Attached files
file | filename |
---|---|
EX-23 - EnSync, Inc. | v185723_ex23.htm |
As
filed with the Securities and Exchange Commission on May 18, 2010
Registration
No. 333-
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ZBB
Energy Corporation
(Exact
name of registrant as specified in its charter)
Wisconsin
|
4911
|
39-1987014
|
(State or other jurisdiction of
|
(Primary Standard Industrial
|
(I.R.S. Employer
|
incorporation or organization)
|
Classification Code Number)
|
Identification Number)
|
N93
W14475 Whittaker Way
Menomonee
Falls, WI 53051
(262)
253-9800
(Address,
including zip code, and telephone number,
including
area code, of registrant’s principal executive offices)
Eric
C. Apfelbach
Chief
Executive Officer
ZBB
Energy Corporation
N93
W14475 Whittaker Way
Menomonee
Falls, WI 53051
(262)
253-9800
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Please
send copies of all communications to:
Mark
R. Busch
K&L
Gates LLP
214
North Tryon Street, Suite 4700
Charlotte,
NC 28202
(704)
331-7440
Approximate date of commencement of
proposed sale to the public: From time to time after this
registration statement becomes effective.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. þ
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated file, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company þ
|
(Do not check if a smaller reporting
company)
|
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities
to be Registered
|
Proposed Maximum
Aggregate Offering Price
|
Amount of Registration
Fee(1)
|
||||||
Common stock
|
$ | - | $ | - | ||||
Warrants to purchase common
stock
|
$ | - | $ | - | ||||
Common stock issuable upon exercise of
warrants(2)
|
$ | - | $ | - | ||||
Total Registration Fee
|
$ | 10,000,000 | $ | 1,069.50 |
(1)
Calculated pursuant to Rule 457(o) on the basis of the maximum aggregate
offering price of all of the securities to be registered.
(2)
Pursuant to Rule 416, the
securities being registered hereunder include such indeterminate number of
additional shares of common stock as may be issuable upon exercise of
warrants registered hereunder as a result of stock splits, stock dividends, or
similar transactions.
The
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to Section
8(a), may determine.
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
securities, and it is not soliciting an offer to buy these securities, in any
state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS
Subject
to Completion, Dated [•], 2010
$10,000,000
[•]
Shares of Common Stock
[•]
Warrants
(and [•]
shares of CommFon Stock underlying the Warrants)
We are
offering up to [•] units for $[•] per unit, with each unit consisting of (1) one
share of common stock and (2) a Warrant to purchase [•] of a share of common
stock.
For a
more detailed description of the warrants, see the section entitled “Description
of Warrants” beginning on page 13 of this prospectus, and for a more detailed
description of our common stock, see the section entitled “Description of Common
Stock” beginning on page 12 of this prospectus.
Our
common stock is quoted on the NYSE Amex Market under the symbol “ZBB.” The last
reported sale price of our common stock on [•], 2010 was $[•] per
share.
[•] has
agreed to act as our placement agent in connection with this offering. In
addition, [•] mayy engage one or more placement agents or selected dealers. The
placement agent is not purchasing the securities offered by us, and is not
required to sell any specific number or dollar amount of securities, but will
assist us in this offering on a “best efforts” basis. Because there is
no minimum offering amount required as a condition to closing in this offering,
the actual public offering amount, placement agent fees, and proceeds to us, if
any, are not presently determinable and may be substantially less than the total
maximum offering amounts set forth above. See “Plan of Distribution”
beginning on page 14 of this prospectus for more information regarding this
arrangement.
Investing
in our securities involves a high degree of risk. See “Risk Factors” beginning
on page 3 of this prospectus for more information.
Per Unit
|
Total
|
|||||||
Public
offering price
|
$ | - | $ | - | ||||
Placement
Agent Fees
|
$ | - | $ | - | ||||
Proceeds,
before expenses, to us
|
$ | - | $ | - |
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus or
the prospectus to which it relates is truthful or complete. Any representation
to the contrary is a criminal offense.
The date
of this prospectus is [•], 2010.
Table
of Contents
Prospectus Summary
|
1
|
The Offering
|
2
|
Risk Factors
|
3
|
Use of Proceeds
|
10
|
Dilution
|
10
|
Dividend Policy
|
11
|
Capitalization
|
11
|
Description of Securities to be
Registered
|
12
|
Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
|
13
|
Plan of Distribution
|
14
|
Business
|
15
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
26
|
Properties
|
36
|
Management
|
36
|
Executive Compensation
|
41
|
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
|
43
|
Material U.S. Federal Tax
Considerations
|
45
|
Legal Proceedings
|
51
|
Legal Matters
|
51
|
Experts
|
51
|
Disclosure of Commission Position on
Indemnification for Securities Act Liabilities
|
51
|
Where You Can Find More
Information
|
52
|
Index to Financial
Statements
|
F-1
|
Cautionary
Note Regarding Forward-Looking Statements
This
prospectus contains forward-looking statements that are based on current
expectations, estimates, forecasts and projections regarding management’s
beliefs and assumptions about the industry in which we operate. Such statements
include, in particular, statements about our plans, strategies and prospects
under the headings “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,”
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Business.” When used in this prospectus, the words
“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,”
“potential,” “predict,” “project,” “should,” “will,” “would,” and similar
expressions identify forward-looking statements.
Forward-looking
statements are not a guarantee of future performance or results, and will not
necessarily be accurate indications of the times at, or by, which such
performance or results will be achieved. Forward-looking statements are based on
information available at the time the statements are made and involve known and
unknown risks, uncertainties and other factors that may cause actual outcomes
and results to differ materially from what is expressed or forecasted in such
forward-looking statements.
Except as
required by applicable law, we assume no obligation to update any
forward-looking statements publicly or to update the reasons why actual results
could differ materially from those anticipated in any forward-looking
statements, even if new information becomes available in the
future.
Prospectus
Summary
This
summary highlights information about our Company and this offering contained
elsewhere in this prospectus and is qualified in its entirety by the more
detailed information and financial statements included elsewhere in this
prospectus. You should read this entire prospectus carefully, including “Risk
Factors,” “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and our financial statements and related notes included
elsewhere in this prospectus, before making an investment decision. In this
prospectus, unless otherwise specified or the context otherwise requires, the
terms “we,” “us,” “our,” “the Company,” or “ours” refer to ZBB Energy
Corporation and its consolidated subsidiaries.
About
ZBB Energy Corporation
ZBB
Energy Corporation (NYSE AMEX: ZBB) provides distributed intelligent power
management platforms that directly integrate multiple renewable and conventional
onsite generation sources with rechargeable zinc bromide flow batteries and
other storage technology. This platform solves a wide range of electrical system
challenges in global markets for various types of sites with utility,
governmental, commercial, industrial and residential end customers. A developer
and manufacturer of its modular, scalable and environmentally friendly power
systems (“ZESS POWR™”), ZBB Energy was founded in 1998 and is headquartered in
Wisconsin, USA with offices also located in Perth, Western
Australia.
Corporate
Information
Our
executive offices are located at N93 W14475 Whittaker Way, Menomonee Falls,
Wisconsin 53051, and our telephone number is 262.253.9800. Our
Internet address is www.zbbenergy.com. The information on our website is
not incorporated by reference into this prospectus, and you should not consider
it part of this prospectus.
The
Offering
Issuer
|
ZBB
Energy Corporation
|
|
Units
offered
|
[•]
|
|
Offer
Price
|
$[•]
per unit
|
|
Shares
of common stock included in units
|
[•]
|
|
Warrants
included in units
|
[•]
|
|
Warrant
terms
|
Each
unit includes a Warrant to purchase [•] of one share of common
stock. Warrants will entitle the holder to purchase shares of common
stock for an exercise price equal to $[•]. Warrants are exercisable
immediately after the date of issuance and expire five years after the
date of issuance.
|
|
Shares
of common stock outstanding before this offering
|
14,915,389
|
|
Common
stock to be outstanding after this offering
|
[•]
|
|
Use
of proceeds
|
We
intend to use the net proceeds from this offering for development and
deployment of our version 3 next generation battery stack and module,
market penetration and manufacturing ramp related capital equipment and
expenses and for working capital and general corporate purposes. See “Use
of Proceeds.”
|
|
Dividend
policy
|
We
have never paid cash dividends and do not intend to do
so.
|
|
Risk
factors
|
You
should carefully read and consider the information set forth under “Risk
Factors,” together with all of the other information set forth in this
prospectus, before deciding to invest in shares of our common
stock.
|
|
NYSE
Amex symbol
|
Our
common stock is listed on the NYSE Amex under the symbol
“ZBB”.
|
The
number of shares of common stock outstanding before and after the offering is
based on 14,915,389 shares outstanding as of March 31, 2010 and
excludes:
|
·
|
1,846,031
shares of common stock issuable upon the exercise of warrants outstanding
with a weighted average exercise price of $1.76 per
share;
|
|
·
|
2,161,992
shares of common stock issuable upon the exercise of options outstanding
with a weighted average exercise price of $2.01 per
share;
|
|
·
|
872,953
shares of common stock reserved for future grants and awards under our
equity incentive plans as of March 31, 2010;
and
|
2
|
·
|
shares
of common stock issuable upon exercise of warrants to be issued in
connection with this offering.
|
Risk
Factors
You
should carefully consider the risks described below before making an investment
decision. You should also refer to the other information in this prospectus,
including our financial statements and the related notes incorporated by
reference. The risks and uncertainties described below are not the only risks
and uncertainties we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial also may impair our business
operations. If any of the following risks actually occur, our business, results
of operations and financial condition could suffer. In that event the trading
price of our common stock could decline, and you may lose all or part of your
investment in the units if the conversion price or exercise price is in excess
of the trading price of our common stock. The risks discussed below also include
forward-looking statements and our actual results may differ substantially from
those discussed in these forward-looking statements.
As
a new investor, you will incur substantial dilution as a result of this offering
and future equity issuances, and as result, our stock price could
decline.
The
offering price is substantially higher than the net tangible book value per
share of our outstanding common stock. As a result, based on our
capitalization as of March 31, 2010, investors purchasing common stock in this
offering will incur immediately dilution of $[•] per share of common stock
purchased, based on the offering price of $[•] per unit, without giving effect
to the potential exercise of warrants offered by this prospectus. In
addition to this offering, subject to market conditions and other factors, it is
likely that we will pursue additional capital to finance our operations and to
fund acquisitions of businesses, technologies or products that complement our
current business. Accordingly, we may conduct substantial future offerings
of equity or debt securities. The exercise of outstanding options and
warrants and future equity issuances, including future public offerings or
future private placements of equity securities and any additional shares issued
in connection with acquisitions, will result in dilution to investors. In
addition, the market price of our common stock could fall as a result of resales
of any of these shares of common stock to an increased number of shares
available for sale in the market.
There
is no public market for the warrants to purchase common stock in this
offering.
There is
no established public trading market for the warrants being sold in this
offering, and we do not expect a market to develop. In addition, we do not
intend to apply for listing the warrants on any securities exchange.
Without an active market, the liquidity of the warrants will be
limited.
Our
stock price could be volatile and our trading volume may fluctuate
substantially.
The price
of our common stock has been and may in the future continue to be extremely
volatile, with the sale price fluctuating from a low of $0.52 to a high of $6.00
since June 18, 2007, the first day our stock was traded on the NYSE Amex
(formerly American Stock Exchange). Many factors could have a significant
impact on the future price of our common stock, including:
|
·
|
our
inability to raise additional capital to fund our operations, whether
through the issuance of equity securities or
debt;
|
|
·
|
our
failure to successfully advance the development of our programs or
otherwise implement our business
objectives;
|
|
·
|
issuance
of new or changed securities analysts’ reports or
recommendations;
|
|
·
|
significant
acquisitions or business combinations, strategic partnerships, joint
ventures or capital committees by or involving us or our
competitors;
|
3
|
·
|
our
ability to consummate a strategic transaction to ensure the continued
funding of our operations, including corporate collaborations, merger and
acquisition activities and
consolidations;
|
|
·
|
our
ability to successfully integrate our acquisitions and realize anticipated
benefits from acquisitions;
|
|
·
|
changes
or contemplated changes in U.S. and foreign governmental
regulations;
|
|
·
|
competitors’
publicity regarding actual or potential products under
development;
|
|
·
|
competitors
announcing technological innovations or new commercial
products;
|
|
·
|
changes
in our intellectual property portfolio or developments or disputes
concerning proprietary rights, including patent
litigation;
|
|
·
|
actual
or anticipated fluctuations in our quarterly financial and operating
results;
|
|
·
|
changes
in accounting policies or
practices;
|
|
·
|
news
reports relating to trends, concerns and other issues in our
industry;
|
|
·
|
general
domestic and international economic conditions and other external
factors;
|
|
·
|
general
market conditions; and
|
|
·
|
the
degree of trading liquidity in our common
stock.
|
In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations. This volatility has had a significant effect on the
market price of securities issued by many companies which may be unrelated to
the operating performance of those particular companies. These broad
market fluctuations may adversely affect our share price, notwithstanding our
operating results, and any shares of common stock included in the units that you
purchase in this offering, and any shares of common stock acquired upon exercise
of the warrants included in the units that you purchase in the offering, may in
the future trade at a lower price than that at which they were
purchased.
For the
three-month period ended March 31, 2010, the daily trading volume for shares of
our common stock ranged from 9,700 to 1,312,700 shares traded per day, and the
average daily trading volume during such three-month period was 154,684 shares
traded per day. Accordingly, our investors who wish to dispose of their shares
of common stock on any given trading day may not be able to do so or may be able
to dispose of only a portion of their shares of common stock.
We
have incurred losses and anticipate incurring continuing losses.
For the
nine months ended March 31, 2010, the Company had revenues of $1,556,148. During
this period, the Company had a net loss of $6,859,085. For the year ended June
30, 2009, the Company had revenues of $1,156,792. During this period, the
Company had a net loss of $5,561,056. There can be no assurance that the Company
will have income from operations or net income during the fourth fiscal quarter
of 2010 or thereafter. As of March 31, 2010 we had an accumulated deficit
of $44.1 million. We anticipate that we will continue to incur losses until we
can produce and sell a sufficient number of our systems to be profitable.
However, we cannot predict when we will operate profitably, if ever. Even if we
do achieve profitability, we may be unable to sustain or increase our
profitability in the future.
4
We
will need additional financing.
We will
need additional financing to maintain and expand our business, and such
financing may not be available on favorable terms, if at all. In the event
that we issue any additional equity securities, investors’ interests in the
company will be diluted and investors may suffer dilution in their net book
value per share depending on the price at which such securities are sold.
If we issue any such additional equity securities, such issuances also will
cause a reduction in the proportionate ownership and voting power of all other
stockholders. Further, any such issuance may result in a change in
control.
When we
need additional financing, we cannot provide assurance that it will be available
on favorable terms, if at all. If we need funds and cannot raise them on
acceptable terms, we may not be able to:
|
·
|
execute
our growth plan;
|
|
·
|
take
advantage of future opportunities, including synergistic
acquisitions;
|
|
·
|
respond
to customers and competition; or
|
|
·
|
remain
in operation.
|
We are
not restricted from issuing additional common stock, including any securities
that are convertible into or exchangeable for, or that represent the right to
receive, common stock. The issuance of any additional shares of common
stock or securities convertible into, exchangeable for or that represent the
right to receive common stock or the exercise of such securities could be
substantially dilutive to shareholders of our common stock. The market
price of our common stock could decline as a result of sales of shares of our
common stock made after this offering or the perception that such sales could
occur. Because our decision to issue securities in any future offering
will depend on market conditions and other factors beyond our control, we cannot
predict or estimate the amount, timing or nature of our future offerings.
Thus, our shareholders bear the risk of our future offerings reducing the market
price of our common stock and diluting their interests in us.
We may
offer debt securities in the future, which would be senior to our common stock
upon liquidation. Upon liquidation, holders of our debt securities and
lenders with respect to other borrowings will receive distributions of our
available assets prior to the holders of our common stock.
If
we fail to adequately manage our resources, it could have a severe negative
impact on our financial results or stock price.
We could
be subject to fluctuations in technology spending by existing and potential
customers. Accordingly, we will have to actively manage expenses in a rapidly
changing economic environment. This could require reducing costs during economic
downturns and selectively growing in periods of economic expansion. If we do not
properly manage our resources in response to these conditions, our results of
operations could be negatively impacted.
We
may be unsuccessful in our efforts to obtain federal government grants which
could harm our business and results of operations. We also may be
unsuccessful in our efforts to monetize government tax credits and other off
balance sheet assets.
We may
seek to obtain government grants and subsidies in the future to offset all or a
portion of the costs of maintaining and expanding our business. We cannot be
certain that we will be able to secure any such government grants or subsidies.
Any grants that we may obtain could be terminated, modified or recovered by the
granting governmental body under certain conditions. We also have $29
million of net operating loss carryforwards and $14.675 million of Department of
Energy sponsored tax credits. We are exploring ways to monetize or to use
these off balance sheet assets. However, there can be no assurance that
these efforts will prove successful.
5
Our
success depends on our ability to retain our managerial personnel and to attract
additional personnel.
Our
success depends largely on our ability to attract and retain managerial
personnel. Competition for desirable personnel is intense, and there can be no
assurance that we will be able to attract and retain the necessary staff. We
currently have 30 full-time employees. The loss of members of managerial
staff could have a material adverse effect on our future operations and on
successful development of products for our target markets. The failure to
maintain management and to attract additional key personnel could materially
adversely affect our business, financial condition and results of
operations.
Businesses
and consumers might not adopt alternative energy solutions as a means for
obtaining their electricity and power needs, and therefore our revenues may not
increase, and we may be unable to achieve and then sustain
profitability.
On-site
distributed power generation solutions, such as fuel cell, photovoltaic and wind
turbine systems, which utilize our energy storage systems, provide an
alternative means for obtaining electricity and are relatively new methods of
obtaining electrical power that businesses may not adopt at levels sufficient to
grow this part of our business. Traditional electricity distribution is based on
the regulated industry model whereby businesses and consumers obtain their
electricity from a government regulated utility. For alternative methods of
distributed power to succeed, businesses and consumers must adopt new purchasing
practices and must be willing to rely upon less traditional means of purchasing
electricity. We cannot assure you that businesses and consumers will choose to
utilize on-site distributed power at levels sufficient to sustain our business
in this area. The development of a mass market for our products may be impacted
by many factors which are out of our control, including:
|
·
|
market
acceptance of fuel cell, photovoltaic and wind turbine systems that
incorporate our products;
|
|
·
|
the
cost competitiveness of these
systems;
|
|
·
|
regulatory
requirements; and
|
|
·
|
the
emergence of newer, more competitive technologies and
products.
|
If a mass
market fails to develop or develops more slowly than we anticipate, we may be
unable to recover the losses we will have incurred to develop these
products.
Our
industry is highly competitive and we may be unable to successfully
compete.
We
compete in the market for renewable energy products and services which is
intensely competitive. Evolving industry standards, rapid price changes
and product obsolescence also impact the market. Our competitors include many
domestic and foreign companies, most of which have substantially greater
financial, marketing, personnel and other resources than we do. Our
current competitors or new market entrants could introduce new or enhanced
technologies, products or services with features that render our technologies,
products or services obsolete or less marketable. Our success will be
dependent upon our ability to develop products that are superior to existing
products and products introduced in the future, and which are cost effective. In
addition, we may be required to continually enhance any products that are
developed as well as introduce new products that keep pace with technological
change and address the increasingly sophisticated needs of the marketplace. Even
if our technology currently proves to be commercially feasible, there is
extensive research and development being conducted on alternative energy sources
that may render our technologies and protocols obsolete or otherwise
non-competitive.
Technological
developments in any of a large number of competing processes and technologies
could make our technology obsolete and we have little ability to manage that
risk. There can be no assurance that we will be able to keep pace with the
technological demands of the marketplace or successfully develop products that
will succeed in the marketplace. As a small company, we will be at a competitive
disadvantage to most of our competitors, which include larger, established
companies that have substantially greater financial, technical, manufacturing,
marketing, distribution and other resources than us.
6
There can
be no assurance that new products or technologies, presently unknown to
management, will not, at any time in the future and without warning, render our
technology less competitive or even obsolete. Technology advances claimed by
current or new competitors may ultimately prove to make our products obsolete.
Major companies, academic and research institutions, or others, for example,
could develop new products which could potentially render our products obsolete.
Moreover, our technology could be susceptible to being analyzed and
reconstructed by an existing or potential competitor. Although the Company may
be the license holder of certain United States patents respecting its products,
we may not have the financial resources to successfully defend such patents,
were it to become necessary, by bringing patent infringement suits against
parties that have substantially greater resources than those available to
us.
In
addition, competitors may develop technology and products that can be sold and
installed at a lower per unit cost. There can be no assurance that we will have
the capital resources available to undertake the research which may be necessary
to upgrade our equipment or develop new devices to meet the efficiencies of
changing technologies. Our inability to adapt to technological change could have
a materially adverse effect on our results of operations.
Unless
we keep pace with changing technologies, we could lose existing customers and
fail to win new customers.
Our
future success will depend upon our ability to develop and introduce a variety
of new products and services and enhancements to these new products and services
in order to address the changing needs of the marketplace. We may not be able to
accurately predict which technologies customers will support. If we do not
introduce new products, services and enhancements in a timely manner, if we fail
to choose correctly among technical alternatives or if we fail to offer
innovative products and services at competitive prices, customers may forego
purchases of our products and services and purchase those of our
competitors.
If
our products do not perform as promised, we could experience increased costs,
lower margins and harm to our reputation.
The
failure of our products to perform as promised could result in increased costs,
lower margins and harm to our reputation. This could result in contract
terminations and have a material adverse effect on our business and financial
results.
Our
relationships with our strategic partners may not be successful and we may not
be successful in establishing additional partnerships, which could adversely
affect our ability to commercialize our products and services.
An
important element of our business strategy is to enter into strategic
partnerships with partners who can assist us in achieving our business
goals. If we are unable to reach agreements with suitable strategic
partners, we may fail to meet our business objectives for the commercialization
of our products. We may face significant competition in seeking appropriate
alliance partners. Moreover, these development agreements and strategic
alliances are complex to negotiate and time consuming to document. We may not be
successful in our efforts to establish additional strategic partnerships or
other alternative arrangements. The terms of any additional strategic
partnerships or other arrangements that we establish may not be favorable to us.
In addition, these partnerships may not be successful, and we may be unable to
sell and market our products to these companies and their affiliates and
customers in the future, or growth opportunities may not materialize, any of
which could adversely affect our business, financial condition and results of
operations.
7
Shortages
or delay of supplies of component parts may adversely affect our operating
results until alternate sources can be developed.
Our
operations are dependent on the ability of suppliers to deliver quality
components, devices and subassemblies in time to meet critical manufacturing and
distribution schedules. If we experience any constrained supply of any such
component parts, such constraints, if persistent, may adversely affect operating
results until alternate sourcing can be developed. There may be an increased
risk of supplier constraints in periods where we are increasing production
volume to meet customer demands. Volatility in the prices of these component
parts, an inability to secure enough components at reasonable prices to build
new products in a timely manner in the quantities and configurations demanded
or, conversely, a temporary oversupply of these parts, could adversely affect
our future operating results.
We
have no experience manufacturing our products on a large-scale basis and may be
unable to do so at our current facility.
To date,
we have achieved only very limited production of our energy storage systems and
have no experience manufacturing our products on a large-scale basis. In
February 2006 we acquired a building we were previously leasing in Menomonee
Falls, Wisconsin which provides up to 72,000 square feet for use as a
manufacturing facility. This facility is currently producing at less than 10% of
its expected capacity after our allocation of certain proceeds of our United
States equity offering to fully staff and equip it. However, we do not know
whether our current manufacturing facility, even if operating at full capacity,
will be adequate to enable us to produce the energy storage systems in
sufficient quantities to meet hoped for future orders. If there is demand for
our products, our inability to manufacture a sufficient number of units on a
timely basis would have a material adverse effect on our business prospects,
financial condition and results of operations.
We
market and sell, and plan to market and sell, our products in numerous
international markets. If we are unable to manage our international operations
effectively, our business, financial condition and results of operations could
be adversely affected.
We market
and sell, and plan to market and sell, our products in a number of foreign
countries, including Australia, South Africa, Canada, Europeam Union countries,
the United Kingdom, Italy, Chile, Brazil, India and Mexico, as well as Puerto
Rico, various Caribean island nations and various Southeast Asia countries, and
we are therefore subject to risks associated with having international
operations. Risks inherent in international operations include, but are not
limited to, the following:
|
·
|
changes
in general economic and political conditions in the countries in which we
operate;
|
|
·
|
unexpected
adverse changes in foreign laws or regulatory requirements, including
those with respect to renewable energy, environmental protection,
permitting, export duties and
quotas;
|
|
·
|
trade
barriers such as export requirements, tariffs, taxes and other
restrictions and expenses, which could increase the prices of our products
and make us less competitive in some
countries;
|
|
·
|
fluctuations
in exchange rates may affect demand for our products and may adversely
affect our profitability in US dollars to the extent the price of our
products and cost of raw materials and labor are denominated in a foreign
currency;
|
|
·
|
difficulty
with staffing and managing widespread
operations;
|
|
·
|
difficulty
of, and costs relating to compliance with, the different commercial and
legal requirements of the overseas markets in which we offer and sell our
products;
|
|
·
|
inability
to obtain, maintain or enforce intellectual property rights;
and
|
|
·
|
difficulty
in enforcing agreements in foreign legal
systems.
|
Our
business in foreign markets requires us to respond to rapid changes in market
conditions in these countries. Our overall success as a global business depends,
in part, on our ability to succeed in differing legal, regulatory, economic,
social and political conditions. We may not be able to develop and implement
policies and strategies that will be effective in each location where we do
business, which in turn could adversely affect our business, financial condition
and results of operations.
8
Currency
translation and transaction risk may adversely affect our business, financial
condition and results
of operations.
Our
reporting currency is the US dollar, and we conduct our business and incur costs
in the local currency of most countries in which we operate. As a result, we are
subject to currency translation risk. We expect a portion of our revenues
to be generated outside the United States and denominated in foreign currencies
in the future. Changes in exchange rates between foreign currencies and the US
dollar could affect our revenues and cost of revenues, and could result in
exchange losses. We cannot accurately predict the impact of future
exchange rate fluctuations on our results of operations. Currently, we do
not engage in any exchange rate hedging activities and, as a result, any
volatility in currency exchange rates may have an immediate adverse effect on
our business, results of operations and financial condition.
The
success of our business depends on our ability to develop and protect our
intellectual property rights, which could be expensive.
Our
success depends to a significant extent on our ability to obtain patent
protection on technologies and products and preserve trade secrets and to
operate without infringing the proprietary rights of others. There can be no
assurance that any patent applications or patents we are able to license will
afford any competitive advantages or will not be challenged or circumvented by
third parties. Furthermore, there can be no assurance that others will not
independently develop similar technologies or duplicate any technology developed
by us. Because of the extensive time required for development, testing and
regulatory review of a potential product, it is possible that before any of our
potential products can be commercialized, any related patent may expire, or
remain in existence for only a short period following commercialization, thus
reducing any advantage of the patent.
We also
rely on trademarks, copyrights, trade secrets and know-how to develop, maintain
and strengthen our competitive positions. While we take steps to protect our
proprietary rights to the extent possible, there can be no assurance that third
parties will not know, discover or develop independently equivalent proprietary
information or techniques, that they will not gain access to our trade secrets
or disclose our trade secrets to the public. Therefore, we cannot guarantee that
we can maintain and protect unpatented proprietary information and trade
secrets. Misappropriation of our intellectual property would have an adverse
effect on our competitive position and may cause us to incur substantial
litigation costs.
We
may be subject to claims that we infringe the intellectual property rights of
others, and unfavorable outcomes could harm our business.
Our
future operations may be subject to claims, and potential litigation, arising
from our alleged infringement of patents, trade secrets or copyrights owned by
other third parties. We intend to fully comply with the law in avoiding such
infringements. However, we may become subject to claims of infringement,
including such claims or litigation initiated by existing, better-funded
competitors. We could also become involved in disputes regarding the ownership
of intellectual property rights that relate to our technologies. These disputes
could arise out of collaboration relationships, strategic partnerships or other
relationships. Any such litigation could be expensive, take significant time,
and could divert management’s attention from other business concerns. Our
failure to prevail in any such legal proceedings, or even the mere occurrence of
such legal proceedings, could substantially affect our ability to meet our
expenses and continue operations.
9
If
our common stock is de-listed from the AMEX, the common stock will become less
liquid.
Our
shares have been listed on the NYSE Amex (formerly the American Stock Exchange)
since June 18, 2007. We are required to comply with all reporting and
listing requirements on a timely manner and maintain our corporate governance
and independent director standards. If the NYSE Amex delists our common stock
from trading if we fail to satisfy their ongoing listing requirements including,
without limitation, corporate governance, financial condition, and financial
reporting rules and minimum price and market capitalization rules, we will be
adversely affected and our stock will become less liquid. There can be no
assurance that our securities will remain eligible for trading on the NYSE Amex.
If our common stock is delisted, our stockholders would not be able to sell the
common stock on the NYSE Amex, and their ability to sell any of their common
stock would be severely if not completely limited.
We
have never paid cash dividends and do not intend to do so.
We have
never declared or paid cash dividends on our common stock. We currently plan to
retain any earnings to finance the growth of our business rather than to pay
cash dividends. Payments of any cash dividends in the future will depend on our
financial condition, results of operations and capital requirements, as well as
other factors deemed relevant by our board of directors.
Use
of Proceeds
After
giving effect to our sale of $10,000,000 of units in this offering at the
offering price of $[•] per unit (and excluding shares of common stock issued and
any proceeds received upon exercise of warrants) and after deduction of the
placement agent fees and estimated offering expenses payable by us, we
anticipate our net proceeds from this offering will be $[•] million.
However, the offering does not specify any minimum purchase or sale of any
specific number of units. As a result, our actual net proceeds may be
significantly less.
We
estimate that we will use the proceeds of this offering as follows:
|
·
|
$[•]
for development and deployment of our version 3 next generation battery
stack and module;
|
|
·
|
$[•]
for market penetration and manufacturing ramp related capital equipment
and expenses; and
|
|
·
|
the
remaining $[•] for working capital and general corporate
purposes.
|
Dilution
Our net
tangible book value as of March 31, 2010 was $3,213,187 or $0.22 per share of
common stock. Net tangible book value per share represents total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding. After giving effect to our sale of $10,000,000 of units in this
offering at the offering price of $[•] per unit (and excluding shares of common
stock issued and any proceeds received upon exercise of warrants) and after
deduction of the placement agent fees and estimated offering expenses payable by
us, our net tangible book value as of March 31, 2010 would have been $[•], or
$[•] per share. This represents an immediate increase in net tangible book value
of $[•] per share to existing stockholders and an immediate dilution in net
tangible book value of $[•] per share to purchasers of common stock in this
offering. The following table illustrates this calculation.
Offering
price per share of common stock
|
$ | - | ||
Net
tangible book value per share as of March 31, 2010
|
$ | - | ||
Increase
per share attributable to this offering
|
$ | - | ||
As
adjusted tangible book value per share after this offering
|
$ | - | ||
Dilution
per share to new investors in this offering
|
$ | - |
The
number of shares of common stock outstanding used for existing stockholders in
the table and calculations above is based on 14,915,389 outstanding as of March
31, 2010 and excludes:
|
·
|
1,846,031
shares of common stock issuable upon the exercise of warrants outstanding
with a weighted average exercise price of $1.76 per
share;
|
10
|
·
|
2,161,992
shares of common stock issuable upon the exercise of options outstanding
with a weighted average exercise price of $2.01 per
share;
|
|
·
|
872,953
shares of common stock reserved for future grants and awards under our
equity incentive plans as of March 31, 2010;
and
|
|
·
|
shares
of common stock issuable upon exercise of warrants to be issued in
connection with this offering.
|
Dividend
Policy
We have
not declared or paid cash dividends on our common stock and do not anticipate
paying any cash dividends in the foreseeable future. We expect to retain future
earnings, if any, to fund the development and growth of our business. Our board
of directors will determine future dividends, if any.
Capitalization
The
following table sets forth our capitalization as of March 31, 2010:
|
·
|
on
an actual basis; and
|
|
·
|
on
an as adjusted basis to reflect the sale of $10,000,000 of units in this
offering at the offering price of $[•] per unit (and excluding shares of
common stock issued and any proceeds received upon exercise of warrants)
and after deduction of the placement agent fees and estimated offering
expenses payable by us.
|
The
offering does not specify any minimum purchase or sale of any specific number of
units. As a result, our actual total capitalization following completion of the
offering may be significantly less than the “as adjusted” total capitalization
reflected in the below table.
You
should read the information in this table together with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” beginning on page
26 of this prospectus and our financial statements and the accompanying notes
beginning on page F-1 of this prospectus.
