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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-QSB þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005
 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
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 3208 Commander Drive
Carrollton, Texas 75006
(972) 407-6080
(Address, including telephone number and area code, of principal executive offices) Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes þ No o Number of shares of common stock outstanding on May 13, 2005: 26,594,850 Transitional Small Business Disclosure Format: Yes o No þ




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AXCESS INTERNATIONAL INC.
INDEX  
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Balance Sheets at March 31, 2005 and December 31, 2004Statements of Operations for the Three Months ended March 31, 2005 and 2004Statements of Cash Flows for the Three Months ended March 31, 2005 and 2004Notes to Financial StatementsItem 2. Managements Discussion and Analysis or Plan of OperationItem 3. Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Changes in SecuritiesItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. Exhibits and Reports on Form 8-KSIGNATURESCertification Under Section 302Certification Under Section 302Certification Under Section 906Certification Under Section 906




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PART 1. FINANCIAL INFORMATION 
 Item 1. Financial Statements
 
 AXCESS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)March 31,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,236,620
    
    
    $
    461,101Accounts receivable  trade, net of allowance for doubtful accounts of
$8,859 in 2005 and 2004
    
    
    48,553
    
    
    
    79,965Inventory, net
    
    
    174,651
    
    
    
    144,714Prepaid expenses and other
    
    
    122,643
    
    
    
    97,164Total current assets
    
    
    1,582,467
    
    
    
    782,944Property, plant and equipment, net
    
    
    41,213
    
    
    
    49,395Intellectual property, net
    
    
    
    
    
    
    133Deferred debt issuance costs
    
    
    464,648
    
    
    
    506,889Other assets
    
    
    2,674
    
    
    
    3,906Total assets
    
    $
    2,091,002
    
    
    $
    1,343,267LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    346,693
    
    
    $
    490,100Accrued liabilities
    
    
    849,032
    
    
    
    789,589Notes payable:Convertible notes payable (includes $80,000 and $66,667 with
related party in 2005 and 2004, respectively)
    
    
    613,333
    
    
    
    483,333Discounts on convertible debt
    
    
    (258,605
    )
    
    
    (289,482
    )Dividends payable
    
    
    396,909
    
    
    
    316,062Total current liabilities
    
    
    1,947,362
    
    
    
    1,789,602Notes payable to stockholders
    
    
    3,766,973
    
    
    
    3,932,092Convertible notes payable (includes $13,333 with related party in 2004)
    
    
    
    
    
    
    236,667Discount on convertible debt
    
    
    
    
    
    
    (34,084
    )Total liabilities
    
    
    5,714,335
    
    
    
    5,924,277Commitments and contingenciesStockholders deficit:Convertible preferred stock, 7,000,000 shares authorized, $0.01 par
value, 2,415,000 shares issued and outstanding in 2005 and 2004.
    
    
    24,150
    
    
    
    24,150Common stock, $.01 par value, 50,000,000 shares authorized in 2005 and
2004; 26,594,850 shares issued and outstanding in 2005 and 24,720,939
shares issued and outstanding in 2004
    
    
    265,949
    
    
    
    247,209Shares of common stock to be issued, 5,333 shares in 2005
    
    
    53
    
    
    
    Additional paid-in capital
    
    
    151,661,762
    
    
    
    149,898,600Accumulated deficit
    
    
    (155,575,247
    )
    
    
    (154,750,969
    )Total stockholders deficit
    
    
    (3,623,333
    )
    
    
    (4,581,010
    )Total liabilities and stockholders deficit
    
    $
    2,091,002
    
    
    $
    1,343,267
 See accompanying notes to unaudited financial statements. 1




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AXCESS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) Three Months EndedMarch 31,2005
    
    
    2004Sales
    
    $
    241,158
    
    
    $
    206,678Cost of sales
    
    
    124,348
    
    
    
    98,886Gross profit
    
    
    116,810
    
    
    
    107,792Expenses:Research and development
    
    
    184,181
    
    
    
    185,359General and administrative
    
    
    355,463
    
    
    
    404,215Selling and marketing
    
    
    255,097
    
    
    
