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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 25 to 35... More
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  • Understanding The Details Of Axion's Reverse Split Proposal 86 comments
    May 3, 2014 3:01 PM | about stocks: AXPW

    On Wednesday afternoon Axion Power International (OTCQB:AXPW) filed a preliminary "Notice of Consent Solicitation" with the Securities and Exchange Commission that describes a plan to ask its stockholders to authorize the board of directors to implement a reverse split in a range of not less than 1 for 20 and not more than 1 for 50 at any time prior to December 31, 2014 without further stockholder action. Since this is an important proposal, emotions are running high, fears are running deep and the entire process is a mystery to most investors, I prepared this discussion to highlight the issues and offer a back-stage view of a very complex process that's an essential element in the maturation of every public company; a process that I think is long overdue.

    The proposal described in the preliminary Notice of Consent Solicitation will:

    1. Authorize the board of directors to implement a reverse split of not less than 1 for 20 and not more than 1 for 50 without further stockholder approval; and
    2. Leave Axion's authorized capital stock unchanged at 350 million shares of common stock and 12.5 million shares of preferred stock.

    The stated goals of the proposal are to:

    1. Facilitate the negotiation and closing of a financing transaction that will be required before year end; and
    2. Facilitate an upgrade of Axion's trading market from the OTC Bulletin Board to the Nasdaq Stock Market.

    It's an ambitious plan with a lot of moving pieces that stockholders need to understand before making a decision.

    Preliminary disclosure

    Readers should understand that in the fall of 2003, a partner and I controlled a public shell that ultimately merged with Axion Power Corporation to form Axion Power International. When I negotiated the reverse merger my most important concern was the market where the combined companies would trade. While I knew the combined companies would have to start trading on the OTCBB because of the transaction structure, my primary goal was to get Axion off the OTCBB and onto a national exchange as quickly as possible. The reason is simple. The OTC market is a financial ghetto where nasty characters lurk in every back alley and shadow. It's a great place to learn street smarts, but life in the national market suburbs is far more comfortable, safe and secure.

    The process should have been completed in 2004, but litigation that was filed within a couple months after the reverse merger disrupted certain soft third party financing commitments that were at the heart of the original plan. Since there was no way to unscramble the eggs, my only options were to walk away from a busted deal or go to work and do it the hard way. I chose the more difficult path, but the greatest frustration of my career is that the decisions stockholders are facing today should have been resolved a decade ago and baseless litigation from dishonest characters we couldn't control screwed up our carefully conceived plans.

    My view of dilution

    The first topic I want to touch on is the dreaded D word - dilution. I've spent my whole career working with entrepreneurs who have great potential but don't have enough money to realize that potential. The entrepreneurs, quite rationally, want to keep as much of the upside as possible. Their prospective investors, on the other hand, know that the business potential can't be realized unless they step up new cash and if things go badly they'll eat the lion's share of the loss. Those two differing and entirely rational perspectives create incredible tension. Bringing the parties to a reasonable middle ground where the entrepreneurs and the investors both get a fair share of the unrealized value is the heart of the deal, the region where I've always earned a living.

    A harsh reality that most public company stockholders never understand is that they became members of the entrepreneur class when they bought their first share of stock. From that point forward, their interests were diametrically opposed to the interests of the investor class; the people who need to write new checks to help their enterprise realize its potential.

    Over the years I've gotten pretty jaded on the topic of dilution. An entrepreneur starts with a collection of bricks, sticks, mortar and widgets that have an ascertainable value, and a far fuzzier "unrealized business potential" that can be quite high if things go well and quite low if things go poorly. In the context of a public company like Axion, the spread between the equity that appears on the balance sheet (~$10 million) and the market capitalization (~$30 million) is the market's best current estimate of the intrinsic value of that unrealized business potential.

    When an investor comes along and invests $10 million in a company, his new cash increases the aggregate value of the bricks, sticks, mortar and widgets by $10 million. It also increases the intrinsic value of the unrealized business potential because the entrepreneur has $10 million more that can be used to turn ambition into reality. The increase in the value of the unrealized business potential isn't always proportional, but it's usually pretty darned close.

    Stockholders tend to think in terms of a pie and assume that selling a piece of their pie to a new investor somehow decreases their retained value. The reality is the cash paid by the new investor usually makes the pie bigger. It increases the value of the bricks, sticks, mortar and widgets by an amount equal to the new cash. It also increases the value of the unrealized business potential by providing new resources that allow the entrepreneur to move closer to his goal.

    The entrepreneur class always gives up a slice of the pie when new money comes to the table, but the total weight of the pie usually increases by an amount that's equal to or greater than the weight the new investor brought to the table. In the business world a big pie has a greater chance of success than a small one. Given a choice between owning 100% of a 3 pound pie and owning 50% of a 6 pound pie, I'll take the half pie every time because my chances of success are better.

    I frequently quip that every bartender knows you don't dilute a beer by adding a shot of whisky. As long as the new investors increase the intrinsic value of the business the entrepreneur class benefits from new financing transactions. It does not suffer dilution.

    How credible investors think

    In the preliminary disclosure I spoke of the OTC markets as a financial ghetto. While that may strike some as an exaggeration it really isn't. The SEC is extremely wary of small companies that trade on the OTC markets because it knows that dishonest promoters are more common in the ghetto than they are in the suburbs. It also knows that shady characters who lurk in alleyways and shadows are more than happy to victimize the honest residents.

    While the suburbs are filled with financial institutions that have open airy lobbies and friendly personal bankers, the only financial institutions you'll find in the ghetto are heavily fortified check-cashing joints, pawnshops and loan sharks. When you live in the ghetto convincing a credible investor that he wants to do business with you is a long hard uphill battle. If you want to be taken seriously by the boys in mid-town and the suburbs, moving to a better neighborhood must be part of your overall plan, and the sooner the better.

    How funds are organized

    Investment funds come in two basic flavors. The mainstream investment funds are a lot like mainstream bankers who want to do business in mid-town and the suburbs. They're incredibly risk-averse and usually have strict provisions in their bylaws and other corporate documents that prohibit investments in the ghetto. The rest are the "special situations" funds that run the check-cashing joints, pawnshops and loan sharks. It's not unusual for a major fund family to have a combination of mainstream and special situations funds, but the funds that are organized to do business in the ghetto are much tougher beasts than the mainstream funds.

    Most funds that aren't specifically organized for special situations investing have ironclad rules against buying shares of companies that aren't listed in a national exchange. In addition to their ironclad rules, many have detailed policies that are almost as inflexible. It's not at all unusual for a fund to have a minimum price requirement of $5, $10 or even $20. Unfortunately, the most stable and reliable funds, the guys you really want as investors, are the hardest to please.

    Over the last thirty years I've attended more financial pitch presentations than I can count. The easiest presentations are ones where a company that's listed on a national exchange wants to raise more money. The second easiest presentations are the ones where a privately held company wants to raise money from investors who are willing to do a deep due diligence dive into their business fundamentals and deal terms. The hardest presentations in the world are the ones for public companies that still live in the ghetto. If your business card shows that you live in the wrong neighborhood the meetings are hard to come by and if you do make it past the reception desk the first question on everybody's lips is "How and when are you going to move out of that crappy and dangerous neighborhood?"

    What it takes to get a NASDAQ listing

    NASDAQ has two market tiers that are potential fits for Axion - the Capital Market and the more prestigious Global Market. It's third tier, the Global Select Market, is reserved for very large issuers and will be out of Axion's reach for at least a few years. While NASDAQ publishes a detailed list of initial listing requirements for each market tier, the key financial requirements for Axion's proposed application are as follows:

     

    Global

    Capital

     

    Market

    Market

    Stockholders equity - or -

    $30 million

    $5 million

    Market capitalization

    $75 million

    $50 million

    and

      

    Minimum bid price - or -

    $4

    $4

    Minimum closing price

     

    $2

    While the NASDAQ will consider planned financing transactions when determining whether a company meets the stockholders equity and market capitalization standards, the major hook is a requirement that a company like Axion that wants to upgrade from the OTCBB <edit> in reliance on the Market capitalization standards <edit> must meet the Market capitalization and Minimum price requirements for 90 consecutive trading days before filing an application. Since there are 20 to 22 trading days in the average month we're currently on the cusp of the price evaluation period for a September market upgrade.

