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Axion Power International, Inc. (NASDAQ:AXPW)

Q3 2013 Earnings Call

November 15, 2013 11:00 AM ET

Executives

Rudy Barrio – IR

Thomas Granville – CEO

Steve Graham – CFO

Analysts

George Parkington – Retail

Richard Brenner – Private Investor

Michael Karpoff – Gramercy Investment Partners

Bryan Richlane – Private Investor

Josh Luanne – Private Investor

Bill Elsberry – Private Investor

Charles Mackall – Avenir Corporation

Patrick Young – Private Investor

Dallier Ramirez – Private Investor

Operator

Good day and welcome to the Axion Power Third Quarter Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Rudy Barrio of Allen & Caron, Investor Relations. Please go ahead.

Rudy Barrio

Thank you, Gary. 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 third 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 Allen & Caron’s 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 Chief Executive Officer, Thomas Granville; Chief Financial Officer, Stephen Graham and Chief Operating Officer, Philip Baker.

Before we begin, I would 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 statement to reflect events or circumstances occurring after today.

Please refer to today’s press release, the company’s most recent Annual Report on Form 10-K and subsequent SEC filings for a description of factors that cause forward-looking statements to differ materially from actual results.

As a reminder, today’s call is also available as a webcast which can be accessed from Axion Power’s website by clicking on the Investor tab. A replay of the webcast will be available shortly after the call and will continue for 30 days.

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

Thomas Granville

Good morning, Rudy, and good morning ladies and gentlemen. For the first time I am joined on the call this morning by our new Chief Financial Officer Steve Graham. Steve Joined us October 21, and he is settling in well. Welcome Steve.

Steve Graham

Thank you, Tom.

Thomas Granville

At this point, I would like to turn the call over to Steve to talk about the financial aspects of the third quarter. Steve.

Steve Graham

Thank you, and good morning. As we’ve just covered we did file our 10-Q for the third quarter and nine months ended September 30, 2013 yesterday and it is available on IR website and also the company website.

My comments will focus on some of the key drivers of our operating results and cash flow for the third quarter and nine months ended with comparisons to 2012.

Net sales for the third quarter ended September 30, 2013 were $2.2 million which is unchanged from the $2.2 million reported in the third quarter of 2012. In those numbers we have one customer that accounted for approximately 83% and 86% of our sales respectively for the third quarter of 2013 and 2012.

Net sales for the nine months ended September 30, 2013 were $7.1 million which is an increase of 6% from the $6.7 million reported in third quarter of 2012. Also in those numbers we have one customer that accounted for approximately 87% and 83% of our sales respectively for the nine months ended 2013, 2012.

Sales for both the quarter and year-to-date were primarily specialty lead-acid batteries which we manufacture for selling to our customer’s label.

Product sales for the third quarter of 2013, was $1.9 million which compared to $2 million in the third quarter of 2012. The result in gross profit for the third quarter of 2013 was $254,000 or 11.6% of sales, which is an improvement from the $163,000 or 7.5% of sales in the third quarter of 2012.

The cost of product sales for the nine months ended September 30, 2013 was $6.2 million which compares to $6 million for the third quarter of 2012. This increase of $200,000 was directly related to the increase in manufactured product sales within the period. The result in gross profit for the nine-month period in 2013 was $899,000 or 12.6% of sales which improved from the $676,000 or 10.2% of sales reported for the nine-month period in 2012. These improvements in gross profit percentage for both the quarter and year-to-date are from volume and general operating improvement.

Operating expenses for the third quarter of 2013 were $2.4 million compared to $2.3 million for the third quarter of 2012. For the nine months ended September 30, 2013 operating expenses were $7 million as compared to $7.1 million for the same period in 2012.

The result in operating loss for the quarter was $2.1 million which is unchanged from the third quarter of 2012 and an operating loss of $5.8 million year-to-date which is an improvement from the operating loss of $6.4 million reported in the prior year.

