| Minnesota | 41-1439182 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
| 5215 Gershwin Avenue N., Oakdale, Minnesota | 55128 | |
| (Address of Principal Executive Offices) | (Zip Code) | |
| Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [X] |
| Emerging growth company [ ] | |||
products. 2018. Although $ On March 31, 2017, ATRM entered into Stock ("Series B Stock"). Subsequent to June 30, 2017, in 2018, the Company issued new promissory notes to LSV Co-Invest I in the total principal amount of $1.4 million. See further discussion in Note 19. On October 19, 2016, ATRM granted 30,000 restricted shares of the Company’s common stock to its Chief Executive Officer, Chief Financial Officer and former Chief Financial Officer (10,000 shares each). The shares vest one year after the grant date and the fair value of the awards was determined to be $2.25 per share, the closing price of our common stock on the grant date. Compensation expense related to these grants amounted to approximately 2017, subject to forfeitures. lawsuit has been successfully and completely defeated by the Company. plaintiff in full settlement on KBS’s behalf. KBS paid a $10,000 deductible to its insurance carriers for this claim. Amendments to Gerber Finance Loan Agreements event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, before any payment or distribution to holders of junior shares, holders of Series B Stock will be entitled to receive an amount of cash per share of Series B Stock equal to the stated value plus all accumulated accrued and unpaid dividends thereon (whether or not earned or declared). No request has been made to date. On September 29, 2017, we completed the Exchange, issuing to LSVI and LSV Co-Invest I a total of 132,548 shares of Series B Preferred Stock ("Series B Stock") in exchange for the return and cancellation of all of the Notes held by LSVI and LSV Co-Invest I. The Notes had an aggregate of $13.3 million unpaid principal and accrued and unpaid interest outstanding at the time of their cancellation. The Office of the Secretary of State of the State of Minnesota to effect these amendments. Cost of . working capital changes. debt. In the 2018. Although In addition, at EBGL, we continue to implement improvements in internal processes, procedures and controls and have established regular reporting and routine management oversight. lawsuit has been successfully and completely defeated by the Company. From time to time, in the ordinary course of ATRM’s business, it is party to various other disputes, claims and legal proceedings. In the opinion of management, based on information available at this time, such disputes, claims and proceedings will not have a material effect on ATRM’s consolidated financial statements.PART II. OTHER INFORMATION Item 1. Legal Proceedings 27 Item 1A. Risk Factors 28 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28 Item 3. Defaults Upon Senior Securities 28 Item 4. Mine Safety Disclosures 28 Item 5. Other Information 28Item 6.28 SIGNATURES29Item 6.Exhibits SIGNATURES March 31, 2017 December 31, 2016 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 569 $ 1,247 Restricted cash 280 150 Accounts receivable, net 4,448 2,604 Costs and estimated profit in excess of billings 866 1,045 Inventories 1,304 1,404 Fair value of contingent earn-out receivable, current 548 359 Other current assets 409 237 Total current assets 8,424 7,046 Property, plant and equipment, net 4,335 4,393 Fair value of contingent earn-out receivable, noncurrent 150 202 Goodwill 3,020 3,020 Intangible assets, net 1,925 2,117 Total assets $ 17,854 $ 16,778 LIABILITIES AND SHAREHOLDERS’ DEFICIT Current liabilities: Notes payable – revolving lines of credit $ 4,114 $ 3,420 Current portion of long-term debt 1,132 1,675 Trade accounts payable 4,719 3,776 Billings in excess of costs and estimated profit 813 652 Accrued compensation 440 407 Fair value of contingent earn-out payable 991 967 Other accrued liabilities 1,727 2,264 Total current liabilities 13,936 13,161 Long-term debt, less current portion 15,212 14,069 Deferred income taxes 21 19 Commitments and contingencies Shareholders’ deficit: Common stock, $.001 par value; 3,000,000 shares authorized; 2,366,219 shares issued and outstanding at March 31, 2017 and December 31, 2016 2 2 Additional paid-in capital 69,719 69,702 Accumulated deficit (81,036 ) (80,175 ) Total shareholders’ deficit (11,315 ) (10,471 ) Total liabilities and shareholders’ deficit $ 17,854 $ 16,778 June 30, 2017 December 31, 2016 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 454 $ 1,247 Restricted cash 280 150 Accounts receivable, net 3,953 2,604 Costs and estimated profit in excess of billings 843 1,045 Inventories 1,400 1,404 Fair value of contingent earn-out receivable, current 467 359 Other current assets 270 237 Total current assets 7,667 7,046 Property, plant and equipment, net 4,295 4,393 Fair value of contingent earn-out receivable, noncurrent 214 202 Goodwill — 3,020 Intangible assets, net 1,747 2,117 Total assets $ 13,923 $ 16,778 LIABILITIES AND SHAREHOLDERS’ DEFICIT Current liabilities: Notes payable – revolving lines of credit $ 4,943 $ 3,420 Current portion of long-term debt 1,094 1,675 Trade accounts payable 4,595 3,776 Billings in excess of costs and estimated profit 694 652 Accrued compensation 472 407 Fair value of contingent earn-out payable — 967 Other accrued liabilities 2,264 2,264 Total current liabilities 14,062 13,161 Long-term debt, less current provision 15,708 14,069 Deferred income taxes 25 19 Commitments and contingencies Shareholders' deficit: Common stock, $.001 par value; 3,000,000 shares authorized; 2,396,219 shares issued and outstanding at June 30, 2017 and December 31, 2016 2 2 Additional paid-in capital 69,736 69,702 Accumulated deficit (85,610 ) (80,175 ) Total shareholders' deficit (15,872 ) (10,471 ) Total liabilities and shareholders' deficit $ 13,923 $ 16,778 1 Three months ended March 31, 2017 2016 Net sales $ 9,404 $ 5,051 Costs and expenses: Cost of sales 8,183 5,434 Selling, general and administrative expenses 1,703 1,027 Total costs and expenses 9,886 6,461 Operating loss (482 ) (1,410 ) Other (expense) income: Interest expense (563 ) (301 ) Change in fair value of contingent earn-outs, net 188 1 Loss before income taxes (857 ) (1,710 ) Income tax expense (4 ) (4 ) Net loss $ (861 ) $ (1,714 ) Net loss per share, basic and diluted $ (0.36 ) $ (0.78 ) Weighted average common shares outstanding, basic and diluted 2,366 2,206 Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Net sales $ 10,823 $ 5,901 $ 20,227 $ 10,952 Costs and expenses: Cost of sales 9,853 5,406 18,036 10,840 Selling, general, and administrative expenses 1,916 1,160 3,619 2,187 Goodwill impairment charge 3,020 — 3,020 — Total costs and expenses 14,789 6,566 24,675 13,027 Operating loss (3,966 ) (665 ) (4,448 ) (2,075 ) Other (expense) income: Interest expense (846 ) (423 ) (1,409 ) (724 ) Change in fair value of contingent earn-outs, net 242 1 430 2 Loss before income taxes (4,570 ) (1,087 ) (5,427 ) (2,797 ) Income tax expense (4 ) (1 ) (8 ) (5 ) Net loss $ (4,574 ) $ (1,088 ) $ (5,435 ) $ (2,802 ) Net loss per share, basic and diluted $ (1.93 ) $ (0.49 ) $ (2.30 ) $ (1.27 ) Weighted average common shares outstanding, basic and diluted 2,366 2,223 2,366 2,214 2 Three months ended
March 31, 2017 2016 Cash flows from operating activities: Net loss $ (861 ) $ (1,714 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 88 80 Amortization expense, intangible assets 192 51 Amortization expense, deferred financing costs 52 9 Share-based compensation expense 17 67 Loss on sale of equipment — 9 Deferred income taxes 2 2 Change in fair value of contingent earn-out receivable (213 ) (1 ) Change in fair value of contingent earn-out payable 24 — Imputed interest on seller deferred payment obligations 18 — Paid-in-kind Interest (“PIK Interest”) 613 — Changes in operating assets and liabilities: Accounts receivable (1,844 ) 1,492 Costs and estimated profit in excess of billings 179 (274 ) Inventories 100 297 Other current assets (172 ) (7 ) Trade accounts payable 943 (1,127 ) Billings in excess of costs and estimated profit 161 (225 ) Accrued compensation 33 156 Other accrued liabilities (537 ) (669 ) Net cash used in operating activities (1,205 ) (1,854 ) Cash flows from investing activities: Proceeds from earn-out consideration 76 38 Purchase of property and equipment (42 ) (48 ) Sale of equipment 11 1 Net cash generated by (used in) investing activities 45 (9 ) Cash flows from financing activities: Proceeds from issuance of long-term debt 500 — Proceeds from revolving line of credit 9,029 3,683 Principal payments on revolving line of credit (8,386 ) (749 ) Payment of deferred financing costs — (155 ) Principal payments on long-term debt (531 ) (1,299 ) Net cash generated by financing activities 612 1,480 Net decrease in cash, cash equivalents and restricted cash (548 ) (383 ) Cash, cash equivalents and restricted cash at beginning of period 1,397 624 Cash, cash equivalents and restricted cash at end of period $ 849 $ 241 Supplemental cash flow information: Cash paid for interest expense $ 213 $ 635 Deferred financing costs recorded in accounts payable $ 55 $ 55 Six months ended June 30, 2017 2016 Cash flows from operating activities: Net loss $ (5,435 ) $ (2,802 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 177 156 Amortization expense, intangible assets 370 101 Amortization expense, deferred financing costs 273 36 Share-based compensation expense 34 115 (Gain) loss on sale of equipment (8 ) 25 Deferred income taxes 6 4 Change in fair value of contingent earn-out receivable (354 ) (2 ) Change in fair value of contingent earn-out payable (76 ) — Imputed interest on seller deferred payment obligations 36 — Goodwill impairment charge 3,020 — Paid-in-kind interest (“PIK Interest”) 613 — Changes in operating assets and liabilities: Accounts receivable (1,349 ) 244 Costs and estimated profit in excess of billings 202 (701 ) Inventories 4 78 Other