    NASDAQ will consider trading prior to a reverse split as solid evidence that the price will hold, but they also tend to like some headroom because they worry about post reverse price declines like everybody else. So its not unusual for a stock that's been trading at $.20 before a reverse split to use a larger ratio than 1 for 20 to give everybody confidence that the price will hold.

    Authorized capital

    The concept of authorized capital is the bane of every securities lawyer because it's a throwback to another time when corporations had a handful of shareholders who actively participated in the business. It makes a world of sense in closely held companies where individual stockholders participate in management decisions and day-to-day operations but it makes no sense in the context of a public company where the biggest holders own 2% or 3% of the outstanding stock.

    Every time a company goes to its stockholders to request an increase in the authorized capital the knee-jerk response is the same. Holders who own an insignificant stake suddenly find themselves overcome by paranoia that the people who manage the business will change established behavior patterns and begin to carelessly issue new shares or greedily line their own pockets.

    I've never seen that happen in real life because managers know they'll be sued for that kind of behavior and they'll almost certainly lose. There are occasional abuses in closely held companies and even companies that trade on the OTC markets, but once a company graduates to a national exchange like the NASDAQ the potential for the kind of malfeasance stockholders fear most effectively disappears.

    If we consider Axion's current capital structure, there are 350 million authorized shares and 221 million shares outstanding in mid-April. By the time you reserve about 30 million shares for future issuance under warrants, stock options and convertible securities that only leaves 100 million shares of wiggle room for the board.

    I don't have the foggiest idea of the amount Axion will need to raise in this next round or what the use of proceeds might be. My fondest hope is that it will need a good deal more than $10 million of survival money. Since I can't begin to estimate the amount of cash that might be needed I can't have any firm conviction that 100 million pre-split shares will be enough to get the company where it needs to be. I've never had a good outcome when I tried to empower with one hand and hobble with the other.

    Corporate governance

    In order for a public company to upgrade its market listing from the OTC to the NASDAQ it must:

    1. Make its annual and interim reports available to shareholders, either by mail or electronically through the company's website;
    2. Have a majority of independent directors;
    3. Have an audit committee consisting solely of independent directors who also satisfy the requirements of SEC Rule 10A-3 and who can read and understand fundamental financial statements. The audit committee must have at least three members. One member of the audit committee must have experience that results in the individual's financial sophistication;
    4. Have a compensation committee consisting solely of independent directors and having at least two members. In addition, Rule 5605(d)(2)(NYSE:A) includes an additional independence test for compensation committee members. The compensation committee must determine, or recommend to the full board for determination, the compensation of the chief executive officer and all other executive officers;
    5. Adopt a code of conduct applicable to all directors, officers and employees.
    6. Hold an annual meeting of shareholders no later than one year after the end of its fiscal year;
    7. Solicit proxies for all shareholder meetings;
    8. Provide for a quorum of not less than 33 1/3% of the outstanding shares of it voting stock for any meeting of the holders of its common stock;
    9. Conduct appropriate review and oversight of all related party transactions for potential conflict of interest situations; and
    10. Obtain shareholder approval of certain issuances of securities, including:
    • Acquisitions where the issuance equals 20% or more of the pre-transaction outstanding shares …
    • Issuances resulting in a change of control
    • Equity compensation
    • Private placements where the issuance equals 20% or more of the pre-transaction outstanding shares at a price less than the greater of book or market value.

    Axion already complies with most of these rules because they're just good corporate governance. But without the protections the NASDAQ requirements provide for stockholders, it's easy for a management team to get mugged or worse by a special situations investor that says, "Take it or leave it."

    Offering price discounts

    Institutional investors usually expect a discount from the quoted market price of a security because their risk profile is very different from the street investor who can typically sell his entire position in within a few days if he changes his mind. Responsible large investors know that they can't account for more than 5% to 10% of sell-side volume without distorting the market. There's also a strong theoretical basis for the position that a new investor who writes a check to a company to is creating new value for the company and its existing stockholders while an investor who buys shares in the open market creates no new value.

    In general the magnitude of the discount demanded by prospective investors is directly related to the market where the underlying stock trades. Investors fear stocks that trade in the OTC ghetto and they demand deeper discounts when buying shares. As companies move up the market tiers through the NASDAQ Capital Market and Global Market, the discount demands get less severe. By the time a company makes it to the NASDAQ Global Select Market, it can usually sell shares without any discounts.

    The recent follow-on offerings by Capstone Turbine (NASDAQ:CPST), Plug Power (NASDAQ:PLUG) and ZBB Energy (NYSEMKT:ZBB) are all fairly typical. The companies took haircuts of 15% to 20% in connection with the deals, but it was nowhere near the 40% to 60% discounts you see when OTC companies sell shares to special situations investors.

    What it takes to bring it all together

    In the final analysis an outfit like Axion has to negotiate with NASDAQ to find out what it will take to satisfy their staff and then negotiate with the investors to find out what it will take to satisfy them. Until you know the answers to those questions, pulling a reverse split number out of thin air and implementing it is a great way to find out that somebody you were depending on is shaking his head and saying "not good enough."

    The Notice of Consent Solicitation talks about a range of 1 for 20 to 1 for 50 because that's what management needs to find a clean path through the negotiations. It could act unilaterally, but that would be a very foolish thing to do.

    Disclosure: I am long AXPW.

    Stocks: AXPW
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Comments (86)
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  • H. T. Love
    , contributor
    Comments (18412) | Send Message
     
    As usual, clarity where needed in a nice, concise and clear form!

     

    Thanks for taking the time John!

     

    HardToLove
    3 May 2014, 03:31 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » I always have the most fun when I can take a tremendously complex series of interrelated legal and economic issues and explain them in a digestible form. Here's to hope that readers will find this informative and understandable.
    3 May 2014, 03:45 PM Reply Like
  • PbC Believer
    , contributor
    Comments (258) | Send Message
     
    Today I see as very telling for Axion with share volume at a mere 319 thousand and the share price off by another 5%.

     

    Everyone has had the weekend to digest this RS situation thanks to John's illuminating blog and comments, and clearly there seems to be no enthusiasm amongst present shareholders for this RS and its over the top increase in the authorized shares. Perhaps there is widespread resentment that management has asked for what amounts to a 20 to 50 increase in the authorized shares with ZERO explanation given as to why they think they need this huge number of authorized shares, they seem to besaying "just take it or leave it" or perhaps they were expecting John to explain it away or dismiss the importance out of hand as he has attempted to do. But the real reason for no explanation probably lies in the fact that there is no way to reasonably explain what they are asking for.

     

    On top of all this, perhaps everyone is probably waiting for the long promised PbC revenue event that never seems to materialize and that the BoD never seems to do anything about.

     

    I am praying that TG comes through with the major sales announcement and with a correction of the request for authorized shares to something reasonable and that he does it tomorrow. If TG does both my bet is that the volume and share price recover. If not I see another disaster for we the shareholders on the horizon.
    5 May 2014, 10:55 PM Reply Like
  • isthisonebetter
    , contributor
    Comments (375) | Send Message
     
    **In light of fiduciary duties, authorized capital stock means bugger all.**

     

    Management's job is to find adequate financing on the best agreeable terms. Let them do it. If the terms aren't up to your standards (i.e. we sell more stock than you'd like), then the PbC wasn't what you thought it was and no reduction in authorized capital stock is going to save your investment. This unrelenting focus and desire by so many here to build a mountain out of little more than a molehill is sincerely starting to weigh on me and my sentiment toward fellow investors (axionistas) that I once considered quite savvy. Especially given that dwelling on this assumes the worst of our management team, both in regards to sales materializing (somewhat founded) and integrity (completely unfounded).

     

    The company needs money -- to pick an arbitrary number and say, "Okay management, make do with $XX million. And tell [NSC] (Insert favorite would-be customer here) I want those orders or it's your neck!"... it's truly absurd. Raising money at high dilution is bad, yes. Raising not quite enough money but on slightly less dilution is far, far worse.

