Hot new Tinkering update
First you need a Tinkerer's Toolbox, and one level in Tinkering:

(the requirement shows twice, I think it's a bug with requirements on usable items component :/ )
Next you put the Toolbox and the item in your hands:
Right click it, and you'll see the required materials:
Click Upgrade if you have everything. You will also need 1 Lock Pick on top of the materials
The result will be shown on screen:
And there you have your new item:
Some more points about Tinkering:
- You can upgrade an item up to 3 times
- The bonuses it gains are different depending on the type of item (armor, weapon, light, heavy, etc). You can either gain a new bonus or a % increase to an existing one
- Upgraded items are heavier by about 30% but less so at higher skill levels
- At Tinkering level 4 you can open chests without lock picks
- Epic items can be upgraded at Tinkering level 5
- You can dismantle items and turn them into extra materials
- The Tinkerer class can add 2 bonuses to an item. They gain that effect once per level
- This took a long time to make and it's over 1000 lines of code holy balls