current assets (33 ) 10 Trade accounts payable 764 639 Billings in excess of costs and estimated profit 42 (69 ) Accrued compensation 65 181 Other accrued liabilities — (305 ) Net cash used in operating activities (1,649 ) (2,290 ) Cash flows from investing activities: Proceeds from earn-out consideration 234 136 Purchase of property and equipment (106 ) (48 ) Sale of equipment 34 109 Net cash generated by investing activities 162 197 Cash flows from financing activities: Proceeds from issuance of long-term debt 567 — Proceeds from revolving line of credit 22,744 9,675 Principal payments on revolving line of credit (21,455 ) (6,144 ) Payment of deferred financing costs 16 (175 ) Principal payments on long-term debt (1,048 ) (1,572 ) Net cash generated by financing activities 824 1,784 Net decrease in cash, cash equivalents and restricted cash (663 ) (309 ) Cash, cash equivalents and restricted cash at beginning of period 1,397 624 Cash, cash equivalents and restricted cash at end of period $ 734 $ 315 Supplemental cash flow information Cash paid for interest expense $ 690 $ 692 Deferred financing costs recorded in accounts payable $ 55 $ 55 Decrease in other accrued liabilities for restructuring of contingent earn-out payable $ (891 ) $ — Increase in long-term debt for restructuring of contingent earn-out payable $ 891 $ — 31.1. BASIS OF PRESENTATION products, and Glenbrook Building Supply, Inc. (“Glenbrook”), a retail supplier of lumber and other building supplies.March 31,June 30, 2017 are not necessarily indicative of the operating results to be expected for the full year or any future period.42.2. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES quarterthree and six months ended March 31,June 30, 2017. We have incurred significant operating losses in recent years and, as of March 31,June 30, 2017, we had an accumulated deficit of approximately $81$85.6 million. Working capital has remained negative over the past several years. Cash used in operating activities, while improved as compared to the quartersix months ended March 31,June 30, 2016, remains negative for the quartersix months ended March 31,June 30, 2017. This has required us to generate funds from investing and financing activities. At March 31,June 30, 2017, we had outstanding debt of approximately $20.5$21.7 million.March 31,June 30, 2017, we had outstanding debt totaling approximately $20.5$21.7 million. Our debt primarily$2.3$3.3 million principal outstanding on KBS’s $4.0 million revolving credit facility under a loan and security agreement with Gerber Finance Inc. (“Gerber Finance”) (the “KBS Loan Agreement”), $1.8 million principal outstanding on EBGL’s $3.0 million revolving credit facility under a loan and security agreement with Gerber Finance (the “EBGL Loan Agreement”) and $3.0 million principal outstanding under a loan and security agreement with Gerber Finance used to finance the acquisition of EBGL (the “Acquisition"Acquisition Loan Agreement"), (ii) $1.6 million principal outstanding on EBGL’s $3.0 million revolving credit facility under a revolving credit loan agreement with Premier Bank (the “Premier Loan Agreement”), which became effective on June 30, 2017 and replaced the prior $3.0 million revolving credit facility under a loan and security agreement with Gerber Finance (the “EBGL Loan Agreement”); (ii)(iii) $4.5 million principal amount of unsecured promissory notes issued to Lone Star Value Investors, LP (“LSVI”) and $7.6 million principal amount of unsecured promissory notes issued to Lone Star Value Co-Invest I, LP (“LSV Co-Invest I”), with interest payable semiannually and any unpaid principal and interest due on April 1, 2019 (as noted in Note 19, the promissory notes issued to LSVI2019; and LSV Co-Invest I were exchanged for preferred stock on September 29, 2017); and (iii) $0.4(iv) $0.1 million principal amount outstanding under an unsecured promissory note issued to the primary sellers of KBS, payable in monthly installments of $100,000, inclusive of interest, through July 1, 2017, which have since been paid in full, with the final payment made as scheduled in July 2017. We also hadhave obligations to make $0.75$1.4 million in deferred cash payments to the sellers of EBGL, payable in monthly quarterly installments of $250,000,$100,000, inclusive of interest, through OctoberNovember 1, 2017. As noted in Note 19, the deferred payments to the sellers of EBGL were restructured in June 2017.agreements with Gerber Finance:agreements: (i) a requirement for KBS to maintain a minimum leverage ratio of 7:1 for the fiscal year ended December 31, 2016, as its actual leverage ratio for such period was negative; (ii) a requirement for KBS not to incur a net annual post-tax loss in any fiscal year of the loan agreements, as KBS’s net annual post-tax loss for the fiscal year ended December 31, 2016 was $3.2 million; and (iii) a requirement to deliver the Company’s fiscal year-end financial statements reviewed by an independent certified accounting firm acceptable to Gerber Finance within 105 days from the fiscal year ended December 31, 2016. In August 2017, Gerber Finance provided us with a waiver for these events. As of December 31, 2017 and 2018, KBS was not in compliance with the financial covenantcovenants requiring no net annual post-tax loss for KBS or the minimum leverage ratio covenant as of these test dates. Additionally, KBS was not in compliance with the next test date,requirement to deliver the Company's fiscal year-end financial statements reviewed by an independent certified accounting firm acceptable to Gerber Finance within 105 days from the fiscal year ended December 31, 2017. We have begun discussions with Gerber Finance as to obtaining a waiver for these events. IfThe occurrence of any event of default under the KBS Loan Agreement may result in KBS’s obligations under the KBS Loan Agreement becoming immediately due and payable. In April 2019, we fail to obtainobtained a waiver from Gerber Finance for these events. While the Company currently projects that it will be in compliance with the covenant requiring no net annual post-tax loss for KBS, the Company projects that it will continue to not be in compliance with the minimum leverage ratio covenant. If the Company fails to comply with any financial covenants under our loan agreements with Gerber Finance going forward, Gerber Finance may demand the repayment of the credit facilities amount outstanding and any unpaid interest thereon.In addition, continued operating losses could further trigger violations of covenants under our debt agreements, resulting in accelerated payment of these loans. 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 this fiscal year.During 2016 and 2017, we implemented several strategic initiatives, effected certain actions and continued to consider additional actions to improve the Company’s overall profitability and increase cash flows, including:●KBS’s strategic shift away from large commercial projects with significant site work to focus on its core competency of manufacturing modular buildings;●KBS’s efforts to improve operating efficiencies, including reconfiguring the South Paris factory to increase production, investments in automated equipment to reduce labor costs, implementing lean manufacturing techniques, and elimination of duplicate overhead costs through the shut-down of the Waterford factory;5●Reduction in KBS workforce including manufacturing, sales, engineering and front-office staff;●KBS increased pricing on its base ranch model in 2017, and in November 2017, instituted a 6% lumber surcharge on all new orders to help offset the significant rise in lumber and other raw materials costs;●KBS has implemented a new dynamic pricing model for 2018, which is designed to determine its bid price quoted to customers using the most current cost information;●KBS is exploring opportunities to monetize the Waterford facility, including a potential sale or lease to a third party;●In July 2017, KBS made the final payment due to the primary seller of KBS, freeing up $100,000 per month of cash flows to be used for operations;●In October 2016, the Company acquired the EBGL businesses, which we believe that, after a transitional period, will generate net income and positive cash flows for the Company;●In 2017, we instituted a lumber hedging program for EBGL to assist in preserving existing margins against the potential large fluctuations in lumber raw material prices;●In August 2016, we amended certain of our debt agreements to allow the Company to pay PIK Interest on approximately $11 million of our debt, reducing strain on current cash flows;●As disclosed in Note 19, in June 2017, we refinanced EBGL’s revolving credit facility and amended the terms of our agreement with EdgeBuilder Wall Panels, Inc. and Glenbrook Lumber & Supply, Inc. (collectively, the “EBGL Sellers”) providing for deferred payments to obtain more favorable lending and payment terms and reduce total fees paid under these agreements;●As disclosed in Note 19, in September 2017, we converted $13.3 million of the Company’s outstanding debt, including accrued interest, to preferred stock;●As disclosed in Note 19, in January 2018, the Company issued an unsecured promissory note in the principal amount of $0.5 million to LSV Co-Invest I to provide additional working capital for the Company; and●We continue to look for opportunities to refinance our remaining debt on more favorable terms. we cannot predict with certainty the outcome of any individual action to generate liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned, we believe that through these actions taken as a whole, and management’s continued efforts to improve operating results and find additional liquidity resources, we can satisfy our estimated liquidity needs for the next twelve months.In addition to the above actions, although not a binding commitment, LSVM has advised us of its present intention to continue to financially support the Company in the event that additional financing