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John Petersen
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John Petersen is the executive vice president and chief financial officer of ePower Engine Systems, Inc., a Kentucky-based enterprise that has developed, built and demonstrated an engine-dominant diesel-electric hybrid drivetrain for long-haul heavy trucks that promises fuel savings of 30 to 40... More
My company:
Fefer Petersen & Co.
My blog:
ipo-law.com
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  • August 9th Update From Jay Bowman

    Since many stockholders of Axion Power International (OTCQB:AXPW) are following the progress of our development work at ePower Engine Systems, I thought a modestly edited version Jay Bowman's most recent shareholder update would be worthwhile.

    "We have completed our road testing on the Peterbilt 387 sleeper truck as of last Friday. I will outline our test results below."

    Version 3 capabilities:

    • Generator power maximum 150 KW.
    • Battery power 50KW to 110 KW dependent of the state of charge of the battery pack.
    • Top Speed: 70 mph
    • Fuel economy: 8 to 11 mpg.
    • Weight capacity: Up to 73,000 pounds at 58 to 64 mph.
    • Gradeability performance, 1% grade - 62 mph @ 55,000 lb GVW on a 1% grade meets applicable standards.
    • Gradeability performance, 2% grade - 62 mph @ 55,000 lb GVW with a 5 to 8 mph speed loss. This is modestly sub-standard.
    • Gradeability performance, 3% grade - 62 mph @ 55,000 lb GVW with an 8 to 10 mph speed loss. Again, modestly sub-standard.
    • Gradeability performance, 4% grade - 62 mph @ 55,000 lb GVW with a 10 to 12 mph speed loss that meets applicable standards.

    Gradeability standards for line haul trucks generally require a tractor to maintain a constant speed on a 2% grade with a one or two gear downshift. Since we use a five speed automatic transmission that was designed for low speed vehicles and urban duty cycles, we don't have enough gearing options to maintain highway speeds on steeper grades because our transmission shifts into fifth gear at 50 mph and from there on it's a brute force battle between gravity and the drive motor. We are confident that our planned integration of a 10 speed long-haul truck transmission resolve our gradeability issues.

    Durability:

    Most of the components used in our drivetrain meet or exceed line haul truck specifications for durability. That being said, the durability of our integrated system is considered unproven. The batteries are the only truly unproven component in the system. We are currently working with Axion Power to determine a reasonable warranty period for the PbC batteries in our application.

    While our drivetrain can operate with GVWs up to 73,000 pounds at speeds of 55 mph to 58 mph, we believe the truck runs best and comes closest to standard line haul truck performance at GVWs of 55,000 pounds or less. Our primary limiting factor is gradeabilty. Our current performance profile is a good fit for companies like FedEx, UPS and many other haulers who cube out before approaching our weight limitations.

    Development Status:

    Our goal with the Sleeper truck was to meet a set of specifications for line haul sleepers that we received from a major fleet operator. I knew we would probably fall short of meeting all the requirements; but I also knew that any changes we made to the sleeper truck would carry over the day cab since the drivetrains are identical except for component placement. This is why we stopped work on the day cab until we finished tweaking the sleeper truck; I still think this was the correct approach.

    Testing is finished on the sleeper truck and our limitations have been documented. We have a drivetrain that should satisfy a very large segment of the day cab market, which includes over a million tractors that rarely exceed a laden weight of 55,000 pounds and get 6 to 7 mpg. Now we are working full time to finish the day cab. We are making good progress and with Cummins' help we now have a 2014 emission compliant engine integrated with our generator, no small accomplishment.

    Our plan is to have the day cab finished, tested and ready to show in Detroit in mid September. We have been invited to speak at The Battery Show on September 16th through 18th and will showcasing our tractor in Booth E1150 at the Electric and Hybrid Vehicle Technology Expo. John Petersen will be presenting our technology on the morning of September 17th during the "Business Models and Tecnologies for Transport, Commercial Vehicles, Trucks and Heavy Hybrids" session.

    After the show we will begin demonstration and marketing efforts with local freight haulers that operate in our region and can be supported from our base in Florence. I am focusing on several independent FedEx contractors as first customers.

    This is the first time we've had a truck that was capable of doing the work fleet operators require. I am excited about this as are Andrew and Mario. We have confirmed this with Charlie our test driver, he agrees that the type of applications I mentioned above, our truck will be a good alternative. He was impressed with the programming changes that we made over the last two weeks on his latest test run. While our tractor can't satisfy the needs of the entire trucking industry, we have a truck that can operate conventionally in a segment of that market while offering comparable performance with better fuel economy, lower emissions and a more enjoyable driver experience. We also have clear paths forward to system enhancements that will lead to heavier hauling capacities as we mature.

