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http://theeestory.com/files/ZMC_FY09_Audited.pdf

http://theeestory.com/files/ZMC_FY09_MD_A.pdf

http://theeestory.com/files/Zenn_Annual_Informa...

Last edited Fri, 29 Jan 2010, 8:05am by ShortEE

The warrants might have been a less expensive way of investing in Zenn (EEStor). Buy warrants for about $1.61 and you still get most of the benefit of a best case situation, but only risk less than half of current stock price were a worst case situation to occur. Still, that seems like a fairly high price for a warrant (relative to current price), especially for such a speculative stock.

e'er wrote:

The warrants might have been a less expensive way of investing in Zenn (EEStor). Buy warrants for about $1.61 and you still get most of the benefit of a best case situation, but only risk less than half of current stock price were a worst case situation to occur. Still, that seems like a fairly high price for a warrant (relative to current price), especially for such a speculative stock.

From what I understand, warrants are the equivalent of performance-based options. Warrants can be exercised if performance milestones are met, which would explain why a large number of ICs warrants have expired.

I'm not aware of any performance milestones associated with warrants other than the stock price making it worth exercising the warrants. Add the cost of the warrant and the strike price and if the stock reaches above that amount sometime during the term, then it makes sense to do it. If not, then I believe a person could still exercise them, but it wouldn't make sense to.

Page 6. Key sentence:

"
As at September 30, 2009, no events or changes in circumstances had occurred which indicated that the carrying amount of the rights under the Agreement may not be fully recoverable (see Note 8).
"

e'er wrote:

I'm not aware of any performance milestones associated with warrants other than the stock price making it worth exercising the warrants. Add the cost of the warrant and the strike price and if the stock reaches above that amount sometime during the term, then it makes sense to do it. If not, then I believe a person could still exercise them, but it wouldn't make sense to.

I looked for the article I was reading, can't find it right now.

In any event, there is a difference between options and warrants. What exactly that difference is, I'm not sure.

Ode to Joy plays..

Financial statements are wonderful.

ShortEE wrote:

e'er wrote:

I'm not aware of any performance milestones associated with warrants other than the stock price making it worth exercising the warrants. Add the cost of the warrant and the strike price and if the stock reaches above that amount sometime during the term, then it makes sense to do it. If not, then I believe a person could still exercise them, but it wouldn't make sense to.

I looked for the article I was reading, can't find it right now.

In any event, there is a difference between options and warrants. What exactly that difference is, I'm not sure.

Options are donkeys. Warrants are donkeys painted in black and white stripes to look like zebras.

Hey, thanks for the links; I hadn't looked up this yet. Looks to me that they are confident that they will be able to get through 2010. Just roughing out, they are going in the hole about $10M per year and if stock price holds at about $3.50 for 2010 and they sell about the same amount as last year they will make about $14M that way this year. They could still end up selling some of their LSVs, but that would be pretty tough now. I wouldn't buy Pontiac or Saturn now either. If I were a dealer for Zenn I think I would be steamed. Talked to a couple of guys in Independence, MO last fall who definitely were.

They explicitly stated they don't intend on decreasing net cash burn and only have enough to Last until Sept 2010.

"management does not expect to see a significant reduction in cash burn from this directional change until the third fiscal quarter of 2010. Furthermore, it is the Company’s expressed intention to redeploy its resources into the development of the ZENNergy strategy and as a result, there may be no net reduction of cash burn"

shortee, thanks, a very good read. for anyone who did not know this is a speculative investment, they should now.

zawy wrote:

They explicitly stated they don't intend on decreasing net cash burn and only have enough to Last until Sept 2010.

On the other hand, it speaks to their confidence that they are not in fact heading for disaster.

I think it means they expect to do another stock offering, but judging from past conversations on this, no one believes me. I don't think they are reckless, but without a stock offering, I can't see it going much past Jan 2011 like OakThicket calculated.

yes, i'd bet a new stock offering is in the cards; with or without reveal; difference is price. without reveal, sooner is better.

A pre-reveal stock offering would be bad news for Zenn and shareholders too.

zawy wrote:

They explicitly stated they don't intend on decreasing net cash burn and only have enough to Last until Sept 2010.

"management does not expect to see a significant reduction in cash burn from this directional change until the third fiscal quarter of 2010. Furthermore, it is the Company’s expressed intention to redeploy its resources into the development of the ZENNergy strategy and as a result, there may be no net reduction of cash burn"

Zenn's 3rd fiscal quarter begins on April 1 and ends on June 30. Zenn's 3rd fiscal quarter does NOT begin on July 1. Zenn is on a fiscal year beginning October 1 and ending Sept 30. If my guestimates are correct, headclount should be impacted by about 10-12 heads.