March 31, 2010
|
|||||
Actual
|
As Adjusted
|
||||
(Unaudited)
|
|||||
Cash
and cash equivalents
|
2,925,150 | ||||
Long-term
liabilities
|
2,209,678 | ||||
Shareholders'
Equity
|
|||||
Common
stock ($0.01 par value); 150,000,000 authorized, 14,915,389 issued and
outstanding at March 31, 2010
|
149,155 | ||||
Additional
paid-in capital
|
49,587,568 | ||||
Treasury
stock - 13,833 shares
|
(11,136 | ) | |||
Accumulated
other comprehensive (loss)
|
(1,562,385 | ) | |||
Accumulated
(deficit)
|
(44,146,936 | ) | |||
Total
shareholders’ equity
|
4,016,266 | ||||
Total
capitalization
|
$ | 6,225,944 |
The
number of shares of common stock outstanding used for existing stockholders in
the table and calculations above is based on 14,915,389 outstanding as of March
31, 2010 and excludes:
|
·
|
1,846,031
shares of common stock issuable upon the exercise of warrants outstanding
with a weighted average exercise price of $1.76 per
share;
|
11
|
·
|
2,161,992
shares of common stock issuable upon the exercise of options outstanding
with a weighted average exercise price of $2.01 per
share;
|
|
·
|
872,953
shares of common stock reserved for future grants and awards under our
equity incentive plans as of March 31, 2010;
and
|
|
·
|
shares
of common stock issuable upon exercise of warrants to be issued in
connection with this offering.
|
Description
of Securities to be Registered
Each unit
includes (1) one share of common stock and (2) a Warrant to purchase [•] of a
share of common stock.
Description
of Common Stock
Authorized
Capital
We
currently have authority to issue 150 million shares of our common stock, par
value $0.01 per share. As of March 31, 2010, we had 14,915,389
shares of common stock issued and outstanding.
Following
the sale of shares of common stock in this offering, we expect to have [•]
shares of common stock issued and outstanding and no shares of preferred stock
issued and outstanding.
Common
Stock
Voting
Rights
Each
outstanding share of our common stock is entitled to one vote on all matters
submitted to a vote of shareholders. There is no cumulative voting.
Dividend
and Liquidation Rights
The
holders of outstanding shares of our common stock are entitled to receive
dividends out of assets legally available for the payment of dividends at the
times and in the amounts as our board of directors may from time to time
determine. The shares of our common stock are neither redeemable nor
convertible. Holders of our common stock have no preemptive or subscription
rights to purchase any of our securities. Upon our liquidation, dissolution or
winding up, the holders of our common stock are entitled to receive pro rata our
assets which are legally available for distribution, after payment of all debts
and other liabilities and subject to the prior rights of any holders of
preferred stock then outstanding.
We have
never paid any cash dividends on our common stock.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Computershare.
Equity
Compensation Plans
We have
three share-based compensation plans, the 2002 Stock Option Plan (the “SOP”),
the 2005 Employee Stock Option Scheme (the “2005 Plan) and the 2007 Equity
Incentive Plan (the “2007 Plan”), together referred to herein as the “Stock
Plans.” As of March 31, 2010, 2,161,992 options to purchase shares of our
common stock were issued and outstanding under the Stock Plans with a
weighted-average price of $2.01, and 872,953 options were available for future
grant under the Stock Plans.
12
Outstanding
Warrants
As of
March 31, 2010, we had issued and outstanding a total of 1,846,031 warrants to
purchase our common stock outstanding at a weighted-average price of
$1.76.
Description
of Warrants
The
material terms and provisions of the warrants being offered pursuant to this
prospectus are summarized below. However, this summary of some provisions
of the warrants is not complete. For the complete terms of the warrants,
you should refer to the form warrant attached to the securities purchase
agreement for the complete terms of the warrants.
Each unit
includes a Warrant to purchase [•] of a share of common stock. Warrants
will entitle the holder to purchase shares of common stock for an exercise price
equal to $[•]. The Warrants are exercisable at any time from their
original date of issuance through and including the fifth anniversary following
the date of issuance.
The
exercise price and the number of shares issuable upon exercise of the warrants
is subject to appropriate adjustment in the event of recapitalization events,
stock dividends, stock splits, stock combinations, reclassifications,
reorganizations or similar events affecting our common stock, and also upon any
distributions of assets, including cash, stock or other property to our
stockholders. The warrant holders must pay the exercise price in cash upon
exercise of the warrants. In no event is the warrant holder entitled to a
cash settlement from the Company upon exercise. After the close of
business on the expiration date, unexercised warrants will become
void.
Upon the
holder’s exercise of a warrant, we will issue the shares of common stock
issuable upon exercise of the warrant within three business days following our
receipt of notice of exercise and payment of the exercise price, subject to
surrender of the warrant.
Prior to
the exercise of any warrants to purchase common stock, holders of the warrants
will not have any of the rights of holders of the common stock purchasable upon
exercise, including the right to vote or to receive any payments of dividends on
the common stock purchasable upon exercise.
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Market
Information
The
following table sets forth for the periods indicated the range of high and low
reported sales price per share of our common stock as reported on NYSE
Amex.
13
High ($)
|
Low ($)
|
|||||||
2010
|
||||||||
Third
Quarter
|
2.00 | 0.78 | ||||||
Second
Quarter
|
1.45 | 0.90 | ||||||
First
Quarter
|
$ | 1.61 | $ | 1.00 | ||||
2009
|
||||||||
Fourth
Quarter
|
1.58 | 0.84 | ||||||
Third
Quarter
|
1.55 | 0.80 | ||||||
Second
Quarter
|
2.30 | 0.86 | ||||||
First
Quarter
|
$ | 4.05 | $ | 2.22 | ||||
2008
|
||||||||
Fourth
Quarter
|
4.19 | 2.80 | ||||||
Third
Quarter
|
3.15 | 1.75 | ||||||
Second
Quarter
|
4.25 | 1.98 | ||||||
First
Quarter
|
$ | 5.94 | $ | 3.27 |
Stockholders
Our
transfer agent is Computershare. On [•], the last reported sale price of our
common stock on NYSE Amex was $[•] per share. On [•], there were
approximately [•] holders of record of our common stock.
Plan
of Distribution
[•],
which we refer to herein as the Placement Agent, has agreed to act as placement
agent in connection with this offering subject to the terms and conditions of
the placement agent agreement dated [•]. The Placement Agent is not
purchasing or selling any units offered by this prospectus, nor is it required
to arrange the purchase or sale of any specific number or dollar amount of
units, but has agreed to use its best efforts to arrange for the sale of all of
the units offered hereby. Therefore, we will enter into a purchase
agreement directly with investors in connection with this offering and we may
not sell the entire amount of units offered pursuant to this
prospectus.
We have
agreed to pay the Placement Agent a placement agent’s fee consisting of
[•].
The
following table shows the per unit and total placement agent’s fees that we will
pay to the Placement Agent in connection with the sale of the shares and
warrants offered pursuant to this prospectus assuming the purchase of all of the
shares of common stock and warrants offered hereby.
Per
Unit
|
$ | [• | ] | |
Total
|
$ | [• | ] |
Because
there is no minimum offering amount required as a condition to the closing in
this offering, the actual total offering commissions, if any, are not presently
determinable and may be substantially less than the maximum amount set forth
above.
Our
obligations to issue and sell units to the purchasers is subject to the
conditions set forth in the securities purchase agreement, which may be waived
by us at our discretion. A purchaser’s obligation to purchase units is
subject to the conditions set forth in the securities purchase agreement as
well, which may also be waived.
At the
closing, we will issue the shares of common stock and warrants to the investors.
We anticipate that the closing will be completed on or about [•]. We
estimate the total offering expenses of this offering that will be payable by
us, excluding the placement agent’s fees, will be approximately $[•], which
include legal, accounting and printing costs, various other fees and
reimbursement of the placements agent’s expenses.
14
The
foregoing does not purport to be a complete statement of the terms and
conditions of the placement agent agreement and the securities purchase
agreement. A copy of the placement agent agreement and the form of
securities purchase agreement with the investors are included as exhibits to the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission (the “SEC”) and of which this prospectus below forms a part.
See “Where You Can Find More Information.”
The
Placement Agent may be deemed to be an underwriter within the meaning of Section
2(a)(11) of the Securities Act, and any commissions received by it and any
profit realized on the resale of the units sold by it while acting as principal
might be deemed to be underwriting discounts or commissions under the Securities
Act. As an underwriter, the Placement Agent would be required to comply
with the Securities Act and the Securities Exchange Act of 1934, as amended,
including, without limitation, Rule 415(a)(4) under the Securities Act and Rule
10b-5 and Regulation M under the Exchange Act. These rules and regulations
may limit the timing of purchases and sales of shares of common stock and
warrants by the Placement agent acting as principal. Under these rules and
regulations, the Placement Agent:
|
·
|
may
not engage in any stabilization activity in connection with our
securities; and
|
|
·
|
may
not bid for or purchase any of our securities or attempt to induce any
person to purchase any of our securities, other than as permitted under
the Exchange Act, until it have completed their participation in the
distribution.
|
Business
ZBB
Energy Corporation and its operating subsidiaries (“ZBB,” “we,” “us,” or the
“Company”) designs, develops, manufactures and markets renewable energy storage
systems based upon the Company’s proprietary zinc-bromine rechargeable
electrical energy storage and power management technologies. The Company
was incorporated under the laws of Wisconsin in 1998.
The
consolidated financial statements include the accounts of the Company and those
of its wholly owned subsidiaries, ZBB Technologies, Inc. which operates a
manufacturing facility in Menomonee Falls, Wisconsin, and ZBB Technologies, Ltd.
which has its advanced engineering and development facility in Perth,
Australia. The Corporate website address is
www.zbbenergy.com.
Products
We
design, develop, manufacture and distribute energy storage systems built using a
proprietary process based upon our zinc-bromide rechargeable electrical energy
storage technology. Our patent pending ZESS POWR hybrid power conversion system
is manufactured by our power electronics partners utilizing standard proven
components.
The
integrated modular nature of our zinc-bromide flow battery is a philosophy
that has carried through to the ZESS POWR product both in terms of electrical
interfaces and packaging which allows our solutions to be sized and packaged
into fully configurable energy storage systems of any size and integrated with
or without any generating source. Our systems combine the ZESS energy storage
modules with the ZESS POWR, and fully integrate with customer control systems
including remote monitoring. In addition, various control options are available
for the integration with the customer’s existing electrical power system or as a
complete independent power plant. The complete ZBB portfolio provides the
advanced energy storage aspects of charging or discharging from any renewable or
conventional energy source and discharge power as needed to meet the customer
load demand regardless of the connected generation source real time status. Our
energy storage solutions address issues related to grid stability and renewable
energy intermittency, including:
|
·
|
Distributed
storage of electrical energy during off peak
periods.
|
|
o
|
Re-supply
on high demand providing grid reliability and economic
benefits.
|
15
|
·
|
Smoothing
/ shifting intermittent renewable energy
generation.
|
|
o
|
Controlled
generation, grid stability and optimal
use.
|
|
·
|
Enabling
energy independence and off-grid
applications.
|
|
·
|
Green
back up power and power quality.
|
|
o
|
Reduce
CO2 emission, 24/7 renewable energy
availability.
|
Industry
Overview
We
believe that our ZESS products are available at a time when major changes are
occurring in electricity supply and demand.. We anticipate that the primary
users of our energy storage systems will be utility companies at the
distribution level, commercial/industrial users, and off-grid applications. Our
systems can be combined with renewable energy (solar, wind and other power
generators).
ZESS
deployment is the key to establishing “off-grid” and “smart-grid” electrical
systems. Since emission producing diesel generator sets are polluting and
costly to maintain, and fuel costs are uncertain and expected to
rise interest toward renewable generation for off-grid and back-up power
applications has been accelerating. Intermittent renewable sources cannot
be controlled effectively and certainly cannot be a guaranteed source of
electricity. As such the combination of renewable energy along with
ZESS system provides the complete integrated solution that provides continuous
power regardless of wind or solar variations.
A
combination of ZESS systems with solar power, being deployed as an integrated
solution, results in a reliable turnkey system capable of being independent from
the utility grid or as a smart-grid solution. Such systems can be used
anywhere including remote areas of the world where either no electricity exists
or where there are severe outages through poor supply and inconsistent delivery,
or for any consumer who prefers to be grid independent.
Key areas
for the use of ZESS systems include:
|
·
|
On
and off grid Telco installations, with renewable
energy;
|
|
·
|
Off
grid power generation systems;
|
|
·
|
Commercial
and residential building integration with renewables;
and
|
|
·
|
Small
community power systems and
micro-grids.
|
Our
systems, combined with renewable energy generation provide a complete back up
power system for grid tied applications.
Known
Trends, Market Opportunities and Challenges
We
believe that there are specific existing and rapidly emerging market
opportunities for our energy storage and hybrid power electronic
products.
We
continue to advance the sales and marketing process in the areas of network
structure, direct key accounts, strategic relationships, marketing and
industry/policy involvement.
We
continue to build a direct market pipeline of opportunities which include
companies involved in renewable energy; renewable energy integrators
involved in on-grid and off-grid applications, government facilities, telecom,
and other commercial and industrial opportunities.
16
We have
advanced the ZBB presence and awareness in the market through involvement in
various conferences (energy storage, wind, solar and electric utility), direct
marketing, marketing materials and web content, as well as continued efforts in
media channels and highly visible applications. For example, the
development of a prototype off grid system consisting of ZESS 50 energy storage
and ZESS POWR PECC hybrid for cell tower application in Africa via ZBB partner
Likusasa, and the shipment of the first large scale wind/storage facility on a
college campus at the Dundalk Institute of Technology in the Republic of Ireland
as well as the deployment of the ZBB Hybrid ZESS POWR PECC and ZESS 50 energy
storage to Oregon State University for the advanced study of energy storage with
wind power and the scheduled deployment of ZBB Hybrid ZESS POWR PECC and
ZESS 50 for an off-grid application that optimizes the use of solar PV, wind and
conventional diesel generator as a single power plant. ZBB is in the
process of furthering these marketing and networking efforts with additional
marketing activities that will continue to raise the profile of ZBB and the ZESS
brands.
We have
designed our products so that they can be combined for use in commercial storage
applications and/or integrated with renewable energy sources through the use of
the ZBB hybrid power electronics. Federal and State Government initiatives
to lessen the United States greenhouse gas emissions and dependency on oil and
increasing concerns surrounding CO2 emissions
are also driving this market sector.
We
believe that solar and wind energy production has grown over the past five years
and will continue to grow for so long as fossil fuel prices are increasing and
global warming is viewed as a threat to the environment. Because both solar and
wind are intermittent primary energy sources, both grid connected and off-grid
installations require energy storage devices to optimize their capabilities and
in many cases the energy storage devices are a necessity for the utilization of
renewable energy.
We are
currently addressing opportunities and engaged in fulfilling orders targeted to
renewable energy markets in the United States (including Hawaii), Europe,
Australia, and Africa with the intention of introducing products and services
into these markets. The United States and governments throughout the world
are implementing renewable energy mandates, tax credits, matching investments,
and other incentives related to renewable energy and energy efficiency including
the energy storage sector.
In
conjunction with our strategic partners we are actively involved in submitting
proposals to the Federal and State Governments in response to Funding
Opportunity announcements issued as a result of the American Recovery and
Reinvestment Act. These proposals cover opportunities for plant expansion, Smart
Grid initiative, Renewable Energy Initiatives as well as research and
development opportunities for applications where the Company’s technology could
bring a change to market applications that we currently do not
address.
Our
current contracts include a collaborative project (Advanced Electricity Storage
Technologies project) with the Commonwealth of Australia which commenced July
2007 running through June 2010, which includes the production and delivery of
one 500kWh energy storage system for installation into a renewable energy site
in Australia. In December 2008 we received an order for a ZESS 500 system
that was installed in conjunction with existing wind energy assets at the
Dundalk Institute of Technology in the Republic of Ireland.
A
$230,000 funded project with the Wisconsin Energy Independence Fund for the
development of our own proprietary power conversion systems for both AC to DC
and DC to DC renewable energy applications has been completed. We contracted
with a Wisconsin based partner to build and package the power electronics
components for two units for evaluation utilizing two ZESS 50 systems
manufactured under this grant.
We have
shipped and installed an order with Oregon State University for a
ZESS 50 energy storage system and its proprietary Hybrid Power Electronics (ZESS
POWR PECC) for the advanced study of wind power and energy storage
integration.
We have
shipped and installed an order with Envinity, a renewable system integrator, for
the delivery of two ZESS 50 energy storage devices and ZESS POWR PECC
designed to integrate two solar PV arrays, ten wind turbines, a hydro generator,
and a conventional generator to provide a single output power plant for an off
grid application.
17
We have
received an order for ZESS 50 energy storage system(s) and ZESS POWR PECC
from;
|
·
|
SEI
for the integration of solar PV with energy storage for an on grid
dispatchable power plant for use at a US government
facility.
|
|
·
|
NIDON
for the integration of solar PV with energy storage for an elevator system
that utilizes power from the grid and renewable energy in “Pulani Manor”,
a mid rise, multi-family apartment located near downtown Honolulu. This
system will manage the energy usage from a 20kW PV array and allows the
elevator to be operated during emergency situations and extended power
outages. The scalability of the ZESS system enables future input and
storage from other renewable energy
sources.
|
|
·
|
BC
Hydro to be utilized as part of a demonstration project that uses multiple
components (power generation, utilization, storage, and dispatch
optimization) to provide electrical power to an isolated remote area grid
with the goal of reducing reliance on diesel generation and the reduction
of greenhouse gas emissions in remote communities in British Columbia. The
project objective is to increase the utilization of BC Hydro’s Clayton
Falls small hydro plant and reduce the reliance on diesel generators at
its Ah Sin Heek generating facility
|
|
·
|
General
Atomics to be utilized as a demonstration project at its headquarters in
San Diego, California. This fully integrated ZESS power system will be
used in an on-grid configuration with photovoltaic (PV) renewable energy
generation inputs and multiple connection points for both AC and DC power
requirements that will connect to the host building’s power distribution
system. The ZESS POWR PECC system controls energy and power inputs,
directs energy flow to and from energy storage, regulates clean power to
various demonstration loads, and when available, sends excess energy to
the sites larger electrical distribution
system.
|
We
believe that some of the biggest challenges we face will be gaining market
acceptance for our newer products and reaching the renewable energy, utility and
other markets that we target. In order to be successful we must also develop a
reputation of reliability, quality service and continually drive the total cost
of ownership of our products down.
Our
systems compete with both traditional energy storage technologies, such as lead
acid batteries, as well as emerging energy storage technologies, such as
vanadium redox and sodium sulfur batteries. For our target markets, we believe
our product has a significant advantage over competing products and technologies
in terms of:
|
·
|
The
amount of energy that can be stored in a system of a given weight and size
or “energy density” (sometimes measured in Watt Hours per Kilogram or
Wh/kg) relative to lead acid, recharge cycle and overall cycle
life;
|
|
·
|
Modular
construction allowing portable applications of varying size, as compared
to the large scale, fixed site emerging
alternatives.
|
|
·
|
Modular
system configuration for permanently fixed installation with minimal
installation requirements.
|
|
·
|
Complete
integrated system offering of products for overall system optimization in
performance and site integration when combining the modularity of the ZESS
energy storage products (ZESS 50) and the modularity aspect of the ZESS
POWR PECC to allow complete integration of ZESS and other energy storage
as well as renewable and traditional energy
generators.
|
18
Product
Benefits
Distributed
Energy Applications
Performance
problems in electricity distribution grids vary in nature and severity. One way
for a utility company to address challenges in the grid is by using energy
provided by energy storage systems. The term “distributed energy” generally
refers to the deployment of energy generation and energy storage resources in
the distribution network of the grid. These assets are sited near the load
centers where they can provide an optimal source of energy. For electric
utilities our products provide a means to augment the functionality and
performance of the smart grid on a localized basis
Load
management
The ZESS
systems when located near the customer can be used to manage power and energy
either controlled by the customer or the utility as a smart grid application.
This results in cost savings and allows local integration of renewables and
provides regulated distributed generation.
Power
quality
ZESS
systems provide a means to alleviate or eliminate power quality problems by
supplying active and reactive power locally to stabilize voltage surges and
sags. The scale of the avoided costs provides an indicator of the potential
value of using distributed ZESS systems in conjunction with the
grid.
Benefits
to “green power” energy generators
Renewable
energy generators would use our ZESS systems to manage the power and energy of
the intermittent nature of the renewable energy and dispatch as needed.
Distributed renewable energy sources such as wind and solar are interconnected
to the grid for optimal usage. ZESS systems enhance the value of distributed
renewable resources by providing energy management.
Markets
ZBB
technology enables alternative energy growth and deployment. Specifically, we
address the following issues in our target markets:
Renewable
Energy
ZESS
systems provide the necessary means to control intermittent renewable power
generation and to optimize energy utilization. They also allow photovoltaic (PV)
technology to store energy when the sun is shining and provide power when
sunlight is limited. Additionally, ZESS systems can be used to store power from
solar panels and shift the distribution of that power to align with the
customers’ needs.
The ZESS
system can also work in conjunction with distributed wind turbines to manage the
power and energy of the intermittent nature of wind.
As
penetration of renewable energy increases on the utility grid, the intermittent
nature will have negative impact on grid stability. Integrating distributed ZESS
systems eliminates this problem and allows wind and solar generation to become a
dependable power source.
Smart
Grid
|
·
|
Goal
of the Smart Grid - to maximize the efficiency and reliability of the
existing infrastructure and accommodate the continued integration of
renewable power resources.
|
19
|
·
|
Evolution
of the Smart Grid will depend on cost effective energy storage. Smart grid
without smart storage equals “dumb
grid”.
|
With the
evolution of the electrical system toward the smart grid and the use of
distributed generation and energy storage, the ZESS system will be a key element
in the advancement of the smart grid. The presence of ZESS in the smart grid is
essential to achieve the Micro-grid capability, the dispatchability of
distributed renewable energy and to control the power and energy on a
distributed basis.
Commercial
Users
ZESS
systems can be charged during low cost off-peak periods when energy rates (kWh)
and peak demand charges (kW) are low and can be discharged during higher cost
on-peak hours. Demand charges per kWh and the differential between on peak and
off peak charges per kW are one of many factors in the cost/benefit of the ZESS.
The economic advantages result from the reduction of peak demand/capacity
charges deferred during on peak hours and the difference in energy prices from
off peak to on peak.
Utility
Applications for Distribution Network Support
|
·
|
Mitigates
congestion when deployed in a distributed
manner
|
|
·
|
Distributed
Energy Resource
|
|
·
|
Distributed
renewable energy management
|
|
·
|
Reduce
grid vulnerability
|
The ZESS
systems have distribution benefits to assist power sources that are constricted
by a maximum amount of power distribution capacity. When located near the end
user, the stored energy is used to supplement the load demand, reducing the
stress on the distribution network and/or preventing overloads that may cause
blackouts or brownouts as well in addition to potentially eliminating the need
to upgrade the distribution system supplying the customer load.
History
ZBB
Energy Corporation was formed in 1998 in Wisconsin as a holding company for ZBB
Technologies, Limited and ZBB Technologies, Inc. ZBB Technologies, Limited, our
Australian subsidiary, was formed in 1982 to develop commercial applications for
the zinc-bromide research being conducted by Murdoch University in Western
Australia. ZBB Technologies, Inc., our U.S. operating subsidiary, was
established in 1994 in Wisconsin to acquire the zinc-bromide technology assets
of Johnson Controls, Inc. which was engaged in research to manufacture energy
storage systems based upon the zinc-bromide technology.
Up until
2004 we were primarily engaged in research and development and through that
prior period had developed a number of prototype energy storage systems for
field trialing and evaluation by certain power utilities and other commercial
operators. Principal amongst these were large scale systems with Detroit Edison
in Michigan, USA and with United Energy in Melbourne, Australia.
In May
2004, we entered into a sales contract to provide our 500kWh energy storage
systems to our first commercial customer, the California Energy Commission
(CEC). In March 2005, we formed ZBB China Pty Ltd., a joint venture company with
China Century Group Ltd. of which we held 49%. In October 2008 we reached an
agreement in which we now own 100% of this subsidiary which is presently
inactive.
In March
2005, we completed an initial public offering in Australia of our common stock
and options to purchase common stock. Our securities were traded on the
Australian Stock Exchange Ltd. through August 2007. We received gross proceeds
of approximately US$4.5 million (A$6.0 million) in the Australian stock
offering.
20
On June
18, 2007, in connection with our initial United States public offering of
3,333,333 shares of our common stock at an initial offering price of $6.00 per
share, our shares began trading on the NYSE:AMEX (formerly the American Stock
Exchange) under the symbol “ZBB”.
In June
2007, ZBB Technologies, Ltd, our subsidiary based in Western Australia, and the
Commonwealth of Australia entered into an agreement for project funding under
the Advanced Electricity Storage Technologies (AEST) program, whereby, among
other things, the Department has agreed to provide funding to ZBB Technologies
Ltd. for the development and delivery of an energy storage system that will be
used to store and supply renewable energy generated from photovoltaic solar
panels and wind turbines already operational at the Commonwealth Scientific and
Industrial Research Organization’s Newcastle Energy Centre in New South Wales.
The agreement requires ZBB to contribute approximately $2.3 million (A$2.8
million) of any cash and in-kind contributions to the project including a newly
developed 500KwH energy storage system This agreement provides for a three year
term under which the Commonwealth of Australia will provide $2.5 million (A$3.1
million) in project funding over several periods through June 2010.
During
the year ended June 2009 we completed the necessary certification process to be
awarded ISO 9001:08 compliance for our Milwaukee manufacturing facility. We also
worked in conjunction with one of Eaton’s supply chain partners to ensure that
our ZESS module control system that is fitted to all of our battery modules is
certified by Underwriters Laboratory and bears the necessary UL508 certification
stamp mark. These two items were key objectives to be achieved from our 2007
IPO.
In
December 2009 we were awarded a $1.3 million Wisconsin Clean Energy Business
Loan through the American Recovery and Reinvestment Act. We anticipate closing
this loan transaction in May 2010. During the quarter ended March 31, 2010 we
received a $1.5 million financing commitment from our bank to supplement the
Wisconsin Clean Energy Business Loan. The proceeds of this financing will be
utilized for working capital, equipment purchases and development expenses
relating to our next generation model, version 3 (V3)
Technology
ZESS
50 Flow Battery
The ZBB
Zinc Energy Storage System (ZESS) is a proprietary and patented flow cell
battery based on zinc/bromide technology, which is very different in concept and
design from more traditional methods of energy storage such as the lead/acid
battery. The ZESS technology is based on the reaction between the two chemicals,
zinc and bromide. ZESS is a trade mark protected name owned by ZBB Energy
Corporation.
Unlike
the lead acid and most other batteries, the ZESS uses electrodes that do not
take part in the reactions but merely serve as substrates for the reactions.
There is a minimal loss of performance, unlike most rechargeable batteries, from
repeated cycling causing electrode material deterioration. During the charge
cycle metallic zinc is plated from the electrolyte solution onto the negative
electrode surfaces in the cell stacks. Bromide is then converted to Bromine at
the positive electrode surface of the cell stack and is immediately stored as a
safe chemically complexed organic phase in the electrolyte tank. When the ZESS
discharges, the metallic zinc plated on the negative electrode dissolves in the
electrolyte and is available to be plated again at the next charge cycle. In the
fully discharged state the ZESS can be left indefinitely.
The ZESS
offers two to three times the energy density (75 to 85 watt-hours per kilogram)
and weight savings over present lead/acid batteries. The power characteristics
of the ZESS can be modified, for selected applications. Therefore, the ZESS has
operational capabilities which make it extremely useful as a multi-purpose
energy storage option.
21
Powr
PECC
ZBB’s
Power and Energy Control Center Technology (“PECC”) provides the ability to
independently optimize the control of each generating source (or to provide the
ability to increase energy production of renewable power sources by providing
optimization of multiple sub-sets of the renewable sources) while having the
ability to provide any combination (type, size and quantities) of controlled
output (AC grid connected, AC off grid, or combination thereof for backup power,
a variety of DC outputs or any combination of AC and DC outputs) all in a single
factory tested package. These modules also have the ability to produce multiple
output voltages, and can provide from 25 kW to 100 kW with ZESS 50 units and 125
kW to 2 MW of power coupled with multiple ZESS 50 units.
With
advancements in the ZESS energy storage products and the incorporation of the
ZESS POWR PECC, ZBB is now positioned to provide solutions to system integrators
that will eliminate the segmented approach currently experienced today. The POWR
PECC also provides a more economical integration that uses the complete value of
ZESS energy storage and consequently gains efficiencies in storing renewable
energy sources for time of use applications, providing a controlled renewable
energy power plant. The ZESS product portfolio remains focused on the control of
electrical power and energy with its core ZESS energy storage technology at the
heart of the system and complimented with the new power conversion solutions.
ZBB’s product line is ideally suited for a number of utility markets, remote
area power and renewable energy applications. ZBB also plans to sell the PECC
product line independent of the ZESS 50.
Product
Design
The ZESS
technology is composed of a module or a series of modules for increased power.
The ZESS 50 stores 50 kWh of electrical energy and the module contains three
stacks each containing 60 cells. The module dimensions are 4’ x 4’ x 6.5’,
weighing 3,200 pounds. The ZESS 50 is well suited for large residential
applications, commercial application with and without renewable energy sources.
The ZESS 50 has rapid charging capabilities and fully charges from 0% State of
Charge to 100% in approximately four hours. ZESS 50 modules can be connected in
parallel or series to scale up to storage capacities of 500kWh’s.
The ZESS
50 provides “Turnkey” capabilities at a product level based on the ease of
transporting, site locating and connecting the systems into the grid or other
alternative energy generating sources. Along with ZBB’s most recent addition to
the product portfolio, the ZESS POWR PECC, ZBB now provides the unique ability
to automatically optimize the energy from the generating source, manages the
power and energy in the system and provides the customer required output whether
that is to the electric grid, or off grid.
Our
systems provide a fully integrated energy storage solution for direct connect
and integration of multiple units of ZESS and or multiple types and quantities
of energy generating sources including all renewable and conventional sources;
while providing the customer with a single point of connection and thus
eliminating system integration complexity and issues arising from variable
devices and coordinating/integrating such devices in an efficient and optimal
way.
The
battery stacks are predominantly manufactured with recyclable plastics, allowing
for low production costs and economical mass production while being
environmentally friendly both in the manufacturing process as well as throughout
the products lifecycle.
Competition
Our
energy storage systems are protected by U.S. and international patents and trade
secrets law covering certain aspects of our manufacturing process and our
zinc-bromine technology. We have been granted 14 patents to date and have
additional patent applications pending.
Our
systems compete with both traditional energy storage technologies, such as lead
acid batteries, as well as emerging energy storage technologies, such as lithium
ion, vanadium redox and sodium sulfur batteries and other advanced energy
storage, however believe our factory built and tested modular system
configurations are unique and target market applications are interested in
optimizing the complete energy storage solution. For our target markets, we
believe our energy storage solutions have significant advantages over competing
companies’ products and solutions in terms of:
22
|
·
|
The
amount of energy that can be stored in a system of a given weight and size
or “energy density” (sometimes measured in Watt Hours per Kilogram or
Wh/kg) relative to lead acid, recharge cycle and overall cycle
life.
|
|
·
|
Competitive
life-cycle cost, based on dollars per Kilowatt Hours (kWh) delivered, as
well as life of the module
components.
|
|
·
|
Modular
construction allowing portable applications of varying size, as compared
to the large scale, fixed site emerging
alternatives.
|
Competing
Technologies
Lead-acid — Lead-acid is one
of the oldest and most developed battery technologies. It is a low initial cost
and popular choice for energy storage, but its suitability for energy management
is very limited in applications that require deep discharge, long cycle life and
longer term energy storage. Furthermore, the base components (lead and sulfuric
acid) used in this type of battery are neither desirable to handle and recycle
or to have installed in a facility without more extensive infrastructure and
precautions.
Compared
to lead-acid battery technology, we believe the zinc-bromine flow battery
provides longer life-cycle, performance at a lower overall cost while utilizing
materials that are more environmentally friendly. In addition, lead acid life
time and performance is very sensitive to ambient temperature.
We
believe that our product has certain superior functionality characteristics over
the leading lead acid technology of comparable 50kWh system,
including:
Vanadium Redox — A flow
battery that stores energy by use of vanadium dissolved in sulfuric acid
solutions. Larger system foot print, toxicity, higher installation effort,
custom designed construction project.
Sodium Sulphur (NaS) — A
battery consisting of molten liquid sulfur at the positive electrode and molten
metallic sodium at the negative electrode, separated by a solid beta alumina
ceramic electrolyte. The battery for this device must always be maintained at
high temperatures of approximately 300° C to allow the process to occur. This
solution consists of significant installation effort and is typically of much
larger or centralized type of energy storage as opposed to a distributed
approach.
Sodium Nickle (NaNi) — A
twenty year old technology that offers broad temperature range and high energy
density but has a cost estimated 4 x lead acid pricing.
Polysulfide Bromide (PSB) — A
flow battery system based on a regenerative fuel cell technology that provides a
reversible electrochemical reaction between two salt solution electrolytes
(sodium bromide and sodium polysulphide).
Metal-Air — Potential high
energy density and low cost battery, but electrical recharging is very difficult
and is still in development.
Lithium Ion — Also known as
Li-ion, these batteries offer high energy density and high efficiency. Li-ion is
widely used in small portable markets, but high manufacturing cost presently
prohibits large scale industrial applications.
Flywheels — These primarily
consist of a massive rotating cylinder operating in a low vacuum environment to
improve efficiency. The main use for flywheels is for short-term uninterruptible
power supply (UPS) and aerospace applications. Large scale applications would
require a flywheel “farm” approach.
