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

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EX-31.2 - AXION INTERNATIONAL HOLDINGS, INC.	v177734_ex31-2.htm
EX-32.2 - AXION INTERNATIONAL HOLDINGS, INC.	v177734_ex32-2.htm
EX-22.1 - AXION INTERNATIONAL HOLDINGS, INC.	v177734_ex22-1.htm
EX-31.1 - AXION INTERNATIONAL HOLDINGS, INC.	v177734_ex31-1.htm
EX-32.1 - AXION INTERNATIONAL HOLDINGS, INC.	v177734_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

AMENDMENT NO. 2

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

For the Fiscal Year ended September 30, 2009

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

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 Number)

180 South Street, New Providence, NJ 07974

(Address of principal executive offices)

(908) 542-0888

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act:

Title of each class	Name of each exchange on which registered
None	None

Securities registered under Section 12(g) of the Exchange Act:

Title of each class

Common Stock, no par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

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 ¨ No x.

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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 ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $15,249,851 based on the average bid and asked price of the Common Stock on March 31, 2009.

The number of shares outstanding of the registrant’s Common Stock, as of December 31, 2009, was 19,736,232.

DOCUMENTS INCORPORATED BY REFERENCE

The definitive proxy or information statement to be filed within 120 days of our September 30, 2009 year end is incorporated by reference in Part III to the extent described therein.

TABLE OF CONTENTS

		Page
PART I.
Item 1.	Business	1
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	11
Item 2.	Property	11
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	11
PART II.
Item 5.	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	13
Item 7.	Management’s Discussion and Analysis or Plan of Operations	13
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 8.	Financial Statements	18
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	18
Item 9A(T).	Controls and Procedures	19
Item 9B.	Other Information	20
PART III.
Item 10.	Directors, Executive Officers, Promoters and Corporate Governance	21
Item 11.	Executive Compensation	23
Item 12.	Security Ownership of Beneficial Owners and Management and Related Stockholder Matters	26
Item 13.	Certain Relationships and Related Transactions and Director Independence	30
Item 14.	Principal Accountant Fees and Services	30
PART IV.
Item 15.	Exhibits, Financial Statement Schedules	32
Signatures and Certifications		34

EXPLANATORY NOTE

We are filing this Form 10-K/A (Amendment No.2) to our Annual Report on Form 10-K for the year ended September 30, 2009, solely to amend the previously filed REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM to include an explanatory paragraph related to our restatement of previously issued financial statements and to clarify the accounting periods covered by the report. There has been no change to the financial statements or other text included herein.

Pursuant to rules under the Securities Exchange Act of 1934, we are also including with this Form 10-K/A certain currently dated certifications.

Other than as noted above, no changes have been made to our Annual Report. This Amendment does not reflect events occurring after the initial filing of our Annual Report.

PART I

Note: Effective as of August 4, 2008, Axion International Holdings, Inc. (“Holdings”) effected a 1-for-4 reverse stock split of its outstanding Common Stock. All references to the number of Axion International Holdings Inc.’s Common Stock contained in this Annual Report on Form 10-K are on a post-reverse split basis, unless otherwise indicated.

Item 1. Business

Overview

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 contingent upon its ability to raise additional funds in order to build a portfolio of investments that generate cash flow sufficient to meet its operating expenses and capital requirements. Additionally, Holdings was dependent on outside sources of financing to fund its operations and meet its future obligations. The oil and gas activities did not result in positive operating results and efforts to secure additional funds were unsuccessful, which severely restricts Holdings’ ability to engage in any additional activities. 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. (the “Merger Sub”), a Delaware corporation and a newly created direct wholly-owned subsidiary of Holdings, and Axion International, Inc. (“Axion”), a Delaware corporation which incorporated on August 6, 2006 and commenced operations in November 2007. 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.

Business

Axion is the exclusive licensee of patented and patent-pending technologies developed for the production of structural plastic products such as railroad crossties, bridge infrastructure, marine pilings and bulk heading in several territories including North and South America, the Caribbean, South Korea, Saudi Arabia, The United Arab Emirates, and Russia; additionally, China is a shared country with our strategic partner, Micron. We believe these technologies, which were developed by scientists at Rutgers University (“Rutgers”), can transform recycled consumer and industrial plastics that would otherwise be discarded into landfills into structural products which are more durable, have a substantially greater useful life and offer more flexible design features than traditional products made from wood, steel and concrete. Our products also resist rot and damaging insects without the use of chemical treatments and require significantly less maintenance throughout their lifecycles than traditional products. In addition, we believe our recycled composite products are environmentally friendly, in part because they sequester carbon, reduce the number of trees needing to be harvested and do not contain creosote, a carcinogen used to coat conventional wood crossties.

We are currently marketing our structural products and fire retardants to both the U.S. domestic and international railroad industry, the U.S. military, and industrial engineering and contracting firms. Our initial products consist of: (1) structural composite railroad crossties, (2) fire retardant composite railroad crossties, (3) structural composite I-beams along with tongue and groove planking and (4) two fire retardants.

In addition, we provide engineering and construction services on building projects using our materials. In 2009, we completed construction of two bridges commissioned by the military at Fort Bragg, NC to help facilitate troop movements, which were engineered to carry the extreme tonnage requirements for armored military vehicles that would not be possible with currently existing wooden bridges. We believe these bridges are the first structures of their kind made almost exclusively of recycled thermoplastic materials to support loads in exces of 70 tons.

Products

Our crosstie product is similar to products previously sold by Polywood, Inc., a company founded by James Kerstein, one of Axion’s founders and our Chief Executive Officer. The fire retardant composite railroad crosstie will be a new generation of that crosstie. We anticipate the sales of crossties to be made to both freight and transit line railroads whose cost benefit analysis evaluated the utility of installing plastic crossties in high stress, overhead and moisture-laden areas. Our fire retardant crosstie addresses not only moisture decay and leaching of creosote but also fire vulnerability.

The structural composite I-beams (patent pending) and tongue and groove planking (patent pending) are innovative products that we believe have the potential to revolutionize the structural material marketplace. These products were successfully installed for a vehicular bridge over the Mullica River in the New Jersey Pine Barrens in 2003. The design features that made this installation unique were the use of less material and ease of interoperability of the construction parts. In addition, an earlier bridge construction was successfully completed at Ft. Leonard Wood, Missouri in 1998. Based on a 2007 analysis conducted by the U.S. Corps of Army Engineers, we believe that these bridges were then substantially as durable as they were when first installed and required virtually no maintenance. We anticipate supplying product for the construction of additional bridges and selling these products as a solution for waterfront bulkhead projects.

The two fire retardants consist of: (1) a thermoplastic fire retardant that will be applied to the plastic crosstie and (2) a multi-surface fire retardant that can be applied to a variety of surfaces (wood, metal, and plastic). We intend to continue to develop new supplemental technologies that will serve to not only expand our market capabilities but also serve as barriers to entry by others.

Sales and Marketing

We have actively commenced sales efforts of our crossties and other structural products and related services to railroads and other public- and private-sector buyers. Since these sales are important to our early success, initial sales are largely being handled by our management team whose members, through their prior activities, have a background in and connections with this industry. In addition, strategic engineering and sales relationships are being established to generate further sales penetration. The Company’s initial objectives are to secure sales orders for composite crossties (including ones that are treated with a fire retardant) from railroads and transit line railroads as well as, vehicular bridges, platforms and boardwalks from both the US Army and civilian contracts. We believe our initial sales and marketing efforts have been positively received in the marketplace and our initial success with the US Army is an indication of the acceptance of our products in the market.

With adequate funding, we intend to establish market-facing business units, each team will function as a fully accountable, entrepreneurial unit, graded against its own performance metrics. These business units will be an extended part of the corporate strategic planning initiatives and will be supported by corporate branding, polymer engineering research, production capabilities and in-house customer service.

Manufacturing

Axion does not plan on manufacturing the aforementioned products. We believe that our outsourcing model will give us the business flexibility to maximize utilization of manufacturing capacity available in the market, respond to the geographic diversity of our customers, and minimize our capital requirements. All of our products are currently manufactured by two third-party manufacturers, one in Pennsylvania and one in Indiana. We have contacted and discussed the production of our products with multiple outsourced manufacturers who have the skills and capabilities to produce our products. Our objective is to selectively transfer the necessary intellectual property to specialists so that they may manufacture products to the specifications required by our designs and with our direct supervision.

We expect that the outsourcing manufacturers will be responsible for the implementation of our quality control program, and Axion will be responsible for the sourcing of the raw materials and monitoring all phases of production.

Exclusive License Agreement from Rutgers University

Pursuant to a License Agreement (the “License Agreement”) with Rutgers, Axion has acquired an exclusive royalty-bearing license in specific but broad global territories to make, have made, use, sell, offer for sale, modify, develop, import and export products made using patent and patent pending applications owned by Rutgers. As a result of the License Agreement, Axion was granted the right to grant sublicenses. We plan to use these patented technologies in the production of structural plastic products such as railroad crossties, bridge infrastructure, utility poles, marine pilings and bulk heading.

Axion is obligated to pay 1.5-3.0% royalties on various product sales to Rutgers, subject to certain minimum payents and to reimburse Rutgers for certain patent defense costs. We also pay annual membership dues to AIMPP, a department of Rutgers, as well as consulting fees for research and development processes.

The License Agreement runs until the expiration of the last to expire issued patent within the Rutgers’ technologies licensed under the License Agreement, unless terminated earlier.

The Market

We are focused on infrastructure solutions and we have identified four major U.S. vertical markets:

Transportation–railroad ties, bridge timbers and switch ties; fire retardants

Marine-pilings; bulkheads

General industrial-solar installations; sound barriers; boardwalk super structure; fire retardants; fast construction housing and storage containers .

Military-fire retardants, pallet delivery system for airlift cargo

Within each of these vertical markets, products have been previously manufactured utilizing Rutgers’ technology; some of which has been tested, sold and installed; while others are in development.

Transportation

In recent years, between 18,000,000 to 20,000,000 crossties have been purchased annually.

Of the estimated 20 million ties purchased in 2007, the Company believes 15-30% were installed in areas considered most conducive to alternative, non-wooden, ties. The Company therefore believes that the alternative tie market is approximately 3,000,000 ties per year (i.e. 20,000,000 x 15%), or approximately a $300 million per year market for the Class I railroads.

Additional opportunities in the rail market include rail bridges; switch sets (turnouts), rail crossings, and the addition of fire retardant materials as a safety feature.

The Transportation vertical could also be expanded to include highway guard rails and posts, sign posts, and other products for state and federal departments of transportation.

Marine

According to the General Accounting Office’s Report on Marine Transportation (2002), “During fiscal years 1999 through 2001, federal agencies expended an average of $3.9 billion each year on the marine transportation system.”

Public and private boat docks and marinas; piers and bulk heading along any seaboard, river, or estuary.

General Industrial

Federal Highway Administration Estimate - $83.4 billion each year over the next 20 years to repair highways and bridges.

According to the US Department of Transportation and the Federal Highway Administration, “The nation spends at least $5 billion per year for highway bridge design, construction, replacement, and rehabilitation.”

Bridges, solar installations, cell towers and wind turbine poles, sound barriers, boardwalk and residential decking super structure.

Military/Government Contracts

The Department of Defense Budget (2007) includes military construction in the amount of $12.6 billion and research and development of $73.2 billion.

Infrastructure, fire retardants, and pallet delivery system.

Competition

We compete with traditional construction material suppliers and at least one company, North American Technology Group, that offers a polymer composite product that competes in the railroad tie market. Most of our potential competitors have substantially greater financial and marketing resources and capabilities. These companies and others may independently develop technology for the production of structural plastic products similar or superior to our technology, which may result in our product becoming less competitive or obsolete. Competition from other companies, and possibly from universities and research institutions, may increase as advances in technology are made.

Benefits: Environmental impact, performance and cost

Utilizing virtually 100% recycled plastic, our structural products have the distinct advantage of being environmentally friendly. Our products address the increasing worldwide environmental concerns for deforestation coupled with the specific goals for recycling, reducing greenhouse gases and manufacturing products without toxic materials. We believe that our products in certain installations will last longer than conventional creosote treated wooden ties, offering significant cost savings in maintenance and product replacement, and will have freedom from biological attack (including termites).

