##### 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 JUNE 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
    
    (I.R.S. Employer Identification No.)or 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 June 30, 2007 and December 31, 2006Statements of Operations for the Three Months and Six Months ended June 30, 2007 and 2006Statements of Cash Flows for the Six Months ended June 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 Accouting and Financial OfficerCertification of our President, CEO and Principal Executive OfficerCertification of our VP, CFO, Secretary and Principal Accouting and Financial Officer




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##### Table of Contents



PART 1. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    472,591
    
    
    $
    347,361Accounts receivable  trade, net of allowance for
doubtful accounts of $14,521 for 2007 and $17,389 for
2006
    
    
    188,730
    
    
    
    252,230Inventory, net
    
    
    252,438
    
    
    
    396,305Prepaid expenses and other
    
    
    126,958
    
    
    
    92,090Total current assets
    
    
    1,040,717
    
    
    
    1,087,986Property, plant and equipment, net
    
    
    16,246
    
    
    
    18,369Deferred debt issuance costs
    
    
    84,482
    
    
    
    168,963Other assets
    
    
    2,934
    
    
    
    2,934Total assets
    
    $
    1,144,379
    
    
    $
    1,278,252LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    770,038
    
    
    $
    101,261Accrued liabilities
    
    
    1,205,899
    
    
    
    1,121,350Deferred revenue
    
    
    25,783
    
    
    
    25,665Notes payable to stockholders
    
    
    3,118,716
    
    
    
    3,365,500Dividends payable
    
    
    298,029
    
    
    
    138,594Total current liabilities
    
    
    5,418,465
    
    
    
    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; 28,744,413
shares issued and outstanding in 2007 and 28,657,313
shares issued and outstanding in 2006
    
    
    287,444
    
    
    
    286,573Additional paid-in capital
    
    
    160,217,666
    
    
    
    158,184,537Accumulated deficit
    
    
    (164,849,283
    )
    
    
    (162,015,963
    )Total stockholders deficit
    
    
    (4,274,086
    )
    
    
    (3,474,118
    )Total liabilities and stockholders deficit
    
    $
    1,144,379
    
    
    $
    1,278,252
  1




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AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF OPERATION
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Sales
    
    $
    1,658,758
    
    
    $
    354,475
    
    
    $
    2,681,781
    
    
    $
    808,038Cost of sales
    
    
    482,621
    
    
    
    189,215
    
    
    
    1,144,107
    
    
    
    463,845Gross profit
    
    
    1,176,137
    
    
    
    165,260
    
    
    
    1,537,674
    
    
    
    344,193Expenses:Research and development
    
    
    1,169,091
    
    
    
    259,898
    
    
    
    2,294,425
    
    
    
    863,587General and administrative
    
    
    449,022
    
    
    
    503,695
    
    
    
    858,184
    
    
    
    965,105Selling and marketing
    
    
    339,180
    
    
    
    298,112
    
    
    
    911,777
    
    
    
    564,357Depreciation and amortization
    
    
    4,020
    
    
    
    4,291
    
    
    
    8,528
    
    
    
    9,117Operating expenses
    
    
    1,961,313
    
    
    
    1,065,996
    
    
    
    4,072,914
    
    
    
    2,402,166Loss from operations
    
    
    (785,176
    )
    
    
    (900,736
    )
    
    
    (2,535,240
    )
    
    
    (2,057,973
    )Other income (expense):Interest expense
    
    
    (81,118
    )
    
    
    (87,372
    )
    
    
    (164,444
    )
    
    
    (182,636
    )Gain in vendor settlements
    
    
    2,659
    
    
    
    22,296
    
    
    
    25,799
    
    
    
    42,685Gain on sale of intellectual property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000Other income (expense), net
    
    
    (78,459
    )
    
    
    (65,076
    )
    
    
    (138,645
    )
    
    
    460,049Net loss
    
    
    (863,635
    )
    
    
    (965,812
    )
    
    
    (2,673,885
    )
    
    
    (1,597,924
    )Preferred stock dividend requirements:Recurring
    
    
    (78,861
    )
    
    
    (80,847
    )
    
    
    (159,435
    )
    
    
    (161,694
    )2005 Preferred equity offering
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,489,245
    )2006 Preferred equity offering
    
