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Axion Power International, Inc. (NASDAQ:AXPW)

Q1 2013 Earnings Conference Call

May 16, 2013 11:00 AM ET

Executives

Thomas Granville - CEO

Charles Trego - CFO

Rudy Barrio - Allen & Caron, Inc., Investor Relations

Analysts

Keith Markey - Griffin Securities

Howard Berkowitz - BlackRock

Michael Smith - Private Investor

Kent Gutmann - Private Investor

Patrick Young - Private Investor

Colin English - Private Investor

William Blanchard - Private Investor

Operator

Good morning everyone and welcome to the Axion Power First Quarter 2013 Earnings Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please also note today’s event has been recorded.

I’d now like to turn the conference call over to Mr. Rudy Barrio, Allen & Caron, Investor Relations. Sir, please go ahead.

Rudy Barrio

Thank you, Jamie. Hello everyone and thank you for joining us today. The purpose of this conference call is to supplement the information provided in Axion Power press release announcing the Company's financial results for the first quarter of 2013, which was disseminated earlier this morning. Many of you received a copy of the press release. If you did not receive a copy of the press release, it is posted on Axion Power’s website at www.axionpower.com and in the Clients section of our website at www.allencaron.com. It is also posted on Yahoo Finance and most financial sites. You may also call our office in New York at 212-691-8087 and we will email it to you.

Speaking on today’s call are Chairman and CEO, Thomas Granville; CFO, Charles Trego; and Chief Operating Officer, Philip Baker.

Before we begin, I’d like to remind you that certain statements made during this call, may constitute forward-looking statements. These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially. Any forward-looking statements made on this call today, speak as of today and Axion Power does not undertake any obligation to update any such statements to reflect events or circumstances occurring after today.

Please refer to today’s press release and Company’s annual report on Form 10-K for the year ended December 31, 2012 and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results. As a reminder, today’s call is also available on a webcast which can be accessed from Axion Power’s website and clicking on the Investor tab. A replay of the webcast will be available shortly after the call and will continue for 30 days.

I’d now like to introduce Axion Power’s Chairman and CEO, Thomas Granville. Good morning, Tom.

Thomas Granville

Good morning, Rudy, and good morning ladies and gentlemen. It is only been six weeks since we were last with you, but it has been a time of progress across the board. I’m sure everyone was happy to see our funding round concluded, but it is worthy of note that Chuck’s game plan to conserve cash and give us the opportunity to select rather than be forced into a funding regiment. That game plan cannot be over emphasized.

We exited April, close to where we began in terms of cash. Great job, Chuck. And to tell us all of the financial tale, here is Chuck.

Charles Trego

Thank you, Tom, and good morning to all those on the call today. Yesterday May 15, 2013 we filed our Form 10-Q for the first quarter of 2013 and we encourage everyone to read it as it discloses relevant investor information about Axion Power International.

I also want to take this opportunity to point out again, as was noted in our 2012 year-end earnings release on March 15th of this year and with the filing of our 2000 Form 10-K, we’re no longer a development stage entity. Therefore as you read our first quarter 2013 Form 10-Q, you will note some changes in the presentation of our condensed financial statements and footnotes compared to our previously filed Form 10-Q for the first quarter of 2012, that reflects these changes.

This morning we released our operating results for the first quarter of 2013. My comments this morning will focus on some of the key drivers of our operating results and cash flow from the first quarter of 2013 compared to last year and importantly our liquidity situation as of March 31, 2013.

Product sales for the first quarter were $2.2 million compared to $1.8 million for the first quarter of 2012. We have one customer that accounted for approximately 88% and 77 – 76% respectively for the first quarter of 2013 compared to the first quarter of 2012. The increase in product sales is due to a series of orders for unbranded flooded lead-acid batteries with the purchaser carrying the cost of inventory and providing the raw materials for production.

Our cost of product sales for the first quarter of 2013 were $2 million compared to $1.6 million for the same period last year. The increase in cost of product sales resulted from the increase in product sold. Gross profit, which we’re now reporting as a commercial entity for the first quarter of 2013 was $247,000 compared to $194,000 for the first quarter of 2012. The gross profit margin was 11% in both quarters, first quarter of this year versus first quarter last year.