     

    If I had the same fears about authorized capital stock, I can't promise that I'd still be a holder.
    5 May 2014, 11:27 PM Reply Like
  • 212138
    , contributor
    Comments (193) | Send Message
     
    Thank You John!
    3 May 2014, 03:43 PM Reply Like
  • nakedjaybird
    , contributor
    Comments (2840) | Send Message
     
    John -

     

    1. So the 350 million Common authorized remain 350 million authorized Common shares.

     

    2. Of that 350 million, the ~200 million Common issued undergo the reverse split, say 1:20 and then become 10 million issued out of the 350 million authorized Common.

     

    3. The 12.5 million Preferred authorized also remain 12.5 million Preferred authorized.

     

    4. a) How many of the 12.5 million authorized Preferred are actually issued, and

     

    b) it appears the Preferred do not undergo the reverse split?

     

    5. Who owns the issued Preferred?

     

    It appears the Preferred holders become 20 times larger owners than the Common holders.

     

    What terms and conditions do the Preferred carry?
    3 May 2014, 04:06 PM Reply Like
  • bazooooka
    , contributor
    Comments (3385) | Send Message
     
    njb,

     

    Good questions; similar to my thoughts below but not sure 1:20 ratio will cut it as that only gets Axion to $3 pps. I'm assuming 1:50 so Axion can be above $5 and give room for the 90 day probation period.
    3 May 2014, 04:11 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » There are no issued and outstanding preferred shares. We issued two different series of preferred stock when I was legal counsel for Axion but one of the requirements of the 2009 financing was that all preferred shares be converted to common concurrently with the closing.
    3 May 2014, 04:14 PM Reply Like
  • Billion003
    , contributor
    Comments (266) | Send Message
     
    Agreed. It seems the potential change in the ratios, or percentages, of ownership is what is being legitimately questioned, and at some level the possibility of drastic dilution, the backstop solution for which being specific legal language that limits it.
    6 May 2014, 10:18 AM Reply Like
  • bazooooka
    , contributor
    Comments (3385) | Send Message
     
    John thanks for the great write-up. I have a couple further questions?

     

    Will all the outstanding options be adjusted proportionally to the new split ratio as well as their strikes?

     

    And assuming Axion does a 50 to 1 split how many shares issuable will there be? Does the remaining 100 million of 'wiggle room' become only 2 million shares?
    3 May 2014, 04:09 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » I have never seen an option or warrant that didn't adjust proportionally in the event of a stock split or reverse stock split. If you take management's $1.50 as an example, 100,000 current options will become options on 5,000 shares at $30.

     

    The 100 million shares of wiggle room refers to the current capital structure. There are 221 million shares outstanding and about 30 million shares reserved for issuance under warrants, option plans and convertible debt. So the company couldn't sell more than 100 million shares without impairing somebody's rights.

     

    If the reverse split is approved and implemented in a 1 for 20 ratio, there will still be 350 million authorized shares but only 11 million shares will be outstanding. The 339 million share excess authorization can only be issued in compliance with the applicable NASDAQ standards summarized above.
    3 May 2014, 04:24 PM Reply Like
  • bazooooka
    , contributor
    Comments (3385) | Send Message
     
    Wow; I see people fear that remaining 339 authorization capacity. What hoops will Axion brass have to jump through if they want to award themselves further options?

     

    And what controls help prevent them from issuing shares at a huge discount to attract investment?

     

    Is it unreasonable to think that TG and company may be inclined to doll out discounted equity because they can award themselves with options to ensure their proportional ownership isn't hurt like the legacy holders who'd have to pony up in the open market?
    3 May 2014, 04:31 PM Reply Like
  • Treehill
    , contributor
    Comments (141) | Send Message
     
    It is clear from the Concentrator that a number of investors fear the 339 million share capacity. However it seems to me that while there may be a risk of abuse, there is little likelihood of Axion management acting badly in this respect. I have never seen a company where the shareholders scrutinize the company so much. Nor can I remember seeing a company where the shares were so widely held amongst such a devoted owner base. If management abuses the shares the Axionistas will spread the word pretty quick and management / the BOD will have a very hard time keeping their positions come the next annual general meeting.
    3 May 2014, 05:19 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » bazooka> Take another look at the NASDAQ corporate governance requirements. Yes there will be 339 million authorized shares. But if Axion is listed on the NASDAQ it must get shareholder approval for:

     

    • Acquisitions where the issuance equals 20% or more of the pre-transaction outstanding shares;
    • Issuances resulting in a change of control
    • Equity compensation plans
    • Discounted private placements where the issuance equals 20% or more of the outstanding shares.

     

    Any public offerings have to be cleared by NASDAQ in advance.

     

    The bottom line is that NASDAQ companies can't sell deeply discounted shares in private placements without stockholder approval and they can't sell deeply discounted shares in public offerings without NASDAQ approval.

     

    I'm willing to trust that the Axionistas who control this company won't let management step out of line.
    3 May 2014, 05:27 PM Reply Like
  • bazooooka
    , contributor
    Comments (3385) | Send Message
     
    Tree,

     

    Extra scrutiny tends to happen when some people are down near 90%.
    3 May 2014, 06:28 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » That's the reason for this article. Scrutiny requires an understanding of the rules of the game while paranoia does not.
    3 May 2014, 06:32 PM Reply Like
  • H. T. Love
    , contributor
    Comments (18412) | Send Message
     
    John: That's why paranoia is so much better - we can just run with it! ;-))

     

    Of course, the results from that basis of activity may be less than stellar, to put it mildly.

     

    HardToLove
    3 May 2014, 06:38 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Jopseph Heller taught our generation “Just because you're paranoid doesn't mean they aren't after you.”

     

    Frankly after years of savage brutality in the OTC ghetto I think a certain level of paranoia is both understandable and healthy. It's a time for the meticulous pursuit of detail that's always made the Axionistas so impressive.

     

    We just need to be careful that the paranoia doesn't go too far and end up inflicting more pain.
    3 May 2014, 06:46 PM Reply Like
  • Anyoption
    , contributor
    Comments (682) | Send Message
     
    Great walk-through John. I love how you can make the complex accessible to just about anyone to understand.
    3 May 2014, 04:16 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Many thanks for the kind words. Stockholders invariably fear what they don't understand and I see nothing to fear about moving out of the OTC ghetto and into a sparking new condo in the suburbs. I hope this Instablog and the comments will help readers better understand the complexities and the dynamics.

     

    After 10 years in the ghetto, Axion deserves an upgrade and so do its stockholders.
    3 May 2014, 04:29 PM Reply Like
  • iindelco
    , contributor
    Comments (10146) | Send Message
     
    John, Thanks for pulling this together and presenting it in your, as usual, stellar fashion.

     

    A question from a historic standpoint. You mention in the preliminary disclosure section how you might have wished for Axion to transition from the OTC market to a higher order market if certain occurrences had not hampered this process. The balance of this post points out some of the reasons why this would be a rational and worthwhile path to pursue. In light of this, it would seem that it would be wise to keep this task on the to do list and set in motion the efforts required to make the transition after the roadblocks making this impossible were cleared. Since you have followed the Axion story far longer than I, why is now the correct time to make this transition and why wasn't the company able to do this sooner? It looks like Axion had been on a far better footing to meet the NASDAQ financial requirements sooner in their history rather than later. And if living in the "Hood" is as bad as you make it out to be, and it appears to have been for Axion based on the last 2 financial rounds, it would seem that making the transition should have been a top priority on their non-product development related task list.

     

    Thanks again for taking the time to tie together the information you have presented in this article. Your depth of knowledge and experience in this area shows and your ability to educate via your writing skill set is a complementary strength that we're all greatly gifted by.
    3 May 2014, 04:28 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » We had a soft commitment for $4 million when I closed the reverse merger in December 2003. When the lawsuits started flying that promise evaporated like the morning dew.

     

    While I was at Axion, getting to a point where we satisfied all the listing requirements was always a top priority item, but there was always a fly in the ointment somewhere. We either didn't have enough equity or we didn't have a high enough price or we had to restate prior years financial statements. I simply couldn't bring all the elements together at the same time and hold them together long enough to push a listing application through the system.