The result in net loss for the third quarter of 2013 was $4.7 million or $0.04 loss per share, as compared to a net loss of $2.1 million or $0.02 loss per share in the third quarter of 2012. Included in the net loss for the quarter, where non-cash items of $2.9 million as compared to $400,000 in the same quarter of 2012. The increase in non-cash charges for the quarter stand primarily from the accounting treatment notes and senior warrants and the related interest extinguishment losses, amortization of discounts and expenses.

The net loss for the nine months ended September 30, 2013 was $6.7 million or $0.06 loss per share as comparing to our net loss in 2012 of $6.4 million, which also was $0.06 loss per share.

The same non-cash charges increased in the third quarter net loss accounted for $2.1 million of the net loss for the nine months in 2013, as compared to $1.3 million for the same period in 2012.

Cash and cash equivalents at September 30, 2013 were $1.1 million compared to $2 million at December 31, 2012. The company also has $5.4 million of restricted cash at September 30, 2013 from the May 8, 2013 sale of senior convertible notes and warrants issued by the company.

Working capital at September 30, 2013 was $5.6 million including the restricted cash, compared to $4.8 million at December 31, 2012.

Net cash used in operating activities for the nine months ended September 30, was $4.8 million as compared to $5.6 million in the same period of 2012. This represents a decrease in net cash used in operations of $800,000 or 15%. The decrease in net cash used resulted from $500,000 reduction in cash used in operations and $300,000 lower use of working capital.

Net cash used in investing activities for the nine months ended September 30, was $143,000 as compared to $738,000 in the same period in 2012. This represents a decrease in cash used by investing activities of $595,000 or 80% increase, primarily due to lower purchases of property and equipment.

Net cash provided by financing activities for the first nine months of 2013 was $4 million, which excludes the restricted cash of $5.4 million. This compares to net cash provided of $8.5 million in the same period of 2012. The source of cash provided from financing activities in 2013 was from the sale of senior convertible notes and warrants issued by the company on May 8, 2013.

The source of cash provided from financing activities in 2012 was proceeds from the completion of a registered direct common stock offering, net of expenses in placement fees on February 10, 2012.

The primary source of liquidity for the company historically has been cash generated from issuances of our equity security, from inception through September 30, 2013, we have not generated revenue from operations as significant enough to produce an operating profit.

We believe that the funds are available at September 30, 2013 including the amounts of positive and new restricted account plus internally generated funds from product sales will provide sufficient financial resources to fund our operations, working capital and capital expenditures into the fourth quarter of 2014.

Beyond that timeframe additional sources of outside funding maybe required. No assurances can be given that the company will be successful in complying with certain of the terms and conditions in addition of the May 8, senior notes or if needed and arranging further funded if needed for the execution of the business plan including the development and commercialization of new products or successful on what terms.

Failure to obtain such funding would require management to substantially curtail if not seize operations which would result in the material adverse effect on the financial position and results of the operations of the company.

I’ll now turn the conversation over to Tom.

Thomas Granville

Thanks, Steve. Some of you on the call may have met Steve at our Annual Meeting on September 26. At that point we hadn’t made a final decision on Steve but we were close. We’re glad we took that final step. We all look forward to working with you Steve.

We also look forward to continuing to work with Chuck Trego, our Former CFO, who was elected to our Board of Directors at that same Annual Meeting. Chuck has also joined the Audit Committee. And speaking of the Annual Shareholders Meeting, once again it was well attended, even though the date was changed from our normal June timeframe.

The three measures on the ballot, director elections, increase and authorize shares of the corporation and the reappointment of the EFP Rotenberg, as our company’s independent registered accounting firm, were all approved by an overwhelming board.

The meeting included reports from our scientific and engineering teams and our normal spirited question-and-answer session as well as a tour of the facilities. But this year it also included an additional show until ePower, the hybrid truck conversion innovator brought one of their converted service series hybrids to display at the meeting.

Shareholders and Axion staff were given a full presentation that included a detailed under-the-hood inspection. It was one of the comments that was made was this little motor can actually power a truck of this size, most of the advantage of the offer to ride in the truck on the roads of New Castle and observe the ePower proprietary vector drive system in action.

The passengers were also able to view the battery’s contribution to the system via computer screen. That was all informative and a great way to be introduced to the technology in a rail-world setting.