is required. FromIn 2014, through2015, 2016, 2017 and again in 2018, LSVM has provided financial support in the form of financing through various debt agreements disclosed in Note 14 and Note 19.14. Based on LSVM’s historical support of the Company,previous commitments, management believes that additional financing may be provided by LSVM or its affiliates, if necessary, in the future.Our historical operating results indicate substantial doubt exists In addition, it should be noted that LSVM is a related party to the Company’s ability to continueDigirad, with whom ATRM has entered into a LOI, as a going concern. We believe that the actions discussed above have either already occurred or are probable of occurring, and mitigate the substantial doubt raised by our historical operating results, as well as satisfy our estimated liquidity needs for the twelve months from the issuance of the Condensed Consolidated Financial Statements.63. BUSINESS COMBINATION 3.BUSINESS COMBINATIONEBGL Sellers“EBGL Sellers”) through the Company’s wholly-owned subsidiaries EdgeBuilder and Glenbrook, respectively, pursuant to the terms of an Asset Purchase Agreement, dated as of the same date, by and among the Company, EdgeBuilder, Glenbrook, the EBGL Sellers and the individual owners of the EBGL Sellers (the “EBGL Acquisition”). The Company operates the businesses of EdgeBuilder and Glenbrook on a combined basis, and such businesses are referred to on a combined basis as EBGL.three-month periodthree- and six-month periods ended March 31,June 30, 2016 as if the EBGL Acquisition had occurred on January 1, 2016 (in thousands, except per share amount): 2016 Pro forma net sales $ 10,080 Pro forma net loss (1,111 ) Pro forma loss per share – basic and diluted (0.48 ) Three Months Six Months Pro forma net sales $ 10,314 $ 20,394 Pro forma net loss (903 ) (2,014 ) Pro forma loss per share – basic and diluted (0.39 ) (0.87 ) 4.4. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTPRONOUNCEMENTSNovember 2015,May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the new guidance, modification accounting is only required if the fair value, vesting conditions or classification (equity or liability) of the new award are different from the original award immediately before the original award is modified. This update is effective for annual and interim financial statement periods beginning after December 15, 2017, with early adoption permitted. The new guidance must be applied prospectively to awards modified on or after the adoption date; consequently the impact will be dependent on whether the Company modifies any of its share-based payment awards and the nature of such modifications. There were no material impacts on the Company’s results based on the adoption of this update.(“ASU 2015-17”). ASU 2015-17 was issued to simplify the presentation of deferred income taxes. The amendments in this guidance require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. As required, ATRM adopted these updatesthis update effective January 1, 2017. There were no material impacts on the Company’s results based on the adoption of this update.5.5. RESTRICTED CASH 3/31/2017 Cash and cash equivalents $ 569 Restricted cash 280 Total cash, cash equivalents, and restricted cash shown in the condensed consolidated balance sheet $ 849 7 June 30, 2017 December 31, 2016 Cash and cash equivalents $ 454 $ 1,247 Restricted cash 280 150 Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows $ 734 $ 1,397 6.6. FAIR VALUE MEASUREMENTS March 31,June 30, 2017 (in thousands): Level 1 Level 2 Level 3 Contingent earn-out receivable related to the transfer of test handler product line: Current portion $ — $ — $ 548 Noncurrent portion — 150 Total $ — $ — $ 698 Contingent earn-out payable related to the EBGL Acquisition $ — $ — $ (991 ) Level 1 Level 2 Level 3 Contingent earn-out receivable related to the transfer of test handler product line: Current portion $ — $ — $ 467 Noncurrent portion — — 214 Total $ — $ — $ 681 Level 1 Level 2 Level 3 Contingent earn-out receivable related to the transfer of test handler product line: Current portion $ — $ — $ 359 Noncurrent portion — — 202 Total $ — $ — $ 561 Contingent earn-out payable $ — $ — $ (967 ) Goodwill $ — $ (3,020 ) Goodwill $ — $ (1,733 ) Earn-out
Receivable (1) Earn-out
Payable (2) Balance at December 31, 2016 $ 561 $ (967 ) Add – adjustment based on re-assessments 213 — Add – net increase based on re-assessments — (24 ) Subtract – settlements (76 ) — Balance at March 31, 2017 $ 698 $ (991 ) Balance at December 31, 2016 $ 561 $ (967 ) Add – adjustment based on re-assessments 354 — Add – net decrease based on re-assessments — 76 Subtract – settlements (234 ) — Subtract – amendment (see Note 14) — 891 Balance at June 30, 2017 $ 681 $ — Earn-out receivable related to the transfer of our test handler product line in 2014. Earn-out payable related to the EBGL Acquisition. EBGL Goodwill Balance at December 31, 2016 $ 3,020 Subtract – goodwill impairment recorded at June 30, 2017 (included in earnings) (3,020 ) Balance at June 30, 2017 $ — March 31,June 30, 2017, is summarized in the table below:Fair Value Asset Valuation Technique Unobservable Input Amount Earn-out receivable related to transfer of test handler product line Discounted cash flow Total projected revenue Performance weighted average Discount rate(including actual results for periods through December 31, 2018) 11.39.9 million60% to 125%10 % Performance weighted average 100% Discount rate 2.2% to 2.6% Contingent earn-out payableFair Value Asset Valuation Technique Unobservable Input Amount Goodwill Discounted cash flow Estimated gross profit for earn-out period 3.417.5 million10 %7.7. ACCOUNTS RECEIVABLE, NET March 31, 2017 December 31, 2016 (Unaudited) Contract billings $ 4,294 $ 2,330 Retainage 158 370 Subtotal 4,452 2,700 Less – allowance for doubtful accounts (4 ) (96 ) Accounts receivable, net $ 4,448 $ 2,604 June 30, 2017 December 31, 2016 (Unaudited) Contract billings $ 3,756 $ 2,330 Retainage 204 370 Subtotal 3,960 2,700 Less – allowance for doubtful accounts (7 ) (96 ) Accounts receivable, net $ 3,953 $ 2,604 88. INVENTORIES 8.INVENTORIESMarch 31,June 30, 2017 and December 31, 2016, inventories totaling approximately $1.3 million and $1.4 million respectively, consisted of raw materials inventory. There are no finished goods or work-in-process inventory included in the inventory balances as of March 31,June 30, 2017 or December 31, 2016.9.9. GOODWILL AND INTANGIBLE ASSETS, NET March 31, 2017
(unaudited) December 31, 2016 Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Indefinite-lived intangible assets: Goodwill $ 3,020 $ — $ 3,020 $ 3,020 $ — $ 3,020 Trademarks 394 — 394 394 — 394 Total 3,414 — 3,414 3,414 — 3,414 Finite-lived intangible assets: Customer relationships 2,097 (665 ) 1,432 2,097 (586 ) 1,511 Purchased backlog 1,290 (1,191 ) 99 1,290 (1,078 ) 212 Total 3,387 (1,856 ) 1,531 3,387 (1,664 ) 1,723 Total intangible assets $ 6,801 $ (1,856 ) $ 4,945 $ 6,801 $ (1,664 ) $ 5,137 June 30, 2017 December 31, 2016 (unaudited) Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Indefinite-lived intangible assets: Goodwill $ — $ — $ — $ 3,020 $ — $ 3,020 Trademarks 394 — 394 394 — 394 Total 394 — 394 3,414 — 3,414 Finite-lived intangible assets: Customer relationships 2,097 (744 ) 1,353 2,097 (586 ) 1,511 Purchased backlog 1,290 (1,290 ) — 1,290 (1,078 ) 212 Total 3,387 (2,034 ) 1,353 3,387 (1,664 ) 1,723 Total intangible assets $ 3,781 $ (2,034 ) $ 1,747 $ 6,801 $ (1,664 ) $ 5,137 $192,000$0.2 million and $0.4 million for the three and six months ended March 31,June 30, 2017, and approximately $51,000$51.0 thousand and $0.1 million for the three and six months ended March 31, 2016.June 30, 2016, respectively. Estimated amortization of purchased intangible assets over the next five years is as follows (in thousands):2017 (nine months) $ 336 2018 315 2019 315 2020 315 2021 164 Thereafter 86 Total $ 1,531 2017 (six months) $ 158 2018 315 2019 315 2020 315 2021 164 Thereafter 86 Total $ 1,353 10.10. UNCOMPLETED CONSTRUCTION CONTRACTS March 31, 2017 December 31, 2016 (Unaudited) Costs incurred on uncompleted contracts $ 9,899 $ 6,575 Inventory purchased for specific contracts 780 837 Estimated profit 1,667 1,150 Subtotal 12,346 8,562 Less billings to date (12,293 ) (8,169 ) Total $ 53 $ 393 Included in the following balance sheet captions: Costs and estimated profit in excess of billings $ 866 $ 1,045 Billings in excess of costs and estimated profit (813 ) (652 ) Total $ 53 $ 393 June 30, 2017 December 31, 2016 (Unaudited) Costs incurred on uncompleted contracts $ 6,026 $ 6,575 Inventory purchased for specific contracts 765 837 Estimated profit 860 1,150 Subtotal 7,651 8,562 Less billings to date (7,502 ) (8,169 ) Total $ 149 $ 393 Included in the following balance sheet captions: Costs and estimated profit in excess of billings $ 843 $ 1,045 Billings in excess of costs and estimated profit (694 ) (652 ) Total $ 149 $ 393 $10.4$7.4 million of work under contract remaining to be recognized at March 31,June 30, 2017.911. ACCOUNTS PAYABLE RETAINAGE 11.ACCOUNTS PAYABLE RETAINAGE$4.7$4.6 million at March 31,June 30, 2017, included retainage amounts due to subcontractors of approximately $0.2 million. Accounts payable of approximately $3.8 million at December 31, 2016 included retainage amounts due to subcontractors totaling approximately $0.4$0.1 million. Retainage balances at March 31,June 30, 2017 are expected to be settled within the next 12 months.12.12. OTHER ACCRUED LIABILITIES March 31, 2017 December 31, 2016 (Unaudited) Accrued interest expense $ 374 $ 637 Accrued sales taxes 892 739 Accrued health insurance costs 108 96 Accrued sales rebates 213 327 Accrued warranty 50 49 Other 90 416 Total other accrued liabilities $ 1,727 $ 2,264 June 30, 2017 December 31, 2016 (Unaudited) Accrued interest expense $ 743 $ 637 Accrued sales taxes 1,082 739 Accrued health insurance costs 176 96 Accrued sales rebates 157 327 Accrued warranty 52 49 Other 