##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ______ to _______.
 COMMISSION FILE NUMBER: 0-11933
 AXCESS INTERNATIONAL INC.
  Delaware
    
    85-0294536(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 16650 Westgrove Drive, Suite 600
Addison, Texas 75001
(972) 407-6080
 þ o
 Yes
o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




---



##### 



AXCESS INTERNATIONAL INC.
INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Balance Sheets at September 30, 2009 and December 31, 2008 (unaudited)

1Statements of Operations for the Three Months and Nine Months ended September 30, 2009
and 2008 (unaudited)

2Statements of Cash Flows for the Nine Months ended September 30, 2009 and 2008 (unaudited)

3Notes to Financial Statements (unaudited)

4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

14Item 3. Quantitative and Qualitative Disclosures about Market Risk

17Item 4. Controls and Procedures

17PART II. OTHER INFORMATIONItem 1. Legal Proceedings

17Item 1A. Risk Factors

17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

18Item 3. Defaults Upon Senior Securities

18Item 4. Submission of Matters to a Vote of Security Holders

18Item 5. Other Information

18Item 6. Exhibits and Reports on Form 8-K

18SIGNATURES

19Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2Exhibit 99.1




---



##### Table of Contents



PART 1. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    80,833
    
    
    $
    51,392Accounts receivable  trade, net of allowance for
doubtful accounts of $30,132 and $27,424 for 2009
and 2008, respectively
    
    
    130,212
    
    
    
    92,844Inventory, net
    
    
    74,874
    
    
    
    142,782Prepaid expenses and other
    
    
    61,971
    
    
    
    43,100Total current assets
    
    
    347,890
    
    
    
    330,118Property, plant and equipment, net
    
    
    19,705
    
    
    
    18,969Deferred debt issuance costs
    
    
    14,062
    
    
    
    18,750Other assets
    
    
    45,737
    
    
    
    53,062Total assets
    
    $
    427,394
    
    
    $
    420,899LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable (includes $2,891 and $18,645
with related party in 2009 and 2008,
respectively)
    
    $
    765,018
    
    
    $
    905,354Accrued liabilities
    
    
    385,106
    
    
    
    502,566Accrued interest
    
    
    1,271,816
    
    
    
    1,112,862Deferred revenue
    
    
    14,652
    
    
    
    22,222Notes payable (includes $1,038,273 with a related
party in 2009 and 2008)
    
    
    1,200,273
    
    
    
    1,200,273Dividends payable
    
    
    31,515
    
    
    
    280,394Total current liabilities
    
    
    3,668,380
    
    
    
    4,023,671Notes payable (includes $393,787 with a related
party in 2009 and 2008), net of discount of $0
and $13,092 in 2009 and 2008, respectively
    
    
    2,696,346
    
    
    
    2,683,254Total liabilities
    
    
    6,364,726
    
    
    
    6,706,925Commitments and contingencies (Note 2)Stockholders deficit:Convertible preferred stock, 10,000,000 shares
authorized in 2009 and 2008. Without
liquidation preferences; $0.01 par value,
4,550,211 and 6,125,211 shares issued and
outstanding in 2009 and 2008, respectively
    
    
    45,502
    
    
    
    61,252Common stock, $.01 par value, 70,000,000 shares
authorized in 2009 and 2008; 33,642,593 shares
issued and outstanding in 2009 and 31,204,931
shares issued and outstanding in 2008
    
    
    336,426
    
    
    
    312,050Additional paid-in capital
    
    
    166,480,699
    
    
    
    165,641,922Accumulated deficit
    
    
    (172,799,959
    )
    
    
    (172,301,250
    )Total stockholders deficit
    
    
    (5,937,332
    )
    
    
    (6,286,026
    )Total liabilities and stockholders deficit
    
    $
    427,394
    
    
    $
    420,899
   1




---



##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Sales
    
    $
    213,164
    
    
    $
    511,190
    
    
    $
    4,452,681
    
    
    $
    1,175,022Cost of sales
    
    
    133,741
    
    
    
    250,898
    
    
    
    1,677,644
    
    
    
    615,494Gross profit
    
    
    79,423
    
    
    
    260,292
    
    
    
    2,775,037
    
    
    
    559,528Expenses:Research and development
    
    
    257,137
    
    
    
    451,274
    
    
    
    805,736
    
    
    
    1,858,962General and administrative
    
    
    361,599
    
    
    
    359,703
    
    
    
    1,096,522
    
    
    
    1,105,511Selling and marketing
    
    
    160,550
    
    
    
    298,855
    
    
    
    1,087,201
    
    
    
    942,597Depreciation and amortization
    
    
    5,709
    
    
    
    2,979
    
    
    
