##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 þ
    
    þ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 COMMISSION FILE NUMBER: 0-11933
 AXCESS INTERNATIONAL INC.
  Delaware
(State or other jurisdiction of incorporation or organization)
    
    85-0294536
(I.R.S. Employer Identification No.)
 3208 Commander DriveCarrollton, Texas
    
    75006(Address of principal executive offices)
    
    (Zip Code)(972) 407-6080(Issuers Telephone Number)
 NONE
 Title of Class:
    
    Name of exchange on which registered:Common Stock, par value $.01 per share
    
    Over-The-Counter Bulletin Board
 29,304,927
 þ o
 o
   o þ
 None
 o þ




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##### 



AXCESS INTERNATIONAL INC.
INDEX
 Part IItem 1. Description of businessRisk FactorsItem 2. Description of propertiesItem 3. Legal proceedingsItem 4. Submission of matters to a vote of security holdersPart IIItem 5. Marketing for common equity and related stockholders mattersItem 6. Managements discussion and analysis of financial condition and results of operationsItem 7. Financial statementsItem 8. Changes in and disagreements with accountants on accounting and financial disclosureItem 8A. Controls and proceduresPart IIIItem 9. Directors, executive officers, promoters and control personsItem 10. Compensation discussion and analysisItem 11. Security ownership of certain beneficial owners and managementItem 12. Certain relationships and related transactionsItem 13. Exhibits and reports on form 8-KItem 14. Principal accountant fees and servicesSignaturesFinancial sectionReport of independent registered public accounting firmConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statements of Stockholders DeficitConsolidated Statements of Cash FlowsNotes to Consolidated Financial StatementsConvertible Note dated December 17, 2007Code of EthicsSubsidiaries of the CompanyConsent of Hein & Associates LLPCertification under Section 302Certification under Section 302Certification under Section 906Certification under Section 906Audit Committee CharterNominating and Governance Committee CharterWhistleblower Policy
  2




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PART I
 Forward Looking Statements
   
 Item 1. DESCRIPTION OF BUSINESS
 Recent Developments: Going Concern and Liquidity Problems
    The Company
  3




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Company Evolution
       TM
 Sales Channels
   4




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##### Table of Contents



TM
 Partnering
  Software House, Sensormatic, KanTech, and ADT (Tyco) TM
 PSA Security
 Media Recovery
 Digital Defense
 5




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##### Table of Contents



Other Integrator Partners
  Products and Technology
      Automated Workforce Management Solutions .
 Automated Fleet Access Control and Data Capture Solutions.
 6




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##### Table of Contents



Electronic Asset Protection and Tracking.
 Electronic Inventory Control and Tracking
 Automatic Personnel Identification
 Markets
  Corporate Access Control and Asset Management
 Airport and Port Security Infrastructure Homeland Defense
 Civil and Military Government.
 Education
 Inventory and Transportation Management
 Financial Data Center Asset Management
 7




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Patents and Proprietary Technology
  Engineering and Development
 TM
  TM
  TM
 8




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##### Table of Contents



Competition
     TM
 Manufacturing and Suppliers
    9




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##### Table of Contents



Research and Development
   Employees
  Government Regulation
  Environmental Factors
  
 Risk Factors
  We may not be able to continue as a going concern or fund our existing capital needs.
 See
 We have a history of losses and expectation of future losses; uncertainty of future profitability;
and limits on operations.
   10




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##### Table of Contents



See
 We are dependent upon our proprietary technology and its marketability as state of the art.
   §
    
    we may not be successful in identifying, developing and marketing product
enhancements or new products that respond to technological change or evolving
industry standards;§
    
    we may experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products; and§
    
    we may experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products; and§
    
    our new products and enhanced products may not adequately meet the requirements
of the marketplace and achieve market acceptance or may not keep pace with advances
made by our competitors.
 See
 The loss of one or more members of management or key personnel could adversely affect our
operations and could lead to loss of clients and proprietary information.
  We may face substantial competition in attracting and retaining qualified personnel, and may be
unable to grow our business if we cannot attract and retain qualified personnel.
  Because we are significantly smaller and less established than a majority of our competitors, we
may lack the financial resources necessary to compete effectively and sustain profitability.
  11




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See
 We are dependent upon third party manufacturers and suppliers to produce our products.
 See
 The voting control of Axcess is held by Amphion Group, and other stockholders are unlikely to have
any ability to influence the governance or policies of our company.
 See
 The price of our common stock has been highly volatile and may continue to be highly volatile,
which may adversely affect your ability to sell your shares and our ability to raise additional
capital.
  
    
    changes in financial estimates or recommendations by securities analysts
regarding us or our common stock;
    
    our performance and the performance of our competitors and other companies in the
technology or marketing sectors;
    
    quarterly fluctuations in our operating results or the operating results of other
companies in the technology or marketing sectors;
    
    additions or departures of key personnel;
    
    the trading volume of our common stock;
    
    general economic conditions and their effect on the technology or advertising and
marketing sectors, in general; and
    
    competition, natural disasters, acts of war or terrorism or other developments
affecting us or our competitors.
 See
 Our common stock may be subject to penny stock rules and regulations.
  12




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Item 2. DESCRIPTION OF PROPERTIES.
  
 Item 3. LEGAL PROCEEDINGS.
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 PART II
 
 Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
  2007
    
    2006QUARTER ENDED
    
    LOW
    
    HIGH
    
    LOW
    
    HIGHMarch 31
    
    $
    1.10
    
    
    $
    1.77
    
    
    $
    0.85
    
    
    $
    1.12June 30
    
    
    1.15
    
    
    
    1.54
    
    
    
    0.90
    
    
    
    1.45September 30
    
    
    1.16
    
    
    
    1.80
    
    
    
    0.87
    
    
    
    1.27December 31
    
    
    1.26
    
    
    
    1.95
    
    
    
    0.92
    
    
    
    1.25
   Equity Compensation Plans
  Number ofsecurities to be
    
    
    
    
    
    Number ofissued upon
    
    Weighted-average
    
    securitiesexercise of
    
    exercise price of
    
    remaining availableoutstanding
    
    outstanding
    
    for future issuanceoptions, warrants
    
    options, warrants
    
    under equityPlan Category
    
    and rights
    
    and rights
    
    compensation plansEquity compensation
plans approved by
security holders
    
    
    5,550,973
    
    
    $
    1.87
    
    
    
    2,712,000Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    5,550,973
    
    
    $
    1.87
    
    
    
    2,712,000
 13




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Recent Sale of Unregistered Securities
  Dividends Paid
  2003B Preferred Equity Offering
    2005 Preferred Equity Offering
     2006B Preferred Equity
  14




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##### Table of Contents



2006C Preferred Equity
  2007 Preferred Equity
   Warrant Exercised / Expire
  Warrants for Services Rendered
  Common Stock
  SB-2 Registration Statement
  Other Matters relating to future amortizable charges
   15




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##### Table of Contents



12 Months EndedDecember 31,20072006C Preferred equity offering
    
    $
    2,000,0002007 Preferred equity offering
    
    
    2,050,000
 
 Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 Recent Developments: Going Concern and Liquidity Problems
   Liquidity and Capital Resources
     2007 Preferred Equity
  2006C Preferred Equity
  16




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##### Table of Contents



Barbados Port Inc.
  Sales and Marketing Initiatives
  1.
    
    We continue to focus on replicating our past success;2.
    
    We continue to add integrators and partners to our sales channel;3.
    
    We continue to improve our professional skill sets and resources to grow the business.
   Results of Operations
 Sales and Gross Profit.
 Operating Expenses.
     Other income (expenses), net
 17




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##### Table of Contents



Net Loss
 Preferred Stock dividend requirements.
 Other Matters relating to future amortizable charges
  Recent Accounting Pronouncements
   Business Combinations Business Combinations
  Critical Accounting Policies
  18




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Allowance for Doubtful Accounts
  Inventory Valuation
  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
  Revenue Recognition and Warranty Costs
  Deferred Tax Valuation Allowance
  Stock-Based Compensation Expense
  Other
 Inflation.
 Seasonality.
 