    174,583Depreciation and amortization
    
    
    9,073
    
    
    
    93,632Operating expenses
    
    
    803,814
    
    
    
    857,789Loss from operations
    
    
    (687,004
    )
    
    
    (749,997
    )Other income (expense):Interest expense, net
    
    
    (165,138
    )
    
    
    (322,723
    )Gain in vendor settlements
    
    
    108,710
    
    
    
    88,243Other
    
    
    
    
    
    
    6,509Other expense, net
    
    
    (56,428
    )
    
    
    (227,971
    )Net loss
    
    
    (743,432
    )
    
    
    (977,968
    )Preferred stock dividend requirements:Recurring
    
    
    (80,847
    )
    
    
    (65,520
    )Warrant inducement
    
    
    (2,060,397
    )
    
    
    Preferred stock dividend requirements
    
    
    (2,141,244
    )
    
    
    (65,520
    )Net loss applicable to common stock
    
    $
    (2,884,676
    )
    
    $
    (1,043,488
    )Basic and diluted net loss per share
    
    $
    (0.11
    )
    
    $
    (0.05
    )Weighted average shares of common stock outstanding
    
    
    25,728,563
    
    
    
    21,594,791
 See accompanying notes to unaudited financial statements. 2




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AXCESS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Three Months EndedMarch 31,2004
    
    
    2003Cash flows from operating activities:Net loss
    
    $
    (743,432
    )
    
    $
    (977,968
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation and amortization
    
    
    9,073
    
    
    
    93,632Amortization of financing discount and issuance costs
    
    
    107,202
    
    
    
    251,195Gain on vendor settlements
    
    
    (108,710
    )
    
    
    (88,243
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    31,412
    
    
    
    (9,784
    )Inventory
    
    
    (29,937
    )
    
    
    (19,561
    )Prepaid expenses and other
    
    
    (25,479
    )
    
    
    48,579Other assets
    
    
    1,232
    
    
    
    Accounts payable and accrued expenses
    
    
    33,844
    
    
    
    (60,984
    )Net cash used by operating activities
    
    
    (724,795
    )
    
    
    (763,134
    )Cash flow from investing activities:Capital expenditures
    
    
    (758
    )
    
    
    (7,054
    )Net cash used by investing activities
    
    
    (758
    )
    
    
    (7,054
    )Cash flow from financing activities:Net proceeds from issuance of common stock from warrants
    
    
    1,651,471
    
    
    
    Net proceeds from issuance of common stock from employee options
    
    
    14,720
    
    
    
    Principal payments on financing agreements
    
    
    (165,119
    )
    
    
    Net cash provided by financing activities
    
    
    1,501,072
    
    
    
    Net change in cash and cash equivalents
    
    
    775,519
    
    
    
    (770,188
    )Cash and cash equivalents, beginning of period
    
    
    461,101
    
    
    
    2,163,977Cash and cash equivalents, end of period
    
    $
    1,236,620
    
    
    
    1,393,789Supplemental Disclosure of Non-Cash Investing and Financing Activities:Conversions of notes payable into common stock
    
    $
    106,666
    
    
    
    206,667Conversions of accrued interest into common stock
    
    
    9,098
    
    
    
    70,086Conversions of preferred stock into common stock
    
    
    
    
    
    
    536,623Conversion of accrued dividends into common stock
    
    
    
    
    
    
    109,417Preferred stock dividends accrued
    
    
    80,847
    
    
    
