Unassociated Document

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

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PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Submissions of Matters to a Vote of Security Holders	20
Item 5.	Other Information	20
Item 6.	Exhibits	20
	SIGNATURES	21

	June 30,			September 30,
	2010			2009
	unaudited

ASSETS
Current assets:
Cash and cash equivalents	$	567,654		$	1,257,516
Accounts receivable and unbilled revenue		295,688			314,027
Inventories		463,803			76,533
Prepaid expenses		93,016			1,915
Total current assets		1,420,161			1,649,991

Property, equipment, and leasehold improvements, at cost:
Equipment		13,754			9,838
Machinery and equipment		520,035			406,639
Purchased software		56,404			56,404
Furniture and fixtures		13,091			9,322
Leasehold improvements		950			29,300
		604,234			511,503
Less accumulated depreciation		(376,584	)		(205,156	)
Net property and leasehold improvements		227,650			306,347
License, at acquisition cost,		68,284			68,284
Deposits		10,713			10,713
Total assets	$	1,726,808		$	2,035,335

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	1,408,652		$	546,920
Accrued liabilities		589,504			357,172
Notes payable		50,775			14,000
Current portion of convertible debentures, net of discount		341,848			253,795
Total current liabilities		2,390,779			1,171,887
Convertible debentures, net of discount		1			157,347

Total liabilities		2,390,780			1,329,234
Commitments and contingencies		-			-

Stockholders' equity (deficit):
Common stock, no par value; authorized, 100,000,000 shares;21,848,276 and 19,243,669 shares issued and outstanding at June 30, 2010 and September 30, 2009, respectively		15,164,795			10,009,677
Retained earnings (deficit)		(15,828,767	)		(9,303,576	)
Total stockholders' equity (deficit)		(663,972	)		706,101
Total liabilities and stockholders' equity (deficit)	$	1,726,808		$	2,035,335

	Three months ended June 30, 2010			Three months ended June 30, 2009			Nine months ended June 30, 2010			Nine months ended June 30, 2009
	Unaudited			Unaudited			Unaudited			Unaudited

Revenue	$	445,939		$	566,849		$	1,151,173		$	1,004,411
Cost of goods sold		544,028			332,602			1,249,540			815,939
Gross margin		(98,089	)		234,247			(98,367	)		188,472

Operating expenses:
Research and development costs		58,913			19,057			130,795			180,819
Marketing and sales		218,348			149,109			482,444			306,420
General and administrative expenses		1,594,082			983,386			5,342,183			2,932,738
Depreciation and amortization		70,572			54,703			200,728			116,555
Total operating costs and expenses		1,941,915			1,206,255			6,156,150			3,194,532

Loss from operations		(2,040,004	)		(972,008	)		(6,254,517	)		(3,006,060	)

Other expense (income), net:
Other income		-			-			-			-
Interest expense, net		170,082			109,440			270,674			274,303
Debt conversion expense		-			46,153			-			46,153
Total other expense, net		170,082			155,593			270,674			320,456

Loss before income taxes		(2,210,086	)		(1,127,601	)		(6,525,191	)		(3,326,516	)

Provision for income taxes		-			-			-			-

Net loss	$	(2,210,086	)	$	(1,127,601	)	$	(6,525,191	)	$	(3,326,516	)

Weighted average common shares - basic and diluted		21,457,324			15,035,526			20,325,366			14,753,006

Basic and diluted net loss per share	$	(0.10	)	$	(0.07	)	$	(0.32	)	$	(0.23	)

	Nine months ended June 30, 2010			Nine months ended June 30, 2009
	Unaudited			Unaudited

Cash flow from operating activities:
Net loss	$	(6,525,191	)	$	(3,326,516	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, and amortization		171,428			116,555
Accretion of interest expense on convertible debentures		202,901			175,804
Issuance of common stock, options and warrants for services and for accrued interest		3,035,456			1,145,569
Changes in operating assets and liabilities:
Accounts receivable and unbilled revenue		18,339			(172,623	)
Inventories		(387,270	)		(153,872	)
Prepaid expenses and other		(27,976	)		1,006
Accounts payable		1,140,732			260,534
Accrued liabilities		44,088			72,931
Net cash (used in) operating activities		(2,327,493	)		(1,834,459	)