The Class 8 truck that was on display here at Axion is typical of the units that ePower is converting into series hybrid vehicles. These Class 8 trucks consume 28 billion gallons of diesel on annual basis. So any improvement in miles per gallon has an immediate significant benefit to the fleet owners and managers. In fact the number one cost of fleet operators is diesel fuel.

We have spoken about our partnership with ePower in the past and it continues. As a matter of fact, they will be here at Axion on Monday to pick-up batteries for their new day-cab conversion. This is probably a good time to take a small step back and review some of the facts and history about ePower and our relationship with them.

There are 2.4 million Class 8 trucks on the road today in the United States. This is a fairly constant number subject to small incremental growth on an annual basis. For example, it is estimated that 240,000 new Class B trucks will be manufactured and will enter the U.S. market in 2013. And about 200,000 vehicles will be retired this year.

Depending on how the trucks are driven, they will require rebuilds, new drivetrain systems with motors, new generator, new engine etcetera, all these will be changed out. The rebuilds will occur every 46 years again depending on use and maintenance and it is estimated that the Class 8 trucks will undergo at least two rebuilds in their lifetime.

Since the trucks start coming off the road on a regular basis for these rebuilds, and a new engine, motor, generator are all required for the ePower conversion. This would be an ideal time to perform that retrofit conversion.

ePower has tested other battery chemistries in the past and come to the conclusion that Axion’s PbC batteries were the least, were the best battery to use in their systems with the current version of the PbC batteries in ePower’s Gen-1 conversion components. ePower has been able to demonstrate fuel savings of approximately 35%. This figure was established using SAE test protocols on a repetitive basis.

The current retrofit version has an approximate return on investment of less than three years. The next generation currently under-build and utilizing 240 horsepower diesel engine up from the current 197 horsepower unit.

It’s projected to achieve a 50% plus increase in miles per gallon of diesel fuel. I know this is a lot of data to absorb but there won’t be a quiz after the call. Seriously, I think it is important to get perspective on the size of the market for Class 8 trucks and perspective on the size of the market opportunity for PbC batteries.

A conservative view of the U.S. only market shows approximately 400,000 rebuilds per year. So with a retrofit to series hybrid at the time of conversion, the battery market opportunity at 56 batteries per truck is 22,400,000 batteries per year in the U.S. only.

If Axion were able to obtain just 5% of that market, it would equate to more than $400 million in revenue. And that’s $400 million in revenue per year. Of course we are expecting a market penetration greater than 5% but for now let’s talk about that 5% number.

So, how does ePower handle that number and do they build multiple large plants? No, that is not their vision, nor is it the vision of fleet operators. Rather the go-forward strategy would be to provide retrofit chips in training to the fleet rebuild crews. Yes, all the major fleets have them. They are the group that performs the rebuilds for the fleets now at the approximate rate of 400,000 rebuilds annually.

So the infrastructure is already in place. And the number I just spoke of is just for one class of truck and just for the United States. This rebuild will travel well. And the ROI will be cut in half in countries where diesel fuel is equivalent of $8 or $9 per gallon.

You can see why we’re so excited about this opportunity here at Axion. But of course that’s not all we’re working on. You may have seen our press release earlier this week with respect to 600 battery PowerCube for the use with a solar array that will work in conjunction with the grid and solar panels. And will provide power for the facility under normal use and a net metering arrangement. In addition, the facility plans to participate in the frequency regulation market.

There are batteries and electronics packages. We have participated in frequency regulation for the last two years on the PJM grid network. During that time we developed a package for projects such as this one. Our system also includes a back-up emergency power option to the facility cum to need that type of power under a loss of power crisis.

This is a short fused project from this point forward. It was a long time in coming but we will ship batteries in the current quarter and begin installation immediately thereafter. This application plays well with our PowerCube model, this is a scalable one.

For instance, some of the renewable projects we have been working on for more than a year are several times the size of this project. Of course some of the island nations and other offshore projects are of varying size cubes, some smaller, some larger.

