An Outline of the Risk of Stock Ownership in Axion Power, International (NASDAQ:AXPW)
This article is written simply as a discussion tool for the owners of Axion stock. There has been an attack on Axion shareholders by a few disgruntled persons on the message board of Yahoo.com.
It is fairly obvious that these disgruntled persons are indeed one or more of the original Mega C corporation that ended up owning a company that could not afford to pay the scientist for their knowledge or patents. Axion shareholders converse on the Axion Concentrator instablog of SeekingAlpha.com. A few of these negative shareholders have tried to join in the conversation. Always being drummed out due to their negativity has drawn criticism that the Concentrator contributors never look at real world risk. I disagree with that theory. I believe most Axionistas ( as we call ourselves) are level headed investors that understand markets and risk. But, in order to formally discuss risk, as an Axion Shareholder I offer the following article for your perusal or comment. I do not expect that its submission will allow the previously banned negative posters to contribute as they are only prone to personal attack.
Micro cap risk
AXPW.ob is a publicly held stock that trades on the Over the Counter market. In 2003 the company was a privately held company that purchased the patent and full rights to a technology developed by a few Russian scientist. Their discovery was that if you replaced the negative lead electrode in a standard lead acid battery, with a negative electrode made of carbon, then the battery would act as a capacitor and a battery. It should give one the power of a lead acid battery and the quickness of accepting and releasing a charge normally reserved to a capacitor. Thus was born the PbC, " a multi-celled asymmetrically supercapacitive lead-acid-carbon hybrid battery.
The team of entrepreneurs decided to try and commercially develop a way to make the negative electrode and sell them to current battery manufacturers. Thus manufacturers all around the world could order the electrodes and compete in selling the PbC battery. PbC is the trade name now used for the asymmetrical capacitor. Pb is the symbol for lead. C is the symbol for Carbon.
In 2003 a group of original investors realized that it would take about 30 Million dollars to secure the patents, go public, and develop the PbC to commercialization. To do this they contacted an attorney named John Petersen, who specialized in small firm start -ups. He happen to control an SEC clean publicly owned shell corporation called Tamboril Cigar Company. The shell was purchased and the name changed to Axion Power International. John Petersen later was named Chairman of the Board of Directors. The history of the company is found in this article entitled Axion: Against all odds posted on the Axion Website
( http://www.b2i.cc/Document/1933/120330.pdf). I mention this for two reasons. First so everyone understands that Axion Power is a legitimate publicly traded stock company that has no relation to a Cigar company except that they took over a functioning shell corporation. Second that John Petersen was a respected attorney that earned the position of Chairman of the board and has no status or connection to the company now. Except as a significant shareholder. Much negative criticism has been received by Mr. Petersen due to his writing and support of Axion Power since his departure 4 years ago.
As a matter of risk, small micro cap stocks are very risky. Axion initially had 30 Million to buy the needed patents ,set up a team of engineers and scientist, and develop their commercialized product. To date they have been woefully slow in achieving their goal. As of the end of the 2011 fiscal year Axion has spent $76 Million to develop the PbC. More than double what they planned. This is not unusual for microcap stocks. Often well laid plans take twice as long as necessary and cost more than twice as much as expected. Axion is still not breaking even on a cash flow basis. They are not expected to until the last quarter of 2013. The risk of not being able to meet funding needs is the largest risk of Axion. They have enough money today to continue their existence until the first quarter of 2013.
Axion's second largest risk is that of not developing a product the world wants. Making a better mousetrap does not guarantee success. A better mousetrap needs to compete effectively with the old mousetrap. If you go to a hardware store and go to the mousetrap isle you will find many types of traps.
The old fashion wood base trap with a single hinged spring cost about $.50 and are very effective.
Its a little messy for picking up and disposal. Cheapskates that want to reuse the trap have to ward off touching the dead mouse in the disposal process. As an aside ,one reason for the success of this product is the fact that people simply throw the mouse and all in the trash. After all its only $.50. A simple google search will show mousetraps of every other variety on sale from $3 each to $85 each.
From the looks of it many companies have tried to build a better mousetrap. I'm sure some are better. But there is risk in simply not being able to beat the competitors price.
3. RISK OF PRICE
Axion is competing with a standard lead acid battery that sells for around $65. An AGM battery sells for $125. It has been estimated that a PbC will sell for around $250. Now a PbC lasts five times longer than an LAB. It has never died, as far as published material can show, when discharging at a rate above full depth of discharge. It has several qualities that mimic the benefits of lithium batteries that would cost 3-5 times the cost of a PBC.
So there is risk is that the product will not be accepted. This risk is now tempered because Norfolk Southern has accepted the product to install for testing in its hybrid locomotive program. The Navy has accepted the product for testing in its zero energy use building. BMW has been testing and not dismissing this product for its Start/stop systems for three years. Viridity energy and PJM have joined with Axion to be the first "behind the meter" battery storage product that actually can be used to sell electricity back to the utility. This provides cash flow to the owner and allows the utility to spend less money in capital expenditures.
Each investor must establish whether the product is at risk of failure or non acceptance. This is simply a fact that has to be addressed. Some don't believe the product is a better mousetrap that will be accepted and some believe it is the best value mousetrap on the planet.
Axion"s initial plans were to build the negative electrode on a very fast robotic assembly line starting in 2009-2010. Excitement was everywhere because the ability to manufacture in quantity was soon to be here. But something went terribly wrong. The process of making a negative electrode out of carbon instead of lead proved difficult. So difficult that the first Gen 1 electrode assembly line was scrapped. A Gen 2 line was ordered and installed. This new line has been tweaked all through 2011. The CEO reports that it could now be duplicated and large numbers of products could be made. That's a nice thought but until you try to manufacture one million of anything, with low fault error, you simply don't know if it can be done, until you complete the task. Risk exists. According to the latest Conference Calls the risk is low. Yet, the risks exist.
5) World wide political and economic risks.
As with any company a world wide recession can have detrimental effects on Axion. Axion presently produces a majority of it's revenues from making old fashion lead acid batteries for another battery company. A meltdown could cost Axion 75% of its revenues. Likewise a European meltdown could stop BMW from progressing to implement an Axion solution. Governments could ease pollution restraints in response to an economic collapse. A better battery would not be needed because the economics could change. A driving force for the adoption of the PbC is its ability to save fuel for automotive, rail, housing, and renewable energy storage. All which are fueled by environmental concerns. Politics and economics are strange bedfellows. For now the world seems to believe in saving the environment and money by burning less oil. The PbC might help. But if political forces change, so could the fortunes Axion Power, Int.
Each and every shareholder of a microcap company must identify the risks of the investment. When one looks at the disruptive technology that Axion has developed and compare that with the rest of the industry a conclusion can be drawn that the risks are in the shareholders favor.
Disclosure: I am long AXPW.