Chaplin wrote:

Page 6. Key sentence:

"
As at September 30, 2009, no events or changes in circumstances had occurred which indicated that the carrying amount of the rights under the Agreement may not be fully recoverable (see Note 8).
"

I agree with Chaplin. The same language is used for the share holdings. I called up their accountant a couple of weeks ago and beat him up pretty badly on how transparency was essential on this issue as it is the only driver of value for a $135m market cap company. So either he blew me off or he is very comfortable with his view, or I was too late. Your guess.

Also, as much as the phrasing is "as of September 30, 2009" they would be required to report a "subsequent event" if something had happened since.

student wrote:

ShortEE wrote:

e'er wrote:

I'm not aware of any performance milestones associated with warrants other than the stock price making it worth exercising the warrants. Add the cost of the warrant and the strike price and if the stock reaches above that amount sometime during the term, then it makes sense to do it. If not, then I believe a person could still exercise them, but it wouldn't make sense to.

I looked for the article I was reading, can't find it right now.

In any event, there is a difference between options and warrants. What exactly that difference is, I'm not sure.

Options are donkeys. Warrants are donkeys painted in black and white stripes to look like zebras.

Options and warrants are typically identical as to economics. The difference is commonly that warrants are issued in conjunction with a an issuance of stock (as stated in 10 (iv) of the audited statements) and options are issued stand alone.

That's why we have stock option plans, not stock warrant plans.

A few things I took from the Annual Report:

1. Notice the date of the Auditors' Report, Jan 15th, compared to Nov 14th last year. The Auditors, Collins Barrow, wanted to see an eesu as bad as anyone. While they did issue a clean opinion, Footnote 1 has enough wording about "going concern" issues to make it about as close as you can get to a going concern qualification in the Auditors' Report without doing so. The bottom line is that the auditors, like Morton Topfer, don't know if they believe, and the Eestor investment is so overwhelming to Zenn's financial position that they would have seen whatever Zenn has seen, including a visit to Eestor's facility.

2. Footnote 2 classifies the investment in Eestor an "available for sale" financial instrument, which is interesting new wording. I have no idea what to make of the new description.

3. General and Administrative expenses went up once again in '09. This level of expenditures on G&A for a company in Zenn's position is simply unconscionable. Plus Engineering and Development appears to be a new black hole for expenditures to take the place of what was pissed away on advertising in the past.

Overall, I had actually hoped Zenn would get a clean opinion on their financial statements and normal wording in the footnotes. Had that been the case I was going to pull the trigger and buy some stock, because Collins Barrow would have been on the hook. They would have had to see something convincing wrt to eesu's. It's what I've been hanging around waiting for in terms of maybe getting some actual 3rd party evidence.

Instead we get footnote disclosure about a half a step away from a going concern qualification in the Auditors' Report, so I wouldn't touch this thing with a 10ft pole.

The going concern qualification means "substantial doubt whether the company can continue to meet obligations over the next year". It's not just the auditors that nearly said it, but look back at Zenn's own statements. The fiscal year they are referring to ends in 8 months. Investors are looking at maybe 12 months survival, and yet no one has seen an EESU. Maybe they'll find a buyer for their stake in EEStor. I wonder if previous Weir/Nelson investors (Titanium X, Tulip/titanium Memory Systems) were able to sell their stakes to anyone.

Anyone notice that they have a second office in toronto now?

"Operations
The Company’s registered and head office is located in Toronto, Ontario. The Toronto office is in two locations. The principal office at 85 Scarsdale Road accommodates senior management, sales, service and marketing functions as well as the finance and administrative functions of the business. The engineering function of the Company occupies space in close proximity that is more suited to their needs than conventional office space. The engineering department’s primary focus is the development of the ZENNergy technology and solutions. It is anticipated that additional space will be required to accommodate planned growth in the engineering department in 2010."

And WRT ZENNergy manufacturing/EESU manufacturing:

"At this time, the Company has no plans to become a manufacturer of components or systems but will consider outsourcing such manufacturing as required to support customer requirements. The Company will not become a manufacturer of EEStor’s EESU product."

And About KPCB:

"It has been publicly disclosed that EEStor has received US$3,000,000 in funding from Kleiner Perkins Caufield & Byers,"

And the number of employees:

"As of the date hereof, the Company has 40 employees including executive, administrative and production staff. The number of employees includes eight in the Saint Jerome facility which is scheduled to close no later than April 30, 2010"

Last edited Fri, 29 Jan 2010, 3:11pm by pfujimoto

ShortEE wrote:

e'er wrote:

The warrants might have been a less expensive way of investing in Zenn (EEStor). Buy warrants for about $1.61 and you still get most of the benefit of a best case situation, but only risk less than half of current stock price were a worst case situation to occur. Still, that seems like a fairly high price for a warrant (relative to current price), especially for such a speculative stock.