 Item 7. FINANCIAL STATEMENTS.
 PageReport of Hein & Associates LLP, Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Financial Statements:Consolidated Balance Sheets at December 31, 2007 and 2006
    
    
    F-2Consolidated Statements of Operations for the Years Ended
December 31, 2007 and 2006
    
    
    F-3Consolidated Statements of Stockholders Deficit for the
Years Ended December 31, 2007 and 2006
    
    
    F-4Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007 and 2006
    
    
    F-5Notes to Financial Statements
    
    
    F-6
 19




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Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 Item 8A. CONTROLS AND PROCEEDURES.
        Item 8B. OTHER INFORMATION.
  
 PART III
 
 Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT.
 20




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##### Table of Contents



Management of Axcess
  Name
    
    Age
    
    Position
    
    Committee
    
    Independent (1)Richard C.E. Morgan
    
    
    63
    
    
    Chairman of the Board of Directors
    
    (2*) (4*) (5)Allan Griebenow
    
    
    55
    
    
    Director, President and Chief Executive Officer
    
    (2) (5)Allan L. Frank
    
    
    44
    
    
    Vice President, Secretary and Chief Financial
OfficerRobert J. Bertoldi
    
    
    53
    
    
    Directors
    
    (3) (5)Paul J. Coleman, Jr.
    
    
    75
    
    
    Director
    
    (3*) (5)
    
    XRobert F. Hussey
    
    
    58
    
    
    Director
    
    (3) (4) (5)
    
    XRaj Bridgelall
    
    
    40
    
    
    Vice President of EngineeringRay Cavanagh
    
    
    57
    
    
    Vice President of SalesBenjamin Donohue
    
    
    57
    
    
    Vice President of Business Development
 
 (1)
    
    Indicates the board member is Independent as such term is defined under and required by the
federal securities laws and the rules on the Nasdaq Stock Market.(2)
    
    Executive Committee(3)
    
    Audit Committee(4)
    
    Compensation Committee(5)
    
    Nominating and Governance Committee*
    
    Indicates Chairman of the Committee Richard C. E. Morgan
 Allan Griebenow
 Allan L. Frank
 Robert J. Bertoldi
 21




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##### Table of Contents



Paul J. Coleman, Jr.
 Robert F. Hussey .
 Raj Bridgelall
 Ray Cavanagh
 Ben Donohue
 Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
  22




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##### Table of Contents



Item 10. COMPENSATION DISCUSSION AND ANALYSIS
  Compensation Philosophy and Objectives
  
    
    to provide levels of compensation that integrate with annual and long term performance goals for the Company
    
    to attract and retain top level executives
    
    to reflect individual job responsibilities and reward previous and expected future contributions to the Company
    
    to remain competitive with compensation programs offered in the market while allowing us to maintain
competitive pricing
    
    to limit the use of perquisites to those that assist the executive officers in efficiently carrying out their
responsibilities
 Compensation Process and Components
  Base Salaries
  Bonus/Pay for Performance (update)
  Retirement and Other Benefits
  Perquisites and Other Personal Compensation
  Summary Compensation Table
  23




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##### Table of Contents



Summary Compensation Table
 Stock
    
    Option
    
    All OtherName
    
    Year
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    TotalPrincipal Positions
    
    Ended
    
    ($)
    
    ($)
    
    ($)
    
    ($)(A,1)
    
    ($)(B)
    
    ($)Allan Griebenow
    
    
    2007
    
    
    
    235,363
    
    
    
    
    
    
    
    
    
    
    
    50,400
    
    
    
    
    
    
    
    285,763President and Chief Executive Officer
    
    
    2006
    
    
    
    230,009
    
    
    
    
    
    
    
    
    
    
    
    243,880
    
    
    
    
    
    
    
    479,8892005
    
    
    
    230,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    230,946Allan L. Frank
    
    
    2007
    
    
    
    183,810
    
    
    
    
    
    
    
    
    
    
    
    35,400
    
    
    
    
    
    
    
    219,210Vice President, Secretary and Chief
    
    
    2006
    
    
    
    180,000
    
    
    
    
    
    
    
    
    
    
    
    195,650
    
    
    
    
    
    
    
    375,650Financial Officer
    
    
    2005
    
    
    
    180,937
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    180,937Raj Bridgelall
    
    
    2007
    
    
    
    172,599
    
    
    
    
    
    
    
    
    
    
    
    60,000
    
    
    
    12,021
    
    
    
    244,620Vice President, Engineering
    
    
    2006
    (2)
    
    
    43,154
    
    
    
    
    
    
    
    
    
    
    
    120,000
    
    
    
    7,974
    
    
    
    171,128Ray Cavanagh
    
    
    2007
    
    
    
    151,610
    
    
    
    
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    175,610Vice President, Sales
    
    
    2006
    (3)
    
    
    93,750
    
    
    
    
    
    
    
    
    
    
    
    144,000
    
    
    
    
    
    
    
    237,750Ben Donohue
    
    
    2007
    
    
    
    116,315
    
    
    
    10,000
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    150,315Vice President, Business Development
    
    
    2006
    (4)
    
    
    115,837
    
    
    
    
    
    
    
    
    
    
    
    97,370
    
    
    
    
    
    
    
    213,207
 
 (A)
    
    Reflects the grant date fair value calculated in accordance with FAS 123(R). See Notes to
Financial Statements  Summary of Significant Accounting Policies  Stock-Based Compensation
Adoption of SFAS 123R for a discussion of the relevant assumptions used in calculating the
grant date fair value pursuant to FAS 123(R).(B)
    
    Mr. Bridgelall All Other Compensation consists of reimbursement for moving expenses.(1)
    
    Option awarded during 2007 have additional vesting requirements and the compensation expense
is not defined until the criteria are determined; therefore, only the shares where the
criteria are defined are shown as expense.(2)
    
    Represents compensation earned from September 2006, when Mr. Bridgelall was hired by
Axcess and he was elected as an officer at that time.(3)
    
    Represents compensation earned from May 2006, when Mr. Cavanagh was hired by Axcess and he
was elected as an officer in July 2006.(4)
    
    Represents compensation earned for the full year 2006. However, Mr. Donohue was elected an
officer in July 2006 but has been an employee of Axcess since July 1999 Stock Option Grants in 2007 to Named Executive Officers
  All Other
    
    All Other
    
    Exercise or
    
    Grant DateStock Awards:
    
    Option Awards:
    
    Base Price
    
    Fair ValueNumber of
    
    Number of
    
    Of Option
    
    Of Stock andGrant
    
    Shares of Stock
    
    Securities Under-
    
    Awards
    
    OptionName
    
    Date
    
    Or Units (#)
    
    Lying Options (#)
    
    ($ / Share)
    
    AwardsAllan Griebenow
    
    09/21/07
    
    
    
    
    168,000
    
    
    $
    1.50
    
    
    $
    252,000Allan L. Frank
    
    09/21/07
    
    
    
    
    118,000
    
    
    
    1.50
    
    
    
    177,000Raj Bridgelall
    
    09/21/07
    
    
    
    
    200,000
    
    
    
    1.50
    
    
    
    300,000Ray Cavanagh
    
    09/21/07
    
    
    
    
    80,000
    
    
    
    1.50
    
    
    
    120,000Ben Donohue
    
    09/21/07
    
    
    
    
    80,000
    
    
    
    1.50
    
    
    
    120,000
 Total Number
    
    Exercised Price
    
    Number ReceivingDescription
    
    of Options (#)
    
    ($ / Share)
    
    GrantsNamed Officers
    
    
    646,000
    
    
    $
    1.50
    
    
    
    5Directors
    
    
    80,000
    
    
    
    1.50
    
    
    
    4Other Employees
    
    
    439,000
    
    
    $
    1.45-$1.50
    
    
    
    15Total
    
    
    1,165,000
    
    
    $
    1.45-$1.50
    
    
    
    24
  24




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##### Table of Contents



Outstanding Equity Awards at Fiscal Year End
  Option Awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock AwardsEquityEquity
    
    IncentiveIncentive
    
    PlanPlan
    
    Awards:Market
    
    Awards:
    
    MarketNumber
    
    Value
    
    Number
    
    or PayoutEquity
    
    
    
