Another Solyndra?

[SnakeBoy]

A123's cash burn another black eye for green tech

DETROIT (Reuters) - Once a high-flying green technology company, battery maker A123 Systems Inc on Friday told investors it has about five months of cash left to fund operations, adding to woes for a sector short on results and long on government loans.

The company, which received a $249 million grant from the Obama administration as part of a program to develop advanced lithium-ion batteries, said in documents filed with U.S. regulators that it "expects to have approximately four to five months of cash to support its ongoing operations" based on its recent monthly spending average....

http://money.msn.com/business-news/article.aspx?feed=OBR&date=20120706&id=15303017

Stock is down to 49 cents today. I put a little $ on it hoping for a bounce next week. I'll probably regret it but since their demise is scheduled just in time for the election I figure there's a good chance they get some help soon.

JZr2Pjzg1-8

[jack sommerset]

"if truth be told" Obama. Truth be told Obama was wrong, again. God bless

[Yonivore]

I believe I've read over 80% of green energy companies, receiving government loan guarantees, loans, or grants just happen to be Democrat campaign contributors or Obama cronies.

Of course, it could be that green energy companies, that just happen to be Democrat campaign contributors or Obama cronies, receive 80% of government loan guarantees, loans, or grants.

Seriously, it's really hard to keep up with this administration's scandals...

[ChumpDumper]

lol I've heard

[ElNono]

I believe I've read over 80% of green energy companies, receiving government loan guarantees, loans, or grants just happen to be Democrat campaign contributors or Obama cronies.

You could say the same with Oil & Gas and Republicans (http://www.opensecrets.org/industries/indus.php?ind=E01)...

[ElNono]

BTW, it's more like 50% (http://www.opensecrets.org/industries/indus.php?ind=E1500)... but it's pennies compared to other industries...

[boutons_deux]

lol I've heard

like dubya's habitual "some say ..." :lol

[SnakeBoy]

A123 Systems: An Object Lesson In Toxic Financing

July has been a ghastly month for stockholders of A123 Systems (AONE) who've watched in horror as the stock price collapsed from $1.30 on July 5th to $0.49 at Friday's close. While there was unfavorable news of a director resignation Thursday, all the other news over the last month has been positive, at least at first blush. In my view the market activity was both predictable and directly attributable to recent toxic financing transactions that will have A123 printing stock faster than Ben Bernanke is printing dollars for the foreseeable future. I'd love to be able to tell A123 stockholders their pain is over, but it's not.

Toxic note and warrant financing

On May 11th, A123 announced that it had closed a $50 million offering of convertible notes and warrants. The principal was payable in 26 semi-monthly installments commencing on July 1, 2012 and could, at the company's option, be settled with cash or with shares of A123's common stock valued at the lesser of $1.18 per share, or 82% of the volume weighted average price, or "VWAP," of the common stock for the five trading days immediately preceding a settlement date, but in no event greater than the VWAP of the common stock on the last trading day before the settlement date.

Since the number of shares issuable upon conversion of the notes and exercise of the warrants exceeded the limits of A123's Certificate of Incorporation and the transaction required formal shareholder approval under Nasdaq listing rules, $30 million of the offering proceeds were deposited in a segregated bank account pending:

Stockholder approval of the note and warrant transaction;

Stockholder approval of an increase in the company's authorized shares; and

Effectiveness of a resale registration for the common shares underlying the notes warrants.

The necessary stockholder approvals were received on June 29, 2012 and the resale registration statement was declared effective as of 4:00 p.m. on July 5th. By the time the registration statement was declared effective, the payment terms had been modified slightly to increase the number of installments to 29 and increase the amount payable in each of the first three installments to 1-2/3 the base amount, but the other terms remained unchanged. The segregated funds were promptly released to the company.

The notes are a classic example of "death spiral financing" where payments are made with discounted shares of common stock and the number of shares required for a payment increases as the stock price declines. At an assumed stock price of $1.30 a share, A123 would be able to make a $2 million installment payment by issuing 1,876,173 new shares of common stock. At an assumed stock price of $0.65 a share, it would take 3,752,345 new shares of common stock to make the same $2 million payment. In both cases, the market value of the stock used to make the payment would be about $2.4 million, but only if the note holder who received stock instead of cash sold quickly enough to capture the current market price.