Selling, general and administrative expenses for the first quarter of 2013 were $2.3 million compared to $2.5 million for the first quarter of last year. Lower labor cost and R&D testing expenses with the primary drivers of lower SG&A in the first quarter of 2013 compared to the same period last year.

And now some comments on our liquidity and capital resources. Our primary source of liquidity has historically been cash generated from issuances of equity securities. From inception through the end of the first quarter of this year, we have generated revenue from operations that was not significant enough to produce an operating profit.

In February of 2012 we completed a registered direct common stock offering that provided gross proceeds of approximately $9.4 million. These net proceeds after expenses of offering and placement fees amounted $8.6 million and were used for working capital, capital expenditures and general corporate purposes in 2012 through the end of the first quarter of this year.

As Tom indicated in his opening remarks, in an event subsequent to the end of our first quarter, as reported in our public release and our filed Form 8-K on May 07, 2013, we entered into a financing transaction for the sale of convertible notes and warrants issued by the company with gross proceeds of $9 million at closing which occurred on May 8, we received cash proceeds of $3 million and had deposited an additional $6 million into a series of control accounts in our name.

We are permitted to withdraw funds from our control accounts in connection with certain conversions of the convertible notes or otherwise, as follows: $500,000 on each 30-day anniversary after the effective date, which commences 60 days after the effective date of our S1 until there are no more funds in the control accounts. These convertible notes bear interest at 8% per annum and are convertible into shares of our common stock at initial per share conversion price of $0.264, subject to certain adjustments.

The warrants entitled the holders of the warrants to purchase an aggregate 17, 281,107 shares of our common stock. The five-year warrants will be exercisable at a price equal to $0.302, again subject to certain adjustments.

We received approximately $2.7 million in net proceeds at closing, after deducting our placement agent's fee of $240,000. Other offering expenses, other than our placement agent's fee, will be approximately $100,000, which will be paid out and were paid out at closing. At each future funds release, we will receive approximately $460,000 in net proceeds, after deducting our placement agent's fee of $40,000.

I also want to point out simultaneously with the closing of a $9 million financing transaction just commented on, the Company also sold $1 million in principal amount of subordinated convertible notes to investors consisting of Management and Directors of the Company and one individual investor. The sale of these convertible notes will not carry any additional fees and expenses. So the entire $1 million investment is netted to the Company.

The subordinated convertible notes are subordinated in the right of payment to the convertible notes to the Company and mature 91 days subsequent to the maturity date of the senior convertible notes. The subordinated convertible notes bear the same interest at a rate of 8% per annum, once two-thirds of the convertible notes have been repaid then the subordinated convertible notes may be converted and/or prepaid in cash so long as there are no event of default with respect to the convertible notes and all equity conditions of the convertible notes are met.

The conversion price for the subordinated convertible notes is the same as the senior convertible notes of $0.264 per share. The holders of the subordinated convertible notes will be issued five-year warrants to purchase 1,920,123 shares of common stock. Each warrant as an exercised price of $0.302 per share just the same as the senior note holder warrants.

Above liquidity, we believe that currently available funds at March 31, 2013 and including a net proceeds from our May 8, 2013 issue of $9 million in senior convertible notes and $1 million in subordinated convertible notes plus internally generated funds from product sales will provide sufficient financial resources to fund our operations, working capital and capital expenses into the second quarter of 2014.

Subsequent sources of outside funding will be required to fund the Company’s working capital, capital expenditures, and operations beyond the first quarter of 2014. We can give no assurances that the Company will be successful in complying with certain of the terms and conditions and the recently issued senior convertible notes for in arranging further funding, if needed to continue the execution of our business plan including the development and commercialization of our new PbC products or if successful, on what terms.

Value to obtain such funding will require management to substantially curtail operations which will result in a material adverse effect on the financial position and results of the Company.

Our cash position at March 31, 2013 was $0.8 million compared to $2 million at the end of the prior-year. Working capital at the end of our first quarter was $2.2 million compared to $4 million at the end of the year. Net cash used in operations for the first quarter of 2013 was $1.1 million compared to $1.7 million for the same period in 2012. This represents a decrease in net cash used in operations of $0.6 million or 35%. The decrease in net cash used resulted from a $0.2 million reduction in our loss from operations and a $0.4 million decrease in working capital.

