products from transportation customers as a result of higher North American
light vehicle production and the impact of our increased cost recovery efforts
to pass higher manufacturing costs to our customers compared to the same period
in 2021.

Cost of Sales

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

                                       Nine Months Ended September 30, 2022               Nine Months Ended September 30, 2021
                                         Amount              As % of net sales              Amount              As % of net sales
                                                                       (dollars in thousands)
Materials                          $        57,128                      54.5  %       $        50,065                      52.4  %
Direct labor and benefits                   16,156                      15.4  %                15,300                      16.0  %
Manufacturing overhead                      16,182                      15.4  %                14,326                      15.0  %
Sub-total                                   89,466                      85.3  %                79,691                      83.4  %
Depreciation                                 2,311                       2.2  %                 2,154                       2.3  %
Cost of Sales                      $        91,777                      87.5  %       $        81,845                      85.6  %
Gross Profit                       $        13,070                      12.5  %       $        13,758                      14.4  %


Cost of sales as a percentage of net sales for the nine months ended September
30, 2022 increased to 87.5% from 85.6% for the nine months ended September 30,
2021. The increase in cost of sales was primarily caused by higher raw material
and freight costs driven by price increases from our vendors. Equipment and
labor related operational issues in the LaFayette, Georgia facility also
contributed to the increased cost of sales. These cost increases were partially
offset by the ERC benefit of $2.2 million.

Gross profit

Gross profit for the nine months ended September 30, 2022 decreased $0.7 million
to $13.1 million compared to $13.8 million for the nine months ended
September 30, 2021. Gross profit and gross margin in the nine months ended
September 30, 2022, were both negatively impacted by higher raw material costs
as compared to the nine months ended September 30, 2021.

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Selling, general and administrative expenses

                                                              Nine Months Ended            Nine Months Ended
                                                              September 30, 2022           September 30, 2021
                                                                         

(in thousands of dollars) Selling, general and administrative expenses, excluding depreciation and amortization expenses

                      $         12,524             $         15,519
Depreciation and amortization                                          1,122                        2,117
Selling, general, and administrative expenses               $         13,646             $         17,636

Selling, general and administrative expenses as a percentage of net sales

                                                 13.0     %                   18.4     %


Selling, general, and administrative expenses for the nine months ended
September 30, 2022 decreased $4.0 million to $13.6 million compared to $17.6
million for the nine months ended September 30, 2021. This decrease is primarily
related to reduced salary and healthcare expenses as a result of our 2021 cost
reduction activities, the completion of amortization of certain customer
relationships and of non-patented technology, and the $0.5 million impact of the
ERC benefit. These were partially offset by higher insurance and travel
expenses.

Operating loss

Operating loss for the nine months ended September 30, 2022 was $17.6 million,
or 16.8% of net sales compared to an operating loss of $9.0 million, or 9.4% of
net sales for the nine months ended September 30, 2021. The increased operating
loss in the current year is primarily driven by the total goodwill impairment
charge of $17.0 million recorded during the second quarter and third quarter of
2022, partially offset by the benefits recognized from the ERC credits, and
lower salary and healthcare costs, and amortization.

Other income (expenses), net

Other income (expense), net for the nine months ended September 30, 2022 was an
expense of $1.7 million compared to income of $3.8 million for the nine months
ended September 30, 2021. Non-operating expenses were higher in the nine months
ended September 30, 2022 as compared to the nine months ended September 30,
2021, due to the Company's gain on debt extinguishment due to the PPP loan,
which was fully forgiven, including accrued interest, and more favorable
mark-to-market adjustments on our interest rate swap.

Loss before income taxes

Due to the above factors, our loss before income taxes increased
$14.1 million at $19.3 million for the nine months ended September 30, 2022
compared to a loss of $5.2 million in 2021.

Provision for income tax

During the nine months ended September 30, 2022, income tax expense was $2.5
million, and the effective income tax rate was (13)%, compared to an income tax
expense of $0.2 million and an effective income tax rate of 4% during the nine
months ended September 30, 2021. The differences between the effective tax rate
and the statutory tax rate of 21% were primarily related to valuation allowances
in Canada and Mexico, recognized during the nine months ended September 30,
2022. Also contributing to the difference was the U.S. valuation allowance as no
tax benefit is recorded for incurred losses, including the U.S. allocated
portion of the goodwill impairment.

Net loss

Net loss for the nine months ended September 30, 2022 was $21.8 million compared
to a net loss of $5.4 million during the nine months ended September 30, 2021.
The increase in net loss was primarily attributable to the increased goodwill
impairment charge of $12.2 million in 2022 and the Company's gain on debt
extinguishment of $6.1 million due to the PPP loan, which was fully forgiven,
including accrued interest during the nine months ended September 30, 2021,
which were partially offset by the increased impact of the ERC benefit of
$2.7 million recognized in the second quarter of 2022.