    
    
    
    
    
    
    of
    
    of
    
    of
    
    Value ofIncentive
    
    
    
    
    
    
    
    
    
    Shares
    
    Shares
    
    Unearned
    
    UnearnedPlan
    
    
    
    
    
    
    
    
    
    or Units
    
    or
    
    Shares,
    
    Shares,Awards:
    
    
    
    
    
    
    
    
    
    of
    
    Units
    
    Units or
    
    Units orNumber of
    
    Number of
    
    
    
    
    
    
    
    
    
    Stock
    
    of
    
    Other
    
    OtherNumber of
    
    Securities
    
    Securities
    
    
    
    
    
    
    
    
    
    That
    
    Stock
    
    Rights
    
    RightsSecurities
    
    Underlying
    
    Underlying
    
    Option
    
    
    
    
    
    Have
    
    That
    
    That
    
    ThatUnderlying
    
    Unexercised
    
    Unexercised
    
    Exercise
    
    Option
    
    Not
    
    Have
    
    Have Not
    
    Have NotOptions(#)
    
    Options(#)
    
    Unearned
    
    Price
    
    Expiration
    
    Vested
    
    Not
    
    Vested
    
    VestedName
    
    Exercisable
    
    Unexercisable
    
    Options(#)
    
    ($)
    
    Date
    
    (#)
    
    Vested ($)
    
    (#)
    
    ($)Allan Griebenow (1)
    
    
    1,263,072
    
    
    
    302,000
    
    
    
    
    
    
    $
    2.20
    
    
    10 years from Grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allan Frank (2)
    
    
    640,468
    
    
    
    225,500
    
    
    
    
    
    
    $
    1.71
    
    
    10 years from Grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Raj Bridgelall (3)
    
    
    37,500
    
    
    
    112,500
    
    
    
    
    
    
    $
    1.24
    
    
    10 years from Grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ray Cavanagh (4)
    
    
    37,500
    
    
    
    112,500
    
    
    
    
    
    
    $
    1.26
    
    
    10 years from Grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ben Donohue (5)
    
    
    252,867
    
    
    
    133,500
    
    
    
    
    
    
    $
    1.34
    
    
    10 years from Grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Includes a grant made on July 28, 1999 for 450,000 options at a strike
price of $2.50; a grant made on February 2, 2000 for 124,112 options
with a strike price of $5.50; a grant made on January 10, 2001 for
150,392 option at a strike price of $3.88; a grant made on June 5,
2002 for 85,000 options at a strike price of $1.70; a grant made on
January 17, 2003 for 163,000 options at a strike price of $0.40; a
grant made on March 16, 2004 for 156,568 options at a strike price of
$2.00, a grant made on February 15, 2006 for 268,000 options with a
strike price of $1.04 and a grant made September 21, 2007 for 168,000
options at a strike price of $1.50.(2)
    
    Includes a grant made on March 20, 2002 for 200,000 option at a strike
price of $3.00; a grant made on June 5, 2002 for 85,000 options at a
strike price of $1.70; a grant made on January 17, 2003 for 100,000
options at a strike price of $0.40; a grant made on March 16, 2004 for
147,968 options at a strike price of $2.00, a grant made on February
15, 2006 for 215,000 options with a strike price of $1.04 and a grant
made September 21, 2007 for 118,000 options at a strike price of
$1.50.(3)
    
    Includes a grant made on October 1, 2006 for 150,000 options at a
strike price of $0.93 and a grant made September 21, 2007 for 200,000
options at a strike price of $1.50.(4)
    
    Includes a grant made on May 16, 2006 for 150,000 options at a strike
price of $1.10 and a grant made September 21, 2007 for 80,000 options
at a strike price of $1.50.(5)
    
    Includes a grant made on September 29, 1999 for 12,000 options at a
strike price of $2.69; a grant made on February 2, 2000 for 3,308
options with a strike price of $5.50; a grant made on January 10, 2001
for 6,000 option at a strike price of $3.88; a grant made on June 5,
2002 for 65,000 options at a strike price of $1.70; a grant made on
January 17, 2003 for 78,000 options at a strike price of $0.40; a
grant made on March 16, 2004 for 35,059 options at a strike price of
$2.00 and a grant made on February 15, 2006 for 107,000 options with
a strike price of $1.04 and a grant made September 21, 2007 for 80,000
options at a strike price of $1.50. 25




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Aggregate Option Exercises in 2007 by Executive Officers
  Shares
    
    
    
    
    
    Number of Securities
    
    Value of UnexercisedAcquired
    
    
    
    
    
    Underlying Unexercised
    
    In-the-Money Options atOn
    
    Value
    
    Options at December 31, 2007
    
    December 31, 2007Name
    
    Exercise
    
    Realized
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableAllan Griebenow
    
    
    
    
    
    $
    
    
    
    
    1,263,072
    
    
    
    302,000
    
    
    $
    175,600
    
    
    $
    32,160Allan L. Frank
    
    
    
    
    
    $
    
    
    
    
    640,468
    
    
    
    225,500
    
    
    $
    113,800
    
    
    $
    25,800Raj Bridgelall
    
    
    
    
    
    $
    
    
    
    
    37,500
    
    
    
    112,500
    
    
    $
    6,750
    
    
    $
    39,375Ray Cavanagh
    
    
    
    
    
    $
    
    
    
    
    37,500
    
    
    
    112,500
    
    
    $
    6,750
    
    
    $
    20,250Ben Donohue
    
    
    
    
    
    $
    
    
    
    
    252,867
    
    
    
    133,500
    
    
    $
    81,480
    
    
    $
    12,840
 Compensation of the Companys Directors
   Change inPension ValueandFees
    
    
    
    
    
    
    
    
    
    
    
    
    
    NonqualifiedEarned or
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    DeferredPaid in
    
    Stock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherCash
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)
    
    ($)Richard CE Morgan
    
    $
    
    
    
    $
    
    
    
    $
    24,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    24,000Robert Bertoldi
    
    
    
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,000Robert Hussey
    
    
    9,500
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,500Paul Coleman
    
    
    6,500
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,500
 Employment Agreement with Mr. Griebenow
  26




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##### Table of Contents



Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
  Amount andNature of
    
    
    
    
    
    Percentage ofName and Address of
    
    
    
    Beneficial
    
    Percentage
    
    Voting PowerBeneficial Owner
    
    Title of Class
    
    Owner
    
    of Class
    
    (1)Amphion Group (2)
    
    Voting Common Stock
    
    
    20,243,563
    (3)
    
    
    48.8
    %
    
    
    49.4
    %330 Madison Avenue
    
    Series 2005
    
    
    1,770,024
    
    
    
    65.3
    %
    
    
    4.4
    %New York, NY 10017
    
    Series 2006B
    
    
    450,000
    
    
    
    64.3
    %
    
    
    1.1
    %Series 2007
    
    
    250,000
    (4)
    
    
    13.2
    %
    
    
    0.6
    %
 
 (1)
    
    Includes outstanding common and preferred shares outstanding. Excludes stock
options and warrants.(1)
    
    See the following table regarding the beneficial ownership of the Amphion Group.(2)
    
    Includes 2,756,736 shares that the Amphion Group has the right to acquire
pursuant to warrants and options that are exercisable within 60 days.(3)
    
    25 preferred shares that convert ten thousand to one.    Series
    
    Series
    
    SeriesVoting
    
    2005
    
    2006B
    
    2007Common
    
    Preferred
    
    Preferred
    
    Preferred
    
    Warrants
    
    Options
    
    TotalAmphion Ventures LP
    
    
    9,219,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,219,305VennWorks LLC
    
    
    5,677,006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,677,006Amphion Innovations plc
    
    
    670,000
    
    
    
    1,475,906
    
    
    
    150,000
    
    
    
    
    
    
    
    1,734,532
    (1)
    
    
    
    
    
    
    4,030,438Mr. Morgan
    
    
    722,509
    (2)
    
    
    294,118
    
    
    
    300,000
    
    
    
    250,000
    (3)
    
    
    739,118
    (4)
    
    
    94,293
    (5)
    