    
    
    
    
    
    (645,020
    )
    
    
    
    
    
    
    (645,020
    )2006C Preferred equity offering
    
    
    
    
    
    
    
    
    
    
    (2,000,000
    )
    
    
    Preferred stock dividend requirements
    
    
    (78,861
    )
    
    
    (725,867
    )
    
    
    (2,159,435
    )
    
    
    (2,295,959
    )Net loss applicable to common stock
    
    $
    (942,496
    )
    
    $
    (1,691,679
    )
    
    $
    (4,833,320
    )
    
    $
    (3,893,883
    )Basic and diluted net loss per share
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.17
    )
    
    $
    (0.14
    )Weighted average shares of common stock outstanding
    
    
    28,737,469
    
    
    
    28,203,636
    
    
    
    28,702,852
    
    
    
    28,067,362
  2




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AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months EndedJune 30,2007
    
    
    2006Cash flows from operating activities:Net loss
    
    $
    (2,673,885
    )
    
    $
    (1,597,924
    )Adjustments to reconcile net loss to net cash used
by operating activities:Depreciation and amortization
    
    
    8,528
    
    
    
    9,117Amortization of financing discount and issuance costs
    
    
    84,481
    
    
    
    90,003Gain on vendor settlements and statutory write-off of payables
    
    
    (2,857
    )
    
    
    (42,685
    )Gain on sale of intellectual property
    
    
    
    
    
    
    (600,000
    )Stock based compensation expense
    
    
    324,512
    
    
    
    375,272Changes in operating assets and liabilities:Accounts receivable
    
    
    63,500
    
    
    
    17,505Inventory
    
    
    143,867
    
    
    
    (168,928
    )Prepaid expenses and other
    
    
    (34,868
    )
    
    
    5,330Other assets
    
    
    
    
    
    
    (397
    )Accounts payable and accrued expenses
    
    
    756,301
    
    
    
    16,460Net cash used by operating activities
    
    
    (1,330,421
    )
    
    
    (1,896,247
    )Cash flow from investing activities:Capital expenditures
    
    
    (6,405
    )
    
    
    (1,874
    )Proceeds for sale of intellectual property
    
    
    
    
    
    
    600,000Net cash provided by (used in) investing activities
    
    
    (6,405
    )
    
    
    598,126Cash flow from financing activities:Net proceeds from issuance of common and preferred stock
    
    
    1,700,000
    
    
    
    2,484,244Net proceeds from issuance of common stock from warrants
    
    
    
    
    
    
    32,500Net proceeds from issuance of common stock from employee options
    
    
    8,840
    
    
    
    2,521Principal payments on financing agreements
    
    
    (246,784
    )
    
    
    (235,411
    )Net cash provided by financing activities
    
    
    1,462,056
    
    
    
    2,283,854Net change in cash and cash equivalents
    
    
    125,230
    
    
    
    985,733Cash and cash equivalents, beginning of period
    
    
    347,361
    
    
    
    236,869Cash and cash equivalents, end of period
    
    $
    472,591
    
    
    $
    1,222,602Supplemental 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
    
    
    159,435
    
    
    
    161,694Conversion of preferred shares into common stock
    
    
    650
    
    
    
    
  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
   (c) Basis of presentation
 
    Table of Contents     (d) Critical Accounting Policies and Estimates
  (e) Accounting for Uncertainty in Income Taxes
     (f) Inventory
  June 30,
    
    
    December 31,2007
    
    
    2006Raw materials
    
    $
    25,528
    
    
    $
    31,344Work-in-process
    
    
    114
    
    
    
    114Finished goods
    
    
    226,796
    
    
    
    364,847$
    252,438
    
    
    $
    396,305




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(g) Stock-Based Compensation
 Adoption of SFAS 123R
 Share-Based Payment
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Research and development expense
    
    $
    39,773
    
    
    $
    41,900
    
    
    $
    79,547
    
    
    $
    78,088General and administrative expense
    
    
    93,385
    
    
    
    108,914
    
    
    
    186,770
    
    
    
    230,434Selling and marketing expense
    
    
    26,036
    
    
    
    36,224
    
    
    
    58,195
    
    
    