     

    The first time we were solidly qualified on an equity basis was after the Quercus financing, but the price wasn't high enough and the board didn't want to do a reverse split if Axion could earn an upgrade through performance.

     

    The same dynamic prevailed after the 2009 financing. All the listing standards were satisfied except for the price and by the end of 2010 it looked like the price was heading back to a more reasonable level after the dueling trustees did their damage and the small 2009 investors bailed. When Axion's big investors started dying, changing mangers and suffering from the 2008 crash, proposing a reverse split would have just made a bad situation more unbearable.

     

    By 2012 the big uglies were out of the picture, but proposing a reverse split would have been seen as a declaration of war against the investors who bought in the direct public offering. In 2013 we had the PIPErs to contend with, and they did enough damage to guarantee that a reverse split would be needed if Axion ever hoped to move out of the OTC ghetto.

     

    The bottom line is there hasn't been a time over the last four years when a reverse split would have been possible. Now that ZRPSOD is upon us and the stock is all in strong hands a reverse split accompanied by a financing and a move out of the OTC ghetto is possible for the first time. As far as I'm concerned it's the only way to get us out of the merciless clutches of the carrion birds.
    3 May 2014, 04:44 PM Reply Like
  • iindelco
    , contributor
    Comments (10146) | Send Message
     
    Thanks for sharing your perspective John.

     

    I'm not sure now is the perfect time either but then I don't have all the detail to make that assessment. But one thing is for sure. I don't want to add Axion to the case book as another example of the definition of insanity. They surely need a more sane pathway to capital than the last raise.
    3 May 2014, 04:54 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » The first possible moment is always the right time to get a company off the OTC market. It is a savage and brutal place where honest investors are few and far between and scoundrels abound. I've never met a manager who didn't view his time on the OTC as a literal hell.

     

    I would not have done the reverse merger in the first place if Axion didn't have the big funding commitment in place to get it off the OTC and onto an exchange. My first choice at the time was the AMEX because the entry bar was a little lower and the process a little faster, but I didn't sign up for more than a couple years with Axion and I certainly didn't sign up for a decade on the OTC.
    3 May 2014, 05:00 PM Reply Like
  • PbC Believer
    , contributor
    Comments (258) | Send Message
     
    John, the source of Axion's problems have not all been external, which is how you paint this picture of the past.

     

    As I see it, every time Axion raised money they decided on the amount of money they needed based on their internal financial projections that included sales revenues from PbC products. When those sales failed to materialize Axion found itself once again in a bad place because of that failure to grow revenues and without revenues from the products that they were claiming to be the very foundation of their business they then had a weak story to tell the next group of investors which resulted in a lower share price to those new investors. With each round of financing a new set of projections were made and again those projected PbC revenues never came to fruition and on and on and here we are.

     

    It seems very clear to me that Axion's shareholders have suffered huge dilutions due simply to managements failure to meet their own PbC revenue projections. That's what a decade of Axion's Q's and K's are saying to me.

     

    But getting back to our votes on this current proposition from management, I still see no justification whatever for management asking for approval of this huge excess of authorized shares when they could have and should have reduced that number to something reasonable as part of this RS proposal.

     

    Management can and should fix this judgment error and until they do I will be voting NO.
    3 May 2014, 11:27 PM Reply Like
  • RuggedDC
    , contributor
    Comments (419) | Send Message
     
    I am liking to think of the huge post-RS share authorization as giving management the easy ability to declare (regular) stock splits once share prices get UP to 20, 30, 40, 50 dollars a share without having to request new authorizations!!
    4 May 2014, 12:44 AM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » PbC Believer> I can't disagree with your point that the lack of sales is a big problem. Hell, I prepared the first internal projections back in 2007 and thought Axion would be selling the PbC in volume by 2009. When I visited Axion last fall and saw the production process changes from 2007 through 2013, I was shocked at how incredibly crude the first generation prototypes were compared to today's product. The chemistry didn't change but everything else did. Axion has a product today. The $64,000 question is whether it's a product that the market wants to buy at a fair price.

     

    The PbC is an odd storage device that's neither fish nor fowl and I see four possible reasons for the lack of sales:

     

    • A longer than expected product development cycle;
    • Poor management of the sales function;
    • Customer caution in adopting new technology; and
    • A product that the market doesn't need.

     

    We knew from day one that the PbC was not a perfect fit for established applications that customers used other batteries for. We developed the PbC because it seemed to be a perfect fit for big swaths of white space where customers needed energy storage devices with capabilities that other batteries couldn't offer. Whatever the reason, it's taking far longer to find the "perfect fit" than any of us imagined a decade ago.

     

    The worst point in the life-cycle of any development project is when the developing is done and and a cold cruel and uncaring market has to decide whether the product is worth adopting. My experience with ePower tells me the PbC can do some extraordinary things that at least one company needs very badly. When I see giants spending lots of time and money testing the PbC it leaves me hopeful that there will be others. So far, I haven't seen conclusive proof that my belief in the PbC is well-founded. I won't know that answer until potential customers who cannot be pushed into anything decide whether Axion developed a technology that's useful or useless.
    4 May 2014, 05:48 AM Reply Like
  • Mr Investor
    , contributor
    Comments (3083) | Send Message
     
    John, nice educational write-up. Hopefully this helps remove some of the Concentrator chaos, as folks have a chance to simmer down and contemplate over the weekend.

     

    Last year, I was following an OTC company that I thought had good potential, and jumped onboard as soon as they announced a reverse split in order to get uplisted to the NASDAQ. Pre-announcement, the stock was trading for awhile at $1.50, had a low float, was in the hands of sophisticated, level-headed holders, then it quickly jumped 60%, even before the uplisting, which occured only 10 calendar days after the split.

     

    I believe they got their listing via the "Equity Standard" column's requirements of the Cap Mkt. Per the NASDAQ's initial listing guide, the 90 day requirement you mention applies to the "Market Value" column instead. I assume Axion will avoid the 90 day requirement if they can. Instead, try to compress the split and uplisting (and financing) events as closely as possible. To seperate the two (or three) by 90 days, which is what I think you are mentioning above, would court with disaster as the doomsdayers out in such abundance now might repeat the stock bashing and selling, which would jeopardize the ability to meet the min stk price hurdle. IOW, too risky. I might have missed something, though.
    3 May 2014, 06:16 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Good catch Mr. Investor!

     

    I failed to carefully read the footnote which says:

     

    * Currently traded companies qualifying solely under the Market Value Standard must meet the $50 million Market Value of Listed Securities and the applicable bid price requirement for 90 consecutive trading days before applying.

     

    Once again we have proof positive that I'm an imperfect human being who occasionally relies too heavily on his rapidly aging memory.

     

    Since Axion currently meets the Equity Standard (except for the bid price) and does not yet meet the Market Value Standard, it could come together more quickly, and that's a good thing.

     

    If it turns out that Axion needs money for operations and expansion, it could end up qualifying for the Global Market, and that would be a great thing.

     

    FWIW I've gotten e-mail several solicitations over the years for services that track pending market upgrades because they typically have a solid positive impact on companies that successfully navigate the transition.
    3 May 2014, 06:24 PM Reply Like
  • bazooooka
    , contributor
    Comments (3385) | Send Message
     
    Mr. I, What ticker was that? Did the pps pop hold? I too have seen pops but often they get whacked by those licking their chops to get a decent exit.
    3 May 2014, 06:38 PM Reply Like
  • froggey77
    , contributor
    Comments (2811) | Send Message
     
    Bazooka

     

    Lightbridge ($LTBR) did a RS to get on the NASDAQ in 2009. There were two pops. one when announced (Late July and when it happened about Oct. 1.)

     

    At the time they did (and still do) consulting.
    The Potential product IIRC began undergoing testing Jan 09 and will continue testing until 2017. (Last I knew) (Thorium fuel rod with a uranium core)
    They now have another potential product (Metal uranium fuel rods) that should be through testing in 2016. (Last I knew)

     

    Before and after the pops Price about $5.50
    The price held for about 2 years.

     

    They are still on the NASDAQ CM price $2.55 ATM.

