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Updating My Axion PIPE Share Overhang Estimates

|Includes:Axion Power International, Inc. (AXPW)

This morning I posted a comment on Axion Power Concentrator 310 promising to update my estimate of Axion Power International's (NASDAQ:AXPW) remaining PIPE share overhang after the FINRA Short numbers for the day were published.

A few days ago I wrote a comment that suggested the PIPE Investors should run out of stock when cumulative trading from 29-Jan-14 hit about 51 million shares. As of today, the cumulative trading from 29-Jan-14 stands at 46.7 million shares, which would leave about 4.3 million shares of volume left to go before ZRPSOD (zero remaining PIPE share overhang day).

Since I hate the idea of saying "one more day like today ought to take the PIPErs out completely," I decided to do a different kind of analysis to see if it yielded a comparable result.

Between 25-Apr-13 and 4-Oct-13, Axion issued 39,836,851 shares. While there may have been some inconsequential stock issuances to directors during that period, I believe those share issuances were small enough to ignore for purposes of this analysis.

On 17-Oct-13, Axion filed a Form S-1 registration statement that included a table on page 44 which specified the holdings of each PIPEr as of 4-Oct-13. If you total the reported numbers of shares owned set forth in footnotes 2 through 10, you get a combined stock inventory of 13,244,873 shares on that date.

Since we know that 39.8 million shares were issued and 13.2 million shares were held in inventory on 4-Oct-13, we know the PIPErs sold 26.6 million shares between the first stock issuance on 10-Jun-13 and 4-Oct-13. During that period, total reported trading volume in Axion's stock was 63,513,000 shares, so sales by the PIPErs represented 41.9% of total trading volume, or 83.8% of total sell-side volume.

Between 5-Oct-13 and 28-Jan-14, Axion issued another 45,643,548 shares. While there may have been some inconsequential stock issuances to directors during that period, I believe those share issuances were small enough to ignore for purposes of this analysis.

On 31-Jan-14 Axion filed another a Form S-1 registration statement that included a table on page 44 which specified the holdings of each PIPEr as of 28-Jan 14. If you total the reported numbers of shares owned set forth in footnotes 2 through 8, you get a combined stock inventory of 11,058,701 shares on that date.

Since we know the PIPErs started with an inventory of 13.2 million shares on 4-Oct-13, received 45.6 million additional shares during the period from 4-Oct-13 through 28-Jan-14, and had an inventory of 11 million shares on 28-Jan-14, we know they sold 45.6 million shares between 4-Oct-13 and 28-Jan-14. During that period, total reported trading volume in Axion's stock was 99,967,600 shares, so sales by the PIPErs represented 47.1% of total trading volume, or 94.2% of total sell-side volume.

My February 1st worksheet estimated that the PIPErs would receive an additional 12,059,087 shares after 28-Jan-14, which would bring the total remaining overhang to 23,117,788 shares. Since 28-Jan-14, cumulative trading volume has been 46.7 million shares. If the PIPErs represented 47.1% of that trading volume they should be down to about 1.1 million shares.

If my estimate of the total number of shares issuable after 28-Jan-14 is too low, then they may have a few million shares left. The same is true if the PIPErs percentage contribution to total volume was lower in the last month and a half than it was in the October through January period. My gut tells me that my February estimates were very close and there's been no discernible change in PIPEr behavior since 28-Jan-14, except that they've let the price rise a little.

If volume tomorrow is comparable to the volume we've seen over the last three days, I think the overhang could very well be gone by this time tomorrow.

The surest sign that Elvis has left the building will be a precipitous decline in the FINRA daily short percentage which was 41% yesterday and 26% today. When that percentage falls into single digits, we'll know they're done.

Disclosure: I am long AXPW.

Stocks: AXPW