    65,520
 See accompanying notes to unaudited financial statements. 3




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AXCESS INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited) (1) Summary of Significant Accounting Policies (a) Description of Business The Company provides advanced security and asset management systems, which locate, identify,
track, monitor and protect assets. The main applications of the Companys systems are security
video through closed circuit television (called CCTV), personnel and vehicle access control, and
automatic asset tracking and protection. The Company provides solutions in the recently identified
homeland security markets such as air and ground transportation, water treatment facilities, oil
and gas, power plants, as well as in the markets for data centers, retail / convenience stores,
education, healthcare, and corporate offices. AXCESS utilizes two patented and integrated
technologies: network-based radio frequency identification (RFID) and tagging and streaming video.
Both application and browser-based software options deliver critical real-time information tailored
to each end user via the enterprise network or Internet, also providing custom alerts in the form
of streaming video, e-mail, or messages delivered to wireless devices. The Companys business plan for 2005 is predicated principally upon the successful marketing
of its RFID products. During the first quarter of 2005, operating activities utilized approximately
$0.7 million of cash. During 2005 the Company raised a net of $1.7 million, for additional working
capital through the exercise of warrants with a warrant inducement. The future results of operations and financial condition of the Company will be impacted by
the following factors, among others: changes from anticipated levels of sales, access to capital,
future national or regional economic and competitive conditions, changes in relationships with
customers, difficulties in developing and marketing new products, marketing existing products,
customer acceptance of existing and new products, validity of patents, technological change,
dependence on key personnel, availability of key component parts, dependence on third party
manufacturers, vendors, contractors, product liability, casualty to or other disruption of the
production facilities, delays and disruptions in the shipment of the Companys products, and the
ability of the Company to meet its stated business goals. If the Companys losses or lack of operating capital continue, the Company will have to obtain
funds to meet its cash requirements through business alliances, such as strategic or financial
transactions with third parties, the sale of securities or other financing arrangements, or the
Company may be required to curtail its operations, seek a merger partner, or seek protection under
federal bankruptcy laws. Any of the foregoing may be on terms that are unfavorable to the Company
or disadvantageous to existing stockholders. In addition, no assurance may be given that the
Company will be successful in raising additional funds or entering into business alliances. (b) Company Organization and Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. The Company has received working capital in various forms from Amphion Ventures, L. P. and
affiliates of Amphion Ventures, L. P. including Amphion Partners, Amphion Investments LLC, Antiope
Partners, VennWorks LLC (formerly incuVest LLC), Amphion Capital Management, Amphion Capital
Partners, Richard Morgan, Anna Morgan, Robert Bertoldi, and NVW, LLC (collectively, the Amphion
Group). As of March 31, 2005, the Amphion Group owns approximately 65% of the outstanding voting
stock of the Company. (c) Inventory Inventory is valued at the lower of cost or market using the first-in, first-out method.
Inventory was comprised of the following at March 31, 2005 and December 31, 2004: March 31,
    
    
    December 31,2004
    
    
    2004Raw materials
    
    $
    56,732
    
    
    $
    56,701Work-in-process
    
    
    109
    
    
    
    109Finished goods
    
    
    117,810
    
    
    
    87,904$
    174,651
    
    
    $
    144,714




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(d) Stock Options The Company accounts for its stock-based compensation plan under Accounting Principles Board
(ABP) Opinion No. 25, Accounting for Stock Issued to Employees. The pro forma information below
is based on provisions of Statement of Financial Accounting Standard (FAS) No. 123, Accounting
for Stock-Based Compensation, as amended by FAS 148, Accounting for Stock-Based
CompensationTransition and Disclosure, issued in December 2002. The Company does not have a history of paying cash dividends and none have been assumed in
estimating the fair value of its options. The Black-Scholes option valuation model was developed for use in estimating the fair value of
traded options, which have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including expected stock price
volatility. For purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options vesting periods. Three Months EndedMarch 31,2005
    
    
    2004Pro forma impact of fair value method (FAS 148)Reported net loss attributed to common stock
    
    $
    (2,884,676
    )
    
    $
    (1,043,488
    )Less: fair value of employee stock compensation
    
    
    (200,564
    )
    
    
    (80,424
    )Pro forma net loss attributed to common stock
    
    
    (3,085,240
    )
    
    
    (1,123,912
    )Loss per common shareBasic and diluted net loss per share  as reported
    
    $
    (0.11
    )
    
    $
    (0.05
    )Basic and diluted net loss per share  pro forma
    
    $
    (0.12
    )
    
    $
    (0.05
    )Weighted average Black-Scholes fair value assumptionsRisk free interest rate
    
