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Axion Power International Inc. (NASDAQ:AXPW)

The Wall Street Analyst Forum

August 15, 2007 1:20 pm ET

Executives

Thomas Granville - CEO

Ed Buiel - CTO

Gerry Scott - President, Wall Street Analyst Forum

Presentation

Moderator

Good afternoon, ladies and gentlemen. Good afternoon, I would like to introduce the next company in this afternoon's Alternative Energy and Clean Technology Conference.

And as I try to do once or twice a day, I specifically welcome the webcast attendees, who generally outnumber our physical attendees by anywhere from three to 15 to one per company. Sometimes one of the companies will have 1,500 webcast attendees and 15 physical attendees, so we don’t ever quite know what the ratio is, but I think everybody knows there is the word-for-word presentation and Q&A session is also web searchable on Yahoo! Finance, we are the only analyst conference that we know in the industry that's doing that.

Seekingalpha.com is doing the transcription based out of Israel, using software and a human editor of the presentation and Q&A sessions and they are web searchable six hours after the conference on Yahoo! Finance, Google Finance, AOL Finance, as well as on seekingalpha.com's website.

So, that really extends the reach of our conference even beyond an appointment of webcast, which is a long-time for most of us to stick around, to do anything for 40 minutes. My wife can't get me to sit down to do anything for 40 minutes, and this is kind of webcast. So anyhow, you can go through a transcript in five or six minutes, probably get what you want, just go to Yahoo! Finance you will find every transcript of every company presenting this conference in six hours, six hours after each presentation roughly.

In any case, I would like to introduce the next company in this afternoon program, Axion Power International. The last decade has seen tremendous advances in batteries, first of all electronics. We have three companies in this broad space today, presenting with us today.

Sadly there have been no comparable advances in large scale batteries for utility applications, renewable energy and electric vehicles. So, America’s largest potential energy storage users are still begging for a safe, reliable and cost effective solution. Axion applied carbon nanotechnology research has enhanced the performance of their ability of lead-acid batteries, to a point where its latest prototypes have demonstrated the lowest total cost of ownership per charge/discharge cycle in the industry. Frost & Sullivan selected Axion as its recipient of its prestigious 2006 Technology Innovation Award in the field of lead-acid batteries.

Today Axion's CEO and CTO will tell you more about a new technology that is expected to cause disruptive changes in the energy storage markets over the next couple of years. So, without any further introduction, I would like to introduce Thomas Granville, CEO and Dr. Edward Buiel as well. Thank you.

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Thomas Granville

Thank you. We can start again. As I said, I am Tom Granville. Axion Power Corporation came about in September -- first of all, our Safe Harbor review statement has to be listed. Time out for a commercial. Axion Power Corporation came to be in September of 2003. Prior to that, there was a company in Canada Mega-C Technology, and Mega-C Power Technologies that had a license to the patents and the technology that we now own.

Mega-C Power came under some hard times in the summer of 2003. It’s a long story, but eventually they went bankrupt in 2004. The Russian scientist who owned the technology at that point in time, C&T Company, were threatening to leave and take the technology with them. Several of us who were passive investors in Mega-C stepped forward to try and save Mega-C.

It soon became obvious that this was not going to happen, so we formed Axion Power International in September of 2003. The sole purpose of which was to obtain a new license agreement for the technology with C&T Companies. We were successful in doing that in November of 2003, and as part of that transaction C&T Companies, the Russian company stated that if Axion became a public entity that we would be entitled to buy the patents from them. That’s exactly what we wanted to do. We didn’t want to deal through a license agreement with the Russian and with the Russian management.

So we formed -- we found, I should say, a clean shell in December of 2003, a former Hunt Brother shell, Tamboril Cigar Company, did a reverse take over. The surviving entity was 95% owned by the founders of Axion, and subsequent to that transaction 11 days later, we bought the patents from C&T in January 2004, and then bought C&T outright. So now we own all of the patents, all of the technology outright.

There was a lawsuit that was instigated by some of the promoters of Mega-C, who were under investigation for wrong doing and missing millions of dollars in Canada, filed against everyone.

