##### Table of Contents



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 SEPTEMBER 30, 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
    
    (I.R.S. Employer Identification No.)organization)
 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 September 30, 2007 and December 31, 2006Statements of Operations for the Three Months and Nine Months ended September 30, 2007 and 2006Statements of Cash Flows for the Nine Months ended September 30, 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 of our President, CEO and Principal Executive OfficerCertification of our VP, CFO, Secretary and Principal Accounting and Financial OfficerCertification of our President, CEO and Principal Executive OfficerCertification of our VP, CFO, Secretary and Principal Accounting and Financial OfficerPress Release




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PART 1. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    972,646
    
    
    $
    347,361Accounts receivable  trade, net of allowance for
doubtful accounts of $14,521 for 2007 and $17,389
for 2006
    
    
    164,047
    
    
    
    252,230Inventory, net
    
    
    241,103
    
    
    
    396,305Prepaid expenses and other
    
    
    131,013
    
    
    
    92,090Total current assets
    
    
    1,508,809
    
    
    
    1,087,986Property, plant and equipment, net
    
    
    12,757
    
    
    
    18,369Deferred debt issuance costs
    
    
    42,241
    
    
    
    168,963Other assets
    
    
    54,721
    
    
    
    2,934Total assets
    
    $
    1,618,528
    
    
    $
    1,278,252LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    140,372
    
    
    $
    101,261Accrued liabilities
    
    
    1,329,038
    
    
    
    1,121,350Deferred revenue
    
    
    40,356
    
    
    
    25,665Notes payable to stockholders
    
    
    3,118,716
    
    
    
    3,365,500Dividends payable
    
    
    46,797
    
    
    
    138,594Total current liabilities
    
    
    4,675,279
    
    
    
    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,
7,008,955 and 7,073,550 shares issued and
outstanding in 2007 and 2006, respectively
    
    
    70,090
    
    
    
    70,735Common stock, $.01 par value, 70,000,000 shares
authorized in 2007 and 2006, respectively;
28,973,703 shares issued and outstanding in 2007
and 28,657,313 shares issued and outstanding in
2006
    
    
    289,737
    
    
    
    286,573Additional paid-in capital
    
    
    162,588,822
    
    
    
    158,184,537Accumulated deficit
    
    
    (166,005,400
    )
    
    
    (162,015,963
    )Total stockholders deficit
    
    
    (3,056,751
    )
    
    
    (3,474,118
    )Total liabilities and stockholders deficit
    
    $
    1,618,528
    
    
    $
    1,278,252
  1




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AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF OPERATION
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Sales
    
    $
    281,656
    
    
    $
    369,621
    
    
    $
    2,963,437
    
    
    $
    1,177,659Cost of sales
    
    
    136,871
    
    
    
    197,379
    
    
    
    1,280,977
    
    
    
    661,224Gross profit
    
    
    144,785
    
    
    
    172,242
    
    
    
    1,682,460
    
    
    
    516,435Expenses:Research and development
    
    
    397,074
    
    
    
    245,888
    
    
    
    2,691,499
    
    
    
    1,109,476General and administrative
    
    
    419,110
    
    
    
    444,010
    
    
    
    1,277,294
    
    
    
    1,409,115Selling and marketing
    
    
    319,957
    
    
    
    291,838
    
    
    
    1,231,734
    
    
    
    856,195Depreciation and amortization
    
    
    3,488
    
    
    
    4,463
    
    
    
    12,016
    
    
    
    13,580Operating expenses
    
    
    1,139,629
    
    
    
    986,199
    
    
    
    5,212,543
    
    
    
    3,388,366Loss from operations
    
    
    (994,844
    )
    
    
    (813,957
    )
    
    
    (3,530,083
    )
    
    
    (2,871,931
    )Other income (expense):Interest expense
    
    
    (81,545
    )
    
    
    (86,994
    )
    
    
    (245,991
    )
    
    
    (269,629
    )Gain in vendor settlements and other
    
    
    
    
    
    
    27,343
    
    
    
    25,799
    
    
    
    70,027Gain on sale of intellectual property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000Other income (expense), net
    
    
    (81,545
    )
    
    
    (59,651
    )
    
    
    (220,192
    )
    
    
    400,398Net loss
    
    
    (1,076,389
    )
    
    
    (873,608
    )
    
    
    (3,750,275
    )
    
    
    (2,471,533
    )Preferred stock dividend requirements:Recurring
    
    
    (79,728
    )
    
    
    (81,735
    )
    