54 416 Total other accrued liabilities $ 2,264 $ 2,264 Three months ended March 31, 2017 2016 (unaudited) Accrual balance, beginning of period $ 49 $ 39 Accruals for warranties 1 29 Settlements made — (29 ) Accrual balance, end of period $ 50 $ 39 Six Months Ended June 30, 2017 2017 2016 (unaudited) Accrual balance, beginning of period $ 49 $ 39 Accruals for warranties 3 37 Settlements made — (29 ) Accrual balance, end of period $ 52 $ 47 13.13. NOTES PAYABLE March 31,June 30, 2017, we had outstanding notes payablerevolving lines of credit of approximately $4.1$4.9 million, net of unamortized financing fees of $0.1 million. Our notes payable included (i) $2.3$3.3 million principal outstanding on KBS’s $4.0 million revolving credit facility under the KBS Loan Agreement and (ii) $1.8$1.6 million principal outstanding on EBGL’s $3.0 million revolving credit facility under the EBGLPremier Loan Agreement.10March 31,June 30, 2017, approximately $2.4$3.4 million was outstanding under the KBS Loan Agreement, which, after offset of approximately $0.1 million of unamortized deferred financing costs, is presented at a net amount of approximately $2.3$3.3 million on the Condensed Consolidated Balance Sheet.covenantcovenants requiring no net annual post-tax loss for KBS or the minimum leverage ratio covenant as of these test dates. Additionally, KBS was not in compliance with the next test date,requirement to deliver the Company's fiscal year-end financial statements reviewed by an independent certified accounting firm acceptable to Gerber Finance within 105 days from the fiscal year ended December 31, 2017. We have begun discussions with Gerber Finance as to obtaining a waiver for these events. Should the Company be unable to obtain a waiver from Gerber Finance, it would become an event of default. The occurrence of any event of default under the KBS Loan Agreement may result in KBS’s obligations under the KBS Loan Agreement becoming immediately due and payable.The In April 2019, we obtained a waiver from Gerber Finance for these events. While the Company currently projects that it will be in compliance with the covenant requiring no net annual post-tax loss for KBS, the Company projects that it will continue to not be in compliance with the minimum leverage ratio covenant. If the Company fails to comply with any financial covenants under our loan agreements with Gerber Finance going forward, Gerber Finance may demand the repayment of the credit facilities amount outstanding and any unpaid interest thereon.providesproviding EBGL with a revolving working capital line of credit of up to $3.0 million. Availability under the EBGL Loan Agreement iswas based on a formula tied to the borrowers’ eligible accounts receivable, inventory and equipment. The initial term of the EBGL Loan Agreement iswas set to expire on October 3, 2018, but extendsextended automatically for additional one-year periods unless a party provided prior written notice of termination. Borrowings bear interest at the prime rate plus 2.75%, with interest payable monthly and the outstanding principal balance iswas payable upon the expiration of the term of the EBGL Loan Agreement. Initially, availability under the EBGL Loan Agreement was limited to $1.0 million, which amount could be increased to up to $3.0 million in increments of $500,000$0.5 million upon the request of the borrowers and in the discretion of Gerber Finance. As of March 31, 2017, maximum availability was set at $2.0 million under the EBGL Loan Agreement. Obligations under the EBGL Loan Agreement were secured by all of the borrowers’ assets and were guaranteed by the Company and its other subsidiaries. The EBGL Loan Agreement containscontained representations, warranties, affirmative and negative covenants, events of default and other provisions customary for financings of this type. Financial covenants requirerequired that EBGL maintainsmaintained a minimum tangible net worth and a minimum debt service coverage ratio. As of March 31, 2017, the Company expected that it would be in compliance with these financial covenants at the next test date, December 31, 2017; however, as discussed in Note 19, the EBGL Loan Agreement was replaced by a new working capital line of credit with a new lender. At March 31, 2017, approximately $2.0 million was outstanding under the EBGL Loan Agreement, which, after offset of approximately $0.2 million of unamortized deferred financing costs, is presented at a net amount of approximately $1.8 million on the Condensed Consolidated Balance Sheet. As disclosed in Note 19, theThe Company refinanced the EBGL Loan Agreement through a new $3.0 million revolving working capital line of credit with Premier Bank on June 30, 2017.1114. LONG-TERM DEBT 14.LONG-TERM DEBT March 31, 2017 December 31, 2016 (Unaudited) Promissory note payable to LSVI, a related party, unsecured, interest of 10% per annum (12% per annum PIK Interest) payable semi-annually in July and January, with any unpaid principal and interest due on April 1, 2019 $ 4,522 $ 4,261 Promissory notes payable to LSV Co-Invest I, a related party, unsecured, interest of 10% per annum (12% per annum PIK Interest) payable semi-annually in July and January, with any unpaid principal and interest due on April 1, 2019 7,625 6,773 Promissory note payable to KBS, sellers, unsecured, interest imputed at 9.5%, payable in monthly installments of $100,000 (principal and interest) through July 2017 392 678 Software installment payment agreement, unsecured, interest at 8.0% per annum, payable in monthly installments of $1,199 through September 2020 43 46 Notes payable, secured by equipment, interest at 6.6% to 9.5% per annum, with varying maturity dates through September 2018 16 22 Promissory note payable to Gerber Finance, secured, interest at the current prime rate plus 3.0% payable monthly with any unpaid principal and interest due on December 31, 2018 3,000 3,000 Revolving equipment credit line, unsecured 15 — Deferred payments to EBGL Sellers, secured, interest imputed at 10.0%, quarterly payments of principal and interest of $250,000 beginning April 1, 2017 through October 1, 2017; as disclosed in Note 19, the Company amended the terms of the deferred payments to EBGL Sellers on June 30, 2017 731 964 Total long-term debt 16,344 15,744 Current portion (1,132 ) (1,675 ) Noncurrent portion $ 15,212 $ 14,069 June 30, 2017 December 31, 2016 (Unaudited) Promissory note payable to LSVI, a related party, unsecured, interest of 10% per annum (12% per annum PIK Interest) payable semi-annually in July and January, with any unpaid principal and interest due on April 1, 2019 (these notes, plus accrued interest, were exchanged for Series B Stock on September 29, 2017) $ 4,522 $ 4,261 7,624 6,773 Promissory note payable to KBS Sellers, unsecured, interest imputed at 9.5%, payable in monthly installments of $100,000 (principal and interest) through July 2017; paid in full in July 2017 99 678 40 46 9 22 Promissory note payable to Gerber Finance, secured, interest at the current prime rate plus 3.0% payable monthly with any unpaid principal and interest due on December 31, 2018 (automatically extended to December 31, 2019 as neither party elected to terminate) 3,000 3,000 Revolving equipment credit line, unsecured 14 — — 964 1,441 — EBGL capital lease, computer equipment 53 — Total long-term debt 16,802 15,744 Current portion (1,094 ) (1,675 ) Noncurrent portion $ 15,708 $ 14,069 $1.1$0.5 million of PIK Interest as part of the principal balance of the LSVI and LSV Co-Invest I promissory notes at December 31, 2016 and March 31, 2017. Subsequently, the Company has elected the2016. An additional $0.6 million of PIK Interest option for its interest payments inwas added to the principal balance of the LSVI and LSV Co-Invest I promissory notes as of June 30, 2017.12an additionala Securities Purchase Agreement with LSV Co-Invest I. Pursuant to this agreement, LSV Co-Invest I purchased for $0.5 million in cash, an unsecured promissory note dated March 31, 2017, made byMarch 31,June 30, 2017, the Company, LSVI, and LSV Co-Invest I entered into an exchange agreement whereby the outstanding LSVI and LSV Co-Invest I promissory notes, along with accrued interest, were exchanged for 132,548 shares of the Company’s 10.0% Series B Cumulative Preferred Stock.March 31,June 30, 2017, LSVI owned 1,067,885 shares of our common stock, or approximately 45.1% of our outstanding shares, including 900,000 shares purchased in a common stock rights offering we completed in September 2015. Jeffrey E. Eberwein, ATRM’s Chairman of the Board, is the manager of LSVGP, the general partner of LSVI and LSV Co-Invest I, and the sole member of LSVM, the investment manager of LSVI.15.15. STOCK INCENTIVE PLAN AND SHARE-BASED COMPENSATION $67,000$48.0 thousand and $0.1 million for the three and six months ended March 31,June 30, 2016 and is included in the caption “Selling, general and administrative expenses” in our Condensed Consolidated Statement of Operations.13$17,000$16.9 thousand and $33.8 thousand for the three and six months ended March 31,June 30, 2017, and is included in the caption “Selling, general and administrative expenses” in our Condensed Consolidated Statement of Operations. The remaining compensation expense of approximately $37,000 has been$20.1 thousand will be recognized on a straight-line basis through October 19, 2017.threesix months ended March 31,June 30, 2017: Number
of Shares Weighted Average Exercise Price Weighted Average Remaining Contract Term Aggregate
Intrinsic