Long story short, after two and half years of court battles in Nevada, which is where Mega-C was originally formed. The judge ruled that Axion, in fact, owned the technology and that Axion owned whatever Mega-C said they owned. We owned all of Mega-C, all of the technology, everything that Mega-C owned whether it was a little or a lot, Axion now owned. That went through the courts and the time period for appeal expired in November of 2006. So now thankfully that chapter in our history is behind us.

Along the road, we brought Dr. Ed Buiel who will come up here in a while and speak more to the technology aspect of our company. We recruited Dr. Buiel in the fall of 2005. His history was with MeadWestvaco in carbon, in this exact space that Axion is participating in.

In an effort to move our technology forward in the fall of 2005, we were looking for equipment to build prototype units. We found an opportunity in New Castle, Pennsylvania for this equipment and we found much more. Ed Buiel went down there, called me the next day, I went down there. Long story short, we were able to stop a DoveBid auction and purchased all the assets in an article UCC 9 sale from the bank, First National Bank of PA; $5.5 million, worth of assets and equipment for $720,000.

We took the bank out of a first position, the bank took everyone else out and we owned everything including the inventory of the former New Castle Battery Company. This jump started our technology, our manufacturing phase. And it has always been our intent to move forward and show that our product could be integrated into a standard lead-acid battery line.

We also needed to make enough batteries for our demonstration sites. This property enabled us to do both. We had an actual battery plant, was fully permitted to manufacture 3,000 batteries per day on-site and I'll show you a picture of that plant, skipping ahead here. There it is in New Castle, Pennsylvania, 65,000 square feet of manufacturing space.

It was fully permitted as I said to manufacture 3,000 batteries per day, had all the permits, and if any of you are familiar with what it takes to get lead permits these days, it’s just ridiculous, in both time and money you are talking about 20 to 30 months in order to obtain these permits. It was ISO 9000 and we were able to obtain that as I said for $720,000.

With this plant came some niche market products, namely a 16-volt racecar battery and an antique collector car battery that we continue to produce. It was something that New Castle Battery Company had been producing before, extremely high profit margin items upwards of 180% on each of those.

It's a small market, 10,000 batteries a piece annually. But those batteries sell anywhere from $200 to $300. So, we continue to make that product to give us some cash flow as we pursued and closed our Toronto operation. By the end of 2006, we had completely closed our operation up in Toronto, moved out of the R&D phase, strict R&D phase of our company's history.

We will continue the R&D obviously into the future, but we were able to eliminate high paying jobs in Toronto, send a lot of these PhDs and double PhDs without disparaging Dr. Ed Buiel, able to send these guys back home to Russia, or wherever and move into a more labor-friendly environment in New Castle, Pennsylvania.

People down there are willing to work for $10 an hour and like it, it's [on this] country. It really has appeal to them to bring jobs back to central and western Pennsylvania.

During this time period, Axion was funded by the Insiders' family and friends. Quite honestly we want to keep our heads down, improve the technology before we went out and try to raise any money. Everyone has a battery story that they've been connected with. I am sure most of them haven't been good. There have been promises made and promises un-kept over the years.

Ours is a little different story, ours doesn’t require new technology or new equipment, it’s something, it’s a product that can be made on an existing lead-acid battery line. Simply stated, our value proposition is changing the lead negative electrode to a carbon electrode.

That allows the battery to cycle three to four times more frequently than its counterpart lead-lead battery. It also allows a recharge rate that’s up to 10 times faster than a standard lead-acid battery. It’s more environmentally friendly, uses up to 60% less lead, it also weighs less, it’s maintenance free and the product as I said can be manufactured on a standard lead-acid battery line.

So during this time when we were funding it to the tune of more than $18 million, several outside people asked us why we didn’t pursue another partnership with an existing battery company. And simply stated our philosophy was we needed to prove the technology and we needed to prove the technology in the field.

In order to do that we went out and obtained 20 demonstration contracts. We’ve shut that spigot over a year ago, simply because we were not ready to make all of that product, put all of that product out without testing the product in the field first.

So we did our first demonstration project in January, at the end of January of this year in Toronto. It’s a wind and solar storage application, which is running very well. Prior to utilizing our batteries up there, there were lead-acid batteries in that project that lasted about eight months.

The value proposition is that our battery is marginally more expensive than lead-acid battery, yet it lasts longer and allows applications that lead-acid batteries can’t get into because they don’t last. It’s cheaper than lithium-ion, significantly cheaper, four times less expensive than lithium-ion or nickel metal hydride.