Toxic equity financing

On July 6th A123 announced that it had signed agreements to sell 7,692,308 shares of its common stock, together with warrants to purchase additional shares of common stock, for gross proceeds of $10.0 million. While the press release had the look and feel of an ordinary financing transaction, I was troubled by a sentence that said,

The number of shares of Common Stock issuable upon exercise of the warrants (which have a nominal exercise price) is based on a fixed 18% discount to the volume-weighted average price, or VWAP, of our common stock on specified trading days during two measurement periods over the next three weeks.

Since I was surprised that the offering went off without an obvious discount to the previous day's closing price, I decided to dig a little deeper in an effort to better understand what the "real deal" was.

I found my answers in the SEC registration statement for the equity offering, which included copies of the Prospectus and the associated warrant agreement.

When I read the Prospectus I learned that the "nominal exercise price" of the warrants was $.001 and the structure included an automatic cashless exercise for the warrants. So the investors were effectively buying 7.7 million shares on day one and expecting to receive two additional tranches of "free shares" on the 12th and the 30th of July.

Using the formulas in the Prospectus and warrant agreement, I calculated that 843,628 additional shares would be issued in each tranche if the market price remained stable at $1.30 per share through the exercise dates. By the time I accounted for the warrants, it was clear the original deal would result in the issuance of 9,379,564 shares for gross proceeds of $10 million, or an effective price of $1.07 per share.

In light of A123's recent troubles, I didn't find a discount of 18% from the market price particularly troubling. I was, however, concerned that the terms might create an incentive for aggressive investor behavior, so I made a mental note to re-run the numbers at the end of the month to see how it all worked out.

The outcome was a textbook example of what can happen when the number of shares to be issued in the future is contingent on the future market price of the underlying stock.

During the period between the closing date and the first warrant exercise date, A123's price fell to $0.88. So the VWAP used to calculate the number of free shares issuable to warrantholders was approximately $0.9167 instead of $1.30. When I ran that VWAP value through the calculations specified in the Prospectus and warrant agreement, I got to a net cashless issuance of 2.8 million shares, compared to the 843,628 shares that would have been issued if the price had stayed stable.

By the second warrant exercise date, A123's price had fallen to $0.49. So the VWAP used to calculate the number of free shares issuable to warrant holders was approximately $0.5367 instead of $1.30. When I ran that VWAP value through the calculations specified in the Prospectus and Warrant Agreement, I got to a net cashless issuance of 7.5 million shares, compared to the 843,628 shares that would have been issued if the price had stayed stable.

Between the original issuance and the two warrant tranches, A123 ultimately sold 18 million shares of common stock for gross proceeds of $10 million, or an effective price of $0.56 per share. The market did not respond well to the rapid increase in the number of shares in the hands of willing sellers.

An Excel spreadsheet with the key Prospectus disclosures and important warrant agreement terms, along with market price data and detailed exercise price calculations can be downloaded from my Dropbox.

What it means for stockholders

My first, last and only experience with a price linked conversion formula was in the late 80s when one of my clients sold a preferred stock that was convertible into common stock for 75% of the market price on the conversion date. The investor that provided the financing proved to be far less friendly than management expected. A few months after the offering, the investor grew disenchanted with the way things were going. Instead of selling its preferred stock, it began to aggressively sell common stock into the market, which drove the price down to a very distressed level. It then converted the preferred stock into common stock for 75% of a bargain basement price. By the time the smoke cleared, the investor was my client's biggest stockholder and management was seeking new employment.

I've seen dozens of comparable proposals since then and my clients have wisely rejected them all.

The big problem with price linked conversion ratios is that aggressive selling behavior has no negative consequences for the investor. If aggressive selling drives the price down, the investor simply gets more shares at an even lower price. The outcomes aren't always catastrophic for existing stockholders, but they're invariably painful.

