##### 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 June 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
(State or other jurisdiction of incorporation
 or organization)
    
    85-0294536
(I.R.S. Employer Identification No.)
 16650 Westgrove Drive, Suite 600
Addison, Texas 75001
(972) 407-6080
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ




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##### 



AXCESS INTERNATIONAL INC.
INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Balance Sheets at June 30, 2009 and December 31, 2008 (unaudited)
    
    
    1Statements of Operations for the Three Months and Six Months ended June 30, 2009 and 2008 (unaudited)
    
    
    2Statements of Cash Flows for the Six Months ended June 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
    
    
   18Item 1A. Risk Factors
    
    
   18Item 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
    
    
   19SIGNATURES
    
    
   20Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2Exhibit 99.1




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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 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    287,663
    
    
    $
    51,392Accounts receivable  trade, net of allowance for doubtful accounts of
$30,132 and $27,424 for 2009 and 2008, respectively
    
    
    448,374
    
    
    
    92,844Inventory, net
    
    
    102,269
    
    
    
    142,782Prepaid expenses and other
    
    
    29,485
    
    
    
    43,100Total current assets
    
    
    867,791
    
    
    
    330,118Property, plant and equipment, net
    
    
    20,025
    
    
    
    18,969Deferred debt issuance costs
    
    
    15,625
    
    
    
    18,750Other assets
    
    
    48,326
    
    
    
    53,062Total assets
    
    $
    951,767
    
    
    $
    420,899LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable (includes $12,909 and $18,645 with related party in
2009 and 2008, respectively)
    
    $
    724,505
    
    
    $
    905,354Accrued liabilities
    
    
    390,262
    
    
    
    502,566Accrued interest
    
    
    1,217,925
    
    
    
    1,112,862Deferred revenue
    
    
    17,570
    
    
    
    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
    
    
    3,582,050
    
    
    
    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
    
    
    6,278,396
    
    
    
    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, 6,115,211 and
6,125,211 shares issued and outstanding in 2009 and 2008, respectively
    
    
    61,152
    
    
    
    61,252Common stock, $.01 par value, 70,000,000 shares authorized in 2009 and
2008; 31,222,016 shares issued and outstanding in 2009 and 31,204,931
shares issued and outstanding in 2008
    
    
    312,220
    
    
    
    312,050Common shares to be issued (855,577 shares)
    
    
    8,556
    
    
    
    Additional paid-in capital
    
    
    166,332,055
    
    
    
    165,641,922Accumulated deficit
    
    
    (172,040,612
    )
    
    
    (172,301,250
    )Total stockholders deficit
    
    
    (5,326,629
    )
    
    
    (6,286,026
    )Total liabilities and stockholders deficit
    
    $
    951,767
    
    
    $
    420,899
   1




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##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Sales
    
    $
    3,156,836
    
    
    $
    487,345
    
    
    $
    4,239,518
    
    
    $
    663,831Cost of sales
    
    
    797,930
    
    
    
    258,868
    
    
    
    1,543,904
    
    
    
    364,595Gross profit
    
    
    2,358,906
    
    
    
    228,477
    
    
    
    2,695,614
    
    
    
    299,236Expenses:Research and development
    
    
    239,240
    
    
    
    536,098
    
    
    
    548,599
    
    
    
    1,407,687General and administrative
    
    
    410,470
    
    
    
    358,372
    
    
    
    734,923
    
    
    
    745,808Selling and marketing
    
    
    532,093
    
    
    
    317,693
    
    
    
    926,651
    
    
    
    643,743Depreciation and amortization
    
    
    5,058
    
    
    
    2,670
    
    
    
    9,722
    
    
    
    6,962Operating expenses
    
    
    1,186,861
    
    
    
    1,214,833
    
    
    
    2,219,895
    
    
    
    2,804,200Profit (loss) from operations
    
    
    1,172,045
    
    
    
    (986,356
    )
    
    
    475,719
    
    
    
    (2,504,964
    )Other income (expense):Interest expense
    
    
    (71,134
    )
    
    
    (178,066
    )
    
    
    (178,495
    )
    
    
    (294,560
    )Gain on vendor settlements
    
    
    14,868
    
    
    
    2,247
    
    
    
    58,677
    
    
    
    2,318Other expense, net
    
    
    (56,266
    )
    