    
    2,400,038Antiope Partners LLC
    
    
    1,109,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,109,182Mr. Bertoldi
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    188,793
    (6)
    
    
    188,793Amphion Investments LLC
    
    
    44,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,000Amphion Partners LLC
    
    
    28,125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,125Amhion Capital
Management LLC
    
    
    16,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,700Total of Amphion Group
    
    
    17,486,827
    
    
    
    1,770,024
    
    
    
    450,000
    
    
    
    250,000
    
    
    
    2,473,650
    
    
    
    283,086
    
    
    
    22,713,587
 (1)
    
    Includes ten different grants ranging in price ($1.08 to $2.00) and expiration
dates (January 28, 2010 to February 28, 2013).(2)
    
    Includes 252,715 shares of common stock issued to Mrs. Morgan, the wife of Mr.
Morgan.(3)
    
    25 preferred shares that convert ten thousand to one 27




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##### Table of Contents



(4)
    
    Includes three different grants ranging in price ($1.50 to $2.00) and expiration
dates (January 28, 2010 to December 1, 2011).(5)
    
    Options to purchase 94,293 shares of common stock that are exercisable within 60
days.(6)
    
    Options to purchase 188,793 shares of common stock that are exercisable within 60
days. .  Amount andNature of
    
    Percentage
    
    PercentageName of
    
    
    
    Beneficial
    
    of
    
    of CommonBeneficial Owner
    
    Title of Class
    
    Owner
    
    Class
    
    Voting PowerRichard C.E. Morgan
    
    Voting Common Stock         (1)
    
    
    17,486,827
    
    
    
    59.6
    %
    
    
    43.5
    %Series 2005 Preferred
    
    
    1,770,024
    
    
    
    66.8
    %
    
    
    4.4
    %Series 2006B Preferred
    
    
    450,000
    
    
    
    64.3
    %
    
    
    1.1
    %Series 2007 Preferred
    
    
    25
    
    
    
    13.2
    %
    
    
    *Robert J. Bertoldi
    
    Voting Common Stock         (2)
    
    
    16,764,318
    
    
    
    57.2
    %
    
    
    41.7
    %Series 2005 Preferred
    
    
    1,475,906
    
    
    
    55.7
    %
    
    
    3.7
    %Series 2006B Preferred
    
    
    150,000
    
    
    
    21.4
    %
    
    
    *Allan Griebenow
    
    Voting Common Stock         (3)
    
    
    14,860
    
    
    
    *
    
    
    
    *Paul J. Coleman, Jr.
    
    Voting Common Stock         (4)
    
    
    80
    
    
    
    *
    
    
    
    *Allan L. Frank
    
    Voting Common Stock         (5)
    
    
    
    
    
    
    *
    
    
    
    *Robert F. Hussey
    
    Voting Common Stock         (6)
    
    
    
    
    
    
    *
    
    
    
    *Raj Bridgelall
    
    Voting Common Stock         (7)
    
    
    
    
    
    
    *
    
    
    
    *Raymond Cavanagh
    
    Voting Common Stock         (8)
    
    
    
    
    
    
    *
    
    
    
    *Benjamin Donohue
    
    Voting Common Stock         (9)
    
    
    
    
    
    
    *
    
    
    
    *All Directors, Director
    
    Voting Common Stock
    
    
    17,501,767
    
    
    
    59.7
    %
    
    
    43.5
    %Nominees and
    
    Series 2005 Preferred
    
    
    1,770,024
    
    
    
    66.8
    %
    
    
    4.4
    %Executive Officers as
    
    Series 2006B Preferred
    
    
    450,000
    
    
    
    64.3
    %
    
    
    1.1
    %a group (10 individuals)
    
    Series 2007 Preferred
    
    
    25
    
    
    
    13.2
    %
    
    
    *
 
 *
    
    Less than 1%.(1)
    
    The number of shares of voting common stock includes 469,794 shares held directly,
16,764,318 shares held by other entities within the Amphion Group (defined in Note 1 to the
immediately preceding table above), 252,715 shares owned by Mr. Morgans wife. However,
the number of shares of voting common stock excludes 833,411 shares that Mr. Morgan has the
right to acquire pursuant to option and warrant agreements that are exercisable within 60
days, 1,802,022 shares that entities within the Amphion Group have the right to acquire
pursuant to warrant agreements that are exercisable within 60 days. As detailed in Note 1
to the immediately preceding table above, Mr. Morgan disclaims beneficial ownership of all
shares beneficially owned by entities within the Amphion Group.(2)
    
    Includes 16,764,318 shares held by other entities within the Amphion Group (defined in
Note 1 to the immediately preceding table above). However, excludes 188,793 shares that
Mr. Bertoldi has the right to acquire pursuant to option and warrant agreements that are
exercisable within 60 days and 1,802,022 shares that entities within the Amphion Group have
the right to acquire pursuant to option and warrant agreements that are exercisable within
60 days. As detailed in Note 1 to the immediately preceding table above, Mr. Bertoldi
disclaims beneficial ownership of all shares beneficially owned by entities within the
Amphion Group.(3)
    
    Includes 14,580 shares of common stock held directly by Mr. Griebenow and 280 shares
owned jointly with his wife. Excludes 1,263,072 shares that Mr. Griebenow has the right to
acquire pursuant to option agreements that are exercisable within 60 days.(4)
    
    Includes 80 shares of common stock held directly by Mr. Coleman and excludes 216,793
shares that Mr. Coleman has the right to acquire pursuant to option agreements that are
exercisable within 60 days. 28




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##### Table of Contents



(5)
    
    Excludes 640,468 shares that Mr. Frank has the right to acquire pursuant to options
that are exercisable within 60 days.(6)
    
    Excludes 178,793 shares that Mr. Hussey has the right to acquire pursuant to options
that are exercisable within 60 days.(7)
    
    Excludes 37,500 shares that Mr. Bridgelall has the right to acquire pursuant to options
that are exercisable within 60 days.(8)
    
    Excludes 37,500 shares that Mr. Cavanagh has the right to acquire pursuant to options
that are exercisable within 60 days.(9)
    
    Excludes 252,867 shares that Mr. Donohue has the right to acquire pursuant to options
that are exercisable within 60 days. 
 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 Amphion Investment LLC
  PV Proceeds Holdings Inc.
   Amphion Innovations plc
 Maturity Date st
 Amphion Capital Partners LLC
  29




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##### Table of Contents



Other Matters
     
 Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of the
Company. Incorporated herein by reference to Exhibit A to the
Companys 2005 Definitive Proxy Statement filed June 2, 20063.2
    
    By-laws of the Company. Incorporated herein by reference to
Exhibit 3.2 to the Companys Registration Statement on Form
S-1 (Registration No. 2-80946)3.3
    
    Certificate of Designations, Preferences, Powers and Rights of
Series 2003B Preferred Stock, Series 2004 Preferred Stock and
Series 2005 Preferred Stock of the Company. Incorporated
herein by reference to Exhibit B to the Companys 2005
Definitive Proxy Statement filed June 2, 2006.10.1 +
    
    Employment Agreement dated July 16, 1999, by and between the
Company and Allan Griebenow. Incorporated herein by reference
to Exhibit 10.19 to the Companys Annual Report on Form 10-KSB
for the year ended December 31, 1999.10.2 +
    
    Axcess International Inc. 2005 Equity Incentive Plan.
Incorporated herein by reference to Exhibit A to the Companys
2005 Definitive Proxy Statement filed June 1, 2005.
 30




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##### Table of Contents



Exhibit No.
    
