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Stefan Moroney
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Currently, I am a litigation manager at a medium size first party property law firm in Tampa, Florida. I have traveled extensively around the world and speak German and a little bit of Spanglish. Approximately, fifteen (15) years ago, I started researching and investing in micro cap companies.... More
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  • Cytomedix - A Revolution In Wound Care

    Platelet Rich Plasma - The Science Matters

    Approximately a year ago, I came across a message board post stating that insiders were buying heavily in Cytomedix. At the time, Cytomedix was trading at $0.36. Mildly interested, I began my initial scan to determine whether Cytomedix might present a compelling investment opportunity. Satisfied by my initial scan, I took a deeper look at Cytomedix.

    Cytomedix (CMXI.OB) is considered a biotech company focused on the field of biologics and regenerative healing. However, in April of 2010, Cytomedix acquired the Angel line, a line of blood separators which fit squarely into its Autologel offering. Over the past two years, Cytomedix has transformed the Angel purchase into an integral part of its offering, increasing revenues from the Angel line every quarter since the acquisition. Additionally, on February 8, 2012, Cytomedix demonstrated its commitment to building a formidable biologics company by acquiring Aldagen, Inc., a privately held biopharmaceutical company developing regenerative cell therapies.

    The above acquisitions aside, the drivers behind the steady upswing in Cytomedix shares over the past year are (1) the Centers for Medicare & Medicaid Services (NYSE:CMS) reconsideration of its National Coverage Determination as to whether autologous platelet rich plasma (PRP) gel is reasonable and necessary under the Medicare program, and (2) an unidentified big pharma option extension to license sales of Autologel for wound care in the United States that expires on June 30, 2012. It is believed that if Cytomedix succeeds with the CMS determination, which is due by May 9, 2012, that the unidentified big pharma will proceed with licensing Autologel and commencing a marketing push to hospitals nationwide.

    Proof is in the Science

    Whatever decision CMS ultimately reaches, the proof of PRP efficacy is in the science. Worldwide, 346 million people suffer from diabetes and diabetes related medical problems In the April 2012 edition, the Journal of Ostomy Wound Management reported on wound care in a retrospective, longitudinal study of Japanese patients primarily with diabetes mellitus (NYSE:DM). DM is a major health care challenge in Japan, and a number of Wound Care Centers (NYSE:WCC) are focused on healing nonhealing wounds and preventing Lower Extremity Amputations (NYSE:LEA). It is estimated that 20% of individuals with DM will undergo a LEA and 25% are likely to have an additional amputation within a year. In its study, the WCCs evaluated the outcome of the standard of care protocols versus topical PRP treatments in a variety of complex non-healing wounds.

    Standard of care protocols involved "the use of dressings and gels that support moist wound healing, use of silver-impregnated or other dressings that inhibit infection, wound bed preparation, addressing underlying factors, and the use of alternative modalities such as negative pressure wound therapy and maggot therapy when appropriate and PRP gel between April and November 2010."

    From a pool of 1053 potential participants, 40 chronic, nonhealing wound care outcomes from 39 patients were evaluated at two different time periods. The two time periods encompassed both the standard of care at first presentation and the PRP treatment at second presentation. Of the 40 wounds, 34 (85%) were classified as complications from DM, 29 were accompanied by arteriosclerotic obliterans, 5 were arterial ulcers, and one was a pressure ulcer.

    During the first treatment (T1-T2), on average, each wound was treated for approximately 75 days using the standard of care. Despite many of the wounds receiving revascularization or debridement while receiving the standard of care, none of the wounds healed and the average area, depth and volume of the wounds increased. Following the second stage which began with the application of PRP treatments, and lasted an average of 45 days, 83% of the wounds in the study healed. Only one patient required a lower extremity amputation (T2-T3).

    A p-value measurement demonstrates the statistical significance of a study - when the p-value is less than .05 or .01 depending on the cutoff, the result is said to be statistically significant. In this study, the p-value associated with the difference in healing from the standard of care at T1-T2 to the PRP treatment from T2 to the conclusion of the study at T3 was .00002. As a consequence, this study demonstrated the significant statistical significance with respect to healing outcomes in severe lower extremity wounds with PRP vis-a-vis the current standard of care. Despite the small study size, the healing trajectories were similar to much larger PRP study populations that have been conducted over the last five (5) years.

