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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, 2007
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 COMMISSION FILE NUMBER: 0-11933
 AXCESS INTERNATIONAL INC.
  Delaware
    
    85-0294536(State or other jurisdiction of incorporation or 
organization)
    
    (I.R.S. Employer Identification No.)
 3208 Commander Drive
Carrollton, Texas 75006
(972) 407-6080
 þ o
 o þ
  o þ




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AXCESS INTERNATIONAL INC.
INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Balance Sheets at March 31, 2007 and December 31, 2006Statements of Operations for the Three Months ended March 31, 2007 and 2006Statements of Cash Flows for the Three Months ended March 31, 2007 and 2006Notes 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 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,270,970
    
    
    $
    347,361Accounts receivable  trade, net of allowance for
doubtful accounts of $16,703 for 2007 and $17,389 for
2006
    
    
    370,787
    
    
    
    252,230Inventory, net
    
    
    313,309
    
    
    
    396,305Prepaid expenses and other
    
    
    103,538
    
    
    
    92,090Total current assets
    
    
    2,058,604
    
    
    
    1,087,986Property, plant and equipment, net
    
    
    19,575
    
    
    
    18,369Deferred debt issuance costs
    
    
    126,722
    
    
    
    168,963Other assets
    
    
    2,934
    
    
    
    2,934Total assets
    
    $
    2,207,835
    
    
    $
    1,278,252LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    370,293
    
    
    $
    101,261Accrued liabilities
    
    
    1,164,243
    
    
    
    1,121,350Deferred revenue
    
    
    831,280
    
    
    
    25,665Convertible notes payable to stockholders
    
    
    3,118,716
    
    
    
    3,365,500Dividends payable
    
    
    219,167
    
    
    
    138,594Total current liabilities
    
    
    5,703,699
    
    
    
    4,752,370Notes payable to stockholders
    
    
    
    
    
    
    Total liabilities
    
    
    5,703,699
    
    
    
    4,752,370Commitments and contingencies (Notes 1 and 2)Stockholders deficit:Convertible preferred stock, 10,000,000 shares
authorized in 2007 and 2006, respectively; Without
liquidation preferences; $0.01 par value, 7,008,750
and 7,073,550 shares issued and outstanding in 2007
and 2006, respectively
    
    
    70,087
    
    
    
    70,735Common stock, $.01 par value, 70,000,000 shares
authorized in 2007 and 2006, respectively; 28,731,713
shares issued and outstanding in 2007 and 28,657,313
shares issued and outstanding in 2006
    
    
    287,317
    
    
    
    286,573Additional paid-in capital
    
    
    160,053,519
    
    
    
    158,184,537Accumulated deficit
    
    
    (163,906,787
    )
    
    
    (162,015,963
    )Total stockholders deficit
    
    
    (3,495,864
    )
    
    
    (3,474,118
    )Total liabilities and stockholders deficit
    
    $
    2,207,835
    
    
    $
    1,278,252
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AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF OPERATION
 (Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Sales
    
    $
    1,023,023
    
    
    $
    453,563Cost of sales
    
    
    661,486
    
    
    
    274,629Gross profit
    
    
    361,537
    
    
    
    178,934Expenses:Research and development
    
    
    1,125,334
    
    
    
    603,690General and administrative
    
    
    409,163
    
    
    
    461,410Selling and marketing
    
    
    572,596
    
    
    
    266,244Depreciation and amortization
    
    
    4,508
    
    
    
    4,826Operating expenses
    
    
    2,111,601
    
    
    
    1,336,170Loss from operations
    
    
    (1,750,064
    )
    
    
    (1,157,236
    )Other income (expense):Interest expense, net
    
    
    (83,328
    )
    
    
    (95,263
    )Gain in vendor settlements
    
    
    23,141
    
    
    
    20,389Gain on sale of intellectual property
    
    
    
    
    
    
    600,000Other income (expense), net
    
    
    (60,187
    )
    
    
    525,126Net loss
    
    
    (1,810,251
    )
    
    
    (632,110
    )Preferred stock dividend requirements:Recurring
    
    
    (80,573
    )
    
    
    (80,847
    )2006C Preferred equity offering
    
    
    (2,000,000
    )
    
    
    2005 Preferred equity offering
    
    
    
    
    
    
    (1,489,245
    )Preferred stock dividend requirements
    
    
    (2,080,573
    )
    
    
    (1,570,092
    )Net loss applicable to common stock
    
    $
    (3,890,824
    )
    
    $
    (2,202,202
    )Basic and diluted net loss per share
    
    $
    (0.14
    )
    
