Liquidity

6 Months Ended

Jun. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Liquidity

2. LIQUIDITY

Beginning in fiscal year 2013, ATRM implemented a series of strategic initiatives intended to stabilize the Company and return it to profitability. In July 2013, we sold the assets related to our Reliability Test Products (“RTP”) line of products to Cascade Microtech, Inc. (“Cascade”). On April 2, 2014, we acquired KBS, a business that manufactures modular housing units for commercial and residential applications. On April 22, 2014, we entered into an agreement to transfer the assets related to our test handler product line to BSA (as defined below) in return for a future stream of earn-out payments based on the product line’s revenues.

We have incurred significant operating losses and, as of June 30, 2015, we had an accumulated deficit of approximately $69 million. There can be no assurance that the strategic initiatives described above will lead to sufficient revenue in the future to cover our expenses and achieve profitability for ATRM on a consistent basis or at all. In addition, we incurred substantial debt in connection with the acquisition of KBS. To finance the acquisition, we issued $6.5 million in promissory notes to Lone Star Value Investors, LP (“LSVI”) and a $5.5 million promissory note (the “KBS Note”) to the sellers with an original maturity date of October 1, 2014. We reached an agreement with the holder of the KBS Note to extend its maturity date to December 1, 2014 but we were unable to repay the note on that date. On June 26, 2015, as discussed in Note 13, we reached an agreement with the holder of the KBS Note to reduce its principal balance to $2.5 million which amount is to be paid in monthly installments of $100,000 over 25 months, inclusive of interest. During the second half of fiscal year 2014 and early 2015 we received cash to fund our working capital needs from LSVI and its affiliate Lone Star Value Co-Invest I, LP (“LSV Co-Invest I”) in exchange for unsecured promissory notes issued to these entities.

As of the June 30, 2015, the Company’s total debt owed under promissory notes, including the Amended and Restated KBS Note (as defined below), was approximately $12.8 million.  We have implemented significant changes to improve the performance of our KBS operations, including organizational changes and the implementation of improved contracts, processes and controls. We intend to pursue new financing to refinance all or a portion of our debt and to provide for our general working capital needs going forward. We anticipate commencing a rights offering on or about August 17, 2015 for the sale of up to 1,246,473 shares of our common stock at an offering price of $3.00 per share. The offering is expected to close in September 2015. We expect to retain a portion of the net proceeds for our working capital needs, and to use the remainder to reduce our long-term debt.

Jeffrey E. Eberwein, the Company’s Chairman of the Board, is the manager of Lone Star Value Investors GP, LLC (“LSVGP”), the general partner of LSVI and LSV Co-Invest I, and sole member of Lone Star Value Management, LLC (“LSVM”), the investment manager of LSVI. ATRM may be dependent on LSVI and LSV Co-Invest I, or other third parties, for working capital financing to fund the Company’s operations until such time as it obtains new financing to refinance all or a portion of its debt. Although not a binding commitment, LSVM has advised ATRM of its present intention to continue to financially support the Company as it pursues alternative financing. There can be no assurance we will be successful in obtaining any such new financing with terms favorable to us or at all. There can be no assurance that our existing cash reserves, together with funds generated by our operations and any future financings, will be sufficient to satisfy our debt payment obligations.

Our inability to generate funds or obtain financing sufficient to satisfy our debt payment obligations may result in such obligations being accelerated by our lenders, which would likely have a material adverse effect on our business, financial condition and results of operations. Given these uncertainties, there can be no assurance that our existing cash reserves will be sufficient to avoid liquidity issues and/or fund operations beyond one year from June 30, 2015.