    Generally speaking, autologous PRP has been used clinically for more than two decades. However, in 2007, Cytomedix received FDA approval of its PRP formulation for venous leg pressure and diabetic foot ulcers, indications which are included in the chronic wound care market. The chronic would care market is valued at $2.3 billion in the United States alone, and PRP is believed to be significantly cheaper than the current standard of care. See Slide 11 and 22. Additionally, ortho-biologics is the fastest growing segment within the orthopedic market. This trend is represented by the many professional athletes who are beginning to turn to PRP injections as a way to repair tissue and recover from tendinitis. Finally, dermal/aesthetics markets including hair transplants, facelifts and breast augmentation have begun to use PRP as a way to improve healing outcomes.

    Looking at the recent Ostomy Wound Journal study and prior similar studies, showing improved patient outcomes at price points cheaper than the current standard of care, it is clear that the gathering tidal wave of clinical evidence overwhelmingly supports a positive CMS recommendation. See CMS comments. And, while I believe that Cytomedix and PRP have bright, albeit much slower, futures without a positive CMS reimbursement decision, if CMS reimbursement is approved and the unidentified big pharma closes on the licensing deal, I believe the full support of a large entrenched big pharma sales force focused on selling to hospitals will propel Cytomedix shares much higher over the next two years. With that said, Cytomedix has had a very strong upward movement, and any initial good news may be met with the buy the rumor, sell the news phenomena. As such, any potential purchasers should average in to avoid this potential scenario.

    Disclosure: I am long CMXI.OB.

    May 08 8:56 AM | Link | 11 Comments
  • Microgrids - A Potentially Explosive Growth Market For ZBB Energy

    Microgrids - A Developing Growth Market

    A journey of a thousand miles begins with a single microgrid, and so commences the transition from a twentieth (20th) century electric grid to the ever elusive twenty-first (21st) century "smart grid." The sheer size and complexity of the grid, and the daunting task of developing a smart grid requires a measured approach. To that end, key decision makers and utilities have taken a methodical approach by focusing on incremental steps, i.e. demonstrations, demonstrations and more demonstrations. As such, changes will not occur overnight, but rather, as an amalgamation of many small steps before any future concept of a smart grid develops.

    In the early 2000's, the microgrid appeared as an alternative mechanism by which to accomplish energy security, and move the grid forward one localized step at a time. Upon my initial research into microgrids, I was not very impressed with the concept as a potential investment vehicle. In fact after considering complicated regulatory hurdles, I found it difficult to imagine how this solution could ever gain traction to reach meaningful sales. See Slide 22 - IEEE Draft Standard 1547.4. Apparently bearing my thesis out, in 2008-2009, there was very little investment in the microgrid concept. However, SBI Energy reported that worldwide 2010 revenues of $4 billion significantly eclipsed 2009 revenues with institutional and campus microgrids capturing upwards of 45% of the market.

    In February 2010, a Forbes article prophesized that all the smart meters, rooftop solar panels and other "nodes" on the edges of the grid will require much more robust communications and controls along the "middle mile" of distribution substations and feeder lines to operate effectively. Further, the Vice President and General Manager of Siemens Energy's North American transmission and distribution division, Dave Pacyna, foresees microgrids as a natural part of the evolution of the smart grid. Specifically, Pacyna stated:

    "When it comes to a utility figuring out how to manage this wide, dynamic set of resources and control points, the only way they can do that efficiently is to break their networks down into small nodes - i.e. microgrids - and then add a level of control on top of it."

    As a corollary, this discussion reminds me of the "last mile" discussion, when JDS Uniphase and Digital Lightwave were working with fiber optics to run broadband to every house in the neighborhood. Any investor that followed that market knows what happened to the market capitalizations of those companies when the build out eventually took shape.

    What is a Microgrid?

