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Notes And More From Axion's Shareholders' Conference

At the outset of this Instablog, I should disclose that I'm no expert about Axion Power, nor the advanced lead acid batteries they are developing, and in no way am recommending this stock. Those that follow me, know I have certain belief in the potential of Axion's business model and also believe this microcap holds great promise, for those who are patient.

Today exceeded my expectations in more ways than I could possibly write in this Instablog. I found the employees of Axion to be courteous, knowledgeable, accessible, from CEO Thomas Granville, to the entire board of directors, the sales staff, right on to the employees working the factory floors. Most certainly when investors come for these types of meetings, everyone has on their best face. But what I saw, heard and felt was an incredible sense of pride and enthusiasm about Axion's future.

I took several pages of notes and will attempt to summarize my day as accurately as possible.

Upon entering the hallowed doors of New Castle Country Club, I was immediately offered a handshake from Charles R. Trego, Axion's Chief Financial Officer. After introductions and at least sharing 10 minutes of his time, I moved into where the shareholders' meeting was to take place. 

Milling about then and both before the plant tour and at the cocktail party to close things out, I met more investors, some whom came as far away as Texas, another seemingly powerhouse investor in from Vegas, and a Wells Fargo Advisor from Erie, PA.

The meeting was called to order, and the motions were seconded and the wonderful  Power Point presentation began.

Of course, attention in the room rose as Thomas Granville spoke about BMW, Norfolk Southern, the potential of grid applications for the 40 foot long Power Cube, and the "scalable" 10 foot long Mini Cube, which can be used as storage power for small businesses and residential communities, each of which can be used in conjunction with solar or wind applications. He also spoke of the potential Department of Energy grant that is in combination with a university, an institution, and OEMs from Detroit.

This is the second time I have heard Thomas speak Detroit OEMs in the plural. The first was during last quarter's conference call. 

Here are some other bulleted points from the morning meeting at New Castle Country Club:

--The PbC battery has now achieved and exceeded 100,000 charging cycles. This is particularly good news for Norfolk Southern. For over a year, Norfolk Southern has been testing Axion's batteries. This is after Norfolk eliminated lithium batteries, supercapictors, flywheels, and conventional lead acid batteries from being in play for their "yard switchers" and "over the road" locomotives. The testing results are showing that diesel consumption is lowered significantly, and carbon dioxide emissions, which the EPA is concerned about, are also reduced significantly. As the price of diesel fuel continues to rise over the coming years, further savings will be incurred. At current prices, the 640 battery Power Cube is estimated to have a return on investment of 2.5 years.

Granville expects Norfolk's first technology breakout later this year.  

More to come about Norfolk when I shift over to visiting the two plants.

--When comparing Axion's PbC technology to lithium, the ancillary costs of a lithium battery costs more than the battery itself. In other words, when one buys a HEV or plug-in automobile, there is not only the expensive battery, but also a temperature controlled casing that surrounds the battery, and also necessary additional wiring and software that the purchasing customer must also buy. Often, these additonal costs are not mentioned when a "green" customer is buying said vehicle. Further, testings have shown that lithium batteries do not work well in cold temperatures. If one were to buy a lithium battery assisted car, and the battery overheated, Granville called that car, a "Car-B-Que." Heat management with lithium batteries is a very big and costly issue. A lithium fire is very hard to extinguish.

--In Europe, by 2016, all cars and mini-trucks will have stop start technology. The fines to those not complying will be costly. There are various levels of guideline fines per gram level exceeded of CO2 emissions per kilometer that can be read about in Axion's latest quarterly report. But, for example, if BMW does not comply with the stiff European standards, they could potentially be fined as much as $230 per car. This applies fleetwide, even if some cars do comply. Therefore, if BMW manufactures 1,000,000 vehicles, they will be fined $235,000,000, if they choose to ignore this decree. This is a stair step law, that so much has to improve each succeeding model year, beginning in 2012, and completing, once again, by 2016. 

--The expected fuel savings using PbC stop start technology, depending on a drive in the countryside, to city driving, is 5 to 15%.

