**SECURITIES AND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

**FORM 10-QSB**

 

| **ý** |   | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR  THE QUARTERLY PERIOD ENDED MARCH 31, 2003** |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|       |
| **or**     |
|       |
| **o**      |   | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**                                                                  |

 

**COMMISSIONFILE NUMBER: 0-11933**

 

**AXCESS INTERNATIONAL INC.**

**(formerly AXCESSInc.)**

(Exact name of small business issuer asspecified in its charter)

 
| **Delaware**                                                                         |   | **85-0294536**                       |
|--------------------------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization)                       |   | (I.R.S. Employer Identification No.) |
|                                                                                 |   |                                 |
| **3208 Commander DriveCarrollton, Texas 75006  (972) 407-6080**                      |
| (Address, including telephone number and area code, of principal  executive offices) |

 

Check whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes ýNo o

 

Number of shares of commonstock outstanding on May 1, 2003: 16,838,648.

 

Transitional Small BusinessDisclosure Format: Yes oNo ý

 

 

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**AXCESS INC.INDEX**

 
| **PART I. FINANCIAL INFORMATION** |
|-----------------------------------|
|                              |   |   |
|                              | Item 1. Financial Statements: |
|                              |   |   |
|                              |   | Balance Sheets at March 31, 2003 and  December 31, 2002 |
|                              |   |   |
|                              |   | Statements  of Operations for the Three Months ended March 31, 2003 and 2002 |
|                              |   |   |
|                              |   | Statements of Cash Flows for the Three  Months ended March 31, 2003 and 2002 |
|                              |   |   |
|                              |   | Notes to Financial Statements |
|                              |   |   |
|                              | Item 2. Management’s Discussion and  Analysis or Plan of Operation |
|                              |   |
|                              | Item 3. Controls and Procedures |
|                              |   |
| **PART II. OTHER INFORMATION**    |
|                              |   |   |
|                              | Item 1. Legal Proceedings |
|                              |   |   |
|                              | Item 2. Changes in Securities |
|                              |   |   |
|                              | 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 |
|                              |   |   |
| **SIGNATURES**                    |
|                              |
| **CERTIFICATIONS**                |
|                                   |  |  |  |  |

 

----

 

**PART1****. FINANCIAL INFORMATION**

**Item1****. Financial Statements**

 

**AXCESS INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(Unaudited)**

** **
|                                                                                                                                                                                            |   | **March 31,  2003** |       | **December  31,  2002** |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------------------|------------|
| ASSETS                                                                                                                                                                                          |   |                | ** ** |                    | ** ** |
|                                                                                                                                                                                            |   |                |       |                    |       |
| Current assets:                                                                                                                                                                                 |   |                |       |                    |       |
| Cash and cash equivalents                                                                                                                                                                       |   | $                   | 15,282     |                    | $          | 33,249 |   |
| Restricted Cash                                                                                                                                                                                 |   | —              |       | 140,000                 |       |
| Accounts receivable - trade, net of  allowance for doubtful accounts                                                                                                                            |   | 126,299             |       | 85,379                  |       |
| Inventory                                                                                                                                                                                       |   | 214,056             |       | 231,619                 |       |
| Prepaid expenses and other                                                                                                                                                                      |   | 70,668              |       | 93,944                  |       |
|                                                                                                                                                                                            |   |                |       |                    |       |
| Total current assets                                                                                                                                                                            |   | 426,305             |       | 584,191                 |       |
|                                                                                                                                                                                            |   |                |       |                    |       |
| Property, plant and equipment, net                                                                                                                                                              |   | 169,018             |       | 213,794                 |       |
| Intellectual property, net                                                                                                                                                                      |   | 372,860             |       | 447,245                 |       |
| Other assets                                                                                                                                                                                    |   | —              |       | 29,384                  |       |
|                                                                                                                                                                                            |   |                |       |                    |       |
| Total assets                                                                                                                                                                                    |   | $                   | 968,183    |                    | $          | 1,274,614 |   |
|                                                                                                                                                                                            |   |                |       |                    |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY  (DEFICIT)                                                                                                                                            |   |                |       |                    |       |
|                                                                                                                                                                                            |   |                |       |                    |       |
| Current liabilities:                                                                                                                                                                            |   |                |       |                    |       |
| Accounts payable                                                                                                                                                                                |   | $                   | 1,407,397  |                    | $          | 1,404,060 |   |
| Other accrued liabilities                                                                                                                                                                       |   | 1,650,051           |       | 1,501,727               |       |
| Restricted cash for future funding                                                                                                                                                              |   | —              |       | 140,000                 |       |
| Notes payable:                                                                                                                                                                                  |   |                |       |                    |       |
| Stockholders, includes $6,477,979 in  default                                                                                                                                                   |   | 10,455,227          |       | 10,405,227              |       |
| Other                                                                                                                                                                                           |   | 37,689              |       | 65,844                  |       |
| Dividends payable                                                                                                                                                                               |   | 554,481             |       | 455,285                 |       |
| Total current liabilities                                                                                                                                                                       |   | 14,104,845          |       | 13,972,143              |       |
|                                                                                                                                                                                            |   |                |       |                    |       |
| Note payable to stockholder                                                                                                                                                                     |   | 1,305,000           |       | 1,000,000               |       |
| Discount on convertible debt                                                                                                                                                                    |   | (1,124,354          | )          | (956,148                | )          |
|                                                                                                                                                                                            |   |                |       |                    |       |
| Total liabilities                                                                                                                                                                               |   | 14,285,491          |       | 14,015,995              |       |
|                                                                                                                                                                                            |   |                |       |                    |       |
| Stockholders’ equity (deficit):                                                                                                                                                            |   |                |       |                    |       |
| Convertible preferred stock, 7,000,000  shares authorized; 11,976 shares issued and outstanding in 2003 and 2002;  $4,872,847 aggregate liquidation preference in 2003 and 2002                 |   | 4,872,847           |       | 4,872,847               |       |
| Common stock, $.01 par value, 50,000,000  shares authorized in 2003 and 2002; 16,838,648 shares issued and outstanding  in 2003 and 16,566,148 shares issued and outstanding in 2002            |   | 168,387             |       | 165,662                 |       |
| Non-voting convertible common stock, $.01  par value, 2,250,000 shares authorized; no shares issued or outstanding in  2003 or 2002, convertible into common stock on a one for one share basis |   | —              |       | —                  |       |
| Additional paid-in capital                                                                                                                                                                      |   | 123,992,520         |       | 123,768,261             |       |
| Note receivable and accrued interest due  from stockholder                                                                                                                                      |   | (4,711,915          | )          | (4,711,915              | )          |
| Accumulated deficit                                                                                                                                                                             |   | (137,639,147        | )          | (136,836,236            | )          |
|                                                                                                                                                                                            |   |                |       |                    |       |
| Total stockholders’ deficit                                                                                                                                                                |   | (13,317,308         | )          | (12,741,381             | )          |
|                                                                                                                                                                                            |   |                |       |                    |       |
| Total liabilities and stockholders’ deficit                                                                                                                                                |   | $                   | 968,183    |                    | $          | 1,274,614 |   |

 

See accompanying notes to unaudited financial statements.