Cash and capital resources

Our principal sources of liquidity are cash flows from operations and borrowings
under our Credit Agreement from our senior lenders. Our primary uses of cash are
payment of vendors, payroll, operating costs, capital expenditures and debt
service. As of September 30, 2022 and December 31, 2021, we had a cash balance
of $0.5 million and $0.7 million, respectively. As of September 30, 2022 and
December 31, 2021, we had $1.3 million and $2.2 million, respectively, available
to be borrowed under our revolving credit facility. Our ability to borrow,
however, under the revolving line of credit is dependent on the Forbearance
Agreement, which expires November 7, 2022, including our compliance with its
terms.

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Our debt

The Company's financial results for the six months ended December 31, 2020 and
the nine months ended March 31, 2021 resulted in violations of one or more of
the following financial covenants: (1) Maximum Total Leverage Ratio; (2) Minimum
Debt Service Coverage Ratio; and (3) Minimum Consolidated EBITDA; each as
defined in the Company's Amended and Restated Credit Agreement. The Company
entered into a Forbearance Agreement, providing for a period initially
commencing on April 9, 2021 and through and including June 15, 2021, during
which the Company was able to borrow on its Revolving line of credit, subject to
the terms and conditions to making a revolving credit advance, including
availability, and the Lenders agreed, subject to the terms of the Forbearance
Agreement, to forbear from enforcing their rights or seeking to collect payment
of the Company's debt or disposing of the collateral securing the debt.

On June 14, 2021, the Company entered into the First Amendment to the
Forbearance Agreement, which among other things, extended the forbearance period
from June 15, 2021 to February 28, 2022, and waived the testing of the Maximum
Total Leverage Ratio and Minimum Debt Service Coverage ratios for the duration
of the Forbearance Period. The First Amendment also substituted Minimum
Liquidity and Minimum Consolidated EBITDA requirements, which were tested
monthly beginning with the month ending July 31, 2021.

On September 21, 2021, the Company entered into the Second Amendment to the
Forbearance Agreement, which, among other things, made changes to the
calculations of financial covenants, contained revised requirements for Minimum
Liquidity and Minimum Consolidated EBITDA, as defined, for the monthly periods
through and including February 28, 2022, and revised the Revolving Credit
Aggregate Commitment from $30 million to $27 million.

On December 9, 2021, the Company entered into the Third Amendment to the
Forbearance Agreement. The Lenders in the Third Amendment to the Forbearance
Agreement, among other things, agreed to forbear with respect to a Minimum
Consolidated EBITDA covenant violation as of September 30, 2021, and to suspend
compliance with the Minimum Consolidated EBITDA covenant during the remainder of
the forbearance period. The Third Amendment included a new covenant which has
been tested weekly on a rolling basis, beginning December 15, 2021, and requires
that the Company's actual cumulative total cash disbursements for the period
being tested to not exceed total cash disbursements projected by the Company for
the same period by more than 15% at any time during the forbearance period. The
Third Amendment also reduced the maximum amount that may be borrowed under the
revolving line of credit to $25 million from $27 million.

As of December 31, 2021, the Company was in violation of the required Minimum
Liquidity covenant, as provided in the Second Amendment to the Forbearance
Agreement, dated September 21, 2021. As a result, on February 4, 2022, the
Company entered into the Fourth Amendment to Forbearance Agreement. The Lenders
in the Fourth Amendment agreed to waive the Minimum Liquidity covenant
violation. The Company did have the required Minimum Liquidity by the conclusion
of the first week of 2022.

Between February 25, 2022, and September 9, 2022, the Company entered into six
forbearance agreement amendments, each of these amendments extended the
Forbearance Period. The Fifth Amendment to Forbearance Agreement (entered into
February 25, 2022) extended the Forbearance Period from February 28, 2022 to
March 11, 2022. The Sixth Amendment to Forbearance Agreement (entered into March
11, 2022) extended the Forbearance Period from March 11, 2022 to May 30, 2022.
The Seventh Amendment to Forbearance Agreement (entered into May 26, 2022)
extended the Forbearance Period from May 30, 2022 to June 13, 2022. The Eighth
Amendment to Forbearance Agreement (entered into June 13, 2022) extended the
Forbearance Period from June 13, 2022 to July 14, 2022. The Ninth Amendment to
Forbearance Agreement (entered into July 14, 2022) extended the Forbearance
Period from July 14, 2022 to September 12, 2022. The Tenth Amendment to
Forbearance Agreement (entered into September 9, 2022) extended the Forbearance
Period from September 12, 2022 to October 24, 2022.

The Eighth Amendment to the Forbearance Agreement also provided for the
termination of LIBOR based interest rates on borrowings under the Credit
Agreement: (1) as of the effective date of the amendment, June 13, 2022, with
respect to any advances under the Credit Agreement after the amendment's
effective date, and (2) the expiration of any then current LIBOR interest period
applicable to then outstanding advances with a LIBOR based interest rate. The
Eighth Amendment substituted SOFR for LIBOR, the amendment also defined "SOFR"
as a rate equal to the secured overnight financing rate published on the website
of the SOFR administrator or any successor source identified as such by the
administrator. The Company does not expect this change in the basis for
calculating the interest rate on its bank borrowings to have a material effect
on its interest expense.