Over the last couple months, A123's financing activities have created two scenarios that are likely to result in a year of market problems. While the worst may be over from the equity offering, it's impossible to tell whether the warrant holders have already sold the 7.5 million shares that will be credited to their accounts on Monday. While the equity offering was a problem because it created two discrete opportunities for aggressive selling, the debt offering created 26 opportunities that will come along every other week for the next year.

I'm usually bullish on stocks that have been beaten down to unreasonably low levels by misfortune and unforeseen events. In A123's case, however, the financing structures the company put in place to help it overcome its business problems have created a toxic supply overhang that virtually guarantees significant future price erosion.

Under the circumstances, I believe A123 is not a suitable investment for anybody but professionals.

[SnakeBoy]

Looks like Obama's green economy vision isn't dead yet. I'm sure they will keep the jobs here.:lol



China's Wanxiang to take control of battery maker A123
Wed Aug 8, 2012 2:59pm BST

(Reuters) - China's largest automotive parts supplier is poised to take control of U.S. battery maker A123 Systems (AONE.O), which received $249 million green-technology grant from the Obama administration in 2009.

China's Wanxiang Group Corp plans to invest up to $450 million in A123 Systems, taking an 80 percent stake in the U.S. company, A123 said on Wednesday...

http://uk.reuters.com/article/2012/08/08/us-a123systems-results-idUKBRE8770S420120808

[ChumpDumper]

Looks like Obama's green economy vision isn't dead yet. I'm sure they will keep the jobs here.:lolWanxiang CEO Weiding Lu said a long-term agreement would enable it to "build on the foundation A123 has established in the U.S. and help expand the company's capabilities both domestically and internationally."


Looks like it for now.

[SnakeBoy]

Yes, I'm sure they will keep the jobs here :lol

[Wild Cobra]

The future, as outlined in Firefly may come true. The Chinese will own the Earth.

[DMX7]

like dubya's habitual "some say ..." :lol

:lol

[SnakeBoy]

A123 Goes Chinese -- Will Washington Learn It Can't Mandate A Market?

http://www.forbes.com/sites/boblutz/2012/08/08/a123-goes-chinese-will-washington-learn-it-cant-mandate-a-market/


But, thanks to a Chinese white knight, all is well. Superior battery chemistry, which was to be a U.S. competitive advantage, is now theirs. But why are we surprised? The Chinese have all the money in the world, and if they ever called the loans they have out to the U.S., the global economy would stop, and our nation would be in foreclosure. The Chinese are intelligent, industrious, products of a superior, disciplined education system. They are, despite the occasional misleading “Commie” rhetoric, old-fashioned capitalists, producers, investors, traders, designers and engineers. They are a lot like we used to be.

[boutons_deux]

Steve Forbes' rag, what a piece of shitwipe

Forbes was/is for/against Repugs mandating ethanol in gasoline and subsidizing BigFarma to produce corn ethanol and soy diesel, why placing stiff tariffs on Brazil's cane ethanol?

Govt isn't trying to mandate a market. The market for solar and wind is doing very well and creating 100Ks jobs, while electric/hybrid cars are gaining acceptance in spite of BigCarbon's obstructionism.

[ElNono]

A123 Goes Chinese -- Will Washington Learn It Can't Mandate A Market?

http://www.forbes.com/sites/boblutz/...date-a-market/


The sad thing about these rants is the lack of specificity... what does "We need to get our act together!" even means when it comes to competing with the Chinese? Companies like Apple have increased "value added exports", but they largely created more jobs in China than in the US.

There's also the fact that if the Chinese are such wise capitalists, then the fact that they're buying up this company is only an indicator that they see a future in it.

[ChumpDumper]

Yeah, I'm trying to see what Forbes is getting at here. We should have floated A123 more money so they would have stayed out of the clutches of the Chinese?

[mavs>spurs]

nah the chinese bubble will pop at any moment

us economy = artificially inflated by virtue of corporate fraud enabled by inadequate/colluding government regulation
china economy = artificially inflated by virtue of top-down government fraud

they both pop in the end

**

also :lol at repugs :cry because green tech companies tend to be owned by democrats, and that sometimes investments in cutting-edge tech companies don't work out :lol
none of that made any sense mr economist

[ChumpDumper]

none of that made any sense mr economistYou should pay attention. He listens to Alex Jones.