Net cash used by investing activities for the first quarter was under a $100,000 compared to just under $300,000 for the same period last year. This represents a decrease in cash used by investing activities of approximately $200,000 or 29%. Net cash used by financing activities in the first quarter was under $100,000 compared to cash provided of $8.6 million in the first quarter of last year for the equity financing that we previously discussed.

In summary, our cash flow when considering all the cash flow activities, the net change in cash flow for the first quarter of 2013 was a negative $1.2 million. Excluding the net proceeds of the registered direct common stock offering of $8.6 million in the first quarter of 2012 comparable cash flow in the first quarter of 2012, was a negative $2.1 million. Thus comparable negative cash flow decreased $900,000 or 43% in the first quarter of 2013 compared with first quarter of 2012.

I’d like to point out that our management’s focus on managing cash flow activities is a carry on from that we achieved in 2012 compared to 2011, which was a decrease in net cash burn of 24% for those two comparable time periods.

And with that, and those comments, I’ll turn the meeting back over to Tom.

Thomas Granville

Thanks, Chuck. In case anyone didn’t observe Chuck is rather conservative. That’s his job. Chuck’s job is to keep us out of trouble to make sure that we have enough cash to move forward and to continually understate what our position is, so that we’re fully aware of what we need to do going forward.

His actions however tell a different story. The reduction in the burn rate year-over-year and the reduction in the burn rate just in the last quarter of 2013 speak volumes to what it is that we’re doing here and what we’ve been able to reduce our burn rate to.

Certainly if you look at the amount of cash that’s been generated by this funding and look at what our traditional burn rates have been, you can see where this in reality leads us. Even without any and I said any new sales and we certainly don’t anticipate that to be the case and for that we anticipate just the opposite. And that leads me into my opening remarks here about the excitement that’s in the air at Axion.

First an excitement that I feel and I don’t know if its because we just finished our funding and are now able to allocate dollars for our main working capital needs or its because our engineering and R&D departments have developed new processes that have led to step change battery improvement in real applications or its because our engineering group under Jay’s guidance has commissioned our continuous roll process carbon electrode manufacturing line.

And in a very short time thereafter several weeks in fact as already improved that initial line or is it because I read the most recent report on ePower hybrid truck testing utilizing our PbC batteries. Testing that confirmed our improved battery was now providing 200 amps and allowing even an undersized Genset to combine with our batteries and produce enough power to pull a full 80,000 pound load.

More of the excitement is due to my recent review of the comprehensive SBIR application we submitted last month. A submission that included a strategic partner that is one of the industry giants and what the long-term ramifications of that relationship might be. Or is the excitement due to the new working relationship we have with large lead-acid battery companies. A relationship that speaks to our long-term strategy of being the industry provider of our proprietary negative electrode to other battery companies, an electrode that will make their batteries better. Or is it because yesterday I accompanied Vani on a sales call. To further discuss the amount of storage that will go into a 2013 project being developed by our strategic partner. The amount of storage will probably be several megawatts or is it because that once again our Board, family and friends have shown confidence in Axion’s future by providing a $1 million investment in a standalone side transaction. The other party in that standalone side of course are the funders of the $9 million May 6th financing.

Or is it because this new financing will provide the capital necessary to fully fund Vani’s sales department, so it can operate on all cylinders and properly respond to the numerous can you help us with our project and provide us with pricing and options, request that come to us weekly from within North America and outside North America.

I guess it really is the cumulative effect of all of the above that causes my excitement and is responsible for everyone here having a bigger bounce to their step. Is everything perfect? No. Removing as fast as we’d like on all fronts, BMW and Norfolk Southern for example, no. Of our outside electronic vendors solve the final issues with integrating their systems into our REH products as expeditiously as promised? No. But we continue to work in these areas and we do see progress in each one of them and we wont allow our older projects to slowdown our newer projects or our entry into the newer market opportunities, these initiatives provide.

With that being said, I know there are probably a lot of questions out there. So, let’s get right to with the Q&A.

Question-and-Answer session

Operator

At this time we will begin the Q&A session. (Operator Instructions) Our first question comes from Keith Markey from Griffin Securities. Please go ahead with your question.

Keith Markey - Griffin Securities

Hi. Thank you for taking my question. I was just wondering if you might be able to run down the milestones you’re expecting for the next 12 months?