Some of the smaller units might not make economic sense given the distance and remoteness of some of the sites but at a kilowatt hour rate of $0.45 to $0.50 and beyond it allows our product to be marketed here at very good margins.

Locomotives, Norfolk Southern has continued their work with us, especially Penn State. Our participation with Norfolk Southern and Penn State in the third party validation program remains in place. The testing has provided and continues to provide valuable information for future builds of both the all-electric switcher and the hybrid over the road locomotive.

Subsequent to the end of the third quarter, Axion and Norfolk Southern discussed both of these applications in a joint presentation at the 7th Annual ASME Rail Transportation Division Technical Conference held on October 15 to 17.

We mentioned in our printed documents and in our Q that the presentation is posted on our website and we feel the technical information in that presentation underscores the value of the battery in both the electric and hybrid locomotive technologies. We look forward to continuing our strategic relationship with Norfolk Southern.

We also reported that work with other hybrid in the hybrid locomotive area with other entities has drawn numerous increase and requests for information. We’ve executed non-disclosure agreements and we have begun project specific discussions with potential end-users of our locomotive product.

Our marketing research in the past is indicated that the domestic telcom market is a very large market for batteries. You’ve heard me say in the past that it really isn’t us, it really our PbC product, because many of these batteries sit on float and are primarily used for backup power.

However, through our relationship with MultiLink, a large provider to the telcom market, we found that there is a niche market within the overall market. This niche market has been created because of the numerous segments of the country where telcom is subject to grid regularities, grid overloads and grid power deficiencies. All of which create various forms of brown outs that sometimes only last for a fraction of a second but nonetheless require bridge power battery intervention when the disruption occurs.

In areas where this situation repeatedly occurs the market is no longer properly served by a float application battery. But rather the market would best be served by a high cycle battery project, battery product.

In these situations when normal telcom batteries or even high-end telcom batteries are utilized, the end-user or service provider is subject to significantly hire battery replacement cost as well as high maintenance cost. This is the PbC sweet-spot. From a cycle life and a low maintenance cost perspective that’s the product that we market.

In the third quarter, we moved to profile news testing with MultiLink, that included both modifying the charge characteristic and opening up the voltage range. Both modifications were designed to take better advantage of our PbC battery’s unique properties. The product has responded well and accelerated testing, and we have agreed that a potentially viable product solution were the just described niche telcom market is on the horizon.

With an eye toward this market, last month we jointly exhibited our PbC product with MultiLink at the SCTE Cable-Tec Expo held at the Atlantic Convention Center. This is believed to be the largest telcom industry exhibition show in the country. MultiLink had a large display area, there was great interest in our PbC product in general but especially in the PbC’s proposed usage with MultiLink’s new EB1 series CATV power modules.

So there are, I’m watching the clock here and there are certainly we want to leave some time for a question-and-answer session. There are other items that we talked about but I think it’s probably appropriate to go to a question-and-answer session now. And we’ll cover those areas I’m sure in the Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). The first question comes from George Parkington, Retail. Please go ahead.

George Parkington – Retail

Hello management. I’m a long-time holder. One thing I like what you’ve done and pleased you’ve kept in our hands. My one request is that you do not limit the question-and-answer session, I know that some things are proprietary and some are covered under NDA and we understand that. Just hope you’ll not limit the question-and-answer session you’ve done in the past. Thanks so much. Bye-bye.

Thomas Granville

Sure.

Operator

Our next question comes from Richard Brenner, a private investor. Please go ahead.

Richard Brenner – Private Investor

Good morning, gentlemen. How are you doing today?

Thomas Granville

Good.

Richard Brenner – Private Investor

Yes, and Mr. Granville, I was going to ask about land decisions you’ve made over the past couple of years, such as 300% real, real revenue increase in relation with real water and a bunch of stuff. But now my main question, I’m just going to narrow down to it, significant orders. Where are our significant orders?

Thomas Granville

Yes, unfortunately there are some things beyond our control. Naturally we’re very pleased with the order that we just announced for the solar panel project. We would have liked to been able to announce some of the other orders that we feel are very close at hand. There are like all things in life there are delays, the government shutdown being one of them. I really don’t want to get into that any further at this point.