Intellectual Property

Our licensed technologies are in two broad areas: structural formulations and fire retardants. We plan to protect our products’ unique characteristics by combining design features with material formulations and processing techniques. The compositions are used to produce structural materials from waste materials. The processing capacity allows the production of efficient shapes from these blends and the creation of fire retardants.

In the area of compositions, there are five different compositions that all consist of HDPE (High Density Polyethylene) a polymer commonly available from post-consumer and post-industrial waste streams, together with either stiffer polymers or in combination with fiberglass. Since our most completely tested and accepted product solution is presently railroad crossties, it is important to note that each of these polymer combinations can be used in railroad crosstie manufacturing.

We have a license from Rutgers for a pending patent on a unique processing technology that produces finer microstructures in the blends, and leads to even tougher end products.

Included in our license are three pending general patents covering manufactured shapes. One of the patents covers both I-beams and tongue-in-groove planking. Another covers a method to produce even longer I-beams with variable shapes. The third covers a newly designed railroad crosstie that obviates the need for the expensive steel tie plate.

We also have licenses from Rutgers for two pending fire retardant patents. One retardant is designed to be sprayed onto plastic lumber and render it unable to sustain a fire. This technology is designed to coat thermoplastics. The other fire retardant coating was developed for the US Military, specifically to be used to protect their ammunition boxes.

Employees

As of December 31, 2009, we had seven full time employees and one part-time employee.

Item 1A. Risk Factors

In addition to the other information set forth in this Form 10-K the issues and risks described below should be considered carefully in evaluating our outlook and future. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed. In that case, the trading price of our Common Stock could decline and you could lose all or part of your investment.

Axion has generated limited operating revenues. If we are unable to commercially develop and sell our structural plastic products, we will not be able to generate profits and we may be forced to curtail operations.

As of the date hereof, Axion has generated limited revenues. As a result, we have limited operating revenue and we anticipate that, for at least the near future, we will operate at a loss. Our ultimate success will depend on our ability to commercially develop and sell our structural plastic products. If we are unable to commercially develop and sell our structural plastic products, we will not be able to generate profits and we may be forced to curtail operations.

We are dependent on our ability to raise capital from external funding sources. If we are unable to continue to obtain necessary capital from outside sources, we will be forced to reduce or curtail operations.

We have not generated any cash flow from operations and we will not be cash flow positive for some time. We have limited financial resources. As a result we may need to obtain additional capital from outside sources to continue operations and commercialize our business plan. We cannot assure that adequate additional funding will be available, especially given the current financial turmoil. If we are unable to continue to obtain needed capital from outside sources, we will be forced to reduce or curtail our operations.

Our ability to execute our business plan depends upon our ability to obtain financing through

bank or other debt financing,

equity financing,

strategic relationships and/or

other means.

Our independent auditors have expressed that there is substantial doubt about our ability to continue as a going concern.

Our independent auditors issued an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern on our financial statements for fiscal year 2009, based on the significant operating losses and a lack of external financing. Our financial statements do not include any adjustments that resulted from the outcome of this uncertainty. Our inability to continue as a going concern would require a restatement of assets and liabilities on a liquidation basis, which would differ materially and adversely from the going concern basis on which our consolidated financial statements have been prepared.

Our products are new and, for the most part, have limited acceptance in the marketplace. If our products do not receive market acceptance, our ability to execute our business plan most likely will be adversely affected.

Although earlier versions of our structural composite railroad crossties, I-beams and bridge decking were sold by Polywood over four years ago, only a limited amount of our other products, including our fire retardant composite railroad crossties, have been sold and are new and untested in the marketplace. Potential customers are often resistant to trying new untested products. If our products do not receive market acceptance, our ability to commercialize our business plan most likely will be adversely affected.

Our business will be highly reliant on third party manufacturers. If one or more manufacturers that we engage do not meet our manufacturing requirements, our ability to manufacture and sell our products will be materially impaired.

We plan on relying on third parties to manufacture our products and have entered into agreements with two third parties to manufacture our products. Consequently, we are dependent on third party outsourcing for the manufacture of our products. Our business is dependent upon our retention of manufacturers and the development and deployment by third parties of their manufacturing abilities. There can be no assurance that we will obtain the requisite manufacturers or, once retained, that these manufacturers will be able to meet our manufacturing needs in a satisfactory and timely manner, or that we can obtain additional manufacturers when and if needed. Although we believe there are a number of potential manufacturers available, if we are unable to retain manufacturers quickly or cost effectively, our ability to manufacture and sell our products will be materially impaired. Our reliance on third party manufacturers involves a number of additional risks, including the absence of guaranteed capacity and reduced control over the manufacturing process, delivery schedules, production yields and costs, and early termination of, or failure to renew, contractual arrangements. Although we believe that these manufacturers will have an economic incentive to perform such manufacturing for us, the amount and timing of resources to be devoted to these activities is not within our control, and there can be no assurance that manufacturing problems will not occur in the future. A significant price increase, an interruption in supply from one or more of such manufacturers, or the inability to obtain additional manufacturers when and if needed, could have a material adverse effect on our business, results of operations and financial condition.

If we are unable to develop substantial sales and marketing capabilities, we most likely will not be able to generate adequate sales.

Initially, sales and marketing will be conducted by our senior management team, who, through its prior activities, has background and connections in our industry, and a limited number of internal sales and marketing staff. Eventually, with incremental funding, we plan on hiring additional engineers, sales and marketing staff and implementing a detailed marketing program. However, there can be no assurance that we will develop a sales and marketing force or that our sales and marketing efforts will be successful.

Our ability to effect and sustain our business plan and generate profitable operations most likely will be materially adversely affected if we are unable to purchase raw materials of acceptable quality or cost.

We believe that the raw materials that we will need to manufacture our products are available from multiple sources at relatively stable prices, except for recycled plastic, which has cyclical variation in supply, quality and cost. Our inability to secure supplies of raw materials of acceptable quality and costs could have a material adverse effect on our ability to effect and sustain our business plan and generate profitable operations.

Because our competitors may have greater financial, marketing and research and development resources, we may not be able to successfully compete in our industry.

We compete with traditional construction material suppliers and at least one company, North American Technology Group, which offers a polymer composite product that competes in the railroad tie market. Most of our potential competitors have substantially greater financial and marketing resources and capabilities. These companies and others may independently develop technology for the production of structural plastic products similar or superior to our technology, which may result in our product becoming less competitive or obsolete. Competition from other companies, and possibly from universities and research institutions, may increase as advances in technology are made.

We depend upon senior management and key personnel. Any loss of their services could negatively affect our business. Our failure to retain and attract such personnel could harm our business, operations and product development efforts.

Our success will depend to a significant extent, on the performance of James Kerstein, our CEO, and Marc Green, our President and Treasurer, and others who we hire. To the extent that the services of any of our key personnel become unavailable, we will be required to retain other qualified persons. We may not be able to find a suitable replacement for any such person. The loss of the services of key persons could have a material adverse effect on our business, financial condition and results of operations.

Our products require sophisticated research and development and marketing and sales. Our success will depend on our ability to attract, train and retain qualified research and development and marketing and sales personnel. Competition for personnel in all these areas is intense and we may not be able to hire sufficient personnel to achieve our goals. If we fail to attract and retain qualified personnel, our business, operations and product development efforts most likely would suffer.

We may not have adequate protection for the intellectual property rights on which our business depends.

Our success depends, in part, on our ability to protect our important intellectual property rights (including those licensed from Rutgers). The steps we have taken may not be adequate to deter misappropriation or unauthorized use of our proprietary information or to enable us to detect unauthorized use and take appropriate steps to enforce our intellectual property rights. We and/or Rutgers have obtained and continue to seek patents with respect to newly developed technologies. We also rely on a combination of trade secret, nondisclosure and other contractual arrangements, and copyright laws to protect our proprietary rights. We will enter into confidentiality agreements with our employees and limit access to and distribution of our proprietary information, and if it is necessary to disclose proprietary information to third parties for business reasons, we will require that such third parties sign a confidentiality agreement prior to any disclosure. However, these confidentiality agreements cannot guarantee there will not be disclosure or misappropriation of such proprietary information. In addition, litigation may be necessary to enforce our intellectual property rights, protect trade secrets, determine the validity and scope of the proprietary rights of others, or defend against claims of infringement or invalidity. Intellectual property laws provide limited protection. Moreover, the laws of some foreign countries do not offer the same level of protection for intellectual property as the laws of the United States. Litigation may result in substantial costs and diversion of resources, which may limit the development of our business.

If we or our manufacturers were found to be infringing any third party patents, we or they could be required to pay damages, alter our or their products or processes, obtain licenses or cease certain activities. We cannot be certain that if we or they required licenses for patents held by third parties that they would be made available on terms acceptable to us or them, if at all.

Management and affiliates own enough shares to have a substantial impact on shareholder vote which may limit shareholders’ ability to influence various corporate actions.

Our executive officers, directors, affiliates and entities controlled by them own approximately 15% of the outstanding Common Stock. As a result, these executive officers and directors will have a substantial impact on the vote on matters that require stockholder approval such as election of directors, approval of a corporate merger and reorganization, increasing or decreasing the number of authorized shares, adopting corporate benefit plans, affecting a stock split, amending our Articles of Incorporation or other material corporate actions.

Environmental liabilities and environmental regulations may have an adverse effect on our business.

Previously, we held minority and non-operating interests in oil and gas properties. The oil and gas business is subject to environmental hazards such as spills, leaks or any discharges of petroleum products and hazardous substances. Although no claims have been made to date and we no longer have any such interests, potential environmental liability may not be extinguished with regard to a holder, such as us, of oil and gas interests during the period in which the interests were held. Accordingly, these environmental hazards could expose us to material liabilities for property damage, personal injuries and/or environmental harms, including the costs of investigating and rectifying contaminated properties.

We have outstanding options, warrants and convertible debentures, and we are able to issue “blank check” preferred stock, that could be issued resulting in the dilution of Common Stock ownership.

As of September 30, 2009, we had outstanding options, warrants and convertible debentures that, when exercised and converted, could result in the issuance of up to 7,026,366 additional shares of common stock. In addition, our Articles of Incorporation allow the board of directors to issue up to 2,500,000 shares of preferred stock and to fix the rights, privileges and preferences of those shares without any further vote or action by the shareholders. We currently have no preferred stock outstanding. To the extent that outstanding options, warrants and convertible debentures or similar instruments or convertible preferred stock issued in the future are exercised or converted, these shares will represent a dilution to the existing shareholders. The preferred stock could hold dividend priority and a liquidation preference over shares of our Common Stock. Thus, the rights of the holders of Common Stock are and will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that we may issue in the future. Any such issuance could be used to discourage an unsolicited acquisition proposal by a third party.

Future sales of our Common Stock may cause stock price to decline.

Sales of substantial amounts of our Common Stock in the public market, or the perception that these sales may occur, could cause the market price of our Common Stock to decline. In addition, the sale of our Common Stock could impair our ability to raise capital through the sale of additional common or preferred stock.

Our stock price is highly volatile and the purchase or sale of relatively few shares can disproportionately influence the share price.

The trading price and volume of our Common Stock has been and may continue to be subject to significant fluctuations in response to:

our ability to execute our business plan;

actual or anticipated quarterly variations in our operating results;

the success of our business and operating strategy; and

the operating and stock price performance of other comparable companies.

The trading price of our Common Stock may vary without regard to our operating performance. Historically, we have been a thinly traded stock, therefore relatively few shares traded can disproportionately influence share price.

We have limited operating history with regard to our new business and, as a result, there is a limited amount of information about us on which to make an investment decision.

We commenced operations in November 2007 and have recognized limited revenues to date. Accordingly, there is very little operating history upon which to judge our current operations or financial results.

Our Common Stock is deemed to be a "penny stock" and trading of our shares is subject to special requirements that could impede our stockholders' ability to resell their shares.

Our shares are subject to the Penny Stock Reform Act of 1990 which may potentially decrease your ability to easily transfer our shares. Broker-dealer practices in connection with transactions in "penny stocks" are regulated. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules.

Material weaknesses in our disclosure controls and procedures or our failure to remediate such material weaknesses could result in a material misstatement in our financial statements not being prevented or detected and could affect investor confidence in the accuracy and completeness of our financial statements, as well as our stock price.