[SnakeBoy]

Yeah, I'm trying to see what Forbes is getting at here. We should have floated A123 more money so they would have stayed out of the clutches of the Chinese?

Perhaps, Lutz was the Chairman of GM so I don't think he's opposed to companies receiving govt money. Mostly I think he's just bitching about more wasted money.

[ChumpDumper]

Perhaps, Lutz was the Chairman of GM so I don't think he's opposed to companies receiving govt money. Mostly I think he's just bitching about more wasted money.Well, yeah - it seems the technology was worth pursuing since it ended up being pick up by another private sector party. Kind of confusing all around.

[SnakeBoy]

Well, yeah - it seems the technology was worth pursuing since it ended up being pick up by another private sector party. Kind of confusing all around.

Oh there technology is great that's why I bought 25k shares. I figured somebody would want it, I was expecting GE to takeover since they already had an 8% stake in the company.

What happened with A123 isn't so much about their technology it is really the same as what we heard about Solyndra, the govt gives them a fat check and suddenly it's party time.


Production capacity was set at a level that was way overly optimistic, and the headquarters complex, with its magnificent office suites and marbled lobbies, was something only a company with tons of money would dream of.

They lost over $60 million from recalls due to a misaligned robotic welder. So they just weren't doing a good job running the company but I guess it's easy to party on when your playing with other people's money.

[ChumpDumper]

Isn't it usually other people's money?

[Wild Cobra]

If this country floated me $10 Trillion, I would make something happen.

[SnakeBoy]

I guess Obama didn't like the Wanxiang deal...


Battery maker A123 Systems files for bankruptcy

http://www.reuters.com/article/2012/10/16/us-a123systems-bankruptcy-idUSBRE89F0UA20121016

[boutons_deux]

Romney's Bain Capital Is Sending a Bunch of High-Tech Jobs to China on the Day Before the Election

On the day before an election that's supposed to hinge on jobs, taxes and the middle class, Bain Capital, the company Mitt Romney founded, will close the doors of a factory in Freeport, Illinois, and ship 170 good, high-tech jobs to China.

The employees of Sensata Technologies were forced to train their Chinese replacements, and the American flag that long flew over the factory was reportedly removed while the Chinese engineers were visiting the site. A group of workers have set up camp across from the factory -- calling it “Bainport” -- and some supporters have tried to block the trucks hauling equipment out of the plant. According to Dave Johnson (http://www.huffingtonpost.com/dave-johnson/here-is-what-is-happening_b_1967668.html), there have been several arrests.

Sensata workers have asked to meet with Mitt Romney and hoped to enlist his help keeping their jobs in the United States, but he has refused, instead remaining on the campaign trail where he speaks often about “getting tough” with China.

The most important part of the story is that Sensata Technologies is profitable operating in Illinois. Net income last year was $355 million, up 16 percent from 2010. The company reported total revenues of $1.8 billion in 2011, up almost 19 percent from the year before. According to a company financial statement (http://pressroom.sensata.com/phoenix.zhtml?c=210277&p=irol-pressArticle&ID=1655079&highlight=), “both 2011 net revenue and adjusted net income represent record levels for the company.”

So this has nothing to do with “making hard choices” in the process of turning around a failing business, which is how the Romney campaign describes Bain's corporate raiding. Bain's partners are looking for a modest boost in profits by locating the plant closer to the booming Asian automotive market (Sensata makes high-tech automotive parts). They'll get a small tax break (http://blogs.wsj.com/washwire/2012/10/05/tax-break-for-shipping-jobs-overseas-explained/) for relocating the plant – the one Mitt Romney insisted did not exist during the first debate – and possibly defer taxes on some of the income the company generates.

http://www.alternet.org/election-2012/romneys-bain-capital-sending-bunch-high-tech-jobs-china-day-election?akid=9538.187590.RyL3ts&rd=1&src=newsletter728438&t=8