But I’m disappointed that we haven’t been able to announce more than we’ve been able to announce on this call. I’m also very encouraged about the progress that’s been made on those projects. None of those projects have been taken off before, none of those projects have received any kind of a serious setback or any setback whatsoever. And all of those projects have continued to move forward.

Richard Brenner – Private Investor

And your station as to you just made on your release you said that you’ll be looking forward to announcing sales in the near future. I noticed that my idea of near or soon and yours have not been in alignment. So I’m just curious with the toxic funding that we have going on right now and the 200 million shares give or take that will end up with. And the cash up until the end of the third quarter there is going to, probably be another funding that stock is at $0.12.

What can you tell me that would give me some faith that you are going to be able to find some significant and actually announce them so this story would actually pull out as a small insurance shareholders are going to get diluted that you don’t get the cash flow positive this story is over. So I’m not sure how long I want to hold on. Can you give me something that would reassure me that this story is going to not be delayed, no six months that there is going to be a start button somewhere?

Thomas Granville

Okay. One statement that you made and I certainly appreciate your concern, and I certainly appreciate you sticking with us a long as you have. One facet of the statement you made there is go look for orders, we’re not looking for these orders, certainly we continue to look for other orders for and look for new orders. But what I’m talking about isn’t something that we’re looking for and something that we’ve been working on some things that we’ve been working on for a long time.

And by long time I mean a period of 12 months or longer. These are maturing. They’ve been out there for a long time. They certainly have been out there longer than we would have liked to see them, Norfolk Southern being a prime example of that. We finished our obligation at the end of the year, the end of 2012.

And that locomotive that we provided batteries for is still on the road that has nothing to with us, it’s beyond our control. We certainly wish it was on the road because we know that it’s keeping them from moving forward. We know that it’s keeping them from progressing and doing more of these units. They need to get that first one out there. And I don’t want to throw stones here so I’m going to stop at that point. But yes, we are confident going forward that we do have and will have those orders and it won’t be six months out.

Operator

(Operator Instructions). The next question comes from Michael Karpoff of Gramercy Investment Partners. Please go ahead.

Michael Karpoff – Gramercy Investment Partners

Gentlemen, you didn’t mention anything about the automotive opportunity for your vehicles, has there been any movement whatsoever in that area?

Thomas Granville

This is one of those items that I was just referring to, this scenario that we don’t have any control over are, our work has not slowed down at all. We’re continuing to do the thing that they ask us to do. As I have stated on other calls, if you would have asked me three years ago, would we either have an order or would we not be working with the – in the automotive realm and working with these companies, I would have said it’s going to be one or the other. But that’s not the case.

They move at their own pace. Our projects continue with them while we continue working with them, in fact we have a meeting I believe it’s the week after Thanksgiving with them a larger meeting than we’ve had in the past. We’re continuing to work with them. There isn’t anything that we see that is going to prevent us from continuing to work with them in the future.

There is nothing that they have found that would lead them away from us, at least certainly nothing that they’ve revealed to us. I can imagine that they would be spending the amount of time and resources what they’re spending if they weren’t serious about it.

Michael Karpoff – Gramercy Investment Partners

Thank you. Just a follow-up question. I understand that 2015 is the catalyst year for European automobiles and environmental cost savings and automobiles and so on. Have you discerned that the company with which you’re speaking or any of the other companies that you may have been in contact with feel under any type of pressure regarding governmental agencies and their demand for fuel savings. Are these guys under the gun or is that just non-sense?

Thomas Granville

I don’t think I can really talk about that with the VNDAs that we have in place. But let me just thread lightly on the subject with my own opinion. And that is that some of them are very nervous. Others are not so nervous, have a plan in place, have been working on for sometime I guess or have other thoughts.

Again, this is an average of the fleet. So as they introduced models that use less gasoline any mid-less ignitions those models get averaged into the gas dazzler types. So I don’t know what they’re I’m certainly not privy to it and even if I was, because of VNDAs that we’ve signed with them I wouldn’t be permitted to talk about it.