Pumped Hydro Storage — Pumped
hydro storage is not a battery device, but rather, uses two reservoirs to create
a limited amount of energy on demand. During off peak hours water is pumped from
the lower reservoir to the upper; the water flow is reversed to generate
electricity. This method is widely used but characterized by long construction
times and high capital expenditure and requires a large geographic area and
water supply.
23
CAES — A peaking gas turbine
power plant using compressed air stored in large underground caverns inside salt
rocks.
Super Capacitor Storage —
These are devices with high power density and primarily designed for shorter
duration higher power ratio of operation. Current focus is on small scale
applications. Large scale applications are still under development.
Recent
Developments
Due to
the departure of Rob Parry as the Company’s CEO in October
2009, we have recently completed reconstructed our management team and technical
staff with the intention of accelerating product development, improving
manufacturing efficiencies and improving our financial controls. Major changes
include the hiring of a new permanent chief executive officer, Eric Apfelbach
and a new Senior Vice President of Marketing, Dan Nordloh. Certain members
of the existing staff were promoted and reassigned additional duties that fit
with their areas of expertise. Kevin Dennis was promoted Senior Vice President
of Sales and Application and Design Engineering and Scott Scampini, in addition
to his chief financial officer duties, was assigned the Manufacturing Operations
duties.
We are
also continuing our initiatives to establish an integrated solar and storage
village power system for off-grid applications in Africa and other strategic
locations, through our relationship with Likusasa and their capabilities to
handle installation, maintenance and monitoring throughout regional Africa.
Units are currently in the process of being manufactured, shipped and/or
installed in South Africa, Ireland, British Columbia(Canada), California,
Oregon, Pennsylvania and Hawaii.
Manufacturing
operations were suspended for most of the quarter ended March 31, 2010 for
retooling of the stack manufacturing process related to our Version 2 module
(V2). V2 encompasses improvement in efficiencies and stack life and which we
expect to begin manufacturing during the quarter ending June 30,
2010.
We are
currently in the process of developing of our next generation module, the
version three (V3), which has substantial changes in design, function and
significant cost of ownership reduction.
We are
currently working in the California energy market, in association with the
California Energy Commission, Pacific Gas & Electric and the US Department
of Energy amongst others, to install products into the local transmission and
distribution network. In addition we are currently addressing numerous
opportunities in the renewable energy markets within the United States along
with a diverse international marketplace with the intention of introducing
products and services into these markets.
Our
current AEST project with CSIRO, an agency of the Australian Federal Government,
continued throughout fiscal 2009, as planned. At the core of this project is the
development of the next generation of our ZESS 50kWh module. As a development
project the work program is therefore set as a series of milestones that measure
and report upon the progress toward a successful outcome. This project has
achieved and reported every milestone on time and on budget. The system modules
have now been manufactured and assembled and this system shipped to the site in
late September and was commissioned the following month. The project will run
through to the end of June 2010.
As
mentioned above, we extended our intellectual property (IP) portfolio during
fiscal 2009 with a new patent application filed for the ZESS POWR PECC system
and filed internationally through the PTC. The Company is active in reviewing
its IP portfolio together with other key engineering designs to ensure we
protect and expand our intellectual position and to maintain this valuable
technology as a cornerstone of our enterprise valuation.
The
Company continues to develop its proprietary ZESS POWR Hybrid power electronics
product for integrating ZESS energy storage technology directly with all sizes,
types and numbers of renewable energy sources in a single product. This product
performs the renewable energy functions that traditional inverters have done
over the past while integrating with energy storage in an optimal way with a
single “power plant” output for use on the electric utility grid or as an off
grid power plant. With this, integrators, Independent Power Producers (IPP’s),
commercial customers and electric utilities can leverage all the existing ZESS
system benefits of peak demand shifting with the addition of providing a
controlled and regulated renewable energy power plant. After these confirming
technology efforts with our proven power electronics partners and product
research in the market, the Company filed for patent in January of 2009. The
combined flexibility and modularity of the ZESS energy storage combined with the
flexibility and modularity of the ZESS POWR Power and Energy Control Center
(PECC) has provide the Company and its customers with a “game changing solution”
as stated by multiple system integrators and by its power electronic
partners.
24
Marketing
and Sales
We
continue to establish our sales and marketing staff with the recent addition of
a VP of Business Development and Marketing. As such, several strategic
relationships have been established with additional strategic relationships in
the process of being established in the different market sectors in the form of
key system integrator relationships, distributors, sales representative
organizations and OEM arrangements. We are and have been focusing our sales
efforts on the Energy storage integration with Renewable Energy for Electric
utilities, system integrators and IPP’s, commercial and industrial customers.
Additionally, we continue our focus in developing the Remote Area Power Systems
and commercial customers. ZBB has introduced a fully integrated ZESS offering
that provides customers with additional value to utilize a modular format for
energy storage applications and/or when integrating different renewable energy
resources. We do not believe that all distribution networks are appropriate for
the sale of our products to utility or renewable energy companies and we
therefore deal directly or through key distributors with our
customers.
The
technical characteristics of the ZESS system make it a strong candidate for a
wide range of energy markets. Some markets are more established and defined than
others, while some are still developing. Our strategy in reaching these markets
is based on exceeding performance and cost thresholds of competing technologies
and solutions. We plan to continue pursuing appropriate distribution and sales
arrangements with suitably qualified channel partners with established
operations capable of selling, installing and maintaining our products. At
present, ZBB has established relationship in geographical areas in the
northwest, the southwest, the northeast and Hawaii as well as an extension of
key channels through our relationship with Eaton Corporation.
We have
commercialized our systems for smaller Remote Area Power Systems and have
established distributor relationships in developing areas. We believe these
relationships will prove to be beneficial to ZBB, utilizing ZBB’s ZESS energy
storage products as well as its patent pending ZESS POWR PECC. Commercial and
home owner use, we may be required to utilize services of distributors that sell
to regional and national chain stores and home energy product re-sellers. We do
not currently have any distribution relationships for our products in this
market; however these are presently being developed.
We have
completed the process to achieve ISO 9000 certification for our Wisconsin plant
and operations and are now certified as ISO 9000-2008. We have also completed
the process of UL certification for our ZESS controls and in process of
achieving the UL certification in the power electronics portion of the ZESS
products via our power electronic supplier. We intend to pursue the power
conversion market and continue to assess the demand for our products in this
market, however there can be no assurance that we will be able to achieve this
strategic objective. To address the lower power/energy applications such as
residential and some remote power systems applications such as
telecommunications (“TELCO”), we are in the process of evaluating an optimal
product configuration that will address these markets in the
future.
Our
long-term strategic goal is to expand our customer base enabling us to
ultimately produce and sell energy storage systems to residential and commercial
customers who want to possess an alternative energy system for their businesses
or homes. Alternative energy applications have driven the marketplace for energy
storage solutions to manage the power and energy being produced for either on or
off grid applications.
The
multi-faceted value of the ZESS product portfolio and system solutions for
renewable energy, utility grid demand management, commercial and off grid remote
power systems, backup power systems as well as Smart Grid applications have been
demonstrated by the increase in customer RFQs.
25
Intellectual
Property
A
description of the current patented technologies, processed number of patents
and patent applications, along with the jurisdiction of patent application/grant
is as follows:
While we
have not patented our flow channel technology, management believes that the
technology is sufficiently difficult to develop and would require years of
research to replicate. So far, we have not seen any competitor be successful in
implementing the technologies necessary for manufacturing zinc bromide systems.
If a competitor is able to discover our processes and manufacture this product
on a commercial level, we may be materially and adversely affected. Therefore,
management revisits its patent application process from time to time and may in
the future file one or more patents relating to our flow channel technology as
well as other technologies that we develop if it determines that the risks of
disclosure are outweighed by the risks of non-protection of the patent in
question.
ZBB has
recently filed for patent (patent pending) “Method and apparatus for controlling
a hybrid power system” for its unique modular, flexible and standardized power
electronics topology known as the ZESS POWR Power and Energy Control Center
(PECC) for providing a single product integration of any combination of ZESS
products, renewable energy sources and/or conventional generating sources; while
providing a single or multiple outputs for a customers use, whether that be a
grid connect system, and off grid system or a DC distribution system at any
voltage level or a combination of all of the above.
Employees
We
currently have an aggregate of 30 full time employees, of which 25 are located
at our U.S. manufacturing and corporate headquarters in Wisconsin, and five
employed at our Research and Development facility in Australia. Currently ZBB
has a total of 23 professional staff and seven non professional staff. We expect
staffing numbers to significantly increase as our business grows and new
production equipment is deployed in accordance with our business expansion
plans.
Sources
and Availability of Raw Materials
We
believe that the chemicals used in the electrolyte that we acquire are readily
available and that the mixing of these substances in accordance with our
specifications can be outsourced to various blending facilities. Currently, we
outsource our electrolyte sorting and blending to a company in New Jersey,
however, other blending facilities are also available in the United States.
Similar, basic chemical raw materials are secured from Israel by the blending
company on our behalf, however, the ingredients that comprise our electrolyte
are not rare substances and we believe that other suppliers are
available.
To
improve manufacturing process efficiency, we outsource all basic manufacturing
processes, such as injection and rotational molding for elementary component
parts, and the mixing of our zinc bromide electrolyte solution, and devote our
production capacity to the proprietary “value added” manufacturing of the cell
stacks. We have patented designs and own all molds for all of the major parts of
our cell stacks and tanks. All companies to which we outsource our manufacturing
work are subject to confidentiality agreements.
We have
developed unique, and in several cases, proprietary process technology and
equipment for manufacturing of our energy storage products, the principal
product components of which are electrodes, separators, flow frames and end
blocks. The core manufacturing undertaken by us is the construction of
hermetically sealed, leak proof cell stacks, which consist of nearly 100%
plastic materials. The equipment and general techniques used by our
manufacturers are generally well-known manufacturing techniques employed in
several fields, including the automotive industry, and we believe that
alternative sources of manufacturing are available.
The
following discussion and analysis should be read in conjunction with our
Consolidated Financial Statements and related Notes included elsewhere in this
prospectus. Some of the information contained in this Management’s Discussion
and Analysis of Financial Condition and Results of Operations and elsewhere in
this report includes forward-looking statements based on our current
management’s expectations. There can be no assurance that actual results,
outcomes or business conditions will not differ materially from those projected
or suggested in such forward-looking statements as a result of various factors,
including, the risks and uncertainties discussed in the Risk Factors section of
this prospectus.
26
Critical
Accounting Policies
Estimates
and assumptions
Management’s
discussion and analysis of the financial condition and results of operations are
based upon the consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires the Company to
make estimates and judgments that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses for
each period. The following represents a summary of the Company’s critical
accounting policies, defined as those policies that the Company believes are:
(a) the most important to the portrayal of our financial condition and results
of operations, and (b) that require management’s most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effects of matters that are inherently uncertain. Estimates and assumptions are
made by management to assess the overall likelihood that an accounting estimate
or assumption may require adjustment. Management assumptions have been
reasonably accurate in the past, and future estimates or assumptions are likely
to be calculated on the same basis.
Foreign
Currency
The
Company uses the United States dollar as its functional and reporting currency,
while the Australian dollar is the functional currency of one of its foreign
subsidiaries. Assets and liabilities of the Company’s foreign subsidiary are
translated into United States dollars at exchange rates that are in effect as at
the balance sheet date while equity accounts are translated at historical
exchange rates. Income and expense items are translated at average exchange
rates which were applicable during the reporting period. Translation adjustments
are accumulated in Accumulated Other Comprehensive (Loss) as a separate
component of Shareholders’ Equity in the consolidated balance
sheet.
Revenue
Recognition
The
Company currently contracts with its customers to develop, manufacture, install
and service its energy storage systems under short and long-term contracts.
These contracts have resulted in two distinct arrangements and revenue
recognition policies. The first type of contract is for the production, delivery
and installation of energy storage systems. The second type of contract is for
product engineering and development activities.
Product
sales orders that have relatively short duration (typically less than one year)
normally use the completed-contract method of revenue recognition rather than
the percentage-of-completion method. Revenues are recognized when the sales
price is fixed, collectability is reasonably assured, the product has received
customer acceptance and either title or risk of loss has transferred to the
customer. Typically, these conditions are met at the time the product is
delivered to the customer. The Company charges shipping and handling fees when
products are shipped or delivered to a customer, and includes such amounts in
net sales. The Company reports its sales net of actual sales
returns.
Revenue
recognition on energy storage system long-term contracts utilizes the
percentage-of-completion method which recognizes revenue proportionally as costs
are incurred and compared to the estimated total costs for each contract. This
has been the predominant method used in estimating revenues recognized in past
reporting periods.
Engineering
and development contracts are typically collaborative agreements to further
develop renewable energy technologies and are often sponsored and partially
funded in various amounts between government agencies and the Company. Often
multi-year agreements which contain several elements and provide for varying
consideration based on allowable costs, milestones and similar payment
provisions and may provide for future licensing and royalties beyond the term of
the arrangement. Revenue associated with these types of contracts are typically
of longer duration and recognized under the percentage-of-completion
method.
27
Inventories
Inventories
are stated at the lower of cost (first-in, first-out method) or market and
consist of raw materials, work in progress and finished goods held for
resale.
Costs
incurred in bringing each product to its present location and conditions are
accounted for as follows:
|
·
|
Raw
materials – purchased cost of direct
material
|
|
·
|
Finished
goods and work-in-progress – purchased cost of direct material plus direct
labor plus a proportion of manufacturing
overheads.
|
The
Company evaluates the recoverability of its slow moving or obsolete inventories
at least quarterly. The Company estimates the recoverable cost of such inventory
by product type while considering factors such as its age, historic and current
demand trends, the physical condition of the inventory as well as assumptions
regarding future demand. The Company’s ability to recover its cost for slow
moving or obsolete inventory can be affected by such factors as general market
conditions, future customer demand and relationships with suppliers.
Historically, the Company’s inventories have demonstrated long shelf lives, are
not highly susceptible to obsolescence and are eligible for return under various
supplier return programs.
Property,
Plant and Equipment
Land,
building, office and manufacturing equipment, and test units are recorded at
cost. Maintenance, repairs and betterments are charged to expense.
Finished
goods normally held for sale to customers may sometimes be used in demonstration
and testing by customers. During the periods that the units are transferred from
inventory to plant and equipment they are depreciated over the period in use.
Since the intent is for these units to be eventually sold they are returned to
Inventory upon the completion of customer demonstration and testing at their
written down value.
Depreciation
is provided for all plant and equipment on a straight line basis over estimated
useful lives of the assets.
Stock-Based
Compensation
The
Company follows the provisions of “Share-Based Payment” (“FASB ASC topic 718”),
which requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values.
Accordingly,
the Company measures share-based compensation cost for all share-based awards at
the fair value on the grant date and recognition of share-based compensation
over the service period for awards that are expected to vest. The fair value of
stock options is determined based on the number of shares granted and the price
of our ordinary shares, and calculated based on the Black-Scholes valuation
model. Black Scholes valuation attributes used in the model include expected
volatility, term, and risk-free interest rate. Expected volatility is based on
the historical volatility of the Company’s share price for the period prior to
option grant equivalent to the expected life of the options. The expected term
is based upon management’s estimate of when the option will be exercised. The
risk-free interest rate for periods within the contractual life of the option is
based upon the U.S. Treasury yield curve in effect at the time of
grant.
The
Company only recognizes expense to its consolidated statement of operations for
those options or shares that are expected ultimately to vest, using two
attribution methods to record expense, the straight-line method for grants with
only service-based vesting or the graded-vesting method, which considers each
performance period or tranche separately, for all other awards.
28
Advanced
engineering and development
The
Company expenses advanced engineering and development costs as incurred. These
costs consist primarily of labor, overhead, and materials to build prototype
units, materials for testing, develop manufacturing processes and include
consulting fees and other costs.
To the
extent these costs are separately identifiable, incurred and funded by advanced
engineering and development type agreements with outside parties, they will be
shown separately on the statement of operations as a “cost of engineering and
development contract”.
Goodwill
Goodwill
is recognized as the excess cost of an acquired entity over the net amount
assigned to assets acquired and liabilities assumed. Goodwill is not amortized
but reviewed for impairment annually as of June 30 or more frequently if events
or changes in circumstances indicate that its carrying value may be impaired.
These conditions could include a significant change in the business climate,
legal factors, operating performance indicators, competition, or sale or
disposition of a significant portion of a reporting unit.
Testing
for the impairment of goodwill involves a two step process. The first step of
the impairment test requires the comparing of a reporting units fair value to
its carrying value. If the carrying value is less than the fair value, no
impairment exists and the second step is not performed. If the carrying value is
higher than the fair value, there is an indication that impairment may exist and
the second step must be performed to compute the amount of the impairment. In
the second step, the impairment is computed by estimating the fair values of all
recognized and unrecognized assets and liabilities of the reporting unit and
comparing the implied fair value of reporting unit goodwill with the carrying
amount of that unit’s goodwill.
Recent
Accounting Pronouncements
See Note
2 in the accompanying notes to consolidated financial statements for the years
ended June 30, 2009 and June 30, 2008 and Note 4 in the accompanying notes
to consolidated financial statements for the quarter and nine months ended March
31, 2010.
Presentation
of Financial Statements
On
February 4, 2010 we announced that our audit committee and management determined
a customer contract recorded in June 2009 did not properly meet the delivery
criteria under Staff Accounting Bulletin No. 101 to qualify for revenue
recognition and that other contract arrangements were not considered when
revenue was recorded. As a result, the Company restated its previously issued
consolidated financial statements for the fiscal year ended June 30, 2009
included in the Company’s fiscal 2009 Form 10-K, and the consolidated financial
statements for the fiscal quarter ended September 30, 2009 included in the
Company’s first quarter Form 10-Q.
In
recording the revenue transaction for the fiscal year ended June 30, 2009
management analyzed the customer contract and used the following judgments in
considering if the revenue recognition criteria was met 1) the equipment was
shipped on or prior to June 30, 2009, 2) the customer had paid for the equipment
in full prior to shipment and 3) the customer had signed off on the
functionality of the equipment prior to shipment. However, transfer of risk and
title had not been achieved based on contracted freight terms and as required
per Staff Accounting Bulletin 101 prior to the recognition of revenue. In
addition, the Company’s procedures failed to identify the existence of a
maintenance agreement and a commissioning charge that were separately stated in
the customer agreement.
29
During
the nine month period ended March 31, 2010, manufacturing equipment previously
used in production and development activities were identified as impaired or had
reached the end of their respective useful lives due to changing product and
manufacturing technologies. Upon write-down the manufacturing equipment and
accumulated depreciation accounts were adjusted accordingly and $828,089 in
charges to operations were reported as impairment and other equipment
charges.
Results
of Operations
Three
months ended March 31, 2010 and 2009:
Revenue:
Our
revenues for the three months ended March 31, 2010 and 2009 were $188,780 and
$219,853, respectively, a decrease of $31,073. The decrease is related to the
upcoming completion of the Australian AEST project as of June 30, 2010. Revenues
for both periods include estimates based on the percentage-of-completion method
of accounting for long-term contracts, and revenue for the three months ended
March 31, 2010 includes $29,669 revenue from product commissioning.
Cost
and Expenses and Other Income (Expense):
Total costs and
expenses. Total costs and expenses for the three months ended
March 31, 2010 and 2009 were $2,178,498 and $1,697,040, respectively. The
increase of $481,458 in the three months ended March 31, 2010 was primarily due
to increased advanced engineering and development (AE&D) expenses of
$148,269 and an increase in selling, general, and administrative (SG&A)
expenses of $253,546. AE&D expenses increased due to further development of
product technology. SG&A expenses increased due to an increase in executive
officer salaries and expenses related to DOE ARPAE proposal
preparation.
Other
expense. Other expense for the three months ended March
31, 2010 and 2009 was $31,986 and $47,146, respectively. Interest income for the
three months ended March 31, 2010 was $8,074 compared to $23,689 in the three
months ended March 31, 2009, a $15,615 decrease. The decrease in other expenses
for three month period ended March 31, 2010 was primarily due to other income of
$14,201 from the sale of scrap materials and freight charges to customers in the
three month period ended March 31, 2010.
Cost of product
sales. Our cost of product sales for three months ended
March 31, 2010 and 2009 were $0 in both periods. The costs of product
commissioning in the three months ended March 31, 2010 are included in AE&D
expenses.
Advanced engineering and
development. Our
engineering and development costs for the three months ended March 31, 2010 and
2009 were $905,949 and $757,680, respectively. The increase during the three
month period ended March 31, 2010 of $148,269 from the comparable 2009 period
was primarily due to increased costs related to the further development of our
battery and modular power electronics in the newly developed POWR PECC TM
complete energy storage systems, including contracted non-recurring engineering
and testing costs, baseline testing and focused efforts to improve the
reliability, efficiency, and commercial production of the battery stack. In
addition, during the three months ended March 31, 2010 costs were incurred
relating to the development of our next generation (V2) module which we expect
to begin manufacturing in the quarter ending June 30, 2010.
Selling, General and
Administrative. Our selling, general and administrative
expense for the three months ended March 31, 2010 and 2009 was $1,141,069 and
$887,523, respectively. The current period included increases in expenses for
executive officer salaries and expenses related to the preparation of government
grant proposals.
Impairment and other
equipment charges. During the three month period ended
March 31, 2010 management determined that certain test equipment was impaired by
the amount of $47,858 due to technological obsolescence.
30
Net
Loss. Our net loss for the three months ended March 31,
2010 was $2,021,704, representing a $497,371 increase in net loss as compared to
a net loss of $1,524,333 for the three months ended March 31, 2009.
Nine
months ended March 31, 2010 and 2009:
Revenue
and Other income:
Our
revenues for the nine months ended March 31, 2010 and 2009 were $1,556,148 and
$733,738, respectively, an increase of $822,410. This was result of an increase
in revenues of $967,455 from product sales and revenues as compared to the nine
month period ended March 31, 2009 and a $145,045 decrease from engineering and
development revenues. Revenues include estimates based on the
percentage-of-completion method of accounting for long-term contracts and units
completed and shipped during the period.
The
increase in product sales was substantially related to the ZESS 500 Dundalk
system shipment.
Cost
and Expenses and Other Income (Expense):
Total costs and
expenses. Total costs and expenses for the nine months
ended March 31, 2010 and 2009 were $8,347,682 and $4,859,390, respectively. The
increase of $3,488,292 in the nine months ended March 31, 2010 was primarily due
to increased cost of product sales of $899,287, increases in advanced
engineering and development costs of $419,851, increases in selling, general,
and administrative costs of $1,194,498, impairments and other equipment charges
of $828,089 and increase in depreciation expense of $146,567.
Other
expense. Other expense for the nine months ended March
31, 2010 and 2009 was $67,551 and $25,471, respectively, a net increase of
$42,080 compared to the nine month period ended March 31, 2009. The increase is
primarily due to a decrease in interest income of $63,867
Cost of product
sales. Our cost of product sales for nine months ended
March 31, 2010 and 2009 were $899,287 and $-0-, respectively. The increase in
expense in the nine month period ended March 31, 2010 was due an increase in
energy storage system shipments in the current period. There were no product
sales recognized during the nine month period ended March 31, 2009. The cost of
product sales remains relatively high in relation to sales due to the limited
levels of commercial activity, resulting in less than optimal economies of scale
and limited ability to obtain favorable terms from vendors.
Advanced engineering and
development. Our
engineering and development costs for the nine months ended March 31, 2010 and
2009 were $2,538,197 and $2,118,346, respectively. The increase during the nine
month period ended March 31, 2010 of $419,851 from the comparable 2009 period
was primarily due increased costs related to the further development of our
battery and modular power electronics in the newly developed POWR PECC TM
complete energy storage systems, including contracted non-recurring engineering
and testing costs, baseline testing and focused efforts to improve the
reliability, efficiency, and commercial production of the battery
stack.
Selling, General and
Administrative. Our selling, general and administrative
expense for the nine months ended March 31, 2010 and 2009 was $3,748,839 and
$2,554,341, respectively. The current period included significant corporate
charges related to the resignation of the previous CEO, related tax, legal, and
interim CEO costs, financial and tax consultants, government grant proposal
preparation expenses, fund raising activities and two additional paid
directorship positions compared to the nine month period ended March 31,
2009.
Included
in the $1,194,498 SG&A expense increase was approximately $390,000 in
severance pay, $180,000 in increased legal fees, $123,000 in increased fund
raising expenses, $102,000 in increased stock compensation expense, $67,000 in
increase directors fees and $210,000 in increased marketing, advertising and
promotion costs, as compared to the nine month period ended March 31,
2009.
31
Impairment and other
equipment charges. During the nine month period ended
March 31, 2010 management and our audit committee determined, based on a
impairment evaluation conducted by management and an onsite observation of
inventory and property, plant, and equipment conducted by the Company’s
independent auditors, equipment held by our Australian subsidiary was impaired
and would require the Company to recognize an impairment loss of approximately
$425,000. Long-term manufacturing assets at the Wisconsin operation were also
identified to have reached the end of their useful lives. The net charge to
operations, after adjusting the carrying values of these assets, was $828,089
during this period.
Net
Loss. Our net loss for the nine months ended March 31,
2010 was $6,859,085 representing a $2,707,963 increase in net loss as compared
to a net loss of $4,151,123 for the nine months ended March 31,
2009.
Years
ended June 30, 2009 and 2008:
Revenue
and Other income:
Our
revenues for the years ended June 30, 2009 and 2008 were $1,156,792 and
$1,279,599, respectively, a decrease of $122,807. This was the result of a
decrease in revenues of $235,068 from commercial product sales and revenues, and
an $112,261 increase in engineering and development revenues as compared to the
year ending June 30, 2008. Revenues include estimates based on the
percentage-of-completion method of accounting for long-term
contracts.
Other
income for the year ended June 30, 2009 reflects a decrease in interest income
of $360,585 compared to the year ended June 30, 2008, and a decrease of $54,595
in other income, primarily due to reductions in rental income. The decrease in
interest income is a result of decreasing cash balances invested from the
proceeds of the Company’s U.S. public offering in June 2007. Interest income is
expected to continue to decrease in future periods as proceeds from the public
offering are utilized for capital expenditures and operational purposes and from
lower interest rates on the funds invested.
Cost
and Expenses and Other Expense:
Total
costs and expenses for the year ended June 30, 2009 and 2008 were $6,667,934 and
$6,525,444, respectively. This increase of $142,490 in the year ended June 30,
2009 was primarily due to increased costs of $300,671 related to additional
engineering and development activities as required under the AEST , and
increases in selling, general, and administrative costs of $124,146, and
reductions of $244,283 in cost of product sales. These increases in costs were
partially offset by a decrease of $38,044 in depreciation expense.
Other
expenses for the years ended June 30, 2009 and 2008 were $182,074 and $206,158,
respectively. This decrease of $24,084 in other expenses for the period ended
June 30, 2009 was primarily due to a $52,813 decrease in finance costs incurred
during the comparable period of the prior fiscal year which included a early
debt retirement charges from the proceeds of the public offering, offset by
increases to interest expense of $28,729 in the period ended June 30, 2009
primarily from additional equipment financing.
Cost of product
sales. Our cost of product sales for the years ended
June 30, 2009 and 2008 were $56,468 and $300,751, respectively. The decrease in
expense in the year ended June 30, 2009 was primarily due to the reductions in
revenue recognized and the related cost of product sales on units completed and
shipped under the completed contract method of revenue recognition. Revenue
recognition and related production expenses incurred on the 500 Kwh system
shipped to Dundalk Institute of Technology, Ireland on June 30, 2009 has been
deferred until the first quarter of 2010.
Selling, General and
Administrative. Our selling, general and administrative
expense for the years ended June 30, 2009 and 2008 was $3,474,476 and
$3,350,330, respectively. The expense during the current twelve month period
reflected an increase of $124,146 compared to the year ended June 30, 2008
resulting from the establishment of the sales and marketing department,
increases in non-cash charges related to share based compensation to key
management and directors, and partially offset by salary reduction and other
cost saving strategies implemented during the period.
32
Travel
costs were $206,581 and $296,341 for the years ended June 30, 2009 and 2008,
respectively, an $89,760 reduction. The costs were reduced by cost saving
measures in the current period as well as a reduction in customer based travel
related to installation and testing of energy storage systems sold in California
incurred during the previous annual period. We expect overall travel related to
marketing and business development to increase as our sales efforts and
installations increase, but decrease as a percentage of sales.
Insurance
costs include insurance benefits for employees of $120,329, general insurance of
$55,843, and directors and officers insurance of $40,500. During the comparable
twelve month period ended June 30, 2008, insurance costs include insurance
benefits for employees of $120,821, general insurance of $64,816 and $39,500 in
directors and officers insurance costs were incurred.
Advanced engineering and
development. Our engineering and development
costs for the years ended June 30, 2009 and 2008 were $2,859,094 and $2,558,423,
respectively. The increase during the year ended June 30, 2009 of $300,671 from
the comparable 2008 period was primary due to the increase in advanced
engineering and development costs and materials under the AEST project contract
which commenced in July 2007. Expenses were partially offset by $126,997
received from the Australian government during the year ended June 30, 2009 as
tax concession funding for research and development expenditures. The costs
incurred under the current AEST contract have been classified as advanced
engineering and development expenditures, and have not been allocated or
included in cost of sales.
Net Loss. Our net loss
for the years ended June 30, 2009 and 2008 was $5,561,056 and $4,904,663,
respectively, resulting in a $656,393 increase in net loss as compared to the
year ended June 30, 2008. In summary, this increase in loss was primarily the
result of a $122,807 decrease in revenues, $142,490 increase in operating costs,
a reduction of $360,585 in interest income, and reductions in other income and
expense of $30,511.
Liquidity
and Capital Resources
Since our
inception, our research, advanced engineering and development, and operations
were primarily financed through debt and equity financings, and government
grants. Total paid in capital as of March 31, 2010 was $49,736,723. We had a
cumulative deficit of $44,146,936 as of March 31, 2010 compared to a cumulative
deficit of $37,287,851 as of June 30, 2009. At March 31, 2010 we had a working
capital surplus of $1,849,760 compared to a June 30, 2009 working capital
surplus of $3,784,491. Our shareholders’ equity as of March 31, 2010 and June
30, 2009 was $4,016,266 and $6,765,835, respectively.
On April
30, 2009 we filed a Registration Statement on Form S-3 with the SEC for a $10
million universal shelf, which was declared effective by the SEC on May 13,
2009. We took this action as a proactive measure in anticipation of our possible
future needs to raise additional investment capital to fund additional working
capital and further capital expenditures. On August 18, 2009, we completed a
registered direct sale of 1,791,667 units at $1.20 per unit consisting of an
aggregate of 1,791,667 shares of common stock and warrants to purchase 358,333
shares of common stock at an exercise price of $1.33 per share. The proceeds to
ZBB after deducting placement agent fees and offering expenses were
approximately $1.9 million.
On March
9, 2010, we completed a registered direct sale 2,243,750 units at $.80 per unit
consisting of an aggregate of 2,243,750 shares of common stock and warrants to
purchase 1,121,875 shares of common stock at an exercise price of $1.04 per
share. The proceeds to ZBB after deducting placement agent fees and offering
expenses were approximately $1.6 million.
On March
31, 2010, we completed the closing of a private placement of unregistered common
stock. The purchasers of the stock were certain of the Company’s directors,
officers, and key employees. The Company sold 337,346 shares at $.83 per share.
The proceeds to ZBB were $280,000
33
In
December 2009 we were awarded a $1.3 million Wisconsin Clean Energy Business
Loan through the American Recovery and Reinvestment Act. We anticipate closing
this loan transaction in May 2010. During the quarter ended March 31, 2010 we
received a $1.5 million financing commitment from our bank to supplement the
Wisconsin Clean Energy Business Loan.
In
connection with Mr. Parry’s retirement as director and Chief Executive Officer
of the Company, we have accrued the entire remaining $225,000 of severance
expense to be paid to Mr. Parry. Under his employment agreement, his
compensation will continue to be paid monthly by the Company for up to eighteen
months. Certain payments could be accelerated to pay for any U.S. based tax
liabilities that are incurred by the Company. There were also significant legal
and compliance costs incurred during the quarter ended December 31, 2009 related
to the retirement of Mr. Parry.
In
conjunction with our strategic partners we are actively involved in submitting
proposals to the Federal Government in response to Funding Opportunity
announcements issued as a result of the American Recovery and Reinvestment Act.
These proposals cover opportunities for plant expansion, Smart Grid initiative,
and renewable energy initiatives as well as research and development
opportunities for applications where the Company’s technology could bring a
transformational change to market applications that we currently do not address.
However, there can be no assurance we will receive any government funding
through these activities.
We also
have $29 million of net operating loss carryforwards and $14.675 million of
Department of Energy sponsored tax credits. We are exploring ways to monetize or
to use these off balance sheet assets. However, there can be no assurance that
these efforts will prove successful.
We
believe we have sufficient capital to pursue our current operations through the
first quarter of fiscal year 2011. We will need to raise additional debt and
equity capital to support our current business and growth plan. Our investment
capital requirements will depend upon numerous factors, including our ability to
control expenses, the progress of our engineering and development programs, the
success of our marketing and sales efforts and our ability to obtain alternative
funding sources such as government grants. In order to actively manage financing
risk, the board of directors has worked with management to carefully consider
financing alternatives and to implement cost containment measures. Actions taken
by the board of directors and management in the previous fiscal year and
continuing into the current quarter include: 1) execute an overall reduction in
controllable expenses to preserve cash resources including revising our
non-employee director compensation policy so that fees are paid in equity
compensation instead of cash; 2) actively pursue additional sources of capital
to fund working capital and operating needs; 3) pursue government grant and
federal stimulus package opportunities; and 4) leverage the $1.3 million
Wisconsin Clean Energy Business Loan that was awarded in December, 2009 through
the American Recovery and Reinvestment Act.
