AXION INTERNATIONAL HOLDINGS, INC. - FORM 10-Q/A

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EX-32.2 - AXION INTERNATIONAL HOLDINGS, INC.	v173099_ex32-2.htm
EX-31.1 - AXION INTERNATIONAL HOLDINGS, INC.	v173099_ex31-1.htm
EX-32.1 - AXION INTERNATIONAL HOLDINGS, INC.	v173099_ex32-1.htm
EX-31.2 - AXION INTERNATIONAL HOLDINGS, INC.	v173099_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________

Form 10-Q/A

R	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2008

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-13111

AXION INTERNATIONAL HOLDINGS, INC

(Exact name of registrant as specified in its charter)

Colorado	84-0846389

(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

665 Martinsville Road, Basking Ridge, New Jersey 07920

(Address of principal executive offices)

908-542-0888

(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 o No þ

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 £ No þ

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.

Large accelerated filer £	Accelerated filer £

Non-accelerated filer £	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 £ No þ

The number of outstanding shares of the registrant’s common stock, without par value, as of February 17, 2009 was 15,563,137

TABLE OF CONTENTS

		PAGE
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15

Item 4.	Controls and Procedures	15

PART II.	OTHER INFORMATION	16

Item 1.	Legal Proceedings	16

Item 1A.	Risk Factors	16

Item 2.	Unregistered Sales of Securities and Use of Proceeds	16

Item 3.	Defaults Upon Senior Securities	16

Item 4.	Submissions of Matters to a Vote of Security Holders	16

Item 5.	Other Information	16

Item 6.	Exhibits	16

SIGNATURES		17

Explanatory Note

The consolidated financial statements for the three months ended December 31, 2008 and related disclosures in this Amendment No.1 to Quarterly Report on Form 10-Q have been restated in accordance with the changes described below.

In January 2010, we concluded that it was necessary to amend this Quarterly Report in order to restate its financial statements for the period ended December 31, 2008 to (1) record share-based compensation charges not previously recorded and (2) adjust recorded interest expense as a result of adjustments we made for the fiscal year ended September 30, 2008 to our accounting for debt discounts and debt modifications.

No attempt has been made in this Amendment No. 1 to modify or update the disclosures in the original Quarterly Report except for the changes to the financial statements described above and related changes to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 4. Controls and Procedures.

AXION INTERNATIONAL HOLDINGS. INC

A DEVELOPMENT STAGE COMPANY

CONSOLIDATED BALANCE SHEET

	Unaudited			Audited
	December 31, 2008			September 30, 2008
Assets	Restated			Restated
Current assets:
Cash and cash equivalents	$	930,376		$	138,826
Accounts Receivable		4,200			-
Inventories		205,096			110,416
Prepaid expenses		6,903			7,264
Total current assets		1,146,575			256,506

Property, equipment, and leasehold improvements, at cost:
Equipment		9,838			9,838
Machinery and equipment		268,125			261,425
Purchased software		56,329			56,329
Furniture and fixtures		9,322			9,322
Leasehold improvements		29,300			29,300
		372,914			366,214
Less accumulated depreciation		(36,484	)		(25,609	)
Net property and leasehold improvements		336,430			340,605

Long-term and intangible assets
License, at acquisition cost,		68,284			68,284
Deposits		4,000			4,000
		72,284			72,284

Total assets	$	1,555,289		$	669,395

Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	310,723		$	326,511
Notes payable		55,624			-
Accrued liabilities		281,250			202,262
Interest payable		62,973			55,641
Accrued payroll		9,927			23,142
Total current liabilities		720,497			607,556

Senior secured convertible debenture, net of discount		593,567			576,666

Total liabilities		1,314,064			1,184,222

Commitments and contingencies

Stockholders' deficit:
Common stock, no par value; authorized, 100,000,000 shares;
15,449,501 shares issued and outstanding		4,482,012			3,029,334
Deficit accumulated during development stage		(4,240,787	)		(3,544,161	)

Total stockholders' deficit		241,225			(514,827	)

Total liabilities and stockholders' deficit	$	1,555,289		$	669,395

See accompanying notes to consolidated financial statements.

AXION INTERNATIONAL HOLDING INC.

A DEVELOPMENT STAGE COMPANY

CONSOLIDATED STATEMENT OF OPERATIONS

	Unaudited			Audited			From Inception
	Three Months Ending			Period Ending			November 1, 2007 to
	December 31, 2008			September 30, 2008			December 31, 2008
	Restated			Restated			Restated

Revenue	$	4,200		$	6,472		$	10,672

Cost of goods sold	$	-		$	743		$	743

Gross margin		4,200			5,729			9,929

Research and development costs		154,940			340,456			495,396
Marketing and sales		46,732			90,945			137,677
General and administrative expenses		427,542			1,269,558			1,697,200
Depreciation and amortization		10,875			25,609			36,484

Total operating costs and expenses		640,089			1,726,567			2,367,376

Loss from operations		(635,889	)		(1,720,838	)		(2,356,727	)

Other expense (income), net
Other income		-			(20,000	)		(20,000	)
Interest expense, net		60,732			738,449			799,181
Debt conversion expense		-			1,104,871			1,104,871

Total other expense, net		60,732			1,823,320			1,884,052

Loss before income taxes		(696,621	)		(3,544,161	)		(4,240,782	)

Provision for income taxes		-			-			-

Net loss		(696,621	)		(3,544,161	)		(4,240,782	)

Weighted average common shares - basic and diluted		14,217,968			9,138,437			9,923,956

Basic and diluted net loss per share	$	(0.05	)	$	(0.39	)	$	(0.43	)

See accompanying notes to consolidated financial statements.

