<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                  FORM 10-QSB

     [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

                                 or

     [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                    COMMISSION FILE NUMBER: 0-11933


                                  AXCESS INC.
       (Exact name of small business issuer as specified in its charter)

          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 [x] No [ ]

Number of shares of common stock outstanding on August 1, 2001: 3,506,093.
Number of shares of non-voting common stock outstanding on August 1, 2001:
112,492.

Transitional Small Business Disclosure Format: Yes [ ] No [x]
<PAGE>

                                  AXCESS INC.
                                     INDEX
<TABLE>
<CAPTION>
                                                                                        Page

PART I. FINANCIAL INFORMATION
<S>                                                                                     <C>
    Item 1. Financial Statements:

             Balance Sheets at June 30, 2001 and December 31, 2000.....................   1

             Statements of Operations for the Three Months ended June 30, 2001
             and 2000 and for the Six Months ended June 30, 2001 and 2000..............   2

             Statements of Cash Flows for the Six Months ended June 30, 2001 and 2000..   3

             Notes to Financial Statements.............................................   4

     Item 2. Management's Discussion and Analysis or Plan of Operation.................   8

 PART II. OTHER INFORMATION

     Item 1. Legal Proceedings.........................................................  11

     Item 2. Changes in Securities.....................................................  11

     Item 3. Defaults Upon Senior Securities...........................................  12

     Item 4. Submission of Matters to a Vote of Security Holders.......................  12

     Item 5. Other Information.........................................................  13

     Item 6. Exhibits and Reports on Form 8-K..........................................  13

 SIGNATURES............................................................................  14
</TABLE>
<PAGE>

PART 1. FINANCIAL INFORMATION
 Item 1. Financial Statements

                                  AXCESS INC.
                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                                June 30,                 December 31,
                                                                                  2001                       2000
                                                                             ---------------           ----------------
<S>                                                                             <C>                       <C>
ASSETS

Current assets:
   Cash and cash equivalents                                                  $          -               $     454,374
   Accounts receivable - trade, net of allowance for doubtful accounts           1,006,716                     209,793
   Inventory                                                                     1,288,610                   1,245,003
   Prepaid expenses and other                                                    1,022,673                   1,091,435
                                                                             -------------              --------------
        Total current assets                                                     3,317,999                   3,000,605

Property, plant and equipment, net                                                 437,185                     493,729
Long-term note receivable - stockholder                                          3,902,375                   3,902,375
Intellectual property, net                                                       4,200,094                   4,792,154
Other assets                                                                        34,716                      34,716
                                                                             -------------              --------------
        Total assets                                                          $ 11,892,369               $  12,223,579
                                                                             =============              ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                                           $  1,907,889               $   1,079,154
   Other accrued liabilities                                                       962,375                     824,287
   Notes payable:
     Stockholders                                                                  406,106                   1,071,106
     Other                                                                          17,402                           -
   Dividends payable                                                                10,919                       3,680
                                                                             -------------              --------------
        Total current liabilities                                                3,304,691                   2,978,227

   Non-current notes payable to stockholders                                     6,254,513                   6,078,269
                                                                             -------------              --------------
        Total liabilities                                                        9,559,204                   9,056,496
                                                                             -------------              --------------
Stockholders' equity:
   Convertible preferred stock, 7,000,000 shares authorized; 173,846
    outstanding in 2001 and 165,187 in 2000; $51,027,188
    aggregate liquidation preference in 2001 and $45,233,025 in 2000            51,027,188                  45,233,025
   Common stock, $.01 par value, 50,000,000 shares authorized
    in 2001 and 2000; 3,505,468 shares
    issued and outstanding in 2001 and 3,466,486 in 2000                            35,055                      34,665
   Non-voting convertible common stock, $.01 par value, 2,250,000 shares
    authorized; 112,492 shares issued and outstanding in 2001 and 2000,
    convertible into common stock on a one fore one share basis                      1,125                       1,125
   Additional paid-in capital                                                   71,549,294                  69,490,368
   Accumulated deficit                                                        (120,279,497)               (111,592,100)
                                                                             -------------              --------------
        Total stockholders' equity                                               2,333,165                   3,167,083
                                                                             -------------              --------------
        Total liabilities and stockholders' equity                            $ 11,892,369               $  12,223,579
                                                                             =============              ==============
</TABLE>

          See accompanying notes to unaudited financial statements.

