Attached files
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EX-5.1 - OPINION OF JOLIE KAHN, ESQ. - Axion Power International, Inc. | v171014_ex5-1.htm |
EX-16.1 - LETTER FROM PREDECESSOR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - Axion Power International, Inc. | v171014_ex16-1.htm |
EX-23.2 - CONSENT OF EFP ROTENBERG, LLP - Axion Power International, Inc. | v171014_ex23-2.htm |
As
filed with the Securities and Exchange Commission January 15,
2010
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Registration
Statement No. 333-
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
REGISTRATION
STATEMENT
ON
FORM S-1
UNDER
THE
SECURITIES ACT OF 1933
AXION
POWER INTERNATIONAL, INC.
(Exact
name of registrant as specified in its charter)
Delaware
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65-0774638
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2121
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(State
or other jurisdiction of
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(I.R.S.
Identification Number)
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(Primary
Standard Industrial
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incorporation
or organization)
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Classification
Code Number)
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3601
Clover Lane
New
Castle, Pennsylvania 16105
Telephone
(724) 654-9300
(Address,
including zip code, and telephone number, including
area
code, of registrant’s principal executive offices)
Thomas
Granville
3601
Clover Lane
New
Castle, Pennsylvania 16105
Telephone
(724) 654-9300
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service)
Copies
to:
Jolie
Kahn, Esq.
61
Broadway, Suite 2820
New
York, NY 10006
and
Quentin
Collin Faust, Esq.
Andrews
Kurth LLP
1717
Main Street, Suite 3700
Dallas,
Texas 75201
Telephone
(214) 659-4400
Approximate Date of Commencement of
Proposed Sale to the Public: At such time or times after the effective
date of this registration statement as the selling stockholders shall
determine.
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and
“small reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
(Do
not check if a smaller reporting company)
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Smaller
reporting company x
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CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities to be Registered
|
Amount
to be
Registered
|
Proposed
Maximum
Offering
Price
per
Unit(1)
|
Proposed
Maximum
Aggregate
Offering
Price
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Amount
of
Registration
Fee
|
||||||||||||
Common
Stock, par value $0.0001 per share
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45,757,572 | $ | 1.37 | $ | 62,687,873 | $ | 4,469,65 | |||||||||
(1)
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Estimated
for the purpose of determining the registration fee pursuant to Rule
457(c), based on the average of the bid and asked price as of
January 7, 2010.
|
The
Registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The
information in the prospectus is not complete and may be changed. The selling
stockholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell and is not soliciting an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted.
Subject
to Completion, dated January 15, 2010
PROSPECTUS
45,757,572
Shares of Common Stock
This
prospectus relates to the offer and sale of up 45,757,572 shares of common stock
of Axion Power International, Inc., a Delaware corporation, issued to certain
selling stockholders, which are signatories on the below listed securities
purchase agreement pursuant to a Securities Purchase Agreement, dated December
18, 2009, between the selling stockholders and the Company and that may be
offered and sold from time to time by the selling stockholders.
Unless
otherwise noted, the terms “the Company,” “our
Company,” “Axion,” “we,” “us” and “our” refer to Axion Power
International, Inc. and its subsidiaries.
The 45,757,572
shares of common stock covered by this prospectus may be offered and sold from
time to time by the selling stockholders or by their pledgees, donees,
transferees, assignees or other successors-in-interest that receive any of the
shares as a gift, distribution, or other non-sale related transfer.
The
selling stockholders may offer their shares from time to time directly or
through one or more underwriters, broker-dealers or agents, in the
over-the-counter market at market prices prevailing at the time of sale, in one
or more negotiated transactions at prices acceptable to the selling
stockholders, or otherwise.
We will
not receive any proceeds from the sale of shares by the selling stockholders. In
connection with any sales of the common stock offered hereunder, the selling
stockholders, any underwriters, agents, brokers or dealers participating in such
sales may be deemed to be “underwriters” within the meaning of the Securities
Act of 1933, as amended (the “Securities Act”).
We will
pay the expenses related to the registration of the shares covered by this
prospectus. The selling stockholders will pay any commissions and selling
expenses they may incur.
Our
common stock trades on the Over the Counter Bulletin Board under the symbol
“AXPW.OB”. The closing sale price on the OTC Bulletin Board on January 7,
2010, was $1.39 per share.
Investing
in the common stock offered by this prospectus is speculative and involves a
high degree of risk. See “Risk Factors” beginning on page 5.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date
of this prospectus
is
, 2010
3
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5
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F-1
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F-15
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II-1
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II-10
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ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission using the Securities and Exchange
Commission’s registration rules for a delayed or continuous offering and sale of
securities. Under the registration rules, using this prospectus and, if
required, one or more prospectus supplements, the selling stockholders named
herein may distribute the shares of common stock covered by this prospectus.
This prospectus also covers any shares of common stock that may become issuable
as a result of stock splits, stock dividends or similar
transactions.
A
prospectus supplement may add, update or change information contained in this
prospectus. We recommend that you read carefully this entire prospectus,
especially the section entitled “Risk Factors” beginning on page 5, and any
supplements before making a decision to invest in our common stock.
Cautionary
Note Regarding Forward-Looking Information
This
prospectus, in particular the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” appearing herein, contains certain
“forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended , and Section 21E of the Securities Exchange Act of
1934, as amended. These forward-looking statements represent our expectations,
beliefs, intentions or strategies concerning future events, including, but not
limited to, any statements regarding our assumptions about financial
performance; the continuation of historical trends; the sufficiency of our cash
balances for future liquidity and capital resource needs; the expected impact of
changes in accounting policies on our results of operations, financial condition
or cash flows; anticipated problems and our plans for future operations; and the
economy in general or the future of the electrical storage device industry, all
of which are subject to various risks and uncertainties.
When used
in this prospectus as well as in reports, statements, and information
we have filed with the Securities and Exchange Commission, in our press
releases, presentations to securities analysts or investors, in oral statements
made by or with the approval of an executive officer, the words or phrases
“believes,” “may,” “will,” “expects,” “should,” “continue,” “anticipates,” “intends,” “will
likely result,” “estimates,” “projects” or similar expressions and
variations thereof are intended to identify such forward-looking statements.
However, any statements contained in this prospectus that are not statements of
historical fact may be deemed to be forward-looking statements. We caution that
these statements by their nature involve risks and uncertainties, certain of
which are beyond our control, and actual results may differ materially depending
on a variety of important factors, including, but not limited to such factors as
the following. With regard to the risks we may face, we advise you to carefully
consider the following risks and uncertainties:
|
·
|
we
have incurred net losses since inception, and we may not be able to
generate sufficient revenue and gross margin in the future to achieve or
sustain profitability;
|
|
·
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we
may be unable to enforce or defend our ownership of proprietary
technology;
|
|
·
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we
have never manufactured carbon electrode assemblies in large commercial
quantities;
|
|
·
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we
may be unable to develop a cost effective alternative to conventional lead
electrodes;
|
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·
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our
technology may be rendered obsolete as a result of technological changes
in the battery industry or other storage
technologies;
|
|
·
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we
may not be able to establish reliable supply channels for the raw
materials and components that will be used in our commercial proprietary
lead/carbon (“PbC”) batteries;
|
|
·
|
other
manufacturers may not be able to modify established lead-acid battery
manufacturing processes to replicate our processes to accommodate
differences between their products and our commercial PbC battery
technology;
|
|
·
|
we
will have limited market opportunities based on our anticipated
manufacturing capacity;
|
|
·
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our
shareholders may suffer significant dilution in the event that our
outstanding warrants and options are ever
exercised;
|
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·
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we
depend on key personnel and our business may be severely disrupted if we
lose the services of our key executives and
employees;
|
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·
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our
revenues may suffer if general economic conditions
worsen, remain in the current adverse state and/or do not
improve in a timely manner; and
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·
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we
are subject to stringent environmental
regulation.
|
This
summary highlights important information about this offering and our business.
It does not include all information you should consider before investing in our
common stock. Please review this prospectus in its entirety, including the risk
factors and our financial statements and the related notes, before you decide to
invest.
Our
Company
We are a
development stage company that was formed as Axion Power Corporation in
September 2003 to acquire and develop certain innovative battery technology.
Since inception, Axion Power Corporation has been engaged in research and
development of the new technology for the production of lead-acid-carbon energy
storage devices (technology) that we refer to as our PbC devices. As of December
31, 2003, Axion Power Corporation engaged in a reverse acquisition with Tamboril
Cigar Company, a public shell company. Tamboril was originally incorporated in
Delaware in January 1997, operated a wholesale cigar business until December
1998 and was an inactive public shell thereafter until December 2003. The
information presented herein relates to the operations of Axion Power
Corporation, the accounting acquirer. Tamboril, the legal acquirer, changed its
name to Axion Power International, Inc. We formed a new corporation, Axion Power
Battery Manufacturing Inc., which purchased the foreclosed assets of a failed
battery manufacturing plant. The new operating entity now
conducts R&D and manufacturing activities and also manufactures lead-acid
battery product for sale to distributors and end user customers.
Since
inception, our operations have been financed by a small group of individuals and
entities with little to no revenue generated from operations. As a result,
trading in our common stock has been sporadic, volumes have been low, and the
market price has been volatile. We believe that a successful transition from
R&D to manufacturing, and therefore marketing and selling our proprietary
products, will improve our cash balances and market profile and may result in a
more active trading market for our stock. However, we can provide no guarantees
that our transition efforts will be successful.
Our
Business
We are a
development stage company that has invested six years and approximately $17.3
million in R&D expense to develop a patented energy storage device that uses
carbon electrode assemblies to replace the lead-based negative electrodes found
in conventional lead-acid batteries. Our PbC energy storage device is a
battery-supercapacitor hybrid that combines the simplicity of lead-acid
batteries with the fast recharge rate and longer cycle life of supercapacitors,
resulting in a relatively low-cost device that has versatility of design that
will allow differing iterations to deliver maximum power; maximum energy; or a
range of balances between the two. We recently raised over $25
million, which will be used mainly to secure additional equipment and expand
personnel and operations as we move out of a development stage into a commercial
stage and begin full scale manufacturing of our products.
We
believe our advanced battery technologies are uniquely situated to answer the
current challenges facing the conventional lead-acid battery and that industry
as a whole. While we explore the various potential applications for our PbC
technology, our battery manufacturing plant in New Castle, Pennsylvania provides
us with both an excellent R&D facility and a well suited pilot production
plant in which to produce our advanced energy storage devices. This plant allows
us to manufacture our PbC carbon electrodes in limited quantity and to assemble
our new energy storage batteries for laboratory testing and for small scale
demonstration projects. In manufacturing this battery assembly using
conventional lead-acid battery production equipment, we provide proof to our
future PbC carbon negative electrode customers that our product is suitable to
immediate use in their factories.
The
Offering
Common
stock offered by the selling stockholders:
|
45,757,572
shares of our common stock, par value $0.0001 per
share.
|
Offering
prices:
|
The
shares offered by this prospectus may be offered and sold at prevailing
market prices or such other prices as the selling stockholders may
determine.
|
Common
stock outstanding:
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75,767,818
shares as of January 11, 2010.
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Dividend
policy:
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Dividends
on our common stock may be declared and paid when and as determined by our
board of directors. We have not paid and do not expect to pay dividends on
our common stock.
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Over
the Counter Bulletin Board symbol:
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AXPW.OB
|
Use
of proceeds:
|
We
are not selling any of the shares of common stock being offered by this
prospectus and will receive no proceeds from the sale of the shares by the
selling stockholders. All of the proceeds from the sale of common stock
offered by this prospectus will go to the selling stockholders at the time
they sell their shares.
|
Risk
Factors
See “Risk
Factors” beginning on page 5 for a discussion of
factors you should carefully consider before deciding to invest in our common
stock.
Our
Address
Our
principal executive offices are located at 3601 Clover Lane, New Castle,
Pennsylvania 16105, and our telephone number is (724) 654-9300.
Investing
in our common stock is very speculative and involves a high degree of risk. You
should carefully consider all of the information in this prospectus before
making an investment decision. The following are among the risks we face related
to our business, assets and operations. They are not the only risks we face.
Additional risks and uncertainties not presently known to us or that we
currently believe to be immaterial may also arise. Any of these risks could
materially and adversely affect our business, results of operations and
financial condition, which in turn could materially and adversely affect the
trading price of our common stock. You should not purchase our shares unless you
can afford to lose your entire investment.
Risks
related to our business
We are a development stage company, and
our business and prospects are extremely difficult to evaluate.
Since our
inception in September 2003, the majority of our resources have been dedicated
to our R&D efforts, and we have only recently begun to transition into the
very early stages of commercial PbC prototype production. We
do not have a stable operating history that you can rely on in connection with
your evaluation of our current business and our future business prospects. Our
business and prospects must be carefully considered in light of the limited
history of PbC technology and the many business risks, uncertainties and
difficulties that are typically encountered by development stage companies that
have sporadic revenues and are committed to focusing on research, development
and product testing for an indeterminate period of time. Some of the principal
risks and difficulties we have encountered and expect to continue to encounter
include, but are not limited to, our ability to:
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·
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Maintain
effective control over the cost of our research, pace of progress,
development and product testing
activities;
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·
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Develop
cost effective manufacturing methods for essential components of our
proposed products;
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·
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Improve
the performance of our commercial prototype
batteries;
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·
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Successfully
transition from our laboratory research and pilot production efforts to
commercial manufacturing and sales of our battery
technologies;
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·
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Adapt
and successfully execute our business
plan;
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·
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Implement
and improve operational, financial and management control systems and
processes;
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·
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License
complementary technologies if necessary and successfully defend our
intellectual property rights against potential
claims;
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·
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Respond
effectively to competitive developments and changing market
conditions;
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·
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Continue
to attract, retain and motivate qualified personnel;
and
|
|
·
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Manage
each of the other risks set forth
below.
|
Because
of our limited operating history and our relatively recent transition into the
production of prototype PbC devices that we are relying on to become our core
revenue generating products, we have limited insight into trends and conditions
that may exist or might emerge and affect our business. There is no assurance
that our business strategy will be successful or that we will successfully
address the risks identified in this prospectus.
We
have incurred net losses from inception and do not expect to introduce our first
commercial PbC products for a minimum of three months.
From our
inception we have incurred net losses and expect to continue to incur
substantial and possibly increasing losses for the foreseeable future as we
increase our spending to finance the development of and production methods for
our PbC devices, our administrative activities, and the costs associated with
being a public company. Our operating losses have had, and will continue to
have, an adverse impact on our working capital, total assets and stockholders’
equity. For the nine months ended September 30, 2009, we had a net loss
applicable to common shareholders of approximately $23.5 million and cumulative
losses from inception (September 18, 2003) to September 30, 2009 of $66.0
million. Our PbC technology has not reached a point where we can mass produce
batteries based on the technology, and we will not be in a position to
commercialize such products until we complete the design development,
manufacturing process development and pre-market testing activities. We believe
the development and testing process will require a minimum of an additional
three months. There can be no assurance that our development and testing
activities will be successful or that our proposed products will achieve market
acceptance or be sold in sufficient quantities and at prices necessary to make
them commercially viable. If we do not realize sufficient revenue to achieve
profitability, our business could be harmed.
Our
revenues may suffer if general economic conditions do not begin to
improve.
Our
revenues and our ability to generate earnings are affected by the general
economic factors that are adversely impacting the global economy, such as lack
of liquidity in the capital markets, reduced demand for consumer and industrial
products, excessive inflation, currency fluctuations, increased commodity prices
and employment levels, resulting in a temporary or longer-term overall decline
in demand for our products. This trend has already commenced with excess supply
beginning to build up in the industries in which we operate. Therefore, any
continued downturn or recession in the United States, Canada or the EC is
expected to have a material adverse effect on our business, results of
operations and financial condition.
As
we sell our products, we may become the subject of product liability
claims.
Due to
the hazardous nature of many of the key materials used in the manufacturing of
batteries, the producers of such products may be exposed to a greater number of
product liability claims, including possible environmental claims. We currently
have product liability insurance up to $1,000,000 per occurrence and $5,000,000
in the aggregate to protect us against the risk that in the future a product
liability claim or product recall could materially and adversely affect our
business operations. Inability to obtain sufficient insurance coverage at an
acceptable cost or otherwise to protect against potential product liability
claims could prevent or inhibit the commercialization of our product. We cannot
assure you that as we continue distribution of our products that we will be able
to obtain or maintain adequate coverage on acceptable terms, or that such
insurance will provide adequate coverage against all potential claims. Even if
we maintain adequate insurance, any successful claim could materially and
adversely affect our reputation and prospects, and divert management’s time and
attention. If we are sued for any injury allegedly caused by our future products
our liability could exceed our total assets and our ability to pay such
liability.
Our
products contain hazardous materials including lead.
Lead is a
toxic material that is a primary raw material in our batteries. We also use,
generate and discharge other toxic, volatile and hazardous chemicals and wastes
in our research, development and manufacturing activities. We are required to
comply with federal, state and local laws and regulations regarding pollution
control and environmental protection. Under some statutes and regulations, a
government agency, or other parties, may seek to recover response costs from
operators of property where releases of hazardous substances have occurred or
are ongoing, even if the operator was not responsible for such release or
otherwise at fault. In addition, more stringent laws and regulations may be
adopted in the future, and the costs of complying with those laws and
regulations could be substantial. If we fail to control the use of, or
inadequately restrict the discharge of, hazardous substances, we could be
subject to significant monetary damages and fines, or be forced to suspend
certain operations.
We
are subject to stringent environmental regulation.
We use or
generate certain hazardous substances in our research and manufacturing
facilities. We do not carry environmental impairment insurance. We believe that
all permits and licenses required for the operation of our business are in
place. Although we do not know of any material environmental, safety or health
problems in our property or processes, there can be no assurance that problems
will not develop in the future which could have a material adverse effect on our
business, results of operation, or financial condition. In January of
2009, our facility was
tested and found to be in compliance with emission standards as established by
new federal guidelines in accordance with the Clean Air Act – Title
III.
The
growth we seek is substantial and challenging to achieve and
maintain.
The
realization of our business objectives will require substantial future growth.
Even in the event we are able to complete the development of our prototypes,
introduce our products to the market and grow our business, we expect that rapid
growth will significantly challenge our managerial, operational and financial
resources. We must continue to prepare for our growth, if any, through
appropriate systems and controls. We must also establish, train and manage a
much larger work force, which will again require advance planning. If we do not
prepare for and manage the growth of our business effectively, our potential for
success could be materially and adversely affected.
Being
a public company increases our administrative costs significantly.
As a
public company, we incur significant legal, accounting and other expenses that
would not be incurred by a comparable private company. Securities and Exchange
Commission rules and regulations have made some activities more time consuming
and expensive and require us to implement corporate governance and internal
control procedures that are not typical for development stage companies. We also
incur a variety of internal and external costs associated with the preparation,
filing and distribution of the periodic public reports and proxy statements
required by the Securities Exchange Act of 1934, as amended. During the nine
months ended September 30, 2009, we spent $139,736 on these expenses, however,
despite the delay for smaller companies to comply with 404(b) provision to
fiscal years ending on or after June 15, 2010, we do expect Securities and
Exchange Commission rules and regulations, including the prospective
requirements of auditor attestation under Section 404 of the Sarbanes Oxley Act
of 2002, will make it more difficult and expensive for us to attract and retain
qualified directors and executive officers.
We
depend on key personnel, and our business may be severely disrupted if we lose
the services of our key executives and employees.
Our
business is dependent upon the knowledge and experience of our key scientists,
engineers and executive officers. Given the competitive nature of our industry,
there is the risk that one or more of our key scientists or engineers will
resign their positions, which could have a disruptive impact on our operations.
If any of our key scientists, engineers or executive officers do not continue in
their present positions, we may not be able to easily replace them and our
business may be severely disrupted. If any of these individuals joins a
competitor or forms a competing company, we could lose important know-how and
experience and incur substantial expense to recruit and train suitable
replacements. Currently, all of our key employees have employment contracts
which have remaining terms of at least five months and non-compete
provisions that extend an additional 24 months.
We
cannot begin automated production of our PbC technology for a minimum of three
months.
We will
not be able to begin full commercial production of our PbC energy storage
devices until we complete our current testing operations, our planned
application evaluation and our planned product development. We believe our path
to automated production will require a minimum of three months. Even if our
prototype development operations are successful, there can be no assurance that
we will be able to establish and maintain our facilities and relationships for
the manufacturing, distribution and sale of our PbC batteries and other
technologies or that any future products will achieve market acceptance and be
sold in sufficient quantities and at prices necessary to make them commercially
successful. Even if our proposed products are commercially successful, there can
be no assurance that we will realize enough revenue and gross margin from the
sale of products to achieve profitability.
Our
certificate of incorporation and by-laws provide for indemnification and
exculpation of our officers and directors.
Our
certificate of incorporation provides for indemnification of our officers,
directors and employees to the fullest extent permitted by Delaware law. It also
provides exculpation of our directors for monetary damages arising from breach
of their fiduciary duties in cases that do not involve fraud or willful
misconduct. The Securities and Exchange Commission has advised that it believes
that indemnification for liabilities arising under the securities laws is
against public policy as expressed in the securities laws and is therefore
unenforceable.
We
have limited manufacturing experience which may translate into substantial cost
overruns in manufacturing and marketing our products.
As we
transition into the commercial production of our prototype devices, we may
experience substantial cost overruns in manufacturing and marketing our PbC
technologies, and may not have sufficient capital in the future to successfully
complete such tasks. In addition, we may not be able to manufacture or market
our products because of industry conditions, general economic conditions, and/or
competition from potential manufacturers and distributors. Either of these
inabilities could cause us to abandon our current business plan and may cause
our operations to eventually fail.
Risks
related to our PbC Technology
We
need to improve the performance of our commercial prototypes to achieve large
scale production.
Our
commercial prototypes do not satisfy all of our performance expectations, and we
need to continue to improve various aspects of our PbC technology as we move
forward with larger scale production of our commercial prototypes. There is no
assurance that we will be able to resolve the known technical issues. Future
testing of our prototypes may reveal additional technical issues that are not
currently recognized as obstacles. If we cannot improve the performance of our
prototypes in a timely manner, we may be forced to redesign or delay the large
scale production of commercial prototypes or possibly cause us to abandon our
product development efforts altogether.
We
do not have any long-term vendor contracts.
We
currently purchase the raw materials for our carbon electrodes and a variety of
other components from third parties. We then fabricate our carbon electrodes and
build our prototypes in-house. We do not have any long-term contracts with
suppliers of raw materials and components, and our current suppliers may be
unable to satisfy our future requirements on a timely basis. Moreover, the price
of purchased raw materials and components could fluctuate significantly due to
circumstances beyond our control. If our current suppliers are unable to satisfy
our long-term requirements on a timely basis, we may be required to seek
alternative sources for necessary materials and components or redesign our
proposed products to accommodate available substitutes.
We
do not have extensive manufacturing experience.
We do not
have extensive manufacturing experience with respect to manufacturing our
commercial prototypes in quantities required to achieve our operational goals,
and there is no assurance that we will be able to retain a qualified
manufacturing staff or effectively manage the manufacturing of our proposed
products when we are ready to do so.
We
will be a small player in an intensely competitive market and may be unable to
compete.
The
lead-acid battery industry is large, intensely competitive and resistant to
technological change. If our product development efforts are successful, we will
have to compete or enter into further strategic relationships with
well-established companies that are much larger and have greater financial
capital and other resources than we do. We may be unable to convince end users
that products based on our PbC technology are superior to available
alternatives. Moreover, if competitors introduce similar products, they may have
a greater ability to withstand price competition and finance their marketing
programs. There is no assurance that we will be able to compete
effectively.
To
the extent we enter into strategic relationships, we will be dependent upon our
partners.
Some of
our products are not intended for direct sale to end users and our business
strategy are likely to require us to enter into strategic relationships with
manufacturers of other power industry equipment that use batteries and other
energy storage devices as important components of their finished products. The
agreements governing any future strategic relationships are unlikely to provide
us with control over the activities of any strategic relationship we negotiate
and our future partners, if any, could retain the right to terminate the
strategic relationship at their option. Our future partners will have
significant discretion in determining the efforts and level of resources that
they dedicate to our products and may be unwilling or unable to fulfill their
obligations to us. In addition, our future partners
may develop and commercialize, either alone or with others, products that are
similar to or competitive with the products that we intend to
produce.
Risks
relating to our intellectual property
We
may rely on licenses for our PbC technology, which may affect our continued
operations with respect thereto.
As we
develop our PbC technology, we may need to license additional technologies to
optimize the performance of our products. We may not be able to license these
technologies on commercially reasonable terms or at all. In addition, we may
fail to successfully integrate any licensed technology into our proposed
products. Our inability to obtain any necessary licenses could delay our product
development and testing until alternative technologies can be identified,
licensed and integrated. The inability to obtain any necessary third-party
licenses could cause us to abandon a particular development path, which could
seriously harm our business, financial position and results of our
operations.
If
we are unable to protect our proprietary technology and preserve our trade
secrets, we will increase our vulnerability to competitors which could
materially adversely impact our ability to remain in business.
Our
ability to successfully commercialize our products will depend, in large
measure, on our ability to protect those products and our technology with
domestic and foreign patents. We will also need to continue to preserve our
trade secrets. The issuance of a patent is not conclusive as to its validity or
as to the enforceable scope of the claims of the patent. The patent positions of
technology companies, including us, are uncertain and involve complex legal and
factual issues.
We cannot
assure you that our patents will prevent other companies from developing similar
products or products which produce benefits substantially the same as our
products, or that other companies will not be issued patents that may prevent
the sale of our products or require us to pay significant licensing fees in
order to market our products. Accordingly, if our patent applications are not
approved or, even if approved, if such patents are circumvented or not upheld in
a court of law, our ability to competitively exploit our patented products and
technologies may be significantly reduced. Additionally, the coverage claimed in
a patent application can be significantly reduced before the patent is
issued.
From time
to time, we may need to obtain licenses to patents and other proprietary rights
held by third parties in order to develop, manufacture and market our products.
If we are unable to timely obtain these licenses on commercially reasonable
terms, our ability to commercially exploit such products may be inhibited or
prevented. Additionally, we cannot assure investors that any of our products or
technology will be patentable or that any future patents we obtain will give us
an exclusive position in the subject matter claimed by those patents.
Furthermore, we cannot assure investors that our pending patent applications
will result in issued patents, that patent protection will be secured for any
particular technology, or that our issued patents will be valid or enforceable
or provide us with meaningful protection.
If
we are required to engage in expensive and lengthy litigation to enforce our
intellectual property rights, the costs of such litigation could be material to
our results of operations, financial condition and liquidity and, if we are
unsuccessful, the results of such litigation could materially adversely impact
our entire business.
We may
find it necessary to initiate further litigation to enforce our patent rights,
to protect our trade secrets or know-how or to determine the scope and validity
of the proprietary rights of others. We plan to aggressively defend our
proprietary technology and any issued patents if funding is available to do so.
Litigation concerning patents, trademarks, copyrights and proprietary
technologies can often be time-consuming and expensive and, as with litigation
generally, the outcome is inherently uncertain.
Although
we have entered into invention assignment agreements with our employees and with
certain advisors, if those employees or advisors develop inventions or processes
independently which may relate to products or technology under development by
us, disputes may also arise about the ownership of those inventions or
processes. Time-consuming
and costly litigation could be necessary to enforce and determine the scope of
our rights under these agreements.
We also
rely on confidentiality agreements with our strategic partners, customers,
suppliers, employees and consultants to protect our trade secrets and
proprietary know-how. We may be required to commence litigation to enforce such
agreements, and it is certainly possible that we will not have adequate remedies
for breaches of our confidentiality agreements.
Other
companies may claim that our technology infringes on their intellectual property
or proprietary rights and commence legal proceedings against us which could be
time-consuming and expensive and could result in our being prohibited from
developing, marketing, selling or distributing our products.
Because
of the complex and difficult legal and factual questions that relate to patent
positions in our industry, we cannot assure you that our products or technology
will not be found to infringe upon the intellectual property or proprietary
rights of others. Third parties may claim that our products or technology
infringe on their patents, copyrights, trademarks or other proprietary rights
and demand that we cease development or marketing of those products or
technology or pay license fees. We may not be able to avoid costly patent
infringement litigation, which will divert the attention of management away from
the development of new products and the operation of our business. We cannot
assure investors that we would prevail in any such litigation. If we are found
to have infringed on a third party's intellectual property rights, we may be
liable for money damages, encounter significant delays in bringing products to
market or be precluded from manufacturing particular products or using
particular technology.
Other
parties may challenge certain of our foreign patent applications. If such
parties are successful in opposing our foreign patent applications, we may not
gain the protection afforded by those patent applications in particular
jurisdictions and may face additional proceedings with respect to similar
patents in other jurisdictions, as well as related patents. The loss of patent
protection in one jurisdiction may influence our ability to maintain patent
protection for the same technology in another jurisdiction.
New
technology may lead to our competitors developing superior products which would
reduce demand for our products.
Research
into the electrochemical applications for carbon nanotechnology and other
storage technologies is proceeding at a rapid pace, and many private and public
companies and research institutions are actively engaged in the development of
new battery technologies based on carbon nanotubes, nanostructured carbon
materials and other non-carbon materials. These new technologies may, if
successfully developed, offer significant performance or price advantages when
compared with our technologies. There is no assurance that our existing patents
or our pending and proposed patent applications will offer meaningful protection
if a competitor develops a novel product based on a new technology.
Risks
relating to our common stock
The
number of shares of common stock we are obligated to register could depress our
stock price.
Effective
May 29, 2009, we registered 3,421,036 shares of our common stock for resale by
certain selling stockholders. Pursuant to the private placement which
closed on December 22, 2009, and which is the subject of this prospectus, we are
obligated to register an additional 45,757,572 shares of our common stock for
resale by the selling stockholders.The sale of a significant number of these
shares as well as the shares of common stock covered by this prospectus may
cause the market price of our common stock to decline.
We
have issued a large number of convertible securities, warrants and options that
may increase, perhaps significantly, the number of common shares
outstanding.
We had
75,767,818 shares of common stock outstanding at January 11, 2010, and (a) our
Series A Convertible Preferred Stock will be converted into 8,785,483 shares of
common stock upon the filing of a certificate of amendment with the Delaware
Secretary of State, which we expect to occur during the first quarter of 2010,
(b) we have warrants outstanding that, if exercised, would generate proceeds of
$22,236,625 and cause us to issue up to an additional 15,565,433 shares of
common stock and (c) we have options outstanding to purchase common stock
that, if
exercised, would generate proceeds of $5,030,148 and result in the issuance of
an additional 1,754,905 shares of common stock.
We have
provided and intend to continue offering compensation packages to our management
and employees that emphasize equity-based compensation.
As a key
component of our growth strategy, we have provided and intend to continue
offering compensation packages to our management and employees that emphasize
equity-based compensation. In particular:
|
·
|
Our
incentive stock plan authorized incentive awards for up to 2,000,000
shares of our common stock; we have issued incentive awards for an
aggregate of 782,950 shares at the date of this prospectus; and we have
the power to issue incentive awards for an additional 1,217,050 shares
without stockholder approval;
|
|
·
|
Our
independent directors’ stock option plan authorized options for up to
500,000 shares of our common stock; we have issued options for an
aggregate of 339,120 shares at the date of this prospectus; and have the
power to issue options for an additional 160,880 shares without
stockholder approval;
|
|
·
|
We
have issued contractual options for an aggregate of 1,943,000 shares
of our common stock, of which 908,000 are currently outstanding, to
executive officers under the terms of their employment agreements with us;
and
|
|
·
|
We
have issued contractual options for an aggregate of 1,180,700 shares of
our common stock, of which 485,400 are currently
outstanding to certain employees, attorneys and consultants under the
terms of their agreements with us.
|
We will
be required to account for the fair market value of equity compensation awards
as operating expenses. As our business matures and expands, we expect to incur
increasing amounts of non-cash compensation expense, which may materially and
adversely affect our future operating results.
We
may issue stock to finance acquisitions.
We may
wish to acquire complementary technologies, additional facilities and other
assets. Whenever possible, we will try to use our stock as an acquisition
currency in order to conserve our available cash for operations, but use of
stock as an acquisition currency will also dilute the ownership of then current
existing stockholders. Future acquisitions may give rise to substantial charges
for the impairment of goodwill and other intangible assets that would materially
and adversely affect our reported operating results. Any future acquisitions
will involve numerous business and financial risks, including:
|
·
|
difficulties
in integrating new operations, technologies, products and
staff;
|
|
·
|
diversion
of management attention from other business concerns;
and
|
|
·
|
cost
and availability of acquisition
financing.
|
We will
need to be able to successfully integrate any businesses we may acquire in the
future, and the failure to do so could have a material adverse effect on our
business, results of operations and financial condition.
Because
of factors unique to us, the market price of our common stock is likely to be
volatile.
The large
number of shares that we have registered and will register in the future on
behalf of certain selling stockholders, the development stage of our business
and numerous other factors, the trading price of our common stock has been and
is likely to continue to be highly volatile. In addition, actual or anticipated
variations in our quarterly operating results; the introduction of new products
by competitors; changes in competitive conditions or trends in the battery
industry; changes in governmental regulation and changes in securities analysts’
estimates of our future performance or that of our competitors or our industry
in general, could adversely affect our future stock price. Investors should not
purchase our shares if they are unable to suffer a complete loss of their
investment.
Our
stock price may not stabilize at current levels.
Our stock
is quoted on the Over the Counter Bulletin Board. Since trading in our common
stock began in January 2004, trading has been sporadic, trading volumes have
been low and the market price has been volatile. The closing price reported as
of January 7, 2010, the latest practicable date, was $1.39 per share. Current
quotations are not necessarily a reliable indicator of value and there is no
assurance that the market price of our stock will stabilize at or near current
levels.
We are
not selling any of the shares of common stock being offered by this prospectus
and will receive no proceeds from the sale of the shares by the selling
stockholders. All of the proceeds from the sale of common stock offered by this
prospectus will go to the selling stockholders at the time they offer and sell
such shares. We will bear all costs associated with registering
the shares of common stock offered by this prospectus.
Market
information
At the
start of the year ended December 31, 2007, our common stock was trading on the
OTC Pink Sheets under the symbol AXPW.PK. On July 3, 2008, our common
stock resumed trading on the Over the Counter Bulletin Board under the symbol
“AXPW”. Trading in our common stock has historically been sporadic,
trading volumes have been low, and the market price has been
volatile.
The
following table shows the range of high and low bid prices for our common stock
as reported by the OTC Pink Sheets and the OTC Bulletin Board, as the case may
be, for each quarter since the beginning of 2007. The quotations reflect
inter-dealer prices, without retail markup, markdown or commission and may not
represent actual transactions.
Period
|
High
|
Low
|
||||||
First
Quarter 2007
|
$ | 4.05 | $ | 2.25 | ||||
Second
Quarter 2007
|
$ | 3.30 | $ | 2.50 | ||||
Third
Quarter 2007
|
$ | 3.10 | $ | 2.20 | ||||
Fourth
Quarter 2007
|
$ | 2.50 | $ | 2.00 | ||||
First
Quarter 2008
|
$ | 2.74 | $ | 1.85 | ||||
Second
Quarter 2008
|
$ | 2.50 | $ | 1.15 | ||||
Third
Quarter 2008
|
$ | 2.05 | $ | 1.30 | ||||
Fourth
Quarter 2008
|
$ | 1.72 | $ | 1.01 | ||||
First
Quarter 2009
|
$ | 1.25 | $ | 0.90 | ||||
Second
Quarter 2009
|
$ | 2.10 | $ | 0.78 | ||||
Third
Quarter 2009
|
$ | 2.75 | $ | 1.05 | ||||
Fourth
Quarter 2009
|
$ | 2.25 | $ | 1.20 | ||||
On
January 7, 2010, the sale price for our common stock as reported on the
Over the Counter Bulletin Board was $1.39 per share.
Securities
outstanding and holders of record
On
December 31, 2009 there were approximately 463 record holders of our common
stock and 75,767,818 shares of our Common Stock issued and
outstanding.
Dividend
Policy
We have
not paid and do not expect to pay dividends on our common stock. Any future
decision to pay dividends on our common stock will be at the discretion of our
board of directors and will depend upon, among other factors, our results of
operations, financial condition, capital requirements and contractual
restrictions
Information
respecting equity compensation plans
Summary Equity Compensation
Plan Information: The following table provides summary information on our
equity compensation plans as of December 31, 2009:
Plan
category:
Equity
compensation plans approved by stockholders
|
Number
of shares
issuable
on exercise of
outstanding
options
|
Weighted
average
exercise
price of
outstanding
options
|
Number
of shares
available
for future
issuance
under equity
compensation
plans
|
|||||||||
2004
Incentive Stock Plan
|
51,950 | $ | 3.48 | 1,217,050 | ||||||||
2004
Directors’ Option Plan
|
309,555 | $ | 1.94 | 160,880 | ||||||||
Equity
compensation plans approved by stockholders
|
||||||||||||
Contract
options held by officers
|
908,000 | $ | 3.22 | |||||||||
Contract
options held by employees, consultants and attorneys
|
485,400 | $ | 2.74 | |||||||||
Total
equity awards
|
1,754,905 | $ | 2.87 |
The
Company has two stockholder approved equity compensation plans and occasionally
enters into employment and other contracts that provide for equity compensation
arrangements other than those contemplated by the stockholder approved plans.
The following sections summarize the Company’s equity compensation
arrangements.
Equity
Incentive Plans Not Approved by Stockholders: The Company issued 629,300,
228,000, 789,500 and 36,000 stock purchase options in the fiscal years ended
December 31, 2006, 2007, 2008 and 2009, respectively, to officers, employees,
attorneys and consultants in connection with contractual agreements that do not
reduce the shares available under the stockholder’s approved plans. The
following paragraphs summarize these contractual stock options.
In
January 2004, members of the law firm of Fefer, Petersen & Cie, general
corporate counsel (of which one member was a director of the Company at the
time) were granted two-year contractual options to purchase 189,300 shares of
common stock at a price of $2.00 per share as partial compensation for services
rendered, valued at $68,296. These members also received 116,700 warrants as
consideration of pre-merger Tamboril debt. In August 2004, $1.00 of the exercise
price of the total 306,000 options and warrants owned by these members was
considered paid in advance in consideration of unbilled legal services provided
by the firm. The Company recorded $306,000 related to this reduction. All of the
warrants and options were exercised in the fourth quarter of 2005; however,
$306,000 of the amount is included in stock subscription receivable as of
December 31, 2005 and was received in 2006.
In July
2004, the President and Chief Operating Officer of the Company, Charles
Mazzacato, was granted a contractual option to purchase 240,000 shares of common
stock at a price of $4.00 per share. This option vests on a monthly basis at the
rate of 60,000 shares per year commencing July 31, 2005 and is exercisable for
five years after each vesting date. The market value of our common stock at the
date of grant was greater than the exercise price, which resulted in a total
intrinsic value of $180,000. In accordance with Accounting Principles
Board Opinion 25, “Accounting for Stock Issued to Employees” (“APB 25”) the
Company expensed the intrinsic value over the vesting period which resulted in
expense of $18,750 and $45,000 during the years ended December 31, 2004 and
2005, respectively. On January 1, 2006, the Company adopted the provisions of
ASC718 “Compensation – Stock Compensation” using the modified prospective
transition method as discussed below and recorded compensation of $124,364
during the year ended December 31, 2006. During the year ended December 31, 2006
the options were forfeited as a result of his termination of employment from the
Company in 2006.
In July
2004, the Chief Financial Officer of the Company, Peter Roston, was granted a
contractual option to purchase 200,000 shares of common stock at a price of
$4.00 per share. This option will vest on a monthly basis at the rate of 50,000
shares per year commencing July 31, 2005 and is exercisable for five years after
each vesting date. The market value of the Company’s common stock at the date of
grant was greater than the exercise price, which resulted in a total intrinsic
value of $150,000. In accordance with APB 25 the Company has expensed the
intrinsic value over the vesting period, which resulted in expense of $15,625
and $37,500 during the years ended December 31, 2004 and 2005, respectively. On
January 1, 2006, the Company adopted the provisions of ASC 718 (formerly FASB
123R) as discussed below and recorded compensation of $138,182 during the year
ended December 31, 2006. During the year ended December 31, 2006 the options
were forfeited as a result of his termination of employment from the Company in
2006.
In April
2005, the Chief Executive Officer of the Company, Thomas Granville, was granted
a contractual option to purchase 180,000 shares of common stock at a price of
$2.50 per share. This option vests at the rate of 7,500 shares per month
commencing May 1, 2005 and is exercisable for five years after each vesting
date. The market value of our common stock at the date of grant was less than
the exercise price which resulted in no intrinsic value in accordance with APB
25. On January 1, 2006, the Company adopted the provisions of ASC 718 as
discussed below and recorded compensation of $112,500 during the year ended
December 31, 2006.
In April
2005, a European financial advisor was granted a contractual option to purchase
30,000 shares of common stock at a price of $2.50 per share. Options for an
aggregate of 20,000 shares vested during the year ended December 31, 2005 and
will be exercisable for five years. On December 31, 2005, a total of 10,000
unvested options were forfeited when the advisory agreement was terminated. The
options were valued at $35,998 using the Black-Scholes-Merton option pricing
model and included as expense in 2005.
In
September 2005, the Chief Technical Officer of the Company, Edward Buiel, was
granted a contractual option to purchase 90,000 shares of common stock at a
price of $4.00 per share. This option vests at the rate of 2,500 shares per
month commencing October 2005 and is exercisable for five years after each
vesting date. The market value of our common stock at the date of grant was less
than the exercise price which resulted in no intrinsic value in accordance with
APB 25. On January 1, 2006, the Company adopted the provisions of ASC 718 as
discussed below and recorded compensation of $68,100 during the year ended
December 31, 2006.
In
February 2006, the Chief Executive Officer of the Company, Thomas Granville, was
granted an option to purchase 500,000 shares of common stock at an exercise
price of $6.00. Of this total 300,000 options vested immediately and the balance
is expected to vest, subject to the attainment of certain specified objectives,
over the next one to three years. These options are valued at $300,187 utilizing
the Black-Scholes-Merton option pricing model with $259,027 of compensation
recorded in 2006.
In
February 2006, the Chief Technical Officer of the Company, Edward Buiel, was
granted an option to purchase 35,000 shares of common stock at an exercise price
of $6.00. Of this total 10,000 options vested immediately and the balance is
expected to vest, subject to the attainment of certain specified objectives,
over the next two to three years. These options are valued at $20,994 utilizing
the Black-Scholes-Merton option pricing model with $13,330 of compensation
recorded in 2006.
In
February 2006, members and affiliates of the law firm of Fefer, Petersen &
Cie, general corporate counsel (of which one member was a director of the
Company at the time) were granted an option to purchase 360,000 shares of
common
stock at an exercise price of $6.00. Of this total 240,000 options vested
immediately and the balance will vest at the rate of 10,000 shares per month
during the year ended December 31, 2006. These options are valued at $193,449
utilizing the Black-Scholes-Merton option pricing model and are recorded as
legal expense in 2006.
In
February 2006, the external bankruptcy counsel of the Company, Cecilia
Rosenauer, was granted an option to purchase 15,000 shares of common stock at an
exercise price of $6.00. The options vested on the effective date of Mega-C’s
Chapter 11 plan of reorganization, which took place in November 2006. These
options are valued at $2,483 utilizing the Black-Scholes-Merton option pricing
model and are recorded as legal expense in 2006.
In March
2006, two employees were granted options to purchase a total of 24,000 shares of
common stock at an exercise price of $4.00 and $6.00. The options vest at a rate
of 2,500 per month over the first 6 months and 1,500 per month thereafter. The
options are exercisable through March 2009. These options are valued at $28,257
utilizing the Black-Scholes-Merton option pricing model with $24,408 of
compensation recorded in 2006.
In
December 2006, the Chief Technical Officer of the Company, Edward Buiel, was
granted a contractual option to purchase an additional 100,000 shares of our
common stock at a price of $3.75 per share. A total of 50,000 options vested on
December 29, 2009 and the remaining 50,000 will vest on December 29, 2010The
options will be exercisable for a period of five years from the vesting date.
These options are valued at $267,372, utilizing the Black-Scholes-Merton option
pricing model with $6,481 of compensation recorded in 2006.
In
February 2006, a consultant, Trey Fecteau, was granted an option to purchase
97,000 shares of common stock at an exercise price of $4.00. The options vested
upon completion of contractual services in December 2006. The options are
exercisable through December 2009. These options are valued at $150,702
utilizing the Black-Scholes-Merton option pricing model. This amount reduced the
proceeds of the Series A Preferred Stock offering in 2006.
In
January 2007, D. Walker Wainwright, a director of the Company, was granted an
option to purchase 40,000 shares of common stock at an exercise price of $5.00
as compensation for services related to due diligence, negotiation and sale of
the 2006 Series A Preferred Stock offering. These three-year options were
immediately vested on the date of grant, are valued at $52,230 utilizing the
Black-Scholes-Merton option pricing model and are recorded as offering costs in
2007.
In August
2007, the Company’s Chief Financial Officer, Andrew Carr Conway, Jr., was
granted a contractual option to purchase 80,000 shares of common stock at an
exercise price of $4.50. 20,000 options vest immediately upon contract inception
and the remainder vest at a rate of 10,000 per month over the life of his
six-month employment contract. These two-year options are valued at $37,356
utilizing the Black-Scholes-Merton option pricing model with $24,904 recorded as
compensation in 2007.
In
December 2007, the Company’s Vice-President of Manufacturing Engineering, Robert
Nelson, was granted a contractual option to purchase 108,000 shares of common
stock at an exercise price of $5.00. The options vest at a rate of 3,000 per
month over a three year period, but are being amortized over the term of his two
year employment contract. These five-year options are valued at $108,504
utilizing the Black-Scholes-Merton option pricing model with $4,521 recorded as
compensation in 2007.
In March
2008, the Company’s Chief Financial Officer, Andrew Carr Conway, Jr., was
granted a contractual option to purchase 30,000 shares of common stock at an
exercise price of $4.50. 10,000 options vested immediately upon grant and are
exercisable through December 2009, and the remaining 20,000 options vested in
May 2008 and are exercisable through May 2010. These options are
valued at $15,600 utilizing the Black-Scholes-Merton option pricing model with
$15,600 recorded as compensation in 2008.
In June
2008, the Company’s Chief Financial Officer, Andrew Carr Conway, Jr., was
granted a contractual option to purchase 10,000 shares of common stock at an
exercise price of $4.50. These options vested in June 2008. These options are
valued at $5,200 utilizing the Black-Scholes-Merton option pricing model and
recorded as compensation in 2008.
In June
2008, the following Equity Awards were issued as part of a restructuring of key
employee contracts that was designed to provide for the long term stability of
the Company:
(i) Our
Chief Executive Officer, Thomas Granville, was granted a contractual option to
purchase an additional 90,000 shares of our common stock at a price of $2.50 per
share. The options vest prorated over the 24-month term of his contract, and are
exercisable for a period of five years from the vesting date. These options are
valued at $79,872, utilizing the Black-Scholes-Merton option pricing model with
$23,296 of compensation recorded in 2008.
(ii) Our
Chief Technical Officer, Edward Buiel, was granted a contractual option to
purchase an additional 100,000 shares of our common stock at a price of $2.50
per share. The options will cliff vest on May 31, 2011, and are exercisable for
a period of five years from the vesting date. These options are valued at
$95,436, utilizing the Black-Scholes-Merton option pricing model with $18,557 of
compensation recorded in 2008.
(iii) Our
Chief Financial Officer, Donald Hillier, was granted an option to purchase
180,000 shares of our common stock. The exercise price of the option is $2.50
per share, and the option vests at the rate of 5,000 shares per month through
the term of the Employment Agreement and are exercisable for a period of 5 years
from the vesting date. These options are valued at $179,244, utilizing the
Black-Scholes-Merton option pricing model with $34,853 of compensation recorded
in 2008.
Three
employees were granted contractual options to purchase an additional 200,000
shares of our common stock at a price of $2.50 per share. 5,000 of these options
vested in June 2008 upon execution of the employment contracts, with the balance
cliff vesting on June 15, 2011, and are exercisable for a period of three years
from the vesting date. These options are valued at $165,041, utilizing the
Black-Scholes-Merton option pricing model with $34,222 of compensation recorded
in 2008.
Seven
employees were granted contractual options to purchase an additional 179,500
shares of our common stock at a price of $2.50 per share. 43,500 of these
options vested in December 2008 upon execution of the employment contracts, with
the balance vesting through the term of the employment agreement and are
exercisable for a period of three years from the vesting date. These options are
valued at $36,171, utilizing the Black-Scholes-Merton option pricing model with
$5,330 of compensation recorded in 2008.
During
2009 the Company granted a total of 36,000 contractual stock options to an
employee at an exercise price of $2.50 per share. 6,000 of these options vested
in January upon execution of the employment contract, with the balance vesting
at a rate of 1,000 per month, and are exercisable for a period of five years
from vesting date. These options are valued at $14,507, utilizing the
Black-Scholes-Merton model with $4,835 of expense expected to be recorded during
2009.
AND
RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with the consolidated
financial statements and the related notes that are set forth in our financial
statements elsewhere in this prospectus.
Overview
We are a
development stage company that was formed in September 2003 to acquire and
develop certain innovative battery technology. Since inception, Axion Power
Corporation has been engaged in R&D of new technology
for the production of lead-acid-carbon energy storage devices that we refer to
as our PbC® batteries. . As of December 31, 2003, Axion Power Corporation
engaged in a reverse acquisition with Tamboril Cigar Company. Tamboril was
originally incorporated in Delaware in January 1997, operated a wholesale cigar
business until December 1998 and was an inactive public shell thereafter until
December 2003. The information presented herein relates to the operations of
Axion Power Corporation, the accounting acquirer. Tamboril, the legal acquirer,
which changed its name to Axion Power International, Inc. in June of
2004. In January of 2006, we formed a new corporation, Axion Power Battery
Manufacturing Inc., which purchased the foreclosed assets of a failed battery
manufacturing plant in New Castle, Pennsylvania. The new
operating entity now conducts R&D manufacturing activities and also
manufactures lead-acid battery products for sale to distributors and end user
customers.
From
inception through September 30, 2009, we had incurred cumulative net losses of
approximately $66.0 million applicable to the common stockholders.
This included approximately $17.5 million in accrued preferred stock
dividends and beneficial conversion feature charges, $7.1 million in expenses
from derivative revaluations, $2.2 million in interest of which $0.03 million
relates to discount on notes. We had approximately $3.1 million in current
assets and $2.8 million in current liabilities at September 30, 2009,
which results in working capital surplus of approximately
$0.3million.
On July
3, 2008 we moved from the Pink Sheets back to the Over the Counter Bulletin
Board. We had previously lost our Over the Counter Bulletin Board listing and
moved to the Pink Sheets in October of 2006 when our filings became delinquent
due to the restatements of our financials for the years 2003, 2004 and 2005. Our
financial reporting became current at the beginning of the second quarter of
2008, and it is our intention to remain current on a going forward
basis.
During
the third quarter of 2008, we fabricated several different types of lead-acid
batteries to prepare for the testing of those products by another company under
a purchase order. At the end of September 2008, we were released to begin
production on three of eleven items covered by the order. On November 3, 2008,
the Company received the delivery first purchase order in what will be a series
of “confirming purchase orders and delivery releases” pursuant to the original
agreement. Since early in 2008, we have devoted time and financial resources to
upgrading, and where necessary replacing, existing battery manufacturing
equipment as part of our long range business plan. In the future, a large
portion of this upgraded equipment will be used to manufacture our proprietary
PbC lead carbon product. The Quercus Trust invested $18 million in us
in 2008 which, among other things, moved these upgrades
forward. The investment also allowed us to pursue design and
fabrication of automated electrode manufacturing equipment, which
will be used in the manufacture of the negative carbon electrode
component of our PbC battery. Additionally, the proceeds from
the recent investment by the selling stockholders is expected to be used to
fully complete our first electrode production line and add the proper automated
quality control components. This basic line will then be duplicated and improved
as additional electrode production lines are added to allow us to get to
meaningful commercialization levels. We will also use a portion of the proceeds
for working capital.
Key
Performance Indicators
Because
of our early stage of development the usual financial measures are not
particularly relevant or helpful in the assessment of company
operations.
We do not
use non-financial measures to evaluate our performance other than the degree of
success of our R&D and demonstration projects. Our demonstration projects
entail extended periods of time to assess our energy devices over
multiple charge and discharge cycles. Further, the results of our demonstration
projects do not lend themselves to simple measurement and
presentation.
The
single most significant financial metric for us is the adequacy of working
capital in order to continue to fund our R&D efforts and move to the
commercialization of our proprietary product. Capital is also necessary to fund
the equipment and methods required to progress from demonstration projects to a
state of prepared readiness for commercial deployment. We believe we can
maintain operations and fund R&D and production through 2012
without further capital infusions.
We
believe we need to continue to characterize and perfect our products in house
and through a limited number of demonstration projects before moving into mass
production. While the results of this work are moving toward that goal, we
cannot assure you that the products will be successful in their present design
or that further R&D will not be needed. The successful completion of present
and future characterization and demonstration projects is critical to
the development and acceptance of our technology.
We must
devise methodologies to manufacture our energy storage devices in commercial
quantities. While we have assembled an engineering team that we believe can
accomplish this goal, and are adding to it as we go forward, there is no
assurance that we will be able to successfully mass produce our
product.
If we
successfully complete our characterization and demonstration projects, we must
present sufficiently compelling evidence to prospective users of energy storage
devices in order to persuade them to purchase our technology.
Material
Trends and Uncertainties
We will
continue to require substantial funds for R&D. Even with adequate funding,
there is no assurance our new technology can be successfully commercialized.
While we intend to continue to manufacture specialty batteries and AGM
batteries, there is no assurance of profits or whether those profits
will be sufficient to sustain us as we continue to develop our new
technology.
Recent
Financing Activities
The Quercus Investment. On
January 14, 2008, we entered into the Securities Purchase Agreement with
Quercus, pursuant to which we agreed to issue to Quercus up to 8,571,429 shares
of our common stock, together with five year common stock purchase warrants that
will entitle the holder to purchase up to 10,000,000 additional shares of our
common stock.