AXION INTERNATIONAL HOLDING INC

A DEVELOPMENT STAGE COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

	Unaudited			Audited			From Inception
	Three Months ending			Period Ending			November 1, 2007 to
	December 31, 2008			September 30, 2008			December 31, 2008
	Restated			Restated			Restated

Cash flow from operating activities:
Net loss	$	(696,621	)	$	(3,544,169	)	$	(4,240,782	)
Adjustments to reconcile net loss to net
cash used in operating activities	`			`
Depreciation, and amortization		10,875			25,609			36,484
Accretion of interest expense on convertible debentures		44,400			634,002			678,402
Debt conversion expense		-			1,104,874			1,104,874
Gain on sale of assets					(20,000	)		(20,000	)
Issuance of common stock for accrued interest and services		80,803			187,890			268,693
Changes in operating assets and liabilities
Accounts receivable		(4,200	)		59,048			54,848
Inventory		(94,680	)		(110,416	)		(205,096	)
Prepaid expenses and other		361			(5,507	)		(5,146	)
Accounts payable		19,809			304,929			324,738
Accrued liabilities		37,503			66,341			103,844

Net cash used in operating activities		(601,750	)		(1,297,391	)		(1,899,141	)

Cash flows from investing activities:
Purchase of equipment and leasehold improvements		(6,700	)		(358,742	)		(365,442	)
Proceeds from sale of assets acquired in merger					506,000			506,000
Cost to acquire license					(48,284	)		(48,284	)
Net cash provided by investing activities		(6,700	)		98,974			92,274

Cash flows from financing activities:
Proceeds from short term note (net)		125,000			27,154			152,154
Issuance of common stock, net of expenses		1,275,000			1,267,077			2,542,078
Issuance of convertible debenture		-			200,000			200,000
Repayment of debenture		-			(200,000	)		(200,000	)
Cash acquired in reverse merger		-			43,011			43,011

Net cash provided by financing activities		1,400,000			1,337,242			2,737,243

Net increase in cash		791,550			138,826			930,376

Cash at beginning of period		138,826			-			-

Cash at end of period	$	930,376		$	138,826		$	930,376

Non-cash financing activities:
Common stock for services	$	-		$	30,000		$	30,000
Conversion of Debenture ( Notes)	$	-		$	890,278		$	890,278
Common stock issued for settlement of accrued liabilities	$	-		$	67,048		$	67,048
Common stock issued for license agreement	$	-		$	20,000		$	20,000
Common stock issued pursuant to merger	$	-		$	358,395		$	358,395

See accompanying notes to consolidated financial statements.

AXION INTERNATIONAL HOLDING INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008

(Unaudited)

Effective as of August 4, 2008, Axion International Holdings, Inc. (“Holdings”) effectuated a 1-for 4 reverse stock split of its outstanding Common Stock. All references to the number of Holding’s Common Stock contained in this Quarterly Report have been retroactively adjusted and are on a post-reverse split basis.

(1) Description of the Business and Basis of Presentation

Description of Business

Axion International Holdings, Inc. (“Holdings”), formerly Analytical Surveys, Inc., was formed in 1981 to provide data conversion and digital mapping services to users of customized geographic information systems. However, Holdings experienced a steady decrease in the demand for its services. In fiscal 2006, Holdings acted upon its belief that it would not be able to sustain the operations of its historical business. Holdings focused on completing its long-term contracts that would generate cash and sold its Wisconsin-based operations and assigned its long-term contracts that required new or additional working capital to complete. Holdings transitioned its principal business into that of an independent oil and gas enterprise focused on leveraging non-operating participation in drilling and production prospects for the development of U.S. on-shore oil and natural gas reserves.

Holdings’ success as an oil and gas company was unsuccessful. In May 2007, Holdings terminated its oil and gas executives and took steps to reduce expenses and commitments in oil and gas investments.

As a result, in November 2007, Holdings entered into an Agreement and Plan of Merger, among Holdings, Axion Acquisition Corp., a Delaware corporation and a newly created direct wholly-owned subsidiary of Holdings (the “Merger Sub”), and Axion International, Inc., a Delaware corporation which incorporated on August 6, 2006 with operations commencing in November 2007 (“Axion”). On March 20, 2008 (the “Effective Date”), Holdings consummated the merger (the “Merger”) of Merger Sub into Axion, with Axion continuing as the surviving corporation and a wholly-owned subsidiary of Holdings. Each issued and outstanding share of Axion became 47,630 shares of Holdings’ common stock (“Common Stock”), or 9,190,630 shares in the aggregate constituting approximately 90.7% of Holdings’ issued and outstanding Common Stock as of the Effective Date of the Merger. The Merger resulted in a change of control, and as such, Axion (“we”, “our” or the “Company”) is the surviving entity.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments necessary for a fair presentation of the Company’s financial position at December 31, 2008 (unaudited), and the results of its operations and the cash flows for the three months ended December 31, 2008 and for the period from inception to December 31, 2008 (unaudited). All such adjustments are of a normal and recurring nature. Interim financial statements are prepared on a basis consistent with the Company’s annual financial statements. Results of operations for the three months ending December 31, 2008 are not necessarily indicative of the operating results that may be expected for the year ending September 30, 2009.

The consolidated balance sheet as of September 30, 2008 and the consolidated statement of operations and the consolidated statement of cash flows for the period ending September 30, 2008 have been derived from the audited financial statements at that date but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.

For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 2008.

Our consolidated financial statements include the accounts of our majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Development Stage Company. The accompanying financial statements have been prepared in accordance with the Statement of Financial Accounting Standards (“SFAS”) No. 7 ”Accounting and Reporting by Development-Stage Enterprises”. A development-stage enterprise is one in which planned principal operations have not commenced or if its operations have commenced, there has been no significant revenues there from. To date, we have generated $10,762 in revenue, which was primarily related to the sale of railroad crossties for testing. To date, our operations consist of raising capital, preparing for more significant commercial product sales, and building our operating capabilities. There is no guarantee that we will be able to sell product or generate additional revenues.

Reverse Merger. The Merger has been accounted for as a reverse merger in the form of a recapitalization with Axion as the successor. The recapitalization has been given retroactive effect in the accompanying financial statements. The accompanying consolidated financial statements represent those of Axion for all periods prior to the consummation of the Merger.