Cash flows from investing activities:
Purchase of equipment and leasehold improvements		(92,731	)		(136,863	)
Net cash (used in) provided by investing activities		(92,731	)		(136,863	)

Cash flows from financing activities:
Proceeds from short term notes		650,000			1,004,000
Issuance of common stock, net of expenses		1,107,544			1,590,000
Repayment of notes and convertible debentures		(27,182	)		(550,000	)
Net cash provided by financing activities		1,730,362			2,044,000

Net increase (decrease) in cash		(689,861	)		72,678
Cash at beginning of period		1,257,516			138,826
Cash at end of period	$	567,654		$	211,504

Supplemental disclosures of cash flow information:
Cash paid for interest	$	-		$	-

Axion International Holdings, Inc. (“Holdings”), formerly Analytical Surveys, Inc., was formed in 1981 to provide data conversion and digital mapping services to users of customized geographic information systems. In fiscal 2006, Holdings acted upon its belief that it would not be able to sustain the operations of its historical business. Holdings focused on completing its long-term contracts that would generate cash, sold certain operations and briefly transitioned its principal business into that of an independent oil and gas enterprise. In May 2007, Holdings terminated its oil and gas executives and took steps to reduce expenses and commitments in oil and gas investments.

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

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

In the opinion of management, all adjustments necessary for a fair presentation of such 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. These consolidated financial statements should be read in conjunction with our consolidated financial statements included in our annual report on Form 10-K for the year ended September 30, 2009.

Going Concern. We have incurred significant losses since inception and we have a working capital deficit. These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustment that might result from the outcome of this uncertainty. 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 and others.

Revenue from product sales is recognized when persuasive evidence of an agreement with the customer exists, products are shipped or title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed or determinable, collectability is reasonably assured, and when there are no significant future performance obligations. Customers are billed based on the terms included in the contracts, which are generally upon delivery of certain products or information, or achievement of certain milestones defined in the contracts. When billed, such amounts are recorded as accounts receivable.

Revenue on construction projects is recognized on the percentage-of-completion method based on contract costs. Contract costs include purchased material, material processing, subcontractor services, labor and other direct costs. Costs of uninstalled materials specifically produced for a project are included in costs used to measure extent of progress toward project completion. Losses on contracts are recognized in the period such losses are determined. 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. Unbilled revenue represents revenue related to services completed but not billed, and advance billings represent billings in advance of services performed.

The Company may provide written warranties with certain sales of its materials. When it does, the Company will record a provision for the estimated future costs of replacement materials in the period in which such costs become probable. The Company has provided a limited warranty on certain materials supplied on its Fort Eustis project and has recorded a provision for warranty costs. There is limited historical experience on the performance of Company material. Accordingly, actual warranty costs may vary significant from Company estimates. Accrued warranty costs are reviewed periodically for adequacy based on actual and expected experience and changes in estimated replacement costs.

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 as income in the period that includes the enactment date.

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

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.

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.

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- and nine-month periods ended June 30, 2010, there were no dilutive effects of such securities because we incurred a net loss in each period. Potential dilutive common shares issuable under our convertible instruments, warrant agreements and stock option plans amounted to 7,793,495 as of June 30, 2009.

The carrying amounts of financial instruments approximate their estimated fair values. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of cash, receivables, accounts payable, and accrued liabilities approximate fair value due to the short maturity of these instruments.

In November 2009, the Company received two “Delivery Order Authorizations” (“DOA’s”), or contract purchase orders, from Centennial Contractors Enterprises, Inc. together with collateral contract documents for the demolition and construction of two bridges located on the United States Army base at Fort Eustis in the state of Virginia. The contract award of $957,587 includes the costs and expenses for equipment, labor and the Company’s composite construction materials. The Company contracted with third-parties for the design and build specifications and the demolition and rebuild work. The project officially commenced upon receipt of the DOA’s and was substantially completed in the quarter ended June 30, 2010. In connection with the bonding activities related to the project, the Company has granted a broad security interest in its assets to an insurance company.