    
    4.25
    %
    
    
    4.25
    %Expected life
    
    3 years
    
    2 yearsExpected volatility
    
    
    164
    %
    
    
    175
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
 (e) Recent Accounting Pronouncements In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard No. 123R (SFAS 123R), a revision of SFAS No. 123 (SFAS 123),
Accounting for Stock-Based Compensation.This statement requires an entity to measure the cost of
employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award. The compensation expense will be recognized over the period during which
an employee is required to provide service in exchange for the award. Public entities that file as
small business issuers will be required to apply SFAS 123R in the first interim or annual reporting
period that begins after December 15, 2005. The adoption of SFAS 123R will require us to record
compensation expense for the unvested fair value of our equity instruments given to our employees.
We are in the process of evaluating the impact of the adoption of SFAS 123R on our financial
position and results of operations. However, the adoption of SFAS 123R will have no effect on our
cash flows, but will have an adverse impact on our results of operations. (2) Contingencies Axcess is engaged in a number of lawsuits with approximately seven vendors who claim they are
owed amounts from $500 to $45,000, which aggregates in total $99,336. We are currently defending or
seeking to settle each of the vendors claims. At March 31, 2005, we had accrued the delinquent
amounts we expect to be liable for, for the claims described in this paragraph.




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(3) Preferred Stock The Company has authorized 7,000,000 shares of convertible preferred stock, of which shares
designated in five series have been issued. Information with respect to the series of preferred
stock outstanding at each balance sheet date is summarized below. 2003BSeries
    
    
    Series 2004Number of shares authorized
    
    
    2,750,000
    
    
    
    625,000Stated value
    
    $
    0.01
    
    
    $
    0.01Number of shares issued and outstanding:December 31, 2004
    
    
    1,790,000
    
    
    
    625,000March 31, 2005
    
    
    1,790,000
    
    
    
    625,000Conversion ratio (or
conversion price) of
    
    
    1 to 1 into votingpreferred shares into
    
    common
    
    
    1 to 1 into votingcommon
    
    stock
    
    common stockLiquidation preference
    
    None
    
    NoneDividend rights
    
    7% per
    
    7% perannum, cumulative
    
    annum, cumulative
 (a) Series 2003B Preferred Stock The Company completed a $3,132,500 exempt Preferred Stock Offering during the fourth quarter
of 2003. The Preferred Stock is designated as 2003B Preferred and each $70,000 unit consisted of
40,000 shares of Preferred Stock bearing a 7% dividend, approximately 2,000 shares of common stock
and 40,000 warrants to purchase the Companys common stock exercisable for two years at $2.75 per
share. The offering also included an automatic conversion into Common Stock on a one for one basis
if the closing twenty-day average stock price is over $3.75. During the three months ended March
31, 2004 there were $54,669 of dividends accrued for Series 2003B Preferred Stock. Dividends
payable were $301,978 and $247,309 for Series 2003B Preferred stock at March 31, 2005 and December
31, 2004, respectively. As of March 31, 2005 and December 31, 2004, the Company had 1,790,000
shares of Series 2003B Preferred shares outstanding. In connection with the issuance of the 2003B Preferred Stock, the Company recorded preferred
stock dividend requirements of $1,782,831 that will be reflected as preferred stock dividends as
the underlying preferred stock converts to common stock. As of March 31, 2005 that amount is
reflected in accumulated deficit on the balance sheet. (b) Series 2004 Preferred Stock During the second quarter of 2004 the Company raised a net of $1,200,000 of additional working
capital through a Preferred Stock Offering. The Preferred Stock is designated as 2004 Preferred and
consisted of 625,000 shares of Preferred Stock bearing a 7% dividend and 357,142 warrants to
purchase the Companys common stock exercisable for two years at $3.20 per share. The offering also
included an automatic conversion into Common Stock on a one for one basis if the closing twenty-day
average stock price is over $4.00. During the three months ended March 31, 2004 there were $26,178
of dividends accrued for Series 2004 Preferred Stock. Dividends payable were $94,931 and $68,753
for Series 2004 Preferred stock at March 31, 2005 and December 31, 2004, respectively. As of March
31, 2005 and December 31, 2004, the Company had 625,000 shares of Series 2004 Preferred shares
outstanding. In connection with the issuance of the 2004 Preferred Stock, the Company recorded preferred
stock dividend requirements of $1,002,540 that will be reflected as preferred stock dividends as
the underlying preferred stock converts to common stock. As of March 31, 2005 that amount is
reflected in accumulated deficit on the balance sheet.




