##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 COMMISSION FILE NUMBER: 0-11933
 AXCESS INTERNATIONAL INC.
  Delaware
    
    85-0294536(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)16650 Westgrove Drive, Suite 600Addison, Texas
    
    75001(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
 31,204,931
 Yes o No þ
 Yes o No þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
   None




---



##### 



AXCESS INTERNATIONAL INC.
INDEX
 Part IItem 1. Description of Business
    
    
    3Item 1A. Risk Factors
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    12Item 2. Description of Properties
    
    
    12Item 3. Legal Proceedings
    
    
    12Item 4. Submission of Matters to a Vote of Security Holders
    
    
    12Part IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities
    
    
    12Item 6. Selected Financial Data
    
    
    15Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 8. Financial Statements and Supplementary Data
    
    
    20Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    20Item 9A. Control and Procedures
    
    
    20Item 9B. Other Information
    
    
    20Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    21Item 11. Executive Compensation
    
    
    23Item 12. Security Ownership and Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    26Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    29Item 14. Principal Accounting Fees and Services
    
    
    31Part IVItem 15. Exhibits and Financial Statement Schedules
    
    
    31Report of independent registered public accounting firm
    
    
    F-1Consolidated Balance Sheets
    
    
    F-2Consolidated Statements of Operations
    
    
    F-3Consolidated Statements of Stockholders Deficit
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6Signatures
    
    
    34Exhibit 3.4Exhibit 3.5Exhibit 3.6Exhibit 3.7Exhibit 3.8Exhibit 3.9Exhibit 10.17Exhibit 14.1Exhibit 21.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2Exhibit 99.1Exhibit 99.2Exhibit 99.3
   2




---



##### Table of Contents



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




---



##### Table of Contents



Company Evolution
       TM
 Sales Channels
    4




---



##### Table of Contents



TM
  Software House, Sensormatic, KanTech, and ADT (Tyco) TM
 Products and Technology
     5




---



##### Table of Contents



Automated Workforce Management Solutions .
 Automated Fleet Access Control and Data Capture Solutions
 Electronic Asset Protection and Tracking
 Electronic Inventory Control and Tracking
 Automatic Personnel Identification
  6




---



##### Table of Contents



Markets
  Corporate Access Control and Asset Management
 Airport and Port Security Infrastructure Homeland Defense
 Civil and Military Government.
 Education
 Inventory and Transportation Management
 Patents and Proprietary Technology
  Engineering and Development
 TM TM TM
  7




---



##### Table of Contents



TM
 Competition
     TM
  8




---



##### Table of Contents



Manufacturing and Suppliers
    Research and Development
   Employees
  Government Regulation
  Environmental Factors
  
 Item 1A. RISK FACTORS.
  We may not be able to continue as a going concern or fund our existing capital needs.
 See
  9




---



##### Table of Contents



We have a history of losses and expectation of future losses; uncertainty of future profitability;
and limits on operations.
  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.
   10




---



##### Table of Contents



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.
  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
  11




---



##### Table of Contents



Our common stock may be subject to penny stock rules and regulations.
  
 Item 1B. UNRESOLVED STAFF COMMENTS.
  
 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 REISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF
EQUITY SECURITIES.
  2008
    
    
    2007QUARTER ENDED
    
    LOW
    
    
    HIGH
    
    
    LOW
    
    
    HIGHMarch 31
    
    $
    1.04
    
    
    $
    1.55
    
    
    $
    1.10
    
    
    $
    1.77June 30
    
    
    0.86
    
    
    
    1.35
    
    
    
    1.15
    
    
    
    1.54September 30
    
    
    0.75
    
    
    
    1.20
    
    
    
    1.16
    
    
    
    1.80December 31
    
    
    0.22
    
    
    
    0.80
    
    
    
    1.26
    
    
    
    1.95
    12




---



##### Table of Contents



Equity Compensation Plans
 Note 13. Stock
Options and Warrants
 Number of securitiesNumber of securities to be
    
    
    Weighted-average
    
    
    remaining availableissued upon exercise of
    
    
    exercise price of
    
    
    for future issuanceoutstanding options,
    
    
    outstanding options,
    
    
    under equityPlan Category
    
    warrants and rights
    
    
    warrants and rights
    
    
    compensation plansEquity compensation
plans approved by
security holders
    
    
    5,392,973
    
    
    $
    1.87
    
    
    
    2,802,000Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    5,392,973
    
    
    $
    1.87
    
    
    
    2,802,000
 Recent Sale of Unregistered Securities
  Dividends Paid
  2003B Preferred Equity Offering
    2004 Preferred Equity Offering
   2006C Preferred Equity Offering
    13




---



##### Table of Contents



2007 Preferred Equity
   2008 Preferred Equity
   2008B Preferred Equity
   Warrant Exercised / Expire
  Stock Options Forfeited / Expired
  Other Matters relating to future amortizable charges
   12 MonthsEndedDecember 31,20082008    Preferred equity offering
    
    $
    558,6862008B Preferred equity offering
    
    
    187,501
  14




---



##### Table of Contents



Item 6. SELECTED FINANCIAL DATA.
  
 Item 7.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 Recent Developments: Going Concern and Liquidity Problems
   Liquidity and Capital Resources
     2008 Preferred Equity
   15




---



##### Table of Contents



2008B Preferred Equity
  Convertible Note
  Balance as ofDecember 31,Date of Note
    
    2008
    
    
    Due Date
    
    Interest RateDecember 17, 2007
    
    $
    50,000
    
    
    January 15, 2008
    
    
    5.0
    %January 14, 2008
    
    
    150,000
    
    
    February 15, 2008
    
    
    5.0
    %February 20, 2008
    
    
    150,000
    
    
    March 31, 2008
    
    
    5.0
    %February 28, 2008
    
    
    60,000
    
    
    March 31, 2008
    
    
    5.0
    %March 14, 2008
    
    
    63,000
    
    
    April 15, 2008
    
    
    5.0
    %March 25, 2008
    
    
    55,000
    
    
    April 30, 2008
    
    
    5.0
    %April 1, 2008
    
    
    85,273
    
    
    May 1, 2008
    
    
    5.0
    %April 7, 2008
    
    
    22,000
    
    
    May 15, 2008
    
    
    5.0
    %April 15, 2008
    
    
    110,000
    
    
    May 31, 2008
    
    
    5.0
    %July 30, 2008
    
    
    50,000
    
    
    August 31, 2008
    
    
    5.0
    %October 23, 2008
    
    
    100,000
    
    
    November 30, 2008
    
    
    5.0
    %November 26, 2008
    
    
    31,000
    
    
    December 31, 2008
    
    
    5.0
    %December 15, 2008
    
    
    62,000
    
    
    January 31, 2009
    
    
    5.0
    %December 30, 2008
    
    
    50,000
    
    
    January 31, 2009
    
    
    5.0
    %Total
    
    $
    1,038,273
    16




---



##### Table of Contents



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 expenses, net
 Net Loss
 Preferred Stock dividend requirements.
  17




---



##### Table of Contents



Other Matters relating to future amortizable charges
  Recent Accounting Pronouncements
 Business Combinations Business Combinations
      Critical Accounting Policies
  Allowance for Doubtful Accounts
   18




---



##### Table of Contents



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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   19




---



##### Table of Contents



Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
 PageReport of Hein & Associates LLP, Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Financial Statements:Consolidated Balance Sheets at December 31, 2008 and 2007
    
    
    F-2Consolidated Statements of Operations for the Years Ended December 31, 2008 and 2007
    
    
    F-3Consolidated Statements of Stockholders Deficit for the Years Ended December 31, 2008 and 2007
    
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December 31, 2008 and 2007
    
    
    F-5Notes to Financial Statements
    
    
    F-6
 
 Item 9.
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 Item 9A. CONTROL AND PROCEDURES.
          
