ITEM 1. FINANCIAL STATEMENTS    

See Notes to Consolidated Financial Statements.

See Notes to Consolidated Financial Statements.

 

See Notes to Consolidated Financial Statements.

 

See Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements (Unaudited)

Note 1 — Nature of Business and Significant Accounting Policies

Nature of Business  — UFI Acquisition, Inc. (UFI or Successor), a Delaware corporation, was formed on January 14, 2013, for the purpose of acquiring Unique Fabricating, Inc. and its subsidiaries (Unique Fabricating or Predecessor) (collectively, the “Company” or “Unique”) on March 18, 2013. The Company operates as one operating and reporting 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.

Basis of Presentation  — As a result of UFI’s acquisition of Unique Fabricating, purchase accounting and a new basis of accounting was applied beginning on March 18, 2013.

All significant intercompany transactions have been eliminated in consolidation.

On November 18, 2014, the Company amended its certificate of incorporation to increase its authorized common shares to 15,000,000 with a par value $0.001 per share. The amendment of the certificate of incorporation also effected an internal recapitalization pursuant to which the Company effected a 3 -for-1 stock split on its outstanding common stock. As a result of the stock split, the Company’s stock options and warrants were affected accordingly based on the provisions of the stock option plans and warrant agreements.

Accordingly, all common share, options, warrants and per share amounts in these consolidated financial statements and the notes thereto have been adjusted to reflect the 3 -for-1 stock split as if it had occurred at the beginning of the initial period presented.

Initial Public Offering —On July 7, 2015, the Company completed its initial public offering of 2,702,500 shares of common stock at a price to the public of $9.50 per share (the "IPO"), including 352,500 shares subject to an over-allotment option granted to the underwriters. After underwriting discounts, commissions, and approximate fees and expenses of the offering, as set forth in our registration statement for the IPO on Form S-1, the Company received net IPO proceeds of approximately $22.2 million. Of these proceeds the Company used a portion to pay all of the $13.1 million principal amount of our 16% senior subordinated note, together with accrued interest through the date of payment. The Company used the remaining proceeds to temporarily reduce borrowings under the revolver portion of its senior secured credit facility. The Company also issued to the underwriters warrants to purchase up to 141,000 shares of common stock, as additional compensation in the IPO. The warrants are exercisable at a per share exercise price equal to 125% of the initial public offering price of $9.50 per share, and can be exercised commencing 1 year from the date of the IPO, until the date 5 years from the date of the IPO. The warrants have an aggregate grant date fair value of $336,300 and have been classified as equity and incremental direct costs associated with the IPO. Accordingly, the warrants do not impact our consolidated financial statements.

Fiscal Years  — The Company’s quarterly periods end on the Sunday closest to the end of the quarterly period. The 14 and 39-week periods ended on October 4 during 2015 and the 13 and 39-week periods ended on September 28 during 2014. Fiscal year 2014 ended on Sunday January 4, 2015.

Cash and Cash Equivalents  — The Company considers all highly liquid investments with an original maturity of three months or less to be cash 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 estimate of the amount of probable credit losses in 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 $809,008 and $704,713 at October 4, 2015 and January 4, 2015 , 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 time of the business

combination. The Company periodically evaluates inventory for obsolescence, excess quantities, slow moving goods and other impairments of value and establishes reserves for any identified impairments.

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 when the anticipated separately identifiable undiscounted cash flows from the asset are less than the carrying value of the asset. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.

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 principally using the straight line method over the estimated useful life of each asset. Leasehold improvements are depreciated over the shorter of the estimated useful life 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. 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. Identifiable intangible assets recognized as part of a business combination are recorded at their estimated fair value at the time of the business combination. 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 annually 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 14 and 39 weeks ended October 4, 2015 and 13 and 39 weeks ended September 28, 2014 , respectively.

Goodwill  — Goodwill represents the excess of the acquisition cost of consideration transferred over the fair value of the identifiable net 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 then a qualitative assessment may be used for the annual impairment test. Otherwise, a two-step process is used. The first step requires estimating the fair value of each reporting unit compared to its carrying value. The Company has determined that the only reporting unit is the Company as a whole. If the carrying value exceeds the estimated fair value, a second step is performed in order to determine the implied fair value of the goodwill. If the carrying value of the goodwill exceeds its implied fair value then goodwill is deemed impaired and is written down to its implied fair value.