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(4) Convertible Notes Payable On July 30, 2002, the Company entered into a bridge financing agreement with ten accredited
investors for the sale and issuance of 10 units to the investors for an aggregate purchase price
of $1,000,000. Each unit consists of a convertible promissory note in the amount of $100,000 and
25,000 shares of the Companys common stock. Each investor has agreed to not sell more than
one-third of the common stock comprising the units during any calendar month. The convertible
promissory notes comprising the units bear interest at an annual rate of 7% and mature on July 30,
2005. On each of July 30, 2003, July 30, 2004 and July 30, 2005, the investors have the option to
convert one-third of the principal amount of the notes into common stock of the Company. The
conversion price of the notes is initially 65% of the average closing price of a share of the
Companys common stock for the 20 trading days preceding the given anniversary date of the notes.
The maximum conversion price shall be $4.00 per share and the minimum conversion price shall be
$1.00 per share. The conversion price will be subject to adjustment from time to time to reflect
any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock
split or similar change in the Companys shares of common stock. The Company without premium or
penalty may prepay the notes in whole or in part. During the three months ended March 31, 2005, one holder elected to convert $33,333 of his
note plus $4,004 of accrued interest into 37,791 shares of Axcess common stock, which were issued
during the first quarter of 2005. On January 17, 2003, Axcess entered into a bridge financing agreement with ten accredited
investors for the sale and issuance of 3.05 units to the investors for an aggregate purchase
price of $305,000. Each unit consists of a convertible promissory note in the amount of $100,000
and 50,000 shares of our common stock. By agreement, each investor may not sell more than
one-third of the common stock comprising the units during any calendar month. The convertible
promissory notes comprising the units bear interest at an annual rate of 7% and mature on January
31, 2006. On each of January 31, 2004, January 31, 2005 and January 31, 2006, the investors have
the option to convert one-third of the principal amount of the notes into common stock of Axcess.
The conversion price of the notes is initially 65% of the average closing price of a share of our
common stock for the twenty (20) trading days preceding the given anniversary date of the notes.
The maximum conversion price shall be $2.00 per share and the minimum conversion price shall be
$0.50 per share. The conversion price will be subject to adjustment from time to time to reflect
any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock
split or similar change in our shares of common stock. The notes may be prepaid in whole or in part
by us without premium or penalty. During the three months ended March 31, 2005, two holders elected to convert $73,333 of their
notes plus $5,094 of accrued interest into 79,380 shares of Axcess common stock, which were issued
during the first quarter of 2005. (5) Significant Customers During the three months ended March 31, 2005 the Company had one customer that accounted for
13% of the overall revenue, three customers accounted for 78% of the digital video product sales
and one customer accounted for 14% of the RFID product sales. During the three months ended March
31, 2004 the Company had two customers that accounted for 40% of the overall revenue, two customers
accounted for 45% of the digital video product sales and three customers accounted for 57% of the
RFID product sales. 
 Item 2. Managements Discussion and Analysis or Plan of Operation. Forward-Looking Statements This quarterly report on Form 10-QSB includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of
the Securities Exchange Act of 1934, as amended, which can be identified by the use of
forward-looking terminology such as, may, expect, could, plan, seek, anticipate,
estimate, or continue or the negative thereof or other variations thereon or comparable
terminology. These forward-looking statements are subject to various risks and uncertainties that could
cause actual results to differ materially from those referred to in the forward-looking statements
and are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform
Act of 1995. These statements are made based on managements current expectations or beliefs as
well as assumptions made by, and information currently available to, management.




