Axion International 10Q 2011 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2011

¨	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.)

180 South Street, Suite 104, New Providence, NJ 07974

(Address of principal executive offices)

908-542-0888

(registrant’s telephone number, including area code)

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

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 o

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

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 18, 2011 was 24,009,145.

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 2.	Unregistered Sales of Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 5.	Other Information	21
Item 6.	Exhibits	22
	SIGNATURES	23

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements.

AXION INTERNATIONAL HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2011			2010
	(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	882,784		$	785,612
Accounts receivable		212,582			22,529
Inventories		412,266			140,594
Prepaid expenses		131,716			149,902
Total current assets		1,639,348			1,098,637

Property and equipment, net		138,045			86,654

Other long-term and intangible assets:
License, at acquisition cost,		68,284			68,284
Deposits		10,713			10,713
		78,997			78,997

Total assets	$	1,856,390		$	1,264,288

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	971,710		$	1,045,312
Accrued liabilities		165,482			186,163
Notes payable		3,594			12,985
Current portion of convertible debentures, net of discount		85,714			580,140
Total current liabilities		1,226,500			1,824,600
Convertible debentures, net of discount		342,526			303,960

Total liabilities		1,569,026			2,128,560

Commitments and contingencies		-			-

10% Convertible preferred stock, no par value; authorized 880,000 shares; 156,498 issued and outstanding at March 31, 2011, net		1,098,462			-

Stockholders' deficit:
Common stock, no par value; authorized, 100,000,000 shares; 24,009,145 and 23,305,704 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively		19,801,401			17,818,336
Accumulated deficit		(20,612,499	)		(18,682,608	)
Total stockholders' deficit		(811,098	)		(864,272	)
Total liabilities and stockholders' deficit	$	1,856,390		$	1,264,288

(See accompanying notes to the unaudited condensed consolidated financial statements.)

AXION INTERNATIONAL HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31

(Unaudited)

	March 31, 2011			March 31, 2010

Revenue	$	190,887		$	402,693
Cost of goods sold		275,389			459,472
Gross margin		(84,502	)		(56,779	)

Operating expenses:
Research and development costs		73,395			45,267
Marketing and sales		59,061			141,307
General and administrative expenses		1,438,629			1,304,001
Depreciation and amortization		40,084			65,791
Total operating costs and expenses		1,611,169			1,556,366

Loss from operations		(1,695,671	)		(1,613,145	)

Other expense, net:
Interest expense, net		30,080			21,403
Amortization of debt discount		204,140			44,404
Total other expense, net		234,220			65,807

Loss before provision for income taxes		(1,929,891	)		(1,678,952	)

Provision for income taxes		-			-
Net loss		(1,929,891	)		(1,678,952	)
Accretion of preferred dividends		(3,859	)		-
Net loss attributable to common shareholders	$	(1,933,750	)	$	(1,678,952	)

Weighted average common shares - basic and diluted		23,461,790			19,972,443

Basic and diluted net loss per share	$	(0.08	)	$	(0.08	)

(See accompanying notes to the unaudited condensed consolidated financial statements.)

AXION INTERNATIONAL HOLDINGS, INC

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE PERIOD FROM JANUARY 1, 2011 THROUGH MARCH 31, 2011

(Unaudited)

	Common Shares		Additional Paid-in Capital and Common Stock			Accumulated Deficit			Total

Balance, January 1, 2011		23,305,704	$	17,818,336		$	(18,682,608	)	$	(864,272	)

Recognition of beneficial conversion features-10% Convertible Preferred Stock				300,476						300,476
Shares issued pursuant to conversion of debenture		60,000		63,000						63,000
Shares issued pursuant to exercise of warrants		294,115		200						200
Stock issued for services		342,567		484,308						484,308
Stock issued for interest payments		6,759		6,583						6,583
Stock-based compensation				532,357						532,357
Recognition of beneficial conversion features pursuant to modification of debt				600,000						600,000
Accretion of dividend				(3,859	)					(3,859	)
Net loss							(1,929,891	)		(1,929,891	)

Balance, March 31, 2011		24,009,145	$	19,801,401		$	(20,612,499	)	$	(811,098	)

(See accompanying notes to the unaudited condensed consolidated financial statements.)

