Axion International (AXIH) 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

R	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2009
	OR
£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission File Number:     0-13111

AXION INTERNATIONAL HOLDINGS, INC

(Exact name of registrant as specified in its charter)

Colorado	84-0846389
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

665 Martinsville Road, Basking Ridge, New Jersey 07920

(Address of principal executive offices)

908-542-0888

(registrant’s telephone number, including area code)

_______________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes £  No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £	Accelerated filer £
Non-accelerated filer £	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £  No þ

The number of outstanding shares of the registrant’s common stock, without par value, as of May 11, 2009 was 15,581,209

TABLE OF CONTENTS

		PAGE
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	14
PART II.	OTHER INFORMATION	16
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Submissions of Matters to a Vote of Security Holders	16
Item 5.	Other Information	16
Item 6.	Exhibits	16
SIGNATURES		17

AXION INTERNATIONAL HOLDINGS. INC

CONSOLIDATED BALANCE SHEETS

	Unaudited			Audited
	March 31, 2009			September 30, 2008
Assets
Current assets:
Cash and cash equivalents	$	199,990		$	138,826
Accounts Receivable		437,562			-
Inventories		191,885			110,416
Prepaid expenses		6,903			7,264
Total current assets		836,340			256,506
Property, equipment, and leasehold improvements, at cost:
Equipment		9,838			9,838
Machinery and equipment		357,915			261,425
Purchased software		56,329			56,329
Furniture and fixtures		9,322			9,322
Leasehold improvements		29,300			29,300
		462,704			366,214
Less accumulated depreciation		(87,461	)		(25,609	)
Net property and leasehold improvements		375,243			340,605
Long-term and intangible assets
License, at acquisition cost,		68,284			68,284
Deposits		4,000			4,000
		72,284			72,284
Total assets	$	1,283,867		$	669,395
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable	$	512,826		$	35,953
Accrued liabilities		324,906			534,878
Short-term notes		484,000			-
Interest payable		70,119			55,641
Accrued payroll		9,561			23,142
Total current liabilities		1,401,412			649,614
Senior secured convertible debenture, net of discount		377,570			307,243
Total liabilities		1,778,982			956,857
Commitments and contingencies
Stockholders' deficit:
Common stock, no par value; authorized, 100,000,000 shares;
15,567,004 shares issued and outstanding		3,374,045			1,983,858
Deficit accumulated		(3,869,160	)		(2,271,320	)
Total stockholders' deficit		(495,115	)		(287,462	)
Total liabilities and stockholders' deficit	$	1,283,867		$	669,395

See accompanying notes to consolidated financial statements.

1

AXION INTERNATIONAL HOLDING INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ending			Three Months Ending			Six Months Ending			Six Months Ending
	March 31, 2009			March 31, 2008			March 31, 2009			March 31, 2008
Revenue	$	433,362		$	-		$	437,562		$	-
Cost of goods sold		334,337			-			334,337			-
Gross margin		99,025			-			103,225			-
Research and development costs		30,513			39,606			161,763			62,106
Marketing and sales		72,491			21,967			120,399			21,967
General and administrative expenses		873,920			345,065			1,253,064			391,542
Depreciation and amortization		50,977			5,110			61,852			5,110
Total operating costs and expenses		1,027,901			411,748			1,597,078			480,725
Loss from operations		(928,876	)		(411,748	)		(1,493,853	)		(480,725	)
Other expense
Interest expense, net		52,491			43,226			103,987			43,226
Total other expense, net		52,491			43,226			103,987			43,226
Loss before income taxes		(981,367	)		(454,974	)		(1,597,840	)		(523,951	)
Provision for income taxes		-			-			-			-
Net loss		(981,367	)		(454,974	)		(1,597,840	)		(523,951	)
Weighted average common shares - basic and diluted		14,560,963			8,977,065			13,773,527			8,043,852
Basic and diluted net loss per share	$	(0.07	)	$	(0.05	)	$	(0.12	)	$	(0.07	)

See accompanying notes to consolidated financial statements.