                                       1
<PAGE>

                                  AXCESS INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                   Three Months Ended            Six Months Ended
                                                                        June 30,                     June 30,
                                                               ------------------------------------------------------
                                                                   2001           2000          2001          2000
                                                               -----------    -----------   -----------   -----------
<S>                                                           <C>            <C>            <C>           <C>
Sales                                                          $ 1,169,645    $   748,227    $1,707,562    $ 1,458,871
Cost of sales                                                      750,592        439,323     1,076,392        788,336
                                                               -----------    -----------   -----------   ------------

                         Gross profit                              419,053        308,904       631,170        670,535
                                                               -----------    -----------   -----------   ------------
Expenses:
         Research and development                                  582,836        580,959     1,294,911      1,210,385
         General and administrative                                604,616        629,875     1,206,147      1,189,151
         Selling and marketing                                     743,282        674,614     1,596,228      1,393,509
         Depreciation and amortization                             389,872        394,885       786,055        787,815
                                                               -----------    -----------   -----------   ------------
                         Operating expenses                      2,320,606      2,280,333     4,883,341      4,580,860
                                                               -----------    -----------   -----------   ------------
                         Loss from operations                   (1,901,553)    (1,971,429)   (4,252,171)    (3,910,325)
                                                               -----------    -----------   -----------   ------------

Other income (expense):
         Interest expense                                         (352,800)      (278,921)     (719,970)      (563,452)
         Interest income                                            81,138        112,281       164,372        197,687
         Other                                                        (126)         8,628           293         10,870
                                                               -----------    -----------   -----------   ------------
                         Other expense,net                        (271,788)      (158,012)     (555,305)      (354,895)
                                                               -----------    -----------   -----------   ------------
                         Loss from operations                   (2,173,341)    (2,129,441)   (4,807,476)    (4,265,220)
                                                               -----------    -----------   -----------   ------------
Preferred stock dividend requirements                           (1,630,892)    (5,806,800)   (3,879,920)    (6,506,820)
                                                               -----------    -----------   -----------   ------------

                         Net loss applicable to common stock   $(3,804,233)   $(7,936,241)  $(8,687,396)  $(10,772,040)
                                                               ===========    ===========   ===========   ============

Basic and diluted net loss per share                                $(1.09)        $(2.38)       $(2.49)        $(3.24)
                                                               ===========    ===========   ===========   ============

Weighted average shares of common stock outstanding              3,493,404      3,339,293     3,483,261      3,324,063
                                                               ===========    ===========   ===========   ============
</TABLE>
           See accompanying notes to unaudited financial statements

                                       2
<PAGE>

                                 AXCESS, INC.
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                                      Six Months Ended
                                                                                                          June 30,
                                                                                              ----------------------------------
                                                                                                  2001                  2000
                                                                                              ------------           -----------
<S>                                                                                           <C>                   <C>
Cash flows from operating activities:
       Net loss                                                                               $(4,807,476)           $(4,265,220)
       Adjustments to reconcile net loss to net cash used
        by operating activities:
                     Depreciation and amortization                                                 786,055               787,815
                     Changes in operating assets and liabilities:
                                   Accounts receivable                                            (796,923)             (218,107)
                                   Inventory                                                       (34,381)              (38,292)
                                   Prepaid expenses and other                                       68,762               126,364
                                   Other assets                                                    (69,561)               (8,000)
                                   Accounts payable                                                828,735              (171,620)
                                   Accrued liabilities and other                                   525,106              (320,064)
                                                                                              ------------           -----------
                                   Net cash used by operating activities                        (3,499,683)           (4,107,124)
                                                                                              ------------           -----------

Cash flow from investing activities:
       Capital expenditures                                                                        (50,489)              (88,527)
                                                                                              ------------           -----------
                                   Net cash used by investing activities                           (50,489)              (88,527)
                                                                                              ------------           -----------

Cash flow from financing activities:
       Borrowings under financing agreements                                                     2,995,000             2,000,000
       Principal payments on financing agreements                                                        -            (2,022,309)
       Net proceeds from issuance of common and preferred stock                                    100,798             5,157,200
                                                                                              ------------           -----------
                                   Net cash provided by financing activities                     3,095,798             5,134,891
                                                                                              ------------           -----------
                                   Net increase (decrease) in cash and cash equivalents           (454,374)              939,240
Cash and cash equivalents, beginning of period                                                     454,374                69,450
                                                                                              ------------           -----------
Cash and cash equivalents, end of period                                                                 -             1,008,690
                                                                                              ============           ===========
Supplemental information:
       Cash paid during the year for interest                                                 $      1,391           $   191,274
                                                                                              ============           ===========
</TABLE>

           See accompanying notes to unaudited financial statements.

                                       3
<PAGE>

 (1) Summary of Significant Accounting Policies

     (a) Description of Business

     AXCESS provides computer network-based asset management solutions to
improve asset utilization, operations productivity, physical security,
manufacturing logistics, enterprise resource planning (commonly referred to as
"ERP"), and financial reporting.  The Company's products are based on hands-
free, long range radio frequency identification ("RFID") technology used to
track and monitor people, assets, inventory and vehicles, as well as patented
digital video compression technology for enterprise multi-media transmission and
digital recording. The Company's intellectual property includes patented
technologies in wireless, automatic identification and multi-media.  The
Company's solutions couple network add-on appliances with browser-based software
to deliver real time information information tailored to each end user via the
enterprise network/Internet, with an added capability to provide custom alerts
in the form of e-mail, or pages to wireless application protocol ("WAP") enabled
devices.  The Company provides solutions designed for the data center,
retail/convenience store, educational, healthcare and supply chain markets.