--A two battery system will eventually be in all European and American produced cars. One is for what is called "Hotel" time, which is when the engine is shut down, and the PbC battery keeps the radio, heater, air conditioner, all the electronics of the car functioning. The other battery is for powering up the engine. In all honesty, it's been a long day, it's late, and I may have this butt-backwards. But two batteries will be in all cars, soon.

--In the works for further savings is what is called, "Sailing Time." This is when the car is coasting to a stop, and at 6 miles per hour, the engine shuts down as the vehicle drifts to a stop. Oddly, most cars will include a defeat button, which allows the driver to always have the engine on, defeating the whole purpose of stop start technology. The simple act of braking is what re-charges the battery. Same goes with Locomotives. The Sailing Time will further up petrol savings and the return on investment.

--99.2% of Axion's PbC battery is recyclable. Granville figures a used up Axion battery is worth about 32 cents per pound. I believe I read somewhere that 99% of all lead acid batteries are recycled in the US. But lithium batteries cost 52 cents per pound to dispose of! Lithium batteries are not recyclable, and are very dangerous to the environment if not properly disposed.

--I believe the vote that took place today about adding common shares up to 200,000,000 will pass. Granville said Axion does not currently need money. He does not expect the offering to occur within the next two months. The ability to have the shelf offering, which this time will be public rather than private, will expire on March 15, 2012. Granville stated that if the offering does occur, if Axion needs more money, it will be after a, "Price spike," he said, getting the valuation over $75,000,000. That's potentially a tradeable barometer, for those whom want to trade rather than hold this stock.   

After the Power Point presentation concluded, the representative from Quercus Trust, who have been liquidating shares, stood and stated categorically that Quercus Trust strongly believes in the Axion story. He spoke of how from a venture capital firm's mindset, the world as we know it did not end on September 11, 2001, but did in fact end post-Lehman in 2008. Quercus Trust has been "reallocating" their $500M in original investment in green teck concepts since. This included not only Axion Power, but also "30 to 40" other ventures as well. 

After a barrage of questions concluded from not only investors, but also the directors, I immediately stood and approached David Anthony, whom only reports to Quercus' CEO, David Gelbaum, and questioned him about how much more liquidation Quercus was considering. He would not state how much. My take away, and this is what I said to him, is that I was hearing from him that Quercus was not going to liquidate all of their shares. Again, he would not commit, but he spoke of how Quercus figures of their 30 to 40 investments, 2 to 3 will return 10X plus, and 4 to 6 will return 2X to 5X. The rest will be duds. The time frame was not mentioned. He added that at anytime portfolio valuations can change, forcing Quercus to reevaluate and reallocate. My conviction in listening closely to David is that Quercus will not liquidate all of their remaining shares; perhaps as little as 10 percent more. Across the board Quercus is liquidating and reallocating. 

David Anthony gave me his business card and said I could call him anytime.

Onward I went to tour the plants. At the Clover Lane facility, we were divided up into small groups. I quickly tailed into the group led by the Plant Manager, Joe Cole. The first place we were taken to was the Power Cube, mounted atop an 18 wheeler flatbed, for ease of transport. Thankfully on this scalding day, the inside of the Power Cube was air conditioned.  

To my surprise, this is where I learned Axion is working on an even better performing next generation battery, called the 30HT. This is the battery that will be used for grid-base applications, and quite possibly also used by Norfolk. It's the same footprint as the current PbC battery, but it's about 2 inches taller, and will have a higher energy density. Basically, the 40 foot long, half megawatt Power Cube will be reduced to a bank of batteries 20 feet long. I failed to ask if the 640 batteries in the current Power Cube will also be cut in half to 320.

Software for the current and future Power Cube batteries are electronically linked, such that if one battery becomes weaker than the others, the whole "section" or "bank" of batteries will either work to redistribute and charge to the weaker battery, or that section will be turned off. This software is still being tweaked. What's neat is Axion will have the capability to monitor the Power Cube remotely, and will call, say to a cattle farmer in Colorado, to inform the owner that he needs to switch off that section so that it can be repaired, before the weak battery stresses out the other batteries in that group. I believe this is also very important to Norfolk. 