Michael Karpoff – Gramercy Investment Partners

Thank you.

Operator

The next question comes from Bryan Richlane, a private investor. Please go ahead.

Bryan Richlane – Private Investor

Yes, hi. Following up on the prior discussion about significant orders, is there a way to get some perspective on what that means in terms of dollars? And perhaps roughly time-framing, I guess you said less than six months is your expectation. How about dollar wise?

Thomas Granville

We haven’t given guidance in the past that’s been our policy that will continue to be our policy. But certainly significant means significant and it’s not just a creep-up in sales.

Operator

In the interest of time, please limit yourself to one question. The next question comes from Josh Luanne, a private investor. Please go ahead.

Josh Luanne – Private Investor

I’m wondering whether or not the ePower, the new ePower offering isn’t creating a problem for current orders. Has the ePower offering then – it suffered had the road testing that is necessary to get the people to use it?

Thomas Granville

I’m not sure I’m following you on the offering if you’re talking about the private placement memorandum?

Josh Luanne – Private Investor

No, no. What I’m talking about is, you referred to a new larger engine that and I’m thinking that somebody was interested in the old product would be – would delay until you could be certain – until you could cast and get results on the new product?

Thomas Granville

No, and that’s a very good question and I probably wasn’t clear as I could have been in describing that. The application, it’s not really a new product it’s a new application and the application for a day-cab. By day-cab I mean, it doesn’t – it’s not capable of doing long over the road-trips where there is a sleeper connected to it. So, it’s more of a FedEx for example or UPS truck that does day-trips. So, it goes out 200 miles and comes back 200 miles or 150 or whatever the number is in a day.

The engine that’s currently that would currently be used there I believe is the same engine that would be used in the sleeper. So they’re continuing to work on the sleeper but they’ve added this because of all the interest and the potential of earlier adopters, I mean, really I’m telling an ePower story and I don’t want to get too far into it other than to say that apparently there is some real significant interest in getting these day-cab vehicles on the road in a very short period of time. And I’ll leave it at that.

An answer to your basic question I think was, is this a distraction or is this slowing down the process, and to that I would say no. It is not.

Operator

The next question comes from Bill Elsberry, a private investor. Please go ahead.

Bill Elsberry – Private Investor

Tom, I’d like to ask you again a question that I asked you in the Annual Meeting, expect I want to expand on just a little bit. Could you rank top four business lines in their order and perhaps provide a little color on you ranking in that order?

Thomas Granville

Well, I don’t know about four, I certainly can tell you two. And in those two are numerous sub categories. And the first one is a stationary application and the stationary application utilizes our PowerCube. That PowerCube is a scalable model we’ve talked about that a number of times.

For example, the unit that we just received, the purchase order for and down-payment for, and it is going to ship in the current quarter. That model is middle of the pack in terms of size. It’s a sole renewable application and it can also be used for frequency regulation. We like that model, we’ve worked down that model for some time. That’s a model as I said that travels well and has application for a third world island nation, remote locations.

So the model can be scaled up, it can also scale down actually I would say and also be scaled up and in some of the projects that we’re working on, it is a much larger model, a much more scaled up model. So that’s something that we’re familiar with. We’ve got a couple of years under our belt of learning with the cube that we have here on site.

And it’s also an extremely large market especially in terms of the frequency regulation applications that plays extremely well to the properties of our battery. There were something that’s going to cycle a lot, it’s going to cycle. And I think you probably saw the results of that when you were here. Out on the cube you saw the number of cycles that the frequency reg market demanded.

That’s something that our battery can do and can do very well. And it needs to do it in string applications. And you’ve heard me talk before about unique inherent properties of our battery, the self-equalization that exists in those string applications. So this is a very good fit for us.

Another major order market for us is the hybrid truck, I mean, I think you may have heard Jay Bowman the inventor of the retrofit series hybrid talk at the Annual Meeting about why he felt the action of PbC battery was ideally suited to that truck. It’s the very things that he needs, the operation in the partial state of charge that we sell at. The fact that we have high charge acceptance so that currents coming in and out of the battery very rapidly and in a very consistent basis over the trips whether they be day trips or long over the road, long-haul trips.