    The future results of operations and financial condition of the Company will
be impacted by the following factors, among others: access to capital,
technological change, dependence on identifying, developing and marketing
product enhancements and new products, dependence on third party manufacturers,
vendors, suppliers and contractors, dependence on key personnel, intellectual
property rights, and product liability.

    (b) Company Organization and Basis of Presentation

    The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the audited financial
statements and notes thereto included in the Company's annual report on Form 10-
KSB for the year ended December 31, 2000. In the opinion of management, all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the financial position at June 30, 2001, results of operations
for the three and six month periods ended June 30, 2001 and 2000, and cash flows
for the six months ended June 30, 2000 and 2001, have been made. The results of
operations for any given period are not necessarily indicative of the results of
the entire year.

     The Company has received working capital in various forms from Amphion
Ventures, L.P. and affiliates of Amphion Ventures, L.P., including Amphion
Partners L.L.C., Amphion Investments L.L.C., Antiope Partners L.L.C., XL Vision,
Inc. and VennWorks LLC, formerly incuVest LLC (collectively, the "Amphion
Group").  If the Amphion Group were to exercise its holdings of warrants and
options and convert its holdings of convertible preferred stock, debt and non-
voting common stock to common stock, it would have majority ownership and voting
control 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 June 30, 2001 and December
31, 2000:


                                        June 30,         December 31,
                                         2001               2000
                                    --------------      --------------
        Raw materials............   $    607,672        $    571,230
        Work-in-process..........         12,572              65,350
        Finished goods...........        668,366             608,423
                                    --------------      --------------
                                    $  1,288,610        $  1,245,003
                                    ==============      ==============

                                       4
<PAGE>

     (d) Recent Accounting Pronouncements

     In June 1998, Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), was
issued.  SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as "derivatives") and for hedging
activities. It requires that all derivatives be recognized as either assets or
liabilities at fair value. The accounting for gains and losses from changes in
fair value of a derivative depends on the intended use of the derivative and its
resulting classification as one of three designated types of hedges or as a non-
hedging instrument. SFAS 133 was adopted by the Company on January 1, 2001. The
adoption of this statement did not have a material impact on the Company's
financial statements and related disclosures.

     In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.  The Company will apply the
new rules on accounting for goodwill and other intangible assets beginning in
the first quarter of 2002. The Company currently has no goodwill or intangible
assets deemed to have indefinite lives.  The Company's intangible assets consist
principal of purchased technology which will continue to be amortized over an
average life of five years.  These assets will be subject to the impairment
tests under FAS 142.  Management has not yet determined what the effect, if any,
of these tests will be on the earnings and financial position of the Company.


(2) Contingencies

    The Company is involved in various claims and legal actions arising in the
ordinary course of business. Estimated legal and litigation costs are reflected
in the accompanying financial statements. In the opinion of management of the
Company, the ultimate disposition of these matters will not have a material
effect on the accompanying condensed financial statements.


(3) Preferred Stock

    The Company has authorized 7,000,000 shares of convertible preferred stock,
of which shares designated in seven series have been issued. Information with
respect to the series of preferred stock outstanding at each balance sheet date
is summarized below.
<TABLE>
<CAPTION>
                                     Series A      Series B      Series C
                                   ------------  ------------  ------------
<S>                                <C>           <C>           <C>
 Number of shares authorized.....     1,500,000     1,500,000     1,500,000

 Stated value....................        $26.00        $28.40        $30.20

 Number of shares issued and
     outstanding:
          December 31, 2000......        63,691        58,309        39,112
          June 30, 2001..........        66,893        61,241        41,078

Conversion ratio (or
     conversion price) of
     preferred shares into
     common......................   1 to 1 into   1 to 1 into   1 to 1 into
                                         voting        voting        voting
                                         common        common        common
                                          stock         stock         stock

 Liquidation preference..........  Stated value  Stated value  Stated value
                                   plus accrued  plus accrued  plus accrued
                                      dividends     dividends     dividends

 Dividend rights.................       10% per       10% per       10% per
                                         annum,        annum,        annum,
                                     cumulative    cumulative    cumulative

</TABLE>

                                       5
<PAGE>

(3) Preferred Stock (Continued)
<TABLE>
<CAPTION>

                                                                  Series        Series
                                     Series I      Series J        1999          2000
                                   ------------  ------------  ------------  ------------
<S>                                <C>           <C>            <C>           <C>
 Number of shares authorized.....         2,500         2,500         2,500         2,500

 Stated value....................    $   10,000    $   10,000    $   10,000       $10,000

Number of shares issued and
     outstanding:
          December 31, 2000......           688         2,011           140         1,236
          June 30, 2001..........           716         2,093           146         1,679