	Due	June 30, 2010			September 30, 2009
10% convertible debenture	August 2010	$	300,000		$	300,000
9% convertible debentures	September 2010		-			278,236
8.75% convertible debenture	December 2010		172,500			172,500
10% convertible debenture	February 2011		300,000			300,000
10% convertible debentures	March 2011		300,000			300,000
7% convertible debenture	May 2012		350,000			350,000
Discount			(1,080,651	)		(639,594	)
			341,849			411,142
Less current portion			341,848			253,795
		$	1		$	157,347

The Company’s 9% convertible debentures were issued in the year ended September 30, 2008 in connection with debt modifications which resulted in debt conversion expense charges in that year. In March 2010, the debentures were converted, prior to their maturity dates and in accordance with their terms, into an aggregate of 927,453 shares of common stock. The unamortized discount pertaining to these notes, amounting to $12,488 in the aggregate, was charged to interest expense upon conversion.

The Company’s 10% convertible debentures were issued under purchase agreements in the year ended September 30, 2009, together with warrants, for aggregate proceeds of $600,000. The total of the calculated fair value of the warrants and the intrinsic value of beneficial conversion features contained in the debentures exceeded the proceeds received. Accordingly, the Company recorded a discount on the notes substantially equal to the principal amount of the notes. The recorded discount on these debentures, $599,634 in the aggregate as of June 30, 2010, is being amortized to interest expense on the interest method through their scheduled maturity dates. As a result of the application of the interest method, unless the debentures are converted earlier, substantially all of the discount is expected to be amortized during the first two quarters of the Company’s fiscal year ending September 30, 2011.

In February 2010, we issued a 10% short-term note in the amount of $300,000, convertible at the rate of $2.00 per share, together with five-year warrants to purchase 100,000 shares of our common stock at an exercise price of $2.50 per share. In addition we entered into a consulting agreement with an affiliate of the purchaser for financial consulting services. We allocated to the warrant $122,005 of the total proceeds received, based upon the relative fair values of the note and warrant, as determined using the Black-Scholes pricing model, and recorded this amount as a discount on the note. We also allocated $167,005 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 $127,110 at June 30, 2010, is being amortized to interest expense on the interest method through the scheduled maturity date of the note. We issued 200,000 shares of common stock under the consulting agreement and recorded consulting expense of $460,000 at issuance for the fair value of the shares based on the reported market price of our stock on the OTC Bulletin Board.

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 to the shares and warrant $45,052 and $155,688, respectively, of the total proceeds received, based upon the relative fair values of the note, shares and warrant, as determined using the Black-Scholes pricing model, and recorded these amount as a discount on the note. We also allocated $199,260 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 at June 30, 2010, is being amortized to interest expense on the interest method through the scheduled maturity date of the note.

Each of the debentures above contains features that allow the Company to redeem the notes prior to their scheduled due dates under certain circumstances. In certain events of default by the Company, the holders may generally require the Company to redeem the notes at 120% of their principal amounts or their conversion value. Based on the life of the notes and the likelihood and effect of substantive exercise of these provisions the Company has determined that these features have minimal value.

In the quarter ended June 30, 2010, a former holder of a convertible note claimed that additional compensation was payable by the Company in the form of warrants related to a note conversion in 2008. The Company has determined that issuance of additional warrants based on the claim is probable and has charged $279,000 to general and administrative expenses for the estimated value of warrants that are expected to be issued.

In October 2009, the Company issued 200,000 shares of its common stock to consultants for services performed in the Company’s strategic planning and financing activities. The shares had a fair value of $600,000 at issuance based on the quoted market price of the Company’s stock on the OTC Bulletin Board. This amount were recognized in general and administrative expenses in the three months ended December 31, 2009.

In November 2009, the Company issued 360,000 five-year warrants exercisable at $0.90 per share to a consultant for strategic planning, business development and investor relations services to be performed. The warrants had a fair value of $1,033,909 at December 31, 2009 based on the Black Scholes pricing model, of which $344,636 was recognized in general and administrative expenses in the three months ended December 31, 2009. Also in November, the Company issued 74,726 shares of common stock to a consultant for business development, marketing and sales services performed. The shares had a fair value of $198,024 at issuance based on the quoted market price of the Company’s stock on the OTC Bulletin Board. Under the agreement, which expires in 2011, the consultant will be granted options to purchase up to 500,000 additional shares of common stock at an exercise price of $0.01 per share contingent on attaining specified sales targets.

In December 2009, the Company agreed to issue 104,554 five-year warrants exercisable at $0.88 per share to a consultant for services performed in the Company’s financing efforts. The warrants had a fair value of $283,788 at the date of grant based on the Black Scholes pricing model, which was recognized in general and administrative expenses in the three months ended December 31, 2009.

