A123 Systems disclosed substantial doubt on finances

Article by Anita Panait, on May 31, 2012

A123 Systems Inc. disclosed in a filing with the U.S. Securities and Exchange Commission on May 30, 2012, that there was "substantial doubt" on its ability to financially survive as it expects to post deep losses for the next several quarters. The company’s recent disclosure is in sharp contrast with its financial situation in 2009. During that time, the Lithium-ion battery maker received around $249 million from the Obama administration as part of a program to induce battery development. The same year, A123 Systems went public and its shares soared 50 percent on the first day of trading on the Nasdaq.

A123 Systems said in the disclosure that it may take action for cash increase and is exploring "other strategic alternatives." It added that it could go to capital markets for funds. However, the company said that there is no assurance that it will be able to secure such financing on favorable terms. It added that there is also no assurance that it could further cut costs in a way that the company could continue to operate.

The company’s losses is largely attributed to its recall of defective batteries produced at its suburban Detroit plant. A123 discovered the defect in the batteries after a Fisker Karma plug-in hybrid with an A123 battery failed during a test by Consumer Reports magazine. To rectify the defects, A123 has to spend almost $67 million and has to rebuild its inventory. A123 has contracts to produce batteries for the Fisker Karma, the BMW hybrid 3- and 5-Series cars and the Chevy Spark due in 2013.

Topics: a123

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