Conversion ratio (or
     conversion price) of
     preferred shares into
     common......................    $4.00 into    $4.00 into    $2.50 into    $3.50 into
                                         voting    non-voting        voting    non-voting
                                         common        common        common        common
                                          stock         stock         stock         stock

 Liquidation preference..........  Stated value  Stated value  Stated value  Stated value
                                   plus accrued  plus accrued  plus accrued  plus accrued
                                      dividends     dividends     dividends     dividends

 Dividend rights.................        8% per        8% per        8% per        8% per
                                         annum,        annum,        annum,        annum,
                                     cumulative    cumulative    cumulative    cumulative
</TABLE>

    The holders of Series I Preferred Stock, Series J Preferred Stock, Series
1999 Voting Preferred Stock, and Series 2000 Non-Voting Preferred Stock are
entitled to receive semi-annual dividends on each such share at the annual rate
of 8% of the original issue price of each share payable in arrears, when, as and
if declared by the Company's board of directors, in cash or additional shares of
preferred stock.   Shares of Series I Preferred Stock and Series J Preferred
Stock are convertible into shares of common stock at a conversion price of $4.00
per share.  Shares of Series 1999 Preferred Stock and Series 2000 Preferred
Stock are convertible into shares of common stock at a conversion price of $2.50
and $3.50 per share, respectively.

    On June 29, 2001, the Company issued (a) 3,202 shares of Series A Preferred
Stock to the holders thereof as payment in full for the $83,258 of accrued, but
unpaid dividends of the Series A Preferred Stock as of such date, (b) 2,932
shares of Series B Preferred Stock to holders thereof as payment in full for the
$83,258 of accrued, but unpaid dividends of the Series B Preferred Stock as of
such date, (c) 1,966 shares of Series C Preferred Stock to holders thereof as
payment in full for the $59,384 of accrued, but unpaid dividends of the Series C
Preferred Stock as of such date, (d) 14 shares of Series I Preferred Stock to
holders thereof as payment in full for the $141,833 of accrued, but unpaid
dividends of the Series I Preferred Stock as of such date, (e) 42 shares of
Series J Preferred Stock to holders thereof as payment in full for the $410,850
of accrued, but unpaid dividends of the Series J Preferred Stock as of such
date, (f) 3 shares of Series 1999 Voting Preferred Stock to holders thereof as
payment in full for the $28,848 of accrued, but unpaid dividends of the Series
1999 Voting Preferred Stock as of


                                       6
<PAGE>

such date, and (g) 30 shares of Series 2000 Non-Voting Preferred Stock to the
holders thereof as payment in full for the $295,532 of accrued, but unpaid
dividends of the Series 2000 Non-Voting Preferred Stock as of such date.

    On June 29, 2001, Amphion Ventures, L.P. elected to convert $580,000 of the
outstanding principal balance and $140,000 of accrued interest of a 10% note
payable, dated April 30, 1998, issued by the Company to Amphion Ventures, L.P.
The borrowings and interest payable were converted into 72 shares of the
Company's Series 2000 Non-Voting Preferred Stock.

(4) Demand Notes Payable to VennWorks

     On January 12, 2001 the Company entered into a 9.0% convertible demand note
("9% Demand Note") with VennWorks. During the three months ended March 31, 2001,
the Company borrowed $1,925,000 under this note. The principal outstanding under
this note may be converted into securities of the Company at the option of
VennWorks. The borrowings are unsecured and are due and payable on demand by
VennWorks. At December 31, 2000 the Company had a demand note balance payable
from a demand note with VennWorks dated September, 14, 2000, of $91,106. On
March 30, 2001, VennWorks elected to convert $2,000,000 of demand note
borrowings into 200 shares of Series 2000 Preferred Stock (see Note 3 above),
leaving a balance of $16,106 under the 9% Demand Note outstanding at March 31,
2001. During the three months ended June 30, 2001, the Company borrowed an
additional $1,070,000 under the 9% Demand Note.  On June 29, 2001, VennWorks
elected to convert $1,080,000 of the principal balance and $80,000 of accrued
interest payable on this note into 116 shares of Series 2000 Preferred Stock
(see Note 3 above), leaving a balance of $6,106 under this note outstanding at
June 30, 2001.

                                       7
<PAGE>

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 Securites 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.

    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, future national or
regional economic and competitive conditions, changes in relationships with
customers, access to capital, difficulties in developing and marketing new
products, marketing existing products, and customer acceptance of existing and
new products.  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 2000
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.

Results of Operations
-----------------------
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

    Sales and Gross Profit. Sales for the three months ended June 30, 2001 were
$1,169,645 and $748,227 for the three months ended June 30, 2000, on which a
gross profit of $419,053 and $308,904 was realized, respectively.  The increase
was due to a single video system sale in the retail/convenience store market.