2

AXION INTERNATIONAL HOLDING INC

CONSOLIDATED STATEMENT OF CASH FLOWS

	Six Months ending			Six Months ending
	March 31, 2009			March 31, 2008
Cash flow from operating activities:
Net loss	$	(1,597,840	)	$	(523,951	)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation, and amortization		61,852			5,110
Accretion of interest expense on convertible debentures		70,327			35,513
Issuance of common stock for accrued interest		15,187			20,000
Changes in operating assets and liabilities
Accounts receivable		(437,562	)		14,163
Inventory		(81,469	)		-
Prepaid expenses and other		361			(76,971	)
Accounts payable		215,482			170,816
Accrued liabilities		52,316			(29,632	)
Net cash used in operating activities		(1,701,346	)		(384,952	)
Cash flows from investing activities:
Purchase of equipment and leasehold improvements		(96,490	)		(119,173	)
Cost to acquire license		-			(48,284	)
Net cash provided by investing activities		(96,490	)		(167,457	)
Cash flows from financing activities:
Proceeds from short term note (net)		609,000			27,164
Issuance of common stock, net of expenses		1,375,000			795,165
Repayment of Short-term Notes		(125,000	)		-
Cash acquired in reverse merger		-			43,011
Net cash provided by financing activities		1,859,000			865,340
Net increase in cash		61,164			312,931
Cash at beginning of period		138,826			-
Cash at end of period	$	199,990		$	312,931
Non-cash financing activities:
Common stock for services	$	-		$	20,000
Conversion of Debenture ( Notes)	$	-		$	27,164
Common stock issued in lieu of cash interest	$	15,187		$	-
Common stock issued for license agreement	$	-		$	20,000
Common stock issued pursuant to merger	$	-		$	358,385

See accompanying notes to consolidated financial statements.

3

AXION INTERNATIONAL HOLDING INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2009

(Unaudited)

(1)       Description of the Business and Basis of 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.  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’ efforts as an oil and gas company was unsuccessful.  In May 2007, Holdings terminated its oil and gas executives and took steps to reduce expenses and commitments in oil and gas investments.

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

Effective as of August 4, 2008, Holdings effected a 1-for-4 reverse split of its outstanding shares of Common Stock.  All references to the numbers of shares of Holding’s Common Stock have been retroactively adjusted and are on a post-reverse split basis.

In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial statements have been included. Such adjustments consist of normal recurring items. Interim results are not necessarily indicative of results for a full year.

The interim consolidated financial statements and notes thereto are presented as permitted by the Securities and Exchange Commission (“SEC”), and do not contain certain information which will be included in our annual consolidated financial statements and notes thereto.

These consolidated financial statements should be read in conjunction with our consolidated financial statements included in our annual report on Form 10-KSB for the year ended September 30, 2008, as filed with the SEC on January 13, 2009.

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 in the three months and six month periods ended March 31 2009, and we have a working capital deficit. These conditions raise 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.

4

(2) Summary of Significant Accounting Policies

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

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

Allowance for Doubtful Accounts:We accrue a reserve on a receivable when, based upon the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated.  As of March 31, 2009 we had an allowance for doubtful accounts of $0.

Inventories:  Inventories are priced at the lower of cost (first–in, first–out) or market and consist primarily of raw materials.  As of March 31, 2009 we have “work in progress” raw material inventory of $191,885.

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

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

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

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

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

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

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

5

We have also issued stock options pursuant to employment agreements with our Chief Executive Officer and our President, granting the right to 762,076 and 381,038 shares of Common Stock, respectively, at an exercise price of $.00002 per share, under the terms of certain performance-based stock options.  We also issued performance based stock options to various individuals, granting them the right to purchase up to 207,500 shares of our common stock at $0.02 per share upon the achievement of various performance goals. We did not record any stock-based compensation in the three month period ended March 31, 2009

Earnings (Loss) Per Share:Basic earnings (loss) per share are computed by dividing earnings (loss) available to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted earnings (loss) per share include the effects of the potential dilution of outstanding options, warrants, and convertible debt on our Common Stock as determined using the treasury stock method. Additionally, for the three month period ended March 31, 2009, potential dilutive common shares under our convertible instruments, warrant agreements and stock option plans of 3,607,012 were not included in the calculation of diluted earnings per share as they were antidilutive.