On October 4, 2022, the Company entered into the Eleventh Amendment to
Forbearance Agreement, which extended the Forbearance Period from October 24,
2022 to November 7, 2022. The Eleventh Amendment includes certain amendments to
the Credit Agreement and permitted the Company to raise up to $4 million of debt
financing, the terms of which are further described in   Note 18  . The Eleventh
Amendment also amends several financial covenants including: an amendment to the
weekly minimum liquidity covenant, an amendment to the minimum sales covenant
for the two month period ending September 30, 2022 and an amendment to the
weekly cash disbursement covenant.

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During the extended Forbearance Period, the Company expects it will continue to
be able to borrow under the revolving line of credit, subject to availability
and satisfaction of certain other conditions. The Company has used and intends
to use the forbearance period to continue negotiations with the Lenders to enter
into an amendment and waiver to cure the defaults, extend, if possible, the
maturity of the Credit Agreement and to investigate other sources of financing,
including to augment availability under the Credit Agreement. There can be no
assurance that the Company will be successful in these efforts. During the
forbearance period, the Company may not make any payment, transfer, or
distribution out of the ordinary course of business or payments, including
salary or compensation or distributions to or for the benefit of any member,
owner, or director, other than normal and customary employment salaries which do
not exceed sums paid for similar positions in the Company's marketplace.

Capital expenditure

In 2022, we currently plan to spend approximately $1.3 million in capital expenditure, of which $1.0 million was spent through September 30, 2022primarily to add new production equipment as we expand our production capabilities, upgrade existing equipment, and upgrade our computer hardware throughout our facilities.

Dividends

Our payment of dividends on our common stock in the future will be determined by
our board of directors in its sole discretion and will depend on business
conditions, our financial condition, earnings, liquidity, and capital
requirements. Our Credit Agreement currently prohibits payment of dividends and
contains financial covenants which may have the effect of precluding or limiting
the amounts that we can pay as dividends.

Cash flow data

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

                                                          Nine Months Ended          Nine Months Ended
                                                          September 30, 2022         September 30, 2021
                                                                     (dollars in thousands)
Cash flows provided by (used in):
Operating activities                                     $           1,764          $          (3,603)
Investing activities                                     $          (1,048)         $          (2,332)
Financing activities                                     $            (978)         $           6,321


Operating Activities

Cash provided by operating activities consists of: net income adjusted for
non-cash items including depreciation and amortization; gain or loss on sale of
assets; inventory reserve; goodwill impairment; loan forgiveness; gain or loss
on derivative instruments; bad debt adjustments; stock option expense; changes
in deferred income taxes; accrued and other liabilities; prepaid expenses and
other assets; and the effect of working capital changes. The primary factor
affecting cash inflows and outflows was the change in inventory, as the Company
continued to make inventory reduction efforts.

During the nine months ended September 30, 2022, net cash provided by operating
activities was $1.8 million, compared to net cash used by operating activities
of $3.6 million for the nine months ended September 30, 2021. The increase in
cash provided by operating activities was primarily attributable to an increased
focus on managing our working capital levels to be more closely aligned with our
customer release schedules and our expectation of near-term demand for our
products based on available third-party data.

Investing activities

Cash flows from or used in investing activities consist primarily of the purchase and sale of property, plant and equipment.

During the nine months ended September 30, 2022 and September 30, 2021, we made
capital expenditures of $1.0 million and $2.4 million, respectively. We
currently plan to spend a total of approximately $1.3 million in capital
expenditures during 2022, including the $1.0 million spent through September 30,
2022.

Financing Activities

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

In the nine months ended September 30, 2022we had net cash used by the financing activities of $1.0 million compared to $6.3 million cash provided by financing activities during the nine months ended September 30, 2021. The increase in cash

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outflows during the nine months ended September 30, 2022 was driven by increased
repayments of borrowings under the Company's line of credit and the proceeds
from the issuance of common stock and warrants during the nine months ended
September 30, 2021.

Off-balance sheet arrangements

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

Indemnification Agreements

In the normal course of business, we provide customers with indemnification
provisions of varying scope against claims of intellectual property infringement
by third parties arising from the use of our products. Historically, costs
related to these indemnification provisions have not been significant and we are
unable to estimate the maximum potential impact of these indemnification
provisions on our future results of operations. In addition, we have entered
into indemnification agreements with directors and certain officers and
employees that will require us, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors, officers or employees. No demands have been made upon us to provide
indemnification under such agreements and there are no claims that we are aware
of that could have a material effect on our condensed consolidated balance
sheets, condensed consolidated statements of operations, condensed consolidated
statements of stockholders' equity or condensed consolidated cash flows.

Significant 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 for the year ended December 31,
2021. 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.

Recently issued accounting pronouncements

See Note 2 to the Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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