Thomas Granville

Well, there are always milestones to our objectives. There are goals and there are anticipated, expected opportunities. Some of those of course include the East Penn work that we have continued for the last couple of years. We expect that to continue into the future. And by the way we continue in 100% on time with all of our delivery span. We don’t like to make projections and predictions on (indiscernible) on a couple – in a couple of areas. And one of those areas is in the conversion of hybrid trucks. And I will say that we’ll be doing several. Will we be doing 100s? No. Will we be doing more than two or three? Yes. Several hybrid truck conversions in the next say three quarters. In addition to that, we anticipate providing cubes of various sizes or different storage applications again in the next nine to 12 months. These cubes will vary in size. You heard me mention that the REH hubs did not move as quickly as we’d have liked, we certainly were ready. There have been some issues with electronics that our providers are working through. Integrating those electronics into our REH product and we’re confident that they’re going to be successful in solving those issues. That will be a late year event this year as well.

With respect to some of the other hybrid truck applications and initiatives that we’re pursuing, we expect to be in full test mode and beyond on those applications with respect to Norfolk Southern and BMW. You heard me over and over say that these people, these entities move at their own pace. So, I’m very hesitant to predict anything there other than we continue to work with them. We continue to see progress with Norfolk Southern and we really completed our work and we’re waiting on their subcontractors to complete their work and get back initial unit on the road.

Keith Markey - Griffin Securities

This sounds very positive. Thank you. If I could ask you – I know you don’t like to make projections and I can certainly understand that a large part of it has to do with the fact that you don’t really control everything that goes into a commercial launching of your batteries. But do you have a sense – you must have a sense as to what might be the first big commercial opportunities, I know that the cube is available, but sales have been relatively slow, it sounds like you’re going to be expanding your sales staff, is that going to be a major – have a major impact on that aspect of your business?

Thomas Granville

I think it will. I think it will from a sales engineering standpoint as well as just from a sales standpoint. What we found out is that there are numerous people out there that want to do projects; that need to do projects that have the financial wherewithal to do projects. They’re not exactly sure, exactly what it is that they want to do. How much storage they want to incorporate into a wind farm or solar farm. How they want to [island] different applications, what amount of grid tide do they want to have for example. So, I think that is going to be very helpful to us in being able to get out there and work with them just like we’re working with our strategic partner that we met with yesterday, we spend a lot of time with them over the past year, nine months actually and try to get a better understanding of what it is that they’re trying to achieve and bring to them opportunities for additional revenue for example in the frequency market and the demand response market over and above of what a back up storage opportunities bring to the table.

Keith Markey - Griffin Securities

Well, in the sense this is a relationship building [per team] really and its going to probably take 6 to 12 months to actually see some sort of business arising from that type of a relationship, am I correct?

Thomas Granville

No, I don’t think so. We have been working on those relationships with the people we have in place now. The problem is we’re not really able to work with them, the number of opportunities that we’d like to. So, we’ve cherry-picked if you will, the ones that seem most likely to succeed and those are the ones that we’ve been able to devote significant time to and I mean, this time goes across the board. Some of that involves testing, some of that involves our engineering help visits to job sites etcetera. We’ve done that and we’re going to see the fruits of that in the near-term. In the longer term we’re going to see much more activity because we’re going to be able to interact with more customers.

Keith Markey - Griffin Securities

Terrific. Thank you. I will go back into the queue now.

Thomas Granville

Thanks.

Operator

Our next question comes from Howard Berkowitz from BlackRock. Please go ahead with your question.

Howard Berkowitz - BlackRock

On page 24 of the quarterly presentation, it – one of the bullet points talks about market expected to reach $1.3 billion by 2013 for the PowerCube. Can you amplify or discuss that to some greater extend because I’m not sure what that $1.3 billion represents?

Thomas Granville

Okay. And you’re referring to page 24 of …?

Howard Berkowitz - BlackRock

Page 24 of the slide presentation.

Thomas Granville

Oh, the slide presentation, okay. Not the filing.

Howard Berkowitz - BlackRock

No.