    Radio frequency identification (RFID) product sales were $249,011 for the
three months ended June 30, 2001 and $265,570 for the three months ended June
30, 2000. Cost of sales were $164,793 for the three months ended June 30, 2001
and $160,379 for the three months ended June 30, 2000. As a result, gross
profits from RFID products were $84,218 for the three months ended June 30, 2001
and $105,191 for the three months ended June 30, 2000.

    Digital video product sales were $920,634 for the three months ended June
30, 2001 and $482,657 for the three months ended June 30, 2000. The increase was
due to a single video system sale in the retail/convenience store market. Cost
of sales were $585,800 for the three months ended June 30, 2001 and $278,944 for
the three months ended June 30, 2000. As a result, gross profits from digital
video products were $334,834 for the three months ended June 30, 2001 and
$203,713 for the three months ended June 30, 2000.

    Operating Expenses. Operating expenses were $2,320,606 for the three months
ended June 30, 2001 and $2,280,333 for the three months ended June 30, 2000.
The Company reduced staff in the first quarter of 2001 and scaled back
advertising and marketing expenses in the second quarter.  These changes have
allowed us to maintain expense levels similar to 2000.

    Research and development expenses were $582,836 for the three months ended
June 30, 2001 and $580,959 for the three months ended June 30, 2000.

    Corporate general and administrative expenses were $604,616 for the three
months ended June 30, 2001 and $629,875 for the three months ended June 30,
2000.

    Selling and marketing expenses were $743,282 for the three months ended June
30, 2001 and $674,614 for the three months ended June 30, 2000. During the
fourth quarter of 2000, the Company increased its advertising and marketing
expenses to expand product awareness beyond the security industry.  The Company
narrowed its advertising focus during the first quarter of 2001 to concentrate
on fewer markets and control expenses.

    Other expenses, net. Other expenses, net, were $271,788 for the three months
ended June 30, 2001, compared to

                                       8
<PAGE>

$158,012 for the three months ended June 30, 2000. Interest income was $31,143
lower during the three months ended June 30, 2001, compared to the three months
ended June 30, 2000. Interest expense was $73,879 higher in the three months
ended June 30, 2001 compared to the three months ended June 30, 2000, reflecting
an increase in the outstanding balance of notes payable in 2001.

    Loss from Continuing Operations. Loss from continuing operations was
$2,173,341 for the three months ended June 30, 2001, compared to a loss of
$2,129,441 for the same period in 2000.

    Preferred Stock dividend requirements.  Preferred Stock dividend
requirements were $1,630,892 for the three months ended June 30, 2001 and
$5,806,800 for the three months ended June 30, 2000.  The decrease is due
primarily to lower beneficial conversion costs realized in 2001.  The benficial
conversion costs were lower due to a combination of fewer preferred shares being
issued and the stock price being lower in 2001.

Results of Operations
-----------------------
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

    Sales and Gross Profit. Sales for the six months ended June 30, 2001 were
$1,707,562 and $1,458,871 for the six months ended June 30, 2000, on which a
gross profit of $631,170 and $670,535 was realized, respectively. The increase
was due to a single video system sale in the retail/convenience store market.

    Radio frequency identification (RFID) product sales were $442,736 for the
six months ended June 30, 2001 and $397,998 for the six months ended June 30,
2000. Cost of sales were $288,512 for the six months ended June 30, 2001 and
$247,364 for the six months ended June 30, 2000. As a result, gross profits from
RFID products were $154,224 for the six months ended June 30, 2001 and $150,634
for the six months ended June 30, 2000.

    Digital video product sales were $1,264,826 for the six months ended June
30, 2001 and $1,060,873 for the six months ended June 30, 2000 The increase was
due to a single video system sale in the retail/convenience store market.  Cost
of sales were $787,880 for the six months ended June 30, 2001 and $540,972 for
the six months ended June 30, 2000. As a result, gross profits from digital
video products were $476,946 for the six months ended June 30, 2001 and $519,901
for the six months ended June 30, 2000.

    Operating Expenses. Operating expenses were $4,883,341 for the six months
ended June 30, 2001 and $4,580,860 for the six months ended June 30, 2000. The
Company reduced staff in the first quarter of 2001 and scaled back advertising
and marketing expenses in the second quarter.

    Research and development expenses were $1,294,911 for the six months ended
June 30, 2001 and $1,210,385 for the six months ended June 30, 2000.

    Corporate general and administrative expenses were $1,206,147 for the six
months ended June 30, 2001 and $1,189,151 for the six months ended June 30,
2000.

    Selling and marketing expenses were $1,596,228 for the six months ended June
30, 2001 and $1,393,509 for the six months ended June 30, 2000. During the
fourth quarter of 2000, the Company increased its advertising and marketing
expenses to expand product awareness beyond the security industry.  The Company
narrowed its advertising focus during the first quarter of 2001 to concentrate
on fewer markets and control expenses.

