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 Ended
September 30, 2012
|
o
|
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
o
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
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 “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
Large accelerated filer
o
|
Accelerated filer
o
|
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
þ
|
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
þ
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 November 9,
2012
|
|
Common Stock, $0.0001 par value
|
113,260,006
|
Cautionary Note Regarding Forward-Looking
Information
This Report on Form
10-Q, in particular Part I Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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 energy l storage device industry, all of which are subject to various risks and
uncertainties.
When used in this
Report on Form 10-Q and other reports, statements, and information we have filed with the Securities and Exchange Commission (the
“Commission” or “SEC”), 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 Report on Form 10-Q 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.
TABLE
OF CONTENTS
|
PART I - FINANCIAL INFORMATION
|
4
|
|
|
|
|
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
4
|
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
12
|
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
17
|
|
|
|
|
|
PART II - OTHER INFORMATION
|
17
|
|
|
|
|
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
17
|
|
ITEM 1A.
|
RISK FACTORS
|
17
|
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
17
|
|
ITEM 6.
|
EXHIBITS
|
18
|
PART I - FINANCIAL INFORMATION
|
ITEM 1.
|
FINANCIAL STATEMENTS
|
AXION POWER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(A Development Stage Company)
|
|
|
September 30, 2012
|
|
|
December 31, 2011
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,172,818
|
|
|
$
|
1,987,637
|
|
|
Accounts receivable
|
|
|
306,185
|
|
|
|
309,354
|
|
|
Other receivables
|
|
|
21,860
|
|
|
|
162,249
|
|
|
Prepaid expenses
|
|
|
231,017
|
|
|
|
145,442
|
|
|
Inventory, net
|
|
|
3,229,175
|
|
|
|
2,717,173
|
|
|
Total current assets
|
|
|
7,961,055
|
|
|
|
5,321,855
|
|
|
|
|
|
|
|
|
|
|
|
|
Property & equipment, net
|
|
|
8,124,661
|
|
|
|
8,417,163
|
|
|
Other receivables- long-term
|
|
|
48,000
|
|
|
|
53,000
|
|
|
TOTAL ASSETS
|
|
$
|
16,133,716
|
|
|
$
|
13,792,018
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
739,917
|
|
|
$
|
520,358
|
|
|
Other current liabilities
|
|
|
312,943
|
|
|
|
429,432
|
|
|
Notes payable
|
|
|
104,777
|
|
|
|
104,777
|
|
|
Total current liabilities
|
|
|
1,157,637
|
|
|
|
1,054,567
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred grant revenue
|
|
|
1,347,280
|
|
|
|
1,573,962
|
|
|
Derivative liabilities
|
|
|
3,378
|
|
|
|
15,843
|
|
|
Notes payable
|
|
|
358,610
|
|
|
|
439,480
|
|
|
Total liabilities
|
|
|
2,866,905
|
|
|
|
3,083,852
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock-12,500,000 shares authorized
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Common stock- 200,000,000 shares authorized $0.0001 par value 113,260,006 shares
issued & outstanding (85,516,139 in 2011)
|
|
|
11,326
|
|
|
|
8,552
|
|
|
Additional paid in capital
|
|
|
95,888,022
|
|
|
|
86,953,180
|
|
|
Deficit accumulated during development stage
|
|
|
(82,380,861
|
)
|
|
|
(76,001,894
|
)
|
|
Cumulative foreign currency translation adjustment
|
|
|
(251,676
|
)
|
|
|
(251,672
|
)
|
|
Total stockholders' equity
|
|
|
13,266,811
|
|
|
|
10,708,166
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY
|
|
$
|
16,133,716
|
|
|
$
|
13,792,018
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
AXION POWER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(A Development Stage Company)
UNAUDITED
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Inception
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
9/18/2003 to
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2012
|
|
|
2011
|
|
|
9/30/2012
|
|
|
Product
|
|
$
|
2,178,077
|
|
|
$
|
2,097,413
|
|
|
$
|
6,690,502
|
|
|
$
|
4,832,226
|
|
|
$
|
18,982,494
|
|
|
Service
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
411,645
|
|
|
|
1,279,726
|
|
|
Net sales
|
|
|
2,178,077
|
|
|
|
2,097,413
|
|
|
|
6,690,502
|
|
|
|
5,243,871
|
|
|
|
20,262,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product costs
|
|
|
2,014,731
|
|
|
|
1,844,088
|
|
|
|
6,014,886
|
|
|
|
4,205,057
|
|
|
|
16,611,842
|
|
|
Research & development
|
|
|
1,198,834
|
|
|
|
1,329,783
|
|
|
|
3,738,955
|
|
|
|
3,599,545
|
|
|
|
32,609,846
|
|
|
Selling, general & administrative
|
|
|
1,114,993
|
|
|
|
1,020,352
|
|
|
|
3,316,201
|
|
|
|
3,215,518
|
|
|
|
33,080,882
|
|
|
Interest expense
|
|
|
4,090
|
|
|
|
4,680
|
|
|
|
13,313
|
|
|
|