Going Concern. We have incurred significant losses in the three month period ending December 31, 2008 and since inception we have had a working capital deficit. These conditions raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might results from the outcome of this uncertainty. We anticipate that during the next twelve months we will need to raise additional capital through equity or debt financing.

Use of Estimates. The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Our consolidated financial statements include the accounts of our majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

(2) Summary of Significant Accounting Policies

Cash and Cash Equivalents: We consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Equipment and Leasehold Improvements: Equipment and leasehold improvements are recorded at cost and are depreciated and amortized using the straight-line method over estimated useful lives of three to ten years. Repairs and maintenance are charged directly to operations as incurred.

Allowance for Doubtful Accounts: We accrue a reserve on a receivable when, based upon the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. As of December 31, 2008 we had an allowance for doubtful accounts of $0.

Inventories: Inventories are priced at the lower of cost (first–in, first–out) or market and consist primarily of raw materials. No adjustment has been to the cost of inventories as of December 31, 2008.

Revenue and Cost Recognition: Our revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition.” Revenue is recognized when persuasive evidence of an agreement with the customer exists, products are shipped or title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed or determinable, collectability is reasonably assured, and when there are no significant future performance obligations.

Customers are billed based on the terms included in the contracts, which are generally upon delivery of certain products or information, or achievement of certain milestones as defined in the contracts. When billed, such amounts are recorded as accounts receivable. Revenue earned in excess of billings represents revenue related to services completed but not billed, and billings in excess of revenue earned represent billings in advance of services performed.

Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools and depreciation costs. Losses on contracts are recognized in the period such losses are determined. We do not believe warranty obligations on completed contracts are significant. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

Income Taxes: Income taxes are reflected under the liability method, which establishes deferred tax assets and liabilities to be recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

U.S. generally accepted accounting principles require that we record a valuation allowance against deferred tax assets if it is “more likely than not” that we will not be able to utilize it to offset future taxes. Due to the size of the net operating loss carry forward in relation to our recent history of unprofitable operations and due to the continuing uncertainties surrounding our future operations as discussed above, we have not recognized any of this net deferred tax asset. We currently provide for income taxes only to the extent that we expect to pay cash taxes (primarily state taxes and the federal alternative minimum tax) on current taxable income.

Impairment of Long-Lived Assets Other Than Goodwill: We account for the impairment and disposition of long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that our long-lived assets be assessed for potential impairment in their carrying values whenever events or changes in circumstances indicate such impairment may have occurred. An impairment charge to current operations is recognized when the estimated undiscounted future net cash flows of the asset are less than its carrying value. Any such impairment is recognized based on the differences in the carrying value and estimated fair value of the impaired asset.

Stock-Based Compensation: We have three nonqualified stock option plans with 2,117,970 shares available for grant as of December 31, 2008. The exercise price of the options are established by the Board of Directors on the date of grant and are generally equal to the market price of the stock on the grant date. The Board of Directors may determine the vesting period of any option issued. The options issued are exercisable in whole or in part for a period of up to ten years from the date of grant. All outstanding options pursuant to such plans on the date of the Merger became fully vested pursuant to the change of control that occurred in connection with the Merger. No options have been granted pursuant to the plans since the effective date of the Merger. Subsequent to the Merger the options granted to the employees under the provisions of these plans have expired. Accordingly, at December 31, there were no options outstanding under these plans.

We have also issued stock options pursuant to employment agreements with our Chief Executive Officer and our President, granting the right to 762,076 and 381,038 shares of Common Stock, respectively, at an exercise price of $.00002 per share, under the terms of certain performance-based stock options.

Earnings (Loss) Per Share: Basic earnings (loss) per share are computed by dividing earnings (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share include the effects of the potential dilution of outstanding options, warrants, and convertible debt on our Common Stock as determined using the treasury stock method. Additionally, for the three month period ended December 31, 2008, potential dilutive common shares under our convertible instruments, warrant agreements and stock option plans of 3,607,012 were not included in the calculation of diluted earnings per share as they were antidilutive.

Financial Instruments: The carrying amounts of financial instruments are estimated to approximate estimated fair values. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of cash, receivables, accounts payable, and accrued liabilities approximate fair value due to the short maturity of these instruments. The carrying amounts of debt approximate fair value due to the variable nature of the interest rates and short-term maturities of these instruments.

Concentration of Credit Risk: We maintain our cash with a major U.S. domestic bank. The amounts held in this bank exceed the insured limit of $250,000 from time to time. The terms of these deposits are on demand to minimize risk. We have not incurred losses related to these deposits.

Operating Cycle: In accordance with industry practice, we include in current assets and liabilities amounts relating to long-term contracts, which generally have operating cycles extending beyond one year. Other assets and liabilities are classified as current and non-current on the basis of expected realization within or beyond one year.

(3) Intangibles and Exclusive Agreement

In February 2007, we acquired an exclusive, royalty-bearing license in specific but broad global territories to make, have made, use, sell, offer for sale, modify, develop, import, export products made using patent applications owned by Rutgers University. We plan to use such these revolutionary patented technologies in the production of structural plastic products such as railroad crossties, bridge infrastructure, utility poles, marine pilings and bulk heading.

We paid approximately $32,000 and issued 714,447 shares of our Common Stock as consideration to Rutgers. We have estimated the fair market value of the consideration received in exchange for the shares totaled approximately $20,000. We recorded these amounts, as well as legal expenses we incurred to acquire the license, as an intangible asset. The license has an indefinite life and will be tested for impairment on an annual basis.

We are obligated to pay royalties on various product sales to Rutgers, and to reimburse Rutgers for certain patent defense costs. Patent defense costs paid to Rutgers, a related party, for the three month period ending December 31, 2008 we did not incur any expense. However, we have incurred a total expense of $55,172 in 2008. We also pay annual membership dues to AIMPP, a department of Rutgers, as well as consulting fees for research and development processes. Membership dues and consulting fees totaled $2,000 for the period ending December 31, 2008.