There were no impairment charges recognized during the 14 and 39 weeks ended October 4, 2015 and 13 and 39 weeks ended September 28, 2014 , respectively.

Debt Issuance Costs  — Debt issuance costs represent legal, consulting, and other financial costs associated with debt financing and are reported as assets upon the original issuance of the related debt. Amounts paid to or on behalf of lenders are presented as debt discount, as a reduction of the noted debt instrument. Debt issuance costs on term debt are amortized using the effective interest method while those related to revolving debt are amortized using a straight line basis over the term of the related debt.

At October 4, 2015 and January 4, 2015 , debt issuance costs were $216,559 and $289,942 , respectively, while amounts paid to or on behalf of lenders presented as debt discounts were $126,690 and $656,789 , respectively. The subordinated note was entirely paid off with the IPO proceeds. On the date paid off, $386,552 of debt discounts remained to be amortized. The Company concluded that the debt discounts qualified for extinguishment accounting and were recognized as a loss on extinguishment immediately. The extinguishment was recognized as part of interest expense in the consolidated statements of operations. Amortization expense has been recognized as a component of interest expense which includes both debt issuance costs and debt discounts in the amounts of $61,704 and $216,930 for the 14 and 39 weeks ended October 4, 2015 and $78,927 and $229,164 for the 13 and 39 weeks ended September 28, 2014 , respectively.

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. Cost basis investments acquired as part of a business combination are recorded at

estimated fair value at the time of the business combination. Dividends received are included in income, except for those dividends received in excess of the Company’s proportionate share of accumulated 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. No dividend income or impairment loss was recognized for the 14 and 39 weeks ended October 4, 2015 and 13 and 39 weeks ended September 28, 2014 , 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 sheet. Accounts payable included $2,066,423 and $1,811,757 of checks issued in excess of available cash balances at October 4, 2015 and January 4, 2015 , 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  — Revenue is recognized by the Company upon shipment to customers when the customer takes ownership and assumes the risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists, and the sale price is fixed and determinable. 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.

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 portion 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.

The Company recognizes the benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. 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 no unrecognized tax benefits as of October 4, 2015 and January 4, 2015 . The Company files income tax returns in the United States and Mexico as well as various state and local jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 2011 in the United States and before 2007 in Mexico. The Company recognizes any penalties and interest when necessary as income tax expense. There were no penalties or interest recorded during the 14 and 39 and 13 and 39 weeks ended October 4, 2015 and September 28, 2014 , 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 translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of each reporting period. Income statement accounts are translated at average exchange rates for the year. Gains and losses from translation of foreign currency financial statements into United States dollars are classified in operating 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 14 and 39 weeks ended October 4, 2015 and 13 and 39 weeks ended September 28, 2014 , the Company’s sales were derived from customers principally engaged in the North American automotive industry. Company sales directly and indirectly to General Motors Company (GM), Chrysler Group, LLC (Chrysler), and Ford Motor Company (Ford) as a percentage of total net sales were: 15 , 15 , and 15 percent, respectively, during the 13 weeks ended October 4, 2015 ; 15 , 16 , and 15 percent, respectively, during the 39 weeks ended October 4, 2015 ; 16 , 19 , and 15 percent, respectively, during the 13 weeks ended September 28, 2014 ; and 18 , 18 , and 14 percent, respectively, during the 39 weeks

ended September 28, 2014 . Company sales and accounts receivable are primarily directly to Tier 1 suppliers. No Tier 1 suppliers represented more than 10 percent of direct Company sales for any period noted above. No suppliers accounted for more than 10 percent of direct accounts receivable as of October 4, 2015 or January 4, 2015 .

Labor Markets  — At October 4, 2015 , of the Company’s hourly plant employees working in the United States manufacturing facilities, 31 percent were covered under a collective bargaining agreement which expires in August 2016 while another 5 percent were covered under a separate agreement that expires in January 2017.

Foreign Currency Exchange  — The expression of assets and liabilities in a currency other than the functional currency 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 October 4, 2015 , 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 2015 may increase or decrease.