So that application in that market – but fact that it’s a 56 battery string, so from a charging standpoint you have the inherent capability of our product to self-equalize the state of charge. So all the things that are needed in that market are things that are properties of our battery and the things that distinguish our battery product from the other products that are on the market, certainly from a standpoint as well, you don’t need all of the cooling systems. You don’t need all of the other things that you want need with flipping my arm.

And Jay Bowman tried out lead-acid and several trucks on the road using lead-acid products and found that they had to be charged frequently, had to be charged more than once a day, a truck literally had to be pulled over to the side of the road to charge. Conversely, he’s taken our truck 1,100-mile runs. And the state of the charge at the end of the trip, in the middle of the trip, at the beginning of the trip, you could throw a napkin over them. They’re so close.

The hybrid train for all the reasons and I won’t repeat them but I just said, the string equalization, the fact that they’re operating in 54 battery strings, so it’s a large string application. The ability to accept regenerative breaking, the ability to charge quickly, all of those things also apply to that hybrid train market.

Operator

The next question comes from Charles Mackall of Avenir Corporation. Please go ahead.

Charles Mackall – Avenir Corporation

Tom, thank you.

Thomas Granville

Yes, Charles.

Charles Mackall – Avenir Corporation

I’m very impressed with the market you described of your ePower System. I don’t know what to – I assume that’s fairly on timeframe but very hopeful. Well, those orders seem to sort of drop about the wayside, any comments on that?

Thomas Granville

Not that I’d like to make publicly but it’s – it was an opportunity that we thought was a larger opportunity that it was, the time and the resources that it would take to pursue in a positive way from some of the other things that we were doing. We haven’t closed the door on that. But we certainly have product now that would fit into that – that market. I’m choosing my words carefully and you can probably count that that’s – that’s not high on our list of priorities right now.

You mentioned that the hybrid truck you thought would take some time and normally would expect that in the conversations that I’ve been in on with fleet owners, fleet operators and others. These companies aren’t the common straight liners, GMs of the world. They don’t need a long test cycle for the product.

All they want to know is does it work, will it work, will it save me money. If it does, I’m interested. And I’m interested now because as I mentioned or may not have mentioned the largest single expense for fleet operators is fuel. And that’s where they spend their money, that’s where they see themselves being able to save dollars. I mean, you can’t do a whole lot with the expenses of the drivers, you can’t do a whole lot for the expense of the cab or the truck motors.

And all of those items, yes, there is incremental savings. But they come every four years, five years, six years when it comes to major equipment. The fuel comes every day. The savings they can see on their bottom-line every day. So when I spoke just a minute ago about the day-cab and that application, I think that’s an example of that really being something that we can take that ePower in ourselves, can take advantage of. And that is the savings are immediate. It goes right to the bottom line and it goes right to the bottom line now.

So, if they can convince these guys to take a few and I think they have convinced some of the fleets to put a few in their fleet and see how they operate in their fleet and do it now. It’s not like this is some revolutionary type, I mean, it’s revolutionary in terms of the amount of fuel it can save but it doesn’t require a complete new model.

It’s their old truck, it’s the engine they would be converting to, it’s the motor they would be converting to, it’s the genset that they would be converting to, they’re using diesel fuel like they’ve always used fuel. The difference is in the boost, in the hybrid system with the batteries and the vector drive. So, if ePower makes it into some kind of a – if we prove it, will you buy it model, I think they’ll get acceptance and I would think they’d get acceptance pretty quickly.

Operator

The next question comes from Patrick Young, a private investor. Please go ahead.

Patrick Young – Private Investor

Hi, Tom. I’m a long-time investor. And I think I speak for a lot of the retail investors that could you comment on the branding effort for Axion. Because I feel the likes of Norfolk Southern and the trucking company you don’t necessarily care what the brand looks like. But have you run into any problems in the durable space with well, lead isn’t clean or why don’t we call it their super-nano-carbon battery. Could you comment on the branding?