At the
initial closing on January 14, 2008, Quercus invested $4.0 million in exchange
for 1,904,762 shares and warrants to purchase an additional 2,857,143 shares at
an exercise price of $2.60 per share. At the second closing on April 17, 2008,
Quercus invested an additional $4.0 million in exchange for 1,904,762 shares of
our common stock and warrant to purchase an additional 2,380,953 shares of at an
exercise price of $2.60 per share.
On June
30, 2008, Quercus invested the final $10.0 million in exchange for 4,761,905
shares of our common stock and warrants to purchase an additional 4,761,905
shares of stock at an exercise price of $2.60 per share. All of the warrants
issued to Quercus expire by June 29, 2013. A portion of the proceeds of the June
30, 2008 financing were used to retire the remainder of the $2,640,000 December
2007 Bridge Loan that we had previously entered into. By June 30, certain of the
bridge lenders had converted $1,080,684 into 514,611 shares of common stock and
warrants to purchase 580,940 shares of common stock at an exercise price of
$2.60 per share. The warrant expires on June 29, 2013. As a result of
conversion and repayment, the December 2007 Bridge Loans have been completely
retired, extinguishing all indebtedness under those instruments as of July 1,
2008.
Machinery and Equipment Loan
Fund. On July 22, 2009, the Pennsylvania Department of
Community and Economic Development approved our application for a loan from the
Machinery and Equipment Loan Fund in the maximum amount of
$791,055. The proceeds of the loan will be used to defray part of the
cost of equipment purchased for use at our facility on Green Ridge Road in
New Castle. The loan will bear interest at the rate of 3% interest per annum and
will be payable in equal monthly installments of principal and interest over a
period of seven years. We are required to create and/or retain the
number of full-time equivalent jobs specified in the loan application
within three (3) years after the date of disbursement of Machinery and Equipment
Loan Fund loan proceeds. The Machinery and Equipment Loan Fund loan initial
proceeds in the amount of $776,244 was received by us on September 14, 2009. The
first installment payment of the loan representing principal and interest in the
amount of $10,257 was paid during the fourth quarter of 2009.
2009 Secured Bridge Loan
Financing. In August of 2009 we structured a short term bridge
loan with certain of our directors and investors, The “Secured Bridge Loan”,
secured by all of our intellectual property. Under the arrangement, we received
funding of $800,000 through September 30, 2009.
The
Secured Bridge Loan had an original maturity date of December 31, 2009; a loan
origination fee equal to 8% of the original loan; 3,405 warrants upon occurrence
of the loan issuable for each $100,000 invested and exercisable at $2.00 until
August 12, 2014. Anti-dilution provisions apply to the warrants. The holders of
these notes had the right to convert the note together with interest, into any
security sold by us in an institutional offering. Upon repayment of the note,
all conversion rights terminated. The secured bridge holders
converted $254,353 into the private placement, the remaining $584,910 was
repaid.
On or
about December 8, 2009, we borrowed $541,666 from Bob Averill, one of our
directors, on substantially similar terms to the bridge loans in August 2009 and
December of 2007. The new bridge loan bears no interest but has a fee
of 8% of the principal amount thereof. $ 114,000 of the principal
amount and fee was converted into an investment in us as part of the December
22, 2009 private placement below, and $427,666 was repaid on December
28, 2009. Currently, the obligations under this bridge
loan have been paid in full.
The investment by the selling stockholders. On December 18,
2009, we entered into a Securities Purchase Agreement with the selling
stockholders, pursuant to which we agreed to issue to the selling
stockholders the common stock covered by this prospectus at a price of
$0.57 per share for total gross proceeds of $26,081,490. The transaction
was consummated on December 22, 2009.
In
connection with the execution of the Securities Purchase Agreement with the
selling stockholders, The Quercus Trust entered into a Lock Up Agreement with
regard to all of its shares of our common stock held by The Quercus Trust and
any warrants to purchase shares of our common stock for a period of one year,
and an Amendment No. 2 to the Securities Purchase Agreement with The
Quercus Trust pursuant to which it agreed (i) to waive further registration
rights on shares owned by The Quercus Trust that have not yet been
registered ; (ii) to waive further anti-dilution rights on its warrants to
purchase our common stock below an exercise price of $0.75 per share; and
(iii) to pay the Company $500,000 in lieu of acquiring an additional $2,000,000
of our common stock under the Securities Purchase Agreement with the
Quercus Trust.
Registration
Obligations
In the
registration rights agreement entered into in conjunction with the Securities
Purchase Agreement with the selling stock holders, we agreed to file one or more
registration statements under the Securities Act of 1933, as amended, covering
the resale by the selling stockholders of the shares of our common stock issued
pursuant to the Securities Purchase Agreement with this prospectus and the
related registration statement constituting such registration. The registration
rights provisions contain conventional terms including indemnification
and contribution undertakings and a provision for liquidated damages in the
event the required registration statements are not filed, or are not declared
effective, prior to deadlines set forth in the Securities Purchase
Agreement.
Grant
Activities – add received to date column to table
On
October 6, 2008, we received notice that we were the recipient of a federal
grant for the development of new lightweight, high-powered batteries for use in
vehicles operated by the U.S. Marine Corps. The first year, of this grant,
provides $1,200,000 to us for the project. In December of 2006 and January of
2007, we presented our technology to branches of the Armed Forces. In February
of 2007, after receiving a letter of support from the Office of Naval Research,
we submitted a proposal to the Department of Defense. The proposal to further
study the applicability of our PbC technology for use in military assault
vehicles was sponsored by a U.S. Congressman. The grant was not approved in the
2008 federal budget, but was resubmitted and approved in the 2009
budget. Under the grant program, we will be working with the Navy and
Marine Corps to study the feasibility of utilizing one of our PbC ® products in
their assault and silent watch vehicles.
On
February 5, 2009, we received two grants from the Advanced Lead-Acid Battery
Consortium (the “ALABC”), the leading industry association made up in part by
the largest companies supplying the world’s battery market. The two grants
totals approximately $380,000 and will help support research into two key areas.
The first grant seeks to identify the mechanism by which the optimum
specification of carbon, when included in the negative active material of a
valve-regulated lead-acid battery, provides protection against accumulation of
lead sulfate during high-rate partial-state-of-charge operation. The second
grant seeks simply to characterize our proprietary PbC battery in hybrid
electric vehicle (HEV) type duty-cycle testing. The grants are administered
through the Durham, NC-based International Lead Zinc Research Organization
acting on behalf of the ALABC. The research work is already underway and will
continue into the first quarter of 2010. .
On
February 9, 2009, we received notice that we are the recipient a grant from the
Pennsylvania Alternative Fuels Incentive Grant program. The $800,000 initial
grant, which was announced by Governor Edward Rendell on January 29, 2009, is
part of Pennsylvania’s overall effort to invest in businesses that are creating
important and innovative clean energy and bio-fuels technologies. The award
proceeds will be used to demonstrate the advantages our proprietary PbC battery
technologies provide in a variety of electric vehicle types including: HEVs ,
such as the popular Toyota Prius; “plug-ins” (PHEVs) used
in commuter, delivery and other vehicles; and in electric vehicles (EVs) and
converted (from combustion engine operation) EVs. The grant was initially billed
against in the fourth quarter of 2009 and the project will continue into the
fourth quarter of 2010.
On August
5, 2009, the United States Department of Energy announced that “Exide Technology
with Axion Power International” was awarded a $34.3 million grant for the
production of advanced lead-acid batteries using lead-carbon electrodes for
micro and mild hybrid applications under a program to Accelerate the
Manufacturing and Deployment of the Next Generation of U.S. Batteries and
Electric Vehicles. As of the date of this prospectus, it is still not
determined what portion, if any, of this grant will be awarded to or indirectly
made available for the benefit of the Company.
On
December 22, 2009, the Pennsylvania Energy Development Authority
awarded us a $248,650 grant to assist us in the development and deployment of an
Axion PowerCube™ battery energy storage system using the our PbC battery
technology. The 500 kilowatt PowerCube will be built and installed at our New
Castle battery manufacturing facility and will be designed to enhance a Smart
Grid electrical distribution system, including a future solar-powered electric
vehicle charging station and a potential wind-powered energy system. We expect to begin work
on this project in the first quarter of 2010.
A summary
of awarded grants is listed as follows:
Total
Grant
Amount
|
Amount
Received
to Date
|
|||||||
DOD
Office of Naval Research
|
$ | 1,200,000 | $ | — | ||||
ALABC
|
380,000 | 302,058 | ||||||
PA
Alternative Fuels Incentive Grant Program
|
800,000 | — | ||||||
Pennsylvania
Energy Development Authority
|
248,650 | — | ||||||
$ | 2,628,650 | $ | 302,058 |
Results
of Operations
For
the Quarters Ended September 30, 2008 and September 30, 2009
Overview
The
comparative data below presents our results of operations for the three and nine
months ended September 30, 2009 and September 30, 2008, respectively. The
provided percentages demonstrate the relative significance of the individual
line items and also the relative changes from year to year.
|
·
|
Our
primary activity in our current development stage consists of R&D
efforts for advanced battery applications and PbC carbon electrode
devices.
|
|
·
|
Revenues
are for specialty collector and racing car, uninterruptable power supply
and flooded batteries sold to customers. Cost of goods sold represent the
raw materials, components, labor and manufacturing overhead absorbed in
producing batteries sold to
customers.
|
|
·
|
Selling,
general and administrative expenses include employee compensation, legal,
auditing and other costs associated with our Securities and Exchange
Commission filings, selling and marketing costs, investor public
relations, and legal costs associated with
litigation.
|
|
·
|
Research
& development expenses are incurred to design, develop, and test
advanced batteries and an energy storage product based on our patented
lead carbon technology. These costs include engineering and R&D
employee labor and expenses, materials and components consumed in
production for pilot products, demonstration projects, testing and
prototypes. These costs also include manufacturing costs incurred for
R&D activities including the creation, testing and improvement of
plant production processes needed for production of our proprietary
technologies.
|
Statements
of Operations
The
following table shows the percentage relationship of the line items to the net
loss applicable to our common shareholders.
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||||||||||
Statements
of Operations
|
2009
|
%
of
net
loss
|
2008
|
%
of
net
loss
|
2009
|
%
of
net
loss
|
2008
|
%
of
net
loss
|
||||||||||||||||||||||||
Revenues
|
$
|
962,833
|
$
|
149,441
|
$
|
1,567,816
|
$
|
541,248
|
||||||||||||||||||||||||
Cost
of goods sold
|
981,273
|
81,019
|
1,380,923
|
266,344
|
||||||||||||||||||||||||||||
Gross
profit (loss)
|
(18,440
|
)
|
0.1
|
%
|
68,422
|
-3.1
|
%
|
186,893
|
-0.8
|
%
|
274,904
|
-3.3
|
%
|
|||||||||||||||||||
Expenses
|
||||||||||||||||||||||||||||||||
Research
& development
|
869,892
|
5.1
|
%
|
1,033,961
|
47.3
|
%
|
3,327,676
|
14.1
|
%
|
2,438,345
|
29.3
|
%
|
||||||||||||||||||||
Selling,
general & administrative
|
873,213
|
5.1
|
%
|
993,479
|
45.5
|
%
|
2,887,597
|
12.3
|
%
|
4,172,675
|
50.2
|
%
|
||||||||||||||||||||
Interest
expense - related party
|
44,881
|
0.3
|
%
|
(2,500
|
)
|
-0.1
|
%
|
44,881
|
0.2
|
%
|
1,175,370
|
14.1
|
%
|
|||||||||||||||||||
Impairment
of assets
|
—
|
0.0
|
%
|
—
|
0.0
|
%
|
—
|
0.0
|
%
|
—
|
0.0
|
%
|
||||||||||||||||||||
Derivative
revaluation
|
12,048,203
|
70.2
|
%
|
—
|
0.0
|
%
|
13,592,717
|
57.8
|
%
|
(2,844
|
)
|
0.0
|
%
|
|||||||||||||||||||
Interest
& other income, net
|
(1,341
|
)
|
0.0
|
%
|
(42,961
|
)
|
-2.0
|
%
|
(14,039
|
)
|
-0.1
|
%
|
(34,524
|
)
|
-0.4
|
%
|
||||||||||||||||
Net
loss before income taxes
|
(13,853,288
|
)
|
80.8
|
%
|
(1,913,557
|
)
|
87.6
|
%
|
(19,651,939
|
)
|
83.5
|
%
|
(7,474,118
|
)
|
89.9
|
%
|
||||||||||||||||
Income
Taxes
|
—
|
0.0
|
%
|
—
|
0.0
|
%
|
—
|
0.0
|
%
|
—
|
0.0
|
%
|
||||||||||||||||||||
Deficit
accumulated during development stage
|
(13,853,288
|
)
|
80.8
|
%
|
(1,913,557
|
)
|
87.6
|
%
|
(19,651,939
|
)
|
83.5
|
%
|
(7,474,118
|
)
|
89.9
|
%
|
||||||||||||||||
Less
preferred stock dividends and beneficial conversion
feature
|
(3,302,428
|
)
|
19.2
|
%
|
(270,898
|
)
|
12.4
|
%
|
(3,871,570
|
)
|
16.5
|
%
|
(843,230
|
)
|
10.1
|
%
|
||||||||||||||||
Net
loss applicable to common shareholders
|
$
|
17,155,716
|
100.0
|
%
|
$
|
(2,184,455
|
)
|
100.0
|
%
|
(23,523,509
|
)
|
100.0
|
%
|
$
|
(8,317,348
|
)
|
100.0
|
%
|
||||||||||||||
Basic
and diluted net loss per share
|
$
|
(0.64
|
)
|
$
|
(0.08
|
)
|
$
|
(0.89
|
)
|
$
|
(0.39
|
)
|
||||||||||||||||||||
Weighted
average common shares outstanding
|
26,676,678
|
26,045,156
|
26,508,643
|
21,263,533
|
Summary
of Consolidated Results for period ending September 30, 2009 compared with
September 30, 2008
Revenue
Revenues
for the three and nine months ended September 30, 2009 were $962,833 and
$1,567,816, respectively, compared to revenues of $149,441 and $541,248,
respectively, for the corresponding periods in 2008. This represents a 544% and
190% increase, respectively, in revenue for the three and nine months ended
September 30, 2009 over the corresponding periods in 2008 and derives from
increased sales of traditional batteries to a large scale buyers group and sales
to a large North American lead-acid battery manufacturing company. We had two
customers that accounted for approximately 49% and 13% of revenue respectively
for the three and nine months ended September 30, 2009 and one customer which
accounted for approximately 11% of the revenue for the nine months ended
September 30, 2008. As a Development Stage Company, with operational focus on
the development and commercialization of our PbC electrodes and batteries,
revenues generated from current PbC sales remain insignificant when compared to
total operations.
Cost
of Goods Sold
Cost of
goods sold represents costs for batteries sold to customers and include various
raw materials with lead being the most significant. We also use
components such as plastic battery cases and covers as well as separators and
acid. We also incur manufacturing labor and overhead costs as well as
costs for packaging and shipping. Cost of goods sold for the three and nine
months ended September 30, 2009 was $ 981,273 and $1,380,923, respectively,
compared to cost of goods sold $ 81,019 and $ 266,344, respectively, for the
same periods in 2008. This represents approximately a 1,111% and 418%
increase, respectively, in cost of goods sold for the three and nine months
ended September 30, 2009 and is consistent with the increase in sales volume of
lower margin products. Cost of goods sold for the three months ended
September 30, 2009 is also reflective of additional production costs incurred
for new battery products and valuation adjustments to inventory carrying values
of $73,600 and promotional sales discounts offered of $15,225.
Research
& Development Expenses
R&D
expenses include compensation for employees and contractors, as well as small
test equipment, supplies and overhead. These costs also include
manufacturing employee compensation, manufacturing facility and overhead costs
attributed to R&D activities. R&D also includes prototype production and
testing costs. R&D expenses for the three and nine months ended September
30, 2009 were $ 869,892 and $ 3,327,676, respectively, compared to $ 1,033,961
and $ 2,438,345, respectively, for the same periods in 2008, representing a 16%
decrease and 36% increase, respectively, in spending, as compared to the same
periods in 2008. The three month period costs are lower than the comparable
period in 2008 due to the recognition of $302,000 in grant proceeds received in
the third quarter of 2009 and recorded as a reduction against R&D
expense. The year to date increase is due to increased costs
associated with additional efforts incurred to design, develop and test advanced
batteries and an energy storage product based on our PbC battery including
manufacturing activities to prepare the plant for future PbC production, pilot
product production and demonstration project production activities.
Selling,
General & Administrative Expenses
Selling,
general and administrative expenses include compensation for employees and
contractors, legal and accounting fees, and costs incurred for investor
relations and activities associated with fund raising. Selling, general and
administrative costs for the three and nine months ended September 30, 2009 were
$873,213 and $2,887,597, respectively, compared to $993,479 and $4,172,675,
respectively, for the same periods in 2008. This represents a 12% and 31%
decrease in spending over the same periods during 2008. In 2008, we experienced
cost increases primarily due to substantial non-recurring legal, auditing,
accounting and other costs associated with becoming current with our public
filings, public relations, registration and litigation costs and also one-time
employee costs with respect to restructuring of employment
agreements.
Derivative
Revaluation
Losses
from derivative revaluation for the three and nine months ended September 30,
2009 were $12,048,203 and $13,592,717 compared to $0 and $(2,844) for
the same periods in 2008, which represents an increase in the fair value of
derivative liabilities resulting from the adoption of ASC 815-40, on January 1,
2009. The loss for the three and nine month periods includes an increase in the
derivative liability in the amount of $7,211,049 resulting from the reset in the
exercise price of the warrants previously issued to Quercus from $2.60 to $0.75
per share.
Interest
Expense
Interest
expense during the three and nine months ended September 30, 2009 were $ 44,881
and $44,881, respectively, as compared to $(2,500) and $1,175,370 during the
three and nine months ended September 30, 2008. This decrease was due
to the satisfaction of indebtedness in 2008.
For
the Years Ended December 31, 2007 and December 31, 2008
The
comparative data below presents our results of operations for the year ended
December 31, 2007 and 2008. While certain of the data is not strictly comparable
because some line items are positive and some negative, the provided percentages
demonstrate the relative significance of the individual line items and also the
relative changes from year to year.
|
·
|
Our
primary operations in our current development stage consist of R&D
efforts for advanced battery applications and PbC carbon electrode
devices. Revenues are for specialty collector and racing car,
uninterruptable power supply (UPS) and flooded batteries sold to
customers. Cost of goods sold represent the raw materials, components,
labor and manufacturing overhead absorbed in producing batteries sold to
customers.
|
|
·
|
Selling,
general and administrative expenses include substantial non-recurring
legal, auditing, accounting and other costs associated with becoming
current with our public filings, investor and public relations,
registration and litigation costs and also one time employee costs in
relation to restructuring of employment
agreements.
|
|
·
|
Research
& development expenses are incurred to design, develop and test
advanced batteries and an energy storage product based on our patented PbC
technology. These costs include engineering and R&D employee labor and
expenses, materials and components consumed in production for pilot
products, demonstration projects, testing and prototypes. These costs also
include manufacturing costs incurred for R&D activities including the
creation, testing and improvement of plant production processes needed for
production of our proprietary
technologies.
|
|
·
|
Interest
expense was incurred for the bridge loan financing offered during the
fourth quarter of 2007. The bridge loans were retired as of July 1,
2008.
|
Years Ended
December 31,
|
||||||||||||||||
Statements of Operations
|
2008
|
% of net
loss
|
2007
|
% of
net loss
|
||||||||||||
Revenues
|
$
|
679,559
|
$
|
533,911
|
||||||||||||
Cost
of goods sold
|
368,922
|
283,357
|
||||||||||||||
Gross profit
|
310,637
|
-2.9
|
%
|
250,554
|
-1.7
|
%
|
||||||||||
Expenses
|
||||||||||||||||
Selling,
general & administrative
|
4,846,189
|
45.6
|
%
|
3,720,632
|
26.0
|
%
|
||||||||||
Research
& development
|
3,960,909
|
37.3
|
%
|
2,155,873
|
15.1
|
%
|
||||||||||
Interest
expense - related party
|
1,137,436
|
10.7
|
%
|
276,651
|
1.9
|
%
|
||||||||||
Derivative
revaluation
|
(2,844
|
)
|
0.0
|
%
|
(72,236
|
)
|
-0.5
|
%
|
||||||||
Interest
& other income, net
|
(57,224
|
)
|
-0.5
|
%
|
(47,708
|
)
|
-0.3
|
%
|
||||||||
Net
loss before income taxes
|
(9,573,829
|
)
|
90.2
|
%
|
(5,782,658
|
)
|
40.5
|
%
|
||||||||
Income
Taxes Expense (Benefit)
|
(79,170
|
)
|
-0.7
|
%
|
83,469
|
0.6
|
%
|
|||||||||
Deficit
accumulated during development stage
|
(9,494,659
|
)
|
89.5
|
%
|
(5,886,127
|
)
|
41.1
|
%
|
||||||||
Less
preferred stock dividends and beneficial conversion
feature
|
(1,117,699
|
)
|
10.5
|
%
|
(8,417,955
|
)
|
58.9
|
%
|
||||||||
Net
loss applicable to common shareholders
|
$
|
(10,612,358
|
)
|
100.0
|
%
|
$
|
(14,284,082
|
)
|
100.0
|
%
|
||||||
Basic
and diluted net loss per share
|
$
|
(0.46
|
)
|
$
|
(0.88
|
)
|
||||||||||
Weighted
average common shares outstanding
|
22,826,187
|
16,247,299
|
Summary
of Consolidated Results for the Year Ended December 31, 2008 compared with the
Year Ended December 31, 2007
Revenue
Revenues
for year ended December 31, 2008 were approximately $0.7 million compared to
revenues of approximately $0.5 million for the same period in 2007. This
represents an increase of 27% in revenues reported during 2008 over the same
period in 2007. This increase is primarily due to another year of exposure,
especially in the race car and classic car industries, increased sales of
uninterruptable power supply (UPS) batteries and the sale of flooded lead-acid
batteries to a large battery manufacturer under our manufacturing subcontract
agreement. We have one customer that accounted for approximately 10%
of revenue or the year ended December 31, 2008 and another customer accounted
for 12.5% of revenue for the same period in 2007. Our relatively low
revenue is indicative of our predominant development stage
activities.
Cost
of Goods Sold
Costs of
goods sold represent costs for batteries sold to customers and include various
raw materials with lead being the most prominent and costly. We also
use components such as plastic battery cases and covers as well as separators
and acid. The cost of lead during 2008 decreased from the
historical highs of 2007 similar to other industrial-grade metals partially as a
result of the global economic slowdown. We also incur manufacturing
labor and overhead costs as well as costs for packaging and
shipping. Costs of goods sold increased by approximately $.10 million
for the year ended December 31, 2008, as compared to the same time period last
year. 2008 costs are 30% higher than that the 2007 respective period
consistent with our increase in revenue.
Selling,
General & Administrative Expenses
Selling,
general and administrative expenses include compensation for employees and
contractors, legal and accounting fees, and costs incurred for investor
relations and activities associated with fund raising and shareholder awareness.
Selling, general and administrative costs for year ended December 31, 2008 were
approximately $4.8 million compared to $3.7 million, respectively, for the same
period in 2007. This represents a 30% increase in spending over the same period
during 2007. Cost increases are primarily due to substantial non-recurring
legal, auditing, accounting and other costs associated with becoming current
with our public filings, investor and public relations, registration and
litigation costs and also one-time employee costs with respect to restructuring
of employment agreements.
Research
& Development Expenses
R&D
expenses include compensation for employees and contractors, as well as small
test equipment, supplies and overhead. These costs also include
manufacturing employee compensation, manufacturing facility and overhead costs
attributed to R&D activities. R&D also includes prototype production and
testing costs. R&D expenses for the year ended December 31, 2008 were
approximately $4.0 million compared to $2.2 million for the same periods in
2007, representing an increase in spending of 46% as compared to the same period
in 2007. The increase is due to increased costs associated with additional
efforts incurred to design, develop and test advanced batteries and energy
storage products based on our patented PbC battery
including manufacturing activities to prepare the plant for future
PbC production, pilot product production and demonstration project production
activities. In 2008, we increased our R&D staff by approximately 50% and
signed them to long term contracts. We also
restructured existing R&D employment contracts to ensure long term
continuity. The expense of all of these measures is reflected in the increased
R&D expenditures for 2008.
Interest
Expense - Related Party
Interest
expense – related party represents interest costs incurred primarily for the
bridge loan financing offered during the fourth quarter of 2007. Related party
interest expense includes the coupon value of interest on debt, as well as the
debt discount on detachable warrants and origination fees. Expenses
incurred during the year ended December 31, 2008 were approximately $1.14
million as compared to $0.28 million, for the same period in 2007. Whereas 2007
financing was sustained through the issuance of the Series A preferred offering,
2007 did not have a comparable level of interest expense as was recognized
during 2008. The 2007 bridge loans were completely retired as of July 1,
2008.
Derivative
Revaluation
Derivative
revaluations are recognized whenever the Company incurs a liability to issue an
equity instrument. The instrument is revalued quarterly until the point in time
that the liability is settled. Derivative revaluation expense for the
year ended December 31, 2008 resulted in a credit of $(0.003) million compared
with a credit of $(0.072) million for the same period ended in
2007. During 2007, the Company funded its capital needs with debt
that offered detachable warrants. These warrants were not settled until March
2008, at which point the Company’s stock values were lower, giving rise to the
nominal credit in 2008. There are no new obligations as of December
31, 2008.
Net
Loss
For the
fiscal year ended December 31, 2008, our net loss before income taxes increased
$3.8 million, or 65%, to $9.6 million on revenue of $0.7 million, from an
operating loss of approximately $5.8 million on revenue of $0.6 million for the
fiscal year ended December 31, 2007. As discussed above, the factors primarily
affecting this increase in operating loss were increased selling, general and
administrative costs, increased R&D costs and increased interest expense of
related party debt.
The net
loss applicable to common shareholders of $10.6 million for the year ended
December 31, 2008 compared to a loss of $14.3 million for the year ended
December 31, 2007 reflects a decrease of approximately 26%. The loss includes
non-cash charges related to preferred stock dividends and beneficial conversion
feature of $1.1 million in 2008 compared with $8.4 million in 2007.
Liquidity
and Capital Resources
The
condensed consolidated financial statements have been prepared assuming that we
will continue as a going concern; however, at our current and planned rate of
spending, our cash and cash equivalents of $0.8 million, as of September 30,
2009 were not sufficient to allow us to continue operations without additional
funding from grant or financing sources. However, given the recent
financing of over $25 million we expect to be able to continue operations
through 2012 without additional funding from grant or financing
resources.
We may
also receive funds from recent grant submissions both with the federal
government, through the “Stimulus Package” programs, and the Commonwealth of
Pennsylvania. While these latter two events do not currently have a
direct effect on liquidity, they do provide the basis for potential liquidity
sources in 2010.
On
September 30, 2009, our cash position was $0.8 million, and we had working
capital of approximately $0.3 million.
Cash,
Cash Equivalents and Working Capital
At
September 30, 2009, we had approximately $0.8million of cash and cash
equivalents compared to approximately $3.1 million at December 31, 2008. At
September 30, 2009 working capital was approximately $0.3 million compared to
working capital of approximately $5.4 million at December 31, 2008. Cash
equivalents consist of
short-term liquid investments with original maturities of no more than three
months and are readily convertible into cash and included the following at
September 30, 2009:
Coupon/
Yield
|
Maturity
|
September
30, 2009
|
||||||||||
Fidelity
Institutional Money Market
|
0.42 | % | n/a | $ | 162,260 |
Cash
Flows from Operating Activities
Net cash
used in operations for the nine months ended September 30, 2009 was
approximately $(5.0) million. Net cash used in operations for this same period
in 2008 was approximately $(6.6) million. This is a reduction in cash used of
24%. The use of cash in operations is consistent with the development stage of
this business from an operations standpoint.
Cash
Flows from Investing Activities
Net cash
provided by investing activities for the nine months ended September 30, 2009
was approximately $1.2 million compared to net cash used by investing activities
of approximately $(1.1) million for the same period in 2008. Activities in 2009
include cash provided by the maturity of approximately $2.2 million of short
term investments deposited into cash equivalents net of approximately $1.0
million used to purchase equipment for both production and research and
development and notes receivable.
Cash
Flows from Financing Activities
Net cash
provided by financing activities for the nine months ended September 30, 2009
was approximately $1.5, compared to approximately $15.0 million of cash provided
during the same period ended September 30, 2008. Financing activities for the
nine months ended September 30, 2009 consisted of $0.7 in cash on notes received
from accredited investors and $0.8 in MELF financing from the Commonwealth of
Pennsylvania. Financing activities for the nine months ended September 30, 2008
consisted of $16.5 million from the issuance of common stock less repayment of
$1.5 million for retirement of the 2007 bridge loans.
Significant
Financing Arrangements
The Quercus
Investment. On January 14, 2008, we entered into the
Securities Purchase Agreement with Quercus, pursuant to which we agreed to issue
to Quercus up to 8,571,429 shares of our common stock, together with a five year
common stock purchase warrants that will entitle the holder to purchase up to
10,000,000 additional shares of our common stock.
At the
initial closing on January 14, 2008, Quercus invested $4.0 million in exchange
for 1,904,762 shares and warrants to purchase an additional 2,857,143 shares at
an exercise price of $2.60 per share. At the second closing on April 17, 2008,
Quercus invested an additional $4.0 million in exchange for 1,904,762 shares of
our common stock and warrant to purchase an additional 2,380,953 shares of at an
exercise price of $2.60 per share.
On June
30, 2008, we completed the third and final tranche of the Quercus investment,
whereby Quercus invested $10.0 million in exchange for 4,761,905 shares of our
common stock and warrants to purchase an additional 4,761,905 shares of stock at
an exercise price of $2.60 per share. All of the warrants issued to Quercus
expire by June 29, 2013. A portion of the proceeds of the June 30, 2008
financing were used to retire the remainder of the $2,640,000 December 2007
Bridge Loan that we had previously entered into. Prior to June 30, certain of
the bridge lenders had converted $335,000 into 158,659 shares of common stock
and warrants to purchase 237,488 shares of common stock at an exercise price of
$2.60 per share. On June 30, 2008, one of our directors converted $800,000 of
Bridge Loan indebtedness into 380,952 shares of common stock and a warrant to
purchase 380,952 shares at an exercise price of $2.60 per share. The warrant
expires on June 29, 2013 and the entire conversion was under the same terms as
the Quercus investment.
On
September 22, 2009, we entered into an Amendment to Warrants and Securities
Purchase Agreement with Quercus Trust, amending the January 14, 2008 Warrant and
Securities Purchase Agreement. The material terms of the Amendment are as
follows:
|
·
|
The
exercise for warrants previously issued to Quercus by us is reset from
$2.60 per share to $0.75 per share.
|
|
·
|
Any
previously accrued liquidated damages under the Securities Purchase
Agreement to the date of the Amendment are
waived.
|
|
·
|
Axion
and Quercus have agreed to elect three new directors on behalf of
Quercus, each to serve a three year
term.
|
|
·
|
Quercus
has agreed to invest an additional $2,000,000 in connection with a minimum
$10 million capital raise by us upon certain terms and conditions as set
forth in the Amendment.
|
|
·
|
Certain
deadlines in the Agreement for filing of post effective amendments are
extended from 7 business days and 30 calendar days are extended to 15
business days and 60 calendar days,
respectively.
|
This
Amendment provided us with a further financing commitment by Quercus as well as
provision of the benefit of the experience and expertise of the three named
individuals as new directors to us. The Amendment resolved
certain milestones set forth in the Agreement which were not fully met due to
the noncompletion of the Production Contract which was entered into by us on
June 27, 2008.
On or
about December 8, 2009, we borrowed $541,666 from Bob Averill, one of our
directors, on substantially similar terms to the bridge loans in August 2009 and
December of 2007. The new bridge loan bears no interest but has a fee
of 8% of the principal amount thereof. $ 114,000 of the principal
amount and fee was converted into an investment in us as part of the December
22, 2009 private placement below, and $427,666 was repaid on December 28,
2009. Currently, the obligations under this bridge loan have been
paid in full.
On
December 18, 2009, we entered into a Securities Purchase Agreement with the
selling stockholders, pursuant to which we agreed to issue to the Selling
Stockholders the common stock covered by this prospectus at a price of
$0.57 per share for total gross proceeds of $26,081,490. The transaction
was consummated on December 22, 2009.
In
connection with the execution of the Securities Purchase Agreement with the
Selling Stockholders, The Quercus Trust entered into a Lock Up Agreement with
regard to all of its shares of our common stock held by The Quercus Trust and
any warrants to purchase shares of our common stock for a period of one year,
and an Amendment No. 2 to the Securities Purchase Agreement with The Quercus
Trust pursuant to which it agreed (i) to waive further registration rights
on shares owned by The Quercus Trust that have not yet been
registered ; (ii) to waive further anti-dilution rights on its warrants to
purchase our common stock below an exercise price of $0.75 per share; and
(iii) to pay the Company $500,000 in lieu of acquiring an additional $2,000,000
of our common stock under the Stock Purchase Agreement with the
Quercus Trust.
On
December 22, 2009, the Pennsylvania Energy Development Authority awarded us a
$248,650 grant to assist us in the development and deployment of an Axion
PowerCube™ battery energy storage system using our PbC® batteries .
The 500 kilowatt PowerCube will be built and installed at our New Castle battery
manufacturing facility and will be designed to enhance a Smart Grid electrical
distribution system, including a future solar-powered electric vehicle charging
station and a potential wind-powered energy system.
The
“Management’s Discussion and Analysis of Financial Condition or Plan of
Operation” section of this prospectus discusses our financial statements, which
have been prepared in accordance with GAAP. To prepare these financial
statements, we must make estimates and assumptions that affect the reported
amounts of assets and liabilities. These estimates also affect our reported
revenues and expenses. On an ongoing basis, management evaluates its estimates
and judgment, including those related to revenue recognition, accrued expenses,
financing operations and contingencies and litigation. Management bases its
estimates and judgment on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. The
following represents a summary of our critical accounting policies, defined as
those policies that we believe are the most important to the portrayal of our
financial condition and results of operations and that require management’s most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effects of matters that are inherently
uncertain.
Use of Estimates: The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from the estimates.
Principles of Consolidation:
The condensed consolidated financial statements include the accounts of
the Company, and its wholly owned subsidiaries, Axion Power Battery
Manufacturing, Inc., Axion Power Corporation and C&T. All significant
inter-company balances and transactions have been eliminated in
consolidation.
Derivative Financial
Instruments: The Company’s objectives in using derivative financial
instruments are to obtain the lowest cash cost-source of funds. Derivative
liabilities are recognized in the consolidated balance sheets at fair value
based on the criteria specified in FASB ASC topic 815-40 “Determining Whether an Instrument
(or Embedded Feature) is indexed to an Entity's Own Stock”. The estimated
fair value of the derivative liabilities is calculated using the
Black-Scholes-Merton method where applicable and such estimates are revalued at
each balance sheet date, with changes in value recorded as other income or
expense in the consolidated statement of operations. As a result of the
Company’s adoption of ASC topic 815-40, effective January 1, 2009 some of the
Company’s warrants are now accounted for as derivatives.
Revenue
Recognition: The Company records sales when revenue is earned.
Shipping terms are generally FOB shipping point and revenue is recognized when
product is shipped to the customer. In limited cases, if terms are FOB
destination or contingent upon collection by a prime contractor, then in these
cases, revenue is recognized when the product is delivered to the customer’s
delivery site or the conditions for collection have been fulfilled. The Company
records sales net of discounts and estimated customer allowances and returns.
The Company recognizes revenue when there is persuasive evidence of an
agreement, delivery has occurred or services have been rendered, the sales price
to the buyer is fixed or determinable, and collectability is reasonably
assured.
Proceeds from Grant: The
Company records proceeds from grants over the period necessary to match them
with the related costs for which such grants are to compensate. Grants for
assets are recorded as deferred revenue and amortized over the expected life of
such asset as a reduction of depreciation expense. Grants relating to income
that are deemed significant in amount are recorded as other income, whereas
grants that are deemed not significant are recorded as a reduction against the
related expense. The Company recognizes proceeds from grants only when (a) there
is reasonable assurance that the Company has complied with all conditions
attached to the grant, and (b) the grant proceeds will be received.
Stock-Based Compensation:
Prior to January 1, 2006, we accounted for stock option awards in
accordance with the recognition and measurement provisions of former
authoritative literature APB 25 and related interpretations, as permitted by
former authoritative literature Statement of Financial Accounting Standard No.
123, “Accounting for Stock-Based
Compensation,”.
Under APB 25, compensation cost for stock options issued to employees was
measured as the excess, if any, of the fair value of our stock at the date of
grant over the exercise price of the option granted. Compensation cost was
recognized for stock options, if any, ratably over the vesting period. As
permitted by SFAS 123, we reported pro-forma disclosures presenting results and
earnings as if we had used the fair value recognition provisions of SFAS 123 in
the Notes to the Condensed Consolidated Financial Statements.
Effective
January 1, 2006, we adopted the provisions of ASC topic 718 using the modified
prospective transition method. Stock-based compensation related to non-employees
is recognized as compensation expense in the accompanying condensed consolidated
statements of operations and is based on the fair value of the services received
or the fair value of the equity instruments issued, whichever is more readily
determinable. Our accounting policy for equity instruments issued to consultants
and vendors in exchange for goods and services follows the provisions of ASC
505-50 “Equity-Based Payments
to Non-Employees” (formerly EITF 96-18,
“Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for Certain
Transactions Involving Equity Instruments granted to Other Than
Employees.”) The measurement date for
the fair value of the equity instruments issued is determined at the earlier of
(1) the date at which a commitment for performance by the consultant or vendor
is reached or (2) the date at which the consultant or vendor’s performance is
complete. In the case of equity instruments issued to consultants, the fair
value of the equity instrument is recognized over the term of the consulting
agreement.
Research and Development:
R&D costs are recorded in accordance with FASB ASC topic 730, “Accounting for Research and
Development Costs,” which requires that costs
incurred in R&D activities covering basic scientific research and the
application of scientific advances to the development of new and improved
products and their uses be expensed as incurred. The policy of expensing the
costs of R&D activities relate to (1) in-house work
conducted by us, (2) costs incurred in connection with contracts that outsource
R&D to third party developers and (3) costs incurred in connection with the
acquisition of intellectual property that is properly classified as in-process
R&D. All R&D costs have been expensed.
Off
Balance Sheet Arrangements
We do not
have any off-balance sheet arrangements that have, or are reasonably likely to
have, an effect on our financial condition, financial statements, revenues or
expenses.
Our
Corporate History
Axion
Power Corporation was formed in September of 2003 to acquire and develop certain
innovative battery technology. Since inception Axion Power Corporation has been
engaged in R&D of the new technology for the production of our PbC
batteries. As of December 31, 2003, Axion Power Corporation engaged in a reverse
acquisition with Tamboril, a public shell company whereby Axion Power
Corporation became a wholly-owned subsidiary of Tamboril. Tamboril was
originally incorporated in Delaware in January 1997, operated a wholesale cigar
business until December 1998 and was an inactive public shell thereafter until
December 2003. Tamboril changed its name to Axion Power International, Inc.
immediately following the reverse acquisition.
Since
inception, our operations have been financed by a small group of individuals
with little to no revenue generated from operations. As a result, trading in our
common stock has been sporadic, volumes have been low, and the market price has
been volatile. We believe that a successful transition from R&D to
manufacturing will improve our cash balances and market profile and may result
in a more active trading market for our stock. However, we can provide no
guarantees that our transition efforts will be successful.
The
Battery Industry
There are
two principal types of lead-acid batteries: flooded batteries and valve
regulated lead-acid. The choice of battery depends mainly on the specific
application that the battery serves. Typical standby or stationary applications
use valve regulated lead-acid batteries due to their inherent advantages
including spill proof design, low maintenance, compact form, low self-discharge
and high performance. On the other hand, applications like industrial equipment,
traction and railroad applications are better served by the flooded lead-acid
battery types due to their superior performance in continuous deep discharge
applications and at high operating temperatures, among other features.
Technology within the lead-acid battery industry has remained relatively stable
for the last 30 years, and an industry-wide lack of innovation has generally
restrained growth into new applications and emerging markets.
Alternative
energy applications like wind and solar power require an energy storage solution
that combines low cost and long deep discharge cycle life. Lead-acid batteries
are currently one of the gold standards in large-scale power storage
applications, but the short cycle-life of lead-acid chemistry at deep discharge
levels is a primary inhibitor to growth. Due primarily to the cycle-life
limitations of lead-acid batteries, a number of battery manufacturers are
experimenting with alternative battery technologies that are far more expensive
to implement, but offer substantial cycle-life advantages.
The North
American lead-acid battery industry is mature with a few leading vendors that
have a global presence and a larger number of smaller regional and local vendors
that cater to the needs of the North American market. The first tier companies
that have a global presence include EnerSys, Exide Technologies, Johnson
Controls and FIAMM. The second tier companies that cater mainly to the North
American Markets include, among others, East Penn Manufacturing, C&D
Technologies, GS Batteries, Crown Batteries, Trojan Battery and Eagle Picher
Technologies. The user segments that rely on lead-acid batteries include
automotive applications, standby applications ranging from uninterruptible power
supplies to telecommunication applications, limited power storage for wind and
solar systems and motive power for heavy-duty equipment and railroad
applications.
Our
Business
We are a
development stage company that has invested six years and
approximately $17.3 million in R&D expense to develop a patented energy
storage device that uses carbon electrode assemblies to replace the lead-based
negative electrodes found in conventional lead-acid batteries. Our PbC energy
storage device is a battery-supercapacitor hybrid that combines the simplicity
of lead-acid batteries with the fast recharge rate and longer cycle life of
supercapacitors, resulting in a relatively low-cost device that has versatility
of design that will allow differing iterations to deliver maximum power; maximum
energy; or a range of balances between the two.
Our PbC
technology is protected by six issued U.S. patents, nine pending U.S. patent
applications and other proprietary features and structures. The resulting
devices are technically sophisticated and yet simple in design. The carbon
electrode assemblies are fabricated from readily available raw materials using,
for the most part, standard industrial processes and techniques. The electrodes
are then assembled into PbC batteries that can employ the same cases, covers,
positive electrodes, separators and electrolyte as conventional lead-acid
batteries, and can be assembled with the same equipment and manufacturing
methods used throughout the world for manufacturing conventional lead-acid
batteries. PbC batteries use significantly less lead than standard lead-acid
batteries with a comparable size, and the lead, plastics and acid employed are
routinely and profitably recycled at existing recycling facilities around the
world, which makes the PbC battery extremely environmentally friendly and far
more so than most competing battery technologies.
In
February 2007, our PbC technology received the Frost & Sullivan Technology
Innovation Award for the best development in the field of lead-acid batteries
for 2006.
We
believe that for large-scale deep-discharge energy storage systems (10 kWh or
greater), our PbC devices may prove to offer the lowest total cost of ownership
solution available in comparison to alternative battery storage technologies. As
ongoing development work on our technologies progress, we believe that further
cost reductions and performance gains will be likely.
We
believe our advanced battery technologies are uniquely situated to answer the
current challenges facing the conventional lead-acid battery and that industry
as a whole. While we explore the various potential applications for our PbC
technology, our battery manufacturing plant in New Castle, Pennsylvania provides
us with both an excellent R&D facility and a near perfect pilot production
plant in which to produce our advanced energy storage devices. This plant allows
us to manufacture our PbC carbon electrodes in limited quantity and to assemble
our new energy storage batteries for laboratory testing and for small scale
demonstration projects. In manufacturing this battery assembly using
conventional lead-acid battery production equipment, we provide proof to our
future PbC carbon negative electrode customers that our product is suitable to
immediate use in their factories.
The PbC
battery production is limited at this time by our inability to make the carbon
electrodes in large numbers. As part of our plan to transition from pilot
production of PbC electrodes to commercial manufacturing we entered into a
letter agreement in the fourth quarter of 2008 for a sublease agreement for a
second facility in New Castle, Pennsylvania that provides us with an additional
54,000 square feet of production, R&D and office space. It is anticipated
that this facility will be used primarily to produce our PbC electrode
assemblies. In addition, this transition will require that we:
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refine
our planned fabrication methods for carbon electrode
assemblies;
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demonstrate
the feasibility of manufacturing our PbC device and our other
technologies, using standard techniques and
equipment;
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demonstrate
and document the performance of our products in key applications;
and
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respond
appropriately to anticipated and unanticipated technical and manufacturing
challenges.
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Our
battery plant has a permitted manufacturing capacity of 3,000 lead-acid and/or
PbC batteries per day and so we currently have excess battery manufacturing
capacity that we are able to dedicate to production of high margin specialty
batteries that are required in relatively small numbers for direct sales and to
also perform toll manufacturing
for one of the largest lead-acid battery manufacturers in North America. We
continue efforts to increase our sales of such batteries and have hired
personnel to further that end.
We plan
to develop our lead carbon technology for use in a variety of applications
including:
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motive
power applications;
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stationary
power applications;
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hybrid
electric vehicle applications; and
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military
applications.
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We
believe demand for cost-effective energy storage systems produced using our PbC
technology will grow rapidly. We also believe our technologies can be among the
leaders in the high performance battery market. We believe our competitive
advantages will include:
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Cost
effectiveness: Due to an extended cycle life and relatively low production
costs;
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Ease
of integration: Our planned carbon electrode assemblies will be designed
to replace the standard lead negative electrodes in conventional lead-acid
batteries. In some applications that require fixed voltage operations,
voltage conversion may be needed;
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Superior
flexibility: By changing the number, geometry and arrangement of the
electrode assemblies, we expect to be able to configure our devices to
favor either maximum energy storage or maximum power delivery;
and
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Reduced
lead content: Depending on the energy, power and cycling requirements of a
particular application, our fully recyclable device will use substantially
less lead than conventional lead-acid
batteries.
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We
anticipate our ability to establish and maintain a competitive position will be
dependent on several factors, including:
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the
availability of raw materials and key
components;
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our
ability to design and manufacture commercial carbon electrode
assemblies;
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our
ability to establish and operate facilities that can fabricate electrode
assemblies and commercially manufacture our PbC device with consistent
quality at a predictable cost;
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our
ability to establish and expand a customer
base;
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our
ability to execute and perform on any future strategic distribution
agreements with tier one and/or tier two battery
manufacturers;
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our
ability to compete against established and emerging battery and other
storage technologies;
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general
worldwide economic conditions;
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the
market for batteries in general;
and
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our
ability to retain key personnel.
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Our
objective is to become an industry leader in low cost, high performance energy
storage systems. We plan to achieve this objective by pursuing the following
core strategies:
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Platform technology business
model. We plan to implement a platform technology business model
where we will focus on developing and manufacturing carbon electrode
assemblies that we can offer for sale to established battery manufacturers
who want to use our PbC carbon electrode products in their
batteries.
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Leverage relationships with
thought leaders. We are engaged in discussions with industry
consortia, research institutions and other thought leaders in the fields
of utility applications, hybrid electric vehicles and automotive fuel cell
technology. As we develop our relationships in the field of energy
research, we believe the opportunities for government funding and
consortia participation will expand rapidly and improve our access to
potential suppliers and customers.
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Leverage relationships with
battery manufacturers. Our business model is based on the premise
that we can most effectively address the needs of the market by selling
electrode assemblies to established lead-acid battery
manufacturers who want to add advanced battery technology to their
existing product lines. This business model should allow us to leverage
the business abilities, manufacturing facilities and distribution networks
of established manufacturers, in order to reduce our time to market and
increase our potential market
penetration.
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Build a recognized
brand. We believe strong brand name recognition is important to
increase product awareness and to effectively penetrate the mass market.
We intend to differentiate our brand by emphasizing our combination of
high performance and low total cost of ownership per storage
cycle.
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Secondary focus on emerging
markets. Emerging markets for hybrid electric vehicles and
conventional utility applications are becoming increasingly attractive. We
are actively evaluating the potential for using our lead carbon technology
products in these emerging markets.
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Maintain our technical
advantage and reduce manufacturing costs. We intend to maintain our
technical advantage by continuing to invest in R&D to improve the
performance of our PbC devices and other technologies and to continue to
lower our manufacturing costs.
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The
battery industry is mature, capital intensive, heavily regulated, highly
competitive and averse to product performance risks associated with radical
departures from established technology and, with the severe decline in worldwide
automobile sales, currently experiencing unprecedented cutbacks. Additionally,
due to the nature of the industry, we do not believe we will be able to make a
credible entry into the battery market until we have proven the advantages of
our PbC device technology in demonstration projects with end users. Therefore,
our business plan contemplates two discrete phases: the Development Phase
(including prototype and demonstration) and the Commercialization
Phase.
Development
Phase. During the Development Phase, we are focusing on producing small
quantities of commercial prototypes in our own manufacturing facilities. These
commercial prototypes will serve as the foundation for a series of paid
demonstration projects with established end users. If the projects are
successful and end user testing validates the advantages of our PbC device
technology under real-world operating conditions, it will be easier to proceed
to the full commercialization phase. In general, our development path in each
identified target market will include the following:
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Prototype
manufacturing. We are finalizing design work and manufacturing
methods for our commercial prototype PbC carbon electrodes. These
electrode assemblies will be the key component in the on site
manufacturing of our PbC batteries.
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Demonstration projects.
When we have developed and bench tested our commercial prototype PbC
devices for a particular target market, we will negotiate additional
demonstration projects for each of the intended applications. In some of
the larger projects we may partner with a larger battery manufacturer in
order to provide the required quantity of PbC devices. Our goal
is to document the superior performance of our products in real-world
applications.
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Commercial production.
When we have developed sufficient data to support a decision to commence
full scale production of a product or product line, we intend to use our
New Castle, Pennsylvania facility until we reach our maximum permitted
capacity, after which we plan to pursue strategic relationships with other
battery
manufacturers that are willing to manufacture co-branded commercial PbC
products. Those products will contain our proprietary negative electrode
assembly, which we will continue to manufacture at our New Castle facility
and build our brand
recognition.
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Our
planned demonstration projects are not expected to generate sufficient gross
profit to offset our expected operating costs. Accordingly, we do not expect to
attain profitability during the demonstration phase. If we enter into a
commercialization relationship for a specific product or product line, we
believe our margins may improve based on efficiencies of scale. However, there
is no assurance that the commercialization of products for one or more market
segments will generate sufficient revenue to offset our anticipated R&D and
other operating expenses and yield a profit.
Commercialization
Phase. During the commercialization phase, we intend to implement a
platform technology business model where we will develop and manufacture the PbC
carbon electrode assemblies that are unique to our PbC batteries. In addition to
using these assemblies in our batteries, we eventually intend to sell our
proprietary assemblies to other established battery manufacturers who are
seeking to market more advanced batteries. We believe a platform technology
business model will reduce our time to market, allow us to rely on the
established business abilities of existing manufacturers and forge a strong
brand identity for our PbC products, while allowing us to focus on a narrow band
of value-added activities that should minimize our investment and maximize our
profitability.
Until we
complete our planned demonstration projects, our negotiation position with
respect to manufacturing relationships with established battery manufacturers
may be impaired. Even if our planned demonstration projects are successful, we
may be unable to negotiate manufacturing relationships on terms acceptable to
us. If we decide to manufacture and distribute a line of commercial battery
products ourselves, rather than sell carbon electrode assemblies to established
battery manufacturers, our time to market and our anticipated capital costs may
increase dramatically.
We plan
to initially focus on high-value market segments where the total cost of
ownership is the primary determining factor in product selection. We believe our
commercial PbC device will be most appealing where longer life, high
performance, and low maintenance are fully valued.
Acquisition
of Our PbC Device Technology
We
incorporated Axion Power Corporation in September 2003, for the purpose of
acquiring rights to a lead carbon technology, that we have since named PbC, from
C&T, the original owner of the patents. The founders of Axion Power
Corporation were passive stockholders of Mega-C Power Corp., which from 2001
until mid 2003 held a limited, nonexclusive license to market products utilizing
the lead carbon technology that we currently own and have since expanded upon.
In February 2003, the Ontario Securities Commission began an investigation into
Mega-C’s stock sales that terminated Mega-C’s ability to finance its operations
and continue in business. The founders of Axion Power Corporation had
collectively invested approximately $3.9 million in Mega-C and were facing a
total loss of this investment when Mega-C was unable to continue in business. In
connection with the organization of Axion Power Corporation, the founders
invested approximately $1.4 million.
In late
December 2003, Tamboril had 1,875,000 shares outstanding. After evaluating the
lead carbon technology and Axion Power Corporation, Tamboril’s management
negotiated a series of related transactions that included:
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a
reverse acquisition between Tamboril and Axion Power
Corporation;
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the
establishment of the Mega-C Trust for the stated purpose of preserving the
potential equitable rights of Mega-C’s creditors and stockholders while
potentially insulating Axion Power Corporation and Tamboril from the
litigation risks associated with the activities of Mega-C and its
promoters; and
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a
purchase of the PbC device technology from
C&T.
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Of the
10,739,500 common shares that Tamboril issued for the outstanding securities of
Axion Power Corporation, 7,327,500 shares, or approximately 58% of our
post-transaction capitalization, were deposited in the Mega-C
Trust. The remaining 3,412,000 shares were distributed among Axion Power
Corporation’s stockholders. After the closing, Axion Power Corporation’s
stockholders, C&T’s stockholders and the Mega-C Trust owned 95% of our
stock. For financial reporting purposes, Axion Power Corporation was deemed to
be the accounting acquirer of Tamboril, followed by a
recapitalization.
Our
Patents and Intellectual Property
We own
six issued U.S. patents and have nine patent applications pending at the date of
this prospectus covering various aspects of our PbC technologies. There is no
assurance that any of the pending patent applications will ultimately be
granted. Our issued patents are:
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U.S.
Patent No. 6,466,429 (expires May 2021) - Electric double layer
capacitor;
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U.S.
Patent No. 6,628,504 (expires May 2021) - Electric double layer
capacitor;
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U.S.