On February 23, 2010, we executed a purchase agreement and a registration rights agreement with Lincoln Park Capital, LLC (“LPC”), pursuant to which LPC agreed to purchase 100,000 shares of our common stock at $2.05 per share together with warrants to purchase 50,000 shares at an exercise price of $2.91 per share for total consideration of $205,000. LPC also agreed to purchase up to an additional 1,400,000 shares of our common stock at our option as described below. Upon entering into the Purchase Agreement, we issued to LPC 85,000 shares of our common stock as consideration for entering into the agreement. Pursuant to the registration rights agreement, we filed a registration statement with the Securities and Exchange Commission (the “SEC”) covering the shares issued to LPC under the Purchase Agreement. The registration statement became effective and the initial purchase of 100,000 shares and 50,000 warrants was completed in May 2010. The aggregate value of the 85,000 commitment shares, $178,500, was charged to paid-in capital, together with $84,575 of other offering costs. After the effective date, in May 2010, we sold an additional 20,000 shares under the agreement and received proceeds of $30,666. In July 2010, we and LPC mutually terminated the Purchase Agreement and related agreements.

	Expiration	Conversion/ Exercise Price		Common Shares Issuable
Class A Warrants	2011	$	5.36		95,473
Class B Warrants	2011		5.96		95,473
Class E Warrants	2011		4.74		188,018
AdvisorWarrants	2011		2.36		47,482
Warrants issued in short-term borrowings	2012		1.00		100,000
Warrants issued in short-term borrowings	2013		0.88		200,000
Warrants issued in short-term borrowings	2014		0.88		671,000
Warrants attached to 10% convertible notes	2014		0.90		1,500,000
September 2009 investor warrants	2012		3.13		50,000
September 2009 finder warrants	2012		3.13		50,000
November 2009 finder warrants	2012		2.91		20,000
November 2009 finder warrants	2012		2.91		20,000
November 2009 consultant warrants	2014		0.90		360,000
December 2009 consultant warrants	2012		0.88		104,554
February 2010 consultant warrants	2015		2.50		100,000
February 2010 investor warrants	2015		2.50		12,200
February 2010 consultant warrants	2015		2.05		20,000
LPC warrants	2015		2.91		50,000
May 2010 investor warrants	2015		1.40		166,667
June 2010 investor warrants	2015		1.40		130,534
Weighted average exercise price and total shares issuable			1.50		4,081,401

In April 2008, the Financial Accounting Standards Board (“FASB”) issued guidance. generally codified under ASC Topic 350, “Intangibles – Goodwill and Other”, that amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset in order to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset and was effective for fiscal years beginning after December 15, 2008. The adoption of these changes did not have a material effect on the Company’s consolidated financial statements..

In June 2008, the FASB issued guidance. generally codified under ASC Topic 260, “Earnings per Share”,, which classifies unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents as participating securities and requires them to be included in the computation of earnings per share pursuant to the two-class method and was 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 adoption of these changes did not have a material effect on the Company’s consolidated financial statements.

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 adoption of these changes did not have a material effect on the Company’s consolidated financial statements..

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

In October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue Recognition – Multiple-Deliverable Arrangements” which addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The provisions of this update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the effect, if any, that adoption will have on its consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update 2010-06, “Fair Value Measurements and Disclosures – Improving Disclosures about Fair Value Measurements”, which adds and clarifies certain disclosures about the use of fair value measurements in financial statements. The provisions of this update will be effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of these changes did not have a material effect on the Company’s consolidated financial statements.

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.

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

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.

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 and Cost Recognition. Revenue is recognized when persuasive evidence of an agreement with the customer exists, products are shipped or title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed or determinable, collectability is reasonably assured, and when there are no significant future performance obligations.

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

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

Warranty costs. The Company may provide written warranties with certain sales of its materials. When it does, the Company will record a provision for the estimated future costs of replacement materials in the period in which such costs become probable. The Company has provided a limited warranty on certain materials supplied on its Ft. Eustis project and has recorded a provision for warranty costs. There is limited historical experience on the performance of Company material. Accordingly, actual warranty costs may vary significant from Company estimates. Accrued warranty costs are reviewed periodically for adequacy based on actual and expected experience and changes in estimated replacement costs.