Thomas Granville

Yeah, that refers to storage of for example we just attended a conference in your City, New York, a week and a half ago and we had people from the city there and people from the energy council there. They stated that their goal is to have an additional 800 megawatts of energy storage onboard over the next 10 years just in New York City alone. So, that opportunity along in New York City is a $1 billion opportunity. Others, the reference there, I mean, its really the $1.3 billion is really understated in terms of what’s out there in solar farm, in wind farms. What we’re finding is a lot of the solar farms that have been put up, and wind farms that have gone up now are without storage. And in order to continue to send their power to the grid. The grid is looking for stabilization of that power. They don’t want to see perturbations and (indiscernible) of the power which causes them frequency issues. They’re mandated in most stage all the renewable power, but you can’t predict renewable power unless you have storage. You can’t predict it because the wind doesn’t blow all the time obviously in the summer [intermittently].

Howard Berkowitz - BlackRock

Sure.

Thomas Granville

So storage is becoming a more and more important part of the equation. California also just passed legislation in the first quarter of this year requiring 50 megawatts of storage over the next two years. Now the power is probably very, very understated.

Howard Berkowitz - BlackRock

But if it's understated, how much of that understated number might be available to Axion?

Thomas Granville

Well, it's hard to say. It's certainly we need to get some larger cubes into the marketplace just to prove the concept. So, it was a big step for us to put the cube onsite here, and to be able to bring people in and show them the capabilities of that cube. But that cube is only a half megawatt cube. We need some larger projects -- we need some larger projects offsite and that’s what we’re working on currently getting those projects up and going. Solar credits and other government credits come into play. Tax credits for solar installations 30%, tax credits also come into play here. There are traditional, and again it depends on the storage that you’re talking about. Are you talking about long-term storage where you need to provide storage for an 8 hour, 10 hour period of time for example? That’s not us. That’s not where we shine. That’s not our portion of the marketplace. Where we're better served is where you need things like quick recharge of the batteries. You need things like charge acceptance and you need applications that will operate in partial stages of charge.

Howard Berkowitz - BlackRock

What percent of that $1.3 billion market, would you be satisfied with this year?

Thomas Granville

All of it.

Howard Berkowitz - BlackRock

I knew it. Okay. Thank you.

Operator

Our next question comes from Michael Smith, Private Investor. Please go ahead with your question.

Michael Smith - Private Investor

Yes, Mr. Granville, I had a question about the SBIR grant. You said that you applied for the Phase II and, but you haven't said anything about do we have any idea when the government will decide on that grant application, if it's a situation where they’re going to wait for everybody to make their applications and then have a set date they’ll decide or will they be deciding these as the different companies make their applications; do you have any idea on that?

Thomas Granville

All the applications were due on April 17, I believe and the decisions will be made in late July.

Michael Smith - Private Investor

Okay. Also, in your 10-Q you didn’t say anything about the status of the BMW third party testing, do we have any update on that?

Thomas Granville

The third party testing has concluded. So, we’ve moved into the next phase, and I think I made mention of that in the Q, that the next phase with BMW is that they’re looking for us to ensure them that we’re not going to be the sole provider of the product. So, we’re working with another large lead-acid battery company that’s currently a provider of the product for BMW. And we’re working through those arrangements. I can’t say a whole lot more about it.

Michael Smith - Private Investor

Are you working with just one company or you’re looking at multiple lead-acid companies that you would be providing electrodes to?

Thomas Granville

We’re looking at more than one, but for the BMW project it's only one of their providers.

Michael Smith - Private Investor

Okay. All right. Thank you.

Operator

Our next question comes from Kent Gutmann. Please go ahead with your question.

Kent Gutmann - Private Investor

Ladies and gentlemen, I was hoping maybe Chuck could give us some insight into what happened to all the finished good inventory that was on the books at the end of 2012 that did not reflect in sales yet and seems to have disappeared.

Charles Trego

Actually you have a good – thank you for the question. You have a good eye for the trend in our numbers. Actually our finished goods inventory at the end of 2012 we found out should have been classified as work in process, and we caught that in preparing our first quarter 10-Q by looking at the trend of our inventory classifications. Most of our inventory is in batteries, and they are not in a finished state. And they should be classified properly as work in process. If you look at the trend in our disclosed inventory classifications up through the end -- or up through the fourth quarter of last year the bulk of our inventory was always classified as it properly should be because our batteries aren’t completely finished until sales orders come in. So we have had a full par if you will and a disclosure of our classified inventory in our 10-K for the fourth quarter and we corrected that in our first quarter 10-Q.