    $
    (0.08
    )Weighted average shares of common stock outstanding
    
    
    28,667,849
    
    
    
    27,929,553
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AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three Months EndedMarch 31,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (1,810,251
    )
    
    $
    (632,110
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation and amortization
    
    
    4,508
    
    
    
    4,826Amortization of financing discount and issuance costs
    
    
    42,241
    
    
    
    47,761Gain on vendor settlements and statutory write-off of payables
    
    
    (2,857
    )
    
    
    (20,389
    )Gain on sale of intellectual property
    
    
    
    
    
    
    (600,000
    )Stock based compensation expense
    
    
    165,318
    
    
    
    188,235Changes in operating assets and liabilities:Accounts receivable
    
    
    (118,557
    )
    
    
    (162,122Inventory
    
    
    82,996
    
    
    
    (38,945
    )Prepaid expenses and other
    
    
    (11,448
    )
    
    
    (21,413
    )Other assets
    
    
    
    
    
    
    (112
    )Accounts payable and accrued expenses
    
    
    1,120,397
    
    
    
    367,984Net cash used by operating activities
    
    
    (527,653
    )
    
    
    (866,285
    )Cash flow from investing activities:Capital expenditures
    
    
    (5,714
    )
    
    
    (1,063
    )Proceeds for sale of intellectual property
    
    
    
    
    
    
    600,000Net cash provided by (used in) investing activities
    
    
    (5,714
    )
    
    
    598,937Cash flow from financing activities:Net proceeds from issuance of common and preferred stock
    
    
    1,700,000
    
    
    
    1,464,244Net proceeds from issuance of common stock from warrants
    
    
    
    
    
    
    32,500Net proceeds from issuance of common stock from employee options
    
    
    3,760
    
    
    
    1,720Principal payments on financing agreements
    
    
    (246,784
    )
    
    
    (88,642
    )Net cash provided by financing activities
    
    
    1,456,976
    
    
    
    1,409,822Net change in cash and cash equivalents
    
    
    923,609
    
    
    
    1,142,474Cash and cash equivalents, beginning of period
    
    
    347,361
    
    
    
    236,869Cash and cash equivalents, end of period
    
    $
    1,270,970
    
    
    $
    1,379,343Supplemental Disclosure of Non-Cash Investing and Financing Activities:Conversions of notes payable into common stock
    
    $
    
    
    
    $
    396,667Conversions of accrued interest into common stock
    
    
    
    
    
    
    20,110Preferred stock dividends accrued
    
    
    80,573
    
    
    
    80,847Conversion of preferred shares into common stock
    
    
    650
    
    
    
    
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AXCESS INTERNATIONAL INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1) Summary of Significant Accounting Policies
 (a) Description of Business
     (b) Company Organization and Basis of Presentation
   (c) Basis of presentation




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(d) Accounting for Uncertainty in Income Taxes
     (e) Inventory
  March 31,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    29,802
    
    
    $
    31,344Work-in-process
    
    
    104
    
    
    
    114Finished goods
    
    
    283,403
    
    
    
    364,847$
    313,309
    
    
    $
    396,305
 (f) Stock-Based Compensation
 Adoption of SFAS 123R
 Share-Based Payment




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March 31,
    
    
    March 31,2007
    
    
    2006Research and development expense
    
    $
    39,774
    
    
    $
    36,189General and administrative expense
    
    
    93,385
    
    
    
    121,520Selling and marketing expense
    
    
    32,159
    
    
    
    30,526$
    165,318
    
    
    $
    188,235
 Stock Options as of the Quarterly Period Ended March 31, 2007
   Outstanding OptionsWeighted
    
    Weighted AverageAverage
    
    Remaining
    
    AggregateNumber of
    
    Exercise
    
    Contractual Term
    
    IntrinsicShares
    
    Price
    
    (in years)
    
    ValueOptions outstanding at January 1, 2007
    
    
    4,616,873
    
    
    $
    1.95Options granted
    
    
    
    
    
    
    Options exercised
    
    
    (9,400
    )
    
    
    0.40Options forfeited
    
    
    (47,000
    )
    
    
    1.35Options outstanding at March 31, 2007
    
    
    4,560,473
    
    
    
    1.96
    
    
    
    6.36
    
    
    $
    1,253,100Options exercisable at March 31, 2007
    
    
    3,093,221
    
    
    
    2.08
    
    
    