     

    They still have no product beyond consulting and lose money every year. They sold a bit under 4mil shares of stock in 4 Q of last year.
    5 May 2014, 04:13 PM Reply Like
  • Retired Aviator
    , contributor
    Comments (2247) | Send Message
     
    What would be the all-in annual cost differential for Axion to be on NASDAQ versus OTC, including all exchange fees plus labor hours devoted to NASDAQ compliance and generating required reports?
    3 May 2014, 07:00 PM Reply Like
  • SMaturin
    , contributor
    Comments (2305) | Send Message
     
    "Priceless!"
    3 May 2014, 07:09 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » The initial listing fees for the NASDAQ Capital Market are $50,000 to $75,000 and the annual fees are $32,000. Aside from sending the NASDAQ copies of the forms and documents Axion files anyway, there isn't much difference in the work required from legal counsel or the auditors. I'd be surprised if the all-in cost differential amounted to $50,000 a year.
    3 May 2014, 07:50 PM Reply Like
  • futurecartsla
    , contributor
    Comments (470) | Send Message
     
    so....hurray for dilution then??
    3 May 2014, 07:47 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Do you have any idea what the term dilution means?

     

    Dilution is something IPO investors suffer when they pay $20 a share to buy stock that will have a post-IPO net tangible book value of $2 per share.

     

    My original title for this article was "Dilution for Dummies – Why A123 Systems is Undervalued." Unfortunately the SA Editors dropped the important concept and focused instead on a time sensitive conclusion.

     

    http://bit.ly/r8L4of

     

    Every bartender knows you can't dilute a mug of beer by adding a shot of whisky. Why can't the average investor who is presumably smarter than the average bartender grasp that simple concept?

     

    Do you tell your neighborhood pizza joint to cut your pie into six slices on nights when you're not hungry enough for eight or twelve?
    3 May 2014, 08:05 PM Reply Like
  • futurecartsla
    , contributor
    Comments (470) | Send Message
     
    http://bit.ly/17Zp7pQ

     

    Your metaphor makes no sense, yes you can't spike beer with whisky, and call it dilution, for it to be DILUTION you'd have to use WATER. There would be more beer, but less alcohol, hence DILUTED. High gravity beer is often diluted with water.. I understand your need to rationalize dilution, I just can't believe some people are buying stock dilution as a positive for existing shareholders, especially when the capital is being used not for expansion, but simply to keep the company afloat.
    3 May 2014, 08:25 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » The level of ignorance one encounters on the internet never ceases to amaze me.

     

    The concept of dilution became obvious in the 1920s when companies frequently issued shares without getting fair value in return. The original term was "watered-stock" which eventually morphed into dilution. When a company issues new shares and receives fair value for those shares there is no dilution - EVER. The pie is simply bigger. Since well-funded small companies have far better survival prospects than underfunded small companies, the dilution sophistry is one of the most dangerous urban legends there is.

     

    When the book value of a corporation's common stock is in the neighborhood of $.05 per share like it is for Axion, you can't add $.10, or $.20 or $.30 of new cash for new shares and call it dilution. The argument is sophistry.

     

    It makes no difference whether you're talking about alcohol or tangible assets, selling new shares for cash that exceeds pre-offering book value is always accretive to the existing stockholders.

     

    Since it's pretty clear that you think it makes sense to pay 100 times book value to own a hideously over-leveraged company like TSLA, I don't think you should try to advise me on financial issues.

     

    Unlike articles that are published on the main pages, I have the power to moderate comments on my Instablogs and have qualms about doing so.
    3 May 2014, 08:52 PM Reply Like
  • futurecartsla
    , contributor
    Comments (470) | Send Message
     
    as ignorant as I might be, even I know better than to try and value a company based on something as meaningless as book value.

     

    Since XIDEQ is trading at a fraction of it's current book value, does that mean its a sound investment??!
    3 May 2014, 11:50 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Exide made the same mistake Tesla is making today. It borrowed money when it needed equity and crushing debt burden forced it into a Chapter 11 that will almost certainly leave its creditors with 95% to 100% of the pie.

     

    Having substantial book value is not a guarantee of success. Having insignificant book value and a crushing debt burden is a guarantee of failure.
    4 May 2014, 06:02 AM Reply Like
  • LabTech
    , contributor
    Comments (1780) | Send Message
     
    John,
    Thanks for the article and walking us through the RS and upgrade. I will argue with your dilution argument, to some extent. While your "it's a bigger pie" description works for most stock sales, I will argue that it was not true for Axion's PIPER deal from last year. In that case, not only did the new investors get a distribution of new stock, at a price/share discount, they also got promised an unending supply of new shares if the price went down. Thus they never moved from being investors to being entrepreneurs, and thus all the increase in stock above the original discount I see as nothing but dilution of previous stockholder equity. If for no other reason, the RS and move to the NASDAQ will be worth it, if it will, in any way, prevent Axion from making such a terrible financial decision again.
    5 May 2014, 03:33 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Even with the PIPE one can reasonably argue that without their cash the pie we had in May of last year would have been worthless.

     

    Sometimes being a member of the entrepreneur class sucks because members of the investor class can be so terribly brutal. The PIPE was one of the most damaging financing transactions I've ever seen, but it beat reducing operations to a skeleton crew or even closing the doors.

     

    Doing a PIPE financing is a lot like peeing on the electric fence for yourself. Nobody ever wants to go back for a sequel.
    5 May 2014, 03:39 PM Reply Like
  • iindelco
    , contributor
    Comments (10146) | Send Message
     
    Yeah, Because it usually turns out about like this the first time and who wants to do that again? :(

     

    http://bit.ly/1lSyoYV
    5 May 2014, 03:52 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Bummer ;-)
    5 May 2014, 04:26 PM Reply Like
  • jpau
    , contributor
    Comments (834) | Send Message
     
    What we need now is a new Hitler-in-the-bunker video
    3 May 2014, 08:02 PM Reply Like
  • Occam's_Razor
    , contributor
    Comments (1728) | Send Message
     
    @jpau: Not the right time. Why put salt into the wound.
    4 May 2014, 03:44 AM Reply Like
  • CloudSpin
    , contributor
    Comments (92) | Send Message
     
    The reverse stock split allows to graduate from the OTC to the NASDAQ market. That's the way to go to create value for shareholders.

     

    The PbC battery is a good product that is already finding niche markets. However, the company will need to finance its future growth on better terms than those usually offered by vultures.
    3 May 2014, 08:24 PM Reply Like
  • Ikechowanec
    , contributor
    Comments (134) | Send Message
     
    JP, human nature is to fear change and always think the worst option will happen. I desperately hope this is a good thing, but..... reverse splits, many times are signs of doom. So as a small investor ,20 to 1, makes 100,000 shares into 5000. .14 per share into $2.80 per share. Financial engineering will get us there but what keeps the stock from dropping like a rock. What is Axion doing to be worthy of a NASDAQ listing ??? If you move a double wide trailer from the ghetto to the suburbs its still a trailer!!! Discloser I own AXPW and I am long, but help me see why this is a good thing.
    3 May 2014, 11:28 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Stock prices don't exist in a vacuum. They begin with a valuation of a business enterprise and divide that valuation by the number of outstanding shares to reach a share price.

     

    Currently the market is valuing Axion's business and all of its tangible and intellectual properties at $30 million. About $10 million of that is hard financial statement net worth and the $20 million balance represents the estimated intrinsic value of a 10-year, $90 million effort to develop a novel energy storage technology.

     

    If the PbC is a useful energy storage device and users adopt the technology, the intrinsic value of the enterprise will rise and so will the stock price. If end users decide that the PbC is not a useful energy storage device the enterprise value will fall and so will the stock price.

     

    When I consider the amount of money that several giant companies are pouring into their efforts to test and evaluate the PbC I have a hard time believing that all of them will decide the PbC is useless for their business. Until Credible Customer No. 1 steps up to the plate and says "We're going to implement this technology in our product," the jury is still out.