14,095
|
|
|
|
2,390,488
|
|
|
Impairment of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,062,160
|
|
|
Derivative revaluations
|
|
|
(17,176
|
)
|
|
|
(128,187
|
)
|
|
|
(12,465
|
)
|
|
|
(119,166
|
)
|
|
|
(1,639,101
|
)
|
|
Mega C Trust share augmentation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
|
Interest income & other
|
|
|
(1,393
|
)
|
|
|
(7
|
)
|
|
|
(1.421
|
)
|
|
|
(7,735
|
)
|
|
|
(570,705
|
)
|
|
Loss before income taxes
|
|
|
(2,136,002
|
)
|
|
|
(1,973,296
|
)
|
|
|
(6,378,967
|
)
|
|
|
(5,663,443
|
)
|
|
|
(64,683,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,300
|
|
|
Accumulated deficit
|
|
|
(2,136,002
|
)
|
|
|
(1,973,296
|
)
|
|
|
(6,378,967
|
)
|
|
|
(5,663,443
|
)
|
|
|
(64,687,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less preferred stock dividends and beneficial conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,693,369
|
)
|
|
Net loss applicable to common shareholders
|
|
$
|
(2,136,002
|
)
|
|
$
|
(1,973,296
|
)
|
|
$
|
(6,378,967
|
)
|
|
$
|
(5,663,443
|
)
|
|
$
|
(82,380,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Translation Adjustment
|
|
|
(1
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(251,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income(Loss)
|
|
|
(2,136,003
|
)
|
|
|
(1,973,296
|
)
|
|
|
(6,378,971
|
)
|
|
|
(5,663,443
|
)
|
|
|
(82,632,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(2.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
113,249,335
|
|
|
|
85,511,255
|
|
|
|
109,826,629
|
|
|
|
85,475,579
|
|
|
|
40,127,504
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
AXION POWER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(A Development Stage Company)
UNAUDITED
|
|
|
Nine Months Ended
|
|
|
Inception
|
|
|
|
|
September 30,
|
|
|
9/18/2003 to
|
|
|
|
|
2012
|
|
|
2011
|
|
|
9/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
$
|
(6,378,967
|
)
|
|
$
|
(5,663,443
|
)
|
|
$
|
(64,687,492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile deficit accumulated for noncash items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,035,336
|
|
|
|
710,850
|
|
|
|
3,707,458
|
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
1,970,251
|
|
|
Impairment of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
2,062,160
|
|
|
Derivative revaluations
|
|
|
(12,465
|
)
|
|
|
(119,166
|
)
|
|
|
(1,639,101
|
)
|
|
Mega C Trust share augmentation
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
|
Share based compensation expense
|
|
|
311,637
|
|
|
|
351,509
|
|
|
|
6,547,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets & liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,169
|
|
|
|
(247,162
|
)
|
|
|
(313,054
|
)
|
|
Other receivables- current
|
|
|
140,389
|
|
|
|
(326,579
|
)
|
|
|
100
|
|
|
Prepaid expenses
|
|
|
(85,575
|
)
|
|
|
(103,903
|
)
|
|
|
(228,429
|
)
|
|
Inventory, net
|
|
|
(512,002
|
)
|
|
|
(1,660,053
|
)
|
|
|
(3,229,174
|
)
|
|
Accounts payable
|
|
|
219,559
|
|
|
|
57,169
|
|
|
|
2,394,561
|
|
|
Other current liabilities
|
|
|
(116,489
|
)
|
|
|
8,440
|
|
|
|
334,075
|
|
|
Liability to issue equity instruments
|
|
|
-
|
|
|
|
-
|
|
|
|
178,419
|
|
|
Deferred grant revenue and other
|
|
|
(226,682
|
)
|
|
|
240,557
|
|
|
|
1,434,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by operating activities
|
|
|
(5,622,090
|
)
|
|
|
(6,751,781
|
)
|
|
|
(51,167,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables –long term
|
|
|
5,000
|
|
|
|
9,000
|
|
|
|
(1,265,016
|
)
|
|
Property & equipment, net
|
|
|
(742,834
|
)
|
|
|
(2,533,765
|
)
|
|
|
(12,499,503
|
)
|
|
Investment in intangible assets
|
|
|
-
|
|
|
|
-
|
|
|
|
(167,888
|
)
|
|
Net cash used by investing activities
|
|
|
(737,834
|
)
|
|
|
(2,524,765
|
)
|
|
|
(13,932,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from related party debt
|
|
|
-
|
|
|
|
-
|
|
|
|
5,445,458
|
|
|
Net proceeds (to) from notes payable
|
|
|
(80,870
|
)
|
|
|
(78,484
|
)
|
|
|
463,387
|
|
|
Net proceeds from sale of common stock
|
|
|
8,625,979
|
|
|
|
-
|
|
|
|
53,797,344
|
|
|
Net proceeds from exercise of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
2,014,766
|
|
|
Net proceeds from sale of preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
7,472,181
|
|
|
Net cash (used) provided by financing activities
|
|
|
8,545,109
|
|
|
|
(78,484
|
)
|
|
|
69,193,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
2,185,185
|
|
|
|
(9,355,030
|
)
|
|
|
4,193,175
|
|
|
Effect of exchange rate on cash
|
|
|
(4
|
)
|
|
|
(19
|
)
|
|
|
(20,358
|
)
|
|
Cash and cash equivalents - beginning
|
|
|
1,987,637
|
|
|
|
13,330,009
|
|
|
|
-
|
|
|
Cash and cash equivalents - ending
|
|
$
|
4,172,818
|
|
|
$
|
3,974,960
|
|
|
$
|
4,172,818
|
|
The accompanying notes are an integral
part of these consolidated financial statements.
