UNITEDTable STATESSECURITIESof AND EXCHANGE COMMISSION Washington, DC 20549 Contents

GeneralTable of Contents

TheTable Company’s primary product, the AXS-One Compliance Platform, is an integrated solution that enables organizations to securely capture, index, archive, share, search, supervise and manage the retention and disposition of electronic records, including e-mail and instant messages, images, office documents, ERP-generated data such as electronic print reports and SAP archival data. This product has been developed and optimized to address global issues of regulatory compliance, corporate governance, supervision, litigation readiness, legal discovery and privacy as they relate to the retention and disposition of electronic records.Contents

DuringTable 2006, AXS-One announced a significant number of new customer wins for its RCM technology around the world. The contracts were across multiple industries, including financial services, education, manufacturing, retail and government, and represented both competitive wins as well as wins with business partners. (See ‘‘Strategic Alliances and Business Development Programs.’’) AXS-One believes that the Company’s ability to deliver a single, integrated platform capable of managing large and growing volumes of disparate electronic records throughout their lifecycle, as well as its focus on real business requirements as they relate to technology continues to differentiate the Company from its competitors.Contents

AXS-One’sTable global support centers are based in the U.S (at the company’s corporate headquarters in Rutherford, NJ), U.K. (for EMEA), Australia and Singapore. The global support center infrastructure has been optimized to allow for an effective and efficient ‘‘follow the sun’’ 24 x 7 customer support strategy. Annual maintenance contracts are generally required for the first year of a customer’s use of the Company’s products, and are renewable on an annual basis. Maintenance contracts entitle the customer to hot-line support and all product upgrades released during the term of the maintenance contract. Upgrades include all patches or releases related to a licensed software product. Maintenance is offered at three levels of hot-line support, Platinum, Gold and Silver. Maintenance fees vary depending on the hours of hot-line support requested by the customer and typically range between 18% and 25% of license fees on an annual basis.Contents

ReferTable to ‘‘Item 1A Risk Factors’’ for a discussion of revenues generated by the Company’s foreign offices.Contents

IntellectualTable Propertyof Contents

JosephTable Dwyer joined the Company as Executive Vice President, Chief Financial Officer and Treasurer in December 2004. In 2004, prior to joining the Company, Mr. Dwyer served as Chief Financial Officer of Synergen, Inc, a company engaged in the development and marketing of enterprise asset management and mobile workforce software to utilities, municipalities and asset intensive industries. From 2001 to 2003, Mr. Dwyer served as Executive Vice President and Chief Financial Officer of Caminus Corporation, a publicly traded provider of integrated enterprise software applications to the global energy industry, and from 2000 to 2001 he served as Executive Vice President and Chief Financial Officer of ACTV, Inc., a publicly traded digital media company. Prior to ACTV, from 1994 to 2000, Mr. Dwyer served as Senior Vice President of Finance for Winstar Communications, Inc., a publicly traded global telecommunications provider.Contents

•Table the proportion of revenues we earn from license fees versus fees for the services we provide,Contents

•Table competitiveof conditions in the industry and general economic conditions andContents

AsTable a result of these factors, in future quarters, our operating results may be significantly lower than the estimates of public market analysts and investors. Any discrepancy could cause the price of our common stock to be volatile and to decline significantly. We can give no assurance that we will be profitable in any future quarter.Contents

10Table of Contents

•Table demand in the market for our type of software is reduced,Contents

•Table operatingof systems,Contents

•Table anyof new products or enhancements that we may introduce will be accepted by our target market.Contents

OurTable customers may not be willing to incur the costs or invest the resources necessary to complete upgrades to current or future releases of our products. This may lead to our loss of services, maintenance, and other support revenues, as well as less future business from customers that continue to operate prior versions of our products.Contents

13Table of Contents

•Table unexpectedof changes in tariffs, trade barriers and regulatory requirements,Contents

•Table implementof our software products, andContents

AXS-One’sTable commonof stock trading price has, from time to time, experienced, and is likely to continue to experience, significant price and volume fluctuations, often responding to, among other factors:Contents

AXS-OneTable hasof never paid or declared dividends and does not expect to in the foreseeable future. Contents

FacilitiesTable of Contents

21Table of Contents

22Table of Contents

WeTable continueof to make progress growing our customer base for our entire AXS-One Compliance Platform. This includes both extending opportunities within existing customers as well as acquiring new customers.Contents

OtherTable Incomeof (Expense), NetContents

RevenuesTable of Contents

OperatingTable Lossof Contents

LiquidityTable andof Capital ResourcesContents

FutureTable payments due under lease obligations and third party software providers as of December 31, 2006 are as follows:Contents

NetTable cash used by continuing operating activities in 2005 is primarily the result of the net loss, an increase in accounts receivable and a decrease in accounts payable and accrued expenses partially offset by an increase in deferred revenue and non-cash depreciation and amortization charges. Net cash used in continuing operating activities in 2004 was primarily the result of the net loss and increases in accounts receivable and prepaid and other current assets offset partially by increased accounts payable and accrued expenses and non-cash depreciation and amortization charges.Contents

OurTable cash flows from discontinued operations provided cash of $10.9 million and $5.8 million in 2006 and 2005 respectively, and used cash of $4.0 million in 2004. Cash provided in 2006 was primarily from Contents

CriticalTable Accountingof PoliciesContents

• CapitalizedTable softwareof development costs.Contents

OurTable arrangements do not generally include acceptance clauses. However, if an arrangement includes an acceptance provision, acceptance occurs upon the earliest of receipt of a written customer acceptance or expiration of the acceptance period.Contents

ItemTable 9.of Changes in and Disagreements with Accountants on Accounting and Financial DisclosureContents

OurTable chief executive officer and our chief financial officer, after evaluating the effectiveness of our ‘‘disclosure controls and procedures’’ (as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)) as of December 31, 2006 (the ‘‘Evaluation Date’’), have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective and designed to ensure that material information relating to us and our consolidated subsidiaries would be collected and made known to them by others within those entities as appropriate to allow timely decisions regarding required disclosure of such information.Contents

PARTTable IIIof Contents

ItemTable 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersContents

TheTable Company incorporates herein by reference the information required by Item 9(e) of Schedule 14A to be set forth in the 2007 Proxy Statement.Contents

(h)Table Incorporatedof by reference to the Exhibits filed with the Company’s Form 8-K filed on April 30, 2004Contents

(t)Table Incorporatedof by reference to the Exhibits filed with the Company’s Form 8-K filed on November 11, 2006Contents

WeTable have audited the accompanying consolidated balance sheet of AXS-One Inc. and Subsidiaries as of December 31, 2006, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity (deficit), and cash flows for the year ended December 31, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.Contents

WeTable have audited, before the effects of the adjustments to retrospectively report the discontinued operations described in Note 2 to the consolidated financial statements, the consolidated balance sheet of AXS-One Inc. and subsidiaries as of December 31, 2005, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit, and cash flows for the years ended December 31, 2005 and 2004 (the consolidated financial statements referred to above, before the effects of the adjustments discussed in Note 2, are not presented herein). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.Contents

(b) RevenueTable Recognition of Contents

(c)Table Variableof Interest EntityContents

TheTable Company evaluates the collectibility of accounts receivable based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, the Company records a specific allowance against amounts due, and thereby reduces the net receivable to the amount management believes is probable of collection. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are outstanding, the current business environment and historical experience. The Company does not require collateral and does not charge interest on outstanding balances.Contents

IncomeTable taxes are accounted for under the asset and liability method. The asset and liability method requires that deferred tax assets be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of such assets will not be realized. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.Contents

53Table of Contents

(n) BasicTable andof Diluted Net Income (Loss) per Common Share Contents

TheTable Company’sof product license and services agreements include a limited indemnification provision for claims from third parties relating to the Company’s intellectual property. Such indemnification provisions are accounted for in accordance with SFAS No. 5. The indemnification is generally limited to the amount paid by the customer. To date, claims under such indemnification provisions have not been significant.Contents

~~FORM~~ UNITED ~~10-K~~STATES

~~Annual~~ SECURITIES ~~Report~~AND ~~Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2006~~EXCHANGE COMMISSION

~~Commission~~ Washington, ~~File~~DC ~~Number: 1-13591~~20549

~~AXS~~ FORM 10-~~ONE INC.~~K ~~(Exact name of registrant as specified in its charter)~~

Delaware			13-2966911
(State or other jurisdiction ofincorporation or organization)			(IRS Employer Identification No.)
301 Route 17 North, Rutherford, New Jersey			07070
(Address of principal executive offices)			(Zip Code)

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2008

~~201-935-3400(Registrant’s~~ Commission ~~telephone~~File ~~number,~~Number: ~~including area code)~~0-26358

~~Securities~~ AXS-ONE ~~Registered Pursuant to Section 12(b) of the Act:~~INC.

Title of each class			Name of each exchangeon which registered
Common Stock $.01 par value			American Stock Exchange

(Exact name of registrant as specified in its charter)

Securities Registered Pursuant to Section 12(g) of the Act:None


Delaware (State or other jurisdiction of incorporation or organization)		13-2966911 (IRS Employer Identification No.)

301 Route 17 North, Rutherford, New Jersey (Address of principal executive offices)		07070 (Zip Code)

~~Indicate by check mark if the registrant is a well~~ 201-~~known seasoned issuer, as defined in Rule 405 of the Securities Act.~~935-3400

~~YES NO~~ (Registrant’s telephone number, including area code)

~~Indicate~~ Securities byRegistered ~~check~~Pursuant ~~mark if the registrant is not required~~ to ~~file reports pursuant to~~ Section ~~13 or Section 15~~ 12(db) of the Act.:

~~YES NO~~Title of each class Name of each exchange on which registered None.

~~Indicate~~ Securities byRegistered ~~check~~Pursuant ~~mark whether the registrant: (1) has filed all reports required~~ to ~~be filed by~~ Section ~~13 or 15~~ 12(dg) of the ~~Securities Exchange~~ Act ~~of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.~~:

~~YES NO~~ Common Stock $.01 par value

Indicate by check mark if ~~disclosure~~the ofregistrant ~~delinquent~~is ~~filers~~a ~~pursuant to Item 405 of Regulation S~~well-Kknown seasoned ~~is not contained herein~~issuer, ~~and~~as ~~will~~defined ~~not be contained, to the best of registrant’s knowledge,~~ in ~~definitive~~Rule 405 ~~proxy or information statements incorporated by reference in Part III~~ of ~~this~~the ~~Form 10-K or any amendment to this Form 10-K~~Securities Act. Yes o No x

Indicate by check mark ~~whether~~if the registrant is anot ~~large~~required ~~accelerated~~to ~~filer,~~file reports anpursuant ~~accelerated~~to ~~filer,~~Section 13 or aSection 15(d) ~~non-accelerated filer. See definition~~ of ~~‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of~~ the ~~Exchange~~ Act. ~~(Check one):~~ Yes o No x

~~Large~~ Indicate ~~accelerated~~by ~~filer Accelerated~~check ~~filer Non-Accelerated~~mark ~~filer~~whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark ~~whether~~if ~~the~~disclosure ~~Registrant~~of delinquent filers pursuant to Item 405 of Regulation S-K is anot ~~shell~~contained ~~company~~herein, ~~(as~~and ~~defined~~will not be contained, to the best of registrant’s knowledge, in ~~Rule~~definitive ~~12b-2~~proxy or information statements incorporated by reference in Part III of ~~the~~this Form 10-K or ~~Exchange~~any ~~Act)~~amendment to this Form 10-K. o

~~YES NO~~ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

~~The~~Large ~~aggregate~~accelerated ~~market~~filer ~~value~~o ofAccelerated ~~the~~filer ~~voting~~o ~~and non~~Non-~~voting~~accelerated ~~common~~filer ~~equity~~o ~~held~~Smaller byreporting ~~non-affiliates~~company of the Registrant, based upon the closing sale price of Common Stock on June 30, 2006 (the last business day of the Registrant’s most recently completed second fiscal quarter) as reported on the American Stock Exchange, was approximately $46.0 million. Shares of Common Stock held by each officer and director of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.x

As (Do ofnot ~~March 7, 2007,~~check ~~the~~if ~~registrant~~a ~~had~~smaller ~~outstanding~~reporting ~~36,007,425 shares of Common Stock.~~company)

~~DOCUMENTS~~ Indicate ~~INCORPORATED~~by BYcheck ~~REFERENCE~~mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

~~Items~~ The 10aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, 11based upon the closing sale price of Common Stock on June 30, 122008 (the last business day of the Registrant’s most recently completed second fiscal quarter) as reported on the OTCBB, 13was $14.5 million. Shares of Common Stock held by each officer and 14director of ~~Part~~the ~~III~~Company ~~are~~and ~~incorporated~~each bybeneficial ~~reference~~owner ~~from~~of amore than ~~portion~~10% of the ~~Registrant~~Company’s ~~definitive~~Common ~~proxy~~Stock ~~statement~~have tobeen excluded in that such persons may be ~~furnished~~deemed to ~~stockholders~~be inaffiliates. ~~connection~~This determination ~~with~~of ~~the~~affiliate ~~2007~~status ~~Annual~~is ~~Meeting~~not ofnecessarily ~~Stockholders~~a conclusive determination for other purposes.

~~PART~~ As Iof March 31, 2009, the registrant had outstanding 41,133,925 shares of Common Stock.

~~Item~~ DOCUMENTS INCORPORATED 1.BY ~~Business~~REFERENCE

~~This Report contains statements of a forward-looking nature within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933~~ Items 10, ~~as amended~~11, ~~and Section 21E of the Securities Exchange Act of 1934~~12, as13 ~~amended,~~and ~~relating~~14 ~~to future events or future financial results~~ of ~~the~~Part III ~~Company. Investors~~ are incorporated ~~cautioned~~by ~~that~~reference ~~such~~from ~~statements~~a ~~are~~portion ~~only~~of ~~predictions and those actual events or results may differ materially. In evaluating such statements, investors should specifically consider~~ the Registrant’s ~~various~~definitive ~~factors~~proxy ~~identified~~statement into ~~this~~be ~~Report~~furnished ~~which could cause actual events or results~~ to stockholders ~~differ~~in ~~materially~~connection ~~from~~with ~~those indicated by such forward-looking statements, including~~ the ~~matters~~2009 ~~set~~Annual ~~forth~~Meeting ~~in Item 1A ‘‘Risk Factors’’ below~~of Stockholders.

AXS-One Inc. (‘‘AXS-One’’ or the ‘‘Company’’) is a software company providing robust, secure business solutions that allow an organization to reduce the inherent risks associated with retaining and managing corporate records as well as to achieve efficiency in its business processes and to extend those efficiencies to its customers, suppliers, and business partners. AXS-One was formed in 1978 and has a proven track record in developing flexible, high-performance, scalable, secure and effective business solutions for Global 2000 organizations. AXS-One’s ability to quickly identify emerging market opportunities and to build high-quality, innovative solutions have won many awards over the years. The Company has devoted significant resources to developing new products which serve the Content Archival, Records Management, Compliance Management, E-Discovery, Litigation Readiness and Information Management Markets. PART I

~~AXS-One~~Item believes that changes in the scope and complexity of the corporate regulatory, governance, privacy and legal environment have significantly altered how organizations are doing, and are required to do, business1. Organizations are re-evaluating their software requirements to invest in solutions that ensure operational efficiency and competitive advantage while enabling them to address and satisfy their requirements for corporate governance, regulatory compliance, litigation readiness, legal discovery and privacy of information. AXS-One’s approach allows organizations to meet these requirements by leveraging investments in existing systems to extend them with collaborative web services and business components. This results in manageable investments, quick implementation schedules and a more rapid return on investment.Business

On This ~~October 31, 2006,~~Report ~~the~~contains ~~Company~~statements ~~sold~~of ~~certain~~a ~~assets~~forward-looking ~~and~~nature within ~~liabilities~~the ~~through~~meaning ~~which~~of ~~it operated~~ the ~~AXS-One~~safe ~~Enterprise~~harbor ~~Solutions~~provisions ~~financial~~of Section 27A ~~management~~of ~~and~~the ~~accounting~~Securities ~~applications~~Act ~~business~~of ~~(‘‘Enterprise~~1933, ~~Solutions’’)~~as ~~to Computron Software~~amended, ~~LLC~~and Section 21E ~~for~~of the ~~sum~~Securities ofExchange ~~$12 million~~Act inof ~~cash plus future potential consideration for exceeding specified license revenue targets. Additionally~~1934, ~~Computron Software~~as amended, ~~LLC~~relating ~~assumed~~to ~~net~~future ~~liabilities~~events ofor ~~approximately~~future ~~$6.2 million.~~financial ~~The Company recorded a gain~~ results of ~~$17.2 million on~~ the ~~sale~~Company. ~~The~~Investors ~~assets~~are ~~sold~~cautioned ~~primarily~~that ~~consist~~such ofstatements ~~client~~are only ~~contracts,~~predictions ~~marketing~~and ~~agreements,~~those ~~internally~~actual ~~developed~~events ~~software,~~or ~~accounts~~results ~~receivable~~may ~~and~~differ materially. ~~fixed~~In ~~assets~~evaluating ofsuch ~~the~~statements, ~~business.~~investors ~~The~~should specifically ~~liabilities~~consider ~~sold~~the ~~consist~~various ~~primarily~~factors ofidentified ~~employee~~in ~~related~~this Report ~~liabilities,~~which ~~accounts~~could ~~payable~~cause ~~and~~actual ~~deferred~~events ~~revenue.~~or ~~The~~results ~~Company~~to ~~has~~differ materially ~~classified~~from ~~the~~those ~~Enterprise~~indicated ~~Solutions~~by ~~business~~such asforward-looking statements, aincluding ~~discontinued operation in~~ the ~~consolidated~~matters ~~financial~~set ~~statements~~forth ~~included~~ in ~~this~~Item 1A “Risk ~~form~~Factors” ~~10-K filing~~below.

Previously, the Company had two reporting segments, Records Compliance Management and Enterprise Solutions. As a result of the sale of Enterprise Solutions, Records Compliance Management is the Company’s only reporting segment and therefore no longer meets the requirement for segment reporting. General

~~Records~~ AXS-One ~~Compliance~~Inc. ~~Management —~~ (“AXS-One” ~~Compliance~~or ~~Platform™ — an~~the ~~integrated~~“Company”) ~~archiving~~is a ~~and~~software ~~electronic~~company ~~records~~providing ~~management~~robust, ~~software~~secure, ~~solution~~business solutions that ~~enables~~allow ~~organizations~~an organization to ~~manage~~reduce ~~growing~~the ~~volumes~~inherent ofrisks ~~disparate~~and costs associated with retaining and managing corporate electronic records, ~~including~~as ewell as to achieve efficiency in its business processes. AXS-~~mail~~One was formed in 1978 and ~~instant~~has ~~messages~~a proven track record in developing flexible, ~~images~~high-performance, ~~office documents~~scalable, secure ~~ERP~~and effective software for organizations. AXS-~~generated~~One’s ability ~~data~~to ~~such~~quickly asidentify ~~electronic~~emerging ~~print~~market ~~reports~~opportunities and ~~SAP~~to build ~~archival~~high-quality, ~~data.~~innovative ~~All~~software ~~records~~has ~~are~~won ~~archived~~many ~~and~~awards ~~managed~~over the ~~according~~years. The Company has devoted significant resources to developing ~~corporate~~new ~~records~~products ~~policies~~which ~~from~~serve ~~initial~~the ~~capture~~Integrated Content Archiving, Records Management, Compliance Management, E-Discovery, Litigation Readiness, Knowledge Management, and ~~indexing~~Information Management markets.

2 AXS-One believes that developments in electronic communication as well as changes in the scope and complexity of the corporate regulatory, governance, privacy and legal environment have significantly altered how organizations are doing, and are required to do, business. Organizations are re-evaluating their software requirements to invest in solutions that reduce costs and ensure operational efficiency while enabling them to address and satisfy their requirements for corporate governance, regulatory compliance, litigation readiness, legal discovery and privacy of information. AXS-One’s approach allows organizations to meet these requirements by leveraging a single integrated content archiving and electronic records management software platform. This results in quick implementation schedules, a more rapid return on investment, a low total cost of ownership, and an enterprise-wide solution to growing and changing technology and business challenges.

through archival, search and ultimate destruction. These products have been developed and optimized to address global issues of regulatory compliance, corporate governance, litigation readiness, e-discovery, supervision and privacy as they relate to the retention and disposition of electronic records, as well as to significantly reduce infrastructure costs (primarily storage and associated management costs). Products

~~Distribution~~ The Company’s primary product, the AXS-One Compliance Platformtm, is an integrated content archiving software solution. Entirely developed by AXS-One, the product enables organizations to securely capture, index, archive, retrieve, review, share, search, supervise and manage the retention, disposition, preservation and destruction of electronic records, including e-mail and instant messages, images, office documents, Share Point documents, ERP-generated data such as electronic print reports and SAP archival data. This product has been developed and optimized to address global issues of regulatory compliance, corporate governance, supervision, litigation readiness, legal discovery and privacy as they relate to the retention and disposition of electronic records.

The basis for this solution is AXS-One Centraltm, a ~~markets~~digital ~~its~~archiving ~~products~~software ~~worldwide~~product ~~through~~that provides a ~~direct~~centralized and ~~sales~~highly ~~force~~scalable ~~located~~repository indesigned ~~the~~for ~~United~~long ~~States,~~term ~~Canada,~~secure storage ~~the~~and ~~United~~management ~~Kingdom,~~of ~~Germany,~~massive ~~Poland,~~volumes ~~South~~(terabytes) ~~Africa,~~of disparate ~~Australia,~~data. ~~Singapore~~Originally launched in 1993 as “COOLtm”, AXS-One ~~Hong~~Central ~~Kong~~has ~~and~~been ~~Taiwan~~implemented by major organizations worldwide to address disparate business issues. ~~During~~The ~~2005~~product ~~and~~is widely ~~2006,~~implemented ~~the~~at ~~Company~~global ~~announced~~financial ainstitutions, ~~number~~including some of ~~partnerships~~the toworld’s ~~further~~largest ~~expand~~financial ~~its~~corporations, ~~indirect~~for ~~sales~~the long ~~channel~~term ~~through~~archiving ~~global~~of ~~partnership~~their financial books and ~~local~~records ~~reseller~~in compliance ~~agreements~~with SEC Rule 17a-4 under the Securities Exchange Act. ~~For~~Integrated ~~fiscal~~workflow ~~year~~ensures complete ~~2006,~~record ~~AXS-One~~integrity ~~generated~~by ~~$1.1 million~~providing ora ~~45.0%~~full audit trail/chain of ~~license~~custody ~~revenues~~to ~~from~~deliver ~~its~~documented ~~distributors.~~evidence ~~For~~of ~~further~~all ~~information,~~interaction during ~~see~~the ~~‘‘Strategic~~life ~~Alliances~~of the record and ~~Business~~confirmation ~~Development~~that ~~Programs’’~~records have not been modified. In addition to eliminating paper

~~Products~~ 2

The basis for this solution is AXS-One Central, a digital archiving solution that provides a centralized and highly scalable repository designed for long term secure storage and management of massive volumes (terabytes) of disparate data. Originally launched in 1993 as ‘‘COOL™’’, AXS-One Central has been implemented by major organizations worldwide to address disparate business issues. The product is widely implemented at global financial institutions, including some of the world’s largest financial institutions, for the long term archival of their financial books and records in compliance with SEC Rule 17a-4 under the Securities Exchange Act. Integrated workflow ensures full record integrity by providing a full audit trail ‘‘process chain of custody’’ to deliver documented evidence of all interaction during the life of the record and confirmation that records have not been modified. In addition to eliminating paper production, distribution and storage costs, the ~~solutions~~solution provides ~~provide~~ fast, secure online access to relevant information via a powerful portal that can deliver significant productivity gains to organizations.

~~During~~ Since ~~2006~~its inception, the product has been considerably revised and enhanced, to leverage new technologies, support new data types and address new and emerging business needs. During 2008, AXS-One announced further significant development onof the AXS-One Compliance Platform, ~~focusing~~in ~~primarily~~response ~~on enhancements~~ to ~~address~~changes in the ~~growing~~ Messaging market. ~~for~~The ~~litigation~~evolution ~~readiness~~of e-mail products ~~and~~as ~~risk~~well ~~management.~~as ~~Version~~the ~~3.5.5~~economic ~~was~~recession ~~announced~~means inthat organizations ~~September~~are re-assessing their commitment to their current e-mail vendors and ~~introduced~~evaluating ~~major~~alternative options and new ~~functionality~~technologies, such ~~including~~as Cloud Computing.~~PST~~ ~~file~~This ~~management~~is ~~and~~resulting ~~file~~in ~~system~~more ~~archiving.~~companies considering ~~Both~~migrating ~~leverage~~all ~~the~~or ~~high~~some of their e-~~performance~~mail ~~workflow~~users to ~~integrated~~a ~~into~~different ~~the~~mail platform. In response to this, AXS-One announced ~~Compliance~~a ~~Platform~~new toproduct, ~~address~~Dynamic ~~the~~Data Migratortm (DDM) that ~~scalability~~significantly ~~and~~reduces ~~litigation/liability~~the ~~issues~~timelines, ofcosts ~~today’s~~and risks ~~enterprises~~usually associated with ~~managing and~~ migrating e-mail platforms.~~PST~~ ~~files~~Unlike ~~and~~competitive ~~records~~solutions ~~stored~~that inphysically ~~file~~convert messages ~~systems.~~from ~~Significant~~one ~~enhancements~~mail ~~were~~platform’s ~~made~~format to ~~the~~another ~~product~~mail platform’s ~~Case~~format, ~~Management~~DDM ~~functionality~~leverages inAXS-One’s ~~response~~archiving technology, giving end users uninterrupted, secure access to ~~growing~~all of ~~pressures~~their on“old” ~~organizations~~mail, ~~worldwide~~directly ~~regarding~~from ~~litigation~~their ~~readiness~~new mail client, without requiring bulk conversion. Original messages remain unchanged and eare retained with full fidelity, an important requirement for corporate counsel and in-~~discovery.~~house ~~Enhancement~~legal teams who are increasingly required to ~~Supervisory~~produce ~~Review~~electronic records ~~focused~~in ontheir ~~performance~~original format, ~~scale~~in ~~and~~the ~~ease~~event of ~~use,~~litigation. If and when a user views an “old message” from their new mail client (in ~~response~~order to ~~enterprise-wise~~reply ~~demand~~to the message or forward it for instance), DDM dynamically converts the message into the new message format. AXS-One believes that this ~~functionality~~approach (~~versus~~for ~~departmental~~which ~~needs~~a patent is pending), reduces migration timelines and costs by approximately two thirds. ~~Finally,~~The ~~usability~~first ~~enhancements~~release ~~were~~of ~~introduced~~DDM is specifically designed for organizations migrating from Lotus Notes and Domino to ~~facilitate~~Microsoft ~~administration~~Exchange. ~~within~~The timing and functionality of the ~~e-mail~~release ~~archiving~~is ~~products~~the ~~and~~result ~~significantly~~of ~~reduce~~customer ~~implementation~~feedback as ~~time~~well ~~and~~as ~~effort~~a number of analyst reports highlighting the change in market share by the leading messaging vendors. The Company announced its first customer contract for DDM during the ~~entire~~third quarter ~~platform~~of 2008.

On During ~~December 1st 2006~~the year, AXS-One announced new ~~rules~~customer wins for ~~the~~its Records ~~preparation~~Compliance ~~and~~Management ~~discovery~~(“RCM”) technology, as well as expansion of ~~electronic~~its ~~records~~implementation inwithin USits ~~Federal~~customer base. ~~courts~~These —new ~~The~~customer ~~Federal~~wins ~~Rules~~extended ofacross ~~Civil~~multiple industries, ~~Procedure~~including ~~(FRCP)~~financial ~~were~~services, ~~enacted.~~education, manufacturing, ~~The~~retail ~~rules~~and ~~will~~government; ~~potentially~~and ~~affect~~represented ~~every~~both competitive ~~organization~~wins inas ~~the~~well ~~United~~as ~~States~~wins ~~and~~with ~~beyond~~business partners. An(See “Strategic ~~important~~Alliances ~~change~~and ~~embodied~~Business ~~throughout~~Development Programs.”) During the ~~FRCP~~third isquarter, ~~the~~AXS-One ~~recognition~~announced oftwo strategic ~~‘‘electronically~~competitive ~~stored~~replacement ~~information’’~~wins. asIn both cases the customer is a ~~category~~large, ofglobal ~~evidence~~financial ~~equal~~services toorganization ~~paper~~that had ~~documents.~~previously ~~The~~implemented ~~rules~~a ~~have~~competitor’s ~~significant~~archiving product. ~~impact~~AXS-One onbelieves ~~organizations~~that the Company’s ~~electronic~~ability ~~records~~to deliver ~~management~~a ~~policies~~single, ~~which~~integrated ~~must~~content bearchiving ~~considered~~platform ~~from~~capable of anmanaging ITlarge asand ~~well~~growing asvolumes ~~legal~~of ~~perspective.~~disparate Aselectronic records athroughout ~~company~~their ~~that~~lifecycle, ~~has~~as ~~provided~~well aas ~~single,~~its ~~integrated~~focus ~~archiving~~on ~~and~~real business ~~electronic~~requirements ~~records~~as ~~management~~they ~~solution~~relate to ~~address~~technology ~~all~~continues to differentiate the Company from its competitors.

3 AXS-One Records Compliance Management Architecture

The AXS-One Records Compliance Management solution suite is based on a single, scalable archive, an approach generally referred to as “integrated content archiving” and one that is increasingly recommended by industry analysts. This architecture provides the ability for organizations to capture, store, manage, retain, review and retrieve electronic records on demand, completely, correctly and consistently; to search for, retrieve and act on, and reproduce, via a single interface, disparate records such as e-mail, instant messages, ERP-generated data such as SAP, desktop office and file system documents (such as word processing and spreadsheet documents), electronic reports and more, ~~than~~based 10upon request ~~years~~by internal parties, or for satisfaction of external regulatory audit or litigation and legal discovery requests. Searches may be conducted across disparate record types as well as across multiple instances of the AXS-One ~~believes~~archive. ~~that~~This delivers what is ~~uniquely~~known ~~positioned~~as toa ~~leverage~~“federated search”, which is seen as a key competitive differentiator. This architecture also provides system level assurance of data and process integrity by delivering full, auditable chain of custody reports for all records in the ~~new~~archive. ~~market~~New ~~opportunities~~and ~~afforded~~emerging requirements for e-discovery (driven by the ~~FRCP~~Federal ~~changes~~Rules of Civil Procedure amendments in the US and growing requirements worldwide) are affecting how electronic records (referred to in the context of e-discovery as “Electronically Stored Information” or “ESI”) need to be searched, managed and preserved.

AXS-One believes that the enhancements and additional functionality made to the AXS-One Compliance Platform through 2006 continue to provide it with further competitive advantage, and means that the Company can offer its customers and prospective customers a broad suite of solutions that enable them to address their current enterprise needs and to scale to meet their future requirements. Additionally, the Company believes that the AXS-One Compliance Platform is increasingly attractive to partners and resellers and supports the needs of its channel strategy. 3

~~Applications built on~~ AXS-One’s ~~set~~has ~~of archiving and workflow products have~~ been ~~deployed~~at asthe ~~electronic~~forefront ~~bill~~of ~~presentment~~providing and ~~document~~advocating ~~delivery~~an integrated ~~solutions~~content ~~(e-delivery),~~archiving ~~self-service~~platform. ~~information~~We ~~systems,~~believe ~~Internet~~we ~~report~~have ~~publishing~~long been ~~and~~ahead ~~distribution~~of ~~solutions,~~our ~~customer~~competition ~~service~~in ~~solutions,~~this ~~Internet-enabled~~area ~~information~~(many ~~reconciliation~~of ~~solutions,~~whom ~~and~~now claim ~~transaction~~to ~~confirmation~~have ~~solutions.~~an ~~These~~archiving ~~solutions are typically implemented in a timely manner~~platform, ~~thus~~versus ~~providing~~point asolutions ~~rapid time~~for e-~~to-value~~mail archiving). ~~The~~With ~~AXS-One~~the ~~E-Delivery~~market ~~Service,~~shifting ~~developed~~to ~~for~~platform ~~the~~solutions ~~European~~that can ~~travel~~address ~~industry,~~not ~~went~~only ~~live~~operational ~~during~~but ~~2005.~~also ~~The~~legal ~~service~~and ~~has~~litigation requirements ~~been~~for ~~endorsed~~ESI, bypoint ~~the~~solutions ~~Civil~~that ~~Aviation~~focus ~~Authority~~ on e-mail (~~the~~maybe ~~United~~only ~~Kingdom’s~~from ~~version~~one e-mail vendor) ofare ~~the~~increasingly ~~Federal~~at ~~Aviation~~a ~~Authority~~competitive indisadvantage. ~~the~~Today ~~United~~we manage ~~States) and has been widely adopted by~~ the UKarchiving, ~~travel~~retention, ~~industry.~~disposition Atand ~~the~~preservation ~~end~~ of virtually ~~2006,~~all 51ESI ~~tour~~with ~~operators~~a ~~had~~single ~~subscribed~~solution towhile ~~the~~our ~~E-Delivery~~competitors continue ~~Service,~~to ~~representing~~put ~~almost~~efforts ~~80%~~into ofacquiring ~~the~~and ~~entire UK travel sector~~integrating.

AXS-One ~~Records~~has ~~Compliance~~focused ~~Management~~its ~~Architecture~~architectural requirements on enterprise scalability and performance, and on the ability to handle large, complex requirements for integration within large corporate infrastructures (which can then be easily applied to meet the requirements of strategic hosting and application service providers (ASP) partners). Uniquely, AXS-One does not use a relational data to store and manage records in its archive. Industry analysts, such as Bloor Research, have complimented and agree with AXS-One’s approach, stating that relational databases incur unnecessary costs and processing overheads, are not designed to manage static content efficiently, and are not capable of delivering the consistent performance levels required for the type of large scale e-discovery searches increasingly conducted by organizations.

~~The~~ AXS-One ~~Records~~has ~~Compliance~~developed ~~Management solution suite is based on~~ a ~~single,~~rich ~~scalable~~set ~~archive.~~of ~~This~~supported ~~architecture~~web ~~provides~~services ~~the~~and API ~~ability~~capabilities, ~~for~~allowing ~~organizations~~customers to ~~capture,~~leverage ~~store, manage~~ and ~~reproduce~~repurpose archived ~~‘‘states-of-time’’ on demand: to reproduce, via a single interface,~~ records ~~such as e-mail, instant message, ERP-generated data such as SAP, desktop/office document (word processing and spreadsheet documents), electronic reports and more, based upon request~~ by ~~internal~~building ~~parties,~~their orown ~~for~~custom ~~satisfaction~~interfaces. Recent examples of ~~external~~projects ~~regulatory~~that ~~audit~~customers orhave ~~litigation~~completed ~~and~~include building ~~legal~~a ~~discovery~~front-end ~~requests.~~custom ~~This~~search ~~architecture~~portal ~~also provides system level assurance of data~~ and ~~process~~a ~~integrity~~local ~~by delivering full~~language, company-specific ~~auditable~~front ~~process~~end ~~chain~~to ~~of custody records for the managed data~~archived e-mail content.

Given the longevity of AXS-One’s ~~has~~archiving ~~focused~~technology, ~~its~~many of ~~architectural~~the ~~requirements~~Company’s oncustomers ~~enterprise~~continue ~~scalability~~to ~~and~~value ~~performance,~~the ~~and~~AXS-One Compliance onPlatform ~~the~~for its ability to ~~handle~~retain ~~large,~~and ~~complex~~manage ~~requirements~~large volumes ~~for~~of ~~integration~~electronic ~~within~~records ~~large~~over ~~corporate~~a ~~infrastructures~~long ~~(which~~period. ~~can~~As ~~then~~a befounding member ~~easily~~of ~~applied~~the toStorage ~~meet~~Networking ~~the~~Industry ~~requirements~~Association’s (SNIA) of100 Year ~~strategic~~Archive ~~subscription~~Task ~~and~~Force, ~~application~~AXS-One ~~service~~is ~~providers~~acutely aware ~~(ASP)~~of ~~partners).~~the ~~The~~technology ~~Company~~challenges ~~continues~~associated towith ~~extend~~ the ~~value~~long term retention of ~~the~~electronic ~~archive~~records. ~~with~~To ~~the~~that ~~addition~~end, ~~and~~AXS-One ~~continued~~has ~~improvements~~and continues ofto ~~our~~minimize ~~Web~~its ~~Services/XML~~reliance ~~capabilities,~~on ~~that~~proprietary ~~allow~~technology ~~our~~and embraces ~~platform~~Open toSource betechnologies ~~truly~~wherever ~~pervasive~~possible. ~~within~~In an2007, for ~~organization~~instance, ~~and~~the ofCompany ~~applications~~announced that ~~deliver~~it ~~significant~~was ~~value~~replacing ~~including~~its existing ~~e-delivery,~~search ~~e-mail~~engine ~~and~~with ~~IM archiving~~Lucene, ~~management~~enabling ofaccess ~~.PST~~to ~~file~~the archive ~~records~~that ~~and~~is ~~file~~independent ~~systems,~~of ~~supervision,~~the ~~legal~~AXS-One ~~discovery~~solution and ~~legal~~ensuring long ~~case~~term ~~hold,~~availability ~~SAP~~and ~~archiving~~access ~~and~~from ~~records~~other ~~management~~corporate applications.

AXS-One Records Compliance Management Products

Integrated product components are available for: digital archiving; ~~electronic presentment;~~ e-mail archival and management for Microsoft Exchange (including .PST file archiving), Lotus Notes, Sun ~~One~~ JMS, Bloomberg Mail and other message types; instant messaging archival, with specific connectors for products from FaceTime; file system archiving, archiving of SharePoint documents, archiving of ERP-generated data such as SAP, legacy and report archiving, desktop archiving for content such as word processing and spreadsheet documents; supervision; electronic records management; legal discovery and case management.

4 Distribution

~~Client~~ AXS-One ~~Services~~markets its products worldwide through a direct sales force located in the United States, the United Kingdom, Australia, Singapore, and Hong Kong. During 2008, the Company announced a number of partnerships to further expand its indirect sales channel through global partnership and local reseller agreements. For fiscal year 2008, AXS-One generated $0.4 million or 10% of license revenues from its distributors. For further information, see “Strategic Alliances and Business Development Programs”.

~~The Company considers its~~ Client Services to be a major asset and key differentiator from other vendors. With its 24 x 7 client support, ‘‘Implementation Certainty’’ methodology, standard and customized training and product certification, AXS-One has created a client services program to handle the needs of its customers and to support its channel partners.

As The ofCompany ~~December 31, 2006,~~considers ~~the~~its ~~Company~~Client ~~had~~Services 42to ~~employees~~be ~~worldwide~~a ~~providing~~major ~~customer~~asset and ~~support,~~key ~~consulting~~differentiator ~~and~~from ~~training~~other ~~services~~vendors. ToThis ~~maintain~~is areflected ~~high~~in the ~~standard~~95% ofmaintenance ~~service,~~renewal ~~the~~levels ~~Company~~during ~~requests~~2008. ~~customer~~With ~~evaluations~~its of24 x 7 client support, ~~personnel~~“Implementation onCertainty” methodology, astandard ~~quarterly~~and ~~basis.~~customized ~~The~~training ~~Company’s~~and product certification, AXS-One has created a client services ~~are~~program ~~described~~to handle ~~below~~the needs of its customers and to support its channel partners.

~~Client Support~~ 4

~~The~~ As ~~Company~~of ~~has~~December 31, ~~implemented~~2008, athe ~~next-generation~~Company ~~customer~~had ~~service~~24 employees worldwide ~~solution~~providing ~~and~~customer ~~has~~support, ~~rigorous~~consulting ~~processes~~and ittraining services. ~~adheres~~To tomaintain ina ~~the~~high ~~call~~standard ~~centers~~of ~~around~~service, the ~~world~~Company requests tocustomer ~~ensure~~evaluations ~~optimal~~of ~~management~~client ~~and~~support ~~timely~~personnel ~~resolution~~on ofa quarterly ~~customer issues~~basis. The ~~process~~Company’s isservices ~~monitored~~are ~~and~~described ~~measured in each of the Support centers to ensure consistently high levels of customer satisfaction~~below.

In addition to AXS-One’s own support services, certain partners (including Sun Microsystems and certain ASP/Hosting partners) have been trained and certified to provide first level support to their customers. Automatic e-mails from the partner’s call tracking system to our system ensure that optimal services levels can continue to be provided. This model has allowed us to expand our global support network and support our worldwide channel strategy. Client Support

~~Consulting~~ AXS-One’s ~~Services~~global support centers are based in the U.S (at the Company’s corporate headquarters in Rutherford, NJ), U.K., Australia and Singapore. The global support center infrastructure has been optimized to allow for an effective and efficient “follow the sun” 24 x 7 customer support strategy. Annual maintenance contracts are generally required for the first year of a customer’s use of the Company’s products, and are renewable on an annual basis. Maintenance contracts entitle the customer to hot-line support and all product upgrades released during the term of the maintenance contract. Upgrades include all patches or releases related to a licensed software product. Maintenance is offered at three levels of hot-line support, Platinum, Gold and Silver. Maintenance fees vary depending on the hours of hot-line support requested by the customer and typically range between 18% and 25% of license fees on an annual basis.

~~Given~~ The ~~the~~Company ~~broad~~has ~~capabilities~~implemented ofa ~~the AXS~~next-~~One~~generation ~~compliance~~customer ~~product~~service solution and ~~the~~has ~~range~~rigorous ofprocesses ~~markets~~it ~~into~~adheres ~~which we sell, our customers have differing IT and business requirements that they are looking~~ to ~~address.~~in ~~One of~~ the ~~key~~call centers ~~competitive~~around ~~advantages of~~ the ~~AXS-One~~world ~~solution is richness of functionality and flexibility and, as a result our ability~~ to ~~meet customers’ disparate needs. The Company’s professional services group therefore works with our customers to understand their specific business requirements and~~ ensure ~~that~~optimal ~~project~~management ~~planning~~ and ~~management~~timely resolution ~~are~~of ~~focused~~customer ~~on achieving that goal~~issues. The ~~Company~~process ~~has~~is ~~developed~~monitored ~~consistent, reliable~~ and measured ~~repeatable~~in ~~implementation~~each ~~processes~~of tothe ~~ensure~~support ~~optimal~~centers ~~customer~~to ~~satisfaction and rapid referenceability, as well as~~ ensure ~~that~~consistently high ~~every~~levels ~~customer understands how to get the most out~~ of ~~the~~customer ~~entire AXS-One Compliance Platform~~satisfaction. ~~The professional service organization also provides support for upgrades, migrations and platform changes.~~

~~Education~~ In ~~Services~~addition to AXS-One’s own support services, certain partners (including Sun Microsystems and certain ASP/Hosting partners) have been trained and certified to provide first level support to their customers. Automatic e-mails from the partner’s call tracking system to our system ensure that optimal services levels can continue to be provided. This model has allowed us to expand our global support network and support our worldwide channel strategy.

The Company provides education services worldwide through its Knowledge Transfer organization. This group is responsible for the development and delivery of training courses designed to address the requirements of specific groups. This includes training for AXS-One staff and partners to address sales, pre-sales, consulting services and client services. Packaged and tailored training courses are also available for customers. Training courses vary in length and are delivered through scheduled classroom training, online ‘‘self-service’’ modules as well as at customer locations. Consulting Services

5 Given the broad capabilities of the AXS-One Compliance Platform and the range of markets into which we sell, our customers have differing IT and business requirements that they are looking to address. One of the key competitive advantages of the AXS-One solution is richness of functionality and flexibility and, as a result, our ability to meet customers’ disparate needs. The Company’s professional services group therefore works with our customers to understand their specific business requirements and ensure that implementation planning and management are focused on achieving that goal. The Company has developed consistent, fast, reliable and repeatable implementation processes to ensure optimal customer satisfaction and rapid referenceability, as well as ensure that every customer understands how to get the most out of the entire AXS-One Compliance Platform. The professional services organization also provides support for upgrades, migrations and platform changes.

~~Backlog~~ Education Services

As The Company provides education services worldwide through its Training Department. This group is responsible for the development and delivery of ~~December 31~~training courses designed to address the requirements of specific groups. This includes training for AXS-One staff and partners to address sales, ~~2006~~ pre-sales, consulting ~~there~~services, ~~was~~and nosupport ~~significant~~services. ~~backlog~~Packaged and tailored training courses are also available for ~~the~~customers. ~~Company’s~~Training courses ~~products~~vary in length and ~~services~~are delivered through scheduled classroom training, online “self-service” modules, as well as administered at customer locations.

