Seeking Alpha

John Petersen's  Instablog

John Petersen
Send Message
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
  • Axion Power's Share Count And Market Capitalization 31 comments
    Dec 24, 2012 1:29 AM | about stocks: AXPW

    The following graph shows changes in Axion's market capitalization and share count since January 2009.

    (click to enlarge)

    The events that increased market capitalization during 2009 were:

    • The April 2009 announcement of a strategic alliance with Exide;
    • The August 2009 announcement of a DOE grant award to Exide with Axion Power; and
    • The December 2009 completion of a $26 million private placement.

    Since the effective date of the resale registration statement for the shares sold in December 2009, the selling pressure has been heavy enough to completely eclipse all of these events:

    • The June 2010 disclosure of a development relationship with Norfolk Southern;
    • The September 2010 disclosure of a development relationship with BMW;
    • The March 2011 disclosure that a major US automaker had joined Axion as a subcontractor in a major DOE grant application;
    • The November 2011 commissioning of the PowerCube as the first behind the meter frequency regulation resource in the country;
    • The December 2011 discovery that the unnamed US automaker was General Motors;
    • The April 2012 announcement that Norfolk Southern had completed its laboratory testing and ordered batteries for the NS 999;
    • The August 2012 disclosure that BMW had completed its laboratory testing and commissioned an independent peer review;
    • The August 2012 disclosure that a Top-5 Asian automaker had decided to go directly to advanced testing on the strenght of the BMW test results;
    • The November 2012 disclosure that a testing program for the use of the PbC in auxiliary power units for Class 8 trucks was expected by year-end;
    • The November 2012 disclosure that the PbC had been selected as a replacement for the AGM batteries used in a new series hybrid electric retrofit for Class 8 tractors;
    • The tacit admission by Exide that its best enhanced and AGM batteries won't stand up to the demand of micro-hybrids in November 2012; and
    • The frank admission by JCI that its best enhanced and AGM batteries won't stand up to the demand of micro-hybrids in December 2012.

    While each of these events would have been big news in a typical micro-cap company, they didn't register on Axion's price chart because of the unusual market dynamics that prevailed when the announcements were made.

    While Axion's stock has been "broken" for the last three years, I believe the market dynamic that caused the problem has been resolved and the only thing that's holding the stock at present levels is fear that higher prices will only give rise to another round of heavy selling. After three years of unrelenting selling pressure despite an increasing body of proof that the PbC is an extraordinary new battery technology, I understand the fear. I also know that Axion has arrived at a transition point and is poised to shed the R&D company market dynamic that prevailed for the last nine years as the PbC earns a place in several billion-dollar niche markets where competitive battery technologies simply can't do the work.

    Disclosure: I am long OTCQB:AXPW.

    Stocks: AXPW
Back To John Petersen's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (31)
Track new comments
  • OhMy, OhMy ...
    24 Dec 2012, 02:02 AM Reply Like
  • "the only thing that's holding the stock at present levels is fear that higher prices will only give rise to another round of heavy selling."

     

    The company has been clear that more shares will be issued around the end of Q1/13. Isn't that a factor to?
    24 Dec 2012, 10:13 AM Reply Like
  • Author’s reply » Axion has been quite frank since the summer that an additional round of financing will be required by the end of Q1. Unfortunately that kind of openness raises the ugly specter of "what happens if the price stays at current levels until the offering is done?" When the fear shows it's ugly little face, it tends to keep people on the sidelines who would otherwise be buyers and that turns the low price into a self-fulfilling prophecy – unless something important happens first.

     

    In the last conference call management spoke of several events that are likely to occur over the next couple months.

     

    1. Axion has delivered 52 PbC batteries for an engine dominant hybrid series electric drivetrain for Class 8 tractors – e.g. long haul heavy trucks. Solid performance data is expected very soon. Since I referred the buyer to Axion I know a lot about the project – http://seekingalpha.co...
    2. Axion is negotiating testing protocols for a demonstration that will use the PbC in auxiliary power units for long haul trucks. The application was described in a presentation to the SAE's commercial vehicle congress in October that specifically mentioned a system from Freightliner, a Daimler unit that's the biggest tractor manufacturer in the country. – http://bit.ly/TEWNPy
    3. BMW sent its test results out for peer review before the August conference call and that process was expected to take six months. The next logical step will be a fleet test.
    4. Before the August conference call a Top-5 global automaker from Asia decided to piggy-back the BMW test results, skip their normal preliminary work and go directly to advanced testing. While the timeline is a little less clear. The next logical step will be a fleet test.
    5. We should hear something about the progress of the NS sale and expected follow-on order pretty soon.

     

    Any of the first four projects could grab the markets attention and fire imaginations in ways that are hard to predict. Unless we have a news free quarter, I have to believe the price will be very different when it comes time to actually do the offering people fear.
    24 Dec 2012, 10:31 AM Reply Like
  • JP, I consider you a dear friend, but given the history of Axion's capital raises (the .57 and .35 price points) always undermining the current share price at the time of the capital raise anyone who holds off buying Axion today is simply exercising sound investor prudence.