It was mentioned that we won the Frost & Sullivan Award, which was given to us in February of 2007 for the best new innovative technology in lead-acid battery in the year 2006. The criteria for Frost & Sullivan is significant, I am not going to bore you by reading it, but it covers the areas of potential of the products innovation to become industry standards, competitive advantage of the innovation vis-à-vis other related innovations, impact of innovation on company or industry, mindshare and/or company bottom-line.

So, I will get back, the management team -- today, actually we made a press release announcing that Carr Conway came on board, as our new CFO. He is someone with SEC experience. I will get back and talk about filings later on in the presentation, but I want to turn this over to Dr. Buiel and let him tell you more about the technology and more about that whole aspect of what we are doing up there.

Ed comes from MeadWestvaco, has a carbon background with them. He had worked in lithium-ion in his early years and has seven years of experience in the field before he came to work for us. Ed?

Ed Buiel

Basically, there are three main types of rechargeable batteries that are available today in the market; the lead-acid battery, the nickel metal hydride and the lithium-ion battery. I did my PhD working on lithium-ion batteries and also worked for MeadWestvaco where I worked on developing carbon materials for lithium-ion batteries for eight years before I joined Axion Power.

The market for lead-acid batteries is a lot larger than all the other batteries combined and that's mainly because lead-acid batteries dominate the cost side of the structure here. Lithium-ion batteries, typically, right now, are only found in things like laptop, computers, cell phones. We are starting to see them in power tools, but there are significant problems with these technologies. Cold temperature performance is a very big problem for lithium-ion batteries. Safety is a pretty big problem in lithium-ion batteries and then costs.

A lot of these technologies cost as much as 10 times as much as a standard lead-acid battery. So, Axion really took a different approach, and what we did is instead of trying to develop a new lithium-ion battery, these projects typically run way over budget and way over time.

We focused on making a lead-acid battery better, and what we did is we set a number of constraints for ourselves. We said, we have to able to build these in existing lead-acid battery line, and that's really important because if you do that then you avoid all of the huge capital costs associated with developing a new battery technology.

And we also said that, we need a new chemistry and we have to do this in a way that doesn’t add a lot of significant costs to the battery. So any materials you introduce, they have to be cheap, but have to be similar in cost to lead.

And we did this because there’s a lot of new markets for energy storage devices that are emerging today. I think most people are familiar with hybrid electric vehicle, renewable energy, wind and solar. For wind and solar really to be anything more than a small perturbation on our country’s utility grid system, it has to include a component of energy storage, otherwise you will have days in the country where it’s hot, it’s humid, it’s cloudy. There is no wind and people are just not going to tolerate, rolling blackouts or other disruptions to their power.

Stationary energy, that’s about $5 billion to $6 billion market, namely for what's called an Uninterruptible Power Supply. For example, when the power goes off in this building, there is typically a lead-acid battery bank that keeps emergency lighting on.

There is a lot of new military applications. Military spent a lot of money and a lot of time in the last 10 or so years, working on -- trying to use lithium-ion batteries or nickel metal hydride batteries in vehicles. And what they find is that there is a significant problem in the cold temperature performance.

There are also problems with costs, and with lithium-ion batteries, there is pretty significant problems of safety. And so, three years ago, you really couldn’t even approach the military to work on advanced lead-acid batteries, but they have come back now mainly because of the problems within the new vehicles that are going to be much more heavily armored. There is a lot more weight in the vehicle and they need to reduce the weight. So, they have come back and are now looking for advanced lead-acid battery solutions for their military vehicles.

And then there is also very interesting new market for large grid-based energy storage solutions. For example, if there is a lot of transmission line constraints in this area and it's mainly due to the fact that it's expensive to buy real estate around here to put a new transmission line. So the idea of being able to use batteries to store energy at night and use it again during the day is a really interesting possibility.

Your standard lead-acid batteries basically can't meet a lot of the requirements for these new applications. A new battery technology like I said before suffered from costs, suffered from safety, and suffered from lot of environmental concerns with recycling, especially of lithium-ion batteries, and low temperature performance of these new batteries technologies is very bad.

Typically, if you take a lithium-ion battery from room temperature down to zero degrees Fahrenheit, it will lose about 90% of its power, which is very significant, especially if the military likes to fight wars in Alaska or even in northern part of this country in the winter time.