AXION INTERNATIONAL HOLDINGS INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31

(Unaudited)

	March 31, 2011			March 31, 2010

Cash flow from operating activities:
Net loss	$	(1,929,891	)	$	(1,678,952	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, and amortization		40,084			65,791
Accretion of interest expense on convertible debentures		204,140			44,404
Stock based compensation		1,026,248			1,064,310
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue		(190,053	)		81,791
Inventories		(271,672	)		(40,586	)
Prepaid expenses and other		18,186			(236,981	)
Accounts payable		(73,602	)		191,485
Accrued liabilities		(20,681	)		(69,987	)
Net cash used in operating activities		(1,197,241	)		(578,725	)

Cash flows from investing activities:
Purchase of equipment and leasehold improvements		(91,475	)		(37,070	)
Net cash used in investing activities		(91,475	)		(37,070	)

Cash flows from financing activities:
Proceeds from issuance of 10% convertible preferred stock, net		1,395,079			-
Proceeds from short term notes		-			300,000
Issuance of common stock, net of expenses		200			250,100
Repayment of notes		(9,391	)		-
Net cash provided by financing activities		1,385,888			550,100

Net increase (decrease) in cash		97,172			(65,695	)
Cash and cash equivalents at beginning of period		785,612			338,192
Cash and cash equivalents at end of period	$	882,784		$	272,497

Supplemental disclosures of cash flow information:
Cash paid for interest	$	29,947		$	39,469
Conversion of notes		60,000			278,236
Non-cash financing activity:
Accretion of dividends on 10% convertible preferred stock	$	3,859		$	-

(See accompanying notes to the unaudited condensed consolidated financial statements.)

AXION INTERNATIONAL HOLDINGS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2011

(Unaudited)

Note 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. In fiscal 2006, Holdings acted upon its belief that it would not be able to sustain the operations of its historical business and focused on completing its long-term contracts that would generate cash and sold certain operations. In May 2007, Holdings terminated its executives and took steps to reduce expenses and commitments.

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 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.

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

On January 18, 2011, the Board of Directors approved a change in the Company’s fiscal year end from September 30 to December 31. We filed a transitional report for the three month period ended December 31, 2010 on Form 10-KT on May 2, 2011.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the three month period ended March 31, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2010 financial statements and footnotes thereto included in the Company's Form 10-KT filed with the SEC.

(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.

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

Our property and equipment is comprised of the following:

	March 31, 2011			December 31, 2010
Property, equipment, and leasehold improvements, at cost:
Equipment	$	13,754		$	13,754
Machinery and equipment		611,987			520,512
Purchased software		56,404			56,404
Furniture and fixtures		13,090			13,090
Leasehold improvements		950			950
		696,185			604,710
Less accumulated depreciation		(558,140	)		(518,056	)
Net property and leasehold improvements	$	138,045		$	86,654

Depreciation expense included as a charge to income was $40,084 and $65,791 for the three months ended March 31, 2011 and 2010, respectively.

(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 March 31, 2011 we did not provide an allowance for doubtful accounts.

(e) Inventories

Inventories are priced at the lower of cost or market and consist primarily of raw materials and finished goods. No material adjustment has been made to the cost of finished goods inventories as of March 31, 2011 and December 31, 2010.

	March 31, 2011		December 31, 2010

Finished goods	$	210,068	$	104,754
Production materials		202,198		35,840
Total inventories	$	412,266	$	140,594

(f) Revenue and Cost Recognition

Revenue is recognized in accordance with FASB ASC 605 “Revenue Recognition”, 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.

In most cases, we receive a purchase order from our customer specifying the products requested and delivery instructions. We recognize revenue upon our delivery of the products specified in the purchase order. Our costs of sales are predominately comprised of the cost of raw materials and the costs and expenses associated with our third-party manufacturing arrangements. Our costs of sales may vary significantly as a result of the variability in the cost of our raw materials and the efficiency with which we plan and execute our manufacturing processes.

In those certain instances where we may enter into a contract to provide both products and services, customers are billed based on the terms included in the contracts, which are generally upon delivery of products ordered or services provided, 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.

(g) Income Taxes

We use the asset and liability method of accounting of income taxes pursuant to the provisions of FASB ASC 740 “Income Taxes”, 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.

On November 1, 2007, we adopted the provisions of the Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”) as codified in ASC 740. ASC 740 clarifies the accounting for uncertainty in income taxes recognized and prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. ASC 740 requires a company to recognize the financial statement effect of a tax position when it is “more-likely-than-not” (defined as a substantiated likelihood of more than 50%), based on the technical merits of the position, that the position will be sustained upon examination. A tax position that meets the “more-likely-than-not” recognition threshold is measured to determine the amount of benefit to be recognized in the financial statements based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Our inability to determine that a tax position meets the “more-likely-than-not” recognition threshold does not mean that the Internal Revenue Service (“IRS”) or any other taxing authority will disagree with the position that the we have taken.