International Operations  — The Company manufactures and sells products outside of the United States primarily in Mexico. Foreign operations are subject to various political, economic and other risks and uncertainties inherent in foreign countries. Among other risks, the Company’s operations are 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. During the 14 and 39 weeks ended October 4, 2015 and 13 and 39 weeks ended September 28, 2014 , 12 , 12 , 10 , and 10 percent, respectively, of the Company’s production occurred in Mexico. Sales derived from customers located in Mexico, Canada, and other foreign countries were 13 , 4 , and 1 percent, respectively during the 14 weeks ended October 4, 2015 , 13 , 4 , and 1 percent, respectively during the 39 weeks ended October 4, 2015 , 14 , 5 , and 1 percent, respectively, during the 13 weeks ended September 28, 2014 , and 13 , 5 , and 1 percent, respectively, during the 39 weeks ended September 28, 2014 , of the Company’s total sales.

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 accounting principles generally accepted in the United States of America 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 April 2015, the Financial Accounting Standards Board issued ASU 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (the “ASU”). Currently, such costs are required to be presented as a non current asset in an entity's balance sheet and amortized into interest expense over the term of the related debt instrument. The changes implemented by the ASU require that debt issuance costs be presented in the entity's balance sheet as a direct deduction from the carrying value of the related debt liability. The amortization of debt issuance costs remains unchanged per the ASU. The ASU allows for early adoption, however, management is currently evaluating the potential impact of these changes in the consolidated financial statements of the Company.

We do not expect that any other recently issued accounting pronouncements will have a material impact on our consolidated financial statements.

Note 2 — Business Combinations

2014

On February 6, 2014, the Company, through a newly created subsidiary, Unique-Chardan, Inc., acquired substantially all of the assets of Chardan, Corp. (“Chardan”) for total consideration of $2,816,911 , after all adjustments described below. The consideration was in the form of $2,316,911 of cash and a $500,000 note payable to the former owner. The note is due in a lump sum on February 6, 2019, with interest payable monthly at an annual rate of six percent and is subordinated to both the senior credit facility and the subordinated debt. The purchase agreement included a potential purchase price adjustment provision based on the actual working capital acquired on the day of closing as compared to what was originally estimated at closing. During June 2014, the Company paid Chardan $116,911 for the working capital adjustment. This acquisition was financed through existing debt facilities without the need for further revisions to any debt or equity agreements. The Company incurred costs of $236,537 related to the acquisition of Chardan. Sales to the Company represented a significant majority of Chardan’s revenue prior to the acquisition so the acquisition allows the Company to reduce its costs through supply chain integration as well as strengthening the Company's thermo forming capabilities.

In connection with the business combination, Chardan terminated the lease it had with an affiliated entity for its operating facility and the Company entered into a new lease for the same facility. The terms of the Company’s lease provide for monthly rental payments of $11,000 for five years beginning on February 6, 2014.

The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed.

The goodwill arising from the acquisition consists largely of the Chardan’s reputation, trained employees, and other unique features that cannot be associated with a specific identifiable asset. Of the total amount of goodwill recognized, $866,647 is expected to be deductible for tax purposes.

2015

On August 31, 2015, the Company, through a newly created subsidiary, Unique Molded Foam Technologies, Inc., acquired substantially all of the assets of Great Lakes Foam Technologies, Inc. (“Great Lakes”) for total cash consideration of $11,947,392 , after all adjustments described below. The purchase agreement included a potential purchase price adjustment provision based on the actual working capital acquired on the day of closing as compared to what was originally estimated at closing. On the date of closing, the Company paid a total purchase price of $12,000,000 less the estimated working capital adjustment of $180,009 owed to the Company by Great Lakes. During November 2015, the Company paid Great Lakes $127,401 for the actual working capital adjustment true-up once the actual working capital was determined. This acquisition was financed through the Company's revolving line of credit without the need for further revisions to any debt or equity agreements. The Company incurred costs of $415,849 related to the acquisition of Great Lakes. The acquisition allows the Company to strengthen its existing product offerings and potentially enable it to access new customers and increase sales to certain of its existing customers.

In connection with the business combination, Great Lakes terminated the lease it had with an affiliated entity for its operating facility and the Company entered into a new lease for the same facility. The terms of the Company's lease provide for monthly rental payments of $7,500 for five years beginning on August 31, 2015.

The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed.

UNIQUE FABRICATING, INC.

Notes to Consolidated Financial Statements (Unaudited)

The goodwill arising from the acquisition consists largely of Great Lakes reputation, trained employees, and other unique features that cannot be associated with a specific identifiable asset. Of the total amount of goodwill recognized, $4,347,457 is expected to be deductible for tax purposes. The Company also recognized intangible assets as part of the acquisition which consisted of customer contracts and non-compete agreements. For further detail of the Company's intangibles please refer to Note 5.