    
    (239,163
    )
    
    
    (243,428
    )2005 Preferred equity offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,489,245
    )2006 Preferred equity offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (645,020
    )2006C Preferred equity offering
    
    
    
    
    
    
    
    
    
    
    (2,000,000
    )
    
    
    2007 Preferred equity offering
    
    
    (2,050,000
    )
    
    
    
    
    
    
    (2,050,000
    )
    
    
    Preferred stock dividend requirements
    
    
    (2,129,728
    )
    
    
    (81,735
    )
    
    
    (4,289,163
    )
    
    
    (2,377,693
    )Net loss applicable to common stock
    
    $
    (3,206,117
    )
    
    $
    (955,343
    )
    
    $
    (8,039,438
    )
    
    $
    (4,849,226
    )Basic and diluted net loss per share
    
    $
    (0.11
    )
    
    $
    (0.03
    )
    
    $
    (0.28
    )
    
    $
    (0.17
    )Weighted average shares of common stock outstanding
    
    
    28,874,100
    
    
    
    28,516,329
    
    
    
    28,760,562
    
    
    
    28,218,656
  2




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AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (3,750,275
    )
    
    $
    (2,471,533
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation and amortization
    
    
    12,016
    
    
    
    13,580Amortization of financing discount and issuance costs
    
    
    126,724
    
    
    
    132,243Gain on vendor settlements and statutory write-off of payables
    
    
    (2,857
    )
    
    
    (70,000
    )Gain on sale of intellectual property
    
    
    
    
    
    
    (600,000
    )Stock based compensation expense
    
    
    485,243
    
    
    
    538,564Changes in operating assets and liabilities:Accounts receivable
    
    
    88,183
    
    
    
    (48,565
    )Inventory
    
    
    155,202
    
    
    
    (360,039
    )Prepaid expenses and other
    
    
    (38,923
    )
    
    
    (50,980
    )Other assets
    
    
    (51,787
    )
    
    
    (397
    )Accounts payable and accrued expenses
    
    
    264,347
    
    
    
    142,323Net cash used by operating activities
    
    
    (2,712,127
    )
    
    
    (2,774,804
    )Cash flow from investing activities:Capital expenditures
    
    
    (6,405
    )
    
    
    (4,868
    )Proceeds for sale of intellectual property
    
    
    
    
    
    
    600,000Net cash provided by (used in) investing activities
    
    
    (6,405
    )
    
    
    595,132Cash flow from financing activities:Net proceeds from issuance of common and preferred stock
    
    
    3,577,500
    
    
    
    2,484,244Net proceeds from issuance of common stock from warrants
    
    
    
    
    
    
    32,500Net proceeds from issuance of common stock from employee options
    
    
    13,101
    
    
    
    7,680Principal payments on financing agreements
    
    
    (246,784
    )
    
    
    (343,571
    )Net cash provided by financing activities
    
    
    3,343,817
    
    
    
    2,180,853Net change in cash and cash equivalents
    
    
    625,285
    
    
    
    1,181Cash and cash equivalents, beginning of period
    
    
    347,361
    
    
    
    236,869Cash and cash equivalents, end of period
    
    $
    972,646
    
    
    $
    238,050Supplemental 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
    
    
    239,163
    
    
    
    243,428Conversion of preferred shares into common stock
    
    
    650
    
    
    
    395,349Conversion of accrued dividends into common stock
    
    
    330,960
    
    
    
    
  3




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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




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(c) Basis of presentation
   (d) Critical Accounting Policies and Estimates
  (e) Accounting for Uncertainty in Income Taxes




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(f) Inventory
  September 30,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    24,030
    
    
    $
    31,344Work-in-process
    
    
    114
    
    
    
    114Finished goods
    
    
    216,959
    
    
    
    364,847$
    241,103
    
    
    $
    396,305
 (g) Stock-Based Compensation
 Adoption of SFAS 123R
 Share-Based Payment
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Research and development expense
    
    $
    43,937
    
    
    $
    32,424
    
    
    $
    123,485
    
    
    $
    110,514General and administrative expense
    
    
    93,077
    
    
    
    93,728
    
    
    
    279,777
    
    
    
    324,162Selling and marketing expense
    
    
    23,787
    
    
    
    37,139
    
    
    
    81,981
    
    
    
    103,888Total
    
    $
    160,801
    
    
    $
    163,291
    
    
    $
    485,243
    
    
    $
    538,564
 Stock Options as of the Nine Month Period Ended September 30, 2007




