UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period EndedMarch 31, 2014
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
AXION POWER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 65-0774638 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| Incorporation or organization) | Identification No.) | |
| 3601 Clover Lane | ||
| New Castle, Pennsylvania | 16105 | |
| (Address of principal executive offices) | (Zip Code) |
(724) 654-9300
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No¨
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 “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer¨ | Accelerated filer¨ |
Non-accelerated filer¨ (Do not check if a smaller reporting company) | Smaller reporting companyþ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o Noþ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Title of Each Class | Outstanding Shares at April 28, 2014 | |||
| Common Stock, $0.0001 par value | 221,511,725 | |||
AXION POWER INTERNATIONAL, INC.
FORM 10-Q
Report Index
| 2 |
PART I - FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS |
AXION POWER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| March 31, 2014 | December 31, 2013 | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 1,609,466 | $ | 1,169,093 | ||||
| Restricted cash | 1,566,678 | 3,780,341 | ||||||
| Accounts receivable | 258,141 | 562,583 | ||||||
| Other current assets | 160,039 | 281,055 | ||||||
| Inventory, net | 2,542,371 | 2,250,637 | ||||||
| Total current assets | 6,136,695 | 8,043,709 | ||||||
| Property & equipment, net | 6,356,959 | 6,698,536 | ||||||
| Other receivables | 26,000 | 29,000 | ||||||
| Total Assets | $ | 12,519,654 | $ | 14,771,245 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Accounts payable | $ | 487,146 | $ | 420,337 | ||||
| Other liabilities | 179,265 | 352,857 | ||||||
| Note payable | 104,777 | 104,777 | ||||||
| Accrued interest | 72,000 | 52,001 | ||||||
| Subordinated convertible notes, net of discount | 647,926 | 583,574 | ||||||
| Senior convertible notes, net of discount | 390,000 | 2,046,948 | ||||||
| Total current liabilities | 1,881,114 | 3,560,494 | ||||||
| Deferred revenue | 822,200 | 922,362 | ||||||
| Note payable | 191,314 | 219,722 | ||||||
| Derivative liability senior warrants | 2,937,788 | 518,433 | ||||||
| Total liabilities | 5,832,416 | 5,221,011 | ||||||
| Stockholders’ Equity | ||||||||
| Convertible preferred stock – 12,500,000 shares designated 0 shares issued and outstanding | - | - | ||||||
| Common stock-350,000,000 shares authorized $0.0001 par value 216,045,389 shares issued & outstanding (180,401,405 in 2013) | 21,576 | 18,039 | ||||||
| Additional paid in capital | 109,947,789 | 106,302,018 | ||||||
| Retained earnings (deficit) | (103,030,515 | ) | (96,518,212 | ) | ||||
| Cumulative foreign currency translation adjustment | (251,612 | ) | (251,611 | ) | ||||
| Total stockholders’ equity | 6,687,238 | 9,550,234 | ||||||
| Total Liabilities & Stockholders’ Equity | $ | 12,519,654 | $ | 14,771,245 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
AXION POWER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME and COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| Net sales | $ | 2,314,300 | $ | 2,237,647 | ||||
| Cost of tangible goods sold | 2,352,636 | 2,260,479 | ||||||
| Cost of goods sold – idle capacity | 437,257 | 501,441 | ||||||
| Gross loss | (475,593 | ) | (524,273 | ) | ||||
| Research and development expense | 443,926 | 517,801 | ||||||
| Selling, general and administrative expense | 1,113,597 | 1,021,664 | ||||||
| Other (income) expense | (43,791 | ) | - | |||||
| Operating loss | (1,989,325 | ) | (2,063,738 | ) | ||||
| Change in value of senior warrants, loss | 2,419,355 | - | ||||||
| Change in value conversion feature senior notes, (gain) | (32 | ) | - | |||||
| Debt discount amortization expense | 809,334 | - | ||||||
| Interest expense, note payable | 5,359 | 4,580 | ||||||
| Extinguishment loss on senior notes conversion | 834,000 | - | ||||||
| Derivative revaluations expense (income) | - | (1,063 | ) | |||||
| Interest on convertible notes | 454,963 | - | ||||||
| Loss before income taxes | (6,512,304 | ) | (2,067,255 | ) | ||||
| Income taxes | - | - | ||||||
| Net loss | (6,512,304 | ) | (2,067,255 | ) | ||||
| Foreign translation adjustment | (1 | ) | 64 | |||||
| Comprehensive income (loss) | $ | (6,512,305 | ) | $ | (2,067,191 | ) | ||
| Loss per share | ||||||||
| Basic and diluted net loss per share | $ | (0.03 | ) | $ | (0.02 | ) | ||
| Weighted average common shares outstanding | 201,274,198 | 113,285,979 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
AXION POWER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2014 | 2013 | |||||||
| Operating Activities | ||||||||
| Net loss | $ | (6,512,304 | ) | $ | (2,067,255 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities for non cash items | ||||||||
| Depreciation | 371,870 | 360,332 | ||||||
| Derivative revaluations (gain) | - | (1,063 | ) | |||||
| Change in value senior warrants, loss | 2,419,355 | - | ||||||
| Change in value conversion feature senior notes, (gain) | (32 | ) | - | |||||
| Debt discount amortization expense | 742,404 | - | ||||||
| Interest accrued, senior convertible notes paid in common stock | 434,963 | - | ||||||
| Extinguishment loss | 834,000 | - | ||||||
| Amortization deferred finance costs | 66,930 | - | ||||||
| Share based compensation expense | 37,905 | 92,685 | ||||||
| Changes in operating assets & liabilities | ||||||||
| Accounts receivable | 304,442 | 484,434 | ||||||
| Other current assets | 54,087 | (1,731 | ) | |||||
| Inventory, net | (291,734 | ) | 85,426 | |||||
| Accounts payable | 66,809 | 44,117 | ||||||
| Other current liabilities | (166,123 | ) | (32,958 | ) | ||||
| Accrued interest | 20,000 | - | ||||||
| Deferred revenue | (100,162 | ) | (84,983 | ) | ||||
| Cash (used) by operating activities | (1,717,590 | ) | (1,120,996 | ) | ||||
| Investing Activities | ||||||||
| Other receivables | 3,000 | 3,000 | ||||||
| Purchase of property & equipment | (30,294 | ) | (90,820 | ) | ||||
| Cash (used) by investing activities | (27,294 | ) | (87,820 | ) | ||||
| Financing Activities | ||||||||
| Repayment of note payable | (28,407 | ) | (36,713 | ) | ||||
| Change in restricted cash account | 2,213,663 | - | ||||||