We have identified material weaknesses in our disclosure controls and procedures, including a lack of sufficient internal accounting resources, formal procedures and segregation of duties necessary to ensure that adequate review of our financial statements and notes thereto is performed, and have concluded that our internal control over financial reporting is not effective as of September 30, 2009. These material weaknesses and our remediation plans are described further in Item 9A(T). "Controls and Procedures" of this report. Material weaknesses in our disclosure controls and procedures could result in material misstatements in our financial statements not being prevented or detected. We may experience difficulties or delays in completing remediation or may not be able to successfully remediate material weaknesses at all. Any material weakness or unsuccessful remediation could affect our ability to file periodic reports on a timely basis and investor confidence in the accuracy and completeness of our financial statements, which in turn could harm our business and have an adverse effect on our stock price and our ability to raise additional funds.

Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Axion owns no real property and rents approximately 2,000 square feet of space in New Providence, New Jersey pursuant to a three-year lease at a monthly rent of approximately $3,400. These premises serve as the corporate headquarters.

Item 3. Legal Proceeding

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 the 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 a 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 are 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.

Item 4. Submission of Matters To A Vote Of Security Holders

None.

PART II.

Item 5. Market For Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of September 30, 2009, there were approximately 1,200 record holders of our Common Stock, and there were 19,243,669 shares of our Common Stock outstanding. Our Common Stock has been traded on the Over-the-Counter Bulletin Board since June 1, 2007. From June 1, 2007 to August 3, 2008, our Common Stock was traded under the symbol “ANLT”, and then following the name change, since August 4, 2008, the date of the reverse split, our Common Stock was traded under the symbol “AXIH”. From April 3, 2007, until June 11, 2007, our Common Stock was traded on the OTC Pink Sheets. Prior to April 3, 2007, our Common Stock was traded on the NASDAQ Capital Market. Our business changed to that of Axion’s on March 20, 2008, the date of the merger. The following table sets forth the high and low bid quotations for our Common Stock (on a post-reverse split basis) as reported on the Over-the-Counter Bulletin Board by quarter during each of our last two fiscal years. The high and low bid quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

	High			Low

Year Ended September 30, 2009
First quarter		$	1.50		$	0.75
Second quarter			1.20			0.85
Third quarter			1.17			0.80
Fourth quarter			3.25			0.65

Year Ended September 30, 2008
First quarter		$	0.68		$	0.32
Second quarter			0.72			0.32
Third quarter			1.84			0.72
Fourth quarter			1.80			0.93

Dividends

Since becoming a public company, we have not declared or paid cash dividends on our Common Stock and do not anticipate paying cash dividends in the foreseeable future. We presently expect that we will retain all future earnings, if any, for use in our operations and the expansion of our business.

Item 6. Selected Financial Data

Because we are a smaller reporting company, we are not required to provide the information called for by this item.

Item 7. Management’s Discussion and Analysis or Plan 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-K. This Form 10-K contains forward-looking statements that involve risk and uncertainties. The statements contained in this Form 10-K 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-K, or in the documents incorporated by reference into this Form 10-K, 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-K are based upon information available to us on the date of this Form 10-K, 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-K.

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. (the “Merger Sub”), a Delaware corporation and direct wholly-owned subsidiary of the Holdings, and Axion International, Inc. (“Axion”), a Delaware corporation which incorporated on August 6, 2006 with operations commencing in November 2007. 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.

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.

Revenue and Cost 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 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.

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 finished goods inventories as of September 30, 2009.

Property and Equipment: Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized thereon. Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized. The range of estimated useful lives to be used to calculate depreciation for principal items of property and equipment are as follow:

Asset Category		Depreciation/ Amortization Period
Furniture and fixtures		3 to 5 years
Computer equipment and purchased software		3 years
Machinery and equipment		2 to 5 years
Leasehold improvements		Term of lease

Goodwill and Intangible Assets: We do not amortize intangible assets, and instead annually evaluate the carrying value of intangible assets for impairment. We hold licenses and expect the cash flow generated by the use of the licenses to exceed their carrying value.

Impairment of Long-Lived Assets: Assets such as property, plant, and equipment, and purchased intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Goodwill and other intangible assets are tested for impairment annually. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no events or changes in circumstances that necessitated a review of impairment of long lived assets.

Stock Based Compensation: We record stock-based compensation for transactions in which we exchange our equity instruments for services of employees, consultants and others based on the fair value of the equity instruments issued at the date of grant or other measurement date. The fair value of common stock awards is based on the observed market value of our stock. We calculate the fair value of options and warrants using the Black-Scholes option pricing model. Expense is recognized, net of expected forfeitures, over the period of performance. When the vesting of an award is subject to performance conditions, no expense is recognized until achievement of the performance condition is deemed to be probable.

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 12 – “Litigation and Other Contingencies”.

Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”), establishing the FASB Accounting Standards Codification, (“Codification” or “ASC”) as the single source of authoritative GAAP to be applied by nongovernmental entities, except for the rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants, effective for interim and annual periods ending after September 15, 2009. The adoption of these changes did not have a material effect on the Company’s consolidated financial statements.

In April 2008, the FASB issued guidance, generally codified under ASC Topic 350, “Intangibles – Goodwill and Other”, that amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset in order to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset and is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact, if any, that adoption will have on its consolidated financial position, results of operations and cash flows.

In June 2008, the FASB issued guidance, generally codified under ASC Topic 260, “Earnings per Share”, which classifies unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as participating securities and requires them to be included in the computation of earnings per share pursuant to the two-class method and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. It requires all prior period earnings per share data presented to be adjusted retrospectively. The Company is currently evaluating the effect, if any, that adoption will have on its consolidated financial position, results of operations and cash flows.

In September 2008, the FASB issued FSP No. 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161” (“FSP 133-1”). FSP 133-1 requires more extensive disclosure regarding potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows of sellers of credit derivatives. FSP 133-1 also amends FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others,” to require additional disclosure about the current status of the payment or performance risk of a guarantee. FSP 133-1 also clarifies the effective date of FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” by stating that the disclosures required should be provided for any reporting period (annual or quarterly interim) beginning after November 15, 2008. The Company is currently evaluating the effect, if any, that the adoption of FSP 133-1 will have on its consolidated financial position, results of operations and cash flows.

In June 2008, the FASB issued guidance, generally codified under ASC Topic 815, “Derivatives and Hedging”, on how an entity should determine whether an instrument (or an embedded feature) is indexed to an entity’s own stock. This guidance provides for use of a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early application is not permitted. The Company is currently evaluating the effect, if any, that adoption will have on its consolidated financial position, results of operations and cash flows.

In May 2009, the FASB issued guidance, generally codified under ASC Topic 855, “Subsequent Events”, which sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements as well as the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This guidance was effective for interim and annual periods ending after June 15, 2009. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

Results of Operations

Year Ended September 30, 2009 Compared to the Period from Inception (November 2007) to September 30, 2008

Revenue and Cost of Sales. For the year ended September 30, 2009, we recognized $1,374,961 of revenue compared to $6,472 of revenue for the period from inception to September 30, 2008. In the current fiscal year, we completed our first construction project, the construction of two bridges at Fort Bragg, NC, for which we recognized $784,411 of revenue, and also recorded our first significant sales of railroad ties, which amounted to a total of $590,550 during the period, including $530,347 to a single customer. In the prior fiscal year, we earned modest revenues of $6,472 related to a purchase of railroad crossties by a foreign transit authority for testing. In November 2009, we received orders for the demolition and construction of two bridges on the United States Army base at Fort Eustis in Virginia, which are expected to be completed during our year ending September 30, 2010.

Cost of sales amounted to $995,218 for the year ended September 30, 2009, or approximately 72% of revenue. Because these revenues represent the first significant projects and revenues earned by us, costs of these sales may not be indicative of costs of sales in the future, which may vary significantly.

Research and Development Costs. Research and development costs totaled $467,133 in the fiscal year ended September 30, 2009, compared to $340,457 from inception to September 30, 2008, reflecting increased expenses related to prototype molds and products, professional consulting fees, membership dues paid to technology-related organizations that are directly related to our license, as well as salaries and expenses related to the development of our quality control processes. In addition we conducted new studies with Rutgers University and other third parties 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 increased from $90,945 in the period from inception to September 30, 2008 to $497,961 in the year ended September 30, 2009. The increase reflects increased salaries and expenses, primarily for new hires and consultants, directly related to our marketing and selling efforts. We are in the early stages of implementing our marketing and sales strategies. Our initial target markets are the domestic and international railroad industry, the U.S. military, golf architecture, and industrial engineering firms.

General and Administrative. General and administrative costs totaled $3,398,509 for the fiscal year ended September 30, 2009 compared to $1,269,559 in the period from inception to September 30, 2008. In the current fiscal year, we incurred approximately $1.1 million of stock compensation charges to finance, public relations and investor relations consultants. In addition, cash fees to such consultants increased approximately $0.7 million in the current year, Other expenses, including salaries, legal fees, travel, supplies, insurance, professional fees and patent defense costs increased generally with our increased business activities and, in the current fiscal year, represented a full year of operations..

Depreciation and Amortization. Depreciation and amortization totaled $179,547 in the year ended September 30, 2009 compared to $25,609 from inception through September 30, 2008. The increase relates primarily to machinery and equipment purchases since the March 2008 merger with Axion International, Inc.

Other Expense, Net. We recorded coupon interest expense totaling approximately $113,438 and $104,439, respectively, for the periods ending September 30, 2009 and 2008. Additionally, we amortize the discounts resulting from and based on the fair value of warrants issued in connection with our debt as well as beneficial conversion features. We recorded $475,745 and $634,002, respectively, in non-cash interest expense for the periods ending September 30, 2009 and 2008 as we amortized the debenture discounts. Interest expense in future periods will increase in future periods as a result of discounts recorded on $600,000 of convertible debentures issued in September 2009.

In addition, we recorded debt conversion expense of $1,006,826 and $1,104,871, respectively for the year ended September 30, 2009 and the period from inception to September 30, 2008. These charges result from debt extinguishments and induced conversions of convertible debt in those periods and primarily reflect the fair value of stock issued in debt modifications in which we have offered to reduce existing conversion prices in exchange for holders’ agreement to convert all or a portion of their holdings prior to maturity. We may or may not enter into similar agreements in the future. If we do, any related charge will reflect the details of such transactions and may vary significantly from these historical amounts.

Income Taxes. We have unused net operating loss carryforwards, which included losses incurred from inception through September 30, 2009. Due to the uncertainty that sufficient future taxable income can be recognized to realize associated deferred tax assets, no income tax benefit from inception through September 30, 2008 has been recorded.

Liquidity And Capital Resources: Plan Of Operation

As of September 30, 2009, we had $1,257,516 in cash and cash equivalents and $1,171,886 of current liabilities. In addition, the undiscounted total face value of our debt amounts to $1,064,736, which is primarily due between September 2010 and March 2011. We have used approximately $3.9 million in our operating activities from inception through September 30, 2009, primarily as a result of our initial and continuing activities devoted to commercializing our business and we expect to continue to incur net cash outflows from operations for the foreseeable future. Financing activities, consisting principally of the sale of debt and equity securities, have generated net cash proceeds totaling approximately $5.1 million from inception through September 30, 2009. Our ability to pay principal and interest on our outstanding debentures and to fund our planned operations, depends on our future operating performance and ability to raise capital. The timing and amount of our financing needs will be highly dependent on the success of our sales and marketing programs, our ability to obtain new construction contracts, the size of such contracts and any associated working capital requirements. At September 30, 2009, the amount of firm commitments for future projects was not significant.

We believe we will need to raise additional capital through additional equity or debt financing in the next twelve months in order to fund our planned 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 and 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. 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. Please see the Risk Factor “We are dependent on our ability to raise capital from external funding sources. If we are unable to continue to obtain necessary capital from outside sources, we will be forced to reduce or curtail operations” in “Item 1A. Risk Factors” above.

Disclosure About Off-Balance Sheet Arrangements

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

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Because we are a smaller reporting company, we are not required to provide the information called for by this item.

Item 8. Financial Statement

The information required by this item is included in pages F-1 through F-22 attached hereto and incorporated by reference. The index to the consolidated financial statements can be found on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A(T). Controls and Procedures

Evaluation of the Company's Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (9the “Exchange Act”)) as of September 30, 2009. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that due to material weaknesses in our internal control over financial reporting noted below, our disclosure controls and procedures were not effective

Our disclosure controls and procedures are intended to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as the principal executive and financial officers, respectively, to allow final decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes, in accordance with generally accepted accounting principles. The effectiveness of any system of internal control over financial reporting is subject to inherent limitations and therefore, may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that the controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management conducted an evaluation of the effectiveness of internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of September 30, 2009, our internal controls over financial reporting 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.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Changes in internal control over financial reporting.