AXION POWER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A Development Stage Company)
The accompanying unaudited
consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted
accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Operating results for the three month and nine month
periods ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December
31, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2011.
The consolidated balance
sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date but does not include
all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain
prior period amounts have been reclassified to conform to current period presentation.
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. At September 30, 2012 the Company’s
working capital was $6.8 million. During the first nine months of 2012, the Company had revenue of $6.7 million and a net loss
of $6.4 million. The financial resources of the Company will not provide sufficient funds for the Company’s operations
beyond March 31, 2013, as those operations currently exist. Subsequent funding will be required to fund the Company’s ongoing
operations, working capital, and capital expenditures beyond March 31, 2013. 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.
|
3.
|
Recent Accounting Pronouncements
|
In May 2011, the FASB
issued Update No. 2011-04 related to fair value measurements and disclosures in the financial statements, which updated ASC Topic
820 “Fair Value Measurement”. This guidance conforms the wording to describe many of the requirements in U.S.
GAAP to International Financial Reporting Standards to ensure the related standards are consistently applied. The guidance
also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This
new guidance is effective during interim and annual periods beginning after December 15, 2011 and is to be applied prospectively.
The adoption of this standard did not materially expand the Company’s consolidated financial statement footnote disclosures.
In June 2011, the
FASB issued Update No. 2011-05 related to the presentation of comprehensive income, which updates ASC Topic 220 “Comprehensive
Income”. The Update eliminates the option to present the components of other comprehensive income as part of the
statement of shareholders’ equity. Under the new guidance, the Company has the option to present the total of
comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous
statement of comprehensive income or in two separate but consecutive statements. This guidance will be effective for
fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this standard
did not have an impact on the Company’s consolidated financial position, results of operations or cash flows as it only requires
a change in the format of the current presentation. The Company has presented the total of comprehensive income as a single continuous
statement of comprehensive income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- CONTINUED
In December 2011,
the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date
for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No.
2011-05
,
which
defers the effective date pertaining to reclassification adjustments out of other accumulated comprehensive income in ASU 2011-05,
until the FASB is able to reconsider those requirements. All other requirements of ASU 2011-05 are not affected by this update,
including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but
consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within
those years, beginning after December 15, 2011, which coincide with the effective dates of the requirements in ASU 2011-05 amended
by this Update.
Net inventories are
stated at the lower of cost (computed in accordance with first in first out method) or market. Elements of costs include raw materials,
components, labor, and overhead, and are as follows:
|
|
|
September 30,
2012
|
|
|
December 31,
2011
|
|
|
Raw materials and components
|
|
$
|
951,220
|
|
|
$
|
1,534,957
|
|
|
Work in process
|
|
|
2,197,737
|
|
|
|
1,070,901
|
|
|
Finished goods
|
|
|
337,456
|
|
|
|
359,540
|
|
|
Inventory reserves
|
|
|
(257,238
|
)
|
|
|
(248,225
|
)
|
|
|
|
$
|
3,229,175
|
|
|
$
|
2,717,173
|
|
Inventories are assessed
based on the estimated net realizable value and carrying value reduced for components that are obsolete or in excess of our forecasted
usage. The Company estimates the net realizable value of such inventories based on analyses and assumptions including, but
not limited to, historical usage, future demand, and market requirements. The carrying value of inventory is also reviewed
and compared to the estimated selling price less costs to sell and adjust accordingly. Reductions to the carrying value of inventories
are recorded in product costs. If future demand for our products is less favorable than our forecasts, inventories may need to
be reduced, which would result in additional expense.