| Cash provided (used) by financing activities | 2,185,256 | (36,713 | ) | |||||
| Net change in cash and cash equivalents | 440,372 | (1,245,529 | ) | |||||
| Effect of exchange rate on cash | (1 | ) | 64 | |||||
| Cash and cash equivalents – beginning | 1,169,093 | 2,004,391 | ||||||
| Cash and cash equivalents – ending | $ | 1,609,466 | $ | 758,926 | ||||
| Supplemental schedule of Non Cash Investing and Financing Activities: | ||||||||
| Common stock issued for principal payments on senior notes: | $ | 2,335,000 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
AXION POWER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
| 1. | Financial Statements |
In the opinion of management the accompanying unaudited consolidated financial statements contain all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of income and comprehensive income and cash flows for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC). These consolidated financial statements should be read in conjunction with the audited financial statements and footnotes thereto in the Axion Power International, Inc. (“the Company”) Annual Report on Form 10-K for the year ended December 31, 2013. The results of income for the three month period ended March 31, 2014 are not necessarily indicative of results of income and comprehensive income for the Company’s 2014 calendar year.
Certain amounts for the results of income for the three month period ending March 31, 2013 have been revised to conform to the current year’s presentation.
| 2. | New Accounting Pronouncements |
During the first quarter of 2014, there were no new accounting standards, that if adopted, that would have significant impact on the Company’s consolidated financial position, results of operations and cash flows.
| 3. | Inventories |
Inventories consist of the following:
| March 31, 2014 | December 31, 2013 | |||||||
| Raw materials and components | $ | 1,082,706 | $ | 1,073,034 | ||||
| Work in process | 1,345,638 | 1,235,029 | ||||||
| Finished goods | 334,622 | 163,228 | ||||||
| Inventory reserves | (220,595 | ) | (220,654 | ) | ||||
| $ | 2,542,371 | $ | 2,250,637 | |||||
| 4. | Warrants |
Warrants consist of the following:
| Shares | Weighted average exercise price | Weighted average remaining contract term (years) | ||||||||||
| Warrants outstanding at January 1, 2014 | 20,826,436 | $ | 0.31 | 4.3 | ||||||||
| Granted | 151,515 | 0.30 | 5.0 | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited or lapsed | - | - | - | |||||||||
| Warrants outstanding at March 31, 2014 | 20,997,951 | $ | 0.31 | 4.1 | ||||||||
| 6 |
AXION POWER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
| 5. | Equity Compensation |
The Company adopted ASC 718 “Compensation – Stock Compensation” whereby 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”. 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 expense for options was $ 37,905 of which $ 26,504 was for Director’s compensation in lieu of cash, for the three months ended March 31, 2014 and had no impact on the diluted loss per share calculation.
Outstanding compensatory options consist of the following based on grant date as of March 31, 2014:
| Weighted Average | ||||||||||||||||||||
| All Compensatory Options | Number of Options | Exercise | Fair Value | Remaining Life (years) | Aggregate Intrinsic Value | |||||||||||||||
| Options outstanding at December 31, 2013 | 5,192,140 | $ | 1.22 | $ | 0.46 | 3.7 | $ | - | ||||||||||||
| Granted | 700,000 | 0.15 | 0.06 | 5.0 | - | |||||||||||||||
| Exercised | - | - | - | - | - | |||||||||||||||
| Forfeited or lapsed | (48,750 | ) | 3.01 | 0.85 | - | - | ||||||||||||||
| Options outstanding at March 31, 2014 | 5,843,390 | $ | 1.07 | $ | 0.37 | 3.8 | $ | 56,925 | ||||||||||||
| Options exercisable at March 31, 2014 | 4,146,523 | $ | 1.40 | $ | 0.48 | 2.8 | $ | 18,708 | ||||||||||||
All non-vested compensatory stock options consist of the following as of March 31, 2014:
| All Options | ||||||||
| Shares | Fair Value | |||||||
| Options subject to future vesting at December 31, 2013 | 1,760,411 | $ | 0.27 | |||||
| Options granted | 700,000 | 0.06 | ||||||
| Options forfeited or lapsed | (48,750 | ) | 0.85 | |||||
| Options vested | (714,794 | ) | 0.16 | |||||
| Options subject to future vesting at March 31, 2014 | 1,696,867 | $ | 0.09 | |||||
As of March 31, 2014, there was $179,218 of unrecognized compensation related to non-vested options granted under the plans. The Company expects to recognize this expense over a weighted average period of 3.8 years.
| 6. | 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.
| 7 |
AXION POWER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
If the Company had generated earnings during the three months ended March 31, 2014 and 2013, the Company would have added 8,608,375 and 89,924 respectively, of common equivalent shares to the weighted average shares outstanding to compute the diluted weighted average shares outstanding.
| 7. | Senior Convertible Notes and Warrants, and Subordinated Notes and Warrants |
On May 8, 2013, the Company consummated the sale of $9 million in aggregate principal amount of senior convertible notes (the “Senior Notes”) due on February 8, 2015 and warrants (the “Senior Warrants”) to various institutional investors (“Investors”). At closing, the Company received $2.76 million in net proceeds, after deducting placement agent fees of $240,000. Total offering expenses were $494,500 and were recorded as deferred financing fees. The $6,000,000 balance of the gross proceeds from the sale of Senior Notes was deposited into a series of control accounts in the Company’s name. Withdrawals from the control accounts are permitted (i) in connection with certain conversions of the Senior Notes or (ii) otherwise, as follows: $500,000 on each 30 day anniversary of the closing date (May 8, 2013) commencing on the 60th day after the closing date until there are no more funds in the control accounts. The Senior Notes and Senior Warrants and the Subordinated Notes and Subordinated Warrants described below were issued in transactions exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. As of March 31, 2014 we have received $ 5,062,500 funds release and an additional $547,500 due to accelerated note conversions by the investors.