Patent No. 6,706,079 (expires May 2022) - Method of formation and charge
of the negative polarizable carbon electrode in an electric double layer
capacitor;
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U.S.
Patent No. 7,006,346 (expires April 2024) - Positive Electrode of an
electric double layer capacitor;
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U.S.
Patent No. 7,110,242 (expires February 2021) - Electrode for electric
double layer capacitor and method of fabrication thereof;
and
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U.S.
Patent No. 7,119,047 (expires February 2021) - Modified activated carbon
for carbon for capacitor electrodes and method of fabrication
thereof.
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We have
no duty to pay any royalties or license fees with respect to the
commercialization of our PbC device technology, and we are not subject to any
field of use restrictions. We believe our patents and patent applications, along
with our trade secrets, know-how and other intellectual property, will be
critical to our success.
Our
ability to compete effectively with other companies will depend on our ability
to maintain and protect the PbC device intellectual property and technology. We
plan to file additional patent applications in the future. However, the degree
of protection offered by our existing patents or the likelihood that our future
applications will be granted is uncertain. Competitors in both the United States
and foreign countries, many of which have substantially greater resources and
have made substantial investment in competing technologies, may have, or may
apply for and obtain patents that will prevent, limit or interfere with our
ability to make and sell products based on our PbC device technology.
Competitors may also intentionally infringe on our patents. The prosecution and
defense of patent litigation is both costly and time-consuming, even if the
outcome is favorable to us. An adverse outcome in the defense of a patent
infringement suit could subject us to significant liabilities to third parties.
Although third parties have not asserted any infringement claims against us,
there is no assurance that third parties will not assert such claims in the
future.
We also
rely on trade secrets, know-how and other unpatented technology, and there is no
assurance that others will not independently develop the same or similar
technology or obtain unauthorized access to our trade secrets, know-how and
other unpatented technology. To protect our rights in these areas, we require
all employees, consultants, advisors and collaborators to enter into strict
confidentiality agreements. These agreements may not provide meaningful
protection for our unpatented technology in the event of an unauthorized use,
misappropriation or disclosure. While we have attempted to protect the
unpatented proprietary technology that we develop or acquire, and will continue
to attempt to protect future proprietary technology through patents, copyrights
and trade secrets, we believe that our success will depend, to a large extent,
upon continued innovation and technological expertise.
We may
license technology from third parties. Our proposed products are still in the
development stage, and we may need to license additional technologies to
optimize the performance of our products. We may not be able to license these
technologies on commercially reasonable terms or at all. In addition, we may
fail to successfully integrate any licensed technology into our proposed
products. Our inability to obtain any necessary licenses could delay our product
development and testing until alternative technologies can be identified,
licensed and integrated.
In
general, the level of protection afforded by a patent is directly proportional
to the ability of the patent owner to protect and enforce his rights through
legal action. Since our financial resources are limited, and patent litigation
can be both expensive and time consuming, there can be no assurance that we will
be able to successfully prosecute an infringement claim in the event that a
competitor develops a technology or introduces a product that infringes on one
or more of our patents or patent applications. There can be no assurance that
our competitors will not independently develop other technologies that render
our proposed products obsolete. In general, we believe the best protection of
our proprietary technology will come from market position, technical innovation,
speed-to-market and product performance. There is no assurance that we will
realize any benefit from our intellectual property rights.
Our
Competition
We plan
to compete with a number of established competitors in the battery and
supercapacitor industry, including:
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Maxwell
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Enersys
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Energy Conversion Devices
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Exide
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Panasonic
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Japan Storage Battery
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Nippon-Chemicon
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Ness
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In
addition, many universities, research institutions and other companies are
developing advanced energy storage technologies including:
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symmetric
supercapacitors;
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asymmetric
supercapacitors with organic
electrolytes;
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nickel
metal hydride batteries;
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lithium
ion batteries;
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other
advanced lead-acid devices and
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flow
batteries
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Other
business entities are developing advanced energy production technologies like
fuel cells, solar cells and windmills which may use our products, or, in some
cases, compete with our products. Since some of our competitors are developing
technologies that may ultimately have costs similar to, or lower than, our
projected costs, there can be no assurance we will be able to compete
effectively.
Most of
our potential competitors have longer operating histories, greater name
recognition, access to larger customer bases and significantly greater
financial, sales and marketing, manufacturing, distribution, technical and other
resources than us. As a result, they may be able to respond more quickly to
changing customer demands or to devote greater resources to the development,
promotion and sales of their products than we can.
Our
competitors with more diversified product offerings may be better positioned to
withstand changing market conditions. Some of our competitors own, partner with,
have longer term or stronger relationships with suppliers of raw materials and
components, which could result in them being able to obtain raw materials on a
more favorable basis than us. It is possible that new competitors or alliances
among existing competitors could emerge and rapidly acquire significant market
share, which would harm our business.
The
development of technology, equipment and manufacturing techniques and the
operation of a facility for the automated production of rechargeable batteries
requires large capital expenditures. In order to minimize our capital investment
in manufacturing facilities and establish strong brand name recognition for our
products, our overall strategy
is to negotiate strategic alliances and other production agreements with
established battery manufacturers that want to add a high-performance co-branded
products to their existing product lines. There can be no assurance, however,
that our platform technology business model will succeed in the battery
industry.
Raw
Materials
During
the research stage, we used readily available raw materials, off-the-shelf
components manufactured by others and hand-made components fabricated by our
staff. As we begin manufacturing in commercial quantities, we will need to
establish reliable supply channels for commercial quantities of raw materials
and components. We believe established suppliers of raw materials and components
will be able to satisfy our requirements on a timely basis. However we do not
have any long-term supply contracts and the unavailability of necessary raw
materials or components could delay the production of our products and adversely
impact our results of operations.
Lead is
the primary raw material in lead-acid batteries and currently accounts for
approximately 80% of our raw material and component costs in the specialty
conventional lead-acid batteries we now manufacture. Lead prices have fluctuated
dramatically over the last two years, similar to other industrial grade
commodity metals. Our PbC technology will require substantially less lead than
conventional batteries, providing a distinct competitive cost advantage if lead
prices increase above historical averages.
Environmental
Protection
Lead is a
toxic material that is a primary raw material in our PbC batteries. We also use,
generate and discharge other toxic, volatile and hazardous chemicals and wastes
in our research, development and manufacturing activities. We comply with
federal, state and local laws and regulations regarding pollution control and
environmental protection. Under some statutes and regulations, a government
agency, or other parties, may seek to recover response costs from operators of
property where releases of hazardous substances have occurred or are ongoing,
even if the operator was not responsible for such release or otherwise at fault.
In addition, more stringent laws and regulations may be adopted in the future,
and the costs of complying with those laws and regulations could be substantial.
If we fail to control the use of, or to adequately restrict the discharge of,
hazardous substances, we could be subject to significant monetary damages and
fines, or forced to suspend certain operations. In January of 2009, our facility
was tested and found to be in compliance with emission standards as established
by new federal guidelines in accordance with the Clean Air Act – Title
III.
Our
Research and Development
We engage
in extensive R&D for the purpose of improving our PbC technology and our
proposed products. Our goal is to increase efficiency and reduce costs in order
to maximize our competitive advantage. Our R&D organization works closely
with our engineering team, our suppliers and potential customers to improve our
product design and lower manufacturing costs. During the years ended December
31, 2008 and 2007, we spent $4.0 million and $2.2 million respectively on
R&D, and $17.3 million since inception. While our limited financial
resources and short operating history make it difficult for us to estimate our
future expenditures, we expect to incur R&D expenditures of consistent
magnitude for the foreseeable future.
Our
Employees
We
presently employ a staff of 50, including a 15 member scientific and engineering
team, and 25 people who are involved principally in manufacturing. We are not
subject to any collective bargaining agreements, and we believe we have a good
relationship with our employees.
Description
of Properties
In April
of 2008, we signed a new lease that added to our existing space at our
manufacturing plant in New Castle, Pennsylvania. The new lease calls for a
monthly payment of $16,142 with an initial term of two years beginning April
2008. The lease includes two successive five-year renewal options, with future
rent to be negotiated at a commercially reasonable rate. The battery
manufacturing facility includes approximately 70,438 square feet of floor space,
including 7,859 square feet of office, locker, lab and lunch area, 46,931 square
feet of manufacturing space, 1,488 square feet of dedicated lab space, 9,200
square feet of storage buildings and 5,000 square feet of basement
area. In addition to the monthly rental, we are obligated to pay all required
maintenance costs, taxes and special assessments, maintain public liability
insurance, and maintain fire and casualty insurance for an amount equal to 100%
of the replacement value of the leased premises. Our battery manufacturing
operations at this facility are conducted through a wholly owned subsidiary
named Axion Power Battery Manufacturing, Inc. Our management believes our
property is in good condition.
In
December 2008, we signed a letter agreement to sublease from a current tenant on
a month-to-month basis a building consisting of 54,000 square feet in New
Castle, Pennsylvania. This space provides 48,000 of combined manufacturing and
warehouse space and 6,000 square feet of combined office and R&D space. This
letter agreement is effective through December 31, 2010. We can enter into a
sales agreement at any time during the sublease letter agreement. The
rent is $19,300 on a monthly basis. In addition to the monthly rent,
we are obligated to pay all required maintenance costs, taxes and special
assessments, maintain public liability insurance, and maintain fire and casualty
insurance for an amount equal to 100% of the replacement value of the leased
premises. We intend to conduct our PbC and R&D operations from
this facility.
Taylor Litigation
and Bankruptcy Court Litigation
On
February 10, 2004, Lewis “Chip” Taylor, Chip Taylor in Trust, Jared Taylor,
Elgin Investments, Inc. and Mega-C Technologies, Inc. (collectively the “Taylor
Group”) filed a lawsuit in the Ontario Superior Court of Justice Commercial List
(Case No. 04-CL-5317) that named Tamboril, Axion Power Corporation, and others
as defendants (the “Taylor Litigation”). As discussed more fully below, by
virtue of orders entered on February 11, 2008 and June 9, 2008 by the Bankruptcy
Court in the Mega-C bankruptcy case, as confirmed by a judgment entered on
November 10, 2009, this action against us is subject to the permanent
injunction of the confirmed Chapter 11 Plan of Mega-C. On April 14,
2009, the Ontario Superior Court entered an order dismissing us from the Taylor
Litigation.
In April
2004, we filed an involuntary Chapter 11 petition against Mega-C in the U.S.
Bankruptcy Court for the District of Nevada (Case No. 04-50962-gwz). In March
2005, the Bankruptcy Court appointed William M. Noall (“Noall”) to serve as
Chapter 11 Trustee for the Mega-C case. On June 7, 2005, the Chapter 11 Trustee
commenced an adversary proceeding against Sally Fonner (“Fonner”), the trustee
of the Mega-C Trust (Adversary Proceeding No. 05-05042-gwz), demanding, among
other things, the turnover of at least 7,327,500 shares held by the Mega-C Trust
as property of the bankruptcy estate. On July 27, 2005, we commenced an
adversary proceeding against Noall and Fonner (Adversary Proceeding No.
05-05082-gwz).
On
December 12, 2005, we entered into the Settlement Agreement with Mega-C,
represented by Chapter 11 Trustee Noall, and the Mega-C Trust, represented by
its trustee Fonner.
The
Settlement Agreement was approved by the Bankruptcy Court after a hearing in an
order dated February 1, 2006. Certain terms were subject to confirmation and
effectiveness of Mega-C’s Chapter 11 plan of reorganization. On November 8,
2006, the Bankruptcy Court entered an order confirming the Chapter 11 plan. The
confirmed Chapter 11 plan was subsequently substantially consummated on November
21, 2006. The Settlement Agreement was fully incorporated in the confirmed
Chapter 11 plan. The plan is fully effective and substantially consummated.
Accordingly, all pending and potential disputes between the parties have been
resolved.
The
litigation settlement and releases provided by the Chapter 11 plan are now
binding on Mega-C, the Chapter 11 trustee, the Taylor Group and all other
parties described in the plan of reorganization. In an order entered on February
11, 2008, the Bankruptcy Court granted our motion for partial summary judgment,
holding that the alleged “oral” agreement creating rights or interests in the
Technology in favor of the Taylor Group never existed and, even if it had, the
Taylor Group transferred any such rights to the Debtor which were then
transferred to us by the confirmed Chapter 11 plan. The Bankruptcy Court held
that the Taylor Group has no interest in or rights to the Technology. The
Bankruptcy Court held that any attempts to claim an interest in or contest our
title to the Technology are contrary to the permanent injunction of the Chapter
11 plan. The Bankruptcy Court held that the Taylor Litigation against us is
barred by the permanent injunction of the confirmed Chapter 11
plan.
In orders
entered on June 9, 2008, the Bankruptcy Court mandated that the Taylor Group
litigation against us be dismissed. On June 18, 2008, the Taylor Group filed a
notice of appeal from these orders. The Taylor Group signed a pleading
consenting to dismiss us from the Taylor Group litigation in Canada.
On June 27, 2008, we filed a notice of
cross-appeal from the Bankruptcy Court’s orders denying our request for
sanctions and our request to hold the Taylors in contempt of court for their
failure to comply with the permanent injunction of the confirmed Chapter 11
plan. The Taylors’ appeal and our cross-appeal have been dismissed as
interlocutory by the Bankruptcy Appellate Panel for lack of jurisdiction.
On February 10, 2009, the Taylors filed a second motion to vacate the February
11, 2008 order granting summary judgment in our favor. At a hearing on the
Taylors’ second motion to vacate the February 11, 2008 summary judgment order on
April 23, 2009, the Bankruptcy Court denied the Taylors’ motion in its
entirety. The order denying the Taylors’ second motion to vacate and
judgment were entered on November 10, 2009.
In
connection with a related adversary proceeding in the Bankruptcy Court, the
Liquidation Trustee and the Taylors entered into a settlement agreement
whereby, among other things, the Taylors agreed to withdraw virtually all of
their claims as creditors and shareholders in the Mega C bankruptcy
case, dismiss their appeals from the confirmation order and dismiss their
appeal from the Settlement Agreement. The Taylors’
appeals from the confirmation order and from the settlement agreement have now
been dismissed. The Ninth Circuit dismissed the appeal from the Settlement
Agreement by a group identifying themselves as the “Unaffiliated Shareholders”.
The Ninth Circuit awarded double costs on appeal to the Company. The
Unaffiliated Shareholders’ appeal from the Confirmation Order has also been
dismissed. As a result, all appeals from the Settlement Agreement and the
Confirmation Order have been resolved in the Company’s favor.
By virtue
of the confirmed Chapter 11 plan, all of the Mega-C’s right, title and interest,
if any, in the technology was transferred to us. By virtue of the February 11,
2008 orders of the Bankruptcy Court, as subsequently confirmed in the judgment
entered on November 10, 2009, the Taylor Group has no interest in or rights to
the technology. By virtue of the April 14, 2009 order from the
Ontario Superior Court, the Taylor Litigation has been dismissed against
us.
Contingent
Shares
We agreed
to sell 1,000,000 shares of common stock to a foreign partnership, Mercatus
& Partners Limited at a price of $2.50 per share as part of a group of
comparable transactions where the purchaser planned to contribute a portfolio of
small public company securities to a pair of offshore funds in exchange for fund
units, and then use the fund units as security for bank financing that would be
used to pay for the underlying securities. Contrary to the terms and conditions
of our agreement, the foreign partnership was in possession of a stock
certificate representing these 1,000,000 shares; however, completion of the
transaction was contingent upon receipt of the proceeds from the foreign
partnership, which were not received. The 1,000,000 shares were recovered on
December 4, 2007 and forwarded to Continental Stock Transfer Agency for
cancellation, which took place that same month.
In
connection with the offering described above, four holders of warrants to
purchase shares of our common stock agreed to exercise their warrants to
purchase, in the aggregate, 301,700 shares of common stock (the “Incompletely
Exercised Warrant Shares”) for the purpose of selling them to the foreign
partnership in a transaction that was substantially similar to the one we
entered into with the same foreign partnership. These shares were to be issued
to the foreign partnership upon receipt of payment, which was in turn contingent
upon the foreign partnership tendering the payment of the purchase price for
these shares. Contrary to the terms and conditions of their agreements, the
foreign partnership transferred the shares to two of its creditors who both hold
the shares as holders-in-due-course. We are pursuing the partnership and
the custodians of the stock for the monetary value of the stock. We retained
counsel to cause the parties who have possession of the Incompletely Exercised
Warrant shares to return the shares absent payment and commenced litigation
soon thereafter.
On or
about March 24, 2009, we were awarded judgment by default against the
partnership and an individual defendant for $1,499,100 plus accrued and unpaid
interest thereon. The net result to the Company will be a cash infusion of
approximately $1,000,000. Like most judgments, there is no guarantee the
Company will be able to fully collect on this amount.
Our board
of directors directs the management of the business and affairs of our company
as provided in our certificate of incorporation, our by-laws and the General
Corporation Law of Delaware. Members of our board of directors keep informed
about our business through discussions with senior management, by reviewing
analyses and reports sent to them, and by participating in board and committee
meetings.
Our board
of directors is divided into three classes of directors that serve for staggered
three-year terms. Three of our current board members have been elected to serve
for terms that expire on the date of our 2010 annual meeting; two have been
elected to serve for terms that expire on the date of our 2011 annual meeting;
three have been elected to serve for terms that expire on the date of our 2012
annual meeting; and three were elected by our board of directors in September
2009 to serve for terms that expire on the date of our 2010 annual meeting. The
following table identifies our directors and specifies their respective ages and
positions with our company.
Name
|
Age
|
Position
|
|||
Thomas
Granville
|
65
|
Chief
Executive Officer, Director
|
|||
Dr.
Howard K. Schmidt
|
51
|
Director
|
|||
Michael
Kishinevsky
|
44
|
Director
|
|||
Glenn
Patterson
|
56
|
Director
|
|||
Stanley
A. Hirschman
|
63
|
Director
|
|||
Robert
G. Averill
|
69
|
Director
|
|||
D.
Walker Wainwright
|
59
|
Director
|
|||
Joseph P. Bartlett |
48*
|
Director | |||
David
Anthony
|
48
|
Director
|
|||
David
Gelbaum
|
60
|
Director
|
Note that effective January 11, 2010, Mr. Igor Filipenko notified
the Company that he resigned effective immediately as a director.
* estimated
Executive
officers.
The
following table identifies our non-director executive officers and specifies
their respective ages and positions with the Company.
Name
|
Age
|
Position
|
|||
Dr.
Edward Buiel
|
37
|
Vice
President and Chief Technology Officer
|
|||
Dr.
Robert F. Nelson
|
69
|
Vice
President, Manufacturing and Engineering
|
|||
Donald
T. Hillier
|
48
|
Chief
Financial Officer
|
The
following paragraphs provide summary biographical information furnished by our
directors and non-director executive officers.
Directors
Robert G.
Averill, 69, has
served on our board of directors since February 2004. Mr. Averill is retired and
principally involved in personal investments. He served as a director of Implex
Corp., a New Jersey based developer and
manufacturer of orthopedic implants that he co-founded in 1991 and then sold to
Zimmer Holdings, Inc. From 1978 to 1991, Mr. Averill held a variety of executive
positions with Osteonics Corp., a developer and manufacturer of orthopedic
implants that he co-founded in 1978 and then sold to Stryker Corporation. From
1971 to 1977, Mr. Averill served as a director and held a variety of executive
positions with Meditech Inc., a developer and manufacturer of orthopedic
implants that he co-founded in 1971 and sold to 3M Corporation in 1975. Mr.
Averill holds 28 patents on a variety of orthopedic devices and materials, and
he is the co-author of several publications in the field of orthopedics. Mr.
Averill holds two degrees from the Newark College of Engineering (BS-mechanical
engineering, 1962 and MS-engineering management, 1966).
Thomas
Granville, 65, has served on our board of
directors since February 2004. Mr. Granville served as the chairman of our board
of directors from February 2004 through April 2005 when he agreed to accept
full-time employment as our chief executive officer. Mr. Granville served as the
president of a New York State elevator company that specialized in the
installation and maintenance of elevators, escalators, moving walkways and other
building transportation products. Mr. Granville also served 15 years as
treasurer and ten years as the president of the National Elevator Industry Inc.,
a trade association that represents elevator manufacturers and contractors,
where his duties included labor negotiations for national contracts and
oversight duties to a $2.3 billion national pension fund. Mr. Granville has also
been a partner, or the general partner, of a number of real estate partnerships
that owned multi-family housing, commercial real estate and a cable television
company. Mr. Granville is a 1967 graduate of Canisus College. (BA-Business
Administration).
Michael
Kishinevsky, 44, is an independent director
who has served on our board since 2005. Mr. Kishinevsky is a Canadian lawyer who
had been principally engaged in the practice of corporate and commercial law
from 1995 until 2005, with a particular emphasis on the needs of Toronto’s
Russian speaking population. For five years Mr. Kishinevsky served as general
legal counsel for C&T. Mr. Kishinevsky currently serves as a director of
Sunrock Consulting Ltd., a company he co-founded in 1995, that specializes in
the import and distribution of carbon black and synthetic rubber. He is also the
president and director of SunBoss Chemicals Corp., a corporation specializing in
chemical additives for the custom rubber mixing industry. Mr. Kishinevsky is a
1989 graduate of the University of Calgary (B.Sc. in Cellular, Molecular and
Microbial Biology and B.Sc. in Psychology) and a 1993 graduate of the University
of Ottawa Law School. Mr. Kishinevsky was called to the bar in the Ontario
courts in 1995 and is a member of the Law Society of Upper Canada.
Howard K.
Schmidt, Ph.D., 51, is an independent director
who has served on our board of directors since April, 2005. Dr. Schmidt is
presently employed as a Petroleum Engineering Consultant at Saudi Aramco in
Dhahran, Saudi Arabia. Until August, 2009, Schmidt was a Senior
Research Fellow in the Department of Chemical and Biomolecular Engineering at
Rice University in Houston, Texas. Between September, 2003 and March, 2008, he
was the Executive Director of the Carbon Nanotechnology Laboratory (the “CNL”)
at Rice University. Dr. Schmidt is an expert in the field of carbon
nanotechnology and single-wall carbon nanotubes. Before joining the CNL,
Dr. Schmidt operated Stump Partners, a Houston-based consultancy firm and was
involved in two Internet ventures. In 1989, Dr. Schmidt founded SI Diamond
Technology, Inc., a company that received the prestigious R&D 100 Award from
Research and Development Magazine in 1989, went public in 1993, and recently
changed its name to Applied Nanotech Holdings, Inc. Dr. Schmidt holds two
degrees from Rice University (BS-Electrical Engineering, 1980 and
Ph.D.-Chemistry, 1986).
Glenn
Patterson, 56,
was appointed to our board of directors in February 2004 and is currently
elected to serve until our 2012 annual meeting. He is currently
president of HAP International Inc., an investment research and analysis company
specializing in renewable energy. Mr. Patterson, in addition to
Axion Power International Inc., sits as a director on The Solar Venture and
Shopoff Properties Trust Inc. He is also active in community events and is
a member of the advisory board for the Oregon Chapter of the Cystic Fibrosis
Foundation. Until November 2004, Mr. Patterson was president of the
Oregon Electric Group, an electrical power and technology services company based
in Portland, Oregon. In September 2001, the Oregon Electric Group of which
Mr. Patterson was a major owner, was sold to Montana-Dakota Resources,
whose major subsidiaries includes electrical power generating, utility and
distribution companies with operations in 40 states. Mr. Patterson graduated
summa cum laude from Willamette University (BS-Economics) in 1975.
Stanley A.
Hirschman, 63,
was elected to our board of directors as an independent director at our 2006
annual meeting. He is President of Optex Systems Holdings, a manufacturer of
optical sighting systems and assemblies primarily
for Department of Defense (DOD) applications. He is also a director
of South Texas Oil, Datascension and former chairman of Mustang Software,
Inc. While at Mustang Software, Mr. Hirschman took a hands-on role in
the planning and execution of the strategic initiative to increase stockholder
value resulting in the successful acquisition of the company by Quintus
Corporation. Prior to joining Optex Systems in 2008 he was president
of CPointe Associates, a management consultancy. He has also held executive
positions with Software Etc., T.J. Maxx, Gap Stores and Banana Republic. Mr.
Hirschman is a member of the National Association of Corporate Directors, the
KMPG Audit Committee Institute and is a graduate of the Harvard Business School
Audit Committees in the New Era of Governance symposium. He is active
in community affairs and serves on the Advisory Board of the Salvation Army
Adult Rehabilitation Centers.
D. Walker
Wainwright,
59, is an
independent director who was appointed to our board of directors on January 15,
2007. He is the founder and chief executive of Wainwright & Co. LLC, an
independent financial advisory firm and investment manager. The firm’s
activities include the identification and assessment of hedge fund investments,
the monitoring of these investments and the creation of proprietary hedge fund
portfolios. In this respect, the firm works with investment management firms,
not-for-profit organizations and family offices as an independent consultant to
create client-specific solutions. Wainwright & Co. also researches and
reviews private investments, including private equity funds, to assist in
determining their suitability for specific accounts or portfolios. Hedge fund
portfolios for which Mr. Wainwright serves as manager or advisor currently have
an aggregate value of $200 million. The firm also provides corporate finance
advice on a selective basis to individuals or corporate entities. Formerly a
Managing Director in investment banking at Smith Barney, Inc. and at Kidder,
Peabody & Co., Mr. Wainwright has over 30 years’ consulting, banking and
investment banking experience. Having directed Kidder’s investment banking
efforts in the Asia Pacific Region, he has extensive international experience
and has lived in Australia and Lebanon. Mr. Wainwright began his career at
Chemical Bank and, subsequently, Schroders. He is a graduate of Stanford
University (A.B. – 1972) and of Columbia University (M.B.A. –
1976).
David
Anthony, 48, was
elected to our board of directors by the then-current board of directors in
September 2009 to fill one of the three new positions on the board created by
the board of directors. Mr. Anthony is an experienced entrepreneur,
venture capitalist, and educator. He is Managing Director of 21 Ventures, a
position he has held since 2003, and sits on the board of Agent Video
Intelligence, 3GSolar, BioPetroClean, Juice Wireless, Open Energy and VOIP
Logic. Prior to 21 Ventures, David launched Notorious Entertainment, a developer
of multimedia brands. David received his MBA from The Tuck School of Business at
Dartmouth College and a BA in Economics from George Washington
University.
Joseph P.
Bartlett, 48 [est.], was elected to our
board of directors by the then-current board of directors in September 2009 to
fill one of the three new positions on the board created by the board of
directors. Mr. Bartlett is counsel to the Quercus Trust and has practiced
corporate and securities law since 1985. From September 2004 until
August 2008 he was a partner at Greenberg Glusker LLP in Los Angeles,
California, and from September 2000 until September 2004 he was a
partner at Spolin Silverman Cohen and Bartlett LLP. He graduated,
magna cum laude, from the University of California, Hastings College of Law
in 1985, and received an AB in English literature from the University of
California at Berkeley in 1980.
David
Gelbaum, 60, was elected to our board
of directors by the then-current board of directors in September 2009 to fill
one of the three new positions on the board created by the board of directors.
Since 2002, Mr. Gelbaum has been a private investor. From 1989 until 2002, he
performed quantitative modeling for stock price returns and derivative
securities for TGS Management, and from 1972 until 1989 he worked at Oakley
& Sutton in a similar capacity. Mr. Gelbaum is a trustee of The Quercus
Trust.
Executive
Officers
Donald T.
Hillier was appointed our Chief Financial Officer on June 18, 2008. Mr.
Hillier, is a Certified Public Accountant (inactive status) with 24 years
experience that encompasses “Big Four” accounting firms in Atlanta and
Pittsburgh, as an entrepreneur providing financial consulting to enterprises
ranging from early stage start up to Fortune 100 companies, and a chief
financial officer and director of international operations for two companies
prior to joining the Company. Mr. Hillier’s experience includes broad-based
corporate finance including Securities and Exchange Commission reporting,
mergers and acquisitions, capital formation and corporate taxation as well as
starting and managing an international subsidiary in Sao Paulo, Brazil. Mr.
Hillier has been a guest speaker in a variety of panel discussions. He earned
his M.B.A. in corporate finance and international operations from Duquesne
University in Pittsburgh, Pennsylvania in 2000 where he graduated with high
honors. Before joining the Company, Mr.
Hillier served through Resources Global Professionals, from 2003 to 2007, as an
executive financial consultant to various companies including Belden, Inc.,
Curtiss Wright, Sony Corporation, Knova Software, HJ Heinz Company and Michael
Baker Corporation providing leadership and consulting for merger transactions,
Sarbanes-Oxley Act implementations, Securities and Exchange Commission reporting
matters and international operations. During this time Mr. Hillier also provided
Chief Financial Officer services to various small companies assisting with
capital formation, strategic planning and operations management. From 2007 until
May 2008, Mr. Hillier served as the Chief Financial Officer for The Continuous
Learning Group, an international strategy and management consulting firm where
he lead the finance department and provided strategic direction.
Dr. Edward Buiel,
Ph.D. was appointed chief of R&D in September 2005. Before joining
our Company, Dr. Buiel served for 3-1/2 years as project leader for the Energy
Storage Group of Meadwestvaco Corporation, one of the largest producers of
activated carbon in the world. In this position Dr. Buiel’s team focused on
developing activated carbon materials for electrochemical applications including
Lithiumion batteries, organic ultracapacitors, and asymmetric lead-carbon
capacitors. His responsibilities included managing a USCAR-Advanced Battery
Consortium project to develop activated carbon materials for hybrid electric
vehicle energy storage systems and managing a joint program with Sandia National
Laboratories to develop lead-carbon capacitors for grid-connected energy storage
systems. Previously, Dr. Buiel worked for nine months as a senior software
engineer for Vasocor, Inc. and for 2-1/2 years as a Senior Research Engineer for
the Automotive Carbon Group of Meadwestvaco Corporation. Dr. Buiel is a 1994
graduate of Queen’s University, Kingston, Ontario, where he earned a Bachelor of
Science in Engineering and Physics, and a 1998 graduate of Dalhousie University,
Halifax, Nova Scotia, where he earned a Ph.D. in Physics and wrote his doctoral
thesis on “The Development of Disordered Carbon Materials as Anode Materials for
Li-ion Battery Applications.”
Dr. Robert F.
Nelson, Ph.D. joined the Company as Vice President of Manufacturing
Engineering in December 2007. Before joining Axion, Dr. Nelson worked for
Firefly Energy, Inc. as a Technical Advisor and Senior Vice President of
Engineering for 4-1/2 years. His primary function at Firefly was to implement
the development and testing of VRLA cells and batteries. Before Firefly, Dr.
Nelson was an independent consultant for six years, working with some 45
companies on materials and designs of VRLA batteries. Previous positions include
three years at Bolder Technologies (1994-1997), three years at the International
Lead Zinc Research Organization (where he organized and managed the Advanced
Lead-Acid Research Organization, ALABC, from 1991 to 1994), one year at Portable
Energy Products (a lead-acid startup company) and 13 years with Gates Energy
Products, the innovator of VRLA technology. Over these 30 years, Dr. Nelson has
five patents, has given invited presentations at some 35 international
conferences and published 38 research papers in refereed journals. Before this,
he spent 11 years in teaching and researching, lastly at the University of
Georgia (1972-1977). Dr. Nelson is a 1963 graduate of Northwestern University
with a B.A. in Chemistry (cum laude) and a 1967 graduate of the University of
Kansas with a Ph.D. in Analytical Chemistry. During his academic career he gave
presentations at over 30 international conferences and published more than 35
refereed papers dealing with organic electrochemistry.
Presiding
Director
Our Chief
Executive Officer, Thomas Granville, acts as the presiding director at meetings
of our board of directors. In the event that Mr. Granville is unavailable to
serve at a particular meeting, responsibility for the presiding director
function will rotate among the chairmen of each of the committees of our board
of directors.
Corporate
Governance
Our board
of directors believes that sound governance practices and policies provide an
important framework to assist them in fulfilling their duty to stockholders. Our
board of directors is working to adopt and implement many “best practices” in
the area of corporate governance, including separate committees for the areas of
audit and compensation, careful annual review of the independence of our Audit
and Compensation Committee members, maintenance of a majority of independent
directors, and written expectations of management and directors, among other
things.
Code
of Business Conduct and Ethics
Our board
of directors has adopted a Code of Business Conduct and Ethics, which has been
distributed to all directors, officers, and employees and will be given to new
employees at the time of hire. The Code of Business Conduct
and Ethics contains a number of provisions that apply principally to our
President, Chief Financial Officer and other key accounting and financial
personnel. A copy of our Code of Business Conduct and Ethics can be found under
the “Investor Information” section of our website at www.axionpower.com. We
intend to disclose any amendments or waivers of our Code of Business Conduct and
Ethics on our website at www.axionpower.com.
Communications
with the Board of Directors
Stockholders
and other parties who are interested in communicating with members of our board
of directors, either individually or as a group, may do so by writing to Thomas
Granville, c/o Axion Power International, Inc, 3601 Clover Lane, New Castle,
Pennsylvania, 16105. Mr. Granville will review all correspondence and forward to
the appropriate members of the board of directors copies of all correspondence
that, in the opinion of Mr. Granville, deals with the functions of the board of
directors or its committees or that he otherwise determines requires their
attention. Concerns relating to accounting, internal controls or auditing
matters should be immediately brought to the attention of our audit committee
and will be handled in accordance with procedures established by that
committee.
Director
Independence
Our board
of directors has determined that six of our directors would meet the
independence requirements of the American Stock Exchange if such standards
applied to the Company. In the judgment of the board of directors, Messrs.
Granville, Gelbaum, Bartlett and Anthony do not meet such independence
standards. In reaching its conclusions, the board of directors considered all
relevant facts and circumstances with respect to any direct or indirect
relationships between the Company and each of the directors, including those
discussed under the caption “Certain Relationships and Related Transactions”
below. Our board of directors determined that any relationships that exist or
existed in the past between the Company and each of the independent directors
were immaterial on the basis of the information set forth in the
above-referenced sections.
Board
Committees
The board
of directors currently has three standing committees: the audit committee, the
compensation committee, and the technology committee. These committees are
responsible to the full board.
Audit Committee – Our
board of directors has created an audit committee that presently consists of Mr.
Hirschman, Mr. Wainwright and Dr. Schmidt. Mr. Hirschman serves as chairman of
the audit committee. All members have a basic understanding of finance and
accounting, and are able to read and understand fundamental financial
statements. The board of directors has determined that all members of the audit
committee would meet the independence requirements of the American Stock
Exchange if such standards applied to our company. Our board of directors has
also determined that based on education and work history none of our current
committee members meet the definition of an “Audit Committee Financial Expert”
as defined in Item 407(d)(5)(ii) under Regulation S-K, promulgated under the
Securities Exchange Act of 1934. The audit committee has the sole authority to
appoint, review and discharge our independent registered public accounting firm.
The audit committee reviews the results and scope of the audit and other
services provided by our independent registered public accounting firm, as well
as our accounting principles and our system of internal controls, reports the
results of their review to the full board of directors and to management, and
recommends to the full board of directors that the our audited consolidated
financial statements be included in our Annual Report on Form 10-K.
The audit
committee met 14 times and took action by unanimous written consent 0 times
during the year-ended December 31, 2008. The audit committee charter can be
found on our website under About Axion; Corporate Governance /
Committees , at
www.axionpower.com.
Compensation
Committee – Our board of directors has created a compensation committee
that presently consists of Messrs. Averill, Patterson, Kishinevsky and
Wainwright. Mr. Averill serves as chairman of the compensation committee. The
compensation committee exercises our board of director’s authority concerning
compensation of the executive management team and non-employee directors and
administers our stock-based incentive compensation plans. The compensation
committee typically meets in separate sessions independently of board meetings.
The compensation committee typically schedules telephone meetings as necessary
to fulfill its duties. The chairman establishes meeting agendas after
consultation with other committee members and Mr. Thomas Granville, our Chief
Executive Officer. Subject to supervision by the full board of directors, the
compensation committee
administers our 2004 Incentive Stock Plan. Our Chief Executive Officer and other
members of management regularly discuss our compensation issues with
compensation committee members. Subject to compensation committee review,
modification and approval, Mr. Granville typically makes recommendations
respecting bonuses and equity incentive awards for the other members of the
executive management team. The compensation committee establishes all bonus and
equity incentive awards for Mr. Granville in consultation with other members of
the management team. Our board of directors has determined that
all members of the compensation committee would meet the independence
requirements of the American Stock Exchange if such standards were applied to
us.
The
compensation committee conducted two formal meetings during the year-ended
December 31, 2008. In addition, the compensation committee met periodically and
informally with our CEO throughout the year ended December 31, 2008. The
compensation committee charter can be found on our website under “About Axion; Corporate Governance;
Committees,” at www.axionpower.com.
Technology Committee
– Our board of directors has created a technology committee that consists of
Messrs. Averill and Granville. Mr. Averill serves as chairman of the technology
committee. The technology committee provides board-level oversight, guidance and
direction to our R&D staff, supervises the activities of our Technical
Advisory Board, evaluates and makes recommendations with respect to the
acquisition and licensing of complementary and competitive technologies and
supervises the activities of our intellectual property lawyers.
The
technology committee met 1 time during the year-ended December 31, 2008. In
addition, the technology committee met periodically and informally with our CEO
throughout the year ended December 31, 2008.
We have no nominating
committee – Given the relatively small size of our board of directors and
the desire to involve the entire board of directors in nominating decisions, we
have elected not to have a separate nominating committee, and the entire board
of directors currently serves that function. With respect to director nominees,
our board of directors will consider nominees recommended by stockholders that
are submitted in accordance with our By-Laws. We do not have any specific
minimum qualifications that our board believes must be met by a board
recommended nominee for a position on our board of directors or any specific
qualities or skills that our board believes are necessary for one or more of our
directors to possess. We also do not have a specific process for identifying and
evaluating nominees for director, including nominees recommended by security
holders. The board has not paid fees to any third party to identify or evaluate
potential board nominees.
Summary
Compensation Table
The
following table sets forth the compensation earned by or paid to our Named
Executive Officers with respect to the year ended December 31,
2009. The Named Executive Officers are as shown. We did not have any
non-equity incentive plans, pension plans or deferred compensation plans during
the year ended December 31, 2009.
Name
and Principal
Position
|
Year
|
Salary
($)
(1)
|
Bonus
($)
(2)
|
Stock
Awards
($)
(3)
|
Option
Awards
($)
(3)
|
All
Other
Compensation
($) (4)
|
Total
Compensation
($)
|
|||||||||||||||||||
Thomas Granville
CEO
and Director (5)
|
2009
|
324,000
|
23,458
|
347,458
|
||||||||||||||||||||||
Thomas Granville
CEO
and Director (5)
|
2008
|
324,000
|
250,000
|
79,872
|
31,493
|
685,365
|
||||||||||||||||||||
Edward
Buiel
Vice
President and CTO
|
2009
|
180,000
|
18,230
|
198,230
|
||||||||||||||||||||||
Edward
Buiel
Vice
President and CTO
|
2008
|
180,000
|
125,000
|
141,500
|
95,436
|
16,920
|
558,856
|
Name
and Principal
Position
|
Year
|
Salary
($)
(1)
|
Bonus
($)
(2)
|
Stock
Awards
($)
(3)
|
Option
Awards
($)
(3)
|
All
Other
Compensation
($) (4)
|
Total
Compensation
($)
|
|||||||||||||||||||
Donald
Hillier
CFO (6)
|
2009
|
150,000
|
19,643
|
169,643
|
||||||||||||||||||||||
Donald
Hillier
CFO (6)
|
2008
|
86,538
|
166,500
|
179,244
|
10,274
|
442,556
|
||||||||||||||||||||
Andrew
C Conway, Jr
CFO (7)
|
2008
|
92,308
|
20,625
|
112,933
|
||||||||||||||||||||||
Robert
Nelson
VP
Manufacturing Eng.
|
2009
|
132,000
|
7,408
|
139,408
|
||||||||||||||||||||||
Robert
Nelson
VP
Manufacturing Eng.
|
2008
|
132,000
|
16,582
|
148,582
|
||||||||||||||||||||||
1.
|
Salaries
are presented as the contractual amount earned for the year, regardless of
date of payment.
|
2.
|
Discretionary
bonuses are not made pursuant to any specific bonus
plan. Bonuses cited were awarded and paid in
2008.
|
3.
|
Stock
and option awards were granted pursuant to the individual employment
contracts. Options are valued using the Black-Scholes-Merton option
pricing model.
|
4.
|
Other
compensation includes Company perquisites relating to car allowances, use
of company cars, accrued vacation payments, moving expenses with related
gross-up, other earned compensation, as well as healthcare premiums paid
under the group health plan.
|
5.
|
During
2008, $627,375 of the compensation reported to Mr. Granville was remitted
to Gallagher Elevator Co. (Gallagher) pursuant to his 2005 employment
contract. Remaining payments were remitted directly to Mr.
Granville through Payroll.
|
6.
|
Mr.
Hillier joined the Company on June 19, 2008. Salary and other
compensation cited for 2008 reflects the apportionment of these expenses
based on his dates of service.
|
7.
|
Mr.
Conway resigned from his position as our Chief Financial Officer in June
2008.
|
During
2008, we entered into executive employment agreements with Thomas Granville,
Edward Buiel, and Donald Hillier. These agreements generally require each
executive to devote substantially all of his business time to our affairs,
establish standards of conduct, prohibit competition with our company during
their term, affirm our rights respecting the ownership and disclosure of
patents, trade secrets and other confidential information, provide for the acts
and events that would give rise to termination of such agreements and provide
express remedies for a breach of the agreement. Each of our executives will
participate in our standard employee benefit programs, including
medical/hospitalization insurance as in effect from time to time. Each of the
covered executives will generally receive an automobile allowance and
reimbursement for all reasonable business expenses incurred by him on behalf of
the Company in the performance of his duties. The provisions of the
individual agreements are summarized below:
|
·
|
Under
the terms of his employment agreement effective June 2008, which has a
term of two years, Mr. Granville receives an annual salary of $324,000, an
annual car allowance of $9,000, a signing bonus of $250,000, bonuses as
determined by the compensation committee, and a 5-year option to purchase
90,000 shares of our common stock at a price of $2.50 per share that vests
over 24 months beginning in June
2008.
|
|
·
|
Under
the terms of his employment agreement effective June 2008, which had a
term of two years and a potential term extension to May 31, 2011, Mr.
Buiel receives an annual salary of $180,000, an annual car allowance of
$6,000, a signing bonus of $110,000 and a future extended term bonus of
$50,000 if the executive is still in the employ of the Company on June 1,
2011, bonuses as determined by the compensation committee, and a 5-year
option to purchase 100,000 shares of our common stock at a price of $2.50
per share with 50% cliff vesting on each of December 31, 2009 and December
31, 2010 respectively. Mr. Buiel also received 30,000 shares of
the Company's common stock vesting during December 2009, and 50,000 shares
of the Company's common stock to vest on June 15,
2011.
|
|
·
|
Under
the terms of his employment agreement effective June 2008, which had a
term of three years, Mr. Hillier receives an annual salary of $150,000, an
annual car allowance of $9,000, bonuses as determined by the compensation
committee, and a 5-year option to purchase 180,000 shares of our common
stock at a price of $2.50 per share that vests over 36 months beginning in
June 2008. Mr. Hillier also received 90,000 shares
of the Company's common stock with vesting to occur in equal 30,000
shares on the next 3 anniversary dates of his employment
agreement.
|
|
·
|
Under
the terms of his employment agreement effective August 2007, which had a
term of six months, Mr. Conway received an annualized salary of $180,000,
bonuses as determined by the compensation committee and an option to
purchase 80,000 shares of our common stock at a price of $4.50 per share.
30,000 options vested with the execution of the contract, and the balance
vest periodically over the remainder of the contract. The contract
automatically renewed for an additional six month term. Mr. Conway
resigned his position as our Chief Financial Officer on June 18, 2008, but
remained as an employee of ours until July 4, 2008, at which time his
employment agreement terminated.
|
Under the
terms of his employment agreement effective December 2007, which has a term of
two years, Dr. Nelson receives an annual salary of $132,000 and bonuses as
determined by the compensation committee. In addition, Dr. Nelson receives an
option to purchase 108,000 shares of our common stock at a price of $5.00 per
share and 36,000 shares of restricted common stock, each that vest over three
years from the effective date of his employment agreementThe Company adopted a
noncontributory 401(k) plan in the fourth quarter of 2009.
Employment
Agreements
We have
entered into executive employment agreements with Thomas Granville, Donald T.
Hillier, Edward Buiel, Andrew C. Conway, Jr. and Dr. Robert F. Nelson. These
agreements generally require each executive to devote substantially all of his
business time to our affairs, establish standards of conduct, prohibit
competition with us during their terms, affirm our rights respecting the
ownership and disclosure of patents, trade secrets and other confidential
information, provide for the acts and events that would give rise to termination
of such agreements and provide express remedies for a breach of the agreement.
Each of our executives will participate in our standard employee benefit
programs, including medical/hospitalization insurance and group life insurance,
as in effect from time to time. Each of the covered executives will generally
receive an automobile allowance and reimbursement for all reasonable business
expenses incurred by him on behalf of us in the performance of his duties. The
provisions of the individual agreements are summarized below:
1.
|
Thomas Granville. On
June 23, 2008, we entered into an Executive Employment Agreement with
Thomas Granville as Chief Executive Officer. Pursuant to this agreement,
Mr. Granville will receive a monthly base salary of $27,000 for the period
commencing June 1, 2008, and terminating May 31, 2010. Mr. Granville’s
base salary is subject to annual review, and such salary is subject to
renegotiation on the basis of Mr. Granville’s and our performance. In
addition, on June 30, 2008 Mr. Granville received a signing bonus of
$250,000, paid 50% within ten (10) days of the execution of the agreement
and 50% upon receipt of the final $10,000,000 investment from the Quercus
Trust. We also granted Mr. Granville an option to purchase 90,000 shares
of our common stock at a price of $2.50 per share at a vesting rate of
3,750 shares per month through the term of the agreement. Mr. Granville is
eligible to participate in any executive compensation plans adopted by our
stockholders and our standard employee benefit
programs.
|
2.
|
Donald T.
Hillier. On June 18, 2008, we entered into an Executive
Employment Agreement with Donald T. Hillier as Chief Financial
Officer. Pursuant to this agreement, Mr. Hillier will receive a
monthly base salary of $12,500 for the period commencing June 16, 2008,
and terminating June 15, 2011. Mr. Hillier's base salary is
subject to review after six (6) months and then on an annual basis
thereafter, and such salary is subject to renegotiation on the basis of
Mr. Hillier's and our performance. We also granted to Mr.
Hillier 90,000 shares of common stock which will vest in equal 30,000
share amounts on June 16 of each of 2009, 2010 and 2011. In
addition, Mr. Hillier was granted an option to purchase 180,000 shares of
common stock at a price of $2.50 per share at a vesting rate of 5,000
shares per month through the term of the agreement. Mr. Hillier
is eligible to participate in any executive compensation plans adopted by
our Stockholders and our standard employee benefit
programs.
|
3.
|
Edward Buiel, Ph.D. On
June 23, 2008, we entered into an Executive Employment Agreement with Dr.
Edward Buiel as Vice President and Chief Technology Officer. Pursuant to
this agreement, Dr. Buiel will receive a monthly salary of $15,000 for the
period commencing June 1, 2008 and terminating May 31, 2010. Dr. Buiel’s
base salary is subject to annual review, and such salary is subject to
renegotiation on the basis of Dr. Buiel’s and our performance. In
addition, Dr. Buiel received a signing bonus of $110,000, paid 90% within
ten (10) days of the
execution of the agreement and 10% upon June 30, 2008 upon receipt of the
final $10,000,000 investment from the Quercus Trust. Also, if Dr. Buiel is
still employed with us on June 1, 2011, he will receive a bonus of
$50,000, notwithstanding any other bonus arrangement. We also reconfirmed
Dr. Buiel’s option to purchase 100,000 shares of our common stock, which
right had been previously granted in his prior Executive Employment
Agreement dated December 29, 2006. These options are exercisable at a
price of $3.75 per share and shall vest 50% on December 29, 2009 and 50%
on December 29, 2010. In addition, Dr. Buiel was granted an option to
purchase 100,000 shares of our common stock in recognition for the
opportunity cost associated with the longer term of his new Executive
Employment Agreement. These options are exercisable at a price of $2.50
per share and shall vest on May 31, 2011. Dr. Buiel is eligible to
participate in any executive compensation plans adopted by our
stockholders and our standard employee benefit programs. Certain of these
equity awards were awarded under Dr. Buiel’s 2006 employment agreement and
the terms of such awards have been incorporated into his new Executive
Employment Agreement.
|
4.
|
Andrew C. Conway,
Jr. Under the terms of his employment agreement
effective August 2007, which had an original term of six months, Mr.
Conway receives an annualized salary of $180,000, bonuses as determined by
the compensation committee and an option to purchase 80,000 shares of our
common stock at a price of $4.50 per share. 30,000 options vested with the
execution of the contract, and the balance vest periodically over the
remainder of the contract. The contract automatically renewed for an
additional six month term ending August 31, 2008. Mr. Conway resigned his
position as our Chief Financial Officer on June 18, 2008, but remained as
an employee of ours until July 4, 2008, at which time his employment
agreement terminated.
|
5.
|
Dr. Robert F. Nelson.
Under the terms of his employment agreement effective December 2007, which
has a term of two years, Dr. Nelson receives an annual salary of $132,000
and bonuses as determined by the compensation committee. In addition, Dr.
Nelson receives an option to purchase 108,000 shares of our common stock
at a price of $5.00 per share and 36,000 shares of restricted common
stock, each that vest over three years from the effective date of his
employment agreement.
|
We have
no retirement plans or other similar arrangements for any directors, executive
officers or employees.
Outstanding
Equity Awards At 2009 Fiscal Year-End Table
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||
Non-Plan
|
Equity Incentive Plan
Awards
|
Equity Incentive Plan Awards
|
|||||||||||||||||||||||||
Number of shares underlying unexercised options
|
Number
|
Market
Value
|
# Shares
|
Market
Value
|
|||||||||||||||||||||||
Name
|
#
Exercisable
|
#
Unexercisable
|
Unearned
|
Exercise
Price
|
Expiration
Date
|
Shares or units of stock
that have not vested
|
Unearned shares, units,
or
other rights not
vested
|
Footnotes
|
|||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||
Granville,
Tom
|
180,000
|
0
|
$
|
2.50
|
varies
through
4/30/12
|
|
|
Issued
pursuant to April 2005 Executive Employment Agreement. Options Expire 5
years after monthly vest date
|
|||||||||||||||||||
Granville,
Tom
|
71,250
|
18,750
|
$
|
2.50
|
varies
through
06/15/15
|
|
|
Issued
pursuant to June 2008 Executive Employment Agreement. Options Expire 5
years after monthly vest date
|
|||||||||||||||||||
Buiel,
Edward
|
90,000
|
0
|
$
|
4.00
|
varies
through
8/31/13
|
|
|
Issued
pursuant to Sept 2005 Executive Employment Agreement. Options expire 5
years after monthly vest date
|
|||||||||||||||||||
|
|
||||||||||||||||||||||||||
Buiel,
Edward
|
50,000
|
0
|
$
|
3.75
|
12/29/2015
|
|
|
Options
issued pursuant to Dec 2006 Executive Employment Agreement. Lump sum
vesting date - 12/29/2009
|
|||||||||||||||||||
|
|
Option Awards
|
Stock Awards
|
||||||||||||||||||||||||||
Non-Plan
|
Equity Incentive Plan
Awards
|
Equity Incentive Plan Awards
|
|||||||||||||||||||||||||
Number of shares underlying unexercised options
|
Number
|
Market
Value
|
# Shares
|
Market
Value
|
|||||||||||||||||||||||
Name
|
#
Exercisable
|
#
Unexercisable
|
Unearned
|
Exercise
Price
|
Expiration
Date
|
Shares or units of stock
that have not vested
|
Unearned shares, units,
or
other rights not
vested
|
Footnotes
|
|||||||||||||||||||
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
||||||||||||||||||
|
|
||||||||||||||||||||||||||
Buiel,
Edward
|
0
|
50,000
|
$
|
3.75
|
12/29/2016
|
|
|
Options
issued pursuant to Dec 2006 Executive Employment Agreement. Lump sum
vesting date - 12/29/2010
|
|||||||||||||||||||
|
|
||||||||||||||||||||||||||
Buiel,
Edward
|
0
|
100,000
|
$
|
2.50
|
05/31/2016
|
|
|
Issued
pursuant to June 2008 Executive Employment Agreement. Lump sum vesting
date - 05/31/2011
|
|||||||||||||||||||
Buiel,
Edward
|
|
|
50,000
|
$
|
90,500
|
Restricted
Stock Grant issued pursuant to June 2008 Executive Employment Agreement -
Lump sum Vesting Date 05/31/2011
|
|||||||||||||||||||||
Hillier,
Don
|
|
|
90,000
|
$
|
166,500
|
Restricted
Stock Grant issued pursuant to June 2008 Executive Employment Agreement
- Vesting 1/3 per year
through 06/16/2011
|
|||||||||||||||||||||
Hillier,
Don
|
90,000
|
90,000
|
$
|
2.50
|
varies
through
06/15/16
|
|
|
Issued
pursuant to June 2008 Executive Employment Agreement. Options Expire 5
years after monthly vest date
|
|||||||||||||||||||
Conway, Andrew Carr Jr.
|
20,000
|
0
|
$
|
4.50
|
varies
through
2/28/2010
|
|
|
Options
issued pursuant to Aug 2007 Executive Employment Agreement. Vesting
monthly through Feb 29, 2008
|
|||||||||||||||||||
|
|
||||||||||||||||||||||||||
Conway,
Andrew Carr Jr.
|
40,000
|
0
|
$
|
4.50
|
varies
through
6/30/2010
|
|
|
Options
issued pursuant to Aug 2007 Executive Employment Agreement. Vesting
monthly through June 30, 2008
|
|||||||||||||||||||
Nelson,
Robert
|
108,000
|
0
|
$
|
5.00
|
varies
through
12/01/2015
|
|
|
Options
issued pursuant to Dec 2007 Executive Employment Agreement. Vesting
monthly through Dec 1, 2010
|
|||||||||||||||||||
|
|
Nonqualified
deferred compensation
We had no
non-qualified deferred compensation plans during year ended December 31,
2009.