     

    Axion has spent the last decade developing a unique energy storage devices that does things other batteries can't do. Now it's up to energy storage users to decide whether that effort was worthwhile.
    4 May 2014, 06:19 AM Reply Like
  • dogday1
    , contributor
    Comments (56) | Send Message
     
    Ikech.
    The principal valuation in your home is ,location, location, location. The trailer is still the same but your address has changed. People treat you in a different manner, as you say ,human nature. I will vote for a split.
    4 May 2014, 07:41 AM Reply Like
  • Stilldazed
    , contributor
    Comments (2150) | Send Message
     
    Production growth is a capital intensive process. Going from an R&D to a commercial production company with production of more than proof of concept products requires a pathway to financing that we currently don't have.

     

    Anyone think a major contract will be signed without a clear financial path to meet demand?

     

    Maya discussed this conundrum in the past and IIRC presented it as a chicken and egg problem (Maya, I don't mean to put words in your mouth).

     

    Management must think this is the only viable way to move forward to grow production to meet potential contractual requirements.

     

    There is a reason we have a new board member that is familiar with this kind of stuff. Maybe this is the reason.

     

    I think we are at a breaking point. Take the risk entailed in an R/S or slowly die of a thousand paper cuts from an inability to grow from a lack of a financial pathway for production growth.

     

    This management VS shareholder talk is unreasonable. That is the whole reason for a BOD, management works for them and by proxy, for the shareholders. The BOD has a fiduciary duty to the company and the stockholders for oversight of management, how the company is run and to look for the best path to the future.

     

    There is risk in small cap companies. There is risk in going from the bush league to the big league. There is even more of a risk when stockholders limit a company from making the next logical moves to grow. If the stockholders limit or stop the R/S the company says it needs without allowing the BOD to do their fiduciary duty of protecting the company and stockholders during this time, then I will sell my meagre shares and buy into the company that eventually buys the technology when AXPW goes under. No pain (or risk) no gain.JMHO
    4 May 2014, 12:34 AM Reply Like
  • Treehill
    , contributor
    Comments (141) | Send Message
     
    Stilldazed: you raise good points.

     

    I've been a shareholder in Axion for 4.5 years. This is the first time I've considered selling off my shares. If shareholders don't give management the tools needed to create success, then I don't see a lot of point in being a shareholder in this company. So like you, if the R/S gets voted down I will sell my shares and re-allocate the money elsewhere.
    4 May 2014, 11:08 AM Reply Like
  • big_bear
    , contributor
    Comments (54) | Send Message
     
    I'm sorry, JP.
    I'm still having a hard time with your dilution analogy.

     

    I know you've presented several scenarios and I know you've said in the past, "I can explain it but I can't understand it for you" .... but I want to run my scenario by you.

     

    In September 2009, there was approximately 26.42 million shares outstanding. I am one of the legacy stockholders before all of the raises .... if I haven't added to my current position, but there are now 221 million shares, wouldn't there be a fundamental shift in my stock ownership percentage, my voting control, and the value of my individual shares?

     

    I just can't wrap my head around the fact that the piece of my pie is the same proportional size as it was in 2009.
    4 May 2014, 03:04 AM Reply Like
  • bazooooka
    , contributor
    Comments (3385) | Send Message
     
    bb,

     

    More cash in the coffers increases Axion's book value per share - thus your slice - ie share(s) - now have more value.

     

    Yes, you might own a smaller percentage of the company but the company's total underlying value has increased disproportionately in your favor (and everyone else who preexisted the newest offering).

     

    Nevertheless most people only focus on the ownership percentage part and don't focus on the increase in book value per share - thus it often is viewed as a negative (rightly or wrongly).

     

    But look at the alternative, without a new placement Axion will run out of cash and you will own a larger piece of a 'worthless' pie. I'd suggest don't focus on the slice of the pie but on the pie's fillings.
    4 May 2014, 05:09 AM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Lets use 2006 instead of 2009 because that's the date when my counting started. At the time there were roughly 30 million shares outstanding and Axion's entrepreneur class owned a derelict battery plant in Pennsylvania and a science fair project with wondrous potential. The one thing they didn't have was enough money to turn their wondrous potential into a viable valuable business. Without huge piles of new cash from the investor class, everything the entrepreneur class owned in 2006 was effectively worthless.

     

    Since 2006 the investor class has poured over $64 million into further development of the PbC. While the entrepreneur class of 2006 never imagined that it would take that much time and money to advance the PbC from a science fair project to a product, R&D costs what it costs and the investor class that paid dearly to give the pie value deserves a fair share of that value because there wouldn't be a pie without their contribution.

     

    The heartbreak of R&D companies is that you never know how valuable the pie will be until after the money has been spent. If the PbC is as good as I think it is, then the whole pie is worth hundreds of millions if not billions. If the PbC is not as good as I think it is, then the whole pie could be worthless.

     

    Given a choice between 100% of what the entrepreneur class owned in 2006 and 14% of what the entrepreneur class owns today I'll take the 14% because the post 2006 investors are what gave my dream value. Without their cash I had 100% of nothing. With their cash I have 14% of something (I hope). If I had been right in my estimate of the amount of new money it would take to create an edible pie, my slice would be larger. But my poor historical judgment does not change the fact that the substantial bulk of the value that exists today came from the cash provided by new investors who paid for the work while I sat on my wallet.
    4 May 2014, 07:06 AM Reply Like
  • PbC Believer
    , contributor
    Comments (258) | Send Message
     
    John,

     

    I like the more realistic tone to your most recent comments on this topic.

     

    I also fully agree that the proportions of division relating to this AXPW pie were not bad for a start up company right up until management and the BoD gave up 37% of the pie for just 10% of the paid in capital. No doubt they did that because they had no other choice but they had no other choice because of management's failure to build the substantial and continuing PbC battery revenue stream that they no doubt, on numerous occasions, promised the BoD they would do. So, why did the BoD not do something about this critical failure on management's part years ago? Does the fact that the CEO is also Chairman of the Board have something to do with this failure of the BoD? (How could it not?)

     

    This RS does some positive things that could help management with regard to raising additional capital but without management's demonstration of PbC sales success the valuation of AXPW shares will be exactly the same. These tools that management is asking for are useful only in combination with events that positively changes the picture on actual or imminent PbC revenues.

     

    Should those we who have owned AXPW from day one and reinvested in AXPW every step along the way, and seen exactly what management has and has not achieved during the past decade vote YES to this RS?

     

    I personally say YES to the RS but I voice a very firm NO to the huge and unjustifiable concomitant magnification of the authorized shares; and so my vote must be NO to the proposal in its present form.

     

    John, I do not sign blank checks even when a trusted second signature is needed on that check. Blank checks are a temptation and a dangerous thing in every transaction imaginable. Saying that I should trust NASDAC is like telling me to trust the government - the answer is NO.

     

    4 May 2014, 03:21 PM Reply Like
  • isthisonebetter
    , contributor
    Comments (375) | Send Message
     
    This is copied from my comment on RA's new blog:

     

    The authorized capital stock is a moot point. Axion is going to do its best to issue the minimum number of shares they can to get the required capital to proceed. Since I don't work at Axion and I'm not on their BOD, it's ludicrous to think that I know what those requirements are or how to meet them. Axion did their best to issue as few shares as possible during the last financing too, as is their duty to shareholders. Their best just wasn't very good.

     

    I'll be voting for the RS. I couldn't care less about authorized shares if we get listed on the NASDAQ; if our application gets denied, I'll re-evaluate my holding altogether. But I am not going to handcuff management when I have no idea what they need to do their job.
    4 May 2014, 04:04 PM Reply Like
  • Stilldazed
    , contributor
    Comments (2150) | Send Message
     
    Hi IT,
    Ditto.
    4 May 2014, 04:10 PM Reply Like
  • Retired Aviator
    , contributor
    Comments (2247) | Send Message
     
    isthis> "Handcuffing" management is pure myth. Any time the Board or CEO wants to increase the authorized shares they can make the case to shareholders and we will vote based on the merits of their case. It's very quick and easy with negligible cost for the Board to call a proxy vote at any time.

     

    What's really going on here is the sky high authorized count handcuffs +shareholders+, not management, by denying them the opportunity to vote even on extraordinarily large scale share issuances. Even on stock sales that could potentially knock your ownership interest in the company down by 95% or more. Why do you want give a signed, blank check for that?