Value (in thousands) Outstanding, January 1, 2017 27,500 $ 6.88 Options expired during the three months ended March 31, 2017 (16,200 ) $ 7.75 Outstanding, March 31, 2017 11,300 $ 5.64 0.62 years $ 0 Exercisable, March 31, 2017 11,300 $ 5.64 0.62 years $ 0 Weighted Average Exercise Price Weighted Average Remaining Contract Term Outstanding, January 1, 2017 27,500 $ 6.88 Options expired (16,200 ) $ 7.75 Outstanding, June 30, 2017 11,300 $ 5.64 0.37 years $ — Exercisable, June 30, 2017 11,300 $ 5.64 0.37 years $ — March 31,June 30, 2017, are nonqualified options all of which expired unexercisedexpire at varying dates through November 2017. The aggregate intrinsic values in the table above are zero because the option exercise prices for all outstanding options exceeded ATRM’s closing stock price onMarch 31, June 30, 2017.16.16. INCOME TAXES March 31,June 30, 2017, we haverecorded a deferred tax liability of $20,700$24.6 thousand for the taxable differences related to our indefinite-lived intangible assets when calculating our valuation allowance due to the unpredictability of the reversal of these differences.1417. LEGAL PROCEEDINGS 17.LEGAL PROCEEDINGS and in turn UTHE, and directed that business to themselves and a secret company they had formed, which forced UTHE to sell its subsidiary shares to the former employee defendants at a distressed price. The complaint alleged that ATRM and the Sales Manager participated in the conspiracy carried out by the former employee defendants. In December 1993, the case was dismissed as to the former employee defendants because of a contract requiring UTHE and them to arbitrate their claims in Singapore. The district court stayed the case against ATRM and the Sales Manager pending the resolution of arbitration in Singapore involving UTHE and three of the former employee defendants, but not involving ATRM or the Sales Manager. ATRM received notice in March 2012 that awards were made in the Singapore arbitration against one or more of the former employee defendants who were parties to the arbitration. In June 2012, UTHE filed a motion to reopen the case against ATRM and the Sales Manager and to lift the stay, which the court granted. On September 13, 2013, the court entered final judgment dismissing all remaining claims UTHE asserted against ATRM in the litigation. On September 23, 2013, UTHE appealed the district court judgment to the United States Court of Appeal for the Ninth Circuit only as to the dismissal of UTHE’s RICO claim. The appeal was argued in a court hearing on November 19, 2015. On December 11, 2015, the court of appeal issued an order reversing the district court’s grant of summary judgment of UTHE’s RICO claim and remanded the case back to the district court for further proceedings. On April 20, 2016, the district court stayed the case pending a decision in the Supreme Court caseRJR Nabisco, Inc. v. The European Community, No. 15-138. A decision in theRJR Nabisco case was issued on June 20, 2016. On July 14, 2016, ATRM filed a motion for summary judgment in the district court seeking dismissal in light of theRJR Nabiscodecision. sole remaining RICO claim. On August 26, 2016, the district court granted ATRM’s motion for summary judgment and dismissed the case. On September 19, 2016, UTHE filed its appeal to the Ninth Circuit of the district court’s grant of summary judgment and dismissal. The parties completed the appellate briefing on February 13, 2017. Oral arguments were held by the appellate court on February 14, 2018. The court is expected to renderOn July 2, 2018, the Ninth District Court of Appeals rendered its decision onaffirming the District Court’s opinion and upheld the dismissal of the case against ATRM. UTHE did not appeal within 90 days. We continuethat decision to believe that the claims asserted inSupreme Court of the United States by the October 1, 2018 deadline. As such, this matter do not have any meritNinth Circuit affirmance of the case dismissal stands, and intend to vigorously defend the action.etet. al.The Hartford Superior Court has set a trial date for February 2018, but that date will likely be continued because all of the parties have participated in mediation and settlement negotiations are ongoing, so no depositions have yet been conducted. On December 18, 2017, KBS was notified that a global settlement had been reached between all defendants and the plaintiff. Under the settlement, KBS’sthe Company’s insurance carriers have agreed to pay $300,000 to the plaintiff.1518. OPERATING SEGMENTS 18.OPERATING SEGMENTSMarch 31,June 30, 2017 (in thousands): Modular Home Manufacturing Structural Wall Panel Manufacturing Total Segment net sales $ 5,608 $ 3,796 $ 9,404 Depreciation and amortization expense 123 156 279 Interest expense, net 85 129 214 Segment net income (loss) 35 (279 ) (244 ) Total segment assets 7,867 8,463 16,330 Expenditures for segment assets 19 23 42 Three Months Ended June 30, 2017 Modular Home Manufacturing Structural Wall Panel Manufacturing Total Segment net sales $ 6,282 $ 4,541 $ 10,823 Depreciation and amortization expense 123 144 267 Interest expense, net 93 384 477 Segment net loss (340 ) (3,463 ) (3,803 ) Total segment assets 7,884 4,934 12,818 Expenditures for segment assets 10 54 64 Six Months Ended June 30, 2017 Modular Home Manufacturing Structural Wall Panel Manufacturing Total Segment net sales $ 11,890 $ 8,337 $ 20,227 Depreciation and amortization expense 246 301 547 Interest expense, net 178 512 690 Segment net income (loss) (305 ) (3,742 ) (4,047 ) Total segment assets 7,884 4,934 12,818 Expenditures for segment assets 28 77 105 Revenues Total net sales for reportable segments $ 9,404 Other net sales — Consolidated net sales $ 9,404 Net loss Total net loss for reportable segments $ 244 Other net sales — Unallocated amounts: Other corporate expenses 477 Interest expense 349 Change in fair value of contingent earn-out receivable (213 ) Provision for income taxes 4 Consolidated net loss $ 861 Assets Total assets for reportable segments $ 16,330 Other assets 1,524 Consolidated assets $ 17,854 16Other Significant Adjustments Segment Totals Adjustments Consolidated Totals Depreciation and amortization expense $ 280 $ — $ 280 Interest expense $ 214 $ 349 $ 563 Revenues Three Months Ended
June 30, 2017 Six Months Ended
June 30, 2017Total net sales for reportable segments $ 10,823 $ 20,227 Other net sales — — Consolidated net sales $ 10,823 $ 20,227 Net loss Total net loss for reportable segments $ (3,803 ) $ (4,047 ) Unallocated amounts: Other corporate expenses (539 ) (1,016 ) Interest expense (369 ) (718 ) Change in fair value of contingent earn-out receivable 141 354 Provision for income taxes (4 ) (8 ) Consolidated net loss $ (4,574 ) $ (5,435 ) Assets June 30, 2017 Total assets for reportable segments $ 12,818 Other assets 1,105 Consolidated assets $ 13,923 Other Significant Adjustments Segment Totals Adjustments Consolidated Totals Depreciation and amortization expense $ 547 $ — $ 547 Interest expense $ 691 $ 718 $ 1,409 19.SUBSEQUENT EVENTSEBGL Line of CreditOn June 30, 2017, EBGL entered into a Revolving Credit Loan Agreement (the “Premier Loan Agreement”) with Premier Bank (“Premier”) providing EBGL with a working capital line of credit of up to $3.0 million. The Premier Loan Agreement replaced the EBGL Loan Agreement with Gerber Finance, which was terminated on the same date. Availability under the Premier Loan Agreement is based on a formula tied to EBGL’s eligible accounts receivable, inventory and equipment, and borrowings bear interest at the prime rate plus 1.50%, with interest payable monthly and the outstanding principal balance payable upon expiration of the term of the Premier Loan Agreement. The Premier Loan Agreement also provides for certain fees payable to Premier during its term. The initial term of the Premier Loan Agreement expires on June 30, 2018, but may be extended from time to time at our request, subject to approval by Premier. EBGL’s obligations under the Premier Loan Agreement are secured by all of their inventory, equipment, accounts and other intangibles, fixtures and all proceeds of the foregoing.The Premier Loan Agreement contains representations, warranties, affirmative and negative covenants, events of default and other provisions customary for financings of this type. The occurrence of any event of default under the Premier Loan Agreement may result in the obligations of EBGL becoming immediately due and payable.As a condition to closing the Premier Loan Agreement, each of the Company and Jeffrey E. Eberwein, a director of the Company, executed a guaranty, dated as of the same date, in favor of Premier, absolutely and unconditionally guaranteeing all of EBGL’s obligations under the Premier Loan Agreement.In connection with EBGL’s entry into the Premier Loan Agreement, and on the same date, EBGL repaid in full all of their obligations under and terminated the EBGL Loan Agreement. Pursuant to the termination of the EBGL Loan Agreement, all obligations of the Company in favor of Gerber Finance in connection with the EBGL Loan Agreement were extinguished.Amended Asset Purchase AgreementOn June 30, 2017, the Company and the EBGL Sellers agreed to amend that certain Asset Purchase Agreement, dated as of October 4, 2016 (as amended, the “EBGL Asset Purchase Agreement”). Under the terms of this amendment, EBGL’s obligations to pay certain deferred payments to the EBGL Sellers ($0.75 million) and the contingent earn-out payment ($1.0 million) were replaced with set monthly payments totaling $1.8 million, payable with an initial $0.2 million payment made on or about July 3, 2017, and 16 monthly installments of $0.1 million beginning August 1, 2017, and ending on November 1, 2018.1719. SUBSEQUENT EVENTS On June 30, 2017, the parties to the KBS Loan Agreement entered into a Third Agreement of Amendment to Loan and Security Agreement providing for increased availability under the KBS Loan Agreement to KBS under certain circumstances, and certain other changes, as well as a waiver of certain covenants.On June 30, 2017, the Company entered into a Second Agreement of Amendment to Loan and Security Agreement to amend the Acquisition Loan Agreement to waive certain covenants and to make certain amendments in connection with the termination of the EBGL Loan Agreement and refinancing under the Premier Loan Agreement.