 

1

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**AXCESS INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Unaudited)**

 
|                                                 |   | **Three Months Ended  March 31,** |     |
|------------------------------------------------------|--------|-----------------------------------|----------|
|                                                 |   | **2003**                          |     | **2002** |   |
|                                                 |   |                              |     |   |   |
| Sales                                                |   | $                                 | 290,564  |   | $ | 376,957 |   |
| Cost of sales                                        |   | 174,712                           |     | 286,994 |   |
|                                                 |   |                              |     |   |   |
| Gross profit                                         |   | 115,852                           |     | 89,963 |   |
| Expenses:                                            |   |                              |     |   |   |
| Research and development                             |   | 136,393                           |     | 610,786 |   |
| General and administrative                           |   | 258,567                           |     | 423,653 |   |
| Selling and marketing                                |   | 88,597                            |     | 461,789 |   |
| Depreciation and amortization                        |   | 119,162                           |     | 172,992 |   |
|                                                 |   |                              |     |   |   |
| Operating expenses                                   |   | 602,719                           |     | 1,669,220 |   |
|                                                 |   |                              |     |   |   |
| Loss from operations                                 |   | (486,867                          | )        | (1,579,257 | ) |
|                                                 |   |                              |     |   |   |
| Other income (expense):                              |   |                              |     |   |   |
| Interest expense                                     |   | (219,640                          | )        | (328,354 | ) |
| Interest income                                      |   | —                            |     | 80,000 |   |
| Other                                                |   | 2,792                             |     | — |   |
|                                                 |   |                              |     |   |   |
| Other expense, net                                   |   | (216,848                          | )        | (248,354 | ) |
|                                                 |   |                              |     |   |   |
| Net loss                                             |   | (703,715                          | )        | (1,827,611 | ) |
|                                                 |   |                              |     |   |   |
| Preferred stock dividend requirements                |   | (99,196                           | )        | (109,597 | ) |
|                                                 |   |                              |     |   |   |
| Net loss applicable to common stock                  |   | $                                 | (802,911 | ) | $ | (1,937,208 | ) |
|                                                 |   |                              |     |   |   |
| Basic and diluted net loss per share                 |   | $                                 | (0.05    | ) | $ | (0.12 | ) |
|                                                 |   |                              |     |   |   |
| Weighted average shares of common stock  outstanding |   | 16,744,787                        |     | 15,848,179 |   |

 

See accompanying notes to unaudited financialstatements.

 

2

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**AXCESS, INC.**

**CONSOLIDATEDSTATEMENT OF CASH FLOWS**

**(Unaudited)**

 
|                                                                         |   | **Three  Months Ended  March 31,** |     |
|------------------------------------------------------------------------------|--------|------------------------------------|----------|
|                                                                         |   | **2003**                           |     | **2002** |   |
|                                                                         |   |                               |     |   |   |
| Cash flows from operating activities:                                        |   |                               |     |   |   |
| Net loss                                                                     |   | $                                  | (703,715 | ) | $ | (1,827,611 | ) |
| Adjustments to reconcile net loss to net  cash used by operating activities: |   |                               |     |   |   |
| Depreciation and amortization                                                |   | 119,161                            |     | 172,992 |   |
| Amortization of financing discount and  issuance costs                       |   | 61,311                             |     | 68,849 |   |
| Changes in operating assets and  liabilities:                                |   |                               |     |   |   |
| Accounts receivable                                                          |   | (40,920                            | )        | (73,985 | ) |
| Inventory                                                                    |   | 17,563                             |     | 158,968 |   |
| Prepaid expenses and other                                                   |   | 21,744                             |     | 90,475 |   |
| Other assets                                                                 |   | 29,384                             |     | — |   |
| Accounts payable                                                             |   | 3,336                              |     | (202,909 | ) |
| Other liabilities                                                            |   | 8,324                              |     | 161,402 |   |
| Net cash used by operating activities                                        |   | (483,812                           | )        | (1,451,819 | ) |
|                                                                         |   |                               |     |   |   |
| Cash flow from investing activities:                                         |   |                               |     |   |   |
| Change in restricted cash                                                    |   | 140,000                            |     | — |   |
| Net cash provided (used) by investing  activities                            |   | 140,000                            |     | — |   |
|                                                                         |   |                               |     |   |   |
| Cash flow from financing activities:                                         |   |                               |     |   |   |
| Borrowings under financing agreements                                        |   | 354,000                            |     | 1,495,000 |   |
| Principal payments on financing agreements                                   |   | (28,155                            | )        | (38,483 | ) |
| Net cash provided by financing activities                                    |   | 325,845                            |     | 1,456,517 |   |
|                                                                         |   |                               |     |   |   |
| Net increase (decrease) in cash and cash  equivalents                        |   | (17,967                            | )        | 4,698 |   |
| Cash and cash equivalents, beginning of  period                              |   | 33,249                             |     | — |   |
| Cash and cash equivalents, end of period                                     |   | $                                  | 15,282   |   | $ | 4,698 |   |
|                                                                         |   |                               |     |   |   |
| Supplemental information:                                                    |   |                               |     |   |   |
| Cash paid during the period for interest                                     |   | $                                  | 217      |   | $ | — |   |

 

See accompanying notes to unaudited financialstatements.