     

    I personally have already excepted the *possibility* of a capital raise at some horrible price point if necessary, but I am in for the long haul. There are other pressures on the market also in the form of the US budget and tax issues, the fiscal cliff, etc. It is also Christmas and year end so I can't see anything happening that good for a while.
    24 Dec 2012, 11:56 AM Reply Like
  • Author’s reply » Respectfully, the price was $.57 on January 30th but it was $.27 on December 31st. We can complain about the discount till hell freezes over but the new investors thought they were paying a 20% premium to the 30-day low. Both views are correct, but the guy with the open checkbook is always more correct. Remember the golden rule.

     

    Axion had three full quarters of working capital at September 30th and it's Form 10-Q specifically said "We believe that the currently available funds ... will provide sufficient financial resources ... through the first quarter of 2013.

     

    The word they used was THROUGH, not until.

     

    To listen to the fear talk that's been mounting since July you'd think Axion was going bust tomorrow. There is enough working capital to carry Axion through the first quarter. The financing is not an urgent issue and there several events that are certain or very likely before Axion needs to close a deal.

     

    My bet is that those who thought they were being prudent by waiting will find themselves watching the train leaving the station.
    24 Dec 2012, 12:08 PM Reply Like
  • For the record JP I am not the least bit concerned that Axion is going to go bust. I have all my powder in Axion and I expect to add to my position next year. I personally would just like to see the capital raise in Axion's rear view mirror and the train at least taking on some passengers prior to pulling out of the station.
    24 Dec 2012, 03:00 PM Reply Like
  • >bangwhiz ... I'd be happy to just see the train.
    24 Dec 2012, 03:10 PM Reply Like
  • Lol
    24 Dec 2012, 06:29 PM Reply Like
  • John
    Agreed.
    In my head calculations looks like they might have a buck or to to begin July. (Baring seasonal variations I didn't look up.) The raise appears necessary about the end of June.
    While any good news could trigger it.I am hopeful of at least three pieces of good news Q1.
    eMobility Is the one that I am sure of, UL listing and rosewater sales I expect, and hopeful one of the biggies either NS or an auto co will get off the pot and get to work.
    Perhaps all three before the raise period.
    26 Dec 2012, 11:26 AM Reply Like
  • Author’s reply » What investors invariably fail to recognize is that cheap financing is far more painful for management and the old guard than it is for the new kids on the block.

     

    In December 2009 I owned a big block of preferred stock that was convertible at $1.25 and accruing in-kind dividends of 10%. To make the December 2009 private placement possible, I had to vote for the mandatory conversion of all preferred into common. I knew that the private placement was going to go off at a discount to my conversion price, but I held my nose and did the right thing for the company.

     

    There were 10 stockholders who needed to consent if Axion wanted to avoid the complexity and delay of filing a proxy statement and holding a special stockholders meeting. If any of us had refused to take a bullet for the team, the company might have failed.

     

    I can guarantee that the board and management team want something good to happen far more than the street does.
    26 Dec 2012, 12:03 PM Reply Like
  • I agree the technical fundamentals of the company are excellent. The NS-999 (to say nothing of the BMW testing) demonstrated the negative carbon electrode is a breakthrough technology.

     

    I agree a well managed company should be able to make money with such breakthrough technology but I don't like the fact that the chairman of the board is also the CEO. I need to satisfy myself the company is indeed well managed.

     

    I spent some time yesterday reading 10-Q's and 10-K's. This morning I'm asking myself how to estimate NAV. Obviously I will have to make a lot of assumptions and, therefore, things are a bit foggy.

     

    Axion Power is definitely on my radar and thanks for sharing your research which I find valuable.
    24 Dec 2012, 12:01 PM Reply Like
  • The other thing that I liked was that from 2009 to 2010 they doubled revenue (from specialty and vender battery sales mostly) and from 2010 to 2011 revenue was almost 4 times higher, if the trend had continued we would not be worried about raizing capital next quarter.
    Dec 30, 2009 Dec 30, 2010 Dec 30, 2011 Dec 30, 2012
    $1,844,000 $2,148,000 $8,091,000 $6,016,000 + 4thQ
    24 Dec 2012, 03:36 PM Reply Like
  • John - as long as we are speculating, and hoping favorably in the "unless" we have a news-free period, while hoping even more so for some hopeful investors (fully acknowledging sharks exist and AXPW will do what it can do to not swim there), what potential is there for a "friendly" investment by East Penn, and whatever else "arrangements" they could possibly create for the coming PbC/PbA market explosion?

     

    Now that seems like it would be a real post Chrstmas gift while also being somewhat of an early or right-on-time Valentine, not???
    25 Dec 2012, 01:26 PM Reply Like
  • Author’s reply » Management has said they'd prefer strategic investors but I have no way to assess the probabilities. A year or two ago would have been too early because the hooks that accompany strategic money would have been too onerous. Today I think Axion has the strength to negotiate a fair deal with a strategic investor that doesn't include the word "exclusive," or only includes it for regions and with lots of qualifiers.
    25 Dec 2012, 01:46 PM Reply Like
  • Speaking of friendly investors,
    Given that you stated you like to invest directly with the company as opposed to in the open market, is there anyway for current share holders to partake in the next round? If so how much, or in my case how how little, would a person need?
    26 Dec 2012, 09:37 AM Reply Like
  • Author’s reply » I don't have a feel for the kind of deal Axion plans to structure, but I have to assume that some form of private placement is likely.