~~Revenue Concentrations~~ Backlog

~~During~~ The ~~the~~Company’s ~~last~~revenue ~~two~~backlog ~~years, AXS-One has generated a significant amount~~ of ~~revenues from a select number of customers~~approximately $1.0 million ~~For~~at ~~the year ended~~ December 31, ~~2006,~~ ~~two~~2008 ~~customers~~includes ~~represented~~a ~~13.6% and 13.3% individually,~~ backlog of ~~total~~consulting revenue. ~~For~~that ~~the~~has ~~year~~been ~~ended~~deferred ~~December 31, 2005~~until ~~one~~services ~~customer represented 18~~are provided.4% ofDeferred ~~total~~maintenance revenue. ~~For~~at ~~the year ended~~ December 31, ~~2006,~~ ~~two~~2008 was ~~customers represented 31.5% and 14.~~$3%.0 million, ~~individually,~~ of ~~license~~which ~~revenue. For~~ the ~~year~~majority ~~ended~~is ~~December 31, 2005,~~expected ~~three~~to ~~customers~~be recognized ~~represented~~as ~~26.8%, 16.4% and 12.2% individually of license~~ revenue. ~~One~~over ~~customer represented 13.0% of service revenues for~~ the ~~year~~next ~~ended December 31, 2006~~12 months. ~~One customer represented 13.6% of service revenues for the year ended December 31, 2005.~~

~~Foreign Office Revenue~~ 5

~~Strategic Alliances and Business Development Programs~~ Revenue Concentrations

During the last two years, AXS-One’s ~~mission~~has isgenerated toa besignificant amount of revenues from a ~~leading~~select ~~provider~~number of ~~high~~customers. ~~performance~~For ~~Records~~the year ~~Compliance~~ended ~~Management~~December 31, ~~software solutions~~2008, ~~leveraging~~one ~~its~~customer ~~expertise~~represented 13.3% inof ~~archiving,~~total ~~workflow~~revenue. ~~and~~For ~~compliance~~the ~~initially~~year ~~gained~~ended ~~within~~December 31, 2007, ~~the~~two ~~global~~customers ~~financial~~represented ~~services~~12.3% ~~sector~~and 11.6% ~~The~~individually, ~~solutions~~of total ~~offered~~revenue. byFor the ~~Company’s~~year ~~product~~ended ~~lines~~December 31, ~~address~~2008, ~~the~~two customers ~~requirements~~represented of22.7% ~~global~~and ~~enterprises~~13.8%, ~~across~~individually, ~~different~~of ~~industries~~license revenue. InFor ~~order~~the toyear ~~gain~~ended ~~market~~December 31, ~~share~~2007, ~~further~~three customers ~~penetrate~~represented ~~new~~22.9%, 20.5%, and ~~existing~~15.2%, ~~market sectors~~individually, ~~establish~~of license ~~new~~revenue. ~~geographical~~No ~~markets~~one ~~and~~customer ~~leverage~~represented ~~best~~more inthan ~~breed~~10.0% ~~technology,~~of service ~~and~~revenues ~~successfully~~for ~~compete~~the ~~against~~year ~~some~~ended ofDecember 31, ~~the~~2008. ~~largest~~One customer ~~technology~~represented ~~companies~~10.7% inof service revenues for the ~~world~~year ended December 31, ~~the~~2007. ~~Company~~For ~~realizes~~the ~~that~~years itended December 31, ~~must~~2008 ~~leverage~~and ~~not~~2007, ~~only~~the ~~its~~Company’s ~~own~~reselling partners ~~resources~~generated ~~but~~10% ~~also~~and ~~those~~30% of ~~other~~license ~~organizations.~~revenue, respectively.

~~The~~ Foreign Office Company has established strategic alliances and relationships with a number of organizations as an integral component of its go-to-market strategy. The Company believes these relationships are important to the development, distribution, sales, marketing, integration, and support of its products. During 2005 and 2006, the Company executed against its 2004 stated intention to significantly develop its channel sales model by establishing relationships with leading organizations around the world.Revenue

In Refer ~~January 2005,~~to ~~AXS-One~~“Item 1A ~~announced~~Risk anFactors” ~~agreement~~for ~~with Sun Microsystems whereby the two organizations entered into~~ a ~~Technology Development and License Agreement. Under the terms~~ discussion of ~~the~~revenues ~~agreement,~~generated ~~Sun~~by ~~is marketing, licensing, implementing and supporting~~ the ~~entire AXS-One Compliance Platform product suite worldwide as well as marketing and supporting this suite through Sun~~Company’s ~~global~~foreign ~~reseller network~~offices. Sun markets the AXS-One Compliance Platform as a core component of the Sun Compliance and Content Management Solution — an integrated and tested solution that may also include Sun servers, Sun storage and Sun middleware. In September 2005 the AXS-One products, as a component of the Sun Compliance and Content Management Solution, were officially added as part numbered items to Sun’s own price list and formally announced to the Sun organization. At the end of 2005, AXS-One issued a Sun-endorsed announcement that development work had been completed to replace Sun’s current e-mail archival product — Infinite Mailbox — and to facilitate the migration of Infinite Mailbox customers to the AXS-One solution. Throughout 2005, Sun and Storagetek closed a number of contracts around the world for the Sun Compliance and Content Management Solutions.

~~During~~ Strategic Alliances ~~2006, Sun Microsystems continued to promote the Sun Compliance~~ and ~~Content~~Business ~~Management~~Development Solution worldwide and closed 12 contracts worldwide. AXS-One and Sun have also continued to work on joint technology to expand the scope of the solution and ensure it remains competitively differentiated going forward.Programs

~~During 2006,~~ AXS-One’s ~~announced~~mission ~~additional~~is ~~technology~~to ~~and~~be ~~reseller~~a ~~partnerships~~leading ~~around~~provider ~~the~~of ~~world,~~high performance ~~including~~Integrated ~~continued~~Content ~~expansion~~Archiving ofsoftware solutions, leveraging its ~~reseller~~expertise ~~network~~ in ~~Asia~~archiving, ~~including~~workflow ~~Siemens~~ and ~~Fujitsu~~compliance initially gained within the global financial services sector. The Atsolutions offered by the ~~same~~Company’s ~~time,~~product ~~AXS-One~~lines address ~~continued~~the requirements of global enterprises across different industries. In order to ~~train~~gain ~~and~~market ~~support~~share, ~~existing~~further ~~partners~~penetrate new and existing market sectors, asestablish anew ~~result~~geographic markets and leverage best in breed technology, ~~was~~and ~~able~~successfully tocompete against ~~record~~some ~~sales~~of the largest technology companies in ~~new~~the ~~markets~~world, the ~~including~~Company ~~Scandinavia~~realizes ~~and~~that ~~India~~it must utilize not only its own resources but also those of other organizations.

6 The Company has established strategic alliances and relationships with a number of organizations as an integral component of its go-to-market strategy. This includes a relationship with Microsoft, the result of the Company’s announcement of Dynamic Data Migrator. The Company believes these relationships are important to the development, distribution, sales, marketing, integration, and support of its products.

~~Product~~ During ~~Development~~2008, as a result of its global partner strategy, AXS-One was able to record its first sales in South Korea, resulting in the Company’s largest win to date for Sun JMS archiving at one of the world’s largest conglomerates.

The Company has a dedicated product development and engineering organization and periodically releases new products and enhancements to existing products. In addition to in-house resources, the Company has also engaged off-shore resources to perform certain development and quality assurance activities. Product development efforts are directed at increasing product functionality, improving product performance, providing support to existing products, expanding the capabilities of the products to inter-operate with third-party software and hardware, developing new products and integrating new technologies. In particular, the Company has from time to time devoted substantial resources to develop additional modules for its products and the capability to support new applications, additional platforms, additional and/or new storage devices, graphical user interfaces (GUIs), toolsets and emerging technologies. While the Company anticipates that certain new products and enhancements will be developed internally, the Company has in the past and may continue to acquire or license technology or software from third parties when appropriate. Development

As The ofCompany ~~December 31~~has a dedicated product development and engineering organization and periodically releases new products and enhancements to existing products. In addition to in-house resources, ~~2006,~~ the Company ~~had~~has 38also ~~employees~~ engaged inoff-shore ~~product~~resources to perform certain development, quality assurance and ~~engineering~~documentation activities. ~~The~~Product ~~Company’s~~development ~~R&D~~efforts ~~expenses~~are ~~were~~directed $6at increasing product functionality,~~454~~ simplifying implementation and day to day management,~~000~~ improving product performance, $5providing support to existing products,~~978~~ expanding the capabilities of the products to inter-operate with third-party software and hardware,~~000~~ developing new products and $1integrating new technologies. In particular,~~469,000~~ the Company has from time to time devoted substantial resources to develop additional modules for its products and the ~~years~~capability ~~ended~~to ~~December 31~~support new applications, ~~2006~~ additional platforms, ~~2005~~additional and/or new storage devices, graphical user interfaces (GUIs), toolsets and emerging ~~2004~~technologies. While the Company anticipates that certain new products and enhancements will be developed internally, ~~respectively~~the Company has in the past and may continue to acquire or license technology or software from third parties when appropriate.

~~Competition~~ As of December 31, 2008, the Company had 29 employees plus 10 third party consultants engaged in product development and engineering. The Company’s R&D expenses were $5,550,000 and $6,996,000 for the years ended December 31, 2008 and 2007, respectively. No cost associated with employees or third party consultants expense met the criteria for capitalization under Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed” (“SFAS 86”) for the year ended December 31, 2008.

The software markets in which AXS-One is engaged are intensely competitive and rapidly changing. A number of companies offer products similar to components of the AXS-One Compliance Platform and target the same customers. The Company believes its ability to compete depends upon many factors within and outside its control, including the timing and market acceptance of new products and enhancements developed by the Company and its competitors, product functionality, performance, price, reliability, customer service and support, sales and marketing efforts and product distribution. In light of the current market focus on litigation readiness, legal discovery, regulatory compliance, corporate governance and risk management, many organizations are trying to position themselves as vendors of ‘‘compliance’’ or ‘‘e-discovery’’ solutions. This includes traditional competitors for the Company’s AXS-One Central product such as IBM and Mobius. It also includes competition from vendors of point solutions that have been acquired by larger vendors — Computer Associates, EMC, IBM, Hewlett Packard, OpenText and Veritas (then acquired by Symantec as well as a growing number of vendors of niche solutions. 6

The Company’s success is heavily dependent upon its proprietary technologies as well as products from third parties, software vendors and hardware vendors. The Company regards its software as proprietary, and relies primarily on a combination of contractual provisions and trade secrets, copyright and trademark law to protect its proprietary rights. As of December 31, 2006, the Company had no patents and has one provisional patent application pending. Existing trade secrets and copyright laws afford only limited protection. Competition

The ~~Company~~software ~~has~~markets ~~obtained~~in ~~Federal~~which ~~registrations~~AXS-One ~~for~~is ~~its~~engaged ~~trademarks~~are ~~‘‘AXS~~intensely competitive ~~One®,’’~~and ~~the~~rapidly ~~distinctive~~changing. A number of companies offer products similar to components of the AXS-One ~~logo~~Compliance Platform and target the same customers. The Company believes its ability to compete depends upon many factors within and outside its control, ~~‘‘Access~~including ~~Tomorrow~~the ~~Today®’’~~timing and ~~‘‘AXSPoint®’’~~market acceptance of new products and enhancements developed by the Company and its competitors, product functionality, performance, price, reliability, customer service and support, sales and marketing efforts, and product distribution. In ~~addition,~~light of the ~~Company~~current market ~~has~~focus ~~certain~~on Ulitigation readiness, legal discovery, regulatory compliance, corporate governance and risk management, many organizations are trying to position themselves as vendors of “compliance” or “e-discovery” solutions.S. ~~common~~This ~~law~~includes ~~rights~~vendors of point solutions that have been acquired by larger vendors including, Autonomy, Computer Associates, EMC, IBM, Hewlett Packard, and ~~rights~~Symantec ~~under~~as ~~foreign~~well ~~laws~~as ina growing ~~relation~~number toof ~~its~~vendors ~~trademarks~~of niche solutions. While these organizations often have established relationships with IT departments within customer and prospect organizations, ~~service~~AXS-One believes ~~marks~~that its functionality developed specifically to support the requirements of Legal departments and ~~product~~General Counsel ~~names~~enable it to be highly competitive in this growing market.

~~Employees~~ Intellectual Property

As The ofCompany’s ~~December 31, 2006,~~success ~~the~~is ~~Company~~heavily ~~had~~dependent ~~135~~upon ~~full-time~~its proprietary ~~employees,~~technologies 87as ~~within~~well ~~the~~as ~~United~~products ~~States~~from ~~and~~third 48parties, software ~~outside~~vendors ~~the~~and ~~United~~hardware ~~States,~~vendors. ~~including~~The 38Company inregards ~~product~~its software ~~development~~as proprietary, and ~~engineering,~~relies 42primarily inon ~~customer~~a ~~service~~combination of ~~and~~contractual ~~support~~provisions, 35confidentiality inagreements ~~sales~~ and ~~marketing~~trade secrets, copyrights and 20trademarks into ~~finance,~~protect ~~administration~~its ~~and~~proprietary rights. ~~executive~~As ~~management.~~of ~~The~~December 31, 2008, the Company’s ~~employees~~had ~~are~~no ~~not~~patents and ~~covered~~has bytwo ~~any~~provisional ~~collective~~patent ~~bargaining~~applications ~~agreements~~pending. ~~The~~Existing trade ~~Company~~secrets ~~believes~~and ~~that~~copyright ~~its~~laws ~~relations~~afford ~~with~~only ~~its~~limited ~~employees are good~~protection.

~~Available~~ The ~~Information~~Company has obtained Federal registrations for its trademarks “AXS One®,” the distinctive AXS-One logo, “Access Tomorrow Today®” and “AXSPoint®”. In addition, the Company has certain U.S. common law rights, and rights under foreign laws in relation to its trademarks, service marks and product names.

~~Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available, without charge, on the SEC web site, www.sec.gov, as soon as~~ Employees

7 As of December 31, 2008, the Company had 81 full-time employees, 63 within the United States and 18 outside the United States, including 29 in product development and engineering, 24 in customer service and support, 18 in sales and marketing, and 10 in finance, administration and executive management. In February of 2009, in order to reduce operating costs to better position ourselves in the current market, the Company eliminated 15 positions from operations. The Company’s employees are not covered by any collective bargaining agreements. The Company believes that its relations with its employees are good.

reasonably practical after they are electronically filed with, or furnished to, the SEC. The investor section of our web site, www.axsone.com, provides a direct link to AXS-One filings with the SEC. Copies are also available, without charge, from AXS-One Inc., Investor Relations, 301 Route 17 North, Rutherford, NJ 07070. Available Information

~~Executive~~ Our ~~Officers~~annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available, without charge, on the SEC web site, www.sec.gov after they are electronically filed with, or furnished to, the SEC. The investor section of our web site, www.axsone.com provides a direct link to AXS-One filings with the ~~Registrant~~SEC. Copies are also available, without charge, from AXS-One Inc., Investor Relations, 301 Route 17 North, Rutherford, NJ 07070.

~~The~~ Executive Officers ~~current executive officers~~ of the ~~Company as of February 28, 2007, are as follows:~~Registrant

Name	Age		Position
William P. Lyons		62	Chairman of the Board and Chief Executive Officer
Elias Typaldos		56	Executive Vice President, Technology and Director
Joseph Dwyer		51	Executive Vice President, Chief Financial Officer and Treasurer
Robert Milks		45	Senior Vice President — Sales, Americas

The executive officers of the Company as of March 20, 2009, are as follows:

William P. Lyons joined the Company as President and Chief Executive Officer in April 2004 and was appointed Chairman of the Board on June 10, 2004. Prior to joining the Company, Mr. Lyons was President and Chief Executive Officer of Caminus Corporation, a publicly traded provider of integrated enterprise software applications to the global energy industry from July 2002 until April 2003 when it was sold to SunGard Data Systems, Inc. From April 2003 until April 2004, Mr. Lyons served as a consultant for various pre-public software companies on strategic issues. From January 2001 until July 2002, when it was sold to Rational Software, Mr. Lyons was President & Chief Executive Officer of NeuVis, a technology provider of N-tier application development software. From 1998 to 2001, Mr. Lyons was President and Chief Executive Officer of Finjan Software, a privately held vendor of security software solutions. Mr. Lyons also has been CEO of Parc-Place Systems, an object-oriented tools company and Ashton-Tate Inc., a PC database company. He also spent 18 years at IBM in a variety of sales and marketing positions most recently as VP Software for the PC division.

Elias Typaldos, a founder of the Company, has been Senior Vice President, Research and Development (1978 – 2002) and Executive Vice President, Technology (2002 – present) of the Company. Mr. Typaldos has also been a director since the Company’s formation in 1978, and served as Chairman of the Board from March 1997 until June 2004. 7

~~Robert~~ William ~~Milks~~P. ~~was~~Lyons ~~promoted~~joined tothe ~~Senior~~Company ~~Vice~~as President~~-Sales,~~ ~~Americas~~and Chief Executive Officer in ~~January 2006.~~April ~~Mr. Milks~~2004 ~~joined~~and ~~the~~was ~~Company~~appointed inChairman of ~~October 2005~~the asBoard ~~Regional~~on ~~Vice~~June 10, ~~President~~2004. ofPrior ~~Eastern~~to ~~Sales.~~joining the Company, Mr. ~~Milks~~ Lyons ~~brings~~was ~~over~~President 20and ~~years~~Chief Executive Officer of ~~experience~~Caminus ~~building~~Corporation, ~~and~~a ~~managing~~publicly traded provider of integrated enterprise software ~~sales~~applications ~~organizations.~~to ~~Prior~~the global energy industry from July 2002 until April 2003 when it was sold to SunGard ~~joining~~Data ~~AXS-One~~Systems, MrInc. ~~Milks~~ ~~held~~From ~~executive~~April ~~sales~~2003 ~~management~~until ~~positions~~April at2004, Mr. Lyons ~~both~~served ~~public~~as ~~and~~a ~~private~~consultant for various pre-public software companies ~~including~~on ~~BlueRoads~~strategic ~~Corporation~~issues. From January 2001 until July 2002, ~~Selectica~~when it was sold to Rational Software, ~~Inc~~Mr. Lyons was President and Chief Executive Officer of NeuVis, ~~Intertech~~a technology ~~Information~~provider ~~Management~~of N-tier application development software. From 1998 to 2001, ~~Inc~~Mr. Lyons was President and Chief Executive Officer of Finjan Software, ~~Shannon~~a ~~Data~~privately held vendor of security software solutions. Mr. Lyons also has been CEO of Parc-Place Systems, an object-oriented tools company and Ashton-Tate Inc., a PC database company. He also spent 18 years at IBM in a variety of sales and ~~MicroComputer~~marketing positions, ~~Corp~~most recently as VP Software for the PC division.

~~Item~~ Joseph 1AP. ~~Risk~~Dwyer ~~Factors~~joined the Company as Executive Vice President, Chief Financial Officer and Treasurer in December 2004. In 2004, prior to joining the Company, Mr. Dwyer served as Chief Financial Officer of Synergen, Inc, a company engaged in the development and marketing of enterprise asset management and mobile workforce software to utilities, municipalities and asset intensive industries. From 2001 to 2003, Mr. Dwyer served as Executive Vice President and Chief Financial Officer of Caminus Corporation, a publicly traded provider of integrated enterprise software applications to the global energy industry, and from 2000 to 2001 he served as Executive Vice President and Chief Financial Officer of ACTV, Inc., a publicly traded digital media company. Prior to ACTV, from 1994 to 2000, Mr. Dwyer served as Senior Vice President of Finance for Winstar Communications, Inc., a publicly traded global telecommunications provider.

We Philip ~~have~~L. Rugani joined the Company as Executive Vice President, Field Operations in September 2007. From November 2006 to September 2007, Mr. Rugani served as Vice President of Americas Sales of IBM and was responsible for the Enterprise Content Management (ECM) market. From January 2003 until its acquisition by IBM in November 2006, Mr. Rugani was the Senior Vice President of the Americas and World Wide Channel Operations of FileNet, Corporation, a ~~previous~~leading ~~history~~provider of enterprise ~~net~~content ~~losses~~management solutions. Prior to FileNet Mr. Rugani was with AltaVista Software and developed it into a leader in the corporate Search and Retrieval market. He has also served as Senior Vice President — Americas, at Informix Software, a database management software company and as Group Vice President of General Business and Alliances at Oracle. Mr. Rugani has more than 25 years of experience in the high technology field in sales, marketing, channels, technology, and operations.

~~AXS-One~~Item ~~recorded net income of $5~~1A.~~5 million~~ inRisk 2006 primarily related to the sale of the Enterprise Solutions business, and recorded net losses of $9.0 million and $5.2 million in 2005 and 2004 respectively. AXS-One incurred a loss of $19.6 million, $15.1 million and $2.7 million for 2006, 2005 and 2004, Factors

8 We have risks relating to liquidity.

~~respectively, from continuing operations.~~ We ~~were~~have not yet been able to obtain operating profitability ~~in 2004, 2005~~ and ~~2006 from continuing operations and~~ may not be able to be profitable on a quarterly or annual basis in the future. AsIn ofaddition, in their report prepared in conjunction with our December 31, ~~2006~~ 2008 financial statements, weour ~~had~~independent registered public accounting firm, Amper, Politziner & Mattia LLP, included an explanatory paragraph stating that, because the Company has incurred recurring net losses, has an accumulated deficit and has a working capital deficiency as of ~~$85~~December 31, 2008, there is substantial doubt about our ability to continue as a going concern.~~1 million.~~ OnManagement’s ~~November 1~~initiatives over the last two years, ~~2006~~ including the restructurings in February 2009, weDecember 2008 ~~sold~~and 2007, the ~~assets~~executive ofmanagement ~~our~~salary ~~Enterprise~~reductions ~~Solutions~~for 2009, ~~business~~2008 toand ~~Computron~~2007, ~~Software~~securing additional convertible debt financing in May 2007, ~~LLC~~November 2007, aJuly ~~subsidiary~~2008 ofand ~~Parallax~~October 2008, ~~Capital~~and ~~Partners~~the Sand Hill Finance financing agreement have been designed to improve operating results and liquidity and better position AXS-One to compete under current market conditions. However, ~~LLC~~we ~~for~~are ~~$12 million~~required into ~~cash~~seek ~~plus~~new sources of financing or future ~~potential~~accommodations ~~consideration~~from ifour ~~specified~~existing ~~license~~lenders or other financial institutions, or we may seek equity or debt infusions from private investors. Our recent cost reductions will allow us to become profitable at lower revenue ~~thresholds~~levels ~~are~~than ~~exceeded~~in prior years. ~~Additionally~~However, ~~Computron~~our ~~Software~~ability ~~LLC~~to ~~assumed~~fund ~~net~~our ~~liabilities~~operations ofis ~~approximately~~dependent on ~~$6.2 million.~~our ~~This~~continued ~~represented~~sales of our ~~historically~~Integrated Content Arching software at levels sufficient to achieve profitable ~~segment~~operations. We may also be required to further reduce

Additionally, AXS-One’s revenue and operating results have fluctuated and may continue to fluctuate significantly from quarter to quarter in the future, causing our common stock price to be volatile and may cause the market price to fall. A variety of factors, many of which are not in our control, cause these fluctuations and include, among others: 8

• operating ~~the~~costs ~~number~~in order to meet our obligations if deemed necessary. As of ~~partners~~April 8, ~~selling~~2009, the Company’s cash position has reduced to $742,000, which includes $850,000 borrowed on our ~~products~~bank credit line. Additionally, the Company’s convertible debt approximating $13 million at April 8, 2009 matures on May 29, 2009 and ~~their~~the Company ~~continued~~does ~~willingness~~not have the capital to dopay sothese notes, and accordingly, such notes will need to be restructured. If we are unable to achieve profitable operations or secure additional sources of capital in the near term, in addition to restructuring our convertible debt, there would be substantial doubt about our ability to fund future operations through the second quarter of 2009. Management could also consider merger and acquisition activity. No assurance can be given that management’s initiatives will be successful or that any such additional sources of financing, lender accommodations, or equity or debt infusions will be available.

• We have ~~the~~a ~~number~~previous history of ~~third~~net ~~parties we use to perform services,~~losses.

• AXS-One ~~the~~incurred ~~amount~~losses of ~~revenues~~$10.1 million weand $14.9 million ~~generate~~for ~~from~~the ~~our~~years ~~sale~~ended ofDecember 31, ~~third~~2008 and ~~party~~2007, ~~software~~respectively. We may not be able to be profitable on a quarterly or annual basis in the future. As of December 31, 2008, we had an accumulated deficit of $110.3 million.

• Additionally, ~~demand~~AXS-One’s ~~for~~revenue and operating results have fluctuated and may continue to fluctuate significantly from quarter to quarter in the future, causing our ~~products~~common stock price to be volatile and may cause the market price to fall. A variety of factors, many of which are not in our control, cause these fluctuations and include, among others:

• the proportion of revenues we earn from license fees versus fees for the services we provide, • the number of partners selling our products and their continued willingness to do so, • the number of third parties we use to perform services, • the amount of revenues we generate from our sale of third party software, • demand for our products, • the size and timing of individual license transactions, • the products and enhancements that we, or our competitors, introduce, • changes in our customers’ budgets, • potential customers’ unwillingness to undertake major expenditures with us due to our past operating results, • availability or changes to third party products, • new or emerging technologies, • competitive conditions in the industry and general economic conditions, and • unrest in the Middle East or other world events.

• Additionally, ~~the~~clients’ ~~products~~licensing ~~and~~of ~~enhancements~~our ~~that~~products ~~we,~~is oroften delayed ~~our competitors, introduce,~~because:

• ~~changes~~our inclients ~~our~~must ~~customers~~commit a significant amount of capital, • frequently, a license purchase must be authorized through the multiple channels within a client’s ~~budgets~~organization, and • sales are driven through our partners, reducing our control over the sales cycle.

• Because ~~potential~~of ~~customers~~these reasons, as well as others, our products’ sales ~~unwillingness~~cycles are typically lengthy and subject to ~~undertake~~a ~~major~~number ~~expenditures~~of significant ~~with~~risks usover ~~due~~which towe ~~our~~often ~~past~~have ~~operating~~little ~~results,~~or no control which include a customer’s budgetary constraints and internal authorization reviews.

• Historically, ~~availability~~AXS-One orhas ~~changes~~operated towith ~~third~~a ~~party~~small license backlog, since products are generally shipped as we receive orders. Because our license fees in any quarter substantially depend on orders booked and

~~• new or emerging technologies~~ 9

• shipped ~~unrest~~ in the ~~Middle~~last ~~East~~month, orand ~~other~~often ~~world~~during ~~events~~the last week, of a given quarter, our revenues have been back-end loaded and subject to fluctuation.

~~Additionally,~~ Delays ~~clients’~~in ~~licensing~~the timing of ~~our~~when ~~products~~we isrecognize ~~often~~specific ~~delayed~~revenues may adversely and disproportionately affect our operating results because:

• a high percentage of our ~~clients~~operating ~~must~~expenses ~~commit~~are relatively fixed, and • only a ~~significant~~small ~~amount~~percentage of ~~capital,~~our operating expenses vary with our revenues.

• Because ~~frequently~~of these factors, awe ~~license~~believe ~~purchase~~that period-to-period comparisons ~~must~~of beour ~~authorized~~operating ~~through~~results ~~the~~are ~~multiple~~not ~~channels~~necessarily meaningful ~~within~~and aone ~~client’s~~should ~~organization~~not ~~and,~~rely on quarter-to-quarter comparisons of our operating results to be indicative of our future performance.

• Additionally, ~~sales~~our ~~are~~business ~~increasingly~~has ~~driven~~experienced, ~~through~~and ~~our~~we ~~partners~~expect to continue to experience, ~~reducing~~significant seasonality due, in part, to our ~~control~~customers’ ~~over~~buying ~~the~~patterns, ~~sales~~caused ~~cycle.~~primarily by:

~~Because~~• ~~of these reasons, as well as others,~~ our ~~products~~customers’ ~~sales~~budgeting ~~cycles~~and ~~are~~purchasing ~~typically~~patterns, ~~lengthy~~ and ~~subject~~• toour asales ~~number~~commission ~~of significant risks over which we often have little or no control which include a customer’s budgetary constraints and internal authorization reviews~~policies.

~~Historically~~ Generally, ~~AXS-One has operated with a small license backlog, since products are generally shipped as~~ we ~~receive~~compensate ~~orders. Because~~ our ~~license~~sales ~~fees~~personnel inbased ~~any quarter substantially depend~~ on ~~orders booked~~ quarterly and ~~shipped~~annual inperformance ~~the last month, and often during the last week, of a given quarter our revenues have been back-end loaded and subject to fluctuation~~quotas.

~~Delays~~ We inexpect ~~the~~that ~~timing~~these ofpatterns ~~when~~will welikely ~~recognize~~continue ~~specific~~in ~~revenues~~the ~~may adversely and disproportionately affect our operating results because:~~future.

• As a ~~high~~result ~~percentage~~ of these factors, in future quarters, our operating results ~~expenses~~may ~~are~~be ~~relatively~~significantly ~~fixed,~~lower than the estimates of public market analysts and investors. Any discrepancy could cause the price of our common stock to be volatile and to decline significantly. We can give no assurance that we will be profitable in any future quarter.

• Our auditors ~~only~~have aexpressed ~~small~~substantial ~~percentage~~doubt ofabout ~~our~~AXS-One’s ability ~~operating~~to ~~expenses~~continue ~~vary~~as ~~with~~a ~~our~~going ~~revenues~~concern.

~~Because~~ In oftheir ~~these~~report ~~factors~~prepared in conjunction with our December 31, we2008 ~~believe~~financial statements, our independent registered public accounting firm, Amper, Politziner & Mattia LLP, included an explanatory paragraph stating that, because ~~period-to-period~~the ~~comparisons~~Company ofhas ~~our~~incurred ~~operating~~recurring ~~results~~net ~~are~~losses, ~~not~~has ~~necessarily~~an accumulated ~~meaningful~~deficit and ~~one~~has ~~should~~a ~~not~~working ~~rely~~capital ondeficiency ~~quarter-to-quarter~~as ~~comparisons~~ of December 31, 2008, there is substantial doubt about our ability ~~operating~~to ~~results~~continue as a going concern. Although management’s plans to continue as a going concern are set forth in Note 1 to the financial statements set forth herein, there can be ~~indicative~~no ofassurance ~~our~~that ~~future~~such ~~performance~~plans will be successful.

9 The market in which we compete is intensely competitive.

~~Additionally,~~ AXS-One ~~our~~can ~~business~~give ~~has~~no ~~experienced,~~assurance ~~and~~that we ~~expect~~will tobe ~~continue~~able to ~~experience,~~compete successfully ~~significant~~against ~~seasonality,~~current ~~due,~~or infuture ~~part~~competitors or that competitive pressures will not have a material adverse effect on our business, operating results and financial condition. Our market is intensely competitive and changing rapidly. A number of companies offer products similar to ~~our~~ours and target the same customers’. ~~buying~~We ~~patterns~~believe that our ability to compete depends upon many factors, ~~caused~~many ~~primarily~~of ~~by:~~which are not in our control, including, among others,

• timing and market acceptance of new products and enhancements developed by us, as well as by our ~~customers’~~competitors, ~~budgeting~~• whether our products are reliable, how they function, perform, and ~~purchasing~~are ~~patterns~~priced, • our customer service and support, • our sales and marketing efforts, and • our product distribution.

• AXS-One ~~our~~software ~~sales~~products ~~commission~~are ~~policies~~positioned in a highly dynamic market. ~~Generally,~~Our wecompetitors ~~compensate~~within ~~our~~the ~~sales~~Integrated ~~personnel~~Content ~~based~~Archiving market oninclude ~~quarterly~~Autonomy, ~~and~~Computer ~~annual~~Associates, ~~performance~~EMC, ~~quotas.~~Hewlett Packard,

~~We expect that these patterns will likely continue in the future.~~ 10

~~The~~ IBM, ~~market~~OpenText inand ~~which~~Symantec. weThere ~~compete~~are isalso ~~intensely~~a ~~competitive~~growing number of smaller, niche vendors targeting specific areas of this market worldwide.

~~AXS-One~~ Most ~~can~~of ~~give~~our nocompetitors ~~assurance~~are ~~that~~substantially welarger ~~will~~than beus, ~~able~~and have tosignificantly ~~compete~~greater ~~successfully~~financial, ~~against~~technical ~~current~~and ormarketing resources, ~~future~~and ~~competitors~~extensive ordirect ~~that~~and ~~competitive~~indirect ~~pressures~~distribution channels. ~~will~~As ~~not~~a ~~have~~result, aour ~~material~~competitors ~~adverse~~may ~~effect~~be onable ~~our~~to ~~business,~~respond more ~~operating~~quickly ~~results~~to new or emerging technologies and ~~financial~~changes ~~condition.~~in customer ~~Our~~requirements ~~market~~or isto ~~intensely~~devote ~~competitive~~greater resources to developing, promoting and ~~changing~~selling ~~rapidly~~their products than we can. Additionally, Aour ~~number~~competitors ofoften ~~companies~~have ~~offer~~stronger ~~products~~financial positions ~~similar~~than towe ~~ours~~do, and ~~target~~use ~~the~~that ~~same~~fact ~~customers.~~as Wean ~~believe~~advantage ~~that~~during the ~~our~~selling ~~ability~~process. toOur products also compete ~~depends~~with ~~upon~~those offered ~~many~~by ~~factors,~~other ~~many~~vendors ofand ~~which~~with ~~are~~proprietary ~~not~~software indeveloped by ~~our~~third-party ~~control,~~professional ~~including~~service organizations, ~~among~~as ~~others,~~well as by potential customers’ management information systems departments.

• As ~~timing~~our market continues to develop and expand, we expect established and emerging companies to compete with us due to the relatively low barriers to entry within the software market. ~~acceptance~~We expect ofthat ~~new~~competition ~~products~~will ~~and~~also ~~enhancements~~increase ~~developed~~as the software industry consolidates. During 2008, we saw the acquisition trend continue with competitors in the Integrated Content Arching market being acquired by large companies with significantly greater financial and marketing resources than us. Furthermore, we ascannot ~~well~~assure asanyone bythat any of the companies with whom we currently have relationships, most of which may have significantly greater financial and marketing resources than we do, will not, in the future, develop or market software products that compete with our ~~competitors~~products, or discontinue their relationship or support of us.

• Additionally, ~~whether~~ our ~~products~~current ~~are~~and ~~reliable~~potential competitors have established, ~~how~~or ~~they~~may ~~function~~establish in the future, ~~perform~~cooperative relationships among themselves or with third parties to increase their products’ ability to address the needs of our prospective customers. Therefore, new competitors or alliances among competitors could emerge and ~~are~~rapidly ~~priced,~~acquire a significant market share. Increased competition is likely to result in:

• reducing the price of our ~~customer~~products, ~~service~~• ~~and~~reducing ~~support~~our gross margins, and • losing our market share.

• Any ~~our~~of ~~sales~~these ~~and~~factors ~~marketing~~would ~~efforts~~adversely affect our business, our operating results and financial condition.

• AXS-One depends ~~our~~on ~~product~~one ~~distribution~~principal suite of products for its revenues.

~~AXS-One~~ We ~~solutions~~depend ~~are~~on ~~positioned~~our inIntegrated aContent ~~highly~~Arching ~~dynamic~~software ~~market.~~for substantially ~~Our~~all ~~competitors~~our ~~within~~revenue. ~~the~~The ~~Records Compliance Management~~ market ~~include~~for ~~Computer~~these ~~Associates,~~products ~~EMC,~~is relatively ~~Hewlett~~new ~~Packard, IBM, OpenText, Symantec~~ and ~~Zantaz~~evolving rapidly. ~~There~~Accordingly, ~~are~~our ~~also~~future operating aresults ~~growing~~will ~~number~~depend, ofin ~~smaller~~part, ~~niche vendors targeting specific areas of this market worldwide.~~on:

~~Most~~• ofachieving ~~our~~broader ~~competitors~~market ~~are~~acceptance ~~substantially~~of ~~larger~~our ~~than~~products ~~us,~~ and ~~have~~services, ~~significantly~~• ~~greater~~expanding ~~financial,~~our ~~technical~~relationships ~~and~~with ~~marketing~~vendors ~~resources,~~in ~~and~~the ~~extensive~~hosting ~~direct~~ and ~~indirect~~emerging ~~distribution~~subscription ~~channels.~~market Asas awell ~~result,~~as our ~~competitors~~Value-Added ~~may~~Reseller benetwork ~~able~~worldwide, to• ~~respond~~expanding ~~more~~our ~~quickly~~relationships towith ~~new~~systems orintegrators, ~~emerging~~• ~~technologies~~maintaining ~~and~~our ~~changes~~existing in customer ~~requirements or to devote greater resources to developing~~base, ~~promoting~~• ~~and~~expanding ~~selling their products than we can. Additionally,~~ our ~~competitors~~customer ~~often have stronger financial positions than we do~~base, ~~and~~as ~~use~~well ~~that fact~~ as an• ~~advantage~~enhancing ~~during~~our ~~the selling process. Our~~ products ~~also compete with those offered by other vendors~~ and ~~with~~services ~~proprietary~~to ~~software~~meet ~~developed~~our ~~by third-party professional service organizations, as well as by potential~~ customers’ ~~management~~evolving ~~information systems departments~~needs.

~~As our market continues to develop and expand~~ Additionally, weduring expect established and emerging companies to compete with us due to the relatively low barriers to entry within the software market. We expect that competition will also increase as the software industry consolidates. During 20062009, weour ~~saw~~AXS-One ~~the acquisition trend continue with competitors in the Records~~ Compliance ~~Management~~Platform ~~market~~needs to ~~being~~gain ~~acquired by large companies with significantly~~ greater financial and marketing resources than us. Furthermore, we cannot assure anyone that any of the companies with whom we currently have relationships, most of which may have significantly greater financial and marketing resources than we do, will not, in the future, develop or market ~~software products that compete with our products, or discontinue their relationship or support of us~~acceptance. If:

~~Additionally,~~• ~~our~~demand ~~current~~in ~~and~~the ~~potential~~market ~~competitors~~for ~~have~~our ~~established,~~type orof ~~may~~software ~~establish~~is ~~in the future~~reduced, ~~cooperative~~• ~~relationships~~competition ~~among~~increases, ~~themselves~~ or ~~with~~• ~~third~~sales ~~parties~~of tosuch ~~increase their~~ products’ ~~ability to address the needs of our prospective customers. Therefore, new competitors~~ or ~~alliances~~services ~~among competitors could emerge and rapidly acquire a significant market share. Increased competition is likely to result in~~decline,

~~• reducing the price of our products,~~ 11

• any ~~reducing~~of ~~our~~these ~~gross~~factors ~~margins~~could have a material adverse affect on our business, operating results and financial condition.

• Deterioration in ~~losing~~general economic conditions has caused and could cause additional decreases or delays in spending by our ~~market~~customers ~~share~~and could harm our ability to generate license revenues and our results of operations.

The state of the global economy and availability of capital has and could further impact the spending patterns of existing and potential future customers. Any reduction in spending by, or loss of, ~~these~~existing ~~factors~~or ~~would~~potential ~~adversely~~future ~~affect~~customers would cause our revenues ~~business~~to decline. Further, ~~our~~we ~~operating~~may ~~results~~be unable to adjust our expenses and ~~financial~~capital ~~condition~~expenditures quickly enough to compensate for any unexpected revenue shortfall.

~~AXS-One~~ Software ~~depends~~purchases ontend ~~one~~to ~~principal~~be ~~suite~~cyclical, reflecting overall economic conditions and budgeting and buying patterns. Since we derive most of ~~products~~our ~~for~~revenues ~~its~~from sales of software licenses, the current deterioration in economic conditions has caused and could cause additional decreases in or delays in software spending and is likely to reduce our software license revenues and negatively impact our short term ability to grow our revenues. Further, any decreased collectability of accounts receivable or early termination of agreements due to the current deterioration in economic conditions could negatively impact our results of operations.

We AXS-One has ~~depend~~a onconcentration ~~our~~of ~~Records~~revenues ~~Compliance~~from ~~Management solutions for substantially all our revenue~~certain customers. ~~The market for these products is relatively new and evolving rapidly. Accordingly, our future operating results will depend, in part, on:~~

• During ~~achieving~~the ~~broader~~last ~~market~~two ~~acceptance~~years, AXS-One has generated a significant amount of revenues from a select number of customers. Because of the size of certain of our ~~products~~customers, ~~and~~it is likely that they will continue to generate a significant portion of our revenues especially in our services revenue area. If any of these customers should discontinue their business with us, it could have a material adverse affect on our business, operating results and financial condition. There is no assurance that we would be able to replace these lost revenues with revenues from new or other existing customers.

• During ~~expanding~~the ~~our~~last ~~relationships~~two ~~with~~years, ~~vendors~~AXS-One inhas generated a significant amount of revenues from a select number of customers. For the year ~~hosting~~ended December 31, 2008, one customer represented 13.3% of total revenue. For the year ended December 31, 2007, two customers represented 12.3% and ~~emerging~~11.6% ~~subscription~~individually, ~~market~~of total asrevenue. ~~well~~For asthe ~~our~~year ~~Value-Added~~ended ~~Reseller~~December 31, ~~network~~2008, ~~worldwide~~two customers represented 22.7% and 13.8%, individually, of license revenue. For the year ended December 31, 2007, three customers represented 22.9%, 20.5%, and 15.2%, individually, of license revenue. No one customer represented more than 10.0% of service revenues for the year ended December 31, 2008. One customer represented 10.7% of service revenues for the year ended December 31, 2007. For the years ended December 31, 2008 and 2007, the Company’s reselling partners generated 10% and 30% of license revenue, respectively.

• AXS-One’s market ~~expanding~~is ~~our~~characterized ~~relationships~~by ~~with~~new ~~systems~~products ~~integrators~~frequently being introduced, rapid technology changes, product defect risks, and development delays.

• If ~~maintaining~~AXS-One ~~our~~is ~~existing~~unable, for technological, financial or other reasons, whether or not within its control, to develop and introduce new products or enhancements in a timely manner to respond to changing customer ~~base~~requirements, technological change or emerging industry standards, our business, operating results and financial condition could suffer.

• Our ~~expanding~~software ~~our~~performance, customization, reporting capabilities, or other business objectives may or may not be affected by these changes and may or may not render us incapable of meeting future customer ~~base~~software demands. Introducing products embodying new technologies and emerging industry standards can render existing products obsolete and unmarketable. Accordingly, asit ~~well~~is difficult to estimate our products’ life cycles. Our future success will depend, in part, on our ability to develop and introduce new modules for the AXS-One Compliance Platform that respond to evolving customer requirements and keep pace with technological development and emerging industry standards, such as new:

• ~~enhancing~~operating ~~our~~systems, ~~products~~• ~~and~~hardware ~~services to meet our customers’ evolving needs.~~platforms,

~~Additionally, during 2007, our AXS-One Compliance Platform needs to gain greater market acceptance. If:~~ 12

• ~~competition~~new ~~increases~~environments such as subscription and hosting providers, or• interfaces, and • third party hardware and application software.

• We ~~sales~~can ofgive ~~such~~no ~~products~~assurance ~~or services decline,~~that:

~~any~~• ofwe ~~these~~will ~~factors~~be ~~could~~successful ~~have~~in adeveloping ~~material~~and ~~adverse~~marketing ~~affect~~product onenhancements ~~our~~or ~~business,~~new ~~operating~~products ~~results~~that ~~and~~respond ~~financial condition.~~to:

~~AXS-One~~• ~~has~~technological achange, ~~concentration~~• ofchanges ~~revenues~~in ~~from~~customer ~~certain~~requirements, ~~customers~~or • emerging industry standards.

~~During~~• ~~the~~we ~~last~~will ~~two~~not ~~years,~~experience ~~AXS-One~~difficulties ~~has generated a significant amount of revenues from a select number of customers. Because of the size of certain of our customers, it is likely~~ that ~~they~~could ~~will~~delay ~~continue~~or toprevent ~~generate a significant portion of~~ our ~~revenues~~successfully ~~especially~~developing, inintroducing ~~our~~and ~~services~~marketing ~~revenue~~new ~~area.~~products Ifand ~~any of these customers should discontinue their business with us it could have a material adverse affect on our business~~enhancements, ~~operating~~or ~~results~~• ~~and~~any ~~financial~~new ~~condition.~~products ~~There~~or isenhancements ~~no assurance~~ that we ~~would~~may beintroduce ~~able~~will tobe ~~replace~~accepted ~~these~~by ~~lost~~our ~~revenues~~target ~~with revenues from new or other existing customers~~market.