 Item 9B. OTHER INFORMATION.
   20




---



##### Table of Contents



PART III
 
 Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
 Management of Axcess
  Name
    
    Age
    
    Position
    
    Committee
    
    Independent (1)Richard C.E. Morgan
    
    
    64
    
    
    Chairman of the Board of Directors
    
    (2*) (4*) (5)Allan Griebenow
    
    
    56
    
    
    Director, President and Chief Executive Officer
    
    (2) (5)Allan L. Frank
    
    
    45
    
    
    Vice President, Secretary and Chief Financial OfficerRobert J. Bertoldi
    
    
    54
    
    
    Directors
    
    (3) (5)Paul J. Coleman, Jr.
    
    
    77
    
    
    Director
    
    (3*) (5)
    
    XRobert F. Hussey
    
    
    59
    
    
    Director
    
    (3) (4) (5)
    
    XRaj Bridgelall
    
    
    42
    
    
    Vice President of EngineeringRay Cavanagh
    
    
    58
    
    
    Vice President of SalesBenjamin Donohue
    
    
    58
    
    
    Vice President of Business Development
 
 (1)
    
    Indicates the board member is Independent as such term is defined by Item 407 of Regulation
S-K 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
  21




---



##### Table of Contents



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




---



##### Table of Contents



Item 11. EXECUTIVE COMPENSATION.
  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
  Retirement and Other Benefits
  Perquisites and Other Personal Compensation
   23




---



##### Table of Contents



Summary Compensation Table
  Summary Compensation Table
 Stock
    
    
    Option
    
    
    All OtherName
    
    Year
    
    
    Salary
    
    
    Bonus
    
    
    Awards
    
    
    Awards
    
    
    Compensation
    
    
    TotalPrincipal Positions
    
    Ended
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)(A,1)
    
    
    ($)(B)
    
    
    ($)Allan Griebenow
    
    
    2008
    
    
    
    246,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246,100President and Chief Executive Officer
    
    
    2007
    
    
    
    235,363
    
    
    
    
    
    
    
    
    
    
    
    50,400
    
    
    
    
    
    
    
    285,7632006
    
    
    
    230,009
    
    
    
    
    
    
    
    
    
    
    
    243,880
    
    
    
    
    
    
    
    473,889Allan L. Frank
    
    
    2008
    
    
    
    192,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192,600Vice President, Secretary and
    
    
    2007
    
    
    
    183,810
    
    
    
    
    
    
    
    
    
    
    
    35,400
    
    
    
    
    
    
    
    219,210Chief Financial Officer
    
    
    2006
    
    
    
    180,000
    
    
    
    
    
    
    
    
    
    
    
    195,650
    
    
    
    
    
    
    
    375,650Raj Bridgelall
    
    
    2008
    
    
    
    178,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178,500Vice President, Engineering
    
    
    2007
    
    
    
    172,599
    
    
    
    
    
    
    
    
    
    
    
    60,000
    
    
    
    12,021
    
    
    
    244,6202006
    (2)
    
    
    43,154
    
    
    
    
    
    
    
    
    
    
    
    120,000
    
    
    
    7,974
    
    
    
    171,128Ray Cavanagh
    
    
    2008
    
    
    
    153,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    153,750Vice President, Sales
    
    
    2007
    
    
    
    151,610
    
    
    
    
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    175,6102006
    (3)
    
    
    93,750
    
    
    
    
    
    
    
    
    
    
    
    144,000
    
    
    
    
    
    
    
    237,750Ben Donohue
    
    
    2008
    
    
    
    153,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    153,750Vice President, Business Development
    
    
    2007
    
    
    
    116,315
    
    
    
    10,000
    
    
    
    
    
    
    
    24,000
    
    
    
    
    
    
    
    150,3152006
    (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 2008 to Named Executive Officers
   24




---



##### Table of Contents



Outstanding Equity Awards at Fiscal Year End
  Option Awards
    
    
    Stock AwardsEquityEquity
    
    
    IncentiveIncentive
    
    
    PlanMarket
    
    
    Plan
    
    
    Awards:Value
    
    
    Awards:
    
    
    MarketNumber
    
    
    of
    
    
    Number
    
    
    or PayoutEquity
    
    
    
    
    
    
    
    
    
    
    of
    
    
    Shares
    
    
    of
    
    
    Value ofIncentive
    
    
    
    
    
    
    
    
    
    
    Shares
    
    
    or
    
    
    Unearned
    
    
    UnearnedPlan
    
    
    
    
    
    
    
    
    
    
    or Units
    
    
    Units
    
    
    Shares,
    
    
    Shares,Awards:
    
    
    
    
    
    
    
    
    
    
    of
    
    
    of
    
    
    Units or
    
    
    Units orNumber of
    
    
    Number of
    
    
    
    
    
    
    
    
    
    
    Stock
    
    
    Stock
    
    
    Other
    
    
    OtherNumber of
    
    
    Securities
    
    
    Securities
    
    
    
    
    
    
    
    
    
    
    That
    
    
    That
    
    
    Rights
    
    
    RightsSecurities
    
    
    Underlying
    
    
    Underlying
    
    
    Option
    
    
    
    
    
    
    Have
    
    
    Have
    
    
    That
    
    
    ThatUnderlying
    
    
    Unexercised
    
    
    Unexercised
    
    
    Exercise
    
    
    Option
    
    
    Not
    
    
    Not
    
    
    Have Not
    
    
    Have NotOptions(#)
    
    
    Options(#)
    
    
    Unearned
    
    
    Price
    
    
    Expiration
    
    
    Vested
    
    
    Vested
    
    
    Vested
    
    
    VestedName
    
    Exercisable
    
    
    Unexercisable
    
    
    Options(#)
    
    
    ($)
    
    
    Date
    
    
    (#)
    
    
    ($)
    
    
    (#)
    
    
    ($)Allan Griebenow (1)
    
    
    1,305,072
    
    
    
    260,000
    
    
    
    
    
    
    $
    2.20
    
    
    10 years from Grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allan Frank (2)
    
    
    669,968
    
    
    