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A variety of factors could cause actual results to differ materially from those anticipated in
the Companys forward-looking statements, including the following factors: changes from anticipated
levels of sales, access to capital, future national or regional economic and competitive
conditions, changes in relationships with customers, difficulties in developing and marketing new
products, marketing existing products, customer acceptance of existing and new products, validity
of patents, technological change, dependence on key personnel, availability of key component parts,
dependence on third party manufacturers, vendors, contractors, product liability, casualty to or
other disruption of the production facilities, delays and disruptions in the shipment of the
Companys product, and the ability of the Company to meet its stated business goals. For a
detailed discussion of these and other cautionary statements and factors that could cause actual
results to differ from the Companys forward-looking statements, please refer to the Companys
filings with the Securities and Exchange Commission, especially Item 1. Description of Business
(including the Risk Factors section of Item 1) and Item 6. Managements Discussion and Analysis
or Plan of Operation of the Companys 2004 Annual Report on Form 10-KSB. Readers are cautioned not to place undue reliance on these forward-looking statements, which
reflect managements analysis only as of the date hereof. The Company does not undertake any
obligation to publicly revise these forward-looking statements to reflect events or circumstances
that arise after the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and Exchange Commission. Recent Developments: Going Concern and Liquidity Problems Our auditors have included an explanatory paragraph in their audit opinion with respect to our
consolidated financial statements at December 31, 2004. The paragraph states that our recurring
losses from operations and resulting continued dependence on access to external financing raise
substantial doubts about our ability to continue as a going concern. Furthermore, the factors
leading to and the existence of the explanatory paragraph may adversely affect our relationship
with customers and suppliers and have an adverse effect on our ability to obtain financing. We do not have sufficient working capital to sustain our operations. We have been unable to
generate sufficient revenues to sustain our operations. We will have to obtain funds to meet our
cash requirements through business alliances, such as strategic or financial transactions with
third parties, the sale of securities or other financing arrangements, or we may be required to
curtail our operations, seek a merger partner, or seek protection under federal bankruptcy laws.
Any of the foregoing may be on terms that are unfavorable to us or disadvantageous to existing
stockholders. In addition, no assurance may be given that we will be successful in raising
additional funds or entering into business alliances. Liquidity and Capital Resources Since inception, we have utilized the proceeds from a number of public and private sales of
our equity securities, the exercise of options, convertible debt, short-term bridge loans from
stockholders and more recently, preferred equity offerings and exercise of warrants, to meet our
working capital requirements. At March 31, 2005, we had working capital deficit of $364,895. Our operations generated losses in 2004 and continue to generate losses in 2005. Our cash
increased $775,519 during the three months ended March 31, 2005 with operating activities using
$724,795 of cash. We funded operations primarily through cash on hand from borrowings and equity
offerings over the last two years. No assurance can be given that such activities will continue to
be available to provide funding to us. Our business plan for 2005 is predicated principally upon
the successful marketing of our RFID products. We anticipate that our existing working capital
resources and revenues from operations will not be adequate to satisfy our funding requirements
throughout 2005. Our working capital requirements will depend upon many factors, including the extent and
timing of our product sales, our operating results, the status of competitive products, and actual
expenditures and revenues compared to our business plan. We are currently experiencing declining
liquidity, losses from operations and negative cash flows, which makes it difficult for us to meet
our current cash requirements, including payments to vendors, and may jeopardize our ability to
continue as a going concern. We intend to address our liquidity problems by controlling costs,
seeking additional funding (through capital raising transactions and business alliances) and
maintaining focus on revenues and collections. If our losses continue, we will have to obtain funds to meet our cash requirements through
business alliances, such as strategic or financial transactions with third parties, the sale of
securities or other financing arrangements, or we may be required to curtail our operations, seek a
merger partner, or seek protection under federal bankruptcy laws. Any of the foregoing may be on
terms that are unfavorable to us or disadvantageous to existing stockholders. In addition, no
assurance may be given that we will be successful in raising additional funds or entering into
business alliances.