~~For~~ Software ~~the~~products ~~year~~as ~~ended~~comprehensive ~~December 31~~as those we offer often encounter development delays and, ~~2006~~ when introduced or when new versions are released, ~~two~~may ~~customers~~contain ~~represented~~undetected ~~13.6%~~errors ~~and~~or 13may simply fail.3% ~~individually~~These delays, oferrors ~~total~~or ~~revenue.~~failures ~~For~~create a risk that the ~~year~~software ~~ended~~will ~~December 31, 2005~~not ~~one~~operate ~~customer~~correctly ~~represented~~and ~~18.4%~~could ofcause ~~total~~our future ~~revenue.~~operating ~~For~~results ~~the~~to ~~year~~fall ~~ended~~short ~~December 31, 2006,~~of ~~two~~expectations ~~customers~~published by ~~represented~~certain ~~31.5%~~public ~~and~~market 14financial analysts or others.~~3%,~~ ~~individually~~From time to time, ofwe ~~license~~develop ~~revenue.~~products ~~For~~that ~~the~~are ~~year~~intended ~~ended~~to ~~December 31, 2005,~~be ~~three~~compatible with ~~customers~~various ~~represented~~new ~~26.8%~~computer operating systems, ~~16.4%~~although ~~and~~we ~~12.2%~~make ~~individually~~no assurances ofthat ~~license~~we ~~revenue.~~will ~~One~~successfully ~~customer~~develop ~~represented~~software ~~13.0%~~products that ofwill ~~service~~be ~~revenues~~compatible ~~for~~with ~~the~~additional ~~year~~operating ~~ended~~systems ~~December 31, 2006.~~or that ~~One~~will ~~customer~~perform ~~represented~~as 13we intend.6% ofAdditionally, ~~service~~our ~~revenues~~products, technologies ~~for~~and ~~the~~our ~~year~~business ~~ended~~in ~~December 31~~general rely upon third-party products from various sources including, ~~2005.~~ among others:

~~AXS-One’s~~• ~~market~~hardware isand ~~characterized~~software byvendors, ~~new~~• ~~products~~relational ~~frequently~~database ~~being~~management ~~introduced~~systems vendors, ~~rapid~~• ~~technology~~ERP ~~changes~~software vendors, ~~product~~• ~~defect~~reporting ~~risks~~software vendors, ~~and~~• ~~development~~open ~~delays~~source community, • IM software vendors, or • e-mail system vendors.

If In ~~AXS-One~~the future, it is ~~unable,~~unclear ~~for~~whether ~~technological,~~our ~~financial~~dependence orupon ~~other~~these third-party ~~reasons,~~products ~~whether~~will affect our ability to support or ~~not~~make our ~~within~~products ~~its~~readily ~~control~~available. In the past, towe have experienced delays by third parties who develop software that our products depend upon. These hold ups have resulted in delays in developing and ~~introduce~~shipping our products. Despite testing by us as well as by our current and potential customers, errors may be found in new products or enhancements inafter awe ~~timely~~ship ~~manner~~them tothat can ~~respond~~delay toor ~~changing~~adversely ~~customer~~affect ~~requirements,~~market ~~technological~~acceptance. ~~change~~We orcannot assure ~~emerging~~anyone ~~industry~~that ~~standards,~~any of these problems would not adversely affect our business, operating results and financial condition ~~could suffer~~.

~~Our~~ We ~~software performance, customization, reporting capabilities, or other business objectives~~ may ~~or may~~ not be ~~affected~~successful byin ~~these~~convincing ~~changes~~customers ~~and~~to ~~may~~migrate orto ~~may~~future releases ~~not render us incapable~~ of ~~meeting~~our ~~future customer~~ products.

11 Our customers may not be willing to incur the costs or invest the resources necessary to complete upgrades to current or future releases of our products. This may lead to our loss of services, maintenance, and other support revenues, as well as less future business from customers that continue to operate prior versions of our products.

software demands. Introducing products embodying new technologies and emerging industry standards can render existing products obsolete and unmarketable. Accordingly, it is difficult to estimate our products’ life cycles. Our future success will depend in part on our ability to develop and introduce new modules for the AXS-One Compliance Platform that respond to evolving customer requirements and keep pace with technological development and emerging industry standards, such as new: 13

• An investment ~~hardware~~in ~~platforms,~~our common stock may be less attractive because it is not traded on a recognized public market.

• Our ~~new~~common ~~environments~~stock ~~such~~has traded on the OTC Bulletin Board, or OTCBB since our common stock was delisted from the American Stock Exchange on November 5, 2007. The OTCBB is viewed by most investors as ~~subscription~~a less desirable, and ~~hosting~~less ~~providers~~liquid, marketplace. As a result, an investor may find it more difficult to purchase, dispose of or obtain accurate quotations as to the value of our common stock.

• Our ~~interfaces~~common stock may in the future become subject to Rules 15g-1 through 15g-9 under the Exchange Act, which imposes certain sales practice requirements on broker-dealers who sell our common stock to persons other than established customers and “accredited investors” (as defined in Rule 501(c) of the Securities Act). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. This rule would adversely affect the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of our common stock. Additionally, our common stock may in the future be subject to SEC regulations applicable to “penny stock.” Penny stock includes any non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule proscribed by the SEC relating to the penny stock market must be delivered by a broker-dealer to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for our common stock. The regulations also require that monthly statements be sent to holders of penny stock that disclose recent price information for the penny stock and information of the limited market for penny stocks. If we were to become subject to these requirements, they would adversely affect the market liquidity of our common stock.

• In ~~third~~the future, ~~party~~AXS-One ~~hardware~~may ~~and~~not ~~application~~have ~~software~~sufficient capital resources to fully carry out its business plans.

We Our ~~can~~ability ~~give~~to nocarry ~~assurance~~out our future business plans and achieve the anticipated results will be affected by the amount of cash generated from operations. As of December 31, 2008 the Company had $933,000 of cash and cash equivalents including $243,000 held by our foreign operations. As of April 8, 2009, the Company’s cash position has reduced to $742,000, which includes $850,000 borrowed on our bank credit line. There is also the risk that: cash held by our foreign subsidiaries will not be readily available for use in our U.S. operations as the transfer of funds is sometimes delayed due to various foreign government restrictions. Accordingly, we may in the future be required to seek new sources of financing or future accommodations from our existing lender or other financial institutions, or we may seek equity infusions from private investors. We may also be required to further reduce operating costs in order to meet our obligations.

• In February 2009, December 2008, 2007 and 2006 we ~~will~~initiated cost reduction efforts designed to reduce our operating costs and reduce our need for additional capital. In the future, if we are unsuccessful with increasing revenues and operating cash flow, we may be ~~successful~~required to further reduce our operating costs. We believe we can successfully reduce the Company’s cost structure in ~~developing~~the ~~and~~event ~~marketing~~of ~~product~~a ~~enhancements~~shortage orof ~~new~~capital; ~~products~~however, there can be no assurance that ~~respond~~we will be able to: reduce operating costs quickly enough or in amounts sufficient to avoid the need to find additional sources of financing.

• No ~~technological~~assurance ~~change~~can be given that management’s initiatives to generate profitable operations will be successful or that any additional necessary sources of financing, lender accommodations or equity infusions will be available. As a result, our business, operating results, and financial condition could be adversely impacted.

• AXS-One depends ~~changes~~upon inits ~~customer~~proprietary ~~requirements~~technology and if we were unable to protect our technology, orour competitive position would be adversely affected.

• We ~~emerging~~believe ~~industry~~that ~~standards~~our success greatly depends on our proprietary software and technology. We rely primarily on a combination of trademark and copyright law, trade secret protection and contractual

~~• we will not experience difficulties that could delay or prevent our successfully developing, introducing and marketing new products and enhancements, or~~ 14

~~Software~~ agreements ~~products~~with asour ~~complex~~employees, ascustomers, ~~those~~partners weand ~~offer~~others ~~often~~to protect ~~encounter~~our ~~development~~proprietary ~~delays~~rights. ~~and,~~Despite ~~when~~our ~~introduced~~efforts orto ~~when~~protect our ~~new~~proprietary ~~versions~~rights, ~~are~~unauthorized ~~released,~~third parties may ~~contain~~attempt to ~~undetected~~copy ~~errors~~all or ~~may~~part ~~simply~~of ~~fail.~~our ~~These~~products ~~delays,~~or ~~errors~~reverse engineer or obtain ~~failures~~and ~~create~~use ainformation ~~risk~~ that ~~the~~we ~~software~~regard ~~will~~as ~~not~~proprietary. ~~operate~~We make ~~correctly and could cause~~ our ~~future~~source ~~operating~~code ~~results~~available to ~~fall~~certain ~~short~~ of ~~expectations~~our ~~published~~customers byand partners, ~~certain~~which ~~public~~may ~~market~~increase ~~financial~~the ~~analysts~~likelihood of misappropriation or ~~others.~~other ~~From~~misuse ~~time~~of toour ~~time~~software. Additionally, wethe ~~develop~~laws ~~products~~of ~~that~~some countries ~~are~~do ~~intended~~not toprotect beour ~~compatible~~proprietary ~~with~~rights ~~various~~to ~~new~~the ~~computer~~same extent ~~operating~~as ~~systems,~~do ~~although~~the welaws ~~make~~of nothe ~~assurances~~United ~~that~~States weof ~~will~~America. ~~successfully~~We ~~develop~~cannot assure ~~software~~anyone ~~products~~ that ~~will~~the besteps ~~compatible~~we ~~with~~take ~~additional~~to ~~operating~~protect ~~systems~~our orproprietary rights ~~that~~ will ~~perform~~be asadequate weor ~~intend.~~that ~~Additionally,~~ our ~~products,~~competitors ~~technologies~~will ~~and~~not independently ~~our~~develop ~~business~~technologies inthat ~~general~~are ~~rely~~substantially equivalent ~~upon~~or ~~third-party~~superior ~~products~~to ~~from various sources including, among others:~~ours.

• Although ~~hardware~~we believe that the trademarks and ~~software~~service ~~vendors~~marks we use are distinct, there can be no assurance that we will be able to register or protect such trademarks and service marks.

• Our products ~~relational~~may ~~database~~become ~~management~~subject ~~systems~~to ~~vendors,~~infringement claims.

• We ~~ERP~~believe that none of our products, trademarks, or service marks, technologies or other proprietary rights infringe upon the proprietary rights of any third parties. However, as the number of software ~~vendors~~products in our industry increases and the functionality of these products further overlap, we believe that software developers like us may become increasingly subject to infringement claims. Additionally, the market in which we compete has seen an increase in the number of “business method” patents issued, and infringement claims asserted, based on these issued patents. Any claims asserted, regardless of their merit, can be time consuming and expensive to defend, could cause delays in shipping our products or require us to enter into royalty or licensing agreements that may not be available on terms acceptable to us. Any of these factors would significantly impact our operating results and financial conditions or materially disrupt the conduct of our business. We cannot assure anyone that third parties will not assert infringement claims against us in the future with respect to our current or future products or services.

• A security ~~reporting~~breach ~~software~~could ~~vendors~~harm our business.

• Our ~~open~~products ~~source~~provide ~~community~~security features designed to protect its users’ data from being retrieved or modified without being authorized. While AXS-One continues to review and enhance the security features in its products, we can make no assurances concerning the successful implementation of security features and their effectiveness within a customer’s operating environment. If an actual security breach were to occur, our business, operating results and financial condition could suffer.

• A variety IMof ~~software~~risks ~~vendors,~~associated orwith AXS-One’s international operations could adversely affect our business.

• Risks ~~e-mail~~inherent ~~system~~in ~~vendors~~international revenue include the impact of longer payment cycles, greater difficulty in accounts receivable collection, unexpected changes in regulatory requirements, tariffs and other trade barriers, and difficulties in staffing and managing foreign operations. In addition, most of our international license fees and services revenues are denominated in foreign currencies which can have an impact on our consolidated revenues as exchange rates fluctuate. Currently, we do not hedge against foreign currency exchange risks but in the future we may commence hedging against specific foreign currency transaction risks. We may be unable to hedge all of our exchange rate exposure economically and exchange rate fluctuations may have a negative effect on our ability to meet our obligations. With respect to our international sales that are U.S. dollar denominated, decreases in the value of foreign currencies relative to the U.S. dollar could make our products less price competitive. These factors may have a material adverse effect on our future international revenue.

In We ~~the~~believe ~~future,~~that itour iscontinued ~~unclear~~growth ~~whether~~and ~~our~~future ~~dependence~~profitability will ~~upon~~require ~~these third~~AXS-~~party~~One ~~products~~to ~~will~~expand ~~affect~~its ~~our~~sales ~~ability~~in tointernational markets, ~~support~~which orrequire ~~make~~significant ~~our~~management ~~products~~attention ~~readily~~and financial ~~available~~resources. InAs ~~the~~a ~~past~~result, we ~~have~~expect ~~experienced delays by third parties who develop software~~ that ~~our~~revenues ~~products~~from customers ~~depend~~outside ~~upon.~~the ~~These~~United ~~holdups~~States ~~have~~will ~~resulted~~continue into ~~delays~~represent ina significant ~~developing~~percentage ~~and~~of ~~shipping~~ our ~~products.~~total ~~Despite~~revenues ~~testing by us as well as by our current and potential customers, errors may be found~~ in ~~new~~the ~~products or enhancements after we ship them that can delay or adversely affect market acceptance~~future. We cannot assure anyone, however, that ~~any~~we ofwill ~~these~~be ~~problems~~able ~~would~~to ~~not~~maintain or ~~adversely~~increase ~~affect~~international ~~our~~market ~~business,~~demand ~~operating~~for ~~results~~our ~~and~~products ~~financial condition~~and services.

~~We may not be successful in convincing customers to migrate to future releases of our products.~~ 15

12 In 2008 and 2007 the Company’s total revenues generated by the Company’s foreign offices were as follows:

We risk being de-listed from the American Stock Exchange, which could reduce our ability to raise funds.


		Percentage of
Year	Amount	Total Revenues

2008	$3.7 million	27.2%
2007	$5.0 million	41.7%

On October 6, 2006 the American Stock Exchange (AMEX) notified us that we were not in compliance with the Exchange’s continued listing requirements due to shareholders equity of less than $2,000,000 and losses from continuing operations and/or net losses in two out of our three most recent fiscal years. We submitted a compliance plan on November 6, 2006, advising the AMEX of actions we have taken or will take to bring AXS-One ~~into~~is ~~compliance~~subject ~~with the Exchange’s continued listing standards within a maximum of 18 months. The AMEX has reviewed the Company’s plan of compliance~~ to ~~meet~~additional ~~the~~risks ~~AMEX’s~~related ~~continued listing standards and will continue the Company’s listing while the Company seeks~~ to ~~regain~~operating ~~compliance with the listing standards during the period ending April 6, 2008. During the plan period, the Company must continue to provide the AMEX staff with updates regarding initiatives set forth~~ in foreign ~~its plan of compliance~~countries. ~~The~~These ~~Company~~risks ~~will~~generally be subject to periodic review by the AMEX staff during the plan period. If the Company is not in compliance with the continued listing standards on April 6, 2008 or the Company does not make progress consistent with the plan during the plan period, then the AMEX may initiate immediate delisting proceedings.include:

If• ~~our~~unexpected ~~common~~changes ~~stock~~in ~~were~~tariffs, totrade bebarriers ~~de-listed~~and byregulatory ~~the~~requirements, ~~American~~• ~~Stock~~costs ~~Exchange,~~of welocalizing ~~might~~products befor ~~unable~~foreign tocountries, ~~list~~• ~~our~~lack ~~common~~of ~~stock~~acceptance ~~with~~of ~~another~~localized ~~stock~~products ~~exchange.~~in Inforeign ~~that event~~markets, ~~trading~~• oflonger ~~our~~accounts ~~common~~receivable ~~stock~~payment ~~might~~cycles, be• ~~limited~~difficulties tomanaging ~~the~~international ~~OTC~~operations, ~~Bulletin~~• ~~Board~~potentially oradverse ~~similar~~tax ~~quotation~~consequences, ~~system.~~• ~~Inclusion~~restrictions ~~of our common stock~~ on ~~the~~repatriation ~~OTC~~of ~~Bulletin~~earnings, ~~Board~~• orloss ~~similar~~of ~~quotation~~key ~~system~~personnel, ~~could~~• ~~adversely~~reduced ~~affect~~legal ~~the~~protection ~~liquidity and price~~ of our ~~common~~intellectual ~~stock~~property, and ~~make~~• ~~it more difficult for AXS-One to raise additional capital on favorable terms, if at all. In addition, de-listing by~~ the ~~American~~burden ~~Stock~~of ~~Exchange~~complying ~~might~~with ~~negatively~~a ~~impact~~wide ~~AXS-One’s~~variety ~~reputation~~of ~~and,~~foreign ~~as a consequence, its business~~laws.

In Any ~~the~~of ~~future~~these factors, ~~AXS-One~~or ~~may~~others, ~~not~~could ~~have~~adversely ~~sufficient~~affect ~~capital~~our future ~~resources~~international torevenues ~~fully~~and, ~~carry~~consequently, ~~out~~our ~~its~~ business, operating ~~plans~~results and financial condition.

Our ability to carry out our future business plans and achieve the anticipated results will be affected by the amount of cash generated from operations. As of December 31, 2006 the Company had $7,492,000 of cash and cash equivalents including $686,000 held by our foreign operations. There is also the risk that cash held by our foreign subsidiaries will not be readily available for use in our U.S. operations as the transfer of funds is sometimes delayed due to various foreign government restrictions. Accordingly, we may in the future be required to seek new sources of financing or future accommodations from our existing lender or other financial institutions, or we may seek equity infusions from private investors. We rely ~~may~~on ~~also~~certain bethird-party ~~required to further reduce operating costs in order to meet our obligations~~relationships.

~~Effective~~ Our ~~February 15~~business, ~~2007,~~ ~~the~~product ~~Company~~development, ~~entered~~operating ~~into~~results aand financial ~~Fourth~~condition ~~Loan~~could ~~Modification~~be ~~Agreement~~adversely ~~with~~impacted ~~the~~if ~~Bank~~we ~~which~~fail ~~serves~~ to maintain ~~adjust~~our ~~the~~existing ~~amount~~relationships ~~the~~or ~~Company~~establish ~~may~~new relationships, ~~borrow~~in tothe befuture, ~~the~~with ~~lesser~~third parties because of diverging ~~$2.5 million~~interests, one or ~~80%~~more of ~~eligible~~these ~~accounts~~third parties is acquired, asor ~~defined~~for inany ~~the~~other ~~Loan~~reason, ~~Agreement~~whether or not within our control. ~~The~~We ~~Loan~~rely ~~Agreement~~on ~~contains~~third-party ~~certain~~relationships ~~restrictive~~with ~~financial~~a ~~covenants.~~number ~~The~~of consultants, ~~loan~~systems ~~agreement~~integrators ~~expires~~and onsoftware ~~April 1, 2008.~~vendors to:

In• ~~December 2006~~enhance ~~and~~our inproduct ~~each~~development, of• ~~June 2005~~market and ~~2004~~sell ~~we initiated cost reduction efforts designed to reduce~~ our ~~operating~~products, ~~costs~~• ~~and~~implement ~~reduce~~ our ~~need~~software ~~for additional capital. In the future~~products, ~~if we are unsuccessful with increasing revenues~~ and ~~operating~~• ~~cash~~support ~~flow, we may be required to further reduce~~ our ~~operating costs~~customers. We believe we can successfully reduce the Company’s cost structure in the event of a shortage of capital; however, there can be no assurance that we will be able to reduce operating costs quickly enough or in amounts sufficient to avoid the need to find additional sources of financing.

No These ~~assurance~~relationships ~~can~~assist beour ~~given~~product ~~that~~development ~~management’s~~process ~~initiatives~~and assist tous ~~generate~~in ~~profitable operations will be successful or that any additional necessary sources of financing~~marketing, ~~lender~~servicing ~~accommodations~~and orimplementing ~~equity~~our ~~infusions will be available~~products. A Asnumber aof ~~result~~these ~~our~~relationships ~~business,~~are ~~operating~~not ~~results~~memorialized ~~and~~in ~~financial~~formal written ~~condition could be adversely impacted~~agreements.

~~AXS-One~~ Our ~~depends~~products ~~upon~~also ~~its~~incorporate ~~proprietary~~software ~~technology~~that we license from third parties. These licenses expire from time to time and generally, ifwe do not have access to the source code for the software that a third party will license to us. Certain of these third parties are small companies without extensive financial resources. If any of these companies terminate relationships with us, cease doing business or stop supporting their products, we ~~were~~may ~~unable~~be forced to ~~protect~~expend ~~our~~a ~~technology~~significant amount of time and development resources to try to replace the licensed software. We may also find that replacement is not possible or commercially feasible. If that were to occur, our ~~competitive~~business, operating ~~position~~results ~~would~~and financial condition could be adversely ~~affected~~ impacted.

We believe that our success greatly depends on our proprietary software and technology. We rely primarily on a combination of trademark and copyright law, trade secret protection and contractual agreements with our employees, customers, partners and others to protect our proprietary rights. Despite 16

our efforts to protect our proprietary rights, unauthorized third parties may attempt to copy all or part of our products or reverse engineer or obtain and use information that we regard as proprietary. We rely ~~make~~on ~~our~~strategic ~~source~~partners ~~code available to certain of our customers~~ and ~~partners,~~resellers ~~which~~for ~~may~~a ~~increase~~large ~~the~~portion ~~likelihood~~ of ~~misappropriation or other misuse of~~ our ~~software.~~new ~~Additionally,~~license ~~the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States~~revenue. We cannot assure anyone that the steps we take to protect our proprietary rights will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to ours.

~~Although~~ Our wesales ~~believe~~strategy ~~that~~over the ~~trademarks~~past ~~and~~several ~~service~~years ~~marks~~has weincluded strategic ~~use~~partners ~~are~~such ~~distinct,~~as ~~there~~Sun ~~can~~Microsystems beand noother ~~assurance~~resellers around ~~that~~the weworld. ~~will~~The beloss ~~able~~of toa ~~register~~strategic partner or ~~protect~~the inability ~~such~~to ~~trademarks~~maintain productive reseller relationships could have a significant negative effect on our ability to generate new license and related service ~~marks~~revenue. Our largest strategic partner is responsible for 8.8% of our license revenue in 2008 and 22.5% of license revenue in 2007.

~~Our~~ AXS-One’s executive ~~products~~officers, ~~may~~directors ~~become~~and ~~subject~~affiliates toown ~~infringement~~a ~~claims~~significant amount of its common stock.

We This ~~believe~~stock ~~that~~ownership ~~none~~may ofprevent ~~our products, trademarks,~~ or ~~service~~discourage ~~marks,~~tender ~~technologies~~offers orfor our ~~other~~common ~~proprietary~~stock ~~rights~~unless ~~infringe~~these ~~upon~~significant stockholders approve the ~~proprietary~~terms ~~rights~~ of any ~~third~~such ~~parties~~offers. ~~However,~~As ~~as the number~~ of ~~software products in our industry increases and the functionality of these products further overlap~~February 18, ~~we believe that software developers like us may become increasingly subject to infringement claims. Additionally~~2009, ~~the market in which we compete has seen an increase in the number of ‘‘business method~~ AXS-One’’s ~~patents~~executive ~~issued~~officers, ~~and~~directors ~~infringement claims asserted, based on these issued patents. Any claims asserted, regardless of their merit, can be time consuming~~ and ~~expensive~~affiliates together tobeneficially ~~defend,~~own ~~could~~approximately ~~cause~~32% ~~delays in shipping our products or require us to enter into royalty or licensing agreements that may not be available on terms acceptable to us. Any~~ of ~~these factors would significantly impact~~ our ~~operating~~outstanding common ~~results and financial conditions or materially disrupt the conduct of our business~~stock. WeAs ~~cannot~~a ~~assure~~result, ~~anyone~~these ~~that~~stockholders ~~third~~are ~~parties~~able ~~will not assert infringement claims against us in the future with respect~~ to exercise ~~our~~significant ~~current~~influence orover ~~future~~matters ~~products~~requiring stockholder orapproval ~~services.~~including:

A• ~~security~~electing ~~breach~~directors, ~~could~~and ~~harm~~• mergers, consolidations, and sale of all or substantially all of our ~~business~~assets.

~~Our products provide security features designed to protect its users’ data from being retrieved or modified without being authorized. While~~ AXS-One relies ~~continues~~on ~~to review and enhance the security features in~~ its ~~products,~~key wepersonnel ~~can~~and ~~make~~may nohave ~~assurances~~difficulty ~~concerning the successful implementation of security features~~ attracting and ~~their~~retaining ~~effectiveness~~the ~~within~~skilled aemployees ~~customer’s~~it ~~operating~~needs ~~environment. If an actual security breach were~~ to ~~occur, our business, operating results and financial condition could suffer~~operate successfully.

A AXS-One’s ~~variety~~future success will depend, in large part, on the continued service of ~~risks~~its ~~associated~~key ~~with~~executives ~~AXS-One’s~~and, ~~international~~if ~~operations~~we fail to attract and maintain those executives, the quality of our products, our business, financial condition and operating results could suffer. We cannot provide assurances that turnover of our key executives will not continue, and that such turnover would not adversely affect our business, operating results and financial condition.

~~Risks~~ We ~~inherent~~also inbelieve ~~international~~that ~~revenue~~our ~~include~~future ~~the~~success ~~impact~~will ~~of longer payment cycles~~depend, ~~greater difficulty~~ in ~~accounts receivable collection~~large part, ~~unexpected~~on ~~changes~~our inability ~~regulatory~~to ~~requirements~~attract, ~~tariffs~~retain and ~~other~~motivate ~~trade~~highly skilled ~~barriers,~~employees and ~~difficulties~~particularly, intechnical, ~~staffing~~management, sales and ~~managing~~marketing ~~foreign operations~~personnel. InCompetition ~~addition,~~for ~~most~~qualified ofemployees ~~our international license fees and services revenues are denominated~~ in ~~foreign currencies which can have an impact on~~ our ~~consolidated~~industry ~~revenues~~is ~~as exchange rates fluctuate~~intense. ~~Currently,~~AXS-One wehas dofrom ~~not~~time ~~hedge~~to ~~against~~time ~~foreign currency exchange risks but~~ in the past ~~future~~experienced, weand ~~may~~expects ~~commence hedging against specific foreign currency transaction risks. We may be unable~~ to ~~hedge~~continue ~~all~~experiencing, difficulty ofin ~~our~~hiring ~~exchange rate exposure economically~~ and ~~exchange~~retaining ~~rate~~employees ~~fluctuations~~with ~~may~~appropriate qualifications. ~~have~~We acannot ~~negative~~assure ~~effect~~anyone onthat ~~our~~we ~~ability~~will tobe ~~meet~~able ~~our obligations. With respect~~ to retain our ~~international~~employees ~~sales~~or ~~that~~attract ~~are~~or ~~U.S.~~retain ~~dollar~~highly ~~denominated,~~qualified employees ~~decreases in the value of foreign currencies relative~~ to ~~the~~develop, ~~U.S.~~market, ~~dollar~~service ~~could~~and ~~make~~support our products and ~~less~~conduct ~~price competitive. These factors may have a material adverse effect on~~ our ~~future international revenue~~operations.

~~We believe that our continued growth and profitability will require~~ AXS-One’s common tostock ~~expand~~trading ~~its~~price ~~sales~~may inbe ~~international~~volatile ~~markets,~~for reasons over which ~~require~~it ~~significant~~may ~~management~~have ~~attention~~little and financial resources. As a result, we expect that revenues from customers outside the United States will continue to represent a significant percentage of our total revenues in the future. We cannot assure anyone, however, that we will be able to maintain or ~~increase~~no ~~international market demand for our products and services~~control.

14 AXS-One’s common stock trading price has, from time to time, experienced, and is likely to continue to experience, significant price and volume fluctuations, often responding to, among other factors:

In• ~~2006,~~quarterly ~~2005~~variations ~~and~~in ~~2004~~our operating results, • the ~~Company’s~~gain ~~total~~or ~~revenues~~loss ~~generated~~of ~~from~~significant ~~continuing~~contracts, ~~operations~~• announcements of technological innovations by us or our competitors, • announcements of new products or services by us or our competitors, • announcements of sales to new customers • general conditions in the ~~Company’s~~software ~~foreign~~and ~~offices~~computer ~~were~~industries, as• ~~follows:~~general economic and market conditions and • limited trading volume of our common stock.

Year	Amount			Percentage of Total Revenues
2006		$	3.9 million		38.1	%
2005		$	4.3 million		38.1	%
2004		$	2.1 million		20.5	%

Additionally, the stock market, in general, frequently experiences extreme price and volume fluctuations. In particular, the market prices of the securities of companies such as ours have been

~~AXS-One is subject to additional risks related to operating in foreign countries. These risks generally include:~~ 17

• especially ~~costs~~volatile recently, and often these fluctuations have been unrelated or disproportionate to the operating performance of ~~localizing~~the ~~products~~affected ~~for~~companies. ~~foreign~~The ~~countries~~market price of our common stock may be adversely affected by these market fluctuations. Also, the low market price of our common stock may make it prohibitive to obtain additional equity funding.

• AXS-One has ~~lack~~never ofpaid ~~acceptance~~or ofdeclared ~~localized~~dividends ~~products~~and does not expect to in the ~~foreign~~foreseeable ~~markets,~~future.

• AXS-One ~~longer~~has ~~accounts~~never ~~receivable~~paid ~~payment~~or ~~cycles~~declared any cash dividends and we do not expect to pay any cash dividends in the foreseeable future. We currently intend that future earnings, if any, be retained for business use.

• Changes in ~~difficulties~~laws ~~managing~~and ~~international~~regulations ~~operations,~~that affect the governance of public companies have increased our operating expenses and will continue to do so.

• Changes ~~potentially~~in ~~adverse~~the ~~tax~~laws ~~consequences~~and regulations affecting public companies included in the Sarbanes-Oxley Act of 2002 have imposed new duties on us and on our executives, directors, attorneys and independent registered public accounting firm. In order to comply with these new rules, we hired a consulting advisory firm to assist us in the process and we also expect to use additional services of our outside legal counsel, both of which will increase our operating expenses. In particular, we have incurred additional administrative expenses as we implement Section 404 of the Sarbanes-Oxley Act, which requires management to report on, and our Independent Registered Public Accounting Firm to attest to, our internal controls. Management time associated with these compliance efforts necessarily reduces time available for other operating activities, which could adversely affect operating results. If we are unable to achieve full and timely compliance with these regulatory requirements, we could be required to incur additional costs, expend additional management time on remedial efforts and make related public disclosures that could adversely affect our stock price.

•Item ~~restrictions~~1B. onUnresolved ~~repatriation~~Staff ~~of earnings,~~Comments

• Not ~~loss of key personnel,~~applicable.

•Item ~~reduced~~2. ~~legal protection of our intellectual property, and~~Properties

• The ~~the~~Company’s ~~burden~~corporate headquarters are located in Rutherford, New Jersey in leased facilities consisting of 25,320 square ~~complying~~feet ~~with~~of office space occupied under a ~~wide~~lease expiring ~~variety~~in December 2011. The Company sub-leases approximately 36% of ~~foreign~~this ~~laws~~space to Computron Software, LLC. The Company also leases sales and support offices outside of North America in Australia, Singapore and the United Kingdom. While the Company believes that its facilities are adequate for its present needs, the Company periodically reviews its needs. The Company believes that additional space, if needed, would be available on commercially reasonable terms.

~~Any~~Item of3. ~~these~~Legal ~~factors, or others, could adversely affect our future international revenues and, consequently, our business, operating results and financial condition.~~Proceedings

We Historically, ~~rely~~the Company has been involved in disputes and/or litigation encountered in its normal course of business. The Company believes that the ultimate outcome of these proceedings will not have a material adverse effect on ~~certain~~the ~~third-party~~Company’s business, ~~relationships~~financial condition and results of operations or cash flows. There are currently no material legal proceedings against the Company.

~~Our~~Item ~~business,~~4. ~~product~~Submission ~~development,~~of ~~operating~~Matters ~~results and financial condition could be adversely impacted if we fail~~ to maintain our existing relationships or establish new relationships, in the future, with third parties because of diverging interests, one or more of these third parties is acquired, or for any other reason, whether or not within our control. We rely on third-party relationships with a ~~number~~Vote of ~~consultants,~~Security ~~systems integrators and software vendors to:~~Holders

• Not ~~enhance our product development,~~applicable.

~~• market and sell our products,~~ 18

~~• support our customers.~~ PART II

~~These~~Item ~~relationships~~5. ~~assist~~Market ~~our~~for ~~product~~Registrant’s ~~development~~Common ~~process~~Equity, ~~and~~Related ~~assist~~Stockholder usMatters ~~in marketing, servicing~~ and ~~implementing~~Issuer ~~our~~Purchases ~~products. A number~~ of ~~these~~Equity ~~relationships are not memorialized in formal written agreements.~~Securities

~~Our~~ On ~~products~~November 5, ~~also~~2007, ~~incorporate~~the ~~software~~Company ~~that~~voluntarily wede-listed ~~license~~its common stock from ~~third~~the ~~parties.~~American ~~These~~Stock ~~licenses~~Exchange ~~expire~~(AMEX) ~~from time to time~~ and ~~generally,~~its common westock dois ~~not~~now ~~have~~listed ~~access~~on to the ~~source~~OTC ~~code~~Bulletin Board (OTCBB) ~~for~~under the ~~software~~symbol ~~that a third party will license to us~~“AXSO”. ~~Certain~~Quotations offrom ~~these~~the OTCBB ~~third~~reflect ~~parties~~inter-dealer ~~are~~prices ~~small companies~~ without ~~extensive financial resources. If any of these companies terminate relationships with us~~retail mark-ups, mark-downs ~~cease doing business~~ or ~~stop~~commissions ~~supporting their products, we may be forced to expend a significant amount of time~~ and ~~development resources to try to replace the licensed software. We~~ may ~~also find that replacement is~~ not ~~possible~~necessarily orrepresent actual ~~commercially feasible~~transactions. ~~If that were to occur, our business, operating results and financial condition could be adversely impacted.~~

We The ~~rely~~following ontable ~~strategic~~lists ~~partners~~the high and ~~resellers~~low ~~for~~sales aprices ~~large~~(or, ~~portion~~in the case of ~~our~~quotes ~~new~~from ~~license~~the ~~revenue.~~OTCBB, high and low bid prices) of the Company’s common stock for the quarterly periods set forth below:

Our strategy has shifted over the past several years to reliance on strategic partners such as Sun Microsystems and other resellers around the world. The loss of a strategic partner or the inability to


Period	High		Low

2008
First quarter	$	0.51	$	0.25
Second quarter		0.55		0.12
Third quarter		0.50		0.13
Fourth quarter		0.33		0.05

2007
First quarter	$	0.90	$	0.58
Second quarter		0.85		0.51
Third quarter		0.84		0.38
Fourth quarter		0.77		0.25

15 As of February 18, 2009 the approximate number of record holders of the Company’s Common Stock was 675.

~~maintain~~ The ~~productive~~Company ~~reseller~~has ~~relationships~~never ~~could~~paid ~~have~~cash adividends ~~significant~~on ~~negative~~its ~~effect~~capital onstock. The ~~our~~Company ~~ability~~currently intends to ~~generate~~retain ~~new~~any ~~license~~earnings for use in its business and ~~related~~does ~~service~~not ~~revenue~~anticipate paying any cash dividends in the foreseeable future.

~~AXS-One’s~~Item ~~executive~~6. ~~officers,~~Selected ~~directors~~Financial ~~and affiliates own a significant amount of its common stock.~~ Data

~~This~~ Omitted ~~stock~~in ~~ownership~~accordance ~~may~~with ~~prevent~~applicable orSEC ~~discourage tender offers for our common stock unless these significant stockholders approve the terms of any such offers~~rules. As of March 7, 2007, AXS-One’s executive officers, directors and affiliates together beneficially own approximately 14% of our outstanding common stock. As a result, these stockholders are able to exercise significant influence over matters requiring stockholder approval including:

•Item ~~electing~~7. ~~directors,~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

• The ~~mergers,~~following ~~consolidations,~~discussion should be read in conjunction with the Consolidated Financial Statements and ~~sale~~Notes ofthereto ~~all~~and oris qualified ~~substantially~~in ~~all~~its ofentirety ~~our~~by ~~assets~~reference thereto.

This Report contains statements of a forward-looking nature within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to future events or the future financial performance of AXS-One. ~~relies~~Investors onare ~~its~~cautioned ~~key~~that ~~personnel~~such statements are only predictions and that actual events or results may ~~have~~differ ~~difficulty~~materially. ~~attracting~~In ~~and~~evaluating ~~retaining~~such statements, investors should specifically consider the ~~skilled~~various ~~employees~~factors identified itin ~~needs~~this Report which could cause actual results to differ ~~operate~~materially ~~successfully~~from those indicated by such forward-looking statements, including the matters set forth in Item 1A “Risk Factors.”

AXS-One’s future success will depend, in large part, on the continued service of its key executives and, if we fail to attract and maintain those executives, the quality of our products, our business, financial condition and operating results could suffer. We cannot provide assurances that turnover of our key executives will not continue, and that such turnover would not adversely affect our business, operating results and financial condition. Overview

We AXS-One ~~also~~Inc. ~~believe~~(“AXS-One” ~~that~~or ~~our~~the ~~future~~“Company”) ~~success~~is a ~~will~~software ~~depend,~~company inproviding ~~large part~~robust, onsecure ~~our~~business ~~ability~~solutions that toallow ~~attract,~~an ~~retain~~organization ~~and~~to ~~motivate~~reduce ~~highly~~the ~~skilled~~inherent ~~employees~~risks and costs ~~particularly,~~associated ~~technical,~~with ~~management,~~retaining ~~sales~~ and ~~marketing~~managing ~~personnel.~~corporate electronic ~~Competition~~records ~~for~~as ~~qualified~~well ~~employees~~as into ~~our~~achieve ~~industry~~efficiency isin ~~intense~~its business processes. AXS-One has ~~from~~a ~~time~~proven totrack ~~time~~record inof developing ~~the~~flexible, ~~past experienced~~high-performance, ~~and expects to continue experiencing~~scalable, ~~difficulty~~secure ~~in hiring~~ and effective ~~retaining~~software ~~employees~~for ~~with appropriate qualifications~~organizations. WeAXS-One’s ~~cannot~~ability ~~assure~~to quickly ~~anyone~~identify ~~that~~emerging wemarket ~~will~~opportunities beand ~~able~~ to ~~retain~~build high-quality ~~our~~software ~~employees~~has orwon ~~attract~~many orawards ~~retain~~over ~~highly~~the ~~qualified~~years. ~~employees~~The Company tohas ~~develop,~~devoted ~~market, service and support our products and conduct our operations.~~significant

~~AXS-One’s common stock trading price may be volatile for reasons over which it may have little or no control.~~ 19

• resources ~~quarterly~~to ~~variations~~developing innew ~~our~~products ~~operating~~which ~~results~~serve the Content Archiving, Records Management, Compliance Management, E-Discovery, Litigation Readiness, Knowledge Management, and Information Management Markets.

• AXS-One believes that developments in electronic communication as well as changes in the ~~gain~~scope orand ~~loss~~complexity of ~~significant~~the ~~contracts~~corporate regulatory, governance, privacy and legal environment have significantly altered how organizations are doing, and are required to do, business. Organizations are re-evaluating their software requirements to invest in solutions that reduce costs and ensure operational efficiency while enabling them to address and satisfy their requirements for corporate governance, regulatory compliance, litigation readiness, legal discovery and privacy of information. AXS-One’s approach allows organizations to meet these requirements by leveraging a single integrated archiving and electronic records management software platform. This results in manageable investments, quick implementation schedules, and a more rapid return on investment. See “Item 1. Business.”

• Our ~~changes~~revenues inare ~~earnings~~derived ~~estimates~~mainly from license fees from software license agreements entered into between AXS-One and our customers and resellers for our products and, to a lesser degree, third party products resold by ~~securities~~AXS-One, ~~analysts~~and we derive services revenues from software maintenance agreements, training, consulting services including installation and custom programming.

• We ~~announcements~~are headquartered in Rutherford, New Jersey with 81 full-time employees, as of ~~technological~~December 31, ~~innovations~~2008, byin offices usworldwide, orincluding Australia, Singapore, the United Kingdom, Hong Kong and the United States. Our foreign offices generated approximately 27.2% and 41.7% of our ~~competitors~~total revenues for the twelve months ended December 31, 2008 and 2007, respectively. We expect that such revenues will continue to represent a significant percentage of our total revenues in the future. Most of our international license fees and services revenues are denominated in foreign currencies. Fluctuations in the value of foreign currencies relative to the U.S. dollar in the future could result in fluctuations in our revenue.

• On ~~announcements~~May 12, 2008, the Company sold its subsidiaries in South Africa, AXS-One (Proprietary) Ltd, and AXS-One African Solutions Ltd, to management and investors for $1. AXS-One South Africa had a net asset deficiency of ~~new~~$48,000 ~~products~~at orthe ~~services~~time byof usthe orsale and ~~our~~the ~~competitors~~Company incurred selling expenses of $10,000. The resulting estimated gain on sale of $38,000 was recorded as gain on sale in the Company’s second quarter financial results. Subsequently, the Company signed a reseller agreement with AXS-One (Proprietary) Ltd to sell on a non-exclusive basis AXS-One products in Africa and the Middle East.

• We ~~general~~encounter ~~conditions~~competition for all of our products in all markets and compete primarily based on the ~~software~~quality of our products, our price, our customer service and ~~computer~~our ~~industries~~time to implement. The timing of the release of new products is also important to our ability to generate sales. During the second half of 2003, we launched our Records Compliance Management solution for e-mail and Instant Messaging Archival and Supervision in response to new regulatory requirements for financial institutions in the United States as well as to address the need to reduce costs in the e-mail management area. During 2007, AXS-One announced further significant development on the AXS-One Compliance Platform, focusing primarily on enhancements to address the growing market for litigation readiness and risk management. Version 3.7 was announced in November 2007 and introduced new and enhanced functionality including major enhancements to AXS-One Case Manager, enabling organizations to more easily preserve and manage electronic records, in line with litigation hold orders. It also introduced improved .PST and File System Archiving functionality, enhancements to Microsoft Exchange and Lotus Notes and Domino e-mail archiving modules (including support for Microsoft Exchange 2007 and Notes/Domino 8), significant enhancement to reporting and the introduction of an online monitoring dashboard as well as simplifying product administration and minimizing training requirements, by adopting native user interfaces.

• AXS-One ~~general~~believes ~~economic~~that the enhancements and ~~market~~additional functionality ~~conditions~~made to the AXS-One Compliance Platform through 2008 continue to provide further competitive advantage, and means that the Company can offer its customers and prospective customers a broad suite of solutions that enable them to address their current enterprise needs and to scale to meet their future requirements. Additionally, the Company believes that the AXS-One Compliance Platform is increasingly attractive to partners and

Additionally, the stock market, in general, frequently experiences extreme price and volume fluctuations. In particular, the market prices of the securities of companies such as ours have been especially volatile recently, and often these fluctuations have been unrelated or disproportionate to the operating performance of the affected companies. The market price of our common stock may be adversely affected by these market fluctuations. Also, the low market price of our common stock may make it prohibitive to obtain additional equity funding. 20

~~AXS-One~~ resellers ~~has never paid or declared any cash dividends~~ and wesupports dothe ~~not~~needs ~~expect~~of toits ~~pay~~channel ~~any~~strategy. ~~cash~~This includes ~~dividends in~~ the ~~foreseeable~~company’s ~~future.~~hosting Weand ~~currently~~SaaS ~~intend that future earnings, if any, be retained for business use~~strategy.

16 Our future ability to grow revenue will be directly affected by continued price competition and our ability to sell systems to new customers and develop growing recurring maintenance revenue. Our growth rate and total revenues also depend significantly on selling services to existing customers as well as our ability to expand our customer base and to respond successfully to the pace of technological change. In order to expand our customer base, we have been actively seeking partnerships with resellers to supplement our direct sales force.