    196,000
    
    
    
    
    
    
    $
    1.71
    
    
    10 years from Grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Raj Bridgelall (3)
    
    
    75,000
    
    
    
    275,000
    
    
    
    
    
    
    $
    1.24
    
    
    10 years from Grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ray Cavanagh (4)
    
    
    75,000
    
    
    
    155,000
    
    
    
    
    
    
    $
    1.26
    
    
    10 years from Grant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ben Donohue (5)
    
    
    175,217
    
    
    
    113,500
    
    
    
    
    
    
    $
    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 (4,000 have been exercised); 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 (16,250 have been exercised); a grant made on January
17, 2003 for 78,000 options at a strike price of $0.40 (77,400 have
been exercised); 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. Aggregate Option Exercises in 2008 by Executive Officers
  Shares
    
    
    
    
    
    
    Number of Securities
    
    
    Value of UnexercisedAcquired
    
    
    
    
    
    
    Underlying Unexercised
    
    
    In-the-Money Options atOn
    
    
    Value
    
    
    Options at December 31, 2008
    
    
    December 31, 2008Name
    
    Exercise
    
    
    Realized
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableAllan Griebenow
    
    
    
    
    
    $
    
    
    
    
    1,305,072
    
    
    
    260,000
    
    
    $
    
    
    
    $
    Allan L. Frank
    
    
    
    
    
    $
    
    
    
    
    669,968
    
    
    
    196,000
    
    
    $
    
    
    
    $
    Raj Bridgelall
    
    
    
    
    
    $
    
    
    
    
    75,000
    
    
    
    275,000
    
    
    $
    
    
    
    $
    Ray Cavanagh
    
    
    
    
    
    $
    
    
    
    
    75,000
    
    
    
    155,000
    
    
    $
    
    
    
    $
    Ben Donohue
    
    
    
    
    
    $
    
    
    
    
    175,217
    
    
    
    86,750
    
    
    $
    
    
    
    $
    
  25




---



##### Table of Contents



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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Robert Bertoldi
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Robert Hussey
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paul Coleman
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Employment Agreement with Mr. Griebenow
  
 Item 12.
    SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
  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
    
    
    21,232,639
    (3)
    
    
    45.6
    %
    
    
    49.0
    %330 Madison Avenue
    
    Series 2005
    
    
    1,770,024
    
    
    
    66.8
    %
    
    
    4.2
    %New York, NY 10017
    
    Series 2006B
    
    
    450,000
    
    
    
    64.3
    %
    
    
    1.1
    %Series 2007
    
    
    250,000
    (4)
    
    
    13.5
    %
    
    
    0.6
    %Series 2008B
    
    
    666,667
    (5)
    
    
    83.3
    %
    
    
    1.6
    %
 
 (1)
    
    Includes outstanding common and preferred shares outstanding. Excludes stock
options and warrants.(2)
    
    See the following table regarding the beneficial ownership of the Amphion Group.(3)
    
    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.(4)
    
    25 preferred shares that convert ten thousand to one.(5)
    
    66 and 2/3 preferred shares that convert ten thousand to one.  26




---



##### Table of Contents



Series
    
    
    Series
    
    
    Series
    
    
    SeriesVoting
    
    
    2005
    
    
    2006B
    
    
    2007
    
    
    2008BCommon
    
    
    Preferred
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    2,280,275
    (1)
    
    
    
    
    
    
    4,576,181Mr. Morgan
    
    
    758,009
    (2)
    
    
    294,118
    
    
    
    300,000
    
    
    
    250,000
    (3)
    
    
    666,667
    (4)
    
    
    1,072,451
    (5)
    
    
    111,293
    (6)
    
    
    3,452,538Antiope Partners LLC
    
    
    1,109,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,109,182Mr. Bertoldi
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246,293
    (7)
    
    
    246,293Amphion Investments LLC
    
    
    44,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,000Amphion Partners LLC
    
    
    28,125
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,125Amhion Capital Management LLC
    
    
    16,700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,700Total of Amphion Group
    
    
    17,522,327
    
    
    
    1,770,024
    
    
    
    450,000
    
    
    
    250,000
    
    
    
    666,667
    
    
    
    3,352,726
    
    
    
    357,586
    
    
    
    24,369,330
 
 (1)
    
    Includes sixty-one different grants ranging in price ($0.22 to $2.00) and
expiration dates (January 28, 2010 to December 31, 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.(4)
    
    66 and 2/3 preferred shares
that convert ten thousand to one.(5)
    
    Includes three different grants ranging in price ($1.50 to $2.00) and expiration
dates (January 28, 2010 to December 1, 2011).(6)
    
    Options to purchase 111,293 shares of common stock that are exercisable within 60
days.(7)
    
    Options to purchase 246,293 shares of common stock that are exercisable within 60
days.  27




---



##### Table of Contents



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)
    
    
    17,522,327
    
    
    
    56.2
    %
    
    
    41.5
    %Series 2005 Preferred(2)
    
    
    1,770,024
    
    
    
    66.8
    %
    
    
    4.2
    %Series 2006B Preferred(3)
    
    
    450,000
    
    
    
    64.3
    %
    
    
    1.1
    %Series 2007 Preferred
    
    
    25
    
    
    
    13.5
    %
    
    

    
    *Series 2008B Preferred
    
    
    66 2/3
    
    
    
    83.3
    %
    
    
    1.6
    %Robert J. Bertoldi
    
    Voting Common Stock(4)
    
    
    16,764,318
    
    
    
    53.7
    %
    
    
    39.7
    %Series 2005 Preferred
    
    
    1,475,906
    
    
    
    55.7
    %
    
    
    3.5
    %Series 2006B Preferred
    
    
    150,000
    
    
    
    21.4
    %
    
    
    
    *Allan Griebenow
    
    Voting Common Stock(5)
    
    
    14,860
    
    
    


    
    *
    
    

    
    *Paul J. Coleman, Jr.
    
    Voting Common Stock(6)
    
    
    80
    
    
    

    
    *
    
    

    
    *Allan L. Frank
    
    Voting Common Stock(7)
    
    
    
    
    
    

    
    *
    
    

    
    *Robert F. Hussey
    
    Voting Common Stock(8)
    
    
    
    
    
    


    
    *
    
    

    
    *Raj Bridgelall
    
    Voting Common Stock(9)
    
    
    
    
    
    

    
    *
    
    

    
    *Raymond Cavanagh
    
    Voting Common Stock(10)
    
    
    
    
    
    

    
    *
    
    

    
    *Benjamin Donohue
    
    Voting Common Stock(11)
    
    
    
    
    
    

    
    *
    
    

    
    *All Directors, Director
    
    Voting Common Stock
    
    
    17,537,267
    
    
    
    56.2
    %
    
    
    41.6
    %Nominees and
    
    Series 2005 Preferred
    
    
    1,770,024
    
    
    
    66.8
    %
    
    
    4.2
    %Executive Officers as
    
    Series 2006B Preferred
    
    
    450,000
    
    
    