Great Lakes sales included in the accompanying consolidated statements of operations for both the 14 and 39 weeks ended October 4, 2015 , totaled $924,926 from the date of acquisition. Great Lakes earnings included in the accompanying statement of operations for both the 14 and 39 weeks ended October 4, 2015 , totaled $10,784 . For both the 14 and 39 weeks ended October 4, 2015 $12,308 in revenue was derived from intercompany sales to the Company which were eliminated in consolidation.

The consolidated operating results for the 14 and 39 weeks ended October 4, 2015 includes the operating results of Chardan for the whole period. Chardan’s revenue included in the accompanying consolidated statements of operations for the 13 and 39 weeks ended September 28, 2014 , totaled $1,242,804 and $2,825,696 , from the date of acquisition. Chardan's earnings included in the accompanying consolidated statements of operations for the 13 and 39 weeks ended September 28, 2014 , totaled $136,990 and $219,532 respectively, from the date of acquisition. For the 13 and 39 weeks ended September 28, 2014 , $811,707 , and $1,826,479 , respectively, in sales was derived from intercompany sales to the Company which were eliminated in consolidation.

The following pro forma supplementary data for the 14 and 39 weeks ended October 4, 2015 and 13 and 39 weeks ended September 28, 2014 gives effect to the acquisition of Great Lakes as if it had occured on December 30, 2013 (the first day of the Company’s 2014 fiscal year), and the acquisition of Chardan as if it had occurred on December 31, 2012 (the first day of the Company’s 2013 fiscal year). The pro forma supplementary data is provided for informational purposes only and should not be construed to be indicative of the Company’s results of operations had the acquisition been consummated on the date assumed and does not project the Company’s results of operations for any future date.

The majority of Chardan sales prior to its acquisition were to the Company. Therefore, the pro forma effect of the combined net income of the entities is more than the effect on net sales due to the elimination of the intercompany sales for both the 13 and 39 weeks ended September 28, 2014 .

Note 3 — Inventory

UNIQUE FABRICATING, INC.

Notes to Consolidated Financial Statements (Unaudited)

Inventory consists of the following:

Included in inventory are assets located in Mexico with a carrying amount of $1,912,474 at October 4, 2015 and $1,788,902 at January 4, 2015 .

The inventory acquired in the acquisitions of Unique Fabricating and Prescotech Holdings Inc. (“PTI”) included adjustments of $1,076,902 in order to increase the historical FIFO basis to fair value while the 2014 acquisition of Chardan included a fair value adjustment of $54,975 , and the 2015 acquisition of Great Lakes included a fair value adjustment of $146,191 for a total of $1,278,068 for all acquisitions. At October 4, 2015 and January 4, 2015 , $56,148 of this fair value adjustment remained in inventory while $90,043 was included in cost of goods sold during the 14 and 39 weeks ended October 4, 2015 , and $13,634 and $383,970 was included in cost of goods sold during the 13 and 39 weeks ended September 28, 2014 , respectively.

Depreciation expense was $345,245 and $980,511 for the 14 and 39 weeks ended October 4, 2015 , respectively, and $295,412 and $847,288 for the 13 and 39 weeks ended September 28, 2014 , respectively.

Included in property, plant, and equipment are assets located in Mexico with a carrying amount of $681,191 and $628,570 at October 4, 2015 and January 4, 2015 , respectively.

Intangible assets of the Company consist of the following at January 4, 2015 :

UNIQUE FABRICATING, INC.

Notes to Consolidated Financial Statements (Unaudited)

The weighted average amortization period for all intangible assets is 10.35 years . Amortization expense for intangible assets totaled $677,838 and $1,782,113 for the 14 and 39 weeks ended October 4, 2015 , respectively, and $572,954 and $1,753,366 for the 13 and 39 weeks ended September 28, 2014 , respectively.

Estimated amortization expense is as follows:

Note 6 — Long-term Debt

The Company has a senior credit facility with a bank initially entered into on March 18, 2013 and subsequently amended. The facility was originally entered into in conjunction with the acquisition of Unique Fabricating and provided for a $12.5 million revolving line of credit (“Revolver”) and an $11.0 million term loan facility (“Term Loan”). On December 18, 2013, in conjunction with the acquisition of PTI, the Company entered into an amendment with its bank under the senior credit facility. The amendment increased the Revolver to $15.0 million and the Term Loan to $20.0 million . In October 2014, an additional amendment increased the Revolver to $19.5 million and the increased amount available was used to construct and equip a new facility across the street from the Company's existing facility in LaFayette, Georgia. Construction was completed in September 2015. The total construction costs were expected to be $4.5 million , however actual costs incurred were $4.4 million in costs related to the construction which was all funded by the Revolver. The total amount was capitalized, including interest costs of $0.8 million , and will be depreciated over the useful lives of the various assets.