It was a wonderful experience to tour the flooded lead acid plant, seeing A to Z the manufacturing process. How precious for Axion to have stumbled onto leasing this facility, because "lead" has such a bad rap that the NIMBY effect applies nationwide. Asking about the long term certainty of the lease, I learned that it's pretty solid years into the future, because, for example, a bakery would never be allowed to sit where lead acid batteries were made in this 75,000 square foot facility.   

--Axion hired 20 new employees last year, and ten more this year.

--Axion still has some problems with their R&D. The biggest problem is the current extruding capacity of the carbon sheets that are inserted inside the batteries. But they are working on this and expect a remedy soon.

--Outside one plant stands gigantic solar trees. I'm assuming they are akin to what Envision Solar has and is using Axion technology to store energy to light up the parking lot at night. But immediately, upon seeing this, an Axion employee told me there's a slight problem with this idea in the northern climes. Snow comes down. You're parked to the side of one of the trees, and as it rotates to follow the sun, you may be the unlucky one under which your car is buried...maybe even encased in ice as melting snow re-freezes, I added. We chuckled. Probably not going to see this idea used in the snow belts. But in the deep south, and areas like San Diego, this idea works. 

After the Clover Lane tour, we all traveled about a mile to the other plant, where the PbC battery was being made. No cameras or cell phones allowed. Security was tight. We were able to watch the new robotic line in action. Very impressive. Axion expects to add as many as 11 more lines, which offer greater precision and end product certainty than if made by machine assisted hand. There is also a every once in a while an "electrostatic sticking" issue, of which I'm not sure how this will be resolved. 

Further, this is where the real juice is with Axion, in that they prefer to make on site the PbC electrode, and then send them out world wide to other battery makers, and license those battery manufacturers to use the PbC technology.

So now we get into a little bit of chemistry as to why Axion PbC technology is leaps ahead of other battery manufacturers to the point that giants such as Johnson Controls and Exide have asked Axion to evaluate their batteries! It all has to do with the crystal formation inside other kinds of advanced lead acid batteries, and this amazing little positive electrode is what sets Axion apart from other industry leaders. 

Please excuse my naive-ness, but I'll give this a shot, in layman's terms.

The guts of the battery in a common lead acid battery, or other advanced lead acid concepts, soon begin to degrade because of crystal formation, which greatly affects the batteries ability to not only discharge, but take on a charge. Axion has come up with a "secret sauce" that basically eliminates this problem, as the 100,000 cycles has proven.

What's amazing is that the negative cathode also quickly degrades. And yet, and this is important, no battery ever before made has there been a study on when the positive annode begins to degrade, because the negative cathode always ruins the battery first. Axion is now beginning testing of when the PbC annode begins to degrade. An uncharted study. All quite above my head, but that fact I found stunning.

In final, I should add that when I introduced myself to Thomas Granville before the Power Point presentation, I found him incredibly approachable. We spoke for a few minutes and he was all smiles when I mentioned that I was buds with Axion's previous CEO, John Petersen, through Seeking Alpha. That a while back John decided to stay in Philadelphia rather than in New York City, where he was giving a deposition, so that we could share precious time together, driving aimlessly around Philadelphia, and then a fantastic cheesesteak at the airport Marriott. At the cocktail party I also met many more fine folks from Axion, as well as a few other seemingly major investors. 

As I decided it was time to leave, I went around shaking hands in gratitude. As I was talking with The Chief Operating Officer, I felt someone approaching me from the side. I turned and it was Thomas Granville, who had apparently overheard that I was departing. He wished me safe trip back to Philadelphia, and to say hello to John Petersen.

A gracious man he is. 

I apologize in advance if there are any inaccuracies to the above text. All this is way over my head. I'm not a battery geek, only an investor in what I truly believe is a home run winner as we proceed in time. 

I should note that I am in staying in Pittsburgh tonight, and will be on the road back to Philadelphia tomorrow. So don't be anguished if I'm not available to answer any follow up questions until Friday! 

Thank you for taking the time to read about my day at the Axion shareholders' meeting. I dearly hope this aids in your investing decisions.  




Disclosure: I am long AXPW.