    64.3
    %
    
    
    1.1
    %a group (10 individuals)
    
    Series 2007 Preferred
    
    
    25
    
    
    
    13.2
    %
    
    

    
    *Series 2008B Preferred
    
    
    66 2/3
    
    
    
    83.3
    %
    
    
    1.6
    %
 
 *
    
    Less than 1%.(1)
    
    The number of shares of voting common stock includes 505,294 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 976,158 shares that Mr. Morgan has the
right to acquire pursuant to option and warrant agreements that are exercisable within 60
days, 2,280,275 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)
    
    The number of shares of Series 2005 Preferred stock includes 294,118 shares held
directly and 1,475,906 shares held by other entities within the Amphion Group (defined in
Note 1 to the immediately preceding table above).(3)
    
    The number of shares of Series 2006B Preferred stock includes 300,000 shares held
directly and 150,000 shares held by other entities within the Amphion Group (defined in
Note 1 to the immediately preceding table above).(4)
    
    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 212,543 shares that
Mr. Bertoldi has the right to acquire pursuant to option and warrant agreements that are
exercisable within 60 days and 2,280,275 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.(5)
    
    Includes 14,580 shares of common stock held directly by Mr. Griebenow and 280 shares
owned jointly with his wife. Excludes 1,372,072 shares that Mr. Griebenow has the right to
acquire pursuant to option agreements that are exercisable within 60 days.(6)
    
    Includes 80 shares of common stock held directly by Mr. Coleman and excludes 217,543
shares that Mr. Coleman has the right to acquire pursuant to option agreements that are
exercisable within 60 days.(7)
    
    Excludes 723,718 shares that Mr. Frank has the right to acquire pursuant to options
that are exercisable within 60 days.(8)
    
    Excludes 202,543 shares that Mr. Hussey has the right to acquire pursuant to options
that are exercisable within 60 days.(9)
    
    Excludes 75,000 shares that Mr. Bridgelall has the right to acquire pursuant to options
that are exercisable within 60 days.(10)
    
    Excludes 75,000 shares that Mr. Cavanagh has the right to acquire pursuant to options
that are exercisable within 60 days.(11)
    
    Excludes 299,617 shares that Mr. Donohue has the right to acquire pursuant to options
that are exercisable within 60 days.  28




---



##### Table of Contents



Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
 Amphion Investment LLC
  PV Proceeds Holdings Inc.
   Amphion Innovations plc
  Balance as of
    
    
    
    
    
    
    
    
    Accrued InterestDecember 31,
    
    
    
    
    
    
    
    
    as of December 31,Date of Note
    
    2008
    
    
    Due Date
    
    Interest Rate
    
    
    2008December 17, 2007
    
    $
    50,000
    
    
    January 15, 2008
    
    
    5.0
    %
    
    $
    4,452January 14, 2008
    
    
    150,000
    
    
    February 15, 2008
    
    
    5.0
    %
    
    
    7,294February 20, 2008
    
    
    150,000
    
    
    March 31, 2008
    
    
    5.0
    %
    
    
    6,472February 28, 2008
    
    
    60,000
    
    
    March 31, 2008
    
    
    5.0
    %
    
    
    2,523March 14, 2008
    
    
    63,000
    
    
    April 15, 2008
    
    
    5.0
    %
    
    
    2,520March 25, 2008
    
    
    55,000
    
    
    April 30, 2008
    
    
    5.0
    %
    
    
    2,117April 1, 2008
    
    
    85,273
    
    
    May 1, 2008
    
    
    5.0
    %
    
    
    3,201April 7, 2008
    
    
    22,000
    
    
    May 15, 2008
    
    
    5.0
    %
    
    
    808April 15, 2008
    
    
    110,000
    
    
    May 31, 2008
    
    
    5.0
    %
    
    
    3,918July 30, 2008
    
    
    50,000
    
    
    August 31, 2008
    
    
    5.0
    %
    
    
    1,479October 23, 2008
    
    
    100,000
    
    
    November 30, 2008
    
    
    5.0
    %
    
    
    425November 26, 2008
    
    
    31,000
    
    
    December 31, 2008
    
    
    5.0
    %
    
    
    149December 15, 2008
    
    
    62,000
    
    
    January 31, 2009
    
    
    5.0
    %
    
    
    136December 30, 2008
    
    
    50,000
    
    
    January 31, 2009
    
    
    5.0
    %
    
    
    7Total
    
    $
    1,038,273
    
    
    
    
    
    
    
    
    $
    35,501
   29




---



##### Table of Contents



Amphion Capital Partners LLC
  Other Matters
   Audit Committee
    Audit Committee Financial Expert
   30




---



##### Table of Contents



Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
  December 31,
    
    
    December 31,2008
    
    
    2007Audit fees (1)
    
    $
    82,115
    
    
    $
    79,559Audit related fees (2)
    
    
    
    
    
    
    Tax fees (3)
    
    
    17,777
    
    
    
    13,608All other fees (4)
    
    
    
    
    
    
    Total
    
    $
    99,892
    
    
    $
    93,167
 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.  
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 PageReport of Hein & Associates LLP, Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Financial Statements:Consolidated Balance Sheets at December 31, 2008 and 2007
    
    
    F-2Consolidated Statements of Operations for the Years Ended December 31, 2008 and 2007
    
    
    F-3Consolidated Statements of Stockholders Deficit for the Years Ended December 31, 2008 and 2007
    
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December 31, 2008 and 2007
    
    
    F-5Notes to Financial Statements
    
    
    F-6
 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, 2006.3.4
    *
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2006 Preferred Stock.3.5
    *
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2006B Preferred Stock.3.6
    *
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2006C Preferred Stock.
  31




---



##### Table of Contents



Exhibit No.
    
    Description3.7
    *
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2007 Preferred Stock.3.8
    *
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2008 Preferred Stock.3.9
    
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2008B Preferred
Stock. Incorporated herein by reference to Exhibit 3.02 and 9.01 to Form 8-K filed October
28, 2008.10.1
    +
    
    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, 2005.10.3
    
    
    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.
  32




---



##### Table of Contents



Exhibit No.
    