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Warrants Exercised During the first quarter of 2005 we raised a net of $1,651,471 of additional working capital
through the exercise of warrants. In order to induce the warrant holders to exercise their
warrants early we offered and additional warrant for each warrant exercised by January 28, 2005.
We issued 1,702,840 of additional warrants. The new warrants have an exercise price of $1.50 and
they expire on January 31, 2010. In connection with the exercise of the warrants, a preferred stock dividend of $2,060,397 is
reflected on the accompanying statements of operations for the for the fair value of the inducement
warrants given the exercising warrant holders. Sales and Marketing Initiatives In the past our sales volume has not been sufficient to sustain our operations. During 2004 we
were able, through the recent financing, to initiate a new marketing emphasis, which is intended by
us to build sales, primarily of our RFID products. During 2005, we are optimistic about our ability
to grow the business. We continue to see broad-based awareness and acceptance of RFID as whole
world-wide. Our three accomplishments during 2004 which should assist in growing revenue during
2005 are:  1.
    We were able to secure a number of important reference accounts in 2004;2.
    We grew the integrator channel;3.
    We began our thrust into Supply Chain tagging. While there can be no assurance that our efforts will be successful, we believe that these
accomplishments will assist us in our goal of becoming profitable. Results of Operations Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003 Sales and Gross Profit. Sales for the three months ended March 31, 2005 were $241,158 and for
the three months ended March 31, 2004 were $206,678. Cost of sales for the three months ended
March 31, 2005 were $124,348 and for the three months ended March 31, 2004 were $98,886. The gross
profit for the three months ended March 31, 2005 was $116,810 and $107,792 for the three months
ended March 31, 2004. The increase in sales was a result of the increased sales and marketing
activity initiated during 2004. The margin improvement is driven by a shift in the product mix and
continued improvement in margins based on the shift to contract manufacturers. Radio frequency identification (RFID) product sales were $221,494 for the three months ended
March 31, 2005 and $174,307 for the three months ended March 31, 2004. Cost of sales was $116,863
for the three months ended March 31, 2005 and $85,497 for the three months ended March 31, 2004. As
a result, gross profits from RFID products were $104,631 for the three months ended March 31, 2005
and $88,810 for the three months ended March 31, 2004. Sales are continuing to increase based on
the increased exposure in the marketplace. The margin continues to be stable in this range. Digital video product sales were $19,664 for the three months ended March 31, 2005 and $32,371
for the three months ended March 31, 2004. Cost of sales was $7,485 for the three months ended
March 31, 2005 and $13,387 for the three months ended March 31, 2004. As a result, gross profits
from digital video products were $12,179 for the three months ended March 31, 2005 and $18,984 for
the three months ended March 31, 2004. The decrease in sales is a result of our shift in focus
from digital video to RFID during 2004. The margin improvement is a result of the product mix
shift. Operating Expenses. Operating expenses were $803,814 for the three months ended March 31, 2005
and $857,789 for the three months ended March 31, 2004. This decrease was due to lower
depreciation and amortization expense, a reduction in insurance expense offset by higher selling
and marketing expense. Research and development expenses were $184,181 for the three months ended March 31, 2005 and
$185,359 for the three months ended March 31, 2004. The slight decrease is a result of lower
testing and proto type development offset by the an increase in training and taxes. Corporate general and administrative expenses were $355,463 for the three months ended March
31, 2005 and $404,215 for the three months ended March 31, 2004. The decrease is a result of
decreased directors and officers insurance, reduction of professional services expenses and
reduction in telephone expenses. However, we had an increase in our investor relations expenses. Selling and marketing expenses were $225,097 for the three months ended March 31, 2005 and
$174,583 for the three months ended March 31, 2004. The increase is a result of increased
headcount relating to the two senior sales and marketing personnel hired during 2004.