And one thing that really has been overlooked is because most of the research dollars have all been focused into the new battery technologies, that don't seem to be making it. It's our solutions for advanced lead-acid batteries.

Lead-acid batteries you buy today are very similar to what was made 100 years ago, very little change. This technology was all designed for driving cars and even though the markets are really changed, most lead-acid battery companies are pretty starved for cash. So, very little research has actually been done in the last 30 years. So it created a very good opportunity for us at Axion.

Just a couple of other piece of information, Toyota, for example, just had been saying that they would be using lithium-ion batteries in the 2009 Prius, and just recently came out with a press release and stated that because of safety concerns that that was going be delayed at least two to three years.

Recently, a UPS plane that was transporting batteries from China to the United States actually caught fire in flight, and had to land in the United States, and you can see here the plane actually burned on the runway. There has also been a lot of other problems with lithium-ion battery safety with laptop computers, for example. On the right in the bottom, you see a picture of a laptop case that actually burnt. It's very rare that you ever hear about a lead-acid battery. It does happen, lead-acid batteries do sometimes burn but exploding or causing these type of problems are very, very rare, even though say it's about $30 billion a year market.

So why is Axion so special? Well, there are a lot of misconceptions I think that are out there. One, lead-acid batteries can't be improved. The technology is fully mature and lead is not environmentally friendly.

Lead is actually the best recycled metal on the planet. Virtually, all lead that comes out of lead-acid batteries goes back to smelters and gets reused to actually produce new lead-acid batteries. It's true that the people are recycling lithium-ion batteries, but typically those materials can never be used in a lithium-ion battery again because the purity, it's very difficult to purify those materials again.

In developing our lead-carbon technology, let me explain that a little bit. What we've done is we've taken the standard lead grid, fix it in a lead-acid battery and we've come up with the direct replacement for it. And this grid, this new electrode technology is activated carbon.

So instead of having lead reacting with the acid to form lead sulphate, we actually store the protons in the high surface area of this nanoporous carbon material that we've developed and the electrode, so instead it’s actually having a chemical reaction that changes lead to lead sulphate when it’s fully discharged.

We actually just store protons in the high surface area of the carbon. What's really nice about this is the activated carbon structure never changes. So this electrode can be cycled 100s and 1,000s of times, whereas a standard lead electrode typically can only do 100 to 300 cycles.

And in the process we've actually also worked on -- because we still use the standard lead dioxide positive electrode, we've done a lot of work to work on improving that electrode too, and we've come up with a number of different technologies. We have come up with an intermediate technology where we actually mix carbon with lead and build the battery.

We also have a new grid technology that we've developed. Again, this hollow open square grid was really again developed 78 years ago the lead-acid batteries, and what we've come up with is a new type of grid that greatly improves the power performance in the battery, increases its cycle life, increases its power capability and energy density, and deep cycle life. Even though this is very important for our new device to make our positive last longer, it also helps to make standard lead-acid batteries better. And then we also are working to develop a bipolar technology as well.

So, our main focus is always the lead carbon batteries but we find that we have actually now developed a whole portfolio of different technologies that will make the standard lead-acid batteries better and help it to make it very -- all of these technologies have very interesting applications in a lot of the new and existing markets, I've talked about.

Here you can see our actual reconstruction of the battery, on the left I show just the standard lead-acid battery cell, and you can see our lead-carbon cell on the right. It has basically, very much the same structure, slides in the same the case, exactly the same way, runs down the same manufacturing line, uses all the same cases and covers and components, separator material. So really, I mean it’s as simple as walking into a lead-acid battery line, removing the normal negative electrodes, putting our negative electrode in and running it down the line.

And what you get is basically something that lasts three to four times longer. It can be recharged very fast. This is very important for hybrid electric vehicles, because the main reason, that you don’t see lead-acid batteries in hybrid electric vehicle, even if they cost much, much less than lithium-ion or nickel metal hydride is because they can't take the power pulse that you get, when you use regenerative braking in the car.

So, when you actually slow down a Prius or hybrid electric vehicle today, it actually recaptures that energy. But it puts a huge pulse of power into the battery and the standard lead negative electrode can't accept it. Instead of charging, it actually just produces hydrogen. So it doesn't work. It takes about eight hours to properly charge a lead-acid battery.