Kent Gutmann - Private Investor

Okay, thank you. I have one more thing about the inventory, one more question and that is I understand the finished batteries, finished goods, but are you currently classifying any of your electrodes as finished goods, carbon electrodes?

Charles Trego

No.

Kent Gutmann - Private Investor

But going forward they will be when you start supplying them to customers, is that correct?

Charles Trego

Yes.

Kent Gutmann - Private Investor

Okay. Thank you, gentlemen.

Operator

Our next question comes from Patrick Young. Please go ahead with your question.

Patrick Young - Private Investor

Yes, hi. Thank you. You referenced on page 10 of the report, the high cost of “offshore energy” and I assume you mean that energy costs are higher in other parts of the world so you believe there is margin in for your grid solution products in those markets; is that right?

Thomas Granville

Absolutely it's more by a factor of seven typically in the islands for example, you have both industrial and residential users paying between 46 and [technical difficulty] kilowatt hour as opposed to what we’d be paying here is $0.06 to $0.08, so …

Patrick Young - Private Investor

I mean, are those markets international as well?

Thomas Granville

I’m not sure what you mean.

Patrick Young - Private Investor

I guess, are you looking at sales in foreign countries right now?

Thomas Granville

Oh, absolutely.

Patrick Young - Private Investor

And I guess, I would just encourage you guys if you haven't already applied for U.S. extended bank support for those export activities to go ahead and do so.

Thomas Granville

We absolutely have. We’ve been working with them. We’ve been working with some of the government initiatives, some of the Clinton Initiatives there, and some of the World Bank Initiatives, some initiatives that are geared to providing clean water in the islands and in order to do that they need the energy base to work with for example. So yes, I’ll appreciate your thoughts on that and we absolutely have.

Patrick Young - Private Investor

And if I could just ask one more question is; I assume at some point in your – the electrodes in your PowerCube need to be swapped out. So, how will that process work for Axion and for the customer, and do you anticipate generating revenue from service in your customers PowerCube’s in the future?

Thomas Granville

Yeah, actually the electrodes won't be swapped out. What will happen is that, the batteries eventually although we tell people they’ll last a 1000 years, eventually they will fail. Our batteries very seriously will last four to five times longer than the standard lead-acid batteries. We have an anticipated sale’s revenue in service and we will be providing replacement batteries. We have warrantees obviously, but beyond the warrantees we will have a pay replacement business that we’re looking forward to.

Patrick Young - Private Investor

Okay, great. Thank you very much.

Operator

Our next question comes from [Paul Demasi from Dakota] Incorporated. Please go ahead with your question.

Unidentified Analyst

Yeah, good morning guys. Yeah, I was curious about the yard switcher that you already -- that was already working, and do we have any stacks on that locomotive and did those stacks have anything to do with the order for the next locomotive for the over-the-road, the long haul of the motor?

Thomas Granville

They have continued during their mark testing. They built a – in their yard down there they built a replica of the locomotive, and we are doing large string testing both here and at Penn State in conjunction with Norfolk Southern to provide them with data or both the eventual switcher and the over-the-road locomotive as well.

Unidentified Analyst

So the switch is not being used. I saw a picture I think there it shows that charging up, so it's not in use?

Thomas Granville

It is not in use. They’re struggling with their – we finished and shipped the batteries in December.

Unidentified Analyst

Yeah.

Thomas Granville

And that was supposed to be commissioned at the end of the first quarter and then it became a summer of that, so it is not in operation right now. They’re waiting on if you can believe it, things like the racking system and the ventilation system to be completed before the batteries are actually installed on the switcher.

Unidentified Analyst

Like I said, does the data on that transfer over to the long haul locomotives or is that order already in those batteries?

Thomas Granville

Yeah. Some of it will, of course. But we’ve continued testing for the over-the-road unit, so that there are different kinds of test. The yard switcher is an all electric. The over-the-road is a hybrid.

Unidentified Analyst

A hybrid.

Thomas Granville

Yeah, so – yes there is information there that we’ll be useful, but there is independent testing that’s required over-the-road and we’ve done that and continue to do that in conjunction with – actually we’ve completed everything on our end here, but we continue to work with them on their testing at Penn State.

Operator

Our next question comes from (indiscernible). Please go ahead with your question.

Unidentified Analyst

Good morning, Mr. Granville. How you doing today?

Thomas Granville

Good.