If a tax position does not meet the “more-likely-than-not” recognition threshold, despite our belief that our filing position is supportable, the benefit of that tax position is not recognized in the statements of operations and we are required to accrue potential interest and penalties until the uncertainty is resolved. Potential interest and penalties are recognized as a component of the provision for income taxes which is consistent with our historical accounting policy. Differences between amounts taken in a tax return and amounts recognized in the financial statements are considered unrecognized tax benefits. We believe that we have a reasonable basis for each of our filing positions and intend to defend those positions if challenged by the IRS or another taxing jurisdiction. If the IRS or other taxing authorities do not disagree with our position, and after the statute of limitations expires, we will recognize the unrecognized tax benefit in the period that the uncertainty of the tax position is eliminated.

As of March 31, 2011 and December 31, 2010, we did not have any tax issues that required disclosure or recognition under FIN 48.

(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 three months ended March 31, 2011 and 2010, there were no dilutive effects of such securities because we incurred a net loss in each period. As of March 31, 2011, we have 11,457,121 potential dilutive common shares issuable under our convertible instruments, warrant agreements and stock option plans.

(k) Fair Value of Financial Instruments

In January 2008, we adopted the provisions under FASB for Fair Value Measurements, which define fair value for accounting purposes, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements. Our adoption of these provisions did not have a material impact on our consolidated financial statements. Fair value is defined as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, financial assets and liabilities that are rarely traded or not quoted have less price observability and are generally measured at fair value using valuation models that require more judgment. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. We have no financial assets and liabilities that are recurring, at fair value at March 31, 2011 and December 31, 2010.

(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 and were approximately $836,000 at March 31, 2011. We have not incurred losses related to these deposits. Our accounts receivable balance as of March 31, 2011 consists primarily of amounts due from a limited number of customers.

(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.

(n) Use of Estimates

The preparation of our financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates.

(o) Recent Accounting Pronouncements

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial statements.

Note 2 Going Concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern. However, we have working capital (current assets in excess of current liabilities) of $412,848, stockholders’ deficit of $811,098 and have accumulated losses to date of approximately $20,612,500. These matters raise substantial doubt about our ability to continue as a going concern. In view of these matters, realization of certain of the assets in the accompanying balance sheet is dependent upon our ability to meet our financing requirements, raise additional capital, and the success of our future operations. In addition to gross proceeds from the sale of our 10% Convertible Preferred Stock of approximately $1,500,000 in March 2011 and the sale of additional shares of our 10% Convertible Preferred Stock subsequent to March 31, 2011, we are seeking additional means of financing to fund our business plan. There is no assurance that we will be successful in raising sufficient funds to assure the eventual profitability of the Company. We believe that actions planned and presently being taken to revise our operating and financial requirements provide the opportunity for the Company to continue as a going concern. The financial statements do not include any adjustments that might result from these uncertainties.

Note 3 Accrued liabilities

The components of accrued liabilities are:

	March 31, 2011		December 31, 2010
Payable to insurer for legal settlement	$	100,000	$	100,000
Interest		45,207		54,852
Payroll		12,700		23,642
Other		7,575		7,669
Total accrued liabilities	$	165,482	$	186,163

Note 4 Debt

The components of debt are summarized as follows.

	Due	March 31, 2011			December 31, 2010
10% convertible note	February 2011	$	-		$	60,000
8.75% convertible debenture	January 2012		172,500			172,500
7% convertible note	May 2012		350,000			350,000
10% convertible debentures	June 2012		600,000			600,000
Subtotal - principal			1,122,500			1,182,500
Debt discount			(694,260	)		(298,400	)
			428,240			884,100
Less, current portion			85,714			580,140
		$	342,526		$	303,960

10% Convertible Note

On February 10, 2011 at maturity, the holder of our 10% convertible note converted the principal amount plus accrued interest into 60,000 shares of common stock. During the three month period ended March 31, 2011, we amortized the remaining discount of $7,638 to interest expense.

8.75% Convertible Debenture

Effective January 25, 2011, the holder of our 8.75% convertible debenture agreed to extend the maturity date to January 2012 and to amend a term which will now allow us to pay dividends on any financing transaction entered into between the effective date of the amendment and April 30, 2011. We agreed to eliminate our ability to pay interest on this debenture in shares of our common stock in lieu of cash and our ability to optionally redeem the debenture. We also agreed to amend the volume weighted average trading price at which we could force conversion to $2.50 from $0.80.