Because our electrode just stores protons, it can happen very, very fast. There is no chemical reaction that takes place. So, it's a very good enabling technology for lead-acid technologies in hybrid electric vehicle. It's much more environmentally friendly, because it uses 60% less lead, I told you that about, over 99% of lead is recycled in this country but that's not true in other countries around the world. It has a higher power capability, has a reduced premature failures associated with the negative electrode, and it's entirely maintenance free.

Here is basically our new grid technology that I talked about; has excellent applications all by itself for things like hybrid electric vehicles, military telecom, motive power, SLI. And we have also developed a new -- we are also working on a bipolar battery and this looks very interesting for hybrid electric vehicles and advanced military applications.

We have six issued patents to cover the technology, and we have also applied for seven new patent applications that cover everything from the basic technology right through the manufacturing process on the lead-acid battery line. The oldest of our patents is 2001, so we have very, very good coverage up to and past 2020.

Here are just examples of the products we make today. Tom talked to you about the 16-volt battery and charger, the classic car batteries, and of course we have our new lead-carbon batteries. And we've also been developing -- our first demonstration project is the wind and solar project up in Toronto, where they showed that when they used standard lead-acid batteries, they only get about eight months of life out of those batteries. With our batteries we'll get somewhere around 1,000 to 2,000 cycles, and if you cycle everyday, every workday, that’s about 200 cycles a year. So if you get, you know, somewhere between 1,000 and 2,000 cycles maybe we are talking about five years to ten-year life. It's a lot better than eight months. If you have an eight-month life you are always taking the batteries out, lot of maintenance charges, lot of maintenance costs associated with that plus the cost of the battery. So, five to 10 years is really important for a lot of these new wind and solar applications.

This is the picture of the building here on the left, and then you can see the batteries that we produce. It's really interesting as, and we're talking a lot about lithium-ion battery projects that took, you know, went for years and years and years. Within a span of a year, we bought an old lead-acid battery plant. We put new equipment in the plant and actually produced our first batteries and deployed them in our first application up in Toronto, and that was about a 12-month project. And now we are working on our second project.

We also provided our battery management systems, so we provided turnkey solution for the wind and solar applications. So we provide the batteries, cabinets and we also provide all the necessary electronics to make sure the batteries work properly. These are some more pictures of that installation.

And our second demonstration project, we're going to do that in 2008. That is a 225 kilowatt/hour energy storage project right here in New Jersey, where we are going to, like I said before, we are going to be providing our energy storage for our transmission line that has a lot of constraint problems right now. And that battery will charge up every night, and then if it's needed during the day, it will discharge to ensure that the power quality is maintained.

All right. We will go back to the financials.

Thomas Granville

Okay. Thanks, Ed. Just for those of us in the room, and aren’t sure how protons are stored, maybe including the speaker. What we are really doing here is we are replacing that lead-lead negative electrode with our carbon nanoporous electrode.

A gram of carbon has a surface area half the size of a football field. You think about that, a gram of carbon has that much surface area. That allows this carbon really to act like a sponge and to store the energy, to be able to store and accept regenerative braking, and that's what makes our product work.

Our marketing strategy down the road is to build batteries in all walks of demonstration projects such as, wind, solar, grid buffering and eventually HEV.

The HEV market, the grid buffering market, Sandia National Labs in a white paper about two years ago, little over two years ago now, said that if there was a solution to the grid buffering, load leveling problem that it would immediately open a $43 billion market, $43 billion now, not $43 billion over five years or three years, $43 billion now and applications going forward from that $43 billion mark. That's a pretty big market. That's a market that we are interested in playing in. We have a product that will play well in that market. Lithium-ion, as Ed said, is too expensive, $1200 a kilowatt/hour.

There is a safety issue with it. Even if there wasn't a safety issue with it, it's too expensive. Nickel metal hydride is too expensive. Lithium-ion is made in a white-glove environment. Our product is made on a dirty old lead-acid battery floor in New Castle, Pennsylvania, with inexpensive labor. So that's what our story is and that's where we're going with this product.