    Description10.13
    
    
    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
    
    
    Form of Convertible Notes executed by Axcess payable to Amphion Innovations plc.10.18
    
    
    Form of Stock Purchase agreement for the 2008B Preferred Equity Offering. Incorporated
herein by reference to Exhibit 10.1 on Form 10-Q filed on November 15, 200810.19
    
    
    Form of Voting Common Stock Purchase Warrant between the Company and certain investors of
the exempt 2008B Preferred Stock Offering. . Incorporated herein by reference to Exhibit
10.2 on Form 10-Q filed on November 14, 2008.14.1
    *
    
    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. *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. *99.1
    *
    
    Audit Committee charter. *99.2
    *
    
    Nominating and Governance Committee charter. *99.3
    *
    
    Whistleblower Policy. *
 *
    
    Filed herewith.+
    
    Denotes management contract or compensatory plan.  33




---



##### Table of Contents



SIGNATURES
 st
 AXCESS INTERNATIONAL INC.By:
    
    /s/ Richard C.E. Morgan

Richard C.E. Morgan, Chairman of the Board
 st
 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




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        
  F-1




---



##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED BALANCE SHEETS
 DECEMBER 31, 2008 and 2007
 2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    51,392
    
    
    $
    59,089Accounts receivable  trade, net of allowance for
doubtful accounts of $27,424 and $32,363 for 2008
and 2007, respectively
    
    
    92,844
    
    
    
    257,957Inventory, net
    
    
    142,782
    
    
    
    193,405Prepaid expenses and other
    
    
    43,100
    
    
    
    77,506Total current assets
    
    
    330,118
    
    
    
    587,957Property, plant and equipment, net
    
    
    18,969
    
    
    
    12,003Deferred debt issuance costs
    
    
    18,750
    
    
    
    30,421Other assets
    
    
    53,062
    
    
    
    56,438Total assets
    
    $
    420,899
    
    
    $
    686,819LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable (includes $18,645 and $2,002
with related party in 2008 and 2007,
respectively)
    
    $
    905,354
    
    
    $
    172,278Accrued liabilities
    
    
    1,615,428
    
    
    
    1,309,979Deferred revenue
    
    
    22,222
    
    
    
    42,060Notes payable (includes $1,038,273 and
$150,000 with a related party in 2008 and
2007, respectively)
    
    
    1,200,273
    
    
    
    150,000Dividends payable
    
    
    280,394
    
    
    
    125,991Total current liabilities
    
    
    4,023,671
    
    
    
    1,800,308Notes payable to stockholders (includes $393,787
with a related party in 2007 and 2008), net of
discount of $13,092 in 2008
    
    
    2,683,254
    
    
    
    2,858,346Total liabilities
    
    
    6,706,925
    
    
    
    4,658,654Commitments and contingencies (Notes 2, 8 and 14)Stockholders deficit:Convertible preferred stock, 10,000,000 shares
authorized in 2008 and 2007. Without
liquidation preferences; $0.01 par value,
6,125,211 and 6,860,116 shares issued and
outstanding in 2008 and 2007, respectively
    
    
    61,252
    
    
    
    68,601Common stock, $.01 par value, 70,000,000 shares
authorized in 2008 and 2007; 31,204,931 shares
issued and outstanding in 2008 and 29,304,927
shares issued and outstanding in 2007
    
    
    312,050
    
    
    
    293,050Shares of common stock to be issued, 25,000 shares
    
    
    
    
    
    
    250Additional paid-in capital
    
    
    165,641,922
    
    
    
    162,947,266Accumulated deficit
    
    
    (172,301,250
    )
    
    
    (167,281,002
    )Total stockholders deficit
    
    
    (6,286,026
    )
    
    
    (3,971,835
    )Total liabilities and stockholders deficit
    
    $
    420,899
    
    
    $
    686,819
   F-2




---



##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 YEARS ENDED DECEMBER 31, 2008 and 2007
 2008
    
    
    2007Sales
    
    $
    1,504,924
    
    
    $
    3,412,484Cost of sales
    
    
    796,005
    
    
    
    1,487,378Gross profit
    
    
    708,919
    
    
    
    1,925,106Expenses:Research and development
    
    
    2,229,590
    
    
    
    3,167,736General and administrative
    
    
    1,507,703
    
    
    
    1,773,678Selling and marketing
    
    
    1,192,261
    
    
    
    1,609,610Depreciation and amortization
    
    
    26,542
    
    
    
    15,665Operating expenses
    
    
    4,956,096
    
    
    
    6,566,689Loss from operations
    
    
    (4,247,177
    )
    
    
    (4,641,583
    )Other income (expense):Interest expense
    
    
    (485,253
    )
    
    
    (330,898
    )Gain on vendor settlements, statuary write-off
and other
    
    
    (42,511
    )
    
    
    25,799Other income (expense), net
    
    
    (527,764
    )
    
    
    (305,099
    )Net loss
    
    
    (4,774,941
    )
    
    
    (4,946,682
    )Preferred stock dividend requirementsRecurring
    
    
    (245,307
    )
    
    
    (318,357
    )2006C Preferred equity offering
    
    
    
    
    
    
    (2,000,000
    )2007 Preferred equity offering
    
    
    
    
    
    
    (2,050,000
    )2008 Preferred equity offering
    
    
    (558,686
    )
    
    
    2008B Preferred equity offering
    
    
    (187,501
    )
    
    
    Preferred stock dividend requirements
    
    
    (991,494
    )
    
    
    (4,368,357
    )Net loss applicable to common stock
    
    $
    (5,766,435
    )
    
    $
    (9,315,039
    )Basic and diluted net loss per share
    
    $
    (0.19
    )
    
    $
    (0.32
    )Weighted average shares of common stock outstanding
    
    
    30,252,074
    
    
    
    28,851,328
   F-3




---



##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
 YEARS ENDED DECEMBER 31, 2008 and 2007
 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, 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
    )Conversion of 2003B convertible
preferred shares
    
    
    (110,000
    )
    
    
    (1,100
    )
    
    
    110,000
    
    
    
    1,100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of 2004 convertible
preferred shares
    
    
    (625,000
    )
    
    
    (6,250
    )
    
    
    625,000
    
    
    
    6,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of 2006C convertible
preferred shares
    
    
    (100
    )
    
    
    (1
    )
    
    
    1,000,000
    
    
    
    10,000
    
    
    
    (9,999
    )
    
    
    
    
    
    
    
    
    
    
    Conversion of 2007 convertible
preferred shares
    
    
    (5
    )
    
    
    
    
    
    
    75,000
    
    
    
    750
    
    
    
    (500
    )
    
    
    (250
    )
    
    
    
    
    
    
    Shares issued in conjunction with 2008
Preferred stock offering
    
    
    120
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1,019,999
    
    
    
    
    
    
    
    
    
    
    
    1,020,000Shares issued in conjunction with 2008B
Preferred stock offering
    
    
    80
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    599,999
    
    
    
    
    
    
    
    
    
    
    
    600,000Conversion of accrued dividends
    
    
    
    
    
    
    
    
    
    
    90,004
    
    
    
    900
    
    
    
    90,004
    
    
    
    
    
    
    
    
    
    
    
    90,904Warrants issued in conjunction with debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    293,615
    
    
    
    
    
    
    
    
    
    
    
    293,615Warrants issued for services rendered
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,612
    )
    
    
    
    
    
    
    
    
    
    
    (7,612
    )Stock based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    709,150
    
    
    
    
    
    
    
    
    
    
    
    709,150Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (245,307
    )
    
    
    (245,307
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,774,941
    )
    
    
    (4,774,941
    )Balance at December 31, 2008
    
    
    6,125,211
    
    
    $
    61,252
    
    
    
