Tuesday, August 17, 2010

Beneath the optics

The White House has had some troubles with their stage managing of presidential appearances. First there was the woman used as a prop to illustrate the need for an extension of unemployment insurance who turned out to have lost her job because of her conviction for prescription drug fraud. Then there was the teacher trotted out to be a prop for Obama's urging Congress to pass the stimulus for teacher jobs. It turned out she'd lost her job due to declining enrollment, not because of declining state funds.

Yesterday the President had a public appearance to tout the administration's stimulus money for clean energy at ZBB Energy in Wisconsin. Such stops are routine for all presidents when they want a backdrop of a real business with real employees that they want to claim that they have helped. But the WSJ investigated the firm and found that it is not such a success story as the President would like us to believe.
The White House press corps has been dragged to so many of these energy events that it has lost interest in looking at the companies it visits. But the case of ZBB Energy is worth a closer look. Mr. Obama praised it for "pointing the country toward a brighter economic future," but we'll let readers decide if they'd write the same checks if they were investing their own money.

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

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

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

In March the company engaged in various stock transactions—including a private placement to the company's directors—to raise some $1.9 million. It obtained a $1.3 million loan from the federal stimulus program and borrowed $1.5 million more from Investors Bank. In June it announced a debt agreement, which would allow it to tap a further $10 million.
There is more information about the shoddy accounting by the company that forced the CEO to step down and some other questionable accounting. It still is having trouble making money on its own.
The company also acknowledged in its May filing that the 72,000 square foot manufacturing facility it bought in 2006 is "currently producing at less than 10% of its expected capacity." That means it can't currently access the $14 million in federal tax credits, which were supposed to help with equipment for a new facility. Meanwhile, private investors have soured on some energy-storage companies. ZBB's initial public offering was priced at $6 a share in 2007, and it closed yesterday at 70 cents.
And this is the country that the President touts as an example of how government picking companies to invest in has been a success.

It sounds a lot more like government investing in a company that private investors are right to cast a very skeptical eye on. But skepticism is not something the Obama administration practices when it comes to throwing taxpayer money at favored industries.