We are
currently exploring various possible financing options that may be available to
us, including the offering described in this prospectus. We have no commitments
to obtain any additional funds, and there can be no assurance such funds will be
available on acceptable terms or at all. If we are unable to obtain such needed
capital, our financial condition and results of operations may be materially
adversely affected and we may not be able to continue operations.
Operating
Activities
For the
nine months ended March 31, 2010, net cash used in operations was $4,486,186.
Cash used in operations resulted from a net loss of $6,859,085, reduced by
$1,494,849 in non-cash adjustments and $878,050 in net changes to working
capital. The following working capital changes increased the cash used in
operations: decreases in accounts payable of $252,245 and deferred revenues of
$655,819. Cash used in operations was reduced by: decreases in accounts
receivable of $288,746, inventory of $591,716, prepaid and other current assets
of $89,410, and other receivables-interest of $19,746, and increases in accrued
compensation and benefits $402,360, and accrued expenses of $423,835. Non-cash
adjustments to operations included $303,791 of stock based compensation expense,
$333,270 of depreciation expense, a $29,699 change in inventory allowance, and
impairment and other equipment charges of $828,089.
34
For the
nine months ended March 31, 2009, net cash used in operations was $3,447,704.
Cash used in operations resulted primarily from a net loss of $4,151,123. Net
working capital changes increased the cash used in operations by $113,756
resulting from decreases in accrued compensation and benefits of $48,231,
deferred revenues of $2,415; and increases to inventory of $321,801, and in
other receivables of $26,970. Cash used in operations was reduced by an increase
in accounts payable of $230,324. Other non-cash adjustments to cash included
equipment of $210,855 charged to advanced engineering and development costs,
$150,000 of non-cash consulting fees, $201,567 of stock options compensation
expense, a $68,050 change in inventory allowance, and $186,703 of depreciation
expense.
For the
year ended June 30, 2009, net cash used in operations was $4,223,478. Cash used
in operations resulted from a net loss of $5,561,056, reduced by $236,662 in net
changes to working capital and also reduced by other net adjustments to
reconcile net loss to cash of $1,100,916. Changes to working capital providing
cash to operations resulted from decreases in other receivables of $61,083, and
increases to accounts payable of $247,499, accrued compensation of $22,092,
accrued expenses of $25,765, and deferred revenues of $717,539. Cash used in
operations resulted from increases to accounts receivable of $609,987, prepaid
and other current assets of $41,799, and inventories of $185,530. Other
adjustments increasing the net cash used in operations was $277,896 of
depreciation, $372,855 of equipment costs reclassified to expenses, $200,000 of
consulting fees applied to note receivable, and $338,864 of stock based
compensation; and a decrease to cash resulting from an $88,699 reduction in the
inventory allowance.
For the
year ended June 30, 2008, net cash used in operations was $4,379,777 after
adding back non-cash items of $888,230 consisting primarily of depreciation,
stock based compensation, consulting fees applied to shareholder note
receivable, and equipment used in operations. Sources of cash provided by
operations resulted from a decrease in accounts receivable of $188,602; and
increases in accrued expenses of $45,603 and deferred revenues of $308,395. Cash
used in operations resulted from increases in inventory (net of $234,000
increase in inventory allowance) of $40,318, prepaid and other current assets of
$235,485, and interest receivable of $44,227; and decreases in accounts payable
of $228,664 and accrued expenses of $357,250.
Investing
Activities
For the
nine months ended March 31, 2010, net cash provided by investing activities was
$843,716, resulting from an increase of $1,000,000 due to a decrease in bank
certificates of deposits with maturities greater than three months, and reduced
by cash used in purchase of property and equipment of $156,284.
For the
nine months ended March 31, 2009, net cash used in investing activities was
$1,729,795. Cash used in investing activities resulted from $713,470 in
purchases of property and equipment, and $1,016,325 in net increases in bank
certificates of deposits with maturities greater than three months.
For the
year ended June 30, 2009, net cash used in investing activities was $1,889,658.
Cash used in investing activities resulted from $889,658 in purchases of
property and equipment, and $1,000,000 in net increases in bank certificates of
deposits with maturities greater than three months.
For the
year ended June 30, 2008, net cash used in investing activities was $721,468 due
to increases in capital expenditures for manufacturing and testing equipment,
building improvements, and computer software and hardware.
Financing
Activities
For the
nine months ended March 31, 2010, net cash provided by financing activities was
$3,580,167 resulting from $3,981,850 in proceeds from public offering, net of
underwriting fees, and $156,000 in additional financing on manufacturing
equipment, less $204,181 in additional public offering costs and repayments of
$342,367 of principal on notes payable.
35
For the
nine months ended March 31, 2009, net cash used in financing activities was
$866,433 consisting of repayments of $203,567 principal on notes payable, and
$1,070,000 in additional financing on manufacturing equipment.
For the
year ended June 30, 2009, net cash from financing activities was $763,016
consisting of $1,070,000 in financing on manufacturing equipment less repayments
of $306,984 principal.
For the
year ended June 30, 2008, net cash used by financing activities was $4,270,457.
Cash was used in the repayment of $1,882,634 in bank loans and notes payable of
$4,047,823, and additional costs related to the June 2007 public offering of
$100,000. Financing sources were provided from the refinancing of a bank loan in
the amount of $1,760,000.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements.
Properties
Wisconsin
U.S.A. Property
In
February 2006 ZBB Energy Corporation acquired the property on which its
manufacturing facility is located at N93 W14475 Whittaker Way, Menomonee Falls,
Wisconsin. The Company has occupied a portion of this space since 2002 pursuant
to a sub-lease arrangement and acquired the property in February 2006 for $2.2
million pursuant to a land purchase option with the owner. The appraised fair
market value of this property at the time of acquisition was $2.4 million. In
connection with the purchase of this property, the Company initially incurred
mortgage indebtedness from Investors Bank in Milwaukee in the amount of $1.8
million and on May 14, 2008 entered into loan agreements to convert the
indebtedness into two long-term loans with Investors Bank and Wisconsin Business
Development Corporation which are guaranteed in part by the US Small Business
Administration.
The
property is approximately 3.4 acres and has a facility with approximately 72,000
square feet of rentable manufacturing space, of which the Company occupied
approximately 35,000 square feet at the time of its acquisition. This property
is used to house our U.S. production, assembly and administration headquarters.
The existing facility in Menomonee Falls is suitable to accommodate
manufacturing capacity to up to 32MWh annually.
Bibra
Lake, Western Australia (Leasehold)
In 2001
our Australian subsidiary, moved into new, leased, self-contained research and
development facilities in Bibra Lake, Western Australia after previously
occupying sub-leased laboratory and workshop facilities. This facility also
provides the engineering support for Australian and South East Asia sales as
well as a marketing base for the Company in this region. The current rental is
$51,766 per annum (A$68,230), subject to annual CPI adjustments and which was
based on a rental valuation obtained in November 2006 by an independent
certified real estate appraisal company. In October of 2006, ZBB Technologies,
Ltd exercised its option to renew the lease for five years, expiring on October
31, 2011.
Management
Executive
Officers
The
following is a list of our executive officers and their principal positions with
us.
36
Name
|
Age
|
Position
|
||
Eric
C. Apfelbach
|
49
|
President
and Chief Executive Officer
|
||
Scott
W. Scampini
|
57
|
Executive
Vice President
|
Mr.
Apfelbach has served as the Company’s President and Chief Executive Officer
since January 7, 2010. From December 2008 until September 2009, Mr. Apfelbach
served as President and CEO of M2E Power, Inc., a start-up technology company.
From August 2003 until November 2008, Mr. Apfelbach served as President, CEO and
a member of the board of directors, including Chairman from 2004 to 2008, of
Virent Energy Systems, Inc., a catalytic biofuel company. From August 1999 until
June 2003, Mr. Apfelbach served as President and CEO and Chairman of the board
of directors from May 2000 to April 2003 of Alfalight, Inc., a high-power diode
laser company he co-founded that serves the telecom, medical, military and
industrial markets. From October 1997 until August 1999, Mr. Apfelbach served as
Vice President of Global Sales and Marketing of Planar Systems (NASDAQ:PLNR),
Inc., a company that designs and manufactures flat-panel displays. Mr. Apfelbach
currently serves as a director of Graphene Solutions, Inc., StudyBlue, Inc.,
National Electrostatics Corp. and the Wisconsin Technology Council. Mr.
Apfelbach holds a Bachelors of Science degree in Chemical Engineering from the
University of Wisconsin.
Mr.
Scampini was appointed Chief Financial Officer in January 2008 and promoted to
Executive Vice President responsible for all day to day operations in March
2009. In February 2010, Mr. Scampini was promoted to Executive Vice President
Operations and retained his Chief Financial Officer title. From 1994 to June
2007, he was CFO, Executive Vice President and Director of MGS Manufacturing
Group. In addition Mr. Scampini was formally the Principal of our external
accounting and auditing firm S.C Scampini & Associates and had represented
the Company and its US predecessor company for the previous thirteen years. Mr.
Scampini holds a Bachelor’s Degree in Accounting from Marquette University,
Milwaukee, Wisconsin, and is a Certified Public Accountant. He has previously
worked with Price Waterhouse and BDO Seidman. He was in charge of the corporate
finance practice, for BDO Seidman.
Directors
The
following table sets forth certain information concerning our non-employee
directors as of March 31, 2010:
Name
|
Age
|
Board Committees
|
||
Richard
Abdoo
|
65
|
Nominating/Governance
(Chair); Audit, Compensation
|
||
Manfred
Birnbaum
|
75
|
Audit;
Compensation (Chair); Nominating/Governance; Operating
|
||
Paul
Koeppe
|
60
|
Audit
(Chair); Compensation; Nominating/Governance; Operating
(Chair)
|
||
William
Mundell
|
49
|
Audit;
Compensation; Nominating/Governance
|
||
Richard
Payne
|
54
|
None
|
Mr. Abdoo
was appointed a director on August 20, 2009 following recommendation by the
nominating committee. Mr. Abdoo is president of R.A. Abdoo & Co. LLC, an
environmental and energy consulting firm. Prior to his own business, he was
chairman and chief executive officer of Wisconsin Energy Corporation from 1991
until his retirement in 2004. He also served as President from 1991 to April
2003 and joined the company in 1975 as Director of Strategic Planning. During
his administration, Wisconsin Energy Corporation grew to become a Fortune 500
company through a series of mergers and acquisitions. He merged Wisconsin
Electric and Wisconsin Natural Gas Company into a single utility in 1996,
acquired WICOR, Inc. and its Wisconsin Gas subsidiary in 2000, and later that
same year introduced the company’s Power the Future plan to meet the future
energy needs of southeastern Wisconsin. Mr. Abdoo currently serves on the boards
of AK Steel Corp and NiSource. Throughout his career, he has also been a
champion of humanitarian causes. He is currently a member of St. Jude’s
Children’s Research Hospital’s Professional Advisory Board. Mr. Abdoo received a
master’s degree in economics in 1969 from University of Detroit and a bachelor’s
degree in electrical engineering from University of Dayton in 1965. A
registered professional engineer in Michigan, Ohio, Pennsylvania and Wisconsin,
he is also a longtime member of the American Economic Association. In 2000, Mr.
Abdoo was awarded the Ellis Island Medal of Honor, presented to Americans of
diverse origins for their outstanding contributions to their own ethnic groups
and to American society. Honorees typically include U.S. presidents, Nobel Prize
winners and leaders of industry.
37
Mr.
Birnbaum was appointed as a director upon the closing of our initial public
offering in June 2007. Since 1994, Mr. Birnbaum has been an independent
management consultant in the energy and power industries. Mr. Birnbaum’s
consulting services include assistance on divestitures, contract dispute
resolution, technology licensing, and developing marketing strategies. From 1982
to 1985, Mr. Birnbaum was chief executive officer of English Electric Corp., a
wholly owned subsidiary of General Electric Company of England. Prior to that,
Mr. Birnbaum held various senior management positions at Westinghouse Electric
Corporation between 1958 and 1982. Mr. Birnbaum earned a B.A. in mechanical
engineering from Polytechnic Institute, of the City University of New York in
1957 and a Masters Degree in electrical engineering from the University of
Pennsylvania.
Mr.
Koeppe was President, CEO and founder of Superconductivity, Inc., a manufacturer
of superconducting magnetic energy storage systems from 1988 to 1997 when it was
acquired by American Superconductor, an electricity solutions company. He then
served as Executive Vice President of Strategic Planning for American
Superconductor until his retirement in 2001. From 1993 to 1995, Mr. Koeppe was
acting CEO and chairman of the executive committee of the board of directors of
Best Power, Inc., a supplier of uninterruptible power supply equipment. Mr.
Koeppe has also served as a member of the Board of Directors at Distributed
Energy Systems Corp., a public company engaged in the business of creating and
delivering products and services to the energy marketplace and also as a member
of the Board of Directors at Northern Power Systems from 1998 to until 2003 when
Northern was acquired by Distributed Energy Systems Corp. Mr. Koeppe also serves
as a member of the Board of Directors of Incontact, a Company specializing in
the development and marketing of contact center software. Prior to founding
Superconductivity, Inc. Mr. Koeppe worked for Wisconsin Power and Light Company
for 15 years in a variety of functions. He has earned a Bachelor’s Degree in
Business Administration from Lakeland College and Associate Degrees in Materials
Management and Electrical Power Technology.
Mr.
Mundell was appointed Chairman of our board of directors in October 1st, 2008.
Mr. Mundell joined the board of ZBB following completion of the Company’s IPO in
mid 2007 and his appointment as Chairman is a further move to strengthen the
management of operations from the United States. Mr. Mundell is an international
businessman with a solid track record in the information and educational
technology industries. He is Chairman of Intekea; a Los Angeles based joint
venture focused on economic development in West and Central Africa. He is the
former Chairman and CEO of Vidyah Inc., a company founded out of Knowledge
Universe to create a second generation of e-learning. During the same time he
assumed responsibility for another Knowledge Universe controlled company,
International Knowledge Management. Previously, he was Chairman of Trade, Inc. a
leading competitive intelligence company specializing in international trade
information controlled by Bain Capital and Sutter Hill. From 1989 through 1998,
Mr. Mundell was with WEFA, serving first as President and later as President and
Chief Executive Officer. WEFA, the world’s premier economic forecasting
authority, was founded in 1963 as Wharton Econometric Forecasting Associates by
the Nobel Laureate economist Dr. Lawrence Klein. Mr. Mundell was also an adjunct
professor at UCLA’s Anderson Graduate School of Management, where he taught
economics and finance and he is an honorary professor at Tsinghau University in
China. He received his undergraduate degree in Economics and Political Science
at Carlton University in Canada where he was the recipient of the U.S.
Ambassadors Award. He completed his graduate studies at Columbia University,
earning an MBA in Finance and a Masters in International Economics and Public
Finance.
Mr. Payne
has been a director of the Company since 1998 and previously held the position
of chairman of the board from 2004 to 2008. Mr. Payne is a director serving on
Class I of our board whose term expires in 2011. Mr. Payne has been a director
of our subsidiaries since 1994. Mr. Payne is the principal of Richard Payne
& Associates and is a commercial lawyer who has practiced as a corporate and
commercial attorney in Australia for over 28 years. Mr. Payne has been a
director of the Broome International Airport Group of companies since 2001.
Richard Payne & Associates has acted as a legal adviser to the Company and
its predecessor between 1993 and 2005. Mr. Payne received his Bachelor of
Jurisprudence (Hons) in 1980 and a Bachelor of Law in 1981 from the
38
Significant
Employees
The
following table contains information about certain of our “significant
employees” as required by the SEC rules. These employees are non-executive
employees who we expect to make a significant contribution to the
business.
Name
|
Age
|
Position
|
||
Peter
Lex
|
47
|
Vice
President, Manufacturing
|
||
Kevin
Dennis
|
47
|
Vice
President Sales, System Engineering
|
||
Daniel
Nordloh
|
44
|
Vice
President Business Development, Marketing
|
||
Nathan
Coad
|
31
|
Senior
Development Engineer
|
||
Bjorn
Jonshagen
|
53
|
Vice
President, Advanced Engineering
|
||
Will
Hogoboom
|
56
|
Company
Secretary
|
Mr. Lex
joined Johnson Controls Battery Group in 1990 and has been our senior systems
engineer since we acquired this division from Johnson Controls in 1994. He has
coordinated extensive laboratory testing and qualification of zinc-bromine
batteries and electrochemical capacitors. He has organized the research in
materials development and conducted electrochemical testing of battery
components and has developed electrode and separator materials and processing
techniques that improved the performance and life expectancy of the batteries.
He has been the principal U.S. research and development scientist for us since
1994 and coordinates the entire group’s materials research activities. He is a
co-developer of our U.S. intellectual property. Mr. Lex holds a Bachelor of
Science degree in Chemical Engineering which he received in 1984 from The
University of Wisconsin-Madison and Master of Science degree in Chemical
Engineering which he received in 1988 from The University of Connecticut,
Storrs.
Mr.
Dennis was appointed Vice President of Marketing and Sales in January 2008 and
most recently promoted to include the position of Vice President of Systems
Engineering. Mr. Dennis has extensive expertise in the utility and renewable
energy markets worldwide having held various senior management roles with ABB,
most recently as Director, Advanced Power Electronics – North America. Kevin
also spent four years as both the sales and engineering manager for Omnion Power
Engineering Corporation, a manufacturer of power electronics systems for
advanced energy systems. His early career also includes six years as a design
engineer with American Electric Power Service Corporation (AEP) in Columbus,
Ohio. He holds a Bachelors of Science, Electrical Engineering from Michigan
Technological University, is a registered professional engineer in the States of
Wisconsin and California and is a member of the IEEE (Power Electronics Group).
He is a past member of National Electrical Testing Association (NETA),
participated as an industry representative in the working group for the
development of Underwriters Laboratory standard, UL 741, for utility grid
connected power converters. He also participates in various renewable energy and
energy storage organizations.
Mr.
Nordloh was appointed Vice President Business Development and Marketing in April
2010. Mr. Nordloh has comprehensive leadership experience in strengthening
technology and manufacturing companies, and extensive success in driving
successful growth planning and execution initiatives within organizations poised
for rapid growth. Since 1994 he has been involved in a number of startup
organizations and mature businesses where he has proven success in growing
enterprise value, capitalizing on market opportunities and creating innovative
means by which to ensure market leadership and sustainable success models. Most
recently Mr. Nordloh served as Principle of Synapse Junction, LLC a boutique
advisory practice founded in 2007 to assist early stage and established
companies with effective growth planning and execution initiatives. In his role
at Synapse, Mr. Nordloh served in numerous leadership roles, including interim
President and CEO of a technology company on behalf of a private equity group.
During his interim role, Mr. Nordloh developed the go-forward growth strategy,
built the leadership team, created a technology development joint venture and
relocated the company headquarters to Wisconsin. Prior to Synapse Junction, Mr.
Nordloh served as President and CEO of MTM International (presently Naviant,
Inc.), a consulting and technology firm, where he created and executed a
transformational strategy resulting in significant and diversified revenue
growth. Mr. Nordloh also served as the Product and Marketing Manager at Vinyl
Plastics, Inc., where he was responsible for market analysis, product
development and channel strategy. Mr. Nordloh serves on the Board of Directors
of Standard Imaging Inc., and the not-for-profit Family Support & Resource
Center. He holds an MBA from the University of Wisconsin-Milwaukee and a BS
degree in Behavioral Sciences from Eastern Kentucky University.
39
Mr. Coad
is a Research and Design Engineer with almost 10 years of experience with flow
batteries and fuel cells. After graduating as a Mechanical Engineer from Curtin
University in Western Australia, he worked as a design engineer in the Oil &
Gas industry. In pursuit of a more cutting edge career, Nathan went to Murdoch
University where he worked as an Engineer for the Research Institute for
Sustainable Energy and conducted research into hydrogen fuel cell technologies.
After graduating with a research Masters degree in this field, he obtained a
R&D Engineering role with ZBB Technologies. His key roles at ZBB have been
designing a new flow battery system for the AEST project and designing a new
flow battery stack.
Mr.
Jonshagen has been managing our Australian research and development since 1992,
and was part of the Australian research and development team since 1986. Mr.
Jonshagen is a co-developer of some of our intellectual property. Prior to
joining the Company in 1986, Mr. Jonshagen gained extensive experience as a
design engineer for wind turbine generators, plate heat exchangers and various
valve products. Mr. Jonshagen holds a Master’s of Science degree in Mechanical
Engineering which he received in 1979 from Lund University of Technology,
Sweden, and a Master’s of Science degree in Mechanical Engineering Materials
Science which he received in 1980 from the University of Hawaii,
Honolulu.
Mr.
Hogoboom was appointed Secretary, Controller, and Director of Finance in March
2010. From 1996 to June 2001, he was CFO of Superconductivity, Inc. and the
Wisconsin division of American Superconductor Corp. and from June 2001 to 2010
he was the CFO for several privately held high-technology companies including
Imago Scientific Instruments Corp. and Spectrocon International LLC, both in
Madison, Wisconsin. In addition Mr. Hogoboom was formally audit partner at Smith
& Gesteland, LLP and audit manager at Ernst & Young from 1979 to 1996.
Mr. Hogoboom holds a Bachelors Degree in Accounting from the University of
Wisconsin, Madison, Wisconsin, and is a Certified Public
Accountant.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our directors and officers
to file reports with the SEC disclosing their ownership, and changes in their
ownership, of our common stock. Copies of these reports must also be furnished
to us. Based solely on a review of these copies, we believe that during fiscal
2009, all filing requirements were met.
Code
of Ethics
Our Board
of directors adopted a Code of Ethics and Conduct. The Code of Ethics and
Conduct, in accordance with Section 406 of the Sarbanes Oxley Act of 2002 and
Item 406 of Regulation S-K, constitutes our Code of Ethics. The Code of Ethics
and Conduct codifies the business and ethical principles that govern our
business.
The Code
of Ethics and Conduct is designed, among other things, to deter wrongdoing and
to promote:
·
|
Honest
and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;
|
·
|
Compliance
with applicable governmental laws, rules and
regulations;
|
·
|
The
prompt internal reporting violations of the ethics code to an appropriate
person or persons identified in the code of ethics;
and
|
·
|
Accountability
for adherence to the Code.
|
40
Our Code
of Ethics and Conduct has historically been posted and is available on our
website at www.zbbenergy.com. Additionally, this Code of Ethics and Conduct
provided to all directors, officers and all other personnel upon joining the
Company, and thereafter from time-to-time to any person, upon request, and
without charge
Executive
Compensation
Executive
Officer Compensation
The
following table sets forth the compensation awarded to, or earned by, our chief
executive officer and all other executive officers serving as such at the end of
fiscal 2009 whose total compensation exceeded $100,000 (the “named executive
officers”).
Name and Principal Position
|
Year
|
Salary ($)
|
Stock
Awards ($)
|
Option
Awards
($)(1)
|
Total ($)
|
|||||||||||||
Robert
J. Parry
|
2009
|
243,752 | 39,000 | 38,500 | 321,252 | |||||||||||||
Former
Chief Executive Officer (3)
|
2008
|
250,000 | - | 31,225 | 281,225 | |||||||||||||
Scott
W. Scampini
|
2009
|
168,000 | 31,200 | 22,023 | 221,223 | |||||||||||||
Executive
Vice President
|
2008
|
72,000 | (4) | - | 8,439 | 80,439 | ||||||||||||
Operations
and Chief Financial Officer
|
||||||||||||||||||
Steven
A. Seeker
|
2009
|
195,077 | 31,200 | 33,838 | 260,115 | |||||||||||||
Former
Chief Operating Officer (5)
|
2008
|
200,000 | - | 55,699 | 255,699 |
(1)
|
The
amounts shown in this column include the dollar amount recognized by ZBB
for financial statement reporting purposes in accordance with FASB ASC
topic 718 in fiscal 2009 and 2008 for stock awards that were unvested. For
additional information regarding the assumptions made in calculating these
amounts, note 14 to ZBB Energy’s Consolidated Financial Statements fiscal
2009 included elsewhere in this
prospectus.
|
(2)
|
The
amounts shown in this column include the dollar amount recognized by ZBB
for financial statement reporting purposes in accordance with FASB ASC
topic 718 in fiscal 2009 and 2008 for option awards that were unvested
during all or a portion of fiscal 2009 and 2008. For additional
information regarding the assumptions made in calculating these amounts,
see note 14 to ZBB Energy’s Consolidated Financial Statements fiscal 2009
included elsewhere in this
prospectus.
|
(3)
|
Mr.
Parry resigned from the Company in October
2009.
|
(4)
|
Figure
represents salary from January 2008, when Mr. Scampini commenced
employment with the Company.
|
(5)
|
Mr.
Seeker retired from the Company in January
2010.
|
Outstanding
Equity Awards at 2009 Fiscal Year-End
The
following table provides information concerning unexercised options and stock
that has not vested for each named executive officer outstanding as of June 30,
2009.
41
Options Awards
|
Stock Awards
|
||||||||||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number of Shares
or Units of Stock
that Have Not
Vested (#)
|
Market Value
of Shares or
Units of Stock
That Have Not
Vested ($)(1)
|
|||||||||||||||
Robert
J. Parry
|
32,500 | 32,500 | (2) | 1.35 |
01/01/15
|
28,889 | (3) | 34,667 | |||||||||||||
37,000 | - | 3.59 |
06/30/13
|
||||||||||||||||||
38,000 | - | 3.59 |
06/30/14
|
||||||||||||||||||
100,000 | - | 3.82 |
06/20/12
|
||||||||||||||||||
87,907 | - | 7.65 |
06/30/10
|
||||||||||||||||||
Scott
W. Scampini
|
18,200 | 26,000 | (2) | 1.35 |
01/01/15
|
23,111 | (3) | 27,733 | |||||||||||||
- | 20,000 | (4) | 3.59 |
06/30/15
|
|||||||||||||||||
20,000 | - | 3.59 |
06/30/14
|
||||||||||||||||||
10,000 | - | 3.59 |
06/30/13
|
||||||||||||||||||
Steven
A. Seeker
|
18,200 | 26,000 | (2) | 1.35 |
01/01/15
|
23,111 | (3) | 27,733 | |||||||||||||
34,000 | - | 3.59 |
06/30/14
|
||||||||||||||||||
66,000 | - | 3.59 |
06/30/13
|
(1)
|
Represents
values of unvested shares of restricted stock based on the closing price
of our common stock ($1.20) on June 30,
2009.
|
(2)
|
Represents
unvested portion of option grant scheduled to vest at various dates
through March 31, 2010 contingent on achievement of key performance
indicators.
|
(3)
|
Represents
unvested shares of restricted stock scheduled to vest in full on March 31,
2010.
|
(4)
|
Represents
unvested portion of option grant scheduled to vest on June 30,
2010.
|
Compensation
of Directors
The
following table provides information regarding the compensation of the directors
for fiscal 2009. Compensation information for Robert J. Parry is
fully reflected in the “Summary Compensation Table” above.
Name
|
Fees
Earned
or Paid
in Cash
($)
|
Option
Awards
($)(1)(2)
|
Total
($)
|
|||||||||
William
A. Mundell (Chairman)
|
102,500 | 31,182 | 135,682 | |||||||||
Richard
A. Payne
|
53,750 | 32,069 | 85,819 | |||||||||
Manfred
E Birnbaum
|
50,000 | 21,098 | 71,098 |
(1)
|
The
amounts shown in this column include the dollar amount recognized by ZBB
for financial statement reporting purposes in accordance with Statement
FASB ASC topic 718 in fiscal 2009 for option awards that were unvested
during all or a portion of fiscal 2009. For additional information
regarding the assumptions made in calculating these amounts, see note 14
to ZBB Energy’s Consolidated Financial Statements fiscal 2009 included
elsewhere in this prospectus.
|
42
(2)
|
The
table below sets forth the aggregate number of unvested stock options held
by each non-employee director as of June 30,
2009.
|
Name
|
Aggregate
Option
Awards
(#)
|
|||
William
A. Mundell
|
75,000 | |||
Richard
A. Payne
|
125,000 | |||
Manfred
E. Birnbaum
|
75,000 |
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Stock
Ownership Table
The
following table sets forth, as of May 14, 2010 certain information concerning
beneficial ownership of our common stock (as determined under the rules of the
SEC) by (1) each of our directors, (2) each of our executive officers, (3) each
of the named executive officer, (4) all directors and executive officers as a
group and (5) each person known by us to be the beneficial owner of more than
five percent (5%) of our common stock.
Except as
otherwise indicated, the address for each person is to the care of ZBB Energy
Corporation, N93 W14475 Whittaker Way, Menomonee Falls, Wisconsin
53051.
Beneficial
ownership is determined in accordance with the rules of the SEC. The information
does not necessarily indicate ownership for any other purpose. Under these
rules, shares of common stock issuable by us to a person pursuant to options
which may be exercised within 60 days after May 14, 2010 are deemed to be
beneficially owned and outstanding for purposes of calculating the number of
shares and the percentage beneficially owned by that person. However, these
shares are not deemed to be beneficially owned and outstanding for purposes of
computing the percentage beneficially owned by any other person. The applicable
percentage of common stock outstanding as of May 14, 2010 is based upon
14,915,389 shares outstanding on that date.
43
Amount and Nature of Beneficial Ownership
|
||||||||||||||||
Name of Beneficial Owner
|
Common
Stock
|
Shares
Subject to
Options
|
Total
|
Percentage of
Class |
||||||||||||
Directors
and Executive Officers
|
||||||||||||||||
Richard
A. Abdoo
|
145,482 | - | 145,482 | * | ||||||||||||
Eric
C. Apfelbach
|
12,048 | 50,000 | 62,048 | * | ||||||||||||
Manfred
E. Birnbaum
|
22,548 | 100,000 | 122,548 | * | ||||||||||||
Paul
F. Koeppe
|
145,481 | 200,000 | 345,481 | 2.3 | % | |||||||||||
William
A. Mundell
|
12,048 | 100,000 | 112,048 | * | ||||||||||||
Richard
A. Payne
|
126,581 | (1) | 150,000 | 276,581 | 1.8 | % | ||||||||||
Robert
J. Parry
|
376,587 | (2) | - | 376,587 | 2.5 | % | ||||||||||
Scott
W. Scampini
|
43,725 | 68,200 | 111,925 | * | ||||||||||||
Steven
A.Seeker
|
52,740 | 118,200 | 170,940 | 1.1 | % | |||||||||||
Directors
and Executive Officers as a group (6 persons)
|
507,913 | 668,200 | 1,176,113 | 7.5 | % | |||||||||||
Five
Percent Stockholders
|
||||||||||||||||
Seaside
88, LP (3)
|
1,448,287 | - | 1,448,287 | 9.7 | % |
*
|
Less
than one percent of outstanding common
stock.
|
(1)
|
Includes
(i) 75,043 shares held by an affiliate of Mr. Payne, Geizo Pty. Ltd, as
trustee for the RA Payne Family Trust, (ii) 17,206 shares held by Geizo
Pty. Ltd as trustee for the RA Payne Super Fund and (iii) 1,412 shares
held by the Emery Family Trust.
|
(2)
|
Includes
(i) 330,000 shares held by Mr. Parry and his son, Gareth Parry, as trustee
for the FEIM Trust, the beneficiaries of which include the heirs of Frank
Ernest Parry, Mr. Parry’s father, (ii) 706 shares held by Mr. Parry’s
spouse, (iii) 19,014 shares, his pro rata portion of shares held in
various partnerships in which Mr. Parry is a partner, (iv) 13,235 shares
held by the Davey Family Trust as trustee for the trust. Mr. Parry has
voting and dispositive control over all shares held by the FEIM Trust,
Davey Family Trust or in partnership with
others.
|
(3)
|
Shares
are beneficially owned by Seaside 88, LP, a Florida limited partnership,
and Seaside 88 Advisors, LLC. William J. Ritger and Denis M. O'Donnell
have shared dispositive power and shared voting power with respect to all
1,448,287 shares. The principal business address of the above-named
entities and persons is 750 Ocean Royale Way, Suite 805, North Palm Beach,
Florida 33408. This information has been obtained from a Schedule 13G
filed by the above-named entities and persons with the SEC on March 12,
2010, and all such information, including the percentage of common stock
beneficially owned, is as of June 30,
2009.
|
Equity
Compensation Plan Information
The
following table summarizes the number of outstanding options granted to
employees, directors and consultants, as well as the number of securities
remaining available for future issuance under our equity compensation plans as
of June 30, 2009.