    31,204,931
    
    
    $
    312,050
    
    
    $
    165,641,922
    
    
    $
    
    
    
    $
    (172,301,250
    )
    
    $
    (6,286,026
    )
   F-4




---



##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 YEARS ENDED DECEMBER 31, 2008 and 2007
 2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (4,774,941
    )
    
    $
    (4,946,682
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation and amortization
    
    
    26,542
    
    
    
    15,665Gain on vendor settlements and statutory write-off of payables
    
    
    
    
    
    
    (2,857
    )Amortization of financing discount and issuance costs
    
    
    (1,421
    )
    
    
    138,542Stock based compensation expense
    
    
    709,150
    
    
    
    728,942Warrants issued for services
    
    
    (7,611
    )
    
    
    Inventory impairment
    
    
    3,362
    
    
    
    8,419Changes in operating assets and liabilities:Accounts receivable
    
    
    165,113
    
    
    
    (5,727
    )Inventory
    
    
    47,261
    
    
    
    202,900Prepaid expenses and other
    
    
    34,406
    
    
    
    14,584Other assets
    
    
    (9,571
    )
    
    
    (53,504
    )Accounts payable and accrued liabilities
    
    
    1,312,302
    
    
    
    309,338Net cash used by operating activities
    
    
    (2,495,408
    )
    
    
    (3,590,380
    )Cash flow from investing activities:Capital expenditures
    
    
    (20,561
    )
    
    
    (9,299
    )Net cash used by investing activities
    
    
    (20,561
    )
    
    
    (9,299
    )Cash flow from financing activities:Principal payments on financing agreements
    
    
    (100,000
    )
    
    
    (507,154
    )Borrowings in financing agreements
    
    
    988,273
    
    
    
    150,000Net proceeds from issuance of common stock from employee options
    
    
    
    
    
    
    16,061Net proceeds from issuance of common stock from exercised warrants
    
    
    
    
    
    
    75,000Net proceeds from issuance of common and preferred stock
    
    
    1,619,999
    
    
    
    3,577,500Net cash provided by financing activities
    
    
    2,508,272
    
    
    
    3,311,407Net (decrease) / increase in cash and cash equivalents
    
    
    (7,697
    )
    
    
    347,361Cash and cash equivalents, beginning of year
    
    
    59,089
    
    
    
    (288,272
    )Cash and cash equivalents, end of year
    
    $
    51,392
    
    
    $
    59,089Supplemental information:Cash paid during the year for interest
    
    $
    
    
    
    $
    Supplemental disclosure of non-cash investing and financing activities:Warrants issued with debt
    
    $
    293,615
    
    
    $
    10,842Preferred stock dividends accrued
    
    
    245,307
    
    
    
    318,357Conversions of accrued dividends into common stock
    
    
    90,904
    
    
    
    330,960Conversion of preferred stock into common stock
    
    
    7,351
    
    
    
    2,139Warrants 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
  (e) Inventory
  December 31,
    
    
    December 31,2008
    
    
    2007Raw materials
    
    $
    24,275
    
    
    $
    13,853Work-in-process
    
    
    104
    
    
    
    104Finished goods
    
    
    118,403
    
    
    
    179,448$
    142,782
    
    
    $
    193,405
   December 31,
    
    
    December 31,2008
    
    
    2007Product Cost
    
    $
    757,371
    
    
    $
    1,477,204Warranty Expense
    
    
    35,272
    
    
    
    1,755Inventory Impairment
    
    
    3,362
    
    
    
    8,419Cost of Sales
    
    $
    796,005
    
    
    $
    1,487,378
  F-6




---



##### Table of Contents



(f) Warranty Reserve
  December 31,
    
    
    December 31,2008
    
    
    2007Beginning accrued balance
    
    $
    30,213
    
    
    $
    30,026Provision
    
    
    35,466
    
    
    
    1,754Claims incurred
    
    
    (35,489
    )
    
    
    (1,567
    )Ending accrued balance
    
    $
    30,190
    
    
    $
    30,213
 (g) Advertising expense
  December 31,
    
    
    December 31,2008
    
    
    2007Advertising and public relation fees
    
    $
    90,000
    
    
    $
    38,133Trade shows and media events
    
    
    66,479
    
    
    
    90,261Newswire costs
    
    
    24,719
    
    
    
    10,986E-mail and marketing lists
    
    
    23,863
    
    
    
    40,309Website and advertising design fees
    
    
    9,800
    
    
    
    14,595Joint marketing fees
    
    
    8,410
    
    
    
    25,000Other
    
    
    4,817
    
    
    
    2,747Total
    
    $
    228,088
    
    
    $
    222,031
 (h) Property and Equipment
  (i) Intangible Assets
  (j) Impairment of Long-Lived Assets-and Long-Lived Assets to Be Disposed Of
  (k) Financial Instruments
   F-7




---



##### Table of Contents



(l) Revenue Recognition
 Revenue Recognition Revenue
Arrangements with Multiple Deliverables
   (m) Research and Development Costs
  (n) Depreciation and Amortization
  (o) Stock-Based Compensation
 Share-Based Payment
  Weighted Average Black-Scholes Fair Value Assumptions
    
    2008
    
    
    2007Risk free interest rate
    
    
    
    
    
    
    4.48
    %Expected life
    
    
    
    
    
    
    5 yearsExpected volatility
    
    
    
    
    
    
    109
    %Expected dividend yield
    
    
    
    
    
    
    0.00
    %Number of options granted
    
    
    
    
    
    
    1,165,000
  F-8




---



##### Table of Contents



Twelve Months EndedDecember 31,2008
    
    
    2007Research and development expense
    
    $
    266,419
    
    
    $
    205,507General and administrative expense
    
    
    322,864
    
    
    
    401,926Selling and marketing expense
    
    
    119,867
    
    
    
    121,509Total
    
    $
    709,150
    
    
    $
    728,942
 (p) Income Taxes
  (q) Net Loss Per Common Share
  Earnings Per Share
    
    2008
    
    
    2007Net loss
    
    $
    (4,774,941
    )
    
    $
    (4,946,682
    )Dividends to preferred stockholders
    
    
    (991,494
    )
    
    
    (4,368,357
    )Loss applicable to common stock (Numerator)
    
    
    (5,766,435
    )
    
    
    (9,315,039
    )Weighted average shares of common stock
outstanding (Denominator)
    
    
    30,252,074
    
    
    
    28,851,328Basic and diluted net loss per common share
    
    $
    (0.19
    )
    
    $
    (0.32
    )
 (r) Significant Customers
  (s) Recent Accounting Pronouncements
 Business Combinations Business Combinations
    F-9




---



##### Table of Contents



(t) Accounting for Uncertainty in Income Taxes
     (2) Operations, Liquidity and Going Concern
    F-10




---



##### Table of Contents



(3) Prepaid Expenses and Other Current Assets
  December 31,
    
    
    December 31,2008
    
    
    2007Prepaid insurance
    
    $
    19,415
    
    
    $
    21,833Prepaid trade shows
    
    
    