As of October 4, 2015 and January 4, 2015 , $15,668,213 and $8,952,865 , respectively was outstanding under the Revolver. Borrowings under the Revolver are subject to a borrowing base, bear interest at the 30 day LIBOR plus a margin that ranges from 2.75 percent to 3.25 percent (an effective rate of 3.1958 percent and 3.1655 percent at October 4, 2015 and January 4, 2015 , respectively), and are secured by substantially all of the Company’s assets. At October 4, 2015 , the maximum additional available borrowings under the Revolver were $3,731,787 due to the amount outstanding and a $100,000 letter of credit related to rental payments to the landlord of one of the Company’s facilities. The Revolver matures on December 18, 2017. As noted in Note 2, the Company acquired Great Lakes on August 31, 2015. The purchase price amount described in Note 2 was funded by the Revolver.

The Company also had a subordinated note payable with a private lender effective March 18, 2013, as amended. The holder of the subordinated note payable also held equity interests of the Company, and therefore, was a related party. The subordinated note payable was originally entered into in conjunction with the acquisition of Unique Fabricating and had an original principal amount of $11.5 million . On December 18, 2013, in conjunction with the acquisition of PTI, the Company entered into an amendment with the holder which increased the note to $13.1 million and provided for warrants to purchase additional common stock which is described further in Note 8.

As noted in Note 1, the Company used the net proceeds from IPO to repay the $13.1 million principal amount of the senior subordinated note, together with accrued interest through the date of payment.

UNIQUE FABRICATING, INC.

Notes to Consolidated Financial Statements (Unaudited)

Long term debt consists of the following:

The senior credit facility and the senior subordinated note contain customary negative covenants and require that the Company comply with various financial covenants including a senior leverage ratio, total leverage ratio, debt service coverage ratio, interest coverage ratio, and capital expenditure covenant, as defined. Also, the senior credit facility restricts dividends being paid to the Company from its subsidiaries and the senior subordinated note precludes dividends being paid by the Company to its shareholders. As of October 4, 2015 and January 4, 2015 , the Company was in compliance with these covenants. Additionally, the Term Loan contains a clause, effective December 31, 2014, that requires an excess cash flow payment to be made if the Company’s cash flow exceeds certain thresholds as defined by the senior credit facility and certain performance thresholds are not met.

Maturities on the Company’s Revolver and other long term debt obligations for the remainder of the current fiscal year and future fiscal years:

Note 7 — Derivative Financial Instruments

The Company holds a derivative financial instrument, as required by its senior credit facility, 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 derivative financial instrument is in the form of an interest rate swap which the Company has elected not to apply hedge accounting for financial reporting purposes. The interest rate swap is recognized in the accompanying 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 consolidated statements of operations.

Effective April 26, 2013, the Company entered into an interest rate swap which required the Company to pay a fixed rate of 0.83 percent while receiving a variable rate based on the one month LIBOR for a net monthly settlement based on the notional amount beginning on March 3, 2014. The notional amount began at $4,714,286 and decreased by $196,429 each quarter until its scheduled expiration on March 1, 2016.

Effective January 17, 2014, in connection with the refinancing of the senior credit facility during December 2013, the Company terminated the swap described above and entered into a new interest rate swap which requires the Company to pay a fixed rate of 1.27 percent while receiving a variable rate based on the one month LIBOR for a net monthly settlement based on the notional amount beginning immediately. The notional amount begins at $10,000,000 and decreases by $250,000 each quarter until March 31, 2016, when it begins decreasing by $312,500 per quarter until it expires on January 31, 2017. At October 4, 2015 and January 4, 2015 the fair value of this interest rate swap was ($88,032) and ($86,511) , respectively which is included in other long-term liabilities in the consolidated balance sheets and the Company paid $31,862 and $78,574 in net monthly settlements in the 14 and 39 weeks ended October 4, 2015 , respectively, and $17,699 and $67,955 for the 13 and 39 weeks ended September 28, 2014 , respectively. Both the change in fair value and the monthly settlements are included in interest expense in the consolidated statements of operations.