Post-Termination
Compensation
We have
not entered into change in control agreements with any of our named executive
officers or other members of the executive management team, although our
employment agreements with certain members of management do call for immediate
vesting of options upon a 50% change in control. No awards of equity incentives
under our 2004 Incentive Stock Plan or awards of options under our 2004 Outside
Directors Stock Option Plan provide for immediate vesting upon a change in
control other than a restricted stock grant of 36,000 shares issued to Robert
Nelson. However, the compensation committee has the full and exclusive power to
interpret the plans, including the power to accelerate the vesting of
outstanding, unvested awards. A “change in control” is generally
defined as (1) the acquisition by any person of 30% or more of the combined
voting power of our outstanding securities
or (2) the occurrence of a transaction requiring stockholder approval and
involving the sale of all or substantially all of our assets or the merger of us
with or into another corporation.
Director
Compensation
The
following table provides information regarding compensation paid to non-employee
directors for services rendered during the year ended December 31,
2009.
Fees
|
|||||||||||||||||
Earned or
|
Option
|
Non-Equity
|
Nonqualified
|
||||||||||||||
Paid in
|
Stock
|
Awards
|
Incentive Plan
|
Deferred
|
All Other
|
||||||||||||
Cash ($)
|
Awards
|
($)
|
Compensation
|
Compensation
|
Compensation
|
||||||||||||
Name
|
(1)
|
($)
|
(3)
|
($)
|
Earnings
|
($)
|
Total ($)
|
||||||||||
Thomas Granville
|
(2
|
)
|
|||||||||||||||
Dr.
Igor Filipenko
|
0
|
0
|
|||||||||||||||
Robert
G. Averill
|
42,500
|
42,500
|
|||||||||||||||
Dr.
Howard K. Schmidt
|
40,000
|
40,000
|
|||||||||||||||
Michael
Kishinevsky
|
36,500
|
36,500
|
|||||||||||||||
Glenn
Patterson
|
36,500
|
36,500
|
|||||||||||||||
Stanley
A. Hirschman
|
44,500
|
44,500
|
|||||||||||||||
D.
Walker Wainwright
|
45,000
|
45,000
|
|||||||||||||||
David Gelbaum (4) | |||||||||||||||||
David Anthony (4) | |||||||||||||||||
Joseph Bartlett (4) | |||||||||||||||||
1.
|
Fees
are presented based on the amount earned. All fees presented
have been paid in full as of January 8,
2010.
|
2.
|
Mr.
Granville received no compensation during 2009 for his service as a
Director, as he served as our CEO during that time period. For
a summary of the compensation received by him as CEO during 2009, see
Summary Compensation Table above.
|
3.
|
Three
directors were reelected to serve on the Board of Directors at the Annual
Meeting held on June 25, 2009.
|
4.
|
David
Gelbaum, David Anthony and Joseph Bartlett were added to the Board as a
condition of the Quercus Trust Amendment to Warrants and Securities
Purchase Agreement. These members received no compensation for
2009.
|
The
members of our board of directors are actively involved in various aspects of
our business ranging from relatively narrow board oversight functions to
providing hands-on guidance to our executives and scientific staff with respect
to matters within their personal experience and expertise. We believe that the
active involvement of all directors in our principal business and policy
decisions increases our board of directors’ understanding of our needs and
improves the overall quality of our management decisions. In recognition of the
substantial time and personal effort that we require from our directors, we have
adopted director compensation policies that provide for higher director
compensation than is typically found in companies at our early stage of
development.
Only
nonmanagement directors are compensated separately for service as members of our
board of directors. Each of our nonmanagement directors received the following
components of compensation for the period January 1, 2009 through December 31,
2009:
|
·
|
A
basic annual retainer of $25,000 for service as a
director;
|
|
·
|
A
supplemental retainer of $6,000 for service as chairman of any
committee;
|
|
·
|
A
supplemental annual retainer of $3,000 for service as a committee
member;
|
|
·
|
A
meeting fee of $1,500 per day for each board or committee meeting attended
in person or $500 for each board or committee meeting attended by
telephone; and
|
|
·
|
Reimbursement
for all reasonable travel, meals and lodging costs incurred on our
behalf.
|
At our
2004 annual meeting, our stockholders ratified a stock option plan for
independent directors that authorized the issuance of options to purchase
$20,000 of our common stock for each year of service as a director. At our 2005
annual meeting, the number of shares reserved for issuance under the outside
directors’ stock option plan was increased to 500,000.
For the
years ended December 31, 2008, 2007, 2006, 2005 and 2004, we issued, 179,555, 0,
60,000, 70,000 and 54,000, options pursuant to our directors’ stock option plan,
respectively. Of this total, no options were exercised during the year ended
December 31, 2009, 193,555 options are currently vested and exercisable at a
weighted average price of $2.27 per share and 116,000 options are unvested and
will be exercisable at a weighted average price of $1.38 per share.
On
January 11, 2010, we had 75,767,818 shares of common stock and 630,897 shares of
Series A Stock issued and outstanding. The following table sets forth certain
information with respect to the beneficial ownership of our securities as of
January 12, 2010, for (i) each of our directors and executive officers; (ii) all
of our directors and executive officers as a group; and (iii) each person who we
know beneficially owns more than 5% of our common stock.
Beneficial
ownership data in the table has been calculated based on the Securities and
Exchange Commission rules that require us to identify all securities that are
exercisable for or convertible into shares of our common stock within 60 days of
January 12, 2010 and treat the underlying stock as outstanding for the purpose
of computing the percentage of ownership of the holder.
Except as
indicated by the footnotes following the table, and subject to applicable
community property laws, each person identified in the table possesses sole
voting and investment power with respect to all capital stock held by that
person. The address of each named executive officer and director, unless
indicated otherwise by footnote, is c/o Axion Power International, Inc. 3601
Clover Lane, New Castle PA 16105.
Common
Stock
|
Preferred
Conversion
(1)
|
Warrant
&
Options
(2)
|
Combined
Ownership
|
Percentage
|
||||||||||||||||
Quercus
Trust (3)
1835
Newport Blvd
A109
– PMB 467
Cosa
Mesa, CA 92627
|
8,571,429 | — | 10,000,000 | 18,571,429 | 21.7 | % | ||||||||||||||
Special
Situations Funds (4)
527
Madison Avenue, Suite 2600
c/o
Austin W Marxe & David M Greenhouse
|
8,771,930 | — | — | 8,771,930 | 11.6 | % | ||||||||||||||
James
E. Winner Jr. & Donna C Winner
JT TEN
(5)
Winner
Building, 32
West State Street,
Sharon,
PA 16146
|
8,245,614 | — | — | 8,245,614 | 10.9 | % | ||||||||||||||
Manatuck
Hill Partners, LLC (6)
1465
Post Road East
Westport,
CT 06880
|
7,200,000 | — | — | 7,200,000 | 9.5 | % | ||||||||||||||
Hare
& Co. (7)
Bank
of New York Mellon,
One
Wall Street, New York NY 10286
Attn
Anthony V. Saviano
3rd
floor / Window A
|
7,150,000 | — | — | 7,150,000 | 9.4 | % | ||||||||||||||
Gelbaum,
David (8)
|
8,571,429 | — | 10,000,000 | 18,571,429 | 21.7 | % | ||||||||||||||
Averill,
Robert
|
1,834,890 | 1,937,169 | 1,249,183 | 5,021,242 | 6.4 | % | ||||||||||||||
Glenn
Patterson
|
1,119,841 | 1,692,160 | 499,145 | 3,311,146 | 4.2 | % | ||||||||||||||
Filipenko,
Igor (9)
|
1,217,197 | — | 782,359 | 1,999,556 | 2.6 | % | ||||||||||||||
Granville,
Tom
|
421,300 | 275,296 | 251,250 | 947,846 | 1.2 | % | ||||||||||||||
Buiel,
Edward
|
311,000 | — | 165,000 | 476,000 | * | |||||||||||||||
Nelson
, Robert
|
36,000 | — | 108,000 | 144,000 | * | |||||||||||||||
Hillier,
Donald
|
30,000 | — | 90,000 | 120,000 | * | |||||||||||||||
Wainwright,
Walker
|
— | — | 45,555 | 45,555 | * | |||||||||||||||
Schmidt,
Howard
|
— | — | 37,500 | 37,500 | * | |||||||||||||||
Conway,
Andrew C.
|
— | — | 60,000 | 60,000 | * | |||||||||||||||
Hirschman,
Stan
|
— | — | 30,000 | 30,000 | * | |||||||||||||||
Kishinevsky,
Michael
|
— | — | 29,500 | 29,500 | * | |||||||||||||||
Bartlett,
Joseph
|
— | — | — | — | * | |||||||||||||||
Anthony,
David
|
— | — | — | — | * | |||||||||||||||
Directors
and officers as a group (15 persons)
|
13,541,657 | 3,904,626 | 13,347,492 | 30,793,775 | 33.1 | % | ||||||||||||||
|
* | Less than 1% | ||||
(1)
|
Represents
shares of common stock issuable upon conversion of the Series A preferred
stock held by the stockholder.
|
||||
(2)
|
Represents
shares of common stock issuable upon exercise of warrants and options held
by the stockholder that are presently exercisable or will become
exercisable within 60 days.
|
||||
(3)
|
The
trustees of The Quercus Trust are Mr. David Gelbaum and Ms. Monica Chavez
Gelbaum, each with shared voting and dispositive power over the
shares held by this trust.
|
||||
(4)
|
Kelly
and Adam Stettner jointly share voting and dispositive power over the
shares held by the Special Situations Funds which
include: Special Situations Technology Fund II, L.P., Special
Situations Technology Fund II, L.P., Special Situations Private Equity
Fund, L.P. , and Special Situations Cayman Fund, L.P. .
|
||||
(5)
|
James
E. Winner Jr. & Donna C Winner jointly share voting and
dispositive power over the shares.
|
||||
(6)
|
Manatuck
Hill Partners, LLC is an investment adviser acting on behalf of its
clients' accounts with investments in Manatuck Hill Scout Fund, LP,
Manatuck Hill Mariner Master Fund, LP, and Manatuck Hill Navigator Master
Fund, LP. Seward & Kissel LLP serves as the legal representative for
these accounts.
|
||||
(7)
|
Hare
& Co. is an investment advisor operating in the U.K., with offices in
New York.
|
||||
(8)
|
The
ownership reflected for David Gelbaum is the actual and beneficial
ownership of The Quercus Trust. The trustees of The
Quercus Trust are Mr. David Gelbaum and Ms. Monica Chavez Gelbaum, each
with shared voting and dispositive power over the shares held by this
trust.
|
||||
(9)
|
Includes
1,544,045 shares beneficially held by Dr. Igor Filipenko, a former
director, and 455,511 shares beneficially held by his
wife.
|
Transactions
with Directors
Dr. Igor
Filipenko—financing transactions. In December 2007 Dr. Filipenko entered
into one of the Bridge Loans with the Company in the original principal amount
of $207,000 with an initial maturity date of March 2008. This Bridge
Loan earned interest at a rate of 14%, origination fees of $18,000 over a 3
month period, and 7,661 warrants as referenced above in our discussion of the
Bridge Loans. The $225,000 Bridge Loan had an initial maturity date of March
2008. On March 31, 2008 and then again on April 30, 2008, we sent
notice to Mr. Filipenko of our intention to extend the loan until April 30,
2008, and May 31, 2008 respectively. The extension entitled Mr. Filipenko to
earn an extension fee of 1% of the original loan on each extension date. With
the March 31, 2008 extension, Mr. Filipenko earned interest on principal plus
interest accrued through the extension date, at an annual rate of 15%. The April
extension increased the annual interest rate to 16%. 4,573 warrants exercisable
at $2.35 until December 31, 2012 are included with these two
extensions. During 2008 Dr. Filipenko earned an additional 9,148
five-year warrants at an exercise price of $2.35 per share. On June 30, 2008 we
paid Dr .Filipenko the $252,769 balance due from our indebtedness under this
Bridge Loan.
C+T
Warrants. On January 11, 2010, 1.6 million
warrants to purchase the Company’s common stock
were deemed issued to the C+T Group, of which Mr. Filipenko, a former director,
will receive 474,600 warrants and his wife will receive 218,800
warrants.
Robert
Averill—financing transactions-2007. In December 2007, Mr. Averill
entered into one of the Bridge Loans with the Company in the original principal
amount of $1,656,000 with an initial maturity date of March
2008. This Bridge Loan earned interest at a rate of 14%, origination
fees of $8,000 (on each $100,000) over a 4 month period, and the 61,290 warrants
as referenced above in our discussion of the Bridge Loans. This Bridge Loan had
an initial maturity date of March 2008. On March 31, 2008 and then again on
April 30, 2008, we sent notice to Mr. Averill of our intention to extend the
Bridge Loan until April 30, 2008, and May 31, 2008 respectively. The extension
entitled Mr. Averill to earn an extension fee of 1% of the original loan on each
extension date. With the March 31, 2008 extension, Mr. Averill earned interest
on principal plus interest accrued through the extension date, at an annual rate
of 15%. The April extension increased the annual interest rate to 16%. 38,286
warrants exercisable at $2.35 until December 31, 2012 are included with these
two extensions. Under the Bridge Loan, during 2008 Mr. Averill earned an
additional 457,542 five-year warrants at an exercise price of $2.35 per share.
On July 1, 2008, we repaid the $1,235,028 balance due under this Bridge Loan
after Mr. Averill converted $800,000 of this Bridge Loan into 380,952 shares of
our common stock pursuant to the terms of the Bridge Loan
agreement.
Glenn
Patterson—financing transactions. In December 2007, Mr. Patterson entered
into a Bridge Loan with the Company in the original principal amount
of $92,000 with an initial maturity date of March 2008. This Bridge
Loan earned interest at 14% per annum, origination fees of $8,000 over 3 ½
months, and 3,405 five-year warrants at an exercise price of $2.35 per share. On
March 31, 2008 and then again on April 30, 2008, we sent notice to Mr. Patterson
of our intention to extend the Bridge Loan until April 30, 2008, and May 31,
2008 respectively. The extension entitled Mr. Patterson to earn an extension fee
of 1% of the original loan on each extension date. With the March 31, 2008
extension, Mr. Patterson earned interest on principal plus interest accrued
through the extension date, at an annual rate of 15%. The April extension
increased the annual interest rate to 16%. 2,127 warrants exercisable at $2.35
until December 31, 2012 are included with these two extensions. Under the Bridge
Loan, during 2008 Mr. Patterson earned an additional 4,627 five-year warrants at
an exercise price of $2.35 per share. On May 29, 2008, we repaid the $104,770
balance due under this Bridge Loan after Mr. Patterson converted $4,200 of this
Bridge Loan into 2,000 shares of our common stock pursuant to the terms of the
Bridge Loan agreement
2009 Secured Bridge Loan
Financing. In August of 2009 we structured a short term bridge
loan with certain of our directors and investors, The “Secured Bridge Loan”,
secured by all of our intellectual property. Under the arrangement, we received
funding of $752,000 through September 30, 2009.
The
Secured Bridge Loan had an original maturity date of December 31, 2009; a loan
origination fee equal to 8% of the original loan; 3,405 warrants upon occurrence
of the loan issuable for each $100,000 invested and exercisable at $2.00 until
August 12, 2014. Anti-dilution provisions apply to the warrants. The holders of
these notes had the right to convert the note together with interest, into any
security sold by us in an institutional offering. Upon repayment of the note,
all conversion rights terminated. The secured bridge holders
converted $254,353 into the private placement, the remaining $584,910 was
repaid.
On or
about December 8, 2009, we borrowed $541,666 from Bob Averill, one of our
directors, on substantially similar terms to the bridge loans in
August 2009 and December of 2007. The new bridge loan bears no
interest but has a fee
of 8% of the principal amount thereof. $ 114,000 of the principal
amount and fee was converted into an investment in us as part of the
December 22 , 2009 private placement below, and $427,666 was repaid on December
28, 2009. Currently, the obligations under this bridge loan have been
paid in full.
Transactions
with Executive Management
See
the “Executive Compensation” section for a discussion of the material elements
of compensation awarded to, earned by or paid to our named executive officers.
Other than as stated in the “Executive Compensation” section, we have not
entered into any transactions with executive management.
This
prospectus covers 45,757,572 shares of common stock held by the selling
stockholders pursuant to the registration obligations of the Securities Purchase
Agreement in order to permit the resale of these shares of common stock by the
selling stockholders from time to time after the date of this
prospectus. The selling stockholders, which as used herein includes
donees, pledgees, transferees or other successors-in-interest selling shares of
common stock or interests in shares of common stock received after the date of
this prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These dispositions may
be at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices.
Name
of the Selling Stockholder
|
Amount
beneficially
owned
by Selling
Stockholder
|
Amount
to be offered to
Selling
Stockholder's
Account
|
Amount
to be beneficially
owned
following completion
of
offering
|
Percent
to be beneficially
owned
following completion
of
the offering
|
||||||||||||
Westport
New Energy Fund, LLC
257
Riverside Ave, Westport, CT 06880
|
877,193 |
877,193
|
— | — | ||||||||||||
Robert
Averill
377
Cupsaw Drive, Ringwood, NJ 07456
|
5,021,242 | 300,620 | 4,720,622 | 94 | % | |||||||||||
Katherine
F. Van der Mey
15600
Fiddlesticks Blvd.Fort Meyers, FL 33912
|
434,234 | 350,900 | 83,334 | 19 | % | |||||||||||
James
E. Winner, Jr & Donna C
Winner JT TEN
Winner
Building, 32 West State Street, Sharon, PA 16146
|
8,245,614 | 8,245,614 | — | — | ||||||||||||
ACT
Capital Partners
LP
2 Radnor Corporate Center Suite 111 100
Matsonford
Road Radnor, PA 19087
|
750,000 | 750,000 | — | — | ||||||||||||
Cabernet
Partners, LP
676
Church Road Villanova, PA 19085
|
100,000 | 100,000 | — | — | ||||||||||||
Chardonnay
Partners, LP
676
Church Road Villanova, PA 19085
|
75,000 | 75,000 | — | — | ||||||||||||
David
A. Houghton
37940
Greenwood Farm Lane Purcelville, VA 20132
|
75,000 | 75,000 | — | — | ||||||||||||
EDJ
Limited
300
Drakes Landing Road, Suite 175 Greenbrae, CA 94904
|
350,000 | 350,000 | — | — | ||||||||||||
Emerging
Growth Equities, Ltd.
PSP
dtd 9/1/99 FBO Gregory J. Berlacher, 401k
c/o
Emerging Growth Equities, Ltd.
1150
First Avenue, Suite 600, King of Prussia, PA 19406
|
50,000 | 50,000 | — | — |
Name
of the Selling Stockholder
|
Amount
beneficially
owned
by Selling
Stockholder
|
Amount
to be offered to
Selling
Stockholder's
Account
|
Amount
to be beneficially
owned
following completion
of
offering
|
Percent
to be beneficially
owned
following completion
of
the offering
|
||||||||||||
Emerging
Growth Equities, Ltd.
PSP
dtd 9/1/99 FBO Jay D. Seid, 401k
c/o
Emerging Growth Equities, Ltd.
1150
First Avenue, Suite 600, King of Prussia, PA 19407
|
65,000 | 65,000 | — | — | ||||||||||||
Gregory
J. Berlacher c/o Emerging Growth Equities, Ltd.
1150
First Avenue, Suite 600, King of Prussia, PA 19406
|
50,000 | 50,000 | — | — | ||||||||||||
Insignia
Partners, LP
1150
First Avenue, Suite 600 King of Prussia, PA
19406
|
500,000 | 500,000 | — | — | ||||||||||||
Lancaster
Investment Partners, LP
1150
First Avenue, Suite 600 King of Prussia, PA
19406
|
500,000 | 500,000 | — | — | ||||||||||||
Manatuck
Hill Partners, LLC c/o Manatuck Hill Partners, LLC
1465
Post Road East
Westport,
CT 06880
|
7,200,000 | 7,200,000 | — | — | ||||||||||||
Narragansett
Strategic Master Fund, LP Metro Center
5th
Floor North 1 Station Place Stamford, CT 06902
|
1,700,000 | 1,700,000 | — | — | ||||||||||||
NFS
Custodian FBO Franz J. Berlacher IRA
1150
First Avenue, Suite 600 King of Prussia, PA
19406
|
100,000 | 100,000 | — | — | ||||||||||||
NFS
Custodian FBO Peter Stanley IRA c/o Emerging Growth Equities,
Ltd.
1150
First Avenue, Suite 600, King of Prussia, PA 19407
|
100,000 | 100,000 | — | — | ||||||||||||
NFS
Custodian FBO Robert A. Berlacher IRA
1150
First Avenue, Suite 600 King of Prussia, PA
19406
|
100,000 | 100,000 | — | — | ||||||||||||
Northwood
Capital Partners, LP
1150
First Avenue, Suite 600 King of Prussia, PA
19406
|
1,300,000 | 1,300,000 | — | — | ||||||||||||
Peter
and Susan Stanley JTWROS
610
W. Gatehouse Lane Philadelphia, PA 19118
|
200,000 | 200,000 | — | — | ||||||||||||
Porter
Partners, L.P.
300
Drakes Landing Road, Suite 175 Greenbrae, CA 94904
|
1,400,000 | 1,400,000 | — | — | ||||||||||||
Amir
L Ecker c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
400,000 | 400,000 | — | — | ||||||||||||
Anthony
McDermott c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
500,000 | 500,000 | — | — | ||||||||||||
Arnold
G Bowles c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
135,000 | 135,000 | — | — |
Name
of the Selling Stockholder
|
Amount
beneficially
owned
by Selling
Stockholder
|
Amount
to be offered to
Selling
Stockholder's
Account
|
Amount
to be beneficially
owned
following completion
of
offering
|
Percent
to be beneficially
owned
following completion
of
the offering
|
||||||||||||
Bee
Publishing Company Inc. c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
200,000 | 200,000 | — | — | ||||||||||||
Bruce
L. Evans Kathryn M. Evans TEN ENT 221 Aberdeen, Wayne, PA
19087
|
250,000 | 250,000 | — | — | ||||||||||||
Carolyn
Wittenbraker c/o Philadelphia Brokerage Corp.,
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
100,000 | 100,000 | — | — | ||||||||||||
Del
Rey Management LP
877
West Main Street #600, Boise, ID 83702, Attn: Gregory A.
Bied
|
200,000 | 200,000 | — | — | ||||||||||||
Dennis
L. Adams c/o Philadelphia Brokerage Corp.,
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
75,000 | 75,000 | — | — | ||||||||||||
Frank
J. Campbell III c/o Philadelphia Brokerage Corp.,
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
200,000 | 200,000 | — | — | ||||||||||||
Gus
Blass II
16
W. Palisades Dr., Little Rock, AR 72207
|
300,000 | 300,000 | — | — | ||||||||||||
Gus
Blass II IRA Rollover, Raymond James & Assoc. Custodian
16
W. Palisades Dr., Little Rock, AR 72207
|
100,000 | 100,000 | — | — | ||||||||||||
Judith
Campbell c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
100,000 | 100,000 | — | — | ||||||||||||
McDermott
Family Partnership II c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
90,000 | 90,000 | — | — | ||||||||||||
NFS/FMTC
IRA FBO Amir L. Ecker c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
750,000 | 750,000 | — | — | ||||||||||||
NFS/FMTC
IRA FBO Jerome J Skochin c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
100,000 | 100,000 | — | — | ||||||||||||
NFS/FMTC
IRA FBO Maria T. Ecker c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
100,000 | 100,000 | — | — | ||||||||||||
NFS/FMTC
IRA-BDA NSPS Carol Frankenfield c/o Philadelphia Brokerage
Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
30,000 | 30,000 | — | — |
Name
of the Selling Stockholder
|
Amount
beneficially
owned
by Selling
Stockholder
|
Amount
to be offered to
Selling
Stockholder's
Account
|
Amount
to be beneficially
owned
following completion
of
offering
|
Percent
to be beneficially
owned
following completion
of
the offering
|
||||||||||||
Patricia
McDermott c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111, Radnor, PA 19087
|
175,000 | 175,000 | — | — | ||||||||||||
Richard
A. Jacoby
2490
White Horse Road, Berwyn, PA 19312
|
400,000 | 400,000 | — | — | ||||||||||||
Richard
A. Jacoby Trust
Dated
October 11, 2004, David R. Glyn, Trustee
2490
White Horse Road, Berwyn, PA 19312
|
50,000 | 50,000 | — | — | ||||||||||||
Robert
H. Jacobs c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
85,000 | 85,000 | — | — | ||||||||||||
Scudder
Smith Family Association LLC c/o Philadelphia Brokerage
Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
200,000 | 200,000 | — | — | ||||||||||||
Sean
McDermott c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
100,000 | 100,000 | — | — | ||||||||||||
The
Ecker Family Partnership c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
100,000 | 100,000 | — | — | ||||||||||||
William
Scott & Karen Kaplan, Trustees for William Scott & Karen
Kaplan
Living
Tr dtd 3/17/04 c/o Philadelphia Brokerage Corp.
2
Radnor Corporate Center, Suite 111 Radnor, PA 19087
|
180,000 | 180,000 | — | — | ||||||||||||
Hare
and Co Bank of New York Mellon
One
Wall Street, New York NY 10286
Attn
Anthony V. Saviano / 3rd floor / Window A
|
7,150,000 | 7,150,000 | — | — | ||||||||||||
Earthrise
Capital Fund, L.P.
45
Rockefeller Plaza, 20th Floor
New
York, NY 10018
|
526,315 | 526,315 | — | — | ||||||||||||
Special
Situations Funds
527
Madison Avenue, Suite 2600 New York, NY 10022
ATTN:
Marianne Kelly/Adam Stettner
|
8,771,930 | 8,771,930 | — | — |
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
|
-
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
-
|
block
trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
-
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
-
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
-
|
privately
negotiated transactions;
|
|
-
|
short
sales effected after the date the registration statement of which this
prospectus is a part is declared effective by the Securities and Exchange
Commission;
|
|
-
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
-
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;
and
|
|
-
|
a
combination of any such methods of
sale.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common stock
offered by them will be the purchase price of the common stock less discounts or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole or
in part, any proposed purchase of common stock to be made directly or through
agents.
We will
not receive any of the proceeds from this offering.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
“underwriters” within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are “underwriters” within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements of
the Securities Act.
To the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. In addition, to the
extent applicable we will make copies of this prospectus (as it may be
supplemented or amended from time to time) available to the selling stockholders
for the purpose of satisfying the prospectus delivery requirements of the
Securities Act. The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities
Act.
We have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the
registration of the shares offered by this prospectus.
We have
agreed with the selling stockholders to keep the registration statement of which
this prospectus constitutes a part effective until the earlier of (1) such time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on which
the shares may be sold without restriction pursuant to Rule 144 of the
Securities Act.
General
Our
amended and restated certificate of incorporation authorizes the issuance of
100,000,000 shares of common stock and 12,500,000 shares of preferred stock. We
have designated 1,000,000 shares of our authorized preferred stock as Senior
Preferred Stock, and 2,000,000 shares designated as Series A Preferred Stock. As
of January 11, 2010, we have 75,767,818 common shares and 630,897 shares of
Series A Preferred Stock outstanding that are convertible into 8,785,483 common
shares. Outstanding warrants, vested options, and convertible rights entitle the
holders to purchase 16,642,588 additional
shares of common stock.
Within
the limits established by our amended and restated of incorporation, our board
of directors has the power at any time and without stockholder approval to issue
shares of our authorized common stock or preferred stock for cash, to acquire
property or for any other purpose that the board of directors believes is in the
best interests of our company. Our stockholders have no pre-emptive rights and
any decision to issue additional shares of common stock or preferred stock will
reduce the percentage ownership of our current stockholders and could dilute our
net tangible book value.
Our board
of directors has the power to establish the designation, rights and preferences
of any preferred stock we issue in the future. Accordingly, our board of
directors may, without stockholder approval, issue preferred stock with
dividend, liquidation, conversion, voting or other rights that could adversely
affect the voting power or other rights of the holders of common stock. Subject
to the directors’ duty to act in the best interest of our company, shares of
preferred stock can be issued quickly with terms calculated to delay or prevent
a change in control or make removal of management more difficult.
The
following summary of our capital stock does not purport to be complete and is
subject to and qualified in its entirety by our amended and restated certificate
of incorporation and our by-laws, each of which are included as exhibits to the
registration statement of which this prospectus forms a part and by the
provisions of applicable law.
Common
Stock
Our
common stockholders are entitled to one vote for each share held of record on
all matters to be voted on by stockholders. There is no cumulative voting with
respect to the election of directors, with the result that the holders of more
than 50% of the shares voted for the election of directors can elect the entire
board of directors. The holders of common
stock are entitled to receive dividends when, as and if declared by our board of
directors out of funds legally available. In the event of our liquidation,
dissolution or winding up, our common stockholders are entitled to share ratably
in all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the common stock. The holders of common stock have no
preemptive or other subscription rights and there are no redemption provisions
applicable to the common stock. All of our outstanding shares of common stock
are fully paid and non-assessable.
The
Mega-C Trust holds 3,683,887 shares of our common stock. Under the original
trust agreement, the trustee of the Mega-C Trust was required to vote the trust
shares proportionally with the votes cast by our other stockholders. Under the
settlement agreement and the reorganization plan, the Mega-C Trust and a
liquidation trust for Mega-C will have the right to vote the number of shares
that is equal to the lesser of the number of shares held by them, or the number
of shares held by Axion Power Corporation’s founders and their spouses and
dependents. At the date of this prospectus, the Mega-C Trust and the liquidation
trust would be entitled to cast up to 3,683,887 votes at a
meeting of stockholders and may have substantial influence over the outcome of
any stockholder vote.
Senior
Preferred Stock
Our board
of directors designated 1,000,000 shares of our authorized preferred stock as
Senior Preferred Stock and no shares are outstanding at the date of this
prospectus.
Series
A Preferred Stock
Authorization. On October 18,
2006, our board of directors authorized a new series of preferred stock
consisting of up to 2,000,000 shares to be designated Series A Preferred Stock
and a total of 630,897 shares are outstanding at the date of this
prospectus. On
November 30, 2009 the Corporation’s board of directors passed resolutions
approving Amendments to the Certificate to provide that, simultaneously
with or subsequent to the closing by the Corporation of a sale of Common Stock
at a price of at least $0.50 per share and with an aggregate purchase price of
at least $18,420,000, the remaining 630,897 issued and outstanding shares of
Series A Stock, including any dividends otherwise owing with respect thereto,
shall be automatically converted into 8,785,483 shares of Common
Stock without any further action required on the part of the holders of its
Series A Stock, and the powers, designations, preferences and rights
of holders of Series A Stock shall automatically become null and
void. The Amendments were approved by the requisite number of
shareholders of Series A Stock and Common Stock on December 10, 2009, and a
Preliminary Information Statement has been filed on Schedule 14C with the
Securities and Exchange Commission.
The
Amendments will become effective upon the filing of a Certificate of
Amendment effecting the Amendments with the Delaware Secretary of State, which
is expected to occur as soon as is reasonably practicable on or after the
twentieth (20th) calendar day following the mailing of the Information Statement
to our registered shareholders.
REASONS
FOR THE AMENDMENT TO THE CERTIFICATE
The
primary reason for the Amendments to the Certificate is that on December 22,
2009, the Company consummated a financing transaction with certain
investors. One of the conditions to the closing was that the
Corporation provide for the conversion of all of its Series A Stock into Common
Stock of the Corporation. The Corporation is consummating this
condition through the transactions described in this Information
Statement.
For this
reason, the Corporation and its board of directors believe that the approval of
the Amendments to the Certificate described in this Information Statement is in
the best interests of both the Corporation and its shareholders.
IMPLEMENTATION
OF THE AMENDMENT TO THE CERTIFICATE
The
Amendment amends Article 8 of the Certificate by adding the following as a new
Article 8(i):
(i)
simultaneously with or subsequent to the closing by the Corporation of a sale of
Common Stock at a price of at least $0.50 per share and with an aggregate
purchase price of at least $18,420,000, the remaining issued and outstanding
shares of its Series A Preferred, including any dividends otherwise owing with
respect thereto, shall be automatically converted into
8,785,483 shares of Common Stock without any further action required
on the part of the
holders of its Series A Preferred, and the powers, designations, preferences and
rights of holders of its Series A Preferred shall automatically become null and
void.
Warrants
At the
date of this prospectus, we have 15,565,433 outstanding warrants that represent
potential future cash proceeds to our company of $22,236,625. The
warrants are divided into four classes that are presently exercisable and expire
at various times over the next 60 months. The following table summarizes the
number of warrants in each class, the anticipated proceeds from the exercise of
each class, and the expiration date of each class.
Warrant
|
Number of
|
Exercise
|
Anticipated
|
Expiration
|
|||||||||
Series
|
Warrants
|
Price
|
Proceeds
|
Date
|
|||||||||
Series
V Warrants
|
680,000
|
$
|
4.00
|
$
|
2,720,000
|
December
31, 2011
|
|||||||
Series
VI Warrants
|
989,363
|
$
|
6.00
|
$
|
5,936,178
|
March
31, 2011
|
|||||||
2007
Bridge Warrants
|
183,755
|
$
|
2.35
|
$
|
431,824
|
December
31, 2012
|
|||||||
2008
Conversion-Warrants
|
580,940
|
$
|
2.60
|
$
|
1,510,444
|
June
29, 2013
|
|||||||
2008
Quercus
|
10,000,000
|
$
|
0.75
|
$
|
7,500,000
|
June
29, 2013
|
|||||||
2008
Quercus
|
1,485,714
|
$
|
0.57
|
$
|
846,857
|
June
29, 2013
|
|||||||
C+T Service |
1,600,000
|
$ |
2.00
|
$ |
3,200,000
|
January
10, 2012
|
|||||||
2009
Bridge Warrants
|
27,240
|
$ |
2.00
|
$ |
54,480
|
August
12, 2014
|
|||||||
2009
Bridge Warrants
|
18,421
|
$ |
2.00
|
$ |
36,842
|
December
8, 2014
|
|||||||
Total
|
15,565,433
|
$
|
22,236,625
|
The Board
of Directors on August 21, 2009 approved the issuance of warrants to purchase
not more than 1,600,000 shares of common stock at an exercise price of $2.00 per
share and a term of two years to the C&T Group. As of the date of this
filing, these warrants have not been physically issued but are deemed
issued.
The
holders of warrants are not required to exercise their rights at any time prior
to the expiration date and we are unable to predict the amount and timing of any
future warrant exercises. We reserve the right to temporarily reduce the
exercise prices of our warrants from time to time in order to encourage the
early exercise of the warrants.
Stock
Options
At the
date of this prospectus, we have 1,754,905 outstanding stock options that
represent potential future cash proceeds to our company of $5,030,148. The
outstanding options include 1,077,155options that are currently vested and
exercisable, or 1,080,155 that will become vested and exercisable within 60
days, and represent potential future cash proceeds to our company of $3,403,193
and $3,410,693, respectively. The remaining options will vest and become
exercisable over the next three years. The following table provides summary
information on our outstanding options.
Vested Option Grants
|
Unvested Option Grants
|
|||||||||||||||||||||||
Shares
|
Price
|
Proceeds
|
Shares
|
Price
|
Proceeds
|
|||||||||||||||||||
Incentive
Plan options
|
51,950
|
$
|
3.48
|
$
|
180,960
|
0
|
$
|
0
|
$
|
0
|
||||||||||||||
Directors’
Plan options
|
193,555
|
$
|
2.27
|
440,038
|
116,000
|
$
|
1.38
|
160,080
|
||||||||||||||||
Contract
options to officers
|
649,250
|
$
|
3.40
|
2,210,625
|
258,750
|
$
|
2.74
|
709,375
|
||||||||||||||||
Contract
options to consultants and employee
|
182,400
|
$
|
3.13
|
571,570
|
303,000
|
$
|
2.50
|
757,500
|
||||||||||||||||
Total
|
1,077,155
|
$
|
3.16
|
$
|
3,403,193
|
677,750
|
$
|
2.40
|
$
|
1,626,955
|
The
holders of options are not required to exercise their rights at any time and we
are unable to predict the amount and timing of any future option exercises. We
reserve the right to temporarily reduce the exercise prices of our options from
time to time in order to encourage the early exercise of the
options.
Delaware
Anti-takeover Statute
We
are subject to the provisions of section 203 of the Delaware General Corporation
Law regulating corporate takeovers. In general, those provisions prohibit a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder, unless:
|
·
|
the
transaction is approved by the board of directors before the date the
interested stockholder attained that
status;
|
|
·
|
upon
consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction commenced; or
|
|
·
|
on
or after the date the business combination is approved by the board of
directors and authorized at a meeting of stockholders by at least
two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
|
Section
203 defines “business combination” to include the following:
|
·
|
any
merger or consolidation involving the corporation and the interested
stockholder;
|
|
·
|
any
sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested
stockholder;
|
|
·
|
subject
to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder;
|
|
·
|
any
transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder;
or
|
|
·
|
the
receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
|
In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
A
Delaware corporation may opt out of this provision either with an express
provision in its certificate of incorporation or bylaws approved by its
stockholders. However, we have not opted out, and do not currently intend to opt
out, of this provision. The statute could prohibit or delay mergers or other
takeover or change in control attempts and, accordingly, may discourage attempts
to acquire us.
Certificate
of Incorporation and By-laws
Our
amended and restated certificate of incorporation and by-laws include provisions
that may have the effect of delaying or preventing a change of control or
changes in our management. These provisions include:
|
·
|
the
division of our board of directors into three classes of directors that
serve for rotating three-year
terms;
|
|
·
|
the
right of the board of directors to elect a director to fill a vacancy
created by the resignation of a director or the expansion of the board of
directors;
|
|
·
|
the
prohibition of cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
|
|
·
|
the
requirement for advance notice for nominations of candidates for election
to the board of directors or for proposing matters that can be acted upon
at a stockholders’ meeting;
|
|
·
|
the
ability of the board of directors to issue, without stockholder approval,
up to 12,355,000 shares of preferred stock with terms set by the board of
directors, which rights could be senior to those of common stock;
and
|
|
·
|
the
right of our board of directors to alter our bylaws without stockholder
approval.
|
Transfer
Agent
Our
transfer agent is Continental Stock Transfer & Trust, 17 Battery Place, New
York, New York 10004.
The
legality of the shares of common stock offered by this prospectus will be passed
upon for us by Jolie Kahn, Esq. of New York, NY.
The
financial statements as of December 31, 2008 and 2007 included in this
prospectus have been so included in reliance on the report of Rotenberg &
Co. LLP, effective October 1, 2009, which was succeeded by merger by EFP
Rotenberg, LLP, an independent registered public accounting firm, given on the
authority of said firm as experts in accounting and auditing.
On
October 2, 2009, the Company received notice that its current auditors,
Rotenberg and Co., LLP, had resigned in connection with their merger with EFP
Group. The Company has engaged the new firm resulting from the
merger, EFP Rotenberg, LLP, to continue as the Company's independent
registered public accounting firm. All of the partners and employees
of Rotenberg and Co., LLP and EFP Group have joined the new firm, EFP Rotenberg,
LLP.
The
reports of Rotenberg and Co., LLP as of and for the fiscal years ended December
31, 2007 and for the period from inception (September 18, 2003) through December
31, 2007, contained an explanatory paragraph indicating that there was
substantial doubt as to the Company's ability to continue as a going
concern. Other than such qualification, no report of Rotenberg and
Co., LLP for the past two fiscal years and the subsequent interim period
preceding the resignation of Rotenberg and Co., LLP contained an adverse opinion
or disclaimer of opinion, or were qualified or modified as to uncertainty, audit
scope, or accounting principles. During the Company's two most recent
fiscal years and the subsequent interim period preceding the resignation of
Rotenberg and Co., LLP, there were no disagreements with Rotenberg and Co., LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
On
October 9, 2009, the Board of the Company approved the engagement of EFP
Rotenberg, LLP of Rochester, New York, to be the Company's independent
registered public accountant effective October 1, 2009. We
engaged EFP Rotenberg, LLP as our new independent accountant concurrent with the
merger of EFP Group and Rotenberg and Co., LLP. Prior to such engagement, during
the two most recent fiscal years, the Company has not consulted the newly
engaged independent registered public accountant for any matter.
The
Company provided Rotenberg and Co., LLP with a copy of the disclosure relating
to this change in its certifying accountant and requested that Rotenberg and
Co., LLP furnish the Company with a letter addressed to the Securities and
Exchange Commission stating whether it agrees with the above statements and, if
it does not agree, the respects in which it does not agree, a copy of which is
filed as Exhibit 16.1 to the Registration Statement of which this prospectus is
a part.
We have
filed a registration statement on Form S-1 with the Securities and Exchange
Commission with respect to this offering. This prospectus, which is part of the
registration statement, does not include all of the information contained in the
registration statement. You should refer to the registration statement and its
exhibits and schedules for additional information. Whenever we make reference in
this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits and schedules attached to the registration statement for copies of
the actual contract, agreement or other document.
We also
file annual, quarterly and current reports, proxy statements and other documents
with the Securities and Exchange Commission under the Exchange Act. You may read
and copy any materials that we may file without charge at the Securities and
Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549. You may call the Securities and Exchange Commission at
1-800-Securities and Exchange Commission-0330 for further information on the
operation of the Public Reference Room. You may obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the Securities
and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. The
Securities and Exchange Commission also maintains an Internet site,
http://www.sec.gov, which contains reports, proxy and information statements and
other information regarding issuers that file electronically with the Securities
and Exchange Commission. The other information we file with the Securities and
Exchange Commission is not part of the registration statement of which this
prospectus forms a part.
AXION
POWER INTERNATIONAL, INC. AND SUBSIDIARIES
FOR
THE QUARTER ENDED SEPTEMBER 30, 2009
F-2
|
|
F-3
|
|
F-4
|
|
Notes to Consolidated Financial Statements |
F-5
|
AXION
POWER INTERNATIONAL, INC
(A
Development Stage Company)
September 30, 2009
|
December 31, 2008
|
|||||||
|
(Unaudited)
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 784,756 | $ | 3,124,168 | ||||
Escrow
deposits for foreign patent applications
|
20,375 | — | ||||||
Short-term
investments
|
— | 2,193,920 | ||||||
Accounts
receivable
|
763,863 | 128,035 | ||||||
Other
receivables
|
13,037 | 64,456 | ||||||
Prepaid
expenses
|
341,642 | 78,989 | ||||||
Inventory
|
1,206,406 | 1,269,515 | ||||||
Total
current assets
|
3,130,079 | 6,859,083 | ||||||
Property
& equipment, net
|
3,964,068 | 3,274,183 | ||||||
Other
receivables, non—current
|
41,899 | 28,388 | ||||||
TOTAL
ASSETS
|
$ | 7,136,046 | $ | 10,161,654 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ | 1,910,550 | $ | 1,324,287 | ||||
Other
current liabilities
|
97,561 | 162,580 | ||||||
Notes
payable, current
|
92,630 | |||||||
Notes
payable to related parties
|
746,228 | — | ||||||
Total
current liabilities
|
2,846,969 | 1,486,867 | ||||||
Deferred
revenue
|
688,054 | 751,096 | ||||||
Derivative
liabilities
|
16,043,259 | — | ||||||
Notes
payable
|
683,614 | — | ||||||
Total
liabilities
|
20,261,896 | 2,237,963 | ||||||
Stockholders'
Equity:
|
||||||||
Convertible
preferred stock-12,500,000 shares authorized
|
||||||||
Senior
preferred – 1,000,000 shares designated 137,500 issued and
outstanding (137,500 in 2008)
|
1,770,387 | 1,656,735 | ||||||
Series
A preferred – 2,000,000 shares designated 693,997 shares issued and
outstanding (718,997 in 2008)
|
9,829,340 | 9,440,359 | ||||||
Common
stock-100,000,000 shares authorized $0.0001 par value 26,743,172
issued & outstanding (26,417,437 in 2008)
|
2,674 | 2,641 | ||||||
Additional
paid in capital
|
41,281,221 | 46,184,287 | ||||||
Deficit
accumulated during development stage
|
(65,757,396 | ) | (49,111,062 | ) | ||||
Cumulative
foreign currency translation adjustment
|
(252,076 | ) | (249,269 | ) | ||||
Total
Stockholders' Equity
|
(13,125,850 | ) | 7,923,691 | |||||
TOTAL
LIABILITIES & STOCKHOLDERS' EQUITY
|
$ | 7,136,046 | $ | 10,161,654 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements
|
AXION
POWER INTERNATIONAL, INC
(A
Development Stage Company)
UNAUDITED
Three
Months Ended
|
Nine
Months Ended
|
Inception
|
||||||||||||||||||
September
30,
|
September
30,
|
(9/18/2003)
|
||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
to
9/30/2009
|
||||||||||||||||
Revenues
|
$ | 962,833 | $ | 149,441 | $ | 1,567,816 | $ | 541,248 | $ | 3,056,663 | ||||||||||
Cost
of goods sold
|
981,273 | 81,019 | 1,380,923 | 266,344 | 2,591,185 | |||||||||||||||
Gross
profit (loss)
|
(18,440 | ) | 68,422 | 186,893 | 274,904 | 465,478 | ||||||||||||||
Expenses
|
||||||||||||||||||||
Research
& development
|
869,892 | 1,033,961 | 3,327,676 | 2,438,345 | 17,279,346 | |||||||||||||||
Selling,
general & administrative
|
873,213 | 993,479 | 2,887,597 | 4,172,675 | 20,902,978 | |||||||||||||||
Interest
expense - related party
|
44,881 | (2,500 | ) | 44,881 | 1,175,370 | 2,196,804 | ||||||||||||||
Impairment
of assets
|
— | — | — | — | 1,391,485 | |||||||||||||||
Derivative
revaluation
|
12,048,203 | — | 13,592,717 | (2,844 | ) | 7,078,049 | ||||||||||||||
Mega
C Trust Share Augmentation (Return)
|
— | — | — | — | 400,000 | |||||||||||||||
Interest
& other income, net
|
(1,341 | ) | (42,961 | ) | (14,039 | ) | (34,524 | ) | (548,191 | ) | ||||||||||
Net
loss before income taxes
|
(13,853,288 | ) | (1,913,557 | ) | (19,651,939 | ) | (7,474,118 | ) | (48,234,993 | ) | ||||||||||
Income
Taxes
|
— | — | — | — | 4,300 | |||||||||||||||
Deficit
accumulated during development stage
|
(13,853,288 | ) | (1,913,557 | ) | (19,651,939 | ) | (7,474,118 | ) | (48,239,293 | ) | ||||||||||
Less
preferred stock dividends and beneficial conversion
feature
|
(3,302,428 | ) | (270,944 | ) | (3,871,570 | ) | (843,230 | ) | ( 17,518,103 | ) | ||||||||||
Net
loss applicable to common shareholders
|
$ | (17,155,716 | ) | $ | (2,184,501 | ) | $ | (23,523,509 | ) | $ | (8,317,348 | ) | $ | ( 65,757,396 | ) | |||||
Basic
and diluted net loss per share
|
$ | (0.64 | ) | $ | (0.08 | ) | $ | (0.89 | ) | $ | (0.39 | ) | $ | (3.84 | ) | |||||
Weighted
average common shares outstanding
|
26,676,678 | 26,045,156 | 26,508,643 | 21,263,533 | 17,105,621 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements
AXION
POWER INTERNATIONAL, INC
(A
Development Stage Company)
UNAUDITED
Nine
Months Ended
|
Inception
|
|||||||||||
September
30,
|
(9/18/2003) to
|
|||||||||||
2009
|
2008
|
9/30/2009
|
||||||||||
Cash
Flows from Operating Activities:
|
||||||||||||
Deficit
accumulated during development stage
|
$ | (19,651,939 | ) | $ | (7,474,118 | ) | $ | (48,239,292 | ) | |||
Adjustments required
to reconcile deficit accumulated
during development stage to cash flows used
by operating
activities
|
||||||||||||
Depreciation
|
306,906 | 125,356 | 850,192 | |||||||||
Non-cash
interest expense
|
30,536 | 906,096 | 1,861,119 | |||||||||
Impairment
of assets
|
— | — | 1,391,486 | |||||||||
Derivative
revaluations
|
13,592,717 | (2,844 | ) | 7,078,049 | ||||||||
Mega
C Trust Share Augmentation (Return)
|
— | — | 400,000 | |||||||||
Share
based compensation expense
|
747,441 | 626,937 | 5,097,940 | |||||||||
Changes
in Operating Assets & Liabilities
|
||||||||||||
Accounts
receivable
|
(635,828 | ) | 46,203 | (770,733 | ) | |||||||
Other
receivables
|
51,419 | 271,022 | 8,923 | |||||||||
Prepaid
expenses
|
25,347 | 25,665 | (51,054 | ) | ||||||||
Inventory
|
63,109 | (734,601 | ) | (1,206,405 | ) | |||||||
Accounts
payable
|
586,263 | (398,625 | ) | 3,565,194 | ||||||||
Other
current liabilities
|
(65,019 | ) | 9,776 | 118,693 | ||||||||
Liability
to issue equity instruments
|
— | — | 178,419 | |||||||||
Deferred
revenue and other
|
(63,043 | ) | (2,370 | ) | 775,532 | |||||||
Net
cash used by operating activities
|
(5,012,091 | ) | (6,601,503 | ) | (28,941,937 | ) | ||||||
Cash
Flows from Investing Activities
|
||||||||||||
Escrow
deposits for foreign patent applications
|
(20,375 | ) | — | (20,375 | ) | |||||||
Short
term investments
|
2,193,920 | (38,389 | ) | — | ||||||||
Other
receivables, non-current
|
(13,511 | ) | (1,049,359 | ) | (1,258,915 | ) | ||||||
Purchase
of property & equipment
|
(996,792 | ) | — | (4,810,972 | ) | |||||||
Investment
in intangible assets
|
— | — | (167,888 | ) | ||||||||
Net
cash provided (used) by investing activities
|
1,163,242 | (1,087,748 | ) | (6,258,150 | ) | |||||||
Cash
Flow from Financing Activities
|
||||||||||||
Proceeds
from related party debt, net
|
736,000 | (1,483,485 | ) | 5,915,771 | ||||||||
Proceeds
from notes payable, net
|
776,244 | — | 776,244 | |||||||||
Proceeds
from sale of common stock; net of costs
|
— | 16,468,500 | 20,185,905 | |||||||||
Proceeds
from exercise of warrants
|
— | — | 1,655,500 | |||||||||
Proceeds
from sale of preferred stock, net of costs
|
— | — | 7,472,181 | |||||||||
Net
cash provided by financing activities
|
1,512,244 | 14,985,015 | 36,005,601 | |||||||||
Net
Change in Cash and Cash Equivalents
|
(2,336,605 | ) | 7,295,764 | 805,514 | ||||||||
Effect
of Exchange Rate on Cash
|
(2,807 | ) | (4,251 | ) | (20,758 | ) | ||||||
Cash
and Cash Equivalents – Beginning
|
3,124,168 | 671,244 | — | |||||||||
Cash
and Cash Equivalents – Ending
|
$ | 784,756 | $ | 7,962,757 | $ | 784,756 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements
AXION
POWER INTERNATIONAL, INC.
(A
Development Stage Company)
1.
|
Basis
of Presentation
|
In the
opinion of management, the information furnished in this Form 10-Q reflects all
adjustments necessary for a fair statement of the financial position and results
of operations and cash flows as of and for the three and nine month
periods ended September 30, 2009 and 2008, as well as the cumulative period from
inception through September 30, 2009. The condensed consolidated balance sheet
as of September 30, 2009 has been derived from those unaudited condensed
consolidated financial statements. All significant intercompany
balances and transactions have been eliminated in
consolidation. Certain adjustments are of a normal, recurring nature.
Operating results for the interim period are not necessarily indicative of
results expected for the year ending December 31, 2009.
2.
|
Going
Concern
|
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. During the fiscal year ended
December 31, 2008, the Company raised a total of $15.0 million, net of offering
expenses and fees, from investing activities and had revenues of $ 0.7 million.
During the first nine months of 2009, the Company had revenues of $ 1.6
million. Gross margin from sales and financings in fiscal year 2008
and through September 30, 2009 will not continue to provide sufficient funds for
the Company’s current operations. Subsequent financings will be required to fund
the Company’s operations and pay other requirements. No assurances can be given
that the Company will be successful in arranging the further financing needed to
continue the execution of its business plan, which includes the development of
new products. Failure to obtain such financing will require management to
substantially curtail, if not cease, operations, which will result in a material
adverse effect on the financial position and results of operations of the
Company. The condensed consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
might occur if the Company is unable to continue as a going
concern.
3.
|
Recently
Issued Accounting Pronouncements
|
The Company adopted, as of July 1,
2009, the Financial Accounting Standards Board’s (“FASB’s”) Accounting Standards
Codification (“ASC”) as the source of authoritative accounting principles
recognized by the FASB to be applied to nongovernmental entities in the
preparation of financial statements in conformity with GAAP. The ASC does not
change authoritative guidance. Accordingly, implementing the ASC did not change
any of the Company’s accounting, and therefore, did not have an impact on the
consolidated results of the Company. References to authoritative GAAP literature
have been updated accordingly.
On January 1, 2009, the Company
adopted the provisions of FASB ASC topic 820 Fair Value Measurements and
Disclosures (formerly SFAS No. 157, Fair Value Measurements), with respect to
non-financial assets and liabilities. This pronouncement defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. The adoption of ASC topic 820 did not have a material
impact on the Company’s consolidated financial statements.
On
January 1, 2009, the Company adopted FASB ASC topic 815-40 "Determining Whether an Instrument
(or Embedded Feature) is indexed to an Entity's Own Stock" (formerly EITF
07-5). ASC topic 815-40 provides guidance on determining whether an instrument
(or an embedded feature) is indexed to an entity’s own stock, which would
qualify as a scope exception under prior authoritative literature FASB No. 133.