Inventories. Inventories are priced at the lower of cost (first–in, first–out) or market and consist primarily of raw materials and finished goods. During the first nine months of the current fiscal year, the Company significantly increased its inventories, particularly its inventories of railroad ties. Since inception, sales of railroad ties have been limited and estimates of future sales are subject to significant uncertainty. If the Company cannot sell its current inventories at expected selling prices in the ordinary course of business, it may recognize a loss in future periods.

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

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

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

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

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

In October 2009, the FASB issued Accounting Standards Update 2009-13, “Revenue Recognition – Multiple-Deliverable Arrangements” which addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting. The provisions of this update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. We are currently evaluating the effect, if any, that adoption will have on its consolidated financial statements.

Revenue. For the three months ended June 30, 2010, we recognized $445,939 of revenue compared to $566,849 of revenue for the three months ended June 30, 2009. Bridge construction projects on United States Army bases at Ft. Eustis, Virginia, and Ft. Bragg, North Carolina, respectively, contributed revenue of approximately $290,000 and $351,000 in the three months ended June 30, 2010 and the three months ended June 30, 2009, respectively. Sales of railroad ties to two customers amounted to approximately $145,000 in the three months ended June 30, 2010. Sales of railroad ties to a third customer amounted to approximately $215,000 in the comparable period of the prior year.

For the nine months ended June 30, 2010, we recognized $1,151,173 of revenue compared to $1,004,411 of revenue for the nine months ended June 30, 2009. Revenue from bridge construction at Ft. Eustis amounted approximately $943,000 in the nine months ended June 30, 2010. Revenue from bridge construction at Ft. Bragg amounted approximately $39,000 in the nine months ended June 30, 2010 and approximately $784,000 in the nine months ended June 30, 2009. Sales of railroad ties primarily to two customers amounted to approximately $155,000 in the nine months ended June 30, 2010. Sales of railroad ties primarily to a third customer amounted to approximately $220,000 in the comparable period of the prior year.

Cost of sales. Cost of sales amounted to $544,028 and $1,249,540, respectively, for the three and nine months ended June 30, 2010. Cost of sales for the three and nine months ended June 30, 2009 amounted to $332,602 and $815,939, respectively. Reported negative gross margins in the three and nine months ended June 30, 2010, were impacted by costs of additional materials supplied during the fiscal year to the Ft. Eustis project, increased raw materials prices and the mix of products manufactured. The three and nine months ended June 30, 2009 were positively impacted by the allocation of certain fixed manufacturing costs incurred during our initial phase of commercial production to administrative expenses and to preceding periods and certain research contracts associated with the Ft. Bragg project to research and development. Because we are in the early stages of commercial activities, costs of these revenues may not be indicative of costs of revenue in the future, which may vary significantly and are 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.

Research and Development Expense. Research and development expense for the three and nine months ended June 30, 2010 were $58,913 and $130,795, respectively, compared to $19,057 and $180,819, respectively in the three and nine months ended June 30, 2009. Expenses in the periods were generally related to the development of our molds, products, and quality control processes. Expenses in the three months ended June 30, 2010 increased as a result of new research projects with Rutgers University. Expenses in the nine months ended June 30, 2009 included higher costs associated with an earlier research project. We continue to work with our scientific team at Rutgers to enhance our product formulations, develop new innovative products, and expand the reach of our existing products and anticipate that research and development expenses may fluctuate significantly in the future as a result of such projects.

Marketing and Sales Expenses. Marketing and selling expenses for the three and nine months ended June 30, 2010 amounted to $218,348 and $482,444, respectively, compared to $149,109 and $306,420, respectively, for the three and nine months ended June 30, 2009. Expenses increased in the three months ended June 30, 2010 compared to the prior year primarily as a result of increased consulting expenses, which were partially offset by lower internal sales personnel costs in the period. Increased expenses in the nine-month period ended June 30, 2010 primarily reflects increased consulting expense as well as sales efforts related to federal government projects and fees related to the Ft. Eustis project, partially offset by lower spending related to golf architecture. 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 and, accordingly, our marketing and sales expenses may increase. In addition, we may make use of additional outside agents and services for expanding our marketing activities.

