##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to.
 COMMISSION FILE NUMBER: 0-11933
 AXCESS INTERNATIONAL INC.
  Delaware
    
    85-0294536(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 16650 Westgrove Drive, Suite 600
Addison, Texas 75001
(972) 407-6080
 þ o
 o o
 Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



AXCESS INTERNATIONAL INC.
INDEX
 PART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements:
    
    
    1Balance Sheets at March 31, 2009 and December 31, 2008 (unaudited)
    
    
    1Statements of Operations for the Three Months ended March 31, 2009 and 2008 (unaudited)
    
    
    2Statements of Cash Flows for the Three Months ended March 31, 2009 and 2008 (unaudited)
    
    
    3Notes to Financial Statements (unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II. OTHER INFORMATION
    
    
    16Item 1. Legal Proceedings
    
    
    16Item 1A. Risk Factors
    
    
    16Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 3. Defaults Upon Senior Securities
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16Item 5. Other Information
    
    
    16Item 6. Exhibits and Reports on Form 8-K
    
    
    17SIGNATURES
    
    
    18Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2Exhibit 99.1




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PART 1. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 March 31,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    163,879
    
    
    $
    51,392Accounts receivable  trade, net of allowance for doubtful accounts of
$30,320 and $27,424 for 2009 and 2008, respectively.
    
    
    97,449
    
    
    
    92,844Inventory, net
    
    
    81,906
    
    
    
    142,782Prepaid expenses and other
    
    
    373,580
    
    
    
    43,100Total current assets
    
    
    716,814
    
    
    
    330,118Property, plant and equipment, net
    
    
    16,894
    
    
    
    18,969Deferred debt issuance costs
    
    
    17,187
    
    
    
    18,750Other assets
    
    
    50,474
    
    
    
    53,062Total assets
    
    $
    801,369
    
    
    $
    420,899LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable (includes $15,446 and $18,645 with related party in
2009 and 2008, respectively)
    
    $
    980,799
    
    
    $
    905,354Accrued liabilities
    
    
    388,364
    
    
    
    502,566Accrued interest
    
    
    1,165,171
    
    
    
    1,112,862Deferred revenue
    
    
    946,771
    
    
    
    22,222Notes payable (includes $1,038,273 with a related party in 2009 and 2008)
    
    
    1,200,273
    
    
    
    1,200,273Dividends payable
    
    
    325,947
    
    
    
    280,394Total current liabilities
    
    
    5,007,325
    
    
    
    4,023,671Notes payable (includes $393,787 with a related party in 2009 and 2008),
net of discount of $9,476 and $13,092 in 2009 and 2008, respectively
    
    
    2,686,870
    
    
    
    2,683,254Total liabilities
    
    
    7,694,195
    
    
    
    6,706,925Commitments and contingenciesStockholders deficit:Convertible preferred stock, 10,000,000 shares authorized in 2009 and
2008. Without liquidation preferences; $0.01 par value, 6,115,211 and
6,125,211 shares issued and outstanding in 2009 and 2008, respectively
    
    
    61,152
    
    
    
    61,252Common stock, $.01 par value, 70,000,000 shares authorized in 2009 and
2008; 31,222,016 shares issued and outstanding in 2009 and 31,204,931
shares issued and outstanding in 2008.
    
    
    312,220
    
    
    
    312,050Additional paid-in capital
    
    
    165,842,396
    
    
    
    165,641,922Accumulated deficit
    
    
    (173,108,594
    )
    
    
    (172,301,250
    )Total stockholders deficit
    
    
    (6,892,826
    )
    
    
    (6,286,026
    )Total liabilities and stockholders deficit
    
    $
    801,369
    
    
    $
    420,899
   1




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AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF OPERATION
 (Unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Sales
    
    $
    1,082,682
    
    
    $
    176,486Cost of sales
    
    
    745,974
    
    
    
    105,727Gross profit
    
    
    336,708
    
    
    
    70,759Expenses:Research and development
    
    
    309,359
    
    
    
    871,590General and administrative
    
    
    324,453
    
    
    
    387,435Selling and marketing
    
    
    394,559
    
    
    
    326,050Depreciation and amortization
    
    
    4,664
    
    
    
    4,292Operating expenses
    
    
    1,033,035
    
    
    
    1,589,367Loss from operations
    
    
    (696,327
    )
    
    
    (1,518,608
    )Other income (expense):Interest expense, net
    
    
    (107,361
    )
    
