Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

Business and Basis of Financial Statement Presentation

(a) Business and Basis of Financial Statement Presentation

Axion International Holdings, Inc. (“Holdings”) was formed in 1981. 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 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. Axion Recycled Plastics Incorporated, an Ohio corporation and a wholly-owned subsidiary of Axion, was established to purchase certain tangible and intangible assets of a plastics recycling company during November 2013.

The Company was founded in 2007 to exploit a proprietary technology that enabled the conversion of recycled plastics into a benchmark structural plastic material yielding components which demonstrated significant strength, durability and application versatility. We manufacture, market and sell ECOTRAX® rail ties and STRUXURE® building products, with significant focus on construction mats. Our ECOTRAX® and STRUXURE® products are fully derived from post-consumer and post-industrial recycled plastics, such as high-density polyethylene, polystyrene and polypropylene. 

Our consolidated financial statements include the accounts of our wholly-owned subsidiaries and all intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements of Holdings have been prepared in accordance with Rule S-X of the Securities and Exchange Commission and with the instructions to Form 10-Q, and accordingly, they do not include all of the information and footnotes which may be required by generally accepted accounting principles for complete financial statements.

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 months ended March 31, 2015, are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2014 financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC.

Cash and Cash Equivalents

(b) Cash and Cash Equivalents

For purposes of our balance sheet and statement of cash flows, we consider all highly liquid debt instruments, purchased as an investment, with an original maturity of three months or less to be cash equivalents. At March 31, 2015 and December 31, 2014, we maintained all of our cash in demand or interest-bearing accounts at commercial banks.

Allowance for Doubtful Accounts

(c) 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. During the three months ended March 31, 2015, we accrued $51,534 net of collections, for doubtful accounts. At March 31, 2015 and December 31, 2014 our reserve for uncollectable accounts receivables was $62,324 and $10,790, respectively.

Property and Equipment

(d) Property and Equipment

Property and equipment are recorded at cost and depreciated and amortized using the straight-line method over estimated useful lives of two to twenty years.  Costs incurred that extend the useful life of the underlying asset are capitalized and depreciated over the remaining useful life. Repairs and maintenance are charged directly to operations as incurred.

Our property and equipment is comprised of the following:

	March 31,		December 31,
	2015		2014
Office furniture and equipment	$	112,049	$	110,173
Machinery and equipment		11,382,668		10,560,393
Purchased software		147,547		147,547
Subtotal – property and equipment, at cost		11,642,264		10,818,113
Less accumulated depreciation		(2,455,437)		(2,139,181)
Net property and equipment	$	9,186,827	$	8,678,932

Depreciation expense charged to income during the three months ended March 31, 2015 and 2014 was $316,256 and $254,815, respectively.

Exclusive Agreement

(e) Exclusive Agreement

Our proprietary technologies are derived in part from material compositions of matter, processing and use and design patents held by Rutgers University, which have been exclusively licensed to us in February 2007 for United States, Canada, Central and South America, the Caribbean Territory, South Korea, Saudi Arabia, Russia, Mexico and China (where we are a co-licensee). Patents do not exist in all countries for which a license has been granted to us. Although our license agreement with Rutgers also includes know-how, we do not believe that any proprietary know-how is attributable to, or has been obtained by us from Rutgers so that we may not have exclusivity in all countries licensed to us where patents do not exist. Conversely, our position as to our licensed rights also enables Axion to market its products in countries licensed to others in which patents have not been filed, such as Australia and New Zealand. We are in the process of pursuing a resolution of these license issues with Rutgers. The Rutgers patents have limited remaining lives and will start expiring in 2016.

The Rutgers royalty-bearing license includes certain minimum royalty provisions. Royalties payable to Rutgers, for the three months ended March 31, 2015 and 2014 were $50,000 and $50,000, respectively.

Definite Lived Intangible Assets

(f) Definite Life Intangible Assets

During the year ended December 31, 2013, we acquired a plastic reprocessing business which gave rise to certain definite life intangible assets associated with the acquired customer list and trademark. In accordance with FASB ASC topic, “Goodwill and Other Intangible Assets”, acquired definite life intangibles, are subject to amortization over their useful lives. The method of amortization selected reflects the pattern in which the economic benefits of the specific intangible asset is consumed or otherwise used up. Since that pattern cannot be reliably determined, a straight-line amortization method has been used over the estimated useful life. Intangible assets that are subject to amortization are reviewed for potential impairment at least annually or whenever events or circumstances indicate that carrying amounts may not be recoverable.

During the three months ended September 30, 2014, we determined that our definite life intangible assets primarily associated with our acquired customer list was impaired and of no further value and accordingly we recorded a charge to other expenses for the remaining unamortized balance of $545,750, therefore we did not record any further amortization of definite life intangible assets during the three months ended March 31, 2015. For the three months ended March 31, 2014 we amortized to operating expenses $19,750 of these intangible assets.  

Indefinite Lived Intangible Assets - Goodwill

(g) Indefinite Life Intangible Assets - Goodwill

In accordance with the FASB ASC topic, “Goodwill and Other Intangible Assets”, indefinite life assets, such as goodwill, acquired as a result of our acquisition of the plastic reprocessing business and which are not subject to amortization are tested for impairment annually, or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.

During the year ended December 31, 2014, our financial results for the reprocessed plastics business and our decision to transition the reprocessing plastics business to a facility extruding our historical proprietary products, represented a triggering event requiring a goodwill impairment test. During the year ended December 31, 2014, we tested the goodwill intangible asset associated with the acquisition in November 2013 of the reprocessed plastics business. Based on our test for impairment done during the year ended December 31, 2014, we determined there was no impairment of the goodwill.