    
    
    
    11,000Prepaid other
    
    
    23,685
    
    
    
    44,673$
    43,100
    
    
    $
    77,506
  (4) Property, Plant and Equipment
  Amortization/December 31,
    
    
    December 31,
    
    
    Depreciation2008
    
    
    2007
    
    
    PeriodLeasehold improvements
    
    $
    66,435
    
    
    $
    66,435
    
    
    Lease termMachinery and equipment
    
    
    1,826,102
    
    
    
    1,810,042
    
    
    5 yearsFurniture and fixtures
    
    
    133,175
    
    
    
    128,675
    
    
    5 to 10 years2,025,712
    
    
    
    2,005,152Accumulated depreciation and amortization
    
    
    (2,006,743
    )
    
    
    (1,993,149
    )Property, plant and equipment, net
    
    $
    18,969
    
    
    $
    12,003
   F-11




---



##### Table of Contents



(5) Intellectual property
  WeightedAverageRemainingUsefulLives atDecember 31,
    
    
    December 31,
    
    
    Useful
    
    December 31,2008
    
    
    2007
    
    
    Lives
    
    2008Purchased 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 31,2008
    
    
    2007Expiration of statuette of limitations
    
    $
    
    
    
    $
    2,857Prior year refunds
    
    
    4,463
    
    
    
    8,057Other
    
    
    (46,974
    )
    
    
    14,885$
    (42,511
    )
    
    $
    25,799
 (7) Accrued Liabilities
  December 31,
    
    
    December 31,2008
    
    
    2007Accrued vacation
    
    $
    211,332
    
    
    $
    210,984Accrued interest payable
    
    
    1,112,862
    
    
    
    919,803Accrued professional fees, litigation settlements and other
    
    
    291,234
    
    
    
    179,192$
    1,615,428
    
    
    $
    1,309,979
 (8) Lease Obligations
   2009
    
    $
    104,2412010
    
    
    107,2232011
    
    
    112,2292012
    
    
    117,2362013
    
    
    70,091Total future minimum lease payments
    
    $
    511,020
   F-12




---



##### Table of Contents



(9) Notes Payable to Stockholders (including convertible notes payable)
  December 31,
    
    
    December 31,2008
    
    
    20075.50% PV Proceeds Holdings, Inc., due December 31, 2011
    
    $
    2,464,559
    
    
    $
    2,464,5595.50% Amphion Investment LLC note, due December 31, 2011
    
    
    393,787
    
    
    
    393,7875.00% Amphion Innovations plc Convertible note payable, due January 15, 2008
    
    
    50,000
    
    
    
    150,0005.00% Amphion Innovations plc Convertible note payable, due February 15, 2008
    
    
    150,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due March 31, 2008
    
    
    150,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due March 31, 2008
    
    
    60,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due April 15, 2008
    
    
    63,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due April 30, 2008
    
    
    55,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due May 1, 2008
    
    
    85,273
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due May 15, 2008
    
    
    22,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due May 31, 2008
    
    
    110,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due August 31, 2008
    
    
    50,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due November 30, 2008
    
    
    100,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due December 31, 2008
    
    
    31,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due January 31, 2009
    
    
    62,000
    
    
    
    5.00% Amphion Innovations plc Convertible note payable, due January 31, 2009
    
    
    50,000
    
    
    
    Debt discount
    
    
    (13,092
    )
    
    
    3,883,527
    
    
    
    3,008,346Less current maturitiesPV Proceeds Holdings, Inc
    
    
    (162,000
    )
    
    
    Amphion Innovations plc
    
    
    (1,038,273
    )
    
    
    (150,000
    )Non-current notes payable to stockholders
    
    $
    2,683,254
    
    
    $
    2,858,346
  2009
    
    $
    1,200,2732010
    
    
    2011
    
    
    2,696,346$
    3,896,619
 PV Proceeds Holdings, Inc.
    F-13




---



##### Table of Contents



Amphion Investment LLC
  Convertible Note
  Balance as ofDecember 31,Date of Note
    
    2008
    
    
    Due Date
    
    Interest RateDecember 17, 2007
    
    $
    50,000
    
    
    January 15, 2008
    
    
    5.0
    %January 14, 2008
    
    
    150,000
    
    
    February 15, 2008
    
    
    5.0
    %February 20, 2008
    
    
    150,000
    
    
    March 31, 2008
    
    
    5.0
    %February 28, 2008
    
    
    60,000
    
    
    March 31, 2008
    
    
    5.0
    %March 14, 2008
    
    
    63,000
    
    
    April 15, 2008
    
    
    5.0
    %March 25, 2008
    
    
    55,000
    
    
    April 30, 2008
    
    
    5.0
    %April 1, 2008
    
    
    85,273
    
    
    May 1, 2008
    
    
    5.0
    %April 7, 2008
    
    
    22,000
    
    
    May 15, 2008
    
    
    5.0
    %April 15, 2008
    
    
    110,000
    
    
    May 31, 2008
    
    
    5.0
    %July 30, 2008
    
    
    50,000
    
    
    August 31, 2008
    
    
    5.0
    %October 23, 2008
    
    
    100,000
    
    
    November 30, 2008
    
    
    5.0
    %November 26, 2008
    
    
    31,000
    
    
    December 31, 2008
    
    
    5.0
    %December 15, 2008
    
    
    62,000
    
    
    January 31, 2009
    
    
    5.0
    %December 30, 2008
    
    
    50,000
    
    
    January 31, 2009
    
    
    5.0
    %Total
    
    $
    1,038,273
    F-14




---



##### Table of Contents



(10) Preferred Stock
  Series
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Series2003B
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006B
    
    
    2006C
    
    
    2007
    
    
    2008
    
    
    2008BNumber of shares
authorized
    
    
    2,750,000
    
    
    
    625,000
    
    
    
    2,750,000
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    200
    
    
    
    205
    
    
    
    120
    
    
    
    80Stated value
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01Number of shares
issued and
outstandingDec. 31, 2007
    
    
    1,685,000
    
    
    
    625,000
    
    
    
    2,649,726
    
    
    
    1,200,000
    
    
    
    700,000
    
    
    
    200
    
    
    
    190
    
    
    
    
    
    
    
    Dec. 31, 2008
    
    
    1,575,000
    
    
    
    
    
    
    
    2,649,726
    
    
    
    1,200,000
    
    
    
    700,000
    
    
    
    100
    
    
    
    185
    
    
    
    120
    
    
    
    80Conversion
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 stock
    
    
    
    1 to 10,000 into voting common stock
    
    
    
    1 to 10,000 into voting common stockLiquidation preference
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
    
    NoneDividend rights
    
    7% per annum, cumulative
    
    7% per annum, cumulative
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
 (a) Series 2003B Preferred Stock
   (b) Series 2004 Preferred Stock
    F-15