    66,750Total
    
    $
    159,194
    
    
    $
    187,038
    
    
    $
    324,512
    
    
    $
    375,272
 Stock Options as of the Six Month Period Ended June 30, 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
    
    
    (22,100
    )
    
    
    0.40Options forfeited
    
    
    (87,000
    )
    
    
    1.26Options outstanding at June 30, 2007
    
    
    4,507,773
    
    
    
    1.97
    
    
    
    6.08
    
    
    $
    1,342,465Options exercisable at June 30, 2007
    
    
    3,389,846
    
    
    
    1.97
    
    
    
    7.52
    
    
    $
    1,048,125Options available for grants as of June 30, 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
    
    
    823,300
    
    
    
    6.23
    
    
    $
    0.50
    
    
    
    855,500
    
    
    $
    0.40$1.01 - $2.00
    
    
    2,433,258
    
    
    
    7.54
    
    
    
    1.41
    
    
    
    1,289,756
    
    
    
    1.62$2.01 - $3.00
    
    
    789,375
    
    
    
    3.22
    
    
    
    2.64
    
    
    
    775,250
    
    
    
    2.47$3.01 - $4.00
    
    
    193,840
    
    
    
    3.33
    
    
    
    3.88
    
    
    
    201,340
    
    
    
    3.88$4.01 - $5.00
    
    
    20,000
    
    
    
    3.92
    
    
    
    4.55
    
    
    
    20,000
    
    
    
    4.55$5.01 - $6.25
    
    
    248,000
    
    
    
    2.73
    
    
    
    5.80
    
    
    
    248,000
    
    
    
    5.80Total
    
    
    4,507,773
    
    
    
    6.08
    
    
    
    1.82
    
    
    
    3,389,846
    
    
    
    1.97
   June 30,2006Volatility
    
    
    131
    %Expected option term
    
    5 yearsRisk-free interest rate
    
    
    4.60
    %Expected dividend yield
    
    
    
 (h) Revenue Recognition
 Revenue Recognition Revenue
Arrangements with Multiple Deliverables




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(2) Contingencies
  (3) Preferred Stock
  2003B
    
    Series
    
    Series
    
    Series
    
    Series
    
    SeriesSeries
    
    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
    
    
    
    2,708,550
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    June 30, 2007
    
    
    1,725,000
    
    
    
    625,000
    
    
    
    2,708,550
    
    
    
    1,200,000
    
    
    
    750,000
    
    
    
    200Conversion ratio
(orconversion price)
ofpreferred shares
intocommon
    
    
    1 to 1 intovotingcommonstock
    
    
    
    1 to 1 intovotingcommonstock
    
    
    
    1 to 1intovotingcommonstock
    
    
    
    1 to 1 intovotingcommonstock
    
    
    
    1 to 1intovotingcommonstock
    
    
    
    1 to 10,000intovotingcommonstockLiquidation preference
    
    None
    
    None
    
    None
    
    None
    
    None
    
    NoneDividend rights
    
    7% perannum,cumulative
    
    7% perannum,cumulative
    
    None
    
    None
    
    None
    
    None
 (a) Series 2003B Preferred Stock
   (b) Series 2004 Preferred Stock




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(c) Series 2005 Preferred Stock
      (d) Series 2006 Preferred Stock
   (e) Series 2006B Preferred Stock




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(f) Series 2006C Preferred Stock
   (4) Notes Payable
   (5) Significant Customers
   (6) Recent Accounting Pronouncements
  (7) Subsequent Event (unaudited)




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Item 2. Managements Discussion and Analysis or Plan of Operation
 Forward-Looking Statements
     Recent Developments: Going Concern and Liquidity Problems
   Liquidity and Capital Resources




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2006C Preferred Equity
  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 June 30, 2007 Compared to Three Months Ended June 30, 2006
 Sales and Gross Profit




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




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Other income (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




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Item 2. Changes in Securities
  Common Stock
  
 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.
 
 (b)
    
    Reports on Form 8-K:




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SIGNATURES
  AXCESS INTERNATIONAL INC.,Registrant/s/ ALLAN GRIEBENOWAllan Griebenow Director, President andChief Executive Officer (Principal Executive Officer)/s/ ALLAN L. FRANK

Allan L. FrankChief Financial Officer and Secretary(Principal Accounting and Financial Officer)