Unidentified Analyst

My first question has to do with the financing, and the search for the strategic investor versus a financial investor. I see this morning the announcement that you guys stated that you felt confident that this set of investors versus last years set of investors were aligned with actually being investors versus financers. And I was wondering if you could just shed a little light on the process of having looked for an investor and your difference between what would be a strategic investor and a financial investor, and if you were close to getting a strategic investor just a little bit of color on that issue.

Thomas Granville

Yeah, we’ve been looking to different options in different opportunities for strategic investors, but price hasn’t been what we’re willing to pay if you will. So the investments that we’ve had in the past have been investments in terms of financing, certainly the investors that we had last year were good investors. They have stuck with the company. We see them appear in the various lists of shareholders. They’re still there. They’re still with us. We have a different type of investment this time around that we be engaged in. It's a tough market out there without question. Would we prefer to have a strategic investor standing along side of us that is going to take a percentage of the company and work with us and work to get us into various opportunities, we certainly would. But we’re not prepared to give up 60% of the company in order to do that or to take an investment at a much lower discount to market. What we were able to take is I’m sure you all know on the call we were able to obtain investments at a plus rate, and in this market with the opportunities that are out there and with the folks that have gone out of business in the battery industry we’re certainly thankful that we were able to hold out and get the kind of deal that we got.

Operator

Our next question comes from Colin English. Please go ahead with your question.

Colin English - Private Investor

I have two questions. The first one is, in the March 10-K you stated there are uncertainties about successfully commercializing the products in large quantities. Can you elaborate on these uncertainties and give an update on the status of these concerns?

Thomas Granville

I’m not sure what page you’re referring to there (indiscernible) your question but I didn’t hear all of it.

Colin English - Private Investor

You had suggested that there were some uncertainties about literally the quote was, uncertainties about successfully commercializing our products in large quantities.

Thomas Granville

Okay. That’s one of our …

Charles Trego

Yeah, that’s one of our standard risk …

Colin English - Private Investor

Disclaimers, okay.

Charles Trego

… claimers that we put in all of our SEC filings because it is a risk with any business like us that’s in early commercial stages and so we disclose it like others do. And I wouldn’t say it's a standard disclosure, but it certainly a risk with any company in our stage of growth.

Colin English - Private Investor

Okay. Yeah, it's just a standard disclaimer. I thought there might be something more specific to the production [volume]?

Thomas Granville

No, there was not. Actually we’re past all of those issues, there was – there might have been in the past some issue on the part of investors who were customers as to whether or not we could effectively produce the product, but we're past all of those things. We finished the line, we’ve implied the robotics. We now have the continuous role of carbon electrode production line and we’re very happy with the way all of those things have turned out. We’re really, we’ll always tinker but we’re really finished with any major modification.

Charles Trego

And then, I guess, I would add to Tom’s comment, as I mentioned in our year-end call, and it's certainly true at the end of the first quarter is that we repositioned our inventory about two thirds of it is in PbC raw materials components and further finished batteries. So, that just further supports what Tom said about, being ready to go.

Operator

Our next question comes from William Blanchard. Please go ahead with your question.

William Blanchard - Private Investor

Good morning. What is your visibility on the flooded battery contract, and are there prospects and your desire and capability for growing it?

Thomas Granville

It's not really the major focus, as you know our focus is really PbC. We don’t want to be just another lead-acid battery company. Can we make money at it, yes. Can we utilize under use space here to do that, yes, we can. Do we ever want to grow that business significantly and take on a number of customers, that’s really not our game plan going forward here. We’re really looking to focus and concentrate on the PbC product that’s our -- that’s the high-market value per product and that’s really what's going to make the company successful in the long run.

Operator

And ladies and gentlemen, at this time we do need to end today’s question-and-answer session. I would like to turn the conference call back over to Mr. Granville for any closing remarks.

Thomas Granville

Thank you. A short timeframe between reports, a short but very full report. We could spend a lot more time this morning discussing some of the other things that we’re pursuing. I’m confident some will have a future and some will not. But we spent the time on the visible, the near term opportunities that will make Axion successful. Thanks for spending the time with us this morning as we updated our ever changing, ever expanding roadmap into the future. See you all on the next call.

Operator

Ladies and gentlemen, that concludes today’s conference call. We do thank you for attending. You may now disconnect your telephone lines.

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