Note 8 — Equity

Common Stock

As of October 4, 2015 and January 4, 2015 , the Company’s common stock consists of 15,000,000 authorized shares of $0.001 par value stock with 9,576,360 and 6,739,998 shares of common stock, respectively issued and outstanding. As of October 4, 2015 there were 495,000 unissued shares reserved for the Company’s 2013 stock incentive plan and 250,000 unissued shares reserved for the Company's 2014 stock incentive plan both which are further described in Note 10.

On January 14, 2013, (the date of formation of the Company), the Company sold 999,999 shares of common stock for $0.167 per share to a group of founding shareholders. An agreement required the Company to redeem these shares at $0.167 per share if the Company is sold, liquidated or completes an initial public offering for less than $4 per share.

On March 18, 2013, in conjunction with the acquisition of Unique Fabricating, the Company issued shares of common stock to its subordinated lender and a private placement group. Additionally, all of the stockholders entered into agreements which provide for certain restrictions on the transferability of the shares and provides certain shareholders further restrictions, requirements or benefits. The subordinated lender purchased 1,050,000 shares of common stock for $3.33 per share. An agreement provides the subordinated lender the option to have its shares redeemed by the Company for their fair value on the six th or seven th anniversary of the purchase or when the founders group, as defined, no longer owns 75 percent of the shares originally purchased. The private placement group purchased 2,949,999 shares of common stock for $3.33 per share. The Company incurred expenses for the issuance of these common shares of $745,012 for net total proceeds of $12,588,318 .

On December 18, 2013, in conjunction with the acquisition of PTI, the Company issued 1,740,000 additional shares of common stock for $3.33 per share. 365,400 shares were purchased by the subordinated lender under the same provisions as described above while the remaining 1,374,600 were purchased by other investors in a private placement. The Company incurred expenses for the issuance of these common shares of $344,128 for net total proceeds of $5,455,872 .

On July 7, the Company completed its initial public offering of 2,702,500 shares of common stock at a price to the public of $9.50 per share. In addition 24,000 options that were issued under the 2013 stock incentive plan were exercised in the third quarter.

Warrants

On December 18, 2013, in conjunction with the acquisition of PTI, the Company issued warrants to purchase 139,200 common shares for $3.33 per share. The warrants were valued at $50,534 upon issuance. The warrants can be exercised at any time ten years from the issuance date. 29,232 warrants are held by the subordinated lender and the remainder are held by shareholders in the founders group. The common shares received when the warrants are exercised will not contain any of the redemption features described above for any shareholders.

The fair value of each warrant award was estimated on the grant date using a Black Scholes option pricing model that uses the weighted average assumptions noted in the following table. The final valuation after using the assumptions in the table below also calculated a further weighted average to value the warrants and was based on 80% weighting given to a public sale and 20% to a private sale of the Company. Finally, that value was further discounted by 15% to account for the fact that warrants are only transferrable to institutional and accredited investors. The expected volatility was based on the historical volatility of comparable companies. The expected term of the awards was estimated based on findings from academic studies investigating the average holding period for warrants adjusted for the Company’s size and risk factors. The risk free rate for periods within the contractual life of the warrants was based on the United States Treasury yield curve in effect at the time of grant. (disclosed below for a public sale followed by a private sale of the Company).

As noted in Note 1, upon closing of the IPO the Company issued to the underwriters warrants to purchase up to 141,000 shares of common stock, as additional compensation. The 29,232 warrants held by the subordinated lender were also exercised in the third quarter for $3.33 per share in exchange for common shares. In addition, 80,630 of the original 139,200 warrants were also exercised in the third quarter for $3.33 per share in exchange for common shares.

Note 9 — Redeemable Common Stock

As described in Note 8, the 1,415,400 shares issued to the subordinated lender include features for the shares to be redeemed at their fair value on the six th or seven th anniversary of the purchase or when the founders group no longer owns 75 percent of the shares originally purchased. These shares are accounted for as redeemable common stock due to the redemption feature being outside of the Company’s control. These shares have been recorded initially using their net proceeds and have been adjusted to their redemption value each period using a ratable allocation based on the Company’s estimate of the redemption date and fair value of the shares. The Company has accreted the redemption value of these shares over the estimated redemption period to the earliest known redemption date with any changes in estimates being accounted for prospectively. However, reductions in the redemption value were only recorded to the extent of previously recorded increases.