The following is intended to provide a summary of the terms of the agreements and securities described above. This summary is qualified in its entirety by reference to the full text of the agreements, each of which is attached as an exhibit to our Current Report on Form 8-K filed with the SEC on May 8, 2013. Readers should review those agreements for a complete understanding of the terms and conditions associated with these transactions.
Securities Purchase Agreement
The Senior Convertible Notes and Senior Warrants were issued pursuant to the terms of a Securities Purchase Agreement (“Purchase Agreement”) entered into among us and the Investors. The Purchase Agreement provided for the sale of the Senior Convertible Notes and Senior Warrants for gross proceeds of $9 million to us.
Ranking -The Senior Notes are senior unsecured obligations of the Company, subject only to certain secured obligations of the Company for up to a maximum of $1 million of government issued indebtedness for purchase of plant and machinery and other purchase money financing for property, plant and equipment.
Maturity Date -Unless earlier converted or redeemed, the Senior Notes mature 21 months from the closing date subject to the right of the investors to extend the date (i) if an event of a default under the Senior Notes has occurred and (ii) for a period of 20 business days after the consummation of a fundamental transaction if certain events occur.
Interest -The Senior Notes bear interest at the rate of 8% per year, compounded monthly on the first calendar day of each calendar month. The interest rate will increase to 18% per year upon the occurrence and continuance of an event of default (as described below).
Conversion -The Senior Notes are convertible at any time at the option of the holders, into shares of the Company’s common stock at an initial conversion price of $0.264 per share (subsequent conversions are based on the company’s volume weighted average price per share). The conversion price is subject to adjustment for stock splits, combinations or similar events. In addition, the conversion price is also subject to a “full ratchet” anti-dilution adjustment if the company issues or is deemed to have issued securities at a price lower than the then applicable conversion price. In the event certain equity conditions are not met, the company may be prevented from issuing shares to satisfy the installments due on the note.
The Senior Notes may not be converted with respect to any note holder if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the Company’s outstanding shares of common stock. At each holder’s option, the limit on percentage ownership may be raised or lowered to any other percentage not in excess of 9.99%, except that any raise will only be effective upon 61-days’ prior notice to the Company.
| 8 |
AXION POWER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
Interest -The Senior Notes bear interest at the rate of 8% per year, compounded monthly on the first calendar day of each calendar month. The interest rate will increase to 18% per year upon the occurrence and continuance of an event of default (as described below).
Conversion -The Senior Notes are convertible at any time at the option of the holders, into shares of the Company’s common stock at an initial conversion price of $0.264 per share (subsequent conversions are based on the company’s volume weighted average price per share). The conversion price is subject to adjustment for stock splits, combinations or similar events. In addition, the conversion price is also subject to a “full ratchet” anti-dilution adjustment if the company issues or is deemed to have issued securities at a price lower than the then applicable conversion price. In the event certain equity conditions are not met, the company may be prevented from issuing shares to satisfy the installments due on the note.
The Senior Notes may not be converted with respect to any note holder if, after giving effect to the conversion or issuance, the holder together with its affiliates would beneficially own in excess of 4.99% of the Company’s outstanding shares of common stock. At each holder’s option, the limit on percentage ownership may be raised or lowered to any other percentage not in excess of 9.99%, except that any raise will only be effective upon 61-days’ prior notice to the Company.
Events of Default
The Senior Notes contain standard and customary events of default including but not limited to: (i) failure to register our Common Stock within certain time periods; (ii) failure to make payments when due under the Senior Notes; and (iii) bankruptcy or insolvency of the Company.
If an event of default occurs, the Senior Note holders may require the Company to redeem all or any portion of the Senior Notes (including all accrued and unpaid interest thereon), in cash, at a price equal to the greater of (i) up to 125% of the amount being redeemed, depending on the nature of the default, and (ii) the intrinsic value of the shares of Common Stock then issuable upon conversion of the Convertible Note.
Fundamental Transactions
The Senior Notes prohibit the Company from entering into specified transactions involving a change of control, unless the successor entity assumes in writing all obligations under the Senior Notes under a written agreement.
In the event of transactions involving a change of control, the Senior Notes will be redeemable whole or in part (including all accrued and unpaid thereon) at a price equal to the greater 125% of the amount of the face value of the Senior Note being redeemed and the intrinsic value of the shares of Common Stock then issuable upon conversion of the Senior Note being redeemed.
Warrants
The Warrants entitle the holders to purchase, in the aggregate, 17,281,107 shares of common stock. The Warrants were exercisable beginning November 8, 2013 and will expire 5 years from the Closing Date. The Warrants are initially exercisable at an exercise price equal to $0.302, subject to certain adjustments. The Warrants may be exercised for cash, provided that, if there is no effective registration statement available registering the exercise of the Warrants, the Warrants may be exercised on a cashless basis.
The exercise price of the Warrants is subject to adjustment for stock splits, combinations or similar events. In addition, the exercise price is also subject to a “full ratchet” anti-dilution adjustment if we issue or are deemed to have issued securities at a price lower than the then applicable exercise price.