~~Changes~~ During in2008 ~~laws~~and 2007, AXS-One continued to expand its technology and ~~regulations~~reseller ~~that~~partnerships ~~affect~~around the ~~governance~~world. During 2008 the Company established a relationship with Microsoft, the result of the ~~public~~Company’s ~~companies~~announcement ~~have~~of ~~increased~~Dynamic ~~our~~Data ~~operating~~Migrator. ~~expenses~~During 2007 the Company established relationships with IBM and ~~will~~EDS ~~continue~~as resellers of its products in a hosted environment. The Company also continued to dotrain soand support existing partners and, as a result, was able to record its first sales in Japan and South Korea; and developed a number of large prospects in China as well as in India, where the Company recorded its first sales in 2006. The Company believes these relationships are important to the development, distribution, sales, marketing, integration, and support of its products.

~~Changes~~ We inhave ~~the~~experienced, ~~laws~~ and ~~regulations~~may ~~affecting public companies included~~ in the ~~Sarbanes-Oxley~~future ~~Act~~experience, significant offluctuations ~~2002~~in ~~have~~our ~~imposed~~quarterly ~~new duties on us~~ and onannual ~~our executives~~revenues, results ~~directors,~~of ~~attorneys~~operations and ~~independent~~cash ~~registered public accounting firm~~flows. InWe ~~order~~believe tothat ~~comply~~domestic and ~~with~~international ~~these~~operating ~~new~~results ~~rules,~~and wecash ~~hired~~flows awill ~~consulting advisory firm~~ continue to ~~assist~~fluctuate ussignificantly in the ~~process~~future ~~and~~as wea ~~also~~result ~~expect to use additional services~~ of ~~our~~a variety ~~outside legal counsel, both~~ of ~~which will increase our operating expenses~~factors. InFor ~~particular,~~a wedescription ~~expect to incur additional administrative expenses as we implement Section 404~~ of the ~~Sarbanes-Oxley~~factors ~~Act,~~that ~~which~~may affect ~~requires management to report on, and~~ our Independent Registered Public Accounting Firm to attest to, our internal controls. For example, we expect to incur significant expenses in connection with the implementation, documentation and testing of our existing control systems and possible establishment of new controls. Management time associated with these compliance efforts necessarily reduces time available for other operating ~~activities, which could adversely affect operating~~ results. Ifsee weItem 1A are unable to achieve full and timely compliance with these regulatory requirements, we could be required to incur additional costs, expend additional management time on remedial efforts and make related public disclosures that could adversely affect our stock price“Risk Factors”.

~~Item~~ Applications 1Bbuilt on AXS-One’s set of archiving and workflow products have been deployed as electronic bill presentment and document delivery solutions (e-delivery), self-service information systems, Internet report publishing and distribution solutions, customer service solutions, Internet-enabled information reconciliation solutions, and transaction confirmation solutions. ~~Unresolved~~These ~~Staff~~solutions ~~Comments~~are typically implemented in a timely manner, thus providing a rapid time-to-value. The AXS-One E-Delivery Service (also known as T4), developed for the European travel industry, went live during 2005. On December 31, 2007, this business was sold for $150,000 which should have been paid in 2008. Fifty percent was to be paid in twelve months and 50% was to be paid based on the purchaser’s ability to extend certain contracts with key customers. No funds have been received as of December 31, 2008. The receivable relating to this sale is fully reserved at December 31, 2008. Revenue from this product line was $575,000 in 2007.

~~Not~~ We ~~applicable~~continue to make progress growing our customer base for our entire AXS-One Compliance Platform. This includes both extending opportunities within existing customers as well as acquiring new customers.

~~Item 2. Properties~~ 21

~~The Company’s corporate headquarters are located in Rutherford, New Jersey in leased facilities consisting~~ Results of 25,320 square feet of office space occupied under a lease expiring in December 2011. The Company sub-leases approximately 36% of this space to Computron Software, LLC. The Company leases additional facilities and offices, including facilities located in Shelton, Connecticut. The Company also leases sales and support offices outside of North America in Australia, Singapore, South Africa and the United Kingdom. While the Company believes that its facilities are adequate for its present needs, the Company periodically reviews its needs. The Company believes that additional space, if needed, would be available on commercially reasonable terms.Operations

~~Item~~ The 3.following ~~Legal~~tables ~~Proceedings~~set forth for the periods indicated, certain operating data, and data as a percentage of total revenues.

Historically, the Company has been involved in disputes and/or litigation encountered in its normal course of business. The Company believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s business, financial condition and results of operations or cash flows.


	Year Ended						Year Ended
	December 31, 2008						December 31, 2007
				Data as a						Data as a
	Total			percent of			Total			percent of
(dollars in millions)	Consolidated			revenue			Consolidated			revenue

Revenues:
License fees	$	4.3			32.1	%	$	4.1			34.2	%
Services		9.1			67.9			7.9			65.8

Total revenues		13.4			100.0			12.0			100.0

Operating expenses:
Cost of license fees		0.3			2.2			0.5			4.2
Cost of services		4.3			32.1			5.7			47.5
Sales and marketing		6.6			49.3			8.0			66.7
Research and development		5.6			41.8			7.0			58.3
General and administrative		3.9			29.1			4.4			36.7
Restructuring and other costs		0.3			2.2			0.5			4.1

Total operating expenses		21.0			156.7			26.1			217.5

Operating loss		(7.6	)		(56.7	)		(14.1	)		(117.5	)

Other income (expense), net		(2.6	)		(19.4	)		(0.5	)		(4.2	)

Loss before income tax expense		(10.2	)		(76.1	)		(14.6	)		(121.7	)
Income tax benefit (expense)		0.1			0.7			(0.3	)		(2.5	)

Net loss	$	(10.1	)		(75.4	)%	$	(14.9	)		(124.2	)%

~~Item~~ 2008 Compared ~~4. Submission of Matters~~ to ~~a Vote of Security Holders~~2007

~~No matters were submitted to a vote of security holders during the fourth quarter of 2006.~~ Revenues

17 Total revenues increased 12.3% from 2007 to 2008 due to a 5.5% increase in license revenue and a 15.8% increase in service revenue. The Company achieved three of the four highest levels of quarterly revenue in the history of its Records Compliance Management business during the first three quarters of 2008. License revenue in the fourth quarter of 2008 was the lowest quarter of the year mainly due to current worldwide economic conditions.

~~PART~~ The IIfollowing table sets forth for the periods indicated each major category of our services revenues as a percent of services revenues.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


	Years Ended December 31,
	2008					2007
			% of					% of
(in thousands)	Amount		Total			Amount		Total

Maintenance	$	6,371		70	%	$	5,409		69	%
Consulting		2,666		29			1,907		24
Subscription revenue		103		1			575		7

Total services revenues	$	9,140		100	%	$	7,891		100	%

~~The~~ Maintenance ~~Company’s~~revenue ~~Common~~increased ~~Stock currently trades on the American Stock Exchange under the symbol ‘‘AXO.’’ On October 6, 2006 the American Stock Exchange (AMEX) notified us that we were not~~ in ~~compliance~~2008 compared with ~~the~~2007 ~~Exchange’s~~as ~~continued~~a result ~~listing requirements due to shareholders equity~~ of ~~less~~increased ~~than~~maintenance ~~$2,000,000~~contracts ~~and losses~~ from ~~continuing~~new ~~operations~~license agreements ~~and/or net losses~~ in ~~two out of our three most recent fiscal years. We submitted a compliance plan on November 6, 2006, advising~~ the ~~AMEX~~prior offour action we have taken or will take to bring AXS-One into compliance with the Exchange’s continued listing standards within a maximum of 18 months. The AMEX has reviewed the Company’s plan of compliance to meet the AMEX’s continued listing standards and will continue the Company’s listing while the Company seeks to regain compliance with the listing standards during the period ending April 6quarters, ~~2008.~~ ~~During~~collection ~~the plan period, the Company must continue to provide the AMEX staff with updates regarding initiatives set forth in its plan~~ of ~~compliance.~~past ~~The~~due maintenance ~~Company~~revenue ~~will be subject to periodic review by the AMEX staff during the plan period. If the Company is~~ not inrecorded ~~compliance~~as ~~with~~revenue ~~the~~until ~~continued~~collection ~~listing~~and increased ~~standards~~maintenance onrenewals ~~April 6, 2008~~for ~~or the Company does not make progress consistent with the plan during the plan period, then the AMEX may initiate immediate delisting proceedings.~~certain

~~The following table lists the high and low sales prices of the Company’s common stock for the quarterly periods set forth below:~~ 22

Period	High			Low
2006
First quarter		$	2.60		$	1.67
Second quarter			2.23			1.53
Third quarter			1.75			0.85
Fourth quarter			1.30			0.55

	High			Low
2005
First quarter		$	3.87		$	2.45
Second quarter			3.35			1.35
Third quarter			1.90			1.21
Fourth quarter			2.39			1.50

customers. Consulting revenue increased substantially from the same period last year as a result of two large implementation projects. Additionally, utilization rates and professional service fees improved. Subscription revenue decreased as a result of the sale of the Company’s E-Delivery Service (also known as T4), developed for the European travel industry, in the fourth quarter of 2007.

~~As of March 7, 2007 the approximate number of record holders of the Company’s Common Stock was 713.~~ Operating Expenses

~~The~~ Cost ~~Company~~of ~~has~~license ~~never~~fees consists primarily of amounts paid ~~cash~~to ~~dividends~~third parties onwith ~~its~~respect ~~capital~~to ~~stock~~products we resell in conjunction with the licensing of our products. The ~~Company~~elements ~~currently~~can ~~intends~~vary substantially from period to ~~retain~~period ~~any~~as ~~earnings~~a percentage of license fees. Cost of license fees for ~~use~~2008 inwas ~~its~~$0.2 million ~~business~~or 33.7% ~~and~~lower ~~does~~than ~~not~~2007 ~~anticipate~~due ~~paying~~to ~~any~~lower ~~cash~~usage ~~dividends~~and inlower ~~the~~cost ~~foreseeable~~of ~~future~~third party software.

18 Cost of services primarily consist of personnel and third party costs for installation, consulting, training and customer support. Cost of services decreased $1.4 million or 25.1% for 2008, as compared to 2007. The decrease was mainly due to headcount reductions as a result of the reduction in force implemented in the fourth quarter of 2007 and reduced costs resulting from selling the South Africa and T4 operations. The service margin was 53.5% for 2008 compared to 28.0% for 2007. This margin improvement was a result of higher consulting revenue, higher maintenance revenue and lower costs in 2008 versus 2007.

~~Stock~~ Sales ~~Performance~~and ~~Graph~~marketing expenses primarily consists of salaries, commissions and bonuses related to sales and marketing personnel, as well as travel and promotional expenses. Sales and marketing expenses were $1.5 million or 18.2% lower for 2008, as compared to 2007. The decrease was primarily due to headcount reductions as a result of the reduction in force implemented in the fourth quarter of 2007, reduced costs resulting from selling the South Africa operations and by lower usage of third party consultants. These decreases were offset slightly by higher commission expense resulting from higher revenue.

~~The~~ Research ~~following~~and isdevelopment aexpenses ~~table~~primarily ~~comparing~~consists ~~the~~of personnel ~~annual~~costs, ~~percentage~~costs ~~change~~of inequipment, ~~the~~facilities ~~cumulative~~and ~~total~~third ~~stockholder~~party software ~~return~~development oncosts. ~~AXS-One’s~~Research ~~common~~and ~~stock~~development ~~from~~expenses have ~~January 1, 2002~~been charged to ~~the~~operations ~~last day of our last completed fiscal year (~~as ~~measured~~incurred. byResearch ~~dividing~~and development ~~(i)~~expenses ~~the~~were ~~sum~~$1.4 million ofor ~~(A)~~20.7% ~~the~~lower ~~cumulative amount of dividends~~ for ~~the measurement period~~ 2008, ~~assuming~~as ~~dividend~~compared ~~reinvestment,~~to ~~and~~2007. ~~(B)~~The ~~the~~decrease ~~excess~~was ofprimarily ~~the~~due ~~share~~to severance ~~price~~cost atrecorded ~~the~~in ~~end~~2007 ~~over the price at the beginning~~ of ~~the~~approximately $0.7 million ~~measurement~~related ~~period,~~to ~~by (ii)~~ the ~~share~~departure ~~price at the beginning~~ of the ~~measurement~~Executive ~~period)~~Vice President ~~with the cumulative total return so calculated~~ of ~~the~~R&D ~~American Stock Exchange Market Value Index (US~~ and ~~Foreign)~~to ~~and~~lower ~~the RDG Software Composite Index during the same period~~headcount.

	1/1/2002			12/31/2002			12/31/2003			12/31/2004			12/31/2005			12/31/2006
AXS-One		$	100		$	174.42		$	439.53		$	597.67		$	406.98		$	176.74
AMEX Market Value Index		$	100		$	100.08		$	144.57		$	178.46		$	220.35		$	262.17
RDG Software Composite Index		$	100		$	69.77		$	86.91		$	97.48		$	97.30		$	107.31

General and administrative expenses consist primarily of salaries for administrative, executive and financial personnel, and outside professional fees. General and administrative expenses were $0.5 million or 10.6% lower for 2008 as compared to 2007 as a result of lower professional service fees and lower Board of Director fees, partially offset by increased non-cash stock compensation expense.

~~Item 6. Selected Financial Data~~ Operating Loss

~~The~~ Operating ~~selected~~loss ~~consolidated~~improved ~~financial~~$6.6 million ~~data set forth below~~ for ~~the~~2008 ~~years~~compared ~~ended~~to 2007 ~~December 31, 2006,~~as ~~2005,~~a ~~2004,~~result ~~2003, and 2002 has been derived from the audited consolidated financial statements~~ of the ~~Company.~~increase ~~The~~in ~~consolidated~~services ~~statement of operations data for the years ended December 31, 2006, 2005,~~ and ~~2004~~license ~~and the consolidated balance sheet data as~~ revenue of ~~December 31, 2006~~$1.5 million and ~~2005~~reductions ~~are derived from the audited consolidated financial statements and the related notes thereto included elsewhere~~ in ~~this~~operating ~~report.~~expenses ~~The selected consolidated financial data set forth below should be read in conjunction with ‘‘Management’s Discussion and Analysis~~ of $5.1 million ~~Financial~~resulting ~~Condition~~from ~~and Results of Operations’’ and~~ the ~~consolidated~~reasons ~~financial~~described ~~statements of the Company and related notes thereto included elsewhere in this report~~above.

19 Other Expense, Net

As Other aexpense, ~~result~~net ofincreased ~~the~~$2.1 million ~~Company’s~~for ~~sale~~2008 ofcompared to ~~the~~2007. ~~Enterprise~~This ~~Solutions~~increase ~~line~~is ofa ~~business~~result atof ~~the~~higher ~~end~~interest ~~of October 2006~~expense, which ~~the~~includes ~~financial~~interest ~~statements~~expense ~~below~~resulting ~~classify~~from the ~~operating results~~ amortization of ~~the~~discount ~~Enterprise~~on ~~Solutions~~debt, ~~product~~resulting ~~line as a discontinued operation. The revenue through loss~~ from ~~continuing~~the ~~operations~~issuance ~~results~~of ~~below~~warrants associated ~~are~~with ~~for~~ the ~~Records~~convertible ~~Compliance~~debt ~~Management~~issued ~~line~~on ofMay 29, 2007, ~~business~~November 13, ~~only.~~2007, ~~The~~July 24, ~~balance~~2008 ~~sheet~~and October 30, ~~information~~2008 ~~below has not been reclassified~~ and ~~therefore~~lower ~~includes~~interest ~~results of the Enterprise Solutions business until its sale in October 2006~~income.

20 Net loss

	Years Ended December 31,
	2006				2005				2004				2003				2002
	(In thousands, except per share data)
Statement of Operations Data:
Revenues:
License fees		$	2,432			$	4,109			$	4,363			$	1,932			$	2,367
Services			7,864				7,179				5,742				4,884				4,404
Total revenues			10,296				11,288				10,105				6,816				6,771
Operating expenses:
Cost of license fees			1,181				1,081				857				59				5
Cost of services			8,219				6,837				3,616				1,894				1,005
Sales and marketing			9,623				7,425				1,880				862				1,092
Research and development			6,454				5,978				1,469				865				704
General and administrative			4,649				4,360				5,449				4,789				3,875
Restructuring and other costs			432				322				—				—				—
Total operating expenses			30,558				26,003				13,271				8,469				6,681
Operating income (loss)			(20,262	)			(14,715	)			(3,166	)			(1,653	)			90
Total other income (expense), net			647				(371	)			301				(240	)			(373	)
Loss before income tax benefit			(19,615	)			(15,086	)			(2,865	)			(1,893	)			(283	)
Income tax benefit			—				25				217				99				60
Loss from continuing operations			(19,615	)			(15,061	)			(2,648	)			(1,794	)			(223	)
Discontinued operations:
Income (loss) from discontinued operations			7,875				6,063				(2,564	)			4,110				2,147
Gain on sale of discontinued operations			17,241				—				—				—				—
Net income (loss)		$	5,501			$	(8,998	)		$	(5,212	)		$	2,316			$	1,924
Basic & diluted net income (loss) per common share:
Net income (loss)		$	0.16			$	(0.28	)		$	(0.19	)		$	0.09			$	0.08
Weighted average basic common shares outstanding			34,405				31,629				27,395				24,945				24,818
Weighted average diluted common shares outstanding			34,405				31,629				27,395				26,264				25,511

The net loss was $10.1 million, or $(0.27) per diluted share for 2008 compared to net loss of $14.9 million or $(0.42) per diluted share for 2007. The improvement in net loss of $4.8 million was due to increased revenue and decreased operating expenses described above.

	As of December 31,
	2006			2005				2004				2003				2002
	(In thousands)
Balance Sheet Data:
Cash and cash equivalents and restricted cash		$	7,499		$	3,670			$	4,871			$	3,002			$	2,769
Working capital (deficiency)			2,934			(3,578	)			(3,258	)			(5,092	)			(8,391	)
Total assets			11,533			11,066				14,781				12,150				10,599
Deferred revenue, current			2,594			8,224				9,786				8,946				8,821
Deferred revenue, long-term			44			63				303				1,504				—
Total long-term debt			—			—				—				—				547
Total stockholders’ equity (deficit)			3,411			(2,116	)			(1,024	)			(3,699	)			(6,025	)

~~Item 7. Management’s Discussion~~ Liquidity and ~~Analysis~~Capital ~~of Financial Condition and Results of Operations~~Resources

~~The~~ At ~~following~~December 31, ~~discussion~~2008, ~~should~~we behad ~~read~~cash inand ~~conjunction~~cash ~~with~~equivalents ~~the~~of $0.9 million ~~Consolidated~~and ~~Financial~~a ~~Statements~~working ~~and~~capital ~~Notes~~deficit ~~thereto~~of $16.3 million ~~and~~which isincluded ~~qualified~~$2.9 million inof ~~its~~deferred revenue ~~entirety~~and by$11.3 million ~~reference~~of ~~thereto~~convertible debt.

~~This Report contains statements of a forward-looking nature within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended,~~ Liquidity and ~~Section~~Cash 21E of the Securities Exchange Act of 1934, as amended, relating to future events or the future financial performance of AXS-One. Investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, investors should specifically consider the various factors identified in this Report which could cause actual results to differ materially from those indicated by such forward-looking statements, including the matters set forth in Item 1A ‘‘Risk Factors.’’Flow

~~Overview~~ Our operating activities used cash of $6.2 million for 2008 and $11.7 million for 2007. Net cash used in operating activities during 2008 is primarily the result of the net loss and a decrease in accounts payable and accrued expenses, offset slightly by non-cash interest expense, non-cash stock compensation expense, decreased accounts receivable and decreased prepaid expenses and other current assets.

~~AXS-One~~ Our ~~Inc.~~investing ~~(‘‘AXS-One’’~~activities orwere ~~the~~negligible ~~‘‘Company’’)~~for is2008 ~~a software company providing robust, secure business solutions that allow an organization to reduce the inherent risks associated with retaining~~ and ~~managing corporate records as well as to achieve efficiency in its business processes and to extend those efficiencies to its customers, suppliers, and business partners~~used $0.1 million ~~AXS-One has a proven track record of developing flexible, high-performance, scalable, secure and effective business solutions~~ for ~~Global 2000 organizations~~2007. AXS-One’s ability to quickly identify emerging market opportunities and to build high-quality, innovative solutions have won many awards over the years. The Company has devoted significant resources to developing new products which serve the Content Archival, Records Management, Compliance Management, E-Discovery, Litigation Readiness and Information Management Markets.

~~AXS-One~~ Cash ~~believes~~provided ~~that~~by ~~changes~~financing inactivities ~~the~~was ~~scope~~$3.9 million and $8.7 million ~~complexity~~for of2008 ~~the corporate regulatory, governance, privacy~~ and ~~legal environment have significantly altered how organizations are doing~~2007, ~~and~~respectively. ~~are~~For ~~required to do~~2008, cash ~~business.~~was ~~Organizations~~provided ~~are~~by ~~re-evaluating~~the ~~their~~issuance ~~software~~of ~~requirements~~convertible todebt, ~~invest~~ described in ~~solutions~~more ~~that~~detail ~~ensure~~below ~~operational efficiency~~ and ~~competitive~~by ~~advantage~~borrowings ~~while~~of ~~enabling~~bank ~~them~~debt. toFor ~~address and satisfy their requirements for corporate governance~~2007, cash ~~regulatory~~was ~~compliance,~~provided ~~litigation~~by ~~readiness,~~the ~~legal~~issuance ~~discovery and privacy~~ of ~~information.~~convertible ~~AXS-One’s~~debt, ~~approach allows organizations to meet these requirements by leveraging investments~~ described in ~~existing~~more ~~systems~~detail tobelow, ~~extend them with collaborative web services~~ and ~~business~~the ~~components.~~exercise ~~This~~of ~~results~~stock inoptions ~~manageable investments, quick implementation schedules~~ and warrants aduring ~~more~~the ~~rapid return on investment~~period. ~~See ‘‘Item 1. Business’’.~~

On There ~~October 31, 2006,~~was ~~the~~no ~~Company~~cash ~~sold~~used ~~certain~~by ~~assets~~discontinued ~~and~~operations ~~liabilities~~for ~~through~~2008. ~~which~~Cash used itby ~~operated~~discontinued ~~the~~operations ~~AXS-One~~was ~~Enterprise~~$1.0 million ~~Solutions~~for ~~financial~~2007. For ~~management~~2007, ~~and~~cash ~~accounting~~used ~~applications~~related ~~business~~to ~~(‘‘Enterprise~~payment ~~Solutions’’)~~of cash to Computron Software, LLC for ~~the~~collection ~~sum~~ of ~~$12 million~~their inaccounts ~~cash~~receivable received ~~plus~~by ~~future~~us ~~potential~~and ~~consideration~~required ~~for~~to ~~exceeding~~be ~~specified~~returned ~~license~~to ~~revenue targets. Additionally,~~ Computron Software, LLC ~~assumed~~in ~~net~~connection ~~liabilities~~with ~~of approximately $6.2 million. The Company recorded a gain of $17.2 million on~~ the sale. ~~The assets sold primarily consist~~ of ~~client~~our contracts, marketing agreements, internally developed software, accounts receivable and fixed assets of the business. The liabilities sold consist primarily of employee related liabilities, accounts payable and deferred revenue. The Company has classified the Enterprise Financials ~~Solutions~~ business ~~as a discontinued operation~~ in ~~its~~October ~~financial statements~~2006.

~~Our~~ We ~~revenues~~have ~~are~~no ~~derived~~significant ~~mainly~~capital ~~from~~commitments. ~~license~~Planned ~~fees~~capital expenditures ~~from~~for ~~software~~2009 ~~license~~are ~~agreements~~less ~~entered~~than ~~into~~$0.5 million. ~~between~~Our aggregate ~~AXS-One~~minimum ~~and~~operating ~~our~~lease ~~customers~~payments ~~and~~for ~~resellers~~2009 ~~for~~will ~~our~~be approximately ~~products~~$0.9 million. ~~and,~~Our toaggregate aminimum ~~lesser~~royalties payable ~~degree,~~for third party ~~products~~software ~~resold~~used byin ~~AXS-One,~~conjunction ~~and~~with weour software ~~derive~~are ~~services~~approximately ~~revenues~~$0.1 million for 2009. We expect to fund these commitments from ~~software~~cash ~~maintenance~~on ~~agreements,~~hand ~~training,~~and ~~consulting~~cash ~~services~~generated by ~~including~~operating ~~installation~~activities, and ~~custom~~other ~~programming~~debt or equity sources of financing.

AXS-One incurred a net loss of $10.1 million and $14.9 million for the years ended December 31, 2008, and 2007, respectively. We ~~are~~have ~~based~~not yet been able to obtain operating profitability and may not be able to be profitable on a quarterly or annual basis in ~~Rutherford~~the future. In addition, ~~New~~in ~~Jersey~~their report prepared in conjunction with ~~135~~our ~~full-time~~December 31, ~~employees~~2008 financial statements, our independent registered public accounting firm, Amper, Politziner & Mattia LLP, included an explanatory paragraph stating that, because the Company has incurred recurring net losses, has an accumulated deficit and has a working capital deficiency as of December 31, ~~2006~~ 2008, inthere ~~offices~~is ~~worldwide~~substantial doubt about our ability to continue as a going concern. Management’s initiatives over the last two years, including ~~Australia,~~the restructurings ~~Singapore~~in February 2009, ~~South~~December ~~Africa~~2008 and 2007, the executive ~~United~~management ~~Kingdom~~salary reductions for 2009, 2008 and 2007, securing additional convertible debt financing in May 2007, November 2007, July 2008 and October 2008, and the ~~United~~Sand Hill ~~States.~~Finance ~~Our~~financing ~~foreign~~agreement ~~offices~~have ~~generated~~been ~~approximately~~designed 38to improve operating results and liquidity and better position AXS-One to compete under current market conditions.1% However, we are required to seek new sources of ~~our~~financing ~~total~~or ~~revenues~~future accommodations ~~for~~from ~~the~~our ~~twelve~~existing ~~months~~lenders ~~ended~~or ~~December 31~~other financial institutions, ~~2006.~~ Weor ~~expect~~we ~~that~~may ~~such~~seek ~~revenues~~equity or debt infusions from private investors. Our recent cost reductions will ~~continue~~allow us to become ~~represent~~profitable aat ~~significant~~lower ~~percentage~~revenue levels than in prior years. However, our ability to fund our operations is dependent on our continued sales of our ~~total~~Integrated ~~revenues~~Content Arching software at levels sufficient to achieve profitable operations. We may also be required to further reduce operating costs in ~~the~~order ~~future~~to meet our obligations if deemed necessary. ~~Most~~As of April 8, 2009, the Company’s cash position has reduced to $742,000, which includes $850,000 borrowed on our ~~international~~bank ~~license~~credit ~~fees~~line. Additionally, the Company’s convertible debt approximating $13 million at April 8, 2009 matures on May 29, 2009 and ~~services~~the ~~revenues~~Company ~~are~~does ~~denominated~~not inhave ~~foreign~~the ~~currencies~~capital to pay these notes, and accordingly, such notes will need to be restructured. If ~~Fluctuations~~we are unable to achieve profitable operations or secure additional sources of capital in the ~~value~~near ofterm, ~~foreign~~in ~~currencies~~addition ~~relative~~to restructuring our convertible debt, there would be substantial doubt about our ability to fund future operations through the second Uquarter of 2009.S Management could also consider merger and acquisition activity. ~~dollar~~No inassurance ~~the~~can ~~future~~be ~~could~~given ~~result~~that management’s ininitiatives ~~fluctuations~~will inbe ~~our~~successful ~~revenue~~or that any such additional sources of financing, lender accommodations, or equity or debt infusions will be available. (See Item 1A “Risk Factors.”)

Until May 31, 2006, the Company had a 49% ownership in a joint venture in its South African operation, AXS-One African Solutions (Pty) Ltd (‘‘African Solutions’’). African Solutions sells and 24

~~services~~ Silicon Valley ~~our~~Bank suite of products. The joint venture was considered to be a variable interest entity as defined in FASB Interpretation No. 46R, ‘‘Consolidation of Variable Interest Entities’’ (FIN 46R). However, the Company had determined that it was not the primary beneficiary. Accordingly, until May 31, 2006, the Company used the equity method of accounting for the joint venture whereby investments, including loans to the joint venture, were stated at cost plus or minus the Company’s equity in undistributed earnings or losses. On May 31, 2006, the Company purchased the remaining 51% of African Solutions from African Legends Technology for $161 less cash acquired of $20, to make it a wholly owned subsidiary. The Company applied purchase accounting to record the transaction. The purchase price was less than the fair value of assets acquired and therefore the Company wrote down the value of all long-term assets to zero and recorded a gain of $37. As of June 1, 2006, 100% of the results of African Solutions are included in the consolidated results of the Company in discontinued operations as it is part of the Enterprise Solutions business segment.Financing

We On ~~encounter competition for all of our products in all markets and compete primarily based on the quality of our products~~March 6, ~~our price~~2007, ~~our~~the ~~customer~~Company ~~service~~entered ~~and~~into ~~our~~a ~~time~~Fourth toLoan Modification ~~implement.~~Agreement ~~The timing of~~ (the ~~release~~“Fourth ofModification Agreement”) ~~new~~with ~~products~~Silicon isValley ~~also~~Bank ~~important to our ability to generate sales. During~~ (the ~~second~~“Bank”) effective ~~half~~as of ~~2003~~February 15, we2007 ~~launched~~to ~~our~~amend ~~Records~~and ~~Compliance~~supplement its ~~Management~~Amended ~~solution for e-mail~~ and ~~Instant~~Restated ~~Messaging~~Loan ~~Archival~~ and ~~Supervision~~Security inAgreement ~~response~~dated ~~to new regulatory requirements for financial institutions in the United States~~ as ~~well~~of September 13, as2005 tobetween ~~address~~ the ~~need~~Company toand ~~reduce costs in~~ the ~~e-mail management area. During 2006~~Bank, ~~AXS-One~~as amended ~~announced~~by ~~further~~the ~~significant~~First ~~development~~Loan onModification ~~the~~Agreement ~~AXS-One~~dated ~~Compliance~~as ~~Platform~~of March 14, ~~focusing primarily on enhancements to address the growing market for litigation readiness and risk management. Version 3.5.5~~2006, ~~was announced in September and introduced major new functionality including .PST management and file system archiving. Both leverage~~ the ~~high-performance~~Second ~~workflow~~Loan ~~integrated~~Modification ~~into~~Agreement dated ~~the~~as ~~AXS-One Compliance Platform to address the scalability and litigation/liability issues~~ of ~~today’s~~October 31, ~~enterprises~~2006, ~~associated with managing~~ and ~~migrating .PST files and records stored in file systems. Significant enhancements were made to~~ the ~~product’s~~Third ~~Case~~Loan Modification ~~Management~~Agreement ~~functionality~~dated inas ~~response to growing pressures on organizations worldwide regarding litigation readiness and e-discovery. Enhancement to Supervisory Review focused on performance, scale and ease~~ of ~~use~~November 11, in2006 ~~response to enterprise-wise demand for this functionality~~ (~~versus departmental needs). Finally~~as amended, ~~usability enhancements were introduced to facilitate administration within~~ the ~~e-mail~~“Loan ~~archiving products and significantly reduce implementation time and effort for the entire platform~~Agreement”).

~~AXS-One~~ On ~~believes~~July 18, ~~that~~2007, the ~~enhancements~~Company entered into a Second Amended and ~~additional~~Restated ~~functionality~~Loan ~~made~~and Security Agreement with the Bank to amend and supplement the ~~AXS-One~~Loan ~~Compliance~~Agreement ~~Platform~~(as ~~through~~amended, ~~2006~~the ~~continue~~“Second Amended Agreement”). The Second Amended Agreement provided for a revolving line of credit in an amount equal to ~~provide~~the itlesser of ~~with~~$2.5 million ~~further~~or ~~competitive~~80% ~~advantage,~~of ~~and~~eligible ~~means~~gross ~~that~~domestic accounts receivable. Borrowings under the revolving line of credit bore interest at prime rate plus one quarter of one percent (0.25%) on the average gross daily financed account balance as long as the Company’s ~~can~~liquidity ~~offer~~ratio ~~its~~(as ~~customers~~described ~~and~~in ~~prospective~~the ~~customers~~Second Amended aAgreement) ~~broad~~was ~~suite~~above 1.30:1.00. If the liquidity ratio fell below 1.30:1.00, the interest rate would have increased to prime rate plus three quarters of ~~solutions~~one ~~that~~percent ~~enable~~(0.75%) ~~them~~on the average gross daily financed account balance in addition to ~~address~~a monthly ~~their~~collateral ~~current~~handling ~~enterprise~~fee ~~needs~~of ~~and~~one quarter of one percent (0.25%) of the average monthly financed receivable balance. The Company was required to ~~scale~~pay quarterly interest charges equal to 10% ~~meet~~of ~~their~~the ~~future~~minimum ~~requirements~~net facility usage. ~~Additionally~~If actual interest charges incurred exceed minimum, then no additional charge would be assessed. Loans under the Second Amended Agreement were secured by substantially all domestic assets of the Company. ~~believes~~The maturity ~~that~~date of the ~~AXS-One~~loan ~~Compliance~~was ~~Platform~~April 1, is2008. ~~increasingly~~As ~~attractive~~described in greater detail in the Second Amended Agreement, the loan was subject to ~~partners~~acceleration ~~and~~upon ~~resellers~~breach of: (i) a covenant tested quarterly requiring the Company’s net loss not to exceed $4.0 million, $2.8 million and $2.4 million ~~supports~~for the ~~needs~~quarters ofended ~~its~~June 30, ~~channel~~2007, September 30, ~~strategy~~2007 and December 31, 2007, respectively and (ii) other customary non-financial covenants.

~~Our~~ For ~~future~~the ~~ability~~quarter toended ~~grow~~September 30, ~~revenue~~2007, ~~will~~the beCompany ~~directly~~was not ~~affected~~in bycompliance ~~continued~~with ~~price~~the ~~competition~~quarterly ~~and~~net ~~our~~loss ~~ability~~covenant toof $2.8 million. ~~sell~~On ~~systems~~November 13, to2007, ~~new~~subject ~~customers~~to ~~and~~receipt of ~~develop~~at ~~growing~~least ~~recurring maintenance revenue~~$3.5 million ~~Our~~in ~~growth~~convertible ~~rate~~notes ~~and~~financing which ~~total~~took ~~revenues~~place ~~also depend significantly~~ on ~~selling~~November 16, ~~services~~2007, tothe ~~existing~~Bank ~~customers~~waived assuch violation. ~~well~~The asBank ~~our~~adjusted ~~ability to expand our customer base and to respond successfully to~~ the ~~pace~~net ofloss ~~technological~~covenant ~~change. In order~~ to ~~expand~~become ~~our~~a monthly ~~customer~~net ~~base,~~loss wecovenant ~~have~~not ~~been actively seeking partnerships with resellers~~ to ~~supplement~~exceed ~~our~~a ~~direct~~rolling ~~sales~~three ~~force.~~month net ~~In January 2005~~loss, ~~AXS-One~~included ~~announced an agreement with Sun Microsystems whereby the two organizations entered into~~ a ~~Technology~~minimum ~~Development~~license ~~and~~revenue ~~License~~amount ~~Agreement.~~for ~~Under~~ the fourth ~~terms~~quarter of ~~the~~2007 ~~agreement, Sun is marketing, licensing, implementing~~ and ~~supporting~~increased the ~~entire~~interest ~~AXS-One~~rate. ~~Compliance~~The interest ~~Platform~~rate ~~product~~changed ~~suite~~to ~~worldwide~~prime asrate ~~well~~plus asone ~~marketing~~ and ~~supporting~~one-quarter percent ~~this suite through Sun’s global reseller network~~(1.25%) ~~Sun~~in ~~markets~~addition ~~the~~to ~~AXS-One~~a ~~Compliance~~monthly ~~Platform~~collateral ashandling afee of ~~core~~one ~~component~~quarter of ~~the~~one ~~Sun~~percent ~~Compliance and Content Management Solution — an integrated and tested solution that may also include Sun servers, Sun storage and Sun middleware~~(0.25%) Inof ~~September 2005~~ the ~~AXS-One~~average ~~products,~~monthly financed asreceivable abalance. ~~component~~If of the ~~Sun Compliance and Content Management Solution, were officially added as part numbered items to Sun~~Company’s ~~own~~liquidity ratio ~~price~~(as ~~list~~described ~~and~~in ~~formally~~the ~~announced~~Second toAmended ~~the~~Agreement) ~~Sun~~was ~~organization~~above 1.30:1.00, At the ~~end~~interest ofrate ~~2005,~~would ~~AXS-One~~decrease ~~issued a Sun-endorsed announcement that development work had been completed~~ to ~~replace~~prime ~~Sun’s~~rate ~~current e~~plus three-~~mail~~quarters ~~archival~~of ~~product~~one —percent ~~Infinite Mailbox — and to~~ (0.75%).

23 On March 18, 2008, the Company and the Bank agreed to extend the term of the line of credit agreement through March 31, 2009 under essentially the same terms. The covenants remained a monthly net loss covenant not to exceed a rolling three month net loss and a quarterly minimum license revenue amount for each quarter of 2008.

~~facilitate~~ For the ~~migration~~quarter ofended ~~Infinite~~March 31, ~~Mailbox~~2008, ~~customers~~the toCompany ~~the~~was ~~AXS-One~~in compliance ~~solution.~~with ~~Throughout~~its ~~2005~~rolling three month net loss covenant, ~~Sun~~but was not in compliance with its quarterly license revenue covenant. The Bank waived such violation and ~~Storagetek~~changed ~~closed~~the covenants for future periods from a ~~number~~minimum oflicense ~~contracts~~revenue covenant ~~around~~and ~~the~~minimum ~~world~~three ~~for~~month ~~the~~rolling ~~Sun~~net ~~Compliance~~loss covenant to (a) a minimum three month rolling EBITDA covenant, (b) minimum cash and ~~Content~~accounts ~~Management~~receivable ~~Solution~~availability covenant and (c) a minimum equity infusion covenant of $500,000.

~~During~~ On ~~2006~~May 22, ~~Sun~~2008, ~~Microsystems~~the ~~continued~~Company toterminated ~~promote~~ the ~~Sun~~Second ~~Compliance~~Amended Agreement ~~and~~with ~~Content~~Silicon ~~Management~~Valley ~~Solution~~Bank ~~worldwide~~ and ~~closed~~all 12amounts ~~contracts~~outstanding were ~~worldwide.~~fully ~~AXS-One and Sun have also continued to work on joint technology to expand the scope of the solution and ensure it remains competitively differentiated going forward~~paid.

~~During~~ Sand ~~2006~~Hill Finance, ~~AXS-One~~LLC announced additional technology and resellers partnerships around the world, including continued expansion of its reseller network in Asia. At the same time, AXS-One continued to train and support existing partners and, as a result, was able to record sales in new markets including Scandinavia and India.Financing

We On ~~have~~May 22, ~~experienced~~2008, ~~and may in~~ the ~~future~~Company ~~experience,~~entered ~~significant~~into ~~fluctuations~~a inFinancing Agreement ~~our~~(the ~~quarterly~~“Financing ~~and~~Agreement”) ~~annual~~with ~~revenues~~Sand Hill Finance, ~~results~~LLC of(the ~~operations and cash flows~~“Lender”). WePursuant ~~believe that domestic and international operating results and cash flows will continue~~ to ~~fluctuate significantly in~~ the ~~future~~Financing Agreement, ~~as a result of a variety of factors. For a description of~~ the ~~factors~~Lender ~~that~~ may ~~affect our operating results see Item 1A ‘‘Risk Factors’’.~~

Applications built on AXS-One’s set of archiving and workflow products have been deployed as electronic bill presentment and document delivery solutions (e-delivery), self-service information systems, Internet report publishing and distribution solutions, customer service solutions, Internet-enabled information reconciliation solutions, and transaction confirmation solutions. These solutions are typically implemented in a timely manner, thus providing a rapid time-to-value. The AXS-One E-Delivery Service, developed for the European travel industry, went live during 2005. The service has been endorsed by the Civil Aviation Authority (the United Kingdom’s version of the Federal Aviation Authority in the United States) and has been widely adopted by the UK travel industry. At the end of 2006, 51 tour operators had subscribed to the E-Delivery Service, representing almost 80% of the entire UK travel sector. 25

24 advance the Company from time to time up to $1.0 million, based upon the sum of 80% of the face value of United States accounts receivable secured by the Lender from the Company at the Lender’s sole discretion. The security of such accounts receivable is with full recourse against the Company. Advances under the Financing Agreement bear interest at a rate of 1.58% per month. The Financing Agreement has a term of one year (with an evergreen annual renewal provision unless either party provides notice of termination) and contains certain customary affirmative and negative non-financial covenants. The negative covenants include restrictions on change of control, purchases and sales of assets, dividends (other than dividends payable in stock) and stock repurchases. Pursuant to the Financing Agreement, the Company pledged as collateral to the Lender substantially all of its assets.

~~Results~~ As of ~~Operations~~December 31, 2008, the Company had borrowings of $700,000 outstanding pursuant to the Financing Agreement and had remaining availability of $300,000.

~~The~~ Secured Convertible ~~following~~Note ~~tables set forth for the periods indicated, certain operating data, and data as a percentage of total revenues.~~Financings

On May 29, 2007, the Company entered into a Convertible Note and Warrant Purchase Agreement (~~dollars~~the in“Purchase Agreement”) ~~millions~~pursuant to which it sold and issued an aggregate of $5.0 million of convertible notes consisting of (i) $2.5 million of Series A 6% Secured Convertible Promissory Notes due May 29, 2009 and (ii) $2.5 million of Series B 6% Secured Convertible Promissory Notes due May 29, 2009, together with warrants to purchase an aggregate of 2 million shares of common stock of AXS-One. Net cash proceeds to AXS-One after transaction expenses were approximately $4.9 million. The notes and warrants were sold in a private placement under Rule 506 promulgated under the Securities Act of 1933, as amended, to three accredited investors.

	Year EndedDecember 31, 2006							Year EndedDecember 31, 2005
	Total Consolidated				Data as apercent of revenue			Total Consolidated				Data as apercent of revenue
Revenues:
License fees		$	2.4			23.3	%		$	4.1			36.3	%
Services			7.9			76.7				7.2			63.7
Total revenues			10.3			100.0				11.3			100.0
Operating expenses:
Cost of license fees			1.2			11.6				1.1			9.7
Cost of services			8.2			79.6				6.8			60.2
Sales and marketing			9.6			93.2				7.4			65.5
Research and development			6.5			63.1				6.0			53.1
General and administrative			4.6			44.7				4.4			38.9
Restructuring and other costs			0.4			3.9				0.3			2.7
Total operating expenses			30.5			296.1				26.0			230.1
Operating loss			(20.2	)		(196.1	)			(14.7	)		(130.1	)
Other income (expense), net			0.6			5.8				(0.4	)		(3.5	)
Loss before income tax benefit			(19.6	)		190.3				(15.1	)		(133.6	)
Income tax benefit			—			—				—			—
Loss from continuing operations			(19.6	)		(190.3	)			(15.1	)		(133.6	)
Discontinued operations:
Income from discontinued operations			7.9			76.7				6.1			54.0
Gain on sale of discontinued operations, net of tax			17.2			167.0				—			—
Net income (loss)		$	5.5			53.4	%		$	(9.0	)		(79.6	)%

The Series A notes mature on May 29, 2009, are convertible into AXS-One common stock at a fixed conversion rate of $1.00 per share, bear interest of 6% per annum and are secured by substantially all the assets of AXS-One. The Series B notes mature on May 29, 2009, are convertible into AXS-One common stock at a fixed conversion rate of $2.50 per share, bear interest of 6% per annum and are secured by substantially all the assets of AXS-One. The security interest of the note holders has been subordinated to the security interest of AXS-One’s senior lender. Each series of notes may be converted at the option of the note holder at any time prior to maturity.

25 Each note holder received a warrant to purchase a number of shares of AXS-One common stock equal to 40% of the principal amount of notes purchased. Each warrant has an exercise price of $0.01 per share and is exercisable at any time through May 29, 2014.