7% Convertible Note

In May 2010, we issued a 7% two-year note in the amount of $350,000, convertible at the rate of $1.20 per share, together with 41,667 shares of our common stock and five-year warrants to purchase 166,667 shares of our common stock at an exercise price of $1.40 per share. We allocated the total proceeds received to the shares and warrant, based upon the relative fair values of the note, shares and warrant, as determined using the Black-Scholes pricing model, and recorded these amounts as a discount on the note. We also allocated a portion of the proceeds to a beneficial conversion feature, representing the difference between the fair value of common stock issuable upon conversion at the date of purchase and the amount of proceeds allocated to the note, and recorded this amount as an additional discount on the note. The total discount, amounting to $350,000, is being amortized to interest expense on the interest method through the scheduled maturity date of the note. During the three month period ended March 31, 2011, we amortized $38,566 of the discount to interest expense, and the remaining unamortized discount of $179,974 at March 31, 2011 will be fully amortized at maturity in May 2012.

10% Convertible Debentures

Our 10% convertible debentures were issued under purchase agreements during the year ended September 30, 2009, together with warrants, for aggregate proceeds of $600,000. The total of the fair value of the warrants, as determined using the Black-Scholes pricing model, and the value of the beneficial conversion features contained in the debentures, representing the difference between the fair value of common stock issuable upon conversion at the date of purchase and the amount of proceeds allocated to the note, exceeded the proceeds received. Accordingly, we recorded a discount on the debentures equal to the principal amount of the debentures. The recorded discount on these debentures is to be amortized to interest expense on the interest method through their scheduled maturity dates.

Effective January 14, 2011, the holders of our 10% convertible debentures, originally due in February and March 2011, agreed to extend the maturity dates to June 30, 2012 and to the elimination of the prohibition of paying dividends or distributions on any of our equity securities. We agreed to amend the interest rate to 15% if paid in cash and to 18% (from 12%) if paid with shares of our common stock at the rate of one share of common stock for each $0.60 (from $0.90) of interest. We also agreed to reduce the conversion price, as defined, to $0.60, from $0.90 and to amend the volume weighted average trading price at which we could force conversion to $2.50 from $2.00. In addition, for each calendar month after March 2011 that these debentures remain outstanding, we will issue a warrant exercisable for three years for a number of shares of our common stock equal to the 5% of the outstanding principal divided by $0.90. These warrants will be exercisable at $0.90 per share.

Even though these modifications to our 10% convertible debentures resulted in less than 10% difference in the present value of cash flows between the original terms and the modified terms, the fair value of the conversion options was substantially greater than 10%. We have therefore, accounted for the modification of these debentures as an extinguishment of the original debt and the establishment of new debt. Under the terms of the modified 10% convertible debentures, the total of the fair value of the warrants, as determined using the Black-Scholes pricing model, and the value of the beneficial conversion features contained in the debentures, representing the difference between the fair value of common stock issuable upon conversion at the date of purchase and the amount of proceeds allocated to the note, exceeded the proceeds received. Accordingly, effective with the date of amendment, we recorded a discount on the debentures equal to the principal amount of the debentures. The recorded discount on these debentures is to be amortized to interest expense on the interest method through their scheduled maturity dates. In addition to the amortization of the remaining original discount at the effective date of the modifications, of $72,222, we amortized an additional $85,714 of the modified discount. The remaining unamortized discounts of $514,286 at March 31, 2011 will be fully amortized at maturity in June 2012

Note 5 Redeemable Preferred Stock

We have designated 880,000 shares of preferred stock as 10% Convertible Preferred Stock (the “Preferred Stock”). The Preferred Stock has a stated value (the “Stated Value”) of $10.00 per share. The Preferred Stock and any dividends thereon may be converted into shares of our common stock at any time by the holder at the initial conversion rate of $1.25 per share of common stock (the “Conversion Rate”). The holders of the Preferred Stock shall be entitled to receive dividends at the rate of ten percent (10%) per annum payable quarterly. Dividends shall not be declared, paid or set aside for any series or other class of stock ranking junior to the Preferred Stock until all dividends have been paid in full on the Preferred Stock. The dividends on the Preferred Stock are payable, at our option, in cash, if permissible, or in additional shares of common stock. The Preferred Stock is not subject to any anti-dilution provisions other than for stock splits and stock dividends or other similar transactions. The holders of the Preferred Stock shall have the right to vote with our stockholders in any matter. The number of votes that may be cast by a holder of our Preferred Stock shall equal the Stated Value of the Preferred Stock purchased divided by the Conversion Ratio. The Preferred Stock shall be redeemable for cash by the holder any time after the three (3) year anniversary from the initial purchase. The Preferred Stock may be converted into shares or our common stock by the holder at the Conversion Ratio (as adjusted from time to time). The Preferred Stock may be converted by us, provided that the variable weighted average price of our common stock has closed at least at $4.00 per share for sixty (60) consecutive trading days and during such sixty (60) day period, the shares of common stock issuable upon conversion of the Preferred Stock have either been registered for resale or are issuable without restriction pursuant to Rule 144 of the Securities Act of 1933, as amended.