There was no change 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 our fourth fiscal quarter of the fiscal year ended September 30, 2009, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In October 2009, Michael Johnson resigned as our Chief Financial Officer, at which time Gary Anthony was appointed to replace him.

Item 9B. Other Information

None.

PART III.

Item 10. Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

The following table sets forth the names and ages of all of our current directors and executive officers along with their current positions. All directors hold office until the next annual meeting of stockholders or until their successors have been elected and qualified.

Name	Age	Position with the Company
James Kerstein	51	Chief Executive Officer and Director
Marc Green	62	President, Treasurer and Director
Lori Jones	52	Director
Alan Siegel	71	Director
Miles Slater	66	Director
Gary Anthony	49	Secretary and Chief Financial Officer

The principal occupations of and certain other information about each of our executive officers and directors are as follows:

James J. Kerstein. Mr. Kerstein has served as one of our directors and as our Chief Executive Officer since the Effective Date. He has served as the Chief Executive Officer of Axion since 2007. Prior to joining Axion, Mr. Kerstein was the President of Plast-O-Matic Valves Inc., a privately-held manufacturer of high end polymer valves focused on the semiconductor and wastewater industries. From 1996 to 2004, he was the founder, Chief Executive Officer, President and Chairman of Polywood, Inc., a manufacturer of recycled plastic resins utilizing the Rutgers University developed technologies for the production of structural plastic products. Mr. Kerstein is credited as a co-inventor on multiple patents dealing with formulations and uses of recycled plastics

Marc Y. Green. Mr. Green has served as one of our directors and as our President and Treasurer since the Effective Date. He has served as President and Treasurer of Axion since its inception in August 2006. From July 2007 to December 2007, Mr. Green was an Investment Advisor at Merrill Lynch Private Client Group advising high net worth individuals Prior to joining Merrill Lynch, Mr. Green was a Senior Vice President of Keefe, Bruyette & Woods, an investment banking firm, managing institutional sales. From March 2003 to September 2004, Mr. Green served as Chief Operating Officer of Polywood, Inc.

Lori A. Jones. Lori Jones, C.P.A, is the founder of JJM Consulting, a boutique financial consulting firm that provides clients with services in accounting and finance disciplines as well as in strategic initiatives. As principal of JJM Consulting, she provides consulting services to various entities, including serving as Chief Financial Officer of Issuer Direct Corporation (OTCBB: ISDR) since June 2008. Ms. Jones has served as one of our directors since December 1, 2006. She served as our Chief Executive Officer from December 2004 to the Effective Date. Ms. Jones served as our interim Principal Financial Officer from December 2006 to the Effective Date and as our Chief Financial Officer from January 2003 until December 2004. From March 2001 to January 2003, Ms. Jones was a partner with Tatum CFO Partners LLP, a financial consulting company. From May 2000 to March 2001, Ms. Jones served as the chief financial officer of Worldmerc Incorporated. From January 1999 to May 2000, Ms. Jones was the chief financial officer of Billserv Inc., an electronic billing presentation and payment service company. From May 1990 to December 1998, Ms. Jones served in various capacities, including chief financial officer, at Docucon, Inc., a document imaging services company. Ms. Jones is a C.P.A. and holds a M.B.A. from the University of Texas at San Antonio.

Alan Siegel. Alan Siegel is founder and CEO of the brand consultancy, Siegel+Gale, devoted to positioning global companies for competitive success. Since the consultancy’s founding in 1969, Mr.Siegel has created strategic branding programs for many leading companies, including 3M, CBS, Xerox and American Express. Previously, he held various positions in the communications industry at agencies such as BBDO, Ruder Finn, and Sandgren & Murtha. A consultant, teacher and commentator, Mr. Siegel has advised and written extensively on simplicity and the use of plain English in business communications and documents. He has also served on advisory boards of a number of private businesses and cultural organizations. Mr. Siegel is a graduate of Cornell University’s School of Industrial and Labor Relations

Miles Slater. Miles Slater is a former President and CEO of Salomon Brothers International, Ltd. and also served as a member of Salomon Brothers’ Board of Directors. Mr. Slater began his career in investment banking working at the Federal Open Market Committee Trading Desk and held senior executive and board positions with several Wall Street firms including First Pennco Securities, Blyth Eastman Dillon and Bankers Trust Company. He has also been Chairman of the Advisory Board of the Swiss Private bank Bank Julius Baer. Since his retirement from Salomon Brothers in 1988, Mr. Slater has served on numerous private-company and not-for-profit boards. Mr. Slater holds a degree in Finance from New York University.

Gary Anthony. Gary Anthony was appointed Chief Finanical Officer and Secretary in October 2009. Since October 2007, Mr. Anthony has served as Controller of Xenomics, Inc., a molecular diagnostics company and from October 2008 through June 2009, as a Vice President. From November 2004 through October 2007, Mr. Anthony served as the Director of Accounting and Compliance for Palatin Technologies, Inc., a publicly traded pharmaceutical company. Mr. Anthony earned his BS in Accounting from Monmouth College.

Family Relationships

There are no family relationships among our executive officers and directors.

Legal Proceedings

During the past five years, none of our executive officers, directors, promoters or control persons has been involved in a legal proceeding material to an evaluation of the ability or integrity of such person.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and any persons who own more than 10 percent of a registered class of our equity securities, to file reports of ownership and changes of ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission. Officers, directors, and greater than 10% shareholders are required to furnish us with copies of all such forms that they file.

To our knowledge, based solely on review of the copies of such reports furnished to us during fiscal 2009, all such filing requirements were met, except Mr. Siegel did not file a Form 3 upon becoming a director and Insight Partners, LLC did not file a Form 3 upon becoming a 10% shareholder.

Code of Ethics

We adopted a code of ethics which our senior financial officers, executive officers, and general and project managers are expected to adhere to and promote throughout the organization. Our code of ethics may be found on our website at www.axionintl.com. We intend to disclose on our website any waivers or amendments to our code of ethics within five business days of such action.

Director Nominations

We do not maintain a nominating committee of the board. Nominations for election or appointment to the board are made by the full board. Because of our small size we do not believe that a nominating committee would significantly improve our nomination process. We do not have in place procedures by which security holders may recommend nominees to the board of directors and have not received any recommendations for nominee for the board of directors from any security holders.

Audit Committee

We have established an Audit Committee, with Lori Jones as its sole member and financial expert. The Audit Committee does not have a formal charter document.

Item 11. Executive Compensation

The following Summary Compensation Table sets forth, for the years indicated, all cash compensation, paid, distributed or accrued for services, including salary and bonus amounts, rendered in all capacities by our Chief Executive Officer, our former Chief Executive Officer and all other executive officers who received or are entitled to receive compensation in excess of $100,000 during the stated period.

Summary Compensation Table

Name and	Fiscal	Salary		Bonus		Option Awards		All other Compensation			Total
Principal Position	Year	($)		($)		($)		($)			($)

James Kerstein	2009		208,000		-		-		10,200	(1)		218,200
Chief Executive Officer	2008		208,000		-		-		10,200	(1)		218,200

Marc Green	2009		120,000		-		-		-			120,000
President and Treasurer	2008		120,000		-		-		-			120,000

Michael Johnson (2)	2009		71,250		-		-		-			71,250
Former Chief Financial Officer and Secretary	2008		22,500		-		-		-			22,500

Gary Anthony (3)	2009		2,885		-		-		-			2,885
Chief Financial Officer and Secretary	2008		-		-		-		-			-

(1) Includes an automobile allowance in the amount of $850.00 per month.

(2) Michael Johnson joined the Company in April 2008 as Chief Financial Officer on a part-time basis and resigned in October 2009

(3) Gary Anthony was appointed Chief Financial Officer and Secretary on a part-time basis in October 2009.

Employment Agreements

James Kerstein

Axion entered into an employment agreement, dated as of January 1, 2008, with Mr. Kerstein that provides for his continued employment with Axion as Chief Executive Officer through January 1, 2013. Under the terms of the employment agreement, Mr. Kerstein receives annual base compensation in the amount of $208,000, which will be increased to the following amounts upon reaching the following revenue milestones: (i) $388,000 upon Axion achieving annual revenues of $10,000,000, (ii) $488,000 upon Axion achieving annual revenues of $15,000,000, and (iii) $508,000 upon Axion achieving annual revenues of $25,000,000. Mr. Kerstein is also entitled to receive benefits (including health insurance) provided to other senior executives and automobile allowance of $850 per month.

In addition, Mr. Kerstein was awarded options to purchase 16 shares of Common Stock of Axion at an exercise price of $1.00 per share. As a result of the Merger and the reverse stock split, such options were automatically converted into the right to purchase 762,076 shares of Common Stock of the Company, at an exercise price of $.00002 per share. The options are exercisable for a term of five years, of which (i) 190,519 shares vest upon Axion achieving annual revenues of $10,000,0000, (ii) 285,779 shares vest upon Axion achieving annual revenues of $15,000,000 and (iii) 285,779 shares vest upon Axion achieving annual revenues of $25,000,000; provided, all of the options vest in the event of (i) a change of control, as defined in his employment agreement, (ii) termination of Mr. Kerstein’s employment by Axion without cause, as defined in his employment agreement, or (iii) termination of Mr. Kerstein’s employment by Mr. Kerstein for good reason, as defined in the employment agreement.

If Mr. Kerstein is terminated without cause, as defined in his employment agreement, or by Mr. Kerstein for good reason, as defined in his employment agreement, he will receive (i) the remainder of his salary, (ii) benefits provided to other senior executives and (iii) automobile allowance of $850 per month, each through the normal expiration date of his employment term. If Mr. Kerstein is terminated due to his permanent disability, he will receive for a period of six months (i) his base salary, (ii) benefits provided to other senior executives and (iii) automobile allowance of $850 per month. In addition, if Mr. Kerstein is terminated due to his death, he will receive base salary for a period of six months.

The agreement also contains covenants governing confidentiality, non-competition and non-solicitation upon the termination of his employment. The non-compete continues for a period of 12 months following termination of Mr. Kerstein’s employment.

Mr. Kerstein’s agreement was amended in December 2008 solely for the purpose of making it more compliant with provisions of Section 409A of the Internal Revenue Code that took effect on December 31, 2008.

Marc Green

Axion has entered into an employment agreement, dated as of January 1, 2008, with Mr. Green that provides for his continued employment with Axion as President through January 1, 2011. Under the terms of the employment agreement, Mr. Green receives annual base compensation in the amount of $120,000, which will be increased to the following amounts upon reaching the following revenue milestones: (i) $150,000 upon Axion achieving annual revenues of $10,000,000, and (ii) $180,000 upon Axion achieving annual revenues of $25,000,000. Mr. Green is also entitled to receive benefits (including health insurance) provided to other senior executives.

In addition, Mr. Green was awarded options to purchase 8 shares of Common Stock of Axion at an exercise price of $1.00 per share. As a result of the Merger and reverse stock split, such options were automatically converted into the right to purchase 381,038 shares of Common Stock of the Company, at an exercise price of $.00002 per share. The options are exercisable for a term of five years and vest upon Axion achieving annual revenues of $25,000,000; provided, all of the options vest in the event of (i) a change of control, as defined in his employment agreement, (ii) termination of Mr. Green’s employment by Axion without cause, as defined in his employment agreement, or (iii) termination of Mr. Green’s employment by Mr. Green for good reason, as defined in the employment agreement.

If Mr. Green is terminated without cause, as defined in his employment agreement, or by Mr. Green for good reason, as defined in his employment agreement, he will receive (i) his base salary for up to one year, (ii) benefits provided to other senior executives (including health insurance) through the normal expiration date of his employment term and (iii) automobile allowance of $850 per month through the normal expiration date of his employment term. If Mr. Green is terminated due to his permanent disability, he will receive for a period of six months (i) his base salary, and (ii) benefits provided to other senior executives. In addition, if Mr. Green is terminated due to his death, he will receive base salary for a period of six months.