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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
    
    
    1,165,000
    
    
    
    1.69Options exercised
    
    
    (30,750
    )
    
    
    0.43Options forfeited
    
    
    (192,750
    )
    
    
    1.50Options outstanding at September 30, 2007
    
    
    5,558,373
    
    
    
    1.87
    
    
    
    6.67
    
    
    $
    2,105,800Options exercisable at September 30, 2007
    
    
    3,346,096
    
    
    
    2.00
    
    
    
    7.21
    
    
    $
    1,365,750Options available for grants as of September 30, 2007
    
    
    2,712,000
   Options Outstanding
    
    Options ExercisableWeighted Average
    
    Weighted
    
    NumberNumber
    
    Remaining
    
    Average
    
    Of
    
    Weighted AverageOf
    
    Contractual Term
    
    Exercise
    
    Options
    
    ExerciseRange of Exercise Price
    
    Options
    
    (in years)
    
    Price
    
    Exercisable
    
    Price$0.00 - $1.00
    
    
    815,900
    
    
    
    5.98
    
    
    $
    0.50
    
    
    
    855,500
    
    
    $
    0.40$1.01 - $2.00
    
    
    3,566,258
    
    
    
    8.15
    
    
    
    1.44
    
    
    
    1,302,256
    
    
    
    1.62$2.01 - $3.00
    
    
    714,375
    
    
    
    2.56
    
    
    
    2.66
    
    
    
    719,000
    
    
    
    2.66$3.01 - $4.00
    
    
    193,840
    
    
    
    3.08
    
    
    
    3.88
    
    
    
    201,340
    
    
    
    3.88$4.01 - $5.00
    
    
    20,000
    
    
    
    3.67
    
    
    
    4.55
    
    
    
    20,000
    
    
    
    4.55$5.01 - $6.25
    
    
    248,000
    
    
    
    2.48
    
    
    
    5.80
    
    
    
    248,000
    
    
    
    5.80Total
    
    
    5,558,373
    
    
    
    6.67
    
    
    
    1.75
    
    
    
    3,346,096
    
    
    
    2.00
   September 30,2007Volatility
    
    
    109
    %Expected option term
    
    5 yearsRisk-free interest rate
    
    
    4.48
    %Expected dividend yield
    
    
    
 (h) Revenue Recognition
 Revenue Recognition Revenue
Arrangements with Multiple Deliverables




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(2) Contingencies
  (3) Preferred Stock
  Series
    
    Series
    
    Series
    
    Series
    
    Series
    
    Series
    
    Series2003B
    
    2004
    
    2005
    
    2006
    
    2006B
    
    2006C
    
    2007Number of shares authorized
    
    
    2,750,000
    
    
    
    625,000
    
    
    
    2,750,000
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    200
    
    
    
    205Stated value
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01Number of shares issued and outstandingDecember 31, 2006
    
    
    1,790,000
    
    
    
    625,000
    
    
    
    2,708,550
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    
    
    
    
    September 30, 2007
    
    
    1,725,000
    
    
    
    625,000
    
    
    
    2,708,550
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    200
    
    
    
    205Conversion 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 stockLiquidation preference
    
    None
    
    None
    
    None
    
    None
    
    None
    
    None
    
    NoneDividend rights
    
    7% per annum,
cumulative
    
    7% per annum,
cumulative
    
    None
    
    None
    
    None
    
    None
    
    None
 (a) Series 2003B Preferred Stock




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(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
   (g) Series 2007 Preferred Stock




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(4) Notes Payable
   (5) Significant Customers
   (6) Subsequent Event
  TM
 
 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




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2007 Preferred Equity
  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 September 30, 2007 Compared to Three Months Ended September 30, 2006
 Sales and Gross Profit
 Operating Expenses
     Other expenses, net




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Net Loss
 Preferred Stock dividend requirements.
 Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2006
 Sales and Gross Profit
 Operating Expenses
     Other income (expenses), net
 Net Loss
 Preferred Stock dividend requirements.
 Other
 Inflation




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Item 3. Controls and Procedures
 Controls and Procedures
      
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Changes in Securities
  Common Stock
   Warrants
  2007 Preferred Equity




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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
    
    Axcess International press release announcing Dot
micro-wireless technology for business activity monitoring.
 
 (b)
    
    Reports on Form 8-K: Date
    
    Description10/3/07
    
    On October 3, 2007, the Company announced the sale of an
additional $650,000 of its 2007 Preferred stock.




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