    15,431
    
    
    
    9,941Operating expenses
    
    
    784,995
    
    
    
    1,112,811
    
    
    
    3,004,890
    
    
    
    3,917,011Loss from operations
    
    
    (705,572
    )
    
    
    (852,519
    )
    
    
    (229,853
    )
    
    
    (3,357,483
    )Other income (expense):Interest expense
    
    
    (55,453
    )
    
    
    (102,512
    )
    
    
    (233,949
    )
    
    
    (397,071
    )Gain on vendor settlements
    
    
    1,677
    
    
    
    2,216
    
    
    
    60,355
    
    
    
    4,534Other income (expense), net
    
    
    (53,776
    )
    
    
    (100,296
    )
    
    
    (173,594
    )
    
    
    (392,537
    )Net loss
    
    
    (759,348
    )
    
    
    (952,815
    )
    
    
    (403,447
    )
    
    
    (3,750,020
    )Preferred stock dividend requirements:Recurring
    
    
    
    
    
    
    (39,883
    )
    
    
    (95,263
    )
    
    
    (188,430
    )2008 Preferred equity offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (558,686
    )2008B Preferred equity offering
    
    
    
    
    
    
    (171,984
    )
    
    
    
    
    
    
    (171,984
    )Preferred stock dividend requirements
    
    
    
    
    
    
    (211,867
    )
    
    
    (95,263
    )
    
    
    (919,100
    )Net loss applicable to common stock
    
    $
    (759,348
    )
    
    $
    (1,164,682
    )
    
    $
    (498,710
    )
    
    $
    (4,669,120
    )Basic and diluted net loss per share
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.16
    )Weighted average shares of common stock outstanding
    
    
    33,625,582
    
    
    
    30,813,627
    
    
    
    32,213,284
    
    
    
    29,932,137
   2




---



##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (403,447
    )
    
    $
    (3,750,020
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation and amortization
    
    
    15,431
    
    
    
    9,941Amortization of financing discount and issuance costs, net
    
    
    17,780
    
    
    
    7,153Gain on vendor settlements and statutory write-off of payables
    
    
    60,355
    
    
    
    71Warrants issued for services
    
    
    
    
    
    
    (7,612
    )Stock based compensation expense
    
    
    446,046
    
    
    
    547,655Changes in operating assets and liabilities:Accounts receivable
    
    
    (37,368
    )
    
    
    61,298Inventory
    
    
    67,908
    
    
    
    64,517Prepaid expenses and other
    
    
    (18,871
    )
    
    
    17,020Other assets
    
    
    (443
    )
    
    
    (9,571
    )Accounts payable and accrued expenses
    
    
    (109,551
    )
    
    
    1,080,784Net cash generated (used) by operating activities
    
    
    37,840
    
    
    
    (1,978,764
    )Cash flow from investing activities:Capital expenditures
    
    
    (8,399
    )
    
    
    (22,170
    )Net cash used by investing activities
    
    
    (8,399
    )
    
    
    (22,170
    )Cash flow from financing activities:Net proceeds from issuance of common and preferred stock
    
    
    
    
    
    
    1,519,998Net proceeds from exercise of employee options
    
    
    
    
    
    
    Principal payments on financing agreements
    
    
    (160,000
    )
    
    
    (100,000
    )Borrowings on financing agreements
    
    
    160,000
    
    
    
    745,273Net cash provided by financing activities
    
    
    
    
    
    
    2,165,271Net change in cash and cash equivalents
    
    
    29,441
    
    
    
    164,337Cash and cash equivalents, beginning of period
    
    
    51,392
    
    
    
    59,089Cash and cash equivalents, end of period
    
    $
    80,833
    
    
    $
    223,426Supplemental Disclosure of Non-Cash Investing and Financing Activities:Warrants issued as a debt discount
    
    $
    57,215
    
    
    $
    258,377Accrued preferred stock dividends
    
    
    95,263
    
    
    
    188,430Conversion of preferred shares into common stock
    
    
    15,750
    
    
    
    7,351Conversion of accrued dividends into common stock
    
    
    344,072
    
    
    
    90,904
   3




---



##### Table of Contents



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




---



##### Table of Contents



(d) Use of Estimates
  (e) Inventory
  September 30,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    35,934
    
    
    $
    24,275Work-in-process
    
    
    104
    
    
    
    104Finished goods
    
    
    38,836
    
    
    
    118,403$
    74,874
    
    
    $
    142,782
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Product cost
    
    $
    133,741
    
    
    $
    245,625
    
    
    $
    1,666,285
    
    
    $
    580,222Warranty expense
    
    
    
    
    
    
    5,273
    
    
    
    11,359
    
    
    