	Year Ended December 31, 2004
	Total Consolidated				Data as apercent ofrevenue
Revenues:
License fees		$	4.4			43.6	%
Services			5.7			56.4
Total revenues			10.1			100.0
Operating expenses:
Cost of license fees			0.9			8.9
Cost of services			3.6			35.6
Sales and marketing			1.9			18.8
Research and development			1.5			14.9
General and administrative			5.4			53.5
Total operating expenses			13.3			131.7
Operating loss			(3.2	)		(31.7	)
Other expense, net			0.3			3.0
Loss before income tax benefit			(2.9	)		(28.7	)
Income tax benefit			0.2			2.0
Loss from continuing operations			(2.7	)		(26.7	)
Loss from discontinued operations			(2.5	)		(24.8	)
Net loss		$	(5.2	)		(51.5	)%

On November 13, 2007, the Company entered into a Convertible Note and Warrant Purchase Agreement pursuant to which it sold and issued on November 16, 2007 an aggregate $3.75 million of Series C 6% Secured Convertible Promissory Notes due May 29, 2009 together with warrants to purchase an aggregate of 3,750,000 shares of common stock of AXS-One at an exercise price of $.01 per share. Net cash proceeds to AXS-One after transaction expenses were approximately $3.65 million. The Series C notes and warrants were sold in a private placement under Rule 506 promulgated under the Securities Act of 1933, as amended, to accredited investors.

~~2006~~ The ~~Compared~~Series C notes will mature on May 29, 2009, are convertible into AXS-One common stock at a fixed conversion rate of $1.00 per share, bear interest of 6% per annum and are secured by substantially all the assets of AXS-One. The security interest of the Series C note holders has been subordinated to ~~2005~~the security interest of AXS-One’s senior lender and ranks pari passu with the Series A and Series B convertible notes issued on May 29, 2007. The Series C notes are convertible at the option of the note holder at any time prior to maturity.

~~Revenues~~ Each Series C note holder also received a warrant to purchase a number of shares of AXS-One common stock equal to 100% of the principal amount of notes purchased. Each warrant has an exercise price of $0.01 per share and is exercisable at any time during the seven year period following the closing.

~~Total~~ On ~~revenues~~July 24, ~~decreased~~2008, ~~8.8%~~the ~~from~~Company ~~2005~~entered tointo ~~2006~~a ~~due~~Convertible Note toand aWarrant ~~40.8%~~Purchase ~~decrease~~Agreement inpursuant ~~license~~to ~~revenue~~which ~~offset~~it ~~somewhat~~sold and byissued an ~~increase~~aggregate ~~in service revenue~~ of ~~9.5%. License revenues for 2005 included a license fee of approximately~~ $12.0 1 million toof ~~one~~Series D ~~customer~~6% Secured without a corresponding large sale in the 2006. This reduction was offset by stronger revenue from our partner channel in 2006 compared with 2005. Consulting revenue was stronger in 2006 resulting in part from two large RCM professional service implementations which have taken place in 2006.Convertible

~~The following table sets forth for the periods indicated each major category of our services revenues as a percent of services revenues.~~ 26

	Years Ended December 31,
	2006						2005
(in thousands)	Amount			% ofTotal			Amount			% ofTotal
Maintenance		$	4,735		60	%		$	4,440		62	%
Consulting			2,700		34				2,565		36
Subscription revenue			429		6				174		2
Total services revenues		$	7,864		100	%		$	7,179		100	%

~~The~~ Promissory ~~increase~~Notes indue ~~services~~May 29, ~~revenues~~2009 istogether ~~the~~with ~~result~~warrants ofto purchase ~~increases~~an inaggregate ~~all categories~~ of ~~service revenue~~4,200,000 shares ~~particularly~~of incommon ~~subscription~~stock of ~~revenue~~AXS-One ~~from~~at ~~the~~an ~~Company’s~~exercise ~~E-Delivery~~price ~~travel~~of ~~service~~$.01 inper ~~Europe~~share. ~~Subscription~~Net ~~revenue~~cash proceeds ~~has~~to ~~increased~~AXS-One asafter atransaction ~~result~~expenses ofwere approximately ~~the~~$2.05 million. ~~implementation~~The ofSeries D ~~new~~notes ~~customers~~and warrants onwere ~~the~~sold ~~Company’s~~in ~~hosted~~a ~~E-Delivery~~private ~~service~~placement ~~and~~under ~~the~~Rule 506 promulgated ~~resulting~~under ~~larger~~the ~~volumes~~Securities Act of ~~records~~1933, ~~being~~as ~~processed~~amended, ~~through~~to accredited ~~such services in 2006 compared with 2005~~investors.

~~Operating~~ The ~~Expenses~~Series D notes will mature on May 29, 2009, are convertible into AXS-One common stock at a fixed conversion rate of $1.00 per share, bear interest of 6% per annum and are secured by substantially all the assets of AXS-One. The security interest of the Series D note holders has been subordinated to the security interest of Sand Hill Finance, AXS-One’s current senior lender and ranks pari passu with the Series A and Series B convertible notes issued on May 29, 2007 and the Series C convertible notes issued on November 13, 2007. The Series D notes are convertible at the option of the note holder at any time prior to maturity.

~~Cost~~ Each ofSeries D ~~license~~note ~~fees~~holder ~~consists~~also ~~primarily~~received a warrant to purchase a number of ~~amortization~~shares of ~~capitalized~~AXS-One ~~software~~common ~~development~~stock ~~costs~~equal ~~and~~to 200% ~~amounts~~of ~~paid~~the toprincipal ~~third~~amount ~~parties~~of ~~with~~notes ~~respect~~purchased. toEach ~~products~~warrant has wean ~~resell~~exercise inprice ~~conjunction~~of ~~with~~$0.01 per share and is exercisable at any time during the ~~licensing~~seven ofyear ~~our~~period following the closing.

26 On October 30, 2008, the Company entered into a Convertible Note and Warrant Purchase Agreement pursuant to which it sold and issued an aggregate of $1.1 million of Series E 6% Secured Convertible Promissory Notes due May 29, 2009 together with warrants to purchase an aggregate of 3,300,000 shares of common stock of AXS-One at an exercise price of $.01 per share. Net cash proceeds to AXS-One after transaction expenses were approximately $1.0 million. The Series E notes and warrants were sold in a private placement under Rule 506 promulgated under the Securities Act of 1933, as amended, to accredited investors.

~~products.~~ The ~~Cost~~Series E ofnotes ~~license~~will ~~fees~~mature ~~increased~~on May 29, 2009, are convertible into AXS-One common stock at a fixed conversion rate of $0.1 ~~million~~.00 orper ~~9.3~~share, bear interest of 6% inper ~~2006,~~annum asand ~~compared~~are secured toby ~~2005~~substantially ~~mainly~~all asthe aassets ~~result~~of AXS-One. The security interest of anthe ~~increase~~Series E innote ~~royalty~~holders ~~fees~~has ~~for~~been ~~third~~subordinated to ~~party~~the ~~software~~security ~~used~~interest inof ~~conjunction~~Sand Hill Finance, AXS-One’s current senior lender and ranks pari passu with ~~our~~the Series A ~~software~~and ~~offset~~Series B ~~somewhat~~convertible bynotes ~~decreased~~issued ~~amortization~~on May 29, 2007, the Series C convertible notes issued on November 16, 2007 and the Series D convertible notes issued on July 24, 2008. The Series E notes are convertible at the option of ~~capitalized~~the ~~software~~note ~~development~~holder ~~costs~~at any time prior to maturity.

~~Cost~~ Each ofSeries E ~~services~~note ~~consists~~holder ~~primarily~~also ofreceived ~~personnel~~a ~~and~~warrant ~~third~~to purchase ~~party~~a ~~costs~~number ~~for product quality assurance, training, installation, consulting and customer support. Cost~~ of ~~services~~shares ~~increased $1.4 million or 20.2% in 2006, as compared to 2005. The increase was mainly due to increases in services personnel, redeployment~~ of ~~Enterprise~~AXS-One ~~Solutions~~common ~~resources~~stock toequal ~~focus on the RCM product line and third party consultants~~ to 300% ~~install and support the RCM products. Additionally, cost~~ of ~~resources formerly shared by~~ the ~~Enterprise~~principal ~~Solutions~~amount ~~segment and the RCM segment are now borne solely by the RCM segment. This also affects Sales & Marketing expenses, R&D expenses and G&A expenses. These costs have been reduced as part~~ of ~~the~~notes ~~restructuring described below, which will be realized in 2007~~purchased. ~~This~~Each ~~increase~~warrant has inan ~~costs~~exercise ~~resulted~~price ~~in a negative service margin~~ of 4$0.5%01 inper ~~2006~~share ~~compared~~and tois aexercisable ~~positive~~at any ~~service~~time ~~margin~~during ofthe ~~4.8%~~seven ~~for~~year ~~2005.~~period ~~The~~following ~~Company expects positive margins in~~ the ~~future as service revenue increases and costs are reduced~~closing.

~~Sales~~ The ~~and~~effective ~~marketing~~interest ~~expenses~~rate ~~consist~~on ~~primarily~~the ofconvertible ~~salaries,~~notes ~~commissions~~exceeds ~~and~~the coupon ~~bonuses~~rate related to sales and marketing personnel, as well as travel and promotional expenses. Sales and marketing expenses increased $2.2 million or 29.6% for 2006, as compared to 2005. The increase was mainly due to the ~~addition~~amortization of ~~sales,~~the ~~sales~~discount ~~support and marketing personnel, redeployment~~ of ~~Enterprise Solutions resources to focus on~~ the ~~RCM~~debt resulting ~~product~~from ~~line, and increased spending on marketing programs, to expand~~ the ~~sales~~issuance ~~and distribution~~ of the ~~Company’s RCM products~~warrants.

Research and development expenses consist primarily of personnel costs, costs of equipment, facilities and third party software development costs. Research and development expenses are generally charged to operations as incurred. However, certain software development costs are capitalized in accordance with Statement of Financial Critical Accounting Standards No. 86 (‘‘SFAS 86’’). Such capitalized software development costs are generally amortized to cost of license fees on a straight-line basis over periods not exceeding three years. There was no cost capitalized in 2006 or 2005. Research and development expenses (net of capitalized software development costs) increased $0.5 million or 8.0% for 2006, as compared to 2005. The increase is primarily the result of an increase in the use of third party consultants for development of the RCM products and increased employee-related costs.Policies

~~General~~ Our ~~and~~critical ~~administrative~~accounting ~~expenses~~policy consist primarily of salaries for administrative, executive and financial personnel, and outside professional fees. General and administrative expenses increased $0.3 million or 6.7% for 2006 as compared to 2005. The increase is ~~primarily~~revenue ~~due to higher professional fees and the reinstitution of executive salaries and Board fees~~recognition.

In December 2006 and June 2005, in order to reduce operating costs to better position ourselves in the current market, we eliminated 19 and 6 positions respectively, from continuing operations. We recorded a charge to operations of $0.4 million and $0.3 million in 2006 and 2005 respectively, related to involuntary termination benefits to be paid to the terminated employees. All restructuring costs related to the 2005 reduction in force have now been paid. Approximately $0.3 million of the 2006 restructuring costs have been paid. The remaining liability at December 31, 2006 is $0.1 million and is expected to be paid in 2007. Revenue Recognition

~~Operating~~ The ~~Loss~~Company recognizes revenue in accordance with Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”), and Statement of Position 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.” Revenue from non-cancelable software licenses is generally recognized when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company recognizes license revenue from resellers when an end user has placed an order with the reseller and the above revenue recognition criteria have been met with respect to the reseller. In multiple element arrangements, the Company defers the vendor-specific objective evidence (“VSOE”) of fair value related to the undelivered elements and recognizes revenue on the delivered elements using the residual method. If VSOE of fair value does not exist for any undelivered element, the entire arrangement consideration is deferred until VSOE of fair value is determined for that

Operating loss increased $5.5 million for 2006 as compared to 2005 due mainly to an increase of $4.5 million in operating expenses and a decrease in total revenue of $1.0 million as described above. 27

~~Other~~ undelivered ~~income~~element ~~(expense),~~or ~~net~~the ~~improved~~element $1is delivered.~~0 million~~ ~~for~~The ~~2006,~~most commonly asdeferred ~~compared~~elements toare ~~2005~~initial maintenance and consulting services. Initial maintenance is recognized on a straight-line basis over the initial maintenance term. The ~~improvement~~VSOE of fair value of maintenance is ~~principally~~determined by using a consistent percentage of maintenance fee to license fee based on renewal rates. Maintenance fees in subsequent years are recognized on a straight-line basis over the life of the applicable agreement. Maintenance contracts entitle the customer to hot-line support and all unspecified product upgrades released during the term of the maintenance contract. Upgrades include any and all unspecified patches or releases related to ~~foreign~~a ~~currency~~licensed ~~exchange~~software product. Maintenance does not include implementation services to install these upgrades. The VSOE of fair value of services is determined by using an average consulting rate ~~fluctuations~~per ~~and~~hour ~~higher~~for consulting ~~interest~~services ~~income~~sold ~~offset~~separately, ~~partially~~multiplied by ~~higher~~the ~~interest~~estimate of ~~expense~~hours required to complete the consulting engagement.

~~Loss~~ Delivery ~~from~~of ~~continuing~~software ~~operations~~generally occurs when the product (on CDs) is delivered to a common carrier. Occasionally, delivery occurs through electronic means where the software is made available through our secure File Transfer Protocol (FTP) site. The Company generally does not offer any customers or resellers a right of return.

~~Loss~~ For ~~from~~software ~~continuing~~license, ~~operations~~services ~~increased~~and $4maintenance revenue, the Company assesses whether the fee is fixed and determinable and whether or not collection is probable based on the payment terms associated with the transaction and the credit-worthiness of the customer.~~5 million~~ ~~for~~If ~~2006,~~a assignificant ~~compared~~portion toof ~~2005~~a ~~primarily~~fee is due after our normal payment terms, which are 30 to 90 days from invoice date, the ~~reasons~~fee ~~stated~~is ~~above~~considered not fixed and determinable. In these cases, the Company recognizes revenue as the fees become due and collectability is probable.

27 The Company assesses assuredness of collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. Collateral is not requested from customers. If it is determined that collection of a fee is not probable, the fee is deferred and revenue is recognized at the time collection becomes probable, which is generally upon receipt of cash.

~~Income~~ The ~~from~~Company’s ~~discontinued~~arrangements ~~operations~~do not generally include acceptance clauses. If, however, an arrangement includes an acceptance provision, acceptance occurs upon the earliest of receipt of a written customer acceptance or expiration of the acceptance period.

~~Income~~ The ~~from~~majority ~~discontinued~~of ~~operations~~our ~~increased~~training $1and consulting services are billed based on hourly rates.~~8 million~~ ~~for~~The ~~2006,~~Company generally recognizes revenue as ~~compared~~these toservices ~~2005~~are ~~due~~performed. toHowever, ~~cost~~when ~~reduction~~there ~~related~~is toan arrangement ~~the~~that ~~transfer~~is ofbased ~~certain~~on ~~personnel~~a ~~from~~fixed ~~the~~fee ~~Enterprise~~or ~~Solutions~~requires ~~business~~significant work either to alter the ~~RCM~~underlying ~~business~~software so that the software performs as the customer requests, ~~offset~~the ~~somewhat~~Company recognizes bythe ~~reduced~~related revenue ~~relating~~using tothe ~~ten~~percentage ~~months~~of completion method of ~~activity~~accounting. inThis ~~2006~~would ~~compared~~apply to ~~twelve~~our ~~months~~custom programming ofservices, ~~activity~~which inare ~~2005~~generally contracted on a fixed fee basis. Anticipated gains or losses, ~~customer~~if ~~cancellations~~any, ofare ~~maintenance~~charged ~~contracts~~to operations ~~and~~in ~~lower~~the ~~professional~~period ~~services~~such ~~revenue~~gains or losses are determined to be probable.

~~Gain~~ Revenues from transaction fees associated with subscription arrangements, billable on ~~sale~~a per transaction basis and included in services revenue on the Consolidated Statements of Operations, ~~discontinued~~are ~~operations~~recognized based on the actual number of transactions processed during the period. This business was sold on December 31, 2007.

~~Gain~~ In onaccordance ~~sale~~with ofEITF ~~discontinued operations was $17~~Issue No.~~2 million for 2006. On October 31~~ 01-14, ~~2006,~~ “Income ~~the~~Statement ~~Company~~Characterization ~~sold~~of ~~certain~~Reimbursement Received ~~assets~~for ~~and~~‘Out ~~liabilities~~of ~~through~~Pocket’ ~~which~~Expenses ~~it operated the AXS-One Enterprise Solutions financial management and accounting applications business to Computron Software~~Incurred,” reimbursements ~~LLC~~received for ~~the sum~~ out-of-pocket ~~$12 million~~expenses inincurred ~~cash~~are classified ~~plus~~as ~~future~~services ~~potential consideration for exceeding specified license~~ revenue ~~targets.~~in ~~Additionally,~~the ~~Computron~~Consolidated ~~Software,~~Statements ~~LLC assumed net liabilities~~ of ~~approximately $6~~ Operations.~~5 million.~~

~~Net~~ Recently Issued ~~income~~Accounting ~~(loss)~~Standards

~~Net~~ In ~~income~~December ~~was~~2007, ~~$5.5 million~~the orFASB $0issued SFAS No.16 141 (revised ~~per~~2007), ~~diluted~~“Business ~~share~~Combinations” (“FAS 141R”), inwhich ~~2006~~replaces ~~compared~~FASB ~~to a net loss of $9~~Statement No.~~0 million or $(0~~ 141.~~28)~~ ~~per~~FAS 141R ~~diluted~~establishes ~~share~~principles inand requirements ~~2005.~~for ~~This~~how ~~increase~~an ofacquirer ~~$14.5 million~~recognizes orand ~~$0.44~~measures ~~per~~in ~~diluted~~its financial ~~share~~statements ~~was~~the ~~primarily~~identifiable ~~due~~assets toacquired, the liabilities ~~gain~~assumed, onany ~~sale~~non-controlling ofinterest in the acquiree, ~~Enterprise~~and ~~Solutions~~the ~~business~~goodwill ~~and~~acquired. ~~income~~FAS 141R ~~from~~also establishes ~~discontinued~~disclosure ~~operations,~~requirements ~~offset~~which ~~substantially~~will byenable ~~losses~~users ~~from~~to evaluate ~~continuing~~the ~~operations.~~nature

~~2005 Compared to 2004~~ 28

~~Total~~ and ~~revenues~~financial ~~increased~~effects ~~11.7%~~of ~~from~~the ~~2004~~business ~~to 2005 due to a 25~~combination.0% ~~increase~~FAS 141R is ineffective ~~service~~as ~~revenue~~of ~~offset~~the ~~slightly~~beginning byof aan ~~decrease~~entity’s infiscal ~~license~~year that ~~revenue~~begins ofafter ~~5.8%.~~December 15, ~~The~~2008, ~~increase~~which ~~in services revenues~~ is ~~the~~our ~~result~~fiscal year ofbeginning ~~increases~~January 1, in2009. ~~all~~This ~~categories~~standard ofwill ~~service~~have ~~revenue,~~an impact aon ~~reflection of~~ our ~~market~~financial ~~strategy~~statements inif ~~this~~an ~~growing~~acquisition ~~segment~~occurs.

~~The~~ In ~~following~~September ~~table~~2006, ~~sets~~the ~~forth~~FASB issued SFAS 157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the ~~periods~~United States ~~indicated~~of ~~each~~America ~~major~~and ~~category~~expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. We were required to adopt SFAS 157 beginning January 1, 2008. In February 2008, the FASB released FASB Staff Position (FSP FAS 157-2 — Effective Date of FASB Statement No. 157), which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS No. 157 for our ~~services~~financial ~~revenues~~assets asand liabilities did not have a ~~percent~~material impact on our consolidated financial statements. We do not expect that adoption of SFAS No. 157 ~~total~~for ~~service~~our ~~revenues~~non-financial assets and liabilities, effective January 1, 2009, will have a material impact on our financial statements.

	Years Ended December 31,
	2005						2004
(in thousands)	Amount			% ofTotal			Amount			% ofTotal
Maintenance		$	4,440		62	%		$	4,081		71	%
Consulting			2,565		36				1,661		29
Subscription revenue			174		2				—		—
Total services revenues		$	7,179		100	%		$	5,742		100	%

In June 2008 the FASB issued EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” EITF 07-5 provides guidance in assessing whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock for purposes of determining whether the appropriate accounting treatment falls under the scope of SFAS 133, “Accounting For Derivative Instruments and Hedging Activities” and/or EITF 00-19, “Accounting For Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. EITF 07-05 is effective as of the beginning of our 2009 fiscal year. We do not expect the adoption of EITF 07-05 to have a material impact on our consolidated financial position or results of operations.

~~Operating~~ In ~~Expenses~~May 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 will require us to account separately for the lability and equity components of our convertible debt. The debt would be recognized at the present value of its cash flows discounted using our nonconvertible debt borrowing rate at the time of issuance. The equity component would be recognized as the difference between the proceeds from the issuance of the note and the fair value of the liability. The FSP also requires accretion of the resultant debt discount over the expected life of the debt. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Entities are required to apply the FSP retrospectively for all periods presented. We do not expect the adoption of EITF 07-05 to have a material impact on our consolidated financial position or results of operations.

~~Cost~~Item of7A. ~~license~~Quantitative ~~fees consist primarily of amortization of capitalized software development costs~~ and ~~royalties~~Qualitative ~~related~~Disclosures toabout ~~third~~Market party software resold by AXS-One in conjunction with the licensing of our products. Cost of license fees increased $0.2 million from 2004 to 2005 primarily as a result of an increase of $0.2 million in third party software royalty fees.Risk

~~Cost~~ In ofthe ~~services~~normal ~~consists~~course ~~primarily~~ of ~~personnel~~business, ~~and~~we ~~third~~are ~~party~~exposed ~~costs~~to ~~for~~fluctuations in ~~product~~interest ~~quality~~rates ~~assurance, training, installation, consulting~~ and ~~customer~~equity ~~support.~~market ~~Cost~~risks ofas ~~services~~we ~~increased~~seek ~~$3.2 million~~debt orand equity ~~89.4%~~capital ~~from~~to ~~2004~~sustain toour ~~2005~~operations. ~~The~~We ~~increase~~are ~~was~~also ~~mainly~~exposed ~~due~~ to fluctuations ~~increases~~ in ~~services~~foreign ~~personnel,~~currency aexchange ~~partial~~rates ~~redeployment~~as ~~of Enterprise Solutions resources to focus on~~ the ~~RCM~~financial results ~~product line and third party consultants to install and support the RCM products. Additionally, cost~~ of ~~resources~~our ~~formerly~~foreign ~~shared~~subsidiaries ~~by the Enterprise Solutions segment and the RCM segment~~ are ~~now~~translated ~~borne~~into U.S. dollars ~~solely~~in byconsolidation. ~~the~~We ~~RCM~~do ~~segment.~~not ~~This~~use ~~also~~derivative instruments ~~affects~~or ~~Sales~~hedging &to ~~Marketing~~manage ~~expenses,~~our ~~R&D~~exposures ~~expenses~~ and ~~G&A~~do ~~expenses.~~not currently ~~This~~hold ~~resulted~~any inmarket arisk ~~gross~~sensitive ~~margin~~instruments offor 4trading purposes.~~8% in 2005 compared to 37.1% in 2004.~~

28Item 8. Financial Statements and Supplementary Data

~~Sales~~ The ~~and~~information ~~marketing~~required ~~expenses~~by ~~consist~~this ~~primarily~~Item ofis ~~salaries,~~incorporated ~~commissions~~by reference ~~and~~herein ~~bonuses~~from ~~related~~Part IV toItem 15(a) ~~sales~~ (1) and ~~marketing personnel as well as travel~~ (2) and ~~promotional~~is ~~expenses.~~set ~~Sales~~forth ~~and~~immediately ~~marketing~~following ~~expenses increased $5.5 million from 2004 to 2005 primarily due to an increase of employee related costs due to~~ the ~~hiring~~signature page of ~~more~~this ~~highly qualified sales and marketing personnel during the period, a partial redeployment of Enterprise Solutions resources to focus on the RCM product line and increased marketing programs~~report.

~~Research~~Item ~~and development expenses consist primarily of personnel costs, costs of equipment, facilities and third party software development cost~~9. ~~Research~~Changes ~~and development expenses are generally charged to operations as incurred. However, certain software development costs are capitalized~~ in accordance with Statement of Financial Accounting Standards No. 86. Such capitalized software development costs are amortized to cost of license fees on a straight-line basis over periods not exceeding three years. Research and ~~development~~Disagreements ~~expenses~~with ~~(net~~Accountants ~~of capitalized software development costs) increased $4.5 million from 2004 to 2005 due primarily to a redeployment of Enterprise Solutions resources to focus~~ on ~~the~~Accounting ~~RCM product line~~ and anFinancial ~~increase in personnel related expense~~Disclosure.

~~General~~ Not ~~and administrative expenses consist primarily of salaries of administrative, executive and financial personnel and outside professional fees~~applicable. General and administrative expenses decreased $1.1 million or 20% from 2004 to 2005 primarily as a result of a decrease in professional fees, a decrease in employee related expenses, a decrease in variable compensation expense and a decrease of other miscellaneous expenses.

In June 2005, in order to reduce operating costs to better position ourselves in the current market, we eliminated 6 positions from continuing operations. We recorded a charge to operations of $0.3 million related to involuntary termination benefits to be paid to the terminated employees. All restructuring costs related to the 2005 reduction in force have now been paid. Additionally, the executive management team reduced their base salaries by 10% and the Board of Directors waived all cash compensation for the second half of 2005, resulting in a savings of $0.1 million. Such salary and Board fee reductions were reinstated in 2006. (See Note 12 to the Consolidated Financial Statements.) In addition, in the second quarter, we expensed approximately $0.3 million related to a retirement agreement with our former CEO. The retirement benefits were paid in the first quarter of 2005. 29

~~Operating~~Item ~~loss~~9A(T) ~~increased~~Controls ~~from~~and ~~$3.2 million in 2004 to $14.7 million in 2005 due to an increase in operating expenses of $12.7 million offset partially by an increase of $1.2 million in revenue.~~Procedures

~~Other~~ Evaluation of ~~Income~~disclosure ~~(Expense),~~controls ~~Net~~and procedures

~~Other~~ Our ~~income~~Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (~~expense~~as defined in the Securities Exchange Act of 1934 Rule 13a-15(e)) as of December 31, ~~net~~2008 ~~was~~(the ~~$0.4 million~~“Evaluation ~~expense~~Date”), have inconcluded ~~2005~~that as ~~compared~~of the Evaluation Date, our disclosure controls and procedures were effective and designed to ~~$0.3 million~~ensure that ~~income~~material ininformation ~~2004~~relating ~~mainly~~to asus aand ~~result~~our ofconsolidated subsidiaries ~~foreign~~would ~~exchange~~be ~~transaction~~collected ~~losses~~and ofmade ~~$0.5 million~~known into ~~2005~~them by others within those entities as ~~compared~~appropriate to ~~transaction~~allow ~~gains~~timely ofdecisions regarding ~~$0.2 million~~required indisclosure ~~2004~~of such information.

~~Income~~ Management’s Annual ~~Tax~~Report ~~Benefit~~on Internal Control over Financial Reporting

We The ~~recorded~~Company’s anmanagement ~~income~~is ~~tax~~responsible ~~benefit~~for ofestablishing and ~~$25,000~~maintaining inadequate ~~2005~~internal ~~from~~control ~~one~~over ~~foreign entity~~financial reporting. WeInternal ~~recorded~~control anover ~~income~~financial ~~tax~~reporting ~~benefit~~is ofa process ~~$0.2 million~~designed inby, ~~2004~~or ~~from~~under the ~~sale~~supervision toof, ~~third~~the ~~parties~~Chief Executive ofOfficer ~~certain~~and ~~New~~Chief ~~Jersey~~Financial ~~State~~Officer ~~Tax~~and ~~net~~effected ~~operating~~by our ~~loss~~Board ~~carry-forwards~~of ~~and~~Directors, ~~research~~management and ~~development~~other ~~credits.~~personnel, Weto provide ~~cannot~~reasonable beassurance ~~certain~~regarding ~~that~~ the ~~State~~reliability of financial ~~New~~reporting ~~Jersey~~and ~~will continue to allow such sales in~~ the ~~future~~preparation ~~or,~~of iffinancial itstatements for ~~did,~~external ~~that~~purposes ~~sales~~in toaccordance ~~third~~with ~~parties~~generally ~~could~~accepted accounting ~~be consummated~~principles. ~~For 2004 there was an additional tax benefit of $23,000 in one foreign entity.~~

~~Loss~~ Our ~~from~~evaluation ~~continuing~~of ~~operations~~internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.

~~Loss~~ Based ~~from~~on ~~continuing~~our ~~operations~~evaluation ~~increased~~under ~~$12.4 million~~the inframeworks ~~2005~~described above, our asmanagement ~~compared~~has toconcluded ~~2004~~that ~~primarily~~our ~~due~~internal tocontrol ~~the~~over financial ~~reasons~~reporting ~~stated~~was ~~above~~effective as of December 31, 2008.

~~Income~~ This ~~(loss)~~annual ~~from~~report ~~discontinued~~does ~~operations~~not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report on this annual report.

~~Income~~ During ~~from~~the ~~discontinued~~fourth ~~operations~~quarter ~~increased~~of ~~$7.8 million for 2005~~2008, asthere ~~compared~~has tonot ~~2004~~been ~~due~~any tochange in ~~the~~our ~~transfer~~internal ofcontrol ~~certain~~over ~~personnel~~financial ~~from~~reporting ~~the~~that ~~Enterprise~~has materially ~~Solutions business to the RCM business~~affected, ~~offset~~or ~~somewhat~~is byreasonably ~~reduced~~likely ~~revenue relating~~ to ~~customer~~materially affect, ~~cancellations~~our ofinternal ~~maintenance~~control ~~contracts~~over ~~and~~financial ~~lower professional services revenue~~reporting.

29 Item 9B. Other Information

~~Net loss~~ None.

Net loss was $9.0 million or $(0.28) per diluted share in 2005 compared to a net loss of $5.2 million or $(0.19) per diluted share in 2004. This increase of $3.8 million or $(0.09) per diluted share was primarily due to losses from continuing operations offset partially by income from discontinued operations. 30

At December 31, 2006, we had cash and cash equivalents of $7.5 million and a working capital of $2.9 million which included $2.6 million of deferred revenue. The increase in working capital of $6.5 million compared to a working capital deficit of $3.6 million at December 31, 2005 is primarily due to cash received from the sale of the Enterprise Solutions business on October 31, 2006. PART III

OnItem ~~June 21, 2005 and September 21, 2005 we completed a private placement of shares of common stock and warrants that resulted in the receipt of net proceeds of approximately $5~~10.~~8 million~~ ~~and $0.6 million~~Directors, ~~respectively.~~Executive OnOfficers ~~April 5, 2004, we completed a private placement of shares of common stock~~ and ~~warrants~~Corporate ~~that resulted in the receipt of net proceeds of approximately $7.7 million.~~Governance

On The ~~August 11, 2004,~~Company ~~the~~incorporates ~~Company~~herein ~~entered~~by ~~into~~reference athe ~~two-year~~information required ~~Loan~~by ~~and~~Items 401, ~~Security~~405, ~~Agreement~~406, 407(~~the~~c)(3), ~~‘‘Agreement’’~~(d)(4) ~~which~~and (d)(5) ~~contains~~of Regulation S-K to abe ~~revolving~~set ~~line~~forth ofin ~~credit~~its ~~under~~Notice ~~which~~of ~~the~~Annual ~~Company~~Stockholders’ Meeting ~~had~~and ~~available~~Proxy ~~the~~Statement ~~lesser~~to ofbe ~~$4.0 million~~filed orwithin ~~80%~~120 days after ofthe ~~eligible~~end ~~accounts,~~of asthe ~~defined~~Company’s ~~(See~~fiscal ~~Note~~year ~~3 to~~ (the ~~Consolidated~~“2009 Proxy ~~Financial Statements~~Statement”).

OnItem January 27, 2005, March 28, 2005 and September 13, 2005, the Company entered into modifications to the Agreement (the ‘‘Amended Agreement’’) in order to revise certain terms of the Agreement including the loan fees, interest on the loan and the financial covenants11. ~~The~~Executive ~~Amended Agreement included a waiver of the Company’s June 30, 2005 financial covenant default.~~Compensation

~~Borrowings~~ The ~~under~~Company ~~the~~incorporates ~~revolving~~herein ~~line~~by ofreference ~~credit, per~~ the ~~Amended~~information required ~~Agreement,~~by ~~bore~~Items 402 ~~interest at prime rate plus one~~ and ~~one~~407 ~~half percent~~ (~~1.5%~~e). ~~Should, however, the Company fail to meet certain of the financial covenants set forth in the Amended Agreement, the interest rate would increase to the prime rate plus two and one half percent~~ (~~2.5%~~4)~~. The Agreement provided for a non-refundable commitment fee of $30 per year~~ and an unused revolving line facility fee of 0.25% per annum. The Amended Agreement increased the second year commitment fee to $40 and the unused line fee to 0.375% per annum. The Amended Agreement includes a warrant waiver fee of $20 and upon the occurrence of certain events, minimum monthly interest of $8 and an additional $20 warrant waiver fee. The Agreement is secured by substantially all domestic assets of the Company. The maturity date of the loan was August 9, 2006. As described in greater detail in the Amended Agreement, the loan is subject to acceleration upon breach of: (ie) ~~a covenant tested monthly regarding the ratio~~ (5) of ~~unrestricted cash and net billed accounts receivable~~ Regulation S-K to ~~current liabilities minus deferred revenue, which is to~~ be noset ~~less~~forth than 1.35 to 1.0 (‘‘adjusted quick ratio covenant’’), (ii) a covenant tested quarterly regarding the Company’s EBITDAS (earnings before interest expense (excluding interest income), taxes, depreciation, amortization and stock compensation expense in ~~accordance with GAAP), and (iii) other customary non-financial covenants. There is also a monthly transition event covenant which requires~~ the ~~Company~~2009 toProxy ~~maintain an adjusted quick ratio covenant greater than or equal to 1~~Statement.~~60 to 1.0.~~

AsItem of March 31, 2006, the Company was in compliance with the monthly adjusted quick ratio covenant and the transition event covenant, but was not in compliance with the quarterly EBITDAS covenant, which requires the Company to achieve EBITDAS of the lesser of $1 better than the immediately preceding quarter EBITDAS or $112. OnSecurity ~~May 11, 2006,~~Ownership ~~the Bank granted a waiver~~ of ~~the~~Certain ~~EBITDAS~~Beneficial ~~covenant~~Owners asand ofManagement ~~March 31, 2006.~~and ~~The~~Related ~~waiver~~Stockholder ~~was for the March 31, 2006 date only.~~Matters

As The ~~of June 30, 2006, the~~ Company ~~was~~incorporates inherein ~~compliance~~by ~~with~~reference the ~~quarterly~~information required ~~EBITDAS~~by ~~covenant~~Items 201(d) and ~~the~~403 monthly adjusted quick ratio covenant, but was not in compliance with the transition event covenant, which requires the Company to maintain an adjusted quick ratio covenant greater than or equal to 1.60 to 1.00. As result of ~~such violation, the Bank moved the Company~~ Regulation S-K to ~~the~~be ~~higher~~set ~~interest~~forth ~~rate~~in ~~facility which required~~ the ~~Company~~2009 toProxy ~~pay interest on outstanding balances of prime plus 2~~Statement.~~5% incur minimum monthly interest expense of $8 and pay a one-time warrant waiver fee of $10.~~

AsItem of13. ~~September 30, 2006,~~Certain ~~there~~Relationships ~~was~~and ~~$1,844~~Related ~~outstanding under the Amended Agreement~~Transactions, ~~which~~and ~~was~~Director ~~the full amount of availability under the Amended Agreement based on the lesser of $4,000 or 80% of~~ Independence

30 The Company incorporates herein by reference the information required by Items 404 and 407 (a) of Regulation S-K to be set forth in the 2009 Proxy Statement.

~~eligible~~Item ~~accounts receivable~~14. ~~The~~Principal ~~Company~~Accountant ~~was~~Fees not in compliance with the quarterly EBITDAS covenant or the monthly adjusted quick ratio covenant as of September 30, 2006. On October 20, 2006, the Company received a notice of default from the Bank in connection with these covenant violations. As a result, the effective interest rate of the loan has increased by 4.0%, any additional loans were at the Bank’s sole discretion and ~~the Bank reserved the right to declare all obligations to be immediately due and payable in full, a right which they did not exercise.~~Services

On The ~~October 31, 2006 the~~ Company ~~and~~incorporates ~~the~~herein ~~Bank~~by ~~entered~~reference ~~into a Second Loan Modification Agreement and an Intellectual Property Security Agreement. The Second Loan Modification Agreement serves (a) to amend~~ the ~~Amended~~information required ~~Agreement~~ by ~~reducing the amount the Company may borrow on a revolving basis from~~ Item 9(ie) ~~up to the lesser~~ of ~~(A)~~Schedule 14A ~~$4 million or (B) 80.0% of the Eligible Accounts~~ to ~~(ii)~~be upset to the lesser of (A) $2 million or (B) 70.0% of the Eligible Accounts, and (b) as an agreement by the Bank to forbear until November 10, 2006 from exercising its rights and remedies with respect to the default of the Company for failure to comply with certain financial covenants under the Amended Agreement at September 30, 2006. The IP Security Agreement serves to supplement the Amended Agreement by including among the assets securing the Company’s indebtedness to the Bank, a security interest forth in ~~all of~~ the ~~Company’s~~2009 ~~right,~~Proxy ~~title and interest in, to and under its intellectual property collateral~~Statement.

On November 11, 2006 the Company and the Bank entered into a Third Loan Modification Agreement. The Third Loan Modification Agreement serves (a) to amend the Second Loan Modification Agreement by increasing the amount the Company may borrow on a revolving basis from (i) up to the lesser of (A) $2 million or (B) 70.0% of the Eligible Accounts to (ii) up to the lesser of (A) $4 million or (B) 70.0% of the Eligible Accounts, and (b) as an agreement by the Bank to extend the forbearance from exercising its rights and remedies with respect to the default of the Company through December 10, 2006 for failure to comply with certain financial covenants under the Amended Agreement at September 30, 2006. 31

As of December 31, 2006 and March 15, 2007, they were no amounts outstanding under the loan agreement. Funds received on October 31, 2006 as part of the sale of the Enterprise Financials segment were used to repay all outstanding balances of the loan. The Company’s borrowing availability as of December 31, 2006 was $1,022. The Company was in compliance with all covenants as of December 31, 2006. Further, the Company believes that it will be in compliance with its financial covenants during the first quarter of 2007 and does not expect to borrow on the facility during that period. PART IV

OnItem ~~March 6, 2007, the Company entered into a Fourth Loan Modification Agreement (the ‘‘Fourth Modification Agreement’’) with the Bank effective as of February~~ 15~~, 2007~~. toExhibits ~~amend~~ and ~~supplement~~Financial ~~its~~Statement Amended and Restated Loan and Security Agreement dated as of September 13, 2005 between the Company and the Bank, as amended by a First Loan Modification Agreement dated as of March 14, 2006, a Second Loan Modification Agreement dated as of October 31, 2006, and a Third Loan Modification Agreement dated as of November 11, 2006 (as amended, the ‘‘Loan Agreement’’).Schedules

Subject to certain borrowing base limitations and compliance with covenants, the Fourth Modification Agreement serves to amend the Loan Agreement by changing the amount the Company may borrow on a revolving basis from (ia) ~~up to the lesser of~~ (A1) Consolidated $4,000,000 or (B) 70.0% of the Eligible Accounts (as such term is defined in the Loan Agreement) to (ii) up to the lesser of (A) $2,500,000 or (B) 80.0% of the Eligible Accounts (as such term is defined in the Loan Agreement). The Fourth Modification Agreement also extends the maturity date of the Loan Agreement from February 15, 2007 to April 1, 2008.Financial Statements:

In addition, the Fourth Modification Agreement deletes the existing financial covenants contained in the Loan Agreement and adds two new financial covenants: (i) a covenant requiring the Company to maintain a Tangible Net Worth (as defined in the Fourth Modification Agreement) of at least (A) $1,700,000 as of the months ending January 31, 2007, February 28, 2007 and March 31, 2007, (B) $600,000 as of the months ending April 30, 2007, May 31, 2007 and June 30, 2007, (C) ($150,000) as of the months ending July 31, 2007, August 31, 2007 and September 30, 2007, and (D) $1.00 as of the month ending October 31, 2007 and as of the last day of each month thereafter and (ii) a covenant requiring the Company to maintain Liquidity (representing the amount of unrestricted cash of the Company at the Bank plus the unused availability under the Loan Agreement) at all times of at least $1,000,000.


	Page No.

Report of Independent Registered Public Accounting Firm, Amper, Politziner and Mattia LLP		38
Consolidated Balance Sheets at December 31, 2008 and 2007		39
Consolidated Statements of Operations for the years ended December 31, 2008 and 2007		40
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2008 and 2007		41
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2008 and 2007		42
Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007		43
Notes to Consolidated Financial Statements		44
(a)(2) Consolidated Financial Statement Schedules:
Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2008 and 2007		63

31 (a) (3) Exhibits:

The Bank also waived the Company’s existing defaults under the Loan Agreement based on certain failures to meet prior financial covenants during the year ended December 31, 2006.