    While concepts and definitions vary, microgrids are essentially smaller versions of the larger electric grid and are designed to serve localized electric loads. Microgrids incorporate distributed energy resources (DER) such as photovoltaic, wind, and micro-turbines in parallel with the grid. These energy resources allow the microgrid to run in islanding mode, and thus, the microgrid and the loads they serve are protected from disturbances in the larger grid. Islanding mode occurs when a microgrid disconnects from and runs completely independent or autonomous from the larger grid. The end result is hyper electric reliability by creating an "island of energy self-sufficiency." See also, Curbing Energy Sprawl with Microgrids, pp. 559-579.

    Microgrids are much smaller than the larger grid, but at the same time, they are comprised of all the same components of the larger grid - power generation, transmission and distribution, and energy storage. Consequently, as each new microgrid comes online, they can be interconnected to form a much larger distribution entity, and thereby become the building blocks of what will eventually become known as the "smart grid."

    Most current microgrids are locally-owned and not subject to the regulatory restrictions of utilities. Therefore, it is easier and less expensive to deploy technology, and as microgrid regulatory barriers are resolved and new engineering protocols implemented, new technologies can be swiftly selected. Peter Asmus, a senior analyst at Pike Research, recently stated:

    "The main milestones [last year] (2011) was the IEEE standard and the other was the Federal Energy Regulatory Commission's regulations on demand response," . . . "now utilities, instead of worrying about microgrids disconnecting their loads from the grid at will are now saying, 'Microgrids are the most secure form of demand response.' In fact, microgrids are an ideal demand response resource."

    Therefore, in effect, the implementation of microgrids has gone from problematic to potentially beneficial to all stakeholders.

    Estimates of Future Growth

    Over the last few years, Pike Research, the cleantech market intelligence firm and leading microgrid research house, has consistently increased its market expectations for microgrids. Specifically, on January 30, 2012, while acknowledging the regulatory hurdles, Pike forecasted that microgrid capacity worldwide would experience a compound annual growth rate of 22% over the next five years, reaching 4.7 gigawatts in 2017. If growth were to match Pike's estimate, the microgrid market would see $17.3 billion in annual worldwide revenue by 2017 in an average case scenario.

    To understand the significance of this growth in terms of capacity, Pike Research estimated in 2010 that in the U.S., microgrids accounted for approximately 450 megawatts of commercial and industrial capacity, and another 322 megawatts of campus and institutional capacity for a total of 722 megawatts. As such, Pike estimates that the capacity of microgrids will increase six-fold by 2017.

    Microgrids have been developed for a number of reasons. In a September 2011, Microgrid White Paper, Siemens set forth the following types of markets that microgrids currently serve:

    1. Institutional and campus microgrids
    2. Commercial and industrial microgrids
    3. Military microgrids
    4. Community and utility microgrids
    5. Island and remote "off-grid" microgrids

    Over the last year, the adoption of military microgrids has rapidly escalated and is self-evident in the number of technical conferences the military complex is holding.

    Technology Adoption Cycle

    For the last couple of years, smart grid investing has been akin to paint watching paint dry. As described above, modernizing the national grid is a very large and complex undertaking. Nevertheless, what began in the mid 2000's as a small push has slowly gained steam over the last few years. This push culminated in the Federal Electricity Regulation Committee ("FERC") demand response ruling last summer and the implementation of the non-binding IEEE 1547.4 interconnection standard. For further rapid development, the various stakeholders will have to push through the tendency to resist change. As a consequence, a number of trade groups have been pushing standardization and communication protocols forward. Notably, the FERC ruling and 1547.4 interconnection standard were defining moments and signified a monumental shift in attitudes. As a result, I believe the gathering momentum that has taken five (5) to ten (10) years to build is now coming to the cusp of the Technology Adoption chasm, and over the next two (2) to three (3) years, the microgrid market will leap across this divide.

    In August of 2011, Siemens Energy published the Business Case for Microgrids: the new face of energy modernization, wherein Siemens outlined its vision to integrate energy efficiency, renewable generation, power monitoring and control systems into microgrids that will connect with the larger grid and disconnect or island when necessary.