    8.11
    
    
    $
    802,575Options available for grants as of March 31, 2007
    
    
    3,790,000




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Options Outstanding
    
    Options ExercisableWeighted Average
    
    Weighted
    
    Number
    
    WeightedNumber
    
    Remaining
    
    Average
    
    Of
    
    AverageOf
    
    Contractual Term
    
    Exercise
    
    Options
    
    ExerciseRange of Exercise Price
    
    Options
    
    (in years)
    
    Price
    
    Exercisable
    
    Price$0.00 - $1.00
    
    
    836,000
    
    
    
    6.47
    
    
    $
    0.49
    
    
    
    686,000
    
    
    $
    0.40$1.01 - $2.00
    
    
    2,473,258
    
    
    
    7.81
    
    
    
    1.40
    
    
    
    1,193,506
    
    
    
    1.64$2.01  $3.00
    
    
    789,375
    
    
    
    3.47
    
    
    
    2.64
    
    
    
    751,875
    
    
    
    2.53$3.01 - $4.00
    
    
    193,840
    
    
    
    3.58
    
    
    
    3.88
    
    
    
    193,840
    
    
    
    3.88$4.01 - $5.00
    
    
    20,000
    
    
    
    4.17
    
    
    
    4.55
    
    
    
    20,000
    
    
    
    4.55$5.01 - $6.25
    
    
    248,000
    
    
    
    2.98
    
    
    
    5.80
    
    
    
    248,000
    
    
    
    5.80Total
    
    
    4,560,473
    
    
    
    6.36
    
    
    
    1.81
    
    
    
    3,093,221
    
    
    
    2.08
   March 31,
    
    March 31,2007
    
    2006Volatility
    
    
    
    
    
    
    134
    %Expected option term
    
    
    
    
    
    5 yearsRisk-free interest rate
    
    
    
    
    
    
    4.60
    %Expected dividend yield
    
    
    
    
    
    
    
 (g) Revenue Recognition
 Revenue Recognition Revenue
Arrangements with Multiple Deliverables
   (2) Contingencies
  (3) Preferred Stock




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Series
    
    Series
    
    Series
    
    Series
    
    Series2003B Series
    
    2004
    
    2005
    
    2006
    
    2006B
    
    2006CNumber of shares authorized
    
    
    2,750,000
    
    
    
    625,000
    
    
    
    2,750,000
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    200Stated value
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01Number of shares issued and outstanding:December 31, 2006
    
    
    1,790,000
    
    
    
    625,000
    
    
    
    956,495
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    March 31, 2007
    
    
    1,725,000
    
    
    
    625,000
    
    
    
    2,708,550
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    200Conversion 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 stockLiquidation preference
    
    None
    
    None
    
    None
    
    None
    
    None
    
    NoneDividend rights
    
    7% per annum, cumulative
    
    7% per annum, cumulative
    
    None
    
    None
    
    None
    
    None
 (a) Series 2003B Preferred Stock
   (b) Series 2004 Preferred Stock
   (c) Series 2005 Preferred Stock




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(d) Series 2006 Preferred Stock
   (e) Series 2006B Preferred Stock
    (f) Series 2006C Preferred Stock




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(4) Notes Payable
   (5) Significant Customers
  (6) Recent Accounting Pronouncements
  
 Item 2. Managements Discussion and Analysis or Plan of Operation
 Forward-Looking Statements




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Recent Developments: Going Concern and Liquidity Problems
   Liquidity and Capital Resources
     2006C Preferred Equity




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Barbados Port Inc
  Sales and Marketing Initiatives
  1.
    
    We continue to focus on replicating our past success;2.
    
    We continue to add integrators and partners to our sales channel;3.
    
    We continue to improve our professional skill sets and resources to grow the business.
  Results of Operations
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
 Sales and Gross Profit
 Operating Expenses




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Other expenses, net
 Net Loss
 Preferred Stock dividend requirements.
 Other
 Inflation
 
 Item 3. Controls and Procedures
 Controls and Procedures
      
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Changes in Securities




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Common Stock
  Warrants
  2003B Preferred Equity
  2006C Preferred Equity
  
 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.
  Date
    
    Description05/01/07
    
    On May 1, 2007, Axcess International Inc. filed an 8-K
announcing the results of the first quarter ended March
31, 2007.02/15/07
    
    On February 15, 2007, Axcess International Inc. filed an
8-K announcing the results for the year ended December
31, 2006.01/31/07
    
    On January 31, 2007, Axcess International Inc. filed an
8-K announcing they closed on $1,500,000 of the 2006C
Preferred Equity round.01/23/07
    
    On January 23, 2007, Axcess International Inc. filed an
8-K announcing they closed on $500,000 of the 2006C
Preferred Equity round and received a $2,006,000 order
from an entity in Barbados.




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