by Debra Fiakas CFA
While the rest of the battery industry is trying to perfect new technologies, Axion Power International (AXPW: OTC/QB) has been working on a fix for conventional lead acid batteries. Low cost made the lead acid batteries popular even from the early days when a French scientist first introduced the configuration in the mid 1800s. Lead-acid technologies represent about half of batteries made today.
Unfortunately, lead-acid batteries have low energy-to-weight and volume. Storage times are limited. They also have corrosion problems. The active materials in lead-acid batteries change physical form during charge and discharge. This results in growth and distortion of the electrodes, as well as the shedding of electrode into the electrolyte. Consequently, lead-acid batteries require significant maintenance and have a relatively short useful life.
Axion has by-passed some of these problems by replacing the negative electrode in the conventional lead-acid battery with a supercapacitor made of activated carbon. Unlike the conventional battery, this carbon negative electrode undergoes not chemical reaction. The result is a reduction in corrosion on the positive electrode and longer battery life.
The company has had some success in the market with its battery solution that is branded the SuperCube, but the company has yet to achieve profitability. Sales in the most recently reported twelve months were $10.2 million. This compares to $9.7 million in the year 2012 and represents 4.1% year-over-year growth. However, the net loss was $8.8 million and Axion used $6.8 million in cash to support operations. That is a concern since the company only had $1.1 million in cash on its balance sheet at the end of September 2013.
The company has other financial resources. Axion completed a financing earlier this year, raising $10 million through a convertible note issue. The offering was sold privately and provided for periodic withdrawals from a control account. At the end of September 2013, approximately $5.4 million remained in the control account.
The company appointed a new chief financial officer in October. Most likely his is focused on how to make the company limited cash resources last as long as possible. One big plus for the company is a new order for its SuperCube battery valued at $320,000. The SuperCube battery will be installed next to a solar panel system for storage and frequency regulation. The company gets a down payment with the solar project order, which should help supplement Axion’s own working capital. A few more orders like that and Axion’s financial picture should improve substantially.
Axion is priced below a dollar and for some may represent to much risk. The terms of that convertible note also provided for a variable conversion rate. Such terms typically invite a bit of manipulation to push the stock price lower so as to lock in more favorable conversion rates. It will take some time for the company to work through this convertible note issue. Expect continued share price repression for some time to come.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.