The following table provides summary information
on warrants outstanding as of September 30, 2012:
|
|
|
Shares
|
|
|
Weighted average
exercise price
|
|
|
Weighted average remaining
contract term (years)
|
|
|
Warrants outstanding at December 31, 2011
|
|
|
11,896,070
|
|
|
$
|
0.85
|
|
|
|
1.3
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited or lapsed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Warrants outstanding at September 30, 2012
|
|
|
11,896,070
|
|
|
$
|
0.85
|
|
|
|
.6
|
|
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.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
The Company has 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. The outside directors’ stock option plan
was amended subsequent to September 30, 2012 to increase the number of plan shares to 1,000,000 – see Note No. 9 –
Subsequent Events to the Consolidated Financial Statements. The board of directors also adopted an officers and employees non-qualified
stock options plan that has not been approved by the shareholders, covering an aggregate of 2,000,000 shares of common stock.
During the three month
ended September 30, 2012 there were no additional options granted. During the nine months ended September 30, 2012, the Company
granted a total of 365,000 non – qualified stock options.
On January 1, 2012,
two employees were granted options to purchase a cumulative total of 90,000 shares of our common stock at an exercise price of
$1.50 per share. 9,018 of these options vested in January 2012; 2,454 options will vest monthly through the remainder of the contract
and are exercisable for a period of 5 years from the vesting date. These options were valued at $6,552, utilizing the Black-Scholes-Merton
model with $1,638 of compensation expense in 2012.
On January 6, 2012,
an employee was granted options to purchase 150,000 shares of our common stock at an exercise price of $1.50 per share. 15,020
of these options vested in January 2012; 3,970 options will vest monthly through the remainder of the contract and are exercisable
for a period of 5 years from the vesting date. These options were valued at $ 21,384, using the Black-Scholes-Merton model with
$5,346 of compensation expense in 2012.
On March 12, 2012,
an employee was granted options to purchase 75,000 shares of our common stock at an exercise price of $1.50 per share. 7,515 of
these options vested in March 2012; 2,045 options will vest monthly through the remainder of the contract and are exercisable for
a period of 5 years from the vesting date. These options were valued at $8,856, using the Black-Scholes-Merton model with $2,214
of compensation expense in 2012.
On May 4, 2012, an
employee was granted options to purchase 50,000 shares of our common stock at an exercise price of $1.50 per share. 5,021 of these
options vested in May 2012; 1,363 will vest monthly through the remainder of the contract and are exercisable for a period of 5
years from the vesting date. These options were valued at $6,186, using the Black-Scholes-Merton model with $1,197 of compensation
expense in 2012.
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 for the nine months ended June 30, 2012:
|
Risk-free interest rate
|
|
|
1.02
|
%
|
|
Dividend yield
|
|
$
|
0.00
|
|
|
Expected volatility
|
|
|
59.31
|
%
|
|
Expected term (in years)
|
|
|
6.9
|
|
The
total stock based compensation expense for all non-qualified options was $311,637 for the nine months ended September 30, 2012
and had no impact on diluted loss per share.
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 on the date of exercise. Accordingly, there is a deferred
tax asset recorded related to 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 nine months ended
September 30, 2012, there was no income tax expense impact from recording the fair value of options granted.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
The following table
provides a summary of all outstanding non-qualified options based on grant date as of September 30, 2012:
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
All Plan & Non-Plan Compensatory
Non-Qualified Options
|
|
Number of
Options
|
|
|
Exercise
|
|
|
Fair Value
|
|
|
Remaining
Life
(years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Options outstanding at December 31, 2011
|
|
|
3,721,800
|
|
|
$
|
1.91
|
|
|
$
|
0.65
|
|
|
|
4.7
|
|
|
$
|
-
|
|
|
Granted
|
|
|
365,000
|
|
|
|
1.50
|
|
|
|
0.12
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited or lapsed
|
|
|
(277,768
|
)
|
|
|
2.41
|
|
|
|
0.90
|
|
|
|
-
|
|
|
|
-
|
|
|
Options outstanding at September 30, 2012
|
|
|
3,809,032
|
|
|
|
1.83
|
|
|
|
0.59
|
|
|
|
3.7
|
|
|
|
-
|
|
|
Options exercisable at September 30, 2012
|
|
|
2,993,247
|
|
|
$
|
1.93
|
|
|
$
|
0.66
|
|
|
|
3.1
|
|
|
$
|
-
|
|
The weighted-average grant date fair value
of options granted during the nine months ended September 30, 2012 was $0.12. There were no options exercised during the nine months
ended September 30, 2012.
