Tuesday, March 01, 2011

Ultimate Power Play

Many in the energy field believe energy savings rather than the delivery of new fuels is the solution to the fossil fuel/global warming dilemma.  Our Mothers of Invention Index includes a number of companies offering energy reduction products and services.  Missing from our list until today is ZBB Energy Corporation (ZBB:  NYSE AMEX), a provider of power management solutions that help integrate all types of renewable and conventional power sources with storage technology. 

ZBB Energy’s flagship product is its proprietary Power and Energy Control Center (ZESS POWR PECC), which is sold with the company’s Zinc-bromide Rechargeable Flow Battery (ZESS).  Management touts the versatility of its solution that accommodates a variety of energy sources from conventional to renewable.  ZBB targets the military, commercial building, electric vehicle (EV) charging and off-grid telecom markets. 

This is a fledgling operation.  Revenue in the most recent twelve months was $413,290, not nearly enough to cover direct and operating expenses near $8.0 million.  The net loss in the last twelve months was $8.6 million.  The company has yet to report a profitable quarter. 

Earlier this year ZBB acquired the assets of Tier Electronics in a deal valued at $3.4 million.  The deal involved a combination of cash to pay down debt, common stock and the assumption of debt.  Tier Electronics has developed a hybrid vehicle control system and sells a line of regulation solutions to the power quality market.  The deal gives ZBB a more robust product line and new relationships in the electronic vehicle market. 

At this stage, it is probably best to view ZBB Energy in terms of its cash usage, which is running about $1.8 million per quarter.  That figure might not be alarming for investors accustomed to investing in early stage operations that typically report losses as revenue ramps.  What could be a concern, however, is that the company’s balance sheet showed only $611,489 in cash at the end of December 2010, not nearly enough to support the company for the current quarter.

We expect most investors have stopped right there at the bottom line of the income statement and the top line of the balance sheet.  That is one of the reasons the ZBB shares are trading just above a buck.  That would be a bit shortsighted.

Since the end of the last quarter, the company completed a private placement of 2.1 million shares of common stock and preferred stock convertible into 1.9 million shares of common stock.  The private placement brought in $4.0 million in new capital.  Since $183,000 was used in the acquisition of Tier Electronics, we estimate ZBB has approximately $3.5 million in cash.

ZBB has its work cut out for it to penetrate a very large and highly diverse market for energy efficiency solutions.  There is building competitive interest in the power management sector as higher than average growth opportunities beckon innovators as well as established players.  The versatility of the ZESS POWR PECC sets ZBB Energy apart from the pack.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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