The Warrants may not be exercised with respect to any warrant holder if, after giving effect to the exercise, the warrant holder together with its affiliates would beneficially own in excess of 4.99% of our outstanding shares of common stock. At each Warrant holder’s option, the limit on percentage ownership may be raised or lowered to any other percentage not in excess of 9.99%, except that any increase will only be effective upon 61-days’ prior notice to the Company.
| 9 |
AXION POWER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
The Senior Warrants prohibit the Company from entering into specified transactions involving a change of control, unless the successor entity assumes all obligations under the Senior Warrants under a written agreement before the transaction is completed. When there is a transaction involving a permitted change of control, a Senior Warrant holder will have the right to require us to repurchase their Senior Warrant for a purchase price in cash equal to the Black-Scholes value of the then unexercised portion of the Senior Warrant.
Accounting for the Conversion Option and Warrants
The Company first considered whether the notes met the criteria under ASC 480-10-25-14 to be recorded as a liability and determined that, due to the note’s differing potential settlement features, it did not meet the criteria. The Company next considered whether the conversion option met the definition of a derivative, requiring it to be bifurcated and recorded as a liability. Pursuant to ASC 815-40, due to full-ratchet down-round price protection on the conversion price of the Senior Notes and the exercise price of the Warrants, the Company determined that the conversion features of the Senior Notes and the exercise price of the Senior Warrants, the Company determined that the conversion features of the Senior Notes and the exercise features of the Senior Warrants are not indexed to the Company’s owned stock and must be recognized separately as a derivative liability in the consolidated balance sheet, measured at fair value and marked to market each reporting period until the Senior Notes have been fully paid or converted and the Senior Warrants fully exercised.
The conversion feature of the Senior Notes was valued using the Monte Carlo simulation model under the following assumptions at issuance; (i) expected life of 0.9 years, (ii) volatility of 60%, (iii) risk-free interest rate of 0.10%, and (iv) dividend rate of 0. The Senior Warrants were also valued using the Monte Carlo simulation model, under the following assumptions: (i) expected life of 5 years, (ii) volatility of 0.80%, (iii) risk-free interest rate of 0.75%, and (iv) dividend rate of zero. The initial fair values of the conversion feature and the warrants were estimated to be $2.9 million and $1.5 million, respectively, totaling $4.4 million. This amount was recorded as debt discount on May 8, 2013 and is being amortized over the term of the note using the effective interest method. In addition, debt issuance costs totaling $494,500 are being amortized over the term of the note using the effective interest method. The amortization of the $494,500 was completed as of March 31, 2014.
As of March 31, 2014, the conversion feature was valued at zero and the Senior Warrants were valued at $2,937,788. The change in fair value of $2,414,523 million was recorded as a non-cash loss in change in value of these derivatives for the quarter ended March 31, 2014.The Senior Warrants and the conversion feature of the Senior Notes are classified as a liability in the consolidated condensed balance sheet as follows:
| Warrants | Conversion Feature | Total | ||||||||||
| December 31, 2013 | $ | 518,433 | $ | 32 | $ | 518,465 | ||||||
| Adjustment to fair value | 2,419,355 | (32 | ) | 2,419,323 | ||||||||
| Ending Balance –March 31, 2014 | $ | 2,937,788 | $ | - | $ | 2,937,788 | ||||||
Pursuant to the terms of the Senior Notes, the Company opted to pay the installment payments due prior to March 31, 2014 with shares of the Company’s common stock. As of March 31 2014, the Company issued 96,828,241 million shares of common stock at a weighted average conversion price of $0.0973 for the first $7,750,000 million in principal and $1,615,833 of interest. In addition shares were issued for accelerated conversions netted a release of $860,000 thousand. A loss on extinguishment was recognized in the amount of $2,791,689, for the difference between the installment amount and the fair value of the shares at the issuance date. As of March 31, 2014, the principal balance of the Senior Notes (net of discount) was as follows:
| Convertible Note | Debt Discount | Net Total | ||||||||||
| December 31, 2013 | $ | 2,725,000 | $ | (678,052 | ) | $ | 2,046,948 | |||||
| Installment Payments in Shares | (2,335,000 | ) | - | (2,335,000 | ) | |||||||
| Amortization of debt discount | 678,052 | 678,052 | ||||||||||
| Ending Balance – March 31, 2014 | $ | 390,000 | $ | - | $ | 390,000 | ||||||
| 10 |
AXION POWER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
Placement Agent Warrants
Upon the closing of the issuance of the Senior Notes and Senior Warrants, the Company issued 909,090 warrants to its placement agent and is obligated to issue additional warrants when and if the Company receives further proceeds from the sale of the Senior Notes and Senior Warrants which are currently being held in the control accounts described above. The initial placement agent warrants have been recognized as additional financing fees and are being amortized over the life of the Senior Notes. These warrants were determined not to be derivative instruments, and as such they have been recorded as equity. The fair value of the initial issuance of 909,090 placement agent warrants was estimated to be $144,000 using the Black-Scholes model with the following assumptions: (i) expected life of 5 years, (ii) volatility of 80%, (iii) risk free interest rate of 0.75% and (iv) dividend yield of zero. The total number of warrants issued as of March 31, 2014, is 1,731,060.