    Recognizing the explosive growth about to take place in the microgrid market, a number of large corporations have begun jockeying for position. Evidencing this sentiment, Mr. Asmus has stated that:

    "In our new report, Military Microgrids, Pike Research has identified roughly two dozen military facilities in the United States that are currently engaged in smart microgrid implementations. The opportunity to help develop these microgrids has attracted a number of powerful technology companies, including [ABB,] Lockheed Martin, General Electric (NYSE:GE), Honeywell, Boeing, and Eaton. Yet the key to the success of these microgrids is often smaller, innovative firms, such as Encorp, Viridity Energy, and ZBB Energy."

    While investing in some of the larger entities listed would certainly allow a play on this exciting growth market, unfortunately, most of the smaller pure play companies are non-public and not available for public investment at this time.

    However, I have identified one publicly traded small cap pure play company in the power control electronics and energy storage space: ZBB Energy. ZBB is quietly building a portfolio of advanced power control electronics which may be utilized as control "nodes" in the CERTS Microgrid Concept. Additionally, ZBB has developed a flow battery which has proven its mettle in energy (Kwh) storage applications. As a consequence, ZBB is implementing these solutions in numerous microgrid demonstrations and deployments around the world.

    Ultimately, the centerpiece of the power control platform is the EnerSection which is an energy storage agnostic power control platform/node. This system utilizes a Grid Isolation Disconnect (GID) to 'lock out' the grid connection if the utility power supply fails, and then, restart safely in an 'island' or Grid Independent mode. The EnerSection provides power to site loads by optimizing energy inputs such as the grid, diesel generation, photovoltaic, wind, and energy storage through a single power control platform.

    For investors who want to benefit from the microgrid trend but cannot divine an appropriate strategy, a portfolio focused on the large established firms identified above would properly mitigate excessive risk. However, these large companies would not allow for a pure play in the microgrid/storage industry. After a year of watching this space, my power control electronics favorite is ZBB Energy. Nevertheless, while I believe ZBB has a bright future, it will have to overcome financing concerns, demonstrate solid execution, and show the ability to move product out the door before it will warrant a much better valuation.

    Disclosure: I am long ZBB.

    May 04 3:55 PM | Link | 67 Comments
  • Finding A New Investment Opportunity: ZBB Energy Receives ETL Certification To UL 1741 For Enersection Power Control Center

    Approximately eleven months ago, I stumbled upon a John Petersen article entitled "Two Stocks for Grid Storage: ZBB Energy and Axion Power," wherein he described the energy storage sector as "an investment mega-trend that will endure for decades." At the time, ZBB Energy and Axion Power were trading at $1.43 and $0.87 respectively, and I had no idea how this article would shape my research interests over the next twelve months.

    My interest piqued, I began looking into ZBB, Axion and Mr. Petersen's copious article archive. Shortly before Mr. Petersen's article, ZBB had successfully completed a three-year test of its flow battery under the tutelage of Australia's Commonwealth Scientific and Industrial Research Organisation (CSIRO). Interestingly however, after listening to my first ZBB conference call, I was less than impressed. As I remember, the call focused primarily on the integration of Tier Electronics, providing backup power for cellular phone towers in third world countries and the company's weak finances. As a consequence, based on Mr. Petersen's recommendation, I added ZBB to my watch list to see how the company would develop, but took no further action.

    On April 13, 2011, ZBB announced a joint development partnership with Honam Petrochemical, a division of the Lotte Group to deliver lowest cost flow batteries. Honam, a $12 billion petrochemical company, had identified energy storage as a priority business and selected ZBB as its partner moving forward. This announcement encouraged me to renew my due diligence efforts in ZBB. By mid-summer, ZBB closed a $2 million financing round at approximately a 12% discount to market with certain directors making an investment at market price and other insiders beginning to buy in earnest again.

    Over the last twelve months, insiders and Marathon Capital, a 10% beneficial holder, have bought close to 2 million shares or approximately 5% of the total shares outstanding at prices between $0.56 and $0.92. ZBB's method of financing has struck me as prudent because management has seemingly only raised what is immediately required to run the company rather than take on a large down round. However, despite this just-in-time financing, ZBB has had no problems raising capital at close to market price and insiders have bought both on the open market and as a part of private transactions. From all angles, it appears management's goals are in line with its investors, they are guarding ZBB's capital structure closely, and if the price materially increases, ZBB will be in a position to capitalize in order to guarantee ZBB's future.