The following table
provides a summary of all non-vested non-qualified stock options as of September 30, 2012:
|
|
|
All Plan & Non-Plan
Compensatory Non-Qualified Options
|
|
|
|
|
Shares
|
|
|
Weighted average
grant date fair value
|
|
|
Options subject to future vesting at December 31, 2011
|
|
|
1,206,140
|
|
|
$
|
0.44
|
|
|
Granted
|
|
|
365,000
|
|
|
|
0.12
|
|
|
Forfeited or lapsed
|
|
|
(73,768
|
)
|
|
|
0.24
|
|
|
Vested at September 30, 2012
|
|
|
(681,587
|
)
|
|
|
0.43
|
|
|
Options subject to future vesting at September 30, 2012
|
|
|
815,785
|
|
|
$
|
0.30
|
|
As of September 30,
2012, there was $539,860 of unrecognized compensation expense related to non-vested non-qualified options granted under the plans.
The Company expects to recognize the compensation expense over a weighted average period of 6.9 years. The total fair value of
options which vested during the nine months ended September 30, 2012 and September 30, 2011 was $292,635 and $466,557, respectively.
|
7.
|
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.
There
were no dilutive effects of stock options for the nine months ended September 30, 2012 and 2011.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS - CONTINUED
On February 3, 2012,
the Company completed a registered direct common stock offering providing gross proceeds of approximately $9.4 million and net
proceeds of approximately $8.6 million after the expenses of the offering and placement fees. This event is primarily responsible
for the increase in par value and additional paid in capital reported in the Company’s consolidated financial statements
Subsequent to September 30,
2012 the following events have occurred:
On October 17, 2012, the Board
of Directors amended the Axion Power International, Inc. independent directors stock option plan to increase the number of shares
of common stock available thereunder from 500,000 shares to 1,000,000 shares.
On October 25, 2012, Norfolk
Southern issued us the second purchase order for $88,850 for the remaining balance of a $475,000 total purchase order for PbC batteries
for use in their initial all electric battery powered locomotive.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
We are a development
stage company that was formed in September 2003 to acquire and develop certain innovative battery technology. Since inception we
have been engaged in research and development of new technology to manufacture carbon electrode assemblies for our lead-acid-carbon
energy storage devices that we refer to as our PbC® devices.
Since inception,
we have received $69.2 million in cash generated from financing activities of which $65.0 million was used to fund research
and development activities, capital expenditures, infrastructure and working capital.
Key Performance Indicators, Material Trends and Uncertainties
Because we are a development
stage company, typical investor financial measures are not particularly relevant or helpful in the assessment of company operations.
We utilize appropriate
non-financial measures to evaluate the performance of our R&D activities 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. Working capital is necessary to fund our capital expenditures, infrastructure
and processes required to progress from demonstration projects to commercial deployment of our proprietary carbon
electrode assemblies for our PbC® devices.
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 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 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 carbon electrode assemblies for 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 commercially produce our product.
Financing Activities
On February 3, 2012, the Company completed
a registered direct common stock offering providing gross proceeds of approximately $9.4 million and net proceeds of approximately
$8.6 million after the expenses of the offering and placement fees.
Award Activities: Grants and Contracts
:
In May of 2012, the final portion of the
Commonwealth Financing Authority grant for $41,171 was collected.
In May of 2012, we
were awarded a $150,000 Phase I grant from the U.S. Department of Energy to fund a commercialization plan for the use of its PbC
batteries in a “low-cost, high-efficiency” dual battery architecture for micro-hybrid vehicles. We have begun work
on this nine month Phase I grant, the completion of which will enable us to apply for a Phase II grant. We were advised that approximately
ten percent of the Phase I grant applicants were accepted and received awards. It has been confirmed to us that Phase II grants,
of approximately $1,000,000 each, will be made to approximately fifty percent of the applying applicants. Phase II grants normally
will not exceed 24 months and those successfully completing Phase II grants will be eligible to apply for Phase III grants which
it is our understanding will have award sizes several times the size of the Phase II grants. As of September 30, 2012, no invoices
have been issued seeking reimbursement against our Phase I grant.
Results of Operations
Our strategy for some
time has been to utilize traditional production to train our work force, test our systems and incorporate quality improvements
that we believe will ultimately benefit future PbC production. We have continued that strategy through the third quarter of 2012.
As previously stated,
software improvements and mechanical tweaking continue to improve thru-put on our automated robotic electrode production line.
This is an ongoing process and we will utilize what we have learned in future electrode production lines. The line currently runs
end to end and provides us more than enough capacity for our short term needs.