“Accounting for Derivative Instruments and Hedging Activities” ASC 815-40 is
effective for fiscal years beginning after December 15, 2008. The Company
adopted ASC topic 815-40 on January 1, 2009 and as such some of the Company’s
outstanding warrants that were previously classified in equity were reclassified
to liabilities as of January 1, 2009 as these warrants contain down round
provisions and were no longer deemed to be indexed to the Company’s own stock.
See Note 5 for further discussion.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On
January 1, 2009, the Company adopted the provisions of FASB ASC Topic
320-10-65 (formerly FSP FAS 107-1 and APB 28-1) “Interim Disclosures about Fair Value
of Financial Instruments”. This update requires fair value disclosures
for financial instruments that are not currently reflected on the balance sheet
at fair value on a quarterly basis. The adoption of ASC Topic 320-10-65 did not
have a material impact on the Company’s consolidated financial
statements.
On
January 1, 2009, the Company adopted the provisions of ASC 815-10 (formerly
FASB Statement 161, "Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133”). FASB ASC 815-10 requires enhanced disclosures about an
entity’s derivative and hedging activities. FASB ASC 815-10 is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008 with early application encouraged. The
adoption of this pronouncement did not have a material impact on the
consolidated financial statements.
In May
2009, the Company adopted FASB ASC topic 855, “Subsequent Events” (formerly
SFAS No. 165). This Statement sets forth: (i) the period after the balance sheet
date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements; (ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements; and (iii) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. The adoption
of ASC topic 855 did not have a material impact on the Company’s
consolidated financial statements. The Company has evaluated the period
beginning October 1, 2009 through November 16, 2009, the date its financial
statements were issued, and concluded there were no events or transactions
occurring during this period that required recognition or disclosure in its
financial statements.
In June
2009, the FASB issued ASC topic 105 “Generally Accepted Accounting
Principles”, (formerly Statement of Financial Standards (SFAS)
No. 168, The Hierarchy of
Generally Accepted Accounting Principles). ASC topic 105 contains
guidance which reduces the U.S. GAAP hierarchy to two levels, one that is
authoritative and one that is not. This pronouncement is effective
September 15, 2009. The adoption of this pronouncement did not have a
material impact on the consolidated financial statements.
In
September 2009, the FASB issued Accounting Standards Update (“ASU”)
No. 2009-08, “Earnings
Per Share” Amendments to Section 260-10-S99. This Codification
Update represents technical corrections to Topic 260-10-S99, Earnings per Share,
based on EITF Topic D-53, “Computation of Earnings Per Share
for a Period that Includes a Redemption or an Induced Conversion of a Portion of
a Class of Preferred Stock” and EITF Topic D-42, The Effect of the
Calculation of Earnings per Share for the Redemption or Induced Conversion of
Preferred Stock goes into effect in the period that includes a redemption or
induced conversion. Adoption of this new guidance did not have a material
impact on the consolidated financial statements.
In
October 2009, the FASB issued authoritative guidance on ASC 605-25 “Revenue Recognition -
Multiple-Deliverable
Revenue Arrangement “that will become
effective beginning July 1, 2010, with earlier adoption permitted. Under
the new guidance, when vendor specific objective evidence or third party
evidence for deliverables in an arrangement cannot be determined, a best
estimate of the selling price is required to separate deliverables and allocate
arrangement consideration using the relative selling price method. The new
guidance includes new disclosure requirements on how the application of the
relative selling price method affects the timing and amount of revenue
recognition. We believe adoption of this new guidance will not have a material
impact on the consolidated financial statements.
Reclassifications
Certain
reclassifications have been made to the 2008 financial statement presentation to
correspond to the current year’s presentation. The total equity and net income
are unchanged due to these reclassifications.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4.
|
Inventory
|
Inventory
is recorded at the lower of cost or market value, and adjusted as appropriate
for decreases in valuation and obsolescence. Adjustments to the valuation and
obsolescence reserves are made after analyzing market conditions, current and
projected sales activity, inventory costs and inventory balances to determine
appropriate reserve levels. As of September 30, 2009, reserves for valuation and
obsolescence totaled $75,482. Cost is determined using the first-in first-out
(FIFO) method. Many components and raw materials we purchase have minimum order
quantities. As of September 30, 2009, inventory costs of $1,206,406 consisted of
$352,726 of raw materials and $853,680 of finished goods and finished
subassemblies.
5.
|
Derivative
liabilities
|
On
January 14, 2008, we entered into the Securities Purchase Agreement with
Quercus, pursuant to which we agreed to issue to Quercus up to 8,571,429 shares
of our common stock, together with a five year common stock purchase warrants
that will entitle the holder to purchase up to 10,000,000 additional shares of
our common stock.
At the
initial closing on January 14, 2008, Quercus invested $4.0 million in exchange
for 1,904,762 shares and warrants to purchase an additional 2,857,143 shares at
an exercise price of $2.60 per share. At the second closing on April 17, 2008,
Quercus invested an additional $4.0 million in exchange for 1,904,762 shares of
our common stock and warrant to purchase an additional 2,380,953 shares of at an
exercise price of $2.60 per share.
On June
30, 2008, we completed the third and final tranche of the Quercus investment,
whereby Quercus invested $10.0 million in exchange for 4,761,905 shares of our
common stock and warrants to purchase an additional 4,761,905 shares of stock at
an exercise price of $2.60 per share. All of the warrants issued to Quercus
expire by June 29, 2013.
The
warrants contain conventional anti-dilution and down round provisions for
adjustment of the exercise price in the event we issue additional shares of our
common stock or securities convertible into common stock (subject to certain
specified exclusions) at a price less than $2.60 per
share.
On
January 1, 2009 the Company adopted ASC topic 815-40, and as a result the
10,000,000 outstanding warrants issued to the Quercus Trust and another
1,485,714 warrants issued as payment of services related to this offering, both
containing exercise price down round reset provisions that were previously
classified in equity, were reclassified to derivative liabilities. As of January
1, 2009, these warrants were no longer deemed to be indexed to the Company’s own
stock. The fair value of these derivative liabilities as of January 1, 2009 was
$2,450,542 and was reclassified from additional paid-in capital. The significant
assumptions used in the January 1, 2009 valuation were: the exercise price of
$2.60; the market value of the Company’s common stock on January 1, 2009, $1.15;
expected volatility of 49.44%; risk free interest rate of 1.28%; and a remaining
contract term of 4.27 years.
On
September 22, 2009, we entered into an Amendment to Warrants and Securities
Purchase Agreement with Quercus Trust, amending the January 14, 2008 Warrant and
Securities Purchase Agreement. The material terms of the Amendment are as
follows:
1. The
exercise for warrants previously issued to Quercus by us is reset from $2.60 per
share to $0.75 per share.
2. Any
previously accrued liquidated damages under the Securities Purchase Agreement to
the date of the Amendment are waived.
3. Axion
and Quercus have agreed to elect three new directors on behalf of Quercus,
each to serve a three year term.
4. Quercus
has agreed to invest an additional $2,000,000 in connection with a minimum $10
million capital raise by us upon certain terms and conditions as set forth in
the Amendment.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. Certain
deadlines in the Agreement for filing of post effective amendments are extended
from 7 business days and 30 calendar days are extended to 15 business days and
60 calendar days, respectively.
The
Amendment provides us with a further financing commitment by Quercus as well as
provision of the benefit of the experience and expertise of the three named
individuals as new directors to us. The Amendment resolves
certain milestones set forth in the Agreement which were not fully met due to
the noncompletion of the Production Contract which was entered into by us on
June 27, 2008.
The fair
value of these derivative liabilities as of September 30, 2009 was $16,043,259.
The Black-Scholes-Merton stock option valuation model was used to determine the
fair values. The significant assumptions used in the September 30, 2009
valuation were: the exercise price of $0.75; the market value of the Company’s
common stock on September 30, 2009, $2.08; expected volatility of 59.37%; risk
free interest rate of 1.88%; and a remaining contract term of 3.52
years.
The
increase in fair value of the Company’s derivative liabilities resulted in a
loss of $12,048,203 and $13,592,717 for the three and nine months ended
September 30, 2009, respectively and $7,078,049 since inception. The loss for
the three and nine month periods includes an increase in the derivative
liability in the amount of $7,211,049 resulting from the reset in the
exercise price of the warrants previously issued to Quercus from $2.60 to $0.75
per share.
6.
|
Warrants
|
The
following table provides summary information on warrants outstanding as of
September 30, 2009. In August 2009, we issued 27,240 five-year warrants with an
exercise price of $2.00 to certain of the Company’s directors and significant
investors in conjunction with the financing of new debt, pursuant to the terms
of the 2009 Bridge Loan Agreement as discussed in “Recent
Financing Activities” below.
On
September 22, 2009, we entered into an Amendment to Warrants and Securities
Purchase Agreement with Quercus Trust, amending the January 14, 2008 Warrant and
Securities Purchase Agreement. The Amendment resets the exercise price for
warrants previously issued to Quercus from $2.60 per share to $0.75 per share.
See Footnote 5 to these Condensed Consolidated Financial Statements for a
further discussion of the reduction in the exercise price of the Quercus
warrants.
Shares
|
Weighted average
exercise price
|
Weighted average
remaining contract
term (years)
|
||||||||||
Warrants
outstanding at December 31,2008
|
14,278,772
|
$
|
2.94
|
3.9
|
||||||||
Granted
|
27,240
|
2.00
|
5.0
|
|||||||||
Exercised
|
—
|
—
|
—
|
|||||||||
Forfeited
or lapsed
|
(150,000)
|
$
|
6.00
|
—
|
||||||||
Warrants
outstanding at September 30, 2009
|
14,156,012
|
$
|
1.60
|
3.2
|
The reset
in the exercise price of the Quercus warrants decreased the weighted average
exercise price for warrants outstanding at September 30, 2009 to $1.60 from
$2.91 at June 30, 2009.
7.
|
Preferred
Stock
|
The
Company’s certificate of incorporation authorizes the issuance of 12,500,000
shares of blank check preferred stock. The Company’s board of directors has the
power to establish the designation, rights and preferences of any preferred
stock. Accordingly, the board of directors has the power, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights that could adversely affect the voting power or other
rights of the holders of common stock.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
At
September 30, 2009, 137,500 shares of 8% Cumulative Convertible Senior Preferred
stock were issued and outstanding. For the nine months ending September 30,
2009, $113,652 in dividends was accrued, bringing the stated value of that
preferred stock to $14.32 per share.
During
2009, 25,000 shares of Series A Convertible Preferred Stock were converted to
the Company’s common stock, par value $0.0001 per share. For the nine months
ended September 30, 2009, 25,000 shares of Series A Convertible Preferred Stock
were converted to the Company’s common stock, par value $0.0001 per share. A 20%
annual dividend rate was accrued to the account of the shareholder through
December 2007. Beginning in March 2008 (upon bringing our filing status
current), the dividend accrual reduced to 10% per annum. At September 30, 2009,
693,997 shares of Series A Convertible Preferred stock were issued and
outstanding. For the nine months ending September 30, 2009, $747,399 in
dividends was accrued, bringing the stated value of that preferred stock to
$14.63 per share.
On
September 22, 2009, the Company entered into an Amendment to Warrants and
Securities Purchase Agreement with Quercus Trust, amending the January 14, 2008
Warrant and Securities Purchase Agreement. Among the material terms of the
Amendment, the Company agreed to reset the exercise price for warrants
previously issued to Quercus from $2.60 per share to $0.75 per share. This
triggered the anti-dilution provisions on the Company’s preferred stock. With
the warrant modification, the effective conversion price of the Senior preferred
shares was reduced from $1.68 to $1.43per share and the effective conversion
price of the Series A preferred shares was reduced from $1.25 to $1.07 per
share. This reduction in the conversion price resulted in an additional
beneficial conversion feature, valued at the intrinsic value of the most
beneficial number of common shares issuable for these instruments, net of prior
beneficial conversions for each issue, and capped by the stated value at the
time of reset, amounting to $3,010,517 for the three months ended September 30,
2009. This beneficial conversion feature is a non-cash charge against net loss
applicable to common shareholders, analogous to a dividend, was recognized
during September 2009.
8.
|
Equity
Compensation
|
In
December 2004, FASB issued FASB123R, “Share-Based Payment (now ASC
718 “Compensation – Stock Compensation”) . On January 1, 2006, the
Company adopted the provisions of FASB issued FASB123R, “Share-Based Payment (now ASC
718 “Compensation – Stock Compensation”) using the modified prospective
transition method. Under this method, compensation expense is recorded for all
stock based awards granted after the date of adoption and for the unvested
portion of previously granted awards that remain outstanding as of the beginning
of the adoption. Under ASC 718, employee-compensation expense related
to stock based payments is recorded over the requisite service period based on
the grant date fair value of the awards.
The
Company’s accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of ASC 505-50
“Equity-Based Payments to
Non-Employees” (formerly EITF 96-18, “Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for Certain
Transactions Involving Equity Instruments granted to Other Than
Employees.”). The measurement date for fair value of the
equity instruments is determined by the earlier of (i) the date at which
commitment for performance by the vendor or consultant is reached or (ii) the
date at which the consultant or vendor’s performance is complete. In the case of
equity instruments issued to consultants, the fair value of the equity
instrument is recognized over the term of the consulting agreement.
The
Company has adopted an incentive stock option plan covering an aggregate of
2,000,000 shares of common stock that authorizes a variety of awards including
incentive stock options, non-qualified stock options, shares of restricted
stock, shares of phantom stock and stock bonuses. The Company has also adopted
an outside directors’ stock option plan covering an aggregate of 500,000 shares
of common stock which provides that each eligible director will automatically be
granted an option to purchase shares having an aggregate fair market value on
the date of grant of twenty thousand dollars ($20,000) for each year of his term
in office. From time to time, based on the recommendations of the compensation
committee of the board of directors, the Company enters into non-plan equity
incentive agreements with officers, employees, attorneys and third party
consultants.
During
the nine months ended September 30, 2009, the Company granted a total of 36,000
contractual stock options to an employee at an exercise price of $2.50 per
share. 6,000 of these options vested in January upon execution of the employment
contract, with the balance vesting at a rate of 1,000 per month, and are
exercisable for a period of five years from vesting date. These options are
valued at $14,507, utilizing the Black-Scholes-Merton model with $4,835 expected
to be recorded during 2009.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The
assumptions noted in the following table were used for the options granted for
the period ended September 30, 2009.
Risk-free
interest rate
|
1.6
|
%
|
||
Dividend
yield
|
$
|
—
|
||
Expected
volatility
|
50.6
|
%
|
||
Expected
term (in years)
|
5.8
|
The
compensation cost that has been charged against income for options was $324,112
for the period ended September 30, 2009. The impact of this expense was to
increase basic and diluted loss per share by $.012 for the period ended
September 30, 2009.
A tax
deduction is recognized for non-qualified stock options when the options are
exercised. The amount of this deduction will be the excess of the fair value of
the Company’s common stock over the exercise price at the date of exercise.
Accordingly, there is a deferred tax asset recorded related for the tax effect
of the financial statement expense recorded. The tax effect of the income tax
deduction in excess of the financial statement expense will be recorded as an
increase to additional paid-in capital. Due to the uncertainty of the Company’s
ability to generate sufficient taxable income in the future to utilize the tax
benefits of the options granted, the Company has recorded a valuation allowance
to reduce gross deferred tax asset to zero. As a result for the period ended
September 30, 2009, there is no income tax expense impact from recording the
fair value of options granted. There is no tax deduction allowed by the Company
for incentive stock options held to term.
The
following table provides summary information on all outstanding options as of
September 30, 2009, based on the grant date for options.
Shares
|
Weighted
average
exercise
price
|
Weighted
average
fair value
|
Weighted
average
remaining
contract
term (years)
|
Aggregate
intrinsic
value
|
||||||||||||||||
Options
outstanding at December 31,2008
|
2,819,940 | $ | 3.98 | $ | 0.91 | 3.1 | ||||||||||||||
Granted
|
36,000 | $ | 2.50 | $ | 0.40 | 5.8 | ||||||||||||||
Exercised
|
— | $ | — | $ | — | |||||||||||||||
Forfeited
or lapsed
|
(974,035 | ) | $ | 5.91 | $ | 0.60 | ||||||||||||||
Options
outstanding at September 30, 2009
|
1,881,905 | $ | 2.95 | $ | 1.06 | 3.9 | $ | 126,600 | ||||||||||||
Options
exercisable at September 30, 2009
|
1,071,405 | $ | 3.28 | $ | 1.16 | 2.6 | $ | 45,400 |
The
weighted-average grant date fair value of options granted during the period
ended September 30, 2008 was $0.89.
The
following table provides summary information on all non-vested stock options as
of September 30, 2009:
|
All Plan & Non-Plan
Compensatory Options
|
|||||||
|
Shares
|
Weighted
average grant
date fair value
|
||||||
Options
subject to future vesting at December 31, 2008
|
988,250 | $ | 0.93 | |||||
Options
granted
|
36,000 | $ | 0.40 | |||||
Options
forfeited or lapsed
|
— | — | ||||||
Options
vested
|
(213,750 | ) | $ | 0.86 | ||||
Options
subject to future vesting at September 30, 2009
|
810,500 | $ | 0.92 |
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
As of
September 30, 2009, there was $404,587 of unrecognized compensation related to
non-vested options granted under the plans. The Company expects to recognize the
cost over a weighted average period of 1.1 years. The total fair value of
options which newly vested during the period ended September 30, 2009 was
$183,118. ($185,182 during the comparable period ended September 30,
2008).
9.
|
Earnings/Loss
Per Share
|
Basic
earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) for the period. Diluted earnings per share are
computed by assuming that any dilutive convertible securities outstanding were
converted, with related preferred stock dividend requirements and outstanding
common shares adjusted accordingly. It also assumes that outstanding common
shares were increased by shares issuable upon exercise of those stock options
for which the market price exceeds the exercise price, less shares which could
have been purchased by us with the related proceeds. In periods of losses,
diluted loss per share is computed on the same basis as basic loss per share as
the inclusion of any other potential shares outstanding would be
anti-dilutive.
If the
Company had generated earnings during the period ended September 30, 2009, the
Company would have added 14,959,426 common equivalent shares to the weighted
average shares outstanding to compute the diluted weighted average shares
outstanding. If the Company had generated earnings during the period ended
September 30, 2008, the Company would have added 9,614,969 common equivalent
shares to the weighted average shares outstanding to compute the diluted
weighted average shares outstanding.
As of
September 30, 2009, we had 26,743,172 common shares outstanding. Including the
common stock equivalents of our outstanding preferred shares, warrants and stock
options, the total common shares outstanding on a fully diluted basis would have
been 53,659,012.
10.
|
Comprehensive
Income and Significant Non-Cash
Transactions
|
FASB ASC
220, “Reporting Comprehensive
Income,” establishes standards for reporting comprehensive income and its
components in a financial statement. Comprehensive income as defined includes
all changes in equity (net assets) during a period from non-owner
sources.
The
components of comprehensive loss for the year-to-date periods ended September
30, 2009 and 2008 are as follows:
Nine
Months
Ended September
30, 2009
|
Nine Months
Ended September
30, 2008
|
|||||||
Net
loss applicable to common shareholders
|
$
|
(23,523,509
|
) |
$
|
(8,317,348
|
) | ||
Foreign
currency translation adjustment
|
$
|
(2,807
|
) |
$
|
(4,249
|
) | ||
Comprehensive
Income/(loss)
|
$
|
(23,526,316
|
) |
$
|
(8,321,597
|
) |
The
following table provides summary information on our significant non-cash
investing and financing transactions during the year-to-date periods ended
September 30, 2009 and 2008.
Nine
Months
Ended September
30, 2009
|
Nine
Months
Ended September
30, 2008
|
|||||||
Satisfaction
of 2007 liability to issue equity instruments
|
$ | — | $ | 103,339 | ||||
Beneficial
conversion feature on preferred stock
|
$ | 3,010,517 | $ | — | ||||
Dividend
accrued to preferred stock – Senior
|
$ | 113,652 | $ | 104,970 | ||||
Dividend
accrued to preferred stock – Series A
|
$ | 747,399 | $ | 738,260 | ||||
Warrants
issued for commission on sale of stock
|
$ | — | $ | 1,193,735 | ||||
Fair
value of warrants issued with related party note
|
$ | 20,308 | $ | 601,753 | ||||
Origination
fees issued with related party note
|
$ | 64,000 | $ | 7,500 | ||||
Notes
payable to converted to common stock
|
$ | — | $ | 1,072,916 | ||||
Interest
converted to common stock
|
$ | — | 7,768 |
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
11.
|
Commitments
and Contingencies
|
Employment
Agreements:
The
Company has entered into executive employment agreements with Thomas Granville,
Edward Buiel, Jr., Robert Nelson and Donald T. Hillier. These agreements
generally require each executive to devote substantially all of his business
time to the Company’s affairs, establish standards of conduct, prohibit
competition with our company during their term, affirm our rights respecting the
ownership and disclosure of patents, trade secrets and other confidential
information, provide for the acts and events that would give rise to termination
of such agreements and provide express remedies for a breach of the agreement.
Each of the executives is allowed to participate, without cost, in our standard
employee benefit programs, including medical/hospitalization insurance as in
effect from time to time. Each of the covered executives will generally receive
an automobile allowance and reimbursement for all reasonable business expenses
incurred by him on behalf of the Company in the performance of his duties. The
provisions of the individual agreements set forth in the following
table:
Name
|
Position
|
Date
|
Term
|
Salary
|
Options
|
Price
|
Vesting
|
Stock
|
|||||||||
Thomas Granville
(1)
|
CEO
|
6/23/08
|
2-year
|
$
|
324,000
|
90,000
|
$
|
2.50
|
Monthly
|
0
|
|||||||
Donald
T. Hillier (2)
|
CFO
|
6/18/08
|
3-year
|
$
|
150,000
|
180,000
|
$
|
2.50
|
Monthly
|
90,000
|
|||||||
Dr.
Edward Buiel (3)
|
VP
and CTO
|
6/23/08
|
2-year
|
$
|
180,000
|
100,000
|
$
|
2.50
|
05/31/10
|
80,000
|
|||||||
Dr.
Robert Nelson (4)
|
VP
MfgEng.
|
12/1/07
|
2-year
|
$
|
132,000
|
108,000
|
$
|
5.00
|
Monthly
|
36,000
|
1.
|
Thomas Granville. On
June 23, 2008, the Company entered into an Executive Employment Agreement
with Thomas Granville as Chief Executive Officer. Pursuant to this
agreement, Mr. Granville receives a monthly base salary of $27,000 for the
period commencing June 1, 2008, and terminating May 31, 2010. Mr.
Granville’s base salary is subject to annual review, and such salary is
subject to renegotiation on the basis of Mr. Granville’s and the Company’s
performance. In addition, Mr. Granville received a signing bonus of
$250,000, paid 50% within ten (10) days of the execution of the agreement
and 50% upon receipt of the final $10,000,000 investment from the Quercus
Trust. The Company also granted Mr. Granville an option to purchase 90,000
shares of our common stock at a price of $2.50 per share at a vesting rate
of 3,750 shares per month through the term of the agreement. Mr. Granville
is eligible to participate in any executive compensation plans adopted by
the shareholders of the Company and the Company's standard employee
benefit programs.
|
2.
|
Donald T.
Hillier. On June 18, 2008, the Company entered into an
Executive Employment Agreement with Donald T. Hillier as Chief
Financial Officer. Pursuant to this agreement, Mr. Hillier receives
a monthly base salary of $12,500 for the period commencing June 16, 2008,
and terminating June 15, 2011. Mr. Hillier's base salary is subject
to review after six (6) months and then on an annual basis thereafter, and
such salary is subject to renegotiation on the basis of Mr. Hillier's and
the Company's performance. The Company also granted to Mr.
Hillier 90,000 shares of common stock which will vest in equal 30,000
share amounts on June 16 of each of 2009, 2010 and 2011.
In addition, Mr. Hillier was granted an option to purchase 180,000 shares
of common stock at a price of $2.50 per share at a vesting rate of
5,000 shares per month through the term of the agreement. Mr.
Hillier is eligible to participate in any executive compensation plans
adopted by the shareholders of the Company and the Company's standard
employee benefit programs.
|
3.
|
Edward Buiel, Ph.D. On
June 23, 2008, the Company entered into an Executive Employment Agreement
with Dr. Edward Buiel as Vice President and Chief Technology Officer.
Pursuant to this agreement, Dr. Buiel receives a monthly salary of $15,000
for the period commencing June 1, 2008 and terminating May 31, 2010. Dr.
Buiel’s base salary is subject to annual review, and such salary is
subject to renegotiation on the basis of Dr. Buiel’s and the Company’s
performance. In addition, Dr. Buiel received a signing bonus of $110,000,
paid 90% within ten (10) days of the execution of the agreement and 10%
upon the receipt of the final $10,000,000 investment from the Quercus
Trust. Also, if Dr. Buiel is still employed with the Company on June 1,
2011, he will receive a bonus of $50,000, notwithstanding any other bonus
arrangement. The Company also reconfirmed Dr. Buiel’s option to purchase
100,000 shares of our common stock, which had been previously granted in
his prior Executive Employment Agreement dated December 29, 2006. These
existing options remain exercisable at a price of $3.75 per share and
shall vest 50% on December 29, 2009 and 50% on December 29, 2010 assuming
Dr. Buiel is still employed by the Company on each of those respective
dates. In addition, Dr. Buiel was granted an option to purchase 100,000
shares of our common stock in recognition of the opportunity cost
associated with the one year extension of his new Executive Employment
Agreement. These options are exercisable at a price of $2.50 per share and
shall vest on May 31, 2011. Dr Buiel was also granted 80,000 shares of
common stock, of which 30,000 vests on December 29, 2009, and 50,000 will
vest on May 31, 2011. Dr. Buiel is eligible to participate in any
executive compensation plans adopted by the shareholders of the Company
and the Company's standard employee benefit programs. Certain of these
equity awards were awarded under Dr. Buiel’s 2006 employment agreement and
the terms of such awards have been incorporated into his new Executive
Employment Agreement.
|
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
4.
|
Dr. Robert F. Nelson.
Under the terms of his employment agreement effective December
2007, which has a term of two years, Dr. Nelson receives an annual salary
of $132,000 and bonuses as determined by the compensation committee. In
addition, Dr. Nelson receives an option to purchase 108,000 shares of our
common stock at a price of $5.00 per share and 36,000 shares of restricted
common stock, each that vest over three years from the effective date of
his employment agreement.
|
The
Company has no retirement plans or other similar arrangements for any directors,
executive officers or employees.
12.
|
Related
Party Transactions:
|
Interest
Expense: Interest expense recognized for the period ended
September 30, 2009 in connection with certain notes payable to related parties
amounted to $44,881. Of this total, $14,375 relates to the interest
coupon, $7,336 to the amortization of note discount associated with detachable
warrants, and $23,200 to loan origination fees. The amounts reported
under the related party caption on the face of the financial statement includes
payments to one accredited investor with certain associations to related
parties
13.
|
Recent
Financing Activities
|
On July
22, 2009, the Pennsylvania Department of Community and Economic Development
approved Axion’s application for a loan from the Machinery and Equipment Loan
Fund (MELF) in the maximum amount of $791,055. The proceeds of the
loan will be used to defray part of the cost of equipment purchased for use at
the Company’s facility on Green Ridge Road. The loan will bear interest at the
rate of 3% interest per annum and will be payable in equal monthly installments
of principal and interest over a period of seven years. The Company
is required to create and/or retain the number of full-time equivalent jobs
specified in the loan application within three (3) years after the date of
disbursement of MELF loan proceeds. The Company received its initial funding
proceeds as a result of this loan in the amount of $776,244 on September 14,
2009.
Bridge Loan Financing:
In August of 2009 the Company structured short term secured
bridge loan arrangements with certain of the Company’s directors and significant
investors, The Company borrowed $800,000 from investors pursuant to this “Bridge
Loan” through September 30, 2009. The Company’s obligations under the
Bridge Loan are secured by a lien on its intellectual property.
The
Bridge Loan matures on December 31, 2009 and was subject to a loan origination
fee equal to 8% of the principal amount of the Bridge Loan. In
connection with the Bridge Loan, 3,405 warrants were issued to the Bridge Loan
investors for each $100,000 invested. These warrants have an exercise
price of $2.00 per share and an expiration date of August 12, 2014. Standard
anti-dilution provisions apply to the warrants. The Holders of these notes
issued in connection with the Bridge Loan shall have the right to convert the
principal amount of the notes together with accrued and unpaid interest, into
the same security (upon the same terms) sold by the Company in an institutional
offering.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
14.
|
Subsequent
Events
|
On
November 4, 2009 Fursa Global Event Driven Fund LP converted 63,100 of their
Series A Convertible preferred stock into 862,466 shares of the Company’s common
stock.
Our DEP grant, from the Commonwealth of
Pennsylvania under the Pennsylvania Alternative Fuels Incentive Grant program,
discussed under “Management’s Discussion and Analysis - Grant Activities”, has
been fully approved, and we have submitted our first invoice for reimbursement
of approximately $200,000 of the approximately $800,000 grant awarded.
Work will continue under this contract and we anticipate 50% completion by
the end of 2009.
Subsequent
to September 30, 2009, we have continued our contractual arrangement with Exide
and have shipped batteries monthly in accordance with contract terms. Our
PbC® batteries continue
in test programs both with Exide and automotive OEM’s. With our
October shipments, we have now shipped product conducive to both power
applications such as hybrid electric vehicles, and to storage applications such
as wind, solar and grid. Our lead carbon battery plate configuration
allows us to produce a product that can be pushed to either end of our
performance chart - the higher power side (for hybrid vehicles) or the higher
energy side (for storage applications).
We have
accepted a purchase order for a Power Cube TM, and delivery is anticipated
before the end of 2009. The Power Cube is to be utilized for a prototype
oil rig which, if proven successful, may lead to significant follow on business.
The Power Cube will provide emergency backup power that will allow for
motor generator sets to be taken off-line resulting in a potential 20% decrease
in fuel consumption, and a corresponding reduction in NoX and CO2 emissions,
without sacrificing rig drilling speed. In addition, our PowerCube technology
will allow the oil rig to run solely on batteries at certain times. As
compared to traditional power sources, the batteries contained within the Power
Cube provide a fast rate of recharge coupled with the ability to discharge power
quickly, giving us an advantage in this market.
The
Company has evaluated the period beginning October 1, 2009 through November 16,
2009, the date its financial statements were issued, and concluded there were no
other events or transactions occurring during this period that required
recognition or disclosure in its financial statements.
AXION
POWER INTERNATIONAL, INC. AND SUBSIDIARIES
FOR
THE YEAR ENDED DECEMBER 31, 2008
F-16
|
|
F-17
|
|
F-18
|
|
F-19
|
|
F-20
|
|
Notes to Consolidated Financial Statements |
F-23
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Axion
Power International, Inc.
We have
audited the accompanying consolidated balance sheets of Axion Power
International, Inc. as of December 31, 2008 and 2007, and the related
consolidated statements of operations, cash flows, and changes in stockholders’
equity and comprehensive income for the years then ended and for the period
since inception (September 18, 2003) through December 31, 2008. Axion Power
International Inc.’s management is responsible for these consolidated financial
statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Axion Power International,
Inc. as of December 31, 2008 and 2007, and the results of its operations and its
cash flows for the years then ended and for the period since inception
(September 18, 2003) through December 31, 2008 in conformity with accounting
principles generally accepted in the United States of America.
/s/
Rotenberg & Co., LLP
|
Rotenberg
& Co., LLP
|
Rochester,
New York
|
March
24, 2009
|
AXION
POWER INTERNATIONAL, INC
CONSOLIDATED
BALANCE SHEETS
(A
Development Stage Company)
December 31, 2008
|
December 31, 2007
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$
|
3,124,168
|
$
|
671,244
|
||||
Short-term
investments
|
2,193,920
|
—
|
||||||
Accounts
receivable
|
128,035
|
133,646
|
||||||
Other
receivables
|
64,456
|
341,801
|
||||||
Inventory
|
1,269,515
|
375,635
|
||||||
Prepaid
expenses
|
78,989
|
82,102
|
||||||
Total
current assets
|
6,859,083
|
1,604,428
|
||||||
Property
& equipment, net
|
3,274,183
|
2,119,252
|
||||||
Other
receivables, non-current
|
28,388
|
—
|
||||||
TOTAL
ASSETS
|
$
|
10,161,654
|
$
|
3,723,680
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$
|
1,324,287
|
$
|
1,573,436
|
||||
Other
current liabilities
|
162,580
|
583,591
|
||||||
Notes
payable to related parties
|
—
|
2,259,826
|
||||||
Liability
to issue equity instrument
|
—
|
106,183
|
||||||
Total
current liabilities
|
1,486,867
|
4,523,036
|
||||||
Deferred
revenue
|
751,096
|
840,945
|
||||||
Total
liabilities
|
2,237,963
|
5,363,981
|
||||||
Stockholders'
Equity:
|
||||||||
Convertible
preferred stock-12,500,000 shares authorized
|
||||||||
Senior
preferred – 1,000,000 shares designated 137,500 issued and outstanding
(137,500 in 2007)
|
1,656,735
|
1,515,376
|
||||||
Series
A preferred – 2,000,000 shares designated 718,997 shares issued and
outstanding (822,997 in 2007)
|
9,440,359
|
9,802,894
|
||||||
Common
stock-100,000,000 shares authorized $0.0001 par value 26,417,437 issued
& outstanding (16,498,298 in 2007)
|
2,641
|
1,625
|
||||||
Additional
paid in capital
|
46,184,287
|
25,768,331
|
||||||
Deficit
accumulated during development stage
|
(49,111,062
|
)
|
(38,498,704
|
)
|
||||
Cumulative
foreign currency translation adjustment
|
(249,269
|
)
|
(229,823
|
)
|
||||
Total
Stockholders' Equity
|
7,923,691
|
(1,640,301
|
)
|
|||||
TOTAL
LIABILITIES & STOCKHOLDERS' EQUITY
|
$
|
10,161,654
|
$
|
3,723,680
|
The
Accompanying Notes are an Integral Part of the Financial Statements
AXION
POWER INTERNATIONAL, INC
CONSOLIDATED
STATEMENTS OF OPERATIONS
(A
Development Stage Company)
Years Ended
|
Inception
|
|||||||||||
December 31,
|
(9/18/2003) to
|
|||||||||||
2008
|
2007
|
December 31, 2008
|
||||||||||
Revenues
|
$
|
679,559
|
$
|
533,911
|
$
|
1,488,847
|
||||||
Costs
of goods sold
|
368,922
|
283,357
|
1,210,262
|
|||||||||
Gross
profit
|
310,637
|
250,554
|
278,585
|
|||||||||
Expenses
|
||||||||||||
Selling,
general & administrative
|
4,846,189
|
3,720,632
|
18,015,381
|
|||||||||
Research
& development
|
3,960,909
|
2,155,873
|
13,951,670
|
|||||||||
Impairment
of assets
|
—
|
—
|
1,391,485
|
|||||||||
Interest
expense - related party
|
1,137,436
|
276,651
|
2,151,923
|
|||||||||
Derivative
revaluation
|
(2,844
|
)
|
(72,236
|
)
|
362,508
|
|||||||
Mega
C Trust Share Augmentation (Return)
|
—
|
—
|
400,000
|
|||||||||
Interest
& other income, net
|
(57,224
|
)
|
(47,708
|
)
|
(534,152
|
)
|
||||||
Net
loss before income taxes
|
(9,573,829
|
)
|
(5,782,658
|
)
|
(35,460,230
|
)
|
||||||
Income
Taxes Expense (Benefit)
|
(79,170
|
)
|
83,469
|
4,299
|
||||||||
Deficit
accumulated during development stage
|
(9,494,659
|
)
|
(5,886,127
|
)
|
(35,464,529
|
)
|
||||||
Less
preferred stock dividends and beneficial conversion
feature
|
(1,117,699
|
)
|
(8,417,955
|
)
|
(13,646,533
|
)
|
||||||
Net
loss applicable to common shareholders
|
$
|
(10,612,358
|
)
|
$
|
(14,284,082
|
)
|
$
|
(49,111,062
|
)
|
|||
Basic
and diluted net loss per share
|
$
|
(0.46
|
)
|
$
|
(0.88
|
)
|
$
|
(3.11
|
)
|
|||
Weighted
average common shares outstanding
|
22,826,187
|
16,247,299
|
15,776,245
|
The
Accompanying Notes are an Integral Part of the Financial Statements
AXION
POWER INTERNATIONAL, INC
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(A
Development Stage Company)
Years
Ended
|
Inception
|
|||||||||||
December
31,
|
(9/18/2003) to
|
|||||||||||
2008
|
2007
|
12/31/2008
|
||||||||||
Cash
Flows from Operating Activities:
|
||||||||||||
Deficit
accumulated during development stage
|
$
|
(9,494,659
|
)
|
$
|
(5,866,127
|
)
|
$
|
(35,464,529
|
)
|
|||
Adjustments
required to reconcile deficit accumulated during development stage to cash
flows used by operating activities
|
||||||||||||
Depreciation
|
189,804
|
176,196
|
543,286
|
|||||||||
Impairment
of assets
|
—
|
—
|
1,391,486
|
|||||||||
Non-cash
interest expense
|
868,211
|
224,536
|
1,830,583
|
|||||||||
Derivative
revaluations
|
(2,844
|
)
|
(72,236
|
)
|
362,508
|
|||||||
Equity
instruments issued for services
|
861,705
|
478,113
|
4,350,499
|
|||||||||
Mega
C Trust Share Augmentation (Return)
|
—
|
—
|
400,000
|
|||||||||
Changes
in Operating Assets & Liabilities
|
||||||||||||
Accounts
receivable
|
5,612
|
(88,639
|
)
|
(134,905
|
)
|
|||||||
Other
receivables
|
277,345
|
87,233
|
(42,496
|
)
|
||||||||
Prepaid
expenses
|
3,113
|
10,478
|
(76,401
|
)
|
||||||||
Inventory
|
(893,879
|
)
|
(108,449
|
)
|
(1,269,514
|
)
|
||||||
Accounts
payable
|
(249,149
|
)
|
661,969
|
2,978,931
|
||||||||
Other
current liabilities
|
(421,009
|
)
|
(252,500
|
)
|
183,712
|
|||||||
Deferred
revenue and other
|
(2,370
|
)
|
840,945
|
838,575
|
||||||||
Liability
to issue equity instruments
|
—
|
178,419
|
178,419
|
|||||||||
Net
cash used by operating activities
|
(8,858,120
|
)
|
(3,730,062
|
)
|
(23,929,846
|
)
|
||||||
Cash
Flows from Investing Activities
|
||||||||||||
Short
term investments
|
(2,193,920
|
)
|
—
|
(2,193,920
|
)
|
|||||||
Long
term notes, net
|
(28,388
|
)
|
—
|
(1,245,404
|
)
|
|||||||
Purchase
of property & equipment
|
(1,432,213
|
)
|
(1,250,643
|
)
|
(3,814,180
|
)
|
||||||
Investment
in intangible assets
|
—
|
—
|
(167,888
|
)
|
||||||||
Net
cash used by investing activities
|
(3,654,521
|
)
|
(1,250,643
|
)
|
(7,421,392
|
)
|
||||||
Cash
Flow from Financing Activities
|
||||||||||||
Proceeds
from related party debt, net
|
(1,483,485
|
)
|
1,630,032
|
5,179,771
|
||||||||
Proceeds
from sale of common stock; net of costs
|
16,468,500
|
—
|
20,185,905
|
|||||||||
Proceeds
from exercise of warrants
|
—
|
—
|
1,655,500
|
|||||||||
Proceeds
from sale of preferred stock, net of costs
|
—
|
390,500
|
7,472,181
|
|||||||||
Net
cash provided by financing activities
|
14,985,015
|
2,020,532
|
34,493,357
|
|||||||||
Net
Change in Cash and Cash Equivalents
|
2,472,374
|
(2,960,173
|
)
|
3,142,119
|
||||||||
Effect
of Exchange Rate on Cash
|
(19,450
|
)
|
21,137
|
(17,951
|
)
|
|||||||
Cash
and Cash Equivalents - Beginning
|
671,244
|
3,610,280
|
—
|
|||||||||
Cash
and Cash Equivalents - Ending
|
$
|
3,124,168
|
$
|
671,244
|
$
|
3,124,168
|
The
Accompanying Notes are an Integral Part of the Financial Statements
Axion
Power International, Inc.
Consolidated
Statement of Stockholders' Equity (Deficit)
For
Periods Ended December 31, 2003; 2004; 2005; 2006; 2007; 2008
(A
Development Stage Company)
Preferred
|
Common
|
Deficit
Accumulated
During
|
Other
Comprehensive
Income
Cumulative
|
Total
Stockholders'
|
||||||||||||||||||||||||||||||||||||
Shares
|
Senior
Preferred
|
Series A
Preferred
|
Shares
|
Common
Stock Amount
|
Additional Paid-
In Capital
|
Subscriptions
Receivable
|
Development
Stage |
Translation
Adjustments
|
Equity
(Deficit)
|
|||||||||||||||||||||||||||||||
Inception
September 18, 2003
|
0 | $ | 0 | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||||||
Shares
to founders upon formulation of APC
|
1,360,000 | 137 | (137 | ) | 0 | 0 | ||||||||||||||||||||||||||||||||||
Stock
based compensation
|
170,000 | 17 | 48,936 | 48,953 | ||||||||||||||||||||||||||||||||||||
Conversion
of debt to equity
|
1,108,335 | 111 | 1,449,889 | (350,000 | ) | 1,100,001 | ||||||||||||||||||||||||||||||||||
Debt
Discount from convertible debt
|
86,402 | 86,402 | ||||||||||||||||||||||||||||||||||||||
Unamortized
discount on convertible debt
|
(77,188 | ) | (77,188 | ) | ||||||||||||||||||||||||||||||||||||
Fair
value of options issued as loan inducements
|
15,574 | 15,574 | ||||||||||||||||||||||||||||||||||||||
Shared
issued during Recapitalization
|
||||||||||||||||||||||||||||||||||||||||
-
Shares issued to Mega-C trust
|
6,147,483 | 615 | (615 | ) | 0 | |||||||||||||||||||||||||||||||||||
-
Equity acquired in recapitalization
|
1,875,000 | 188 | (188 | ) | 0 | |||||||||||||||||||||||||||||||||||
Net
Loss December 31, 2003
|
(3,097,030 | ) | (3,097,030 | ) | ||||||||||||||||||||||||||||||||||||
Other
Comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||||||||
Foreign
Currency Translation Adjustment
|
(56,547 | ) | (56,547 | ) | ||||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
(3,153,577 | ) | ||||||||||||||||||||||||||||||||||||||
Balance
at December 31, 2003
|
0 | $ | 0 | 10,660,818 | $ | 1,067 | $ | 1,522,674 | $ | (350,000 | ) | $ | (3,097,030 | ) | $ | (56,547 | ) | $ | (1,979,836 | ) | ||||||||||||||||||||
Shares
issued to founders
|
445,000 | 45 | (45 | ) | 0 | |||||||||||||||||||||||||||||||||||
Augmentation
shares issued to Mega-C trust
|
180,000 | 18 | 0 | |||||||||||||||||||||||||||||||||||||
Conversion
of debt
|
283,333 | 28 | 451,813 | 350,000 | 801,841 | |||||||||||||||||||||||||||||||||||
Warrants
in consideration for technology purchased
|
563,872 | 563,872 | ||||||||||||||||||||||||||||||||||||||
Common
stock offering - net of cost
|
823,800 | 81 | 1,607,053 | 1,607,134 | ||||||||||||||||||||||||||||||||||||
Proceeds
from exercise of warrants
|
475,200 | 48 | 867,972 | 868,020 | ||||||||||||||||||||||||||||||||||||
Liability
converted as partial prepayment on options
|
306,000 | 306,000 | ||||||||||||||||||||||||||||||||||||||
Stock
based compensation
|
45,000 | 5 | 191,738 | 191,742 | ||||||||||||||||||||||||||||||||||||
Fraction
Shares Issued Upon Reverse Spilt
|
48,782 | 5 | (5 | ) | 0 | |||||||||||||||||||||||||||||||||||
Net
Loss December 31, 2004
|
(3,653,637 | ) | (3,653,637 | ) | ||||||||||||||||||||||||||||||||||||
Other
Comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||||||||
Foreign
Currency Translation Adjustment
|
(74,245 | ) | (74,245 | ) | ||||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
(3,727,882 | ) | ||||||||||||||||||||||||||||||||||||||
Balance
at December 31, 2004
|
0 | $ | 0 | 12,961,933 | $ | 1,296 | $ | 5,511,054 | $ | 0 | $ | (6,750,667 | ) | $ | (130,792 | ) | $ | (1,369,109 | ) | |||||||||||||||||||||
Proceeds
From Exercise of Warrants & Options
|
853,665 | 85 | 1,283,395 | (496,000 | ) | 787,480 | ||||||||||||||||||||||||||||||||||
Common
Stock Offering Proceeds
|
600,000 | 60 | 1,171,310 | (200,000 | ) | 971,370 | ||||||||||||||||||||||||||||||||||
Preferred
Stock Offering proceeds
|
385,000 | 3,754,110 | (25,000 | ) | 3,729,110 | |||||||||||||||||||||||||||||||||||
Conversion
of preferred to common
|
(245,000 | ) | (2,475,407 | ) | 1,470,000 | 147 | 2,475,260 | 0 | ||||||||||||||||||||||||||||||||
Stock
issued for services
|
500,000 | 50 | 1,524,950 | 1,525,000 | ||||||||||||||||||||||||||||||||||||
Fair
Value of Options for Non-Employee Services
|
237,568 | 237,568 | ||||||||||||||||||||||||||||||||||||||
Employee
incentive share grants
|
219,000 | 22 | 647,480 | 647,502 | ||||||||||||||||||||||||||||||||||||
Impact
of beneficial conversion feature
|
3,099,156 | (3,099,156 | ) | 0 | ||||||||||||||||||||||||||||||||||||
Preferred
Stock Dividends
|
176,194 | (176,194 | ) | 0 | ||||||||||||||||||||||||||||||||||||
Net
Loss December 31, 2005
|
(6,325,113 | ) | (6,325,113 | ) |
Other
Comprehensive income (loss):
|
||||||||||||||||||||||||||||||||||||||||
Foreign
Currency Translation Adjustment
|
(24,780
|
)
|
(24,780
|
)
|
||||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
(6,349,893
|
)
|
||||||||||||||||||||||||||||||||||||||
Balance
at December 31, 2005
|
140,000
|
$
|
1,454,897
|
16,604,598
|
$
|
1,661
|
$
|
15,950,173
|
$
|
(721,000
|
)
|
$
|
(16,351,130
|
)
|
$
|
(155,572
|
)
|
$
|
179,028
|
|||||||||||||||||||||
Preferred
Series A Proceeds
|
782,997
|
7,571,768
|
7,571,768
|
|||||||||||||||||||||||||||||||||||||
Preferred -
Dividends
|
119,092
|
103,101
|
(222,193
|
)
|
0
|
|||||||||||||||||||||||||||||||||||
Senior
Preferred Cancellation
|
(2,500
|
)
|
(25,000
|
)
|
25,000
|
0
|
||||||||||||||||||||||||||||||||||
Common
Stock Offering Proceeds
|
80,000
|
8
|
199,992
|
696,000
|
896,000
|
|||||||||||||||||||||||||||||||||||
Proceeds
from exercise of warrants
|
56,700
|
6
|
113,394
|
113,400
|
||||||||||||||||||||||||||||||||||||
Employee
incentive share grants
|
6,000
|
1
|
23,999
|
24,000
|
||||||||||||||||||||||||||||||||||||
Augmentation
shares issued to Mega-C trust
|
(500,000
|
)
|
(50
|
)
|
(1,124,950
|
)
|
(1,125,000
|
)
|
||||||||||||||||||||||||||||||||
Stock
based compensation
|
1,241,231
|
1,241,231
|
||||||||||||||||||||||||||||||||||||||
Fair
value of warrants with related party debt
|
885,126
|
885,126
|
||||||||||||||||||||||||||||||||||||||
Modification
of preexisting warrants
|
392,811
|
392,811
|
||||||||||||||||||||||||||||||||||||||
Fair
value warrants issued for services
|
86,848
|
86,848
|
||||||||||||||||||||||||||||||||||||||
Beneficial
conversion feature on related party debt
|
95,752
|
95,752
|
||||||||||||||||||||||||||||||||||||||
Beneficial
conversion feature on Preferred Stock
|
(6,096,634
|
)
|
6,709,970
|
(613,336
|
)
|
0
|
||||||||||||||||||||||||||||||||||
Net
Loss December 31, 2006
|
(7,027,963
|
)
|
(7,027,963
|
)
|
||||||||||||||||||||||||||||||||||||
Other
Comprehensive income (loss):
|
0
|
|||||||||||||||||||||||||||||||||||||||
Foreign
Currency Translation Adjustment
|
(95,387
|
)
|
(95,387
|
)
|
||||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
(7,123,350
|
)
|
||||||||||||||||||||||||||||||||||||||
Balance
at December 31, 2006
|
920,497
|
$
|
1,548,989
|
$
|
1,578,235
|
16,247,298
|
1,625
|
24,574,346
|
—
|
(24,214,622
|
)
|
(250,959
|
)
|
$
|
3,237,614
|
|||||||||||||||||||||||||
Preferred
Series A Proceeds
|
40,000
|
337,270
|
337,270
|
|||||||||||||||||||||||||||||||||||||
Preferred -
Dividends
|
130,566
|
1,790,755
|
(1,921,321
|
)
|
0
|
|||||||||||||||||||||||||||||||||||
Employee
incentive share grants
|
1,000
|
0
|
315,950
|
315,950
|
||||||||||||||||||||||||||||||||||||
Stock
based compensation
|
215,393
|
215,393
|
||||||||||||||||||||||||||||||||||||||
Fair
value of warrants with related party debt
|
98,463
|
98,463
|
||||||||||||||||||||||||||||||||||||||
Modification
of preexisting warrants
|
(164,179
|
)
|
164,179
|
0
|
||||||||||||||||||||||||||||||||||||
Beneficial
conversion feature on Preferred Stock
|
6,096,634
|
400,000
|
(6,496,634
|
)
|
0
|
|||||||||||||||||||||||||||||||||||
Net
Loss December 31, 2007
|
(5,866,127
|
)
|
(5,866,127
|
)
|
||||||||||||||||||||||||||||||||||||
Other
Comprehensive income (loss):
|
0
|
|||||||||||||||||||||||||||||||||||||||
Foreign
Currency Translation Adjustment
|
21,136
|
21,136
|
||||||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
(5,844,991
|
)
|
||||||||||||||||||||||||||||||||||||||
Balance
at December 31, 2007
|
960,497
|
$
|
1,515,376
|
$
|
9,802,894
|
16,248,298
|
$
|
1,625
|
$
|
25,768,331
|
$
|
0
|
$
|
(38,498,704
|
)
|
$
|
(229,823
|
)
|
$
|
(1,640,301
|
)
|
Preferred -
Dividends
|
141,359
|
976,340
|
(1,117,699
|
)
|
0
|
|||||||||||||||||||||||||||||||||||
Preferred
Converted into Common Stock
|
(104,000
|
)
|
(1,338,875
|
)
|
1,071,099
|
107
|
1,338,768
|
0
|
||||||||||||||||||||||||||||||||
Bridge
Loans Converted into Common Stock
|
514,611
|
51
|
1,080,633
|
1,080,684
|
||||||||||||||||||||||||||||||||||||
Proceeds
from Quercus Trust-net of costs
|
8,571,429
|
857
|
15,273,908
|
15,274,765
|
||||||||||||||||||||||||||||||||||||
Employee
incentive share grants
|
12,000
|
1
|
435,725
|
435,726
|
||||||||||||||||||||||||||||||||||||
Stock
based compensation
|
425,979
|
425,979
|
||||||||||||||||||||||||||||||||||||||
Fair
value of warrants with related party debt
|
667,208
|
667,208
|
||||||||||||||||||||||||||||||||||||||
Fair
value warrants issued for services
|
1,193,735
|
1,193,735
|
||||||||||||||||||||||||||||||||||||||
Net
Loss December 31, 2008
|
(9,494,659
|
)
|
(9,494,659
|
)
|
||||||||||||||||||||||||||||||||||||
Other
Comprehensive income (loss):
|
0
|
|||||||||||||||||||||||||||||||||||||||
Foreign
Currency Translation Adjustment
|
(19,446
|
)
|
(19,446
|
)
|
||||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
(9,551,990
|
)
|
||||||||||||||||||||||||||||||||||||||
Balance
at December 31, 2008
|
856,497
|
$
|
1,656,735
|
$
|
9,440,359
|
26,417,437
|
$
|
2,641
|
$
|
46,184,287
|
$
|
0
|
$
|
(49,111,062
|
)
|
$
|
(249,269
|
)
|
$
|
7,923,691
|
The
Accompanying Notes are an Integral Part of the Financial
Statements
AXION
POWER INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(A
DEVELOPMENT STAGE COMPANY)
Note 1 – Organization and
Operations
These
consolidated financial statements of Axion Power International, Inc., a Delaware
corporation (API), include the operations of its wholly owned subsidiaries;
Axion Power Battery Manufacturing, Inc (APB), Axion Power Corporation, a
Canadian Federal corporation (“APC”), and C & T Co. Inc., an Ontario
corporation (“C&T”) (collectively, the Company).
Axion is
developing innovative battery/energy storage device technology. The Company
continues its research and development and has entered the testing phase of its
unique battery designs. Development activities, testing and prototype
manufacturing is performed at the Company’s manufacturing facility. The Company
also manufactures on a limited basis specialty batteries for
resale.
Note
2 – Accounting Policies
Use of
Estimates: The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from the estimates.
Principles of
Consolidation:
The consolidated financial statements include the accounts of Axion, and
its wholly owned subsidiaries, APB, APC and C&T (collectively, the Company).
All significant inter-company balances and transactions have been eliminated in
consolidation.
Basis of
Presentation: The
financial statements have been presented in a “development stage” format in
accordance with the provisions of Statement of Financial Accounting Standards
(FASB) No. 7, Accounting and
Reporting by Development Stage Enterprises. Since inception, the
Company’s primary activities have been raising capital, obtaining financing,
developing Axion’s energy storage technology and testing its proposed
products.