    Other expenses, net. Other expenses, net, was $555,305 for the six months
ended June 30, 2001, compared to $354,895 for the six months ended June 30,
2000. Interest income was $33,315 lower during the six months ended June 30,
2001, compared to the six months ended June 30, 2000.  Interest expense was
$156,518 higher in the six months ended June 30, 2001 compared to the six months
ended June 30, 2000, reflecting an increase in the outstanding balance of notes
payable in 2001.

    Loss from Continuing Operations. Loss from continuing operations was
$4,807,476 for the six months ended June 30, 2001, compared to a loss of
$4,265,220 for the same period in 2000.

    Preferred Stock dividend requirements.  Preferred Stock dividend
requirements were $3,879,920 for the six months ended June 30, 2001 and
$6,506,820 for the six months ended June 30, 2000. The decrease is due primarily
to lower beneficial conversion costs realized in 2001.  The benficial conversion
costs were lower due to a combination of fewer preferred shares being issued and
the stock price being lower in 2001.


Liquidity and Capital Resources

     Since inception, the Company has utilized the proceeds from a number of
public and private sales of its equity

                                       9
<PAGE>

securities, the exercise of options and warrants and, more recently, convertible
debt and demand notes from stockholders to meet its working capital needs.

     On January 12, 2001 the Company entered into a 9.0% convertible demand note
("9% Demand Note") with VennWorks. During the three months ended March 31, 2001,
the Company borrowed $1,925,000 under this note. The principal outstanding under
this note may be converted into securities of the Company at the option of
VennWorks. The borrowings are unsecured and are due and payable on demand by
VennWorks. At December 31, 2000 the Company had a demand note balance payable
from a demand note with VennWorks dated September, 14, 2000, of $91,106. On
March 30, 2001, VennWorks elected to convert $2,000,000 of demand note
borrowings into 200 shares of Series 2000 Preferred Stock, leaving a balance of
$16,106 under the 9% Demand Note outstanding at March 31, 2001. During the three
months ended June 30, 2001, the Company borrowed an additional $1,070,000 under
the 9% Demand Note. On June 29, 2001, VennWorks elected to convert $1,080,000 of
the principal balance and $80,000 of accrued interest payable on this note into
116 shares of Series 2000 Preferred Stock, leaving a balance of $6,106 under
this note outstanding at June 30, 2001.

     The Company's business plan for 2001 is predicated principally upon the
successful marketing of its RFID and digital video products.  During the six
months ended June 30, 2001 operating activities utilized approximately $3.5
million of cash.  The Company realized a significant portion of the second
quarter revenue in June resulting in  $1,006,716 accounts receivable balance at
June 30, 2001.  During July 2001 the Company collected over $800,000 of the
receivables providing cash for operations.  However, the Company anticipates
that its existing working capital resources and revenues from operations will
not be adequate to satisfy its funding requirements in 2001.

     The Company is actively seeking additional capital. For the six months
ended June 30, 2001, VennWorks provided $2,995,000 of additional working capital
through loans under demand notes.  However, no assurance can be given that such
funding will continue. $2,988,894 have been converted into Series 2000 Preferred
Stock leaving a remaining balance of $6,106.  Vennworks has the right to call
the balance of the demand notes at any time.

     The Company's working capital requirements will depend upon many factors,
including the extent and timing of the Company's product sales, the Company's
operating results, the status of competitive products, and actual expenditures
and revenues compared to its business plan. The Company is currently
experiencing declining liquidity, including negative working capital balances,
losses from operations and negative cash flows, which makes it difficult for the
Company to meet its current cash requirements and may jeopardize the Company's
ability to continue as a going concern.  The Company intends to address its
liquidity problems by controlling costs, seeking additional funding (through
capital raising transactions and business alliances) and maintaining focus on
revenues and collections. If the Company's liquidity does not improve, the
Company may be required to seek a merger partner or curtail its operations. Any
of the foregoing may be on terms that are unfavorable to the Company or
disadvantageous to existing stockholders.

Other

    Inflation. Inflation has not had, and is not expected to have, a material
impact on the operations and financial condition of the Company.

                                      10
<PAGE>

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

    None.

Item 2. Changes in Securities.

    During the first six months of 2001, the Company issued unregistered
securities in connection with the transactions described below. The issuance of
preferred stock was exempt from the registration requirements of the Securities
Act, as amended, by virtue of Section 4(2) thereof, as a transaction not
involving a public offering and an appropriate restrictive legend was affixed to
the certificates.

Dividends

    The holders of the Company's Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock are entitled to receive quarterly dividends
on each such share held at the annual rate of 10% of the original issue price of
each share payable in arrears, when, as and if declared by the Company's board
of directors, in cash or additional shares of prefered stock.  The holders of
Series I Preferred Stock, Series J Preferred Stock, Series 1999 Voting Preferred
Stock, and Series 2000 Non-Voting Preferred Stock are entitled to receive semi-
annual dividends on each such share at the annual rate of 8% of the original
issue price of each share payable in arrears, when, as and if declared by the
Company's board of directors, in cash or additional shares of preferred stock.

