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Letter To Shareholders

NEW CASTLE, Pa., Oct. 3, 2012 /PRNewswire/ -- Dear Shareholder, 

In September, Axion Power International, Inc. (OTCQB: AXPW) attended the annual CEDIA Expo in Indianapolis.  CEDIA stands for Custom Electronic Design and Installation Association, and it is the premier trade group for high-end entertainment and electronic systems – home theaters, home entertainment systems, energy efficiency systems, and what's called "whole-house integration."

(Logo: http://photos.prnewswire.com/prnh/20100119/AXIONLOGO)

The experience was an eye-opener, and we wanted to share some of what happened there with you, our shareholders.  We wish all of you could have been there to experience firsthand the welcome and acceptance that was accorded to our Residential Energy Hub (REH) that we are marketing through the Rosewater Energy Group ("Rosewater").

Some of you are familiar with Rosewater from our news releases, and some of you heard a brief presentation by Joe Piccirilli, the CEO of Rosewater, on our second quarter conference call held on August 16.  A few of you heard a presentation by Joe Piccirilli at our 2012 Annual Meeting here in New Castle on June 21.  Joe Piccirilli and his team have a track record of successful business ventures.  Joe in particular has been very successful in channel execution in the high-end U.S. residential market for more than 2 decades, and he has maintained a significant network of distributors, dealers, representatives and friends in that market.  Just to be clear, we categorize the "high-end" residential market segment as homes beginning at 10,000~ square feet, and ranging significantly larger in size from that point. These homes typically include a sophisticated home entertainment system and a fully automated whole house control system, which is usually technologically cutting-edge. For these systems to fully function to the design specifications, and provide the highest quality audio video and management performance, a consistent pure 60-cycle sine wave and a constant 120 volts are essential. Our Residential Energy Hub provides this critical clean power and perfect sine wave for power received from any renewable source - such as solar or wind; from the grid; or from a generator.

At CEDIA we were able to see some of the technological marvels that are available to home owners – and you can read about them by going to the site: www.CEDIA.net.   Rosewater sent out some links to media coverage from the Expo, and we requested that they include our shareholders in that dissemination.  If anyone wishes to see that media summary, please send a request to me or to Rudy Barrio ( r.barrio@allencaron.com) and we will email it to you.  We cannot duplicate the media stories for copyright reasons, but we can send you the links so that you can visit the sites and read them online at your convenience.

The basic point about this targeted market for these high-end homes is that the installers and the homeowners are currently at the mercy of an extremely variable electrical signal when accepting power from the grid.  Most of us watch television from time to time, and there are times, with cable or with dish reception, when pictures freeze; or audio and video get out of synch; or parts of the picture get odd-looking as pixels don't behave the way they should.  Some of that may be a problem with the basic signal we are getting, but most of it is due to the variable quality of the electrical power we receive when we plug the television, or the cable box, into the wall.  This is not a physics lesson, but suffice it to say that most appliances are built with a tolerance for variation.  That variation can, however, cause distortions – and the more sensitive the electronic device, the more serious those distortions become.  A lot of us use power strips with surge protectors to keep our appliances from getting 'fried' in a power surge in, say, an electrical storm.  But if you were spending upwards of half a million dollars on your home entertainment system, your system components would not perform up to design standards if they were just plugged into power strips. The REH solves that problem.

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