Subordinated Convertible Notes and Subordinated Warrants
Simultaneously with the closing of the $9 million principal amount Senior Note transaction, the Company sold $1 million principal amount of its Subordinated Convertible Notes (the “Subordinated Notes”) to investors consisting of management and directors of the Company and one individual investor. The sale of the Subordinated Notes did not carry any additional fees and expenses, so the Company received the entire $1 million in proceeds from the Subordinated Notes at closing. The Subordinated Notes are subordinated in right of repayment to the Senior Notes and mature 91 days subsequent to the maturity date of the Senior Notes. The Subordinated Notes bear interest at the rate of 8% per year. Once 2/3 of the Senior Notes have been repaid, then the Subordinated Notes may be converted and/or prepaid in cash so long as there is no Event of Default with respect to the Senior Notes and all Equity Conditions (as defined in the securities purchase agreement for the Senior Notes) are met. The conversion price for the Subordinated Notes is $0.264 per share. The holders of the Subordinated Convertible Notes were issued five year warrants to purchase 1,920,123 shares of Company common stock (“Subordinated Warrants”). Each Subordinated Warrant has an exercise price of $0.302 per share.
As the conversion feature of the Subordinated Notes and the related warrants were determined not to be derivative instruments, in accordance with the guidance in ASC Topic 470-20 Debt with Conversion and Other Options (“ASC 470”), the Company first calculated the fair value of the warrants issued and then calculated the relative value of the note and determined that there was a beneficial conversion feature in the amount of $246,000. Conversion of the Subordinated Notes is conditioned upon 2/3 of the Senior Notes being repaid, and therefore the beneficial conversion feature was determined to be contingent and therefore was not booked at the date of issuance. During the fourth quarter of 2013, the contingency was met and therefore the beneficial conversion feature was recorded to additional paid in capital with the offset to debt discount. The debt discount is being amortized over the remaining term of the subordinated convertible notes using the effective interest method.
The fair value of the warrants, issued in connection with the Subordinated Notes is $304,000 in the aggregate and was calculated using the Black-Scholes option pricing model with the following assumptions: (i) expected life of 5 years, (ii) volatility of 80%, (iii) risk free interest rate of 0.75% and (iv) dividend yield of zero.
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AXION POWER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(unaudited)
The relative value of the warrants to the note was $263,000, which was the amount recorded as original debt discount.
The balance at March 31, 2014, related to the Subordinated Notes was comprised of:
| Convertible notes payable, related and unrelated parties at December 31, 2013 | $ | 1,000,000 | ||
| Unamortized debt discount | 352,074 | |||
| Ending balance at March 31, 2014 | $ | 647,926 |
Fair Value Disclosure
The Company has two Level 3 financial instruments, Senior Warrants and the conversion feature associated with the Senior Notes, which are both recorded at fair value on a periodic basis. The Senior Warrants and the conversion feature are evaluated under the hierarchy of FASB ASC Subtopic 480-10, FASB ASC Paragraph 815-25-1 and FASB ASC Subparagraph 815-10-15-74 addressing embedded derivatives. The fair value of the warrants and the conversion feature are estimated using the Monte Carlo simulation model. As of March 31, 2014, the following table represents the Company’s fair value hierarchy for items that are required to be measured at fair value on a recurring basis:
| Fair | ||||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Embedded note conversion feature | $ | - | $ | - | ||||||||||||
| Warrant liability | $ | 2,937,788 | $ | 2,937,788 | ||||||||||||
| 8. | Going concern |
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. At March 31, 2014 the Company’s working capital was $4.3 million. The financial resources of the Company will not provide sufficient funds for the Company’s operations beyond October 1, 2014, as those operations currently exist. Subsequent funding will be required to fund the Company’s ongoing operations, working capital, and capital expenditures beyond October 1, 2014. No assurances can be given that the Company will be successful in arranging the further funds needed to continue the execution of its business plan, which includes the development and commercialization of new products, or even if further funding is available, upon what terms. Failure to obtain such funds on terms acceptable to the Company’s management 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 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.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Cautionary Note Regarding Forward-Looking Information
The following Management’s discussion and Analysis (“MD&A”) is written to help the reader understand our Company. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements, the accompanying consolidated financial statement notes appearing elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2013.
Key Performance Indicators, Material Trends and Uncertainties
Our primary activity is the development, design, manufacture and marketing of advanced energy storage devices and provide related components that are primarily based on our patented PbC technology.
We utilize appropriate non-financial measures to evaluate the performance of our research and development and engineering activities and projects with prospective customers. 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 most significant financial metrics for our business as we moved into our initial commercialization phase in 2014 are:
| · | Revenue growth of our PbC technologies. |
| · | Generating an acceptable and competitive level of operating profit from our revenue (as measured by EBITDA). |
| · | Assurance that we can access the growth capital required to fund our short and long-term business requirements. |
We believe we will need to continue to characterize and perfect our products through working with prospective customers in a limited number of projects as we move into full commercial production. While the results of this work are moving toward that goal, we cannot provide assurances that the products will be successful in their present design or that further research and developmentwill not be needed. The successful completion of present and future characterization and demonstration projects is critical to the development and acceptance of our technology.
While we improved our methodologies for manufacturing carbon electrode assemblies for our energy storage devices in commercial quantities, there is no assurance that we will be able to successfully manufacture our product in larger commercial quantities on an ongoing basis.
Financing Activities
In May 2013, we entered into a $9,000,000 private placement of senior and $1,000,000 subordinated convertible notes for which we received $2,760,000 in net proceeds at closing from the senior convertible note, after deducting our placement agent’s fee of $240,000. Our other offering expenses, other than our placement agent’s fees, are approximately $100,000 in related expenses were paid out of the proceeds at closing. Also at closing, $6,000,000 was placed into a restricted account; amounts are being released from the account for the Company’s use in 12 equal monthly installments. At each Funds Release, we receive approximately $460,000 in net proceeds, after deducting placement agent’s fee of $40,000. With respect to the subordinated convertible notes, we received the entire $1,000,000 principal amount at closing.