(4) Debt

The components of debt are summarized as follows.

	Dec, 31, 2008
Long-Term Debt
Senior secured convertible debentures	$	725,736
Discount		(132,169	)
		593,567
Less current portion		—
	$	593,567

Pursuant to the Merger, we assumed three 13% Senior Secured Convertible Debentures (the “Debentures”) totaling $1,643,050. Simultaneous with the Merger, in connection with the assignment of $1,000,000 of the outstanding principal amount of the Debentures, the holders of the Debentures agreed to extend the maturity date to June 30, 2008 and to cancel 361,234 warrants to purchase shares of our Common Stock at an exercise price of $0.40 per share, which warrants had been issued in connection with the original issuance of the Debentures. In April 2008 in connection with the assignment of the remaining $643,050 of the Debentures, the maturity date of the Debentures was further extended to March 30, 2009, the remaining 231,542 warrants which had been issued in connection with the original issuance of the Debentures were cancelled, and the principal amount of the $643,050 being assigned was increased to $650,000.

In April 2008, holders of the Debentures elected to convert $100,000 principal into 250,000 shares of Common Stock, and we repaid $200,000 of the outstanding principal. In May 2008, we issued a Series B Debenture (the “Series B Debenture”) in the principal amount of $200,000 to ADH Ventures, LLC (“ADH”), one of the holders of the Debentures and which beneficially owns more than 5% of our outstanding Common Stock, with substantially the same terms as the existing Debentures.

In August 2008, one of the holders of the Debentures elected to convert $282,564 of principal into 706,410 shares of Common Stock. In September 2008, the Debenture holders converted an additional $714,200 into 2,109,834 shares of Common Stock. They also agreed to amend and restructure the Debentures and the Series B Debentures to (i) lower the interest rate from 13% to 9%, (ii) extend the maturity date to September 30, 2010 and (iii) eliminate such holders’ security interest in the assets of the Company and its subsidiaries. In addition, the Debenture and Series B Debenture in the aggregate principal amount of $667,436 held by ADH were amended to reduce the conversion price from $.40 to $.30. A loss on debt extinguishment of $931,327 was recognized as debt conversion expense. The amount of the loss represents the excess of the fair value of shares of common stock and new convertible debentures issued, amounting to $1,336,253 and $989,480, respectively, over the value of the beneficial conversion options present in the extinguished notes at the extinguishment date, $1,051,212, plus the carrying value of the extinguished notes, $342,808.

In September 2008, we restructured $325,000 of outstanding 13% convertible debentures, under which such debentures were converted at a conversion price of $0.40 per share into 812,500 shares of common stock and a new 9% Convertible Debenture due September 30, 2010 (the “New Debenture) in the principal amount of $172,500 to Divash Capital Partners LLC. The New Debenture was issued without any further cash consideration and is convertible at a conversion price of $1.50 per share. We treated the transaction as an induced conversion and recorded debt conversion expense of $173,547, representing the fair value of the consideration issued.

At the time of the merger we evaluated the application of EITF 98-05, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,” and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” and concluded that the conversion option of the Debentures was a beneficial conversion feature with intrinsic value. We recorded the fair value of the beneficial conversion feature of the Debentures, which we estimate to be $825,000, as a discount to par value which was being amortized over the term of the Debentures. As the Debentures have been converted and restructured the intrinsic value as been adjusted and will continue to be amortized over the remaining term.

The following table summarizes the issuances, repayments, and conversion of the Series A, Series B, and New debentures from inception to December 31, 2008:

Acquired in Merger	$	1,643,050
Repayments		(200,000	)
Issuances		379,450
Conversion		(1,096,764	)
Balance, December 31, 2008	$	725,736

Required principal payments on long-term debt at December 31, 2008 totaled $0 for fiscal year ending September 30, 2009 and $725,736 for fiscal 2010.

In the three month period ending December 31, 2008 we issued 0% promissory notes totaling $175,000 to selected parties to fund working capital needs. These promissory notes were to mature upon the Company achieving $250,000 in equity financing. Due to the consummation of the private placement in January 2009 (see Note 5-“Stockholder Equity”), these promissory notes have become due and owning. One of the promissory notes in the principal amount of $50,000 was repaid in the December 2008 and the remaining notes were repaid in January 2009.

(5) Stockholder’s Equity

We are authorized to issue 100,000,000 shares of Common Stock, no par value, and 2,500,000 shares of Preferred Stock, no par value. There were 15,449,501 shares of Common Stock and no shares of Preferred Stock outstanding on December 31, 2008

We may issue up to 2,500,000 shares of preferred stock, no par value, with dividend requirements, voting rights, redemption prices, liquidation preferences and premiums, conversion rights and other terms without a vote of the shareholders. We also may issue up to 2,117,970 shares pursuant to our three nonqualified stock option plans and 1,350,614 shares pursuant to stock options that were granted outside the parameters of such plans.

In January 2009, the Company consummated a private placement of 1,562,500 shares of Common Stock at a price of $0.88 per share with an aggregate price of $1,375,000. We received $1,275,000 of the purchase price in December 2008 prior to the consummation of the private placement. Accordingly, for accounting purpose, we have deemed the sale of 1,448,864 shares of Common stock with an aggregate price of $1,275,000 to have occurred in December 2008.

The following table sets forth the number of shares of Common Stock that were issuable upon conversion of outstanding warrants and convertible debt as of December 31, 2008.