Segment
Reporting: Management has determined that the Company is organized,
managed and internally reported as one business segment. Segments are determined
based on differences in products, internal reporting and how operational
decisions are made.
Foreign Currency
Translation: The accounts of APC
and C&T are measured using the Canadian dollar as the functional currency
for all the periods presented in the financial statements. The translation from
Canadian dollars to U.S. dollars is performed for the balance sheet accounts
using current exchange rates in effect at each of the balance sheet dates, and
for the revenue and expense accounts using the average rate in effect during the
periods. The resulting translation adjustments are recorded as a component of
accumulated other comprehensive income (loss) within stockholders’ equity. Gains
or losses resulting from transactions denominated in currencies other than the
functional currency are included in the results of operations as incurred. The
gains or losses arising from the inter-company loan denominated in U.S. dollars
are directly reflected in other comprehensive income, as the amounts are not
expected to be repaid in the foreseeable future.
Comprehensive
Income: The Company follows FASB No. 130, “Reporting Comprehensive
Income.” Comprehensive income, as defined by Statement 130, is the change
in equity of a business enterprise during a reporting period from transactions
and other events and circumstances from non-owner sources. In addition to the
Company’s net loss, the change in equity components under comprehensive income
include the foreign currency translation adjustment.
Fair Value of
Financial Instruments: FASB No. 107, "Disclosures about Fair Value of
Financial Instruments," requires disclosure of fair value information
about certain financial instruments, including, but not limited to, cash and
cash equivalents, accounts receivable, refundable tax credits, prepaid expenses,
accounts payable, accrued expenses, notes payable to related parties and
convertible debt-related securities. Fair value estimates discussed herein are
based upon certain market assumptions and pertinent information available to
management as of December 31, 2008 and 2007. The carrying value of the balance
sheet financial instruments included in the Company’s consolidated financial
statements approximated their fair values.
On
January 1, 2008, the Company adopted FASB Statement No. 157, “Fair
Value Measurements” (SFAS No. 157) which defines fair value, establishes a
framework for measuring fair value, and requires additional disclosures about
fair value measurements. The criterion that is set forth in SFAS No. 157 is
applicable to fair value measurement where it is permitted or required under
other accounting pronouncements.
SFAS
No. 157 defines fair value as the exit price, which is the price that would
be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value
measurement is based on inputs of observable and unobservable market data that a
market participant would use in pricing the asset or liability. The use of
observable inputs is maximized where available and the use of unobservable
inputs is minimized for fair value measurement. As a means to illustrate the
inputs used, SFAS No. 157 establishes a three-tier fair value hierarchy
that prioritizes inputs to valuation techniques used for fair value
measurement.
·
|
Level
1 consists of observable market data in an active market for identical
assets or liabilities.
|
|
·
|
Level
2 consists of observable market data, other than that included in Level 1,
that is either directly or indirectly observable.
|
|
·
|
Level
3 consists of unobservable market data. The input may reflect the
assumptions of the Company of what a market participant would use in
pricing an asset or liability. If there is little available market data,
then the Company’s own assumptions are the best available
information.
|
In
the case of multiple inputs being used in a fair value measurement, the lowest
level input that is significant to the fair value measurement represents the
level in the fair value hierarchy in which the fair value measurement is
reported.
Cash and Cash
Equivalents: For financial statement
presentation purposes, the Company considers those short-term, highly liquid
investments with original maturities of three months or less to be cash or cash
equivalents.
Concentration of
Credit Risk: The Company’s cash and cash equivalents are on deposit with
banks. Only a portion of the cash and cash equivalents would be covered by
deposit insurance and the uninsured balances are substantially greater than the
insured amounts. Although cash and cash equivalent balances exceed insured
deposit amounts, management does not anticipate non-performance by the
banks.
Accounts
Receivable: The Company records its accounts receivable at the original
invoice amount less an allowance for doubtful accounts. An account receivable is
considered to be past due if any portion of the receivable balance is
outstanding beyond its scheduled due date. On a quarterly basis, the Company
evaluates its accounts receivable and establishes an allowance for doubtful
accounts and established an allowance for doubtful accounts for specific
accounts that are considered at risk as to collection. When a customer account
is considered to be uncollectible it is written off against the related
allowance. . No interest is accrued on past due accounts
receivable.
Inventory:
Inventory is recorded at the lower of cost or market value, and adjusted as
appropriate for decreases in valuation and obsolescence. Adjustments to the
valuation and obsolescence reserves are made after analyzing market conditions,
current and projected sales activity, inventory costs and inventory balances to
determine appropriate reserve levels. As of December 31, 2008, no reserve for
obsolescence was deemed necessary. Cost is determined using the first-in
first-out (FIFO) method. Many components and raw materials we purchase have
minimum order quantities. As of December 31, 2008, inventory costs of $1,270,000
consisted of $354,000 of finished goods, $344,000 of work-in-process and
$572,000 of raw materials. These amounts include $535,000 of finished batteries,
work-in-process and raw materials for our manufacturing subcontract. As of
December 31, 2007 inventory costs of $376,000 consisted of $302,000
of raw materials, $55,000 of work-in-process and $19,000 of finished
goods.
Property and
Equipment: Property and equipment
are recorded at cost. Depreciation is computed using the straight line method
over the estimated useful lives of the assets, ranging from 3 to 22
years.
Expenditures
for renewals and betterments are capitalized. Expenditures for minor items,
repairs and maintenance are charged to operations as incurred. Gain or loss upon
sale or retirement due to obsolescence is reflected in the operating results in
the period the event takes place.
Impairment or
Disposal of Long-Lived Assets: The Company adopted the provisions of FASB
No. 144 (FASB 144), “Accounting for the Impairment or
Disposal of Long-lived Assets.” This standard requires, among other
things, that long-lived assets be reviewed for potential impairment whenever
events or circumstances indicate that the carrying amounts may not be
recoverable. The assessment of possible impairment is based on the ability to
recover the carrying value of the asset from the expected future pre-tax cash
flows (undiscounted and without interest charges) of the related operations. If
these expected cash flows are less than the carrying value of such asset, an
impairment loss is recognized for the difference between estimated fair value
and carrying value. The primary measure of fair value is based on discounted
cash flows. The measurement of impairment requires management to make estimates
of these cash flows related to long-lived assets, as well as other fair value
determinations. There were no impairments recognized for years ended December
31, 2008 and 2007.
Revenue
Recognition: The Company recognizes revenue upon transfer of title at the
time of shipment (F.O.B. shipping point), when all significant contractual
obligations have been satisfied, the price is fixed or determinable, and
collectability is reasonably assured.
Shipping and
Handling Costs: All shipping and handling costs charged to customers are
recorded as Net Sales and all related expenses are included in Cost of Sales.
Shipping and handling costs not billed to customers are included in selling,
general and administrative expense.
Stock-Based
Compensation: Prior to January 1, 2006, the Company accounted for stock
option awards in accordance with the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees, (APB 25)” and related
interpretations, as permitted by Statement of Financial Accounting Standard No.
123, “Accounting for
Stock-Based Compensation”, (SFAS 123). Under APB 25, compensation cost
for stock options issued to employees was measured as the excess, if any, of the
fair value of the Company’s stock at the date of grant over the exercise price
of the option granted. Compensation cost was recognized for stock options, if
any, ratably over the vesting period. As permitted by SFAS 123, the Company
reported pro-forma disclosures presenting results and earnings as if the Company
had used the fair value recognition provisions of SFAS 123 in the Notes to the
Consolidated Financial Statements.
Effective
January 1, 2006, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment”, (SFAS
123(R)) using the modified prospective transition method. See footnote captioned
“Equity Compensation” for further detail on the impact of SFAS 123(R) to the
Company’s consolidated financial statements.
Stock-based
compensation related to non-employees is recognized as compensation expense in
the accompanying consolidated statements of operations and is based on the fair
value of the services received or the fair value of the equity instruments
issued, whichever is more readily determinable. The Company’s accounting
policy for equity instruments issued to consultants and vendors in exchange for
goods and services follows the provisions of EITF 96-18, “Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for Certain
Transactions Involving Equity Instruments granted to Other Than Employees.”
The measurement date for the fair value of the equity instruments issued
is determined at the earlier of (i) the date at which a commitment for
performance by the consultant or vendor is reached or (ii) the date at which the
consultant or vendor’s performance is complete. In the case of equity
instruments issued to consultants, the fair value of the equity instrument is
recognized over the term of the consulting agreement.
Research and
Development:
Research and development costs are recorded in accordance with FASB No,
2, “Accounting for Research
and Development Costs,” which requires that costs incurred in research
and development activities covering basic scientific research and the
application of scientific advances to the development of new and improved
products and their uses be expensed as incurred. The policy of expensing the
costs of research and development activities relate to (i) in-house work
conducted by the Company; (ii) costs incurred in connection with contracts
that outsource research and development to third party developers; and
(iii) costs incurred in connection with the acquisition of intellectual
property that is properly classified as in-process research and development. All
research and development costs have been expensed.
Income
Taxes: Deferred income taxes are recorded in accordance with FASB No.
109, “Accounting for Income
Taxes,” or FASB 109, and deferred tax assets and liabilities are
determined based on the differences between financial reporting and the tax
basis of assets and liabilities using the tax rates and laws in effect when the
differences are expected to reverse. FASB 109 provides for the recognition of
deferred tax assets if realization of such assets is more likely than not to
occur. Realization of net deferred tax assets is dependent upon generating
sufficient taxable income in future years in appropriate tax jurisdictions to
realize benefit from the reversal of temporary differences and from net
operating loss, or NOL, carryforwards. The Company has determined it more likely
than not that the deferred tax asset resulting from these timing differences
will not materialize and have provided a valuation allowance against the entire
net deferred tax asset. Management will continue to evaluate the realizability
of the deferred tax asset and its related valuation allowance. If the assessment
of the deferred tax assets or the corresponding valuation allowance were to
change, the Company would record the related adjustment to income during the
period in which the determination is made. The tax rate may also vary based on
actual results and the mix of income or loss in domestic and foreign tax
jurisdictions in which operations take place.
Refundable
tax credits are recorded, to the extent receipt is assured, in the year that
they are earned and included in other income.
The
provision for taxes represents corporate-level franchise taxes which may be
based on assets, equity, capital stock or a variation thereof.
Recent
Accounting Pronouncements:
In
February 2007, Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities-Including an Amendment of FASB Statement No.
115,” (FASB 159), was issued. This standard allows a company to
irrevocably elect fair value as the initial and subsequent measurement attribute
for certain financial assets and financial liabilities on a contract-by-contract
basis, with changes in fair value recognized in earnings. The provisions of this
standard are effective as of the beginning of our fiscal year 2008, with early
adoption permitted. The adoption of FASB No. 159 did not have a material impact
on the Company’s consolidated financial position, results of operation, or cash
flows.
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations and
SFAS No. 160, Accounting
and Reporting of Noncontrolling Interest in Consolidated Financial Statements,
an amendment of ARB No. 51. These new standards will significantly
change the accounting for and reporting of business combinations and
non-controlling (minority) interests in consolidated financial statements.
Statement Nos. 141(R) and 160 are required to be adopted simultaneously and
are effective for the first annual reporting period beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company is currently
evaluating the impact of adopting SFAS Nos. 141(R) and SFAS 160 on its
consolidated financial statements.
In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 161, "Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133”. SFAS 161 requires enhanced disclosures about an entity’s
derivative and hedging activities. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008 with early application encouraged. As such, the
Company is required to adopt these provisions at the beginning of the fiscal
year ended December 31, 2009. The Company is currently evaluating the
impact of SFAS 161 on its consolidated financial statements but does not expect
it to have a material effect.
In May
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (“SFAS”) No. 162, "The Hierarchy of Generally Accepted
Accounting Principles”. SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States. SFAS 162 is effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Company is currently evaluating the impact of SFAS
162 on its consolidated financial statements but does not expect it to have a
material effect.
In May
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 163, "Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60" (“SFAS
163”). SFAS 163 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that
Statement. SFAS 163 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and all interim periods within
those fiscal years. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended December 31,
2009. The Company is currently evaluating the impact of SFAS 163 on
its consolidated financial statements but does not expect it to have a material
effect.
Reclassifications
Certain
reclassifications have been made to the 2007 financial statement presentation to
correspond to the current year’s presentation. Total equity and net income
are unchanged due to these reclassifications.
Note 3 – Grant Revenue
Grants from
Commonwealth of Pennsylvania: On April 30, 2007, the Company was awarded
a series of retroactive grants from the Commonwealth of Pennsylvania with an
aggregate value of $1.2 million. Grants for $900,000 were specifically
designated for equipment purchases and the remaining $300,000 for job training
and tax credits. The $150,000 Opportunity Grant Program grant requires the
Company to hire 86 full-time employees by March 31, 2009, spend a total of
$6,492,300 of non-public funds as part of the company’s operating expenses and
equipment purchases by March 31, 2009 and maintain an operation in Neshannock
Township through March 31, 2011. Failure to meet these goals could result in a
partial return of the $150,000 grant allocation. During the year ended December
31, 2007, the Company recognized amounts related to these grants for the
purchase of equipment. The Company records equipment grants as other receivables
and deferred revenue based on qualifying equipment purchases that are billed to
the Commonwealth for reimbursement at a rate of 75% of the amount paid by the
Company. Deferred revenue is amortized into income over the estimated useful
life of the related equipment. As of December 31, 2008, deferred revenue was
$751,096. During the year 2008, $89,849 of income was recorded for the
amortization of deferred revenue. As of December 31, 2007, other receivables
included $239,861 and deferred revenue of $840,945 was recorded for equipment
grants. During the year ended December 31, 2007, $662,000 of cash was received
and $60,916 of income was recorded for the amortization of the deferred
revenue.
Note 4 – Fair Value
Measures
The
Company has determined the fair value of certain assets through application of
SFAS No. 157, Fair Value
Measurements.
Fair
value of assets and liabilities measured at December 31, 2008 are as
follows:
Fair Value Measurements at
Reporting Date Using:
Quoted Prices In Active Markets for
|
||||||||
Fair Value
|
Identical Assets/Liabilities (Level 1)
|
|||||||
December
31, 2008:
|
||||||||
Available-for-sale
securities
|
||||||||
Certificates
of Deposit
|
$
|
194,000
|
$
|
194,000
|
||||
United
States Treasury Bills
|
$
|
1,999,920
|
$
|
1,999,920
|
The
Company did not hold any securities for the year ended December 31,
2007.
There
were no gains or losses (realized and unrealized) included in earnings for the
periods reported in investment income.
Financial
assets and liabilities valued using level 1 inputs are based on unadjusted
quoted market prices within active market.
Note
5 – Property and Equipment
A summary
of property and equipment at December 31, 2008 and 2007is as
follows:
Estimated
useful
|
|||||||||
life
|
2008
|
2007
|
|||||||
Asset
deposit
|
$
|
—
|
$
|
—
|
|||||
Leasehold
improvements
|
10
|
105,888
|
92,525
|
||||||
Machinery
& equipment
|
3-22 years
|
3,801,600
|
2,382,749
|
||||||
Less
accumulated depreciation
|
633,305
|
356,022
|
|||||||
Net
|
$
|
3,274,183
|
$
|
2,119,252
|
Note
6 – Related Party Debt Financing
2007
Activity:
The
Company issued a total of 270,000 warrants against the 2006 loan agreement
executed with Mr. Averill during 2006 and has an obligation to issue an
additional 230,000 warrants from these loans through the November 2007 date of
extinguishment. In November 2007, the 2006 loan was subsequently extinguished in
exchange for the security provided under the Secured Bridge Loan program offered
during the fourth quarter of 2007. (See discussion of this loan under the
caption “Secured Bridge Loan Financing” below).
In August
2007, Mr. Averill loaned the Company an additional $460,000 earning interest at
a coupon rate of 12% per annum. The debt matures in two parts, with the $230,000
payable no later than September 30, 2007 and the final balance to be paid no
later than December 31, 2007. As additional consideration for this loan, Mr.
Averill is to receive a 3-year warrant to purchase 30,000 shares of common stock
upon loan inception, an additional 2,000 warrants for each business day between
the loan inception date and first repayment date, with the number of warrants
pegged to the first repayment not to exceed 42,000 warrants, and an additional
1,000 warrants for each business day between the date of first repayment and
second repayment date, with the number of warrants pegged to the second
repayment not to exceed 64,000 warrants. The Company repaid Mr. Averill $115,000
on September 28, 2007, from which he is to receive the maximum number of
warrants pegged to the first repayment date. On November 27, 2007 this loan was
subsequently extinguished in exchange for the security provided under the
Secured Bridge Loan program offered during the fourth quarter of 2007. The
Company has an obligation to issue an additional 64,000 warrants from these
loans through the November 27, 2007 extinguishment date. (See discussion of this
loan under the caption “Secured Bridge Loan Financing” below).
On
November 1, 2007, the Company borrowed an additional $267,900 from Robert
Averill. This amount was invested in anticipation of the Secured Bridge Loan
discussed below, earning interest at 14% per annum.
On
November 27, 2007, Mr. Averill and the Company entered into an agreement to
convert all outstanding debt obligations due and owing to Mr. Averill, into
obligations under the Secured Bridge Loan discussed below, extinguishing the
security interest Mr. Averill had in all of the assets of Axion Power Battery,
Inc. in exchange for the security provided under the Secured Bridge Loan. At the
time this indebtedness was converted, the Company owed Mr. Averill outstanding
principal plus interest amounting to $1,111,910 together with new borrowings of
$544,090 and $144,000 of loan origination fees recognized as a note discount,
resulting in Mr. Averill holding a note for $1,800,000 under the Secured Bridge
Loan financing. The loan has an original maturity of March 31, 2008, bears an
initial interest rate of 14% per annum, and is jointly secured, along with all
other investors in the Secured Bridge Loan, by all the assets including
intellectual property assets of the Company and its subsidiaries. As additional
consideration for this loan, Mr. Averill is to receive a warrant to purchase
61,290 shares of common stock. The warrants are exercisable for a period of five
years from loan inception at a price of $2.35 per share.
Mr.
Averill’s loan obligations specifically state that the warrant will be dated
three years from date of issue. Whereas none of these warrants were issued
during 2007, the expiration date on his warrants relating to both the 2006
carryover and the 2007 was not determined until 2008. In conjunction with this
loan obligation carried over from 2007, the Company satisfied the remainder of
its obligation to issue 366,000 warrants to Mr. Averill. Because of the delay in
processing, these 3 year warrants, exercisable at a price of $6.00, were issued
with an expiration date of March 31, 2011. Due to lower stock prices at the time
of modification, the modification of these instruments resulted in a net
decrease in fair value of these instruments.
In
October 2007, Igor Filipenko, a member of the Board of
Directors, loaned the Company $115,000 under substantially the same
agreement as Mr. Averill’s loan agreement of August 2007. Mr. Filipenko earns
interest at a coupon rate of 12% per annum with a scheduled maturity of December
31, 2007. As additional consideration for this loan, Mr. Filipenko is to receive
a 3-year warrant to purchase 5,250 shares of common stock upon loan inception,
and an additional 500 warrants for each business day between the loan inception
date and repayment date. The number of warrants pegged to repayment is not to
exceed 26,500 warrants. At the end of 2007, the Company had an
obligation to issue an additional 31,750 warrants from this loan upon
extinguishment on December 17, 2007. In conjunction with this loan obligation
carried over from 2007, the Company satisfied the remainder of its obligation to
issue 31,750 warrants to Mr. Filipenko. Because of the delay in processing,
these 3 year warrants, exercisable at a price of $6.00, were issued with an
expiration date of March 31, 2011. Due to lower stock prices at the time of
modification, the modification of these instruments resulted in a net decrease
in fair value of these instruments. (See discussion of this loan under the
caption “Secured Bridge Loan Financing” below). (See discussion of this loan
under the caption “Secured Bridge Loan Financing” below).
In
December 2007, Mr. Filipenko elected to participate in the fourth quarter
short-term bridge loan arrangement whereby he converted his October loan of
$115,000, contributed an additional $92,000 in cash, and received a note
discount of $18,000 reflecting loan origination fees, resulting in Mr. Filipenko
holding a note for $225,000 under the Secured Bridge Loan. The loan has an
original maturity of March 31, 2008, bears an initial interest rate of 14% per
annum, and is jointly secured, along with all other investors in the Secured
Bridge Loan, by all the assets including intellectual property assets of the
Company and its subsidiaries. As additional consideration for this loan, Mr.
Filipenko is to receive a warrant to purchase 7,661 shares of common stock. The
warrants are exercisable for a period of five years from loan inception at a
price of $2.35 per share. (See discussion of this loan under the caption
“Secured Bridge Loan Financing” below).
In
December 2007, Glenn Patterson (HAP), a member of the Board of Directors,
contributed $92,000 in cash and received a note discount of $8,000 reflecting
loan origination fees by participating in the fourth quarter short-term bridge
loan arrangement offered by the Company. The loan has an original maturity of
March 31, 2008, bears an initial interest rate of 14% per annum, and is jointly
secured, along with all other investors in the Secured Bridge Loan, by all the
assets including intellectual property assets of the Company and its
subsidiaries. As additional consideration for this loan, Mr. Patterson is to
receive a warrant to purchase 3,405 shares of common stock. The warrants are
exercisable for a period of five years from loan inception at a price of $2.35
per share. (See discussion of this loan under the caption “Secured Bridge Loan
Financing” below).
2008
Activity:
The 2007
Bridge Loans had an original maturity date of March 31, 2008, with three
extensions of the maturity date at the option of the Company, with higher
interest rates to apply to each such extension.
On May
29, 2008, Glenn Patterson (HAP) converted $4,200 of his Bridge Loan into equity
under the same terms offered to Quercus discussed in Item 7 “Recent Financing
Activities” , with the $95,800 in principal repaid under the terms of the note
for the Bridge Loan. Mr. Patterson received 4,627 warrants valued at $3,990
utilizing the Black-Scholes-Merton option pricing model.
On
June 30, 2008, Igor Filipenko was repaid $225,000 in principal under the terms
of the note for the Bridge Loan. Mr. Filipenko received 9,148
warrants valued at $9,768 utilizing the Black-Scholes-Merton option pricing
model.
On June
30, 2008, Robert Averill, converted $800,000 under the same terms offered to
Quercus discussed in Item 7 “Recent Financing Activities”, with the $1,000,000
in principal repaid on July 1, 2008 under the terms of the note for
the Bridge Loan. Mr. Averill received 457,542 warrants valued at
$342,748 utilizing the Black-Scholes-Merton option pricing model.
Options and
Warrants: The loan agreements disclosed above provided for the aggregate
issuance of 484,278 common stock purchase warrants, with only 86,528 having been
issued as of December 31, 2007. We satisfied our obligation to issue the
remainder of 397,750 warrants in March 2008 by issue to two of our
directors. As of December 31, 2007, the warrants due under these
agreements had been valued at 276,882 and recorded as a note discount. Note
discount of $154,201 had been amortized during the year ended December 31, 2007,
of which $152,884 relates to the warrant obligations under these 2007 loans.
$289,075 of unamortized debt discount relating to the 2007 obligations was
amortized during the 1st quarter
of 2008. Because of the delay in processing, these 3 year warrants,
exercisable at a price of $6.00, the settlement warrants were issued with an
expiration date of March 31, 2011. Due to lower stock prices at the time of
modification, the modification of these instruments resulted in a net decrease
in fair value of these instruments. Decreases in fair value of embedded options
resulting from a modification should not be recognized and accordingly are not
reflected on the Company’s financial statements.
Secured Bridge
Loan Financing: In December 2007 the
Company offered certain of its directors, officers, and significant investors
the opportunity to participate in a short-term bridge loan arrangement in
increments of $100,000, each such loan to bear interest at 14% and to be secured
by all of the assets, including the intellectual property assets of Axion Power
International and Axion Power Battery Manufacturing Inc. (the “Secured Bridge
Loan”). Elections to participate must have been made no later than January 7,
2008, and if fully subscribed, the Secured Bridge Loan could result in up to
$3,000,000 in short-term funding for the Company.
Total
funding received under the Secured Bridge Loan as of December 31, 2007 amounted
to $2,541,216, with additional funding of $100,000 in January of 2008.
$2,125,000 was funded by three members of the Board of Directors, with the
balance funded by four accredited investors.
The
Bridge Loans had an original maturity date of March 31, 2008, with three
extensions of the maturity date at the option of the Company, with higher
interest rates to apply to each such extension. On March 31, 2008, we sent
notice to the investors of our intention to extend the loan until April 30,
2008. In accordance with the option terms contained in the loan agreement, three
of the investors chose to convert a total of $328,984 into equity under the same
terms offered to Quercus. One of these investors later rescinded his election,
opting for repayment. This resulted in a net conversion of $276,484 into equity
under the same terms offered to Quercus. The extension entitled the remaining
investors to earn an additional 1% extension fee based on the original loan
amount and interest at the annual rate of 15%. On April 29, 2008, we sent notice
to the investors of our intention to extend the loan until May 31, 2008. The
extension entitles investors to earn an additional 1% extension fee based on the
original loan amount and interest at the annual rate of 16%. On May 29,
2008, a related party converted $4,200 of his Bridge Loan into equity under the
same terms offered to Quercus, with the balance repaid under the terms of the
note for the Bridge Loan. On May 30, 2008, we sent notice to the
remaining investors of our intentions to extend the loan until June 30,
2008. The interest rate during the extension period increased to 18% with an
extension fee equal to 2% of the original loan and an extension fee of 2% of the
original loan was paid to the holders of the Bridge Loans. A loan origination
fee was paid equal to 8% of the original loan. The origination fee decreased by
one-half percent each week after December 15, 2007 until the loan closed on
January 7, 2008. Warrants exercisable at $2.35 until December 31, 2012 are
included. For each $100,000 increment of the Bridge Loan, the
investors were issued warrants as follows: 3,405 warrants upon occurrence
of the secured bridge loan: 851 additional warrants upon the extension of the
loan to April 30, 2008; 1,276 additional warrants upon extension of the loan to
May 31, 2008 and 2,128 additional warrants upon extension of the loan to June
30, 2008. Typical anti-dilution provisions apply to the warrants as do piggyback
registration rights.
On June
30, 2008, a director, exercising his rights to convert under the same terms
converted $800,000 of indebtedness under the Bridge Loans into 380,952 shares of
common stock and warrants to purchase 380,952 shares of common stock at an
exercise price of $2.60 per share, such warrants will expire on June 29, 2013.
The remaining balance due, $1,235,028, of indebtedness from the Bridge Loans was
repaid on July 1, 2008 with a portion of the proceeds from the
Final Quercus Investment (as described below). The Bridge Loans have been fully
repaid or converted, and there is no remaining indebtedness under these
instruments.
Interest
Expense: Interest expense recognized for the year ended
December 31, 2008 in connection with certain notes payable to related parties
amounted to $1,137,485. Of this total $277,045 relates to the
interest coupon and $860,443 to the amortization of note discount associated
with loan origination fees and detachable warrants. The amounts
reported as interest expense-related party on the income statement include
payments to four accredited investors with certain associations to related
parties. Interest expense recognized for the year ended December 31, 2007 in
connection with these notes and related liabilities amounted to $276,651, of
which $117,058 relates to the amortization of the note discount for warrants
granted, $37,143 relates to the amortization of note discount reflected by the
Secured Bridge Loan’s origination fees, and the remainder relates to the stated
interest rate on the outstanding balance. In December 2007, loan origination
fees of $202,216 were recognized as note discounts related to funding received
in the fourth quarter on the Secured Bridge Loan. In January 2008, $7,500 in
origination fees were recognized as a note discount in connection with an
additional $92,500 of cash received for these notes. These note discounts are
being amortized as interest expense over the life of the respective
notes.
Note
7 – Stockholders' Equity
Authorized
Capitalization: The Company’s authorized capitalization includes
100,000,000 shares of common stock and 12,500,000 shares of preferred stock.
This represents an increase in the number of authorized common shares from
50,000,000 pursuant to the Shareholder meeting vote on November 12,
2008.
Common
Stock: At December 31, 2008, 26,417,437 shares of common stock were
issued and outstanding. The holders of common stock are entitled to one vote for
each share held of record on all matters to be voted on by stockholders. There
is no cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voted for the election of
directors can elect all of the directors. Holders of common stock are entitled
to receive dividends when and if declared by the board out of funds legally
available. In the event of liquidation, dissolution or winding up, the common
stockholders are entitled to share ratably in all assets remaining available for
distribution to them after payment of liabilities and after provision has been
made for each class of stock, if any, having preference over the common stock.
The common stockholders have no conversion, preemptive or other subscription
rights and there are no redemption provisions applicable to the common stock.
All of the outstanding shares of common stock are fully paid and
non-assessable.
Preferred
Stock: The Company’s certificate of incorporation authorizes the
issuance of 12,500,000 shares of blank check preferred stock. The Company’s
board of directors has the power to establish the designation, rights and
preferences of any preferred stock. Accordingly, the board of directors has the
power, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of common stock.
At
December 31, 2008, 137,500 shares of 8% Cumulative Convertible Senior Preferred
stock were issued and outstanding, and 718,997 shares of Series A Convertible
Preferred stock were issued and outstanding.
Equity
Transactions –period ended December 31, 2003
APC and
Tamboril Cigar Company (Tamboril, now Axion) reverse acquisition: In
December 2003 Tamboril entered into a reverse acquisition agreement with APC.
Under the terms of the agreement, all outstanding securities of APC were
acquired by Tamboril in exchange for newly issued stock. Upon consummation of
the transaction, the former stockholders of APC owned the majority of Tamboril’s
outstanding shares and controlled Tamboril’s Board of Directors. Accordingly,
the acquisition of APC by Tamboril was structured as a reverse acquisition under
which Tamboril was the legal acquirer in the transaction and APC was the
accounting acquirer. The transaction was treated as a recapitalization of APC
for accounting purposes. Tamboril had no material assets or liabilities and
1,875,000 common shares outstanding on December 31, 2003 when it entered into a
reverse acquisition with shareholders of APC. The historical financial
statements presented prior to December 31, 2003 represent those of APC since its
inception on September 18, 2003. The transactions of Tamboril are included
beginning January 1, 2004. Subsequently, Tamboril changed its name to Axion
Power International, Inc.
Prior to
the reverse acquisition, APC issued rights to its founders for 1,360,000 shares
of APC common stock as additional shares for money contributed through the
purchase of convertible debt. Accordingly, there was no expense recorded related
to these issuances of these shares. However, there was one founder that did not
contribute funds in which APC valued the 170,000 shares issued as expense for
services rendered during the period ending December 31, 2003 amounting to
$48,953 based on the value of the shares received for the funds contributed by
the other founders. The founders purchased convertible debt from APC for
$1,450,000 of which $350,000 was not collected until 2004 which is included as a
subscription receivable as of December 31, 2003. These convertible debt
instruments were converted prior to the merger in which 1,108,335 shares of APC
common stock were issued as consideration for $1,450,000 of convertible debt and
$92,761 in unamortized debt discount attributable to detachable
warrants.
The
following transactions were completed in conjunction with the original
closings:
·
|
Tamboril
had 1,875,000 shares of common stock outstanding at December 31, 2003
which is reflected as equity acquired in the
recapitalization.
|
·
|
Tamboril
settled $484,123 in pre-merger accrued related party compensation debt
through the issuance of 233,400 warrants. No corresponding expense was
recorded on the Company’s records because the debt was included on the
legal acquirer’s (Tamboril’s) records prior to the reverse
acquisition.
|
·
|
Tamboril
issued 9,785,818 common shares (prior to the return of 1,000,000 shares
from The Trust for the Benefit of the Shareholders of Mega-C Power Corp in
the fiscal year ended December 31, 2006, as disclosed in the note
captioned “Subsequent Events”) and 608,600 warrants to APC’s stockholders
in exchange for a substantial controlling interest in APC. This includes
the common shares issued to the founders, common shares and warrants
issued in conjunction with the convertible notes, and shares issued to the
Mega C Trust.
|
·
|
As
part of the above described transaction, APC shareholders, who had rights
to the stock agreed to have 7,147,483 shares of Tamboril shares to be
issued to the Trust and APC shareholders retained the remaining shares. As
a result of the November 21, 2006 Mega C Chapter 11 plan of
reorganization, the Trust was required to return 1,000,000 shares of the
common stock distributed to the Trust noted above for cancellation by the
Company. The Company retroactively adjusted the return of the shares
against the shares issued to the Trust resulting in 6,147,483 net shares
issued to the Trust at December 31,
2003.
|
·
|
The
original reverse acquisition was amended on January 9, 2004. See
discussion of the amendment under the explanation of the equity 2004
below.
|
Equity
Transactions –period ended December 31, 2004
APC and
Tamboril Cigar Company (Tamboril, now Axion) reverse acquisition: Prior
to the second part of the reverse acquisition on January 9, 2004, the Company
adjusted the original shares issued to the founders by issuing rights to an
additional 445,000 shares to the founders and 180,000 shares to the Trust. Since
there was no additional service or money contributed there was no expense
recorded related to the additional shares issued. Also, the Company issued
45,000 shares to the CEO which amounted to $72,000 valued at the pink sheet bid
price on the date of grant. Certain related parties purchased convertible debt
from APC for $400,000. The $400,000 of convertible debt purchased during 2004
and the remaining $50,000 of convertible debt outstanding at December 31, 2003
was converted into 283,333 shares of APC common stock during 2004.
2004
Private Placements: During
the year ended December 31, 2004, the Company sold 823,800 shares of common
stock and 463,100 warrants for net cash proceeds of $1,607,134. The Company also
received $868,020 in cash proceeds from the exercise of 475,200 outstanding
common stock purchase warrants. The Company issued 48,782 shares of common stock
for rounding purposes in conjunction with the 2004 one-for-sixteen reverse stock
split.
Equity
Transactions –Year ended December 31, 2005
Augmentation
of Trust and Trust Settlement: In February 2005, the Company issued
500,000 shares of common stock to The Trust for the Benefit of the Shareholders
of Mega-C Power Corp. For accounting and financial reporting purposes, the stock
issuance transaction was valued at $1,525,000, which represents the value of the
shares on the date of issuance. This amount was charged to operating expenses
during the year ended December 31, 2005. There were 500,000 shares returned to
the Company for cancellation in November 2006 in connection with the bankruptcy
court confirmation of the settlement (see note captioned “Mega-C Power Corp
(Mega-C), Mega-C Trust (the Trust), The
Taylor Litigation”). Those shares were effectively the return of the 500,000
shares issued to the Trust in February, 2005. The return of those shares was
recorded as a reversal of the expense at fair value on the date of return in
2006 in the amount of $1,125,000 and has been subsequently cancelled. In
addition, under the bankruptcy court confirmation of the settlement, the Trust
corpus was reduced another 1,000,000 shares, which were returned to the Company
and cancelled. The return in 2006 was the result of a negotiated settlement and
there are no contingencies surrounding the Trust shares in 2005. This
cancellation was considered a retroactive adjustment to the shares issued in the
2003 reverse acquisition.
2005
Private Placement of Senior Preferred: In February 2005, the board of
directors designated 1,000,000 shares of preferred stock as 8% Cumulative
Convertible Senior Preferred Stock (the “senior preferred”). The Company sold
385,000 shares of senior preferred at a price of $10 per share. The net proceeds
of the offering included $2,754,110 in cash and $1,000,000 in liability
conversion (see Note captioned “Transactions with a Related Party (C&T)”).
At December 31, 2005, $25,000 of this amount was included in stock subscription
receivable that was subsequently reversed in 2006 when the amount was deemed
uncollectible. The senior preferred offering originally required the sale of a
minimum of 500,000 shares ($5,000,000) before the offering proceeds would be
available to the Company. The purchasers of the senior preferred ultimately
waived this minimum offering condition. The preferred stock has liquidation
preference equal to the stated value on the payment date before any payment or
distribution is made to the holders of common stock.
So long
as any senior preferred shares are outstanding, the Company cannot (i) issue any
series of stock having rights senior to or on parity with the senior preferred
(ii) amend, alter or repeal any provision of its Certificate of Incorporation or
bylaws to adversely affect the relative rights, preferences, qualifications,
limitations or restrictions of the senior preferred, or (iii) effect a
reclassification of the senior preferred without the consent of the holders of a
two-thirds majority of the outstanding shares. The Company is not authorized to
issue any additional shares of senior preferred.
To
provide for immediate cash needs during the offering period, the Company agreed
to issue warrants to any purchaser of senior preferred who agreed to loan the
Company the amount of the share proceeds until the $5 million minimum
subscription was reached. In connection therewith, the purchasers of $565,000 of
senior preferred agreed to release their subscription payments notwithstanding
the minimum subscription and other restrictions in the associated private
placement memorandum. As a result, the Company issued 282,500 warrants to those
purchasers. By March 2005, the $5 million minimum was still not met and the
Company agreed to issue 228,500 additional warrants to the purchasers of
$2,285,000 of senior preferred who agreed to waive the minimum subscription
requirement. The foregoing warrants are exercisable at a price of $2 per share,
and were to expire on March 21, 2007. Because the warrants
were detachable, granted in connection with the offering, immediately vested,
and exercisable at a price that was less than the reported fair market value of
the underlying common stock on the date of grant, the proceeds of the offering
were allocated between the senior preferred and the warrants based on the
relative fair value of each instrument. The assumed value of the senior
preferred was determined based on the fair value of the underlying common shares
and the fair value of the warrants was valued using the Black-Scholes-Merton
option pricing model. The proceeds allocated to the senior preferred amounted to
$3,440,268. The effective conversion price of the senior preferred was at a
price lower than the market price of the common stock at the date of the
issuance, resulting in a non-cash beneficial conversion feature of $2,315,482.
This beneficial conversion feature was immediately recognized as additional
non-cash dividends. On March 9, 2007 the Board of Directors unanimously agreed
to extend the life 476,000 $2.00 warrants issued in March 2005 to purchasers who
subscribed to the Senior Preferred private placement offering.
Holders
of senior preferred have the right to convert their shares into common stock at
any time, at an original conversion price of $2.00. The Company was required to
register the underlying shares by April 30, 2005. The shares were not registered
until June 2005 and as a result the conversion price was reduced to $1.86 per
share. This reduction in the conversion price resulted in an additional
beneficial conversion feature, valued at the fair value of the additional common
shares issuable as a result of the reduced conversion price, amounting to
$433,228.
Holders
of senior preferred are entitled to anti-dilution protection for certain
subsequent events, including the issuance of equity or debt securities that may
be converted into common stock at a conversion price that is less than the
conversion price of the senior preferred. As discussed in the note captioned
“Subsequent Events,” the Company sold approximately 823,000 shares of Series A
Preferred Stock that is convertible at a price of $1.25 per share. This stock
sale triggered the anti-dilution provisions of the senior preferred stock and
giving effect to all required adjustments, the adjusted conversion price of the
senior preferred is now $1.68 per share as of December 31, 2006.
In
September 2005, the Company offered all holders of preferred stock an early
conversion incentive that was approximately equivalent to one year’s anticipated
dividends on the preferred stock. While each share of senior preferred was
convertible into 5.5 shares of common stock when the Company offered the early
conversion incentive, 6 shares of common stock were issued for each share of
senior preferred converted during the incentive period. A total of 245,000
shares were converted. The fair value of the additional common shares issued as
a result of this inducement was recorded as a preferred dividend, amounting to
$350,446.
The total
of the beneficial conversion feature and conversion inducement for the year
ended December 31, 2005 that is included in preferred dividends on the
accompanying statement of operations amounted to $3,099,156. The Company
analyzed the embedded derivative conversion feature and the free standing
warrants issued in connection with the senior preferred and determined that the
instruments are equity instruments and accordingly, are not accounted for as
derivatives, requiring fair value accounting at each reporting
period.
Holders
of senior preferred are entitled to receive dividends at the annual rate of 8%.
Dividends are payable quarterly on the last day of March, June, September and
December of each year. Dividends are cumulative from the date of issuance and
payable to holders of record. In order to conserve available resources, the
Company did not pay cash dividends on the senior preferred in any quarter where
the Company reported a net loss. Any accrued dividends that are not paid in cash
will be added to the stated value of the senior preferred. Dividends accrued and
added to the stated value of the senior preferred during the year ended December
31, 2006 and 2005 amounted to $119,092 and $176,194, respectively.
The
senior preferred is redeemable by the Company under certain conditions unless
the holders elect to exercise their conversion rights prior to the redemption
date. Twenty percent of the senior preferred will become redeemable when the
market price of the Company’s common stock exceeds $6.00 per share for at least
30 trading days within any period of 45 consecutive trading days. Thereafter, an
additional twenty percent of the senior preferred will become redeemable for
each $1.00 increase in the stabilized market price of the Company’s common
stock. In connection with any proposed redemption of senior preferred, the
Company will give each holder not less than 30 days notice of its intention to
redeem a portion of the shares.
2005
Private Placement of Common Stock: Common stock private placement
activities during the year ended December 31, 2005 were as follows:
·
|
The
Company sold 600,000 units, each consisting of one share of common stock
and a two-year warrant exercisable at $4.00 for a purchase price of $2.00
per unit, or $1,200,000, before offering costs. As of December 31, 2005,
$200,000 is included in stock subscriptions receivable, which was received
in 2006.
|
·
|
A
director exercised 446,000 - $1 warrants/options and 25,000 - $2 options
with a total exercise price of $496,000. The stock was issued and included
in stock subscriptions receivable as of December 31, 2005. As of June 19,
2006, the full amount has
been settled.
|
·
|
Other
holders exercised 382,665 options & warrants with an aggregate
exercise price of $787,395.
|
Equity
Transactions –Year ended December 31, 2006
Augmentation
of Trust and Trust Settlement: See above 2005 transactions and the
discussion in the note captioned “Mega-C Power Corp (Mega-C), Mega-C Trust (the Trust),
The Taylor
Litigation” for disclosures about shares issued to the Trust, returned from the
Trust in November 2006 and the accounting for those shares.
Senior
Preferred: During 2006, a subscription for senior preferred shares was
cancelled, reducing the balance by 2,500 shares or $25,000. The senior preferred
had an initial stated value of $10.00 per share. Accrued dividends that are not
paid in cash within 10 days of a payment date will automatically be added to the
stated value and the stated value, as adjusted, will be used for all future
dividend and conversion calculations. The following table summarizes the
earnings through 2008 and the expected future stated value of the senior
preferred at the end of each quarter through December 31, 2009.
Quarter
Ended
|
Adjusted Stated
Value
|
Quarter
End
|
Adjusted Stated
Value
|
||||||
31-Mar-08
|
$
|
12.72
|
31-Mar-09
|
$
|
13.77
|
||||
30-Jun-08
|
$
|
12.97
|
30-Jun-09
|
$
|
14.04
|
||||
30-Sep-08
|
$
|
13.23
|
30-Sep-09
|
$
|
14.32
|
||||
31-Dec-08
|
$
|
13.50
|
31-Dec-09
|
$
|
14.61
|
2006 Private
Placement of Series A Preferred Stock: On October 18, 2006, the
Company’s board of directors designated, from the Company’s total authorized
12,500,000 shares, a new series of preferred stock consisting of up to 2,000,000
shares designated Series A Convertible Preferred Stock (the “series A
preferred”). During the fourth quarter of 2006, the Company sold an aggregate of
782,997 shares of series A preferred at a price of $10 per share for net
proceeds of $7,722,470 including $4,352,500 in cash and $3,369,970 in liability
conversion. In connection with the private placement, the Company incurred total
offering expenses of $258,202, of which $107,500 was paid in cash, while the
remainder was paid through the issuance of options to acquire shares of the
Company’s common stock.
Under the
terms of this new series of preferred stock, no more than 1,000,000 shares may
be sold for cash and the remaining shares must be reserved for (i) issuance
upon exercise of the conversion rights of holders of secured and unsecured
short-term debt and (ii) to pay in-kind dividends on the series A
preferred. So long as any series A preferred shares are outstanding, the Company
cannot (i) issue any series of stock having rights senior to or on parity with
the series A preferred (ii) amend, alter or repeal any provision of its
Certificate of Incorporation or bylaws to adversely affect the relative rights,
preferences, qualifications, limitations or restrictions of the series A
preferred (iii) effect a reclassification of the series A preferred or (iv)
issue any additional shares of series A preferred, each without the consent of
the holders of a two-thirds majority of the outstanding shares. The holders of
series A preferred have no pre-emptive rights with respect to any other
securities of the Company and a liquidation preference equal to the stated value
on the payment date before any payment or distribution is made to the holders of
common stock.
Beginning
on April 23, 2007, the shares of series A preferred shall be convertible at the
option of the holders of record at an initial conversion price of $1.25 per
share. Holders of series A preferred are entitled to anti-dilution protection
for certain subsequent events, including the issuance of equity or debt
securities that may be converted into common stock at a conversion price that is
less than the conversion price of the series A preferred resulting in a
reduction in the conversion price of the series A preferred. No such other
securities have been issued through the date of this report which would require
the reduction of the conversion price of the series A preferred. In addition,
the effective conversion price of the series A preferred was at a price lower
than the market price of the common stock at the respective dates of issuance in
the fourth quarter of 2006, resulting in an aggregate non-cash beneficial
conversion feature of $6,709,970 recognized as additional non-cash dividends on
a straight line basis, which did not differ materially from the effective
interest method, from the respective dates of issuance of the series A preferred
in the fourth quarter of 2006 through the first date these shares are
convertible on April 23, 2007. As a result, $613,336 was recognized as
additional non-cash dividends in the fourth quarter of 2006 with the remaining
amount recognized in 2007. In addition, if all holders of the series A preferred
were to have exercised their conversion rights at their respective dates of
subscription, these holders would have received an additional $5,597,970 in fair
value in excess of the proceeds paid for their subscriptions to the series A
preferred. The Company further analyzed the embedded conversion feature and
determined that it is properly classified as an equity instrument and
accordingly, is not accounted for as a derivative, requiring fair value
accounting at each reporting period.
Holders
of the shares of series A preferred shall receive dividends at the annual rate
of 10% of the stated value of the series A preferred so long as the Company is
current with respect to its reporting obligations under the Securities Exchange
Act of 1934 on any dividend payment date. Dividends are payable quarterly on the
last day of March, June, September and December in each year. Dividends are
cumulative from the date of issuance and payable to holders of record. Any
accrued dividends that are not paid in cash will be added to the stated value of
the series A preferred.
Because
the Company was not current with respect to its reporting obligations through
December 31, 2007, the series A preferred annual dividend rate increased to 20%
of the stated value. All but one of the series A preferred shareholders elected
to reinvest their preferred dividends back into series A preferred shares. As of
December 31, 2006, $103,101 of dividends has been accrued, including $97,896 in
non-cash and $5,205 in cash dividends. No cash dividends have been paid with
respect to the series A preferred shares. Non-cash dividends have increased the
value of the series A preferred shares by $0.13 to a stated value of $10.13 as
of December 31, 2006.
The
series A preferred had an initial stated value of $10.00 per share. Non-cash
dividends are automatically added to the stated value and the stated value, as
adjusted, will be used for all future dividend and conversion calculations. The
following table summarizes the earnings through 2008 and the expected future
stated value of the series A preferred at the end of each quarter through
December 31, 2009.
Quarter
Ended
|
Adjusted Stated
Value
|
Quarter
Ended
|
Adjusted Stated
Value
|
||||||
31-Mar-08
|
$
|
12.61
|
31-Mar-09
|
$
|
13.92
|
||||
30-Jun-08
|
$
|
12.93
|
30-Jun-09
|
$
|
14.26
|
||||
30-Sep-08
|
$
|
13.25
|
30-Sep-09
|
$
|
14.62
|
||||
31-Dec-08
|
$
|
13.58
|
31-Dec-09
|
$
|
14.99
|
The
series A preferred is redeemable by the Company under certain conditions unless
the holders elect to exercise their conversion rights prior to the redemption
date. Twenty percent of the series A preferred will become redeemable when the
market price of the Company’s common stock exceeds $5.00 per share for at least
30 trading days within any period of 45 consecutive trading days. Thereafter, an
additional twenty percent of the series A preferred will become redeemable for
each $2.50 increase in the stabilized market price of the Company’s common
stock. In connection with any proposed redemption of series A preferred, the
Company will give each holder not less than 30 days notice of its intention to
redeem a portion of the shares.
Common
Stock & Private Placements. The common stock transactions
during the year ended December 31, 2006 are as follow:
·
|
Two
unaffiliated individual accredited investors purchased a total of 80,000
units for a purchase price of $2.50 per unit or $200,000. Each unit
consists of one share of common stock and one common stock purchase
warrant with an exercise price of $4.00 per share. The warrants are
exercisable up until the first anniversary of the effective date of the
common stock registration statement and were valued at $26,354 on the date
of issuance
|
·
|
The
Company’s chief executive officer exercised his $2.00 warrants to purchase
56,700 shares for $113,400
|
·
|
The
Company’s Chief Technical Officer received 6,000 unrestricted shares,
valued at $24,000, pursuant to his 2005 employment contract and an
additional 250,000 restricted shares, valued at $937,500, pursuant to his
2006 employment contract. The 250,000 shares will become fully vested on
December 28, 2009. The expense related to these shares will be recognized
over this three-year requisite service period and the shares will be
considered issued and outstanding upon
vesting.
|
Subscriptions
Receivable: The balance sheet as of December 31, 2005 reflected $721,000
in subscriptions receivable. During the year ended December 31, 2006, the
Company received subscription payments of $588,900, settled $107,100 against
open invoices for legal services, and cancelled the unsettled balance of the
subscription receivable for preferred stock amounting to $25,000,
Warrants: 741,613 warrants were
issued to related parties in conjunction with the financing of debt issued
during 2006. See the “Related Party” footnote within ‘Debt Financing “above. In
April, 2006, the Company’s chief executive officer exercised his $2.00 warrants
to purchase 56,700 shares for $113,400. In October 2006,
200,000 3-year warrants were issued in payment for consulting services. These
$3.00 warrants valued at $74,437 are scheduled to expire in October 2009. In
December 2006, a former director of the Company received 9,000 $6.00 warrants
valued at $12,411, and are scheduled to expire December 29, 2010. Additionally,
80,000 warrants were issued to accredited investors in connection with a private
placement of units comprised of one share of the Company’s common stock and one
stock purchase warrant, as discussed above.
On June
9, 2006 the Board of Directors extended the life of 1,562,900 warrants issued to
the original shareholders of C&T along with 91,700 capital warrants issued
to Sally Fonner in recognition of the Company’s difficulty in establishing a
public trading market for its common stock. These $2 warrants scheduled to
expire in 2006 and early 2007 were modified to a December 31, 2007 expiration.
The warrants, valued at $521,642 prior to the extension, were revalued at the
date of modification using the Black-Scholes-Merton option-pricing model. The
incremental expense in 2006 resulting from the revaluations was recorded into
R&D ($342,131) and SG&A ($50,680).
Equity
Transactions –Year ended December 31, 2007
Senior
Preferred: At December 31, 2007, 137,500 shares of 8% Cumulative
Convertible Senior Preferred stock were issued and outstanding. As of December
31, 2007 $425,852 in dividends has been accrued to cover the Company’s
obligations with regard to the 8% Cumulative Convertible Senior Preferred stock.
No cash dividends have been paid with respect to these shares. Non-cash
dividends have increased the value of the Senior Preferred shares by $2.72 to a
stated value of $12.72 per share.
Series A
Preferred: 782,997 shares of Series A Preferred were issued during 2006.
In January 2007, the Company sold 40,000 additional shares of Series A Preferred
to accredited investors for gross cash proceeds of $400,000. On the date of
issuance, the effective conversion price of the Series A Preferred was at a
price lower than the market price of the common stock resulting in a non-cash
beneficial conversion feature of $400,000 recognized as additional non-cash
dividends on a straight line basis through the first date these shares are
convertible, being April 23, 2007. This straight line calculation did not differ
materially from the effective yield method. With the 2007 subscription, the
aggregate non-cash beneficial conversion feature attributable to the Series A
Preferred shares is valued at $7,109,970. $613,336 was recognized as additional
non-cash dividends in the fourth quarter of 2006, with the remaining balance of
$6,496,634 recognized as additional non-cash dividends during the year ending
December 31, 2007. Beginning on April 23, 2007, the shares of Series A Preferred
became convertible at the option of the holders of record at an initial
conversion of $1.25 per share. The conversion price is subject to adjustment if
Axion issues any shares less than the then existing conversion
price.
The
holders of the shares of Series A Preferred receive dividends at the annual rate
of 20% of the Stated Value of the Series A Preferred so long as the Company is
behind with respect to its reporting obligations under the Securities Exchange
Act of 1934 on any dividend payment date. Once the company is current with
respect to these reporting obligations, the dividend rate will be reduced to an
annual rate of 10% of the Stated Value. As of December 31, 2007, $1,893,855 in
dividends has been accrued. No cash dividends have been paid with respect to the
Series A Preferred shares. Non-cash dividends have increased the value of Series
A Preferred shares by $3.46 to a stated value of $13.46 per share. As of
December 31, 2007, 822,997 shares of Series A Convertible Preferred stock were
issued and outstanding.
Equity
Transactions –Year ended December 31, 2008
Senior
Preferred: At December 31, 2008, 137,500 shares of 8% Cumulative
Convertible Senior Preferred stock were issued and outstanding. As of December
31, 2008, $567,181 in dividends has been accrued to cover the Company’s
obligations with regard to the 8% Cumulative Convertible Senior Preferred stock.
No cash dividends have been paid with respect to these shares. Non-cash
dividends have increased the value of the Senior Preferred shares by $3.50 to a
stated value of $13.50 per share.
Series A
Preferred: With the Company becoming current with respect to its
reporting obligations under the Securities Exchange Act of 1934, the dividend
rate on its Series A Preferred reduced to an annual rate of 10% of the Stated
Value. During the year ended December 31, 2008, 104,000 Series A Preferred
shares along with accrued dividends of $298,875 were converted into 1,071,099
common shares. As of December 31, 2008, $2,571,321in dividends have been
accrued. No cash dividends have been paid with respect to the Series A Preferred
shares. Non-cash dividends have increased the value of Series A Preferred shares
by $3.58 to a stated value of $13.58 per share. As of December 31, 2008, 718,997
shares of Series A Convertible Preferred stock were issued and
outstanding.