On March 22, 2011, we sold 156,498 shares of Preferred Stock at a price per share of $10, for gross proceeds of $1,564,980. Each share of Preferred Stock is convertible into eight (8) shares of common stock. We paid commissions, legal fees and other expenses of issuance of $169,901. Since the Preferred Stock may ultimately be redeemed at the option of the holder, the carrying value of the shares, net of discount and accumulated dividends, has been classified as temporary equity on March 31, 2011.

We attributed a beneficial conversion feature of $300,476 to the Preferred Stock based upon the difference between the effective conversion price of those shares and the closing price of our common stock on the date of issuance, and has been recorded as a discount and deducted from the face value of the Preferred Stock. The discount will be amortized over three years consistent with the initial redemption terms, as a charge to additional paid-in capital, since there is a deficit in retained earnings.

For the three months ended March 31, 2011 we have accrued dividends for the Preferred Stock in the amount of $3,859. The accrued dividends have been charged to additional paid-in capital, since there is a deficit in retained earnings and the net unpaid accrued dividends have been added to the carrying value of the Preferred Stock.

Note 6 Stockholder’s Equity

During the three month period ended March 31, 2011, we issued 80,067 shares of common stock to consultants for services performed. These shares were valued at $116,808, which approximated the fair value of the shares when issued.

We issued 262,500 shares of common stock, valued at $367,500 at date of issue pursuant to a sub-license agreement entered into during the three month period ended March 31, 2011.

We issued 6,759 shares of common stock during the three months ended March 31, 2011, in lieu of cash, as payment of accrued interest with a value at date of issue of $6,583.

At maturity in February 2011, we issued 60,000 shares of common stock upon conversion of our 10% Convertible Note, comprised of $60,000 of principal and $3,000 of accrued interest.

In March 2011, we received $200 and issued 20,000 shares of common stock upon exercise of a warrant.

Pursuant to the cashless exercise of warrants for 440,000 shares of common stock, we issued 274,115 shares of common stock.

Note 7 Warrants and Options

Warrants

From time to time, we compensate consultants with warrants to purchase shares of our common stock, in lieu of cash payments. The following table sets forth our warrant activity during the three months ended March 31, 2011. Net share settlement is available to warrant holders.

	Three Months Ended
	March 31, 2011
				Weighted-
				Average
	Number			Exercise
	of Shares			Price
Outstanding at beginning of period		5,329,783		$	1.16
Granted during the period		101,926			1.00
Exercised during the period		(460,000	)		0.60
Cancelled during the period		-
Outstanding at end of the period		4,971,709		$	1.21

Exercisable at end of period		4,683,709		$	1.23

We estimated the fair value of each warrant at the grant date by using the Black-Scholes option pricing model with the following range of assumptions for the warrants granted during the three months ended March 31, 2011 – (i) no dividend yield, (ii) expected volatility of between 112.6% and 128.5%, (iii) risk-free interest rates of between 1.08% and 2.37%, and (iv) expected lives of between three years and seven years.

During the three months ended March 31, 2011, we issued warrants to purchase 101,926 shares of our common stock at a weighted average exercise price of $1.00 per share to various consultants for services performed on our behalf. The warrants had a fair value of $312,689 at the date of grant based on the Black-Scholes pricing model, which was recognized in general and administrative expenses during the period.

Options

We have two nonqualified stock option plans approved by shareholders with 4,981,372 shares remaining available for grant as of March 31, 2011. 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. Options issued are exercisable in whole or in part for a period as determined by the Board of Directors of up to ten years from the date of grant.

We estimated the fair value of each option award at the grant date by using the Black-Scholes option pricing model with the following range of assumptions for the awards during the three months ended March 31, 2011 – (i) no dividend yield, (ii) expected volatility of 129%, (iii) risk-free interest rates of between 1.97% and 2.29%, and (iv) expected lives of five years.