44
Plan
category
|
Number
of
securities
to
be issued upon
exercise
of
outstanding
options,
warrants,
and
rights
|
Weighted-
average
exercise
price
of
outstanding
options,
warrants
and
rights
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation
plan
(excluding
securities
reflected in
the
previous columns)
|
|||||||||
Equity
compensation plans approved by security holders
|
1,424,354 | $ | 3.24 | 798,749 | ||||||||
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
Total
|
1,424,354 | $ | 3.24 | 798,749 |
Material
U.S. Federal Tax Considerations
This is a
general summary of the material U.S. federal tax consequences of the
acquisition, ownership and disposition of our units, comprised of common stock
and warrants, which we refer to collectively as our securities, purchased
pursuant to this offering. This discussion assumes that public stockholders will
hold our securities as capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the “Code”). This discussion does not
address all aspects of U.S. federal taxation that may be relevant to a public
stockholder in light of such public stockholder’s particular circumstances. In
addition, this discussion does not address: (1) U.S. gift or estate tax laws
except to the limited extent set forth below, (2) state, local or foreign tax
consequences, (3) the special tax rules that may apply to certain public
stockholders, including without limitation banks, insurance companies, financial
institutions, broker-dealers, taxpayers that have elected mark-to-market
accounting, taxpayers subject to the alternative minimum tax provisions of the
Code, tax-exempt entities, regulated investment companies, real estate
investment trusts, taxpayers whose functional currency is not the U.S. dollar,
or U.S. expatriates or former long-term residents of the United States, or (4)
the special tax rules that may apply to a public stockholder that acquires,
holds, or disposes of our securities as part of a straddle, hedge, wash sale,
constructive sale or conversion transaction or other integrated investment.
Additionally, this discussion does not consider the tax treatment of
partnerships (including entities treated as partnerships for U.S. federal tax
purposes) or other pass-through entities or persons who hold our securities
through such entities. The tax treatment of a partnership and each partner
thereof generally will depend upon the status and activities of the partnership
and such partner. Thus, partnerships, other pass-through entities and persons
holding our securities through such entities should consult their own tax
advisors.
This
discussion is based on current provisions of the Code, U.S. Treasury regulations
promulgated under the Code, judicial opinions, and published rulings and
procedures of the U.S. Internal Revenue Service (the “IRS”), all as in effect on
the date of this prospectus and all of which are subject to change, possibly
with retroactive effect. We have not sought, and will not seek, any ruling from
the IRS or any opinion of counsel with respect to the tax consequences discussed
below, and there can be no assurance that the IRS will not take a position
contrary to the tax consequences discussed below or that any position taken by
the IRS would not be sustained.
As used
in this “Material U.S. Federal Tax Considerations” section only, the term “U.S.
Person” means a person that is, for U.S. federal income tax purposes: (1) an
individual citizen or resident of the United States, (2) a corporation (or other
entity treated as a corporation for U.S. federal income tax purposes) created or
organized in or under the laws of the United States or of any state thereof or
the District of Columbia, (3) an estate the income of which is subject to U.S.
federal income taxation regardless of its source, or (4) a trust if (A) a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more U.S. Persons have the authority to
control all substantial decisions of the trust, or (B) it has in effect a valid
election to be treated as a U.S. Person. As used in this discussion, the term
“U.S. holder” means a beneficial owner of our securities that is a U.S. Person
and the term “non-U.S. holder” means a beneficial owner of our securities (other
than an entity that is treated as a partnership or other pass-through entity for
U.S. federal income tax purposes) that is not a U.S. Person. Each prospective
investor is urged to consult its own tax advisors with respect to the U.S.
federal, state, local and foreign tax consequences to such investor of the
acquisition, ownership and disposition of our securities.
45
General
There is
no authority addressing the treatment, for U.S. federal income tax purposes, of
securities with terms substantially the same as the units, and, therefore, that
treatment is not entirely clear. Each unit should be treated for U.S. federal
income tax purposes as an investment unit consisting of one share of our common
stock and a Warrant to acquire [•] of one share of our common stock. Each holder
of a unit must allocate the purchase price paid by such holder for such unit
between the share of common stock the Warrant based on their respective relative
fair market values. A holder’s initial tax basis in the common stock and each
warrant included in each unit should equal the portion of the purchase price of
the unit allocated thereto.
The
foregoing treatment of the common stock and warrants and a holder’s purchase
price allocation are not binding on the IRS or the courts. Because there are no
authorities that directly address instruments that are similar to the units, no
assurance can be given that the IRS or the courts will agree with the
characterization described above or the discussion below. Accordingly, each
prospective investor is urged to consult its own tax advisors regarding the U.S.
federal, state, local and any foreign tax consequences of an investment in a
unit (including alternative characterizations of a unit). Unless otherwise
stated, the following discussions are based on the assumption that the
characterization of the common stock and warrants described above is accepted
for U.S. federal tax purposes.
U.S.
Holders
Taxation
of Distributions
If we pay
distributions to U.S. holders of our common stock, such distributions generally
will constitute dividends for U.S. federal income tax purposes to the extent
paid from our current or accumulated earnings and profits, as determined under
U.S. federal income tax principles. Distributions in excess of our current and
accumulated earnings and profits will constitute a return of capital that will
be applied against and reduce (but not below zero) the U.S. holder’s adjusted
tax basis in our common stock. Any remaining excess will be treated as gain
realized on the sale or other disposition of the common stock and will be
treated as described under “U.S. Holders—Gain or Loss on Sale, Exchange or Other
Taxable Disposition of Common Stock” below.
Dividends
paid to a U.S. holder that is a taxable corporation generally will qualify for
the dividends received deduction if the requisite holding period is satisfied.
With certain exceptions (including, but not limited to, dividends treated as
investment income for purposes of investment interest deduction limitations),
and provided certain holding period requirements are met and the U.S. holder
refrains from making certain elections, dividends paid to a non-corporate U.S.
holder generally will constitute “qualified dividends” that will be subject to
tax at the maximum tax rate accorded to capital gains (currently 15 percent) for
tax years beginning before January 1, 2011, after which the rate applicable to
dividends is currently scheduled to return to the tax rate generally applicable
to ordinary income.
Gain
or Loss on Sale, Exchange or Other Taxable Disposition of Common
Stock
In
general, a U.S. holder must treat any gain or loss recognized upon a sale,
exchange or other taxable disposition of our common stock as capital gain or
loss. Any such capital gain or loss will be long-term capital gain or loss if
the U.S. holder’s holding period for the disposed of common stock exceeds one
year. In general, a U.S. holder will recognize gain or loss in an amount equal
to the difference between (1) the sum of the amount of cash and the fair market
value of any property received in such disposition (or, if the common stock is
held as part of a unit at the time of the disposition, the portion of the amount
realized on such disposition that is allocated to the common stock based upon
the then fair market values of the common stock and the warrants included in the
unit) and (2) the U.S. holder’s adjusted tax basis in the disposed of common
stock. A U.S. holder’s adjusted tax basis in its common stock generally will
equal the U.S. holder’s acquisition cost (that is, as discussed above, the
portion of the purchase price of a unit allocated to a share of common stock)
less any prior distributions treated as a return of capital, as described above.
Long-term capital gain realized by a non-corporate U.S. holder generally will be
subject to a maximum rate of 15 percent for tax years beginning before January
1, 2011, after which the maximum long-term capital gains rate is scheduled to
increase to 20 percent. The deduction of capital losses is subject to various
limitations.
46
Exercise
of a Warrant
Except as
discussed below with respect to the cashless exercise of a warrant, a U.S.
holder will not be required to recognize taxable gain or loss upon exercise of a
warrant. The U.S. holder’s tax basis in the share of our common stock received
upon exercise of the warrant generally will be an amount equal to the sum of the
U.S. holder’s initial investment in the warrant (i.e., the portion of the U.S.
holder’s purchase price for a unit that is allocated to the warrant, as
described above) and the exercise price. The U.S. holder’s holding period in our
common stock received upon exercise of the warrant will begin on the date
following the date of exercise and will not include the period during which the
U.S. holder held the warrant.
The tax
consequences of a cashless exercise of a warrant are not clear under current tax
law. A cashless exercise may be tax-free, either because the exercise is a
non-recognition event or because the exercise is treated as a recapitalization
for U.S. federal income tax purposes. In either tax-free situation, a U.S.
holder’s basis in the common stock received would equal the holder’s basis in
the warrant. If the cashless exercise were treated as a non-recognition event, a
U.S. holder’s holding period in the common stock would begin on the date
following the date of exercise. In contrast, if the cashless exercise were
treated as a recapitalization, the holding period of the common stock would
include the holding period of the warrant.
It is
also possible that a cashless exercise could be treated as a taxable exchange in
which a U.S. holder would recognize gain or loss. In such event, a U.S. holder
could be deemed to have surrendered warrants equal to the number of shares of
common stock having a value equal to the exercise price for the total number of
warrants to be exercised. The U.S. holder would recognize capital gain or loss
in an amount equal to the difference between the fair market value of the common
stock represented by the warrants deemed surrendered and the U.S. holder’s tax
basis in the warrants deemed surrendered. In this case, a U.S. holder’s tax
basis in the common stock received would equal the sum of the fair market value
of the common stock represented by the warrants deemed surrendered and the U.S.
holder’s tax basis in the warrants exercised. A U.S. holder’s holding period for
the common stock would begin on the date following the date of exercise of the
warrant.
Due to
the absence of authority on the U.S. federal income tax treatment of a cashless
exercise of warrants, there can be no assurance which, if any, of the
alternative tax consequences and holding periods described above would be
adopted by the IRS or a court of law. Accordingly, U.S. holders should consult
their tax advisors regarding the tax consequences of a cashless
exercise.
Sale,
Exchange, Redemption or Expiration of a Warrant
Upon a
sale, exchange (other than by exercise), redemption, or expiration of a warrant,
a U.S. holder will be required to recognize gain or loss in an amount equal to
the difference between (1) the amount realized upon such disposition or
expiration (or, if the warrant is held as part of a unit at the time of the
disposition of the unit, the portion of the amount realized on such disposition
that is allocated to the warrant based on the then fair market values of the
warrants and the common stock included in the unit) and (2) the U.S. holder’s
tax basis in the warrant (that is, as discussed above, the portion of the U.S.
holder’s purchase price for a unit that is allocated to the warrant). Such gain
or loss generally would be treated as long-term capital gain or loss if the
warrant was held by the U.S. holder for more than one year at the time of such
disposition or expiration. The deductibility of capital losses is subject to
various limitations.
47
Non-U.S.
Holders
Taxation
of Distributions
In
general, any distributions we make to a non-U.S. holder of our common stock, to
the extent paid out of our current or accumulated earnings and profits (as
determined under U.S. federal income tax principles), generally will constitute
dividends for U.S. federal income tax purposes and, provided such dividends are
not effectively connected with the non-U.S. holder’s conduct of a trade or
business within the United States, we generally will be required to withhold tax
from the gross amount of the dividend at a rate of 30 percent, unless such
non-U.S. holder is eligible for a reduced rate of withholding tax under an
applicable income tax treaty and provides proper certification of its
eligibility for such reduced rate (usually on an IRS Form W-8BEN). Any
distribution not constituting a dividend will be treated first as reducing (but
not below zero) the non-U.S. holder’s adjusted tax basis in our common stock
and, to the extent such distribution exceeds the non-U.S. holder’s adjusted tax
basis, as gain realized from the sale or other disposition of the common stock,
which will be treated as described under “Non-U.S. Holders— Gain on Sale,
Exchange or Other Taxable Disposition of Common Stock and Warrants” below. In
addition, if we determine that we are likely to be classified as a “U.S. real
property holding corporation” (see “Non-U.S. Holders—Gain on Sale, Exchange or
Other Taxable Disposition of Common Stock and Warrants” below), we will withhold
10 percent of any distribution that exceeds our current and accumulated earnings
and profits, which withheld amount may be claimed by the non-U.S. holder as a
credit against the non-U.S. holder’s U.S. federal income tax
liability.
Dividends
we pay to a non-U.S. holder that are effectively connected with such non-U.S.
holder’s conduct of a trade or business within the United States (and, if
certain income tax treaties apply, are attributable to a United States permanent
establishment or fixed base maintained by the non-U.S. holder) generally will
not be subject to U.S. withholding tax, provided such non-U.S. holder complies
with certain certification and disclosure requirements (usually by providing an
IRS Form W-8ECI). Instead, such dividends generally will be subject to U.S.
federal income tax, net of certain deductions, at the same graduated individual
or corporate rates applicable to U.S. Persons. If the non-U.S. holder is a
corporation, dividends that are effectively connected income may also be subject
to a “branch profits tax” at a rate of 30 percent (or such lower rate as may be
specified by an applicable income tax treaty).
Gain
on Sale, Exchange or Other Taxable Disposition of Common Stock and
Warrants
A
non-U.S. holder generally will not be subject to U.S. federal income or
withholding tax in respect of gain recognized on a sale, exchange or other
disposition of our common stock or warrants (including an expiration or
redemption of our warrants), in each case without regard to whether those
securities were held as part of a unit, unless:
·
|
the
gain is effectively connected with the conduct of a trade or business by
the non-U.S. holder within the United States (and, under certain income
tax treaties, is attributable to a United States permanent establishment
or fixed base maintained by the non-U.S.
holder);
|
·
|
the
non-U.S. holder is an individual who is present in the United States for
183 days or more in the taxable year of disposition and certain other
conditions are met; or
|
·
|
we
are or have been a “U.S. real property holding corporation” for U.S.
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of disposition or the non-U.S.
holder’s holding period for the security disposed of, and, generally, in
the case where shares of our common stock are regularly traded on an
established securities market, the non-U.S. holder has owned, directly or
indirectly or constructively, more than 5 percent of our common stock or
warrants, as applicable, at any time within the shorter of the five-year
period ending on the date of disposition or such non-U.S. holder’s holding
period for the securities disposed of. There can be no assurance that our
common stock will be treated as regularly traded on an established
securities market for this purpose.
|
48
Unless an
applicable treaty provides otherwise, gain described in the first and third
bullet points above will be subject to tax at generally applicable U.S. federal
income tax rates. Any gains described in the first bullet point above of a
non-U.S. holder that is a foreign corporation may also be subject to an
additional 30 percent “branch profits tax.” Gain described in the second bullet
point above (which may be offset by U.S. source capital losses) will be subject
to a flat 30 percent U.S. federal income tax. The gross proceeds from
transactions that generate gains described in the third bullet point above
generally will be subject to a 10 percent withholding tax, which withheld amount
may be claimed by the non-U.S. holder as a credit against the non-U.S. holder’s
U.S. federal income tax liability. Non-U.S. holders should consult any income
tax treaties applicable to them, as those treaties that may provide for
different rules.
We
currently are not a U.S. real property holding corporation. However, we can
provide no assurance that we will not become a U.S. real property holding
corporation in the future. We will be classified as a U.S. real property holding
corporation if the fair market value of our “U.S. real property interests”
equals or exceeds 50 percent of the sum of the fair market value of our
worldwide real property interests plus our other assets used or held for use in
a trade or business, as determined for U.S. federal income tax purposes. Each
non-U.S. holder should consult its own tax advisors as to whether the stock or
warrants will be treated as “U.S. real property interests” and the tax
consequences resulting from such treatment.
Exercise
of a Warrant
The U.S.
federal income tax treatment of a non-U.S. holder’s exercise of a warrant
generally will correspond to the U.S. federal income tax treatment of the
exercise of a warrant by a U.S. holder, as described under “U.S.
Holders—Exercise of a Warrant” above.
Information
Reporting and Backup Withholding
We must
report annually to the IRS and to each holder the amount of dividends or other
distributions we pay to such holder on shares of our common stock and the amount
of tax withheld with respect to those distributions, regardless of whether
withholding is required. In the case of a non-U.S. holder, the IRS may make
copies of the information returns reporting those dividends and amounts withheld
available to the tax authorities in the country in which the non-U.S. holder
resides pursuant to the provisions of an applicable income tax treaty or
exchange of information treaty.
The gross
amount of dividends and proceeds from the disposition of our common stock or
warrants paid to a holder that fails to provide the appropriate certification in
accordance with applicable U.S. Treasury regulations generally will be subject
to backup withholding at the applicable rate (currently 28
percent).
Information
reporting and backup withholding generally are not required with respect to the
amount of any proceeds from the sale by a non-U.S. holder of common stock or
warrants outside the United States through a foreign office of a foreign broker
that does not have certain specified connections to the United States. However,
if a non-U.S. holder sells common stock or warrants through a U.S. broker or the
U.S. office of a foreign broker, the broker will be required to report to the
IRS the amount of proceeds paid to such holder, unless the non-U.S. holder
provides appropriate certification (usually on an IRS Form W-8BEN) to the broker
of its status as a non-U.S. holder or such non-U.S. holder is an exempt
recipient. Information reporting (but not backup withholding) also would apply
if a non-U.S. holder sells common stock or warrants through a foreign broker
deriving more than a specified percentage of its income from U.S. sources or
having certain other connections to the United States, unless in any such case
the broker has documentary evidence that the beneficial owner is a non-U.S.
holder and specified conditions are met or an exemption is otherwise
established.
Backup
withholding is not an additional tax. Any amounts we withhold under the backup
withholding rules may be refunded or credited against the holder’s U.S federal
income tax liability, if any, by the IRS if the required information is
furnished to the IRS in a timely manner.
49
Legislation
Relating to Foreign Accounts
Legislation
has been recently enacted that imposes significant certification, information
reporting and other requirements, and in certain cases, withholding taxes, on
certain types of payments made to “foreign financial institutions” and certain
other non-U.S. entities. The legislation is generally effective for payments
made after December 31, 2012. The failure to comply with the certification,
information reporting and other specified requirements in the legislation would
result in withholding tax being imposed on payments of dividends and sales
proceeds to foreign intermediaries and certain non-U.S. holders. Non-U.S.
holders should consult their own tax advisers regarding the application of this
legislation to them.
Federal
Estate Tax
Shares of
our common stock or warrants owned or treated as owned by an individual who is
not a U.S. citizen or resident (as specifically defined for U.S. federal estate
tax purposes) at the time of his or her death will be included in the
individual’s gross estate for U.S. federal estate tax purposes, unless there is
no federal estate tax in existence at such time or an applicable estate tax
treaty provides otherwise, and therefore may be subject to U.S. federal estate
tax.
Certain
Relationships and Related Transactions
On
October 31, 2009, we entered into a resignation and indemnification agreement
(the “Indemnification Agreement”) with Robert J. Parry, our former president and
chief executive officer. Mr. Parry, who previously announced his intention to
retire as our president and chief executive officer effective on January 2,
2010, resigned as a member of our board of directors effective October 31, 2009
and took a leave of absence from his duties as an officer until his scheduled
retirement date. Mr. Parry’s actions were taken in connection with an internal
investigation overseen by our audit committee. We entered into the
Indemnification Agreement with Mr. Parry to address a problem regarding our tax
classification of Mr. Parry’s employment status and related withholding
obligations.
Consultancy
agreements dated as of October 1, 2008 between ZBB and Rosemount Investments
Limited, a private entity organized by Mr. Parry, and between Rosemount
Investments Limited and Mr. Parry, were in place during fiscal 2009 and prior
fiscal years. Under the terms of these agreements, Mr. Parry, through Rosemount
Investments Limited, was engaged to provide consulting services to us. Under the
terms of these agreements, we made payments to Rosemount Investments Limited for
services provided by Mr. Parry to us during fiscal 2009 in the aggregate amount
of $180,502. These payments were made in accordance with, and not in addition
to, the compensation amounts set forth in Mr. Parry’s employment agreement and
are reported as salary payments in the Summary Compensation Table included in
this prospectus. Under the terms of the Indemnification Agreement, Mr. Parry has
agreed to terminate this consulting relationship and we are no longer making
payments to Rosemount Investments Limited.
Under the
terms of Mr. Parry’s employment agreement, he is entitled to all compensation
and benefits accrued up to the effective date of his retirement on January 2,
2010, and all vested benefits held by Mr. Parry on that date became immediately
exercisable. In addition, Mr. Parry’s employment agreement provides that he is
entitled to receive an amount equal to $390,000 in 18 equal consecutive
installments beginning on the first regularly scheduled pay date following the
effective date of his retirement on January 2, 2010. Under the terms of the
Indemnification Agreement, in the event that Mr. Parry owes federal and/or state
income tax, the Indemnification Agreement provides that we shall, upon Mr.
Parry’s request, accelerate payments due under Mr. Parry’s employment agreement
to allow him to pay such income tax. Mr. Parry can accelerate payments in an
amount not to exceed $100,000 (gross) on or after each of January 2, 2010 and
July 20, 2010. If Mr. Parry does not promptly pay us any amounts due under the
Indemnification Agreement, the Indemnification Agreement provides that we may
offset any such amounts against any amounts otherwise due to Mr. Parry whether
under his employment agreement or otherwise.
50
Legal
Proceedings
As of May
14, 2010, we had no outstanding material legal proceedings.
Legal
Matters
The
validity of the shares of common stock offered hereby and certain other legal
matters will be passed upon for us by [•]. Certain legal matters in connection
with this offering will be passed upon for the Placement Agent by
[•].
Experts
The
consolidated financial statements of ZBB Energy Corporation and subsidiaries at
June 30, 2009 appearing in this Prospectus and Registration Statement have been
audited by PKF, Certified Public Accountants, A Professional Corporation,
independent registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
We are
incorporated under the laws of the State of Wisconsin. Sections 180.0850 to
180.0859 of the Wisconsin Business Corporation Law (“WBCL”) require a
corporation to indemnify any director or officer who is a party to any
threatened, pending or completed civil, criminal, administrative or
investigative action, suit, arbitration or other proceeding, whether formal or
informal, which involves foreign, federal, state or local law and which is
brought by or in the right of the corporation or by any other person. A
corporation’s obligation to indemnify any such person includes the obligation to
pay any judgment, settlement, penalty, assessment, forfeiture or fine, including
any excise tax assessed with respect to an employee benefit plan, and all
reasonable expenses including fees, costs, charges, disbursements, attorney’s
and other expenses except in those cases in which liability was incurred as a
result of the breach or failure to perform a duty which the director or officer
owes to the corporation and the breach or failure to perform constitutes: (i) a
willful failure to deal fairly with the corporation or its shareholders in
connection with a matter in which the director or officer has a material
conflict of interest; (ii) a violation of criminal law, unless the person has
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful; (iii) a transaction from which the person
derived an improper personal profit; or (iv) willful misconduct.
Unless
otherwise provided in a corporation’s articles of incorporation or by-laws or by
written agreement, an officer or director seeking indemnification is entitled to
indemnification if approved in any of the following manners: (i) by majority
vote of a disinterested quorum of the board of directors, or if such quorum of
disinterested directors cannot be obtained, by a majority vote of a committee of
two or more disinterested directors; (ii) by independent legal counsel; (iii) by
a panel of three arbitrators; (iv) by affirmative vote of shareholders; (v) by a
court; or (vi) with respect to any additional right to indemnification granted,
by any other method permitted in Section 180.0858 of the WBCL.
Reasonable
expenses incurred by a director or officer who is a party to a proceeding may be
reimbursed by a corporation at such time as the director or officer furnishes to
the corporation written affirmation of his good faith belief that he has not
breached or failed to perform his duties and a written undertaking to repay any
amounts advanced if it is determined that indemnification by the corporation is
not required.
The
indemnification provisions of Sections 180.0850 to 180.0859 of the WBCL are not
exclusive. A corporation may expand an officer’s or director’s right to
indemnification (i) in its articles of incorporation or by-laws; (ii) by written
agreement between the director or officer and the corporation; (iii) by
resolution of its board of directors; or (iv) by resolution of a majority of all
of the corporation’s voting shares then issued and outstanding.
51
As
permitted by Section 180.0858 of the WBCL, ZBB has adopted indemnification
provisions in its By-Laws which closely track the statutory indemnification
provisions with certain exceptions. In particular, Article V of ZBB’s By-Laws
provides (i) that an individual shall be indemnified unless it is proven by a
final judicial adjudication that indemnification is prohibited, and (ii) payment
or reimbursement of expenses, subject to certain limitations, will be mandatory
rather than permissive.
ZBB’s
officers and directors are also covered by officers’ and directors’ liability
insurance for actions taken in their capacities as such, including liabilities
under the Securities Act.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to such directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the
event that a claim for indemnification against such liabilities, other than the
payment by us of expenses incurred or paid by such director, officer or
controlling person in the successful defense of any action, suit or proceeding,
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
Where
You Can Find More Information
We file
annual, quarterly and special reports, proxy statements and other information
with the SEC. You can inspect and copy these reports, proxy statements and other
information at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D. C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room. The SEC also maintains a web site that
contains reports, proxy and information statements and other information
regarding issuers, such as ZBB Energy Corporation (http://www.sec.gov). Our web
site is located at http://www.zbbenergy.com. The information contained on our
web site is not part of this prospectus.
52
Index
to Financial Statements
ZBB
Energy Corporation
Page
|
|
Consolidated
Balance Sheets at March 31, 2010 and June 30, 2009
|
F-2
|
Consolidated
Statements of Operations for the Quarter Ended March 31, 2010 and the
Nine Months Ended March 31, 2010
|
F-3
|
Consolidated
Statements of Stockholders’ Equity the Year Ended June 30, 2009 and the
Nine Months Ended March 31, 2010
|
F-4
|
Consolidated
Statements of Cash Flows for the Nine Months Ended March 31,
2010
|
F-5
|
Notes
to Unaudited Consolidated Financial Statements March 31,
2010
|
F-6
|
Report
of Independent Registered Public Accounting Firm
|
F-17
|
Consolidated
Balance Sheets at June 30, 2009 and June 30, 2008
|
F-18
|
Consolidated
Statements of Operations for the Years Ended June 30, 2009 and June 30,
2008
|
F-19
|
Consolidated
Statements of Stockholders’ Equity for the Years Ended June 30, 2009 and
June 30, 2008
|
F-20
|
Consolidated
Statements of Cash Flows for the Years Ended June 30, 2009 and June 30,
2008
|
F-21
|
Notes
to Consolidated Financial Statements for the Years Ended June 30, 2009 and
June 30, 2008
|
F-22
|
ZBB
ENERGY CORPORATION
Consolidated
Balance Sheets
March
31, 2010
|
June
30, 2009
|
|||||||
(unaudited)
|
||||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 2,925,150 | $ | 2,970,009 | ||||
Bank
certificate of deposit
|
- | 1,000,000 | ||||||
Accounts
receivable
|
325,408 | 614,154 | ||||||
Interest
receivable
|
- | 19,746 | ||||||
Inventories-net of $175,000 and $145,301
allowance
|
995,397 | 1,587,113 | ||||||
Prepaids
and other current assets
|
53,763 | 143,173 | ||||||
Total
current assets
|
4,299,718 | 6,334,195 | ||||||
Long-term
assets:
|
||||||||
Property,
plant and equipment, net
|
3,573,105 | 4,578,180 | ||||||
Goodwill
|
803,079 | 803,079 | ||||||
Total
assets
|
$ | 8,675,902 | $ | 11,715,454 | ||||
Liabilities
and Shareholders' Equity
|
||||||||
Current
liabilities:
|
||||||||
Bank
loans
|
420,428 | 416,558 | ||||||
Accounts
payable
|
553,009 | 827,001 | ||||||
Accrued
expenses
|
449,600 | 25,765 | ||||||
Deferred
revenues
|
472,720 | 1,128,539 | ||||||
Accrued
compensation and benefits
|
554,201 | 151,841 | ||||||
Total
current liabilities
|
2,449,958 | 2,549,704 | ||||||
Long-term
liabilities:
|
||||||||
Bank
loans
|
2,209,678 | 2,399,915 | ||||||
Total
liabilities
|
$ | 4,659,636 | $ | 4,949,619 | ||||
Shareholders'
equity
|
||||||||
Common
stock ($0.01 par value);
150,000,000 authorized 14,915,389 and 10,618,297 shares issued and
outstanding
|
149,155 | 106,183 | ||||||
Additional
paid-in capital
|
49,587,568 | 45,549,079 | ||||||
Treasury
stock - 13,833 shares
|
(11,136 | ) | - | |||||
Accumulated
other comprehensive (loss)
|
(1,562,385 | ) | (1,601,576 | ) | ||||
Accumulated
(deficit)
|
(44,146,936 | ) | (37,287,851 | ) | ||||
Total
shareholders' equity
|
$ | 4,016,266 | $ | 6,765,835 | ||||
Total
liabilities and shareholders' equity
|
$ | 8,675,902 | $ | 11,715,454 |
See
accompanying notes to consolidated financial statements
F-2
ZBB
ENERGY CORPORATION
Consolidated
Statements of Operations
Three
months ended March 31,
|
Nine
months ended March 31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||
Revenues
|
||||||||||||||||
Product
sales and revenues
|
$ | 29,669 | $ | - | $ | 967,455 | $ | - | ||||||||
Engineering
and development revenues
|
159,111 | 219,853 | 588,693 | 733,738 | ||||||||||||
Total
Revenues
|
188,780 | 219,853 | 1,556,148 | 733,738 | ||||||||||||
Costs
and Expenses
|
||||||||||||||||
Cost
of product sales
|
- | - | 899,287 | - | ||||||||||||
Advanced
engineering and development
|
905,949 | 757,680 | 2,538,197 | 2,118,346 | ||||||||||||
Selling,
general, and administrative
|
1,141,069 | 887,523 | 3,748,839 | 2,554,341 | ||||||||||||
Depreciation
|
83,622 | 51,837 | 333,270 | 186,703 | ||||||||||||
Impairment
and other equipment charges
|
47,858 | - | 828,089 | - | ||||||||||||
Total
Costs and Expenses
|
2,178,498 | 1,697,040 | 8,347,682 | 4,859,390 | ||||||||||||
Loss
from Operations
|
(1,989,718 | ) | (1,477,187 | ) | (6,791,534 | ) | (4,125,652 | ) | ||||||||
Other
Income (Expense)
|
||||||||||||||||
Interest
income
|
8,074 | 23,689 | 55,163 | 119,030 | ||||||||||||
Interest
(expense)
|
(54,261 | ) | (59,889 | ) | (117,155 | ) | (119,987 | ) | ||||||||
Other
income (expense)
|
14,201 | (10,946 | ) | (5,559 | ) | (24,514 | ) | |||||||||
Total
Other Income (Expense)
|
(31,986 | ) | (47,146 | ) | (67,551 | ) | (25,471 | ) | ||||||||
Loss
before provision for Income Taxes
|
(2,021,704 | ) | (1,524,333 | ) | (6,859,085 | ) | (4,151,123 | ) | ||||||||
Provision
for Income Taxes
|
- | - | - | - | ||||||||||||
Net
Loss
|
$ | (2,021,704 | ) | $ | (1,524,333 | ) | $ | (6,859,085 | ) | $ | (4,151,123 | ) | ||||
Net
Loss per share-
|
||||||||||||||||
Basic
and diluted
|
$ | (0.16 | ) | $ | (0.14 | ) | $ | (0.56 | ) | $ | (0.39 | ) | ||||
Weighted
average shares-basic and diluted:
|
||||||||||||||||
Basic
|
12,933,506 | 10,547,621 | 12,285,867 | 10,524,062 | ||||||||||||
Diluted
|
12,933,506 | 10,547,621 | 12,285,867 | 10,524,062 |
See
accompanying notes to consolidated financial statements.