    Description10.3
    
    Agreement to amend purchase note and payment terms as of
December 12, 2003, executed by Axcess and PV Proceeds
holdings, Inc. Incorporated herein by reference to Exhibit
10.1 on Form 8-K filed on December 16, 2003.10.4
    
    Amended demand note dated as of November 30, 2003, executed by
Axcess payable to Amphion Investment LLC in the principal
amount of $393,787. Incorporated herein by reference to
Exhibit 10.4 on Form 8-K filed on December 16, 2003.10.5
    
    Form of Stock Purchase agreement for the 2004 Preferred Equity
Offering. Incorporated herein by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-QSB for the period
ended March 31, 2004 filed on May 14, 2004.10.6
    
    Form of Stock Purchase agreement for the 2005 Preferred Equity
Offering. Incorporated herein by reference to Exhibit 10.10
to the Companys Quarterly Report on Form 10-KSB for the
period ended December 31, 2005 filed on March 31, 2005.10.7
    
    Form of Stock Purchase agreement for the 2006 Preferred Equity
Offering. Incorporated herein by reference to Exhibit 10.1 on
Form 10-QSB filed on August 11, 2006.10.8
    
    Form of Stock Purchase agreement for the 2006B Preferred
Equity Offering. Incorporated herein by reference to Exhibit
10.1 on Form 8-K filed on December 4, 2006.10.9
    
    Form of Stock Purchase agreement for the 2006C Preferred
Equity Offering. Incorporated herein by reference to Exhibit
10.10 on Form 10-KSB filed on March 2, 200710.10
    
    Form of Stock Purchase agreement for the 2007 Preferred Equity
Offering. Incorporated herein by reference to Exhibit 10.13
on Form SB-2 filed on November 21, 200710.11
    
    Form of Voting Common Stock Purchase Warrant between the
Company and certain investors of the exempt 2005 Preferred
Stock Offering. Incorporated herein by reference to Exhibit
10.11 on Form 10-KSB filed on March 2, 2007.10.12
    
    Form of Voting Common Stock Purchase Warrant between the
Company and certain investors of the exempt 2006 Preferred
Stock Offering. Incorporated herein by reference to Exhibit
10.12 on Form 10-KSB filed on March 2, 2007.10.13
    
    Form of Voting Common Stock Purchase Warrant between the
Company and certain investors of the exempt 2006B Preferred
Stock Offering. Incorporated herein by reference to Exhibit
10.13 on Form 10-KSB filed on March 2, 2007.10.14
    
    Form of Voting Common Stock Purchase Warrant between the
Company and certain investors of the exempt 2006C Preferred
Stock Offering. Incorporated herein by reference to Exhibit
10.14 on Form 10-KSB filed on March 2, 2007.10.15
    
    Form of Voting Common Stock Purchase Warrant between the
Company and certain investors of the exempt 2007 Preferred
Stock Offering. . Incorporated herein by reference to Exhibit
10.12 on Form 10-KSB filed on March 2, 2007.10.16
    
    Borrowed Employees and Advisory agreement between Amphion
Innovations US Inc. and Axcess. Incorporated herein by
reference to Exhibit 10.9 on Form 10-KSB for the period ended
December 31, 2006 filed on March 2, 2007.10.17 *
    
    Convertible Note dated December 17, 2007, executed by Axcess
payable to Amphion Innovations plc. In the principal amount of
$150,000. *14.1 *
    
    Code of Ethics for Senior Financial
Officers dated and approved by The Board of Directors on
March 26, 2004. *21.1
    
    Subsidiaries of the Company. *23.1
    
    Consent of Hein & Associates LLP. *31.1
    
    Certification of our President, Chief Executive Officer and
Principal Executive Officer, under Section 302 of the
Sarbanes-Oxley Act of 2002. *31.2
    
    Certification of our Vice President, Chief Financial Officer,
Secretary and Principal Accounting and Financial Officer,
under Section 302 of the Sarbanes-Oxley Act of 2002. *32.1
    
    Certification of our President, Chief Executive Officer and
Principal Executive Officer, under Section 906 of the
Sarbanes-Oxley Act of 2002. *32.2
    
    Certification of our Vice President, Chief Financial Officer,
Secretary and Principal Accounting and Financial Officer,
under Section 906 of the Sarbanes-Oxley Act of 2002. *
 31




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##### Table of Contents



Exhibit No.
    
    Description99.1 *
    
    Audit Committee charter. *99.2 *
    
    Nominating and Governance Committee charter. *99.3 *
    
    Whistleblower Policy. *
 
 *
    
    Filed herewith+
    
    Denotes management contract or compensatory plan. 32




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##### Table of Contents



Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  December 31,
    
    
    December 31,2007
    
    
    2006Audit fees (1)
    
    $
    65,458
    
    
    $
    74,251Audit related fees (2)
    
    
    
    
    
    
    Tax fees (3)
    
    
    10,000
    
    
    
    10,000All other fees (4)
    
    
    
    
    
    
    Total
    
    $
    75,458
    
    
    $
    84,251
 
 1)
    
    Audit Fees consist of fees billed for professional services rendered for
the audit of the Companys consolidated annual financial statements and review
of the interim consolidated financial statements included in quarterly reports
and services that are normally provided by Hein & Associates LLP in connection
with statutory and regulatory filings or engagements.2)
    
    Audit-Related Fees would normally consist of fees billed for assurance and
related services that are reasonably related to the performance of the audit or
review of the Companys consolidated financial statements and are not reported
under Audit Fees.(3)
    
    Tax Fees consist of fees billed for professional services rendered for
federal and state tax compliance, tax advice and tax planning.(4)
    
    All Other Fees would normally consist of fees for services other than the
services reported above.  33




---



##### Table of Contents



SIGNATURES
 th
 AXCESS INTERNATIONAL INC.By:
    /s/ Richard C. E. MorganRichard C. E. Morgan, Chairman of the Board th
 Signature
    
    Capacity/s/ Richard C. E. Morgan

Richard C. E. Morgan
    
    Chairman of the Board/s/ Allan Griebenow

Allan Griebenow
    
    Director, President and Chief Executive Officer
(Principal Executive Officer)/s/ Allan L. Frank

Allan L. Frank
    
    Chief Financial Officer
(Principal Accounting and Financial Officer)/s/ Paul J. Coleman, Jr.

Paul J. Coleman, Jr.
    
    Director/s/ Robert J. Bertoldi

Robert J. Bertoldi
    
    Director/s/ Robert F. Hussey

Robert F. Hussey
    
    Director
 34




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        
 F- 1




---



##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED BALANCE SHEETS
 DECEMBER 31, 2007 and 2006
 2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    59,089
    
    
    $
    347,361Accounts receivable  trade, net of allowance for doubtful accounts of
$32,363 and $16,868 for 2007 and 2006, respectively.
    
    
    257,957
    
    
    
    252,230Inventory, net
    
    
    193,405
    
    
    
    396,305Prepaid expenses and other
    
    
    77,506
    
    
    
    92,090Total current assets
    
    
    587,957
    
    
    
    1,087,986Property, plant and equipment, net
    
    
    12,003
    
    
    
    18,369Deferred debt issuance costs
    
    
    30,421
    
    
    
    168,963Other assets
    
    
    56,438
    
    
    
    2,934Total assets
    
    $
    686,819
    
    
    $
    1,278,252LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    172,278
    
    
    $
    101,261Accrued liabilities
    
    
    1,309,979
    
    
    
    1,121,350Deferred revenue
    
    
    42,060
    
    
    
    25,665Notes payable:Notes payable (includes $150,000 and $393,787 with a related party in 2007
and 2006, respectively)
    
    
    150,000
    
    
    
    3,365,500Dividends payable
    
    
    125,991
    
    
    
    138,594Total current liabilities
    
    
    1,800,308
    
    
    
    4,752,370Notes payable to stockholders (includes $393,787 with a related party in 2007)
    
    
    2,858,346
    
    
    
    Total liabilities
    
    
    4,658,654
    
    
    
    4,752,370Commitments and
contingencies (Notes 2, 8 and 13)Stockholders deficit:Convertible preferred stock, 10,000,000 shares authorized in 2007 and 2006.
Without liquidation preferences; $0.01 par value, 6,860,116 and 7,073,550
shares issued and outstanding in 2007 and 2006, respectively
    
    
    68,601
    
    
    
    70,735Common stock, $.01 par value, 70,000,000 shares authorized in 2007 and 2006;
29,304,927 shares issued and outstanding in 2007 and 28,657,313 shares issued
and outstanding in 2006.
    
