Axcess International Announces Third Quarter Results

AXCESS International Inc., a leading provider of Active RFID solutions to the security, supply chain and sensing industries, today reported results for the three months ended September 30, 2004.

Financial Highlights for the Third Quarter ending September 30, 2004

* Total revenue increased 34% sequentially to $301,889, compared with $225,129 in the second quarter of 2004
* Gross margin increased to 53%, compared with 45% in the second quarter of 2004 and (17)% for the third quarter of 2003
* Net loss from operations decreased to $590,592 compared with $788,651 in the second quarter of 2004 and $739,196 for the third quarter in 2003.
* Net loss applicable to common stock was $819,995 or $0.03 per basic and diluted share, compared to a loss of $1,129,462 or $0.05 per basic and diluted share in the second quarter of 2004 and $1,108,105 or $0.06 per basic and diluted shares for the third quarter in 2003.

"During the third quarter we saw continued solid financial progress and further traction with our development of channel partners and new product rollout," commented Allan Griebenow, President & CEO of AXCESS. "With our sales and marketing organization now built out, we are making good progress in further developing relationships with our channel partners and additional security-focused systems integrators. We are experiencing heightened awareness in both the federal and enterprise markets of the benefits of active RFID. In addition to the increasing level of inquiries related to homeland defense, we are now seeing interest in the ROI benefits of active RFID for supply chain management and enterprise security applications. As such, we are optimistic about the growing momentum of opportunity in our key markets."

Other Financial Information

Preferred stock dividend requirements for the three months ending September 30, 2004 were $81,735 compared to $70,490 in the second quarter of 2004 and $101,401 for the third quarter in 2003.

Research & development (R&D) expenses for the third quarter totaled $176,791, compared to $166,534 in the second quarter of 2004, and $164,054 in the year-ago period. On a year-over-year basis, the dollar increase in R&D is due to the Company's continuing focus on developing new products.

Selling, marketing, general & administrative (S, M, G&A) expenses for the third quarter totaled $563,248, compared to $634,025 in the second quarter of 2004, and $440,810 in the prior year period. The year-over-year increase in absolute dollars is primarily due to the Company's increased headcount and focus on strategic sales and higher marketing costs for brand awareness.

Business Mix

RFID revenue increased to $251,788 for the three months ended September 30, 2004 compared to $195,300 in the second quarter of 2004 and $134,020 for the third quarter in 2003. The year-over-year and sequential increase is due to the Company's growing traction and focus in the active RFID market.

Product Developments

During the third quarter, the Company announced the general availability of a number of new products based upon its patented battery-powered RFID long-range wireless tagging technology. In October the Company announced its unique, distributed ammonia detection and alerting system, which provides constant monitoring of harmful gas levels from sources which would be potentially toxic or explosive, if undetected leaks occur.

In September the Company launched its unique, distributed radiation detection and alerting system. This system provides constant monitoring for harmful gamma radiation emitting from sources such as those that might be used in a terrorist "dirty bomb" attack.

The Company also announced in September the availability of a complete sensor monitoring system using radio frequency identification tags. AXCESS' battery-powered "active" RFID tags transmit data from a variety of portable detectors including temperature, motion, pressure as well as hazardous condition sensors such as radiation, chemical, and biological. The monitoring system, called OnlineSupervisor(TM) dynamically interprets the data and sends wireless alerts to enable rapid response. The system is ideally suited to homeland defense applications and industrial monitoring industries.

Outlook

"We continue to tightly manage our expenses and have reduced our cash usage to under $200,000 per month in the third quarter of 2004 and have also continued to reduce our level of outstanding debt," stated Allan Frank, Chief Financial Officer. "With our operating infrastructure built out and a highly leverageable business model, we are in a strong position to maintain our progress towards achieving sustainable profitable growth. Based on our current expectations we expect to reach cash flow breakeven on a run rate basis in the first half of 2005."

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