F-3
ZBB
Energy Corporation
Consolidated
Statements of Changes in Shareholders' Equity (unaudited)
Note
|
Accumulated
|
|||||||||||||||||||||||||||||||||||
Receivable
|
Other
|
TOTAL
|
||||||||||||||||||||||||||||||||||
Number
of
|
Common
|
Add'l
Paid-in
|
Treasury
|
from
|
Comprehensive
|
Accumulated
|
Shareholders'
|
Comprehensive
|
||||||||||||||||||||||||||||
Shares
|
Stock
|
Capital
|
Stock
|
Shareholders
|
(Loss)
|
Deficit
|
Equity
|
(Loss)
|
||||||||||||||||||||||||||||
Balance:
June 30, 2008
|
10,512,283 | $ | 105,123 | $ | 45,619,608 | $ | (608,333 | ) | $ | (1,373,485 | ) | $ | (31,726,795 | ) | $ | 12,016,118 | $ | (4,731,612 | ) | |||||||||||||||||
Stock
options expensed
|
294,114 | 294,114 | ||||||||||||||||||||||||||||||||||
Issuance
of restricted stock in payment of compensation
|
101,014 | 1,010 | 72,167 | 73,177 | ||||||||||||||||||||||||||||||||
Deferred
stock compensation
|
(72,167 | ) | (72,167 | ) | ||||||||||||||||||||||||||||||||
Amortization
of deferred stock compensation
|
30,490 | 30,490 | ||||||||||||||||||||||||||||||||||
Issuance
of restricted stock - in payment of consulting fees
|
5,000 | 50 | 13,200 | 13,250 | ||||||||||||||||||||||||||||||||
Reduction
of note receivable
|
(408,333 | ) | 608,333 | 200,000 | ||||||||||||||||||||||||||||||||
Net
Loss
|
(5,561,056 | ) | (5,561,056 | ) | $ | (5,561,056 | ) | |||||||||||||||||||||||||||||
Net
Translation Adjustment
|
(228,091 | ) | (228,091 | ) | (228,091 | ) | ||||||||||||||||||||||||||||||
Balance:
June 30, 2009
|
10,618,297 | $ | 106,183 | $ | 45,549,079 | $ | - | $ | - | $ | (1,601,576 | ) | $ | (37,287,851 | ) | $ | 6,765,835 | $ | (5,789,147 | ) | ||||||||||||||||
Issuance
of common stock equity offering net of underwriting fees
|
1,791,667 | 17,917 | 2,024,583 | 2,042,500 | ||||||||||||||||||||||||||||||||
Equity
offering costs
|
(142,224 | ) | (142,224 | ) | ||||||||||||||||||||||||||||||||
Amortization
of deferred equity compensation
|
303,791 | 303,791 | ||||||||||||||||||||||||||||||||||
Settlement
of stock purchase agreement
|
(28,750 | ) | (287 | ) | 287 | |||||||||||||||||||||||||||||||
Issuance
of common stock equity offering net of net of underwriting
fees
|
2,243,750 | 22,438 | 1,636,912 | 1,659,350 | ||||||||||||||||||||||||||||||||
Equity
offering costs
|
(61,956 | ) | (61,956 | ) | ||||||||||||||||||||||||||||||||
Retired
restricted stock
|
(46,921 | ) | (469 | ) | 469 | |||||||||||||||||||||||||||||||
Issuance
of restricted common stock offering
|
337,346 | 3,373 | 276,627 | 280,000 | ||||||||||||||||||||||||||||||||
Purchase
of treasury stock
|
(11,136 | ) | (11,136 | ) | ||||||||||||||||||||||||||||||||
Net
Loss
|
(6,859,085 | ) | (6,859,085 | ) | (6,859,085 | ) | ||||||||||||||||||||||||||||||
Net
Translation Adjustment
|
39,191 | 39,191 | 39,191 | |||||||||||||||||||||||||||||||||
Balance:
March 31, 2010
|
14,915,389 | $ | 149,155 | $ | 49,587,568 | $ | (11,136 | ) | $ | - | $ | (1,562,385 | ) | $ | (44,146,936 | ) | $ | 4,016,266 | $ | (6,819,895 | ) |
See
accompanying notes to consolidated financial statements
F-4
ZBB
Energy Corporation
|
Nine
months ended March 31,
|
|||||||
Consolidated
Statements of Cash Flows
|
2010
|
2009
|
||||||
(unaudited)
|
(unaudited)
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
loss
|
$ | (6,859,085 | ) | $ | (4,151,123 | ) | ||
Adjustments
to reconcile net loss to net cash (used) in operating
activities:
|
||||||||
Depreciation
|
333,270 | 186,703 | ||||||
Change
in inventory allowance
|
29,699 | 68,050 | ||||||
Equipment
costs reclassified to expenses
|
- | 210,855 | ||||||
Impairment
and other equipment charges
|
828,089 | - | ||||||
Payments
applied to note receivable for consulting fees
|
- | 150,000 | ||||||
Stock
based compensation
|
303,791 | 201,567 | ||||||
(Increase)
decrease in operating assets:
|
||||||||
Accounts
receivable
|
288,746 | 1,722 | ||||||
Inventories
|
562,017 | (321,801 | ) | |||||
Prepaids
and other current assets
|
89,410 | (325 | ) | |||||
Other
receivables-interest
|
19,746 | 26,970 | ||||||
Increase
(decrease) in operating liabilities:
|
||||||||
Accounts
payable
|
(252,245 | ) | 230,324 | |||||
Accrued
compensation and benefits
|
402,360 | (48,231 | ) | |||||
Accrued
expenses
|
423,835 | - | ||||||
Deferred
revenues
|
(655,819 | ) | (2,415 | ) | ||||
Net
cash (used) in operating activities
|
(4,486,186 | ) | (3,447,704 | ) | ||||
Cash
flows from investing activities
|
||||||||
Capital
expenditures
|
(156,284 | ) | (713,470 | ) | ||||
Bank
certificate of deposit
|
1,000,000 | (1,016,325 | ) | |||||
Net
cash provided (used) in investing activities
|
843,716 | (1,729,795 | ) | |||||
Cash
flows from financing activities
|
||||||||
Proceeds
from bank loan
|
156,000 | 1,070,000 | ||||||
Repayments
of bank loans
|
(342,367 | ) | (203,567 | ) | ||||
Proceeds
from stock issuance - net of underwriter fees
|
3,981,850 | - | ||||||
Additional
public offering costs
|
(204,180 | ) | - | |||||
Purchase
of treasury stock
|
(11,136 | ) | - | |||||
Net
cash provided by financing activities
|
3,580,167 | 866,433 | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
17,444 | (243,694 | ) | |||||
Net
(decrease) in cash and cash equivalents
|
(44,859 | ) | (4,554,760 | ) | ||||
Cash
and cash equivalents - beginning of period
|
2,970,009 | 8,451,320 | ||||||
Cash
and cash equivalents - end of period
|
$ | 2,925,150 | $ | 3,896,560 | ||||
Cash
paid for interest
|
$ | 111,927 | $ | 92,952 | ||||
Supplemental
schedule of non-cash investing and financing activities:
|
||||||||
Investment
in joint venture offset by unfulfilled deferred revenue
|
- | 160,000 | ||||||
Prepaids
and inventory reclassed to property, plant and equipment
|
- | 214,900 | ||||||
Equipment
costs reclassified to expenses
|
- | 210,855 |
See
accompanying notes to consolidated financial statements.
F-5
ZBB
ENERGY CORPORATION
Notes
to Unaudited Consolidated Financial Statements
March
31, 2010
NOTE
1 - Basis of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and disclosures required for annual financial
statements. These financial statements should be read in conjunction with the
financial statements and related footnotes for the year ended June 30,
2009.
In the
opinion of the ZBB Energy Corporation (“ZBB” or the “Company”) management, all
adjustments (consisting of normal recurring accruals) necessary to make the
Company’s financial position as of March 31, 2010 and the results of operations
and statements of cash flows for the periods shown not misleading, have been
included. Operating results for the nine months ended March 31, 2010
are not necessarily indicative of the results that may be expected for the
year-ended June 30, 2010.
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated upon consolidation.
NOTE
2 – Going Concern
The
unaudited consolidated financial statements as of March 31, 2010 and for the
nine months then ended have been prepared on the basis of a going concern which
contemplates that ZBB Energy Corporation and subsidiaries (the “Company”) will
be able to realize assets and discharge liabilities in the normal course of
business. Accordingly, they do not give effect to adjustments that would be
necessary should the Company be required to liquidate its assets. The Company
incurred a net loss of $6,859,085 for the nine months ended March 31, 2010. The
ability of the Company to meet its total liabilities of $4,659,636 and to
continue as a going concern is dependent upon the availability of future funding
and achieving profitability. The financial statements do not include
any adjustments that might result from the outcome of these
uncertainties.
NOTE
3 - Nature of Organization
The
Company designs, develops, manufactures and distributes energy storage systems
under the product name ZESS 50. The Company also develops and
distributes proprietary system integration power electronics under the product
name ZESS POWR PECC. The Company was incorporated under the laws of
Wisconsin in 1998.
The
Company develops, manufactures and markets energy storage systems with telecom
and renewable energy applications, and energy integrators for both of and on
grid applications as its initial markets. This scalable, mobile system is
ideally suited for a number of market applications including:
—
Storage of renewable wind and solar energy production in both grid connected and
grid independent environments.
—
Backup power supply for grid connected units.
—
Power electronic systems in conjunction for both storage and non-storage
applications.
The
consolidated financial statements include the accounts of the Company and those
of its wholly owned subsidiaries, ZBB Technologies, Inc. which operates a
manufacturing facility in Menomonee Falls, Wisconsin, and ZBB Technologies, Ltd.
which has its advanced engineering and development facility in Perth,
Australia.
NOTE
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Foreign
Currency
The
Company uses the United States dollar as its reporting currency, while the
Australian dollar is the functional currency of one of its operating
units. Assets and liabilities of the Company’s international
operations are translated into United States dollars at exchange rates that are
in effect as at the balance sheet date while equity accounts are translated at
historical exchange rates. Income and expense items are translated at average
exchange rates which were applicable during the reporting period. Translation
adjustments are accumulated in Accumulated Other Comprehensive (Loss) as a
separate component of Shareholders’ Equity in the consolidated balance sheet. No
gain or loss on translation is included in the net loss.
F-6
Use
of Estimates
The
preparation of financial statements and related disclosures in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and
revenues and expenses during the period covered by the report. Actual results
could differ from those estimates. Estimates are used in accounting for, amongst
other things, revenue and losses recognized under the percentage of completion
method for sales, impairment and realizability of assets, depreciation, and
valuations of equity and debt instruments. Estimates and assumptions
are reviewed periodically and the effects of any revisions are reflected in the
consolidated financial statements in the period they are determined to be
necessary.
Income
Tax
The
Company records deferred taxes in accordance with FASB Accounting Standard
Codification (“ASC”) topic 740, “Accounting for Income Taxes.” This ASC requires
recognition of deferred tax assets and liabilities for temporary differences
between the tax basis of assets and liabilities and the amounts at which they
are carried in the financial statements, based upon the enacted tax rates in
effect for the year in which the differences are expected to reverse. The
Company establishes a valuation allowance when necessary to reduce deferred tax
assets to the amount expected to be realized. There was no deferred tax assets
recorded as of March 31, 2010.
Property,
Plant and Equipment
Land,
building, equipment, computers and furniture and fixtures are recorded at
cost. Maintenance, repairs and betterments are charged to
expense.
Finished
goods normally held for sale to customers may sometimes be used in demonstration
and testing by customers. During the periods that the units are
transferred from Inventory to Plant and Equipment they are depreciated over the
period in use. Since the intent is for these units to be eventually sold they
are returned to Inventory upon the completion of customer demonstration and
testing at their written down value.
Depreciation
Depreciation
is provided for all plant and equipment on a straight line basis over estimated
useful lives of the assets. The depreciation rate used for each class
of depreciable asset is:
Depreciation
Life
|
||
Manufacturing
Equipment
|
3 -
7 years
|
|
Office
Equipment
|
3 -
7 years
|
|
Building
and improvements
|
7 -
40
years
|
Impairment
of Long-Lived Assets
In
accordance with FASB ASC topic 360, "Impairment or Disposal of Long-Lived
Assets," the Company assesses potential impairments to its long-lived assets
including property, plant and equipment when there is evidence that events or
changes in circumstances indicate that the carrying value may not be
recoverable.
If such
an indication exists, the recoverable amount of the asset, being the higher of
the asset’s fair value less costs to sell, is compared to the asset’s carrying
value. Any excess of the asset’s carrying value over its recoverable amount is
expensed to the statement of operations. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
pre-tax discount rate.
Goodwill
Goodwill
represents the cost of acquisition of a group of assets in excess of the net
fair value of the identifiable assets.
Following
initial recognition, goodwill is measured at cost less any accumulated
impairment losses. Goodwill is not amortized but reviewed for impairment
annually or more frequently if events or changes in circumstances indicate that
its carrying value may be impaired.
F-7
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with maturities of three months
or less to be cash equivalents. The Company maintains its cash
deposits with a few high credit quality financial institutions predominately in
the United States. At times such balances may exceed federally
insurable limits. The Company has not experienced any losses in such
accounts.
Inventories
Inventories
are stated at the lower of cost (first-in, first-out method) or market and
consist of raw materials, work in progress and finished goods held for
resale.
Costs
incurred in bringing each product to its present location and conditions are
accounted for as follows:
·
|
Raw
materials – purchased cost of direct
material
|
·
|
Finished
goods and work-in-progress – purchased cost of direct material plus direct
labor plus a proportion of manufacturing
overheads.
|
Revenue
Recognition
Revenues
are recognized when persuasive evidence of a contractual arrangement exits,
delivery has occurred or services have been rendered, the seller’s price to
buyer is fixed and determinable, and collectability is reasonably assured. The
portion of revenue related to installation and final acceptance, is deferred
until such installation and final customer acceptance are completed. The Company
charges shipping and handling fees when products are shipped or delivered to a
customer, and includes such amounts in net sales. The Company reports its sales
net of actual sales returns.
For sales
arrangements containing multiple elements (products or services), revenue
relating to undelivered elements is deferred at the estimated fair value until
delivery of the deferred elements. To be considered a separate element, the
product or service in question must represent a separate unit under Staff
Accounting Bulletin 104, and fulfill the following criteria: the delivered
item(s) has value to the customer on a standalone basis; there is objective and
reliable evidence of the fair value of the undelivered item(s); and, if the
arrangement includes a general right of return relative to the delivered
item(s), delivery or performance of the undelivered item(s) is considered
probable and substantially in our control. If the arrangement does not meet all
criteria above, the entire amount of the transaction is deferred until all
elements are delivered. Revenue from time and materials based service
arrangements is recognized as the service is performed.
Revenue
recognition on energy storage system long-term contracts utilizes the
percentage-of-completion method which recognizes revenue proportionally as costs
are incurred and compared to the estimated total costs for each
contract. This has been the predominant method used in estimating
revenues recognized in past reporting periods.
Engineering
and development contracts are typically collaborative agreements to further
develop renewable energy technologies and are often sponsored and partially
funded in various amounts between government agencies and the Company. Often
multi-year agreements which contain several elements and provide for varying
consideration based on allowable costs, milestones and similar payment
provisions and may provide for future licensing and royalties beyond the term of
the arrangement. Revenue associated with these types of contracts are
typically of longer duration and recognized under the percentage-of-completion
method.
These
policies as discussed herein are not intended to be a comprehensive list of
policies to encompass the accounting for all customer contracts. Occasionally,
contracts terms may not be specifically discussed or anticipated as dictated by
U.S. GAAP and may require managements’ judgment in selecting an available
revenue recognition alternative that would not produce a materially different
result.
In July
2007 the Company commenced engineering and product development activities
pursuant to the collaborative Advanced Electricity Storage Technologies project
(“AEST”) with the Commonwealth of Australia through July 2010 which terms
include the receipt of funding of A$3.1 million (approximately US$2.3 million)
toward future development costs which include the production and delivery of one
500kWh energy storage system. During the nine months ended March 31,
2010 and 2009, $588,693 and $733,738, respectively, was recognized as revenue
based on progress toward completion of the nine performance milestones specified
in the contract.
On
February 4, 2010 the Company announced that its Audit Committee and Management
determined a customer contract recorded in June 2009 did not properly meet the
delivery criteria under Staff Accounting Bulletin No. 101 to qualify for revenue
recognition and that other contract arrangements were not considered when
revenue was recorded. As a result, the Company reported the revenues
of approximately $600,000 and costs associated with this shipment in the
consolidated financial statements for the fiscal quarter ended September 30,
2009.
F-8
Total
revenues of $1,556,148 and $733,738 were recognized for the nine months ended
March 31, 2010 and 2009, respectively.
Warranty
and Contract Reserves
The
Company typically warrants its products for twelve months after installation or
eighteen months after date of shipment, whichever first occurs. Warranty
reserves are evaluated quarterly to determine a reasonable estimate for the
replacement of potentially defective materials of all energy storage systems
that have been shipped to customers.
While the
Company actively engages in monitoring and improving its evolving battery and
production technologies, there is only a limited product history and relatively
short time frame available to test and evaluate the rate of product
failure. Should actual product failure rates differ from the
Company’s estimates, revisions are made to the estimated rate of product
failures and resulting changes to the warranty reserve. In addition,
from time to time, specific warranty accruals may be made if unforeseen
technical problems arise.
During
the quarter ended December 31, 2009, battery stack manufacturing issues were
discovered as result of an internal test failure. As a result, the
Company has implemented several manufacturing process changes to eliminate the
potential for future failures and will adjust its warranty reserves
accordingly. We will adjust our warranty rates in future periods as
these processes are implemented and tested.
Management
also reviews the status of all active contracts to determine if there are any
conditions due to warranty, costs to complete, and other commitments to
completing the contract. If indications are an adverse net financial
outcome is likely, a provision is made for the total loss
anticipated.
As of
March 31, 2010, included in the Company’s accrued expenses were approximately
$350,000 in warranty reserves and $100,000 in provision for anticipated contract
losses.
Net
Loss per Share
The
Company follows the FASB ASC topic 260 “Earnings per Share” provisions which
require the reporting of both basic and diluted earnings (loss) per
share. Basic earnings (loss) per share is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings
(net loss) per share reflect the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Anti-dilutive effects on net income (loss) per share are
excluded (as of March 31, 2010 there were 2,896,523 underlying options and
warrants that are excluded).
Stock-Based
Compensation
The
Company measures all “Share-Based Payments", including grants of stock options
and restricted shares, to be recognized in the income statement based on their
fair values on the grant date, consistent with FASB ASC topic 718 “Stock
Compensation” guidelines.
Accordingly,
the Company measures share-based compensation cost for all share-based awards at
the fair value on the grant date and recognition of share-based compensation
over the service period for awards that are expected to vest. The fair value of
stock options is determined based on the number of shares granted and the price
of our ordinary shares, and calculated based on the Black-Scholes valuation
model.
The
Company only recognizes expense to its consolidated statement of operations for
those options or shares that are expected ultimately to vest, using two
attribution methods to record expense, the straight-line method for grants with
only service-based vesting or the graded-vesting method, which considers each
performance period or tranche separately, for all other awards. See Note 13
below.
F-9
Advanced
engineering and development
The
Company expenses advanced engineering and development costs as incurred. These
costs consist primarily of labor, overhead, and materials to build prototype
units, materials for testing, develop manufacturing processes and include
consulting fees and other costs. To the extent these cost are
allowable costs and funded by advanced engineering and development type
agreements with outside parties, they will be shown separately on the statement
of operations as a “cost of engineering and development contract.”
Costs
related to the AEST project were presented in the prior fiscal year‘s statement
of operations as “cost of engineering and development contracts” and
have subsequently been reclassified and presented as “advanced engineering and
development” costs to conform with the current fiscal year
presentation. The Company determined the AEST project agreement
did not contain adequate specificity to reasonably allocate revenues and related
expenditures between product sales, engineering and development revenues, and
general engineering and development costs to allow for separate classification
in the statement of operations.
Intellectual
property, including internally generated patents and know-how is carried at no
value.
Comprehensive
income (loss)
The
Company reports its comprehensive income (loss) in accordance with the FASB
ASC topic 220
“Comprehensive Income”, which requires presentation of the components of
comprehensive earnings. Comprehensive income (loss) consists of net income
(loss) for the period plus or minus any net currency translation adjustments
applicable for the periods ended March 31, 2010 and 2009 and is presented in the
Consolidated Statements of Changes in Shareholders’ Equity.
Fair
Value Measurements
The
Company considers the carrying values reported in the consolidated balance
sheets for current assets and current liabilities qualifying as financial
instruments which approximate their fair values due to the short-term maturity
of such instruments. It is the management’s opinion that the Company
is not exposed to significant interest, price, and foreign currency or credit
risks arising from these financial instruments.
Recent
Accounting Pronouncements
On July
1, 2009, the Company adopted the FASB Accounting Standards Codification ("ASC").
FASB ASC topic 105, “Generally Accepted Accounting Principles”, does not
alter current U.S. GAAP but rather integrated existing accounting standards with
other authoritative guidance. The ASC provides a single source of
authoritative U.S. GAAP for nongovernmental entities and supersedes all other
previously issued non-SEC accounting and reporting guidance. The adoption
of the ASC did not change our accounting principles. All prior references
to U.S. GAAP have been revised to conform to the ASC. Updates to the ASC are
issued in the form of Accounting Standards
Updates ("ASU").
In
October 2009, the FASB issued ASU No. 2009-13 “Revenue Recognition (Topic 605):
Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging
Issues Task Force.” This update provides application guidance on whether
multiple deliverables exist, how the deliverables should be separated and how
the consideration should be allocated to one or more units of accounting. This
update establishes a selling price hierarchy for determining the selling price
of a deliverable. The selling price used for each deliverable will be based on
vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price
if neither vendor-specific or third-party evidence is available. The Company
will be required to apply this guidance prospectively for revenue arrangements
entered into or materially modified after January 1, 2011; however, earlier
application is permitted. The management is in the process of evaluating the
impact of adopting this ASU on the Company’s consolidated financial
statements.
In April
2009, new guidance, FASB ASC topic 825 “Financial Instruments” was issued which
amends the requirements for disclosures about fair value of financial
instruments in interim financial statements as well as in annual financial
statements. This guidance became effective for the Company on July 1, 2009 and
did not have a material impact on the Company’s consolidated financial
statements.
F-10
NOTE
5 – INVENTORIES
Inventory
balances are comprised of the following amounts as of March 31,
2010:
Raw
materials
|
$ | 853,605 | ||
Work
in progress
|
253,388 | |||
Finished
goods
|
63,404 | |||
Inventory
valuation allowance
|
(175,000 | ) | ||
Total | $ | 995,397 |
NOTE
6– PROPERTY, PLANT & EQUIPMENT
Property,
plant & equipment balances are comprised of the following amounts as of
March 31, 2010:
Office
equipment
|
$ | 125,287 | ||
Manufacturing
equipment
|
3,530,008 | |||
Building
|
1,996,134 | |||
Land
|
217,000 | |||
5,868,429 | ||||
Less,
accumulated depreciation
|
(2,295,324 | ) | ||
Net
Property, Plant & Equipment
|
$ | 3,573,105 |
During
the nine month period ended March 31, 2010, manufacturing equipment previously
used in production and development activities were identified as impaired or had
reached the end of their respective useful lives due to changing product and
manufacturing technologies. Upon write-down the manufacturing
equipment and accumulated depreciation accounts were adjusted accordingly and
$828,089 in charges to operations for the nine months ended March 31, 2010,
including a charge to operations of $47,858 for the three months ended March 31,
2010, were reported as impairment and other equipment charges.
NOTE
7 – NOTE RECEIVABLE-Shareholder
In July
2006, the Company entered into a common stock purchase agreement with 41
Broadway Associates, LLC. Under the terms of the agreement the
Company sold to 41 Broadway Associates, LLC a total of 294,118 common shares for
a total consideration of $1,000,000, paid through issuance of a promissory note.
Both parties also entered into a five year consulting
agreement. During 2009 the Company determined the service agreement
to be a minimal future value and effectively cancelled the agreement as of June
30, 2009.
In
accordance with the terms of the note agreement, the cancellation of the service
agreement, in effect relieved the remaining balance of the note
receivable. Accordingly, the $408,333 remaining balance of the note
receivable was written off and applied to additional paid in capital at June 30,
2009. The cancellation agreement also required 41 Broadway
Associates, LLC to forfeit 28,750 of the Company’s common shares, reducing the
Company’s common shares issued and outstanding during the current
period.
NOTE
8 – COMMON STOCK AND WARRANT OFFERINGS
On April
30, 2009 the Company filed a Registration Statement on Form S-3 with the SEC for
a $10 million universal shelf, which was declared effective by the SEC on May
13, 2009. The Company took this action as a proactive measure in
anticipation of our possible future needs to raise additional investment capital
to fund additional working capital and further capital
expenditures. On August 18, 2009, the Company completed a registered
direct sale of 1,791,667 units at $1.20 per unit, consisting of an aggregate of
1,791,667 shares of its common stock and warrants to purchase 358,333 shares of
its common stock at an exercise price of $1.33 per share. The
proceeds to ZBB after deducting placement agent fees and offering expenses were
approximately $1.9 million. Proceeds are to be used for
capital expenditures and general corporate purposes.
On March
9, 2010, the Company completed a registered direct sale of 2,243,750 units at
$.80 per unit, consisting of an aggregate of 2,243,750 shares of its common
stock and warrants to purchase 1,121,875 shares of its common stock at an
exercise price of $1.04 per share. The proceeds to ZBB after
deducting placement agent fees and offering expenses were approximately $1.6
million. Proceeds are to be used for general corporate
purposes.
F-11
On March
31, 2010, the Company completed the closing of a private placement of
unregistered common stock. The purchasers of the stock were the
company’s Directors, Officers, and key employees. The Company sold
337,346 shares at $.83 per share. The proceeds to ZBB were
$280,000. Proceeds are to be used for general corporate
purposes.
NOTE
9 – BANK LOANS
The
Company's debt consisted of the following as of March 31, 2010:
Bank
loans-current
|
$ | 420,428 | ||
Bank
loans-long term
|
2,209,678 | |||
Total
|
$ | 2,630,106 |
On July
1, 2009 the Company entered into a loan agreement to finance new production
equipment. The $156,000 bank note is secured by specific equipment,
requiring monthly payments of $4,736 of principal and interest; rate equal to
5.99% per annum; maturity date of December 1, 2013. Principal balance is
$119,645 at March 31, 2010.
On
November 28, 2008 the Company entered into a loan agreement to finance new
production equipment. The $1,070,000 bank note is secured by specific
equipment, requiring monthly payments of $21,000 of principal and interest; rate
equal to the prime rate; maturity date of July 1, 2012. Principal balance is
$788,269 at March 31, 2010.
On May
14, 2008 the Company entered into two loan agreements to refinance its building
and land in Menomonee Falls, Wisconsin:
The first
loan requires a fixed monthly payment of principal and interest at a rate of
.25% below the prime rate, subject to a prime rate floor of 5.25%, with any
principal balance due at maturity on June 1, 2018 and secured by the building
and land. Principal balance is $815,223 at March 31,
2010.
The
second loan is a secured promissory note guaranteed by the U.S. Small Business
Administration, requiring monthly payments of principal and interest at a rate
of 5.5% until May 1, 2028. Principal balance is $828,239 at
March 31, 2010.
On
January 22, 2007 the Company refinanced its equipment loan. The new
loan term requires monthly principal payments and interest rate at a rate equal
to the prime rate, maturity date of February 1, 2011. The loan is
secured by a first lien on all business personal property. Principal
balance is $78,730 at March 31, 2010.
Maximum
aggregate annual principal payments for the 12 month periods subsequent to March
31, 2010 are as follows:
2010
|
$ | 420,428 | ||
2011
|
358,135 | |||
2012
|
332,648 | |||
2013
|
183,320 | |||
2014
|
84,707 | |||
2015
and thereafter
|
1,250,868 | |||
$ | 2,630,106 |
NOTE
10 - EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS
In 2002
the Company established the 2002 Stock Option Plan (“SOP”) whereby a stock
option committee was given the discretion to grant up to 579,107 options to
purchase shares to key employees of the Company at exercise prices and dates to
be determined by the committee. During the nine month period ended
March 31, 2010 no options were issued or exercised, options for 87,907 shares
expired, and options for 75,000 shares were cancelled. At March 31,
2010 there were 325,000 options outstanding with an exercise price of $3.59 and
expiration dates through June 30, 2014. A further 254,107 options are
available to be issued under the SOP.
During
2005 the Company established an Employee Stock Option Scheme (the “2005 Plan”)
that authorizes the board of directors or a committee thereof, to grant options
to employees and directors of the Company or any affiliate of the Company. The
maximum number of options that may be granted in aggregate at any time under the
2005 Plan is the number equivalent to 5% of the total number of issued shares of
the Company including all shares underlying options under the Company’s stock
option and incentive plans. Options issued expire five years after the vesting
date. During the nine month period ended March 31, 2010 no options
were issued, exercised or expired, and options for 260,000 shares were
cancelled. At March 31, 2010, options to purchase 50,000 shares with
an exercise price of $3.82 and an expiration date of June 2012 are outstanding.
A further 405,838 options are available to be issued under the 2005
Plan.
F-12
During
2007 the Company established the 2007 Equity Incentive Plan (the “2007 Plan”)
that authorizes the board of directors or a committee thereof, to grant options
to purchase up to a maximum of 1,500,000 shares to employees and directors of
the Company at exercise prices to be determined by the administrator but not
less than 100% (110% for a 10% shareholder) of the market value on the date
granted. During the nine month period ended March 31, 2010 options to
purchase 816,500 shares were granted to directors and employees exercisable at
prices from $1.02 to $1.39 per share based on various service based vesting
terms from November 2009 through February 2013 and exercisable at various dates
through February 2018, and 195,918 options were retired or
forfeited. At March 31, 2010, options to purchase 1,286,992
shares with an exercise price of $1.02 - $3.59 and expiration dates from January
1, 2015 to November 2, 2019 are outstanding. Options to purchase an
additional 213,008 shares are available to be issued under the 2007
plan.
The
Compensation Committee of the Company’s Board of Directors awarded two
inducement option grants to the Company’s new CEO in January
2010. The first grant is an option to purchase 400,000 shares which
vests as to one-third of the shares on January 7, 2011 and as to the balance in
24 monthly installments beginning on January 31, 2011 and ending on December 31,
2012. This option vests in full upon a “change of control.” The
second grant is an option to purchase 100,000 shares of ZBB common stock which
vests in two equal installments based on the achievement of certain performance
targets as of June 30, 2010 and December 31, 2010. Both options have
an exercise price of $1.33 per share which was equal to the closing price of
ZBB’s common stock on January 7, 2010 and are not exercisable as to any portion
of the option after the fifth anniversary of the date on which that portion
vests. The options are subject to other terms and conditions
specified in the related option agreements.
In
aggregate for all plans, at March 31, 2010, the Company has a total of 2,161,992
options outstanding and 872,953 options available for future grant under the
SOP, 2005 and the 2007 Plans.
The
following table summarizes information relating to the stock options outstanding
at March 31, 2010:
Outstanding |
Exercisable
|
|||||||||||||||||||
Average
|
||||||||||||||||||||
Remaining
|
Weighted
|
Weighted
|
||||||||||||||||||
Number
of
|
Contractual
Life
|
Average
|
Number
of
|
Average
|
||||||||||||||||
Range
of Exercise Prices
|
Options
|
(in
years)
|
Exercise
Price
|
Options
|
Exercise
Price
|
|||||||||||||||
$1.02
to $1.69
|
1,511,992 | 7.5 | $ | 1.32 | 317,159 | $ | 1.26 | |||||||||||||
$3.59
to $3.82
|
650,000 | 4.8 | $ | 3.61 | 633,333 | $ | 3.61 | |||||||||||||
Balance
at March 31, 2010
|
2,161,992 | $ | 2.01 | 950,492 | $ | 2.82 |
In
addition, under the 2007 Plan and in conjunction with a salary reduction plan
implemented during 2009, 101,014 restricted shares were granted as payment of
compensation, of which vesting is 75% service based and 25% performance
based. During the nine month period ended March 31, 2010, $29,284
(net of $19,500 in forfeitures) was recognized as expense.
NOTE 11 - NON RELATED PARTY
WARRANTS
At March
31, 2010 there were outstanding warrants to purchase 1,121,875 shares acquired
by certain purchasers of Company shares in March 2010 exercisable at $1.04 per
share and which expire in September 2015.
At March
31, 2010 there were outstanding warrants to purchase 358,333 shares acquired by
certain purchasers of Company shares in August 2009 exercisable at $1.33 per
share and which expire in August 2015.
At March
31, 2010 there were outstanding warrants to purchase 120,023 shares acquired by
Empire Financial Group, Ltd. in 2006 exercisable at $3.23 per share and which
expire on in September 2011.
At March
31, 2010 there were outstanding warrants to purchase 50,000 shares acquired by
Empire Financial Group, Ltd. as part of the underwriting compensation in
connection with our United States public offering which are exercisable at $7.20
per share and which expire in June 2012.
F-13
At March
31, 2010 there are warrants to purchase 195,800 shares issued and outstanding to
Strategic Growth International in connection with capital raising activities in
2006 and 2007, with expiration dates between March 2011 and June 2012 and
exercise prices of between $3.75 and $7.20.
The table
below summarizes non-related party warrant balances:
Weighted-
|
||||||||
Average
|
||||||||
Stock
Warrants
|
Number
of
|
Exercise
Price
|
||||||
Non-related parties
|
Warrants
|
Per Share
|
||||||
Balance
at June 30, 2008
|
365,823 | $ | 4.41 | |||||
Warrants
granted
|
- | |||||||
Warrants
expired
|
- | |||||||
Warants
exercised
|
- | |||||||
Balance
at June 30, 2009
|
365,823 | $ | 4.41 | |||||
Warrants
granted
|
1,480,208 | $ | 1.11 | |||||
Warrants
expired
|
- | |||||||
Warants
exercised
|
- | |||||||
Balance
at March 31, 2010
|
1,846,031 | $ | 1.76 |
NOTE
12 – COMMITMENTS
In July
2007 the Company commenced engineering and product development activities
pursuant to a collaborative project entitled the Advanced Electricity Storage
Technologies (“AEST”) project, with the Commonwealth of Australia, through July
2010. The terms of the project provide for the receipt of funding by
the Company for future development costs which include the production and
delivery of one 500kWh energy storage system.
The AEST
project has total budgeted expenditure for operating and capital items of
approximately $4.7 million (A$5.9 million) exclusive of any Australian taxes.
The Company’s contribution of approximately $2.3 million (A$2.8 million) is the
value of any cash and in-kind contributions provided to the project by the
Company in undertaking the project activities. The Australian Government is
providing the project funding of approximately $2.5 million (A$3.1 million) to
be paid in accordance with the completion of contracted project milestones and
subject to the Company’s compliance with project reporting requirements and
demonstrating that the funds already provided to it have been fully spent or
will be fully spent in the near future. There is a balance of
approximately $100,000 in contributions due by the Company to the project in
cash and in-kind contributions as of March 31, 2010.
The
Company leases its Australian research and development facility from a
non-related Australian company. The current rental is $64,415 per
annum (A$71,572) and is subject to an annual CPI adjustment.
Rent
expense was $48,827 and $39,618 for the nine months ended March 31, 2010 and
2009.
The
future payments required under the terms of the lease are as
follows:
For
the twelve months ending June 30:
|
||||
2010
|
$ | 68,444 | ||
2011
|
38,178 | |||
Total
|
$ | 106,622 |
The
Company has entered into employment contracts with executives and management
personnel. The contracts provide for salaries, bonuses and stock option grants,
along with other employee benefits. The employment contracts generally have no
set term and can be terminated by either party. There is a provision for
payments of three months to eighteen months of annual salary as severance if we
terminate a contract without cause, along with the acceleration of certain
unvested stock option grants.
On
October 31, 2009, the Company entered into a Resignation and Indemnification
Agreement (the “Indemnification Agreement”) with Robert J. Parry, its outgoing
CEO. As of March 31, 2010 the Company has accrued the entire $225,000
of future severance payments to be paid to Mr. Parry, in connection with his
retirement.