$500,000$0.5 million of KBS’s obligations under the KBS Loan Agreement arising from certain permitted overadvances. On December 22, 2017, the Company also entered into a Fourth Agreement of Amendment to Loan and Security Agreement to amend the terms of the Acquisition Loan Agreement to reflect certain changes made to the KBS Loan Agreement.Cumulative Preferred Stock, par value $0.001 per share, (the “Series B Stock”), of the Company in exchange for the return and cancellation of all of the unsecured promissory notes of the Company (the “Notes”) held by LSVI and LSV Co-Invest I (the “Exchange”). The Notes had an aggregate of $13.3 million unpaid principal and accrued and unpaid interest outstanding at the time of their cancellation. The material termsStatement of Designation authorizes the issuance of 160,000 shares of Series B Stock, having a par value of $0.001 per share and a stated value of $100.00 per share (subject to adjustment). Holders of Series B Stock are describedentitled to receive, when, as and if declared by the Board, cumulative preferential dividends, payable quarterly in cash at a rate per annum equal to 10.0% multiplied by the Company’s Current Reportstated value; provided that the Company may pay dividends in-kind through the issuance of additional shares of Series B Stock at a rate per annum equal to 12.0% multiplied by the stated value, at the sole option of the Company, for up to four quarterly dividend periods in any consecutive 36-month period (determined on Form 8-K filed witha rolling basis). In the SEC on October 4, 2017.Agreement and the Series B Stock were negotiated and approved by a special committee of the Board consisting solely of disinterested and independent directors.18On in-kind, by the issuance of additional shares of Series B Stock, in accordance with the terms of the Series B Stock (as described below). Under the Loan Agreements, the Company is not permitted to pay cash dividends on the Series B Stock in cash without the consent of Gerber Finance. Additionally, in connection with the Exchange, the subordination agreements by and among the Company, LSVI, LSV Co-Invest I and Gerber Finance, providing for the subordination of the Company’s obligations under the Notes to its obligations to Gerber Finance, were terminated.(i) increase the number of authorized shares of the Company’s capital stock from 3,200,000 to 10,000,000, and make corresponding changes to the number of authorized shares of the Company’s common stock and preferred stock; (ii) effect a 4-for-1 forward stock split of the Series B Stock; and (iii) effect an extension to December 5, 2020 of the provisions of the Existing Charter designed to protect the tax benefits of the Company’s net operating loss carryforwards by generally restricting any direct or indirect transfers of the Company’s common stock that increase the direct or indirect ownership of the Company’s common stock by any Person (as defined in the Existing Charter) from less than 4.99% to 4.99% or more of the Company’s common stock, or increase the percentage of the Company’s common stock owned directly or indirectly by a Person owning or deemed to own 4.99% or more of the Company’s common stock (the “Extended Protective Amendment”). Note SaleNotes Sales to LSV Co-Invest I19EdgeBuilder Wall Panels, Inc. and Glenbrook Lumber & Supply, Inc. (collectively the “EBGL Sellers”)EBGL Sellers amended the EBGL Asset Purchase Agreement, replacing EBGL’s obligations to pay certain deferred payments to the EBGL Sellers ($0.75 million) and the contingent earn-out payment ($1.0 million) with set monthly payments totaling $1.8 million, payable with an initial $200,000$0.2 million payment made on or about July 3, 2017 and 16 monthly installments beginning August 1, 2017 and ending on November 1, 2018.20materialStatement of Designation authorizes the issuance of 160,000 shares of Series B Stock, having a par value of $0.001 per share and a stated value of $100.00 per share (subject to adjustment). Holders of Series B Stock are entitled to receive, when, as and if declared by the Board, cumulative preferential dividends, payable quarterly in cash at a rate per annumare(as described below). Under the Loan Agreements, the Company is not permitted to pay dividends on the Series B Stock in cash without the consent of Gerber Finance. Additionally, in connection with the Exchange, the subordination agreements by and among the Company, LSVI, LSV Co-Invest I and Gerber Finance, providing for the subordination of the Company’s Current Reportobligations under the Notes to its obligations to Gerber Finance, were terminated.Form 8-KDecember 4, 2017, shareholders approved amendments to its Existing Charter to:(i) increase the number of authorized shares of the Company’s capital stock from 3,200,000 to 10,000,000, and make corresponding changes to the number of authorized shares of the Company’s common stock and preferred stock; (ii) effect a 4-for-1 forward stock split of the Series B Stock; and (iii) effect an extension to December 5, 2020 of the provisions of the Existing Charter designed to protect the tax benefits of the Company’s net operating loss carryforwards by generally restricting any direct or indirect transfers of the Company’s common stock that increase the direct or indirect ownership of the Company’s common stock by any Person (as defined in the Existing Charter) from less than 4.99% to 4.99% or more of the Company���s common stock, or increase the percentage of the Company’s common stock owned directly or indirectly by a Person owning or deemed to own 4.99% or more of the Company’s common stock (the “Extended Protective Amendment”). SEC on October 4, 2017.an unsecured promissory notethe LSV Co-Invest I January Note in the principal amount of $0.5 million in exchange for the same amount in cash (the “LSV Co-Invest I Note”).cash. The LSV Co-Invest I January Note was issued pursuant to a securities purchase agreement by and between the Company and LSV Co-Invest I dated as of the same date. The LSV Co-Invest I January Note bears interest at 10.0% per annum, with interest payable semiannually; provided, however, LSV Co-Invest I may elect to receive any interest as PIK Interest at an annual rate of 12.0%, so long as any such interest payment is made either (x) entirely in PIK Interest or (y) 50% cash and 50% PIK Interest. Any unpaid principal and interest under the LSV Co-Invest I January Note is due on January 12, 2020. The Company may prepay the LSV Co-Invest I January Note at any time after a specified amount of advance notice to LSV Co-Invest I (subject to certain restrictions under the Company’s existing loan agreements). The LSV Co-Invest I January Note provides for customary events of default, the occurrence of any of which may result in the principal and unpaid interest then outstanding becoming immediately due and payable.threesix months ended March 31,June 30, 2017 was approximately $0.9$5.4 million as compared to net loss of approximately $1.7$2.8 million for the same period in 2016. This improvement in operating results from the prior year was primarily due to the acquisition of EBGL’s operations completed in October 2016, which added an overall gross margin of $0.4 million, and an improvement in overall gross margins at KBS due to operational improvements as discussed below.Net Sales. Net sales were approximately $9.4 million forFor the three months ended March 31,June 30, 2017, net loss was approximately $4.6 million as compared withto net loss of approximately $5.1$1.1 million for the same period in 2016; an increase2016. The change from the prior year periods was primarily due to a one-time non-cash write-off the goodwill of approximately $4.3 million. The$3.0 million in June 2017, without a similar write-off in the 2016 periods.2016,2016. The EBGL operations added approximately $3.8$8.3 million inof net sales for the threesix months ended March 31,June 30, 2017. The remaining increase in net sales of $0.5approximately $0.9 million is related to the growth of net sales for KBS. KBS’s net revenuessales for the threesix months ended March 31,June 30, 2017 were approximately $5.6$11.9 million as compared to approximately $5.1$11.0 million for the threesix months ended March 31,June 30, 2016. KBS’s growth in net sales was driven primarily by the sale of single-family homes, which increased from approximately $3.5$8.6 million for the threesix months ended March 31,June 30, 2016 to approximately $4.6$10.2 million for the threesix months ended March 31,June 30, 2017. This $1.1The $1.6 million increase in the sale of single-family homes was partially offset by a decrease in revenue related to commercial projects of approximately $0.6$0.7 million from approximately $1.6$2.4 million for the threesix months ended March 31,June 30, 2016 to approximately $1.0$1.7 million for the threesix months ended March 31,June 30, 2017. The decrease in commercial project revenue reflects KBS’s previously announced strategic plan to focus on its residential home business, while continuing to be selective in the major commercial projects it selects. Net revenue from the sales of single-family homes represented 82%86% and 69%77% of total KBS net revenuesales for the three-monthsix-month periods ended March 31,June 30, 2017 and 2016, respectively. Conversely, net revenue from commercial projects represented 18%approximately 14% and 31% of total KBS net revenue23% for the three-monthsix-month periods ended March 31,June 30, 2017 and 2016, respectively. Additionally, the increase in sales of single-family homes at KBS for the three-month periodsix months ended March 31,June 30, 2017, as compared to the three-month periodsix months ended March 31,June 30, 2016, included an improved sales mix of its residential single-family homes, which contributed to the increase in overall gross margins.margins for KBS.21Sales.Sales. Cost of sales amounted to approximately $8.2$18.0 million for the threesix months ended March 31,June 30, 2017, compared withto approximately $5.4$10.8 million for the same period in 2016. This increase of approximately $2.8$7.2 million was primarily due to the addition the