---



##### Table of Contents



(c) Series 2005 Preferred Stock
    (d) Series 2006 Preferred Stock
   (e) Series 2006B Preferred Stock
    (f) Series 2006C Preferred Stock
     F-16




---



##### Table of Contents



(g) Series 2007 Preferred Stock
     (h) Series 2008 Preferred Stock
    (i) Series 2008B Preferred Stock
    (11) Related Party Advisory Fees
  (12) Employee Benefit Plans
   F-17




---



##### Table of Contents



(13) Stock Options and Warrants
      2008
    
    
    2007WEIGHTED
    
    
    
    
    
    
    WEIGHTEDAVERAGE
    
    
    
    
    
    
    AVERAGEEXERCISE
    
    
    
    
    
    
    EXERCISEOPTIONS
    
    
    PRICE
    
    
    OPTIONS
    
    
    PRICEOptions outstanding at beginning of year
    
    
    5,550,973
    
    
    $
    1.87
    
    
    
    4,616,873
    
    
    $
    1.95Options granted
    
    
    
    
    
    
    
    
    
    
    1,165,000
    
    
    
    1.50Options exercised
    
    
    
    
    
    
    
    
    
    
    (38,150
    )
    
    
    0.42Options forfeited
    
    
    (158,000
    )
    
    
    1.82
    
    
    
    (192,750
    )
    
    
    1.69Options outstanding at end of year
    
    
    5,392,973
    
    
    
    1.87
    
    
    
    5,550,973
    
    
    
    1.87Options exercisable at end of year
    
    
    4,173,598
    
    
    
    1.86
    
    
    
    3,383,596
    
    
    
    1.98Options available for grant at the end of the year
    
    
    2,802,000
    
    
    
    
    
    
    
    2,712,000Fair value of options granted during the year
    
    
    
    
    
    
    
    
    
    
    1,398,550
  Intrinsic Value ofNumber of
    
    
    Weighted Average
    
    
    Vested UnexerciedOption Price
    
    Options
    
    
    Remaining Life
    
    
    Options$0.00  $1.00
    
    
    808,000
    
    
    
    4.74
    
    
    $
    $1.01  $2.00
    
    
    3,436,258
    
    
    
    6.84
    
    
    
    $2.01  $3.00
    
    
    701,875
    
    
    
    1.33
    
    
    
    $3.01  $4.00
    
    
    178,840
    
    
    
    2.03
    
    
    
    $4.01  $5.00
    
    
    20,000
    
    
    
    2.42
    
    
    
    $5.01  $6.25
    
    
    248,000
    
    
    
    1.22
    
    
    
    Total
    
    
    5,392,973
    
    
    
    5.37
    
    
    
    
  2008
    
    
    2007WEIGHTED
    
    
    
    
    
    
    WEIGHTEDAVERAGE
    
    
    
    
    
    
    AVERAGEEXERCISE
    
    
    
    
    
    
    EXERCISEWARRANTS
    
    
    PRICE
    
    
    WARRANTS
    
    
    PRICEWarrants outstanding at beginning of year
    
    
    8,307,213
    
    
    $
    1.73
    
    
    
    6,641,721
    
    
    $
    2.10Warrants issued
    
    
    2,145,743
    
    
    
    1.34
    
    
    
    2,090,490
    
    
    
    1.99Warrants exercised
    
    
    
    
    
    
    
    
    
    
    (50,000
    )
    
    
    1.50Warrants expired unexercised
    
    
    (500,000
    )
    
    
    2.00
    
    
    
    (374,998
    )
    
    
    2.28Warrants outstanding at end of year
    
    
    9,952,956
    
    
    
    1.64
    
    
    
    8,307,213
    
    
    
    1.73
  F-18




---



##### Table of Contents



Number of
    
    
    Weighted AverageStrike Price
    
    Warrants
    
    
    Remaining Life$0.00  $1.00
    
    
    229,994
    
    
    
    4.82$1.01  $2.00
    
    
    9,722,962
    
    
    
    3.22Total
    
    
    9,952,956
    
    
    
    3.25
   (14) Commitments and Contingencies
    (15) Income Taxes
   December 31,
    
    
    December 31,2008
    
    
    2007Provision computed at federal statutory rate
    
    $
    (1,623,480
    )
    
    $
    (1,681,872
    )Permanent differences:Changes in prior year estimates
    
    
    404,526
    
    
    
    17,046Research and development wages &
expenses
    
    
    29,938
    
    
    
    36,294Meals and entertainment
    
    
    3,885
    
    
    
    3,055438,349
    
    
    
    56,395Expiration of NOL carry forward
    
    
    192,627
    
    
    
    State taxes
    
    
    520,595
    
    
    
    (148,205
    )Changes in prior year estimates
    
    
    (150,440
    )
    
    
    (50,136
    )Tax credits
    
    
    (88,053
    )
    
    
    (106,748
    )Other
    
    
    85,402
    
    
    
    79,566Change in valuation allowance
    
    
    625,000
    
    
    
    1,851,000$
    
    
    
    $
    
  F-19




---



##### Table of Contents



December 31,
    
    
    December 31,2008
    
    
    2007Net operating loss
    
    $
    20,597,000
    
    
    $
    20,377,000Property, equipment and intangibles
    
    
    348,000
    
    
    
    374,000Other
    
    
    1,446,000
    
    
    
    1,015,000Valuation allowance
    
    
    (22,391,000
    )
    
    
    (21,766,000
    )$
    
    
    
    $
    
    (16) Subsequent Event
    F-20




---



##### Table of Contents



EXHIBIT INDEX
 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, 2006.3.4
    *
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2006
Preferred Stock.3.5
    *
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2006B
Preferred Stock.3.6
    *
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2006C
Preferred Stock.3.7
    *
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2007
Preferred Stock.3.8
    *
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2008
Preferred Stock.3.9
    
    
    Certificate of Designations, Preferences, Powers and Rights of Series 2008B
Preferred Stock. Incorporated herein by reference to Exhibit 3.02 and 9.01 to
Form 8-K filed October 28, 2008.10.1
    +
    
    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, 2005.10.3
    
    
    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, 2007




---



##### Table of Contents



Exhibit No.
    
    Description10.10
    
    
    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
    
    
    Form of Convertible Notes executed by Axcess payable to Amphion Innovations plc.10.18
    
    
    Form of Stock Purchase agreement for the 2008B Preferred Equity Offering.
Incorporated herein by reference to Exhibit 10.1 on Form 10-Q filed on November
15, 200810.19
    
    
    Form of Voting Common Stock Purchase Warrant between the Company and certain
investors of the exempt 2008B Preferred Stock Offering. . Incorporated herein
by reference to Exhibit 10.2 on Form 10-Q filed on November 14, 2008.14.1
    *
    
    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. *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. *99.1
    *
    
    Audit Committee charter. *99.2
    *
    
    Nominating and Governance Committee charter. *99.3
    *
    
    Whistleblower Policy. *
 *
    
    Filed herewith.+
    
    Denotes management contract or compensatory plan.