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

Concentration of Credit Risk: We maintain our cash with a major U.S. domestic bank. The amounts are held in a noninterest bearing transaction account which has unlimited FDIC coverage.   The terms of these deposits are on demand to minimize risk.  We have not incurred losses related to these deposits.

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

Impact of Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”). This Statement replaces SFAS No. 141, Business Combinations, and requires an acquirer to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the statement. SFAS No. 141(R) also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS No. 141(R)). In addition, SFAS No. 141(R)'s requirement to measure the noncontrolling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the noncontrolling interest in addition to that attributable to the acquirer.  SFAS No. 141(R) amends SFAS No. 109, Accounting for Income Taxes, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. It also amends SFAS No. 142, to, among other things; provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We do not expect the adoption of SFAS No. 141(R) will have a material impact on our financial statements.

In May 2008, the FASB issued SFAS 162 “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles. SFAS 162 becomes effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments AU Section 411 “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company does not expect that the adoption of SFAS 162 will have a material impact on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible Assets,” (“FSP No. 142-3”). FSP No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, in order to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R, “Business Combinations” (revised 2007), and other U.S. generally accepted accounting principles. FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The Company is currently evaluating the impact, if any, that FAS 142-3 will have on its consolidated financial position, results of operations and cash flows.

6

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP 03-6-1”), 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 described in SFAS No. 128, “Earnings per Share.” FSP 03-6-1 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 the adoption of FSP 03-6-1 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.

(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:

Fair value of net assets acquired:	$	600,612
Consideration given:
Fair value of liabilities assumed		958,998
Net liabilities acquired over fair value of assets, recorded as a reduction to paid in capital	$	358,386

(4)       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,  marine pilings, and bulk heading.

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

We are obligated to pay royalties on various product sales to Rutgers, and to reimburse Rutgers for certain patent defense costs.  Patent defense costs paid to Rutgers, a related party, for the three month period ended March 31, 2009 we did not incur any expense.  We also pay annual membership dues to AIMPP, a department of Rutgers, as well as consulting fees for research and development processes.  Membership dues and consulting fees totaled $20,000 for the three months ended March 31, 2009 and $119,965 for the six month period ended March 31, 2009.

7

(5)       Debt

The components of debt are summarized as follows.

Long-Term Debt	March 31, 2009
Senior secured convertible debentures	$	725,736
Discount for beneficial conversion feature		(348,166	)
		377,570
Less current portion		—
	$	377,570.

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

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

In August 2008, one of the holders of the Debentures elected to convert $282,564 of principal into 706,410 shares of Common Stock. In September 2008, the Debenture holders converted an additional $714,200 into 2,109,834 shares of Common Stock. They also agreed to amend and restructure the Debentures and the Series B Debentures to (i) lower the interest rate from 13% to 9%, (ii) extend the maturity date to September 30, 2010 and (iii) eliminate such holders’ security interest in the assets of the Company and its subsidiaries. In addition, the Debenture and Series B Debenture in the aggregate principal amount of $667,436 held by ADH were amended to reduce the conversion price from $.40 to $.30.  Accordingly, we increased the discount to these debentures by $92,745.

In September 2008, we issued 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 recorded interest expense equal to the principal amount of the New Debenture. In March 2009, the New Debenture was amended to lower the interest rate from 9% to 8.75% and the maturity date was extended to December 31, 2010

At the time of the merger we evaluated the application of EITF 98-05, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,” and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” and concluded that the conversion option of the Debentures was a beneficial conversion feature with intrinsic value.  We recorded the fair value of the beneficial conversion feature of the Debentures, which we estimate to be $986,748, as a discount to par value which was being amortized over the term of the Debentures. As the Debentures have been converted and restructured the intrinsic value as been adjusted and will continue to be amortized over the remaining term.

The following table summarizes the issuances, repayments, and conversion of the Series A, Series B, and New Debentures from inception to March 31, 2009:

Acquired in Merger	$	1,643,050
Repayments		(200,000	)
Issuances		379,450
Conversion		(1,096,764	)
Balance, March 31, 2009	$	725,736

Required principal payments on long-term debt at March 31, 2009 totaled $0 and $725,736 for fiscal 2010.