 

3

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**AXCESS**

**NOTES****TOFINANCIAL STATEMENTS**

**(Unaudited)**

 

**(1) Summary of Significant AccountingPolicies**

 

**(a) Description ofBusiness**

 

The Companyprovides advanced security and asset management systems, which locate,identify, track, monitor and protect assets. The main applications of theCompany’s systems are security video through closed circuit television (calledCCTV), personnel and vehicle access control, and automatic asset tracking andprotection. The Company provides solutions in the recently identified homelandsecurity markets such as air and ground transportation, water treatmentfacilities, oil and gas, power plants, as well as in the markets for datacenters, retail / convenience stores, education, healthcare, and corporateoffices. AXCESS utilizes two patented and integrated technologies:network-based radio frequency identification (RFID) and tagging and streamingvideo.  Both application andbrowser-based software options deliver critical real-time information tailoredto each end user via the enterprise network or Internet, also providing customalerts in the form of streaming video, e-mail, or messages delivered towireless devices.

 

From October16, 2002 through January 15, 2003, AXCESS Inc. (“AXCESS” or the “Company”)furloughed all of its employees due to a lack of operating capital.  Nearly all of the Company’s furloughedemployees volunteered to continue to work, without any compensation for thatperiod.  That allowed the Company tocontinue to ship its products and maintain customer support.  During January 2003, the Company recalled 13full time employees.

 

The Company’sbusiness plan for 2003 is predicated principally upon the successful marketingof its RFID and digital video products. During 2002, operating activitiesutilized approximately $3.2 million of cash. During the first quarter of 2003 the Company raised $355,000 foradditional working capital.  However,the Company anticipates that its existing working capital resources andrevenues from operations will not be adequate to satisfy its fundingrequirements in 2003.

 

The future results of operations and financial condition of the Companywill be impacted by the following factors, among others: changes fromanticipated levels of sales, access to capital, future national or regionaleconomic and competitive conditions, changes in relationships with customers,difficulties in developing and marketing new products, marketing existingproducts, customer acceptance of existing and new products, validity ofpatents, technological change, dependence on key personnel, availability of keycomponent parts, dependence on third party manufacturers, vendors, contractors,product liability, casualty to or other disruption of the productionfacilities, delays and disruptions in the shipment of the Company’s products,and the ability of the Company to meet its stated business goals.

 

If theCompany’s losses or lack of operating capital continue, the Company will haveto obtain funds to meet its cash requirements through business alliances, suchas strategic or financial transactions with third parties, the sale of securitiesor other financing arrangements, or the Company may be required to curtail itsoperations, seek a merger partner, or seek protection under federal bankruptcylaws. Any of the foregoing may be on terms that are unfavorable to the Companyor disadvantageous to existing stockholders. In addition, no assurance may begiven that the Company will be successful in raising additional funds orentering into business alliances.

 

**(b) CompanyOrganization and Basis of Presentation**

 

The accompanying consolidated financial statements include the accountsof the Company and its majority-owned subsidiaries. All significantintercompany accounts and transactions have been eliminated in consolidation.

 

The Companyhas received working capital in various forms from Amphion Ventures, L. P. andaffiliates of Amphion Ventures, L. P. including Amphion Partners, AmphionInvestments LLC, Antiope Partners, and VennWorks LLC (formerly incuVest LLC)(collectively, the “Amphion Group”). Following the conversion of preferredstock held by the Amphion Group into common stock in 2001, the Amphion Groupowns approximately 81% of the outstanding voting stock of the Company.  The Company also received working capitalduring the first quarter of 2003 through a bridge financing from severalaccredited investors.  The Company isalso in the process of negotiating with several accredited investors foradditional working capital through a Preferred Stock facility.

 

4

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**(c) Inventory**

 

Inventory is valued at the lower of cost or market using the first-in,first-out method. Inventory was comprised of the following at March 31, 2003and December 31, 2002:

 

|            |   | **March 31,  2003** |    | **December  31,  2002** |   |
|-----------------|--------|---------------------|---------|-------------------------|--------|
| Raw materials   |   | $                   | 146,506 |                    | $      | 162,806 |   |
| Work-in-process |   | 2,398               |    | 3,370                   |   |
| Finished goods  |   | 65,152              |    | 65,443                  |   |
|            |   | $                   | 214,056 |                    | $      | 231,619 |   |

 

**(d) Stock Options**

 

The Company accounts for its stock-based compensation plan underAccounting Principles Board (“ABP”) Opinion No. 25, Accounting for Stock Issuedto Employees.  The pro forma informationbelow is based on provisions of Statement of Financial Accounting Standard(“FAS”) No. 123, Accounting for Stock-Based Compensation, as amended by FAS148, Accounting for Stock-Based Compensation – Transition and Disclosure, issuedin December 2002.

 
|                                                     |   | **Three  Months Ended  March 31,** |     |
|----------------------------------------------------------|--------|------------------------------------|----------|
|                                                     |   | **2003**                           |     | **2002** |   |
| **Pro forma impact of fair value method (FAS  148)**     |   |                               |     |   |   |
| Reported net loss attributed to common  stock            |   | $                                  | (802,911 | ) | $ | (1,937,208 | ) |
| Less: fair value of employee stock  compensation         |   | (119,421                           | )        | (49,978 | ) |
| Pro forma net loss attributed to common  stock           |   | (922,332                           | )        | (1,987,186 | ) |
|                                                     |   |                               |     |   |   |
| Loss per common share                                    |   |                               |     |   |   |
| Basic and diluted net loss per share – as  reported |   | $                                  | (0.05    | ) | $ | (0.12 | ) |
| Basic and diluted net loss per share – pro  forma   |   | $                                  | (0.06    | ) | $ | (0.13 | ) |
|                                                     |   |                               |     |   |   |
| Weighted average Black-Scholes  fair value assumptions   |   |                               |     |   |   |
| Risk free interest rate                                  |   | 5.0                                | %        | 5.0 | % |
| Expected life                                            |   | 10 years                           |     | 10 years |   |
| Expected volatility                                      |   | 88% - 92                           | %        | 88% - 92 | % |
| Expected dividend yield                                  |   | 0.0                                | %        | 0.0 | % |

 

**(e) Recent AccountingPronouncements**

 

In July 2002, the FASB issued Statement of Financial AccountingStandards No. 146, *Accounting for CostsAssociated with Exit or Disposal Activities* (SFAS No. 146). SFAS 146nullifies FASB Emerging Issues Task Force (EITF) Issue No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring)”. It requiresthat a liability be recognized for those costs only when the liability is incurred,that is, when it meets the definition of a liability in the FASB’s conceptualframework. SFAS No. 146 also establishes fair value as the objective forinitial measurement of liabilities related to exit or disposal activities. SFAS146 is effective for exit or disposal activities that are initiated afterDecember 31, 2002, with earlier adoption encouraged. The adoption of SFAS 146did not have a material impact on its financial position or results fromoperations.