F-14
NOTE
13 - RETIREMENT PLANS
All
Australian based employees are entitled to varying degrees of benefits on
retirement, disability, or death. Retirement plan contributions,
mandated at 9% of the employee’s gross compensation, are paid by the Company on
behalf of all Australian based employees.
For U.S.
employees, the Company has a 401(k) plan. The Company contributes a
maximum of a 4% in matching funds, based on the level of contributions made by
the active participants, all of which are 100% vested immediately.
Expenses
under these plans were $63,950 and $57,674 for the nine months ended March 31,
2010 and 2009.
NOTE 14 —
STOCK-BASED COMPENSATION
The
Company issues stock options and other stock-based awards to executive
management, key employees, and directors under its stock-based compensation
plans (see Note 9).
For the
nine months ended March 31, 2010 and 2009, the Company’s results of operations
reflect compensation expense for stock options granted and restricted shares
vested under its equity incentive plans. The amount recognized in the financial
statements related to stock-based compensation was $303,791 and $201,567, based
on the grant date fair value of all options vested during the nine months ended
March 31, 2010 and 2009 respectively.
During
the nine month period ended March 31, 2010 options to purchase 1,316,500 shares
were granted to directors and employees exercisable at prices from
$1.02 to $1.39 per share based on various service based vesting terms from
November 2009 through February 2013 and exercisable at various dates through
February 2018.
The fair
value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing method. The Company uses historical data to
estimate the expected price volatility, the expected option life and the
expected forfeiture rate. The Company has not made any dividend payments nor
does it have plans to pay dividends in the foreseeable future. The following
assumptions were used to estimate the fair value of options granted during the
nine months ended March 31, 2010 using the Black-Scholes option-pricing
model:
Expected
life of option (years)
|
2.5-4.75 | |||
Risk-free
interest rate
|
1.2 - 1.4 | % | ||
Assumed
volatility
|
62 - 70 | % | ||
Expected
dividend rate
|
0.00 | |||
Expected
forfeiture rate
|
0.00 |
The
weighted-average fair value of the 1,316,500 options granted during the nine
months ended March 31, 2010 was approximately $.60 per option using the Black
Scholes option-pricing method as of the date of the grant.
Time-vested
and performance-based stock awards, including stock options and restricted
stock, are accounted for at fair value at date of grant. Compensation
expense is recognized over the requisite service and performance
periods.
As of
March 31, 2010, there remains a total of $590,713 in unrecognized
compensation cost related to unvested stock options with various service based
vending dates through 2012.
NOTE
15— INCOME TAXES
The
Company did not record a provision for federal, state or foreign income taxes
for the years ended June 30, 2009 and 2008. The Company has not
recorded a benefit for deferred tax assets as its realizability is
uncertain.
The
Company’s combined effective income tax rate differed from the U.S. federal
statutory income tax rate as follows:
2009
|
2008
|
|||||||
Income
tax benefit computed at the federal statutory rate
|
-34 | % | -34 | % | ||||
Foreign
rate differential
|
4 | % | 4 | % | ||||
Change
in valuation allowance
|
30 | % | 30 | % | ||||
Total
|
0 | % | 0 | % |
F-15
Significant
components of the Company's net deferred tax assets as of June 30, 2009 and 2008
were as follows:
2009
|
2008
|
|||||||
Net
operating loss carryforwards
|
$ | 9,812,303 | $ | 8,255,175 | ||||
Foreign
loss carryforwards
|
1,114,442 | 971,952 | ||||||
Deferred
tax asset valuation allowance
|
(10,926,745 | ) | (9,227,127 | ) | ||||
Total
deferred tax assets
|
$ | - | $ | - |
As of
June 30, 2009, the Company had U.S net operating loss carry forwards of
approximately $28,900,000 which begins to expire in 2014 for federal tax
purposes. The Company also has gross foreign tax loss carry forwards of
approximately $3,700,000 that are available to offset future liabilities for
foreign income taxes. Substantially all of the foreign tax losses are carried
forward indefinitely, subject to certain limitations.
A
valuation allowance has been established for certain future income tax benefits
related to income tax loss carry forwards and temporary tax adjustments based on
an assessment that it is more likely than not that these benefits will not be
realized. During the twelve months ended June 30, 2009 the valuation allowance
increased by $1,699,618.
F-16
Report of Independent
Registered Public Accounting Firm
To the
Board of Directors and Stockholders
ZBB
Energy Corporation
Milwaukee,
Wisconsin
We have
audited the accompanying consolidated balance sheets of ZBB Energy Corporation
and subsidiaries as of June 30, 2009 and 2008 and the related consolidated
statements of operations, changes in shareholders’ equity and cash flows for the
years then ended. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of ZBB Energy Corporation and
subsidiaries at June 30, 2009 and 2008 and the results of their operations and
their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
As
discussed in note 16 to the consolidated financial statements, the Company has
restated the accompanying consolidated financial statements as of and for the
year ended June 30, 2009.
/s/PKF
|
Certified
Public Accountants
|
A
Professional Corporation
|
New York,
New York
September
16, 2009, except as to Note 16, which is as of February 10,
2010
F-17
ZBB
ENERGY CORPORATION
Consolidated
Balance Sheets
(As restated -
|
||||||||
See Note 16)
|
||||||||
June 30, 2009
|
June 30, 2008
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 2,970,009 | $ | 8,451,320 | ||||
Bank
certificate of deposit
|
1,000,000 | - | ||||||
Accounts
receivable
|
614,154 | 4,167 | ||||||
Interest
receivable
|
19,746 | 80,829 | ||||||
Inventories-net of $145,301 and $234,000
allowance
|
1,587,113 | 1,312,885 | ||||||
Prepaids
and other current assets
|
143,173 | 316,274 | ||||||
Total
current assets
|
6,334,195 | 10,165,475 | ||||||
Long-term
assets:
|
||||||||
Property,
plant and equipment, net
|
4,578,180 | 4,240,640 | ||||||
Investment
in joint venture
|
- | 242,350 | ||||||
Goodwill
|
803,079 | 803,079 | ||||||
Total
assets
|
$ | 11,715,454 | $ | 15,451,544 | ||||
Liabilities
and Shareholders' Equity
|
||||||||
Current
liabilities:
|
||||||||
Bank
loans
|
416,558 | 171,634 | ||||||
Accounts
payable
|
827,001 | 607,520 | ||||||
Accrued
expenses
|
25,765 | - | ||||||
Deferred
revenues
|
1,128,539 | 644,700 | ||||||
Accrued
compensation and benefits
|
151,841 | 129,749 | ||||||
Total
current liabilites
|
2,549,704 | 1,553,603 | ||||||
Long-term
liabilities:
|
||||||||
Bank
loans
|
2,399,915 | 1,881,823 | ||||||
Total
liabilities
|
4,949,619 | $ | 3,435,426 | |||||
Shareholders'
equity
|
||||||||
Common
stock ($0.01 par value);
150,000,000 authorized 10,618,297 and 10,512,283 shares issued and
outstanding
|
106,183 | 105,123 | ||||||
Additional
paid-in capital
|
45,549,079 | 45,619,608 | ||||||
Note
receivable from shareholders
|
- | (608,333 | ) | |||||
Accumulated
other comprehensive (loss)
|
(1,601,576 | ) | (1,373,485 | ) | ||||
Accumulated
(deficit)
|
(37,287,851 | ) | (31,726,795 | ) | ||||
Total
shareholders' equity
|
$ | 6,765,835 | $ | 12,016,118 | ||||
Total
liabilities and shareholders' equity
|
$ | 11,715,454 | $ | 15,451,544 |
See
accompanying notes to consolidated financial statements
F-18
ZBB
ENERGY CORPORATION
Consolidated
Statements of Operations
For the year ended
|
||||||||
(As Restated -
|
||||||||
See Note 16)
|
||||||||
June 30, 2009
|
June 30, 2008
|
|||||||
Revenues
|
||||||||
Product
sales and revenues
|
$ | 67,995 | $ | 303,063 | ||||
Engineering
and development revenues
|
1,088,797 | 976,536 | ||||||
Total
Revenues
|
1,156,792 | 1,279,599 | ||||||
Costs
and Expenses
|
||||||||
Cost
of product sales
|
56,468 | 300,751 | ||||||
Advanced
engineering and development
|
2,859,094 | 2,558,423 | ||||||
Selling,
general, and administrative
|
3,474,476 | 3,350,330 | ||||||
Depreciation
|
277,896 | 315,940 | ||||||
Total
Costs and Expenses
|
6,667,934 | 6,525,444 | ||||||
Loss
from Operations
|
(5,511,142 | ) | (5,245,845 | ) | ||||
Other
Income (Expense)
|
||||||||
Interest
income
|
145,088 | 505,673 | ||||||
Interest
expense
|
(182,074 | ) | (153,345 | ) | ||||
Finance
costs
|
- | (52,813 | ) | |||||
Other
income (expense)
|
(12,928 | ) | 41,667 | |||||
Total
Other Income (Expense)
|
(49,914 | ) | 341,182 | |||||
Loss
before provision for Income Taxes
|
(5,561,056 | ) | (4,904,663 | ) | ||||
Provision
for Income Taxes
|
- | - | ||||||
Net
Loss
|
$ | (5,561,056 | ) | $ | (4,904,663 | ) | ||
Net
Loss per share-
|
||||||||
Basic
and diluted
|
$ | (0.53 | ) | $ | (0.47 | ) | ||
Weighted
average shares-basic and diluted:
|
||||||||
Basic
|
10,547,621 | 10,463,579 | ||||||
Diluted
|
10,547,621 | 10,463,579 |
See
accompanying notes to consolidated financial statements.
F-19
ZBB
Energy Corporation
Consolidated
Statements of Changes in Shareholders' Equity (restated)
Note Receivable
|
Accumulated Other
|
TOTAL
|
||||||||||||||||||||||||||||||
Number of
|
Add'l Paid-in
|
from
|
Comprehensive
|
Shareholders'
|
Comprehensive
|
|||||||||||||||||||||||||||
Shares
|
Common Stock
|
Capital
|
Shareholders
|
(Loss)
|
Accumulated Deficit
|
Equity
|
(Loss)
|
|||||||||||||||||||||||||
Balance:
June 30, 2007
|
10,087,090 | $ | 100,871 | $ | 44,994,333 | $ | (808,333 | ) | $ | (1,546,537 | ) | $ | (26,822,131 | ) | $ | 15,918,203 | ||||||||||||||||
Issuance
of common stock-
|
||||||||||||||||||||||||||||||||
note
conversions
|
159,256 | 1,593 | 473,644 | 475,237 | ||||||||||||||||||||||||||||
Issuance
of common stock -
|
||||||||||||||||||||||||||||||||
Montgomery
warrants
|
265,937 | 2,659 | (2,659 | ) | ||||||||||||||||||||||||||||
Reduction
of note receivable
|
||||||||||||||||||||||||||||||||
from
stockholder
|
200,000 | 200,000 | ||||||||||||||||||||||||||||||
Public
offering costs
|
(100,000 | ) | (100,000 | ) | ||||||||||||||||||||||||||||
Stock
options expensed
|
254,290 | 254,290 | ||||||||||||||||||||||||||||||
Net
Loss
|
(4,904,663 | ) | (4,904,663 | ) | $ | (4,904,663 | ) | |||||||||||||||||||||||||
Net
Translation Adjustment
|
173,051 | 173,051 | 173,051 | |||||||||||||||||||||||||||||
Balance:
June 30, 2008
|
10,512,283 | $ | 105,123 | $ | 45,619,608 | $ | (608,333 | ) | $ | (1,373,485 | ) | $ | (31,726,795 | ) | $ | 12,016,118 | $ | (4,731,612 | ) | |||||||||||||
Stock
options expensed
|
294,114 | 294,114 | ||||||||||||||||||||||||||||||
Issuance
of restricted stock in
|
||||||||||||||||||||||||||||||||
payment
of compensation
|
101,014 | 1,010 | 72,167 | 73,177 | ||||||||||||||||||||||||||||
Deferred
stock compensation
|
(72,167 | ) | (72,167 | ) | ||||||||||||||||||||||||||||
Amortization
of deferred
|
||||||||||||||||||||||||||||||||
stock
compensation
|
30,490 | 30,490 | ||||||||||||||||||||||||||||||
Issuance
of restricted stock-
|
||||||||||||||||||||||||||||||||
in
payment of
|
||||||||||||||||||||||||||||||||
consulting
fees
|
5,000 | 50 | 13,200 | 13,250 | ||||||||||||||||||||||||||||
Reduction
of note receivable
|
(408,333 | ) | 608,333 | 200,000 | ||||||||||||||||||||||||||||
Net
Loss, as restated
|
(5,561,056 | ) | (5,561,056 | ) | $ | (5,561,056 | ) | |||||||||||||||||||||||||
Net
Translation Adjustment
|
(228,091 | ) | (228,091 | ) | (228,091 | ) | ||||||||||||||||||||||||||
Balance:
(restated)
|
||||||||||||||||||||||||||||||||
June
30, 2009
|
10,618,297 | $ | 106,183 | $ | 45,549,079 | $ | - | $ | (1,601,576 | ) | $ | (37,287,851 | ) | $ | 6,765,835 | $ | (5,789,147 | ) |
See
accompanying notes to consolidated financial statements.
F-20
ZBB Energy Corporation
|
For the year ended
|
|||||||
(As Restated -
|
||||||||
See Note 16)
|
||||||||
Consolidated Statements of Cash Flows
|
June 30, 2009
|
June 30, 2008
|
||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (5,561,056 | ) | $ | (4,904,663 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
277,896 | 315,940 | ||||||
Change
in inventory allowance
|
(88,699 | ) | 234,000 | |||||
Equipment
costs reclassified to expenses
|
372,855 | 118,000 | ||||||
Payments
applied to note receivable for consulting fees
|
200,000 | 200,000 | ||||||
Stock
based compensation
|
338,864 | 254,290 | ||||||
(Increase)
decrease in operating assets:
|
||||||||
Accounts
receivable
|
(609,987 | ) | 188,602 | |||||
Inventories
|
(185,530 | ) | (274,318 | ) | ||||
Prepaids
and other current assets
|
(41,799 | ) | (235,485 | ) | ||||
Other
receivables-interest
|
61,083 | (44,227 | ) | |||||
Increase
(decrease) in operating liabilities:
|
||||||||
Accounts
payable
|
247,499 | (228,664 | ) | |||||
Accrued
compensation and benefits
|
22,092 | 45,603 | ||||||
Accrued
expenses
|
25,765 | (357,250 | ) | |||||
Deferred
revenues
|
717,539 | 308,395 | ||||||
Net
cash (used) in operating activities
|
(4,223,478 | ) | (4,379,777 | ) | ||||
Cash
flows from investing activities
|
||||||||
Capital
expenditures
|
(889,658 | ) | (721,468 | ) | ||||
Bank
certificate of deposit
|
(1,000,000 | ) | - | |||||
Net
cash (used) in investing activities
|
(1,889,658 | ) | (721,468 | ) | ||||
Cash
flows from financing activities
|
||||||||
Proceeds
from refinancing of bank loan
|
1,070,000 | 1,760,000 | ||||||
Repayments
of bank loans
|
(306,984 | ) | (1,882,634 | ) | ||||
Proceeds
(repayments) of notes payable
|
- | (4,047,823 | ) | |||||
Additional
public offering costs
|
- | (100,000 | ) | |||||
Net
cash provided (used) by financing activities
|
763,016 | (4,270,457 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
(131,192 | ) | - | |||||
Net
(decrease) in cash and cash equivalents
|
(5,481,311 | ) | (9,371,702 | ) | ||||
Cash
and cash equivalents - beginning of year
|
8,451,320 | 17,823,022 | ||||||
Cash
and cash equivalents - end of period
|
$ | 2,970,009 | $ | 8,451,320 | ||||
Cash
paid for interest
|
$ | 121,468 | $ | 153,345 | ||||
Supplemental
schedule of non-cash investing and financing activities:
|
||||||||
Issuance
of common stock pursuant to conversion of convertible
notes
|
- | 475,237 | ||||||
Investment
in joint venture offset by unfulfilled deferred revenue
|
160,000 | - | ||||||
Equipment
expensed to cost of contracts
|
372,855 | 118,000 | ||||||
Stock
based compensation
|
338,864 | 254,290 |
See
accompanying notes to consolidated financial statements.
F-21
ZBB
ENERGY CORPORATION
Notes
to Consolidated Financial Statements (restated)
June
30, 2009
NOTE 1 —
NATURE OF ORGANIZATION
ZBB
Energy Corporation (“ZBB” or the “Company”) develops and manufactures
distributed energy storage solutions based upon the Company’s proprietary
zinc-bromine rechargeable electrical energy storage technology. The
Company was incorporated under the laws of Wisconsin in 1998.
The
Company develops, manufactures and markets energy storage systems with electric
utility applications as its initial market. This scalable, mobile system is
ideally suited for a number of market applications including:
—
Load management for generation, transmission and distribution utilities, energy
service companies and large industrial customers allowing peak shaving and
deferral of capital expenditures that otherwise would be required to alleviate
utility system constraints.
—
Storage of renewable wind and solar energy production in both grid connected and
grid independent environments.
—Power
quality to alleviate downtime caused by voltage sags, voltage swells, frequency
fluctuations, and combined with uninterruptible power supply (UPS) to eliminate
power outages.
Since our
inception, our research, advanced engineering and development, and operations
were primarily financed through debt and equity financings, government grants
and joint ventures.
The
consolidated financial statements include the accounts of the Company and those
of its wholly owned subsidiaries, ZBB Technologies, Inc. which operates a
manufacturing facility in Menomonee Falls, Wisconsin, and ZBB Technologies, Ltd.
which has its advanced engineering and development facility in Perth,
Australia.
NOTE 2 —
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries and have been prepared in accordance
with accounting principles generally accepted in the United States of America
(GAAP). All significant intercompany accounts and transactions have been
eliminated upon consolidation.
Foreign
Currency
The
Company uses the United States dollar as its functional and reporting currency,
while the Australian dollar is the functional currency of one of its foreign
subsidiaries. Assets and liabilities of the Company’s foreign subsidiary are
translated into United States dollars at exchange rates that are in effect as at
the balance sheet date while equity accounts are translated at historical
exchange rates. Income and expense items are translated at average exchange
rates which were applicable during the reporting period. Translation adjustments
are accumulated in Accumulated Other Comprehensive (Loss) as a separate
component of Shareholders’ Equity in the consolidated balance sheet. No gain or
loss on translation is included in the net loss.
Use
of Estimates
The
preparation of financial statements and related disclosures in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and
revenues and expenses during the period covered by the report. Actual results
could differ from those estimates. Estimates are used in accounting for, amongst
other things, revenue and losses recognized under the percentage of completion
method for sales, impairment and realizability of assets, depreciation, and
valuations of equity instruments. Estimates and assumptions are
reviewed periodically and the effects of any revisions are reflected in the
consolidated financial statements in the period they are determined to be
necessary.
F-22
Income
Tax
Provisions
for income taxes are based on taxes payable or refundable for the current year
and deferred tax assets and liabilities are included in the financial statements
at currently enacted income tax rates applicable to the period in which the
deferred tax assets and liabilities are expected to be realized or settled as
prescribed in FASB Statement No. 109, “Accounting for Income Taxes”. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes. There were no
deferred tax assets recorded as of June 30, 2009.
Property,
Plant and Equipment
Land,
building, equipment, computers and furniture and fixtures are recorded at
cost. Maintenance, repairs and betterments are charged to
expense.
Finished
goods normally held for sale to customers may sometimes be used in demonstration
and testing by customers. During the periods that the units are
transferred from Inventory to Plant and Equipment they are depreciated over the
period in use. Since the intent is for these units to be eventually sold they
are returned to Inventory upon the completion of customer demonstration and
testing at their written down value.
Depreciation
Depreciation
is provided for all plant and equipment on a straight line basis over estimated
useful lives of the assets. The depreciation rate used for each class
of depreciable asset is:
Depreciation Rate
|
||
Manufacturing
Equipment and test units
|
3 –
15 years
|
|
Office
Equipment
|
3 –
8 years
|
|
Building
|
40
years
|
Impairment
of Long-Lived Assets
In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal Of Long-Lived Assets," the Company
assesses potential impairments to its long-lived assets including property,
plant and equipment when there is evidence that events or changes in
circumstances indicate that the carrying value may not be
recoverable.
If such
an indication exists, the recoverable amount of the asset, being the higher of
the asset’s fair value less costs to sell and value in use, is compared to the
asset’s carrying value. Any excess of the asset’s carrying value over its
recoverable amount is expensed to the statement of operations. In assessing
value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate.
Goodwill
Goodwill
is recognized as the excess cost of an acquired entity over the net amount
assigned to assets acquired and liabilities assumed. Goodwill is not amortized
but reviewed for impairment annually as of June 30 or more frequently if events
or changes in circumstances indicate that its carrying value may be
impaired. These conditions could include a significant change in the
business climate, legal factors, operating performance indicators, competition,
or sale or disposition of a significant portion of a reporting
unit.
Testing
for the impairment of goodwill involves a two step process. The first step of
the impairment test requires the comparing of a reporting units fair value to
its carrying value. If the carrying value is less than the fair value, no
impairment exists and the second step is not performed. If the carrying value is
higher than the fair value, there is an indication that impairment may exist and
the second step must be performed to compute the amount of the impairment. In
the second step, the impairment is computed by estimating the fair values of all
recognized and unrecognized assets and liabilities of the reporting unit and
comparing the implied fair value of reporting unit goodwill with the carrying
amount of that unit’s goodwill. Based on this method, the Company
determined fair value as evidenced by market capitalization, and concluded that
there was no need for an impairment charge.
F-23
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with maturities of three months
or less to be cash equivalents. The Company maintains its cash
deposits with a few high credit quality financial institutions predominately in
the United States. At times such balances may exceed federally
insurable limits. The Company has not experienced any losses in such
accounts.
Investments
The
Company occasionally invests in bank certificates of deposits with maturities of
more than three months. As of June 30, 2009 the Company held a nine
month certificate of deposit, interest accruing at 3.96%, and a maturity date of
September 30, 2009.
Inventories
Inventories
are stated at the lower of cost (first-in, first-out method) or market and
consist of raw materials, work in progress and finished goods held for
resale.
Costs
incurred in bringing each product to its present location and conditions are
accounted for as follows:
·
|
Raw
materials – purchased cost of direct
material
|
·
|
Finished
goods and work-in-progress – purchased cost of direct material plus direct
labor plus a proportion of manufacturing
overheads.
|
The
Company evaluates the recoverability of its slow moving or obsolete inventories
at least quarterly. The Company estimates the recoverable cost of such inventory
by product type while considering factors such as its age, historic and current
demand trends, the physical condition of the inventory as well as assumptions
regarding future demand. The Company’s ability to recover its cost for slow
moving or obsolete inventory can be affected by such factors as general market
conditions, future customer demand and relationships with suppliers.
Historically, the Company’s inventories have demonstrated long shelf lives, are
not highly susceptible to obsolescence and are eligible for return under various
supplier return programs.
Revenue
Recognition
The
Company currently contracts with its customers to develop, manufacture, install
and service its energy storage systems under short and
long-term contracts. These contracts have resulted in two distinct
arrangements and revenue recognition policies. The first type of contract is for
the production, delivery and installation of energy storage
systems. The second type of contract is for product engineering and
development activities.
Product
sales orders that have relatively short duration (typically less than one year)
normally use the completed-contract method of revenue recognition rather than
the percentage-of-completion method. Revenues are recognized when the
sales price is fixed, collectability is reasonably assured, the product has
received customer acceptance and either title or risk of loss has transferred to
the customer. Typically, these conditions are met at the time the product is
shipped to the customer in accordance with stated shipping terms. The Company
charges shipping and handling fees when products are shipped or delivered to a
customer, and includes such amounts in net sales. The Company reports its sales
net of actual sales returns.
Revenue
recognition on energy storage system long-term contracts utilizes the
percentage-of-completion method which recognizes revenue proportionally as costs
are incurred and compared to the estimated total costs for each
contract. This has historically been the predominant method used in
estimating revenues recognized by the Company.
Engineering
and development contracts are typically collaborative agreements to further
develop renewable energy technologies and are often sponsored and partially
funded in various amounts between government agencies and the Company. Often
multi-year agreements which contain several elements and provide for varying
consideration based on allowable costs, milestones and similar payment
provisions and may provide for future licensing and royalties beyond the term of
the arrangement. Revenue associated with these types of contracts are
typically of longer duration and recognized under the percentage-of-completion
method.
In July
2007 the Company commenced engineering and product development activities
pursuant to the collaborative Advanced Electricity Storage Technologies project
(“AEST”) with the Commonwealth of Australia through July 2010 which terms
include the receipt of funding of A$3.1 million (approximately US$2.3 million)
toward development costs and include the production and delivery of a 500kWh
energy storage system. During the years ended June 30, 2009 and 2008,
$984,807 and $976,536, respectively, was recognized as revenue based on progress
toward completion as specified in the contract.
F-24
Total
revenues of $1,156,792 and $1,279,599 were recognized for the years ended June
30, 2009 and 2008, respectively, and were comprised of two significant customers
in 2009 and one significant customer in 2008.
Loss
per Share
The
Company follows the provisions of SFAS No. 128 which requires the reporting of
both basic and diluted earnings (loss) per share. Basic earnings
(loss) per share is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings (net
loss) per share reflect the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock. In accordance with FASB 128, any anti-dilutive effects
on net income (loss) per share are excluded (as of the years ended June 30, 2009
and 2008 there were 1,790,167 and 1,395,523 underlying options and warrants that
are excluded).
Stock-Based
Compensation
The
Company follows the provisions of "Share-Based Payment" ("SFAS No. 123(R)"),
which requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values.
Accordingly,
the Company measures share-based compensation cost for all share-based awards at
the fair value on the grant date and recognition of share-based compensation
over the service period for awards that are expected to vest. The fair value of
stock options is determined based on the number of shares granted and the price
of our ordinary shares, and calculated based on the Black-Scholes valuation
model. Black Scholes valuation attributes used in the model include
expected volatility, term, and risk-free interest rate. Expected volatility is
based on the historical volatility of the Company’s share price for the period
prior to option grant equivalent to the expected life of the options. The
expected term is based upon management’s estimate of when the option will be
exercised. The risk-free interest rate for periods within the contractual life
of the option is based upon the U.S. Treasury yield curve in effect at the time
of grant.
The
Company only recognizes expense to its consolidated statement of operations for
those options or shares that are expected ultimately to vest, using two
attribution methods to record expense, the straight-line method for grants with
only service-based vesting or the graded-vesting method, which considers each
performance period or tranche separately. See Note 15 below.
Advanced
engineering and development
The
Company expenses advanced engineering and development costs as incurred. These
costs consist primarily of labor, overhead, and materials to build prototype
units, materials for testing, develop manufacturing processes and include
consulting fees and other costs.
To the
extent these costs are separately identifiable, incurred and funded by advanced
engineering and development type agreements with outside parties, they will be
shown separately on the statement of operations as a “cost of engineering and
development contract”.
Comprehensive
income (loss)
The
Company reports its comprehensive income (loss) in accordance with SFAS No. 130,
“Reporting Comprehensive Income”, which requires presentation of the components
of comprehensive earnings. Comprehensive income (loss) consists of net income
(loss) for the period plus or minus any net currency translation adjustments
applicable for the periods ended June 30, 2009 and 2008 and is presented in the
Consolidated Statements of Changes in Shareholders’ Equity.
Concentrations
of Credit Risk and Fair Value:
Financial
instruments that potentially subject the Company to concentrations of credit
risk consists principally of cash and U.S. treasury investments, and bank
certificates of deposit, and accounts receivable.
The
Company maintains significant cash investments primarily with three or four
financial institutions, which at times may exceed federally insured limits. The
Company has not previously experienced any losses on such deposits.
Additionally, the Company performs periodic evaluations of the relative credit
rating of these institutions as part of its investment strategy.
Concentrations
of credit risk with respect to accounts receivable are limited due to
accelerated payment terms in current customer contracts and creditworthiness of
the current customer base. However, at June 30, 2009, primarily all of the
Company’s receivables pertain to one customer and revenues were concentrated
among two customers during for the year then ended.
F-25
The
carrying amounts of cash and cash equivalents, short-term investments, trade
receivables, other current assets and accounts payable approximate fair value
due to the short-term nature of these instruments. The carrying value of bank
loans and mortgage payable approximate fair value based on their terms which
reflect market conditions existing as of June 30, 2009.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued SFAS No. 141R (revised 2007), “Business
Combinations. SFAS No.141R among other things, establishes principles and
requirements for how the acquirer in a business combination (i) recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the
acquired business, (ii) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase and (iii) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS No.141R is
effective for fiscal years beginning on or after December 15, 2008, with early
adoption prohibited. The adoption of this statement is not expected to have a
material effect on the Company's financial statements.
In
December 2007, FASB issued SFAS No. 160, “Non-controlling Interests
in Consolidated Financial Statements”. This statement
requires the ownership interests in
subsidiaries held by parties other than the parent and the amount of
consolidated net income attributable to the parent and to
the non-controlling interest be clearly
identified and presented on the face of the consolidated
statements. SFAS No. 160 is effective for fiscal years, and interim periods
within those fiscal years beginning on or after December 15, 2008. The adoption
of this statement is not expected to have a material effect on the Company's
financial statements.
In
June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles. SFAS
168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles, and establishes the FASB Accounting Standards Codification
(Codification) as the source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements. SFAS 168 is effective for
financial statements issued for interim periods and annual periods ending after
September 15, 2009. We do not expect the adoption of SFAS 168 to have a material
impact on our consolidated financial statements.
Effective
July 1, 2008, the Company adopted FASB issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS No.
159 gives entities the option to measure eligible financial assets and financial
liabilities at fair value on an instrument by instrument basis, that are
otherwise not permitted to be accounted for at fair value under other accounting
standards. The election to use the fair value option is available when an entity
first recognizes a financial asset or financial liability. Subsequent changes in
fair value must be recorded in earnings. SFAS 159 became effective with no
impact to the Company’s financial position or results of operations, since it
chose not to report any additional items at fair value.
In May
2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"). SFAS 165
is intended to establish general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for
selecting that date, that is, whether that date represents the date the
financial statements were issued or were available to be issued. SFAS 165 is
effective for interim or annual financial periods ending after June 15, 2009.
The Company adopted this standard on June 30, 2009. See Note 16.
NOTE
3 - INVENTORIES
Inventory
balances are comprised of the following amounts as of June 30:
Restated 2009
|
2008
|
|||||||
Raw
materials
|
$ | 766,871 | $ | 1,013,467 | ||||
Work
in progress
|
402,001 | 253,714 | ||||||
Finished
goods
|
563,532 | 279,704 | ||||||
Inventory
valuation allowance
|
(145,301 | ) | (234,000 | ) | ||||
TOTAL
|
$ | 1,587,113 | $ | 1,312,885 |
F-26
NOTE
4– PROPERTY, PLANT & EQUIPMENT
Property,
plant, and equipment balances are comprised of the following amounts as of June
30:
2009
|
2008
|
|||||||
Office
equipment
|
$ | 115,809 | $ | 127,196 | ||||
Manufacturing
equipment
|
4,091,587 | 3,430,095 | ||||||
Test
units
|
534,591 | 707,470 | ||||||
Building
|
1,996,134 | 1,996,134 | ||||||
Land
|
217,000 | 217,000 | ||||||
6,955,121 | 6,477,895 | |||||||
Less
accumulated depreciation
|
(2,376,941 | ) | ( 2,237,255 | ) | ||||
Net
Property, Plant & Equipment
|
$ | 4,578,180 | $ | 4,240,640 |
NOTE
5 – INVESTMENT IN JOINT VENTURE
In March
2005, the Company acquired a 49% interest in ZBB China Pty Ltd for a cost of
$175,000 (estimated for current period foreign exchange rates). The joint
venture company was licensed to distribute ZBB energy storage systems into the
Chinese market.
On
October 2, 2008 a mutual agreement was reached to terminate the co-operative
joint venture agreement between ZBB and China Century Capital
Limited. The effect of this termination is to cancel the exclusive
manufacturing, marketing, and distribution rights granted by ZBB to the joint
venture company, ZBB China Pty Ltd, and provided for ZBB to hold 100%
ownership in this subsidiary.
During
the year ended June 30, 2009 the Company dissolved the joint venture, realizing
a loss on the investment of $15,369.
NOTE
6 – GOODWILL
The
Company through a series of transactions in March 1996 acquired ZBB
Technologies, Inc., a wholly-owned subsidiary. The goodwill amount of
$1.134 million, the difference between the price paid for ZBB Technologies, Inc.
and the net assets of the acquisition, amortized through fiscal 2002, resulted
in the net goodwill amount of $803,079 as of June 30, 2009.
The
Company accounts for goodwill in accordance with SFAS No. 142, “Goodwill
and Other Intangible Assets” under which goodwill and other intangible assets
deemed to have indefinite lives are not amortized but are subject to annual
impairment tests. The implied fair value of goodwill is the amount determined by
deducting the estimated fair value of all tangible and identifiable intangible
net assets of the reporting unit to which goodwill has been allocated from the
estimated fair value of the reporting unit. If the recorded value of goodwill
exceeds its implied value, an impairment charge is recorded for the
excess.