Mr. Green’s agreement was amended in December 2008 solely for the purpose of making it more compliant with provisions of Section 409A of the Internal Revenue Code that took effect on December 31, 2008.

Lori A. Jones

Holdings had entered into an employment agreement, dated as of April 1, 2005, with Ms. Jones that provided for her continued employment as Chief Executive Officer or such other position as may be mutually agreed. Under the terms of the employment agreement, Ms. Jones was entitled to receive a base salary of $175,000 and bonus compensation of $50,000 payable in 12 monthly installments upon the stockholder approval or closing of an acquisition, merger or other strategic transaction. Pursuant to an agreement dated March 28, 2008, 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. Ms. Jones was also entitled to receive benefits provided to other senior executives. Ms. Jones also participated in an incentive reward program, which includes a 1% overriding royalty interest that is proportionately reduced to our net interest in all oil and gas deals.

Upon termination of Ms. Jones’ employment without cause, as defined in her employment agreement, or if she resigned her employment for good reason, as defined in her employment agreement, including a termination of employment in connection with a change of control, as defined in her employment agreement, Ms. Jones was entitled to receive salary for a period of twelve months. Ms. Jones agreed to terminate her employment agreement without any obligation on the part of Holdings to pay her severance.

In April 2008, Holdings entered into a consulting arrangement with Ms. Jones whereby Ms. Jones agreed to continue to provide consulting services to the Company’s new management team through December 2008. Pursuant to the consulting arrangement, Ms. Jones received a fixed fee of $22,500 plus a monthly fee of $3,000.

Compensation of Directors

The following table shows compensation to all directors who were not also employees or officers during fiscal year ended September 30, 2009.

Compensation of Directors

Name	Option Awards		All Other Compensation		Total
Lori Jones	$	17,895		-	$	17,895
Alan Siegel		28,632		-		28,632
Miles Slater		28,632		-		28,632
Michael Martin (1)		-		-		-

(1) Mr. Martin resigned as a member of the Board of Directors in May 2009.

Outstanding Equity Awards at Fiscal Year End

Option Awards

Name	Number of Securities Underlying Unexercised Options Unexercisable		Option Exercise Price		Option Expiration Date
James Kerstein		762,076	$	.00002	1/1/2013
Marc Green		381,038		.00002	1/1/2013

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information regarding the number of shares of our Common Stock beneficially owned as of September 30, 2009, by each of our directors, each of our executive officers, all of our executive officers and directors as a group, and by any person or “group,” as that term is used in Section 13(d)(3) of the Exchange Act, known to us to own beneficially more than 5% of the outstanding shares of our Common Stock. Except as otherwise set forth below, the address of each of the persons listed below is c/o Axion International Holdings, Inc., 180 South Street, Suite 104, New Providence, New Jersey 07974.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percent of Class (1)
James Kerstein (2)		2,000,450		10.4	%
Marc Green (3)		1,120,744		5.8	%
Gary Anthony		-		*
Lori A. Jones(4)		51,960		*
Alan Siegel(5)		50,000		*
Miles Slater(6)		253,945		1.3	%
Insight Partners LLC 4800 Hampden Lane 7th Floor Bethesda, MD 20814		1,693,182		8.8	%
Harborview Master Fund, L.P. c/o Harbour House Waterfront Drive PO Box 972 Road Town Tortola, British Virgin Islands (7)		1,526,259		7.8	%
All directors and officers as a group (6 persons)		3,477,099		18.0	%

* Less than 1% of outstanding shares.

(1)

As of September 30, 2009, we had 19,243,669 shares of common stock outstanding. Unless otherwise indicated in these footnotes, each stockholder has sole voting and investment power with respect to the shares beneficially owned. All share amounts reflect beneficial ownership determined pursuant to Rule 13d-3 under the Exchange Act. All information with respect to beneficial ownership has been furnished by the respective director, executive officer or stockholder, as the case may be.

(2)	Excludes options to purchase 762,076 shares of common stock, which options have not yet vested.

(3)	Excludes options to purchase 381,038 shares of common stock, which options have not yet vested.

(4)	Includes options to purchase 25,000 shares of common stock.

(5)	Includes options to purchase 50,000 shares of common stock.

(6)	Includes options to purchase 50,000 shares of common stock.

(7)	Includes warrants to purchase 100,000 shares of common stock and 115,000 shares of common stock issuable on exercise of convertible notes.

Equity Compensation Plan Information

The following table provides information regarding the status of our existing equity compensation plans at September 30, 2009.


Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding option, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the second column)
Equity compensation plans approved by security holders		-		-		2,886,550
Equity compensation plans not approved by security holders		2,344,799	$	0.49		21,250
Total		2,344,799	$	0.49		2,907,800

2000 Stock Incentive Plan

In September 2000, the Board of Directors adopted the 2000 Stock Incentive Plan (the “2000 Plan”). Pursuant to applicable law, the 2000 Plan has not been approved by our shareholders. The 2000 Plan provides for the granting of incentive stock options and non-qualified stock options, as determined by a committee appointed by the Board of Directors; however since the 2000 Plan has not been approved by shareholders, only non-qualified stock options may be granted pursuant to this plan.

Number of Shares Subject to the 2000 Plan. The 2000 Plan authorizes the grant of options relating to an aggregate of 12,500 shares of Common Stock. If any corporate transaction occurs which causes a change in our capitalization (for example, a reorganization, recapitalization, stock split, stock dividend, or the like), the number of shares of stock available and the number of shares of stock subject to outstanding options granted under the 2000 Plan will be adjusted appropriately and equitably to prevent dilution or enlargement of a participant’s rights.

Eligibility for Participation. Individuals eligible to participate in the 2000 Plan are our employees and employees of our subsidiaries, but not any of our or our subsidiaries’ officers.

Terms of Options. Options granted to employees may be either incentive stock options (ISOs), which satisfy the requirements of Internal Revenue Code Section 422, or nonstatutory stock options (NSOs), which are not intended to satisfy such requirements. The exercise price for the grant of an NSO under the 2000 Plan may be any price that is greater than or equal to 85% of the fair market value of the Common Stock on the date the NSO is granted. The exercise price of an ISO must be at least equal to 100% (110% for 10%-shareholders) of the fair market value of our Common Stock on the date the ISO is granted. Options expire at the times determined by the committee, as specified in the applicable award agreement. However, no option is exercisable later than the tenth anniversary of the grant date, and any ISO granted to a 10%-shareholder must be exercisable on or before the fifth anniversary of the grant date.

Vesting and Acceleration. Options vest at the times determined by the committee, as specified in the applicable award agreement. A participant’s options become fully vested upon the termination of the participant’s employment as a result of a reduction in force and upon the occurrence of our change in control. In general, a change in control will be deemed to have occurred upon the acquisition by any person of more than 50% of our outstanding voting securities (or securities subject to conversion into voting securities), the acquisition by any person of the power to elect a majority of our directors, certain mergers and other corporate transactions if the holder’s of our voting securities before the transaction receive less than 50% of the outstanding voting securities of the reorganized, merged or consolidated entity, after the transaction, and our complete liquidation or dissolution, or the sale of all or substantially all of our assets, if approval of our shareholders is required for the transaction.

Term. The 2000 Plan expires on September 8, 2010.

2000 Officer and Employee Recruitment Stock Incentive Plan

In September 2000, the Board of Directors adopted the Officer and Employee Recruitment Stock Incentive Plan (the “2000 Plan”). Pursuant to applicable law, the 2000 Plan has not been approved by our shareholders. The 2000 Plan provides for the granting of incentive stock options and non-qualified stock options, as determined by a committee appointed by the Board of Directors; however since the 2000 Plan has not been approved by shareholders, only non-qualified stock options may be granted pursuant to this plan.

Eligibility for Participation. Individuals eligible to participate in the 2000 Plan are our new employees and officers of the company.

2003 Stock Option Plan

In September 2003, the Board of Directors adopted the Officer and Employee Recruitment Stock Incentive Plan (the “2003 Plan”). Pursuant to applicable law, the 2003 Plan has been approved by our shareholders. The 2003 Plan provides for the granting of incentive stock options and non-qualified stock options, as determined by a committee appointed by the Board of Directors.

Number of Shares Subject to the 2003 Plan. The 2003 Plan authorizes the grant of options relating to an aggregate amount equal to fifteen percent of the aggregate number of shares of the Company’s outstanding Common Stock. If any corporate transaction occurs which causes a change in our capitalization (for example, a reorganization, recapitalization, stock split, stock dividend, or the like), the number of shares of stock available and the number of shares of stock subject to outstanding options granted under the 2003 Plan will be adjusted appropriately and equitably to prevent dilution or enlargement of a participant’s rights.

Eligibility for Participation. Individuals eligible to participate in the 2003 Plan are our employees and employees of our subsidiaries, but not any of our or our subsidiaries’ officers.

Individual Performance Based Arrangements

We have 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 $.00004 per share, under the terms of certain performance-based stock options.

Item 13. Certain Relationships and Related Transactions

Harborview Master Fund, L.P.

In July 2009, we issued a 0% short-term note to Harborview Master Fund, L.P. in the amount of $100,000 together with three-year warrants to purchase 100,000 shares of our common stock at an exercise price of $0.88 per share. The amount of the note was repaid during the fiscal year ended September 30, 2009.

Regal Capital LLC.

Pursuant to a management consulting agreement with Regal Capital LLC (“Regal’), of which our former Secretary and Director Michael Martin is a managing partner, we paid to Regal a $247,500 in the aggregate for management consulting services. In addition, we issued to Regal five-year warrants for 156,256 shares of our common stock exercisable at $0.88 per share. In May 2009, we issued a 0% short-term note to Regal in the amount of $25,000 together with five-year warrants for 30,000 shares of our common stock at an exercise price of $0.88 per share. The amount of the note was repaid during the fiscal year ended September 30, 2009. In addition, we entered into a three-year sales agreement with Regal under which Regal would earn sales commissions based on our sales to customers introduced to us by Regal.

Rutgers Agreements.

Pursuant to a License Agreement (the “License Agreement”) with Rutgers, formerly a 5%-shareholder, Axion has acquired an exclusive royalty-bearing license in specific but broad global territories to make, have made, use, sell, offer for sale, modify, develop, import and export products made using patent and patent pending applications owned by Rutgers. As a result of the License Agreement, Axion was granted the right to grant sublicenses. These exclusive rights are for the following territories: United States, Canada, Central America, the Caribbean, Mexico, South America, South Korea, Saudi Arabia and Russia. We also have co-exclusive rights for China. We plan to use these patented technologies in the production of structural plastic products such as railroad crossties, bridge infrastructure, utility poles, marine pilings and bulk heading.

Axion is obligated to pay 1.5 – 3.0% royalties on various product sales to Rutgers, subject to a minimum of $10,000 in calendar year 2008, increasing to and remaining constant at $200,000 by and after calendar year 2011, and to reimburse Rutgers for certain patent defense costs. We also pay annual membership dues to AIMPP, a department of Rutgers, as well as consulting fees for research and development processes. In the fiscal year ended September 30, 2009, we recorded approximately $24,000 of royalty expense due to Rutgers.

The License Agreement runs until the expiration of the last to expire issued patent within the Rutgers’ technologies licensed under the License Agreement, unless terminated earlier.

We also enter into research agreements with Rutgers from time to time. During the fiscal year ended September 30, 2009, we recorded approximately $180,000 of research expenses for work performed for us under these agreements.

Item 14. Principal Accountant Fees and Services.

Jewett, Schwartz, Wolfe and Associates served as our independent registered public accounting firm for fiscal 2009 and fiscal 2008.

Audit Fees. For fiscal 2009, Jewett, Schwartz, Wolfe and Associates billed us a total of $31,000 for professional services rendered for the audit of our annual consolidated financial statements, review of our consolidated financial statements in our Forms 10-Q and services provided in connection with regulatory filings. For fiscal 2008, the total billed for the same services was of $15,000.

Audit-Related Fees. For fiscal 2009 and 2008, Jewett, Schwartz, Wolfe and Associates did not perform or bill us for any audit-related services.

Tax Fees. For fiscal 2009, we anticipate that Jewett, Schwartz, Wolfe and Associates will bill us a total of $15,000 for professional services rendered for tax compliance. For fiscal 2008, Jewett, Schwartz, Wolfe and Associates have billed us $15,000 for professional services to date rendered for tax compliance.