Results of Operations:
Our onsite PowerCube continues to provide frequency regulation in the PJM network through our CSP provider – Viridity Energy. It has been more than 30 months since we commissioned this Cube and it continues to serve as a real world demonstration unit. Potential customers visit our project site and can observe the REG D screens showing the PJM signal, and how we participate, in real time. This has been very helpful to us in explaining our technology and model and in providing a real world proof of application. In the first quarter of 2014, we installed batteries, racks, BMS, controller, wiring and miscellaneous equipment at the New Jersey onsite location of our 500kw system being installed with our strategic partner. This unit will participate daily in the PJM frequency regulation market in accordance with our model. We still feel, as does our strategic partner – more strongly than ever based on our model and past PJM records –this 500kw installation will provide the Owner more than $9,000 per month (net after expense) in frequency regulation revenue. This attractive ROI and IRR are major points of focus in our go forward marketing plan for our PowerCubes. This revenue is in addition to the storage and emergency back- up capability the PowerCube will provide.
In an event subsequent to the end of the first quarter, that same New Jersey customer issued us a purchase order for four (4) additional 500kw PowerCube units designed to provide frequency regulation to PJM in a range covering 500kw up and 500kw down. This follow up order is further validation of their belief in our PbC product and our frequency regulation model. They have viewed our test data, and our real world PJM revenue stream data, which they indicated was the impetus for the follow-up order. This purchase order (which is in excess of $1.1M), is the next step in our planned partnership that will include multiple – like sized – 500kw units in and out of New Jersey. In addition, our partnership is planning larger sized PowerCubes (1MW and beyond) in both New Jersey and in other states that have very competitive SREC credits and other incentives.
In a separate initiative with investors, we continue to pursue site selection for multi mega-watt systems that would service the frequency regulation market. Our 1.25MW (or any multiple thereof) building block is a sweet spot for this market.
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On the smaller side of the storage equation, in the first quarter of 2014, we sold, installed and subsequently fully commissioned a 10kw miniCube unit complete with a 12kw solar array. This unit was installed for a private individual in New Castle and will provide us with additional information about our smaller applications that might be tied to solar and islanded or be grid tied, as well as data on the system’s use as an electric vehicle charging station. This is one of our offshore initiatives, so we are very interested in that data. Currently the Owner is using that system to charge his Tesla and to net meter. Both applications have been working well.
Our work with ePower Engine Systems continues in accordance with our business plan. We are thoroughly committed to the ePower series hybrid system that incorporates PbC batteries through 56 battery strings in Series 8 heavy duty 18 wheel trucks. In the first quarter we appointed Dr. James Smith to a position of consultant to the company and liaison to ePower. As previously stated, Dr. Smith owned, and was directly involved in a Class 8 trucking business for more than 20 years. His appointment further demonstrates our commitment to the ePower series hybrid initiative and underscores our recognition of the tremendous revenue opportunity this market offers to our PbC battery product.
ePower recently purchased four (4) trucks for conversion to their series hybrid system and Axion has been issued a purchase order to provide 56 batteries per truck. The conversion of these trucks will allow ePower to continue their progress in improving fuel economy – on a mile per gallon basis. Their testing has shown that their system will also significantly reduce emissions of all types, which meshes well with the US government’s announced emphasis in this area. We have spoken before about the potential of the series hybrid opportunity. Looking at the industry opportunity, there are approximately 2.7 million Series 8 heavy duty trucks on the road in the United States. Depending on route characteristics, these trucks will be rebuilt every 4 to 6 years. If one extrapolates, a very conservative average rebuild number, of 250,000 trucks annually, then the battery sales opportunity for the converted series hybrid - for battery manufacturers - would be approximately 14 million batteries on an annual basis (or approximately $5 billion).
Although our work continues in other areas:
| · | Hybrid trains with Norfolk Southern on both all electric ‘yard slugs’ and ‘over the road’ hybrid trains; |
| · | Vehicle manufactures with single or two battery systems for micro-hybrid and stop/stat markets; |
| · | Off grid power and storage for grid tied and non-grid tied applications; |
| · | Street lights and charging stations; |
| · | And numerous demonstration project: |
and we are not ignoring or abandoning these opportunities in any way – our main focus is on PowerCubes in several sizes for various power and storage applications and on heavy duty hybrid trucks.
Overview
Axion Power International, Inc. (the “Company”, Axion, “we”, “our”, or “us”) is a company whose primary purpose is to develop, design, manufacture, source related components and sell advanced energy storage devices and components that are based on our patented PbC Technology. Net sales are derived from the sale of lead-acid batteries for specialty collector and racing cars; sales of AGM batteries and flooded lead-acid batteries; sales of PbC batteries and PbC energy storage components, devices and systems. Advanced batteries using our PbC technology are manufactured primarily through the use of activated carbon as an alternative to lead in the battery’s negative electrode and have application in virtually all energy system storage functions. It is the Company’s long term goal to become a primary supply source of PbC negative electrodes to established battery manufacturers.