    On June 29, 2001, the Company issued (a) 3,202 shares of Series A Preferred
Stock to the holders thereof as payment in full for the $83,258 of accrued, but
unpaid dividends of the Series A Preferred Stock as of such date, (b) 2,932
shares of Series B Preferred Stock to holders thereof as payment in full for the
$83,258 of accrued, but unpaid dividends of the Series B Preferred Stock as of
such date, (c) 1,966 shares of Series C Preferred Stock to holders thereof as
payment in full for the $59,384 of accrued, but unpaid dividends of the Series C
Preferred Stock as of such date, (d) 14 shares of Series I Preferred Stock to
holders thereof as payment in full for the $141,833 of accrued, but unpaid
dividends of the Series I Preferred Stock as of such date, (e) 42 shares of
Series J Preferred Stock to holders thereof as payment in full for the $410,850
of accrued, but unpaid dividends of the Series J Preferred Stock as of such
date, (f) 3 shares of Series 1999 Voting Preferred Stock to holders thereof as
payment in full for the $28,848 of accrued, but unpaid dividends of the Series
1999 Voting Preferred Stock as of such date, and (g) 30 shares of Series 2000
Non-Voting Preferred Stock to the holders thereof as payment in full for the
$295,532 of accrued, but unpaid dividends of the Series 2000 Non-Voting
Preferred Stock as of such date.

Note Borrowings and Conversions

    On January 12, 2001, the Company entered into a 9.0% convertible demand note
with VennWorks.  The principal outstanding under this note may be converted into
securities of the Company at the option of VennWorks. The borrowings are
unsecured and are due and payable on demand by VennWorks.  During the three
months ended June 30, 2001, the Company borrowed $1,070,000 under this note.  On
June 29, 2001, VennWorks elected to convert $1,080,000 of the principal balance
and $80,000 of accrued interest payable on this note into 116 shares of Series
2000 Preferred Stock.  As a result, at June 30, 2001, VennWorks had an
outstanding balance of $6,106 on this note.

    On June 29, 2001, Amphion Ventures, L.P. elected to convert $580,000 of the
outstanding principal balance and $140,000 of accrued interest of a 10% note
payable, dated April 30, 1998, issued by the Company to Amphion Ventures, L.P.
The borrowings and interest payable were converted into 72 shares of the
Company's Series 2000 Non-Voting Preferred Stock.

Preferred Stock Conversion Terms

    Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred
Stock

  Each share of Series A Preferred Stock, Series B Preferred Stock, and Series C
Preferred Stock is convertible at the option of the holders into voting common
stock on a share-for-share basis.  The Company may redeem the Series A Preferred
Stock, Series B Preferred Stock, and Series C Preferred Stock at any time at the
$26.00, $28.40 and $30.20 stated value,

                                      11
<PAGE>

respectively, plus accrued dividends, subject to the stock holder's right to
convert to voting common stock for 10 business days following receipt of the
Company's notice of redemption.

     Series I Preferred Stock and Series J Preferred Stock

    Each share of Series I Preferred Stock and Series J Preferred Stock is
convertible in whole or in part at any time at the option of the holder into
shares of voting or non-voting common stock of the Company, respectively, equal
to the quotient of (a) the aggregate original issue price of $10,000 per share
divided by (b) the conversion price of $4.00 per share. The Series I Preferred
Stock and the Series J Preferred Stock are both subject to the optional
redemption at any time by the Company, in whole or in part, at a redemption
price per share equal to the $10,000 stated value, plus any accrued, but unpaid
dividends thereon. The Company's optional right of redemption is subject to each
Series I Preferred Stock or Series J Preferred Stock holder's right to convert
such preferred stock into voting or non-voting common stock, as the case may be,
within 10 business days after the Company's notice of redemption.  The Series I
Preferred Stock and the Series J Preferred Stock are also subject to the
mandatory conversion by the Company into shares of the Company's voting or non-
voting common stock, as the case may be, if the closing bid price of the
Company's common stock on the NASDAQ SmallCap Market is at least $10.00 per
share for a period of at least 90 consecutive trading days.

    Series 1999 Voting Preferred Stock and Series 2000 Non-Voting Preferred
Stock

    Each share of Series 1999 and Series 2000 Preferred Stock is convertible in
whole or in part at any time at the option of the holder into a number of shares
of voting or non-voting common stock of the Company, as the case may be, equal
to the quotient of (a) the aggregate original issue price of $10,000 per share
divided by (b) the conversion price of $2.50 or $3.50, respectively.  The Series
1999 Preferred Stock and the Series 2000 Preferred Stock are both subject to the
optional redemption at any time by the Company, in whole or in part, at a
redemption price per share equal to the $10,000 stated value, plus any accrued,
but unpaid dividends thereon. The Company's optional right of redemption is
subject to each Series 1999 Preferred Stock or Series 2000 Preferred Stock
holder's right to convert such preferred stock into voting or non-voting common
stock, as the case may be, within 10 business days after the Company's notice of
redemption.