 

In December 2002, the FASB issued Statementof Financial Accounting Standards 148, *Accountingfor Stock-Based Compensation - Transition and Disclosure - an amendment of FASBStatement 123* (“SFAS 148”). For entities that change their accounting for stock-based compensationfrom the intrinsic method to the fair value method under SFAS 123, the fairvalue method is to be applied prospectively to those awards granted after thebeginning of the period of adoption (the prospective method).  The amendment permits two additionaltransition methods for adoption of the fair value method.  In addition to the prospective method, theentity can choose to either (i) restate all periods presented (retroactiverestatement method) or (ii) recognize compensation cost from the beginning ofthe fiscal year of adoption as if the fair value method had been used toaccount for awards (modified prospective method).  For fiscal years beginning after December 15, 2003, theprospective method will no longer be allowed. The Company currently accounts for its stock-based compensation usingthe intrinsic value method as proscribed by APB No. 25, Accounting for StockIssued to Employees, and plans to continue using this method to account forstock options.  Therefore, it does notintend to adopt the transition requirements as specified in SFAS 148.

 

5

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**(2) Contingencies**

 

In Stephen L. Briggs v. AXCESS, Inc., JAMSArbitration filed on October 2, 2001, Stephen Briggs, a former employee of theCompany, asserted that he had good cause to terminate his employment under hisemployment agreement and is owed $300,000 in severance pay.   In January 2003, Mr. Briggs signed arelease and dropped his request for arbitration and the Company owed him nopayment.

 

Barth Technologies Incorporated (“BTI”) fileda lawsuit against the Company in state district court in Tarrant County, Texason October 18, 2001. BTI was a vendor to the Company and seeks damages of$263,655 for non-payment for services and supplies provided. During the firstquarter of 2003, the Company reached a tentative settlement in this case andshould become final during the second quarter of 2003.

 

Pioneer Standard Electronics, Incorporated(“Pioneer”), filed a lawsuit against the Company in the county court in DallasCounty, Texas on September 28, 2001. Pioneer was a vendor to the Company and seeks damages of $81,533 fornon-payment for services provided. During the first quarter of 2003, Pioneer was granted a judgment for theentire amount.  The Company isattempting to settle this claim, but has limited resources to do.

 

The Company is also engaged in a number oflawsuits with approximately twenty vendors who claim they are owed amounts from$2,500 to $30,000, which aggregate in total $256,453. The Company is currentlydefending or seeking to settle each of the vendor’s claims.  At March 31, 2003, the Company has accruedthe delinquent amounts payable for the claims described in this paragraph.

 

**(3) Preferred Stock**

 

The Company has authorized 7,000,000 shares of convertible preferredstock, of which shares designated in four series have been issued. Informationwith respect to the series of preferred stock outstanding at each balance sheetdate is summarized below.

 
|                                                                    |   | **Series C**                         |   | **Series I**                         |   | **Series J**                         |   | **Series 1999**                      |   |
|-------------------------------------------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|
| Number of shares authorized                                             |   | 1,500,000                            |   | 2,500                                |   | 2,500                                |   | 2,500                                |   |
|                                                                    |   |                                 |   |                                 |   |                                 |   |                                 |   |
| Stated value                                                            |   | $                                    | 30.20  |                                 | $      | 10,000                               |   | $                                    | 10,000 |   | $ | 10,000 |   |
|                                                                    |   |                                 |   |                                 |   |                                 |   |                                 |   |
| Number of shares issued and outstanding:                                |   |                                 |   |                                 |   |                                 |   |                                 |   |
| December 31, 2002                                                       |   | 11,522                               |   | 125                                  |   | 177                                  |   | 152                                  |   |
| March 31, 2003                                                          |   | 11,522                               |   | 125                                  |   | 177                                  |   | 152                                  |   |
|                                                                    |   |                                 |   |                                 |   |                                 |   |                                 |   |
| Conversion ratio (or conversion price) of  preferred shares into common |   | 1 to 1 into  voting common stock     |   | $ 2.51 into  voting common stock     |   | $ 2.51 into  non-voting common stock |   | $ 2.51 into  voting common stock     |   |
|                                                                    |   |                                 |   |                                 |   |                                 |   |                                 |   |
| Liquidation preference                                                  |   | Stated value  plus accrued dividends |   | Stated value  plus accrued dividends |   | Stated value  plus accrued dividends |   | Stated value  plus accrued dividends |   |
|                                                                    |   |                                 |   |                                 |   |                                 |   |                                 |   |
| Dividend rights                                                         |   | 10% per  annum, cumulative           |   | 8% per  annum, cumulative            |   | 8% per  annum, cumulative            |   | 8% per  annum, cumulative            |   |
|                                                                         |        |                                      |        |                                      |        |                                      |        |                                      |        |  |  |  |  |

 

The Company’s non-votingcommon stock may be converted to voting common stock at any time by the holderthereof, on a one-to-one basis.

 

The holders of the Company’s Series C Preferred Stock are entitled toreceive quarterly dividends on each such share held at the annual rate of 10%of the original issue price of each share payable in arrears, when, as and ifdeclared by the Company’s board of directors, in cash or additional shares ofpreferred stock at the option of the holder. During the three months endedMarch 31, 2003 there were $8,697 of dividends accrued.  Dividends payable of $61,748 and $53,051 ofdividends payable for Series C Preferred Stock at March 31, 2003 and December31, 2002, respectively.