As described in Note 8, the Company’s 999,999 shares issued to the founder group prior to the IPO were redeemable at $0.167 per share if the Company were sold, liquidated or completed an initial public offering for less than $4 per share. These shares were accounted for as redeemable common stock due to the redemption feature being outside of the Company’s control. These shares were recorded initially using their proceeds of $0.167 per share and there was not any accretion of these shares from this initial value because they wre already recorded at their redemption value. The redemption value of the shares was $166,667 .

Effective upon the closing of the IPO, the Company’s 999,999 shares issued to the founder group at $0.167 per share are no longer redeemable as the IPO was completed at a price of more than $4 per share and the Company is no longer required to purchase these shares. Furthermore, the 1,415,400 shares issued to the subordinated lender are also no longer redeemable, effective upon the closing of the IPO, as the subordinated lender agreed to terminate its right to require the Company to repurchase its shares in exchange for the Company granting it certain registration rights. As a result, all of the shares included in redeemable common stock were reclassified to common stock and amounts attributable to redeemable common stock were allocated to common stock at par value and additional paid-in-capital.

As of the date immediately before the closing of the IPO, the redemption value of the 1,415,400 shares was estimated to be $13,446,300 which was more than the initial proceeds. As a result, $1,364,031 of accretion was recorded in the period ended immediately prior to the IPO in addition to the 2014 accretion amount noted below. The redemption value was calculated based

on the offering price of $9.50 per share in the IPO, as the offering closed just after the quarter ended June 28, 2015 and represented the best estimate of enterprise value of the Company as of the end of the quarter ended June 28, 2015.

As of January 4, 2015 , the redemption value of the redeemable shares included the above shares issued to the founder group was estimated to be $11,362,481 which was more than the initial proceeds. As a result, $1,852,840 of accretion was recorded. The redemption value for the fiscal year ended January 4, 2015 was calculated by an outside party (the Company strategy for annual periods), using a discounted cash flow method. The discounted cash flow method used several assumptions, the most significant of which include: projections of net sales, operating expenses, profit margins, income taxes to capital expenditures, working capital requirements, interest rates, investment returns, and discount rate.

Note 10 — Stock Incentive Plans

2013 Stock Incentive Plan

The Company’s board of directors approved a stock incentive plan (the “Plan”) in 2013. The Plan permits the Company to grant 495,000 non statutory or incentive stock options to the employees, directors and consultants of the Company. 495,000 shares of unissued common stock are required to be 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, the board of directors approved the issuance of 375,000 and 120,000 non statutory stock option awards, respectively to employees of the Company with an exercise price of $3.33 with a weighted average grant date fair value of $86,450 and $42,000 respectively. These awards vest 20 percent on the grant date and an additional 20 percent on each of the first, second, third and fourth anniversaries thereafter. Vested awards can only be exercised while the participants are employed by the Company. Upon termination, the Company may repurchase the vested awards at their fair value (or their exercise price if terminated for cause) prior to their exercise.

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 comparable companies. The Company estimated zero employee terminations based on the options granted being limited to a small pool of senior employees of which the Company has no historical turnover experience. 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. (disclosed below as January 1, 2014 followed by July 17, 2013).

2014 Omnibus Performance Award Plan

In 2014 the Company 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 authorizes 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.

On August 17, 2015 the board of directors approved the issuance of a total of 230,000 stock option awards of which 45,000 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 with a weighted average grant date fair value of

$625,600 . These awards vest 20 percent on the grant date and an additional 20 percent on each of the first, second, third and fourth anniversaries thereafter. Vested awards can only be exercised while the participants are employed by the Company.

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 comparable companies. The Company estimated zero employee terminations based on the options granted being limited to a small pool of senior employees of which the Company has no historical turnover experience. 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.

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

The Company recorded compensation expense of $148,455 and $160,764 for the 14 and 39 weeks ended October 4, 2015 , respectively, and $6,401 and $27,439 for the 13 and 39 weeks ended September 28, 2014 , respectively, in its consolidated statements of operations, as a component of sales, general and administrative expenses.

As of October 4, 2015 , there was $533,759 of total unrecognized compensation cost related to nonvested stock option awards under the plans. That cost is expected to be recognized over a weighted average period of 2.81 years .

UNIQUE FABRICATING, INC.

Notes to Consolidated Financial Statements (Unaudited)