    The Series 1999 Preferred Stock and the Series 2000 Preferred Stock are also
subject to the mandatory conversion by the Company into shares of the Company's
voting or non-voting common stock, as the case may be, if (a) the closing bid
price of the Company's common stock on the NASDAQ SmallCap Market is at least
$7.50 per share for a period of at least 20 consecutive trading days and (b) the
trading volume of the common stock on the NASDAQ SmallCap Market is at least
50,000 shares per day as measured by NASDAQ during each of such 20 consecutive
trading days.

Item 3. Defaults Upon Senior Securities.

  None.

Item 4. Submission of Matters to a Vote of Security Holders.

    As contemplated in the Company's Proxy Statement which was mailed to
stockholders beginning May 21, 2001, the Company's stockholders elected Richard
C.E. Morgan, Allan Griebenow, Paul J. Coleman, Jr., Gregory W. Haskell, Robert
J. Bertoldi and David J. Illingworth as directors of the Company to serve until
the next annual meeting of stockholders.  The Company's stockholders also
considered the following proposals:

    1.  To ratify the selection of Ernst & Young LLP as the independent auditor
        of the Company for the fiscal year ended December 31, 2001;

    2.  To aprove the AXCESS Inc. 2001 Equity Incentive Plan; and

    3.  To transact such other business as may properly come before the annual
        meeting or any adjournment or postponement thereof.

   Each of the foregoing proposals, including the election of directors, were
approved at the Company's annual meeting of stockholders on June 6, 2001.  Each
board nominee received the number of votes indicated below.
<TABLE>
<CAPTION>

Nominee                    Number of Votes Cast for Election  Number of Votes Cast Against or Witheld
-------------------------  ---------------------------------  ---------------------------------------
<S>                        <C>                                <C>
   Richard C.E. Morgan                             3,561,292                                    5,634
   Allan Griebenow                                 3,561,292                                    5,634
</TABLE>

                                      12
<PAGE>

<TABLE>
<CAPTION>

<S>                        <C>                                <C>
   Paul J. Coleman, Jr.                            3,561,297                                    5,629
   Gregory W. Haskell                              3,561,297                                    5,629
   Robert J. Bertoldi                              3,561,277                                    5,649
   David J. Illingworth                            3,561,297                                    5,629
</TABLE>

   With respect to the approval of Proposal 1 described above, the votes cast
for and against, as well as the number of abstentions were as follows:

          For                                   3,513,786
          Against                                  50,566
          Abstentions and broker non-votes          2,574

   With respect to the approval of Proposal 2 described above, the votes cast
for and against, as well as the number of abstentions were as follows:

          For                                   3,500,990
          Against                                   1,393
          Abstentions and broker non-votes         64,543

Item 5. Other Information.

    None.

Item 6. Exhibits and Reports on Form 8-K.

     (a) Exhibits:

          Exhibit No.   Description
          -----------   ------------

                10.1    Amended Schedule of Advances to the Demand Note dated as
                        of January 12, 2001, executed by the Company payable to
                        incuVest LLC in the principal amount of $264,000 (the
                        Demand Note is incorporated herein by reference to
                        Exhibit 10.32 to the Company's Annual Report on Form 10-
                        KSB for the year ended December 31, 2000).

                10.2    AXCESS Inc. 2001 Incentive Plan.*
          _________________
          * Filed herewith.

     (b) Reports on Form 8-K:

          On May 2, 2001, the Company filed a Current Report on Form 8-K (Item
          5) to report its press release on May 1, 2001 that announced its first
          quarter earnings.  This Form 8-K contains certain consolidated
          statements of operations and consolidated balance sheets to report the
          Company's quarterly financial information.

                                      13
<PAGE>

                             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 INC.,
                              Registrant

                                /S/ ALLAN GRIEBENOW
                              ----------------------------------------------

                              Allan Griebenow Director, President and
                              Chief Executive Officer (Principal Executive
                              Officer)

                                /S/ JAMES R. CRAIG
                              ----------------------------------------------
                              James R. Craig
                              Chief Financial Officer and Secretary
                              (Principal Accounting and Financial Officer)

August 14, 2001

                                      14
<PAGE>

                                 Exhibit Index

          Exhibit No.   Description
          -----------   ------------

                10.1    Amended Schedule of Advances to the Demand Note dated as
                        of January 12, 2001, executed by the Company payable to
                        incuVest LLC in the principal amount of $264,000 (the
                        Demand Note is incorporated herein by reference to
                        Exhibit 10.32 to the Company's Annual Report on Form 10-
                        KSB for the year ended December 31, 2000).

                10.2    AXCESS Inc. 2001 Incentive Plan.*
          _________________
          * Filed herewith.