3	.1^(a)	Fourth Amended and Restated Certificate of Incorporation
3	.2^(ff)	Certificate of Amendment to Certificate of Incorporation
3	.3^(a)	Amended and Restated Bylaws of the Company
4	.1^(dd)	Form of Common Stock Certificate
10	.1^(a)+	Employment Agreement between the Company and Elias Typaldos, as amended
10	.2^(c)+	1995 Stock Option Plan, as amended
10	.3^(b)	Securities Purchase Agreement
10	.4^(c)	Amendment to Securities Purchase Agreement
10	.5^(d)+	1998 Stock Option Plan, as amended
10	.6^(e)	Stock Purchase Agreement, dated as of September 1, 2001, between the Company and Porterfield Ltd. relating to the sale of all shares of AXS-One Sp. z.o.o.
10	.7^(f)	Investor Relations Services Agreement between the Company and Hayden Communications, Inc.
10	.8^(g)	Loan and Security Agreement with Silicon Valley Bank dated August 11, 2004
10	.9^(h)+	Employment Agreement between the Company and William P. Lyons
10	.10⁽ⁱ⁾⁺	Employment Agreement between the Company and Joseph P. Dwyer
10	.11⁽ⁱ⁾	First Loan Modification to the Loan & Security Agreement dated January 27, 2005
10	.12^(j)	Unit subscription agreement dated April 1, 2004, Class A Warrants, Class B Warrants, and Investor Rights Agreements dated April 5, 2004
10	.13^(k)+	2005 Stock Incentive Plan, as amended
10	.14^(l)	Unit subscription agreement dated June 17, 2005, Class C Warrants, Class D Warrants, and Investor Rights Agreements dated June 17, 2005
10	.15^(m)	Amended and Restated Loan and Security Agreement with Silicon Valley Bank dated September 13, 2005
10	.16⁽ⁿ⁾⁺	Agreement and General Release between the Company and Gennaro Vendome dated October 13, 2005

We have no significant capital commitments. Planned capital expenditures for 2007 are less than $0.5 million, including any software development costs that may qualify for capitalization under SFAS No. 86. Our aggregate minimum operating lease payments for 2007 will be approximately $1.2 million. Our aggregate minimum royalties payable for third party software used in conjunction with our software are approximately $0.3 million for 2007. We expect to fund these commitments from cash on hand and cash generated by operating activities, but it may be necessary to seek other sources of financing should we fail to generate sufficient cash. 32

(in thousands)			Non-CancelableOperatingLeases			Third-PartySoftwareProviders			Total
	10	.17(o)		Form of Resale Restriction Agreement for accelerated Stock Options dated October 26, 2005
2007				$	1,172		$	275		$	1,447
	10	.18(p)+		Agreement and General Release between the Company and Matthew Suffoletto dated February 9, 2006
2008					920			50			970
	10	.19(q)		First Loan Modification Agreement with Silicon Valley Bank dated March 14, 2006
2009					803			50			853
	10	.20(r)+		Form of Restricted Stock Agreement for grants pursuant to 1998 Stock Option Plan
2010					756			—			756
	10	.21(r)+		Form of Restricted Stock Agreement for grants pursuant to 2005 Stock Incentive Plan
2011 & thereafter					734			—			734
	10	.22(s)		Asset Purchase Agreement between the Company and Computron Software, LLC dated October 31, 2006
Total				$	4,385		$	375		$	4,760
	10	.23(t)		Second Loan Modification Agreement with Silicon Valley Bank dated October 31, 2006
	10	.24(t)		Intellectual Property Security Agreement in favor of Silicon Valley Bank dated October 31, 2006
	10	.25(u)		Third Loan Modification Agreement with Silicon Valley Bank dated November 11, 2006
	10	.26(v)+		Letter Agreement with William P. Lyons dated December 14, 2006
	10	.27(v)+		Letter Agreement with Joseph Dwyer dated December 14, 2006
	10	.28(v)+		Letter Agreement with Elias Typaldos dated December 14, 2006
	10	.29(v)+		Form of Restricted Stock Agreement for grants pursuant to 1998 Stock Option Plan dated December 14, 2006
	10	.30(w)+		Employment Agreement with Joseph Dwyer dated February 15, 2007
	10	.31(w)+		Employment Agreement with Elias Typaldos dated February 15, 2007
	10	.32(x)		Fourth Loan Modification Agreement with Silicon Valley Bank dated March 6, 2007
	10	.33(y)		Forbearance Agreement between the Company and Silicon Valley Bank dated as of May 15, 2007
	10	.34(z)		Convertible Note and Warrant Purchase Agreement dated May 29, 2007
	10	.35(z)		Investor Rights Agreement dated May 29, 2007
	10	.36(z)		Form of Series A 6% Secured Promissory Note dated May 29, 2007
	10	.37(z)		Form of Series B 6% Secured Promissory Note dated May 29, 2007
	10	.38(z)		Form of Common Stock Warrant
	10	.39(z)		Security Agreement between BlueLine Capital Partners, LP, as Agent, and the Company dated May 29, 2007
	10	.40(z)		Subordination Agreement between BlueLine Capital Partners, LP, as Agent, and Silicon Valley Bank dated May 29, 2007
	10	.41(aa)		Second Amended and Restated Loan and Security Agreement between the Company and Silicon Valley Bank dated July 18, 2007
	10	.42(bb)+		Agreement and General Release between the Company and Elias Typaldos dated August 13, 2007
	10	.43(cc)+		Letter Agreement between the Company and Philip L. Rugani dated September 4, 2007
	10	.44(ee)		First Loan Modification Agreement with Silicon Valley Bank dated November 12, 2007
	10	.45(ee)		Convertible Note and Warrant Purchase Agreement dated November 13, 2007
	10	.46(ee)		Investor Rights Agreement dated November 16, 2007

Our continuing operating activities used cash of $17.8 million, $14.5 million and $1.4 million in 2006, 2005 and 2004 respectively. Net cash used by continuing operating activities in 2006 is primarily the result of the net loss, a decrease in deferred revenue and increased prepaid expenses and other current assets slightly offset by an increase in accounts payable and accrued expenses, non-cash depreciation and amortization charges and by a decrease in accounts receivable. The decrease in deferred revenue and the increase in accounts payable and accrued expenses in 2006 are mainly due to the reclassification of a prepayment of revenue from one customer that has chosen not to install our software which may result in a refund of payment in the future. The decrease in accounts receivable in 2006, mainly in US operations, is due to lower revenue during the fourth quarter of 2006. The increase in prepaid and other current assets relates to services rendered and payments made on behalf of Computron Software, LLC for which payment has not been received in 2006. 33

Our continuing investing activities provided cash of $11.0 million in 2006 and used cash of $0.1 million and $0.1 million in 2005 and 2004, respectively. Cash provided by continuing investing activities in 2006 was principally from proceeds from the sale of the Enterprise Solutions business offset slightly by purchases of equipment and leasehold improvements. Cash used by continuing investing activities in 2005 and 2004 were principally for purchases of equipment and leasehold improvements and in 2004, capitalized software development costs.


10	.47^(ee)	Form of Amendment to Series A 6% Secured Convertible Promissory Note dated November 16, 2007
10	.48^(ee)	Form of Amendment to Series B 6% Secured Convertible Promissory Note dated November 16, 2007
10	.49^(ee)	Form of Series C 6% Secured Promissory Note dated November 16, 2007
10	.50^(ee)	Form of Common Stock Purchase Warrant
10	.51^(ee)	Security Agreement Amendment dated November 16, 2007
10	.52^(ee)	Amended and Restated Subordination Agreement dated November 16, 2007
10	.53^(gg)+	Letter Agreement between the Company and William P. Lyons dated December 11, 2007
10	.54^(gg)+	Restricted Stock Agreement between the Company and William P. Lyons dated December 11, 2007
10	.55^(hh)	Second Loan Modification Agreement with Silicon Valley Bank dated March 18, 2008
10	.56⁽ⁱⁱ⁾	Third Loan Modification with Silicon Valley Bank dated April 30, 2008
10	.57^(jj)	Financing Agreement with Sand Hill Finance, LLC dated May 22, 2008
10	.58^(jj)	Common Stock Purchase Warrant with Sand Hill Finance, LLC dated May 22, 2008
10	.59^(kk)	Convertible Note and Warrant Purchase Agreement dated July 24, 2008
10	.60^(kk)	Investor Rights Agreement dated July 24, 2008
10	.61^(kk)	Form of Series D 6% Convertible Note dated July 24, 2008
10	.62^(kk)	Form of Common Stock Purchase Warrant
10	.63^(kk)	Second Security Agreement Amendment dated July 24, 2008
10	.64^(kk)	Amended and Restated Subordination Agreement between BlueLine Capital Partners, LP (as agent) and Sand Hill Finance, LLC
10	.65^(kk)	Participation Rights Waiver and Joinder
10	.66^(kk)	Second Investor Rights Agreement Amendment dated July 24, 2008
10	.67^(kk)	Investor Rights Agreement Waiver and Modification dated July 24, 2008
10	.68^(kk)	Form of Series A Note Amendment dated July 24, 2008
10	.69^(kk)	Form of Series B Note Amendment dated July 24, 2008
10	.70^(kk)	Form of Series C Note Amendment dated July 24, 2008
10	.71^(ll)+	First Amendment to Employment Agreement with William Lyons dated August 12, 2008
10	.72^(ll)+	First Amendment to Employment Agreement with Joseph Dwyer dated August 12, 2008
10	.73^(ll)+	First Amendment to Offer of Employment Letter with Philip Rugani dated August 12, 2008
10	.74^(mm)	Convertible Note and Warrant Purchase Agreement dated October 30, 2008
10	.75^(mm)	Investor Rights Agreement dated October 30, 2008
10	.76^(mm)	Form of Series E 6% Convertible Note dated October 30, 2008
10	.77^(mm)	Form of Common Stock Purchase Warrant
10	.78^(mm)	Third Security Agreement Amendment dated October 30, 2008
10	.79^(mm)	Second Amended and Restated Subordination Agreement dated October 30, 2008
10	.80^(mm)	Participation Rights Waiver and Joinder
10	.81^(mm)	Form of Series A Note Amendment dated October 30, 2008
10	.82^(mm)	Form of Series B Note Amendment dated October 30, 2008

Our financing activities provided cash of $0.2 million, $7.3 million and $7.7 million in 2006, 2005 and 2004 respectively. Cash provided in 2006 was primarily the result of proceeds from the exercise of stock options. Cash provided by financing activities in 2005 and 2004 was primarily the result of the net proceeds received from the private placements and the exercise of stock options and warrants during the period. This was partially offset in 2004 by the payment of the remaining balance of the outstanding term loan. 34


10	.83^(mm)	Form of Series C Note Amendment dated October 30, 2008
10	.84^(mm)	Form of Series D Note Amendment dated October 30, 2008
10	.85⁽ⁿⁿ⁾⁺	Second Amendment to Employment Agreement with William Lyons dated January 27, 2009
10	.86⁽ⁿⁿ⁾⁺	Second Amendment to Employment Agreement with Joseph Dwyer dated January 27, 2009
10	.87⁽ⁿⁿ⁾⁺	Second Amendment to Offer of Employment Letter with Philip Rugani dated January 27, 2009
21	.1**	List of Subsidiaries
23	.1**	Consent of Amper, Politziner and Mattia LLP
31	.1**	Rule 13a-14(a)/15d-14(a) certifications — William P. Lyons
31	.2**	Rule 13a-14(a)/15d-14(a) certifications — Joseph Dwyer
32	**	Officer Certifications under 18 USC 1350

~~income~~(a) ~~from~~Incorporated ~~discontinued~~by ~~operations~~reference ~~offset~~to ~~slightly~~the byExhibits filed with the ~~change~~Company’s inRegistration ~~operating~~Statement ~~assets~~on ~~from~~Form ~~discontinued~~S-l, ~~operations~~File No. ~~Cash~~33-93990. ~~provided~~(b) inIncorporated ~~2005~~by ~~was~~reference ~~primarily~~to ~~from~~the ~~income~~Exhibits ~~from~~filed ~~discontinued~~with ~~operations.~~the ~~Cash~~Company’s ~~used~~Form in8-K filed on January 8, 1998 (c) Incorporated by reference to the Exhibits filed with the Company’s 1997 Form 10-K (d) Incorporated by reference to the Exhibits filed with the Company’s Proxy Statement filed on April 13, 2007 (e) Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on October 5, 2001 (f) Incorporated by reference to the Exhibits filed with the Company’s 2002 Form 10-K (g) Incorporated by reference to the Exhibits filed with the Company’s June 30, 2004 ~~was~~10-Q ~~primarily~~(h) ~~from~~Incorporated ~~losses~~by ~~from~~reference ~~discontinued~~to ~~operations~~the Exhibits filed with the Company’s Form 8-K filed on April 30, 2004 (i) Incorporated by reference to the ~~change~~Exhibits infiled ~~operating~~with ~~assets~~the ~~from~~Company’s ~~discontinued~~2004 ~~operations~~Form ~~and~~10-K (j) Incorporated by reference to the ~~change~~Exhibits infiled ~~investing~~with ~~assets~~the ~~from~~Company’s ~~discontinued~~Form ~~operations.~~8-K ~~Liabilities~~filed ~~from~~on ~~discontinued~~April ~~operations~~8, at2004 ~~December 31~~(k) Incorporated by reference to the Exhibits filed with the Company’s Proxy Statement filed on April 12, 2006 ~~related~~(l) ~~principally~~Incorporated by reference to ~~cash~~the ~~collected~~Exhibits ~~during~~filed with the Company’s Form 8-K filed on June 23, 2005 (m) Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on September 19, 2005 (n) Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on October 24, 2005 (o) Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on November ~~and~~1, ~~December~~ 2005 (p) Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on February 9, 2006 (q) Incorporated by reference to the Exhibits filed with the Company’s 2005 Form 10-K (r) Incorporated by reference to the Exhibits filed with the Company’s March 30, 2006 10-Q (s) Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on ~~behalf~~November of2, ~~Computron~~2006 ~~Software~~(t) ~~LLC.~~Incorporated ~~This~~by ~~cash~~reference ~~was~~to ~~paid~~the Exhibits filed with the Company’s Form 8-K filed on November 11, 2006 (u) Incorporated by reference to ~~Computron~~the ~~Software~~Exhibits ~~LLC~~filed ~~during~~with the ~~first~~Company’s ~~quarter~~Form of8-K ~~2007.~~filed on November 16, 2006

AXS-One recorded net income of $5.5 million in 2006 primarily related to the sale of the Enterprise Solutions business, and recorded net losses of $9.0 million and $5.2 million in 2005 and 2004 respectively. AXS-One incurred a loss of $19.6 million, $15.1 million and $2.7 million for 2006, 2005 and 2004, respectively, from continuing operations. We were not able to obtain operating profitability in 2004, 2005 and 2006 from continuing operations and may not be able to be profitable on a quarterly or annual basis in the future. Management’s initiatives over the last two years, including the restructurings in December 2006, June 2005 and June 2004, the private placements of common stock in June 2005 and April 2004, the executive management salary reductions for most of the second half of 2005 and for all of 2007, and the sale of the Enterprise Solutions business, have been designed to improve operating results and liquidity and better position AXS-One to compete under current market conditions. As a result of these efforts, we expect that our current cash balance, availability of borrowing capacity under our bank line of credit, and operating cash flow should be sufficient to meet the financial requirements of the business through April 2008. However, we may in the future be required to seek new sources of financing or future accommodations from our existing lender or other financial institutions, or we may seek equity infusions from private investors. Our ability to fund our operations is heavily dependent on the growth of our revenues over current levels to achieve profitable operations, particularly given the recent sale of the Enterprise Solutions business, which was our profitable segment. We may be required to further reduce operating costs in order to meet our obligations. If we are unable to achieve profitable operations or secure additional sources of capital, there would be substantial doubt about our long term ability to fund future operations. Additionally, there is a risk that cash held by one foreign subsidiary approximating $0.4 million at December 31, 2006 may not be readily available for use in our U.S. operations to pay our obligations as the transfer of funds is sometimes delayed due to various foreign government restrictions. No assurance can be given that management’s initiatives will be successful or that any such additional sources of financing, lender accommodations or equity infusions will be available. (See Item 1A ‘‘Risk Factors.’’) 35

Our critical accounting policies are as follows:


^(v)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on December 18, 2006

^(w)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on February 16, 2007

^(x)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on March 7, 2007

^(y)		Incorporated by reference to the Exhibits filed with the Company’s Form 10-Q filed on May 15, 2007

^(z)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on June 1, 2007

^(aa)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on July 23, 2007

^(bb)		Incorporated by reference to the Exhibits filed with the Company’s Form 10-Q filed on August 14, 2007

^(cc)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on September 10, 2007

^(dd)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-A12G filed on November 5, 2007

^(ee)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on November 16, 2007

^(ff)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on November 30, 2007

^(gg)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on December 17, 2007

^(hh)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on March 20, 2008

⁽ⁱⁱ⁾		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on May 6, 2008

^(jj)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on May 28, 2008

^(kk)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on July 28, 2008

^(ll)		Incorporated by reference to the Exhibits filed with the Company’s Form 10-Q filed on August 14, 2008

^(mm)		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on November 3, 2008

⁽ⁿⁿ⁾		Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on February 2, 2009

**		Filed herewith

+		Indicates a management contract or compensatory plan or arrangement.

~~• Revenue recognition and~~ 36

~~Revenue Recognition~~ SIGNATURES

We Pursuant ~~derive~~to ~~our~~the ~~revenue~~requirements ~~primarily~~of ~~from~~Section 13 ~~two~~or ~~sources:~~ 15(id) ~~software~~of ~~licenses~~the Securities ~~and~~Exchange ~~(ii)~~Act ~~services~~of ~~and support revenue~~1934, ~~which~~the ~~includes~~Registrant ~~software~~has ~~maintenance,~~duly ~~subscription~~caused this ~~services,~~report ~~training,~~to ~~consulting and custom programming revenue. As described below, significant management judgments and estimates must~~ be ~~made~~signed ~~and~~on ~~used~~its inbehalf ~~connection~~by ~~with~~ the ~~revenue~~undersigned, thereunto ~~recognized~~duly ~~in any accounting period~~authorized. ~~Material differences may result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.~~

~~We normally license our software products on a perpetual basis. Each license agreement generally includes a provision for initial post~~ AXS-~~contract~~ONE ~~support (maintenance)~~INC. For the majority of license sales we use a signed license agreement as evidence of an arrangement. For maintenance fees, we use a signed maintenance agreement as evidence of the arrangement. We use a signed professional services agreement as evidence of an arrangement for our training, subscription, custom programming and consulting revenues. Occasionally, where a master license or services agreement with a customer already exists, we accept the customer’s purchase order as evidence of an arrangement.

33By: /s/ William P. Lyons

We William recognize revenue in accordance with Statement of Position 97-2, ‘‘Software Revenue Recognition’’ (‘‘SOP 97-2’’), and Statement of Position 98-9, ‘‘Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain TransactionsP.’’ ~~Revenue from non-cancelable software licenses is recognized when the license agreement has been signed~~Lyons, delivery has occurred, the fee is fixed or determinable and collectibility is probable. The Company recognizes revenue from resellers when an end user has placed an order with the reseller and the above revenue recognition criteria have been met with respect to the reseller. In multiple element arrangements, we defer revenue based on the vendor-specific objective evidence (‘‘VSOE’’) of fair value for the undelivered elements and recognize revenue on the delivered elements using the residual method. The most commonly deferred elements are initial maintenance and consulting services. Initial maintenance is recognized on a straight-line basis over the initial maintenance term. The VSOE of fair value for maintenance is determined by using a relatively consistent percentage of maintenance fees to discounted license fee based on renewal rates. Maintenance fees in subsequent years are recognized on a straight-line basis over the life of the applicable agreement. Maintenance contracts entitle the customer to hot-line support and all unspecified product upgrades released during the term of the maintenance contract. Upgrades include any and all unspecified patches or releases related to a licensed software product. Maintenance does not include implementation services to install these upgrades. The VSOE of fair value of services is determined by using an average consulting rate per hour for consulting services sold separately multiplied by the estimate of hours required to complete the consulting engagement.

~~Delivery~~ Chairman of ~~software generally occurs when~~ the ~~product~~Board ~~(on~~and ~~CDs)~~Chief isExecutive delivered to a common carrier. Occasionally, delivery occurs through electronic means where the software is made available through our secure FTP (File Transfer Protocol) site. The Company generally does not offer any customers or resellers a right of return.Officer

~~For~~ Date: ~~software license~~April 13, ~~services and maintenance revenue~~2009, we assess whether the fee is fixed and determinable and whether or not collection is probable. We assess whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a significant portion of a fee is due after our normal payment terms, which are 30 to 90 days from invoice date, we account for the fee as not being fixed and determinable. In these cases, we recognize revenue as the fees become due.

~~The~~ Pursuant ~~majority~~to of our training and consulting services are billed based on hourly rates. We generally recognize revenue as these services are performed. However, when we enter into an arrangement that is based on a fixed fee, revenue is recognized using the ~~percentage~~requirements of ~~completion method of accounting. When we enter into an arrangement that requires us to perform significant work either to alter~~ the ~~underlying~~Securities ~~software~~Exchange orAct toof 1934, ~~build~~this ~~additional~~report ~~complex~~has ~~interfaces~~been sosigned ~~that~~below ~~the~~by ~~software performs as~~ the ~~customer~~following ~~requests,~~persons on webehalf ~~recognize~~of the ~~license~~Registrant ~~revenue~~ and ~~service~~in ~~revenue using~~ the ~~percentage~~capacities ~~of completion method of accounting. This would apply to our custom programming services~~indicated, ~~which are generally contracted~~ on ~~a fixed fee basis. Anticipated losses~~ April 13, ~~if any, are charged to operations in the period such losses are determined to be probable~~2009.

~~Revenues~~Signature ~~from~~Title(s) ~~transaction~~/s/ ~~fees~~William ~~associated~~P. ~~with~~Lyons ~~our~~(William ~~subscription~~P. ~~arrangements,~~Lyons) ~~billable~~Chairman onof athe ~~per~~Board ~~transaction~~and ~~basis~~Chief ~~and~~Executive ~~included~~Officer in(Principal ~~services~~Executive ~~revenue~~Officer) in/s/ ~~the~~Joseph ~~Consolidated~~P. ~~Statements~~Dwyer of(Joseph ~~Operations~~P. Dwyer) Executive Vice President, ~~are~~Chief ~~recognized~~Financial ~~based~~Officer onand ~~the~~Treasurer ~~actual~~(Principal ~~number~~Financial ofand ~~transactions~~Accounting ~~processed~~Officer) ~~during~~/s/ ~~the~~Timothy ~~period.~~Bacci (Timothy Bacci) Director /s/ Anthony Bloom (Anthony Bloom) Director /s/ Harold Copperman (Harold Copperman) Director

We assess assuredness of collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. We do not request collateral from our customers. If we determine that collection of a fee is not probable, we defer the fee and recognize revenue at the time collection becomes probable, which is generally upon receipt of cash. 37

In Report ~~accordance with EITF Issue No. 01-14, ‘‘Income Statement Characterization~~ of Independent ~~Reimbursement~~Registered ~~Received~~Public ~~for~~Accounting ‘Out of Pocket’ Expenses Incurred,’’ reimbursements received for out-of-pocket expenses incurred are classified as services revenue and the related expense is recorded in cost of services in the Consolidated Statements of Operations.Firm

34 The Board of Directors and Stockholders AXS-One Inc.

~~Capitalized~~ We ~~Software~~have ~~Development~~audited ~~Costs~~the accompanying consolidated balance sheets of AXS-One Inc. and Subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

~~Our~~ We ~~policy~~conducted isour toaudits ~~capitalize certain software development costs~~ in accordance with ~~Statement of Financial Accounting Standards No. 86, ‘‘Accounting for~~ the ~~Costs~~standards of ~~Computer~~the Public ~~Software~~Company toAccounting BeOversight ~~Sold,~~Board ~~Leased, or Otherwise Marketed’’~~ (~~‘‘SFAS~~United ~~86’’~~States). ~~Under~~Those standards ~~SFAS~~require ~~86,~~that ~~costs~~we ~~incurred~~plan toand ~~develop~~perform orthe ~~significantly~~audit ~~enhance computer software products are charged~~ to ~~research~~obtain reasonable ~~and~~assurance ~~development~~about ~~expense~~whether asthe ~~incurred~~financial ~~until~~statements ~~technological~~are free ~~feasibility~~of ~~has~~material ~~been established~~misstatement. WeThe ~~establish~~Company ~~technological~~is ~~feasibility~~not ~~upon~~required ~~completion~~to have, ofnor awere ~~working~~we ~~model~~engaged ~~or completion of a detailed program design. Generally costs related~~ to ~~projects~~perform, ~~that~~an ~~reach~~audit ~~technological feasibility upon completion~~ of aits ~~working~~internal control ~~model~~over ~~are~~financial ~~not~~reporting. ~~capitalized~~Our asaudits ~~the~~included consideration ~~time period between establishment~~ of ~~the~~internal ~~working~~control ~~model~~over ~~and~~financial ~~general~~reporting ~~availability~~as ~~is of short duration. For projects that meet technological feasibility upon completion of~~ a basis ~~detailed~~for ~~program~~designing ~~design,~~audit ~~all~~procedures ~~research and development costs for~~ that ~~project~~ are ~~capitalized~~appropriate ~~from~~in ~~that point until~~ the circumstances, ~~product~~but isnot ~~available~~ for ~~general~~the ~~release~~purpose ~~to customers. The nature~~ of ~~our~~expressing ~~current~~an ~~development~~opinion on ~~for RCM products is generally such that we can measure technological feasibility most effectively using~~ the ~~working~~effectiveness ~~model~~of ~~method where~~ the ~~time~~Company’s ~~between~~internal ~~establishment~~control ofover financial areporting. ~~working~~Accordingly, ~~model~~we ~~and~~express ~~general availability is of short duration which results in very little or~~ no ~~costs~~such ~~that~~opinion. ~~qualify~~An audit ~~for~~also ~~capitalization.~~includes Weexamining, ~~historically~~on ~~used~~ a ~~detailed~~test ~~program~~basis, ~~design~~evidence supporting ~~model~~the toamounts ~~measure~~and ~~technological~~disclosures ~~feasibility for our enterprise solutions products. This shift~~ in ~~development of our product lines will result in lower capitalized costs in~~ the ~~future~~financial statements. ~~The~~An ~~establishment~~audit ofalso ~~technological~~includes ~~feasibility~~assessing ~~and~~ the ~~ongoing~~accounting principles ~~assessment~~used ofand ~~recoverability~~significant ofestimates ~~capitalized~~made ~~software development costs require considerable judgment~~ by management ~~with respect to certain external factors~~, ~~including,~~as well ~~but~~as ~~not~~evaluating ~~limited~~the ~~to,~~overall ~~anticipated~~financial ~~future~~statement ~~revenues, estimated economic life and changes in technology~~presentation. We Itbelieve ~~is reasonably possible~~ that ~~estimates~~our ofaudits ~~anticipated~~provide ~~future~~a ~~revenues,~~reasonable ~~the~~basis ~~remaining~~for ~~estimated economic life of the products, or both will be reduced in the future due to competitive pressures~~our opinion. Upon the general release of the software product to customers, capitalization ceases and such costs are amortized (using the straight-line method) over the estimated life, which is generally three years.

~~Recently~~ In ~~Issued~~our ~~Accounting~~opinion, ~~Standards~~the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AXS-One Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

In ~~July 2006,~~connection ~~the~~with ~~FASB~~our ~~issued~~audits ~~FIN~~of 48the ~~‘‘Accounting~~consolidated ~~for~~financial statements ~~Uncertainty~~referred into ~~Income~~above, ~~Taxes.’’~~we ~~This~~audited ~~interpretation~~the ~~requires~~consolidated Schedule II-Valuation and ~~that~~Qualifying weAccounts. ~~recognize~~In in our ~~financial statements~~opinion, the ~~impact~~consolidated financial ~~of a tax position~~schedule, ifwhen ~~that~~considered ~~position~~in isrelation ~~more~~to ~~likely~~the consolidated ~~than~~financial ~~not~~statements oftaken ~~being~~as ~~sustained~~a onwhole, ~~audit~~presents fairly, ~~based~~in onall ~~the~~material ~~technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15~~respects, ~~2006. We believe~~ the ~~impact~~information ofstated ~~adopting FIN 48 on our financial statements will not be material~~therein.

In The ~~September 2006,~~accompanying ~~the~~financial ~~FASB~~statements ~~issued~~have ~~Statement~~been ~~No.~~prepared assuming ~~157~~that ~~‘‘Fair~~the ~~Value~~Company ~~Measurements’’,~~will ~~which~~continue ~~defines~~as ~~fair value, establishes~~ a ~~framework~~going ~~for measuring fair value under GAAP, and expands disclosure about fair value measurement~~concern. ~~FASB~~As discussed ~~Statement~~in ~~No.~~Note 1 ~~157~~to ~~applies~~the toconsolidated ~~other~~financial statements, ~~accounting~~the ~~pronouncements~~Company ~~that~~has ~~require~~suffered ~~fair~~losses ~~value~~from ~~measurements~~operations orand incurred ~~permit~~a ~~fair~~working ~~value~~capital ~~measurements~~deficiency. ~~The~~These ~~new~~facts, ~~guidance~~among others, israise ~~effective~~substantial ~~for~~doubt ~~financial~~about ~~statements~~its ~~issued~~ability ~~for~~to ~~fiscal~~continue ~~years~~as a ~~beginning~~going ~~after~~concern. ~~November 15, 2007~~Management’s ~~and~~plans ~~for~~regarding ~~interim~~those ~~periods~~matters also ~~within~~are ~~those~~described ~~fiscal~~in ~~years~~Note 1. WeThe ~~are~~financial ~~currently~~statements ~~evaluating~~do not ~~the~~include ~~potential impact, if~~ any, ofadjustments ~~the~~that ~~adoption~~might ofresult ~~FASB~~from ~~Statement~~the ~~No. 157 on our consolidated financial position, results~~ outcome of ~~operations~~the ~~and cash flows~~uncertainty.

~~Item~~ /s/ ~~7A.~~Amper, ~~Quantitative~~Politziner ~~and~~& ~~Qualitative~~Mattia ~~Disclosures about Market Risk~~LLP

~~In the normal course of business~~ April 13, we are exposed to fluctuations in interest rates and equity market risks as we seek debt and equity capital to sustain our operations. We are also exposed to fluctuations in foreign currency exchange rates as the financial results of our foreign subsidiaries are translated into U.S. dollars in consolidation. We do not use derivative instruments or hedging to manage our exposures and do not currently hold any market risk sensitive instruments for trading purposes.2009

~~Item~~ Edison, 8.New ~~Financial Statements and Supplementary Data~~Jersey

~~The information required by this Item is incorporated by reference herein from Part IV Item 15(a) (1) and (2) and is set forth immediately following the signature page of this report.~~ 38

~~Not applicable~~ AXS-ONE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)


	December 31,			December 31,
	2008			2007

ASSETS
Current assets:
Cash and cash equivalents	$	933		$	3,362
Restricted cash		—			7
Accounts receivable, net of allowance for doubtful accounts of $84 and $116 at December 31, 2008 and December 31, 2007, respectively		932			2,208
Prepaid expenses and other current assets		495			831

Total current assets		2,360			6,408

Equipment and leasehold improvements, at cost:
Computer and office equipment		2,005			2,039
Furniture and fixtures		592			599
Leasehold improvements		669			672

		3,266			3,310
Less – accumulated depreciation and amortization		3,114			3,057

		152			253

Other assets		232			283

	$	2,744		$	6,944


LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Line of credit	$	700		$	—
Convertible debt, net of discount of $1,454 at December 31, 2008 (principally to related parties)		11,316			—
Accounts payable		786			1,138
Accrued expenses		2,988			3,796
Deferred revenue		2,851			3,233

Total current liabilities		18,641			8,167

Long-term liabilities:
Long-term convertible debt, net of discount of $1,918 at December 31, 2007 (principally to related parties)		—			7,037
Long-term deferred revenue		169			120
Other long-term liabilities		—			212

Total liabilities		18,810			15,536

Commitments and contingencies
Stockholders’ equity (deficit):
Preferred stock, $.01 par value, authorized 5,000 shares, no shares issued and outstanding		—			—
Common stock, $.01 par value, authorized 125,000 shares; 41,341 and 39,686 shares issued and outstanding at December 31, 2008 and December 31, 2007, respectively		414			397
Additional paid-in capital		93,902			91,311
Accumulated deficit		(110,252	)		(100,108	)
Accumulated other comprehensive loss		(130	)		(192	)

Total stockholders’ deficit		(16,066	)		(8,592	)

	$	2,744		$	6,944

~~Item~~ The ~~9A.~~accompanying ~~Controls~~notes ~~and~~are ~~Procedures~~an integral part of these consolidated financial statements.

~~Evaluation of disclosure controls and procedures~~ 39

~~Internal~~ AXS-ONE INC. ~~controls~~AND ~~over~~SUBSIDIARIES CONSOLIDATED ~~financial~~STATEMENTS ~~reporting~~OF OPERATIONS (In thousands, except per share data)

During the most recent fiscal quarter, there has not been any change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


	For the Years Ended December 31,
	2008			2007

Revenues:
License fees	$	4,283		$	4,058
Services		9,140			7,891

Total revenues		13,423			11,949

Operating expenses:
Cost of license fees		324			489
Cost of services		4,254			5,680
Sales and marketing		6,563			8,021
Research and development		5,550			6,996
General and administrative		3,950			4,416
Restructuring and other costs		340			468

Total operating expenses		20,981			26,070

Operating loss		(7,558	)		(14,121	)

Other income (expense):
Interest income		27			191
Interest expense		(2,562	)		(660	)
Other income (expense), net		(97	)		(69	)

Other income (expense), net		(2,632	)		(538	)

Loss before income taxes		(10,190	)		(14,659	)
Income tax benefit (expense)		46			(287	)

Net loss	$	(10,144	)	$	(14,946	)

Basic and diluted net loss per share	$	(0.27	)	$	(0.42	)

Weighted average basic & diluted common shares outstanding		38,243			35,318

~~Item~~ The ~~9B.~~accompanying ~~Other~~notes ~~Information~~are an integral part of these consolidated financial statements.

~~None.~~ 40

~~Item 10~~ AXS-ONE INC. ~~Directors,~~AND ~~Executive~~SUBSIDIARIES CONSOLIDATED ~~Officers~~STATEMENTS ~~and~~OF ~~Corporate~~COMPREHENSIVE ~~Governance~~LOSS (In thousands)

The Company incorporates herein by reference the information required by Items 401, 405, 406, 407(c)(3), (d)(4) and (d)(5) of Regulation S-K to be set forth in its Notice of Annual Stockholders’ Meeting and Proxy Statement to be filed within 120 days after the end of the Company’s fiscal year (the ‘‘2007 Proxy Statement’’).


	Years Ended December 31,
	2008			2007

Net loss	$	(10,144	)	$	(14,946	)
Foreign currency translation adjustment		62			(43	)

Comprehensive loss	$	(10,082	)	$	(14,989	)

~~Item~~ The ~~11.~~accompanying ~~Executive~~notes ~~Compensation~~are an integral part of these consolidated financial statements.

~~The Company incorporates herein by reference the information required by Items 402 and 407 (e)(4) and (e)(5) of Regulation S-K to be set forth in the 2007 Proxy Statement.~~ 41

~~The~~ AXS-ONE INC. ~~Company~~AND ~~incorporates~~SUBSIDIARIES CONSOLIDATED ~~herein~~STATEMENTS byOF ~~reference~~STOCKHOLDERS’ EQUITY ~~the information required by Items 201~~(dDEFICIT) (In ~~and 403 of Regulation S-K to be set forth in the 2007 Proxy Statement.~~thousands)

Item 13. Certain Relationships and Related Transactions, and Director Independence


										Accumulated
										Other			Total
	Common				Additional					Comprehensive			Stockholders’
	Stock				Paid-in		Accumulated			Income			Equity
	Shares		Amount		Capital		(Deficit)			(Loss)			(Deficit)

Balance — December 31, 2006		35,637	$	357	$	88,365	$	(85,162	)	$	(149	)	$	3,411
Net loss		—		—		—		(14,946	)		—			(14,946	)
Foreign currency translation adjustment		—		—		—		—			(43	)		(43	)
Stock based compensation expense		1,385		14		503		—			—			517
Warrants issued related to convertible debt		—		—		2,285		—			—			2,285
Exercise of stock options and warrants		2,664		26		158		—			—			184

Balance — December 31, 2007		39,686	$	397	$	91,311	$	(100,108	)	$	(192	)	$	(8,592	)

Net loss		—		—		—		(10,144	)		—			(10,144	)
Foreign currency translation adjustment		—		—		—		—			62			62
Stock based compensation expense		955		10		1,209		—			—			1,219
Warrants issued related to convertible debt		—		—		1,343		—			—			1,343
Warrants issued related to credit line		—		—		39		—			—			39
Exercise of warrants		700		7		—		—			—			7

Balance — December 31, 2008		41,341	$	414	$	93,902	$	(110,252	)	$	(130	)	$	(16,066	)

The ~~Company~~accompanying ~~incorporates~~notes ~~herein~~are byan ~~reference~~integral ~~the~~part ~~information required by Items 404 and 407 (a)~~ of ~~Regulation~~these consolidated ~~S-K~~financial ~~to be set forth in the 2007 Proxy Statement~~statements.

~~Item 14. Principal Accountant Fees and Services~~ 42

36 AXS-ONE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)

PART IV


	Years Ended December 31,
	2008			2007

Cash flows from operating activities:
Net loss		(10,144	)		(14,946	)
Adjustments to reconcile net loss to net cash flows used in continuing operating activities:
Depreciation and amortization		101			215
Provision for doubtful accounts		96			37
Stock based compensation expense		1,219			517
Loss of sale of fixed assets		—			104
Gain of sale of assets, AXS-One South Africa		(38	)		—
Non-cash interest expense		2,452			572
Changes in assets and liabilities
Accounts receivable		1,038			96
Prepaid expenses and other current assets		356			597
Change in other assets		42			(175	)
Accounts payable and accrued expenses		(1,115	)		569
Deferred revenue		(166	)		679

Net cash flows used in continuing operating activities		(6,159	)		(11,735	)

Cash flows from continuing investing activities:
Proceeds from sale of fixed assets		—			25
Purchase of equipment and leasehold improvements		(43	)		(161	)

Net cash flows used in continuing investing activities		(43	)		(136	)

Cash flows from continuing financing activities:
Proceeds from exercise of stock options and warrants		7			184
Payment of debt issuance costs		—			(193	)
Borrowing on revolving line-of-credit		3,548			1,000
Repayment of revolving line-of-credit		(2,848	)		(1,000	)
Issuance of convertible debt		3,200			8,750

Net cash flows provided by continuing financing activities		3,907			8,741
Cash flows from discontinued operations:
Net cash used in operating activities		—			(999	)

Net cash flows used in discontinued operations		—			(999	)
Foreign currency exchange rate effects on cash and cash equivalents		(134	)		(1	)

Net decrease in cash and cash equivalents		(2,429	)		(4,130	)
Cash and cash equivalents, beginning of year		3,362			7,492

Cash and cash equivalents, end of year	$	933		$	3,362

Supplemental disclosures of cash flow information:
Cash paid during the year for —
Interest	$	110		$	84
Income taxes		—			121

~~Item~~ The ~~15.~~accompanying ~~Exhibits~~notes ~~and~~are ~~Financial~~an ~~Statement~~integral ~~Schedules~~part of these consolidated financial statements.

~~(a) (1) Consolidated Financial Statements:~~ 43

			Page No.
Report of Independent Registered Public Accounting Firm, Amper, Politziner and Mattia, P.C.			41
Report of Independent Registered Public Accounting Firm, KPMG LLP			42
Consolidated Balance Sheets at December 31, 2006 and 2005			43
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004			44
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2006, 2005 and 2004			45
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2006, 2005 and 2004			46
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004			47
Notes to Consolidated Financial Statements			48
(a) (2) Consolidated Financial Statement Schedules:
Report of Independent Registered Public Accounting Firm on 2005 and 2004 Consolidated Financial Statement Schedule, KPMG LLP			69
Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2006, 2005 and 2004			70

~~(a)~~ AXS-ONE INC. ~~(3) Exhibits:~~AND SUBSIDIARIES

3.1(a)			Fourth Amended and Restated Certificate of Incorporation
3.2(a)			Amended and Restated Bylaws of the Company
4.1(a)			Specimen Common Stock Certificate
4.2			See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws of the Company defining rights of holders of Common Stock of the Company
10.1(a)			Employment Agreement between the Company and Elias Typaldos, as amended
10.2(c)			1995 Stock Option Plan, as amended
10.3(b)			Securities Purchase Agreement
10.4(c)			Amendment to Securities Purchase Agreement
10.5(d)			1998 Stock Option Plan
10.6(e)			Stock Purchase Agreement, dated as of September 1, 2001, between the Company and Porterfield Ltd. relating to the sale of all shares of AXS-One Sp. z.o.o.
10.7(f)			Investor Relations Services Agreement between the Company and Hayden Communications, Inc.
10.8(g)			Loan and Security Agreement with Silicon Valley Bank dated August 11, 2004
10.9(h)			Employment Agreement between the Company and William P. Lyons
10.10(i)			Employment Agreement between the Company and Joseph P. Dwyer
10.11(i)			First Loan Modification to the Loan & Security Agreement dated January 27, 2005
10.12(j)			Unit subscription agreement dated April 1, 2004, Class A Warrants, Class B Warrants, and Investor Rights Agreements dated April 5, 2004
10.13(k)			2005 Stock Incentive Plan, as amended

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

37 (In thousands, except per share data)

10.14(l)			Unit subscription agreement dated June 17, 2005, Class C Warrants, Class D Warrants, and Investor Rights Agreements dated June 17, 2005
10.15(m)			Amended and Restated Loan and Security Agreement dated September 13, 2005
10.16(n)			Agreement and General Release between the Company and Gennaro Vendome dated October 13, 2005
10.17(o)			Form of Resale Restriction Agreement for accelerated Stock Options dated October 26, 2005
10.18(p)			Agreement and General Release between the Company and Matthew Suffoletto dated February 9, 2006
10.19(q)			First Loan Modification Agreement with Silicon Valley Bank dated March 14, 2006
10.20(r)			Form of Restricted Stock Agreement for grants pursuant to 1998 Stock Option Plan
10.21(r)			Form of Restricted Stock Agreement for grants pursuant to 2005 Stock Incentive Plan
10.22(s)			Asset Purchase Agreement between the Company and Computron Software, LLC dated October 31, 2006
10.23(t)			Second Loan Modification Agreement with Silicon Valley Bank dated October 31, 2006
10.24(t)			Intellectual Property Security Agreement in favor of Silicon Valley Bank dated October 31, 2006
10.25(u)			Third Loan Modification Agreement with Silicon Valley Bank dated November 11, 2006
10.26(v)			Letter Agreement with William P. Lyons dated December 14, 2006
10.27(v)			Letter Agreement with Joseph Dwyer dated December 14, 2006
10.28(v)			Letter Agreement with Elias Typaldos dated December 14, 2006
10.29(v)			Form of Restricted Stock Agreement for grants pursuant to 1998 Stock Option Plan dated December 14, 2006
10.30(w)			Employment Agreement with Joseph Dwyer dated February 15, 2007
10.31(w)			Employment Agreement with Elias Typaldos dated February 15, 2007
10.32(x)			Fourth Loan Modification Agreement with Silicon Valley Bank dated March 6, 2007
21.1**			List of Subsidiaries
23.1**			Consent of Amper, Politziner and Mattia, P.C.
23.2**			Consent of KPMG LLP
31.1**			Rule 13a-14(a)/15d-14(a) certifications – William P. Lyons
31.2**			Rule 13a-14(a)/15d-14(a) certifications – Joseph Dwyer
32**			Officer Certifications under 18 USC 1350


(1)	Operations, Business Conditions, Liquidity and Significant Accounting Policies

~~(a)~~ The ~~Incorporated~~Company bywas ~~reference~~incorporated tounder the ~~Exhibits~~laws ~~filed~~of ~~with~~the State of Delaware in September 1978. The name of the Company’s ~~Registration~~was ~~Statement~~changed to onAXS-One ~~Form~~Inc. Sin November 2000. AXS-lOne Inc. designs, ~~File~~markets and ~~No.~~supports 33Integrated Content Archiving software solutions that include digital archiving, business process management, integrated records disposition and discovery for electronic records including e-~~93990~~mail, instant messaging, images, office documents, Share Point documents, SAP and other corporate records. The Company also offers consulting, implementation, training, technical support and maintenance services in support of its customers’ use of its software products.

~~(b)~~ The ~~Incorporated~~financial bystatements ~~reference~~of the Company have been prepared on a “going concern” basis, which assumes the realization of assets and the liquidation of liabilities in the ordinary course of business. However, such realization of assets and liquidation of liabilities are subject to a significant number of uncertainties. There are a number of factors that have negatively impacted the ~~Exhibits~~Company’s ~~filed~~liquidity, ~~with~~and may impact the Company’s ~~Form~~ability to function as a going concern. The Company incurred a net loss of $10.1 million and $14.9 million for the years ended December 31, 2008 and 2007 respectively. The Company has not yet been able to obtain operating profitability and may not be able to be profitable on a quarterly or annual basis in the future. Additionally, the Company had a cash balance of $0.9 million at December 31, 2008 and availability under its $1.0 million bank credit facility of $0.3 million, for which borrowing availability is limited to eligible accounts receivable. The Company had a working capital deficiency of $16.3 million as of December 31, 2008. The Company’s recent cost reductions will allow it to become profitable at lower revenue levels than in prior years. However, its ability to fund its operations is dependent on its continued sales of its records compliance software at levels sufficient to achieve profitable operations or to further reduce operating costs. As of April 8-K, ~~filed~~2009, the Company’s cash position has reduced to $742,000, which includes $850,000 borrowed on ~~January~~our bank credit line. Additionally, the Company’s convertible debt approximating $13 million at April 8, ~~1998~~2009 matures on May 29, 2009 and the Company does not have the capital to pay these notes, and accordingly, such notes will need to be restructured. If we are unable to achieve profitable operations or secure additional sources of capital in the near term, in addition to restructuring our convertible debt, there would be substantial doubt about our ability to fund future operations through the second quarter of 2009. Management could also consider merger and acquisition activity. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~(c)~~ The ~~Incorporated~~Company byhas ~~reference~~taken a number of actions during 2009, 2008 and 2007 to reduce operating expenses, streamline operations and raise operating capital. The Company’s 2009 operating plan reflects cost efficiencies which the ~~Exhibits~~Company ~~filed~~believes can be realized and to increase license and services revenue. Short and long-term liquidity require either significant improvement in operating results and/or the obtaining of additional capital or merger with another company. There can be no assurance that the Company’s ~~1997~~plans ~~Form~~to achieve ~~10-K~~adequate liquidity will be successful.

(da) ~~Incorporated~~Principles byof ~~reference to the Exhibits filed with the Company’s March 31, 1998 Form 10-Q~~Consolidation

~~(e)~~ The ~~Incorporated~~consolidated byfinancial ~~reference~~statements toinclude the ~~Exhibits~~accounts ~~filed~~of AXS-One ~~with~~Inc. and its wholly owned subsidiaries located in Australia, Singapore, the ~~Company’s~~United ~~Form~~Kingdom ~~8-K~~and, ~~filed~~until its sale on May 12, ~~October~~2008, 5South Africa (collectively, ~~2001~~the “Company”). All intercompany transactions and balances have been eliminated.