    
    293,050
    
    
    
    286,573Shares of common stock to be issued, 25,000 shares as of December 31, 2007
    
    
    250
    
    
    
    Additional paid-in capital
    
    
    162,947,266
    
    
    
    158,184,537Accumulated deficit
    
    
    (167,281,002
    )
    
    
    (162,015,963
    )Total stockholders deficit
    
    
    (3,971,835
    )
    
    
    (3,474,118
    )Total liabilities and stockholders deficit
    
    $
    686,819
    
    
    $
    1,278,252
  F- 2




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##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 YEARS ENDED DECEMBER 31, 2007 and 2006
 2007
    
    
    2006Sales
    
    $
    3,412,484
    
    
    $
    1,501,296Cost of sales
    
    
    1,478,959
    
    
    
    837,789Inventory impairment
    
    
    8,419
    
    
    
    6,664Gross profit
    
    
    1,925,106
    
    
    
    656,843Expenses:Research and development
    
    
    3,167,736
    
    
    
    1,380,875General and administrative
    
    
    1,773,678
    
    
    
    1,795,479Selling and marketing
    
    
    1,609,610
    
    
    
    1,171,023Depreciation, amortization and impairment
    
    
    15,665
    
    
    
    18,805Operating expenses
    
    
    6,566,689
    
    
    
    4,366,182Loss from operations
    
    
    (4,641,583
    )
    
    
    (3,709,339
    )Other income (expense):Interest expense
    
    
    (330,898
    )
    
    
    (351,791
    )Gain on vendor settlements, statuary write-off and other
    
    
    25,799
    
    
    
    102,516Gain on sale of intellectual property
    
    
    
    
    
    
    600,000Other income (expense), net
    
    
    (305,099
    )
    
    
    350,725Net loss
    
    
    (4,946,682
    )
    
    
    (3,358,614
    )Preferred stock dividend requirementsRecurring
    
    
    (318,357
    )
    
    
    (325,163
    )2005 Preferred equity offering
    
    
    
    
    
    
    (1,489,245
    )2006 Preferred equity offering
    
    
    
    
    
    
    (645,020
    )2006B Preferred equity offering
    
    
    
    
    
    
    (750,000
    )2006C Preferred equity offering
    
    
    (2,000,000
    )
    
    
    2007 Preferred equity offering
    
    
    (2,050,000
    )
    
    
    Preferred stock dividend requirements
    
    
    (4,368,357
    )
    
    
    (3,209,428
    )Net loss applicable to common stock
    
    $
    (9,315,039
    )
    
    $
    (6,568,042
    )Basic and diluted net loss per share
    
    $
    (0.32
    )
    
    $
    (0.23
    )Weighted average shares of common stock outstanding
    
    
    28,851,328
    
    
    
    28,329,221
  F- 3




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##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
 YEARS ENDED DECEMBER 31, 2007 and 2006
 CONVERTIBLEPREFERRED STOCK
    
    
    COMMON STOCKNUMBER
    
    
    
    
    
    
    NUMBER
    
    
    
    
    
    
    ADDITIONAL
    
    
    COMMON
    
    
    
    
    
    
    TOTALOF
    
    
    PAR
    
    
    OF
    
    
    PAR
    
    
    PAID-IN
    
    
    STOCK
    
    
    ACCUMULATED
    
    
    STOCKHOLDERSSHARES
    
    
    VALUE
    
    
    SHARES
    
    
    VALUE
    
    
    CAPITAL
    
    
    ISSUABLE
    
    
    DEFICIT
    
    
    DEFICITBalance at December 31, 2005
    
    
    3,371,495
    
    
    $
    33,715
    
    
    
    27,437,111
    
    
    $
    274,371
    
    
    $
    153,436,725
    
    
    $
    53
    
    
    $
    (158,332,186
    )
    
    $
    (4,587,322
    )Issuance of common stock upon
exercise of warrants
    
    
    
    
    
    
    
    
    
    
    55,333
    
    
    
    553
    
    
    
    32,000
    
    
    
    (53
    )
    
    
    
    
    
    
    32,500Issuance of common stock upon
exercise of stock options
    
    
    
    
    
    
    
    
    
    
    19,200
    
    
    
    192
    
    
    
    7,488
    
    
    
    
    
    
    
    
    
    
    
    7,680Conversion of convertible note
and accrued interest
    
    
    
    
    
    
    
    
    
    
    706,394
    
    
    
    7,064
    
    
    
    409,712
    
    
    
    
    
    
    
    
    
    
    
    416,776Shares issued in conjunction
with 2005 Preferred stock
offering
    
    
    1,752,055
    
    
    
    17,520
    
    
    
    
    
    
    
    
    
    
    
    1,446,724
    
    
    
    
    
    
    
    
    
    
    
    1,464,244Conversion of accrued dividends
    
    
    
    
    
    
    
    
    
    
    439,275
    
    
    
    4,393
    
    
    
    390,956
    
    
    
    
    
    
    
    
    
    
    
    395,349Shares issued in conjunction
with 2006 Preferred stock
offering
    
    
    1,200,000
    
    
    
    12,000
    
    
    
    
    
    
    
    
    
    
    
    1,008,000
    
    
    
    
    
    
    
    
    
    
    
    1,020,000Shares issued in conjunction
with 2006B Preferred stock
offering
    
    
    750,000
    
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    742,500
    
    
    
    
    
    
    
    
    
    
    
    750,000Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (325,163
    )
    
    
    (325,163
    )Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    710,432
    
    
    
    
    
    
    
    
    
    
    
    710,432Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,358,614
    )
    
    
    (3,358,614
    )Balance at December 31, 2006
    
    
    7,073,550
    
    
    $
    70,735
    
    
    
    28,657,313
    
    
    $
    286,573
    
    
    $
    158,184,537
    
    
    $
    
    
    
    $
    (162,015,963
    )
    
    $
    (3,474,118
    )Shares issued in conjunction
with 2006C Preferred stock
offering
    
    
    200
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1,699,998
    
    
    
    
    
    
    
    
    
    
    
    1,700,000Shares issued in conjunction
with 2007 Preferred stock
offering
    
    
    205
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    1,877,497
    
    
    
    
    
    
    
    
    
    
    
    1,877,500Conversion of 2003B convertible
preferred shares
    
    
    (105,000
    )
    
    
    (1,050
    )
    
    
    105,000
    
    
    
    1,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of accrued dividends
    
    
    
    
    
    
    
    
    
    
    220,640
    
    
    
    2,206
    
    
    
    328,754
    
    
    
    
    
    
    
    
    
    
    
    330,960Issuance of common stock upon
exercise of warrants
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    500
    
    
    
    74,500
    
    
    
    
    
    
    
    
    
    
    
    75,000Conversion of 2005 convertible
preferred shares
    
    
    (58,824
    )
    
    
    (588
    )
    
    
    58,824
    
    
    
    588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of 2006B convertible
preferred shares
    
    
    (50,000
    )
    
    
    (500
    )
    
    
    50,000
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of 2007 convertible
preferred shares
    
    
    (15
    )
    
    
    (1
    )
    
    
    125,000
    
    
    
    1,250
    
    
    
    (1,499
    )
    
    
    250
    
    
    
    
    
    
    
    Issuance of common stock upon
exercise of stock options
    
    
    
    
    
    
    
    
    
    
    38,150
    
    
    
    383
    
    
    
    15,678
    
    
    
    
    
    
    
    
    
    
    
    16,061Warrants issued for services
rendered
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,017
    
    
    
    
    
    
    
    
    
    
    
    28,017Warrants issued in conjunction
with debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,842
    
    
    
    
    
    
    
    
    
    
    
    10,842Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (318,357
    )
    
    
    (318,357
    )Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    728,942
    
    
    
    
    
    
    
    
    
    
    
    728,942Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,946,682
    )
    
    
    (4,946,682
    )Balance at December 31, 2007
    
    
    6,860,116
    
    
    $
    68,601
    
    
    
    29,304,927
    
    
    $
    293,050
    
    
    $
    162,947,266
    
    
    $
    250
    
    
    $
    (167,281,002
    )
    
    $
    (3,971,835
    )
  F- 4




---



##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 YEARS ENDED DECEMBER 31, 2007 and 2006
 2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (4,946,682
    )
    
    $
    (3,358,614
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation and amortization
    
    
    15,665
    
    
    