    Our US patent was issued on July 22, 2014 granting patent protection for the United States, Patent number (US 8,783,396 B2). Due to the issuance time period the United States Patent office granted an additional 553 days of Patent protection. We also have been granted Patent protection in Mexico under Titulo De Patente No. 316373. Our European, Canadian, China and Hong Kong patent applications are still under review.

    We are working our way through an engineering application review at Cummins to evaluate the potential advantages of their permanent magnet generator in our application. We have collected and sent drive cycle data for them to review from several trips. Our use of their 2017 EPA compliant engine seems to have generated interest and their support has been steady and available to us. On Friday they asked us to send a complete picture package of their engine and emission system install as well as full truck view pictures for upcoming meetings associated with the engineering review.

    Disclosure: The author is long AXPW.

    Tags: AXPW
    Aug 10 4:22 PM | Link | 47 Comments
  • A Deeper Dive Into My FINRA Short Report Analysis

    Most of my readers know that I keep close tabs on FINRA's Daily Short Sale Volume reports for Axion Power International (OTCQB:AXPW) but they don't know why I think the statistics matter. Today I'll try to explain how I use the FINRA short volume reports to track the flow of shares into the market from investors who originally bought their shares in unregistered transactions. The legal distinctions in the following discussion are a bit arcane, but they're very important.

    The Securities Act of 1933 is an extraordinary law because it prohibits any sale of securities that is not:

    • Covered by an effective registration statement; or
    • Exempt from registration.

    It's the only major law I know of that begins with a absolute prohibition "thou shalt not sell investment securities" and then carves out a series of narrowly defined exceptions to the rule. The more typical structure presumes conduct is legal unless it's specifically prohibited.

    Because of the general prohibition in the Securities Act, the public stock markets could not exist without a sweeping exemption in Section 4(1) for transactions by persons who are not "an issuer, underwriter, or dealer". Investors rely on this exemption every time they hit the sell button and most of them don't realize that the mere act of selling shares would be illegal without the Section 4(1) exemption.

    While buying and selling shares doesn't pose any regulatory risks for investors who only trade shares that they bought in the open market, the Securities Act provides that any person who buys securities from an issuer with a view to redistributing those securities is an "underwriter." While normal investors can buy and sell in the open market with impunity, underwriters can only resell shares into the public market under an effective registration statement.

    In an IPO, an issuer files a registration statement with the SEC and professional underwriters buy the securities from the issuer and redistribute them to the public in a single day. Issuers can also file a registration statement with the SEC for a "registered direct transaction" and then sell the securities to the public. In both cases, the purchasers are not classified as underwriters and they can rely on the Section 4(1) exemption like everyone else.

    In an unregistered transaction, an issuer sells stock to a group of investors and then files a resale registration statement that allows those investors to redistribute their securities to the public over time. It's a slow-motion version of an IPO that can take weeks, months or even years to unfold. From a regulatory perspective, however, all investors in an unregistered transaction stand in the same shoes as the underwriters of an IPO. As long as the securities remain in the hands of the investors who bought them from the issuer, the securities are restricted and resale transactions can only be effected pursuant to a registration statement or an available exemption.

    While most investors will never need to understand the intricacies of securities registration and resale transactions, all investors should know that exempt open market transactions do not give rise to any special back-office procedures but resale transactions by underwriters do. That extra paperwork makes it very hard for an underwriter to comply with T+3 delivery requirements and usually means the transaction will be flagged as a "short-sale" for FINRA reporting purposes.

    If we scrutinize Axion's history, there was only one financing transaction in 2012 where an SEC registration statement was filed and declared effective before the stock was sold to investors. While the 2012 investors ended up in the same regulatory position as open market purchasers, all of the other investors who bought stock from Axion in 2004 through 2011 and in the 2013 PIPE fell into the "extra paperwork" class, which means that resales by those investors ought to show up as short sales in the daily FINRA reports.

    The following is an enhanced version of the FINRA graph that I send the Axion Power Host every week. The blue and red columns are keyed to the left-hand axis and show total reported trading and short sale volumes on a monthly basis since January 2010. The green line is keyed to the right-hand axis and shows the monthly short percentages since January 2010.

    (click to enlarge)

    Over the last couple years I've written several detailed analyses of who the principal sellers have been since January 2010. Prior to the 2013 PIPE transaction, I was able to identify holders who bought a total of 61.5 million shares from Axion in unregistered transactions and subsequently resold them into the public market before the spring of 2013 when the monthly short percentage bottomed out at about 6.8% for two consecutive months. During that 40-month period, the cumulative daily short sales reported by FINRA aggregated 59.6 million shares. By the time I make allowances for the quirkiness associated with a couple million shares that were resold in connection with bankruptcy proceedings, it's the closest thing to a perfect match I've ever seen. It also meshes perfectly with my experience that OTC market makers never take a long or short position in a stock unless they're forced to.