 

6

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The holders of Series I Preferred Stock, Series J Preferred Stock, andSeries 1999 Voting Preferred Stock are entitled to receive semi-annualdividends on each such share at the annual rate of 8% of the original issueprice of each share payable in arrears, when, as and if declared by theCompany’s board of directors, in cash or additional shares of preferredstock.   Shares of Series I PreferredStock, Series J Preferred Stock and Series 1999 Preferred Stock are convertibleinto shares of common stock at a conversion price of $2.51 per share.  During the three months ended March 31, 2003there were $25,037, $35,152 and $30,310 of dividends accrued for Series IPreferred Stock, Series J Preferred Stock and Series 1999 Voting PreferredStock, respectively.   Dividends payableof $154,282 and $129,245 of dividends payable for Series I Preferred Stock atMarch 31, 2003 and December 31, 2002, respectively. Dividends payable of$185,220 and $150,067 of dividends payable for Series J Preferred Stock atMarch 31, 2003 and December 31, 2002, respectively. Dividends payable of$153,232 and $122,922 of dividends payable for Series 1999 Voting PreferredStock at March 31, 2003 and December 31, 2002, respectively.

 

**(4) Notes Payable to Stockholders**

 

The Company entered into a 6.75% convertible note with AmphionInvestments LLC dated January 25, 2002. During the three months ended March 31,2003, the Company borrowed $50,000 under this note. The principal outstandingunder this note may be converted into securities of the Company at the optionof Amphion Investments. The borrowings are unsecured and are due and payable ondemand by Amphion Investments.

 

**(5)Bridge Financing**

 

On January 17,2003, the Company entered into a bridge financing agreement with ten accreditedinvestors for the sale and issuance of 3.05 “units” to the investors for anaggregate purchase price of $305,000. Each unit consists of a convertible promissory note in the amount of $100,000and 50,000 unregistered shares of the Company’s common stock.

 

Pursuant to the bridge financing agreement, the Company is required touse reasonable efforts to register the shares of common stock comprising theunits within 60 days after the execution of the bridge financing agreement, oras soon as practicable thereafter.  TheCompany has not registered these shares of common stock yet.  Upon registration of the common stock, eachinvestor may not sell more than one-third of the common stock comprising theunits during any calendar month.  Theconvertible promissory notes comprising the units bear interest at an annualrate of 7% and mature on January 17, 2006. On each of January 17, 2004, January 17, 2005 and January 17, 2006, theinvestors have the option to convert one-third of the principal amount of thenotes into common stock of the Company. The conversion price of the notes is initially 65% of the averageclosing price of a share of the Company’s common stock for the 20 trading dayspreceding the given anniversary date of the notes.  The maximum conversion price shall be $2.00 per share and theminimum conversion price shall be $0.50 per share.  The conversion price will be subject to adjustment from time totime to reflect any reorganization, recapitalization, reclassification, stockdividend, stock split, reverse stock split or similar change in the Company’sshares of common stock.  The notes maybe prepaid in whole or in part by the Company without premium or penalty.

 

In connection with this bridge financing, the Company recorded a$224,259 debt discount due to the value of the equity consideration andbeneficial conversion of the financing, pursuant to the guidance issued by theEmerging Issues Task Force.  The debtdiscount will be amortized using the effective interest method over thethree-year life of the agreement.

 

**(6)Significant Customers**

 

During thethree months ended March 31, 2003 the Company had two customers that accountedfor 44% of the overall revenue, two customers accounted for 78% of the digitalvideo product sales and three customers accounted for 42% of the RFID productsales.  During the three months endedMarch 31, 2002 the Company had three customers that accounted for 47% of theoverall revenue, two customers accounted for 53% of the digital video productsales and two customers accounted for 49% of the RFID product sales.

 

7

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**Item2****. Management’s Discussion and Analysis or Plan ofOperation**.

 

**Forward-LookingStatements**

This quarterly report on Form 10-QSB includes “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933, asamended (the “Securities Act”), and Section 21E of the Securities Exchange Actof 1934, as amended, which can be identified by the use of forward-lookingterminology such as, “may,” “expect,” “could,” “plan,” “seek,” “anticipate,”“estimate,” or “continue” or the negative thereof or other variations thereonor comparable terminology.

 

These forward-looking statements are subject to various risks anduncertainties that could cause actual results to differ materially from thosereferred to in the forward-looking statements and are made pursuant to the“safe-harbor” provisions of the Private Securities Litigation Reform Act of1995.  These statements are made basedon management’s current expectations or beliefs as well as assumptions made by,and information currently available to, management.

 

A variety of factors could cause actual results to differ materiallyfrom those anticipated in the Company’s forward-looking statements, includingthe following factors: changes fromanticipated levels of sales, access to capital, future national or regionaleconomic and competitive conditions, changes in relationships with customers,difficulties in developing and marketing new products, marketing existingproducts, customer acceptance of existing and new products, validity ofpatents, technological change, dependence on key personnel, availability of keycomponent parts, dependence on third party manufacturers, vendors, contractors,product liability, casualty to or other disruption of the productionfacilities, delays and disruptions in the shipment of the Company’s product,and the ability of the Company to meet its stated business goals.  For a detailed discussion of theseand other cautionary statements and factors that could cause actual results todiffer from the Company’s forward-looking statements, please refer to theCompany’s filings with the Securities and Exchange Commission, especially  “Item 1. Description of Business” (includingthe “Risk Factors” section of Item 1) and “Item 6. Management’s Discussion andAnalysis or Plan of Operation” of the Company’s 2002 Annual Report on Form10-KSB.

 

Readers are cautioned not to place undue reliance on theseforward-looking statements, which reflect management’s analysis only as of thedate hereof. The Company does not undertake any obligation to publicly revisethese forward-looking statements to reflect events or circumstances that ariseafter the date hereof. Readers should carefully review the risk factorsdescribed in other documents the Company files from time to time with theSecurities and Exchange Commission.

 

**RecentDevelopments:  Going Concern andLiquidity Problems**

 

Our auditors have included an explanatoryparagraph in their audit opinion with respect to our consolidated financialstatements at December 31, 2002. The paragraph states that our recurring lossesfrom operations and resulting continued dependence on access to externalfinancing raise substantial doubts about our ability to continue as a goingconcern. Furthermore, the factors leading to and the existence of theexplanatory paragraph may adversely affect our relationship with customers andsuppliers and have an adverse effect on our ability to obtain financing.

 

We do not have sufficient working capital tosustain our operations.  We have beenunable to generate sufficient revenues to sustain our operations. We will haveto obtain funds to meet our cash requirements through business alliances, suchas strategic or financial transactions with third parties, the sale ofsecurities or other financing arrangements, or we may be required to curtailour operations, seek a merger partner, or seek protection under federalbankruptcy laws. Any of the foregoing may be on terms that are unfavorable tous or disadvantageous to existing stockholders. In addition, no assurance maybe given that the Company will be successful in raising additional funds orentering into business alliances.