(fb) ~~Incorporated~~Revenue ~~by reference to the Exhibits filed with the Company’s 2002 Form 10-K~~Recognition

~~(g)~~ The ~~Incorporated~~Company byrecognizes ~~reference~~revenue toin ~~the~~accordance ~~Exhibits filed~~ with ~~the~~Statement ~~Company’s~~of Position 97-2, “Software ~~June~~Revenue 30Recognition” (“SOP 97-2”), and ~~2004~~Statement 10of Position 98-Q9, “Modification of SOP 97-2, Software Revenue

38 44

~~(i)~~ AXS-ONE INC. ~~Incorporated~~AND ~~by reference to the Exhibits filed with the Company’s 2004 Form 10-K~~SUBSIDIARIES

~~(j)~~ NOTES TO CONSOLIDATED ~~Incorporated~~FINANCIAL bySTATEMENTS ~~reference to the Exhibits filed with the Company’s Form 8-K filed on April 8, 2004~~(continued)

(k)In thousands, ~~Incorporated~~except byper ~~reference~~share ~~to the Exhibits filed with the Company’s Proxy Statement filed on April 12, 2006~~data)

Recognition, With Respect to Certain Transactions.” Revenue from non-cancelable software licenses is generally recognized when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company recognizes license revenue from resellers when an end user has placed an order with the reseller and the above revenue recognition criteria have been met with respect to the reseller. In multiple element arrangements, the Company defers the vendor-specific objective evidence (l“VSOE”) of ~~Incorporated~~fair byvalue ~~reference~~related to the ~~Exhibits~~undelivered ~~filed~~elements ~~with~~and recognizes revenue on the ~~Company’s~~delivered ~~Form~~elements 8using the residual method. If VSOE of fair value does not exist for any undelivered element, the entire arrangement consideration is deferred until VSOE of fair value is determined for that undelivered element or the element is delivered. The most commonly deferred elements are initial maintenance and consulting services. Initial maintenance is recognized on a straight-Kline ~~filed~~basis over the initial maintenance term. The VSOE of fair value of maintenance is determined by using a consistent percentage of maintenance fee to license fee based on ~~June~~renewal 23rates. Maintenance fees in subsequent years are recognized on a straight-line basis over the life of the applicable agreement. Maintenance contracts entitle the customer to hot-line support and all unspecified product upgrades released during the term of the maintenance contract. Upgrades include any and all unspecified patches or releases related to a licensed software product. Maintenance does not include implementation services to install these upgrades. The VSOE of fair value of services is determined by using an average consulting rate per hour for consulting services sold separately, ~~2005~~multiplied by the estimate of hours required to complete the consulting engagement.

Delivery of software generally occurs when the product (mon CDs) is ~~Incorporated~~delivered byto ~~reference~~a tocommon ~~the~~carrier. ~~Exhibits~~Occasionally, ~~filed~~delivery ~~with~~occurs through electronic means where the software is made available through our secure File Transfer Protocol (FTP) site. The Company’s ~~Form~~generally ~~8-K~~does ~~filed~~not onoffer ~~September~~any ~~19,~~customers ~~2005~~or resellers a right of return.

~~(n)~~ For ~~Incorporated~~software bylicense, ~~reference~~services toand maintenance revenue, the Company ~~Exhibits~~assesses ~~filed~~whether the fee is fixed and determinable and whether or not collection is probable based on the payment terms associated with the ~~Company’s~~transaction ~~Form~~and 8the credit-Kworthiness ~~filed~~of onthe customer. ~~October~~If 24a significant portion of a fee is due after our normal payment terms, ~~2005~~which are 30 to 90 days from invoice date, the fee is considered not fixed and determinable. In these cases, the Company recognizes revenue as the fees become due and collectability is probable.

~~(o)~~ The ~~Incorporated~~Company byassesses ~~reference~~assuredness toof ~~the~~collection ~~Exhibits~~based ~~filed~~on a number of factors, including past transaction history with the ~~Company’s~~customer and ~~Form~~the 8credit-Kworthiness ~~filed~~of onthe ~~November~~customer. 1Collateral is not requested from customers. If it is determined that collection of a fee is not probable, ~~2005~~the fee is deferred and revenue is recognized at the time collection becomes probable, which is generally upon receipt of cash.

~~(p)~~ The ~~Incorporated~~Company’s byarrangements ~~reference~~do tonot ~~the~~generally ~~Exhibits~~include acceptance ~~filed~~clauses. ~~with~~If, however, an arrangement includes an acceptance provision, acceptance occurs upon the ~~Company’s~~earliest ~~Form~~of receipt ~~8-K~~of ~~filed~~a onwritten ~~February~~customer 9,acceptance ~~2006~~or expiration of the acceptance period.

~~(q)~~ The ~~Incorporated~~majority byof ~~reference~~our training and consulting services are billed based on hourly rates. The Company generally recognizes revenue as these services are performed. However, when there is an arrangement that is based on a fixed fee or requires significant work either to alter the ~~Exhibits~~underlying ~~filed~~software ~~with~~so that the software performs as the customer requests, the Company’s recognizes ~~2005~~the ~~Form~~related ~~10-K~~revenue using the percentage of completion method of accounting. This would apply to our custom programming services, which are generally contracted on a fixed fee basis. Anticipated gains or losses, if any, are charged to operations in the period such gains or losses are determined to be probable.

~~(r)~~ Revenues ~~Incorporated~~from bytransaction ~~reference~~fees toassociated ~~the~~with ~~Exhibits~~subscription arrangements, ~~filed~~billable ~~with~~on a per transaction basis and included in services revenue on the ~~Company’s~~Consolidated ~~March~~Statements 30of Operations, ~~2006 10-Q~~are

~~(s) Incorporated by reference to the Exhibits filed with the Company’s Form 8-K filed on November 2, 2006~~ 45

~~(u) Incorporated by reference to the Exhibits filed with the Company’s Form 8~~ AXS-KONE INC. ~~filed~~AND ~~on November 16, 2006~~SUBSIDIARIES

~~(v)~~ NOTES TO CONSOLIDATED ~~Incorporated~~FINANCIAL bySTATEMENTS ~~reference to the Exhibits filed with the Company’s Form 8-K filed on December 18, 2006~~(continued)

(w)In thousands, ~~Incorporated~~except byper ~~reference~~share ~~to the Exhibits filed with the Company’s Form 8-K filed on February 16, 2007~~data)

~~(x)~~ recognized ~~Incorporated~~based byon ~~reference~~the toactual ~~the~~number ~~Exhibits~~of ~~filed~~transactions ~~with~~processed during the ~~Company’s~~period. ~~Form~~This ~~8-K~~business ~~filed~~was sold on ~~March 7~~December 31, 2007.

** In ~~Filed~~accordance ~~herewith~~with EITF Issue No. 01-14, “Income Statement Characterization of Reimbursement Received for ‘Out of Pocket’ Expenses Incurred,” reimbursements received for out-of-pocket expenses incurred are classified as services revenue in the Consolidated Statements of Operations.

by(c) Use of Management Estimates

39 The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. Some of the significant estimates involve allowance for doubtful accounts, accrued expenses, provision for income taxes in foreign jurisdictions, assessment of contingencies, revenue recognition, valuation of deferred tax asset and compensation expense pursuant to SFAS No. 123R.

~~SIGNATURES~~(d) Cash and Cash Equivalents and Restricted Cash

~~Pursuant~~ Cash toequivalents ~~the~~are ~~requirements~~stated ofat ~~Section~~cost, 13which orapproximates ~~15(d)~~market value, ofand ~~the~~consist ~~Securities Exchange Act~~ of ~~1934~~short-term, ~~the~~highly ~~Registrant~~liquid ~~has~~investments ~~duly~~with original ~~caused~~maturities ~~this~~of ~~report~~less tothan bethree ~~signed on its behalf by the undersigned, thereunto duly authorized~~months.

~~AXS-ONE~~(e) ~~INC.~~Allowance ~~By:~~for ~~/s/~~Doubtful ~~William P. Lyons William P. Lyons,Chairman of the Board and Chief Executive Officer~~Accounts

~~Date:~~ The ~~March~~Company 23evaluates the collectibility of accounts receivable based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, ~~2007~~the Company records a specific allowance against amounts due, and thereby reduces the net receivable to the amount management believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are outstanding, the current business environment and historical experience. The Company does not require collateral and does not charge interest on outstanding balances.

~~Pursuant~~(f) toEquipment ~~the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant~~ and inLeasehold ~~the capacities indicated, on March 23, 2007.~~Improvements

~~Signature~~ Equipment ~~Title(s) /s/ William P. Lyons Chairman of the Board~~ and ~~Chief~~leasehold ~~Executive~~improvements ~~Officer~~are ~~(Principal~~stated ~~Executive~~at ~~Officer) (William P. Lyons) /s/ Joseph Dwyer Executive Vice President~~cost, ~~Chief~~less accumulated ~~Financial~~depreciation ~~Officer~~ and ~~Treasurer(Principal~~amortization. ~~Financial~~Depreciation ~~and~~expense is ~~Accounting~~computed ~~Officer)~~using ~~(Joseph~~the ~~Dwyer)~~straight-line ~~/s/~~method ~~Elias~~over ~~Typaldos~~the ~~Executive~~estimated useful ~~Vice~~lives ~~President~~of ~~Technology~~the ~~and~~assets ~~Director~~ (~~Elias~~two ~~Typaldos)~~to ~~/s/~~five ~~Gennaro Vendome Director (Gennaro Vendome~~years) ~~/s/ Daniel H~~. ~~Burch~~Leasehold improvements ~~Director~~are ~~(Daniel~~amortized H.using ~~Burch)~~the ~~/s/~~straight-line ~~Robert~~method ~~Migliorino~~over the ~~Director~~lesser ~~(Robert~~of ~~Migliorino)~~the ~~/s/~~remaining ~~Anthony~~term ~~Bloom~~of ~~Director~~the ~~(Anthony~~lease ~~Bloom)~~or ~~/s/~~their ~~Harold~~estimated useful ~~Copperman Director (Harold Copperman) /s/ Allan Weingarten Director (Allan Weingarten)~~lives.

40(g) Software Development Costs

~~Report~~ The Company’s policy is to capitalize certain software development costs in accordance with Statement of ~~Independent~~Financial Accounting ~~Registered~~Standards ~~Public~~No. 86, “Accounting ~~Firm~~for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed” (“SFAS 86”). Under SFAS 86, costs incurred to develop or significantly enhance computer software products are charged to research and development expense as incurred until technological feasibility has been established. The Company establishes technological feasibility upon completion of a working model or completion of a detailed program design. Generally costs related to projects that reach technological feasibility upon completion of a working model are not capitalized as the time period between establishment of the working model and general availability is of short duration. For projects that meet technological feasibility upon completion of a detailed program

~~The Board of Directors and StockholdersAXS-One Inc.~~ 46

~~We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States)~~ AXS-ONE INC. ~~Those~~AND standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.SUBSIDIARIES

In NOTES TO CONSOLIDATED ~~our~~FINANCIAL ~~opinion,~~STATEMENTS the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AXS-One Inc. and subsidiaries as of December 31, 2006, and the results of their operations and their cash flows for the year ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.(continued)

~~We have also audited the adjustments to the 2005 and 2004 financial statements to retrospectively apply the change in accounting for discontinued operations, as described in Note 2.~~ (In ~~our opinion~~ thousands, ~~such~~except ~~adjustments~~per ~~are~~share appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2005 and 2004 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any form of assurance on the 2005 and 2004 financial statements taken as a whole.data)

In design, ~~connection~~all ~~with~~research ~~our~~and ~~audit~~development ofcosts for that project are capitalized from that point until the ~~consolidated~~product ~~financial~~is ~~statements~~available ~~referred~~for general release to ~~above,~~customers. The nature of the Company’s current development for Integrated Content Archiving products is generally such that we ~~audited~~can measure technological feasibility most effectively using the ~~consolidated~~working ~~Schedule~~model ~~II-Valuation~~method where the time between establishment of a working model and ~~Qualifying~~general availability ~~Accounts~~is of short duration which results in very little or no costs that qualify for capitalization. InThe ~~our~~Company historically ~~opinion,~~used a detailed program design model to measure technological feasibility for its Enterprise Solutions Products. This shift in development of the ~~consolidated~~Company’s ~~financial~~product ~~schedule~~lines has resulted in lower capitalized costs. The establishment of technological feasibility and the ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, ~~when~~including, ~~considered~~but innot ~~relation~~limited to, ~~the~~anticipated future ~~consolidated~~revenues, ~~financial~~estimated ~~statements~~economic ~~taken~~life asand achanges ~~whole~~in technology. It is reasonably possible that estimates of anticipated future revenues, ~~presents~~the ~~fairly~~remaining estimated economic life of the products, or both will be reduced in ~~all~~the ~~material~~future ~~respects~~due to competitive pressures. Upon the general release of the software product to customers, capitalization ceases and such costs are amortized (using the ~~information~~straight-line ~~stated~~method) ~~therein~~over the estimated life, which is generally three years.

During ~~the~~2008 ~~year~~and ~~ended~~2007 ~~December 31, 2006,~~ the Company ~~changed~~did ~~its~~not ~~method~~capitalize ofany ~~accounting~~software development ~~for ‘‘stock-based compensation’’, as discussed under Note (1) (m) to the financial statements~~costs.

~~/s/~~(h) ~~Amper,~~Impairment ~~Politziner~~or &Disposal ~~Mattia,~~of ~~P.C.~~Long-Lived Assets

~~March 21~~ In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, ~~2007Edison~~ “Accounting for the Impairment or Disposal of Long-Lived Assets,” ~~New~~the ~~Jersey~~Company monitors events or changes in circumstances that may indicate carrying amounts of its long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of its assets by determining whether the carrying amount of its assets will be recovered through undiscounted, expected future cash flows. Should the Company determine that the carrying values of specific long-lived assets are not recoverable, the Company would record a charge to operations to reduce the carrying value of such assets to their fair values. The Company considers various valuation factors, principally discounted cash flows, to assess the fair values of long-lived assets. No impairment charges were recognized in 2008 or 2007.

41(i) Income Taxes

~~Report~~ Income taxes are accounted for under the asset and liability method. The asset and liability method requires that deferred tax assets be reduced by a valuation allowance if, based on the weight of ~~Independent~~available ~~Registered~~evidence, ~~Public~~it is more likely than not that some portion or all of such assets will not be realized. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. The company adopted FIN 48 “Accounting ~~Firm~~for Uncertainty in Income Taxes” that was an interpretation of SFAS 109 “Accounting for Income Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements by prescribing a minimum probability threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods as well as disclosure and transition.

~~The Board of Directors and StockholdersAXS-One Inc.:~~ 47

~~We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States)~~ AXS-ONE INC. ~~Those~~AND standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.SUBSIDIARIES

In NOTES TO CONSOLIDATED ~~our~~FINANCIAL ~~opinion,~~STATEMENTS the consolidated financial statements referred to above, before the effects of the adjustments to retrospectively report the discontinued operations described in Note 2 to the consolidated financial statements, present fairly, in all material respects, the financial position of AXS-One Inc. and subsidiaries as of December 31, 2005, and the results of their operations and their cash flows for the years ended December 31, 2005 and 2004, in conformity with U.S. generally accepted accounting principles.(continued)

~~We were not engaged to audit~~ (In thousands, ~~review,~~except orper ~~apply~~share any procedures to the adjustments to retrospectively report the discontinued operations described in Note 2 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Amper, Politziner & Mattia, P.C.data)

~~/s/~~(j) ~~KPMG~~Concentration ~~LLP~~of Credit Risk

~~Short~~ SFAS No. 105, ~~Hills~~“Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk,” ~~New~~requires disclosure ~~JerseyMarch 23~~of any significant off-balance sheet and credit risk concentrations. The Company has no off-balance sheet concentration of credit risk such as foreign exchange contracts, ~~2006~~ option contracts or other foreign hedging arrangements. The Company maintains the majority of cash balances in the United States with Silicon Valley Bank and its accounts receivable credit risk is not concentrated within any geographic area. The Company’s revenues are concentrated in the computer software industry, which is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities or technologies, could adversely affect operating results.

42 As of December 31, 2008, two customers represented 20.7% of total gross receivables (10.6% and 10.1% individually). As of December 31, 2007, two customers represented 39.2% of total gross receivables (27.0% and 12.2% individually). For the year ended December 31, 2008, one customer represented 13.3% of total revenue. For the year ended December 31, 2007, two customers represented 12.3% and 11.6% individually, of total revenue. For the year ended December 31, 2008, two customers represented 22.7% and 13.8%, individually, of license revenue. For the year ended December 31, 2007, three customers represented 22.9%, 20.5%, and 15.2%, individually, of license revenue. No one customer represented more than 10.0% of service revenues for the year ended December 31, 2008. One customer represented 10.7% of service revenues for the year ended December 31, 2007. For the years ended December 31, 2008 and 2007, the Company’s reselling partners generated 10% and 30% of license revenue, respectively.

~~AXS-ONE INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS~~(Ink) ~~thousands,~~Foreign ~~except~~Currency ~~per share data)~~Translation

	December 31, 2006				December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents		$	7,492			$	3,613
Restricted cash			7				57
Accounts receivable, net of allowance for doubtful accounts of $83 and $167 at December 31, 2006 and December 31, 2005, respectively			2,258				5,153
Prepaid expenses and other current assets			1,255				718
Total current assets			11,012				9,541
Equipment and leasehold improvements, at cost:
Computer and office equipment			2,590				10,967
Furniture and fixtures			630				924
Leasehold improvements			706				865
			3,926				12,756
Less – accumulated depreciation and amortization			3,507				12,361
			419				395
Capitalized software development costs, net of accumulated amortization
of $1,091 and $11,432 at December 31, 2006 and December 31, 2005, respectively			—				1,038
Other assets			102				92
		$	11,533			$	11,066
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable .		$	962			$	1,576
Accrued expenses .			3,541				3,267
Due to joint venture			—				52
Deferred revenue			2,594				8,224
Liabilities of discontinued operations			981				—
Total current liabilities			8,078				13,119
Long-term liabilities:
Long-term deferred revenue			44				63
Commitments and contingencies
Stockholders’ equity (deficit):
Preferred stock, $.01 par value, authorized 5,000 shares, no shares issued and outstanding			—				—
Common stock, $.01 par value, authorized 50,000 shares; 35,637 and 34,316 shares issued and outstanding at December 31, 2006 and December 31, 2005, respectively			357				343
Additional paid-in capital			88,365				87,884
Accumulated deficit			(85,162	)			(90,663	)
Accumulated other comprehensive income (loss)			(149	)			497
Unearned stock compensation			—				(177	)
Total stockholders’ equity (deficit)			3,411				(2,116	)
		$	11,533			$	11,066

The functional currency for foreign subsidiaries is the local currency. The results of operations for these foreign subsidiaries are translated from local currencies into U.S. dollars using the average exchange rates during each period. Assets and liabilities are translated using exchange rates at the end of the period with translation adjustments accumulated in stockholders’ equity (deficit). Intercompany loans are denominated in U.S. currency. Foreign currency transaction gains and losses, related to short-term intercompany loans, are recorded in the consolidated statements of operations as incurred. As of January 1, 2007, all intercompany loans are considered of a long-term nature and therefore are accounted for in accordance with SFAS 52, “Foreign Currency Translation,” whereby foreign currency transaction gains and losses are recorded in cumulative foreign currency translation adjustment, a component of stockholders’ equity.

~~The~~(l) ~~accompanying~~Stock-Based ~~notes are an integral part of these consolidated financial statements.~~Compensation

43 On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R (revised 2004), “Share-Based Payment” (“SFAS 123R”) which requires that the costs resulting from all share-based payment transactions be recognized in the financial statements at their fair values. The Company adopted SFAS 123R using the modified prospective application method under which the provisions of SFAS 123R apply to new awards granted after the adoption date and to awards modified, repurchased, or canceled after the adoption date. Additionally, compensation cost for the portion of the awards for which the requisite service has not been rendered, and that are outstanding as of the adoption date, is recognized in the Consolidated Statement of Operations over the remaining service period after the adoption date based on the award’s original estimate of fair value. Total share-based compensation expense recorded in the Consolidated Statements of Operations for 2008 and 2007 are $1,219 and $517, respectively.

~~AXS-ONE INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)~~ 48

	Years Ended December 31,
	2006				2005				2004
Revenues:
License fees		$	2,432			$	4,109			$	4,363
Services			7,864				7,179				5,742
Total revenues			10,296				11,288				10,105
Operating expenses:
Cost of license fees			1,181				1,081				857
Cost of services			8,219				6,837				3,616
Sales and marketing			9,623				7,425				1,880
Research and development			6,454				5,978				1,469
General and administrative			4,649				4,360				5,449
Restructuring and other costs			432				322				—
Total operating expenses			30,558				26,003				13,271
Operating loss			(20,262	)			(14,715	)			(3,166	)
Other income (expense):
Interest income			229				156				144
Interest expense			(149	)			(44	)			(14	)
Other income (expense), net			567				(483	)			171
Other income (expense), net			647				(371	)			301
Loss before income taxes			(19,615	)			(15,086	)			(2,865	)
Income tax benefit			—				25				217
Loss from continuing operations			(19,615	)			(15,061	)			(2,648	)
Income (loss) from discontinued operations:
Income (loss) from discontinued operations net of tax
provision of $ – for all periods			7,875				6,063				(2,564	)
Gain on sale of discontinued operations net of tax
provision of $ 200 for 2006			17,241				—				—
Income (loss) from discontinued operations			25,116				6,063				(2,564	)
Net income (loss)		$	5,501			$	(8,998	)		$	(5,212	)
Basic & diluted net income (loss) per share data:
(Loss) from continuing operations		$	(0.57	)		$	(0.47	)		$	(0.10	)
Income (loss) from discontinued operations			0.73				0.19				(0.09	)
Net income (loss)		$	0.16			$	(0.28	)		$	(0.19	)
Weighted average basic & diluted common shares outstanding			34,405				31,629				27,395

~~The~~ AXS-ONE INC. ~~accompanying~~AND ~~notes are an integral part of these consolidated financial statements.~~SUBSIDIARIES

44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~AXS-ONE~~ (In thousands, ~~INC.~~except ~~AND~~per ~~SUBSIDIARIESCONSOLIDATED~~share ~~STATEMENTS OF COMPREHENSIVE INCOME (LOSS~~data)~~(In thousands)~~

	Years Ended December 31,
	2006				2005				2004
Net income (loss)		$	5,501			$	(8,998	)		$	(5,212	)
Foreign currency translation adjustment			(646	)			478				(337	)
Comprehensive income (loss)		$	4,855			$	(8,520	)		$	(5,549	)

On November 10, 2005, the FASB issued FASB Staff Position 123(R)-3 (“FSP 123R-3”), “Transition Election Related to Accounting for the Tax Effects of Share-based Payment Awards,” that provides an elective alternative transition method of calculating the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123R (the “APIC Pool”) to the method otherwise required by paragraph 81 of SFAS 123R. The Company is currently in a net tax loss position and has not realized any tax benefits under SFAS 123R. In addition, no stock options for which related deferred tax assets have been recorded have been exercised to date.

The ~~accompanying~~fair ~~notes~~value of options granted is estimated on the date of grant using a Black-Scholes option pricing model. Expected volatilities are ancalculated ~~integral~~in part based on the historical volatility of ~~these~~the ~~consolidated~~Company’s ~~financial~~stock. ~~statements~~Management monitors share option exercise and employee termination patterns to estimate forfeiture rates within the valuation model. The expected life of options represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the expected life of the option is based on the interest rate of a 5-year U.S. Treasury note in effect on the date of the grant.

45 The table below presents the assumptions used to calculate the fair value of options granted during 2008. No stock options were granted during 2007.

AXS-ONE INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ EQUITY (DEFICIT)(In thousands)


	Years Ended December 31,
	2008	2007

Risk-free interest rates	2.64%	n/a
Expected dividend yield	—	—
Expected lives	5 years	n/a
Expected volatility	66.4%	n/a
Forfeiture rate	14.7%	n/a
Weighted-average grant date fair value of options granted during the period	$0.15	n/a

	CommonStock					AdditionalPaid-inCapital				AccumulatedDeficit				UnearnedStockCompensation				AccumulatedOtherComprehensiveIncome(Loss)				TotalStockholders'Equity(Deficit)
	Shares		Amount
Balance – December 31, 2003		25,026		$	250		$	72,148			$	(76,453	)		$	—			$	356			$	(3,699	)
Net loss		—			—			—				(5,212	)			—				—				(5,212	)
Foreign currency translation adjustment		—			—			—				—				—				(337	)			(337	)
Sale of common stock and warrants		2,581			26			7,666				—				—				—				7,692
Exercise of stock options and warrants		734			7			525				—				—				—				532
Balance – December 31, 2004		28,341			283			80,339				(81,665	)			—				19				(1,024	)
Net loss		—			—			—				(8,998	)			—				—				(8,998	)
Foreign currency translation adjustment		—			—			—				—				—				478				478
Issuance of non-vested stock, net of cancellations		95			1			204				—				(205	)			—				—
Stock based compensation expense		—			—			9				—				28				—				37
Sale of common stock and warrants		4,535			45			6,317				—				—				—				6,362
Exercise of stock options		1,345			14			1,015				—				—				—				1,029
Balance – December 31, 2005		34,316			343			87,884				(90,663	)			(177	)			497				(2,116	)
Net income		—			—			—				5,501				—				—				5,501
Foreign currency translation adjustment		—			—			—				—				—				(646	)			(646	)
Elimination of deferred compensation due to the adoption of SFAS 123R		—			—			(177	)			—				177				—				—
Stock based compensation expense		1,026			11			418				—				—				—				429
Exercise of stock options		295			3			240				—				—				—				243
Balance – December 31, 2006		35,637		$	357		$	88,365			$	(85,162	)		$	—			$	(149	)		$	3,411


(m)	Basic and Diluted Net Loss per Common Share

~~The~~ Basic ~~accompanying~~and ~~notes~~diluted ~~are~~net anloss ~~integral~~per ~~part~~common share is presented in accordance with SFAS No. 128, “Earnings per Share” (“SFAS No. 128”). Basic net loss per common share is based on the weighted-average number of shares ~~these~~of ~~consolidated~~common ~~financial~~stock ~~statements~~outstanding during the period. Diluted net loss per share is computed using the weighted average number of common and dilutive potential common shares outstanding during the period. Potential common shares consist of stock options, non-vested stock and warrants. Diluted net loss per common share was the same as basic net loss per common share for the years ended December 31, 2008 and 2007 since the effect of stock options, non-vested stock and warrants was anti-dilutive for all years. As of December 31, 2008 and 2007, there were outstanding options to purchase 3,690 and 3,823 of shares of common stock and outstanding warrants to purchase 10,300 and 4,307 shares of common stock. As of December 31, 2008 and 2007, there were 1,778 and 1,996 shares of non-vested stock outstanding.

46 The following represents the calculations of the basic and diluted net loss per common share for the years ended December 31, 2008 and 2007.

~~AXS-ONE INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS~~ ~~(In thousands)~~ 49

	Years Ended December 31,
	2006				2005				2004
Cash flows from operating activities:
Net Income (loss)		$	5,501			$	(8,998	)		$	(5,212	)
Less income (loss) from discontinued operations			25,116				6,063				(2,564	)
Loss from continuing operations			(19,615	)			(15,061	)			(2,648	)
Adjustments to reconcile net loss to net cash flows used in continuing operating activities:
Depreciation and amortization			569				386				374
Provision for doubtful accounts, net			6				—				154
Stock option compensation expense			200				—				—
Stock based compensation expense			229				37				—
Changes in assets and liabilities
Accounts receivable			892				(1,069	)			(414	)
Prepaid expenses and other current assets			(644	)			(10	)			(455	)
Change in other current assets			9				72				(16	)
Accounts payable and accrued expenses			1,665				(438	)			1,556
Deferred revenue.			(1,082	)			1,587				68
Net cash flows used in continuing operating activities			(17,771	)			(14,496	)			(1,381	)
Cash flows from continuing investing activities:
Restricted cash, net			51				2				(3	)
Proceeds from sale of Enterprise Solutions Business, net			11,286				—				—
Capitalized software development costs .			—				—				(100	)
Purchase of equipment and leasehold improvements			(300	)			(123	)			(39	)
Net cash flows provided by (used in) continuing investing activities.			11,037				(121	)			(142	)
Cash flows from continuing financing activities:
Proceeds from exercise of stock options and warrants.			243				1,029				532
Net proceeds from sales of common stock.			—				6,362				7,692
Payment of debt issuance costs.			(31	)			(71	)			—
Borrowing of revolving line-of-credit ..			4,833				1,500				—
Repayment of revolving line-of-credit			(4,833	)			(1,500	)			—
Repayments of long-term debt			—				—				(547	)
Net cash flows provided by continuing financing activities			212				7,320				7,677
Cash flows from discontinued operations:
Net cash provided by (used in) operating activities .			11,062				5,884				(3,116	)
Net cash used in investing activities			(187	)			(91	)			(888	)
Net cash flows provided by (used in) discontinued operations .			10,875				5,793				(4,004	)
Foreign currency exchange rate effects on cash and cash equivalents			(474	)			308				(287	)
Net increase (decrease) in cash and cash equivalents.			3,879				(1,196	)			1,863
Cash and cash equivalents, beginning of year .			3,613				4,809				2,946
Cash and cash equivalents, end of year		$	7,492			$	3,613			$	4,809
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest		$	112			$	6			$	21
Income taxes			123				—				20

~~The~~ AXS-ONE INC. ~~accompanying~~AND ~~notes are an integral part of these consolidated financial statements.~~SUBSIDIARIES

47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~AXS-ONE~~ (In thousands, ~~INC.~~except ~~AND~~per ~~SUBSIDIARIES~~share data)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data)


	Years Ended December 31,
	2008			2007

Net loss	$	(10,144	)	$	(14,946	)

Weighted average basic common shares outstanding during the year		38,243			35,318
Dilutive effect of stock options and warrants		—			—

Weighted average diluted common shares outstanding during the year		38,243			35,318

Basic and diluted net loss per common share	$	(0.27	)	$	(0.42	)

(1n) ~~Operations,~~ ~~Business~~Fair ~~Conditions,~~Value ~~Liquidity~~of ~~and~~Financial ~~Significant Accounting Policies~~Instruments

~~The~~ Cash ~~Company was incorporated under the laws of the State of Delaware in September 1978. The name of the Company was changed to AXS-One Inc. in November 2000. AXS-One Inc. designs, markets~~ and ~~supports~~cash ~~records compliance management solutions that include digital archiving~~equivalents, ~~business~~accounts ~~process management~~receivable, ~~electronic document delivery and integrated records disposition and discovery for e-mail~~accounts payable, ~~instant~~accrued ~~messaging,~~expenses ~~images, SAP~~ and other ~~corporate~~current ~~records,~~liabilities and until October 31, 2006, financial management applications for global 2000 businesses, and scheduling and time and expense solutions for professional services organizations. The Company also offers consulting, implementation, training, technical support and maintenance services reported in ~~support~~the ofconsolidated ~~its~~balance ~~customers’~~sheets ~~use~~equal ofor ~~its~~approximate ~~software products~~fair values.

~~On October 31, 2006, the Company sold certain assets and liabilities through which it operated the AXS-One Enterprise Solutions financial management and accounting applications business~~ (~~‘‘Enterprise Solutions’’~~o) toDeferred Computron Software, LLC for the sum of $12 million in cash plus future potential consideration for exceeding specified license revenue targets. Additionally, Computron Software, LLC assumed net liabilities of approximately $6.2 million. The Company recorded a gain of $17.2 million on the sale. The assets sold primarily consist of client contracts, marketing agreements, internally developed software, accounts receivable and fixed assets of the business. The liabilities sold consist primarily of employee related liabilities, accounts payable and deferred revenue. The Company has classified the Enterprise Solutions business as a discontinued operation in these financial statements. Previously, the Company had two reporting segments, Records Compliance Management and Enterprise Solutions. As a result of the sale of the Enterprise Solutions, Records Compliance Management is the Company’s only reporting segment.Revenue

~~AXS-One~~ Deferred ~~recorded~~revenue ~~net income of $5.5 million in 2006~~ primarily ~~related~~relates to ~~the~~customer ~~sale~~software maintenance ofagreements ~~the~~that ~~Enterprise~~have ~~Solutions~~been ~~business,~~paid ~~and recorded net losses of $9.0 million and $5.2 million in 2005 and 2004 respectively. AXS-One incurred a loss of $19.6 million, $15.1 million and $2.7 million~~ for ~~2006,~~by ~~2005~~customers prior ~~and 2004, respectively, from continuing operations. We were not able~~ to ~~obtain operating profitability in 2004, 2005 and 2006 from continuing operations and may not be able to be profitable on a quarterly or annual basis in~~ the ~~future.~~performance ~~Management’s initiatives over the last two years, including the restructurings in December 2006, June 2005 and June 2004, the private placements~~ of ~~common~~those ~~stock~~services ~~in June 2005~~ and ~~April 2004~~, ~~the executive management salary reductions for most of the second half of 2005 and for all of 2007, and the sale of the Enterprise Solutions business, have been designed~~ to ~~improve operating results and liquidity and better position AXS-One to compete under current market conditions. As~~ a ~~result of these efforts~~lesser extent, weprepaid ~~expect~~consulting ~~that our current cash balance, availability of borrowing capacity under our bank line of credit,~~ and ~~operating~~deferred ~~cash~~license ~~flow should be sufficient to meet the financial requirements of the business through April 2008~~fees. However, we may in the future be required to seek new sources of financing or future accommodations from our existing lender or other financial institutions, or we may seek equity infusions from private investors. Our ability to fund our operations is heavily dependent on the growth of our revenues over current levels to achieve profitable operations, particularly given the recent sale of the Enterprise Solutions business, which was our historically profitable segment. We may be required to further reduce operating costs in order to meet our obligations. If we are unable to achieve profitable operations or secure additional sources of capital, there would be substantial doubt about our long term ability to fund future operations. Additionally, there is a risk that cash held by one foreign subsidiary approximating $0.4 million at December 31, 2006 may not be readily available for use in our U.S. operations to pay our obligations as the transfer of funds is sometimes delayed due to various foreign government restrictions. No assurance can be given that management’s initiatives will be successful or that any such additional sources of financing, lender accommodations or equity infusions will be available.

(ap) ~~Principles~~ ofAccounting ~~Consolidation~~ for Guarantees and Warranties

The ~~consolidated~~Company ~~financial~~warrants ~~statements~~that ~~include~~each version of its software will substantially conform to the ~~accounts~~latest edition of ~~AXS-One~~the ~~Inc.;~~documentation applicable ~~and~~to ~~its~~that ~~wholly~~version. ~~owned~~Such ~~subsidiaries~~warranties ~~located~~are accounted for in accordance ~~Australia,~~with ~~Singapore~~SFAS No. 5, ~~South~~“Accounting ~~Africa~~for Contingencies.” ~~and~~To date the ~~United~~Company ~~Kingdom~~has ~~(collectively,~~not ~~the~~incurred significant costs related to warranty obligations.

48 The Company’s product license and services agreements include a limited indemnification provision for claims from third parties relating to the Company’s intellectual property. Such indemnification provisions are accounted for in accordance with SFAS No. 5. The indemnification is generally limited to the amount paid by the customer. To date, claims under such indemnification provisions have not been significant.

~~AXS-ONE~~ From ~~INC~~time to time, the Company may provide guarantees to third parties on behalf of a foreign subsidiary. ~~AND~~These ~~SUBSIDIARIES~~guarantees are generally related to maintaining operations in a certain locality or to secure leases or other operating obligations of a subsidiary. The maximum exposure on these guarantees is not significant, either individually or in the aggregate.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~ (~~continued~~q) ~~(In~~Recently ~~thousands,~~Issued ~~except~~Accounting ~~per share data)~~Standards

~~‘‘Company’’).~~ In December ~~2003~~ 2007, the ~~Company~~FASB ~~dissolved~~issued ~~the~~SFAS No. 141 (revised ~~legal~~2007), ~~entity~~“Business ofCombinations” (“FAS 141R”), ~~its~~which ~~subsidiary~~replaces ~~located~~FASB Statement No. 141. FAS 141R establishes principles and requirements for how an acquirer recognizes and measures in ~~Canada.~~its financial ~~The~~statements ~~Canadian~~the ~~operation~~identifiable isassets ~~now~~acquired, athe liabilities ~~part~~assumed, ofany non-controlling interest in the acquiree, Uand the goodwill acquired.S. ~~operation~~FAS 141R ~~and~~also establishes asdisclosure ~~such~~requirements ~~continues~~which towill beenable ~~included~~users into evaluate the ~~consolidated~~nature and financial ~~statements~~effects of the ~~Company~~business combination. ~~All~~FAS ~~intercompany~~141R ~~transactions~~is ~~and~~effective ~~balances~~as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which is our fiscal year beginning January 1, 2009. This standard will have ~~been~~an ~~eliminated~~impact on our financial statements if an acquisition occurs.

Until May 31, 2006, the Company had a 49% ownership in a joint venture in its South African operation, AXS-One African Solutions (Pty) Ltd (‘‘African Solutions’’). The joint venture was considered to be a variable interest entity as defined in FASB Interpretation No. 46R, ‘‘Consolidation of Variable Interest Entities’’ (FIN 46R). However, the Company had determined that it was not the primary beneficiary. Accordingly, until May 31, 2006, the Company used the equity method of accounting for the joint venture whereby investments, including loans to the joint venture, were stated at cost plus or minus the Company’s equity in undistributed earnings or losses. On May 31, 2006, the Company purchased the remaining 51% of African Solutions from African Legends Technology for $161 less cash acquired of $20, to make it a wholly owned subsidiary. The Company applied purchase accounting to record the transaction. The purchase price was less than the fair value of assets acquired and therefore the Company wrote – down the value of all long-term assets to zero and recorded a gain of $37. As of June 1, 2006, 100% of the results of African Solutions are included in the consolidated results of the Company in discontinued operations as it was part of the Enterprise Solutions business segment. 50

~~The Company recognizes revenue in accordance with Statement of Position 97~~ AXS-~~2, ‘‘Software Revenue Recognition’’ (‘‘SOP 97-2’’), and Statement of Position 98-9, ‘‘Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions~~ONE INC.’’ ~~Revenue~~AND from non-cancelable software licenses is recognized when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectibility is probable. The Company recognizes license revenue from resellers when an end user has placed an order with the reseller and the above revenue recognition criteria have been met with respect to the reseller. In multiple element arrangements, the Company defers the vendor-specific objective evidence of fair value (‘‘VSOE’’) related to the undelivered elements and recognizes revenue on the delivered elements using the residual method. The most commonly deferred elements are initial maintenance and consulting services. Initial maintenance is recognized on a straight-line basis over the initial maintenance term. The VSOE of maintenance is determined by using a consistent percentage of maintenance fee to license fee based on renewal rates. Maintenance fees in subsequent years are recognized on a straight-line basis over the life of the applicable agreement. Maintenance contracts entitle the customer to hot-line support and all unspecified product upgrades released during the term of the maintenance contract. Upgrades include any and all unspecified patches or releases related to a licensed software product. Maintenance does not include implementation services to install these upgrades. The VSOE of services is determined by using an average consulting rate per hour for consulting services sold separately multiplied by the estimate of hours required to complete the consulting engagement.SUBSIDIARIES

~~Delivery~~ NOTES TO CONSOLIDATED ofFINANCIAL ~~software~~STATEMENTS ~~generally occurs when the product~~ (~~on CDs~~continued) is delivered to a common carrier. Occasionally, delivery occurs through electronic means where the software is made available through our secure FTP (File Transfer Protocol) site. The Company generally does not offer any customers or resellers a right of return.

For software license, services and maintenance revenue, the Company assesses whether the fee is fixed and determinable and whether or not collection is probable. The Company assesses whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a significant portion of a fee is due after our normal payment terms, which are 30 to 90 days from invoice date, the fee is considered not fixed and determinable. (In ~~these cases~~ thousands, ~~the~~except ~~Company~~per ~~recognizes~~share ~~revenue as the fees become due.~~data)

49 In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States of America and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. We were required to adopt SFAS 157 beginning January 1, 2008. In February 2008, the FASB released FASB Staff Position (FSP FAS 157-2 — Effective Date of FASB Statement No. 157), which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS No. 157 for our financial assets and liabilities did not have a material impact on our consolidated financial statements. We do not expect that adoption of SFAS No. 157 for our non-financial assets and liabilities, effective January 1, 2009, will have a material impact on our financial statements.

~~AXS~~ In June 2008 the FASB issued EITF 07-~~ONE~~5, “Determining ~~INC~~Whether an Instrument (or Embedded Feature) Is Indexed to An Entity’s Own Stock”. ~~AND~~EITF 07-5 provides ~~SUBSIDIARIES~~guidance in assessing whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock for purposes of determining whether the appropriate accounting treatment falls under the scope of SFAS 133, “Accounting For Derivative Instruments and Hedging Activities” and/or EITF 00-19, “Accounting For Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. EITF 07-05 is effective as of the beginning of our 2009 fiscal year. We do not expect the adoption of EITF 07-05 to have a material impact on our consolidated financial position or results of operations.

~~NOTES~~ In TOMay 2008, ~~CONSOLIDATED~~the ~~FINANCIAL~~FASB ~~STATEMENTS~~ issued FASB Staff Position (~~continued~~“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (InIncluding ~~thousands~~Partial Cash Settlement). FSP APB14-1 will require us to account separately for the liability and equity components of our convertible debt. The debt would be recognized at the present value of its cash flows discounted using our nonconvertible debt borrowing rate at the time of issuance. The equity component would be recognized as the difference between the proceeds from the issuance of the note and the fair value of the liability. The FSP also requires accretion of the resultant debt discount over the expected life of the debt. The FSP is effective for fiscal years beginning after December 15, 2008, ~~except~~and ~~per~~interim ~~share~~periods ~~data)~~within those years. Entities are required to apply the FSP retrospectively for all periods presented. We do not expect the adoption of EITF 07-05 to have a material impact on our consolidated financial position or results of operations.

~~The~~(2) ~~Company~~Revolving ~~assesses~~Lines ~~assuredness~~ of collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. Collateral is not requested from customers. If it is determined that collection of a fee is not probable, the fee is deferred and revenue is recognized at the time collection becomes probable, which is generally upon receipt of cash.Credit

~~The~~ Silicon Valley Company’s arrangements do not generally include acceptance clauses. However, if an arrangement includes an acceptance provision, acceptance occurs upon the earliest of receipt of a written customer acceptance or expiration of the acceptance period.Bank

~~The~~ On ~~majority~~March 6, of2007, ~~our~~the ~~training~~Company ~~and~~entered ~~consulting~~into ~~services~~a ~~are~~Fourth ~~billed~~Loan Modification ~~based~~Agreement on(the ~~hourly~~“Fourth ~~rates.~~Modification Agreement”) ~~The~~with ~~Company~~Silicon ~~generally~~Valley ~~recognizes~~Bank ~~revenue~~(the “Bank”) effective as ~~these~~of ~~services are performed. However~~February 15, ~~when~~2007 ~~there~~to isamend anand ~~arrangement~~supplement its ~~that~~Amended isand ~~based~~Restated onLoan aand ~~fixed~~Security ~~fee~~Agreement ordated ~~requires~~as ~~significant~~of September 13, ~~work~~2005 ~~either~~between ~~to alter~~ the ~~underlying~~Company ~~software~~and orthe toBank, ~~build~~as amended ~~additional~~by ~~complex~~the ~~interfaces~~First soLoan ~~that~~Modification ~~the~~Agreement ~~software~~dated ~~performs~~ as ~~the~~of March 14, ~~customer requests~~2006, the ~~Company~~Second ~~recognizes~~Loan ~~the~~Modification ~~related~~Agreement dated ~~revenue~~as ~~using the percentage~~ of ~~completion~~October 31, ~~method of accounting. This would apply to our custom programming services~~2006, ~~which~~and ~~are~~the ~~generally~~Third ~~contracted~~Loan Modification onAgreement adated ~~fixed~~as ~~fee~~of ~~basis. Anticipated losses~~November 11, if2006 ~~any~~(as amended, ~~are charged to operations in~~ the ~~period~~“Loan ~~such losses are determined to be probable~~Agreement”).