8

(6)       Stockholder’s Equity

We are authorized to issue 100,000,000 shares of Common Stock, no par value, and 2,500,000 shares of Preferred Stock, no par value. There were 15,567,004 shares of Common Stock and no outstanding shares of Preferred Stock on March 31, 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 March 31, 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-for 4 reverse stock split:

In August 2006, we issued 4,048,529 shares of our Common Stock to founding stockholders without consideration.

In February 2007, we issued 714,447 shares of our Common Stock to Rutgers University as partial consideration for issuance of an exclusive license agreement to the Company.  We have 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 structured over time.  We accounted for the entire fee, other than the $10,000 monthly fee, as a cost of raising capital and reduced the proceeds of the private placement completed in December 2007 accordingly.  As of September 30, 2008, we had paid the entire $230,000 fee.

In December 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, payment of which had not been made since October 2006.  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 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.  In March 2009, the New Debenture was amended to lower the interest rate from 9% to 8.75% and the maturity date was extended to December 31, 2010.

In January 2009, we completed a private placement of 1,562,00 shares of Common Stock at $.88 per share and issued 15,469 shares of Common Stock in lieu of cash interest expense to our debenture holders.

The following table sets forth the number of shares of Common Stock that were issuable upon conversion of outstanding warrants and convertible debt as of March 31, 2009.

9

		Conversion/ Exercise Price		Common Shares Issuable
Class A Warrants	95,473		5.36		95,473
Class B Warrants	95,473		5.96		95,473
Class E Warrants	188,018		4.74		188,018
Note Warrants issued to advisors in November 2006	47,482		2.36		47,482
Series A Debentures	78,236		0.30		260,787
Series A Debentures	275,000		0.40		687,500
Series B Debentures	200,000		0.30		666,667
New Debentures	172,500		1.50		115,000
Total shares issuable and weighted average prices			1.30		2,156,400

(7)       Stock–based compensation

We did not record any stock-based compensation in the three month period ended March 31, 2009.

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

Number of shares (post merger and post split)	Vests upon achievement of annual revenue totaling	Exercise Price		Intrinsic value on date of grant
190,519	$10 million	$	.00002	$	104,600
285,779	$15 million	$	.00002	$	156,900
285,779	$25 million	$	.00002	$	156,900
381,038	$25 million	$	.00002	$	209,200

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

We 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 $0.02 per share upon the achievement of various performance goals.

We have three nonqualified stock option plans with 2,117,970 shares available for grant as of March 31, 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.  No options have been granted pursuant to the plans since the effective date of the Merger. Subsequent to the Merger the options granted to the employees under the provisions of these plans have expired.  Accordingly, at March 31, 2009, there were no options outstanding under these plans.

(8)       Leases

We lease 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 $4,000. These premises serve as the corporate headquarters.  Facility rent expense totaled $12,000 for the three month period ended March 31, 2009. The company also has a leased facility in San Antonio, Texas which was acquired during the merger. This property is subleased to a commercial real estate group.

(9)       Litigation and Other Contingencies

In November 2005 and November 2007, Holdings was named as party to suits filed in the State of Indiana by the Sycamore Springs Homeowners Association, as well as certain homeowners in the Sycamore Springs neighborhood of Indianapolis, Indiana, and by the developers of the Sycamore Springs neighborhood.  The claimants alleged that various Mid-States Engineering entities that are alleged to be subsidiaries of MSE Corporation, which Holdings acquired in 1997, adversely affected the drainage system of the Sycamore Springs neighborhood, and sought damages from flooding that occurred on September 1, 2003.  Mediation efforts held in November 2007 and April 2008 have been successful, and each of the suits has been settled. The agreement is a compromise of disputed claims asserted or which may be asserted by the claimants against the settling defendants for any past, present and future losses, damages, and claims they may have against the settling defendants.  The claims from 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.

10

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

(10)    Subsequent Events

None

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

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

Basis of Presentation

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

Overview

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

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

11

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 and the discussion below relates to Axion.

Critical Accounting Policies

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

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

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

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

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

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

Inventories.  Inventories are priced at the lower of cost (first–in, first–out) or market and consist primarily of raw materials.  As of March 31, 2009 we have “work in progress” raw material inventory of $191,885.