    35,272Total
    
    $
    133,741
    
    
    $
    250,898
    
    
    $
    1,677,644
    
    
    $
    615,494
 (f) Stock-Based Compensation
 Compensation  Stock Compensation
   5




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Research and development expense
    
    $
    51,147
    
    
    $
    63,698
    
    
    $
    153,441
    
    
    $
    202,721General and administrative expense
    
    
    70,412
    
    
    
    70,712
    
    
    
    211,349
    
    
    
    252,152Selling and marketing expense
    
    
    27,085
    
    
    
    27,086
    
    
    
    81,256
    
    
    
    92,782Total
    
    $
    148,644
    
    
    $
    161,496
    
    
    $
    446,046
    
    
    $
    547,655
 (g) Stock Options and Warrants
    Outstanding OptionsWeighted
    
    
    Weighted AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual Term
    
    
    IntrinsicShares
    
    
    Price
    
    
    (in years)
    
    
    ValueOptions outstanding at December 31, 2008
    
    
    5,392,973
    
    
    $
    1.87Options granted
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    Options forfeited
    
    
    (938,556
    )
    
    
    2.07Options outstanding at September 30, 2009
    
    
    4,454,417
    
    
    
    1.83
    
    
    
    5.15
    
    
    $
    57,000Options exercisable at September 30, 2009
    
    
    4,255,292
    
    
    
    1.76
    
    
    
    5.39
    
    
    $
    85,500Options available for grants as of September 30, 2009
    
    
    2,998,000
  Intrinsic Value ofNumber of
    
    
    Weighted Average
    
    
    Vested UnexercisedOption Price
    
    Options
    
    
    Remaining Life
    
    
    Options$0.00  $1.00
    
    
    720,000
    
    
    
    4.07
    
    
    $
    57,000$1.01  $2.00
    
    
    3,116,961
    
    
    
    6.14$2.01  $3.00
    
    
    200,000
    
    
    
    2.47$3.01  $4.00
    
    
    165,900
    
    
    
    1.28$4.01  $5.00
    
    
    20,000
    
    
    
    1.67$5.01  $6.25
    
    
    231,556
    
    
    
    0.48Total
    
    
    4,454,417
    
    
    
    5.15
    
    
    $
    57,000
   6




---



##### Table of Contents



WEIGHTEDAVERAGEEXERCISEWARRANTS
    
    
    PRICEWarrants outstanding at beginning of year
    
    
    9,952,956
    
    
    $
    1.64Warrants issued
    
    
    321,144
    
    
    
    0.28Warrants exercised
    
    
    
    
    
    
    Warrants expired unexercised
    
    
    
    
    
    
    Warrants outstanding at end of year
    
    
    10,274,100
    
    
    
    1.59
  Number of
    
    
    Weighted AverageStrike Price
    
    Warrants
    
    
    Remaining Life$0.00  $1.00
    
    
    551,138
    
    
    
    4.51$1.01  $2.00
    
    
    9,722,962
    
    
    
    2.76Total
    
    
    10,274,100
    
    
    
    2.85
  (h) Revenue Recognition
 Revenue Recognition  Multiple-Element Arrangements. Revenue Recognition Revenue
Arrangements with Multiple Deliverables
   (2) Contingencies
     7




---



##### Table of Contents



(3) Preferred Stock
  Series
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Series
    
    
    Series2003B*
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006B
    
    
    2006C
    
    
    2007
    
    
    2008
    
    
    2008BNumber of shares authorized
    
    
    2,750,000
    
    
    
    625,000
    
    
    
    2,750,000
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    200
    
    
    
    205
    
    
    
    120
    
    
    
    80Stated value
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01Number of shares issued and outstandingDec. 31, 2008
    
    
    1,575,000
    
    
    
    
    
    
    
    2,649,726
    
    
    
    1,200,000
    
    
    
    700,000
    
    
    
    100
    
    
    
    185
    
    
    
    120
    
    
    
    80Sept. 30, 2009
    
    
    
    
    
    
    
    
    
    
    2,649,726
    
    
    
    1,200,000
    
    
    
    700,000
    
    
    
    100
    
    
    
    185
    
    
    
    120
    
    
    
    80Conversion ratio (or conversion price) of preferred shares into common
    
    
    1 to 1 into voting common stock
    
    
    
    1 to 1 into voting common stock
    
    
    
    1 to 1 into voting common stock
    
    
    
    1 to 1 into voting common stock
    
    
    
    1 to 1 into voting common stock
    
    
    
    1 to 10,000 into voting common stock
    
    
    
    1 to 10,000 into voting common stock
    
    
    
    1 to 10,000 into voting common stock
    
    
    
    1 to 10,000 into voting common stockLiquidation preference
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
    