		Conversion/ Exercise Price		Common Shares Issuable
Class A Warrants	95,473	$	5.36		95,473
Class B Warrants	95,473		5.96		95,473
Class E Warrants	188,018		4.74		188,018
Note Warrants issued to advisors in November 2006	47,482		2.36		47,482
Debentures	78,236		0.30		260,787
Debentures	275,000		0.40		687,500
Series B Debentures	200,000		0.30		666,667
New Debentures	172,500		1.50		115,000
Other Warrants	200,000		0.88		200,000
Total shares issuable and weighted average prices			1.26		2,356,400

(6) Stock–based compensation

Pursuant to employment agreements dated January 1, 2008, our Chief Executive Officer will have the right to purchase up to 762,076 post-merger and post-split shares of Common Stock at an exercise price of $.0002 per share, and our President has the right to purchase up to 381,038 shares of Common Stock at an exercise price of $.0002 per share, under the terms of certain performance-based stock options. The options have a five year term and will vest upon the achievement of annual revenue targets as follows.

Number of shares (post merger and post split)		Vests upon achievement of annual revenue totaling	Exercise Price		Intrinsic value on date of grant

190,519	$	10 million	$	.00002	$	104,600
285,779	$	15 million	$	.00002	$	156,900
285,779	$	25 million	$	.00002	$	156,900
381,038	$	25 million	$	.00002	$	209,200

The intrinsic value of the options, based on the fair market value of shares sold in a private placement in December 2007, totaled $627,600. Stock-based compensation expense will be recognized in future periods in accordance with the performance-based terms of the options.

We have three nonqualified stock option plans with 2,117,970 shares available for grant as of December 31, 2008. The exercise price of the options are established by the Board of Directors on the date of grant and are generally equal to the market price of the stock on the grant date. The Board of Directors may determine the vesting period for each new grant and options issued are exercisable in whole or in part for a period of up to ten years from the date of the grant. All outstanding options pursuant to such plans on the date of the Merger became fully vested pursuant to the change of control that occurred in connection with the Merger. No options have been granted pursuant to the plans since the effective date of the Merger. Subsequent to the Merger the options granted to the employees under the provisions of these plans have expired. Accordingly, at December 31, 2008, there were no options outstanding under these plans.

(7) Litigation and Other Contingencies

In November 2005 and November 2007, Holdings was named as party to suits filed in the State of Indiana by the Sycamore Springs Homeowners Association, as well as certain homeowners in the Sycamore Springs neighborhood of Indianapolis, Indiana, and by the developers of the Sycamore Springs neighborhood. The claimants alleged that various Mid-States Engineering entities that are alleged to be subsidiaries of MSE Corporation, which Holdings acquired in 1997, adversely affected the drainage system of the Sycamore Springs neighborhood, and sought damages from flooding that occurred on September 1, 2003. Mediation efforts held in November 2007 and April 2008 have been successful, and each of the suits has been settled. The agreement is a compromise of disputed claims asserted or which may be asserted by the claimants against the settling defendants for any past, present and future losses, damages, and claims they may have against the settling defendants. The claims from all three lawsuits arise from a single occurrence with one deductible applying to the matter, and defense of the actions were provided by Holdings’ insurance carrier. We assumed a $100,000 obligation payable to our insurer, which represents the deductible pursuant to the terms of Holdings’ insurance coverage.

In April 2006, Holdings commenced an action against Tonga Partners, L.P. (“Tonga”), Cannell Capital, L.L.C. and J. Carlo Cannell in the United States District Court of New York, for disgorgement of short-swing profits pursuant to Section 16 of the Securities Exchange Act of 1934, as amended. On November 10, 2004, Tonga converted a convertible promissory note into 1,701,341 shares of Common Stock, and thereafter, between November 10 and November 15, 2004, sold such shares for short-swing profits. In September 2008, the District Court granted Holdings summary judgment against Tonga for disgorgement of short-swing profits in the amount of $4,965,898. The defendants have indicated that they will be appealing from the order granting Holdings summary judgment.

We are also subject to various other routine litigation incidental to our business. Management does not believe that any of these routine legal proceedings would have a material adverse effect on our financial condition or results of operations.

(8) Related Party Transactions

Pursuant to a management consulting agreement with Regal Capital LLC (“Regal’), of which our Secretary and Director Michael Martin is a managing partner, we issued 2,572,007 shares of our Common Stock to Regal as payment for management consulting services. The consulting agreement also provides for a monthly fee of $10,000 during the term of the consulting services and an additional payment of a $230,000 fee structured over time. We accounted for the entire fee, other than the $10,000 monthly fee, as a cost of raising capital and reduced the proceeds of the private placement completed in December 2007 accordingly. As of December 31, 2008, we had paid the entire $230,000 fee.

Pursuant to our acquisition of the license rights granted by Rutgers University, we issued 714,447 shares of Common Stock to Rutgers. We are obligated to pay certain fees, including royalties and membership dues to Rutgers. We also pay consulting fees to Rutgers pursuant to the development of our processes. See Note 3 - “Intangibles and Exclusive Agreement”.

Pursuant to an employment agreement with Lori A. Jones, a director and our former Chief Executive Officer and former interim Principal Financial Officer, Ms. Jones was entitled, among other things, to bonus compensation of $50,000 payable in 12 monthly installments upon the closing of an acquisition, merger or other strategic transaction. Pursuant to an agreement, Ms. Jones agreed to receive 25,000 shares of our Common Stock in lieu of the $50,000 cash bonus she was entitled to receive as a result of the Merger. In April 2008, we entered into a consulting arrangement with Ms. Jones, whereby Ms. Jones agreed to provide consulting services to the Company’s new management team through December 2008. Pursuant to the consulting arrangement, Ms. Jones is entitled to receive a fixed fee of $22,500 plus a monthly fee of $3,000, plus fees for additional services as necessary. As of December 31, 2008 we had paid all fees owed to Ms. Jones.