An intermediate step that we're going to take is we have an opportunity now to make, to toll process batteries for other battery companies. There is a glut of sales in the market right now. Lead-acid battery manufacturers can't keep up with the demand. They are up 13, 14 weeks out on items that used to be two to three weeks. So, they’ve come to us and asked us if we can manufacture product for them and that's our plan, that's what we're going to do to get to a breakeven scenario, mid 2008 along with our collector car and our antique car and our turbo start racing car battery, that will allow us to get to breakeven and pay for our ongoing research and development.

We are taking this on a slow goal. We want to make sure we don't have huge recalls. We are doing this one demonstration project at a time. We are building up our capabilities to mass produce our carbon electrode. When we've done this and when we've proven the product to end users, we have an MOU with East Penn. East Penn is the largest independent battery manufacturing company in North America, 2 million square feet under roof.

Our strategic partner East Penn, whom we've worked with for the last 2.5 years, will co-brand the product with us and take it to market. So, that we can utilize their capacity, their sales force, their maintenance group, their worldwide distribution. So, we don't have to reinvent the wheel here. We have no intention of being a long-term lead-acid battery company.

What we want to do, we want to sell this product to battery companies. This product will make the battery better. This product is easily manufacturable by Axion. It can be taken literally to other lead-acid battery companies. You've have got a big stack of negative electrodes that are now lead, you substitute a big stack of our electrodes and the process line picks it up, sticks it in a battery, stuffs the case, we use the same covers, the same body, the same cases, the same separator, the same electrode, it looks like your car battery. That's what our product is.

Beyond that, we may license at some point in time, but certainly I think the battery companies in the future will be looking to acquire Axion. If not we will just continue with our marketing plan as laid out here.

A real quick review of our stock structure, we have 16 million shares out there as common right now, the preferred convertible adds another 8 million, it's about 25 million. There are warrants out there that are exercisable at $3.11 and options at $4.69. These don't have long fuses on them, the longest goes out less than 18 months.

We would like everyone to exercise and bring $90 million into the company, but I don't think that's about to happen anytime soon. So that's our story, and we would be happy to entertain questions and Ed might want to come back up here to answer some of those technical questions. Yes?

Question-and-Answer Session

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

Okay. The first question is there are antique batteries or antique cars, I should have specified that. In order these are antique car owners that need an exact replica of their model T4 or their old Chevy, or whatever car it is that they have. New Castle Battery Company had 33 molds that we acquired as part of our purchase of the assets that are identical molds that were used to fabricate the old six volts small model T4 battery.

So all these guys when they go to shows, you lose points if you don't have an exact replica of the car. It's something that I am not familiar with, but there is a market out there, it's about 10,000 batteries a year, they go to from $200 to $300 a piece, it’s a $2 million to $3 million market that we play in. It pays for my Limo, just kidding, I don't have a Limo, I don't use a Limo, I use taxi cabs.

And the other part of your question about another battery company. There are people out there, as Ed said lithium-ions have been trying to do this for ten years, fuel cells, when's the last time a fuel cell returned any kind of promise. Fuel cells are always six months out and in two years from now they will be six months out. This is a proven product. It's a lead-acid battery. It’s been around forever. You don’t have to reinvent anything. You can use existing equipment.

All we are doing is substituting something. It sounds very simple, it sounds like, why can't someone else do it? Ed did mention that he worked on a project with MeadWestvaco and AEP, American Electric Power, in a similar attempt to try to come up with our product. They spent close to $20 million on this project, and found that they were blocked on the patents by us; C&T actually owned the patents. They were working with a Russian company that claim they own the patents and sold them some patents that were of little value. That project was closed and as a result, Ed ended up with us. So we got the advantage, the added advantage of the $20 million that they had spent trying to develop something very similar. Yes?

Unidentified Audience Member

Did you go over their business arrangements that you have that's going to produce revenues in 2008?

Thomas Granville

Okay. The arrangement going forward is a toll processing arrangement with lead-acid battery companies to make their battery. It will be unbranded and shipped to them. They will brand it and send it out. They will provide all the raw materials to us, so there is no risk. There is no chance of lead going through the roof on us or anything else. They'll provide all the raw materials to us. All we're doing is making that product for them. So we have the labor expense. We know exactly what that is on our line, we make it right on our standard line and we have the utility expense and we know what that is on a per battery basis.

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

They have. Contracts aren’t completely inked yet, but yes, they have.