| · | Our primary activity is the development, design, manufacture, sourcing and marketing of advanced energy storage devices, components and systems that are primarily based on our patented PBC technology. |
| · | Net sales are derived from the sale of lead - acid batteries for specialty collector and racing cars; sales of AGM batteries and flooded lead- acid batteries: sales of PbC batteries and PbC energy storage components and devices and from the sales of products and services related to advanced battery applications for our PbC technology. |
| · | Cost of tangible goods sold include raw materials, components, labor, and allocated manufacturing overhead to produce batteries and provide components for PbC energy storage devices and lead-acid batteries sold to customers. Cost of tangible goods sold represented in our current financial statements may not be indicative of the future costs to produce batteries and provide components for PbC energy storage devices. Also included in tangible cost of goods sold are provisions for inventory valuation and obsolescence reserves. |
| · | Cost of goods sold – idle capacity include direct production costs in excess of charges allocated to our finished goods in production. Operating costs include labor, production supplies, repairs and maintenance. Our charges for labor and overhead allocated to our finished goods are determined on a basis which is calculated presuming normal capacity utilization of two shifts a day, five days per week, which is lower than our actual production costs incurred. Operating costs in excess of production allocations are expensed in the period incurred rather than to the cost of finished goods produced. Cost of goods sold - idle capacity for the first quarter of 2014 was $437,257. The Company has reclassified amounts identified as “idle capacity” for the first quarter of 2013 of $501,441 and has reported such as part of cost of goods sold – idle capacity. |
| · | Research and development expenses (“R&D”) include expenses to design, develop and test advanced batteries, carbon electrode assemblies and systems for our energy storage products with prospective customers based on our patented lead carbon technology. Also included in R&D are materials consumed in the production of pilot plant production and our engineering activities. |
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| · | Selling, general and administrative expenses include business development, sales and marketing expenses; administrative expenses; and, expenses associated with being a public company. |
Results of Operations
Summarized selected financial data for the three months ended March 31, 2014 and 2013:
| 2014 | 2013 | Change | % Change | |||||||||||||
| Net sales | $ | 2,314,300 | $ | 2,237,647 | $ | 76,653 | 3 | % | ||||||||
| Cost of tangible goods sold | 2,352,636 | 2,260,479 | 92,157 | 4 | % | |||||||||||
| Cost of goods sold – idle capacity expense | 437,257 | 501,441 | (64,184 | ) | 13 | % | ||||||||||
| Gross loss | $ | (475,593 | ) | $ | (524,273 | ) | 48,680 | 9 | % | |||||||
| Research and development expenses | 443,926 | 517,801 | (73,875 | ) | 14 | % | ||||||||||
| Selling, general and administrative expenses | 1,113,597 | 1,021,664 | 91,933 | 9 | % | |||||||||||
| Other (income) expense | (43,791 | ) | - | 43,791 | 100 | % | ||||||||||
| Operating loss | (1,989,325 | ) | (2,063,738 | ) | (74,413 | ) | 4 | % | ||||||||
| Change in value senior warrants, loss | 2,419,355 | - | 2,419,355 | 100 | % | |||||||||||
| Change in value conversion feature senior notes, (gain) | (32 | ) | - | (32 | ) | 100 | % | |||||||||
| Debt discount amortization expense | 809,334 | - | 809,334 | 100 | % | |||||||||||
| Interest expense, note payable | 5,359 | 4,580 | 779 | 17 | % | |||||||||||
| Extinguishment loss on senior notes conversion | 834,000 | - | 834,000 | 100 | % | |||||||||||
| Derivative revaluations expense (income) | (1,063 | ) | 1,063 | |||||||||||||
| Interest on convertible notes | 454,963 | 454,963 | 100 | % | ||||||||||||
| Net loss before income taxes | $ | (6,512,304 | ) | $ | (2,067,255 | ) | $ | (4,445,049 | ) | 215 | % | |||||
Reconciliation of net loss to EBITDA
| 2014 | 2013 | Change | % Change | |||||||||||||
| GAAP Net loss before income taxes | $ | (6,512,304 | ) | $ | (2,067,255 | ) | $ | (4,445,049 | ) | 215 | % | |||||
| Change in value senior warrants, loss | 2,419,355 | - | 2,419,355 | 100 | % | |||||||||||
| Change in value conversion feature senior notes, (gain) | (32 | ) | - | (32 | ) | 100 | % | |||||||||
| Debt discount amortization expense | 809,334 | - | 809,334 | 100 | % | |||||||||||
| Interest expense, note payable | 5,359 | 4,580 | 779 | 17 | % | |||||||||||
| Extinguishment loss on senior notes conversion | 834,000 | - | 834,000 | 100 | % | |||||||||||
| Derivative revaluations (income) | (1,063 | ) | 1,063 | |||||||||||||
| Interest on convertible notes | 454,963 | 454,963 | 100 | % | ||||||||||||
| Depreciation | 371,870 | 360,332 | 11,538 | 3 | % | |||||||||||
| Share based compensation | 37,905 | 92,685 | (54,780 | ) | 59 | % | ||||||||||
| EBITDA (1) | $ | (1,579,550 | ) | $ | (1,610,721 | ) | $ | 31,171 | 2 | % | ||||||
| (1) | EBITDA, a non-GAAP financial measure, is defined as earnings before interest expense and interest income, taxes, depreciation, amortization, share based compensation, derivative revaluations, and impairment of assets. EBITDA is used by management to internally measure our operating and management performance and by investors as a supplemental financial measure to evaluate the performance of our business that, when viewed with our GAAP results and the accompanying reconciliation, we believe provides additional information that is useful to gain an understanding of the factors and trends affecting our business. |
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Summary of Consolidated Income for the first quarter of 2014 compared with the first quarter of 2013
Net Sales
Net sales for the first quarter of 2014 were $2.3 million compared to $2.2 million for the first quarter of 2013. We have one customer that accounted for approximately 84% and 88%, respectively, for the first quarter of 2014 compared to the first quarter of 2013. The increase in sales is due to a series of orders for unbranded flooded lead–acid batteries with the purchaser carrying the cost of inventory and providing the raw materials for production.
Cost of Tangible Goods Sold
The costs of tangible goods sold for the first quarter of 2014 were $2.4 million compared to $2.3 million for the first quarter of 2013. The change in cost of tangible goods sold resulted from the increase in net sales.
Cost of Goods Sold –Idle Capacity
The costs of goods sold-idle capacity for the first quarter of 2014 were $437,257 compared to $501,441 for the first quarter of 2013. The change in cost of goods sold idle- capacity, resulted primarily from a decrease in non-direct manufacturing costs.
Gross Loss
Gross loss for the first quarter of 2014 was a $475,593 compared to a $524,273 for the first quarter of 2014.Gross margin for the first quarter of 2014 was a negative 21% compared to a negative 23% for the first quarter of 2013.
Research and Development Expenses
Research and development expense for the three months ended March 31, 2014 was $ 0.4 million compared to $0.5 million for the same period in 2013.