Revenue and Cost Recognition

(h) Revenue and Related Cost Recognition

In accordance with FASB ASC 605 “Revenue Recognition”, revenue is recognized when persuasive evidence of an agreement with the customer exists, products are shipped or title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed or determinable, collectability is reasonably assured, and 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 or shipment of the products as specified in the purchase order. In other cases where we have a contract which provides for a large number of products and few actual deliveries, the revenues are recorded each month as the products are produced and the risk of ownership passes to the customer upon pre-delivery acceptance. Prior to deliveries, our customer’s products are segregated from our inventory and not available for fulfilling other orders.

Our costs of sales are predominately comprised of the cost of raw materials and the costs and expenses associated with the production of the finished product. Prior to 2013, we utilized third-party manufacturers, where under one arrangement we purchased and supplied the raw materials to the third-party manufacturer and we paid them a per-pound cost to produce the finished product. Under another arrangement, the third-party manufacturer sourced and paid for the raw materials and we purchased the finished product from them at a cost per unit. Beginning in 2013, we initiated production of our finished products within a leased facility utilizing our own employees. Additionally, in late 2013 we acquired the assets of a plastics recycling company and during 2014 converted the production capabilities of the facility to that of our finished products and continue to reprocess recycled plastics for use in our own finished products and to sell any excess to customers for use in their finished products.  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.

Historically, we have not had significant warranty replacements, but from time to time due to the improper installation of certain of our rail ties, we agree to replace the rail ties as a customer relationship matter. Although we have replaced our engineered products for various reasons, we do not anticipate additional significant situations where we might again replace improperly installed products and therefore do not provide for future warrant expenses.

Income Taxes

(i) Income Taxes

Income tax provision consists of federal and state corporate income taxes resulting from our operations in the United States. The income tax provision differs from the expected tax provisions computed by applying the U.S. Federal statutory rate to loss before income taxes primarily because we have historically maintained a full valuation allowance on our deferred tax assets and to a lesser extent because of the impact of state income taxes. As described in our Form 10-K for the year ended December 31, 2014, we maintain a full valuation allowance in accordance with ASC 740, “Accounting for Income Taxes”, on our net deferred tax assets. Until we achieve and sustain an appropriate level of profitability, we plan to maintain a valuation allowance on our net deferred tax assets.

We are current with the filing of our federal and state income tax returns. Our income tax returns are open to examination by federal and state authorities, based on statute of limitations, which is three years.

Derivative Instruments

(j) Derivative Instruments

For derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in fair value recognized in earnings each reporting period as a charge or credit to other expenses. We use the Monte Carlo simulation, and other models, as appropriate to value the derivative instruments at inception and subsequent valuation dates and the value is re-assessed at the end of each reporting period, in accordance with FASB ASC Topic 815, “Derivatives and Hedging”. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not the net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

Share-Based Compensation

(k) Share-Based Compensation

We record share-based compensation for transactions in which we exchange our equity instruments (shares of common stock, options and warrants) for services of employees, consultants and others based on the fair value of the equity instruments issued on the 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. Awards to consultants are marked to market at each reporting period as they vest, and the resulting value is recognized as an adjustment against our earnings for the period.

Loss Per Share

(l) Earnings and Loss Per Share

Basic earnings or loss per share are computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted earnings per share include the effects on our weighted average number of common shares outstanding of the potential dilution of (i) outstanding options and warrants, as determined using the treasury stock method and (ii) convertible securities as determined using the as-if converted method. For the three months ended March 31, 2015 there was no dilutive effects of such securities as we incurred a net loss for that period. 

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2014:

Numerator for basic earnings per share calculation - income attributable to common shareholders	$	3,188,453
Interest on 8% convertible promissory notes		265,882
Dividends for 10% convertible preferred stock		159,797
Accretion of discount on 10% convertible preferred stock		221,386
Numerator for diluted earnings per share calculation - income attributable to common shareholders	$	3,835,518
Denominator for basic earnings per share - weighted-average shares outstanding		31,874,213
Incremental shares attributable to:
Options and warrants		13,845,932
8% convertible promissory notes		38,296,826
10% convertible preferred stock		6,946,230
Denominator for diluted earnings per share		90,963,201
Basic earnings per share	$	0.10
Diluted earnings per share	$	0.04

Fair Value of Financial Instruments

(m) Fair Value of Financial Instruments

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 categorized our financial assets and liabilities that are recurring at fair value into a three-level hierarchy in accordance with these provisions.

Concentration of Credit Risk

(n) Concentration of Credit Risk

We maintain our cash with several major U.S. domestic banks. The amount held in these banks exceeds the insured limit of $250,000 from time to time.  We have not incurred losses related to these deposits.

At March 31, 2015, two of our customers had unpaid accounts due us representing 36% and 19% of our accounts receivable balance at March 31, 2015. At December 31, 2014, two of our customers had unpaid accounts due us representing 35% and 28% of our accounts receivable balance at December 31, 2014.

New Accounting Pronouncements

(o) New Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, and the guidance defines a five step process to achieve this core principle. The ASU is effective for the Company's 2017 fiscal year and may be applied either (i) retrospectively to each prior reporting period presented with an election for certain specified practical expedients, or (ii) retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application, with additional disclosure requirements. The Company is evaluating the potential impact of this new guidance, but does not currently anticipate that the application of ASU No. 2014-09 will have a significant effect on its financial condition, results of operations or its cash flows. We have not yet determined the method by which we will adopt the standard in 2017.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in an entity's financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. The ASU is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The Company does not currently anticipate that the application of ASU No. 2014-15 will have an effect on its financial condition, results of operations or its cash flows.

Use of Estimates

(p) 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.