General and Administrative. General and administrative costs for the three and nine months ended June 30, 2010 totaled $1,594,001 and $5,342,183, respectively, compared to $983,386 and $2,932,738, respectively in the three and nine months ended June 30, 2009. The increase is primarily due to stock-based compensation in the form of shares and warrants issued to several consultants. In the current fiscal year, we substantially increased our general business development efforts and publicity of our initial completed projects and expanding business activities. In addition, we engaged consultants to advise on our strategic and financing plans and activities. We expect to continue to use stock-based compensation in dealing with a number of consultants. As a result, recorded general and administrative expenses may vary significantly from period to period based on projects initiated and the price of our common stock.

Depreciation and Amortization. Depreciation and amortization for the three and nine months ended June 30, 2010 totaled $70,572 and $200,728, respectively, compared to $54,753 and $116,555, respectively in the three and nine months ended June 30, 2009. These increases primarily reflect entering commercial production in fiscal 2009 and an increased inventory of molds.

Interest Expense, Net. Interest expense for the three and months ended June 30, 2010 totaled $170,082 and $270,675, respectively, compared to $109,440 and $274,303, respectively, in the three and nine months ended June 30, 2009. The decreased expenses in the current fiscal year primarily reflect lower outstanding debt balances in the current period. The Company has recorded discounts on certain notes substantially equal to the principal amount of the notes, which are being amortized to interest expense on the interest method through their scheduled maturity dates. The recorded discount on $600,000 of principal amount of these debentures amounts to $599,977 in the aggregate as of June 30, 2010. As a result of the application of the interest method to these discounts, unless the debentures are converted earlier, substantially all of the discount is expected to be amortized during the first two quarters of the Company’s fiscal year ending September 30, 2011. In addition, a discount of $350,000 as of June 30, 2010 has been recorded on a $350,000 note due May 2012. As a result of the application of the interest method to this discount, unless the debentures are converted earlier, substantially all of the discount is expected to be amortized during the Company’s fiscal year ending September 30, 2012.

As of June 30, 2010, we had $567,654 in cash and cash equivalents and $2,390,779 of current liabilities, a portion of which has been settled or is expected to be settled with the issuance of common stock or warrants subsequent to June 30, 2010. On August 2, 2010, we used a significant portion of existing cash balances to repay our outstanding convertible note of $300,000 due on that date. Following this repayment, the undiscounted total face value of our convertible debt amounts to $1,122,500, which is due between December 2010 and May 2012. In the nine months ended June 30, 2010, we used $2,327,493 of cash in operations, primarily as a result of our operating losses and production of inventory of railroad ties, partially offset by increased accounts payable balances. Our operating losses, production of inventory of railroad ties and increases in accounts payable balances all increased over the comparable period of the prior year as a result of our expanding business activities. Financing activities, consisting principally of the sale of common stock and the issuance of short-term and long-term convertible notes, generated net cash of $1,637,632 in the period. We expect to continue to incur net cash outflows from operations for the foreseeable future. Our ability to fund our planned operations, and pay principal and interest on our outstanding debentures when they begin to come due later in the year if not previously converted, depends on our future operating performance and ability to raise capital. The timing and amount of our financing needs will be highly dependent on the success of our sales and marketing programs, our ability to obtain new construction contracts, the size of such contracts and any associated working capital requirements.

As a result of our continued operating losses, net current liabilities as of June 30, 2010 and our subsequent convertible note repayment, we will need to raise additional capital in the immediate future in order to fund payment of our current liabilities on a timely basis and continue our planned operations and repay our debt obligations. If we are not able to pay our current liabilities on a timely basis, our current operations could be materially affected and, under certain circumstances, certain obligations could increase or accelerate, including amounts owed under our convertible notes. Provided sufficient funds are available, our current operating plans for the next fiscal year are to meet our customer commitments, expand our marketing and sales and engineering staffs, and continue to develop innovative solutions. There can be no assurance that financing will be available, or if available, that such financing will be upon terms acceptable to us. In July 2010, we and Lincoln Park Capital, LLC mutually agreed to terminate our February 2010 purchase agreement for up to 1,500,000 registered shares of our common stock. Please see the Risk Factor “We are dependent on our ability to raise capital from external funding sources. If we are unable to continue to obtain necessary capital from outside sources, we will be forced to reduce or curtail operations” in “Item 1A. Risk Factors” in our Annual Report on Form 10-K.