 

**Liquidity and Capital Resources**

 

Since inception, the Company has utilized theproceeds from a number of public and private sales of its equity securities,the exercise of options and warrants and more recently, convertible debt andshort-term bridge loans from stockholders to meet its working capitalrequirements. At March 31, 2003, the Company had a working capital deficit of$13,678,540.

 

The Company’s operations continued togenerate losses in 2003. The Company’s cash decreased $17,967 during the threemonths ended March 31, 2003 with operating activities using $483,812 of cash.The Company funded operations primarily through borrowings from Amphion andother accredited investors with financing activities providing net cash of$325,845. No assurance can be given that such sources will continue to providefunding to the Company.  The Company’sbusiness plan for 2003 is predicated principally upon the successful marketingof its RFID and digital video products. The Company anticipates that itsexisting working capital resources and revenues from operations will not beadequate to satisfy its funding requirements in 2003.  The Company is currently in the process of raising up to $1.5million of additional working capital through an exempt Preferred Stockoffering.  The Preferred Stock isdesignated as 2003 Preferred and each $75,000 unit consists of 100,000 sharesof Preferred Stock bearing a 7% dividend and 100,000 warrants to purchase theCompany’s common stock exercisable for two years at $1.00 per share.  The Company is anticipating closing theoffering during the second quarter of 2003

 

8

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The Company’sworking capital requirements depend upon many factors, including the extent andtiming of the Company’s product sales, the Company’s operating results, thestatus of competitive products, and actual expenditures and revenues comparedto its business plan. The Company is currently experiencing decliningliquidity, including negative working capital balances, losses from operationsand negative cash flows, which makes it difficult for the Company to meet itscurrent cash requirements, including payments to vendors, and may jeopardizethe Company’s ability to continue as a going concern. The Company intends toaddress its liquidity problems by controlling costs, seeking additional funding(through capital raising transactions and business alliances) and maintainingfocus on revenues and collections.

 

If the Company’s losses or lack of operating capital continue, theCompany will have to obtain funds to meet its cash requirements throughbusiness alliances, such as strategic or financial transactions with thirdparties, the sale of securities or other financing arrangements, or the Companymay be required to curtail its operations, seek a merger partner, or seekprotection under federal bankruptcy laws. Any of the foregoing may be on termsthat are unfavorable to the Company or disadvantageous to existingstockholders. In addition, no assurance may be given that the Company will besuccessful in raising additional funds or entering into business alliances.

 

The Company entered into a 6.75% convertible note with AmphionInvestments LLC dated January 25, 2002. During the three months ended March 31,2003, the Company borrowed $50,000 under this note. The principal outstandingunder this note may be converted into securities of the Company at the optionof Amphion Investments. The borrowings are unsecured and are due and payable ondemand by Amphion Investments.

 

On January 17,2003, the Company entered into a bridge financing agreement with ten accreditedinvestors for the sale and issuance of 3.05 “units” to the investors for anaggregate purchase price of $305,000. Each unit consists of a convertible promissory note in the amount of$100,000 and 50,000 unregistered shares of the Company’s common stock.

 

Pursuant to the bridge financing agreement, the Company is required touse reasonable efforts to register the shares of common stock comprising theunits within 60 days after the execution of the bridge financing agreement, oras soon as practicable thereafter.  TheCompany has not registered these shares of common stock yet.  Upon registration of the common stock, eachinvestor may not sell more than one-third of the common stock comprising theunits during any calendar month.  Theconvertible promissory notes comprising the units bear interest at an annualrate of 7% and mature on January 17, 2006. On each of January 17, 2004, January 17, 2005 and January 17, 2006, theinvestors have the option to convert one-third of the principal amount of thenotes into common stock of the Company. The conversion price of the notes is initially 65% of the averageclosing price of a share of the Company’s common stock for the 20 trading dayspreceding the given anniversary date of the notes.  The maximum conversion price shall be $2.00 per share and theminimum conversion price shall be $0.50 per share.  The conversion price will be subject to adjustment from time totime to reflect any reorganization, recapitalization, reclassification, stockdividend, stock split, reverse stock split or similar change in the Company’sshares of common stock.  The notes maybe prepaid in whole or in part by the Company without premium or penalty.

 

In connection with this bridge financing, the Company recorded a$224,259 debt discount due to the value of the equity consideration andbeneficial conversion of the financing, pursuant to the guidance issued by theEmerging Issues Task Force.  The debtdiscount will be amortized using the effective interest method over thethree-year life of the agreement.

 

##### **Notes Currently In Default**

 

On September 30, 1999, the Company signed a10% convertible note maturing September 30, 2002 (“Amphion Convertible Note”),under which the Company could borrow up to $6,000,000 from Amphion Ventures. Asof March 31, 2003 the balance under this note was $2, 477,979.  The balance of the indebtedness under the10% convertible note issued was due in full by the Company on September 30,2002 and, as of March 31, 2003, this note is in default. The Company isnegotiating with Amphion Ventures to extend the term of the notes.  Amphion Ventures has not pursued anycollection activities relating to this note. However, no assurances can be given that they will not in the future.

 

On July 28, 1999, the Company acquiredsubstantially all of the assets of Prism Video, Inc. (“Prism”), a privatelyheld corporation, and agreed to pay $4,000,000 to “Prism” on December 31, 2002.The balance of the indebtedness under the Prism note issued was due in full bythe Company on December 31, 2002; as of March 31, 2003 this note is in default.The Company is negotiating with Prism to extend the term of the notes. The notepayable has a face amount of $4,000,000 and is collateralized by the Company’s$3,902,375 note receivable from Amphion Ventures, L.P. (“Amphion Ventures”).Pursuant to the Asset Purchase Agreement between AXCESS and Prism, AXCESSassigned Prism all payments of principal to be made by Amphion Ventures underthe note receivable until the balance of the note receivable is paid in full orthe balance due under the note payable to Prism is paid in full, whicheveroccurs first.   Prism has not pursuedany collection activities relating to the collection of this note.  However, no assurances can be given thatthey will not in the future.