On April 26
th
,
Norfolk Southern (“NS”) issued us an order for the first $400,000 of a $475,000 total purchase order order for PbC
batteries for use in their initial all electric, battery powered locomotive. While we have not received final confirmation from
NS, it is anticipated that the first ‘yard” locomotive will be commissioned in the first quarter of 2013. On a parallel
path, development of an “over the road” hybrid locomotive continues. As part of our agreement with NS, Penn State University
is performing duplicate string testing on our PbC batteries that so far have confirmed our claims of string “self equalization”.
Simply stated, this means that one of the unique characteristics of our PbC batteries is its inherent ability to equalize battery
(even cell) voltage during charging at any rate. This is particularly important when the PbC is used in large string configurations
(such as the locomotive, or the PowerCube) where the string is only as strong as its weakest (lowest voltage) battery (i.e. the
string output is reduced by the lowest performing battery). The success of this testing will continue to allow us to expand
the locomotive application to include other locomotive end users and locomotive integrators. On October 25, 2012, Norfolk Southern
issued us the second purchase order for $88,850 for the remaining balance of a $475,000 total purchase order. – see Note
No. 9 - Subsequent Events to the Consolidated Financial Statements.
Other highlights through
the third quarter of 2012 include:
|
|
·
|
In August, we executed an exclusive Global Distribution Agreement
(“Agreement”) with Rosewater. As previously discussed, Rosewater has proven expertise in the distribution and marketing
of electronic systems to the consumer retail markets in the United States and access to a network of installers for such electronic
systems which we feel may be beneficial to the distribution of our “HUB”. This Agreement is for a three year term subject
to the attainment of agreed upon annual sales objectives. Subsequent to the implementation of this agreement, Axion and Rosewater
introduced the residential energy “HUB” at the CEDIA show in Indianapolis (September 2012). The reception of this product
was very positive and the “HUB” won two awards at the show including one for ‘best new product’. Rosewater
began an ‘awareness campaign’ right after the show, but were reluctant to take actual orders until there was better
definition on an end date for 1741 and other testing protocols. Clarity has now been reached for testing completion in early December.
Completion and in house testing of our prototype unit has given us confidence to market the ‘residential size’ unit
for other applications and in areas that do not require extensive third party validation testing.
|
August also saw us revisit an initiative that we spent
some time on two years earlier. At the urging of our potential customer, and with the full backing of our VP of sales (Vani Dantam),
who has an extensive history of providing products to the trucking industry, we began discussions and testing aimed at using our
PbC batteries for “boost up-hill performance” for 18- wheel over the road heavy duty trucks. That process has evolved.
Also in August, relying further on Vani Dantam’s
trucking experience and reputation, we began exploratory talks with an OEM leader in the heavy duty trucking industry. We resurrected
an initiative aimed at providing a product that would be a well - suited solution to the issues that arose in the trucking industry
because of “anti-idling” legislation.
Work continues with
the hybrid vehicle manufacturers in the United States, Europe and Asia. As discussed previously, this work is in various stages
of development and we are encouraged by the progress, although it continues to move at a pace that is slower, by comparison, than
other initiatives we have undertaken.
We have continued our “demand response” participation with PJM and Viridity utilizing our
onsite PowerCube™. In October we increased our participation in the partnership arrangement, partially in response to PJM’s
October 1,
,
2012, implementation of “pay for performance” criteria, first legislated by FERC regulations
that were approved in November of 2011. Our grading in the PJM system has averaged over 92 (out of 100) since October 1
st
.
This has added to our credibility with numerous utilities. We were invited to present at the Southeast Utility Conference on September
18
th
. This conference was attended by 22 of the 26 invited utilities. As a result of all of our activities in this area,
several RFP’s have been developed in both North America and offshore.
Overview
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, 2011.
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·
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Our primary activity in our current development stage consists of R&D efforts for advanced
battery applications, initial development, sales and marketing efforts to commercialize our advanced battery applications and the
manufacture of PbC carbon electrode devices for testing, pilot demonstrations and potential customer applications.
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·
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Net sales are derived from the sale of lead acid batteries for specialty collector and racing cars;
sales of AGM batteries and flooded batteries; and from sales of product and services related to advanced battery applications for
our PbC® technology.
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·
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Product costs include raw materials, components, labor, and allocated manufacturing overhead to
produce batteries sold to customers. Due to the development stage of our business, current product costs represented in our current
financial statements may not be indicative of the future costs to produce batteries. Product costs also include provisions for
inventory valuation and obsolescence reserves.
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·
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Research & development includes expenses to design, develop, and test advanced batteries and
carbon electrode assemblies for our energy storage products based on our patented lead carbon technology. Also included in R&D
are the materials consumed in production of pilot products, manufacturing costs not assigned to product sales and costs attributable
to service sales.