During the three months ended March 31, 2011, we issued options to purchase 315,000 shares of our common stock at exercise prices ranging from $1.40 to $1.85 per share to our employees. The right to exercise certain of these options is based on the optionee’s achievement of specific objectives. As of March 31, 2011, the likelihood of, and the date on which the optionee might achieve the objectives was not apparent, therefore the fair value was not estimated. The remaining options had a fair value of $219,810 at the date of grant based on the Black-Scholes pricing model, of which $129,722 was recognized in general and administrative expenses during the period. The remaining unamortized fair value of $90,089 will be recognized over the remaining vesting periods.

In addition, the fair value of certain options awarded in prior periods is being amortized over their vesting periods. During the three months ended March 31, 2011, $89,946 was recognized in general and administrative expenses. The remaining unamortized fair value of $297,905 will be recognized over the remaining vesting periods.

The following table summarizes our stock option activity for the three months ended March 31, 2011:

	Three Months Ended
	March 31, 2011
			Weighted-
			Average
	Number		Exercise
	of Shares		Price
Outstanding at beginning of period		3,488,761	$	1.02
Granted during the period		315,000		1.49
Exercised during the period		-		-
Cancelled during the period		-		-
Outstanding at end of the period		3,803,761	$	1.06

Exercisable at end of period		1,401,685	$	1.04

The following table summarizes options outstanding at March 31, 2011:

Weighted

Average

Aggregate

Number of

Exercise

Remaining

Intrinsic

Price

Life

Value

Options outstanding

3,803,761

1.06

3.9 years

1,383,216

Options vested and exercisable

1,401,685

1.04

3.1 years

359,274

Unvested options expected to vest

2,402,076

1.07

4.3 years

1,023,942

Note 8 Subsequent Events

Subsequent to March 31, 2011, we sold an additional $6,032,750 of our 10% Convertible Preferred Stock to accredited investors. Pursuant to these transactions, we issued 603,275 shares of 10% Convertible Preferred Stock. In addition, we paid $611,480 and we’re obligated to issue warrants to purchase 58,353 shares of 10% Convertible Preferred Stock, to certain broker-dealers.

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 1A. “Risk Factors” and elsewhere in our Annual Report on Form 10-K. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the Cautionary Statements.

Basis of Presentation

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

Overview

Axion International Holdings, Inc. (“we”, “our” or the “Company”) is the exclusive licensee of 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.

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 GAAP 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

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.

Our business encompasses the production and sale of structural plastic products (made from recycled plastic waste) and include products such as railroad ties, pilings, I-beams, T-beams, and various size boards including a tongue and groove design that are utilized in multiple engineered design solutions such as rail track, rail and tank bridges (heavy load), pedestrian/ park and recreation bridges, marinas, boardwalks and bulk heading to name a few. Typically, customers are billed based on terms of their purchase order which are generally upon delivery.

In certain situations where we provide services, such as engineering or other consulting in addition to our products, 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.

Stock-based Compensation

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements and their effect on us, see “New Accounting Pronouncements” in Note 1 of the Notes to Unaudited Condensed Consolidated Financial Statements contained herein.

Results of Operations - Three-Month Periods Ended March 31, 2011 and 2010

Overview

Beginning during the three months ended December 31, 2010, we entered the next phase of our development. Having completed a number of commercially-engineered solution offerings over the past several years, we began refocusing our activities from a proof-of-concept demonstrator to a strategically focused sales-oriented growth company. Over the past several years, we had focused on advancing the development of our technology and products. As proof-of-concept, we completed the deployment of our products across multiple customers, applications and industries. Beginning late in 2010 we began the process of taking our products to mass markets and we have commenced our sales efforts of our railroad ties and other recycled structural composite products to railroads and other public- and private-sector buyers. Our strategic focus is on the continued growth of sales, the expansion of our technology within and across markets, and the expansion of our infrastructure in order to manufacture our products and support our growing sales order pipeline. During the three months ended March 31, 2011, we have increased our sales pipeline as a result of this new strategic growth initiative and we have multiple proposals in the quotation development phase as well as several in the review and negotiation phase.

During this same period, we focused on identifying and evaluating various sources of raw materials as well as locations, processes and methods in which to effectively and efficiently manufacture our products to meet the increased demand. Because we continue in the early stages of commercial manufacturing activities, our costs of sales have been greater than we would expect. We fully anticipate as we advance our manufacturing processes and methods and continue to identify and partner with critical suppliers of raw materials and other production materials and services, our costs of sales will be at a more favorable level.

