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RedFlow Launches $6M Fully Underwritten Rights

RedFlow Limited (ASX:RFX) is raising $6.06 million before costs through a fully underwritten entitlement offer that will help it progress to a cash flow positive position.

Proceeds from offer will be applied to working capital, new machinery, inventory and specific product improvements.

Along with the recent $2.2 million placement, this is expected to see the company get to a cash flow positive position under the current business plan by end 2015.

RedFlow's unique zinc-bromine batteries (ZBM) have made significant progress in the last 18 months.

The product has all DC componentry, imminent completion of the Cleantech funded prototype, commencement of outsourcing manufacturing and three current system integration partners.

This places it in a good position to focus on completing the transition to Flextronics and converting the sales pipeline to firm orders.

Entitlement Offer Details

The pro rata non-renounceable entitlement offer of two new shares priced at $0.11 each for every seven shares held is fully underwritten by Morgans Corporate.

Partial sub-underwriting will be provided by managing director Stuart Smith, chairman Howard Stack and non-executive director Bruce Brown.

Non-executive directors of the company have already committed to take up their entitlements in full.

A total of 55,073,534 shares will be issued under the offer.

It follows the company attracting a placement of 18.6 million shares priced at $0.12, or a total of $2.2 million, from interests associated with internet entrepreneur Simon Hackett.

This represented a 9% premium to the last traded price at that time.

RedFlow's Zinc Bromine Flow Batteries

The ZBM flow battery is a high performance battery that provides high energy density and best performance in deep discharging applications.

It operates at 100% and partial charge and discharge without degradation.

The batteries have been calculated to be capable of approximately 3 years of full daily charging and discharging. This is expected to further improve with materials currently under test.

Recent developments have meant that all electrical components on the battery are now DC powered and all components that previously required an auxillary AC power supply have been replaced with DC components.

RedFlow has partnered with Flextronics (NASDAQ:FLEX), a US$5.6 billion manufacturer with facilities in over 30 countries.

Flextronics brings its manufacturing expertise to the table, which brings scalability that could help reduce the cost of batteries as well as quality assurance, repeatability and consistency.

It also has a proven track record for successful product introductions for OEM partners.

The company has recently signed an agreement with Philippines based SMS Global Technologies to supply an initial two batteries to enable SMS to develop a flow battery storage solution for off-grid telecommunication applications in the Philippines.

Given that SMS believes the batteries, which are made predominantly from plastic, are ideal for storage applications in harsh environments and off-grid locations, this could lead to further orders.

Analysis

The fully underwritten $6.06 million entitlement offer of 55,073,534 shares priced at $0.11 each will add toRedFlow's current cash position of $5 million (post the $2.2 million placement).

This will result in the company have a net cash position of $11 million after the entitlement offer.

What is interesting for investors is that the company has large working capital requirements expected as orders grow and it anticipates being in a cash flow positive position by end 2015 based on its current business plan.

The entitlement offer also demonstrates the support investors have in the company and its zinc-bromine flow batteries as well as the strong progress made in the last 18 months in the development of the ZBM batteries.

This comes as the energy storage market continues to evolve with Lux Research estimating that the market could be worth a potential $114 billion by 2017.

Zinc bromine batteries are expected to have a 19% market share of this market.

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