addition of the EBGL operations, which were acquired in October 2016, which added approximately $3.4$7.4 million in cost of sales for the threesix months ended March 31,June 30, 2017. This increase due to the EBGL Acquisition was partially offset by thea decrease of approximately $0.6$0.2 million in the cost of sales for KBS. Despite the growth in KBS’s net revenues overin the prior first quarter,same period of 2016, KBS’s costscost of sales decreased. This decrease in cost of sales for KBS as compared to the prior year reflects the results of KBS’s strategic initiatives including more selectivity in the commercial projects the companyCompany undertakes, improved project pricing (including implementing(implementing regular price increases to its customers) and ongoing cost control and efficiency measures, as disclosed in Note 2 to the Condensed Consolidated Financial Statements, resulting in lower direct and overhead costs. Additionally, due to the strong backlog as of December 31, 2016, going into the first quarter,year, KBS was able to operate its South Paris factory at or near full capacity through the entire first quarter ofsix month period ended June 30, 2017 as compared to the first quarterhalf of 2016 especially the first quarter, where the factory only operated at only approximately half capacity throughout the quartercapacity due to a seasonal weakness in sales and limited backlog.backlog at the end of 2015. The strategic initiatives at KBS, coupled with an improved sales mix and high capacity utilization rates, have resulted in higher gross margins for the first threesix months of 2017 as compared to the same period in 2016.Administrative.Administrative. Selling, general and administrative (“SG&A”) expense was approximately $1.7$3.6 million and $1.0$2.2 million for the threesix months ended March 31,June 30, 2017 and 2016, respectively. The increase in SG&A expense of $0.7approximately $1.4 million is primarily attributable to the addition of the EBGL operations, which were acquired in October 2016, which added approximately $0.5$1.2 million of selling, general and administrativeSG&A expenses (including $0.1approximately $0.3 million of amortization expense related to the acquired intangible assets) to the Company’s operating results. In addition, SG&A increased due to higher legal fees incurred related to post-acquisition related matters with respect to the EBGL Acquisition, as well as higher costs for KBS related to commissions and bank servicesservice charges incurred in 2017 notwhich were incurred in the same periodto a lesser extent in 2016. Commissions at KBS relate to the addition of outside sales representatives in 2016 andThe bank service charges related to the KBS line of credit with Gerber Finance added in February 2016.$0.3$0.7 million from approximately $0.3$0.7 million for the threesix months ended March 31,June 30, 2016 to approximately $0.6$1.4 million for the threesix months ended March 31,June 30, 2017. ThisThe increase is attributable to the increase in overall debt for the Companycompany from approximately $12.8$13.1 million at March 31,June 30, 2016 to approximately $20.5$21.7 million at March 31,June 30, 2017. See Notes 13 and 14 to the Condensed Consolidated Financial Statements for the periodsix months ended March 31,June 30, 2017, for further details onof the Company’s outstanding debt. In addition to the overall increase in outstanding debt, the increase in interest expense is also attributable to the higher interest rate related to the Notes held by LSVI and LSV Co-Invest I, which were accrued at the PIK Interest rate of 12% during the three months ended March 31, 2017, versus the cash interest rate of 10% for the same period in 2016. The Company elected the PIK Interest option for the three-month period ended March 31, 2017.Taxes.Taxes. Since 2009, we have maintained a valuation allowance to fully reserve our deferred tax assets. We expect to continue to maintain a full valuation allowance until we determine that we can sustain a level of profitability that demonstrates our ability to realize these assets. To the extent we determine that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed. Such a reversal would be recorded as an income tax benefit and, for some portion related to deductions for stock option exercises, a decrease in shareholders’ deficit. We recorded income tax expense of $4,000$8,000 and $5,000 for the threesix months ended March 31,June 30, 2017 and 2016, respectively, which included deferred income tax expense associated with taxable differences related to our indefinite-lived intangible assets which are omitted from the calculation of our valuation allowance due to the unpredictability of the reversal of these differences.22including restricted cash, decreased by approximately $0.6$0.7 million in the threesix months ended March 31,June 30, 2017.threesix months ended March 31,June 30, 2017, cash flows used in operating activities were approximately $1.2$1.6 million, consisting primarily of changes in working capital of approximately $1.1 million and our net loss of approximately $0.9$5.4 million and the non-cash net changes in the fair value of our contingent earnouts of approximately $0.2 million,which were partially offset by (i) the non-cash goodwill impairment charge of approximately $3.0 million, (ii) non-cash PIK Interest of approximately $0.6 million, and (iii) approximately $0.4$0.9 million of non-cash depreciation amortization and share-based compensation expense.expense, as well as $0.4 million for the non-cash changes in fair value and changes in net working capital of approximately $0.3 million. Working capital changes for the three-month periodsix months ended March 31,June 30, 2017 netted to approximately $1.1$0.3 million including anand included a $1.3 million increase of approximately $1.8 million in accounts receivable resulting from the increased sales activity anddue to the timing differencesof customer payments and increased production activity in billingsthe quarter ended June 30, 2017, offset by an increase in accounts payable of $0.8 million due to customers and payments received from customers,higher production levels and a decrease of approximately $0.5 millionnet increase in other accrued liabilities, primarily accrued interest. These were partially offset by increasesworking capital of approximately $0.9 million in trade accounts payable and $0.2 million in billings in excess of costs and estimated profit.threesix months ended March 31,June 30, 2016, cash flows used in operating activities was approximately $1.9$2.3 million, consisting primarily of our net loss of approximately $1.7$2.8 million, and approximately $0.4 million in working capital changes, partially offset by approximately $0.2$0.3 million ofin non-cash depreciation, amortization and share-based compensation expense. Working capital changes using cash included a $0.3 million increase in costsexpense and estimated profit in excess of billings and decreases of approximately $1.1 million, $0.2 million, and $0.7 million in accounts payable, billings in excess of costs and estimated profit, and other accrued liabilities, respectively, partially offset by decreases of approximately $1.5 million and $0.3 million in accounts receivable and inventories, respectively, and a $0.2 million increase in accrued compensation. The decreases in accounts receivable, inventories and accounts payable were primarily attributable to the lower sales and production activity in the first quarter of fiscal year 2016 compared to the fourth quarter of fiscal year 2015. The increase in costs and estimated profit in excess of billings resulted primarily from an increase in work in process related to projects scheduled for delivery in the second quarter of fiscal year 2016. The decrease in billings in excess of costs and estimated profit reflected primarily the delivery of modules for two multi-tenant buildings in the first quarter of fiscal year 2016. The decrease in other accrued liabilities included the settlement of approximately $0.3 million in accrued sales rebates and decreases of approximately $0.3 million and $0.1 million in accrued interest expense and accrued severance costs, respectively.CashNet cash flows fromgenerated by investing activities were insignificantapproximately $0.2 million for the three-monthsix-month periods ending March 31,ended June 30, 2017 and 2016. Net cash flows generated by investing activities for the six months ended June 30, 2017 included $0.23 million of proceeds from earn-out consideration, partially offset by $0.07 million net purchases of property and equipment. During the six months ended June 30, 2016, amounting to less than $0.1 million.net cash flows generated by investing activities included $0.14 million proceeds from earn-out consideration and $0.06 million net sales of equipment.threesix months ended March 31,June 30, 2017, cash flows generated by financing activities was approximately $0.6$0.8 million, which included $0.5 million proceeds from the issuance of the promissory note to LSV Co-Invest I on March 31, 2017 and approximately $0.7$1.3 million of net advances under the revolving linesKBS Loan Agreement and the EBGL Loan Agreement, $0.6 million of credit for KBS and EBGL,proceeds from the issuance of long-term debt, partially offset by the approximately $0.5$1.0 million in payments onto reduce principal balances of our long-term debt including a scheduled payment of $0.25 million to the EBGL Sellers and three scheduled payments totaling $0.3 million to the primary seller of KBS.threesix months ended March 31,June 30, 2016, cash flows generated by financing activities was approximately $1.5$1.8 million, which included approximately $2.9consisted primarily of $3.5 million of net advances under the KBS Loan Agreement, partially offset by paymentsprincipal repayments of approximately $0.2 million for financing costs under this line of credit, and approximately $1.3 million to reduce principal balances of our long-term debt.