All Other Fees. Jewett, Schwartz, Wolfe and Associates did not perform or bill us for any services other than those described above for fiscal 2009 and 2008.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors. Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation for and overseeing the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm.

PART IV.

Item 15. Exhibits, Financial Statement Schedules

(a)

Financial Statements

Consolidated Balance Sheets as of September 30, 2009 and 2008

Consolidated Statements of Operations for the years ended September 30, 2009 and 2008

Consolidated Statements of Cash Flow for years ended September 30, 2009 and 2008

Consolidated Statement of Stockholdes’ Deficit as of September 30, 2009

(b) Exhibits

Exhibit No.		Description of Document
2.1		Agreement and Plan of Merger by and among Analytical Surveys, Inc., Axion Acquisition Corp, and Axion International, Inc. dated as of November 20, 2007 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated November 21, 2007).
2.2		Certificate of Merger of the Merger Sub and Axion, dated March 20, 2008 (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on March 26, 2008).
3.1		Articles of Incorporation, as amended (incorporated by reference to the Company’s Registration Statement on Form S-18, (Registration No. 2-93108-D)).
3.1		By-Laws (incorporated by reference to the Company’s Registration Statement on Form S-18 (Registration No. 2-93108-D)).
3.3		Amendment to By-laws (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended September 30, 1998).
3.4		Articles of Amendment, filed July 21, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 6, 2008).
4.1		Form of Class E Warrant dated May 31, 2006, (incorporated by reference to Exhibit D of the Company’s Proxy Statement, filed June 29, 2006).
4.2		Securities Purchase Agreement dated as of November 24, 2006, among the Company and the Purchasers named therein, (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 30, 2006).
4.3		Form of the Company’s Amended and Restated 13% Secured Convertible Debenture due June 30, 2008 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 26, 2008).
4.4		Form of Company’s 10% Secured Convertible Debenture due March 11, 2011, with form of Warrant as an exhibit (incorporated by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K filed on October 1, 2009).
10.1		Analytical Surveys, Inc. Officer and Employee Recruitment Stock Incentive Plan and Form of Stock Option Agreement (incorporated by reference to the Company’s Annual Report on Form 10-K/A for the year ended September 30, 2000). (1)
10.2		Analytical Surveys, Inc. Year 2000 Stock Incentive Plan and form of agreement (incorporated by reference to the Company’s Annual Report on Form 10-K/A for the year ended September 30, 2000). (1)
10.3		Analytical Surveys, Inc. Year 2003 Stock Option Plan and form of agreement (incorporated by reference to the Company’s Proxy Statement dated July 21, 2003). (1)
10.4		Registration Rights Agreement entered into as of November 24, 2006, among the Company and the Purchasers, (incorporated by reference to Exhibit 4.8 to the Company’s Current Report on Form 8-K dated November 30, 2006).
10.5		Amendment and Waiver Agreement entered into as of September 30, 2007, among the Company and the Purchasers of the 13% Secured Convertible Debenture due November 24, 2007 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated October 3, 2007) .

10.6		Amendment and Waiver Agreement entered into as of December 31, 2007, among the Company and the Purchasers of the 13% Secured Convertible Debenture due November 24, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 4, 2008).
10.7		Employment Agreement, dated as of January 1, 2008, between James Kerstein and Axion International, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 26, 2008). (1)
10.8		Employment Agreement, dated as of January 1, 2008, between Marc Green and Axion International, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed March 26, 2008). (1)
10.9		Letter Agreement, dated December 6, 2007, between Regal Capital, LLC and Axion International, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed March 26, 2008).
10.10		Assignment and Amendment Agreement, dated March 20, 2008, among the Assignors named therein, ADH Ventures, LLC and the Company (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed March 26, 2008).
10.11		License Agreement, dated February 1, 2007, by and between Rutgers, the State University of New Jersey, and Axion International, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-QSB filed May 15, 2008) (2)
10.12		Securities Purchase Agreement, dated September 25, 2008, by and among, Thor United Corp., Berkshire International Finance, Divash Capital Partners LLC and the Company (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-KSB filed January 13, 2009)
10.13		December 2008 Amendment to Employment Agreement between James Kerstein and Axion International, Inc. (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-KSB filed January 13, 2009)
10.14		December 2008 Amendment to Employment Agreement between Marc Green and Axion International, Inc. (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-KSB filed January 13, 2009)
10.15		Securities Purchase Agreement, dated as of January 9, 2009, by and between the Company and Insight Partners, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 22, 2009).
10.16		Form of Securities Purchase Agreement, dated as of September 25, 2009, by and between the Company and Purchaser, with Warrant (incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K filed October 1, 2009)
10.17		Delivery Order Authorizations dated October 29,2009 issued by Centennial Contractors Enterprises, Inc. (incorporated by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K filed November 12, 2009)
10.18		Form of Securities Purchase Agreement dated as of November 16, 2009 by and between the Company and Purchaser, with Warrant (incorporated by reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K filed November 20, 2009)
22.1		*Subsidiaries of the Company
31.1		*Section 302 Certification of Chief Executive Officer
31.2		*Section 302 Certification of Chief Financial Officer
32.1		*Section 906 Certification of Chief Executive Officer
32.2		*Section 906 Certification of Chief Financial Officer

* Filed herein

(1) Indicates management contract of compensatory plan or arrangement

(2) Portions have been deleted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with regard to the deleted portions.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date:	March 18, 2010	By:	/s/ James Kerstein
		James Kerstein Chief Executive Officer

		By:	/s/ Gary Anthony
		Gary Anthony Chief Financial Officer

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE	TITLE
/s/ James Kerstein	Director and Chief Executive	March 18, 2010
James Kerstein	Officer, (principal executive officer)

/s/ Gary Anthony	Chief Financial Officer	March 18, 2010
Gary Anthony	(principal financial and accounting officer)

/s/ Lori Jones	Director	March 18, 2010
Lori Jones

/s/ Miles A. Slater	Director	March 18, 2010
Miles A. Slater

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Consolidated Financial Statements as of and for the Year Ended September 30, 2009 and from inception to September 30, 2008

Index to Consolidated Financial Statements	F-1

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets	F-3

Consolidated Statements of Operations	F-4

Consolidated Statements of Cash Flows	F-5

Consolidated Statements of Stockholder’s Deficit	F-6

Notes to Consolidated Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the board of directors and stockholders of

Axion International Holding, Inc.

We have audited the accompanying consolidated balance sheets of Axion International Holdings, Inc. as of September 30, 2009 and 2008 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the year ended September 30, 2009 and for the period from November 1, 2007 (inception) through September 30, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts in the consolidated financial statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Axion International Holdings, Inc. as of September 30, 2009 and 2008 and the results of its operations and its cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company’s need to seek new sources or methods of financing or revenue to pursue its business strategy raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans as to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As more fully described in Note 2 to the consolidated financial statements, the Company determined that certain transactions were not accurately presented in the consolidated financial statements included in the Company’s Annual Report on Form 10-KSB for the year ended September 30, 2008. These transactions include the recognition and accounting for stock options, warrants and common stock issued to service-providers, the recognition and accounting for discounts on notes payable and convertible notes payable resulting from the concurrent issuance of warrants and beneficial conversion features and the treatment of debt modification. Accordingly, the consolidated balance sheet as of December 31, 2008 and the related consolidated statements of operations, changes in shareholders’ equity and cash for flows for the period from November 1, 2007 (inception) through September 30, 2008 have been restated to reflect corrections to previously reported amounts.

/s/ Jewett, Schwartz, Wolfe and Associates

Hollywood, Florida

January 12, 2010

200 South Park Road, Suite 150 • Hollywood, Florida 33021 • Main 954.922.5885 • Fax

954.922.5957 • www.jsw-a.com

Member - American Institute of Certified Public Accountants • Florida Institute of Certified Public

Accountants

Private Companies Practice Section of the AICPA • Registered with the Public Company Accounting

Oversight Board of SEC

F-2

AXION INTERNATIONAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

At September 30

	2009			2008
ASSETS				Restated
Current assets:
Cash and cash equivalents	$	1,257,516		$	138,826
Accounts receivable		314,027			-
Inventories		76,533			110,416
Prepaid expenses		1,915			7,264
Total current assets		1,649,991			256,505

Property, equipment, and leasehold improvements, at cost:
Equipment		9,838			9,838
Machinery and equipment		406,639			261,425
Purchased software		56,404			56,329
Furniture and fixtures		9,322			9,322
Leasehold improvements		29,300			29,300
		511,503			366,214
Less accumulated depreciation		(205,156	)		(25,609	)
Net property and leasehold improvements		304,347			340,605

Long-term and intangible assets
License, at acquisition cost,		68,284			68,284
Deposits		10,713			4,000
		78,997			72,284

Total assets	$	2,035,334		$	669,394

LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current liabilities
Accounts payable	$	546,920		$	326,511
Accrued liabilities		357,172			281,045
Notes payable		14,000			-
Current portion of convertible debentures		253,795			-
Total current liabilities		1,171,886			607,556
Convertible debentures, net of discount		157,347			576,666

Total liabilities		1,329,233			1,184,222
Commitments and contingencies

Stockholders' equity/(deficit):
Common stock, no par value; authorized, 100,000,000 shares;19,243,669 and 13,978,136 shares issued and outstanding at September 30, 2009 and 2008, respectively		10,009,677			3,029,334
Retained earnings (deficit)		(9,303,576	)		(3,544,161	)
Total stockholders' equity/(deficit)		706,101			(514,828	)

Total liabilities and stockholders' equity/(deficit)	$	2,035,334		$	669,394

See accompanying notes to consolidated financial statements.

F-3

AXION INTERNATIONAL HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended September 30,			November 1, 2007 (inception) through September 30,
	2009			2008
				Restated

Revenue	$	1,374,961		$	6,472
Cost of goods sold		995,218			743
Gross margin		379,743			5,729

Operating expenses:
Research and development costs		467,133			340,457
Marketing and sales		497,961			90,945
General and administrative expenses		3,398,509			1,269,559
Depreciation and amortization		179,547			25,609
Total operating costs and expenses		4,543,150			1,726,570

Loss from operations		(4,163,407	)		(1,720,841	)

Other expense (income), net
Other income		-			(20,000	)
Interest expense, net		589,182			738,449
Debt conversion expense		1,006,826			1,104,871
Total other expense, net		1,596,008			1,823,320

Loss before income taxes		(5,759,415	)		(3,544,161	)

Provision for income taxes		-			-

Net loss	$	(5,759,415	)	$	(3,544,161	)

Weighted average common shares - basic and diluted		15,873,361			9,138,437

Basic and diluted net loss per share	$	(0.36	)	$	(0.39	)

See accompanying notes to consolidated financial statements.

F-4

AXION INTERNATIONAL HOLDINGS INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended September 30,			November 1, 2007 (inception) through September 30,
	2009			2008
				Restated
Cash flow from operating activities:
Net loss	$	(5,759,415	)	$	(3,544,161	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, and amortization		179,547			25,609
Accretion of interest expense on convertible debentures		475,745			634,002
Debt conversion expense		1,006,826			1,104,874
Issuance of common stock for services and for accrued interest		1,526,905			187,890
Gain on sale of assets		-			(20,000	)
Changes in operating assets and liabilities:
Accounts receivable		(314,027	)		59,048
Inventories		33,882			(110,416	)
Prepaid expenses and other		(19,675	)		(5,507	)
Accounts payable		245,054			304,929
Accrued liabilities		69,795			66,341
Net cash (used in) operating activities		(2,555,363	)		(1,297,391	)

Cash flows from investing activities:
Purchase of equipment and leasehold improvements		(145,289	)		(358,742	)
Proceeds from sale of assets acquired in merger		-			506,000
Costs to acquire license		-			(48,284	)
Net cash (used in) provided by investing activities		(145,289	)		98,974

Cash flows from financing activities:
Proceeds from short term notes		1,124,000			27,154
Issuance of common stock, net of expenses		3,205,343			1,267,077
Issuance of convertible debenture		500,000			200,000
Repayment of notes and convertible debentures		(1,010,000	)		(200,000	)
Cash acquired in reverse merger		-			43,011
Net cash provided by financing activities		3,819,343			1,337,242

Net increase in cash		1,118,691			138,825
Cash at beginning of period		138,825			-
Cash at end of period	$	1,257,516		$	138,825

Supplemental disclosures of cash flow information:
Cash paid for interest	$	8,821		$	-
Common stock issued for consulting services		562,810			30,000
Conversion of notes		275,000			890,278
Common stock issued settlement of accrued liabilities		-			67,048
Common stock issued for license agreement		-			20,000
Common stock issued pursuant to merger		-			358,385
Warrants issued in connection with debt		820,238			-

See accompanying notes to consolidated financial statements.