 

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**Results of Operations **

**Three Months Ended March 31, 2003 Compared toThree Months Ended March 31, 2002**

 

*Sales and GrossProfit*. Sales for the three months ended March 31,2003 were $290,564 and for the three months ended March 31, 2002 were $376,957,on which a gross profit of $115,852 and $89,963 was realized, respectively. Thedecrease in sales was due to the lack of financing for the Company and theinability to fulfill orders.  TheCompany has a backlog of sales orders of over $400,000 as of March 31,2003.  In the event of adequatefinancing the Company would be able to fulfill those orders within 90 — 120days.  However, there can be noassurances that when the financing was provided that all of those sales orderswould still be valid.   The marginimprovement is driven by a reduction of the production staff and lowerinventory adjustments due to the Company’s move towards contract manufacturing.

 

Radio frequency identification (RFID) product sales were $126,312 forthe three months ended March 31, 2003 and $196,889 for the three months endedMarch 31, 2002. Cost of sales was $80,935 for the three months ended March 31,2003 and $151,647 for the three months ended March 31, 2002. As a result, grossprofits from RFID products were $45,377 for the three months ended March 31,2003 and $45,242 for the three months ended March 31, 2002.

 

Digital video product sales were $164,252 for the three months endedMarch 31, 2003 and $180,068 for the three months ended March 31, 2002.  Cost of sales was $93,777 for the threemonths ended March 31, 2003 and $135,347 for the three months ended March 31,2002.  As a result, gross profits fromdigital video products were $70,475 for the three months ended March 31, 2003and $44,721 for the three months ended March 31, 2002.

 

*Operating Expenses*.Operating expenses were $602,719 for the three months ended March 31, 2003 and$1,669,220 for the three months ended March 31, 2002.  This decrease was due to cost reduction programs implementedduring 2002 including a staffing reduction, fewer marketing expenditures andthe completion of several research and development projects.

 

Research and development expenses were $136,393 for the three monthsended March 31, 2003 and $610,786 for the three months ended March 31,2002.  This decrease is a result of thecompletion of the integration of some of the video and RFID products allowingfor a reduction of employees.

 

Corporate general and administrative expenses were $258,567 for thethree months ended March 31, 2003 and $423,653 for the three months ended March31, 2002.  This decrease can beattributed to a reduction in head count, lower rent with the closure of theGeorgia facility and a reduction of outside services fees.

 

Selling and marketing expenses were $88,597 for the three months endedMarch 31, 2003 and $461,789 for the three months ended March 31, 2002.  The decrease was caused by the Company’sstrategic shift away from a direct selling (our sales people contacting the endusers) approach and an increased reliance on an indirect (focus on us sellingto the integrators who sell to the end users) marketing approach.  The strategic shift allowed the company todecrease the headcount and lower the advertising.  The indirect sales modelallows the Company to address multiple industry segments generically, includingmanufacturing, wholesale / distribution, retail, services, government,education and finance. The indirect sales model fits the characteristics of theCompany’s product portfolio with other products, which become system solutionsthat require custom site planning and installation. By working directly withestablished marketing channel partners, this indirect model also gives theCompany the flexibility to introduce new products and application as they aredeveloped.

 

Depreciation and amortization expenses were $119,162 for the threemonths ended March 31, 2003 and $172,992 for the three months ended March 31,2002.  The decrease is related to lowerdepreciation expense as a result of the age of the equipment.

 

*Other expenses, net*.Other expenses, net, were $216,848 for the three months ended March 31, 2003and $248,354 for the three months ended March 31, 2002. Interest income was$80,000 lower during the three months ended March 31, 2003, compared to thethree months ended March 31, 2002. Interest expense was $108,714 lower in the three months ended March 31,2003 compared to the three months ended March 31, 2002, reflecting a decreasein the amortization of the Prism note discount which became due on December 31,2002.

 

*Loss from Operations*.Loss from operations was $703,715 for the three months ended March 31, 2003,compared to a loss of $1,827,611 for the three months ended March 31,2002.  The decrease is due primarily toimproved gross margins as a result of lower production staffing and lowerinventory adjustments, headcount reductions across all departments, reducedrent due to the Georgia facility being closed and a reduction of outsideservices.

 

*Preferred Stockdividend requirements. *PreferredStock dividend requirements were $99,196 for the three months ended March 31,2003 and $109,597 for the three months ended March 31, 2002. This decrease wasdue to the conversions of shares of preferred stock into common stock during2002.

 

**Other**

 

*Inflation*.Inflation has not had, and is not expected to have, a material impact on theoperations and financial condition of the Company.

 

10

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**Item3****. Controls and Procedures**

 

**Controlsand Procedures**

 

(a)           Evaluation of Disclosure Controlsand Procedures.  Based on theirevaluation as of a date within 90 days of the filing date of this QuarterlyReport on Form 10-QSB, the Company’s principal executive officer and principalfinancial officer have concluded that the Company’s disclosure controls andprocedures (as defined in Rules 13a-14(c) and 15d-14(c) under the SecuritiesExchange Act of 1934 (the “Exchange Act”)) are effective to ensure thatinformation required to be disclosed by the Company in reports that it files orsubmits under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the rules and forms of the Securities andExchange Commission.

 

(b)           Changes in Internal Controls.  There were no significant changes in theCompany’s internal controls or in other factors that could significantly affectthese controls subsequent to the date of their evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

 

**PARTII****. OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

In Stephen L. Briggs v. AXCESS, Inc., JAMSArbitration filed on October 2, 2001, Stephen Briggs, a former employee of theCompany, asserted that he had good cause to terminate his employment under hisemployment agreement and is owed $300,000 in severance pay.   In January 2003, Mr. Briggs signed arelease and dropped his request for arbitration and the Company owed him nopayment.

 

Barth Technologies Incorporated (“BTI”),filed a lawsuit against the Company in state district court in Tarrant County,Texas on October 18, 2001. BTI was a vendor to the Company and seeks damages of$263,655 for non-payment for services and supplies provided. During the firstquarter of 2003, the Company reached a tentative settlement in this case andshould become final during the second quarter of 2003.

 

Pioneer Standard Electronics, Incorporated(“Pioneer”), filed a lawsuit against the Company in the county court in DallasCounty, Texas on September 28, 2001. Pioneer was a vendor to the Company and seeks damages of $81,533 fornon-payment for services provided. During the first quarter of 2003, Pioneer was granted a judgment for theentire amount.  The Company isattempting to settle this claim, but has limited resources to do.