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

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

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

12

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 9 – “Litigation and Other Contingencies”.

Results of Operations

Three Month and Six Month Periods Ended March 31, 2009 Compared to Comparable Periods in 2008

Revenue. Revenues in the three and six month periods ended March 31, 2009 were $433,362 and 437,562, respectively, primarily as the results of the sale of two thermoplastic composite  bridges to the US Army and 1,400 composite railroad crossties to a major railroad carrier. Due to the start-up nature of the business there were no revenues generated in the comparable periods in 2008

Cost of Goods Sold.  Cost of Goods Sold for the three months ended and six month ended March 31, 2009 totaled $334,337. These expenses are principally related to direct and indirect labor, quality control, and raw material cost associated with the production of our products. The increase in expense over the comparable periods ended March 31, 2008 directly relates to the production of bridge infrastructure and railroad crossties.

Research and Development Costs.  Research and Development costs for the three months ended March 31, 2009 totaled $30,513 and totaled $161,763 for the six month period ended March 31, 2009, as compared to $39,606 for the three month period ended March 31, 2008 and $62,106 for the six month period ended March 31, 2008.  These expenses are principally related to the development of our molds, products, and quality control processes. This also includes expenses related to professional consulting fees, membership dues paid to technology-related organizations that are directly related research and development in polymer plastics. We continue to work with our scientific team at Rutgers University to enhance our product formulations, develop new innovative products, and expand the reach of our existing products. The increase in expense over the comparable periods ended March 31, 2008 directly relates to the expansion of our research and development activities to expand our product portfolio.

Marketing and Sales Expenses.  Marketing and selling expenses for the three months ended March 31, 2009 totaled $72,491 and total $120,399 for the six month period ended March 31, 2009, as compared to $21,967 for the three month period and six month period ended March 31, 2008. These expenses are related to the development and expansion of our marketing and sales activity. We expanded our marketing staff to pursue opportunities in our target markets. Our initial target markets are the domestic and international railroad industry, the U.S. military, vehicular and pedestrian bridges, marine rehabilitation, golf architecture, and industrial engineering firms.

General and Administrative.  General and administrative costs for the three months ended March 31, 2009 totaled $873,920 and $1,253,065 for the six month period ended March 31, 2009, as compared to $345,065 for three month period ended March 31, 2008 and $391,542 for the six month period ended March 31, 2008.  These expenses are primarily related to wages and salaries of the executive management team, consulting fees related to market opportunities and financing, travel, supplies, insurance, professional fees and patent defense costs.. The increase in expense over the comparable periods is a result of our increased staffing, outsourced manufacturing expense, professional consulting, financing activities and business growth.

Depreciation and Amortization.  Depreciation and amortization for the three months ended March 31, 2009 totaled $50,977 and the six month period ended March 31, 2009 totaled $61,852, as compared to $5,110 for the three months and the six months ended March 31, 2008. This is the results of the expansion of our manufacturing and operating capability.

Interest Expense, Net. Commencing on September 29, 2008, our Debentures, Series B Debentures and New Debentures earned interest at the rate of 9% per annum and mature on September 30, 2010. Accordingly, we recorded coupon interest expense totaling approximately $17,328 for the three months ended March 31, 2009 and $33,660 for the six month period. Additionally, we amortize the discount that represents the fair value of beneficial conversion feature of the Debentures, Series B Debentures and New Debentures as interest expense. We recorded approximately $35,163 in non-cash interest expense in the three month period ended March 31, 2009 and $70,327 for the six month period ended March 31, 2009, as we amortized the debenture discounts. Interest expense for the comparable periods was $43,226 which principally represented the non-cash interest expense associated with the amortization of the debenture discount.

Net Loss. We recorded a net loss of approximately $981,367 in the three months ended March 31, 2009 or $0.07 per share as compared to a net loss of $454,973 or $0.05 per share for the comparable period ended March 31, 2008. For the six month period ended March 31, 2009 we recorded a loss of approximately $1,597,840 or $0.12 per share compared to a loss of $523,950 or $0.07 per share for the comparable six month period in 2008. We anticipate that we will continue to incur losses during the early stages of our business development and growth.