    NoneDividend rights
    
    7% per annum, cumulative
    
    
    7% per annum, cumulative
    
    
    None
    
    
    None
    
    
    None
    
    
    None
    
    
    None
    
    
    None
    
    
    None
 *
    
    As the quarter ended June 30, 2009 was a profitable quarter all the 2003B Preferred Stock
was converted to common stock effective July 1, 2009 which resulted in the issuance of 1,565,000
common shares to the former 2003B preferred stock holders. (a) Series 2003B Preferred Stock
   (b) Series 2004 Preferred Stock
   8




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



Amphion Investment LLC
  Convertible Note
 Derivatives and Hedges Debt With
Conversion and Other Features
 Balance as ofSeptember 30,Date of Note
    
    2009
    
    
    Due Date (*)
    
    Interest RateDecember 17, 2007
    
    $
    50,000
    
    
    January 15, 2008
    
    
    5.0
    %January 14, 2008
    
    
    150,000
    
    
    February 15, 2008
    
    
    5.0
    %February 20, 2008
    
    
    150,000
    
    
    March 31, 2008
    
    
    5.0
    %February 28, 2008
    
    
    60,000
    
    
    March 31, 2008
    
    
    5.0
    %March 14, 2008
    
    
    63,000
    
    
    April 15, 2008
    
    
    5.0
    %March 25, 2008
    
    
    55,000
    
    
    April 30, 2008
    
    
    5.0
    %April 1, 2008
    
    
    85,273
    
    
    May 1, 2008
    
    
    5.0
    %April 7, 2008
    
    
    22,000
    
    
    May 15, 2008
    
    
    5.0
    %April 15, 2008
    
    
    110,000
    
    
    May 31, 2008
    
    
    5.0
    %July 30, 2008
    
    
    50,000
    
    
    August 31, 2008
    
    
    5.0
    %October 23, 2008
    
    
    100,000
    
    
    November 30, 2008
    
    
    5.0
    %November 26, 2008
    
    
    31,000
    
    
    December 31, 2008
    
    
    5.0
    %December 15, 2008
    
    
    62,000
    
    
    January 31, 2009
    
    
    5.0
    %December 30, 2008
    
    
    50,000
    
    
    January 31, 2009
    
    
    5.0
    %Total
    
    $
    1,038,273
 * -
    
    As of October 29, 2009, Axcess and Amphion have agreed to convert their
convertible notes and accrued interest into new convertible notes.   11




---



##### Table of Contents



(5) Significant Customers
   (6) Recent Accounting Pronouncements
   Subsequent Events
 
  12




---



##### Table of Contents



Amendments to FASB Interpretation No. 46
(R)
  Interim Disclosures about Fair Value of
Financial Instruments
 Recognition and Presentation of Other Than
Temporary Impairments
 Multiple Element Adjustments,
 Certain Revenue Arrangements That
Include Software Elements,
  13




---



##### Table of Contents



(7) Subsequent Events
    
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Forward-Looking Statements
     Recent Developments: Going Concern and Liquidity Problems
   14




---



##### Table of Contents



Liquidity and Capital Resources
     Results of Operations
 Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
 Sales and Gross Profit
 Operating Expenses
     15




---



##### Table of Contents



Other expenses, net
 Net loss
 Preferred Stock dividend requirements.
 Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008
 Sales and Gross Profit
 Operating Expenses
     Other expenses, net
 Net Loss
 Preferred Stock dividend requirements.
  16




---



##### Table of Contents



Other
 Inflation
 
 Item 3. Quantitative and Qualitative Disclosure about Market Risk
  
 Item 4. Controls and Procedures
 Controls and Procedures
        
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
   17




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Common Stock
   Stock Options
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits and Reports on Form 8-K
  Exhibit No.
    
    Description31.1
    
    
    Certification of our President, Chief Executive Officer and Principal Executive
Officer, under Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of our Vice President, Chief Financial Officer, Secretary and
Principal Accounting and Financial Officer, under Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of our President, Chief Executive Officer and Principal Executive
Officer, under Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    Certification of our Vice President, Chief Financial Officer, Secretary and
Principal Accounting and Financial Officer, under Section 906 of the
Sarbanes-Oxley Act of 2002.99.1
    
    
    November 13, 2009 Axcess International Reports Third quarter 2009 earning results
  18




---



##### Table of Contents



SIGNATURES
  AXCESS INTERNATIONAL INC.,Registrant/s/ ALLAN GRIEBENOWAllan Griebenow Director, President andChief Executive Officer
 (Principal Executive Officer)/s/ ALLAN L. FRANKAllan L. FrankChief Financial Officer and Secretary
(Principal Accounting and Financial Officer)   19