(9) Restatements

In connection with the preparation of its Annual Report on Form 10-K for the year ended September 30, 2009, the Company determined that certain transactions were not accurately presented in the financial statements included in the Company’s Annual Report on Form 10-KSB for the year ended September 30, 2008 and the Company’s Quarterly Reports on Form 10-Q for the three months ended December 31, 2008, March 31, 2009 and June 30, 2009. These include the following:

	a)	The recognition and accounting for shares of common stock, options and warrants issued to service-providers
	b)	The recognition and accounting for discounts on notes payable and convertible notes payable resulting from the concurrent issuance of warrants and from beneficial conversion features

The treatment of debt modifications

The Company and the Company's audit committee discussed the above errors and adjustments with the Company's independent registered public accounting firm and determined that a restatement is necessary. The Annual Report on Form 10-K for the fiscal year ended September 30, 2009 reflects the changes for the annual results for the year ended September 30, 2008.

As a result of the correction of the errors described above, the Company restated its financial statements for the three months ended December 31, 2008 included in this Quarterly Report on Form 10-Q as follows:

AXION INTERNATIONAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEET

	Unaudited December 31, 2008 as previously reported			Adjustments			Unaudited December 31, 2008 as restated
Assets
Current assets:
Cash and cash equivalents	$	930,376					$	930,376
Accounts Receivable		4,200						4,200
Inventories		205,096						205,096
Prepaid expenses		6,903						6,903
Total current assets		1,146,575						1,146,575

Property, equipment, and leasehold improvements, at cost:
Equipment		9,838						9,838
Machinery and equipment		268,125						268,125
Purchased software		56,329						56,329
Furniture and fixtures		9,322						9,322
Leasehold improvements		29,300						29,300
		372,914						372,914
Less accumulated depreciation		(36,484	)					(36,484	)
Net property and leasehold improvements		336,430						336,430

Long-term and intangible assets
License, at acquisition cost,		68,284						68,284
Deposits		4,000						4,000
		72,284						72,284

Total assets	$	1,555,289					$	1,555,289

Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	435,723		$	(125,000	) (d)	$	310,723
Notes payable, net of discount					55,624	(b), (c)		55,624
Accrued liabilities		323,308			(42,058	) (e)		281,250
Interest payable		62,973						62,973
Accrued payroll		9,927						9,927
Total current liabilities		831,931			(111,434	)		720,497

Senior secured convertible debenture, net of discount		342,407			251,160	(c), (e)		593,567

Total liabilities		1,174,338			139,726			1,314,064

Commitments and contingencies

Stockholders' deficit:
Common stock, no par value; authorized, 100,000,000 shares;
15,449,501 shares issued and outstanding		3,267,858			1,214,154	(a),(b),(e)		4,482,012
Deficit accumulated during development stage		(2,886,907	)		(1,353,880	) (a),(c),(e)		(4,240,787	)

Total stockholders' deficit		380,951			(139,726	)		241,225

Total liabilities and stockholders' deficit	$	1,555,289					$	1,555,289

AXION INTERNATIONAL HOLDINGS, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

	Unaudited Three Months Ending December 31, 2008 as previously reported			Adjustments			Unaudited Three Months Ending December 31, 2008 restated

Revenue	$	4,200					$	4,200

Cost of goods sold		-						-

Gross margin		4,200						4,200

Research and development costs		154,940						154,940
Marketing and sales		46,732						46,732
General and administrative expenses		355,739		$	71,803	(a)		427,542
Depreciation and amortization		10,875						10,875

Total operating costs and expenses		568,286			71,803			640,089

Loss from operations		(564,086	)		(71,803	)		(635,889	)

Other expense (income), net
Other income		-						-
Interest expense, net		51,496			9,236	(c)		60,732

Total other expense, net		51,496			9,236			60,732

Loss before income taxes		(615,582	)		(81,039	)		(696,621	)

Provision for income taxes		-						-

Net loss	$	(615,582	)	$	(81,039	)	$	(696,621	)

Weighted average common shares - basic and diluted		14,217,968						14,217,968

Basic and diluted net loss per share	$	(0.04	)				$	(0.05	)

(a) Stock option expense of $71,803 was recognized for grants of options to consultants by increases to general and administrative expenses and common stock.
(b) Discounts on notes payable of $96,875 were recorded in connection with the concurrent issuance of warrants, with a correponding increase to common stock.
(c) The amortization of discounts on notes payable and convertible debentures was increased by a $9,236, which increased interest expense.
(d) Notes payable of $125,000 were reclassified from accounts payable.
(e) Opening balance sheet adjustments were recorded for the restatements described in note 2 to the Company's financial statements included in its annual report on Form 10-K for the year ended September 30, 2009 as follows:

Accrued liabilities	$	(42,058	)
Convertible debentures, net of discount		269,423
Common stock		1,045,476
Retained earnings		(1,272,841	)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion of our financial condition and results of operations set forth below should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements that involve risk and uncertainties. The statements contained in this Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. When used in this Form 10-Q, or in the documents incorporated by reference into this Form 10-Q, the words “anticipate,” “believe,” “estimate,” “intend”, “expect”, “may”, “will” and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, without limitation, statements relating to competition, management of growth, our strategy, future sales, future expenses and future liquidity and capital resources. All forward-looking statements in this Form 10-Q are based upon information available to us on the date of this Form 10-Q, and we assume no obligation to update any such forward-looking statements. Our actual results, performance and achievements could differ materially from those discussed in this Form 10-Q. Factors that could cause or contribute to such differences (“Cautionary Statements”) include, but are not limited to, those discussed in Item !. Business – “Risk Factors” and elsewhere in Holdings’s Annual Report on Form 10-KSB, which are incorporated by reference herein. All subsequent written and oral forward-looking statements attributable to Holdings or the Company, or persons acting on their behalf, are expressly qualified in their entirety by the Cautionary Statements.

Basis of Presentation

The financial information presented in this form 10-Q is not audited and is not necessarily indicative of our future consolidated financial position results of operations or cash flows. Our fiscal year-end is September 30, and our fiscal quarters end on December 31, March 31, and June 30. Unless otherwise stated, all dates refer to our fiscal year and fiscal periods.