NOTE
7 – NOTE RECEIVABLE-Shareholder
In July
2006, the Company entered into a common stock purchase agreement with 41
Broadway Associates, LLC. Under the terms of the agreement the
Company sold to 41 Broadway Associates, LLC a total of 294,118 shares for a
total consideration of $1,000,000. Payments were to be paid in annual
installments of $200,000 plus accrued interest at 4% over a five year
period.
Both
parties also entered into a five year consulting agreement, which would have
provided approximately $200,000 of annual services including assistance with
debt and equity financing, investor introductions, marketing,
etc. During 2009 the Company determined the service agreement to be a
minimal future value and effectively cancelled the agreement as of June 30,
2009.
In
accordance with the terns of the note agreement, the cancellation of the service
agreement, in effect relieved the remaining balance of the note
receivable. Accordingly, the $408,333 remaining balance of the note
receivable was written off and applied to additional paid in capital at June 30,
2009.
F-27
NOTE
8 – BANK LOANS AND NOTES PAYABLE
The
Company's debt consisted of the following as of June 30:
|
2009
|
2008
|
||||||
Bank
loans-current
|
$ | 416,558 | $ | 171,634 | ||||
Bank
loans-long term
|
2,399,915 | 1,881,823 | ||||||
Total
|
$ | 2,816,473 | $ | 2,053,457 |
On
November 28, 2008 the Company entered into a loan agreement to finance new
production equipment. The $1,070,000 bank note is secured by specific
equipment, requiring monthly payments of $21,000 of principal and
interest; rate equal to the prime rate; maturity date of December 1,
2013. Principal balance is $948,441 at June 30, 2009.
On May
14, 2008 the Company entered into two loan agreements to refinance the building
and land in Menomonee Falls, Wisconsin:
—The
first loan requires a fixed monthly payment of principal and interest at a rate
of .25% below the prime rate, with any principal balance due at maturity on June
1, 2018, and secured by the building and land. Principal balance is
$853,661 at June 30, 2009.
—The
second loan is a secured promissary note guaranteed by the U.S. Small Business
Administration, requiring monthly payments of principal and interest at
a rate of 5.5% until May 1, 2028. Principal balance
is $847,628 at June 30, 2009.
On
January 22, 2007 the Company refinanced its equipment loan. The new
loan term requires monthly payments of principal and an interest rate equal to
the prime rate, maturity date of February 1, 2011. The loan is
secured by a first lien on all business personal property. Principal
balance is $166,743 at June 30, 2009.
Maximum
aggregate annual principal payments for the 12 month periods subsequent to June
30, 2009 are as follows:
2010
|
$ | 416,558 | ||
2011
|
360,070 | |||
2012
|
324,338 | |||
2013
|
338,016 | |||
2014
|
124,228 | |||
2015 and thereafter:
|
1,253,263 | |||
$ | 2,816,473 |
NOTE
9 - EMPLOYEE/DIRECTOR EQUITY INCENTIVE PLANS
In 2002
the Company established the 2002 Stock Option Plan (“SOP”) whereby a stock
option committee was given the discretion to grant up to 882,353 options to
purchase shares to key employees of the Company at exercise prices and dates to
be determined by the directors. During the year ended June 30, 2008 400,000
options to purchase shares were granted to employees and directors exercisable
at $3.59 (110% of the market closing price on June 6, 2008) based on vesting
terms of June 2008 through January 2009, and exercisable at various dates
through June 2014. No options were exercised and 16,793 options
expired during the year ended June 30, 2009. At June 30, 2009 there
remains 487,907 options outstanding with exercise prices of not less than $3.59
and exercise dates up to June 30, 2014. A further 91,200 options are
available to be issued under the SOP.
During
2005 the Company established an Employee Stock Option Scheme (the “2005 Plan”)
that authorizes the board of directors or a committee thereof, to grant options
to employees and directors of the Company or any affiliate of the Company. The
maximum number of options that may be granted in aggregate at any time under
this option scheme or under any other employee option or share plan is the
number equivalent to 5% of the total number of issued shares of the Company
including all shares underlying options under the Company’s stock option and
incentive plans.. Options issued expire five years after the vesting date. No
options were exercised in fiscal 2008 or during the year ended June 30,
2009. At June 30, 2009, options to purchase 250,000 shares with an
exercise price of $3.82 and an expiration date of June 2012 remain
outstanding.
During
2007 the Company established the 2007 Equity Incentive Plan (the “2007 Plan”)
that authorizes the board of directors or a committee thereof, to grant options
to purchase up to a maximum of 1,500,000 shares to employees and directors of
the Company at exercise prices to be determined by the administrator but not
less than 100% (110% for a 10% shareholder) of the market value on the date
granted. During the year ended June 30, 2008 options to
purchase 275,000 shares were granted to employees and directors exercisable at
$3.59 based on vesting terms of June 2008 through January 2011 and exercisable
at various dates through January 2016. During the year ended June 30,
2009 options to purchase 451,410 shares were granted to employees and directors
exercisable at prices from $1.35 to $1.69 based on vesting terms of July 2009
through January 2012 and exercisable at various dates through December
2016. Included in the year ended June 30, 2009 options were granted
to purchase 266,410 shares which vest upon certain contingent performance
criteria, of which 93,248 vested and 39,963 forfeited during the
period. The remaining 185,000 options issued in fiscal 2009 are
service based. Options to purchase an additional 707,549 shares are available to
be issued under the 2007 plan.
F-28
In
aggregate for all plans, at June 30, 2009, the Company has a total of 1,424,354
options outstanding and 798,749 options available for future grant under the
SOP, 2005 and the 2007 Plans.
Information
with respect to stock option activity under the employee and director plans is
as follows:
Weighted-Average
|
||||||||
Stock Option Activity
|
Number of Options
|
Exercise Price Per Share
|
||||||
Balance
at June 30, 2007
|
460,611 | $ | 4.81 | |||||
Options
granted
|
675,000 | 3.59 | ||||||
Options
expired
|
(105,911 | ) | 5.61 | |||||
Options
exercised
|
- | - | ||||||
Balance
at June 30, 2008
|
1,029,700 | $ | 4.03 | |||||
Options
granted
|
451,410 | 1.49 | ||||||
Options
expired
|
(16,793 | ) | 5.61 | |||||
Options
forfeited
|
(39,963 | ) | 1.35 | |||||
Options
exercised
|
- | - | ||||||
Balance
at June 30, 2009
|
1,424,354 | $ | 3.24 |
The
following table summarizes information relating to the stock options outstanding
at June 30, 2009:
Outstanding
|
Exercisable
|
|||||||||||||||||||
Weighted-
|
||||||||||||||||||||
Average
|
Weighted-
|
Weighted-
|
||||||||||||||||||
Number of
|
Remaining
|
Average
|
Average
|
|||||||||||||||||
Options
|
Contractual Life
|
Exercise
|
Number of
|
Exercise
|
||||||||||||||||
Range of Exercise Prices
|
Outstanding
|
(in years)
|
Price
|
Options
|
Price
|
|||||||||||||||
$1.35
to $1.69
|
411,447 | 6.9 | $ | 1.50 | 93,248 | $ | 1.35 | |||||||||||||
$3.59
to $3.82
|
925,000 | 4.1 | $ | 3.65 | 871,666 | $ | 3.66 | |||||||||||||
$3.83
and higher
|
87,907 | 0.7 | $ | 6.97 | 87,907 | $ | 6.97 | |||||||||||||
Balance
at June 30, 2009
|
1,424,354 | 4.7 | $ | 3.24 | 1,052,821 | $ | 3.73 |
In
addition, under the “2007 Plan” and in conjunction with a salary reduction plan
implemented during 2009, 101,014 restricted shares were granted as payment of
compensation, of which vesting is 75% service based and 25% performance
based. During the year ended June 30, 2009, $30,490 was recognized as
expense, with a balance of up to $42,687 to be recognized as expense during the
year ended June 30, 2010.
NOTE
10 - NON RELATED PARTY WARRANTS
At June
30, 2009 there are warrants to purchase 120,023 shares issued and outstanding to
Empire Financial Group, Ltd. in connection with certain capital raising
activities in 2006, exercisable at $3.23 per share and which expire on September
30, 2011.
At June
30, 2009 there are warrants to purchase 50,000 shares issued and outstanding to
Empire Financial Group, Ltd. as part of the underwriting compensation in
connection with our United States public offering which are exercisable at $7.20
per share and which expire on June 20, 2012.
At June
30, 2009 there are warrants to purchase 195,800 shares issued and outstanding to
Strategic Growth International in connection with capital raising activities in
2006 and 2007, with expiration dates between March 2011 and June 2012 and
exercise prices of between $3.75 and $7.20.
F-29
The table
below summarizes non-related party warrant balances:
Stock Warrants
|
Weighted-Average
|
|||||||
Non-related party activity
|
Number of Warrants
|
Exercise Price Per Share
|
||||||
Balance
at June 30, 2007
|
1,084,411 | $ | 5.41 | |||||
Warrants
expired
|
(600,941 | ) | 8.50 | |||||
Warants
exercised
|
(117,647 | ) | 3.40 | |||||
Balance
at June 30, 2008
|
365,823 | $ | 4.41 | |||||
Warrants
granted
|
- | - | ||||||
Warrants
expired
|
- | - | ||||||
Warants
exercised
|
- | - | ||||||
Balance
at June 30, 2009
|
365,823 | $ | 4.41 |
NOTE
11 – COMMITMENTS
In July
2007 the Company commenced engineering and product development activities
pursuant to a collaborative project entitled the Advanced Electricity Storage
Technologies (“AEST”) project, with the Commonwealth of Australia, through July
2010. The terms of the project provide for the receipt of funding by
the Company for future development costs which include the production and
delivery of one 500kWh energy storage system.
The
AEST project has total budgeted expenditure for operating and capital items of
approximately $4.7 million (A$5.9 million) exclusive of any Australian taxes.
The Company’s contribution of approximately $2.3 million (A$2.8 million) is the
value of any cash and in-kind contributions provided to the project by the
Company in undertaking the project activities. The Australian Government is
providing the project funding of approximately $2.5 million (A$3.1 million) to
be paid in accordance with the completion of contracted project milestones and
subject to the Company’s compliance with project reporting requirements and
demonstrating that the funds already provided to it have been fully spent or
will be fully spent in the near future. There is a balance of
approximately $0.6 million in contributions due by the Company to the project in
cash and in-kind contributions as of June 30, 2009.
The
Company had leased its Australian office facility from an entity affiliated with
three of the Company’s officers. In January 2008 the facility was
sold to a non-related Australian company, eliminating the related party
relationship between the Company and its landlord. The current rental
is $54,302 per annum (A$71,572) and is subject to an annual CPI
adjustment.
Rent
expense was $53,456 and $49,875 for the years ended June 30, 2009 and
2008.
The
future payments required under the terms of the lease are as
follows:
For the years ended June
30,
|
||||
2010
|
$ | 54,302 | ||
2011
|
$ | 54,302 | ||
2012
|
$ | 18,101 | ||
TOTAL:
|
$ | 126,705 |
NOTE
12 - EMPLOYMENT CONTRACTS
The
Company has entered into employment contracts with executives and management
personnel. The contracts provide for salaries,
bonuses and stock option grants, along with other employee benefits. The
employment contracts generally have no set term and can be terminated by either
party. There is a provision for payments of three months to eighteen months of
annual salary as severance if we terminate a contract without cause, along with
the acceleration of certain unvested stock option grants.
F-30
NOTE
13 - RETIREMENT PLANS
All
Australian based employees are entitled to varying degrees of benefits on
retirement, disability, or death. The Company contributes to an
accumulation fund on behalf of the employees under an award which is legally
enforceable. For U.S. employees, the Company has a 401(k)
plan. All active participants are 100% vested
immediately. Expenses under these plans were $76,303 and $64,714 for
the years ended June 30, 2009 and 2008.
NOTE 14 —
STOCK-BASED COMPENSATION
The
Company issues stock options and other stock-based awards to executive
management, key employees, and directors under its stock-based compensation
plans (see Note 9).
For the
years ended June 30, 2009 and 2008, the Company’s results of operations reflect
compensation expense for equity based awards vested under its equity incentive
plans. The amount recognized in the financial statements related to stock-based
compensation was $338,864 and $254,290, based on the fair value of all awards
vested during the years ended June 30, 2009 and 2008 respectively.
During
the year ended June 30, 2009 options to purchase 451,410 shares were granted to
employees and directors exercisable at prices from $1.35 to $1.69 based on
vesting terms of July 2009 through January 2012, and exercisable at various
dates through December 2016 and contingent on various continuous service and
performance measurements, of which 39,963 options were forfeited. In
addition 101,014 restricted shares were issued as payment of compensation and
consulting services during the year ended June 30, 2009 (see Note 9 for
additional details).
The fair
value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing method. The Company uses historical data to
estimate the expected price volatility, the expected option life and the
expected forfeiture rate. The Company has not made any dividend payments nor
does it have plans to pay dividends in the foreseeable future.
The
following assumptions were used to estimate the fair value of options granted
during the years ended June 30, 2009 and 2008 using the Black-Scholes
option-pricing model:
2009
|
2008
|
|||||||
Expected
life of option (years)
|
2.5 | 3.0 | ||||||
Risk-free
interest rate
|
1.2 | % | 3.7 | % | ||||
Assumed
volatility
|
70 | % | 37 | % | ||||
Expected
dividend rate
|
0 | % | 0 | % | ||||
Expected
forfeiture rate
|
0 | % | 10 | % |
Time-vested
and performance-based stock awards, including stock options and restricted
stock, are accounted for at fair value at date of grant. Compensation
expense is recognized over the requisite service and performance
periods.
A summary
of the status of unvested employee stock options as of June 30, 2008 and changes
during the period then ended, is presented below:
Weighted-Average
|
||||||||
Grant Date
|
||||||||
Unvested Stock Option Activity
|
Number of Options
|
Fair Value Per Share
|
||||||
Balance
at June 30, 2007
|
-0- | -0- | ||||||
Granted
|
675,000 | 0.70 | ||||||
Vested
|
(391,000 | ) | 0.65 | |||||
Balance
at June 30, 2008
|
284,000 | $ | 0.77 | |||||
Granted
|
451,410 | 0.30 | ||||||
Vested
|
(323,914 | ) | 0.63 | |||||
Forfeited
|
(39,963 | ) | 0.30 | |||||
Balance
at June 30, 2009
|
371,533 | $ | 0.37 |
F-31
As of
June 30, 2009, there remains a total of $118,807 in unrecognized
compensation cost related to unvested stock options which through 2012 vest
pending certain service based ($81,159 unvested) and performance based ($37,648
unvested) criteria. In addition, future costs of $42,687 could be
recognized during the year ended June 30, 2010 related to the restricted shares
issued during the current fiscal year.
NOTE 15 —
INCOME TAXES
The
Company did not record a provision for federal, state or foreign income taxes
for the years ended June 30, 2009 and 2008. The Company has not recorded a
benefit for deferred tax assets as its realizability is uncertain.
The
Company’s combined effective income tax rate differed from the U.S federal
statutory income tax rate as set forth below:
2009
|
2008
|
|||||||
Income
tax benefit computed at the federal statutory rate
|
-34 | % | -34 | % | ||||
Foreign
rate differential
|
4 | % | 4 | % | ||||
Change
in valuation allowance
|
30 | % | 30 | % | ||||
Total
|
0 | % | 0 | % |
Significant
components of the Company's net deferred tax assets as of June 30, 2009 and 2008
were as follows:
2009
|
2008
|
|||||||
Net
operating loss carryforwards
|
$ | 9,812,303 | $ | 8,255,175 | ||||
Foreign
loss carryforwards
|
1,114,442 | 971,952 | ||||||
Deferred
tax asset valuation allowance
|
(10,926,745 | ) | (9,227,127 | ) | ||||
Total
deferred tax assets
|
$ | - | $ | - |
As of
June 30, 2009, the Company had U.S net operating loss carry forwards of
approximately $28,900,000 which begins to expire in 2014 for federal tax
purposes. The Company also has gross foreign tax loss carry forwards of
approximately $3,700,000 that are available to offset future liabilities for
foreign income taxes. Substantially all of the foreign tax losses are carried
forward indefinitely, subject to certain limitations.
A
valuation allowance has been established for certain future income tax benefits
related to income tax loss carry forwards and temporary tax adjustments based on
an assessment that it is more likely than not that these benefits will not be
realized. During the twelve months ended June 30, 2009 the valuation allowance
increased by $1,699,618.
F-32
NOTE 16 —
RESTATEMENT
The
Company is restating its previously issued consolidated financial statements as
of and for the year ended June 30, 2009 due to an accounting error related to
revenue recognition.
The
Company originally recognized approximately $619,000 in revenue in the fourth
quarter of fiscal 2009 on an international shipment of equipment to Dundalk,
Ireland. Although the product was tested, accepted, shipped and payment was
received in full as of June 30, 2009, transfer of risk and title had
not been achieved based on the contracted freight terms, therefore all the
criteria as specified in SEC Staff Accounting Bulletin 101 had not been
achieved.
As a
result, the Company has restated the accompanying consolidated financial
statement as of and for the fiscal year ended June 30, 2009. The effects of the
restatement are as follows:
Effects
on Consolidated Balance Sheet as of June 30, 2009
As Previously
|
||||||||
Reported
|
As Restated
|
|||||||
Inventory
|
$ | 1,023,571 | $ | 1,587,113 | ||||
Total
current assets
|
5,770,653 | 6,334,195 | ||||||
Total
assets
|
11,151,911 | 11,715,454 | ||||||
Accrued
expenses
|
66,650 | 25,765 | ||||||
Deferred
revenues
|
509,627 | 1,128,539 | ||||||
Total
current liabilities
|
1,971,677 | 2,549,704 | ||||||
Total
liabilities
|
4,371,592 | 4,949,619 | ||||||
Accumulated
(deficit)
|
(37,273,367 | ) | (37,287,851 | ) | ||||
Total
shareholders’ equity
|
6,780,319 | 6,765,835 | ||||||
Total
liabilities and shareholders’ equity
|
11,151,911 | 11,715,454 |
Effects
on Consolidated Statement of Operations for the fiscal year ended June 30,
2009
As Previously
|
||||||||
Reported
|
As Restated
|
|||||||
Product
sales and revenues
|
$ | 686,906 | $ | 67,995 | ||||
Total
Revenues
|
1,775,703 | 1,156,792 | ||||||
Cost
of product sales
|
640,710 | 56,468 | ||||||
Loss
from Operations
|
(5,476,473 | ) | (5,511,142 | ) | ||||
Other
income (expense)
|
(70,099 | ) | (49,914 | ) | ||||
Net
Loss
|
(5,546,572 | ) | (5,561,056 | ) |
NOTE 17 —
SUBSEQUENT EVENTS
Subsequent
events have been evaluated through September 16, 2009, the date these financial
statements were issued.
On August
18, 2009, the Company announced the closing of its public offering of common
stock and warrants. ZBB sold 1,791,667 units at $1.20 per unit,
consisting of an aggregate of 1,791,667 shares of its common stock and warrants
to purchase 358,333 shares of its common stock at an exercise price of $1.33 per
share. The proceeds to ZBB after deducting placement agent fees and
offering expenses were approximately $1.9 million.
F-33
$10,000,000
[•]
Shares of Common Stock
[•]
Warrants(and
[•]
shares of Common Stock underlying the Warrants)
Prospectus
Part
II Information Not Required in the Prospectus
Item
13. Other Expenses of Issuance and Distribution
The
following table sets forth expenses (estimated except for the registration fee)
in connection with the offering described in the registration
statement:
SEC
registration fee
|
$ | 1,069.50 | ||
Accounting
fees and expenses
|
$ | - | * | |
Legal
fees and expenses
|
$ | - | * | |
Printing
expenses
|
$ | - | * | |
NASDAQ
listing fee
|
$ | - | * | |
Miscellaneous
|
$ | - | * | |
Total
|
$ | - | * |
* Estimated
Item
14. Indemnification of Directors and Officers
Sections
180.0850 to 180.0859 of the WBCL require a corporation to indemnify any director
or officer who is a party to any threatened, pending or completed civil,
criminal, administrative or investigative action, suit, arbitration or other
proceeding, whether formal or informal, which involves foreign, federal, state
or local law and which is brought by or in the right of the corporation or by
any other person. A corporation’s obligation to indemnify any such person
includes the obligation to pay any judgment, settlement, penalty, assessment,
forfeiture or fine, including any excise tax assessed with respect to an
employee benefit plan, and all reasonable expenses including fees, costs,
charges, disbursements, attorney’s and other expenses except in those cases in
which liability was incurred as a result of the breach or failure to perform a
duty which the director or officer owes to the corporation and the breach or
failure to perform constitutes: (i) a willful failure to deal fairly with the
corporation or its shareholders in connection with a matter in which the
director or officer has a material conflict of interest; (ii) a violation of
criminal law, unless the person has reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful; (iii) a
transaction from which the person derived an improper personal profit; or (iv)
willful misconduct.
Unless
otherwise provided in a corporation’s articles of incorporation or by-laws or by
written agreement, an officer or director seeking indemnification is entitled to
indemnification if approved in any of the following manners: (i) by majority
vote of a disinterested quorum of the board of directors, or if such quorum of
disinterested directors cannot be obtained, by a majority vote of a committee of
two or more disinterested directors; (ii) by independent legal counsel; (iii) by
a panel of three arbitrators; (iv) by affirmative vote of shareholders; (v) by a
court; or (vi) with respect to any additional right to indemnification granted,
by any other method permitted in Section 180.0858 of the WBCL.
Reasonable
expenses incurred by a director or officer who is a party to a proceeding may be
reimbursed by a corporation at such time as the director or officer furnishes to
the corporation written affirmation of his good faith belief that he has not
breached or failed to perform his duties and a written undertaking to repay any
amounts advanced if it is determined that indemnification by the corporation is
not required.
The
indemnification provisions of Sections 180.0850 to 180.0859 of the WBCL are not
exclusive. A corporation may expand an officer’s or director’s right to
indemnification (i) in its articles of incorporation or by-laws; (ii) by written
agreement between the director or officer and the corporation; (iii) by
resolution of its board of directors; or (iv) by resolution of a majority of all
of the corporation’s voting shares then issued and outstanding.
As
permitted by Section 180.0858 of the WBCL, ZBB has adopted indemnification
provisions in its By-Laws which closely track the statutory indemnification
provisions with certain exceptions. In particular, Article V of ZBB’s By-Laws
provides (i) that an individual shall be indemnified unless it is proven by a
final judicial adjudication that indemnification is prohibited, and (ii) payment
or reimbursement of expenses, subject to certain limitations, will be mandatory
rather than permissive.
ZBB’s
officers and directors are also covered by officers’ and directors’ liability
insurance.
Item
15. Recent Sales of Unregistered Securities
March
2010 Private Placement
On March
19, 2010, the Company entered into a Stock Purchase Agreement with each of the
Company’s directors and certain of its officers in connection with the private
issuance and sale to such investors of 337,348 shares of common stock (the
“Private Placement”). Through the Private Placement the Company’s
directors and officers purchased a total of $280,000 shares of common stock for
a price per share equal to the closing price of the Company’s common stock on
March 19, 2010.
The
Company sold the shares without registration under the Securities Act of 1933,
as amended, or state securities laws, in reliance on the exemptions provided by
Section 4(2) of the Securities Act of 1933 and/or Regulation D promulgated
thereunder. Since the shares have not been registered, they may not be offered
or sold by the investors absent registration or an applicable exemption from
registration requirements, such as the exemption afforded by Rule 144 under the
Securities Act of 1933.
June
2007 Warrant Exercise
Effective
as of June 19, 2007, three existing warrant holders, ABS SOS-Plus Partners,
Ltd., Bushido Capital Master Fund, L.P., and Pierce Diversified Strategy Master
Fund, holding warrants to purchase an aggregate of 873,200 shares of common
stock exercisable at $2.55 per share exercised their warrants. The warrants were
issued in connection with a loan made by such funds in June of 2006
(collectively, the “Bushido Loan”).
ABS SOS
Plus Partners, Ltd. exercised all of its warrants and paid an aggregate amount
of $1,113,330 in exchange for 436,600 restricted shares. Bushido Capital Master
Fund, L.P. and Pierce Diversified Strategy Master Fund each exercised by
cashless exercise method, resulting in the issuance of 110,628 shares to each of
them. An aggregate of 657,856 shares of common stock were issued as a result of
these warrant exercises and none of the warrants issued to such persons in
connection with the Bushido Loan remain outstanding. The Company
issued the shares without registration under the Securities Act of 1933, as
amended, or state securities laws, in reliance on the exemptions provided by
Section 4(2) of the Securities Act of 1933 and/or Regulation D promulgated
thereunder.
Item
16. Exhibits
A list of
exhibits filed herewith or incorporated by reference is contained in the Exhibit
Index which is incorporated herein by reference.
Item
17. Undertakings
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrants,
pursuant to the provisions described under Item 14 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification by it is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to
include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) to
reflect in the prospectus any acts or events arising after the effective date of
this registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in this registration statement (notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of a prospectus filed with the SEC
pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee”
table in the effective registration statement); and
(iii) to
include any material information with respect to the plan of distribution not
previously disclosed in this registration statement or any material change to
such information in this registration statement; provided, however,
that subparagraphs (i), (ii) and (iii) do not apply if the information required
to be included in a post-effective amendment by those subparagraphs is contained
in periodic reports filed with or furnished to the SEC by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934,
that are incorporated by reference in this registration statement, or is
contained in a form of prospectus filed pursuant to Rule 424(b) that is part of
the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration, by means of a post-effective amendment, any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(i) if
the registrant is relying on Rule 430B: (A) each prospectus filed by the
registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was deemed part of
and included in the registration statement; and (B) each prospectus required to
be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (vii), or (x) for the purpose of providing the information
required by section 10(a) of the Securities Act of 1933 shall be deemed to be
part of and included in the registration statement as of the earlier of the date
such form of prospectus is first used after effectiveness or the date of the
first contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer and
any person that is at that date an underwriter, such date shall be deemed to be
a new effective date of the registration statement relating to the securities in
the registration statement to which that prospectus relates, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective date,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such effective date; or
(ii) if
the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
(5) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser in the initial distribution of the securities: the undersigned
registrant undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement, regardless of
the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser: (i) any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the undersigned
registrant; (iii) the portion of any other free writing prospectus relating to
the offering containing material information about the undersigned registrant or
its securities provided by or on behalf of the undersigned registrant; and (iv)
any other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
(6) That,
for purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant’s annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(7) That
for purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(8) That,
for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Menomonee Falls, State of
Wisconsin, on May 18, 2010.
ZBB
Energy Corporation
|
||
By:
|
/s/ Eric C. Apfelbach
|
|
Eric
C. Apfelbach
|
||
Chief
Executive Officer
|
POWER
OF ATTORNEY
We, the
undersigned directors and executive officers of ZBB Energy Corporation, hereby
severally constitute and appoint each of Eric C. Apfelbach and Scott W. Scampini
our true and lawful attorney and agent, with full power to her to sign for us,
and in our names in the capacities indicated below, any and all amendments to
this registration statement, any subsequent registration statements pursuant to
Rule 462 of the Securities Act of 1933, as amended, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them or their or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. This power of attorney may be
executed in counterparts.
Pursuant
to the requirements of the Securities Act of 1933, this registration has been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on dates indicated.
Position
|
Date
|
|||
/s/ Eric C.
Apfelbach
|
Chief
Executive Officer
|
May
18, 2010
|
||
Eric
C. Apfelbach
|
(Principal
executive officer) and Director
|
|||
/s/ Scott W.
Scampini
|
Chief
Financial Officer
|
May
18, 2010
|
||
Scott
W. Scampini
|
(Principal
financial officer and Principal accounting
officer)
|
|||
/s/ William A.
Mundell
|
Chairman
and Director
|
May
18, 2010
|
||
William
Mundell
|
||||
/s/ Richard A.
Payne
|
Director
|
May
18, 2010
|
||
Richard
A. Payne
|
||||
/s/ Manfred
Birnbaum
|
Director
|
May
18, 2010
|
||
Manfred
Birnbaum
|
||||
/s/ Richard A.
Abdoo
|
Director
|
May
18, 2010
|
||
Richard
A. Abdoo
|
||||
/s/ Paul F.
Koeppe
|
Director
|
May
18, 2010
|
||
Paul
F. Koeppe
|
||||
Exhibit
Index
Exhibit
No.
|
Description
|
Incorporated by Reference to
|
||
3.1
|
Articles
of Incorporation of ZBB Energy Corporation as amended dated
February 16, 1998, as amended
|
Incorporated
by reference to the Company’s Registration Statement on Form SB-2 filed on
October 27, 2006
|
||
3.2
|
Amended
and Restated By-laws of ZBB Energy Corporation (as of November 16,
2009)
|
Incorporated
by reference to the Company’s definitive proxy statement filed on
September 25, 2009
|
||
4.1
|
Form
of Stock Certificate
|
Incorporated
by reference to the Company’s Amendment No. 3 to Registration Statement on
Form SB-2 filed on April 13, 2007
|
||
4.2
|
Form
of Common Stock Purchase Warrant, attached as Exhibit C to Exhibit 10.7
attached hereto
|
Incorporated
by reference to the Company’s Report on Form 8-K filed on August 14,
2009
|
||
4.3
|
Form
of Warrant
|
Incorporated
by reference to the Company’s Report on Form 8-K filed on March 9,
2010
|
||
4.4
|
Form
of Warrant
|
To
be filed by amendment
|
||
10.1
|
Letter
Agreement dated as of July 13, 2006 between ZBB Energy Corporation, 41
Broadway Associates, LLC
|
Incorporated
by reference to the Company’s Amendment No. 2 to Registration Statement on
Form SB-2 filed on March 19, 2007
|
||
10.2
|
Contract
dated as of June 29, 2007 between ZBB Technologies Ltd and the
Commonwealth of Australia
|
Incorporated
by reference to the Company’s Report on Form 8-K filed July 11,
2007
|
||
10.3
|
Employment
Agreement dated as of July 1, 2008 between ZBB Energy Corporation and
Scott Scampini
|
Incorporated
by reference to the Company’s Report on Form 10-KSB filed on September 5,
2008
|
||
10.4
|
2002
Stock Option Plan of ZBB Energy Corporation
|
Incorporated
by reference to the Company’s Registration Statement on Form S-8 filed on
April 16, 2008
|
||
10.5
|
2005
Employee Stock Option Scheme of ZBB Energy Corporation
|
Incorporated
by reference to the Company’s Registration Statement on Form SB-2 filed on
October 27, 2006
|
||
10.6
|
2007
Equity Incentive Plan of ZBB Energy Corporation
|
Incorporated
by reference to the Company’s Registration Statement on Form S-8 filed on
April 16, 2008
|
||
10.7
|
Form
of Subscription Agreement, dated August 13, 2009, entered into between ZBB
Energy Corporation and CapStone Investments and each purchaser signatory
thereto
|
Incorporated
by reference to the Company’s Report on Form 8-K filed on August 14,
2009
|
||
10.8
|
Resignation
and Indemnification Agreement by and between the Company and Robert J.
Parry dated as of October 31, 2009
|
Incorporated
by reference to the Company’s Report on Form 8-K filed on November 4,
2009
|
Exhibit
No.
|
Description
|
Incorporated by Reference to
|
||
10.9
|
Director
Nonstatutory Stock Option Agreement by and between the Company and Paul F.
Koeppe dated as of November 2, 2009
|
Incorporated
by reference to the Company’s Report on Form 8-K filed on November 4,
2009
|
||
10.10
|
Agreement
dated January 7, 2010 by and between the Company and Eric C.
Apfelbach
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q for the
quarter ended December 31, 2009
|
||
10.11
|
Restrictive
Covenant Agreement dated January 7, 2010 by and between the Company and
Eric C. Apfelbach
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q for the
quarter ended December 31, 2009
|
||
10.12
|
Nonstatutory
Stock Option Agreement dated January 7, 2010 by and between the Company
and Eric C. Apfelbach (performance-based)
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q for the
quarter ended December 31, 2009
|
||
10.13
|
Nonstatutory
Stock Option Agreement dated January 7, 2010 by and between the Company
and Eric C. Apfelbach (time-based).
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q for the
quarter ended December 31, 2009
|
||
10.14
|
Agreement
dated February 3, 2010 by and between the Company and Steven A.
Seeker
|
Incorporated
by reference to the Company’s Quarterly Report on Form 10-Q for the
quarter ended December 31, 2009
|
||
10.15
|
Placement
Agent Agreement, dated March 1, 2010, by and between ZBB Energy
Corporation and Sutter Securities Incorporated
|
Incorporated
by reference to the Company’s Report on Form 8-K filed on March 09,
2010
|
||
10.16
|
Securities
Purchase Agreement, dated March 8, 2010, by and between ZBB Energy
Corporation and the purchasers signatory thereto
|
Incorporated
by reference to the Company’s Report on Form 8-K filed on March 09,
2010
|
||
10.17
|
Form
Stock Purchase Agreement, dated March 19, 2010
|
Incorporated
by reference to the Company’s Report on Form 8-K filed on March 22,
2010
|
||
10.18
|
Form
of Securities Purchase Agreement
|
To
be filed by amendment
|
||
10.19
|
Form
of Placement Agency Agreement
|
To
be filed by amendment
|
||
23
|
Consent
of Independent Registered Public Accounting Firm
|
Filed
herewith
|