    
    (175,819
    )
    
    
    (119,818
    )
    
    
    (292,242
    )Net income (loss)
    
    
    1,115,779
    
    
    
    (1,162,175
    )
    
    
    355,901
    
    
    
    (2,797,206
    )Preferred stock dividend requirements:Recurring
    
    
    (47,797
    )
    
    
    (71,592
    )
    
    
    (95,263
    )
    
    
    (148,547
    )2008 Preferred equity offering
    
    
    
    
    
    
    (558,686
    )
    
    
    
    
    
    
    (558,686
    )Preferred stock dividend requirements
    
    
    (47,797
    )
    
    
    (630,278
    )
    
    
    (95,263
    )
    
    
    (707,233
    )Net income (loss) applicable to common stock
    
    $
    1,067,982
    
    
    $
    (1,792,453
    )
    
    $
    260,638
    
    
    $
    (3,504,439
    )Net income (loss) per shareBasic
    
    $
    0.03
    
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    (0.12
    )Diluted
    
    $
    0.03
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    Weighted average shares of common stock outstandingBasic
    
    
    31,776,731
    
    
    
    29,574,213
    
    
    
    31,495,431
    
    
    
    29,486,548Diluted
    
    
    43,338,048
    
    
    
    
    
    
    
    42,908,467
    
    
    
    
   2




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##### Table of Contents



AXCESS INTERNATIONAL INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Six Months EndedJune 30,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    355,901
    
    
    $
    (2,797,206
    )Adjustments to reconcile net loss to net cash provided by (used in)
by operating activities:Depreciation and amortization
    
    
    9,722
    
    
    
    6,962Amortization of financing discount and issuance costs, net
    
    
    16,217
    
    
    
    (7,883
    )Gain on vendor settlements and statutory write-off of payables
    
    
    58,677
    
    
    
    71Warrants issued for services
    
    
    
    
    
    
    (10,604
    )Stock based compensation expense
    
    
    297,402
    
    
    
    386,159Changes in operating assets and liabilities:Accounts receivable
    
    
    (355,530
    )
    
    
    124,962Inventory
    
    
    40,513
    
    
    
    28,281Prepaid expenses and other
    
    
    13,615
    
    
    
    5,677Other assets
    
    
    (443
    )
    
    
    (9,571
    )Accounts payable and accrued expenses
    
    
    (194,204
    )
    
    
    829,140Net cash provided by (used in) operating activities
    
    
    241,870
    
    
    
    (1,444,012
    )Cash flow from investing activities:Capital expenditures
    
    
    (5,599
    )
    
    
    (6,341
    )Net cash used in investing activities
    
    
    (5,599
    )
    
    
    (6,341
    )Cash flow from financing activities:Net proceeds from issuance of common and preferred stock
    
    
    
    
    
    
    1,019,999Principal payments on financing agreements
    
    
    (160,000
    )
    
    
    (100,000
    )Borrowings on financing agreements
    
    
    160,000
    
    
    
    695,273Net cash provided by financing activities
    
    
    
    
    
    
    1,615,272Net change in cash and cash equivalents
    
    
    236,271
    
    
    
    164,919Cash and cash equivalents, beginning of period
    
    
    51,392
    
    
    
    59,089Cash and cash equivalents, end of period
    
    $
    287,663
    
    
    $
    224,008Supplemental Disclosure of Non-Cash Investing and Financing Activities:Warrants issued as a debt discount
    
    $
    57,215
    
    
    $
    91,892Accrued preferred stock dividends
    
    
    95,263
    
    
    
    76,955Conversion of preferred shares into common stock
    
    
    100
    
    
    
    1,100Conversion of accrued dividends into common stock
    
    
    344,142
    
    
    
    
   3




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##### 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




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##### Table of Contents



(d) Use of Estimates
  (e) Inventory
  June 30,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    38,231
    
    
    $
    24,275Work-in-process
    
    
    109
    
    
    
    104Finished goods
    
    
    63,929
    
    
    
    118,403$
    102,269
    
    
    $
    142,782
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Product cost
    
    $
    760,546
    
    
    $
    228,978
    
    
    $
    1,501,763
    
    
    $
    334,596Warranty expense
    
    
    6,602
    
    
    
    29,890
    
    
    
    11,359
    
    
    