Overview

Axion International Holdings, Inc. (“Holdings”) was formed in 1981 to provide data conversion and digital mapping services to users of customized geographic information systems. On March 20, 2008, Holdings consummated an Agreement and Plan of Merger (the “Merger”), among Holdings, Axion Acquisition Corp., a Delaware corporation and direct wholly-owned subsidiary of the Holdings (the “Merger Sub”), and Axion International, Inc., a Delaware corporation which incorporated on August 6, 2006 with operations commencing in November 2007, (“Axion”). Pursuant to the Merger, the Merger Sub was merged into Axion, with Axion continuing as the surviving corporation and a wholly-owned subsidiary of Holdings. Each issued and outstanding share of Axion became 47,630 shares of Holdings common stock (“Common Stock”), or 9,190,630 shares in the aggregate constituting approximately 90.7% of Holdings issued and outstanding Common Stock as of the effective date of the Merger. The Merger resulted in a change of control, and as such, Axion (“we”, “our” or the “Company”) is the surviving entity.

Axion is the exclusive licensee of revolutionary patented technologies developed for the production of structural plastic products such as railroad crossties, bridge infrastructure, marine pilings and bulk heading. We believe these technologies, which were developed by scientists at Rutgers University (“Rutgers”), can transform recycled consumer and industrial plastics into structural products which are more durable and have a substantially greater useful life than traditional products made from wood, steel and concrete. In addition, we believe our recycled composite products will result in substantial reduction in greenhouse gases and also offer flexible design features not available in standard wood, steel or concrete products.

The Merger has been accounted for as a reverse merger in the form of a recapitalization with Axion as the successor. The recapitalization has been given retroactive effect in the accompanying financial statements. The accompanying consolidated financial statements represent those of Axion for all periods prior to the consummation of the Merger.

Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. The preparation of financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur could materially change the financial statements.

Cash and Cash Equivalents. We consider all highly liquid investments with maturities of three months or less to be cash equivalents. Our investments are subject to potential credit risk. Our cash management and investment policies restrict investments to low-risk, highly liquid securities.

Income Taxes. Income taxes are reflected under the liability method, which establishes deferred tax assets and liabilities to be recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

U.S. generally accepted accounting principles require that we record a valuation allowance against deferred tax assets if it is “more likely than not” that we will not be able to utilize it to offset future taxes. Because we are a development stage company and have no history of profitable operations, we have not recognized any of this net deferred tax asset. We currently provide for income taxes only to the extent that we expect to pay cash taxes (primarily state taxes and the federal alternative minimum tax) on current taxable income.

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Inventories. Inventories are priced at the lower of cost (first–in, first–out) or market and consist primarily of raw materials. No adjustment has been to the cost of inventories as of September 30, 2008.

Fair Value of Financial Instruments. SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, requires that we disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Goodwill and Intangible Assets: We have adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, (“SFAS No. 142”). As a result, we do not amortize goodwill, and instead annually evaluate the carrying value of goodwill for impairment, in accordance with the provisions of SFAS No. 142. Goodwill represents the excess of the cost of investments in subsidiaries over the fair value of the net identifiable assets acquired. We hold licenses and expect both licenses and the cash flow generated by the use of the licenses to continue indefinitely due to the likelihood of continued renewal at little or no cost.

Reverse Merger Purchase Accounting. In connection with our Merger, we have made estimates regarding the fair value of the assets acquired and the liabilities assumed. Adjustments to these estimates are made during the acquisition allocation period, which is generally up to twelve months from the acquisition date. Subsequent to the allocation period, costs incurred in excess of the recorded acquisition accruals are generally expensed as incurred and if accruals are not utilized for the intended purpose, the excess will be recorded as an adjustment to the cost of the acquired entity, which was charged to paid in capital.

Litigation. We are subject to various claims, lawsuits and administrative proceedings that arise from the ordinary course of business. Liabilities and costs associated with these matters require estimates and judgment based on professional knowledge and experience of management and our legal counsel. When estimates of our exposure for claims or pending or threatened litigation matters meet the criteria of SFAS No. 5 “Accounting for Contingencies”, amounts are recorded as charges to operations. The ultimate resolution of any exposure may change as further facts and circumstances become known. See Note 7 – “Litigation and Other Contingencies”.

Results of Operations

Three Months ended December 31, 2008 Compared to Period from Inception through December 31, 2008

Revenue. We are a development stage commercial company and have not generated any meaningful revenues. Revenues in the period from inception through December 31, 2008 were $10, 672 and primarily related to the sale of railroad crossties intended for field testing.

Research and Development Expense. Research and development expense for the three months ended December 31, 2008 and for the period of inception through December 31, 2008 totaled $154,940 and $495,396 respectively. These expenses were principally related to the development of our molds, products, and quality control processes. This also includes expenses related to professional consulting fees, membership dues paid to technology-related organizations that are directly related research and development in polymer plastics. We continue to work with our scientific team at Rutgers University to enhance our product formulations, develop new innovative products, and expand the reach of our existing products.

Marketing and Sales Expenses. Marketing and selling expenses for the three months ended December 31, 2008 and for the period the period of inception through December 31, 2008 totaled $46,732 and $137,677, respectively. These expenses were directly related to the development of our marketing materials and increased sales activity. Our initial target markets are the domestic and international railroad industry, the U.S. military, vehicular and pedestrian bridges, marine rehabilitation, golf architecture, and industrial engineering firms. We have had early success with the US Army and received orders for the fabrication and installation of two thermoplastic composite I-Beam tank bridges at Fort Bragg, North Carolina.

General and Administrative. General and administrative costs for the three months ended December 31, 2008 totaled $427,642 and $1,697,200 from the period of inception. These expenses are primarily related to wages and salaries of the management team, consulting fees related to market opportunities, patent defense costs, and other corporate expenses.

Depreciation and Amortization. Depreciation and amortization for the three months ended December 31, 2008 and for the period of inception through December 31,2008 totaled $10,875 and $36,484 respectively, as we continue to build our molds and operating capability.

