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Uncle Sam, Venture Capitalist (Obama's Battery factory)
Posted by: mcsmack ()
Date: August 17, 2010 02:26PM

Uncle Sam, Venture Capitalist
Meet the battery company that Obama visited yesterday.

http://online.wsj.com/article/SB10001424052748704868604575433882374313148.html?mod=WSJ_Opinion_AboveLEFTTop

President Obama kicked off a five-state campaign swing yesterday with a stop at a "clean energy" plant in Menomonee Falls, Wisconsin. As it happens, Mr. Obama couldn't have chosen a better company to demonstrate the risks that taxpayers are taking with their billions in green stimulus investment.

The White House press corps has been dragged to so many of these energy events that it has lost interest in looking at the companies it visits. But the case of ZBB Energy is worth a closer look. Mr. Obama praised it for "pointing the country toward a brighter economic future," but we'll let readers decide if they'd write the same checks if they were investing their own money.

ZBB has been around for more than a decade, developing batteries and equipment to store energy from wind turbines and solar cells. More efficient and long-lasting storage devices have long been the Holy Grail of renewable energy, since they would allow operators to store intermittent wind and solar energy for later use. A technological breakthrough would be a great achievement, but the problem is that the effort has proven to be both difficult and costly.

That hasn't stopped the Obama Administration, which has been investing willy-nilly in the commercial battery industry. And so last January, when the Department of Energy announced $2.3 billion in "clean energy manufacturing tax credits," ZBB was one of 183 recipients—collecting $14 million.

We wonder who in government looked at ZBB's filings with the Securities and Exchange Commission. Since going public in June of 2007, ZBB has been hemorrhaging money. The firm lost $4.9 million in fiscal 2008 and $5.5 million in fiscal 2009. In its most recent filing, in May, it said it had lost $6.9 million for the first nine months of its current fiscal year. It explained it had a "cumulative deficit" of $44.1 million and informed shareholders that it "anticipates incurring continuing losses." It acknowledged that its ability to continue as a "going concern" was predicated on its ability to drum up additional funds.

In March the company engaged in various stock transactions—including a private placement to the company's directors—to raise some $1.9 million. It obtained a $1.3 million loan from the federal stimulus program and borrowed $1.5 million more from Investors Bank. In June it announced a debt agreement, which would allow it to tap a further $10 million.

Meanwhile, a review by the company's audit committee last fall discovered that ZBB's former CEO had been wrongly compensated as both an employee and an independent contractor, and that the company had failed to withhold his proper taxes. He stepped down, and the management team was reshuffled. ZBB was also forced to restate its financial results after a separate audit committee review found the company had recognized revenue from a contract in the wrong quarter.

The company also acknowledged in its May filing that the 72,000 square foot manufacturing facility it bought in 2006 is "currently producing at less than 10% of its expected capacity." That means it can't currently access the $14 million in federal tax credits, which were supposed to help with equipment for a new facility. Meanwhile, private investors have soured on some energy-storage companies. ZBB's initial public offering was priced at $6 a share in 2007, and it closed yesterday at 70 cents.

ZBB's chief financial officer, Scott Scampini, acknowledges the losses and tells us that one problem was that the old management thought "people would just jump and buy this stuff." New management, he says, now has a "real business plan" to become cash-flow positive in "short order"—by becoming cheap enough to be "competitive with fossil fuels."

Perhaps ZBB Energy will eventually prove to be the Google of the battery business, but then again Google didn't need taxpayer help. The Obama Administration would argue that these subsidies for private commercial companies are worth it if only one company pays off. But for the company that does, the financial rewards will be private. For those that fail, the losers will be taxpayers.

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