Unidentified Audience Member

So you you'll be virtually guaranteeing…

Thomas Granville

A revenue stream going forward, exactly of X number of dollars per battery, our goal is, we don't want to completely max out the plan. We are looking to do initially, maybe 40,000 batteries a month; 500,000 batteries a year.

Unidentified Audience Member

These are substantial companies, so why aren't they doing this upgrade themselves?

Thomas Granville

East Penn is building a plant which will be ready in 16 months. C&T is trying to take a plant operation to Mexico, but that's not going to be ready for a year plus.

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

This is an interim step.

Unidentified Audience Member

This is an interim, okay. And then you are going to end in '09 or '10 you are going to have to…

Thomas Granville

We are going to end it because we will be making our product. But it would enable us to develop a relationship with our eventual customers. Those very battery companies that we want to sell this product to.

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

We're always looking for money, but do we need to raise money? No, we don't. We can do certain things with money that we can't do without money. We can get to continuous run operations, continuous run equipment, more quickly. But it's not like the old days where we knew, two months out we were going to need another million and three months out we were going to need 5 million and whatever it was in the past. Yes?

Unidentified Audience Member

Can you briefly sum up your profit and loss statement?

Thomas Granville

In Canada we are not profitable by any stretch of the imagination. We are an R&D company. In Canada, our burn rate was $400,000 to $450,000 a month. We've put, if you include the money that was put into the previous company, we put $80 million into Axion of our money. There has been other money raised in addition to that. And another $6 million went into the previous company. So there has been $24 million devoted to this technology. We decreased our burn rate by more than half in moving to New Castle, Pennsylvania. As I said, we are looking to do a breakeven and become slightly profitable mid-2008 with the inception of these lead-acid batteries on a toll processing per battery basis. Yes.

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

Well, sure, we would have liked to been out there five years ago, no question about it. But they missed what our story is, an important part of our story, the core of our story really is that this is inexpensive, this is carbon, 70%, 80%, 90% of the planet made up of carbon, easily obtainable, activated carbon. Our raw materials right now including everything costs less money than the lead-lead negative electrode.

So that's a position we didn't really expect to be in, but we are in that position. The markets are huge out there. If somebody's, if we had a product right now, we couldn't do the whole market. You are talking about $43 billion just for grid buffering. We can't do $43 billion. We can't do $4.3 billion. So there is competition out there. But as Ed said, it's been forever. These guys have been trying to develop something. There is a need for it.

AEP, American Electric Power, there is an article in USA Today, several weeks ago, they tied on with the Japanese company, [JAS] to build a grid buffering project, with sulfur-sodium batteries at $2500 a kilowatt hour. $2500, that's how desperate they are. Our cost in this I mean I am not going to tell you exactly what our cost in this is, but it's not 10% of that, it's not 5% of that. Yes?

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

I would rather talk about cost, because our margins are going to be what we can get quite honestly. Our margin is going to be a value proposition for, that will reflect the fact that it last four times longer. Our costs are marginally higher than a standard lead-acid battery, which in terms of kilowatts $150, lithium-ion is $1200, nickel-metal-hydride $1000 in that range.

Your Prius, hope none of you own a Prius, that's five years old. That Prius battery replacement is going to cost, if you are very lucky and if the electronics mesh, it's going to cost $5000 to replace that battery. If the electronics don't mesh, it's going to cost $8000 or $9000 to replace that battery. We can replace that battery for less than $1000. Yes?

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

Yes.

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

Well, actually that's in part one of the negotiating points with these battery companies. They are trying to get in line, so they get an opportunity at our proprietary products going forward.

First position right now is with East Penn. Second position, quiet honestly is up for grabs between the two battery companies that we are talking to right now.

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

Oh, absolutely. Well…

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

Yeah. We will structure in something. It won't be everything that they're looking for, that's for sure. I mean, we want to have the ability to go out literally to the planet with this thing. We've recognized East Penn and the contributions they made for two and half years. So, they'll have a head start on this whole deal, but we will sell to other battery companies. Yes. Yes?

Unidentified Audience Member

(Question Inaudible)

Thomas Granville

Yeah. We were just talking about that. Go ahead, Ed.

Ed Buiel

(Answer Inaudible)

Unidentified Audience Member

Thank you.

Thomas Granville

Thank you.

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