     

    For gosh sakes sign the check at the time the BOD/CEO makes the case that any given share issuance makes sense for old shareholders.

     

    Without the RS proposal passing they already have a blank check cushion of increasing the share count by 55% (less outstanding options/warrants). *Ample* for anything deemed such a short fuse emergency that there would be no time for a vote. That rarely happens anyway.

     

    There is always a tug of war of opposing interests between newly issued shareholders and old. The benefactors are whichever group got the lower price. The losers are the ones who paid much more per share. Since we have no idea what the future issue prices may be it's madness to sign a blank check now. Sign it later if its warranted. Don't give away your write to vote.
    4 May 2014, 04:21 PM Reply Like
  • Stilldazed
    , contributor
    Comments (2150) | Send Message
     
    Hi RA,
    There are times when growth decisions and finance considerations must be made quickly, not by stockholder consensus, but by commonsense opportunity application. If we, as stockholders don't trust management and the BOD to perform their duties, why should any other company trust the AXPW company enough to sign a contract?
    4 May 2014, 05:13 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » PbC Believer> I like to think that I've always been reasonable in assessing management's strengths and weaknesses. I certainly agree that the PIPE was a catastrophe, but I don't have any feel for what the options were.

     

    Ultimately I think the only difference in our respective viewpoints is the relative importance we place on the lack of sales. Every public company has two products that must be marketed. The first is a tangible widget that generates cash flow for the company. The second is the ultimate intangible, a share of stock in a public company. I tell all my clients that they have to devote equal time and attention to maintaining vibrant markets for both products. Most don't listen very well. Axion certainly didn't. It paid attention to the PbC and left the stock market to fend for itself.

     

    It sounds like you come from a production background, which means that sales of the physical product are all that matters from your perspective. I come from a securities market background where managing the market for the financial product is most important.

     

    The reality is that both of our perspectives are too narrow because a successful public company has to artfully manage the market for its widgets and artfully manage the market for its paper. The greatest genius of Elon Musk is that he gets it and does a marvelous job of appealing to buyers of his cars and his financial products.

     

    As an interested bystander who wasn't responsible for any of Axion's stock transactions since 2008, I see the 2009 placement as the last time investors did more than a cursory review of the company's business fundamentals and growth prospects. That group bought 45.7 million shares and unless they were brain dead they knew there was no possible short-term exit strategy from a company that only traded 3.6 million shares on the sell-side during 2009. Investors who make a multi-year commitment always do a deep dive on fundamentals and worry about issues like sales growth.

     

    In the 2012 offering I think the perspective of the investors was far different. The price was showing some real strength after a couple years of relentless selling by the dueling trustees, Quercus. Special Sits and the small 2009 investors. They bought 27.7 million shares, but the total sell-side volume in 2011 had risen to about 38.8 million shares. Since they got a healthy discount they saw an easy exit with a profit over a period of less than 12 months, particularly if there was no more heavy selling from the 2009 crowd. Investors who plan to be in and out within a year don't care about sales forecasts as long as the market's expectations aren't too high.

     

    The PIPE transaction was a catastrophe and investors in that class only care about whether their victims can stay solvent long enough for them to make a bloody exit.

     

    As near as I can tell, every share of stock Axion sold since I was counsel for the company has been dumped into the market over the last-four years. When you run the sums those sellers as a group have accounted for about 83% of all sell-side volume while the retail investors who bought all those shares have accounted for 17%.

     

    For the first time in its long and painful history, Axion is coming into a period where there are no willing sellers lined up and ready to dump at any price. AFAIK the only possible sellers going forward are the old guard who are every bit as stubborn as I am and the Axionistas who bought all that stock. While lots of folk are worried and complaining about the absence of sales, they're hanging in and not jumping ship.

     

    The next few months will be a real education for me. I hope to see more visibility on future product sales growth, the factor you and many others consider most important. I know the supply and demand dynamic in the stock market is about to change radically. It will be fascinating to see which has the greater impact on the stock price.
    4 May 2014, 05:38 PM Reply Like
  • isthisonebetter
    , contributor
    Comments (375) | Send Message
     
    RA, in consideration of corporate governance best practices and NASDAQ rules mandating shareholder votes on equity compensation, etcetera, the authorized capital stock is entirely a non-issue. Instead of assuming the worst of our executives, let's see common goal in Axion's success and lend them the benefit of the doubt. They are no less human than you or I, regardless of the title or position they hold.

     

    IF we are listed on the NASDAQ, then I believe your fears are founded in your suspicions/misgivings and not, in fact, in reality. IF we are not listed on the NASDAQ after the reverse split then it's a good thing my views are mutable. The investment thesis remains unchanged, Axion is undervalued -- but we need *stable* money.
    4 May 2014, 10:39 PM Reply Like
  • Amouna
    , contributor
    Comments (1825) | Send Message
     
    John,

     

    Thanks for the informative article. Always good to have the perspective of a Securities lawyer on the matter :)

     

    The only thing keeping us folks in Axion is the prospect of a major coming out and finally saying: " I like this product, how can we move forward towards production scale?". Anything other than that is just pure TG pablum trying to save some more time by being "confident" and "upbeat".

     

    We will see over the course of the next few months, but at this stage I would say all options - including Axion's business model failing- should be considered. The outcome is binary.
    5 May 2014, 12:29 PM Reply Like
  • big_bear
    , contributor
    Comments (54) | Send Message
     
    Thank you for your explanations, JP and Bazooooka. I'm late to reply back but I really appreciate it.

     

    Not being able to articulate my thoughts, JP nailed it on the head. My main concern was how successful the previous cash infusions have been and whether we're doing this to just keep the lights on or if we're actually making progress when raising money year after year. It's difficult to measure the progress on a balance statement of a young company when there aren't many sales, but you hope that all of the intangibles and the hard work pays off for them (and us) and the size of the pie grows proportionally like the theory suggests. Time will tell.

     

    2014 is a critical year. The continued promise of sales can only last so long. Eventually, we either sell batteries or we don't.
    7 May 2014, 09:05 PM Reply Like
  • obieephyhm
    , contributor
    Comments (1595) | Send Message
     
    Thank you!
    4 May 2014, 02:12 PM Reply Like
  • Ikechowanec
    , contributor
    Comments (134) | Send Message
     
    The problem we all have is for whatever reasons the batteries aren't selling. More than likely the RS will happen along with authorized shares (350 million ???). All the above arguments are rearranging chairs on the Titanic if AXPW can't sell product and make a profit!!! Do we need new management? merger? what? I haven't been in as long as JP and others, but what I see isn't working. I still am long but at some point changes will need to be made and I think sooner rather than later.
    4 May 2014, 03:35 PM Reply Like
  • f-kru
    , contributor
    Comments (263) | Send Message
     
    John, thanks for this great explanation of the implications of the planned RS. Mid term I see a NASDAQ listing as the only viable choice for Axion, but also for existing share holders (like me). We need get more visibility and attract more money, this is the only way for the stock to grow significantly.
    One thing that's not quite clear to me at this point is the required $50 market cap for the Capital Market tier.
    We either need the price to stabilize well above .23$ or, at the current level, Axion needs to raise at least ~20Mio. if I got the numbers right.
    Maybe some positive news is already underway and part of the plan..

     

    5 May 2014, 03:05 AM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » If you download the NASDAQ listing standards PDF you'll see that there are three different sets of qualification standards for the Capital Market. As long as Axion meets all the criteria for one of the standards the other two don't matter.

     

    Axion cannot satisfy the Net Income Standard and there are no guarantees that it will satisfy the Market Value of Listed Securities Standard, but it does satisfy the Equity Standard (except for the bid price) and has for several years.

     

    That's good enough because a reverse split to raise the bid price will get us there even if nothing else happens.

     

    If the price recovers into the $.23 range or Axion does a larger financing than it has in the last two years, it will meet BOTH standards, even though only one is required.