~~Revenues~~ On ~~from~~July 18, ~~transaction~~2007, ~~fees~~the ~~associated~~Company entered into a Second Amended and Restated Loan and Security Agreement with ~~subscription~~the ~~arrangements~~Bank to amend and supplement the Loan Agreement (as amended, ~~billable~~the on“Second Amended aAgreement”). ~~per~~The ~~transaction~~Second ~~basis~~Amended ~~and~~Agreement ~~included~~provided for a revolving line of credit in ~~services~~an ~~revenue~~amount onequal to the ~~Consolidated~~lesser of ~~Statements~~$2.5 million or 80% of ~~Operations,~~eligible ~~are~~gross ~~recognized~~domestic ~~based~~accounts receivable. onBorrowings under the ~~actual~~revolving ~~number~~line of ~~transactions~~credit ~~processed~~bore interest ~~during~~at prime rate plus one quarter of one percent (0.25%) on the ~~period~~average gross daily financed account balance as long as the Company’s liquidity ratio (as described in the Second Amended Agreement) was above 1.30:1.00. If the liquidity ratio fell below 1.30:1.00, the interest

In accordance with EITF Issue No. 01-14, ‘‘Income Statement Characterization of Reimbursement Received for ‘Out of Pocket’ Expenses Incurred,’’ reimbursements received for out-of-pocket expenses incurred are classified as services revenue in the Consolidated Statements of Operations. 51

~~The Company adopted FIN 46R as required on March 31, 2004~~ AXS-ONE INC. ~~The~~AND Company’s formerly 49% owned joint venture, African Solutions (Pty) Ltd (‘‘African Solutions’’), was considered to be a variable interest entity as defined in FIN 46R. However, the Company determined that the former majority owner, African Legends Technology, absorbed the majority of the expected losses and therefore, African Legends Technology, was the primary beneficiary. Due to the fact that the Company was not the primary beneficiary of African Solutions, the results of African Solutions were not consolidated, but instead the Company accounted for its interest using the equity method of accounting.SUBSIDIARIES

~~African~~ NOTES TO CONSOLIDATED ~~Solutions~~FINANCIAL ~~was~~STATEMENTS acting as a non-exclusive authorized third party service provider to provide consulting and implementation services, and as a non-exclusive representative in providing marketing and promotional services directly to end users in regard to, among other things, AXS-One’s software products. African Solutions conducts business throughout the African continent where its target markets are the Financial Sector and Government Departments.(continued)

~~On May 31~~ (In thousands, ~~2006,~~ ~~the~~except ~~Company~~per ~~purchased the remaining 51%~~ share of African Solutions from African Legends Technology for $161 less cash acquired of $20, to make it a wholly owned subsidiary. The Company applied purchase accounting to record the transaction. The purchase price was less than the fair value of assets acquired and therefore the Company wrote down the value of all long-term assets to zero and recorded a gain of $37. Results prior to May 31, 2006 were recorded using the equity method of accounting. As of June 1, 2006, 100% of the results of African Solutions are included in the consolidated results of the Company in discontinued operations as it was part of the Enterprise Solutions business segment. At the time of the acquisition the investment in the joint venture was $122. Pro forma results as if African Solutions had been acquired on January 1, 2006 are not significantly different than the reported 2006 consolidated results.data)

50 rate would have increased to prime rate plus three quarters of one percent (0.75%) on the average gross daily financed account balance in addition to a monthly collateral handling fee of one quarter of one percent (0.25%) of the average monthly financed receivable balance. The Company was required to pay quarterly interest charges equal to 10% of the minimum net facility usage. If actual interest charges incurred exceed minimum, then no additional charge would be assessed. Loans under the Second Amended Agreement were secured by substantially all domestic assets of the Company. The maturity date of the loan was April 1, 2008. As described in greater detail in the Second Amended Agreement, the loan was subject to acceleration upon breach of: (i) a covenant tested quarterly requiring the Company’s net loss not to exceed $4.0 million, $2.8 million and $2.4 million for the quarters ended June 30, 2007, September 30, 2007 and December 31, 2007, respectively and (ii) other customary non-financial covenants.

~~AXS~~ For the quarter ended September 30, 2007, the Company was not in compliance with the quarterly net loss covenant of $2.8 million. On November 13, 2007, subject to receipt of at least $3.5 million in convertible notes financing which took place on November 16, 2007, the Bank waived such violation. The Bank adjusted the net loss covenant to become a monthly net loss covenant not to exceed a rolling three month net loss, included a minimum license revenue amount for the fourth quarter of 2007 and increased the interest rate. The interest rate changed to prime rate plus one and one-~~ONE~~quarter percent ~~INC~~(1.25%) ~~AND~~in ~~SUBSIDIARIES~~addition to a monthly collateral handling fee of one quarter of one percent (0.25%) of the average monthly financed receivable balance. If the Company’s liquidity ratio (as described in the Second Amended Agreement) was above 1.30:1.00, the interest rate would decrease to prime rate plus three-quarters of one percent (0.75%).

~~NOTES~~ On TOMarch 18, ~~CONSOLIDATED~~2008, ~~FINANCIAL~~the ~~STATEMENTS (continued)~~Company ~~(In~~and ~~thousands~~the Bank agreed to extend the term of the line of credit agreement through March 31, ~~except~~2009 ~~per~~under ~~share~~essentially ~~data)~~the same terms. The covenants remained a monthly net loss covenant not to exceed a rolling three month net loss and a quarterly minimum license revenue amount for each quarter of 2008.

For the quarter ended March 31, 2008, the Company was in compliance with its rolling three month net loss covenant, but was not in compliance with its quarterly license revenue covenant. The Bank waived such violation and changed the covenants for future periods from a minimum license revenue covenant and minimum three month rolling net loss covenant to (da) ~~Use~~a ofminimum ~~Management~~three ~~Estimates~~month rolling EBITDA covenant, (b) minimum cash and accounts receivable availability covenant and (c) a minimum equity infusion covenant of $500,000.

~~The~~ On ~~preparation~~May 22, of2008, ~~consolidated financial statements in conformity with accounting principles generally accepted in~~ the ~~United~~Company ~~States~~terminated ~~of America requires management to make estimates and assumptions that affect~~ the ~~reported~~Second ~~amounts~~Amended Agreement ofwith ~~assets~~Silicon ~~and~~Valley ~~liabilities~~Bank and ~~disclosure~~all ~~of contingent assets and liabilities at the date of the consolidated financial statements and the reported~~ amounts ofoutstanding were ~~revenues~~fully ~~and expenses during the periods presented~~paid. Actual results could differ from those estimates. Some of the significant estimates involve allowance for doubtful accounts, accrued expenses, provision for income taxes in foreign jurisdictions, assessment of contingencies, revenue recognition, valuation of deferred tax asset and compensation expense pursuant to SFAS No. 123R.

~~(e)~~ Sand ~~Cash~~Hill Finance, ~~and~~LLC ~~Cash Equivalents and Restricted Cash~~Financing

~~Cash~~ On ~~equivalents~~May 22, ~~are~~2008, ~~stated~~the atCompany ~~cost~~entered into a Financing Agreement (the “Financing Agreement”) with Sand Hill Finance, ~~which~~LLC ~~approximates~~(the ~~market~~“Lender”). ~~value~~Pursuant to the Financing Agreement, ~~and~~the ~~consist~~Lender ofmay ~~short-term~~advance the Company from time to time up to $1.0 million, ~~highly~~based ~~liquid~~upon ~~investments~~the ~~with~~sum ~~original~~of ~~maturities~~80% of ~~less~~the ~~than~~face value ~~three~~of ~~months~~United States accounts receivable secured by the Lender from the Company at the Lender’s sole discretion. ~~Restricted~~The security ~~cash~~of such accounts receivable is with full recourse against the Company. Advances under the Financing Agreement bear interest at ~~December 31, 2006~~a rate of 1.58% per month. The Financing Agreement has a term of one year (with an evergreen annual renewal provision unless either party provides notice of termination) and ~~2005~~contains ~~represents~~certain ~~amounts~~customary affirmative and negative non-financial covenants. The negative covenants include restrictions on ~~deposit~~change ~~for~~of ~~payments~~control, purchases and sales of assets, ~~lease~~dividends ~~obligations~~(other bythan ~~the~~dividends ~~South~~payable ~~African~~in stock) and stock ~~Australian~~repurchases. ~~subsidiaries~~Pursuant to the Financing Agreement, the Company pledged as collateral to the Lender substantially all of its assets.

~~(f) Allowance for Doubtful Accounts~~ 52

~~(g)~~ AXS-ONE INC. ~~Equipment~~AND ~~and Leasehold Improvements~~SUBSIDIARIES

~~Equipment~~ NOTES TO CONSOLIDATED ~~and~~FINANCIAL ~~leasehold~~STATEMENTS ~~improvements are stated at cost, less accumulated depreciation and amortization. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets~~ (~~two to five years~~continued)~~. Leasehold improvements are amortized using the straight-line method over the lesser of the remaining term of the lease or their estimated useful lives.~~

(h)In thousands, ~~Software~~except ~~Development~~per ~~Costs~~share data)

~~The~~ As ~~Company’s policy is to capitalize certain software development costs in accordance with Statement~~ of ~~Financial~~December 31, ~~Accounting Standards No. 86~~2008, ~~‘‘Accounting for~~ the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed’’ (‘‘SFAS 86’’). Under SFAS 86, costs incurred to develop or significantly enhance computer software products are charged to research and development expense as incurred until technological feasibility has been established. The Company ~~establishes~~had ~~technological~~borrowings ~~feasibility upon completion~~ of $700,000 aoutstanding ~~working~~pursuant ~~model or completion of a detailed program design. Generally costs related~~ to ~~projects that reach technological feasibility upon completion of a working model are not capitalized as~~ the ~~time~~Financing ~~period~~Agreement ~~between establishment of the working model~~ and ~~general~~had remaining availability is of ~~short duration. For projects that meet technological feasibility upon completion of a detailed program design~~$300, ~~all research and development costs for that project are capitalized from that point until the product is available for general release to customers~~000. The nature of the Company’s current development for RCM products is generally such that we can measure technological feasibility most effectively using the working model method where the time between establishment of a working model and general availability is of short duration which results in very little or no costs that qualify for capitalization. The

51(3) Convertible notes

On May 29, 2007, the Company entered into a Convertible Note and Warrant Purchase Agreement (the “Purchase Agreement”) pursuant to which it sold and issued an aggregate of $5.0 million of convertible notes consisting of (i) $2.5 million of Series A 6% Secured Convertible Promissory Notes due May 29, 2009 and (ii) $2.5 million of Series B 6% Secured Convertible Promissory Notes due May 29, 2009, together with warrants to purchase an aggregate of 2 million shares of common stock of AXS-~~ONE~~One. ~~INC~~Net cash proceeds to AXS-One after transaction expenses were approximately $4.9 million. ~~AND~~The notes ~~SUBSIDIARIES~~and warrants were sold in a private placement under Rule 506 promulgated under the Securities Act of 1933, as amended, to accredited investors.

~~NOTES~~ The TOSeries A ~~CONSOLIDATED~~notes ~~FINANCIAL~~mature ~~STATEMENTS (continued)~~on ~~(In~~May 29, ~~thousands~~2009, ~~except~~are convertible into AXS-One common stock at a fixed conversion rate of $1.00 per share, ~~data)~~bear interest of 6% per annum and are secured by substantially all the assets of AXS-One. The Series B notes mature on May 29, 2009, are convertible into AXS-One common stock at a fixed conversion rate of $2.50 per share, bear interest of 6% per annum and are secured by substantially all the assets of AXS-One. The security interest of the note holders has been subordinated to the security interest of AXS-One’s senior lender. Each series of notes may be converted at the option of the note holder at any time prior to maturity.

~~Company~~ Each ~~historically~~note ~~used~~holder received a ~~detailed~~warrant ~~program design model~~ to ~~measure~~purchase ~~technological~~a ~~feasibility~~number ~~for~~of shares ~~its~~of ~~enterprise~~AXS-One ~~solutions~~common ~~products.~~stock ~~This~~equal ~~shift~~to in40% ~~development~~ of the ~~Company’s~~principal amount ~~product~~of ~~lines~~notes ~~will~~purchased. ~~result~~Each inwarrant ~~lower~~has ~~capitalized~~an ~~costs~~exercise inprice ~~the future~~of $0.01 ~~The~~per ~~establishment~~share ofand ~~technological~~is ~~feasibility~~exercisable ~~and~~at ~~the~~any ~~ongoing~~time ~~assessment~~through May 29, of2014. ~~recoverability~~The value of ~~capitalized~~the ~~software~~warrants ~~development~~using ~~costs~~the Black-Scholes ~~require~~model ~~considerable~~is ~~judgment~~$1.3 million byusing ~~management~~the ~~with~~following assumptions; ~~respect~~issue todate ~~certain~~stock ~~external~~price ~~factors,~~of ~~including,~~$0.66 ~~but~~per ~~not~~share, ~~limited~~a risk-free ~~to,~~interest ~~anticipated~~rate ~~future~~of ~~revenues~~4.59%, ~~estimated~~a ~~economic~~term ~~life~~of ~~and~~seven ~~changes~~years inand volatility ~~technology~~of 66%. ItThe isCompany ~~reasonably~~calculated ~~possible~~the ~~that~~relative ~~estimates~~value of warrants ~~anticipated~~as ~~future~~a ~~revenues,~~percent ~~the~~of ~~remaining~~value ~~estimated economic life~~ of the ~~products,~~convertible ordebt ~~both~~and recorded ~~will be reduced in~~ the ~~future~~relative ~~due~~value toof ~~competitive~~$1 million ~~pressures.~~as ~~Upon~~a discount to the ~~general~~convertible ~~release~~debt ofoffset ~~the~~by ~~software~~an ~~product~~increase to additional-paid-in-capital. ~~customers,~~This ~~capitalization~~amount ~~ceases~~will ~~and~~be ~~such costs are~~ amortized ~~(using~~as interest ~~the~~expense ~~straight-line method)~~ over the ~~estimated~~two ~~life,~~year ~~which~~term isof ~~generally~~the ~~three~~convertible ~~years~~debt.

~~During~~ On ~~2006~~November 13, ~~and~~2007, ~~2005~~ the Company ~~did~~entered ~~not~~into ~~capitalize~~a Convertible ~~any~~Note ~~software~~and ~~development~~Warrant ~~cost~~Purchase ~~for~~Agreement ~~continuing~~pursuant ~~operations.~~to which ~~During~~it ~~2004~~sold ~~capitalized~~and ~~software~~issued ~~development~~on ~~costs~~November 16, ~~amounted~~2007 toan aggregate $~~100~~3.75 million ~~Annual~~of ~~amortization~~Series C of6% ~~software~~Secured ~~development~~Convertible Promissory ~~costs~~Notes due May 29, 2009 together with warrants to purchase an aggregate of ~~$313~~3,750,000 shares of common stock of AXS-One at an exercise price of $~~355~~.01 ~~and~~per share. Net cash proceeds to AXS-One after transaction expenses were approximately $~~341~~3.65 million. ~~for~~The ~~2006,~~Series C ~~2005~~notes and warrants ~~2004,~~were ~~respectively,~~sold ~~was~~in ~~recorded~~a ~~using~~private ~~the~~placement ~~straight-line~~under ~~method~~Rule 506 promulgated ~~over~~under ~~three~~the ~~years,~~Securities ~~the~~Act ~~estimated~~of ~~economic~~1933, ~~life~~as ofamended, ~~the~~to accredited ~~products~~investors.

~~(i)~~ The Series ~~Impairment~~C ornotes ~~Disposal~~will mature on May 29, 2009, are convertible into AXS-One common stock at a fixed conversion rate of ~~Long~~$1.00 per share, bear interest of 6% per annum and are secured by substantially all the assets of AXS-~~Lived~~One. ~~Assets~~The security interest of the Series C note holders has been subordinated to the security interest of AXS-One’s senior lender and ranks pari passu with the Series A and Series B convertible notes issued on May 29, 2007. The Series C notes are convertible at the option of the note holder at any time prior to maturity.

In Each ~~accordance~~Series C ~~with~~note ~~Statement~~holder ofalso ~~Financial~~received ~~Accounting~~a ~~Standards~~warrant ~~(‘‘SFAS’’)~~to purchase ~~No.~~a ~~144,~~number ~~‘‘Accounting~~of ~~for~~shares ~~the~~of ~~Impairment~~AXS-One orcommon ~~Disposal~~stock ofequal ~~Long-Lived~~to 100% ~~Assets,’’~~of the ~~Company~~principal ~~monitors~~amount ~~events~~of ornotes ~~changes~~purchased. inEach ~~circumstances~~warrant has ~~that~~an ~~may~~exercise ~~indicate~~price ~~carrying amounts~~ of ~~its long-lived assets may not be recoverable~~$0.01 ~~When~~per ~~such~~share ~~events~~and oris ~~changes~~exercisable inat any ~~circumstances~~time ~~are~~during ~~present,~~ the ~~Company~~seven ~~assesses~~year ~~the~~period ~~recoverability~~following ~~of its assets by determining whether~~ the ~~carrying~~closing. ~~amount~~The value of ~~its~~the ~~assets~~warrants ~~will~~using bethe ~~recovered~~Black-Scholes ~~through~~model ~~undiscounted, expected future cash flows~~is $1.8 million ~~Should~~using the ~~Company~~following ~~determine~~assumptions: ~~that~~issue ~~the~~date stock ~~carrying~~price ~~values~~ of ~~specific~~$0.50 ~~long-lived~~per ~~assets are not recoverable~~share, ~~the Company would record~~ a ~~charge~~risk tofree ~~operations~~interest torate ~~reduce~~of 4.04%, ~~the~~a ~~carrying~~term ~~value~~ of ~~such~~seven ~~assets~~years toand ~~their~~volatility ~~fair~~of ~~values~~63%. The Company calculated ~~considers~~the ~~various~~relative ~~valuation~~value ~~factors,~~of ~~principally~~warrants ~~discounted~~as ~~cash~~a ~~flows,~~percent toof ~~assess~~value of the ~~fair~~convertible ~~values of long-lived assets.~~debt

~~(j) Income Taxes~~ 53

~~(k) Concentration~~ AXS-ONE INC. ofAND ~~Credit Risk~~SUBSIDIARIES

~~SFAS~~ NOTES TO CONSOLIDATED ~~No.~~FINANCIAL ~~105,~~STATEMENTS ‘‘Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk,’’ requires disclosure of any significant off-balance sheet and credit risk concentrations. The Company has no off-balance sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. The Company maintains the majority of cash balances with four financial institutions and its accounts receivable credit risk is not concentrated within any geographic area. The Company’s revenues are concentrated in the computer software industry, which is highly competitive and rapidly changing. Significant technological changes in the industry or customer requirements, or the emergence of competitive products with new capabilities or technologies, could adversely affect operating results.(continued)

52 (In thousands, except per share data)

~~AXS-ONE~~ and ~~INC~~will record the relative value of $1.2 million ~~AND~~as ~~SUBSIDIARIES~~a discount to the convertible debt offset by an increase to additional-paid-in-capital. This amount will be amortized as interest expense over the eighteen month term of the convertible debt.

~~NOTES~~ On TOJuly 24, ~~CONSOLIDATED~~2008, ~~FINANCIAL~~the ~~STATEMENTS (continued)~~Company ~~(In~~entered ~~thousands~~into a Convertible Note and Warrant Purchase Agreement pursuant to which it sold and issued an aggregate of $2.1 million of Series D 6% Secured Convertible Promissory Notes due May 29, ~~except~~2009 together with warrants to purchase an aggregate of 4,200,000 shares of common stock of AXS-One at an exercise price of $.01 per share. ~~data)~~Net cash proceeds to AXS-One after transaction expenses were approximately $2.05 million. The Series D notes and warrants were sold in a private placement under Rule 506 promulgated under the Securities Act of 1933, as amended, to accredited investors.

As The ofSeries D ~~December 31, 2006,~~notes ~~three~~will ~~customers~~mature ~~represented~~on ~~44.6%~~May 29, ~~of total gross receivables (17.6%~~2009, ~~15.8%~~are convertible ~~and~~into ~~11.2%~~AXS-One ~~individually).~~common Asstock ofat ~~December 31, 2005,~~a ~~three~~fixed ~~customers~~conversion ~~represented 45.6%~~ rate of ~~total gross receivables (17.~~$1~~%, 16~~.8%00 ~~and~~per ~~11.7%~~share, ~~individually).~~bear Asinterest of ~~December 31, 2004,~~6% noper ~~one~~annum ~~customer~~and ~~represented~~are secured ~~more~~by ~~than~~substantially ~~10%~~all ~~of total gross receivables. For~~ the ~~year~~assets ~~ended~~of ~~December 31, 2006, two customers, represented 13~~AXS-One.6% ~~and~~The ~~13.3%,~~security interest ~~individually~~ of ~~total revenues. For~~ the ~~year~~Series D ~~ended~~note ~~December 31, 2005,~~holders ~~one~~has ~~customer~~been ~~represented~~subordinated to ~~18.4% of total revenues. For~~ the ~~year~~security ~~ended~~interest ~~December 31, 2004, one customer represented 10.3%, individually,~~ of ~~total~~Sand ~~revenues.~~Hill ~~For the year ended December 31~~Finance, ~~2006,~~ ~~two~~AXS-One’s current ~~customers~~senior ~~represented~~lender ~~31.5%~~ and ~~14.3%~~ranks ofpari ~~license~~passu ~~revenue.~~with ~~For~~ the Series A ~~year~~and ~~ended~~Series B ~~December 31, 2005,~~convertible ~~three~~notes ~~customers~~issued ~~represented 26.8%~~on May 29, ~~16.4%~~2007 and ~~12.2%, individually, of license revenue. For~~ the ~~year~~Series C ~~ended~~convertible ~~December 31, 2004,~~notes ~~two~~issued on ~~customers represented 15.3% and 14.0%~~November 13, ~~individually, of license revenue~~2007. ~~For~~The ~~the~~Series D ~~year~~notes ~~ended~~are convertible ~~December 31, 2006,~~at ~~one customer represented 13.0% of service revenue. For~~ the ~~year~~option ~~ended December 31, 2005, one customer represented 13.6%~~ of ~~service revenue. For~~ the ~~year~~note ~~ended~~holder ~~December 31, 2004,~~at noany ~~one~~time ~~customer~~prior to ~~represented more than 10% of service revenues~~maturity.

~~(l)~~ Each ~~Foreign~~Series D ~~Currency~~note ~~Translation~~holder also received a warrant to purchase a number of shares of AXS-One common stock equal to 200% of the principal amount of notes purchased. Each warrant has an exercise price of $0.01 per share and is exercisable at any time during the seven year period following the closing. The value of the warrants using the Black-Scholes model is $1.8 million using the following assumptions: issue date stock price of $0.43 per share, a risk free interest rate of 3.49%, a term of seven years and volatility of 67%. The Company calculated the relative value of warrants as a percent of value of the convertible debt and will record the relative value of $1.0 million as a discount to the convertible debt offset by an increase to additional-paid-in-capital. This amount will be amortized as interest expense over the ten month term of the convertible debt.

~~The~~ On ~~functional~~October 30, ~~currency~~2008, ~~for foreign subsidiaries is~~ the ~~local~~Company ~~currency.~~entered ~~The results of operations for these foreign subsidiaries are translated from local currencies~~ into ~~U.S.~~a ~~dollars~~Convertible Note ~~using~~and ~~the~~Warrant ~~average~~Purchase ~~exchange~~Agreement ~~rates~~pursuant ~~during~~to ~~each~~which ~~period.~~it ~~Assets~~ sold and ~~liabilities~~issued ~~are~~an ~~translated~~aggregate ~~using~~of ~~exchange~~$1.1 million ~~rates at the end~~ of ~~the~~Series E ~~period~~6% Secured ~~with~~Convertible ~~translation~~Promissory ~~adjustments~~Notes ~~accumulated~~due inMay 29, ~~stockholders’~~2009 together ~~earnings~~with ~~(deficit).~~warrants ~~Intercompany~~to ~~loans~~purchase ~~are~~an ~~denominated~~aggregate inof 3,300,000 shares ~~U.S.~~of ~~currency.~~common ~~Foreign~~stock ~~currency~~of ~~transaction gains and losses, related to short~~AXS-~~term~~One ~~intercompany~~at ~~loans,~~an ~~are~~exercise price ~~recorded in the consolidated statements~~ of ~~operations~~$.01 asper ~~incurred~~share. ~~Intercompany~~Net ~~loans~~cash ~~that~~proceeds ~~are~~to ~~of a long~~AXS-~~term~~One ~~nature~~after transaction ~~are~~expenses ~~accounted~~were ~~for~~approximately in$1.0 million. ~~accordance~~The Series E ~~with~~notes ~~SFAS 52, ‘‘Foreign Currency Translation,’’ whereby foreign currency transaction gains~~ and ~~losses~~warrants ~~are~~were ~~recorded~~sold in ~~cumulative foreign currency translation adjustment,~~ a ~~component~~private placement ofunder ~~stockholders’~~Rule 506 ~~equity~~promulgated ~~(deficit).~~under Asthe Securities Act of ~~December 31~~1933, ~~2006,~~ ~~2005,~~as ~~and 2004~~amended, ~~intercompany loans~~ to ~~one~~accredited ~~foreign subsidiary were considered long-term in nature~~investors.

~~(m)~~ The Series ~~Stock~~E notes will mature on May 29, 2009, are convertible into AXS-~~Based~~One ~~Compensation~~common stock at a fixed conversion rate of $1.00 per share, bear interest of 6% per annum and are secured by substantially all the assets of AXS-One. The security interest of the Series E note holders has been subordinated to the security interest of Sand Hill Finance, AXS-One’s current senior lender and ranks pari passu with the Series A and Series B convertible notes issued on May 29, 2007, the Series C convertible notes issued on November 16, 2007 and the Series D convertible notes issued on July 24, 2008. The Series E notes are convertible at the option of the note holder at any time prior to maturity.

~~Historically,~~ Each ~~the~~Series E ~~Company~~note ~~accounted~~holder ~~for~~also ~~stock-based~~received ~~compensation~~a ~~under~~warrant ~~the~~to purchase ~~recognition~~a ~~and~~number ~~measurement~~of ~~principles~~shares of ~~Accounting~~AXS-One ~~Principles~~common ~~Board~~stock ~~Opinion~~equal ~~(‘‘APB’’) No. 25, ‘‘Accounting for Stock Issued~~ to 300% ~~Employees’’~~of ~~(‘‘APB~~the ~~25’’),~~principal ~~and~~amount ~~related interpretations and disclosure provisions~~ of ~~Statement~~notes ofpurchased. ~~Accounting~~Each ~~Standards~~warrant has ~~SFAS~~an ~~123~~exercise ~~‘‘Accounting~~price ~~For~~of ~~Stock-Based Compensation’’~~$0.01 ~~Under~~per ~~this~~share ~~pronouncement,~~and nois ~~compensation~~exercisable ~~expense~~at any ~~related~~time toduring ~~stock option plans was reflected in~~ the ~~Company’s~~seven ~~Consolidated~~year ~~Statements~~period offollowing ~~Operations as all options had an exercise price equal to~~ the ~~market~~closing. The value of the ~~underlying~~warrants ~~common~~using ~~stock on~~ the ~~date~~Black-Scholes ofmodel ~~grant~~is $0.6 million ~~Compensation~~using ~~cost~~the ~~for~~following ~~non-vested~~assumptions: ~~restricted~~issue date stock ~~grants~~price ~~was~~of ~~recorded~~$0.18 ~~based~~per onshare, ~~its~~a ~~market~~risk ~~value~~free oninterest ~~the~~rate ~~date~~ of 2.88%, ~~grant~~a ~~and~~term ~~was~~of ~~included~~seven inyears ~~the~~and ~~Company’s~~volatility ~~Consolidated Statements~~ of ~~Operations~~70%. ~~ratably~~The ~~over~~Company calculated the ~~vesting~~relative ~~period.~~value ~~Upon the grant~~ of ~~non-vested~~warrants ~~restricted~~as ~~stock,~~a ~~unearned~~percent ~~stock~~of ~~compensation~~value of ~~was~~the ~~recorded~~convertible asdebt anand ~~offset~~will torecord ~~additional~~the ~~paid-in~~relative ~~capital~~value ~~and~~of $0.4 million ~~was~~as ~~amortized on~~ a ~~straight-line~~discount ~~basis~~to asthe ~~compensation~~convertible ~~expense~~debt ~~over~~offset by ~~the~~an ~~vesting~~increase ~~period.~~to

On January 1, 2006, the start of the first quarter of fiscal 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R (revised 2004), ‘‘Share-Based Payment’’ (‘‘SFAS 123R’’) which requires that the costs resulting from all share-based payment transactions be recognized in the financial statements at their fair values. The Company adopted SFAS 123R using the modified prospective application method under which the provisions of SFAS 123R apply to new awards granted after the adoption date and to awards modified, repurchased, or cancelled after the adoption date. Additionally, compensation cost for the portion of the awards for which the requisite service has not been rendered that are outstanding as of the adoption date is recognized in the Consolidated Statement of Operations over the remaining service period after the adoption date based on the award’s original estimate of fair value. In connection with the adoption of SFAS 123R, the unearned stock compensation 54

AXS-ONE INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ~~(In thousands, except per share data)~~

~~at December 31~~ (In thousands, ~~2005~~ ofexcept ~~$177~~per relating to previous grants of non-vested restricted stock was offset against additional paid-in capital during the first quarter of fiscal 2006. Results for prior periods have not been restated. Total share~~-based~~ ~~compensation expense recorded in the Consolidated Statements of Operations for 2006 is $429.~~data)

~~As a result of adopting SFAS 123R on January 1, 2006, the Company’s net income for 2006 is $200 lower than if it had continued to account for share~~ additional-~~based compensation under APB No~~paid-in-capital. ~~25.~~This ~~Basic~~amount ~~and~~will ~~diluted~~be ~~earnings~~amortized ~~per~~as interest ~~share~~expense ~~for~~over ~~2006~~the ~~did~~ten ~~not~~month ~~change~~term ~~as a result~~ of the ~~Company~~convertible ~~adopting SFAS 123R~~debt.

On The ~~November 10, 2005,~~effective ~~the~~interest ~~FASB~~rate ~~issued~~on ~~FASB~~the ~~Staff~~convertible ~~Position~~notes ~~123(R)-3~~exceeds ~~(‘‘FSP~~the coupon ~~123R-3’’),~~rate ~~‘‘Transition~~due ~~Election Related~~ to ~~Accounting for~~ the ~~Tax~~amortization ~~Effects~~ of ~~Share-based~~the ~~Payment~~discount ~~Awards,’’ that provides an elective alternative transition method~~ of ~~calculating~~ the ~~pool~~debt resulting offrom ~~excess tax benefits available to absorb tax deficiencies recognized subsequent to~~ the ~~adoption~~issuance of ~~SFAS 123R (~~the ~~‘‘APIC Pool’’) to the method otherwise required by paragraph 81 of SFAS 123R~~warrants. ~~The Company is currently using prior period net operating losses and has not realized any tax benefits under SFAS 123R.~~

On Convertible ~~October 26, 2005,~~note ~~the~~details ~~Board~~at of Directors of the Company approved the acceleration of vesting of all unvested ‘‘out-of-the money’’ stock options previously awarded to current employees and directors under the Company’s stock option plans. The accelerated options had exercise prices ranging from $2.15 to $6.25 with a weighted average exercise price of $2.99. Options to purchase approximately 2December 31,~~200~~ ~~shares~~2008 ~~became~~are ~~exercisable immediately~~ as a result of the vesting acceleration. To avoid any unintended personal benefits, the Company also imposed a holding period on the shares underlying the accelerated options in the form of a Resale Restriction Agreement. This agreement requires all optionees to refrain from selling any shares acquired upon the exercise of the accelerated options until the earlier of the date such shares would have vested under the options’ original vesting terms or the date of the employee’s or director’s termination from the Company. As a result of this acceleration, the Company reduced the stock compensation expense it otherwise would have been required to record beginning in January 2006 upon adoption of SFAS 123R by approximately $4,100 over approximately 2.5 years. In making the decision to accelerate these options, the Board of Directors considered the interests of the Company’s stockholders, as this acceleration will reduce compensation expense in future periods. The acceleration did not result in a compensation expense in 2005 as the option modification did not have any intrinsic value as of the date of the modification. follows:

The following table illustrates the effect on net loss and net loss per common share applicable to common stockholders for 2005 and 2004, as if the Company had applied the fair value recognition provisions for stock-based employee compensation of SFAS 123, as amended:


								Amortization of		Carrying		Carrying
	Face		Original			Accrued interest		debt discount		amount as of		amount as of
(in thousands)	amount		discount			thru 12/31/08		thru 12/31/08		12/31/08		12/31/07

May 29, 2007 agreement	$	5,000	$	(1,047	)	$	495	$	808	$	5,256	$	4,410
November 13, 2007 agreement		3,750		(1,238	)		259		855		3,626		2,627
July 24, 2008 agreement		2,100		(961	)		55		418		1,612		—
October 30, 2008 agreement		1,100		(382	)		11		93		822		—

	$	11,950	$	(3,628	)	$	820	$	2,174	$	11,316	$	7,037

	Years Ended December 31,
	2005				2004
Net loss as reported		$	(8,998	)		$	(5,212	)
Add: Stock based compensation expense			37				—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards			(5,633	)			(1,434	)
Pro forma net loss		$	(14,594	)		$	(6,646	)
Net (loss) per common share:
Basic and diluted – as reported		$	(0.28	)		$	(0.19	)
Basic and diluted – pro forma		$	(0.46	)		$	(0.24	)


(4)	Lease Obligations

54 The Company leases office space and equipment under non-cancelable operating leases. Rent expense charged to continuing operations in the accompanying consolidated statements of operations for office space, vehicles and equipment under operating leases was $842 and $1,469 for the years ended December 31, 2008 and 2007, respectively.

~~AXS~~ Scheduled future minimum payments required for all non-~~ONE~~cancelable ~~INC.~~operating ~~AND~~leases ~~SUBSIDIARIES~~are as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In thousands, except per share data)


Years ending December 31,

2009	$	895
2010		870
2011		768
2012		16
2013/Thereafter		—

Total	$	2,549

The fair value of options granted is estimated on the date of grant using a Black-Scholes option pricing model. Expected volatilities are calculated in part based on the historical volatility of the Company’s stock. Management monitors share option exercise and employee termination patterns to estimate forfeiture rates within the valuation model. The expected life of options represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the expected life of the option is based on the interest rate of a (5~~-year~~) ~~U.S.~~Related ~~Treasury~~Party ~~note in effect on the date of the grant.~~Transactions

~~The~~ A ~~table~~portion ~~below~~of ~~presents~~the convertible notes described in Note 3 above were issued to members of the ~~assumptions~~Board ~~used~~of Directors or their affiliates. $3.0 million of the convertible notes issued on May 29, 2007 were issued to ~~calculate~~BlueLine Partners, LP, whose Managing Director is Timothy Bacci, who thereupon became a member of AXS-One’s Board of Directors. $2.0 million of the ~~fair~~convertible ~~value~~notes issued on November 6, 2007 were issued to five members of ~~options~~the ~~granted~~Company’s ~~during~~Board ~~2006~~of Directors or their affiliates, ~~2005~~namely, BlueLine Partners, LP, Harold Copperman, Anthony Bloom, Robert Migliorino, and ~~2004~~Daniel Burch. $0.9 million of the convertible notes issued on July 24, 2008 were issued to five directors or officers, namely, Harold Copperman, Anthony Bloom, Robert Migliorino, William Lyons and Philip Rugani. $0.9 million of the convertible notes issued on October 30, 2008 were issued to five directors or officers, namely, BlueLine Partners, LP, Harold Copperman, Anthony Bloom, William Lyons, and Philip Rugani.

	Years Ended December 31,
	2006				2005				2004
Risk-free interest rates			4.65	%			4.60	%			5.02	%
Expected dividend yield			—				—				—
Expected lives	5 years				5 years				5 years
Expected volatility			92	%			99	%			103	%
Forfeiture rate			14.4	%			n/a				n/a
Weighted-average grant date fair value of options granted during the period		$	1.37			$	1.59			$	2.30

Basic and diluted net income (loss) per common share is presented in accordance with SFAS No. 128, ‘‘Earnings per Share’’ (‘‘SFAS No. 128’’). Basic net income (loss) per common share is based on the weighted AXS-~~average number of shares of common stock outstanding during the period~~ONE INC. ~~Diluted~~AND net income (loss) per share is computed using the weighted average number of common and dilutive potential common shares outstanding during the period. Potential common shares consist of stock options, non-vested stock and warrants. Diluted net loss per common share was the same as basic net loss per common share for the years ended December 31, 2006, 2005 and 2004 since the effect of stock options, non-vested stock and warrants was anti-dilutive for all years. As of December 31, 2006, 2005 and 2004, there were outstanding options to purchase 5,528, 6,370 and 7,453 shares of common stock and outstanding warrants to purchase 1,143, 1,423 and 516 shares of common stock. As of December 31, 2006, 2005 and 2004, there were 1,076, 95 and 0 shares of non-vested stock outstanding.SUBSIDIARIES

~~The~~ NOTES TO CONSOLIDATED ~~following~~FINANCIAL ~~represents~~STATEMENTS ~~the calculations of the basic and diluted net income~~ (~~loss~~continued) ~~per common share for the years ended December 31, 2006, 2005 and 2004.~~

	Years Ended December 31,
	2006			2005				2004
Net income (loss)		$	5,501		$	(8,998	)		$	(5,212	)
Weighted average basic common shares outstanding during the year			34,405			31,629				27,395
Dilutive effect of stock options and warrants			—			—				—
Weighted average diluted common shares outstanding during the year			34,405			31,629				27,395
Basic and diluted net income (loss) per common share		$	0.16		$	(0.28	)		$	(0.19	)

(In thousands, except per share data)

55(6) Income Taxes

~~AXS-ONE~~ The ~~INC.~~components ~~AND~~of ~~SUBSIDIARIES~~loss before income tax benefit, net are as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (In thousands, except per share data)


	Years Ended December 31,
	2008			2007

Domestic	$	(8,328	)	$	(9,492	)
Foreign		(1,862	)		(5,167	)

Total	$	(10,190	)	$	(14,659	)

Income tax (oexpense) ~~Fair~~ ~~Value~~benefit ofis ~~Financial~~as ~~Instruments~~follows:

Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other current liabilities reported in the consolidated balance sheets equal or approximate fair values.


	Years Ended December 31,
	2008		2007

Federal	$	—	$	—
State		5		(47	)
Foreign		41		(240	)

Total	$	46	$	(287	)

~~(p)~~ The ~~Deferred~~tax ~~Revenue~~benefit in 2008 related to a reduction in a potential withholding tax in foreign subsidiaries and state income tax provisions. The tax provision in 2007 is related to potential withholding taxes in foreign subsidiaries and state income tax provisions.

~~Deferred~~ A ~~revenue~~reconciliation ~~primarily~~of ~~relates~~Federal toincome ~~customer~~tax ~~software~~(expense) ~~maintenance~~benefit ~~agreements~~at ~~that~~the statutory ~~have~~rate ~~been~~of ~~paid~~34% ~~for by customers prior~~ to ~~the~~income ~~performance~~tax ofbenefit ~~those~~reflected ~~services~~in ~~and,~~the accompanying toconsolidated astatements ~~lesser~~of ~~extent,~~operations ~~prepaid~~is ~~consulting~~as ~~and deferred license fees.~~follows:

(q) Accounting for Guarantees


	Years Ended December 31,
	2008			2007

Federal income tax benefit at 34%	$	3,449		$	4,999
State income tax benefit, net of Federal tax benefit		436			516
Change in valuation allowance		(3,410	)		(5,196	)
Foreign tax rate differential and change in foreign net operating loss carryforwards (NOL’s)		(121	)		(347	)
Other, net		(308	)		(259	)

	$	46		$	(287	)

The Company warrants that each version of its software will substantially conform to the latest edition of the documentation applicable to that version. Such warranties are accounted for in accordance with SFAS No. 5, ‘‘Accounting for Contingencies.’’ To date the Company has not incurred significant costs related to warranty obligations. 56

Position

William P. Lyons

Chairman of the Board and Chief Executive Officer

Joseph P. Dwyer

Executive Vice President, Chief Financial Officer and Treasurer

Philip L. Rugani

Executive Vice President, Field Operations

~~From time to time, the Company may provide guarantees to third parties on behalf of a foreign subsidiary~~ AXS-ONE INC. ~~These~~AND guarantees are generally related to maintaining operations in a certain locality or to secure leases or other operating obligations of a subsidiary. The maximum exposure on these guarantees is not significant, either individually or in the aggregate.SUBSIDIARIES

~~(r)~~ NOTES TO CONSOLIDATED ~~Recently~~FINANCIAL ~~Issued~~STATEMENTS ~~Accounting Standards~~(continued)

(In ~~July 2006~~ thousands, ~~the~~except ~~FASB~~per ~~issued~~share FIN 48 ‘‘Accounting for Uncertainty in Income Taxes.’’ This interpretation requires that we recognize in our financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We believe the impact of adopting FIN 48 on our financial statements will not be material.data)

In September 2006, the FASB issued Statement No. 157 ‘‘Fair Value Measurements’’, which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosure about fair value measurement. FASB Statement No. 157 applies to other accounting pronouncements that require fair value measurements or permit fair value measurements. The ~~new~~principal ~~guidance~~components is effective for financial statements issued for fiscal years beginning after November 15, 2007 and for interim periods within those fiscal years. We are currently evaluating the potential impact, if any, of the ~~adoption~~Company’s ofdeferred ~~FASB~~taxes are ~~Statement~~as ~~No. 157 on our consolidated financial position, results of operations and cash flows.~~follows:

(2) Discontinued operations


	December 31,
	2008		2007

Deferred tax assets:
Accruals and other	$	671	$	756
Allowance for doubtful accounts		11		22
Depreciation		274		327
Research and development credit carry-forwards		2,895		2,895
Net operating loss carry-forwards		28,348		26,169

Deferred tax assets		32,199		30,169
Less valuation allowance		32,199		30,169

Net deferred taxes	$	—	$	—

On As ~~October~~ of December 31, ~~2006~~ 2008, the Company ~~sold~~had ~~certain~~United ~~assets~~States ~~and~~net operating ~~liabilities~~loss ~~through~~carry-forwards of approximately $64,049 which itare available ~~operated~~to ~~the~~offset ~~AXS-One~~future ~~Enterprise~~Federal ~~Solutions~~taxable ~~financial~~income, ~~management~~if any, and which ~~accounting~~will ~~applications~~begin ~~business~~to ~~(‘‘Enterprise~~expire ~~Solutions’’)~~in to2010. ~~Computron~~In ~~Software~~addition, ~~LLC~~foreign ~~for~~net operating ~~the~~loss ~~sum~~carry-forwards ofaggregated approximately $1216,~~000~~319 at inDecember 31, ~~cash~~2008, ~~plus~~which ~~future~~are ~~potential~~not ~~consideration~~generally ~~for~~subject ~~exceeding specified license revenue targets~~to expiration. ~~The~~None ~~assets sold~~ of ~~approximately~~the ~~$2,100~~net ~~primarily~~operating ~~consist~~loss ofcarry-forwards ~~client~~are limited ~~contracts,~~by ~~marketing~~IRC ~~agreements~~section 382, ~~internally~~however ~~developed~~subsequent ~~software,~~changes ~~accounts~~in the ~~receivable~~ownership ~~and~~of ~~fixed~~the ~~assets~~Company ofmay ~~the~~trigger ~~business.~~a ~~The~~limitation ~~liabilities~~in ~~assumed~~our ability ofto ~~approximately~~utilize ~~$8,300,~~the ~~consist~~NOL’s each year.

56 In accordance with FASB 109, the Company has recorded a valuation allowance for its net deferred tax assets due to the Company’s history of net losses. The Company will monitor the realizability of such assets in future years. Approximately $1,392 and $2,398 of the Company’s deferred tax asset pertaining to NOLs and the corresponding valuation allowance at December 31, 2008 and 2007, respectively, relates to tax deductions arising from the exercise of restricted stock and stock options and/or subsequent sales of the underlying stock. For book purposes, the tax benefits related to such stock transactions are recorded through equity when realized.

~~AXS~~ Foreign subsidiaries have paid, and are expected to continue to pay, appropriate taxes, if and when due, to their respective taxation authorities. It is the intention of the Company to reinvest the earnings of its non-~~ONE~~U.S. subsidiaries, if ~~INC~~any, in those operations. ~~AND~~Accordingly, ~~SUBSIDIARIES~~no Federal taxes have been provided on undistributed foreign earnings and no deferred tax liability for temporary differences related to the Company’s foreign subsidiaries have been established as the determination of the amounts is not practical.

~~NOTES~~ Effective TOJanuary 1, ~~CONSOLIDATED~~2007 ~~FINANCIAL~~the ~~STATEMENTS (continued)~~Company ~~(In~~adopted ~~thousands~~FASB Interpretation No. 48, ~~except~~Accounting ~~per~~for s

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