Magnis Energy Technologies requested a trading halt today. Despite not disclosing to shareholders, The Australian reports the company has been stripped of control of its iM3NY battery “gigafactory” by Atlas Credit Partners. Chair Frank Poullas as well as directors Claire Bibby and Giles Gunesekera have been removed from the iM3NY board.

C4V partnered with Magnis in 2017 to fund the iM3NY project and have alleged Magnis is insolvent and have refused efforts to recapitalise iM3NY. C4V’s court documents claim iM3NY will run out of cash by January 2024.

Contrast this with the rosy picture Magnis’ management have previously painted to shareholders. Statements from Poullas and others have suggested a possible worth of $4Bn for iM3NY and projected revenues of $1.7Bn by 2027. It appears after all the money Magnis have invested into the construction of the iM3NY plant they’ll have nothing to show for it.

In addition to questions around the company’s solvency, ASIC launched an investigation in July into the company’s market disclosures and conduct, scrutinizing potential false or misleading statements and breaches of continuous disclosure obligations.

It looks like this is the end for MNS.

Concerns and red flags with Magnis Energy Technologies have grown exponentially.

Over promotional management

Zero receipts from customers

Transactions with key management personnel/related party transactions

In addition to the above,

The CEO resigned in June

2 days ago the ASX suspends them for not lodging their Full Year Accounts on time

MNS lodges their Full Year Accounts and they’re not pretty (notes below)

ASX continues to suspend MNS over concerns with the qualified audit opinion

Total income for the year of $390,773;

Comprising interest, foreign exchange gain, sale of fixed assets, the black box “other revenue”; with no note to explain what it consists of, and no real sales

Expenses of $73M

Net loss of $72.7M

Over $150M in debt

Net Assets -$1.2M

Equity -$1.2M

D/E ratio of -125

A negative D/E ratio is considered a high risk of bankruptcy¹

Operational cash outflow of $58.7M

Free cash flow of -$93M

Zero receipts from customers

Less than 2 quarters of funding available

Fit out of iM3NY plant apparently complete with sales delays being attributed to over demand on resources and delays in certification of their batteries

Another big red flag is the number of subsidiaries. MNS and the below subsidiaries have elected to form a tax consolidated group.

The number of subsidiaries and an inability to understand or see all the moving parts of all the financial statements is enough to put this one in the too hard basket for me.

Good luck to those holding.

1 https://www.investopedia.com/terms/d/debtequityratio.asp

Concerns

•Difficulty understanding financial statements re subsidiaries (Cathode partner C4V and iM3NY)

•Related party transactions (see page 27 of Dec Half-Yearly) – not necessarily a red flag but require further research

•Recent change of auditor - again not necessarily a red flag

•12.5M performance shares are available in tranches on the company reaching $0.5, $1, $1.5, $2 and $2.5 billion market cap. With management incentivised to reach a specific share price/market cap are they focused on the business or the equity? Are they aligned with long-term shareholders?

•Somewhat promotional management

•Lots of recent dilution

•As of June 2021 produced their first “lithium-ion battery dry cells” from New York Battery Plant – to be tested and sampled by customers in Q4 FY21

•”Extra Fast Charging 6-Minute” batteries too early to report as only 100 cycles completed to date

•Report having the some of the “greenest batteries in the marketplace” – digging deeper the main contributor to this appears to be due to the fact ~1/2 the electricity generated where they manufacture is generated by carbon-free sources. I didn’t see mention of this in the company statement. On the positive side C4V batteries appear to use fewer metals and less toxic materials.

•No cash receipts from customers. $422,000 half year income (Dec 2020) made up of Interest, FOREX gain, Sale of fixed assets, Gov grants

•Management pay does not seem excessive but of note is James Dack (resigned as of May 2021) being paid $300,000 per annum + a signing bonus of $380,000 and granted 20,000,000 ordinary shares.

With a market cap of ~$325M, if Magnis can do what they claim to be able to and execute on their nearly $1 billion in “secured binding offtakes” than they’re very undervalued.  I’ve spent over an hour on this company and still don’t fully grasp what they do, how they plan to do it or to whom these “offtake agreements” are to. For current shareholders, that’s hopefully a reflection on myself not the company.

With essentially zero revenue, Magnis would have to have something pretty special for me to consider investing and I can’t get enough information from their announcements to verify with 100% confidence what they’re stating. There are certainly aspects to get excited about but of concern are management focused on the share price, lack of understanding around related party transactions, lack of knowledge regarding default clauses or force majeure clauses for their “secured binding offtakes” and the complexity their subsidiaries add*.

This one goes into the too hard basket for me but hopefully for current shareholders I look back on this in 2 years’ time and regret not spending more time on it.

*Since reading Trevor Sykes “The Bold Riders” I’m particularly cautious around investing in companies with multiple subsidiaries.