Selling, General and Administrative Expenses
Selling, general and administrative expense for the first three months of 2014 was $ 1.1 million compared to $ 1.0 million for the same period in 2013.
Liquidity and Capital Resources
Our primary source of liquidity has historically been cash generated from issuances of our equity securities. From inception through March 31, 2014, we have generated revenue from operations that was not significant enough to produce an operating profit.
On May 7, 2013, we entered into a financing transaction for the sale of Senior Convertible Notes (“Convertible Notes”) of Axion Power International, Inc. (“Company” or “We”) and Warrants issued by the Company (“Warrants”) with gross proceeds of $9 million to us. At Closing, which occurred on May8, 2013, we received cash proceeds of $3 million and had deposited an additional $6 million into a series of control accounts in our name. We are permitted to withdraw funds from our control accounts (i) in connection with certain conversions of the Convertible Notes or (ii) otherwise, as follows: $500 thousand on each 30 day anniversary of the Effective Date commencing on the 60th day after the Effective Date until there are no more funds in the control accounts. The Convertible Notes bear interest at 8% per annum and are convertible into shares of our Common Stock at an initial per share conversion price of $0.264 subject to certain adjustments. The Warrants entitle the holders of the Warrants to purchase, in aggregate, 17,281,107 million shares of our common stock. The five year Warrants are exercisable at an exercise price equal to $0.302, subject to certain adjustments.
We received $2.76 million in net proceeds at Closing, after deducting our placement agent’s fee of $240,000. Our other offering expenses, other than our placement agent’s fee, are approximately $100,000, which expenses were paid out of the proceeds at Closing. At each Funds Release, we receive approximately $460 thousand in net proceeds, after deducting our placement agent’s fee of $40,000.
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Simultaneously with the Closing of the $9 million financing transaction, the Company sold $1 million principal amount of Subordinated Convertible Notes to investors consisting of management and directors of the Company and one individual investor. The sale of the Subordinated Convertible Notes did not carry any additional fees and expenses, so the entire $1 million investment is netted to the Company. The Subordinated Convertible Notes are subordinated in right of repayment to the Convertible Notes to the Company and mature 91 days subsequent to the Maturity Date of the Convertible Notes. The Subordinated Convertible Notes bear interest at the rate of 8% per annum which shall accrue. Once 2/3 of the Convertible Notes have been repaid, then the Subordinated Convertible Notes may be converted and/or prepaid in cash so long as there is no Event of Default with respect to the Convertible Notes and all Equity Conditions of the Convertible Notes are met. The conversion price for the Subordinated Convertible Notes is $0.264 per share. The holders of the Subordinated Convertible Notes were issued five year warrants to purchase 1,920,123 shares of Company common stock. Each warrant has an exercise price of $0.302 per share.
We believe that the currently available funds at March 31, 2014, which includes the net remaining amount available in the restricted cash account and funds generated from product sales will provide sufficient resources for our operations, working capital and will fund the sales in our traditional batter business and our anticipated capital expenditures into the third quarter of 2014.
Subsequent sources of outside funding will be required to fund the Company’s working capital, capital expenditures and rate operations beyond the third quarter of 2014. No assurances can be given that the Company will be successful in complying with certain of the terms and conditions in the issuance of the May 8 senior convertible notes or in arranging further funding, if needed, needed to continue the execution of its business plan including the development and commercialization of new products, or if successful, on what terms. Failure to obtain such funding 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.
Working Capital
At March 31, 2014 working capital was $4.3 million compared to $4.5 million at December 31, 2013.
Cash Flows from Operating Activities
Net cash used in operations for the first quarter of 2014 was $1.72 million. Of the net cash used $ 1.62 million was used to fund the operation of the business while $ 0.1 was used to fund operating assets and liabilities. Of the net cash of $ 1.1 million from the same period in 2013, $0.7 million was used to fund the operations of the business while $0.4 million was used to fund operating assets and liabilities.
Cash Flows from Investing Activities
Net cash used by investing activities for first quarter of 2014 was $0.02 million compared to $0.09 million for the same period in 2013. Investing activities were primarily for purchases of property and equipment.
Cash Flows from Financing Activities
Net cash provided by financing activities for the first quarter of 2014 was $2.2 million compared to net cash used of $0.04 million in 2013. Cash from financing activities is being used to fund ongoing operational requirements, capital expenditures and working capital.
Critical Accounting Policies, Judgments and Estimates
Our significant accounting policies are fundamental to understanding our results of operations and financial condition. Some accounting policies require that we use estimates and assumptions that may affect the value of our assets or liabilities and financial results. These policies are described in “Critical Accounting Policies, Judgments and Estimates” and Note 2 (Accounting Policies) to Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013. During 2014, there have been no modifications to our critical accounting policies as defined on Form 10-K for the year ended December 31, 2013
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.
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| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by our quarterly report, management performed, with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 1 . | LEGAL PROCEEDINGS |
From time to time, we are involved in lawsuits, claims, investigations and proceedings, including pending opposition proceedings involving patents that arise in the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.
| ITEM 1A. | RISK FACTORS |
There is no change to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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| ITEM 6. | EXHIBITS |
| 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) |
| 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) |
| 32.1 | Statement of Chief Executive Officer Pursuant to Section 1350 of Title 18 of the United States Code |
| 32.2 | Statement of Chief Financial Officer Pursuant to Section 1350 of Title 18 of the United States Code |
The following materials from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2014, formatted in eXtensible Business Reporting Language: (i) the Condensed Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows and (v) the Notes to Condensed Financial Statements, as follows:
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | XBRL Extension Presentation Linkbase |
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In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AXION POWER INTERNATIONAL, INC. | |
| /s/ Thomas Granville | |
| Thomas Granville, | |
| Principal Executive Officer and Principal Financial Officer | |
| Dated: May 15, 2014 |
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