Interest Expense, Net. Commencing on September 29, 2008, our Debentures, Series B Debentures and New Debentures earned interest at the rate of 9% per annum and mature on September 30, 2010. Accordingly, we recorded coupon interest expense totaling approximately $16,332 for the three months ended December 31, 2008. Additionally, we amortize the discount that represents the fair value of beneficial conversion feature of the Debentures, Series B Debentures and New Debentures as interest expense. We recorded approximately $44,400 in non-cash interest expense in the current quarter as we amortized the debenture discounts.

Net Loss. We recorded a net loss of $696,621 in the three months ended December 31, 2008, or $0.05 per share. For the period from inception to December 31, 2008 we have incurred a net operating loss of $4,240,782 or $0.43 per share. We anticipate that we will continue to incur losses during the development stage of the Company.

Liquidity and Capital Resources: Plan of Operation

As of December 31, 2008, we had $930,376 in cash and cash equivalents. Our debentures bear interest at the rate of 9% per annum and are due and payable on September 30, 2010, if not converted into Common Stock. As of December 31, 2008, the aggregate outstanding principal amount of the debentures was $725,736. The Debentures and the Series B Debentures are convertible at the option of the holders into Common Stock at a rate of $0.40 or $0.30 per share, and accordingly, we may issue up to 1,614,954 shares of Common Stock if the remaining principal balance is converted in its entirety. The New Debentures are convertible at the option of the holders into Common Stock at a rate of $1.50 per share, and accordingly, we may issue up to 115,000 shares of Common Stock if the remaining principal balance is converted in its entirety. We may also elect to pay interest in the form of Common Stock at the applicable conversion rate of each debenture. We recorded the debentures at a discount after giving effect to the $986,747 intrinsic value of the beneficial conversion feature and recorded the discount as equity. We are amortizing the discount as interest expense over the life of the debentures as the carrying value of the debentures accretes to the respective face value. The carrying value of the debentures at December 31, 2008 was $593,567.

We have used $601,750 in our operating activities in the three months ended December 31, 2008 primarily as a result of our activities relating to the commercialization of our business and expansion of our distribution capabilities. Financing activities, during the quarter ending December 31, 2008 consisted principally of the issuance of short term 0% promissory notes that generated net proceeds of $125,000 and of cash deposits of $1,275,000 in advance of anticipated equity financing. We also incurred expense of $6,700 for additional machinery that will be used in the production of our products.

We have used $1,899,141 in our operating activities since inception, primarily as a result of our activities devoted to commercializing our business. Financing activities, consisting principally of the sale of securities, generated net cash proceeds totaling approximately $2,542,078 from inception through December 31, 2008. We used $365,442 to purchase equipment, machinery, software, and leasehold improvements from inception to December 31 2008, including $268,125 for production molds and equipment and $56,329 for computer software that will be used in the production and design of our products. We also invested approximately $48,000 in the acquisition of our license from Rutgers during the period from inception through September 30, 2008. In addition, we received $506,000 from the sale of assets we acquired in the Merger. We believe we will need to raise additional capital through additional equity or debt financing in order to fund our operations and repay our debt obligations. Our current operating plans for the next fiscal year are to meet our existing customer commitments, enhance our research and development capabilities, expand our marketing, sales, and engineering staffs, and continue to develop innovative solutions. We may receive a substantial amount of cash pursuant to the judgment rendered against Tonga, but the outcome and the timing of the appeal filed by Tonga is uncertain. Our ability to pay principal and interest on our outstanding debentures, which are due in September 2010, as well as to meet our other debt obligations and requirements to fund our planned capital expenditures, depends on our future operating performance and ability to raise capital. We anticipate that we will have to raise additional funds through the issuance of debt and/or equity during the next twelve months. There can be no assurance that financing will be available, or if available, that such financing will be upon terms acceptable to us. These conditions raise doubt about our ability to continue as a going concern.

Disclosure About Off-Balance Sheet Arrangements

We do not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risks.

Not applicable.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on our evaluation, our Chief Executive Officer and our current Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were not effective due to the following material weaknesses:

	·	Insufficient personnel or expertise in the accounting function to provide for adequate segregation of duties surrounding the approval, processing and recording of transactions, the proper recording of complex transactions, independent review of journal entries and account analyses, an adequate monitoring program and a robust risk assessment function.
	·	Missing or nonoperating controls over the recording of stock-based compensation transactions, allocation of production costs, and the preparation of account analyses.

Insufficient formal documentation of accounting policies and procedures to ensure continued operating effectiveness.

As a result of these weaknesses, certain errors in accounting for debt modifications, debt discounts and share-based transactions in the year ended September 30, 2008 and the nine months ended June 30, 2009 were not prevented or detected.

Management intends to focus its remediation efforts in the near term on developing additional formal policies and procedures surrounding transaction processing, particularly with respect to debt and share-based transactions, and period-end account analyses and providing for additional review and monitoring procedures and periodically assess the need for additional accounting resources as the business develops. Management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing enhancements or improvements, as necessary.

(b) Changes in internal control over financial reporting.

There has been no changes in our internal control over financial reporting (as defined in Rules 13a-13(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II

Other Information

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Not applicable.

Item 2. Unregistered Sales of Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits:

31.1	Section 302 Certification of Chief Executive Officer

31.2	Section 302 Certification of Principal Financial Officer

32.1	Section 906 Certification of Principal Executive Officer

32.2	Section 906 Certification of Principal Financial Officer

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.

		Axion International Holdings, Inc.


	Date: February 22, 2010	/s/ James Kerstein
		James Kerstein
		Chief Executive Officer


	Date: February 22, 2010	/s/ Gary Anthony
		Gary Anthony
		Chief Financial Officer

AXION INTERNATIONAL HOLDINGS, INC. - FORM 10-Q/A - February 22, 2010

Attached files

AXION INTERNATIONAL HOLDINGS, INC. Reports