    As each month passes, ZBB has made additional impressive announcements and installations. At the end of August, ZBB, which had been attempting to crack the Chinese market, announced a joint venture company to enter the Chinese market after a year of vetting 75 potential partners. Because of the shenanigans that has been coming out of China over the last year, the market yawned at this announcement. Nevertheless, this joint venture company that will initially assemble and ultimately manufacture ZBB products for sale in the power management industry is moving forward, has been awarded its first contracts, and is building a new state-of-the-art manufacturing center in WuHu City, Anhui Province that will begin operations in early 2012.

    On September 7, 2011, ZBB made two major announcements. The first was the issuance of a patent for the ZBB EnerSection™, a "plug and play" hybrid power conversion system that can support the integration of nearly any combination of onsite generating sources. At the time, I did not really know what this meant. Yes, I read the announcement, but the engineering significance of it was lost on me.

    The same day, ZBB announced a collaboration with Universal Electric Corporation to provide uninterrupted power to DC voltage lighting loads, rack power to servers and other miscellaneous loads at a major data center in a 380vDC trial program. Again, I thought this was another positive announcement, but I did not comprehend its significance at the time.

    Shortly thereafter, ZBB presented at the Renshaw & Rodman investor conference and it was identified that ZBB would not receive their UL certification for grid interconnection for another couple months. Immediately thereafter, there was a strong sell off, but insiders again began buying shares in earnest.

    At that time, I took a closer look at the collaboration with Universal Electric, 380vDC, the EnerSection and the unnamed financial center. In digging into this topic, I found the Emerge Alliance and the efforts that its members such as Intel and other large technology players were taking in implementing the new 380vDC standard in data centers and buildings around the world. It was at that time that I understood why the CEO Eric Apfelbach described ZBB as the Cisco of the power industry. The EnerSection is similar to a router or a computer tower with multiple USB ports. The EnerSection, an energy storage agnostic platform, has the ability to integrate any power generating source whether on AC or DC, along with various types of storage into an overall system.

    Previously, if a building had wind, photovoltaic, grid, gen set, and storage inputs, the architecture would require a separate inverter or converter for each input whether on AC power or DC power. However, the EnerSection would eliminate that requirement and integrate both AC and DC components into a plug and play system whereby each input would have its own "bucket" within the system to connect to, and thus, generate a significant savings for the end user

    At the conclusion of the R&R conference, ZBB, which had less than $1 million in sales last year, had between $5 and $7 million in backlog that was awaiting UL certification before the company could begin shipping and working through its backlog. Realizing that ZBB was much more than a one dimensional battery/storage company, and having witnessed the UL certification process take much longer with three different companies than the three different CEOs had promised and expected, I felt that a delayed UL certification would present a good buying opportunity in ZBB. After the R&R conference and going into the quiet period, the stock price began to retreat and a share supply and demand imbalance began to take shape. At this point, I had climbed my wall of worry, and I started to build a position in ZBB Energy.

    Over the next couple months, ZBB tightened its partnership with Honam, hired an additional 21 people or increased its employee headcount by 38% with the bulk of the hiring coming in sales, marketing and operations. ZBB also increased the depth and experience of its board of directors in financing expertise, signed a joint development, license and a stock purchase agreement with a major unnamed global technology company, received its Chinese joint venture business registration and first Chinese sales, and on January 12, 2012 received the first of three UL certifications for its 25kw inverter.

    In the press release announcing the UL certification, Apfelbach had this to say:

    "The UL certification is a great milestone for our company. The combination of certified grid-tie inverter electronics and our patented DC based ZBB EnerSection offer customers in the distributed grid a turn-key intelligent system. The strategic design wins in our backlog have been driven by the benefits of this offering. ZBB is uniquely positioned to deliver integrated storage solutions in markets where certification is required for grid interconnected systems." "We can now begin shipping product from our backlog to customers who've been waiting for UL grid-tie capabilities."

    At this time, ZBB is the only storage and power control manufacturer that has a UL 1741 grid-tie certification. As such, this certification is expected to be a major competitive advantage in getting new orders and building backlog. Therefore, I expect the sales and marketing team to begin selling in earnest, and over the next couple weeks and months, there will be a string of purchase announcements. At some point later this year, the 60kw and 125kw inverters, which are based on the 25kw platform, will also be certified and move into the sales pipeline.

