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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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  • My Presentation For The Battery Show

    As many readers know, I will be doing a presentation on the ePower Hybrid at The Battery Show in mid-September at the Novi Center in Detroit. Mike Romeo of Axion Power International (OTCQB:AXPW) will be doing a follow-up presentation on why the PbC® battery is an ideal solution for our drivetrain.

    Both presentations are scheduled for September 17th in the 8:45 to 10:30 Session that will focus on Business Models and Technologies for Transport, Commercial Vehicles, Trucks and Heavy Hybrids.

    Since speakers will be limited to 15 minutes at the podium, a good presentation has to be brief, informative and understandable. Since I've always found longer documents easier to write than short ones, I've spent a lot of time keeping this presentation brief and I would truly appreciate constructive comment from fresh eyes.

    I've posted a draft of the presentation to my DropBox and you can download from this link.

    bit.ly/1pxA3a5

    The rules of the game at this point are pretty simple.

    • I can't add words without taking an equal number of words off a page; and
    • I can't add slides without increasing the risk that I'll run out of time.

    My primary goal in this exercise is making the presentation as good as it can be and crafting the best possible script.

    Disclosure: The author is long AXPW.

    Tags: AXPW
    Aug 31 3:46 PM | Link | 100 Comments
  • 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
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