$1.6 million.23quarterthree and six months ended March 31,June 30, 2017. We have incurred significant operating losses in recent years and, as of March 31,June 30, 2017, we had an accumulated deficit of approximately $81$85.6 million. Working capital has remained negative over the past several years. Cash used in operating activities, while improved as compared to the quartersix months ended March 31,June 30, 2016, remains negative for the quartersix months ended March 31,June 30, 2017. This has required us to generate funds from investing and financing activities. At March 31,June 30, 2017, we had outstanding debt of approximately $20.5$21.7 million.March 31,June 30, 2017, we had outstanding debt totaling approximately $20.5$21.7 million. Our debt includedprimarily included: (i) $2.3$3.3 million principal outstanding on KBS’s $4.0 million revolving credit facility under the KBSa loan and security agreement with Gerber Finance Inc. (“Gerber Finance”) (the “KBS Loan Agreement, $1.8Agreement”) and $3.0 million principal (ii) $1.6 million principal outstanding on EBGL’s $3.0 million revolving credit facility under a revolving credit loan agreement with Premier Bank (the “Premier Loan Agreement”), which became effective on June 30, 2017 and replaced the EBGL Loan Agreement andprior $3.0 million principal outstandingrevolving credit facility under the Acquisitiona loan and security agreement with Gerber Finance (the “EBGL Loan Agreement, (ii)Agreement”); (iii) $4.5 million principal amount of Notesunsecured promissory notes issued to LSVILone Star Value Investors, LP (“LSVI”) and $7.6 million principal amount of Notesunsecured promissory notes issued to Lone Star Value Co-Invest I, LP (“LSV Co-Invest I,I”), with interest payable semiannually and any unpaid principal and interest is due on April 1, 2019,2019; and (iii) $0.4(iv) $0.1 million principal amount outstanding under an unsecured promissory note issued to the primary sellers of KBS, payable in monthly installments of $100,000, inclusive of interest, through July 1, 2017. We also hadhave obligations to make $0.75$1.4 million in deferred cash payments to the sellers of EBGL, payable in monthly quarterly installments of $250,000,$100,000, inclusive of interest, through OctoberNovember 1, 2017. Since March 31, 2017, we have made the following changes to the Company’s outstanding debt:●On June 30, 2017, the EBGL Loan Agreement was repaid in full in conjunction with EBGL entering into a new revolving credit agreement with Premier Bank, which refinanced the amounts outstanding at that time under the EBGL Loan Agreement;●On September 29, 2017, the promissory notes issued to LSVI and LSV Co-Invest I which were outstanding as of March 31, 2017, along with accrued interest through September 29, 2017, were exchanged for shares of the Company’s Series B Cumulative Preferred Stock;●The remaining $0.4 million principal amount outstanding on the unsecured promissory note issued to the primary sellers of KBS was paid in full, as scheduled, with the final payment made in July 2017;●In June 2017, the $0.75 million deferred cash payments due to the sellers of EBGL, along with the $1.0 million contingent earnout payable, were replaced with set monthly payments totaling $1.8 million payable with an initial $0.2 million payment on or about July 3, 2017, and 16 monthly installments of $0.1 million beginning August 1, 2017, and ending on November 1, 2018; and●In January 2018, the Company issued a new, unsecured promissory note in the principal amount of $0.5 million to LSV Co-Invest I to provide for additional working capital for the Company.our Chairman of the Company’s Board of Directors (the “Board”), is the manager of LSVGP,Lone Star Value Investors GP, LLC (“LSVGP”), the general partner of LSVI and LSV Co-Invest I, and the sole member of LSVM, the investment manager of LSVI.In addition, continued operating losses could further trigger violations of covenants under our debt agreements, resulting in accelerated payment of these loans. 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 this fiscal year.During 2015, 2016, and into 2017, we implemented several strategic initiatives, effected certain actions and continued to consider additional actions to improve the Company’s overall profitability and increase cash flows, including:●KBS’s strategic shift away from large commercial projects with significant site work to focus on its core competency of manufacturing modular buildings;●KBS’s efforts to improve operating efficiencies, including reconfiguring the South Paris factory to increase production, investments in automated equipment to reduce labor costs, implementing lean manufacturing techniques, and elimination of duplicate overhead costs through the shut-down of the Waterford factory;●Reduction in KBS workforce including manufacturing, sales, engineering and front-office staff;●KBS increased pricing on its base ranch model in 2017, and in November 2017, instituted a 6% lumber surcharge on all new orders to help offset the significant rise in lumber and other raw materials costs;●KBS has implemented a new dynamic pricing model for 2018, which is designed to determine its bid price quoted to customers using the most current cost information;●KBS is exploring opportunities to monetize the Waterford facility, including a potential sale or lease to a third party;●In July 2017, KBS made the final payment due to the primary seller of KBS, freeing up $100,000 per month of cash flows to be used for operations;●In October 2016, the Company acquired the EBGL businesses, which we believe that, after a transitional period, will generate net income and positive cash flows for the Company;●In 2017, we instituted a lumber hedging program for EBGL to assist in preserving existing margins against the potential large fluctuations in lumber raw material prices;24●In August 2016, we amended certain of our debt agreements to allow the Company to pay PIK Interest on approximately $11 million of our debt, reducing strain on current cash flows;●In June 2017, we refinanced EBGL’s revolving credit facility and amended the terms of our agreement with the EBGL Sellers providing for deferred payments to obtain more favorable lending and payment terms and reduce total fees paid under these agreements;●In September 2017, we converted $13.3 million of the Company’s outstanding debt, including accrued interest, to preferred stock;●In January 2018, the Company issued an unsecured promissory note in the principal amount of $0.5 million to LSV Co-Invest I to provide additional working capital for the Company; and●We continue to look for opportunities to refinance our remaining debt on more favorable terms. we cannot predict, with certainty, the outcome of any individual action to generate liquidity, including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned, we believe that through these actions taken as a whole, and management’s continued efforts to improve operating results and find additional liquidity resources, we can satisfy our estimated liquidity needs for the next twelve months.In addition to the above actions, although not a binding commitment, LSVM has advised us of its present intention to continue to financially support the Company in the event that additional financing is required. FromIn 2014, through2015, 2016, 2017 and again in 2018,LSVM has provided financial support in the form of financing through various debt agreements.agreements disclosed in Note 14. Based on LSVM’s historical support of the Company,previous commitments, management believes that additional financing may be provided by LSVM or its affiliates, if necessary, in the future.Our historical operating results indicate substantial doubt exists In addition, it should be noted that LSVM is a related party to the Company’s ability to continueDigirad, with whom ATRM has entered into a LOI, as a going concern. We believe that the actions discussed above have either already occurred or are probable of occurring, and mitigate the substantial doubt raised by our historical operating results, as well as satisfy our estimated liquidity needs for the twelve months from the issuance of the consolidated financial statements.Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable.25March 31,June 30, 2017, to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure.are in the process of implementing improvements in internal processes, procedures and controls and establishing regular reporting and routine management oversight. EBGL is in the process of upgrading itsinstalled a new upgraded financial management information system, which is expected to be fully operational by the end ofwas completed in September 2017. The upgrade of the old system, which was over 20 years old, will significantlyis expected to improve EBGL’sEBGL's financial reporting capabilities and provide enhanced controls.state,stage, so we expect it will take significant additional time to fully develop and implement an adequate system of internal controls. We will continue to work to improve such processes, procedures and controls, and will disclose in future periods the progress we have made in our efforts to remediate these material weaknesses.26 and in turn UTHE, and directed that business to themselves and a secret company they had formed, which forced UTHE to sell its subsidiary shares to the former employee defendants at a distressed price. The complaint alleged that ATRM and the Sales Manager participated in the conspiracy carried out by the former employee defendants. In December 1993, the case was dismissed as to the former employee defendants because of a contract requiring UTHE and them to arbitrate their claims in Singapore. The district court stayed the case against ATRM and the Sales Manager pending the resolution of arbitration in Singapore involving UTHE and three of the former employee defendants, but not involving ATRM or the Sales Manager. ATRM received notice in March 2012 that awards were made in the Singapore arbitration against one or more of the former employee defendants who were parties to the arbitration. In June 2012, UTHE filed a motion to reopen the case against ATRM and the Sales Manager and to lift the stay, which the court granted. On September 13, 2013, the court entered final judgment dismissing all remaining claims UTHE asserted against ATRM in the litigation. On September 23, 2013, UTHE appealed the district court judgment to the United States Court of Appeal for the Ninth Circuit only as to the dismissal of UTHE’s RICO claim. The appeal was argued in a court hearing on November 19, 2015. On December 11, 2015, the court of appeal issued an order reversing the district court’s grant of summary judgment of UTHE’s RICO claim and remanded the case back to the district court for further proceedings. On April 20, 2016, the district court stayed the case pending a decision in the Supreme Court case RJR Nabisco, Inc. v. The European Community, No. 15-138. A decision in the RJR Nabisco case was issued on June 20, 2016. On July 14, 2016, ATRM filed a motion for summary judgment in the district court seeking dismissal in light of the RJR Nabisco decision.sole remaining RICO claim. On August 26, 2016, the district court granted ATRM’s motion for summary judgment and dismissed the case. On September 19, 2016, UTHE filed its appeal to the Ninth Circuit of the district court’s grant of summary judgment and dismissal. The parties completed the appellate briefing on February 13, 2017. Oral arguments were held by the appellate court on February 14, 2018. The court is expected to renderOn July 2, 2018, the Ninth District Court of Appeals rendered its decision onaffirming the District Court’s opinion and upheld the dismissal of the case against ATRM. UTHE did not appeal within 90 days. We continuethat decision to believe that the claims asserted inSupreme Court of the United States by the October 1, 2018 deadline. As such, this matter do not have any meritNinth Circuit affirmance of the case dismissal stands, and intend to vigorously defend the action.etet. al.The court has set a trial date for February 2018, but that date will likely be continued because all of the parties have participated in mediation and settlement negotiations are ongoing, so no depositions have yet been conducted. On December 18, 2017, KBS was notified that a global settlement had been reached between all defendants and the plaintiff. Under the settlement, KBS’sthe Company’s insurance carriers have agreed to pay $300,000 to the plaintiff.
plaintiff in full settlement on KBS’s behalf. KBS paid a $10,000 deductible to its insurance carriers for this claim.27Item 6.Exhibits4.1Promissory Note, dated March 31, 2017, made by ATRM Holdings, Inc. for the benefit of Lone Star Value Co-Invest I, LP.10.1Item 6. Exhibits 2.1 10.1 10.2 10.3 31.1 31.2 32.1 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase 28ATRM HOLDINGS, INC. (Registrant) Date: March 23, 2018April 16, 2019By: /s/ Daniel M. Koch Daniel M. Koch President and Chief Executive Officer (Principal Executive Officer) Date: March 23, 2018April 16, 2019By: /s/ Stephen A. Clark Stephen A. Clark Chief Financial Officer (Principal Financial and Accounting Officer) 29