    Company Basics -

    ZBB is not only a battery storage company, but also a technology agnostic supplier of power control electronics. In power projects, the power control electronics often cost 70% of the total sticker price, whereas in energy projects, the power electronics garner approximately 40% of the total price. As a consequence, the UL certification will allow ZBB to ramp potentially significant sales as a power electronics equipment vendor, while it continues to improve its V3 ZBB flow battery for wide scale implementation. At this time, I do not have the information to dial deeper into what ZBB's potential share of the 70% and 40% cost of the various power control electronics components implemented in a project will be. However, it stands to reason that ZBB's proprietary software will generate a higher margin than third-party hardware also utilized in the power control electronics package.

    Major products:

    - The EnerSection allows an end user to optimize and utilize all of the various power value streams available.

    - The V3 flow battery presents one of the lowest cost storage methods available.

    A combination of the two allows the end user to :

    - Avoid demand charges

    - Avoid turning loads off due to Demand Response

    - Enable higher penetration of renewable

    - Peak shave/time shift to lower rates

    - Manage DC circuits

    At this stage of the game, the price is trading at approximately $0.81 after retreating from a high last year of $1.59. The market cap is approximately $26.3 million and the company has approximately 36.6 million shares outstanding and 44.5 million shares fully diluted. The company has LT debt of $4.5 million structured over a multiple year horizon, a manufacturing space of 85,000 sq ft, and 34% ownership of the Chinese joint venture. Its auditor is Baker Tilly, the eighth largest accountancy in the world, and company counsel is K&L Gates, an international law firm with forty (40) offices around the world.

    Previously, the company has stated on numerous occasions in the past that it could reach cash flow positive at a run rate of approximately $20 million per year. And the company currently has the capacity to support approximately $36 million in annual revenues with very little capital expenditures. However, I believe that with all of the recent hiring the run rate to breakeven has probably risen slightly.

    Target Markets:

    - Microgrids

    - Commercial Buildings

    - Remote Operations

    - Communication Towers

    - Electric Vehicle Charging

    As most people reading this article already know, Pike Research predicts global investment in energy storage products to reach $122 billion by 2021, and China will be the largest market of that demand. ZBB plans to fight for a small piece of many of the subdivisions of this market. By itself, ZBB expects the communications towers market that was discussed in the first conference call that I mentioned to see a total investment of $18 billion by 2015. See, January 2012 ZBB Investor Presentation.

    At this point, I don't know how to quantify the 380vDC application other than to say that Intel has been pushing a conversion to a DC standard since it wrote a white paper on the topic in 2005. Over the last two years, the movement has caught a headwind and appears to be rolling forward with a number of strong advocates and test sites. See, EPRI - slide 8. The initial inertia to a change in standards of this magnitude is monumental. However, if these test sites are successful, ZBB will be on the forefront of a large change in the paradigm of the grid from AC to DC.


    In ZBB's recent January Investor Presentation on the slide discussing the partnership with the large unnamed technology company, ZBB stated that the Partner is targeting lower cost for large scale grid storage. This indicates to me that while ZBB and its partners continue to work furiously towards a reasonable price point for large scale ZBB flow battery deployment, ZBB is still not there yet and a major push in revenues this year will likely come from power control electronics.

    Further, while insiders have shown the wherewithal to fund the company and ability to bring outside investors, there is no guarantee that this will continue or that the hiring of sales people will actually materialize in sales.

    Additionally, since 9/30/09, ZBB has tripled its shares outstanding from 12.4 million shares to 36.6 million shares outstanding, and while I expect that the percentage increase will slow, I also expect that ZBB will continue to fund growth through additional share issuances.

    Notwithstanding the foregoing warnings, it is my humble opinion that the tide has changed at ZBB, the market has under-appreciated the impact of the UL announcement, and in 2012, ZBB will spread its wings as a growth story.

    Disclosure: The author is long shares in both ZBB Energy and Axion Power.

    Tags: ZBB, AXPW
    Mar 25 9:16 PM | Link | 81 Comments
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