F-5

AXION INTERNATIONAL HOLDINGS INC

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)

September 30, 2009

	Common shares		Common Stock, Axion			Common Stock, Axion Holdings			Retained deficit			Total
Issuance of common stock to founders		21	$	85.00		$	(85	)	$	-		$	-
Issuance of common stock for license		4		15			19,985			-			20,000
Issuance of common stock for services		14		54			19,946			-			20,000
Private placement of common stock, including conversion of note payable to common stock, net of issuance costs		10		39			822,292			-			822,331
Exchange of shares		9,190,589		-			-			-			-
Shares issued in reverse merger		1,002,432		(193	)		193			-			-
Liabilities assumed in excess of fair value of assets pursuant to merger		-		-			(520,134	)		-			(520,134	)
Private placement of common stock at $0.88 per share		536,250		-			471,900			-			471,900
Shares issued pursuant to conversion of debenture and interest payable thereon		3,186,324		-			1,829,105			-			1,829,105
Recognition of beneficial conversion feature		-		-			200,000			-			200,000
Shares issued to settle accrued liabilities		62,493		-			67,048			-			67,048
Stock-based compensation		-		-			119,084			-			119,084
Net loss		-		-			-			(3,544,161	)		(3,544,161	)
Balance at September 30, 2008		13,978,137		-			3,029,334			(3,544,161	)		(514,827	)
Private placements of common stock		3,115,055		-			3,205,343			-			3,205,343
Shares issued pursuant to conversion of debenture and interest payable thereon		1,330,621		-			1,355,327			-			1,355,327
Shares issued pursuant to the net exercise of stock options		297,857		-			-			-			-
Stock-based compensation		522,000		-			1,453,404			-			1,453,404
Warrants issued in connection with debt		-		-			820,238			-			820,238
Recognition of beneficial conversion feature		-		-			146,031			-			146,031
Net loss		-		-			-			(5,759,415	)		(5,759,415	)
Balance at September 30, 2009		19,243,670	$	-		$	10,009,677		$	(9,303,576	)	$	706,101

See accompanying notes to consolidated financial statements.

F-6

AXION INTERNATIONAL HOLDINGS INC.AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies

(a) Business and Basis of Financial Statement Presentation

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. 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, sold certain operations and briefly transitioned its principal business into that of an independent oil and gas enterprise. 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.

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.

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 since inception and we have a working capital deficit. These conditions raise substantial doubt about our ability to continue as a going concern. We must raise additional capital through the sale of equity or debt securities, through an offering of debt securities, or through borrowings from financial institutions.

(b) Statement of Cash Flows

For purposes of the statement of cash flows, we consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

F-7

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.

(d) 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 September 30, 2009 and 2008 we had an allowance for doubtful accounts of $0.

(e) Inventories. Inventories are priced at the lower of cost (first–in, first–out) or market and consist primarily of raw materials and finished goods. No adjustment has been made to the cost of finished goods inventories as of September 30, 2009.

(f) Revenue and Cost 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, collectibility is reasonably assured, and when there are no significant future performance obligations.

(g) 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 our recent history of unprofitable operations and due to the continuing uncertainties surrounding our future 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.

F-8

(h) Impairment of Long-Lived Assets Other Than Goodwill

We assess the potential for impairment in the carrying values of our long-term assets 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.

(i) Stock-Based Compensation

We record stock-based compensation for transactions in which we exchange our equity instruments for services of employees, consultants and others based on the fair value of the equity instruments issued at the date of grant or other measurement date. The fair value of common stock awards is based on the observed market value of our stock. We calculate the fair value of options and warrants using the Black-Scholes option pricing model. Expense is recognized, net of expected forfeitures, over the period of performance. When the vesting of an award is subject to performance conditions, no expense is recognized until achievement of the performance condition is deemed to be probable.

(j) 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 includes the effects of the potential dilution of outstanding options, warrants, and convertible debt on our Common Stock as determined using the treasury stock method. For the year ended September 30, 2009 and the period from inception to September 30, 2008, there were no dilutive effects of such securities because we incurred a net loss in each period. Potential dilutive common shares issuable under our convertible instruments, warrant agreements and stock option plans amounted to 6,359,699 and 3,607,012, respectively as of September 30, 2009 and 2008.

(k) Financial Instruments

The carrying amounts of financial instruments approximate their 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.

(l) 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. We have not incurred losses related to these deposits. Accounts receivable at September 30, 2009 represents amounts due from a single customer.

(m) 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.

(o) Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. We adopted SFAS 157 as of the beginning of our 2008 fiscal year as it relates to recurring financial assets and liabilities. As of the beginning of our 2009 fiscal year, we adopted SFAS 157 as it relates to nonrecurring fair value measurement requirements for nonfinancial assets and liabilities. These include goodwill, other nonamortizable intangible assets and unallocated purchase price for recent acquisitions which are included within other assets. Our adoption of SFAS 157 did not have a material impact on our financial statements.

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

•

Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.

•

Level 2: Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

•

Level 3: Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

(p) Reclassifications

In the fourth quarter of the year ended September 30, 2009, we reclassified certain costs of third-party production facilities, amounting to $225,500 from research and development costs to cost of goods sold.

(2) Restatements

In connection with the preparation of this 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:

F-9

The recognition and accounting for shares of common stock, options and warrants issued to service-providers

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 have discussed the above errors and adjustments with the Company's independent registered public accounting firm and have determined that a restatement is necessary. This 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. The Company intends to amend its Quarterly Report on Forms 10-Q for the three months ended December 31, 2008, March 31, 2009 and June 30, 2009 as soon as practicable in connection to reflect the restatements described above.

As a result of the correction of the errors described above, the Company restated its financial statements for the year ended September 30, 2008 included in this Annual Report on Form 10-K as follows:

AXION INTERNATIONAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEET

	September 30, 2008, as previously reported			Adjustments				September 30, 2008, restated
Assets
Current assets:
Cash and cash equivalents	$	138,826						$	138,826
Inventories		110,416							110,416
Prepaid expenses		7,264							7,264
Total current assets		256,505							256,505

Property, equipment, and leasehold improvements, at cost:
Equipment		9,838							9,838
Machinery and equipment		261,425							261,425
Purchased software		56,329							56,329
Furniture and fixtures		9,322							9,322
Leasehold improvements		29,300							29,300
		366,214							366,214
Less accumulated depreciation		(25,609	)						(25,609	)
Net property and leasehold improvements		340,605							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	$	669,394						$	669,394

Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	326,511						$	326,511
Accrued liabilities		323,103		$	(42,058	)	(a)		281,045
Total current liabilities		649,614			(42,058	)			607,556
Convertible debentures, net of discount		307,243			269,423		(a)-(e)		576,666
Total liabilities		956,857			227,365				1,184,222
Commitments and contingencies		-							-
Stockholders' deficit:
Common stock		1,983,858			1,045,476		(a)-(f)		3,029,334
Retained earnings (deficit)		(2,271,320	)		(1,272,841	)	(a)-(b),(d)-(f)		(3,544,161	)
Total stockholders' deficit		(287,463	)		(227,365	)			(514,828	)
Total liabilities and stockholders' deficit	$	669,394						$	669,394

F-10

AXION INTERNATIONAL HOLDINGS INC.

CONSOLIDATED STATEMENT OF OPERATIONS

	Inception to September 30, 2008, as previously reported			Adjustments				Inception to September 30, 2008, restated

Revenue	$	6,472						$	6,472
Cost of goods sold		743							743
Gross margin		5,729							5,729

Research and development costs		310,761			29,695		(f)		340,456
Marketing and sales		90,945							90,945
General and administrative expenses		1,180,169			89,389		(f)		1,269,558
Depreciation and amortization		25,609							25,609
Total operating costs and expenses		1,607,483			119,084				1,726,567
Loss from operations		(1,601,754	)		(119,084	)			(1,720,838	)

Other expense (income), net
Other income		(20,000	)						(20,000	)
Interest expense, net		689,566			48,883		(b)(d)(e)		738,449
Debt conversion expense		-			1,104,871		(a)(b)		1,104,871
Total other expense, net		669,566			1,153,754				1,823,320
Loss before income taxes		(2,271,320	)		(1,272,841	)			(3,544,161	)
Provision for income taxes		-							-
Net loss	$	(2,271,320	)		(1,272,841	)		$	(3,544,161	)
Weighted average common shares - basic and diluted		9,138,437							9,138,437
Basic and diluted net loss per share	$	(0.25	)					$	(0.39	)

A loss on debt extinguishment of $931,327 was recognized as debt conversion expense, pertaining to the September 2008 amendment and restructuring of debentures held by ADH Ventures described in note 7 below. 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 addition, a $92,745 discount previously recorded on the new debenture was eliminated.

F-11

Recorded charges for convertible notes issued to Divash Capital Partners LLC, amounting to $172,500 and representing value issued by the Company in a September 2008 debt restructuring described in note 7 below and treated as an induced conversion, was reclassified from interest expense to debt conversion expense. In addition, the amount of the charge was increased by $1,047.

Amounts recorded for beneficial conversion features in convertible debentures were increased by by $38,252 through an adjustment to common stock.

Interest expense of $255,331 was recognized for unamortized discounts remaining at the dates of conversions of convertible debentures, which were previously recorded as direct adjustments to common stock.

Miscellaneous adjustments to reduce interest expense by $33,948 were made as a result of the adjustments described above.

The issuance of shares of common stock to consultants and employees was recognized by increasing net loss by $119,084 and reducing accrued liabilities by $42,058.

Also, as a result of the errors described above, we recorded in the fourth quarter of the year ended September 30, 2009 share-based compensation charges of $976,378, interest expense of $71,833, and debt conversion expense of $46,153 that pertain to the first three quarters of the year.

(3)

Merger

On March 20, 2008, we consummated a merger pursuant to an Agreement and Plan of Merger, among Axion, Holdings, and the Merger Sub. 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 Common Stock of Holdings, or 9,190,630 shares in the aggregate constituting approximately 90.7% of the issued and outstanding capital stock of Holdings as of the effective date of the merger. For accounting purposes, these actions resulted in a reverse merger, and Axion is the accounting survivor and surviving business entity; however, Holdings is the surviving legal entity.

We assumed liabilities in excess of the fair value of the assets we acquired. We reduced paid in capital as follows:

	Restated
Fair value of net assets acquired:	$	600,612
Consideration given:
Fair value of liabilities assumed		1,120,746
Net liabilities acquired over fair value of assets, recorded as a reduction to paid in capital	$	520,134

F-12

(4)	Assets Held for Resale

Pursuant to the merger, we acquired a natural gas well with a fair market value of $486,000. We sold the well to the operator of the well on April 11, 2008, with an effective date of March 1, 2008. Net proceeds totaled $486,000, which is the recorded fair value of these assets at the date of acquisition. The natural gas well was subject to a mortgage held by the holders of our then 13% senior secured debentures due March 30, 2009. The mortgage was released and the net proceeds were held in a restricted account as additional security under the terms and conditions outlined in the debenture agreement related to operational milestones. In July, 2008 those operational milestones were achieved and the funds were released.

We also sold Holdings’ equipment for proceeds totaling $20,000, which resulted in a gain, as the acquired equipment was deemed to have no value at the date of acquisition.

(5)	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 is 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 year ended September 30, 2009 and the period from inception to September 30, 2008 totaled $0 and $55,172, respectively. Royalties incurred to Rutgers, for the year ended September 30, 2009 and the period from inception to September 30, 2008 totaled $23,762 and $0, respectively. 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 for the year ended September 30, 2009 and the period from inception to September 30, 2008 totaled $205,354 and $22,678, respectively.

(6)	Accrued liabilities

The components of accrued liabilities are:

	September 30, 2009		September 30, 2008
			Restated
Payable to insurer for legal settlement	$	100,000	$	100,000
Refundable oil and gas receipts		129,334		49,470
Accrued interest		76,644		55,641
Accrued rents		-		38,707
Other		51,194		37,227
Total accrued liabilities	$	357,172	$	281,045

F-13

(7)

Debt

The components of debt are summarized as follows.

