A123 Systems Warns of Possible Collapse

A123 Systems Inc. tells the U.S. Security and Exchange Commission that the cash drain from fixing defects in its lithium-ion batteries has raised "substantial doubt" about the company's ability to "continue as a going concern."

The Waltham, Mass.-based company makes prismatic cells at a plant in Livonia, Mich., that are assembled into batteries for hybrids and electric vehicles. In March it launched a $52 million recall campaign to replace defective batteries used in Fisker Automotive Inc.'s Karma hybrid sedan.

The company also has battery supply contracts with BMW (3 and 5 Series hybrids) and General Motors (Chevrolet Spark EV).

A123's 8K filing with the SEC on Wednesday says the company is pursuing several options to raise cash to pay for the recall, replace about $15 million in inventory that may be defective and manage a backlog of existing customer orders. Two weeks ago the company announced it had hired an adviser to evaluate the strategic business options.

The company says its first-quarter loss ballooned to $125 million from $54 million a year earlier. Revenue for the period fell 40% to $11 million. The 8K filing predicts "significant" net losses and negative cash flow for several quarters. A123 also discloses it has received roughly $146 million in state and federal grants over the past three years.