From what I understand, warrants are the equivalent of performance-based options. Warrants can be exercised if performance milestones are met, which would explain why a large number of ICs warrants have expired.

IC's warrants were never exercised because the strike price for exercise of the warrant was greater than the market price for the stock. Had nothing to do with performance.

Goooose4 wrote:

IC's warrants were never exercised because the strike price for exercise of the warrant was greater than the market price for the stock. Had nothing to do with performance.

According to SEDI, IC had 402,960 warrants expire on Jan 29/09.

At least 30,000 of these had an exercise price of $1.55. The bulk don't have a price attached; 372,960 are shown as an opening balance in IC's Feel Good Cars profile on Jul 7/06.

The stock did not trade under probably about $1.75 prior to Jul '06. The stock was about $2.25 in Jan '09, and has not traded under $4 very much since Apr '09.

Assuming that the strike price for the warrants was under $1.75, and the price for the stock when those warrants expired was $2.25 (ish), why would somebody who believes that this is going to the moon not exercise?

The performance warrants were exercisable only if strong profit had been achieved.

ShortEE wrote:

Assuming that the strike price for the warrants was under $1.75, and the price for the stock when those warrants expired was $2.25 (ish), why would somebody who believes that this is going to the moon not exercise?

Just a guess, but maybe he didn't have the cash to exercise the warrants. His salary isn't that high. The right financial thing to do was exercise the warrants and then sell enough stock to be cash neutral, but still have extra shares. Clifford wouldn't do that because it sends the wrong signal to shareholders if he sells stock.

Ironically, not exercising warrants can do the same thing. Some folks would figure he didn't have confidence in Zenn if he didn't exercise them.

Maybe, he was in a no-win situation.

Oakthicket, my last post explains why. IC was not allowed to exercise the warrants because they were issued under the condition that the new company (ZMC) show a sizable profit by now.

Hawk wrote:

student wrote:

ShortEE wrote:

e'er wrote:

I'm not aware of any performance milestones associated with warrants other than the stock price making it worth exercising the warrants. Add the cost of the warrant and the strike price and if the stock reaches above that amount sometime during the term, then it makes sense to do it. If not, then I believe a person could still exercise them, but it wouldn't make sense to.

I looked for the article I was reading, can't find it right now.

In any event, there is a difference between options and warrants. What exactly that difference is, I'm not sure.

Options are donkeys. Warrants are donkeys painted in black and white stripes to look like zebras.

Options and warrants are typically identical as to economics. The difference is commonly that warrants are issued in conjunction with a an issuance of stock (as stated in 10 (iv) of the audited statements) and options are issued stand alone.

That's why we have stock option plans, not stock warrant plans.

Warrants are a type of option.

CRJohn wrote:

A few things I took from the Annual Report:

1. [...]The bottom line is that the auditors,[...]don't know if they believe, and the Eestor investment is so overwhelming to Zenn's financial position that they would have seen whatever Zenn has seen, including a visit to Eestor's facility.

This is one of the dumbest posts yet for you, and that is saying a lot.

You think financial auditors evaluate proprietary technology? ZMC financial auditors at EEStor site?

whiskeythief wrote:

CRJohn wrote:

A few things I took from the Annual Report:

1. [...]The bottom line is that the auditors,[...]don't know if they believe, and the Eestor investment is so overwhelming to Zenn's financial position that they would have seen whatever Zenn has seen, including a visit to Eestor's facility.

This is one of the dumbest posts yet for you, and that is saying a lot.

You think financial auditors evaluate proprietary technology? ZMC financial auditors at EEStor site?

No eesu is making you as thick as a brick. When it's the only asset of publicly traded company, you bet your ass they'd go down to Texas and have a chat with Mr. I'm ahead of schedule, and have a look at whatever Zenn did, and even hire an outside expert if necessary. Before Zenn was an electric car company with a much smaller investment. Now it's different. Did you think they would just look at the cancelled check and take IC's word for it?

All I was saying was that warrants would have been a much better way to invest in Zenn if one believed that a reveal was to occur during the period of the warrant. They generally cost a fraction of the stock, so for the same investment you could get a multiple of shares compared to what you could buy straight from the market. Or, you could cut down the cash you were risking while still being able to get a huge gain with the same number of shares were a reveal to occur.