Thomas Granville

Branding, okay, I thought I wasn’t sure what you said there. No, actually we don’t at all. We’ve attended green conferences, all of the green – not all of them but certainly a large number of green publications write us up as a green technology. And we’re – they feel we’re a green technology for a couple of reasons.

Number one, there is less lead in the battery because half of the battery is activated carbon. But we’ve taken some of that lead out of the battery product. Secondly, it’s the most recycled product in the United States at 99.1% of lead-acid batteries are recycled into lead and plastic and even asset, the lead being used in new lead-acid batteries.

And then the third thing is because and the most important is, because the product offers an opportunity to reduce fuel and therefore reduce CO2 emissions, the two go hand-in-hand, I believe and I don’t want to misquote it. But the amount of CO2, the reduction in CO2 is in the millions or I’m sorry, it’s in the hundreds of megatons per year.

So, I think it is really a greening the planet opportunity to utilize the PbC battery. We have not come up against anything that would lead us to believe. Otherwise it’s actually in terms of the branding, we don’t use the word lead, we haven’t seen that.

Operator

The next question comes from Dallier Ramirez. Please go ahead.

Dallier Ramirez – Private Investor

Hi, yes. I’m Dallier Ramirez, private investor. You mentioned the gentlemen before asked about the business priority you mentioned the four business priorities. And Michael Hayward volume can out-shadow all these other ones. But you didn’t mention it. Could you talk a little bit more about it?

Thomas Granville

Yes, you’re referring to the stop-start application.

Dallier Ramirez – Private Investor

Yes, the automotive that another, gentlemen mentioned also the automotive and as far as the potential volume, that one could – everything else could look tiny compared to the numbers that we generate.

Thomas Granville

Well, the opportunity for the hybrid truck, let me just start with that and I’ll get into the automotive application. But the opportunity for the hybrid truck is on an annual basis is in the billions of dollars per year for I believe its $9 billion a year just for the Class 8 hybrid trucks. So it’s a huge opportunity.

We continue to work in that stop-start market and we have been working in that stop-start market for a long time. And it’s been frustrating I’ll admit, I’m sure it’s been frustrating to the shareholders as well to hear about the BMW and others that we’ve been working with that you would think they would have gotten off the dime by this time and decided what direction they wanted to go in.

But it’s the automotive industry and they go at a slower pace and they go at their own pace and there is nothing that we can do to speed them up or influence that. Yes, it is a significant market opportunity. And it’s something that we’ve continued to work on. We’ve worked with more than one partner we are working with more than one strategic partner to try to penetrate that market.

But I’ve really stopped talking about it because I’m sure some of the shareholders are sick of hearing about it and it’s coming, we’re working on it, we’re testing, we’re doing this, only seems like another hook that we have to jump through.

The fact that we’re making progress in these areas certainly is helpful. But as I have said on other calls, the opportunity is out there, adoption of that opportunity is out there. We feel that it will come and when it does that will be an, add to our bottom-line. But it’s not our bottom-line. But it’s not something that we’re focusing all of our time and effort on.

Operator

In the interest of time, that was our final question in the question-and-answer session. I would like to turn the conference back over to Thomas Granville for any closing remarks.

Thomas Granville

Thank you. The excitement continues to grow here at Axion. It permeates the entire team especially when there is evidence of concrete results, real orders, trucks powered by our PbC battery, a power cube with two years of constant participation in PJM network under its belt. And initial PowerCube for the solar market utilizing our program model and frequency regulation opportunity that cube to be shipped this quarter, an increasing number of RFPs from four continents and request for us to work with groups to develop a strategy that deals with their specific problems.

I’ll close with a statement that sounds obvious but is really worthy of focus. All of these opportunities have come to us because of unique properties of the PbC battery. Without these qualities we’re just another lead-acid battery that doesn’t really work well in these applications. It’s all about our high-charge acceptance, fast recharge rate, ability to operate at temperate extremes and the inherent string and battery equalization characteristic that our PbC batteries possess.

That’s what draws the potential customers’, that’s what makes our vision doable, that’s what makes the applications work. Thanks for taking the time to listen to our story, to listen to our progress. We’ll see you on the next call.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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