Is Altair Nanotechnologies (ALTI) in Trouble?
In past articles, we highlighted battery manufacturer Altair Nanotechnologies (NASDAQ:ALTI) and also looked at their product offering and key customers. With the potential for grid storage providing a huge growth opportunity for investors in the coming years, Alti’s business seems appealing, but some recent events highlight possible turmoil inside the company. On December 6, 2013, Bruce Sabacky resigned his position as Chief Technology Officer of the Company but is expected to remain an employee in the near future. Then just last week, the Alti Board of Directors received a letter of resignation effective February 21, 2014, from Richard W. Lee as Chief Executive Officer and Director of the Company. The Company stated that they expect to identify an interim Chief Executive Officer within the next week. This would imply that the Board was not aware of Mr. Lee’s resignation and this announcement was unexpected. Mr. Lee had entered into an employment contract with Alti in August 2012 and it was set to expire next month on March 31, 2014. If Richard Lee was forced out, then why would the company not wait for his employment contract to expire next month and then not renew it? This announcement comes almost six years after Alti’s last CEO, Alan Gotcher, was shown the door for not meeting the expectations of the board.
With Mr. Lee having resigned, a look at the names of the current members of the Board shows that control now is mainly in the hands of Canon Investment Holdings executives:
Recent investments in land by Alti have put the company in a risky financial position. In October 2012, Alti acquired land use rights for 66 acres of commercial land for a fee of around $11.8 million. Then, in May 2013, Alti acquired a second conditional 50-year land use right for 40 acres of industrial land at a price of approximately $8,600,000. This means in the past two years Alti has spent over $20 million for over 100 acres of land. Alti is building a 136,760 square foot production facility and a 130,200 square foot assembly facility on these properties but this space represents only 6% of the total land acquired. Why does Alti need this much land? Also of interest is that Alti has agreed to make fixed asset investments on these land parcels of approximately $266 million, subject to loan guarantees and other incentives from Wu’an, China, over an unspecified period of time up to the 50-year life of the land use right.
In looking at the latest 10Q, it appears that the Company is borrowing from Peter to pay Paul, in some cases with interest rates as high as 12%. Alti has substantial debt coming due in the next 12 months. With losses incurred of $10.1 million for the nine months ended September 30, 2013, and an accumulated deficit of $232.6 million, Alti has around 9 million in working capital remaining. Even though Alti has shown strong revenue growth last year, the company has put themselves in a precarious financial situation and will need to tread lightly to avoid becoming overextended with all the debt they have taken on for land acquisitions, the size of which seems to exceed their needs.
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