Revenue

We recognized revenue of approximately $191,000 and $403,000 during the three months ended March 31, 2011 and 2010, respectively. The revenue recognized during the three months ended March 31, 2011 was primarily from the sale of railroad ties. For the three months ended March 31, 2010, the revenue we recognized was the result of progress related to engineering and production efforts for the demolition and re-construction of two bridges on the US Army base at Fort Eustis, in Virginia which were completed by September 30, 2010.

In 2011, we entered the next phase of our development. Having completed a number of commercially engineered solution offerings over the past several years, we are now refocusing our activities from a proof-of-concept demonstrator to a strategically focused sales-oriented growth company. Over the past several years, we have focused on advancing the development of our technology and products. As proof-of-concept, we have completed the deployment of our products across multiple customers, applications and industries. Beginning late in 2010 we began the process of taking our products to mass markets and we have commenced our sales efforts of our railroad ties and other recycled structural composite products to railroads and other public- and private-sector buyers. Our strategic focus is on the continued growth of sales, the expansion of our technology within and across markets, and the expansion of our infrastructure in order to manufacture our products and support our growing sales order pipeline.

Costs of Sales

For the three months ended March 31, 2011, our costs of sales were approximately $275,000 which was approximately $85,000 in excess of our sales for that period. During the period, our costs of sales were predominately comprised of the cost of raw materials and the costs and expenses associated with our third-party manufacturing arrangements. Included in cost of sales was approximately $38,000 in freight charges which we were not able to recapture as we launched our sales-oriented growth strategy.

For the three months ended March 31, 2010, our costs of sales were approximately $459,000, approximately $57,000 in excess of our revenue recognized for that period. Our costs of sales recognized during that period were related to engineering and production efforts for the demolition and re-construction of two bridges. We agreed to produce additional materials for the bridge projects based on site conditions encountered during the construction phase. As a result of the additional production costs incurred, we adjusted our estimate of the total cost to complete the project and adjusted our recognized gross margin in the period accordingly. Because we were in the early stages of commercial activities, costs of these revenues were highly dependent on the pricing of individual contracts, concurrent production activities, the use of subcontractors and the timing and mix of product sales and services. These projects were the final commercially engineered solution offerings where we were focused on proof-of-concept, rather than product sales. We do not anticipate entering into these types of arrangements in the future.

Because we continue in the early stages of commercial activities, our historical costs of sales may not be indicative of the costs of sales in the future .

Research and Development

We continue to work with our scientific team at Rutgers University to enhance our product formulations, develop innovative products and expand the reach of our existing products. Research and development expenses increased to approximately $73,000 for the three months ended March 31, 2011 as compared to approximately $45,000 for the corresponding period in 2010. We anticipate our research and development expenses may fluctuate significantly in the future as projects and products are identified and decisions made to either pursue or not.

Marketing and Sales

We incurred marketing and sales expenses of approximately $59,000 during the three months ended March 31, 2011 compared to approximately $141,000 for the corresponding period in 2010. As the focus to date has been on advancing our technology and products, we have not incurred significant expenses in marketing and sales effort. Recently we began to increase this effort and anticipate incurring significant marketing and sales expenses in the near future. The strategy we employ in reaching out to our target markets whether through collaborative approaches, such as joint ventures, by building our own sales and marketing infrastructure, or by out-licensing our technology to others, will have a significant effect on our marketing and sales expenses.

General and Administrative

During the three months ended March 31, 2011and 2010, we incurred approximately $1,439,000 and $1,304,000 in general and administrative expenses, respectively. For both periods, the expenses primarily represent the costs incurred by our senior management team, administrative support provided to them, and the services of consultants to advise and assist with our strategic and financial plan activities. During the three months ended March 31, 2011 and 2010, we incurred approximately $952,000 and $838,000, respectively in amortization of stock-based compensation expense in the form of shares of our common stock or warrants, issued to consultants, employees or directors.

We anticipate we will continue to use stock-based compensation when compensating consultants and others, in certain situations. In addition, we anticipate as we continue to grow our business, our general and administrative expenses will increase.

Depreciation and Amortization

Depreciation and amortization of our property, plant and equipment for the three months ended March 31, 2011 and 2010 were comparable at approximately $40,000 versus $66,000, respectively.

Interest Expense and Amortization of Debt Discount

Interest expense related to our convertible debentures and notes was approximately $30,000 and $21,000 for the three months ended March 31, 2011 and 2010, respectively. At the time of issuance, we recorded discounts on these convertible debentures and notes primarily due to the imbedded conversion features and related warrants issued in conjunction with the debt instruments. These discounts are amortized over the term of the underlying convertible debenture or note, and totaled approximately $204,000 and $44,000 for the three months ended March 31, 2011 and 2010, respectively.