 

The Company is also engaged in a number oflawsuits with approximately twenty vendors who claim they are owed amounts from$2,500 to $30,000, which aggregate in total $256,453. The Company is currentlydefending or seeking to settle each of the vendor’s claims.  At March 31, 2003, the Company has accruedthe delinquent amounts payable for the claims described in this paragraph.

 

**Item 2. Changes in Securities**.

 

During the three months ended March 31, 2003, the Company issuedunregistered securities in connection with the transactions described below.The issuance of stock was exempt from the registration requirements of theSecurities Act, as amended by virtue of Section 4(2) thereof, as transactionsnot involving a public offering and an appropriate restrictive legend wasaffixed to the stock certificates.

 

***NoteBorrowings***

 

The Company entered into a 6.75% convertible note with AmphionInvestments LLC dated January 25, 2002. During the three months ended March 31,2003, the Company borrowed $50,000 under this note. The principal outstandingunder this note may be converted into securities of the Company at the optionof Amphion Investments. The borrowings are unsecured and are due and payable ondemand by Amphion Investments.

 

On January 17,2003, the Company entered into a bridge financing agreement with ten accreditedinvestors for the sale and issuance of 3.05 “units” to the investors for anaggregate purchase price of $305,000. Each unit consists of a convertible promissory note in the amount of$100,000 and 50,000 unregistered shares of the Company’s common stock.

 

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Pursuant to the bridge financing agreement, the Company is required touse reasonable efforts to register the shares of common stock comprising theunits within 60 days after the execution of the bridge financing agreement, oras soon as practicable thereafter.  TheCompany has not registered these shares of common stock yet.  Upon registration of the common stock, eachinvestor may not sell more than one-third of the common stock comprising theunits during any calendar month.  Theconvertible promissory notes comprising the units bear interest at an annualrate of 7% and mature on January 17, 2006. On each of January 17, 2004, January 17, 2005 and January 17, 2006, theinvestors have the option to convert one-third of the principal amount of thenotes into common stock of the Company. The conversion price of the notes is initially 65% of the averageclosing price of a share of the Company’s common stock for the 20 trading dayspreceding the given anniversary date of the notes.  The maximum conversion price shall be $2.00 per share and theminimum conversion price shall be $0.50 per share.  The conversion price will be subject to adjustment from time totime to reflect any reorganization, recapitalization, reclassification, stockdividend, stock split, reverse stock split or similar change in the Company’sshares of common stock.  The notes maybe prepaid in whole or in part by the Company without premium or penalty.

 

In connection with this bridge financing, the Company recorded a$224,259 debt discount due to the value of the equity consideration andbeneficial conversion of the financing, pursuant to the guidance issued by theEmerging Issues Task Force.  The debtdiscount will be amortized using the effective interest method over thethree-year life of the agreement.

 

**Item 3. Defaults Upon Senior Securities**.

 

None.

 

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

 

None.

 

**Item 5. Other Information**.

 

None

 

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

 

(a) Exhibits:

 
| **Exhibit No.** |   | **Description**                                                                                                                                                                                                                                                                                                                    |
|-----------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1            |   | Demand Note  dated as of January 25, 2002, executed by the Company payable to Amphion  Investments LLC in the principal amount of $200,000 (plus additional amounts  shown on the schedule of advances to the note).                                                                                                               |
| 99.1            |   | Certification  of our President, Chief Executive Officer and Principal Executive Officer,  under Section 906 of the Sarbanes-Oxley Act of 2002; and 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. |

 

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(b) Reports onForm 8-K:

 

12

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.

 
|         | AXCESS INC.,                                           |
|--------------|--------------------------------------------------------|
|         | Registrant                                             |
|         |                                                   |
|         | /s/ ALLAN  GRIEBENOW                                   |
|         | Allan  Griebenow Director, President and               |
|         | Chief  Executive Officer (Principal Executive Officer) |
|         |                                                   |
|         |                                                   |
|         | /s/ ALLAN L.  FRANK                                    |
|         | Allan L.  Frank                                        |
|         | Chief  Financial Officer and Secretary                 |
|         | (Principal  Accounting and Financial Officer)          |
|         |                                                   |
| May 15, 2003 |                                                   |

 

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**CERTIFICATIONS**

 

I, Allan Griebenow, certify that:

 

1.               I have reviewed this quarterly report on Form10-QSB of Axcess, Inc.;

2.               Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

3.               Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

4.               The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rule 13a-14 and 15d-14) for theregistrant and we have:

a)              designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidating subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportwas prepared;

b)             evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report  (the  “Evaluation Date”);and

c)              presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on the required evaluation as of the Evaluation Date;

5.               The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the   registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing the equivalent function):

a)              all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

b)             any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

6.               The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:  | May 15, 2003                                            |
|--------|---------------------------------------------------------|
|   |
|   |
|   | /s/ ALLAN  GRIEBENOW                                    |   |
|   | Allan Griebenow, President  and Chief Executive Officer |
|   | (Principal Executive Officer)                           |
|        |                                                         |  |  |

 

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**CERTIFICATIONS**

 

I, Allan Frank, certify that:

 

1.               I have reviewed this quarterly report on Form10-QSB of Axcess, Inc.;

2.               Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

3.               Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report;

4.               The registrant’s other certifying officersand I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rule 13a-14 and 15d-14) for theregistrant and we have:

a)              designed such disclosure controls andprocedures to ensure that material information relating to the registrant,including its consolidating subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this quarterly reportwas prepared;

b)             evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report  (the  “Evaluation Date”);and

c)              presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on the required evaluation as of the Evaluation Date;

5.               The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the   registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing the equivalent function):

a)              all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

b)             any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and

6.               The registrant’s other certifying officersand I have indicated in this quarterly report whether or not there weresignificant changes in internal controls or in other factors that couldsignificantly affect internal controls subsequent to the date of our mostrecent evaluation, including any corrective actions with regard to significantdeficiencies and material weaknesses.

 
| Date:  | May 15, 2003                                                           |
|--------|------------------------------------------------------------------------|
|   |
|   |
|   | /s/ ALLAN L.  FRANK                                                    |   |
|   | Allan L. Frank, Vice  President, Chief Financial Officer and Secretary |
|   | (Principal Accounting and  Financial Officer)                          |
|        |                                                                        |  |  |

 

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