	Due	September 30, 2009			September 30, 2008
					Restated
8.75 and 9% convertible debentures	2010	$	450,736		$	725,736
10% convertible debentures	2011		600,000			-
Discount			(639,595	)		(149,070	)
			411,141			576,666
Less current portion			253,795			-
		$	157,347		$	576,666

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.

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. We recorded the intrinsic value of $825,000, as a discount to be amortized over the term of the Debentures.

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.

F-14

In April 2009, $61,537 of principal amount of the debentures plus accrued interest was converted at a price of $0.30 per share into 207,687 shares of common stock upon our agreement to reduce the then-effective conversion price from $0.40 per share. We treated the transaction as an induced conversion and recorded debt conversion expense of $46,153, representing the fair value of the consideration issued.

In July 2009, $34,616 of principal amount of the debentures plus accrued interest was converted at a price pf $0.40 per share into 88,834 shares of common stock, in accordance with the original conversion provisions in the notes.

In September 2009, an additional $178,847 of principal amount of debentures plus accrued interest was converted at a price of $0.20 per share into 894,235 shares of common stock upon our agreement to reduce the then-effective conversion price from $0.40 per share. We treated the transaction as an induced conversion and recorded debt conversion expense of $960,673, representing the fair value of the consideration issued.

In September, 2009, the Company accepted Securities Purchase Agreements from three accredited investors who received an aggregate 600,000 units comprised of (i) one dollar of principal amount of a Company debenture and (ii) three 3-year common stock purchase warrants, for five hundred thousand of the units, and one three-year common stock purchase warrants for one hundred thousand of the units, all exercisable at $.90 per share, for the subscription price of $1.00 per unit, or for the aggregate purchase price of $600,000. The debentures are due in 18 months, may be converted, at the option of the holder into restricted common shares of the Company at the conversion price of $.90 per share, and pay interest, at the holder’s election, in cash at the rate of 10% or in common shares at the rate of 12% . The debentures are secured on a parri passu basis by a court judgment rendered in favor of Holdings in the action entitled Analytical Surveys, Inc. v. Tonga Partners, L.P., Cannell Capital, LLC, and Carlo Cannell, Civil Action No. 06-cv-2692, pending in the U.S. District Court, Southern District of New York. We attributed $453,968 of proceeds to the warrants issued based on their proportionate share of the total fair value issued and recorded a discount on the debentures and a contribution to paid-in capital for that amount. In addition, we attributed the remaining $146,032 of the total proceeds to the beneficial conversion feature represented by the difference between the fair value of our stock issuable upon conversion of the debentures and the effective conversion price, reducing the carrying value of the convertible debentures to less than $1. The total recorded discount on the debentures will be amortized as interest expense on the interest method to the stated maturity date of the debentures.

The following table summarizes the issuances, repayments, and conversions of our long-term debt in the year ended September 30, 2009 and from inception to September 30, 2008:

	Year ended September 30, 2009			Inception to September 30, 2008
Beginning Balance	$	725,736		$	-
Acquired in Merger		-			1,643,050
Repayments		-			(200,000	)
Issuances		600,000			379,450
Conversion		(275,000	)		(1,096,764	)
Ending Balance	$	1,050,736		$	725,736

Required principal payments on long-term debt at September 30, 2009 totaled $278,236 for the year ending September 30, 2010 and $772,500 for the year ending September 30, 2011.

During the year ended September 2009, we also made borrowings under a variety of short-term notes. In April 2009, we borrowed $400,000 under a short-term note, which was repaid in June 2009. In connection with the borrowing, we issued 60,000 shares of common stock to the lender at initiation and an additional 50,000 shares at settlement. In addition, we issued warrants for 125,000 shares of common stock at an exercise price of $0.88 per share to a third party who agreed to pledge certain collateral for the note. For the shares of common stock and warrants issued in connection with the note, we recognized a total of $216,666 of interest and other expenses.

F-15

We borrowed a total of $724,000 under other short-term notes with attached warrants. We repaid $610,000 of these notes during the year and $100,000 of the notes were exchanged for $100,000 in principal amount of our 10% convertible debentures in September 2009. The remaining unpaid principal balance at September 30, 2009 related to these borrowings was $14,000. We recorded an aggregate of $366,270 of interest expense to recognize warrants issued in connection with these other borrowings.

(8)	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 19,243,699 shares of Common Stock and no outstanding shares of Preferred Stock on September 30, 2009.

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.

From inception through September 30, 2009, we have issued shares of Common Stock to our founders, partners, and investors as follows. We have adjusted the number of shares issued to reflect the post-merger shares, or the number of shares the holders received in exchange for Axion shares, and for the 1-for4 reverse stock split:

We issued 4,048,529 shares of our Common Stock to founding stockholders without consideration and 714,447 shares of our Common Stock to Rutgers University as partial consideration for issuance of an exclusive license agreement to the Company. We estimated the fair market value of those shares to be $20,000.

Pursuant to a management consulting agreement with Regal Capital LLC (“Regal’), 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 each during the term of the consulting services and an additional payment of a $230,000 fee, which was paid in the year ended September 30, 2008. 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.

In December 2007 and January 2008 we completed a private placement of 1,855,655 shares of Common Stock at $0.548 per share, with gross proceeds totaling $1,019,064. Approximately 49,535 shares were to repay a $27,164 note payable, with the balance received in cash.

In April, 2008, we issued 37,493 shares of our Common Stock to five former Holdings board members in full settlement of all outstanding past due directors’ compensation. We also issued 25,000 shares to Holdings’ former Chief Executive Officer in lieu of a cash bonus that she was entitled to receive as a result of the Merger.

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 the Series B Debenture in the principal amount of $200,000, with substantially the same terms as the Debentures. We also completed an additional private placement of 471,900 common shares at $0.88 per share during the period from June 2008 to September 2008.

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 to lower the interest rate from 13% to 9% and extend the maturity date to September 30. 2010. In September we issued the New Debenture in the principal amount of $172,500, with a maturity date of September 30, 2010 and a conversion price of $1.50

F-16

From December 2008 to September 2009, we sold a total of 2,615,055 shares of common stock for aggregate gross proceeds of $2,301,248. Options to purchase an aggregate of 169,293 shares at $0.88 per share and warrants to purchase 50,000 shares at $3.13 per share were issued to investors in certain of these transactions.

In September 2009, we sold 500,000 shares of common stock, together with warrants to purchase 50,000 shares of common stock at an exercise price of $3.13, to an investor for gross proceeds of $975,000. We incurred $70,405 of fees and issued warrants to purchase 50,000 shares of common stock at an exercise price of $3.13 to finders in connection with the transaction.

During the year ended September 30, 2009, we issued a total of 139,865 shares of common stock to settle interest due on notes payable. In addition, during the year ended September 30, 2009 we issued an aggregate of 522,000 to consultants and advisors and recorded aggregate compensation expense of $646,810 in connection with the issuances.

The following table sets forth the number of shares of Common Stock that were issuable upon exercise of outstanding warrants as of September 30, 2009. Net share settlement is available to warrant holders.

	Expiration	Conversion/ Exercise Price		Common Shares Issuable
Class A Warrants	2011	$	5.36	95,473
Class B Warrants	2011		5.96	95,473
Class E Warrants	2011		4.74	188,018
AdvisorWarrants	2011		2.36	47,482
Warrants issued in short-term borrowings	2012		1.00	100,000
Warrants issued in short-term borrowings	2013		0.88	200,000
Warrants issued in short-term borrowings	2014		0.88	671,000
Warrants attached to 10% convertible notes	2014		0.90	1,500,000
September 2009 investor warrants	2012		3.13	50,000
September 2009 finder warrants	2012		3.13	50,000
Weighted average exercise price and total shares issuable			1.52	3,097,446

The following table sets forth the number of shares of Common Stock that were issuable upon conversion of convertible debt as of September 30, 2009.

	Principal Amount	Conversion/ Exercise Price		Common Shares Issuable
Series A Debentures	78,236	$	0.30	260,787
Series B Debentures	200,000		0.30	666,667
New Debentures	172,500		1.50	115,000
September 2009 Debentures	600,000		0.90	666,667

(9)	Stock–based compensation

We have three nonqualified stock option plans with 2,907,800 shares available for grant as of September 30, 2009. 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 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. We have issued 2,519,799 options to employees, consultants and others outside of these plans

F-17

The following table summarizes stock option activity since inception:

	Year ended September 30, 2009					Inception to September 30, 2008
	Number of Shares			Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
Outstanding at beginning of period		1,218,114		$	0.00		0
Granted		1,301,685		$	0.81		1,218,114	$	0.00
Exercised		(300,000	)	$	0.01
Outstanding at end of period		2,219,799		$	0.47		1,218,114	$	0.00
Exercisable at end of period		646,057		$	0.91		75,000	$	0.04
Weighted average fair value of options granted during the year				$	0.79			$	0.53

The following table summarizes options outstanding at September 30, 2009:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Term in Years		Aggregate Intrinsic Value
Options outstanding at end of year		2,219,799	$	0.47		3.4	$	5,498,067
Options vested and exercisable at end of year		646,057	$	0.91		3.7		1,315,363
Unvested options expected to vest		300,000	$	1.13		2.7		546,000

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 $.0004 per share, and our President has the right to purchase up to 381,038 shares of Common Stock at an exercise price of $.0004 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.

F-18

We also granted performance based stock options to various individuals, granting them the right to purchase up to 207,500 shares of our common stock at $0.04 per share upon the achievement of various performance goals.

(10)	Income Taxes

We have not recorded any income tax expense or benefit from inception to September 30, 2009due to our substantial operating losses and the valuation allowance applied against our deferred tax assets.

Deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses and other items. Loss carryovers are limited under the Internal Revenue Code should a significant change in ownership occur.

We account for income taxes pursuant to SFAS 109 Accounting for Income Taxes. The components of our deferred tax assets and liabilities are as follows:

	2009			2008
Accrued liabilities	$	92,000		$	92,000
Net operating loss carryforwards		1,569,000			668,000
Valuation allowance		(1,661,000	)		(760,000	)
Net deferred tax asset	$	-		$	-

At September 30, 2009, we had net operating loss carryforwards of approximately $3,900,000 that will expire through September 30, 2029. We recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized due to the uncertainty surrounding our ability to generate sufficient future taxable income to fully realize the deferred tax assets. For the year ended September 30, 2009, the valuation allowance increased by approximately by $901,000.

(11)

Leases

We leased approximately 1,000 square feet of space in Basking Ridge, New Jersey pursuant to an oral month-to-month lease at a monthly rent of $2,100, through October 31, 2009. Subsequent to September 30, 2009, we entered into a three-year lease agreement for office space in New Providence, NJ, which provides for a monthly lease payment of $3,356. These premises serve as the corporate headquarters. Facility rent expense totaled approximately $44,000 and $19,000 for the year ended September 30, 2009 and the period from inception to September 30, 2008, respectively.

(12)	Litigation and Other Contingencies

F-19

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 a 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 are appealing from the order granting Holdings summary judgment.

(13)	Impact of Accounting Pronouncements

In June 2009, the FASB issued SFAS 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”) establishing the FASB Accounting Standards Codification, (“Codification” or “ASC”) as the single source of authoritative GAAP to be applied by nongovernmental entities, except for the rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants, effective for interim and annual periods ending after September 15, 2009. The adoption of these changes did not have a material effect on the Company’s consolidated financial statements.

In April 2008, the FASB issued guidance. generally codified under ASC Topic 350, “Intangibles – Goodwill and Other”, that amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset in order to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset and is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact, if any, that adoption will have on its consolidated financial position, results of operations and cash flows.

In June 2008, the FASB issued guidance. generally codified under ASC Topic 260, “Earnings per Share”,, which classifies unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as participating securities and requires them to be included in the computation of earnings per share pursuant to the two-class method and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. It requires all prior period earnings per share data presented to be adjusted retrospectively. The Company is currently evaluating the effect, if any, that adoption will have on its consolidated financial position, results of operations and cash flows.

F-20

F-21

AXION INTERNATIONAL HOLDINGS, INC. - FORM 10-K/A - March 19, 2010

Attached files

AXION INTERNATIONAL HOLDINGS, INC. Reports