Income Taxes

We have unused net operating loss carry forwards, which included losses incurred from inception through March 31, 2011. Due to the uncertainty that sufficient future taxable income can be recognized to realize associated deferred tax assets, we have not recorded an income tax benefit from inception through March 31, 2011.

Liquidity, Capital Resources and Plan of Operations

At March 31, 2011 we had approximately $1.6 million in current assets and $1.2 million in current liabilities resulting in working capital of $0.4 million, which compares to a working capital deficit of $0.7 million at December 31, 2010.

During the three months ended March 31, 2011, we were able to finalize amendments to certain of our convertible debentures, which among other amended terms, extended the maturity dates into 2012. Of $1,122,500 in principal amount of convertible debt at March 31, 2011, $172,500 is due by January 31, 2012, $350,000 is due in May 2012, and $600,000 is due in June 2012.

We used approximately $1,197,000 and $579,000 in our operating activities during the three-month periods ended March 31, 2011 and 2010, respectively. Our purchase of property and equipment was minimal in the three months ended March 31, 2011 and 2010. We do anticipate significant additional property and equipment purchases during the next twelve months as we expand our manufacturing capacity. Financing activities consisted primarily of the sale of shares of our 10% Convertible Preferred Stock and Common Stock, and proceeds from debt. These financing activities have generated net cash proceeds net of repayments, totaling approximately $1,386,000 and $550,000 during the three-month periods ended March 31, 2011 and 2010, respectively. Our ability to pay principal and interest on our outstanding debt and to fund our planned operations, including certain minimum royalties pursuant to our license agreement with Rutgers University, depends on our future operating performance and/or our 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 purchase commitments, the size of such purchase commitments and any associated working capital requirements.

Subsequent to March 31, 2011, we raised approximately $6.0 million through the sale of our 10% Convertible Preferred Stock.

Our current operating plans for the next fiscal year are to enhance and significantly expand or manufacturing capabilities to meet our customer commitments, expand our marketing and sales capabilities to enhance and expand our pipeline of sales orders, and continue to develop innovative solutions for our customers. Although we will have raised additional funds through the issuance of our 10% Convertible Preferred Stock, there can be no assurance that we will achieve our financing needs or if it will be available, or if available, that such financing will be upon terms acceptable to us.

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

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 (the “Exchange Act”)) as of March 31, 2011. 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.

Changes In Internal Control Over Financial Reporting

During the latter months of 2010, management engaged experienced accounting personnel, at both the chief financial officer and the controller positions who will focus in the near term on formalizing policies and procedures surrounding transaction processing and period-end account analyses and providing for additional review and monitoring procedures. Periodically, management will assess the need for additional accounting resources as the business develops

There were no other material 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 our three-month period ended March 31, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None.

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

During March 2011 issued 262,500 shares of common stock, valued at $367,500 at date of issue pursuant to a sub-license agreement entered into during the three month period ended March 31, 2011.

We issued 6,759 shares of common stock during February 2011, in lieu of cash, as payment of accrued interest with a value at date of issue of $6,583.

At maturity in February 2011, we issued 60,000 shares of common stock upon conversion of our 10% Convertible Note, comprised of $60,000 of principal and $3,000 of accrued interest.

In March 2011, we received $200 and issued 20,000 shares of common stock upon exercise of a warrant.

Pursuant to the cashless exercise of warrants for 440,000 shares of common stock in February and March 2011, we issued 274,115 shares of common stock.

On March 22, 2011, we sold 156,498 shares of our 10% Convertible Preferred Stock at a price per share of $10, for gross proceeds of $1,564,980. Each share of 10% Convertible Preferred Stock is convertible into eight (8) shares of common stock.

Item 3. Defaults Upon Senior Securities.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits:

31.1	Section 302 Certification of Chief Executive Officer

31.2	Section 302 Certification of Principal Financial Officer

32.1	Section 906 Certification of Principal Executive Officer

32.2	Section 906 Certification of Principal Financial Officer

SIGNATURES

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

		Axion International Holdings, Inc.

	Date: May 18, 2011	/s/ Steven Silverman
		Steven Silverman
		Chief Executive Officer

	Date: May 18, 2011	/s/ Donald Fallon
		Donald Fallon
		Chief Financial Officer

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Axion International (AXIH) 10-Q2011 Q1 Quarterly report

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