     

    Most public companies can't do private placements to individual investors who aren't "accredited investors;" guys who have a million dollar net worth excluding their residence or earn over $200,000 a year ($300,000 for a married couple). They usually have some pretty stout minimum investment requirements ($50 to $100 K). The bar is set at such high levels because of regulatory requirements.
    26 Dec 2012, 10:32 AM Reply Like
  • John,

     

    How can AXPW have negotiating "muscle" for financing when it is clear from everyone that its cash will run dry by Q1 2013? What would prevent any battery company out there from instead waiting to pick up the jewels at the Bankruptcy court?

     

    Can management guarantee that; if things become really dire, they can still turn to the Old guard for new money?Just a question I have always wanted to ask....
    27 Dec 2012, 01:54 PM Reply Like
  • Author’s reply » Axion finished Q3 with three quarters of working capital. Q4-12 and Q1-13 are not an issue. Money will get very tight by the end of Q2. That's why the September report said they wouldn't have adequate resources to continue beyond Q1 without additional financing. People have been making the next financing a tomorrow issue since last July. While it must happen before June it doesn't have to happen much earlier.

     

    Bankruptcy only works for debt ridden companies. Companies like Axion that don't have debts pare expenses and muddle through. I can't imagine a situation where Axion would end up in Bankruptcy Court.

     

    Axion is a survivor and it has always found the cash somewhere. It may not like the terms, but neither management nor the board will let the ship sink over a matter of pride.

     

    Small companies are like babies in sub-Saharan Africa. They almost never die of starvation. The thing that kills them by the millions is dysentery. Axion has always thrown nickels around like manhole covers. It will not spend itself into oblivion.

     

    While nobody can guarantee what the old guard will do with their money, a careful review of Axions financing history shows that the old guard was always there when they had to be.
    27 Dec 2012, 02:17 PM Reply Like
  • john,do you have any idea how long the RoseWater energy/Queen's University study on local power grid energy storage will take ?
    According to RoseWater,it's underway,but results ,if good would be another positive news
    http://bit.ly/ru1GhG
    25 Dec 2012, 07:10 PM Reply Like
  • Author’s reply » I know the study exists but don't know much about the details so I'd hate to guess.
    25 Dec 2012, 11:26 PM Reply Like
  • What is never discussed here is how much money they could make if all goes well and exactly how they plan to make this money.
    29 Dec 2012, 03:25 PM Reply Like
  • Author’s reply » At this point it's impossible to estimate what Axion's potential earnings might be. The PbC technology is extraordinary. The target markets are immense. We have no way to estimate likely market share or margins, and we don't have any way to estimate future capital costs or business development timelines. That makes it real tough to answer the question.
    29 Dec 2012, 03:44 PM Reply Like
  • John Petersen:
    Do you know of eTruck that is developing similar hybrid diesel-electric technology as ePower? I understand they also wille using Axion PbC batteries. Is ePower and eTruck related?
    31 Dec 2012, 02:22 AM Reply Like
  • Author’s reply » I did a Google search for eTruck and didn't find anything beyond an Australian aggregation website. The only company in the hybrid tractor business that I'm aware of is ePower Engine Systems.

     

    http://bit.ly/U1Q32E
    31 Dec 2012, 02:47 AM Reply Like
  • John: I understand 'eTruck Transportation Services' has been started by a former partner of ePower Engine Systems. That is why I thought the two are related.
    31 Dec 2012, 05:55 PM Reply Like
  • Author’s reply » I'll ask the CEO of ePower next time I talk with him.
    1 Jan 2013, 12:19 AM Reply Like
  • On the 7th of January, AXPW finally responded to good news of the HUB having achieved certification to UL1741, IEEE 1547 and Canadian Standards Association (CSA) safety standards. A total of 1.46m shares changed hands and prices finished on a high of 0.35. Do you think this event is the first of many reactions to good news?
    11 Jan 2013, 08:52 AM Reply Like
  • Well the final shipment was just sent to NS!
    12 Jan 2013, 09:38 AM Reply Like
  • And we had another high volume day of 1.2m. But if there is no continued buying, the likes of Quercus Trust will sell it down again if their holdings have not been exhausted. The best event will surely be orders of batteries for fleeting in stop-start use.
    13 Jan 2013, 02:27 AM Reply Like
  • Author’s reply » After three years of intense selling pressure I'm convinced that there are no remaining holders like the Quercus trust. My tracking work has convinced me that they've already exhausted their holdings and there are no major blocks left in the hands of willing sellers.
    13 Jan 2013, 04:59 AM Reply Like
  • All of us will be delighted when this turns out to be the case. I am confident that there is buying support from all those who read your articles objectively. I recommended AXPW to a friend of mine. He got in at 0.30 and the grin on his face has not faded since.
    14 Jan 2013, 12:14 AM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.