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Depreciation and amortization expenses were $9,073 for the three months ended March 31, 2005
and $93,632 for the three months ended March 31, 2004. The decrease is related to lower
depreciation expense as a result of the age of the equipment and the reduction of the amortization
expense associated with the intellectual property which has now been fully amortized. Other expenses, net. Other expenses, net, were $56,428 for the three months ended March 31,
2005 and $227,971 for the three months ended March 31, 2004. Interest expense was $157,585 lower
during the three months ended March 31, 2005, compared to the three months ended March 31, 2004,
reflecting lower debt balance and lower interest rates. We also recognized $108,710 during the
first quarter of 2005 relating to the expiration of the statue of limitations relating to accounts
payables compared to $88,243 during the first quarter of 2004 where we were able to settle some
accounts payable issues relating to prior periods at a discount from the accrued amounts. We
expect to recognize a total of $306,525 during 2005 relating to the amount of expiring accounts
payable claims. Net Loss. Net loss was $743,432 for the three months ended March 31, 2005, compared to a net
loss of $977,968 for the three months ended March 31, 2004. The decrease is mainly relating to
lower interest expense, a reduction in depreciation and amortization offset by the increased
marketing activity. Preferred Stock dividend requirements.Preferred Stock dividend requirements were $2,141,244
for the three months ended March 31, 2005 and $65,520 for the three months ended March 31, 2003.
$2,060,397 of the increase related to the warrant inducement we offered to warrant holders to
exercise their warrants early in January 2005. The remaining increase was relating to the 2004
Preferred equity issued during the second quarter of 2004 and the conversion of the Series I and
Series J preferred shares converted during the first quarter of 2004. Other Inflation. Inflation has not had, and is not expected to have, a material impact on the
operations and financial condition of the Company. 
 Item 3. Controls and Procedures Controls and Procedures As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the Exchange Act), we
carried out an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report. This evaluation was
carried out under the supervision and with the participation of our Chief Executive. Based upon
that evaluation, our Chief Executive and Financial Officer concluded that our disclosure controls
and procedures are effective in timely alerting management to material information relating to us
required to be included in our periodic SEC filings. There have been no significant changes in our
internal controls or in other factors that could significantly affect internal controls subsequent
to the date we carried out our evaluation. Disclosure controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive, to allow timely decisions regarding required disclosure. 
 PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings Axcess is engaged in a number of lawsuits with approximately seven vendors who claim they are
owed amounts from $500 to $45,000, which aggregates in total $99,336. We are currently defending or
seeking to settle each of the vendors claims. At March 31, 2005, we had accrued the delinquent
amounts we expect to be liable for, for the claims described in this paragraph. 
 Item 2. Changes in Securities. During the three months ended March 31, 2005, the Company issued unregistered securities in
connection with the transactions described below. The issuance of stock was exempt from the
registration requirements of the Securities Act, as amended by virtue of Section 4(2) thereof, as
transactions not involving a public offering and an appropriate restrictive legend was affixed to
the stock certificates.




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Convertible Note During the three months ended March 31, 2005 one holder of the July 2002 Convertible debt
elected to convert $33,333 of their $66,667 note plus $4,004 of accrued interest into 37,791 of
unregistered common stock. We reissued the notes for $33,334. During the three months ended March 31, 2005 two of the holders of the January 2003
Convertible debt elected to convert $73,334 of their $113,333 note plus $5,093 of accrued interest
into 79,380 of unregistered common stock. We reissued the notes for $39,999. Common Stock During the three months ended March 31, 2005 we had four employees exercise 36,800 stock
options. Warrants Exercised During the first quarter of 2005 we raised a net of $1,651,471 of additional working capital
through the exercise of warrants. In order to induce the warrant holders to exercise their
warrants early we offered and additional warrant for each warrant exercised by January 28, 2005.
We issued 1,702,840 of common shares and an equal number of additional warrants. The new warrants
have an exercise price of $1.50 and they expire on January 31, 2010. Warrants Exercised During the three months ended March 31, 2005 we had one entity exercise 17,100 warrants. 
 Item 3. Defaults Upon Senior Securities None 
 Item 4. Submission of Matters to a Vote of Security Holders None 
 Item 5. Other Information None 
 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 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. *
   *
    
    Filed herewith(b)
    
    Reports on Form 8-K: Date
    
    DescriptionFebruary 2, 2005
    
    8-K disclosing a press release that announced operating announcing results for its
fourth quarter and year ended December 31, 2004.February 2, 2005
    
    8-K disclosing commitment for additional working capital through an warrant inducement.




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AXCESS INTERNATIONAL INC.,
Registrant /s/ ALLAN GRIEBENOW
Allan Griebenow Director, President and
Chief Executive Officer (Principal Executive Officer) /s/ ALLAN L. FRANK
Allan L. Frank
Chief Financial Officer and Secretary
(Principal Accounting and Financial Officer) May 13, 2005