Business Acquisition

12 Months Ended

Dec. 31, 2014

Business Combinations [Abstract]

Business Acquisition

Note 3 – Business Acquisition

On November 15, 2013, our subsidiary, Axion Recycled Plastics Incorporated (“Axion Recycling”) an Ohio corporation, and wholly-owned subsidiary of Axion International, Inc., a Delaware corporation and our wholly-owned subsidiary, entered into an Asset Purchase Agreement (the “Purchase Agreement”), among Y City Recycling, LLC (“Y City”), and Brian Coll and Renee Coll (collectively, the “Sellers”). Pursuant to the terms of the Purchase Agreement, Axion Recycling acquired certain tangible and intangible assets from the Sellers relating to the operation of Y City’s recycled plastics facility located in Zanesville, Ohio (the “Facility”). Simultaneous with the Purchase Agreement transaction, and pursuant to a bill of sale executed by the The Community Bank, an Ohio banking corporation (the “Bank”), as grantor, in favor of Axion Recycled, as grantee, Axion Recycling acquired from the Bank certain equipment, inventory and supplies related to the operation of the Y City business located at the Facility. The combined consideration paid by Axion Recycling for these assets was $6.0 million that included a cash payment of $1.1 million, proceeds from two term loans made by the Bank to Axion Recycling in the aggregate principal amounts of $4.5 million pursuant to promissory notes which bear interest at 4.25% per annum and mature on November 15, 2018 and the assumption of a promissory note with a principal balance of approximately $385,500 owed by Y City as of the acquisition date.

Y City recycled post-consumer and post-industrial plastics in multiple forms. As a complete plastics recycling operation, Y City sorted, ground, washed, blended and pelletized plastics for future use, offering economic benefits to its customers while keeping waste out of landfills. By acquiring these assets, leasing the Facility and hiring the former employees and managers of Y City, we believe we can grow the recycling capabilities at the Facility, expand those capabilities to our Waco, Texas facility and more importantly we have eliminated several steps in our raw material supply chain, thereby adding stability to our raw material costs and enhancing our quality control over those raw materials.

The expenses incurred in executing these transactions of approximately $64,200 are fully reflected in our operating expenses for the year ended December 31, 2013.

The following table summarizes the assets acquired and liabilities assumed at the acquisition date:

Trade and other receivables	$	125,854
Inventories		237,000
Property and equipment		4,400,000
Goodwill		1,492,132
Other intangibles		610,000
Total assets acquired		6,864,986
Bank overdraft		(413,574)
Accounts payable		(477,665)
3% promissory note		(385,474)
Net assets acquired	$	5,588,273

The goodwill of approximately $1,492,100 arising from the acquisition results primarily from the expected benefits of processing plastics for use in our finished product production processes. Goodwill equates to the residual intangible asset that generates earnings in excess of a normal return on all tangible and other intangible assets. Under this residual method, the fair value of goodwill is calculated by subtracting the fair value of all the identified tangible and intangible assets from the fair value of the consideration paid. Since it is an asset acquisition, goodwill is taxable.

Other intangible assets consist primarily of existing customer relationships and vendor sources of $590,000 and the trade name of $20,000, and have been assigned 10-year and one-year useful lives, respectively based on the operating history and relationships Y City had with its existing customer base. The acquired customer relationships were valued using an income approach, with significant assumptions used in the valuation including the customer attrition rate assumed and the expected level of future sales. During year ended December 31, 2014, we transitioned our focus of this business from reprocessing plastics to our traditional business of extrusion molded engineered products, we terminated all customer relationships acquired in the reprocessing plastics business acquisition, and this resulted in an impairment of the customer relationship intangible asset which resulted in a write off of the remaining unamortized balance.