    18,805Gain on vendor settlements and statutory write-off of payables
    
    
    (2,857
    )
    
    
    (102,516
    )Amortization of financing discount and issuance costs
    
    
    138,542
    
    
    
    174,483Stock based compensation expense
    
    
    728,942
    
    
    
    710,432Gain on sale of intellectual property
    
    
    
    
    
    
    (600,000
    )Inventory impairment
    
    
    8,419
    
    
    
    6,664Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,727
    )
    
    
    (111,030
    )Inventory
    
    
    202,900
    
    
    
    (290,699
    )Prepaid expenses and other
    
    
    14,584
    
    
    
    (19,462
    )Other assets
    
    
    (53,504
    )
    
    
    (235
    )Accounts payable and accrued liabilities
    
    
    309,338
    
    
    
    159,598Net cash used by operating activities
    
    
    (3,590,380
    )
    
    
    (3,412,574
    )Cash flow from investing activities:Proceeds from sale of intellectual property
    
    
    
    
    
    
    600,000Capital expenditures
    
    
    (9,299
    )
    
    
    (7,787
    )Net cash generated / (used) by investing activities
    
    
    (9,299
    )
    
    
    592,213Cash flow from financing activities:Principal payments on financing agreements
    
    
    (507,154
    )
    
    
    (343,570
    )Borrowings in financing agreements
    
    
    150,000
    
    
    
    Net proceeds from issuance of common stock from employee options
    
    
    16,061
    
    
    
    7,680Net proceeds from issuance of common stock from exercised warrants
    
    
    75,000
    
    
    
    Net proceeds from issuance of common and preferred stock and exercise of
warrants
    
    
    3,577,500
    
    
    
    3,266,743Net cash provided by financing activities
    
    
    3,311,407
    
    
    
    2,930,853Net increase / (decrease) in cash and cash equivalents
    
    
    347,361
    
    
    
    110,492Cash and cash equivalents, beginning of year
    
    
    (288,272
    )
    
    
    236,869Cash and cash equivalents, end of year
    
    $
    59,089
    
    
    $
    347,361Supplemental information:Cash paid during the year for interest
    
    $
    
    
    
    $
    Supplemental disclosure of non-cash investing and financing activities:Conversions of notes payable into common stock
    
    $
    
    
    
    
    396,667Conversions of accrued interest into common stock
    
    
    
    
    
    
    20,109Conversions of accrued dividends into common stock
    
    
    330,960
    
    
    
    395,349Preferred stock dividends accrued
    
    
    318,357
    
    
    
    325,163Conversion of preferred stock into common stock
    
    
    2,139
    
    
    
    Warrants issued with debt
    
    
    10,842
    
    
    
    Warrants issued for services rendered
    
    
    28,017
    
    
    
    
  F- 5




---



##### Table of Contents



AXCESS INTERNATIONAL, Inc.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (1) Summary of Significant Accounting Policies
 (a) Description of Business
     (b) Company Organization and Basis of Presentation
   (c) Use of Estimates
  (d) Cash and Cash Equivalents




---



##### Table of Contents



(e) Inventory
  December 31,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    13,853
    
    
    $
    31,344Work-in-process
    
    
    104
    
    
    
    114Finished goods
    
    
    179,448
    
    
    
    364,847$
    193,405
    
    
    $
    396,305
   December 31,
    
    
    December 31,2007
    
    
    2006Product Cost
    
    $
    1,477,204
    
    
    $
    811,669Warranty Expense
    
    
    1,755
    
    
    
    26,120Inventory Impairment
    
    
    8,419
    
    
    
    6,664Cost of Sales
    
    $
    1,487,378
    
    
    $
    844,453
 (f) Warranty Reserve
  December 31,
    
    
    December 31,2007
    
    
    2006Beginning accrued balance
    
    $
    30,026
    
    
    $
    21,605Provision
    
    
    1,754
    
    
    
    26,109Claims incurred
    
    
    (1,567
    )
    
    
    (17,688
    )Ending accrued balance
    
    $
    30,213
    
    
    $
    30,026
 (g) Advertising expense
  December 31,
    
    
    December 31,2007
    
    
    2006Trade shows and media events
    
    $
    90,261
    
    
    $
    73,216E-mail and marketing lists
    
    
    40,309
    
    
    
    22,039Advertising and public relation fees
    
    
    38,133
    
    
    
    10,350Joint marketing fees
    
    
    25,000
    
    
    
    Website and advertising design fees
    
    
    14,595
    
    
    
    4,740Newswire costs
    
    
    10,986
    
    
    
    7,712Other
    
    
    2,747
    
    
    
    2,441Total
    
    $
    222,031
    
    
    $
    120,498
 (h) Property and Equipment




---



##### Table of Contents



(i) Intangible Assets
  (j) Impairment of Long-Lived Assets-and Long-Lived Assets to Be Disposed Of
  (k) Financial Instruments
   (l) Revenue Recognition
 Revenue Recognition Revenue
Arrangements with Multiple Deliverables
   (m) Research and Development Costs
  (n) Depreciation and Amortization




---



##### Table of Contents



(o) Stock-Based Compensation
 Share-Based Payment
   Weighted Average Black-Scholes Fair Value Assumptions
    
    2007
    
    2006Risk free interest rate
    
    
    4.48
    %
    
    
    4.62
    %Expected life
    
    5 years
    
    
    5 yearsExpected volatility
    
    
    109
    %
    
    
    133
    %Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Number of options granted
    
    
    1,165,000
    
    
    
    1,683,000
  Twelve Months EndedDecember 31,2007
    
    
    2006Research and development expense
    
    $
    205,507
    
    
    $
    152,391General and administrative expense
    
    
    401,926
    
    
    
    417,889Selling and marketing expense
    
    
    121,509
    
    
    
    140,152Total
    
    $
    728,942
    
    
    $
    710,432
  (p) Income Taxes




---



##### Table of Contents



(q) Net Loss Per Common Share
  (r) Significant Customers
  (s) Recent Accounting Pronouncements
 Business Combinations Business Combinations
    (t) Accounting for Uncertainty in Income Taxes




---



##### Table of Contents



(2) Operations, Liquidity and Going Concern
      (3) Prepaid Expenses and Other Current Assets
  December 31,
    
    
    December 31,2007
    
    
    2006Prepaid insurance
    
    $
    21,833
    
    
    $
    58,571Prepaid trade shows
    
    
    11,000
    
    
    
    6,800Prepaid other
    
    
    44,673
    
    
    
    26,719$
    77,506
    
    
    $
    92,090




---



##### Table of Contents



(4) Property, Plant and Equipment
  Amortization/December 31,
    
    
    December 31,
    
    
    Depreciation2007
    
    
    2006
    
    
    PeriodLeasehold improvements
    
    $
    66,435
    
    
    $
    66,435
    
    
    Lease termMachinery and equipment
    
    
    1,810,042
    
    
    
    1,800,742
    
    
    5 yearsFurniture and fixtures
    
    
    128,675
    
    
    
    128,675
    
    
    
    5 to 10 years2,005,152
    
    
    
    1,995,852Accumulated depreciation and amortization
    
    
    (1,993,149
    )
    
    
    (1,977,483
    )Property, plant and equipment, net
    
    $
    12,003
    
    
    $
    18,369
  (5) Intellectual property
  WeightedAverageRemainingUsefulLives atDecember 31,
    
    
    December 31,
    
    
    Useful
    
    
    December 31,2007
    
    
    2006
    
    
    Lives
    
    
    2006Purchased RFID technology
    
    $
    1,714,449
    
    
    $
    1,714,449
    
    
    5 years
    
    
    Purchased video technology
    
    
    5,087,483
    
    
    
    5,087,483
    
    
    5 years
    
    
    Internally developed software
    
    
    350,337
    
    
    
    350,337
    
    
    5 years
    
    
    7,152,269
    
    
    
    7,152,269Accumulated amortization and impairment
    
    
    (7,152,269
    )
    
    
    (7,152,269
    )Intellectual property, net
    
    $
    
    
    