13

Liquidity and Capital Resources:  Plan of Operation

As of March 31, 2009, we had $199,990 in cash and cash equivalents.  Our long-term debentures bear interest rates of 9% and 8.75% per annum and are due and payable on September 30, 2010 and December 30, 2010 if not converted into Common Stock.  As of March 31, 2009, the aggregate outstanding principal amount of the debentures was $725,763. The Series A Debentures and the Series B Debentures are convertible at the option of the holders into Common Stock at a rate of $0.40 or $0.30 per share, and accordingly, we may issue up to 1,614,954 shares of Common Stock if the remaining principal balance is converted in its entirety.  The New Debentures are convertible at the option of the holders into Common Stock at a rate of $1.50 per share, and accordingly, we may issue up to 115,000 shares of Common Stock if the remaining principal balance is converted in its entirety.  We may also elect to pay interest in the form of Common Stock at the applicable conversion rate of each debenture. We recorded the debentures at a discount after giving effect to the $986,747 intrinsic value of the beneficial conversion feature and recorded the discount as equity.  We are amortizing the discount as interest expense over the life of the debentures as the carrying value of the debentures accretes to the respective face value.  The carrying value of the debentures at March 31, 2009 was $342,407. In March 2009 we issued a short-term convertible secured note of $400,000 with a base rate of 7% per annum with a maturity date of June 15, 2009, and an additional note of $20,000 with an interest rate of 8.75% with a maturity date of July 15, 2009

We have used $1,093,147 in our operating activities in the three months ended March 31, 2009, primarily as a result of our activities relating to the commercialization of our business and expansion of our distribution capabilities.

Financing activities, in the three month period ended March 31, 2009 consisting principally of issuance of short term notes that generated net proceeds of $434,000.   We invested $89,790 for additional molds and manifolds that will be used in the production of our products.

We have used $1,694,896 in our operating activities for the six month period primarily as a result of our activities devoted to expanding our operating capability and commercializing our business.   Financing activities, consisting principally of the sale of securities that generated net cash proceeds totaling approximately $1,375,000 during the period and this issuance of short term notes that generated gross proceeds of $609,000 of which $125,000 was repaid during the six month period ended March 31, 2009.  We used $827,844 to expand and commercialize the business, including $305,643 for production materials, raw materials of $191,884, molds and manifolds of $96,949, and outsourced machine capacity of $233,367. We believe we will need to raise additional capital through additional equity or debt financing in order to fund our operations and repay our debt obligations. Our current operating plans for the next fiscal year are to meet our existing customer commitments, enhance our research and development capabilities, expand our marketing 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 decision regarding the appeal filed by Tonga is uncertain.  Our ability to pay principal and interest on our outstanding long term debentures, which are due in September and December 2010, as well as to meet our other debt obligations and requirements to fund our planned capital expenditures, depends on our future operating performance and ability to raise capital.We anticipate that we will have to raise additional funds through the issuance of debt and/or equity during the next twelve months.  There can be no assurance that financing will be available, or if available, that such financing will be upon terms acceptable to us. These conditions raise doubt about our ability to continue as a going concern.

Disclosure About Off-Balance Sheet Arrangements

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risks.

Not applicable.

Item 4. Controls and Procedures

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

14

Based on our evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of that date, our disclosure controls and procedures were effective at the reasonable assurance level.

(b) Changes in internal control over financial reporting.

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

15

Part II

Other Information

Item 1. Legal Proceedings.

Please see Note 9  “Litigation and Other Contingencies” in the notes to the unaudited Consolidated Financial Statements in Part I above.

Item 1A. Risk Factors.

Not applicable.

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

In January 2009, we completed a private placement of 1,562,00 shares of Common Stock at $0.88 per share and issued 15,469  common shares in lieu of cash interest expense to our debenture holders. All of the foregoing transactions were conducted pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits:

31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Principal Financial Officer
32.1	Section 906 Certification of Principal Executive Officer
32.2	Section 906 Certification of Principal Financial Officer

16

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Axion International Holdings, Inc.
Date:  May 15, 2009	/s/ James Kerstein
	James Kerstein
	Chief Executive Officer

Date:  May 15, 2009	/s/ Michael W. Johnson
	Michael W. Johnson
	Chief Financial Officer

17