    
    (116,494
    )Gain on vendor settlements
    
    
    43,810
    
    
    
    71Other expense, net
    
    
    (63,551
    )
    
    
    (116,423
    )Net loss
    
    
    (759,878
    )
    
    
    (1,635,031
    )Preferred stock dividend requirements
    
    
    (47,466
    )
    
    
    (76,955
    )Net loss applicable to common stock
    
    $
    (807,344
    )
    
    $
    (1,711,986
    )Basic and diluted net loss per share
    
    $
    (0.03
    )
    
    $
    (0.06
    )Weighted average shares of common stock outstanding
    
    
    31,211,006
    
    
    
    29,388,883
   2




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AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (759,878
    )
    
    $
    (1,635,031
    )Adjustments to reconcile net loss to net cash provided by (used in)
by operating activities:Depreciation and amortization
    
    
    4,664
    
    
    
    4,292Amortization of financing discount and issuance costs, net
    
    
    5,179
    
    
    
    (16,025
    )Gain on vendor settlements and statutory write-off of payables
    
    
    43,810
    
    
    
    71Warrants issued for services
    
    
    
    
    
    
    (15,791
    )Stock based compensation expense
    
    
    148,758
    
    
    
    223,617Changes in operating assets and liabilities:Accounts receivable
    
    
    (4,605
    )
    
    
    168,234Inventory
    
    
    60,876
    
    
    
    11,590Prepaid expenses and other
    
    
    (330,480
    )
    
    
    14,083Other assets
    
    
    
    
    
    
    563Accounts payable and accrued expenses
    
    
    944,163
    
    
    
    709,803Net cash provided by (used in) operating activities
    
    
    112,487
    
    
    
    (534,594
    )Cash flow from investing activities:Capital expenditures
    
    
    
    
    
    
    (2,095
    )Net cash used in investing activities
    
    
    
    
    
    
    (2,095
    )Cash flow from financing activities:Principal payments on financing agreements
    
    
    (160,000
    )
    
    
    Borrowings on financing agreements
    
    
    160,000
    
    
    
    478,000Net cash provided by financing activities
    
    
    
    
    
    
    478,000Net change in cash and cash equivalents
    
    
    112,487
    
    
    
    (58,689
    )Cash and cash equivalents, beginning of period
    
    
    51,392
    
    
    
    59,089Cash and cash equivalents, end of period
    
    $
    163,879
    
    
    $
    400Supplemental Disclosure of Non-Cash Investing and Financing Activities:Warrants issued as a debt discount
    
    $
    49,874
    
    
    $
    91,892Accrued preferred stock dividends
    
    
    47,466
    
    
    
    76,955Conversion of preferred shares into common stock
    
    
    100
    
    
    
    1,100Conversion of accrued dividends into common stock
    
    
    1,913
    
    
    
    
   3




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##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1) Summary of Significant Accounting Policies
 (a) Description of Business and Going Concern
     (b) Company Organization
   (c) Basis of presentation
   4




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##### Table of Contents



(d) Use of Estimates
  (e) Inventory
  March 31,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    20,613
    
    
    $
    24,275Work-in-process
    
    
    89
    
    
    
    104Finished goods
    
    
    61,204
    
    
    
    118,403$
    81,906
    
    
    $
    142,782
  Three Months EndedMarch 31,2009
    
    
    2008Product cost
    
    $
    741,217
    
    
    $
    105,618Warranty expense
    
    
    4,757
    
    
    
    109Inventory impairment
    
    
    
    
    
    
    Total
    
    $
    745,974
    
    
    $
    105,727
 (f) Stock-Based Compensation
 Share-Based Payment
   5




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##### Table of Contents



Three Months EndedMarch 31,2009
    
    
    2008Research and development expense
    
    $
    51,147
    
    
    $
    75,324General and administrative expense
    
    
    70,525
    
    
    
    110,729Selling and marketing expense
    
    
    27,086
    
    
    
    37,564Total
    
    $
    148,758
    
    
    $
    223,617
 (g) Stock Options and Warrants
    Outstanding OptionsWeighted
    
    
    Weighted AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual Term
    
    
    IntrinsicShares
    
    
    Price
    
    
    (in years)
    
    
    ValueOptions outstanding at December 31, 2008
    
    
    5,392,973
    
    
    $
    1.87Options granted
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    Options forfeited
    