    $
    
   (6) Gain on vendor settlements, statuary write-off and other
  December 31,
    
    
    December 31,2007
    
    
    2006Gain (loss) on settlements on vendor
    
    $
    
    
    
    $
    (2,048
    )Expiration of statuette of limitations
    
    
    2,857
    
    
    
    89,184Prior year refunds
    
    
    8,057
    
    
    
    6,865Other
    
    
    14,885
    
    
    
    8,515$
    25,799
    
    
    $
    102,516
 (7) Accrued Liabilities
  December 31,
    
    
    December 31,2007
    
    
    2006Accrued vacation
    
    $
    210,984
    
    
    $
    183,624Accrued interest payable
    
    
    919,803
    
    
    
    763,288Accrued professional fees, litigation settlements and other
    
    
    179,192
    
    
    
    174,438$
    1,309,979
    
    
    $
    1,121,350
 (8) Lease Obligations
   2008
    
    $
    24,3002009
    
    
    2,025$
    26,325




---



##### Table of Contents



(9) Notes Payable to Stockholders (including convertible notes payable)
  December 31,
    
    
    December 31,2007
    
    
    2006Due to stockholders:5.00% PV Proceeds Holdings, Inc., due December 31, 2012
    
    $
    2,464,559
    
    
    $
    2,971,7135.00% Amphion Investment LLC note, due December 31, 2012
    
    
    393,787
    
    
    
    393,7875.00% Note payable, due January 15, 2008
    
    
    150,000
    
    
    
    3,008,346
    
    
    
    3,365,500Less current maturities including discount amortization
    
    
    (150,000
    )
    
    
    (3,365,500
    )Non-current notes payable to stockholders
    
    $
    2,858,346
    
    
    $
    
  2008
    
    $
    150,0002009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2,858,346$
    3,008,346
 PV Proceeds Holdings, Inc.
     Amphion Investment LLC




---



##### Table of Contents



Convertible Note
 Maturity Date st
 (10) Preferred Stock
  Series
    
    Series
    
    Series
    
    Series
    
    Series
    
    Series
    
    Series2003B
    
    2004
    
    2005
    
    2006
    
    2006B
    
    2006C
    
    2007Number of shares authorized
    
    
    2,750,000
    
    
    
    625,000
    
    
    
    2,750,000
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    200
    
    
    
    205Stated value
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01Number of shares issued
and outstandingDecember 31, 2006
    
    
    1,790,000
    
    
    
    625,000
    
    
    
    2,708,550
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    
    
    
    
    December 31, 2007
    
    
    1,685,000
    
    
    
    625,000
    
    
    
    2,649,726
    
    
    
    1,200,000
    
    
    
    700,000
    
    
    
    200
    
    
    
    190Conversion ratio (or
conversion price) of
preferred shares into
common
    
    1 to 1 into voting common stock
    
    1 to 1 into voting common stock
    
    1 to 1 into voting common stock
    
    1 to 1 into voting common stock
    
    1 to 1 into voting common stock
    
    1 to 10,000 into voting common stock
    
    1 to 10,000 into voting common stockLiquidation preference
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
    
    NoneDividend rights
    
    7% per annum, cumulative
    
    7% per annum, cumulative
    
    None
    
    None
    
    None
    
    None
    
    None
 (a) Series 2003B Preferred Stock




---



##### Table of Contents



(b) Series 2004 Preferred Stock
    (c) Series 2005 Preferred Stock
       (d) Series 2006 Preferred Stock




---



##### Table of Contents



(e) Series 2006B Preferred Stock
     (f) Series 2006C Preferred Stock
    (g) Series 2007 Preferred Stock
     (11) Related Party Advisory Fees




---



##### Table of Contents



(12) Employee Benefit Plans
  (13) Stock Options and Warrants
      2007
    
    
    2006WEIGHTED
    
    
    
    
    
    
    WEIGHTEDAVERAGE
    
    
    
    
    
    
    AVERAGEEXERCISE
    
    
    
    
    
    
    EXERCISEOPTIONS
    
    
    PRICE
    
    
    OPTIONS
    
    
    PRICEOptions outstanding at beginning of year
    
    
    4,616,873
    
    
    $
    1.95
    
    
    
    3,117,485
    
    
    $
    2.40Options granted
    
    
    1,165,000
    
    
    
    1.50
    
    
    
    1,683,000
    
    
    
    1.04Options exercised
    
    
    (38,150
    )
    
    
    0.42
    
    
    
    (19,200
    )
    
    
    0.40Options forfeited
    
    
    (192,750
    )
    
    
    1.69
    
    
    
    (164,412
    )
    
    
    1.47Options outstanding at end of year
    
    
    5,550,973
    
    
    
    1.87
    
    
    
    4,616,873
    
    
    
    1.95Options exercisable at end of year
    
    
    3,383,596
    
    
    
    1.98
    
    
    
    2,647,869
    
    
    
    2.19Options available for grant at the end of the year
    
    
    2,712,000
    
    
    
    
    
    
    
    3,758,000Fair value of options granted during the year
    
    
    1,398,550
    
    
    
    
    
    
    
    1,531,730
  Intrinsic Value ofNumber of
    
    
    Weighted Average
    
    
    Vested UnexerciedOption Price
    
    Options
    
    
    Remaining Life
    
    
    Options$0.00 - $1.00
    
    
    808,500
    
    
    
    5.74
    
    
    $
    632,080$1.01 - $2.00
    
    
    3,566,258
    
    
    
    7.90
    
    
    
    311,420$2.01 - $3.00
    
    
    714,375
    
    
    
    2.30$3.01 - $4.00
    
    
    193,840
    
    
    
    2.83$4.01 - $5.00
    
    
    20,000
    
    
    
    3.42$5.01 - $6.25
    
    
    248,000
    
    
    
    2.22Total
    
    
    5,550,973
    
    
    
    6.42
    
    
    $
    943,500




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##### Table of Contents



2007
    
    
    2006WEIGHTED
    
    
    
    
    
    
    WEIGHTEDAVERAGE
    
    
    
    
    
    
    AVERAGEEXERCISE
    
    
    
    
    
    
    EXERCISEWARRANTS
    
    
    PRICE
    
    
    OPTIONS
    
    
    PRICEWarrants outstanding at beginning of year
    
    
    6,641,721
    
    
    $
    2.10
    
    
    
    4,184,474
    
    
    $
    1.70Warrants issued
    
    
    2,090,490
    
    
    
    1.99
    
    
    
    3,102,055
    
    
    
    2.75Warrants exercised
    
    
    (50,000
    )
    
    
    1.50
    
    
    
    (50,000
    )
    
    
    0.65Warrants expired unexercised
    
    
    (374,998
    )
    
    
    2.28
    
    
    
    (594,808
    )
    
    
    2.50Warrants outstanding at end of year
    
    
    8,307,213
    
    
    
    1,73
    
    
    
    6,641,721
    
    
    
    2.10
  Number of
    
    
    Weighted AverageStrike Price
    
    Warrants
    
    
    Remaining Life$0.00 - $1.00
    
    
    
    
    
    
    $1.01 - $2.00
    
    
    8,307,213
    
    
    
    3.13Total
    
    
    8,307,213
    
    
    
    3.13
   (14) Commitments and Contingencies
    (15) Income Taxes




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##### Table of Contents



December 31,2007Provision computed at federal statutory rate
    
    $
    (1,681,872
    )Permanent differences:Changes in prior year estimates
    
    
    17,046Research and development wages & expenses
    
    
    36,294Meals and entertainment
    
    
    3,05556,395State taxes
    
    
    (148,205
    )Changes in prior year estimates
    
    
    (50,136
    )Tax credits
    
    
    (106,748
    )Other
    
    
    79,566Change in valuation allowance
    
    
    1,851,000$
    
  December 31,
    
    
    December 31,2007
    
    
    2006Net operating loss
    
    $
    20,377,000
    
    
    $
    18,452,000Property, equipment and intangibles
    
    
    374,000
    
    
    
    1,378,000Other
    
    
    1,015,000
    
    
    
    85,000Valuation allowance
    
    
    (21,766,000
    )
    
    
    (19,915,000
    )$
    
    
    
    $
    
    (16) Subsequent Event (Unaudited)