     

    Where things get really interesting is if the price recovers to pre-PIPE levels and Axion does a larger financing than it has in the last two years. In that event the NASDAQ Global Market, their middle tier, isn't out of reach.
    5 May 2014, 06:07 AM Reply Like
  • f-kru
    , contributor
    Comments (263) | Send Message
     
    Thanks for the clarification. Interesting times ahead for sure.
    5 May 2014, 10:24 AM Reply Like
  • TheoHall
    , contributor
    Comment (1) | Send Message
     
    Mr. Petersen, thank you for taking the time to write this article, although I am only a very small shareholder of AXPW, I am only 26 and very new to investing. You were able to explain this situation in a way that I was very easy to understand, and I thank you again.

     

    T. Hall
    5 May 2014, 06:32 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Thanks for the kind words Theo. I really like teaching people things they may not fully understand and the decision you'll be asked to make is important. The more you understand the better your decision will be, regardless of what that decision is.
    5 May 2014, 06:38 PM Reply Like
  • Billion003
    , contributor
    Comments (266) | Send Message
     
    Mr. Peterson,
    You have agreed that PIPE was a disaster, but did Axion have any other choice? Was it, at the time, their only avenue of funding?
    5 May 2014, 07:01 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » I don't have an answer to that question in Axion's case, but I've been in several situations where the client's only choices were a bad deal or a worse deal. Sometimes it's better to dance with the devil for dollars than to sell your soul to a white knight.
    5 May 2014, 07:31 PM Reply Like
  • bazooooka
    , contributor
    Comments (3385) | Send Message
     
    JP,

     

    I think Axion would do itself a huge favor if they put up some more public info about their reasoning for an RS. TG's letter didn't help (yet yours did)

     

    Anyhow, fwiw, OCLR went through this back in 2009 recession and the stock went up many multiples after as it worked its way through the process.

     

    However I should note that OCLR did split its "authorized" also; and yes I'd love it if you (or Axion) could put to bed the controversy over the 'authorized' issue.

     

    http://bit.ly/1q8Bb4s
    5 May 2014, 08:48 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » Today's authorized, unissued and unreserved is only 100 million shares. That might be enough for a bare bones survival financing but it leaves no room for something more important without going back to the stockholders.

     

    I've never had much luck empowering with one hand while crippling with the other.
    5 May 2014, 09:17 PM Reply Like
  • bazooooka
    , contributor
    Comments (3385) | Send Message
     
    JP,

     

    Agreed 100M divided by the split still leaves Axion with limited funds if big things are afoot.

     

    However, what are your thoughts about limiting the post RS authorized to something like 10M shares after a presumed $4+ pps.

     

    That would give them 40 million, give or take, in near term expansion funds. Does that not seem reasonable, knowing that they could ask shareholders for more later on?

     

    Also is it really that technically/legally difficult to do an RS and also change the authorized at the same time?
    5 May 2014, 09:52 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » There might be a middle ground proposal but I'm not wise enough or informed enough to say what that middle ground could or should be. For the reasons outlined above I think people are brewing a tempest in a teapot with respect to the authorized share issue.

     

    I have never seen management of a public company do ANY of the things that commenters are describing as real, substantial, clear and present risks. It's all balderdash! That kind of nonsense simply does not happen in the real world.
    5 May 2014, 09:57 PM Reply Like
  • Articula
    , contributor
    Comments (276) | Send Message
     
    Reading between the lines if the minimum market cap required to list on the Nasdaq is 50m and we're around half that at today's given price is it that far of a stretch to assume that's an extremely bullish near term indicator?
    5 May 2014, 10:05 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » There are three different standards for a listing. A $50 million market cap is one. $5 million in equity and a two year operating history is another. While Axion may well qualify under several standards when the time comes, all it needs is one.

     

    If you want a clearer picture of the requirement click the embedded link in the listing standards section of the Instablog.
    5 May 2014, 10:08 PM Reply Like
  • rhyse12
    , contributor
    Comments (195) | Send Message
     
    "Leave Axion's authorized capital stock unchanged at 350 million shares of common stock and 12.5 million shares of preferred stock."

     

    This pleases me, but not to the degree leaving the OTC market to NASDAQ listing. That change fills me with a sense of joy.

     

    I feel the urge to sell for my annual $3k loss, and then buy back a nice block of shares.

     

    Since I view the quality of the PBC product will ensure sales going forward(granted I didn't believe it would be this far forward), personally I am comfortable with this move.

     

    I would prefer a solid product, with puny initial sales over a poor product with strong initial sales figures.

     

    It has been a hard road. The product hasn't failed, it just hasn't been embraced. That is my source of optimism.

     

    Of course, I could be just trying once again catch a falling knife.
    6 May 2014, 01:54 AM Reply Like
  • jwallingcfa
    , contributor
    Comments (8) | Send Message
     
    Two follow up questions for you John. First, assuming 220M shares outstanding and a 1:40 split, that leaves 5M shares outstanding. What has been your experience with quality investors interest in low float (less than 20M shares outstanding) companies? Second, given a 1:40 split each future share issued is now 40 times greater, as a percentage of the whole. What is your sense of Management's likely behavior in recognizing this when it comes to future equity compensation grants? Will they recognize this and act ethically?
    8 May 2014, 10:34 AM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » While a 1 for 40 reverse split is within the range requested by management, I have a hard time believing that's a likely number for the precise reasons you asked about. I have no reservations about management's future behavior when it comes to future equity based compensation because there's a ten year history of parsimonious equity grants and premium priced options. Leopards don't change their spots.
    8 May 2014, 10:45 AM Reply Like
  • Ikechowanec
    , contributor
    Comments (134) | Send Message
     
    JP, if not 1 to 40, then what are you thinking? Make some positive news, get price up to .30 then do 1 for 10??? I'm not sure this is a positive thing???
    17 May 2014, 09:04 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » If I was making the decision I'd shoot for a Nasdaq listing and an anticipated price above $5 even though $3 is the minimum requirement for a Nasdaq listing.

     

    The reason is that almost all funds have internal policies that prohibit ownership of stock that isn't listed on an exchange and most of the bigger funds have minimum price standards too.

     

    Twenty years ago I had fund managers telling me "I can't buy your stock until its trading for over $10, but once you hit that level I'll buy you all the way to $20.

     

    Fund managers have the same legal obligations as trustees and bankers when it comes to prudently investing the money entrusted to their care. They simply can't ignore policies and procedures because they like a story.
    17 May 2014, 09:22 PM Reply Like
  • Ikechowanec
    , contributor
    Comments (134) | Send Message
     
    Its happened on my other investments, stock gets a big bump just from crossing the $5 mark. But realistically how do they get AXPW above $5 for 30 days so the big money starts buying??
    18 May 2014, 10:58 PM Reply Like
  • John Petersen
    , contributor
    Comments (30418) | Send Message
     
    Author’s reply » The last time I believe Axion had a reasonable market cap was March of 2010 when it stabilized in the $100 million range, or $1.15 per share, on the strength of the 2009 offering which sold four hugely illiquid blocks that each represented two years of sell-side volume at $.57 share.

     

    The fundamental value added over the last four years in terms of product maturation, manufacturing technology maturation, customer awareness, completed customer testing and initial sales of batteries for use, rather than testing is enormous.

     

    The big problem in my opinion has been an unending stream of big investors acting savagely when they decided to sell for one reason or another. Micro-cap markets are like babies. If you try to feed them too much at a sitting or try to force feed them when they're not hungry, they'll puke all over your shirt.

     

    The PIPE investors have just left the stage and for the first time in four years Axion doesn't have two or three huge investors pushing and shoving at the pay window trying to force their shares into the market ahead of the other guy. In fact the only possible sellers are the old guard and the retail investors who did all the buying over the last four years.

     

    That fundamental shift in supply and demand dynamics should be enough to send Axion's market cap back into the $100 million range, although I think a much higher number would be appropriate in light of the progress made over the last four years. It may take a little good news from the company to act as a catalyst and give the stockholder base a little confidence that the future is not going to be a sequel of the past, but once that happens I have great expectations.

     

    If the stock moves back to $.25 and we have a 1 for 20 reverse $5 is a done deal. If market cap moves back into a range that I'd consider reasonable, a $7 to $10 price after a 1 for 20 reverse wouldn't be an unreasonable expectation.
    19 May 2014, 04:30 AM Reply Like
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