    Since May 2013 there has been a sea change in the FINRA short sale reporting dynamic that I don't have enough information to explain. During that period 110 million shares were issued to the PIPE investors but only 72 million shares flowed through the FINRA daily short reports. The most reasonable explanation for the discrepancy is that one of the four PIPE investors found a way to expedite back-office processing or otherwise avoid having their trades flagged as FINRA short sales. I don't know how the magic was done, but experience tells me there's no such thing as loophole free regulation.

    If I assume that the selling behavior that flowed through the FINRA short sale data mirrors the selling behavior that avoided being tagged as short sales, it looks like the PIPE investors as a group have resold between 96 million and 100 million shares and continue to hold small stock inventories that they'll sell into the market over time. That being said I don't foresee a lot of pushing and shoving around the pay window because the PIPE investors no longer have a chance to sell at depressed prices and recoup their losses in the next scheduled payment.

    The bottom line of this new analysis is that we have passed "ZRPSOD," zero remaining PIPE share overhang day, but we have not yet arrived at "ZRPSID," zero remaining PIPE share inventory day. I think the PIPErs continue to represent 60% to 70% of daily sell-side trading activity, but they've throttled back enough to avoid crushing the price. When I first started talking about the supply and demand inflection point I said I wanted to see two things happen:

    • A collapse in the daily trading volume; and
    • A sustained collapse of the FINRA short percentages into single digits.

    The first half of the test has been met. I'm still waiting for the second. My conviction that there have been no substantial defections from the retail stockholder base remains unshaken.

    In any stock market, the most motivated seller always sets the price. We've long known that the PIPErs were highly motivated sellers and the FINRA data tells me they're not out of stock yet. Their inventories are running low but they're not exhausted. Unfortunately I can't offer a more detailed estimate of the size of their remaining PIPE investor holdings or the time required to take them completely out of the picture.

    For now, I'm simply waiting for the FINRA data to tell me ZRPSID has arrived.

    Disclosure: The author is long AXPW.

    Tags: AXPW
    Jul 27 1:23 PM | Link | 9 Comments
  • Latest Update From Jay Bowman

    Since many stockholders of Axion Power International (OTCQB:AXPW) are following the progress of our development work at ePower Engine Systems and it's been five weeks since I offered any detail, I thought a lightly edited version Jay Bowman's most recent shareholder update would be worthwhile.

    Sorry for the delay in sending this out, but the last thirty days have been full of ups and downs in our testing at heavier gross vehicle weights, or GVW. We started our testing to determine at what GVW and speed our system would equal the performance characteristics of a typical line haul truck. Typically a line haul truck is ordered with a drive train (engine, transmission and rear end ratios) that allow the tractor to haul a specified GVW and maintain freeway speed on a one percent grade without shifting into a lower gear. This is commonly called a truck's "gradeability" performance.

    In testing of our previous prototypes, the gradeability requirement was our most difficult challenge. Our system is equipped with a gen-set that has only the ability to maintain freeway speeds on level terrain. At higher GVW, our gradeability performance is dependent on the battery system for boost power. We spent several weeks working to collect data for the Marathon Electric engineers and Cummins engineers to obtain optimal performance from our gen-set. This time has paid off as we now have the ability for the first time to produce a steady 128 KW of gen-set power to the system with periodic runs up to 150 KW. This in its self has increased the performance of our third generation prototype compared with the two earlier versions.

    We also made an attempt to increase our gradeability performance by changing our rear end ratios to bring our electric motor's torque curve to an optimal level of 1800 rpm at 64 mph. The first attempt was not successful as we lost low end speed and hauling performance with the 3:55 ratio. We changed to a middle range ratio of 4:11 and this we have found to be a good compromise. Remember we are only running a five speed transmission. This makes the correct rear end ratio critical to the performance of the system and has a greater impact on performance than it would in a typical drive train. Our future plans to integrate an Eaton UltraShift 10 speed transmissions will help correct this and provide greater flexibility for a driver while navigating hilly terrain.

    While road testing over the last 30 days we have had several non-drivetrain truck repairs that were required to keep the truck safe and operational. These breakdowns kept us from gathering useful data on several test runs. I do believe that the truck is now in good operating condition and testing should proceed without this type of problem. We have experienced one problem due to the hotter summer time temperatures and higher GVW testing we have been doing. We have not in the past been able to operate the cabs air conditioning system in versions one and two, due to several control issues and operating our engine at a constant 1800 rpm. As temperatures approached the low 90s we started to experience relay failures in our run and cruise control systems. This is mainly due to the location of these components under the sleeper's bed in the truck's cab. We have a ventilation system for the electronics located under the bed but with the higher temperatures and lack of air conditioning these components started to fail intermittently. Not to mention Mario and Andrew not enjoying the uncomfortable conditions. With our increased knowledge of integrating older truck electronics to work with our systems electronic controls we were successful in providing an operational air conditioning system this week. Mario and Andrew are performing much better as well as the relays.