Common Stock
Issuances: The
following table represents per share issuances of common stock from inception
through December 31, 2008, pursuant to FASB No. 7, “Development Stage
Enterprises”:
2003
Description:
|
Date
|
Shares
|
Per share
valuation
|
Business reason:
|
|||
Shares
issued to founders
|
9/18/2003
|
1,360,000
|
$
|
0.00
|
original
capitalization-no contributed capital
|
||
APC
Founder
|
9/18/2003
|
170,000
|
$
|
0.29
|
services
rendered with respect to formation
|
||
Seed
debt financing
|
12/31/2003
|
500,000
|
$
|
1.00
|
conversion
of debt and accrued interest to common stock
|
||
Series
I convertible debt
|
12/31/2003
|
533,334
|
$
|
1.50
|
conversion
of debt and accrued interest to common stock
|
||
Series
II convertible debt
|
12/31/2003
|
75,000
|
$
|
2.00
|
conversion
of debt and accrued interest to common stock
|
||
Mega-C
Trust
|
12/31/2003
|
6,147,484
|
$
|
0.00
|
In
lieu of shares issuable to founders
|
||
Tamboril
shareholders
|
12/31/2003
|
1,875,000
|
$
|
0.00
|
recapitalization
measured at fair market value of Tamboril assets
|
||
|
|
||||||
2003
Totals
|
10,660,818
|
$
|
0.14
|
2004
Description:
|
Date
|
Shares
|
Per share
valuation
|
Business reason:
|
|||
Shares
issued to founders
|
1/9/2004
|
445,000
|
$
|
0.00
|
In
lieu of shares issuable to founders
|
||
Mega-C
Trust
|
1/9/2004
|
180,000
|
$
|
0.00
|
adjustment
is shares issuable to founders
|
||
Officer
|
1/9/2004
|
45,000
|
$
|
1.60
|
services
rendered by former officer
|
||
Series
I convertible debt-Igor Filipenko
|
1/9/2004
|
50,000
|
$
|
1.00
|
conversion
of debt and accrued interest to common stock
|
||
Series
II convertible debt-Turitella
|
1/9/2004
|
133,333
|
$
|
1.50
|
conversion
of debt and accrued interest to common stock
|
||
Series
III convertible debt-Turitella
|
1/9/2004
|
100,000
|
$
|
2.00
|
conversion
of debt and accrued interest to common stock
|
||
Series
II common stock offering
|
2/1/2004
|
175,000
|
$
|
2.00
|
common
stock & warrants issued for cash
|
||
Series
III common stock offering
|
3/31/2004
|
288,100
|
$
|
3.00
|
common
stock & warrants issued for cash
|
||
Exercise
of Series I warrants
|
various
|
316,700
|
$
|
1.50
|
warrants
exercised pursuant to original terms
|
||
Exercise
of Series II warrants
|
various
|
125,000
|
$
|
2.28
|
warrants
exercised pursuant to original terms
|
||
Exercise
of Series II warrants
|
various
|
33,500
|
$
|
3.23
|
warrants
exercised pursuant to original terms
|
||
November
emergency funding
|
11/1/2004
|
314,000
|
$
|
1.50
|
common
stock & warrants issued for cash
|
||
December
emergency funding
|
12/1/2004
|
46,700
|
$
|
1.50
|
common
stock & warrants issued for cash
|
||
Fractional
shareholders
|
12/31/2004
|
48,782
|
$
|
0.00
|
shares
issued due to reverse split rounding formula
|
||
|
|
||||||
2004
Totals
|
2,301,115
|
$
|
1.37
|
|
2005
Description:
|
Date
|
Shares
|
Per share
valuation
|
Business reason:
|
|||
Mega-C
Trust
|
2/28/2005
|
500,000
|
$
|
3.05
|
Trust
augmentation
|
||
Banca
di Unionale
|
3/18/2005
|
30,000
|
$
|
2.00
|
conversion
of Preferred and accrued dividends
|
||
Banca
di Unionale
|
4/20/2005
|
20,000
|
$
|
2.00
|
conversion
of Preferred and accrued dividends
|
||
C&T
employees
|
4/1/2005
|
219,000
|
$
|
2.50
|
employee
incentive share grants
|
||
7
individuals
|
6/10/2005
|
29,565
|
$
|
3.57
|
Exercise
of Director options
|
||
3
individuals
|
7/11/2005
|
190,000
|
$
|
1.58
|
conversion
of Preferred and accrued dividends
|
||
Banca
di Unionale
|
7/11/2005
|
10,000
|
$
|
1.60
|
exercise
of preferred warrants
|
||
3
individuals
|
8/28/2005
|
150,000
|
$
|
1.67
|
conversion
of Preferred and accrued dividends
|
||
James
Smith
|
9/7/2005
|
30,000
|
$
|
1.67
|
conversion
of Preferred and accrued dividends
|
||
2
individuals
|
9/28/2005
|
1,050,000
|
$
|
1.69
|
conversion
of Preferred and accrued dividends
|
||
2
individuals
|
various
|
226,900
|
$
|
1.79
|
exercise
of Series I warrants
|
||
3
individuals
|
various
|
91,200
|
$
|
2.40
|
exercise
of Series III warrants
|
||
2
individuals
|
various
|
25,000
|
$
|
1.60
|
exercise
of Preferred warrants
|
||
Officer
|
10/20/2005
|
446,000
|
$
|
1.00
|
exercise
of warrants and options
|
||
Officer
|
10/20/2005
|
25,000
|
$
|
2.00
|
exercise
of warrants
|
||
6
individuals
|
12/1/2005
|
600,000
|
$
|
2.00
|
common
stock and warrants
|
||
|
|
||||||
2005
Totals
|
3,642,665
|
$
|
1.94
|
2006
2
individuals
|
4/21/06
|
80,000 | 2.50 |
Common
stock and warrants issued for cash
|
||||||
Officer
|
4/21/06
|
56,700 | 2.00 |
Exercise
of non-plan incentive option granted to CEO
|
||||||
Officer
|
4/21/06
|
6,000 | 4.00 |
Unrestricted
share grant to CTO
|
||||||
Mega-C
Trust
|
11/28/06
|
(500,000 | ) | 2.25 |
Return
of shares per settlement agreement
|
|||||
2006
Totals
|
(357,300 | ) | $ | 2.20 |
2007
|
|||||||
Officer
|
12/01/07
|
1,000
|
2.30
|
Unrestricted
share grant to VP Mfg Engineering
|
|||
|
|
||||||
2007
Totals
|
1,000
|
$
|
2.30
|
2008
Officer
|
01/01/08-12/01/08
|
12,000
|
1.85
|
Unrestricted
share grant to VP Mfg Engineering
|
||||||
Quercus
Trust
|
1/14/08
|
1,904,762
|
2.15
|
Common
stock and warrants issued for cash
|
||||||
Individual
|
3/31/08
|
106,659
|
2.30
|
Conversion
of bridge loan and accrued interest
|
||||||
Quercus
Trust
|
4/08/08
|
1,904,762
|
2.25
|
Common
stock and warrants issued for cash
|
||||||
Individual
|
4/21/08
|
25,000
|
2.30
|
Conversion
of bridge loan and accrued interest
|
||||||
Individual
|
5/06/08
|
508,512
|
2.10
|
Conversion
of Series A Preferred Shares and accrued dividends
|
||||||
Director
|
5/29/08
|
2,000
|
2.10
|
Conversion
of bridge loan and accrued interest
|
||||||
Quercus
Trust
|
6/30/08
|
4,761,905
|
1.78
|
Common
stock and warrants issued for cash
|
||||||
Director
|
6/30/08
|
380,952
|
1.78
|
Conversion
of bridge loan and accrued interest
|
||||||
Individual
|
8/20/08
|
520,787
|
1.79
|
Conversion
of Series A Preferred Shares and accrued dividends
|
||||||
Individual
|
9/11/08
|
41,800
|
1.75
|
Conversion
of Series A Preferred Shares and accrued dividends
|
||||||
2008
Totals
|
10,169,139
|
$
|
1.94
|
Warrants:
The
following table provides summary information on warrants outstanding as of
December 31, 2008.. The table provides summary information on the various
warrants issued by the Company in private placement transactions; the warrants
exercised to date; the warrants that are presently exercisable and the current exercise
prices of such warrants.
2008
|
2007
|
|||||||||||||||
Shares
|
Weighted Average
Exercise price
|
Shares
|
Weighted Average
Exercise price
|
|||||||||||||
Warrants
outstanding January 1
|
2,588,391
|
$
|
4.39
|
3,761,213
|
$
|
3.21
|
||||||||||
Granted
during year
|
12,163,881
|
2.6
|
484,278
|
$
|
5.35
|
|||||||||||
Exercised
|
—
|
0.00
|
—
|
0.00
|
||||||||||||
Lapsed
|
(473,500
|
)
|
2.00
|
(1,657,100
|
)
|
$
|
2.00
|
|||||||||
Outstanding
at December 31
|
14,278,772
|
$
|
2.94
|
2,588,391
|
$
|
4.39
|
||||||||||
Weighted
average years remaining
|
3.9
|
2.10
|
On March
9, 2007 the Board of Directors unanimously agreed to extend the life 476,000
$2.00 warrants issued in March 2005 to purchasers who subscribed to the Senior
Preferred private placement offering. These warrants, originally scheduled to
expire on March 17, 2007 were modified to March 17, 2008, so that the holders of
these warrants would have a reasonable opportunity to realize the benefit of
their original bargain. The warrants, valued at $381,832 prior to the
extension, were revalued at the date of modification using the
Black-Scholes-Merton option-pricing model. The incremental expense resulting
from the revaluations was recorded as preferred dividends during the first
quarter of 2007 in the amount of $164,179.
Registration
Rights
General:
The Company filed a resale registration statement for the shares of common stock
held by the Mega-C Trust. See the discussion in the note titled “Mega-C Power
(Mega-C), Mega-C Trust (the Trust), The Taylor Litigation.”
Senior
Preferred: The
Company registered the resale of the shares of common stock issuable upon
conversion of the senior preferred and was required to maintain an effective
registration statement until September 18, 2006, the 18-month anniversary of the
closing date of the preferred stock offering. In the event that the current
registration statement was subsequently terminated, withdrawn or suspended for a
period of more than 10 days, then the conversion price of the senior preferred
was to be decreased by an initial delay adjustment of three percent (3%), plus
an additional delay adjustment of two percent (2%) for every thirty day period
(or portion thereof) that the underlying common stock is not subject to and
included in an effective registration statement. The holders of senior
preferred, or common stock issued upon conversion thereof, also have certain
piggy-back registration rights with respect to future offerings. The
registration statement included Axion’s Financial Statements for the period
ended June 30, 2005 and the financial statements became out of date. Axion did
not terminate, withdraw or suspend the registration statement. The Company
believes that the financial statements going out of date is not enough to
reactivate the registration delay provisions of the Senior Preferred
Stock.
Series A
Preferred: The
Company is required to file a registration statement within 180 days after the
initial closing of the offering and use its best efforts to maintain its
effectiveness for two years subsequent to the date it is declared effective. If,
at any time after the issuance of the series A preferred, the Company files a
registration statement for a proposed public offering of common stock, then
holders of the series A preferred will be able to participate in that offering
as selling shareholders.
Warrants: The Company has registered
the resale of the shares of common stock issuable upon exercise of all warrants
that were issued and outstanding in June 2005 and is required to maintain an
effective registration statement until the expiration dates of the warrants. It
is also obligated to file a resale registration statement for the warrants
issued after June 2005. The recently issued warrants generally provide that they
will be exercisable for terms of two to three years after the effective date of
the required registration statements. However there are no cash penalties or
exercise price adjustments associated with registration delays.
During
2006 and 2007, as a response to substantial unanticipated registration delays,
the Company extended the expiration dates of certain warrants that were issued
in 2003, 2004 and 2005. Under the extensions, which presently expire in December
2007 and March 2008, the Company has retained the right to redeem the warrants
at a price of $.01 per warrant if the underlying stock has been included in an
effective registration statement under the Securities Act and has traded at an
average bid price of $4 per share or more for at least 30 days before the call
for redemption. The accounting treatment for the modifications is discussed
above.
Note
8 - Equity Compensation
In
December 2004, the Financial Accounting Standards Board issued FASB 123R, “Share-Based Payment” (FASB
123R). FASB 123R supersedes FASB 123, “Accounting for Stock Based
Compensation,” and Accounting Principles Board Opinion 25, “Accounting for Stock Issued to
Employees” (APB 25) and its related implementation guidance. On January
1, 2006, the Company adopted the provisions of FASB 123R using the modified
prospective transition method. Under this method, compensation expense is
recorded for all stock based awards granted after the date of adoption and for
the unvested portion of previously granted awards that remain outstanding as of
the beginning of the adoption. Prior periods have not been restated for the
effects of FASB 123R. Under FASB 123R, employee-compensation expense related to
stock based payments are recorded over the requisite service period based on the
grant date fair value of the awards.
Prior to
the adoption of FASB 123R, the Company accounted for employee stock options
using the intrinsic value method in accordance with APB 25. Accordingly, no
compensation expense was recognized for stock options issued to employees as
long as the exercise price was greater than or equal to the market value of the
common stock at the date of grant. In accordance with FASB 123, the Company
disclosed the summary of pro forma effects to reported net loss as if the
Company had elected to recognize compensation costs based on the fair value of
the awards at the grant date.
The
Company’s accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of EITF 96-18,
“Accounting for Equity
Instruments That are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” and EITF 00-18 “Accounting
Recognition for Certain Transactions Involving Equity Instruments Granted to
Other Than Employees.” The measurement date for fair value of the equity
instruments is determined by the earlier of (i) the date at which commitment for
performance by the vendor or consultant is reached or (ii) the date at which the
consultant or vendor’s performance is complete. In the case of equity
instruments issued to consultants, the fair value of the equity instrument is
recognized over the term of the consulting agreement.
The
compensation cost that has been charged against income for options granted under
the plans was $425,979 for the year ended December 31, 2008. The impact of these
expenses to basic and diluted loss per share was approximately $0.02 per share
during the year. For stock options issued as non-qualified stock options, a tax
deduction is not allowed until the options are exercised. The amount of this
deduction will be the difference between the fair value of the Company’s common
stock and the exercise price at the date of exercise. Accordingly, there is a
deferred tax asset recorded for the tax effect of the financial statement
expense recorded. The tax effect of the income tax deduction in excess of the
financial statement expense will be recorded as an increase to additional
paid-in capital. Due to the uncertainty of the Company’s ability to generate
sufficient taxable income in the future to utilize the tax benefits of the
options granted, the Company has recorded a valuation allowance to reduce gross
deferred tax assets to zero. As a result, for the year ended December 31, 2008,
there is no income tax expense impact from recording the fair value of options
granted. There is no tax deduction allowed by the Company for incentive stock
options.
The
Company has two stockholder approved equity compensation plans and occasionally
enters into employment and other contracts that provide for equity compensation
arrangements other than those contemplated by the stockholder approved plans.
The following sections summarize the Company’s equity compensation
arrangements.
Incentive Stock
Plan Approved by Stockholders: The Company’s stockholders have adopted an
incentive stock plan for the benefit of its employees, consultants and advisors.
Under the terms of the original plan, the Company was authorized to grant
incentive awards for up to 1,000,000 shares of common stock. At the Company’s
2005 annual meeting, its shareholders increased the authorization under the
incentive stock plan to 2,000,000 shares.
The
incentive stock plan authorizes a variety of awards including incentive stock
options, non-qualified stock options, shares of restricted stock, shares of
phantom stock and stock bonuses. In addition, the plan authorizes the payment of
cash bonuses when a participant is required to recognize income for federal
income tax purposes because of the vesting of shares of restricted stock or the
grant of a stock bonus.
The plan
authorizes the grant of incentive awards to full-time employees of the Company
who are not eligible to receive awards under the terms of their employment
contract or another specialty plan. The plan also authorizes the grant of
incentive awards to directors who are not eligible to participate in the
Company’s outside directors’ stock option plan, independent agents, consultants
and advisors who have contributed to the Company’s success.
The
compensation committee administers the plan. The committee has absolute
discretion to decide which employees, consultants and advisors will receive
incentive awards, the type of award to be granted and the number of shares
covered by the award. The committee also determines the exercise prices,
expiration dates and other features of awards.
The
exercise price of incentive stock options must be equal to the fair market value
of such shares on the date of the grant or, in the case of incentive stock
options granted to the holder of more than 10% of the Company’s common stock, at
least 110% of the fair market value of such shares on the date of the grant. The
maximum exercise period for incentive stock options is ten years from the date
of grant, or five years in the case of an individual who owns more than 10% of
the Company’s common stock. The aggregate fair market value determined at the
date of the option grant, of shares with respect to which incentive stock
options are exercisable for the first time by the holder of the option during
any calendar year, shall not exceed $100,000.
The
following awards have been granted under the Plan since its
inception:
In
February 2004, Igor Filipenko, a Director of the Company, was granted options to
purchase 6,300 shares of common stock at a price of $3.20 per share. In June
2004, Mr. Filipenko was granted options to purchase 10,800 shares of common
stock at a price of $5.60 per share. The options are fully vested and may be
exercised at any time during the five-year period commencing one year after the
date of grant. The market value of the Company stock at the date of grant was
less than the exercise price; therefore there was no intrinsic value in
accordance with APB 25. Options for 7,200 shares were cancelled in April 2005
after Mr. Filipenko was issued additional options in March 2005 as part of the
offering to the former employees of C&T discussed below.
In
February 2004, John Petersen, a Director of the Company (and general corporate
counsel), and Kirk Tierney, each were granted options to purchase 6,300 shares
of common stock at a price of $3.20 per share. In June 2004, Messrs. Petersen
and Tierney were each granted options to purchase 3,600 shares of common stock
at a price of $5.60 per share. The options are fully vested and may be exercised
at any time during the five-year period commencing one year after the date of
grant. The market value of the Company stock at the date of grants was less than
the exercise price; therefore there was no intrinsic value in accordance with
APB 25.
In
February 2004, an advisor to the board was granted an option to purchase 6,300
shares of common stock at a price of $3.20 per share as compensation for
services. In June 2004, Mr. the advisor was granted options to purchase 3,600
shares of common stock at a price of $5.60 per share. The options are fully
vested and may be exercised at any time during the five-year period commencing
one year after the date of grant. The options were valued at $17,067 using the
Black-Scholes-Merton option pricing model and were included as expense in
2004.
In
November 2004, the Company’s President and Chief Operating Officer, Charles
Mazacatto, was granted options to purchase 6,250 shares of common stock at an
exercise price of $3.20. This option vested in 2004 and is exercisable until
November 2010. The market value of the Company stock at the date of grant was
less than the exercise price; therefore there was no intrinsic value in
accordance with APB 25.
In March
2005, the compensation committee authorized stock bonuses to the former
employees of C&T for an aggregate of 219,000 shares of common stock. These
stock grants are fully vested and unrestricted, subject to compliance with the
Company’s insider trading policies. The fair value of these shares, as
determined by the Company’s stock price on the date of grant, amounted to
$565,202 and was recorded as compensation during the year ended December 31,
2005.
In April
2005, the former employees of C&T were granted options to purchase an
aggregate of 744,500 shares of common stock at an exercise price of $2.50. These
options vest at a rate of 20% per year beginning in April 2006. The market value
of the Company stock at the date of grant was less than the exercise price which
resulted in no intrinsic value in accordance with APB 25. On January 1, 2006,
the Company adopted the provisions of FASB 123R as noted above which resulted in
the Company recording compensation expense of $86,954 during the year ended
December 31, 2006. Various options lapsed when several individuals terminated
their employment with the Company in 2005 and 2006. During the years ended
December 31, 2005 and 2006, an aggregate of 157,700 and 454,000 options,
respectively, forfeited unvested as a result of these terminations.
In
September 2005, the compensation committee awarded 6,000 shares of restricted
common stock to the Company’s Chief Technical Officer, Edward Buiel, pursuant to
his 2005 employment agreement, which were valued at $24,000 on the date of grant
and became fully vested in April 2006. The Company recorded $8,000 and $16,000
of compensation in 2005 and 2006, respectively, related to this
award.
In
December 2006, the Company issued 250,000 shares of restricted common stock to
the Company’s Chief Technical Officer, Edward Buiel, pursuant to his 2006
employment agreement, which were valued at $937,500 on the date of grant and
will become fully vested on December 2009. The Company will recognize this as
compensation over the requisite service period. No compensation expense was
recorded for the year ended December 31, 2006.
In
December 2007, the Company’s Vice-President of Manufacturing Engineering, Robert
Nelson, was granted 36,000 shares of restricted common stock pursuant to his
2007 employment agreement which were valued at $82,800 on the date of grant. The
shares vest at a rate of 1,000 shares per month, with provision for immediate
vesting based on significant changes in the relative ownership of the company.
The Company will recognize this as compensation over the 2 year employment
contract, with $3,450 of compensation expense recorded for the year ended
December 31, 2007.
In June
2008, the Company issued 80,000 shares of restricted common stock to the
Company’s Chief Technical Officer, Edward Buiel, pursuant to his 2008 employment
agreement, which were valued at $143,500 on the date of grant. 30,000 will vest
on December 29, 2009, and 50,000 will vest on May 31, 2011. The Company will
recognize this as compensation over the requisite service period. $35,063 in
compensation expense was recorded for the year ended December 31,
2008.
In June
2008, the Company issued 90,000 shares of restricted common stock to the
Company’s Chief Financial Officer, Donald Hillier, pursuant to his 2008
employment agreement, which were valued at $166,500 on the date of grant, which
will vest in equal 30,000 share amounts on June 16 of each of 2009,
2010 and 2011. The Company will recognize this as compensation over the
requisite service period. $30,062 in compensation expense was recorded for the
year ended December 31, 2008.
In June
2008, the Company issued 50,000 shares of restricted common stock to an
employee, pursuant to his 2008 employment agreement, which were valued at
$92,500 on the date of grant, which cliff vest on June 15, 2011. The
Company will recognize this as compensation over the requisite service period.
$16,701 in compensation expense was recorded for the year ended December 31,
2008.
Outside
Directors' Stock Option Plan Approved by Stockholders: The Company’s
stockholders have adopted an outside directors' stock option plan for the
benefit of its non-employee directors in order to encourage their continued
service as directors. Under the terms of the original plan, the Company was
authorized to grant incentive awards for up to 125,000 shares of common stock.
At the 2005 annual meeting, the Company’s shareholders increased the
authorization under the incentive stock plan to 500,000 shares.
Each
eligible director who is, on or after the effective date, appointed to fill a
vacancy on the Board or elected to serve as a member of the Board may
participate in the plan. Each eligible director shall automatically be granted
an option to purchase the maximum number of shares having an aggregate fair
market value on the date of grant of twenty thousand dollars ($20,000). The
option price of the stock subject to each option is required to be the fair
market value of the stock on its date of grant. Options generally expire on the
fifth anniversary of the date of grant. Any option granted under the plan shall
become exercisable in full on the first anniversary of the date of grant,
provided that the eligible director has not voluntarily resigned or been removed
"for cause" as a member of the Board of Directors on or prior to the first
anniversary of the date of grant (qualified option). Any qualified option shall
remain exercisable after its first anniversary regardless of whether the
optionee continues to serve as a member of the Board.
The
following awards have been granted under the Plan since its
inception:
During
the year ended December 31, 2004, the Company issued 54,000 5-year options to
four of its directors vesting in one year from the date of issuance. The market
value of the Company stock at the date of grant was less than the exercise price
which resulted in no intrinsic value in accordance with APB 25. During the year
ended December 31, 2005, these directors waived an aggregate of $105,542 in
accrued compensation as full payment of the exercise price of 29,565 options. An
additional 14,400 options were forfeited in 2005.
During
the year ended December 31, 2005, the Company issued 70,000 5-year options to
five of its directors vesting 1/3 per year over three years from the date of
grant. The market value of the Company stock at the date of grant was less than
the exercise price which resulted in no intrinsic value in accordance with APB
25. On January 1, 2006, the Company adopted the provisions of FASB 123R as noted
above and recorded compensation of $41,024 during the year ended December 31,
2006.
During
the year ended December 31, 2006, the Company issued 60,000 5-year options to
two of its directors vesting 1/3 per year over the next three years. These
options are exercisable at a price of $2 per share, expiring five years from
vest date and are valued at $71,680 utilizing the Black-Scholes-Merton option
pricing model, of which $20,230 was expensed in 2006.
During
the year ended December 31, 2008, the Company issued 179,555 5-year options to
five of its directors. Of this amount 5,555 with an exercise price of $3.60 per
share vested in November 2008 and the remainder vest 1/3 per year over the next
three years. These options are exercisable at a price of $1.38 per share,
expiring five years from vest date and are valued at $130,150 utilizing the
Black-Scholes-Merton option pricing model, of which $16,230 was expensed in
2008.
Non-plan Equity
Incentives Not Approved by Stockholders: The Company has
issued 789,500, 228,000, 1,131,000, 300,000 and 629,300 stock purchase options
in the fiscal years ended December 31, 2008, 2007, 2006, 2005 and 2004,
respectively, to officers, employees, attorneys and consultants in connection
with contractual agreements that do not reduce the shares available under the
shareholder’s approved plans. The following paragraphs summarize these
contractual stock options.
In
January 2004, members of the law firm of Fefer, Petersen & Cie, general
corporate counsel (of which one member was a director of the Company at the
time) were granted two-year contractual options to purchase 189,300 shares of
common stock at a price of $2.00 per share as partial compensation for services
rendered, valued at $68,296. As represented in the note captioned “Stockholder’s
Equity”, these members also received 116,700 warrants as consideration of
pre-merger Tamboril debt (the amount cited in “Stockholder’s Equity” is actually
233,400 because another party received the same number of warrants for a total
of 233,400 warrants). In August 2004, $1.00 of the exercise price of the total
306,000 options and warrants owned by these members was considered paid in
advance in consideration of unbilled legal services provided by the firm. The
Company recorded $306,000 related to this reduction. All of the warrants and
options were exercised in the fourth quarter of 2005, however; $306,000 of the
amount is included in stock subscription receivable as of December 31, 2005 and
was received in 2006.
In July
2004, the Company’s President and Chief Operating Officer, Charles Mazzacato,
was granted a contractual option to purchase 240,000 shares of common stock at a
price of $4.00 per share. This option vests on a monthly basis at the rate of
60,000 shares per year commencing July 31, 2005 and is exercisable for five
years after each vesting date. The market value of the Company stock at the date
of grant was greater than the exercise price which resulted in a total intrinsic
value of $180,000. In accordance with APB 25 the Company expensed the intrinsic
value over the vesting period which resulted in expense of $18,750 and $45,000
during the years ended December 31, 2004 and 2005, respectively. On January 1,
2006, the Company adopted the provisions of FASB 123R as noted above and
recorded compensation of $124,364 during the year ended December 31, 2006.
During the year ended December 31, 2006 the options were forfeited as a result
of his termination of employment from the Company in 2006.
In July
2004, the Company’s Chief Financial Officer, Peter Roston, was granted a
contractual option to purchase 200,000 shares of common stock at a price of
$4.00 per share. This option will vest on a monthly basis at the rate of 50,000
shares per year commencing July 31, 2005 and is exercisable for five years after
each vesting date. The market value of the Company stock at the date of grant
was greater than the exercise price which resulted in a total intrinsic value of
$150,000. In accordance with APB 25 the Company has expensed the intrinsic value
over the vesting period which resulted in expense of $15,625 and $37,500 during
the years ended December 31, 2004 and 2005, respectively. On January 1, 2006,
the Company adopted the provisions of FASB 123R as noted above and recorded
compensation of $138,182 during the year ended December 31, 2006. During the
year ended December 31, 2006 the options were forfeited as a result of his
termination of employment from the Company in 2006.
In April
2005, the Company’s Chief Executive Officer, Thomas Granville, was granted a
contractual option to purchase 180,000 shares of common stock at a price of
$2.50 per share. This option vests at the rate of 7,500 shares per month
commencing May 1, 2005 and is exercisable for five years after each vesting
date. The market value of the Company stock at the date of grant was less than
the exercise price which resulted in no intrinsic value in accordance with APB
25. On January 1, 2006, the Company adopted the provisions of FASB 123R as noted
above and recorded compensation of $112,500 during the year ended December 31,
2006.
In April
2005, a European financial advisor was granted a contractual option to purchase
30,000 shares of common stock at a price of $2.50 per share. Options for an
aggregate of 20,000 shares vested during the year ended December 31, 2005 and
will be exercisable for two years. On December 31, 2005, a total of 10,000
unvested options were forfeited when the advisory agreement was terminated. The
options were valued at $35,998 using the Black-Scholes-Merton option pricing
model and included as expense in 2005.
In
September 2005, the Company’s Chief Technical Officer, Edward Buiel, was granted
a contractual option to purchase 90,000 shares of common stock at a price of
$4.00 per share. This option vests at the rate of 2,500 shares per month
commencing October 2005 and is exercisable for five years after each vesting
date. The market value of the Company stock at the date of grant was less than
the exercise price which resulted in no intrinsic value in accordance with APB
25. On January 1, 2006, the Company adopted the provisions of FASB 123R as noted
above and recorded compensation of $68,100 during the year ended December 31,
2006.
In
February 2006, the Company’s Chief Executive Officer, Thomas Granville, was
granted an option to purchase 500,000 shares of common stock at an exercise
price of $6.00. Of this total 300,000 options vested immediately and the balance
is expected to vest, subject to the attainment of certain specified objectives,
over the next one to three years. These options are valued at $300,187 utilizing
the Black-Scholes-Merton option pricing model with $259,027 of compensation
recorded in 2006.
In
February 2006, the Company’s, Chief Technical Officer, Edward Buiel, was granted
an option to purchase 35,000 shares of common stock at an exercise price of
$6.00. Of this total 10,000 options vested immediately and the balance is
expected to vest, subject to the attainment of certain specified objectives,
over the next two to three years. These options are valued at $20,994 utilizing
the Black-Scholes-Merton option pricing model with $13,330 of compensation
recorded in 2006.
In
February 2006, members and affiliates of the law firm of Fefer, Petersen &
Cie, general corporate counsel (of which one member was a director of the
Company at the time) were granted an option to purchase 360,000 shares of common
stock at an exercise price of $6.00. Of this total 240,000 options vested
immediately and the balance will vest at the rate of 10,000 shares per month
during the year ended December 31, 2006. These options are valued at $193,449
utilizing the Black-Scholes-Merton option pricing model and are recorded as
legal expense in 2006.
In
February 2006, the Company’s external bankruptcy counsel, Cecilia Rosenauer, was
granted an option to purchase 15,000 shares of common stock at an exercise price
of $6.00. The options vested on the effective date of Mega-C’s Chapter 11 plan
of reorganization, which took place in November 2006. These options are valued
at $2,483 utilizing the Black-Scholes-Merton option pricing model and are
recorded as legal expense in 2006.
In March
2006, two employees were granted options to purchase a total of 24,000 shares of
common stock at an exercise price of $4.00 and $6.00. The options vest at a rate
of 2,500 per month over the first 6 months and 1,500 per month thereafter. These
options are valued at $28,257 utilizing the Black-Scholes-Merton option pricing
model with $24,408 of compensation recorded in 2006.
In
December 2006, the Company’s Chief Technical Officer, Edward Buiel, was granted
a contractual option to purchase an additional 100,000 shares of our common
stock at a price of $3.75 per share. A total of 50,000 options will vest on
December 29, 2009 and the remaining 50,000 will vest on December 29,
2010. The options will be exercisable for a period of six years from the
vesting date. These options are valued at $267,372, utilizing the
Black-Scholes-Merton option pricing model with $6,481 of compensation recorded
in 2006.
In
February 2006, a consultant, Trey Fecteau, was granted an option to purchase
97,000 shares of common stock at an exercise price of $4.00. The options vested
upon completion of contractual services in December 2006. These options are
valued at $150,702 utilizing the Black-Scholes-Merton option pricing model. This
amount reduced the proceeds of the Series A Preferred Stock offering in
2006.
In
January 2007, D. Walker Wainwright, a director of the Company, was granted an
option to purchase 40,000 shares of common stock at an exercise price of $5.00
as compensation for services related to due diligence, negotiation and sale of
the 2006 Series A Preferred Stock offering. These three-year options were
immediately vested on the date of grant, and are valued at $52,230 utilizing the
Black-Scholes-Merton option pricing model and are recorded as offering costs in
2007.
In August
2007, the Company’s Chief Financial Officer, Andrew Carr Conway, Jr., was
granted a contractual option to purchase 80,000 shares of common stock at an
exercise price of $4.50. 20,000 vested immediately upon contract inception and
the remainder vest at a rate of 10,000 per month over the life of his six-month
employment contract. These two-year options are valued at $37,356 utilizing the
Black-Scholes-Merton option pricing model with $24,904 recorded as compensation
in 2007.
In
December 2007, the Company’s Vice-President of Manufacturing Engineering, Robert
Nelson, was granted a contractual option to purchase 108,000 shares of common
stock at an exercise price of $5.00. The options vest at a rate of 3,000 per
month over a three year period, but are being amortized over the term of his two
year employment contract. These five-year options are valued at $108,504
utilizing the Black-Scholes-Merton option pricing model with $4,521 recorded as
compensation in 2007.
In March
and June 2008, the Company’s Chief Financial Officer, Andrew Carr Conway, Jr.,
was granted a contractual option to purchase 40,000 shares of common stock at an
exercise price of $4.50. All of these options were vested by June 2008. These
options are valued at $20,625 utilizing the Black-Scholes-Merton option pricing
model with $20,625 recorded as compensation in 2008.
Our Chief
Executive Officer, Thomas Granville, was granted a contractual option to
purchase an additional 90,000 shares of our common stock at a price of $2.50 per
share. The options vest prorated over the 24-month term of his contract, and are
exercisable for a period of five years from the vesting date. These options are
valued at $79,872, utilizing the Black-Scholes-Merton option pricing model with
$23,296 of compensation expected to be recorded in 2008.
Our Chief
Technical Officer, Edward Buiel, was granted a contractual option to purchase an
additional 100,000 shares of our common stock at a price of $2.50 per share. The
options cliff vest on May 31, 2011, and are exercisable for a period of five
years from the vesting date. These options are valued at $95,436, utilizing the
Black-Scholes-Merton option pricing model with $18,557 of compensation expected
to be recorded in 2008.
Our
Chief Financial Officer, Donald Hillier, was granted an option to purchase
180,000 shares of our common stock. The exercise price of the option is $2.50
per share and the option vests at the rate of 5,000 shares per month through the
term of the Employment Agreement and are exercisable for a period of 5 years
from the vesting date. These options are valued at $179,244, utilizing the
Black-Scholes-Merton option pricing model with $34,853 of compensation expected
to be recorded in 2008.
Three
employees were granted contractual options to purchase an additional 200,000
shares of our common stock at a price of $2.50 per share. 5,000 of these options
vested in June upon execution of the employment contracts, with the balance
cliff vesting on June 15, 2011, and are exercisable for a period of three years
from the vesting date. These options are valued at $165,041, utilizing the
Black-Scholes-Merton option pricing model with $34,222 of compensation expected
to be recorded in 2008.
Seven
employees were granted contractual options to purchase an additional 179,500
shares of our common stock at a price of $2.50 per share. 43,500 of these
options vested in December upon execution of the employment contracts, with the
balance vesting over the life of these contracts and are exercisable for a
period of three years from the vesting date. These options are valued at
$36,171, utilizing the Black-Scholes-Merton option pricing model with $5,330 of
compensation recorded in 2008.
The
Company uses the Black-Scholes-Merton Option Pricing Model to estimate the fair
value of awards on the measurement date using the weighted average assumptions
noted in the following table:
Year
|
Interest Rate
|
Dividend Yield
|
Expected Volatility
|
Expected Life
|
||||||||||
2004
|
3.8 | % | 0.0 | % | 59.1 | % |
60
months
|
|||||||
2005
|
4.0 | % | 0.0 | % | 52.0 | % |
100
months
|
|||||||
2006
|
4.7 | % | 0.0 | % | 53.6 | % |
45
months
|
|||||||
2007
|
3.9 | % | 0.0 | % | 54.4 | % |
62
months
|
|||||||
2008
|
2.8 | % | 0.0 | % | 51.4 | % |
58
months
|
Expected
volatilities are calculated based on the historical volatility of the Company’s
stock since its listing on the public markets. Management has determined that it
cannot reasonably estimate a forfeiture rate given the insufficient amount of
time and activity of share option exercise and employee termination patterns.
The expected life of options represents the period of time that options granted
are expected to be outstanding was determined using the contractual term. The
risk-free interest rate for periods within the expected life of the option is
based on the interest rate for a similar time period of a U.S. Treasury note in
effort on the date of the grant.
The
following table provides consolidated summary information on the Company’s
equity compensation plans for the years ended December 31 2004, 2005, 2006, 2007
and 2008.
2004
|
||||||||||||||||||
Weighted Average
|
||||||||||||||||||
All Plan & Non-
Plan Compensatory Options
|
Number of
Options
|
Exercise
|
Fair Value
|
Remaining
Life (years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Options outstanding
at December 31,2003
|
—
|
$
|
0.00
|
$
|
$0.00
|
|
||||||||||||
Granted
|
736,350
|
$
|
3.53
|
$
|
$2.87
|
|||||||||||||
Exercised
|
—
|
$
|
0.00
|
$
|
$0.00
|
|||||||||||||
Forfeited
or lapsed
|
—
|
$
|
0.00
|
$
|
$0.00
|
|||||||||||||
Options
outstanding at December 31,2004
|
736,350
|
$
|
3.53
|
$
|
$2.87
|
6.34
|
2005
|
||||||||||||||||||
Weighted Average
|
||||||||||||||||||
All Plan & Non-
Plan Compensatory Options
|
Number of
Options
|
Exercise
|
Fair Value
|
Remaining
Life (years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Options
outstanding at December 31,2004
|
736,350
|
$
|
3.53
|
$
|
$2.87
|
|||||||||||||
Granted
|
1,254,500
|
$
|
2.48
|
$
|
$1.34
|
|||||||||||||
Exercised
|
(358,865
|
)
|
$
|
1.65
|
$
|
$2.32
|
||||||||||||
Forfeited
or lapsed
|
(182,100
|
)
|
$
|
3.04
|
$
|
$1.44
|
||||||||||||
Options
outstanding at December 31,2005
|
1,449,885
|
$
|
3.12
|
$
|
$1.86
|
7.73
|
2006
|
||||||||||||||||||
Weighted Average
|
||||||||||||||||||
All Plan & Non-
Plan Compensatory Options
|
Number of
Options
|
Exercise
|
Fair Value
|
Remaining
Life (years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Options
outstanding at December 31,2005
|
1,449,885
|
$
|
3.12
|
$
|
1.86
|
|||||||||||||
Granted
|
1,191,000
|
$
|
5.42
|
$
|
0.82
|
|||||||||||||
Exercised
|
—
|
$
|
0.00
|
$
|
0.00
|
|||||||||||||
Forfeited
or lapsed
|
(894,000
|
)
|
$
|
3.24
|
$
|
1.94
|
||||||||||||
Options
outstanding at December 31,2006
|
1,746,885
|
$
|
4.62
|
$
|
1.05
|
3.70
|
$
|
634,903
|
||||||||||
Options
exercisable at December 31,2006
|
1,192,385
|
$
|
5.11
|
$
|
0.97
|
2.90
|
$
|
254,903
|
2007
|
||||||||||||||||||||
Weighted Average
|
||||||||||||||||||||
All Plan & Non-Plan Compensatory
Options
|
Number of
Options
|
Exercise
|
Fair Value
|
Remaining
Life
(years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||||
Options
outstanding at December 31,2006
|
1,746,885
|
$
|
4.65
|
$
|
1.03
|
|||||||||||||||
Granted
|
228,000
|
$
|
4.82
|
$
|
0.87
|
|||||||||||||||
Exercised
|
—
|
$
|
0.00
|
$
|
0.00
|
|||||||||||||||
Forfeited
or lapsed
|
(124,000
|
)
|
$
|
2.50
|
$
|
1.14
|
||||||||||||||
Options
outstanding at December 31,2007
|
1,850,885
|
$
|
4.81
|
$
|
1.00
|
1.5
|
$
|
18,000
|
||||||||||||
Options
exercisable at December 31,2007
|
1,442,385
|
$
|
4.88
|
$
|
0.93
|
2.0
|
$
|
6,000
|
2008
|
||||||||||||||||||||
Weighted Average
|
||||||||||||||||||||
All Plan & Non-Plan Compensatory
Options
|
Number of
Options
|
Exercise
|
Fair Value
|
Remaining
Life
(years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||||
Options
outstanding at December 31,2007
|
1,850,885
|
$
|
4.81
|
$
|
1.00
|
|||||||||||||||
Granted
|
969,055
|
$
|
2.38
|
$
|
0.73
|
|||||||||||||||
Exercised
|
—
|
$
|
0.00
|
$
|
0.00
|
|||||||||||||||
Forfeited
or lapsed
|
—
|
$
|
0.00
|
$
|
0.00
|
|||||||||||||||
Options
outstanding at December 31,2008
|
2,819,940
|
$
|
3.98
|
$
|
0.91
|
3.1
|
$
|
0
|
||||||||||||
Options
exercisable at December 31,2008
|
1,831,690
|
$
|
4.75
|
$
|
0.90
|
1.4
|
$
|
0
|
The
following table summarizes the status of the Company’s non-vested options under
the stock option plans:
All non-vested stock options as of December 31, 2008
|
Shares
|
Fair Value
|
||||||
Options
subject to future vesting at December 31,2007
|
408,500
|
$
|
1.25
|
|||||
Options
granted
|
969,055
|
$
|
0.73
|
|||||
Options
forfeited or lapsed
|
—
|
$
|
0.00
|
|||||
Options
vested
|
(389,305
|
)
|
$
|
.77
|
||||
Options
subject to future vesting at December 31,2008
|
988,250
|
$
|
.93
|
As of
December 31, 2008, there was $714,192 of unrecognized compensation related to
non-vested options granted under the plans. The Company expects to recognize the
cost over a weighted average period of 1.6 years. The total fair value of
options vested during the year ended December 31, 2008 was $300,061 ($236,054
during the year ended December 31, 2007).
Note 9 – Earnings/Loss Per
Share
Basic
earnings per share is computed by dividing income available to common
shareholders (the numerator) by the weighted-average number of common shares
outstanding (the denominator) for the period. Diluted earnings per share is
computed by assuming that any dilutive convertible securities outstanding were
converted, with related preferred stock dividend requirements and outstanding
common shares adjusted accordingly. It also assumes that outstanding common
shares were increased by shares issuable upon exercise of those stock options
for which market price exceeds the exercise price, less shares which could have
been purchased by us with the related proceeds. In periods of losses, diluted
loss per share is computed on the same basis as basic loss per share as the
inclusion of any other potential shares outstanding would be
anti-dilutive.
Had the
Company recorded income applicable to common shareholders for the periods ended
December 31, 2003, 2004, 2005, 2006,2007 and 2008, weighted-average number of
common shares outstanding would have increased by 785,897, 1,386,612, 2,970,730,
2,135,938, 8,975,643 and 9,566,738, respectively, for the fiscal years,
reflecting the addition of dilutive securities in the calculation of diluted
earnings per share. The increase in weighted average common shares for the
cumulative period (September 18, 2003 to December 31, 2008) is 4,542,647
shares.
Note
10 – Income Taxes Expense (Benefit)
Following
is a summary of the components giving rise to the income tax expense (benefit)
for the periods ended December 31, 2008 and 2007.
Currently
payable:
|
2008
|
2007
|
||||||
Federal
|
$
|
—
|
$
|
—
|
||||
State
|
(79,170
|
)
|
$
|
83,469
|
||||
Foreign
|
—
|
—
|
||||||
Total
currently payable
|
(79,170
|
)
|
$
|
83,469
|
||||
Deferred:
|
||||||||
Federal
|
2,477,000
|
1,817,000
|
||||||
State
|
821,000
|
537,000
|
||||||
Foreign
|
(404,000
|
)
|
446,000
|
|||||
Total
deferred
|
2,894,000
|
2,800,000
|
||||||
Less
increase in allowance
|
(2,894,000
|
)
|
(2,800,000
|
)
|
||||
Net
deferred
|
—
|
—
|
||||||
Total
income tax expense (recovery)
|
$
|
(79,170
|
)
|
$
|
$83,469
|
Individual
components giving rise to the deferred tax asset are as follows:
2008
|
2007
|
|||||||
Future
tax benefit arising from net operating loss carry forwards
|
$
|
7,927,000
|
$
|
5,977,000
|
||||
Future
tax benefit arising from available tax credits
|
734,000
|
1,026,000
|
||||||
Future
tax benefit arising from options/warrants issued for
Services
|
775,000
|
602,000
|
||||||
Other
|
37,000
|
98,000
|
||||||
Total
|
9,473,000
|
7,703,000
|
||||||
Less
valuation allowance
|
(9,473,000
|
)
|
(7,703,000
|
)
|
||||
Net
deferred
|
$
|
—
|
$
|
—
|
The
components of pretax net loss are as follows:
2008
|
2007
|
|||||||
United
States
|
$
|
(9,538,115
|
)
|
$
|
(5,776,191
|
)
|
||
Foreign
|
(35,714
|
)
|
(6,457
|
)
|
||||
$
|
(9,573,829
|
)
|
$
|
(5,782,658
|
)
|
The
Company has net operating loss carryforwards of approximately $17,725,000 and
$2,800,000 available to reduce future income taxes in United States and Canada,
respectively. The United States carryforwards expire at various dates between
2024 and 2028. The Canadian carryforwards expire at various dates between 2010
and 2028. The Company also has generated Canadian tax credits related to
research and development activities. A portion of this credit, amounting to
approximately $58,000 is refundable and has been presented as such in the
accompanying balance sheet. The remaining credit, amounting to $734,000, is
available to offset future taxable income in Canada and expires at various dates
between 2024 and 2026. The Company has adopted FASB 109 which provides for the
recognition of a deferred tax asset based upon the value certain items will have
on future income taxes and management's estimate of the probability of the
realization of these tax benefits. The Company has determined it more likely
than not that these timing differences will not materialize and have provided a
valuation allowance against the entire net deferred tax asset. The utilization
of NOL and tax credit carryforwards from Tamboril prior to the reorganization
may be subject to a substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986, as amended and
similar state provisions. Accordingly, these amounts have not been included in
the gross deferred tax asset number above. In addition, due to equity
transactions that have occurred subsequent to the reorganization with Tamboril,
the utilization of NOL carryforwards may be subject to further change in control
limitations that generally restricts the utilization of the NOL per
year.
The
reconciliation of the United States statutory federal income rate and the
effective income tax rate in the accompanying consolidated statements of
operations is as follows:
2008
|
2007
|
|||||||
Statutory
U.S. federal income tax rate
|
(34.0
|
)%
|
(34.0
|
)%
|
||||
State
taxes, net
|
(5.5
|
)%
|
(6.4
|
)%
|
||||
Equity
based compensation
|
—
|
1.0
|
%
|
|||||
Foreign
tax credits
|
1.9
|
%
|
0.0
|
%
|
||||
Foreign
currency fluctuation
|
2.5
|
%
|
0.0
|
%
|
||||
Other
|
4.6
|
%
|
1.7
|
%
|
||||
Change
in valuation allowance
|
30.5
|
%
|
37.7
|
%
|
||||
Effective
income tax rate
|
0.0
|
%
|
0.0
|
%
|
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, on January 1, 2008. As the result of the implementation of the
FASB interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income
Taxes - An Interpretation of FASB Statement No. 109, the Company recognized no
material adjustments to unrecognized tax benefits. At the adoption date of
January 1, 2008 and as of December 31, 2008, the Company has no unrecognized tax
benefits.
By
statute, tax years ending December 31, 2007 through 2004 remain open to
examination by the major taxing jurisdictions to which the Company is
subject.
Note
11 – Related Party Transactions
Trust for the
Benefit of the Shareholders of Mega-C Power Corp: The Trustee for The
Trust for the Benefit of the Shareholders of Mega-C Power Corp. served as an
officer of one of our consolidated companies in 2004. See discussion of the
transactions with the trust in the note captioned “Mega-C Power Corp (Mega-C),
Mega-C Trust (the Trust), The Taylor Litigation”
Transactions with
C&T: A current board member of the Company is the former majority
shareholder of C&T prior to the acquisition by the Company. See the note
captioned “Transactions with Related (C&T)” for disclosure of transactions
with C&T prior to and in connection with the acquisition.
Related party
notes payable: During the years ending December 31, 2008 and December 31,
2007, the Company borrowed certain amounts from related parties; certain of
these borrowings were extinguished through the issuance of the Company’s Series
A Preferred Stock in 2006 and through the issuance of the Secured Bridge
Financing during the fourth quarter of 2007. Refer to Notes captioned “Related
Party Debt Financing” and “Stockholders’ Equity” for discussion on these
matters.
Series A
Preferred stock sales - The Company raised capital in a preferred stock
offering during the year ended December 31, 2006, discussed further in the note
captioned “Stockholder’s Equity,” of which $3,829,970 related to transactions
with board members and their family members.
Legal
fees: John Petersen was a director of the Company until January 15, 2007,
and a partner in the law firm of Fefer, Petersen & Cie, which serves as the
Company’s legal counsel. During the year ended December 31, 2006, fees incurred
for services amounted to $287,463, including $49,352 related to the value of
options vesting. This amount is offset by a credit of $64,943 for the change in
value of equity instruments accrued in the fourth quarter of 2005 with a
measurement date in the first quarter of 2006.
Warrants:
In January 2007, D. Walker Wainwright, a director of the Company, was granted an
option to purchase 40,000 shares of common stock at an exercise price of $5.00
as compensation for services related to due diligence, negotiation and sale of
the 2006 Series A Preferred Stock offering. These three-year options were
immediately vested on the date of grant, and are valued at $52,230 utilizing the
Black-Scholes-Merton option pricing model and are recorded as offering costs in
2007.
Note 12
– Significant Non-Cash Transactions
The
following table provides summary information on our significant non-cash
investing and financing transactions during the twelve-month periods ended
December 31, 2008 and 2007.
2008
|
2007
|
|||||||
Preferred
Dividends attributable to warrant modifications
|
$
|
—
|
$
|
164,179
|
||||
Dividend
accrued to preferred stock – Senior
|
$
|
141,359
|
$
|
130,566
|
||||
Dividend
accrued to preferred stock – Series A
|
$
|
976,341
|
$
|
1,790,755
|
||||
Beneficial
conversion feature on preferred stock
|
$
|
—
|
$
|
6,496,634
|
||||
Preferred
converted to common stock
|
$
|
1,338,875
|
$
|
|||||
Warrants
issued for commission on sale of stock
|
$
|
1,193,735
|
$
|
|||||
Interest
converted to common stock
|
$
|
7,768
|
$
|
|||||
Origination
fees issued with related party note
|
$
|
7,500
|
$
|
|||||
Notes
payable converted to common stock
|
$
|
1,072,916
|
$
|
|||||
Conversion
of Interest and fees into debt instrument
|
$
|
—
|
$
|
74,573
|
||||
Satisfaction
of 2005 Liability to issue stock
|
$
|
103,340
|
$
|
|||||
Warrants
issued for commission on sale of preferred
|
$
|
—
|
$
|
53,230
|
||||
Fair
value of warrants issued with related party note
|
$
|
563,868
|
$
|
276,882
|
Cash
payments for interest during the year ended 2008 were $269,274. There were only
minor cash payments for interest in 2007 and no payments of income taxes during
the years ended 2008 and 2007.
Note 13 – Mega-C Power Corp (Mega-C), Mega-C Trust (the Trust), The Taylor
Litigation
Mega-C Power Corp
Business and Trust rationale: Mega-C Power Corporation was a Nevada
corporation that previously held limited and non-exclusive license rights to the
technology that APC licensed from C&T and that the Company purchased from
C&T [as discussed in the note captioned “Transactions with a related party
(C&T]. Mega-C had ceased substantive operations as a result of the
investigation of the promoters and management by the Ontario Securities
Commission (OSC) in the spring of 2003 and was placed into an involuntary
bankruptcy in April, 2004, as further described below.
Trust
Creation: The Trust was created on December 31, 2003, in connection with
a reverse acquisition between APC and the Company, through its public shell then
known as Tamboril Cigar Company, in response to the potential perceived equities
of the Mega-C shareholders and risks of the situation. APC’s founders believed
that the investors in Mega-C might be able to assert a variety of equitable
claims to the energy storage technology the Company acquired from C&T. The
Trust document required that when the Trust made its distribution, the
beneficiary released any claims against all parties. Therefore, while Axion had
no control over the Trust, its mandates were believed to be an effective way to
eliminate conflicting claims to the technology. The Company’s founders were also
shareholders in Mega-C for the most part.
Trust
corpus: The original corpus of the Trust was 7,327,500 shares of the
common stock that APC’s shareholders had rights to in connection with the
reverse acquisition on December 31, 2003. In connection with the execution of
the Amended and Restated Trust Agreement in February 2005, which formally
recognized the jurisdiction of the bankruptcy court on all matters, Axion issued
500,000 additional shares to the Trust. There was no contingency surrounding the
issuance of these shares at that time. This issuance was intended to be Axion’s
contribution to the Trust to obtain clear title to the technology and resolve
all related matters and was charged to operating expense during the year ended
December 31, 2005. The stock issuance transaction was valued at $1,525,000,
which was the value of the shares on the date of issuance.
As a
result of the bankruptcy court’s confirmation of a Chapter 11 Plan and the
substantial consummation of the confirmed plan in November 2006 the settlement
disclosed below became effective and 1,500,000 shares were returned to the
Company for cancellation in 2006, of which 1,000,000 represented a retroactive
adjustment to the shares issued in the reverse acquisition in December 31, 2003
and 500,000 shares represented a return of the 2005 augmentation. The return in
2006 was the result of a negotiated settlement and there were no contingencies
surrounding the Trust shares in 2005 or 2006. The 500,000 shares recovered were
recorded as a reversal of the expense at fair value on the date of return in
2006 amounting to $1,125,000 and were promptly cancelled as were the 1,000,000
shares.