In April 2006, we commenced an action against Tonga Partners, L.P. and others (“Tonga”) for disgorgement of short-swing profits pursuant to Section 16 of the Securities Exchange Act of 1934, as amended. In September 2008, we were granted summary judgment in the amount of approximately $5.0 million; however, the defendants are appealing the order granting summary judgment. We may receive a substantial amount of cash pursuant to the judgment rendered against Tonga, but the outcome and the timing of the appeal filed by Tonga is uncertain.

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

Based on our evaluation 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 not effective as a result of material weaknesses in our controls over financial reporting, including those discussed in Item 9A(T) of our most recent Annual Report on Form 10-K and the determination in the current fiscal year that based on the simplicity of the Company’s organizational and communications structures there are not sufficiently formal procedures for information gathering and communication across the organization or ensure that agreements or modifications are identified and reviewed for financial significance on a timely basis.

The Company is dependent upon a small number of key employees for the processing of transactions and compilation of financial statements. During the quarter ended June 30, 2010, the Company experienced turnover in personnel, including a change in the Company’s president, which could adversely affect the processing of financially significant transactions and information. Other than this personnel turnover, there were 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 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In the quarter ended June 30, 2010, we received our first significant international order and increased our efforts to arrange international selling activities. We are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by the United States and other business entities for the purpose of obtaining or retaining business. As we begin to operate and sell internationally, there is an increasing risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents or distributors that could be in violation of various laws including the FCPA, even though these parties are not always subject to our effective control. Our attempts to implement safeguards may not be effective in preventing employees, consultants, sales agents or distributors from engaging in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.

Although we generally seek written agreements with our consultants and other service-providers, certain of our existing arrangements are verbal or informal. Certain of our operations require the services of persons that may be in demand by others and may not always be available. In addition, our informal arrangements are subject to a greater degree of uncertainty of interpretation or enforcement in the event of a dispute or if our service-providers fail to perform as expected. If we are not able to secure written agreements with manufacturers, agents, consultants or other parties with whom we have verbal or informal agreements, certain of their activities could be interrupted and our business adversely affected.

Our success will depend to a significant extent, on the performance of a small number of employees and consultants, including James Kerstein, our CEO. To the extent that the services of any of our key personnel become unavailable, we will be required to retain other qualified persons. During the quarter ended June 30, 2010, Marc Green resigned as our President and Treasurer, and experienced personnel in engineering and sales left the Company. We may not be able to find suitable replacement for any such person. The loss of the services of key persons could have a material adverse effect on our business, financial condition and results of operations.

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

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

Large accelerated filer £	Accelerated filer £

Non-accelerated filer £	Smaller reporting company þ

	June 30, 2010		September 30, 2009
Finished goods	$	440,988	$	46,731
Raw materials		22,410		29,802
Total inventories	$	463,398	$	76,533

	June 30, 2010		September 30, 2009
Payable to insurer for legal settlement	$	100,000	$	100,000
Refundable oil and gas receipts		129,334		129,334
Warrant compensation		279,000		-
Accrued interest		49,047		76,644
Other		32,123		51,194
Total accrued liabilities	$	589,504	$	357,172

	Principal Amount		Conversion/ Exercise Price		Common Shares Issuable
10% convertible debentures due in 2010		300,000		2.00		150,000
8.75% convertible debenture due in 2010		172,500		1.25		138,000
10% convertible debentures due in 2011		600,000		0.90		666,667
7% convertible debentures due in 2012		350,000		1.20		291,667

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

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

	Number of Shares			Weighted Average Exercise Price
Outstanding at beginning of period		2,219,799		$	0.47
Granted		-			-
Exercised		-			-
Cancelled		(381,038	)	$	0.00
Outstanding at end of period		1,838,761		$	0.57

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

	Payments due by period
	Total			Less than 1 year		1-3 years			3-5 years			More than 5 years
Long-Term Debt Obligations	$	1,122,500		$	772,500	$	350,000

Minimum royalties (a)		880,000	(a)		80,000		400,000	(a)		400,000	(a)		(a)

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

		Axion International Holdings, Inc.

	Date: August 16, 2010	/s/ James Kerstein
		James Kerstein
		Chief Executive Officer

	Date: August 16, 2010	/s/ Gary Anthony
		Gary Anthony
		Chief Financial Officer