    
    (459,181
    )
    
    
    1.60Options outstanding at March 31, 2009
    
    
    4,933,792
    
    
    
    1.90
    
    
    
    5.14
    
    
    $
    62,700Options exercisable at March 31, 2009
    
    
    3,736,292
    
    
    
    1.91
    
    
    
    6.79
    
    
    $
    62,700Options available for grants as of March 31, 2009
    
    
    2,994,000
  Intrinsic Value ofNumber of
    
    
    Weighted Average
    
    
    Vested UnexercisedOption Price
    
    Options
    
    
    Remaining Life
    
    
    Options$0.00  $1.00
    
    
    720,000
    
    
    
    4.58
    
    
    $
    62,700$1.01  $2.00
    
    
    3,120,961
    
    
    
    6.65$2.01  $3.00
    
    
    675,375
    
    
    
    1.11$3.01  $4.00
    
    
    165,900
    
    
    
    1.78$4.01  $5.00
    
    
    20,000
    
    
    
    2.17$5.01  $6.25
    
    
    231,556
    
    
    
    0.98Total
    
    
    4,933,792
    
    
    
    5.14
    
    
    $
    62,700
  6




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WEIGHTEDAVERAGEEXERCISEWARRANTS
    
    
    PRICEWarrants outstanding at beginning of year
    
    
    9,952,956
    
    
    $
    1.64Warrants issued
    
    
    293,827
    
    
    
    0.27Warrants exercised
    
    
    
    
    
    
    Warrants expired unexercised
    
    
    
    
    
    
    Warrants outstanding at end of year
    
    
    10,246,783
    
    
    
    1.60
  Number of
    
    
    Weighted AverageStrike Price
    
    Warrants
    
    
    Remaining Life$0.00  $1.00
    
    
    523,821
    
    
    
    4.99$1.01  $2.00
    
    
    9,722,962
    
    
    
    3.25Total
    
    
    10,246,783
    
    
    
    3.34
  (h) Revenue Recognition
 Revenue Recognition Revenue
Arrangements with Multiple Deliverables
   (2) Contingencies
    7




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(3) 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, 2008
    
    
    1,575,000
    
    
    
    
    
    
    
    2,649,726
    
    
    
    1,200,000
    
    
    
    700,000
    
    
    
    100
    
    
    
    185
    
    
    
    120
    
    
    
    80March. 31, 2009
    
    
    1,565,000
    
    
    
    
    
    
    
    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
   8




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(c) Series 2005 Preferred Stock
    (d) Series 2006 Preferred Stock
   (e) Series 2006B Preferred Stock
     9




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##### Table of Contents



(f) Series 2006C Preferred Stock
   (g) Series 2007 Preferred Stock
    (h) Series 2008 Preferred Stock
    (i) Series 2008B Preferred Stock
    (4) Notes Payable
 PV Proceeds Holdings, Inc.
   10




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Amphion Investment LLC
  Convertible Note
  Balance as ofMarch 31,Date of Note
    
    2009
    
    
    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
  11




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##### Table of Contents



(5) Significant Customers
  (6) Recent Accounting Pronouncements
 Business Combinations Business Combinations
     12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
     Recent Developments: Going Concern and Liquidity Problems
    13




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Liquidity and Capital Resources
     Amphion Convertible Note
   Results of Operations
 Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
 Sales and Gross Profit
  14




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Operating Expenses
     Other expenses, net
 Net Loss
 Preferred Stock dividend requirements.
 Other
 Inflation
 
 Item 3. Quantitative and Qualitative Disclosure about Market Risk
  
 Item 4. Controls and Procedures
 Controls and Procedures
     15




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  2003B Preferred Equity
  Warrants
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
   16




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K
  Exhibit No.
    
    Description31.1
    
    
    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
    
    
    May 14, 2009 Axcess International Reports First quarter 2009 earning results.
  17




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##### Table of Contents



SIGNATURES
  AXCESS INTERNATIONAL INC.,Registrant/s/ ALLAN GRIEBENOW

Allan Griebenow Director, President andChief Executive Officer 
(Principal Executive Officer)/s/ ALLAN L. FRANKAllan L. FrankChief Financial Officer and Secretary(Principal Accounting and Financial Officer)
   18




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EXHIBIT INDEX
 Exhibit No.
    
    Description31.1
    
    

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
    
    
    May 14, 2009 Axcess International Reports First quarter 2009 earning results.
  19