Trust
Operations: The Trust did not conduct any substantive operations because,
as described below, Mega-C was placed into involuntary bankruptcy shortly after
the Trust’s inception. As a result of the confirmation of Mega-C’s plan of
reorganization by an order entered on November 8, 2008 and the substantial
consummation of the confirmed plan on November 21, 2006, as described below, the
Trust is now governed by a court appointed Trustee along with a court appointed
Board from the Trust’s beneficiaries.
The Trust for the
Benefit of the Shareholders of Mega-C Power Corp. Analysis of
Consolidation: Under FASB Interpretation No. 46 (revised December 2003)
Consolidation of Variable
Interest Entities an interpretation of ARB No. 51, (FIN 46R), reporting
companies are required to consolidate a related variable interest entity (“VIE”)
when the reporting company is the “primary beneficiary” of that entity and holds
a variable interest in the VIE. The determination of whether a reporting company
is the primary beneficiary of a VIE ultimately stems from whether the reporting
entity will absorb a majority of the VIE’s anticipated losses or receive a
majority of the VIE’s anticipated gains.
Variable Interest
Entity: The Trust may be a variable interest entity because it has
required outside infusions of cash over its existence.
Variable
Interest: The Company analyzed its transactions with and relationship to
the Trust and concluded that it may have had a very small variable interest in
the Trust based on its obligation to perform the acts necessary to have the SEC
declare a registration statement effective. Further, Axion appeared to have had
a limited variable interest based on its obligation, pursuant to the
requirements in the Trust instrument that Axion pay Trust expenses until the
required registration statement was declared effective. However, in reality,
Axion never paid any significant Trust expenses for three reasons: (1) while the
Trust included a provision for payment of expenses, no significant expenses were
ever paid, (2) the Trust suspended operations on April 4, 2004 when Mega-C Power
Corp. entered bankruptcy; and (3) the explicit obligation the Company had to pay
certain expenses of the Trust ended on January 7, 2005 when the required
registration statement was declared effective. The Company’s relationship to and
transactions with the Trust, based on actual transactions, constituted a very
small variable interest, if any, compared to other entities who provided much
larger amounts of support to the Trust, for which the Company had no
responsibility. Further no shares were expected to be returned to Axion at the
time these assessments were made. The relative size of the variable interest is
relevant to the determination of the primary beneficiary, as discussed
below.
Primary
Beneficiary: Axion did not and will not absorb a majority of the Trust’s
anticipated losses or derive the benefit of a majority of the Trust’s gains, if
any, at any time. The primary beneficiary, at the time of assessment, based on
an assessment of what entity (entities) absorbs a majority of the entity’s
expected losses, receives a majority of its expected residual returns, or both,
as a result of holding variable interests, was the creditors and shareholders of
Mega-C Power Corp, as a group. These were the entities, as groups, who would be
affected by increases and decreases in the Trust’s primary asset, the Axion
stock. These two groups will also suffer a diminution in assets available for
distribution to them because of the expenses the Trust incurs. The increases and
decreases in the value of the Axion stock in the Trust will have no effect on
Axion. Axion may have had a very limited obligation in the first quarter of 2004
but few, if any, expenses were incurred by the Trust in that quarter. In the
second quarter, Mega-C Power Corp. entered bankruptcy and the Trust became
dormant and, effectively, under the jurisdiction of the Bankruptcy Court. Upon
registration of the Trust shares in January 2005 Axion’s obligation to the Trust
ended except as described below relative to possible registration of
shares.
Based on
the above, Axion was not the primary beneficiary and accordingly, Axion is not
required to consolidate the Trust. Axion’s relationship with the Trust ended
when the Bankruptcy Court in Reno confirmed the bankruptcy plan in 2006 except
as described below relative to possible registration of shares. (See “Settlement
Agreement” below)
Trust
Registration Rights: The Company registered
7,327,500 shares of common stock held by the Mega-C Trust by a registration
statement the SEC declared effective January 7, 2005. Pursuant to the
confirmed Chapter 11 Plan (See footnote captioned “Subsequent Events”), as
referenced above, the Company may be required to register 5,700,000 of those
shares (the "Plan Funding Shares") which fund the Chapter 11 Plan. The
Company filed a post-effective amendment relating to the resale or other
disposition of 1,627,500 shares, of which, 1 million represent a portion of the
Plan Funding Shares and 627,500 represent shares to pay expenses of the Trust.
In paragraph 1(d) of the Settlement Agreement, the Company further agreed to
file such additional registration statements or post-effective amendments as may
be necessary or desirable to facilitate or accommodate the sale or distribution
of 4,700,000 of those shares. The Settlement Agreement was incorporated and
approved in its entirety in paragraph 6.1 of the Second Amended Plan, which
further provided in paragraph 6.12 that the Second Amended Shareholder Trustee
and the Liquidation Trustee have the right and power to request that the Company
file such amendments to the registration statement for the Plan Funding
Shares.
Taylor
Litigation: On February 10, 2004, Lewis “Chip” Taylor, Chip Taylor in
Trust, Jared Taylor, Elgin Investments, Inc. and Mega-C Technologies, Inc.
(collectively the “Taylor Group”) filed a lawsuit in the Ontario Superior Court
of Justice Commercial List (Case No. 04-CL-5317) that named Tamboril, APC, Rene
Pardo, Marvin Winick, Kirk Tierney, Joseph Piccirilli, Ronald Bibace, Robert
Averill, James Smith, James Eagan, Thomas Granville, Joseph Souccar, Glenn W.
Patterson, Canadian Consultants Bureau Inc., Robert Appel, Harold Rosen, Igor
Filipenko, Valeri Shtemberg, Yuri Volfkovich, Pavel Shmatko, Michael
Kishinevsky, Mega-C Power Corporation (Nevada), Mega-C Power Corporation
(Ontario), C&T, Turitella Corporation, Gary Bouchard, Fogler Rubinoff LLP,
Netprofitetc Inc., 503124 Ontario Ltd., HAP Investments LLC, Infinity Group LLC,
James Keim, Benjamin Rubin and John Doe Corporation as defendants. Although the
complaint alleges a number of complex and intersecting causes of action, it
appears that with respect to the Company and certain of its directors, officers
and stockholders, the lawsuit alleged a conspiracy to damage the value of the
Taylor Group’s investment in Mega-C and deprive the Taylor Group of its alleged
interests in the technology based on an alleged “oral” agreement, as well as
damages of $250,000,000.
Based on
orders entered in the Bankruptcy Court on February 11, 2008, management believes
that this litigation against the Company is resolved, as set forth more fully in
the section entitled “Settlement Agreement and Confirmed Chapter 11
Plan.”
Mega-C Bankruptcy
Court Litigation:
As described above, shortly after the formation of the Trust, Lewis “Chip”
Taylor, Chip Taylor in Trust, Elgin Investments, Jared Taylor and Mega-C
Technologies filed suit against Axion and APC’s founders (the “Taylor
Litigation”). The Company, APC and Thomas Granville filed an involuntary Chapter
11 petition against Mega-C in the U.S. Bankruptcy Court for the District of
Nevada (Case No. BK-N-04-50962-gwz).
In
February 2005, the Bankruptcy Court stayed the Taylor Litigation pending
resolution of Mega-C’s Chapter 11 bankruptcy case. In March 2005, the Bankruptcy
Court appointed William M. Noall to serve as Chapter 11 Trustee for the Mega-C
case. On June 7, 2005, the Chapter 11 Trustee commenced an adversary proceeding
against Sally Fonner, the trustee of the Trust (Adversary Proceeding No.
05-05042-gwz), demanding, among other things, the turnover of at least 7,327,500
shares of the Company’s stock held by the Trust as property of the bankruptcy
estate.
On July
27, 2005, the Company commenced an adversary proceeding against the Chapter 11
Trustee and Ms. Fonner (Adversary Proceeding No. 05-05082-gwz) for the purpose
of obtaining a judicial determination that as of the petition
date:
·
|
Mega-C's
license to commercialize the technology was
terminated;
|
|
·
|
Mega-C
does not have any interest in the technology;
|
|
·
|
Mega-C
did not transfer any property to the Company with the intent to damage or
defraud any entity;
|
|
·
|
Mega-C
did not transfer any property to the Company for less than reasonably
equivalent value; and
|
·
|
If
the court ultimately decides that Mega-C has a valid legal interest in the
technology, then the Company is entitled to terminate the Trust. Further,
Axion amended its complaint in September 2005 to assert its legal right to
have the Trustee of the Mega-C Trust hold the assets of the Trust for the
benefit of the Company in the event the bankruptcy court were to grant the
Chapter 11 Trustee's request for turnover of the Trust assets and to set
aside the Trust. Among other things these theories made it necessary
to name Sally A. Fonner as a defendant in the
lawsuit.
|
Settlement
Agreement and Confirmed Chapter 11 Plan: On December 12, 2005, the
Company entered into a settlement agreement with Mega-C, represented by its
Chapter 11 Trustee William M. Noall ("Noall"), and the Trust, represented by its
trustee Sally A. Fonner ("Fonner"). Additional signatories to the settlement
agreement include: (a) the Company's subsidiaries APC and C&T; (b)
Fonner in both her capacity as Mega-C's sole officer and director and as trustee
of the Trust; (c) certain former stockholders of APC including Robert
Averill, Joe Piccirilli, Canadian Consultants Bureau Inc., James Smith, James
Eagan, Tom Granville, Joe Souccar, HAP Investments, LLC, Glenn Patterson, Igor
Filipenko, Ron Bibace, Kirk Tierney, Infinity Group, LLC, James Keim and
Turitella Corporation; (d) Paul Bancroft, and (e) certain former
stockholders of C&T including, Yuri Volkovich, Pavel Shmatko, Albert
Shtemberg, Edward Shtemberg, C&T Co., Inc. in Trust, Oksana Fylypenko,
Andriy Malitskiy, Valeri Shtemberg, Yuri Shtemberg, Victor Eshkenazi, Miraslav
E. Royz, and Rimma Shtemberg.
The
settlement agreement was approved by the Bankruptcy Court after a hearing in an
order dated February 1, 2006. Certain terms were subject to confirmation and
effectiveness of Mega-C's Chapter 11 plan of reorganization. On November 8,
2006, the Bankruptcy Court entered an order confirming the plan which was
subsequently substantially consummated on November 21, 2006. The settlement
agreement was fully incorporated in the confirmed Chapter 11 plan. At the date
of these financial statements, the plan is fully effective and substantially
consummated. Accordingly, all pending and potential disputes between the
parties to the Settlement Agreement have been resolved. In summary, the
following steps have been accomplished:
·
|
The
Company has compromised and withdrawn its notes receivable from
Mega-C to an allowed unsecured claim of $100;
|
|
·
|
Mega-C
has assigned all of its right, title and interest, if any, in the
technology and any and all tangible and intangible personal property in
the Company's possession to the Company;
|
·
|
The
Trust has been restated and retained 4,700,000 shares that will be sold to
pay creditor claims that remain unsatisfied from the Liquidation Trust
described below, with the balance to be proportionately distributed to the
holders of allowed equity interests in Mega-C in connection with the
implementation of Mega-C's Chapter 11 plan. It is also the owner of
685,002 share certificates which serve as collateral for loans paid to the
newly created Liquidation Trust in the amount of
$2,055,000;
|
|
·
|
A
newly created Liquidation Trust received the proceeds of loans in the
amount of $2,055,000, secured by 685,002 shares and has legal title to
314,998 shares that will be sold to pay creditor claims and Liquidation
Trust expenses.
|
|
·
|
The
former trustee of the Trust has received 627,500 shares as compensation by
the Trust through the effective date of Mega-C's plan; and
|
|
·
|
The
Trust surrendered 1,500,000 shares to the Company which were promptly
cancelled as discussed under “Trust corpus”
above.
|
The
litigation settlement and releases provided by the plan, which are as broad as
the law allows, are now binding on Mega-C, the Chapter 11 trustee, the Taylor
Group and all other parties described in the plan of reorganization. The plan
requires the Liquidation Trustee or the Second Amended Shareholders Trustee to
seek dismissals of the Taylor litigation to the extent the litigation asserts
derivative or other causes of action that belong to the Chapter 11 estate of
Mega-C.
While
certain aspects of the litigation discussed above are on appeal to the Ninth
Circuit Court of Appeals and to the United States District Court for the
District of Nevada, management believes the possibility of any adverse decision
to the Company to be remote.
In orders
entered on February 11, 2008, the Bankruptcy Court held that the alleged “oral”
agreement creating rights or interests in the Technology in favor of the Taylor
Group never existed and, even if it had, the Taylor Group transferred any such
rights to the Debtor which were then transferred to the Company by the confirmed
Chapter 11 Plan. The Bankruptcy Court held that the Taylor Group has no interest
in or rights to the Technology. The Bankruptcy Court held that the only rights
the Taylor Group has are as putative creditors or shareholders of Mega-C and
that any attempts to claim an interest in or contest the Company’s title to the
Technology are contrary to the permanent injunction of the Chapter 11
Plan.
Future Litigation
Costs: No amounts have been accrued in the accompanying balance sheet
related to future litigation costs. Protracted litigation or higher than
anticipated costs could significantly reduce available working capital and have
a material adverse impact on the company’s financial condition.
Notes
Receivable-Mega-C: The Company advanced funds to Mega-C over the years
from 2003 to 2005. The Company considered these notes impaired, by recording an
allowance for doubtful accounts, in an amount equal to the aggregate of the
advances, net of certain repayments, against the Mega-C advances as the advances
were made.
Because
of the uncollectibility of the Mega-C receivable, as confirmed by the above
described transactions and events, the Company recorded a recovery of notes
receivable previously written off in November of 2006 in the amount of $100 as
well as other assets received from Mega-C Power Corp. The other assets received,
primarily miscellaneous fixed assets, have been determined to be negligible in
value and no attempt has been made to secure an appraisal or record any amounts
for these assets. Most importantly, the confirmation of the plan of
reorganization conveyed all of Mega C’s right, title and interest, if any, in
the technology to the Company, thereby resolving a significant challenge to the
Company’s ownership of the technology.
Note
14 – Commitments and Contingencies and Significant Contracts
Facilities
During 2006 the Company closed the facilities in Woodbridge, Ontario and moved
to New Castle, Pennsylvania. The agreement provided for an initial term of two
years with two renewal terms of five years each. The monthly rent payable for
the initial term of the agreement was $10,000. During the two extension terms,
the rent was to be based on market rates as determined by negotiation between
the parties, or if the parties are unable to reach a mutually agreed rental
rate, by an independent appraisal process. In April of 2008, the company signed
a new lease that also added to our existing space at our manufacturing plant in
New Castle, Pennsylvania. The new lease calls for a monthly payment of $16,142
with an initial term of two (2) years beginning April 2008. In addition to the
monthly rental, APB is obligated to pay all required maintenance costs, taxes
and special assessments, maintain public liability insurance in the amount of $1
million, and maintain fire and casualty insurance for an amount equal to 100% of
the replacement value of the leased premises. Rent expense for this plant
amounted to approximately $202,000 and $135,800 for the years ended December 31,
2008 and 2007, respectively. Future commitments under the term of this lease
amount to $194,000 for 2009 and $48,000 in 2010.
In
December 2008, we signed a letter agreement to sublease from a current tenant on
a month-to-month basis a building consisting of 54,000 square feet in New
Castle, Pennsylvania. Monthly rental for this space is $19,300 on a monthly
basis, subject to an annual inflation adjustment in January of each
year. In addition to the monthly rental, we are obligated to pay all
required maintenance costs, taxes and special assessments, maintain public
liability insurance, and maintain fire and casualty insurance for an amount
equal to 100% of the replacement value of the leased premises. Rent
expense for this facility amounted to $53,000 for the year ended December 31,
2008. This month-to-month rental agreement continues until the earlier of (1)
purchase of the building by the Company or a third party; (2) termination of the
letter agreement by either party; or (3) December 31, 2010.
Employment
Agreements: We have entered into executive employment
agreements with Thomas Granville, Edward Buiel, Andrew Carr Conway, Jr., Robert
Nelson and Donald T. Hillier, however our agreement with Mr. Conway terminated
on July 4, 2008. These agreements generally require each executive to devote
substantially all of his business time to our affairs, establish standards of
conduct, prohibit competition with our company during their term, affirm our
rights respecting the ownership and disclosure of patents, trade secrets and
other confidential information, provide for the acts and events that would give
rise to termination of such agreements and provide express remedies for a breach
of the agreement. Each of our executives will participate, without cost, in our
standard employee benefit programs, including medical/hospitalization insurance
and group life insurance, as in effect from time to time. Each of the covered
executives will generally receive an automobile allowance and reimbursement for
all reasonable business expenses incurred by him on behalf of the Company in the
performance of his duties. The provisions of the individual agreements set forth
in the following table:
Name
|
Position
|
Date
|
Term
|
Salary
|
Options
|
Price
|
Vesting
|
Stock
|
|||||||||||||||
Thomas Granville
(1)
|
CEO
|
6/23/08
|
2-year
|
$
|
324,000
|
90,000
|
$
|
2.50
|
Monthly
|
0
|
|||||||||||||
Donald
T. Hillier (2)
|
CFO
|
6/18/08
|
3-year
|
$
|
150,000
|
180,000
|
$
|
2.50
|
Monthly
|
90,000
|
|||||||||||||
Dr.
Edward Buiel (3)
|
VP
and CTO
|
6/23/08
|
2-year
|
$
|
180,000
|
100,000
|
$
|
2.50
|
05/31/10
|
80,000
|
|||||||||||||
Andrew
Carr Conway, Jr. (4)
|
Former
CFO
|
8/31/07
|
6
months
|
$
|
180,000
|
120,000
|
$
|
4.50
|
Monthly
|
0
|
|||||||||||||
Dr.
Robert Nelson (5)
|
VP
Mfg. Eng.
|
12/1/07
|
2-year
|
$
|
132,000
|
108,000
|
$
|
5.00
|
Monthly
|
36,000
|
1.
|
Thomas Granville. On
June 23, 2008, we entered into an Executive Employment Agreement with
Thomas Granville as Chief Executive Officer. Pursuant to this agreement,
Mr. Granville receives a monthly base salary of $27,000 for the period
commencing June 1, 2008, and terminating May 31, 2010. Mr. Granville’s
base salary is subject to annual review, and such salary is subject to
renegotiation on the basis of Mr. Granville’s and the Company’s
performance. In addition, Mr. Granville received a signing bonus of
$250,000, paid 50% within ten (10) days of the execution of the agreement
and 50% upon receipt of the final $10,000,000 investment from the Quercus
Trust. The Company also granted Mr. Granville an option to purchase 90,000
shares of our common stock at a price of $2.50 per share at a vesting rate
of 3,750 shares per month through the term of the agreement. Mr. Granville
is eligible to participate in any executive compensation plans adopted by
the shareholders of the Company and the Company's standard employee
benefit programs.
|
2.
|
Donald T.
Hillier. On June 18, 2008, we entered into an Executive
Employment Agreement with Donald T. Hillier as Chief Financial
Officer. Pursuant to this agreement, Mr. Hillier receives a monthly
base salary of $12,500 for the period commencing June 16, 2008, and
terminating June 15, 2011. Mr. Hillier's base salary is subject to
review after six (6) months and then on an annual basis thereafter, and
such salary is subject to renegotiation on the basis of Mr. Hillier's and
the Company's performance. The Company also granted to Mr.
Hillier 90,000 shares of common stock which will vest in equal 30,000
share amounts on June 16 of each of 2009, 2010 and 2011.
In addition, Mr. Hillier was granted an option to purchase 180,000 shares
of common stock at a price of $2.50 per share at a vesting rate of
5,000 shares per month through the term of the agreement. Mr.
Hillier is eligible to participate in any executive compensation plans
adopted by the shareholders of the Company and the Company's standard
employee benefit programs.
|
3.
|
Edward Buiel, Ph.D. On
June 23, 2008, we entered into an Executive Employment Agreement with Dr.
Edward Buiel as Vice President and Chief Technology Officer. Pursuant to
this agreement, Dr. Buiel receives a monthly salary of $15,000 for the
period commencing June 1, 2008 and terminating May 31, 2010. Dr. Buiel’s
base salary is subject to annual review, and such salary is subject to
renegotiation on the basis of Dr. Buiel’s and the Company’s performance.
In addition, Dr. Buiel received a signing bonus of $110,000, paid 90%
within ten (10) days of the execution of the agreement and 10% upon the
receipt of the final $10,000,000 investment from the Quercus
Trust. Also, if Dr. Buiel is still employed with the Company on
June 1, 2011, he will receive a bonus of $50,000, notwithstanding any
other bonus arrangement. The Company also reconfirmed Dr. Buiel’s option
to purchase 100,000 shares of our common stock, which had been previously
granted in his prior Executive Employment Agreement dated December 29,
2006. These existing options remain exercisable at a price of $3.75 per
share and shall vest 50% on December 29, 2009 and 50% on December 29, 2010
assuming Dr. Buiel is still employed by the company on each of those
respective dates. In addition, Dr. Buiel was granted an option to purchase
100,000 shares of our common stock in recognition of the opportunity cost
associated with the one year extension of his new Executive Employment
Agreement. These options are exercisable at a price of $2.50 per share and
shall vest on May 31, 2011. Dr Buiel was also granted 80,000shares of
common stock, of which 30,000 vests on December 29, 2009, and 50,000 will
vest on May 31, 2011. Dr. Buiel is eligible to participate in
any executive compensation plans adopted by the shareholders of the
Company and the Company's standard employee benefit programs. Certain of
these equity awards were awarded under Dr. Buiel’s 2006 employment
agreement and the terms of such awards have been incorporated into his new
Executive Employment Agreement.
|
4.
|
Andrew C. Conway,
Jr. Under the terms of his employment agreement effective
August 2007, which had an original term of six months, Mr. Conway received
an annualized salary of $180,000, bonuses as determined by the
compensation committee and an option to purchase 10,000 shares of our
common stock at a price of $4.50 per share for each month of service.
30,000 options vested with the execution of the contract, and the balance
vest periodically over the remainder of the contract. The contract
automatically renewed for an additional six month term ending
August 31, 2008. A total of 120,000 options were awarded under the
extended contract. Mr. Conway served as the Company’s CFO through June
2008, and his employment agreement terminated, as mutually agreed, on July
4, 2008.
|
5.
|
Dr. Robert F. Nelson.
Under the terms of his employment agreement effective December
2007, which has a term of two years, Dr. Nelson receives an annual salary
of $132,000 and bonuses as determined by the compensation committee. In
addition, Dr. Nelson receives an option to purchase 108,000 shares of our
common stock at a price of $5.00 per share and 36,000 shares of restricted
common stock, each that vest over three years from the effective date of
his employment agreement.
|
We have
no retirement plans or other similar arrangements for any directors, executive
officers or employees.
Purchase
Orders
On
November 3, 2008, the Company received the first purchase order for toll
contract manufacturing of standard flooded lead acid batteries for a large North
American lead acid battery company. The initial three types of batteries covered
in this purchase order have successfully completed customer testing, and
shipment was expected to begin late in the fourth quarter. The initial purchase
order calls for the shipment of 92,250 batteries, spread fairly equally over 11
months, with a total aggregate base purchase price of $6,400,000. Raw materials
will have an agreed upon base price with regular adjustments (not less than
monthly) to account for market price fluctuations, which could cause
fluctuations in the final purchase invoice. Due to economic conditions caused by
the steep downturn in the economy, our customer was unable to accept product
based on their original delivery schedule, resulting in only 1,500 batteries
being shipped before the end of 2008. The Company, however, continued to make
product and store it at our facility. The customer has informed the Company that
it intends to honor its purchase order commitment, but in view of the current
economic conditions there is no guarantee it will be able to do so. In early
March 2009, the customer began taking delivery of the manufactured product and
has set up a schedule to accept all of the remaining manufactured inventory,
(approximately 13,500 batteries), by the end of April 2009. All
existing production, and future production, will take place on an ancillary
"flooded battery line" so the production will not reduce capacity from the
Company’s development of its proprietary PbC technologies, which will utilize
the primary "AGM battery line" for production.
Note
15 – Subsequent Events
On
February 5, 2009, the Company received a pair of grants from the Advanced
Lead-Acid Battery Consortium, the leading industry association made up in part
by the largest companies supplying the world’s battery market. The pair of
grants total approximately $380,000, and will help support research into two key
areas: (1) to identify the mechanism by which the optimum specification of
carbon, when included in the negative active material of a valve-regulated
lead-acid battery, provides protection against accumulation of lead sulfate
during high-rate partial-state-of-charge operation; and (2) the second grant
seeks simply to characterize Axion’s proprietary PbC™ battery in hybrid electric
vehicle (HEV) type duty-cycle testing. The grants are administered through the
Durham, NC-based International Lead Zinc Research Organization acting on behalf
of the ALABC. The research work is expected to be completed in
2009.
On
February 9, 2009, the Company received notice that is the recipient a grant from
the Pennsylvania Alternative Fuels Incentive Grant program. The $800,000
first-year grant, which was announced by Governor Edward Rendell on January
29th, is part of the State’s overall effort to invest in businesses that are
creating important and innovative clean energy and bio-fuels technologies. The
award proceeds will be used to demonstrate the advantages the Axion proprietary
PbC™ battery technology provides in a variety of electric vehicle types
including: hybrids (HEVs), such as the popular Toyota
Prius; “plug-ins” (PHEVs) used in commuter, delivery and
other vehicles; and in electric vehicles (EV’s) and converted (from combustion
engine operation) EV’s. The grant proceeds are expected to be received in
2009.
45,757,572
Shares of Common Stock
Item
13. Other Issuance and Distribution
We
estimate that our expenses in connection with this offering, other than
underwriting discounts and commissions, will be as follows:
Securities
and Exchange Commission registration fee
|
$ | 4,470 | ||
Printing
and engraving expenses
|
$ | 1,000 | ||
Legal
fees and expenses
|
$ | 30,000 | ||
Accountant
fees and expenses
|
$ | 2,500 | ||
Total
|
$ | 37,970 | ||
Item
14. Indemnification of Directors and Officers
Section
102 of the Delaware General Corporation Law allows a corporation to eliminate
the personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except where the
director breached his or her duty of loyalty to the corporation or its
stockholders, failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or approved a
stock purchase or redemption in violation of the Delaware General Corporation
Law or obtained an improper personal benefit.
Our
amended and restated certificate of incorporation specifically limits each
director’s personal liability, as permitted by Section 102 of the Delaware
General Corporation Law, and provides that if the Delaware General Corporation
Law is hereafter amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law as so amended.
Section
145 of the Delaware General Corporation Law provides, among other things, that a
corporation may indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors of otherwise both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person. Our amended and restated
certificate of incorporation provides for indemnification of our directors,
officers, employees and agents to the fullest extent permitted by the Delaware
General Corporation Law.
Item
15. Recent Sales of Unregistered Securities
Since
January 1, 2007, Axion has issued and sold the following
securities:
Equity
Transactions - Year ended December 31, 2007:
During
2007, 40,000 shares of Series A Preferred Stock were issued to two unaffiliated
accredited investors at a purchased price of $10.00 per share for aggregate
proceeds to the Company of $40,000.
Restricted
stock transactions during the year ended December 31, 2007 are as
follows:
|
·
|
The
Company’s Vice President of Manufacturing and Engineering received 36,000
restricted shares, valued at $82,800, pursuant to his 2007 employment
contract. The shares will vest at a rate of 1,000 shares per month.
The expense related to these shares will be recognized over this
three-year requisite service period and the shares will be considered
issued and outstanding upon
vesting.
|
Equity
Transactions – Year ended December 31, 2008:
At the
first Quercus closing on January 14, 2008, we issued and sold 1,904,762 first
closing units (a unit is one share of common stock, and a 5-year warrant to
purchase 1.5 additional shares of common stock at an exercise price of $2.60 per
share) issuable to Quercus for an aggregate purchase price of $4,000,000, or
$2.10 per Unit.
On March
31, 2008, an accredited investor under the terms of his 2007 Bridge Loan
agreement, converted $223,984 of his Bridge Loan to purchase 106,659 first
closing units under the same terms and conditions as was offered to Quercus, at
$2.10 per Unit
At the
second Quercus closing on April 8, 2008, we issued and sold 1,904,762 second
closing units (a unit is one share of common stock, and a 5-year warrant to
purchase 1.25 additional shares of common stock at an exercise price of $2.60
per share) issuable to Quercus for an aggregate purchase price of $4,000,000, or
$2.10 per Unit.
On April
21, 2008, an accredited investor under the terms of his 2007 Bridge Loan
agreement, converted $52,500of their Bridge Loans to purchase 25,000 first
closing units under the same terms and conditions as was offered to Quercus, at
$2.10 per Unit.
On May 6,
2008, one accredited investor under the terms of the 2006 Series A Preferred
private placement offering, converted 50,000 preferred shares with a stated
value of $635,641 to purchase 508,512 shares of the Company’s common stock at
the stated conversion price of $1.25 per share.
On May
29, 2008, a director under the terms of his 2007 Bridge Loan agreement,
converted $4,200 of his Bridge Loan to purchase 2,000 second closing units under
the same terms and conditions as was offered to Quercus, at $2.10 per
Unit.
At the
third and final Quercus closing on June 30, 2008, we issued and sold 4,761,905
third closing units (a unit is one share of common stock, and a 5-year warrant
to purchase 1 additional shares of common stock at an exercise price of $2.60
per share) issuable to Quercus for an aggregate purchase price of $10,000,000,
or $2.10 per Unit.
On June
30, 2008, a director under the terms of his 2007 Bridge Loan agreement,
converted $800.000 of his Bridge Loan to purchase 380,952 third closing units
under the same terms and conditions as was offered to Quercus, at $2.10 per
Unit.
On August
20, 2008, one accredited investor under the terms of the 2006 Series A Preferred
private placement offering, converted 50,000 preferred shares with a stated
value of $650,984 to purchase 520,787 shares of the Company’s common stock at
the stated conversion price of $1.25 per share.
On
September 11, 2008, one accredited investor under the terms of the 2006 Series A
Preferred private placement offering, converted 4,000 preferred shares with a
stated value of $52,250 to purchase 41,800 shares of the Company’s common stock
at the stated conversion price of $1.25 per share.
During
2008, an officer vested in 12,000 shares of his 2007 restricted stock
award.
Restricted
stock transactions during the year ended December 31, 2008 are as
follows:
|
·
|
The
Company’s chief financial officer received 90,000 restricted shares,
valued at $166,500, pursuant to his 2009 employment contract. The shares
will vest in equal 30,000 share amounts on June 16 of each of 2009, 2010
and 2011. The expense related to these shares will be recognized over this
three-year requisite service period and the shares will be considered
issued and outstanding upon
vesting.
|
|
·
|
The
Company’s chief technical officer received 50,000 restricted shares,
valued at $90,500 and an additional 30,000 restricted shares, valued at
$51,000, pursuant to his 2009 employment contract. The 50,000 shares will
become fully vested on May 31, 2011. The expense related to these shares
will be recognized over this three-year requisite service period and the
shares will be considered issued and outstanding upon vesting. [The 30,000
shares vest December 29, 2009. The expense related to these shares will be
recognized over this eighteen month requisite service period and the
shares will be considered issued and outstanding upon
vesting.]
|
|
·
|
An
employee received 50,000 restricted shares, valued at $92,500, pursuant to
his 2009 employment contract. The 50,000 shares will become fully vested
on June 15, 2011. The expense related to these shares will be recognized
over this three-year requisite service period and the shares will be
considered issued and outstanding upon
vesting.
|
Equity
Transactions – Year ended December 31, 2009:
During
2009, an officer vested in 23,000 shares of his 2007 restricted stock
award.
On June
16, 2009, an officer vested in 30,000 shares of his 2008 restricted stock
award.
On July
21, 2009 an accredited investor under the terms of the 2006 Series A Preferred
private placement offering, converted 25,000 preferred shares with a stated
value of $358,418 to purchase 286,735 shares of the Company’s common stock at
the stated conversion price of $1.25 per share.
On
November 4, 2009 an accredited investor under the terms of the 2006 Series A
Preferred private placement offering, converted 63,100 preferred shares with a
stated value of $921,890 to purchase 862,466 shares of the Company’s common
stock at the stated conversion price of $1.07 per share.
On December 22, 2009, we issued and
sold 45,106,052 of the Company’s common stock under a Securities purchase
agreement for an aggregate
purchase price of $
25,710,450, or $0.57 per
share.
On
December 22, 2009, a director under the terms of his 2009 Bridge Loan
agreement, converted $171,353 of his Bridge Loan to purchase 300,620 of the
Company’s common stock under the same terms and conditions offered to investors
in the December 22,2009 Securities purchase agreement at $0.57.
On
December 22, 2009, an accredited investor under the terms of his 2009
Bridge Loan agreement, converted $200,013 of his Bridge Loan to purchase 350,900
of the Company’s common stock under the same terms and conditions offered to
investors in the December 22,2009 Securities purchase agreement at
$0.57.
On
December 23, 2009 a director under the terms of the 2005 8% Convertible Senior
Preferred private placement offering, converted 25,000 preferred shares with a
stated value of $360,440 to purchase 252,912 shares of the Company’s common
stock at the stated conversion price of $1.43 per share.
On
December 23, 2009 a director and his wife under the terms of the 2005 8%
Convertible Senior Preferred private placement offering, converted 42,633
preferred shares with a stated value of $614,665 to purchase 431,297 shares of
the Company’s common stock at the stated conversion price of $1.43 per
share.
On
December 23, 2009 eight individuals under the terms of the 2005 8% Convertible
Senior Preferred private placement offering, converted 69,867 preferred shares
with a stated value of $1,007,210 to purchase 706,735 shares of the Company’s
common stock at the stated conversion price of $1.43 per share.
On
December 23, 2009 eleven individuals under the terms of
their Placement Agency Agreements received 719,664 shares of the
Company’s common stock as Placement fees for their assistance in the financing
attributed to the December 22, 2009 Securities Purchase Agreement at a price of
$410,208, or $0.57 per share .
On
December 29, 2009, an officer vested in 280,000 shares of his 2006 and 2008
restricted stock awards.
Common Stock
Issuances: The following table represents per share issuances of common
stock from May 1, 2005 through December 31, 2009.
2005
Description:
|
Date
|
Shares
|
Per share
Valuation
|
Business reason:
|
|||||||
7
individuals
|
6/10/2005
|
29,565
|
$
|
3.57
|
Exercise
of Director options
|
||||||
3
individuals
|
7/11/2005
|
190,000
|
$
|
1.58
|
Conversion
of Preferred and accrued dividends
|
||||||
Banca
di Unionale
|
7/11/2005
|
10,000
|
$
|
1.60
|
Exercise
of preferred warrants
|
||||||
3
individuals
|
8/28/2005
|
150,000
|
$
|
1.67
|
Conversion
of Preferred and accrued dividends
|
||||||
James
Smith
|
9/7/2005
|
30,000
|
$
|
1.67
|
Conversion
of Preferred and accrued dividends
|
||||||
2
individuals
|
9/28/2005
|
1,050,000
|
$
|
1.69
|
Conversion
of Preferred and accrued dividends
|
||||||
2
individuals
|
various
|
226,900
|
$
|
1.79
|
Exercise
of Series I warrants
|
||||||
3
individuals
|
various
|
91,200
|
$
|
2.40
|
Exercise
of Series III warrants
|
||||||
2
individuals
|
various
|
25,000
|
$
|
1.60
|
Exercise
of Preferred warrants
|
||||||
Officer
|
10/20/2005
|
446,000
|
$
|
1.00
|
Exercise
of warrants and options
|
||||||
Officer
|
10/20/2005
|
25,000
|
$
|
2.00
|
Exercise
of warrants
|
||||||
6
individuals
|
12/1/2005
|
600,000
|
$
|
2.00
|
Common
stock and warrants
|
||||||
2005
Totals
|
3,642,665
|
$
|
1.94
|
2006
|
|||||||||||
2
individuals
|
4/21/06
|
80,000
|
2.50
|
Common
stock and warrants issued for cash
|
|||||||
Officer
|
4/21/06
|
56,700
|
2.00
|
Exercise
of non-plan incentive option granted to CEO
|
|||||||
Officer
|
4/21/06
|
6,000
|
4.00
|
Unrestricted
share grant to CTO
|
|||||||
Mega-C
Trust
|
11/28/06
|
(500,000
|
)
|
2.25
|
Return
of shares per settlement agreement
|
||||||
2006
Totals
|
(357,300
|
)
|
$
|
2.20
|
2007
|
|||||||||||
Officer
|
12/01/07
|
1,000
|
2.30
|
Unrestricted
share grant to VP Mfg Engineering
|
|||||||
2007
Totals
|
1,000
|
$
|
2.30
|
||||||||
2008
|
|||||||||||
The
Quercus Trust
|
1/14/2008
|
1,904,762
|
2.10
|
Securities
purchase agreement
|
|||||||
1
individual
|
3/31/2008
|
106,659
|
2.10
|
2007
Bridge Loan Conversion
|
|||||||
The
Quercus Trust
|
4/08/2008
|
1,904,762
|
2.10
|
Securities
purchase agreement
|
|||||||
1
individuals
|
4/21/2008
|
25,000
|
2.10
|
2007
Bridge Loan Conversion
|
|||||||
Lichtensteiniche
Landsbank
|
5/06/2008
|
508,512
|
1.25
|
Series
A Preferred Conversions
|
|||||||
Director
|
5/29/2008
|
2,000
|
2.10
|
2007
Bridge Loan Conversion
|
|||||||
The
Quercus Trust
|
6/30/2008
|
4,761,905
|
2.10
|
Securities
purchase agreement
|
|||||||
Director
|
6/30/2008
|
380,952
|
2.10
|
2007
Bridge Loan Conversion
|
|||||||
1
individual
|
8/20/2008
|
520,787
|
1.25
|
Series
A Preferred Conversion
|
|||||||
1
individual
|
9/11/2008
|
41,800
|
1.25
|
Series
A Preferred Conversion
|
|||||||
V.P.
Mfg Engineering
|
01/01/2008-12/01/2008
|
12,000
|
1.85
|
Unrestricted
share Grant
|
|||||||
2008
Totals (as of December 31, 2008)
|
10,169,139
|
$
|
2.01
|
||||||||
2009
|
|||||||||||
V.P.
Mfg Engineering
|
01/01/2009-12/01/2009
|
23,000
|
1.55
|
Unrestricted
share Grant
|
|||||||
CFO
|
06/16/2009
|
30,000
|
1.41
|
Unrestricted
share Grant
|
|||||||
New
Energy Fund
|
07/21/2009
|
286,735
|
1.25
|
Series
A Preferred Conversions
|
|||||||
Fursa
Global Event Driven Fund LP
|
11/04/2009
|
862,466
|
1.07
|
Series
A Preferred Conversions
|
|||||||
Director
|
12/23/2009
|
252,912
|
1.43
|
Senior
Preferred Conversion
|
|||||||
Director
|
12/23/2009
|
431,297
|
1.43
|
Senior
Preferred Conversion
|
|||||||
8
individuals
|
12/23/2009
|
706,735
|
1.43
|
Senior
Preferred Conversion
|
|||||||
11
individuals
|
12/23/2009
|
719,664
|
0.57
|
Common
stock placement fees
|
|||||||
48
investors
|
12/22/2009
|
45,106,052
|
0.57
|
Securities
purchase agreement, net of 2009 Bridge Loan conversion
|
|||||||
Director
|
12/22/2009
|
300,620
|
0.57
|
2009
Bridge Loan conversion
|
|||||||
1
individual
|
12/22/2009
|
350,900
|
0.57
|
2009
Bridge Loan conversion
|
|||||||
CTO
|
12/29/2009
|
280,000
|
1.50
|
Unrestricted
share Grant
|
|||||||
2009
Totals (as of December 31, 2009)
|
49,350,381
|
$
|
0.61
|
All of
the above equity transactions were made in reliance on Section 4(2) of the
Securities Act and/or Regulation D promulgated under the Securities
Act.
Item
16. Exhibits and Financial Statement Schedules
2.1
|
Reorganization
Agreement (without exhibits) between Tamboril Cigar Company, Axion Power
Corporation and certain stockholders of Axion Power Corporation dated
December 31, 2003.
|
(1)
|
2.2
|
First
Addendum to the Reorganization Agreement between Tamboril Cigar Company,
Axion Power Corporation and certain stockholders of Axion Power
Corporation dated January 9, 2004.
|
(1)
|
3.1
|
Amended
and Restated Certificate of Incorporation of Tamboril Cigar Company dated
February 13, 2001.
|
(2)
|
3.3
|
Amendment
to the Certificate of Incorporation of Tamboril Cigar Company dated June
4, 2004.
|
(3)
|
3.4
|
Amendment
to the Certificate of Incorporation of Axion Power International, Inc.
dated June 4, 2004.
|
(3)
|
3.5
|
Amended
By-laws of Axion Power International, Inc. dated June 4, 2004. (3)
|
|
4.1
|
Specimen
Certificate for shares of Company’s $0.00001 par value common
stock.
|
(9)
|
4.2
|
Trust
Agreement for the Benefit of the Shareholders of Mega-C Power Corporation
dated December 31, 2003.
|
(1)
|
4.3
|
Succession
Agreement Pursuant to the Provisions of the Trust Agreement for the
Benefit of the Shareholders of Mega-C Power Corporation dated March 25,
2004.
|
(4)
|
4.4
|
Form
of Warrant Agreement for 1,796,300 capital warrants.
|
(9)
|
4.5
|
Form
of Warrant Agreement for 667,000 Series I investor
warrants.
|
(9)
|
4.6
|
Form
of Warrant Agreement for 350,000 Series II investor
warrants.
|
(9)
|
4.7
|
Form
of Warrant Agreement for 313,100 Series III investor
warrants.
|
(9)
|
4.8
|
Form
of 8% Cumulative Convertible Senior Preferred Stock
Certificate
|
(D)
|
4.9
|
First
Amended and Restated Trust Agreement for the Benefit of the Shareholders
of Mega-C Power Corporation dated February 28, 2005.
|
(11)
|
4.10
|
Second
Amendment and Restated Trust Agreement for the Benefit of the Shareholders
of Mega-C Power Corporation dated November 21, 2006
|
(19)
|
4.11
|
Certificate
of Powers, Designations, Preferences and Rights of the 8% Convertible
Senior Preferred Stock of Axion Power International, Inc. dated March 17,
2005.
|
(12)
|
4.12
|
Certificate
of Powers, Designations, Preferences and Rights of the Series A
Convertible Preferred Stock, Par Value $0.0001 Per Share, of Axion Power
International, Inc. dated October 23, 2006.
|
(13)
|
4.13
|
Amended
Certificate of Powers, Designations, Preferences and Rights of the Series
A Convertible Preferred Stock, Par Value $0.0001 Per Share, of Axion Power
International, Inc. dated October 26, 2006.
|
(13)
|
5.1
|
Opinion
of Jolie Kahn, Esq.
|
|
9.1
|
Agreement
respecting the voting of certain shares beneficially owned by the Trust
for the Benefit of the Shareholders of Mega-C Power
Corporation.
|
Included
in Exhibit 4.2
|
10.1
|
Development
and License Agreement between Axion Power Corporation and C and T Co.
Incorporated dated November 15, 2003.
|
(1)
|
10.2
|
Letter
Amendment to Development and License Agreement between Axion Power
Corporation and C and T Co. Incorporated dated November 17,
2003.
|
(1)
|
10.3
|
Tamboril
Cigar Co. Incentive Stock Plan dated January 8, 2004
|
(A)
|
10.4
|
Tamboril
Cigar co. Outside Directors Stock Option Plan dated February 2,
2004
|
(A)
|
10.5
|
Stock
Purchase & Investment Representation Letter among John L. Petersen,
Sally A. Fonner and C and T Co. Incorporated dated January 9,
2004
|
(1)
|
10.6
|
Letter
Amendment to Development and License Agreement between Axion Power
Corporation and C and T Co. Incorporated dated January 9,
2004.
|
(1)
|
10.7
|
First
Amendment to Development and License Agreement between Axion Power
Corporation and C and T Co. Incorporated dated as of January 9,
2004.
|
(5)
|
10.8
|
Definitive
Incentive Stock Plan of Axion Power International, Inc. dated June 4,
2004.
|
(3)
|
10.9
|
Definitive
Outside Directors’ Stock Option Plan of Axion Power International, Inc.
dated June 4, 2004.
|
(3)
|
10.10
|
Executive
Employment Agreement of Charles Mazzacato.
|
(9)
|
10.11
|
Executive
Employment Agreement of Peter Roston.
|
(9)
|
10.12
|
Amended
Retainer Agreement between the law firm of Fefer, Petersen & Cie dated
March 31, 2005
|
(C)
|
10.13
|
Retainer
Agreement dated January 2, 2004 between the law firm of Fefer, Petersen
& Cie and Tamboril Cigar Company.
|
(10)
|
10.14
|
Bankruptcy
Settlement Agreement Between Axion Power International, Inc.
and Mega-C Power Corporation dated December,
2005
|
(E)
|
10.15
|
Second
Amendment to Development and License Agreement between Axion Power
International, Inc. and C and T Co. Incorporated dated as of March 18,
2005.
|
(12)
|
10.16
|
Executive
Employment Agreement of Thomas Granville dated June 23,
2008.
|
(20)
|
10.17
|
Loan
agreement dated January 31, 2006 between Axion Battery Products, Inc. as
borrower, Axion Power International, Inc. as accommodation party and
Robert Averill as lender respecting a $1,000,000 purchase money and
working capital loan.
|
(14)
|
10.18
|
Security
agreement dated January 31, 2006 between Axion Battery Products, Inc. as
debtor and Robert Averill as secured party.
|
(14)
|
10.19
|
Security
agreement dated January 31, 2006 between Axion Power International, Inc.
as debtor and Robert Averill as secured party.
|
(14)
|
10.20
|
Promissory
Note dated February 14, 2006 between Axion Battery Products, Inc. as maker
and Robert Averill as payee.
|
(14)
|
10.21
|
Form
of Warrant Agreement between Axion Power International, Inc. and Robert
Averill.
|
(14)
|
10.22
|
Commercial
Lease Agreement dated February 14, 2006 between Axion Battery Products,
Inc. as lessee and Steven F. Hoye and Steven C. Warner as
lessors.
|
(14)
|
10.23
|
Asset
Purchase Agreement dated February 10, 2006 between Axion Battery Products,
Inc. as buyer and National City Bank of Pennsylvania as
seller.
|
(14)
|
10.24
|
Escrow
Agreement dated February 14, 2006 between Axion Battery Products, Inc. and
National City Bank of Pennsylvania as parties in interest and William E.
Kelleher, Jr. and James D. Newell as escrow agents.
|
(14)
|
10.25
|
Executive
Employment Agreement of Edward Buiel dated June 23, 2008.
|
(21)
|
10.26
|
Consulting
Agreement, dated as of September 27, 2007, by and between Axion Power
International, Inc. and Andrew Carr Conway, Jr.
|
(16)
|
10.27
|
Amendment
No. 1 to Consulting Agreement, dated as of October 31, 2007, by and
between Axion Power International, Inc. and Andrew Carr Conway,
Jr.
|
(16)
|
10.28
|
Securities
Purchase Agreement dated as of January 14, 2008, by and between Axion
Power International, Inc. and Quercus Trust.
|
(17)
|
10.29
|
Common
Stock Purchase Warrant dated January 14, 2008, executed by Axion Power
International, Inc.
|
(17)
|
10.30
|
Executive
Employment Agreement of Donald T. Hillier dated June 18,
2008.
|
(19)
|
10.31
|
Amendment
to Warrants and Securities Purchase Agreement dated as of September 22,
2009, by and between Axion Power International, Inc. and Quercus
Trust.
|
(22)
|
10.32
|
Securities
Purchase Agreement dated as of December 18, 2009, by and between Axion
Power International, Inc. and the Investors named therein.
|
(23)
|
10.33
|
Registration
Rights Agreement, executed by Axion Power International Inc. and the
Investors named therein.
|
(23)
|
10.34
|
Amendment
No. 2 to Securities Purchase Agreement dated as of January 14, 2008, by
and between Axion Power International, Inc. and Quercus
Trust.
|
(23)
|
10.35
|
Lock-Up
Agreement executed by Quercus Trust and David Gelbaum and Monica Chavez
Gelbaum.
|
(23)
|
14.1
|
Code
of Business Conduct and Ethics
|
(6)
|
16.1
|
Letter
from Predecessor Independent Registered Public Accounting
Firm
|
|
23.1
|
Consent
of Jolie Kahn, Esq. (included in Exhibit 5.1)
|
|
23.2
|
Consent
of EFP Rotenberg, LLP
|
(1)
|
Incorporated
by reference from our Current Report on Form 8-K dated January 15,
2004.
|
(2)
|
Incorporated
by reference from our Current Report on Form 8-K dated February 5,
2003.
|
(3)
|
Incorporated
by reference from our Current Report on Form 8-K dated June 7,
2004.
|
(4)
|
Incorporated
by reference from our Current Report on Form 8-K dated April 13,
2004.
|
(5)
|
Incorporated
by reference from our Form S-3 registration statement dated May 20,
2004.
|
(6)
|
Incorporated
by reference from our Annual Report on Form 10-KSB dated March 30,
2004
|
(7)
|
Incorporated
by reference from our Current Report on Form 8-K dated April 13,
2003.
|
(8)
|
Incorporated
by reference from our Current Report on Form 8-K dated February 16,
2004.
|
(9)
|
Incorporated
by reference from our Form S-1 registration statement dated September 2,
2004.
|
(10)
|
Incorporated
by reference from our Form S-1 registration statement dated December 17,
2004.
|
(11)
|
Incorporated
by reference from our Current Report on Form 8-K dated February 28,
2005.
|
(12)
|
Incorporated
by reference from our Current Report on Form 8-K dated March 21,
2005.
|
(13)
|
Incorporated
by reference from our Current Report on Form 8-K dated November 8,
2006.
|
(14)
|
Incorporated
by reference from our Current Report on Form 8-K dated February 16,
2006.
|
(15)
|
Incorporated
by reference from our Current Report on Form 8-K dated January 3,
2007.
|
(16)
|
Incorporated
by reference from our Current Report on Form 8-K dated November 6,
2007.
|
(17)
|
Incorporated
by reference from our Current Report on Form 8-K dated January 17,
2008.
|
(18)
|
Incorporated
by reference from our Current Report on Form 8-K dated January 31,
2008.
|
(19)
|
Incorporated
by reference from our Registration Statement on Form S-1 dated July 3,
2008.
|
(20)
|
Incorporated
by reference from our Current Report on Form 8-K dated June 27,
2008.
|
(21)
|
Incorporated
by reference from our Current Report on Form 8-K dated July 2,
2008.
|
(22)
|
Incorporated
by reference from our Current Report on Form 8-K dated September 22,
2009.
|
(23)
|
Incorporated
by reference from our Current Report on Form 8-K dated December 18,
2009.
|
(A)
|
Incorporated
by reference from our Current Report on Form 8-K/A dated February 2,
2004.
|
(B)
|
Incorporated
by reference from our Current Report on Form 8-K dated April 4,
2005.
|
(C)
|
Incorporated
by reference from our Registration Statement on Form SB-2 dated April 26,
2005.
|
(D)
|
Incorporated
by reference from our Current Report on Form 8-K dated December 13,
2005.
|
Item
17. Undertakings
The
undersigned registrant hereby undertakes:
1.
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
|
|
i.
|
To
include any prospectus required by section 10(a)(3) of the Securities
Act;
|
|
ii.
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration
statement.
|
|
iii.
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement.
|
2.
|
That,
for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
|
3.
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
|
4.
|
That,
for the purpose of determining liability under the Securities Act to any
purchaser:
|
|
i.
|
If
the registrant is relying on Rule 430B (Section 430B of this
chapter):
|
|
A.
|
Each
prospectus filed by the registrant pursuant to Rule 424(b)(3)shall be
deemed to be part of the registration statement as of the date the filed
prospectus was deemed part of and included in the registration statement;
and
|
|
B.
|
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or
(b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x)
for the purpose of providing the information required by section 10(a) of
the Securities Act shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of
prospectus is first used after effectiveness or the date of the first
contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer
and any person that is at that date an underwriter, such date shall be
deemed to be a new effective date of the registration statement relating
to the securities in the registration statement to which that prospectus
relates, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is part of
the registration statement or made in a document incorporated or deemed
incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a
time of contract of sale prior to such effective date, supersede or modify
any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document
immediately prior to such effective date;
or
|
|
ii.
|
If
the registrant is subject to Rule 430C, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of
and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that
was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to
such date of first use.
|
5.
|
That,
for the purpose of determining liability of the registrant under the
Securities Act to any purchaser in the initial distribution of the
securities: The undersigned registrant undertakes that in a primary
offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will be
considered to offer or sell such securities to such
purchaser:
|
|
i.
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
|
ii.
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
|
iii.
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
|
iv.
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
6.
|
Insofar
as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
|
Pursuant
to the requirements of the Securities Exchange Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in New Castle, Pennsylvania, on
the 14th day of January, 2010.
AXION
POWER INTERNATIONAL, INC.
By:
/s/ Thomas Granville
Thomas
Granville, Principal Executive Officer
Date:
January 14, 2010
By:
/s/ Donald T. Hillier
Donald T.
Hillier, Principal Financial Officer and Principal Accounting
Officer.
Date:
January 14, 2010
Pursuant
to the requirements of the Securities Act, this Registration Statement has been
signed by the following persons in the capacities and on the dates
indicated:
Signature
|
Title
|
Date
|
||
/s/ Stanley A. Hirschman
|
Director
|
January
14, 2010
|
||
Stanley A. Hirschman | ||||
/s/ Robert G. Averill
|
Director
|
January
14, 2010
|
||
Robert G. Averill | ||||
/s/ Glenn Patterson
|
Director
|
January
14, 2010
|
||
Glenn Patterson | ||||
/s/ Howard K. Schmidt
|
Director
|
January
14, 2010
|
||
Howard K. Schmidt | ||||
/s/ D. Walker Wainwright
|
Director
|
January
14, 2010
|
||
D. Walker Wainwright | ||||
/s/ David Gelbaum
|
Director
|
January
14, 2010
|
||
David Gelbaum | ||||
II-10