    For the last two years we did the bulk of our testing on a short local course that kept the truck close to the shop in case of breakdown to avoid high tow bills. As our data collection abilities improved, we found that the original course did not provide the optimal conditions for evaluating performance at heavier GVW. This was mainly due to the four stops that were contained in the course. In early July we mapped out a new course that eliminates the turn around points and gives us a closer approximation of freeway travel in this area.

    The new course runs south and north on interstate 75 for a distance of 40 miles in each direction. The route includes one turn around point in a remote location without traffic. The majority of the grades range from 1.5% to 1.9% with an average climb of 65.2 feet per event. To put this in to perspective, this is the typical height of a six-story building. I once asked a local, why Kentucky breeds great race horses and he told me it was the terrain," not a flat spot to be seen and this builds strong legs on a horse". In choosing this course I anticipate the same results for our system.

    Truck Ready to Run New Test Course

    (click to enlarge)

    The following graph integrates data that our GPS, ECM and BMS systems recorded on yesterday's test run over the new course. John Petersen has made a great effort to synchronize and integrate our raw data into a simple graphic overlay that includes a huge amount of information. Starting from the top and working down, the lines represent:

    • Elevation changes in the course which range from 800 to 1,000 feet;
    • The travel speed, which stays fairly steady in the 60 mph range with minor slow-downs for longer and steeper climbs;
    • Instantaneous voltage of our battery string, which fluctuates between 450-V and 650-V as the system draws power to climb and recovers power on downhill segments;
    • Instantaneous amperage of our battery string, which fluctuates between -150-A as the system draws power to climb and +100-A as the system recovers power on downhill segments; and
    • Instantaneous fuel economy, which varies significantly depending on engine load.

    (click to enlarge)

    The testing to date has been at a maximum GVW of 72,090 lbs. At the higher GVW we found our gradeability performance to be less than a typical line haul truck. All other specifications are being met by our system. We dropped our GVW to a point that we could meet normal gradeability standards and found that our current limit is a GVW of 55,000lbs. Our experienced line haul driver Charlie drove the truck on one of our test runs last week. I will summarize his feelings with the following comment from Charlie "I'm happy and the truck is happy running at 55 mph but requires additional power at higher speeds to match what I am accustomed to as far as my trucks performance". Since Charlie drove the truck I have made several programming changes that I believe will raise this missing performance to the 60 mph mark. Charlie will drive the truck next week to confirm that I am correct.

    Our new test course was chosen because it has a lot of hills in a relatively short distance, which gives us better data to fine-tune the system. The only drawback is that tougher terrain resulted in a 1-mpg decline in reported fuel economy because of all the hills. Two tenths of this decline is due to having an operational air conditioning system on the truck and the rest due to the increase in numbers of grades and percentage of climb over the previous course. We can possibly make some additional gains in gradeability through additional programming changes but these will be small in comparison to other options available to us. By raising the state of charge in our battery packs we can remove load from the gen-set by providing additional boost power from the battery packs. This would up our gradeability performance and should increase fuel mileage numbers across the board.

    Axion will be sending an engineer to work with us on this a week from Monday, we have already discussed our options and have a plan in place to test before and during his visit. From past testing we know this increase load capabilities and performance. Cummins is also involved and have stepped up their efforts to work together. We will be undergoing an application engineering review by a team of their engineers to ensure they are a good fit for our application. This is part of the ongoing process to approve us for use of Cummins products in our system. We will begin this engineering review within the next two weeks. I look forward to their involvement.

    Next week we will make an 800 mile round trip to test our system under typical line haul conditions. We will drive the truck with a loaded trailer (55,000 GVW) to Grand Rapids Mi, where will be meeting with a senior engineer from Cummins. We have been talking over the last few days and he wants to talk about the data that he has received from us this week. He has some ideas that he feels could boost our fuel economy. I will also be very interested to see our mpg rates on level terrain, we see glimpses of this in our area and they appear to be in the 10 to 11 mpg range. We should have some documented results after the trip to Michigan. I will let everyone know how the trip went on Thursday when we return. Please contact me with any questions or concerns.

    Thanks

    Jay

    Disclosure: The author is long AXPW.

    Tags: AXPW
    Jul 12 4:07 PM | Link | 86 Comments
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