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·
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Selling, general and administrative expenses include
employee compensation, selling and marketing expense, legal, auditing and other expenses associated with being a public company.
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Selected Financial Data
The following represents summarized selected financial data
for the nine months ended September 30, 2012 and 2011:
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2012
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2011
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|
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Change
|
|
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Product sales
|
|
$
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6,690,502
|
|
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$
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4,832,226
|
|
|
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1,858,276
|
|
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Service sales
|
|
|
-
|
|
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411,645
|
|
|
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(411,645
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)
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Total sales
|
|
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6,690,502
|
|
|
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5,243,871
|
|
|
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1,446,631
|
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Product costs
|
|
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6,014,886
|
|
|
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4,205,057
|
|
|
|
1,809,829
|
|
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Research & development expenses
|
|
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3,738,955
|
|
|
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3,599,545
|
|
|
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139,410
|
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Selling, general & administrative expenses
|
|
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3,316,201
|
|
|
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3,215,518
|
|
|
|
100,683
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Derivative revaluations(gains) losses
|
|
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(12,465
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)
|
|
|
(119,166
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)
|
|
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106,701
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Loss before income taxes
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$
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(6,378,967
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)
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$
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(5,663,443
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)
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$
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(715,524
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)
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Reconciliation of net loss to EBITDA
|
|
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2012
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|
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2011
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|
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Change
|
|
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GAAP loss before income taxes
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|
$
|
(6,378,967
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)
|
|
$
|
(5,663,443
|
)
|
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$
|
(715,524
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)
|
|
Plus: Interest expense
|
|
|
13,313
|
|
|
|
14,095
|
|
|
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(782
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)
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Depreciation expense
|
|
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1,035,336
|
|
|
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710,850
|
|
|
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324,486
|
|
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Share based compensation expense
|
|
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311,637
|
|
|
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351,509
|
|
|
|
(39,872
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)
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Derivative revaluation gains
|
|
|
(12,465
|
)
|
|
|
(119,166
|
)
|
|
|
106,701
|
|
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EBITDA (1)
|
|
$
|
(5,031,146
|
)
|
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$
|
(4,706,155
|
)
|
|
$
|
(324,991
|
)
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|
(1)
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EBITDA, a non-GAAP financial measure,
is defined as earnings before interest, taxes, depreciation, , share based compensation, and derivative revaluations. 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 our business.
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Summary of Consolidated Results for
the three months and nine months ended September 30, 2012 compared with September 30, 2011
Product
Sales
Product
sales
for the three months ended September 30, 2012 were $2.2 million compared
to $2.1 million for the same period in 2011.
Net product sales for the nine months ended September 30,
2012 were $6.7 million compared to $4.8 million for the same period in 2011.
We have one customer that accounted for approximately
87% and 83% of product sales for the three and nine month periods ended September 30, 2012, respectively, and one customer that
accounted for approximately 86% and 80% of product sales for the three and nine month periods ended September 30, 2011, respectively.
The increase in net product sales in 2012 compared to 2011 is due to a series of orders for the production and immediate
delivery of specialty flooded lead acid batteries with the purchaser financing the cost of inventory and providing the raw materials
required for production.
Service Sales
There
were no service sales for the three months ended September 30, 2012 and 2011. There were no service
sales
for the nine months ended September 30, 2012 compared to $0.4 million
for the same period in 2011.
Product Costs
Product costs for
the three months ended September 30, 2012 were $2.0 million compared to $1.8 million for the same period in 2011. Product costs
for the nine months ended September 30, 2012 were $6.0 million compared to $4.2 million for the same period in 2011.
The increase in product costs resulted primarily from increases in net product sales.
Research & Development Expenses
Research and development
expenses for the three months ended September 30, 2012 were $1.2 million compared to $1.3 million for the same period in 2011.
Research and development expenses for the nine months ended September 30, 2012 were $3.7 million compared to $3.6 million for the
same period in 2011.
Selling, General & Administrative
Expenses
Selling, general &
administrative expenses for the three months ended September 30, 2012 were $1.1 million compared to $1.0 million for the same period
in 2011. Selling, general & administrative expenses for the nine months ended September 30, 2012 and 2011 were $3.3million
and $3.2 million, respectively.
Liquidity and Capital Resources
Our primary source
of liquidity has historically been cash generated from issuances of our equity or debt securities. From inception through September
30, 2012, we have generated insignificant revenue from operations.
We believe that the
currently available funds at September 30, 2012, which includes the net proceeds of $8.6 million from our February 2012 registered
direct common stock offering and internally generated funds from products sales will provide sufficient financial resources for
the current development stage operations, working capital and capital expenditures through the first quarter of 2013.