    29,999Inventory impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    767,148
    
    
    $
    258,868
    
    
    $
    1,513,122
    
    
    $
    364,595
 (f) Stock-Based Compensation
 Share-Based Payment
   5




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Research and development expense
    
    $
    51,147
    
    
    $
    63,698
    
    
    $
    102,294
    
    
    $
    139,022General and administrative expense
    
    
    70,412
    
    
    
    70,712
    
    
    
    140,937
    
    
    
    181,440Selling and marketing expense
    
    
    27,085
    
    
    
    28,132
    
    
    
    54,171
    
    
    
    65,697Total
    
    $
    148,644
    
    
    $
    162,542
    
    
    $
    297,402
    
    
    $
    386,159
 (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
    
    
    (474,681
    )
    
    
    1.65Options outstanding at June 30, 2009
    
    
    4,918,292
    
    
    
    1.90
    
    
    
    4.90
    
    
    $
    5,700Options exercisable at June 30, 2009
    
    
    4,255,292
    
    
    
    1.76
    
    
    
    5.66
    
    
    $
    8,550Options available for grants as of June 30, 2009
    
    
    2,998,000
  Intrinsic Value ofNumber of
    
    
    Weighted Average
    
    
    Vested UnexercisedOption Price
    
    Options
    
    
    Remaining Life
    
    
    Options$0.00  $1.00
    
    
    720,000
    
    
    
    4.33
    
    
    $
    5,700$1.01  $2.00
    
    
    3,116,961
    
    
    
    6.40$2.01  $3.00
    
    
    663,875
    
    
    
    0.88$3.01  $4.00
    
    
    165,900
    
    
    
    1.53$4.01  $5.00
    
    
    20,000
    
    
    
    1.92$5.01  $6.25
    
    
    231,556
    
    
    
    0.74Total
    
    
    4,918,292
    
    
    
    4.90
    
    
    $
    5,700
  6




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##### 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 Revenue
Arrangements with Multiple Deliverables
   (2) Contingencies
    7




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##### 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
    
    
    
    80June 30, 2009
    
    
    1,565,000
    
    
    
    
    
    
    
    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 will result in the issuance of 1,565,000
common shares to the former 2003B preferred stock holders. (a) Series 2003B Preferred Stock
    8




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##### Table of Contents



(b) Series 2004 Preferred Stock
   (c) Series 2005 Preferred Stock
    (d) Series 2006 Preferred Stock
    9




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##### Table of Contents



(e) Series 2006B Preferred Stock
    (f) Series 2006C Preferred Stock
   (g) Series 2007 Preferred Stock
    (h) Series 2008 Preferred Stock
    (i) Series 2008B Preferred Stock
   10




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##### Table of Contents



(4) Notes Payable
 PV Proceeds Holdings, Inc.
    Amphion Investment LLC
   11




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##### Table of Contents



Convertible Note
  Balance as ofJune 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
   (5) Significant Customers
   (6) Recent Accounting Pronouncements
 Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies,
   12




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##### Table of Contents



Subsequent Events
 
 Amendments to FASB Interpretation No. 46
(R)
  Interim Disclosures about Fair Value of
Financial Instruments
 Recognition and Presentation of Other Than
Temporary Impairments
 (7) Subsequent Events
   13




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##### Table of Contents



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




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##### Table of Contents



Liquidity and Capital Resources
     Amphion Convertible Note
   Results of Operations
 Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
 Sales and Gross Profit
  15




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##### Table of Contents



Operating Expenses
     Other expenses, net
 Net income (Loss)
 Preferred Stock dividend requirements.
 Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
 Sales and Gross Profit
 Operating Expenses
     16




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##### Table of Contents



Other expenses, net
 Net income ( Loss)
 Preferred Stock dividend requirements.
 Other
 Inflation
 
 Item 3.
    
    Quantitative and Qualitative Disclosure about Market Risk
  
 Item 4.
    
    Controls and Procedures
 Controls and Procedures
         17




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  Common Stock
   Warrants
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
   18




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##### Table of Contents



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
    
    
    August 14, 2009 Axcess International Reports Second quarter 2009 earning results
  19




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##### 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)   20




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##### Table of Contents



EXHIBIT INDEX
 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
    
    
    August 14, 2009 Axcess International Reports Second quarter 2009 earning results
  21