Subsequent sources
of outside funding will be required to fund the Company’s working capital, capital expenditures and corporate operations
beyond March 31, 2013. No assurances can be given that the Company will be successful in arranging the further funding 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.
The need to secure
additional funding to continue operations past the first quarter of 2013 is the result of various factors. Although we continue
to make measureable progress with our PbC® technology, the adoption process, and the general path to commercial viability,
have both been longer than we originally anticipated. In addition, we will need working capital to fund our anticipated continued
growth of sales in traditional batteries and PbC products.
Management, with the
advice and consent our Board of Directors, is taking actions to attempt to raise additional funds in order to continue operations
beyond March 31, 2013 from sources that are in alignment with our business objectives and strategies.
Cash, Cash Equivalents and Working Capital
Cash and cash equivalents
at September 30, 2012 totaled $4.2 million compared to $2.0 million at December 31, 2011. Cash equivalents consist of short-term
liquid investments with original maturities of no more than six months that are readily convertible into cash.
At September 30, 2012
working capital was $6.8 million compared to working capital of $4.3 million at December 31, 2011. One customer accounted for $0.8
million or 12% of working capital at September 30, 2012.
Cash Flows from
Operating Activities
Net cash used by operations
for the nine months ended September 30, 2012 was $5.6 million compared to $6.8 million for the same period in 2011.
Our
negative cash flow is consistent with the development stage of our business.
Cash
Flows from Investing Activities
Net cash used by investing
activities for the nine months ended September 30, 2012 was $0.7 million compared to $2.5 million for the same period in 2011.
Investing activities were for the purchase of equipment.
Cash Flows from Financing Activities
Net cash provided
from financing activities for the nine months ended September 30, 2012 was $8.6 million compared to less than $0.1 net cash used
for the same period in 2011.
Financing Activities
On February 10, 2012,
the Company completed a registered direct common stock offering providing gross proceeds of approximately $9.4 million. The shares
sold, par value $0.0001 were priced at $0.35, which was the volume - weighted average price of the shares over a 40-day trading
period prior to the commencement of the offering. The shares were sold pursuant to a shelf registration statement declared effective
July 14, 2011. Net proceeds were approximately $8.6 million after the expenses of the offering and placement fees. These proceeds
are being used for working capital, capital expenditures and general corporate purposes.
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, 2011. During 2012, there were no modifications to
our critical accounting policies as defined on Form 10-K for the year ended December 31, 2011.
Off Balance
Sheet Arr
angements
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.
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CONT
ROLS AND PROCEDURES
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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.
PART II - OTHER INFORMATION
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ITEM 1.
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LEGAL PROCEEDINGS
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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.
There is an addition to the risk factors
disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 as follows:
Our business may not be able to continue
as a going concern and we will need to raise additional capital to continue operations beyond March 31. 2013.
We believe that our
current financial resources will support ongoing operations, working capital, and capital expenditures through the first quarter
of 2013. However, we will not be able to continue operations beyond March 31, 2013 without raising additional financing. We
do not believe that we will be able to sufficiently increase our revenues to cover our costs of operations, working capital, and
capital expenditures without raising additional capital. We cannot assure you that any additional capital will be available
to us on favorable terms, or at all. If we are unable to obtain additional capital when needed, our research, development and testing,
and other pre-commercialization activities will be materially and adversely affected, and we may be unable to take advantage of
future opportunities or respond to competitive pressures or to continue our operations at all beyond March 31, 2013. The inability
to raise capital in sufficient amounts and on acceptable terms would have a material adverse effect on our ability to continue
operations and could result in our inability to continue as a going concern which would mean that we would need to wind down our
business.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
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10.45
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Axion Power International, Inc. Amended and Restated Independent Directors Stock Option Plan and Amendment No
. 1
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31.1
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Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
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31.2
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Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
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32.1
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Statement of Chief Executive Officer Pursuant to Section 1350 of Title 18 of the United States Code
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32.2
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Statement of Chief Financial Officer Pursuant to Section 1350
of Title 18 of the United States Code
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101.INS
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XBRL Instance Document*
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101.SCH
|
XBRL Taxonomy Extension Schema*
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101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase*
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101.DEF
|
XBRL Taxonomy Extension Definition Linkbase*
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101.LAB
|
XBRL Taxonomy Extension Label Linkbase*
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase*
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SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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AXION POWER INTERNATIONAL, INC.
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/s/ Thomas Granville
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Thomas Granville,
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Chief Executive Officer
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(Principal Executive Officer)
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Dated: November 14, 2012
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/s/ Charles R. Trego
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Charles R. Trego,
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Chief Financial Officer
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(Principal Financial Officer and
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Principal Accounting Officer)
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Dated: November 14, 2012
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