##### Table of Contents





UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, DC 20549
  FORM 10-K
  Annual Report Pursuant to
    Section 13 or 15(d) of the Securities Exchange Act of
    1934
    For the fiscal year ended December 31, 2008
  Commission File Number: 0-26358
  AXS-ONE INC.
 (Exact name of registrant as
    specified in its charter)
  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)   201-935-3400
 (Registrants telephone
    number, including area code)
  Securities Registered Pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of each exchange on which
    registeredNone.   Securities Registered Pursuant to Section 12(g) of the
    Act:
 Common Stock $.01 par value
  o x
  o x
  x o
  Regulation S-K Form 10-K Form 10-K. o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company x   Rule 12b-2 o x
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Items 10, 11, 12, 13 and 14 of Part III are
    incorporated by reference from a portion of the
    Registrants definitive proxy statement to be furnished to
    stockholders in connection with the 2009 Annual Meeting of
    Stockholders.




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PART I
  Item 1.
    Business    General
  E-Discovery,
    Products
  tm e-mail
  tm tm Rule 17a-4
 2




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e-mail e-mail e-mail tm e-mail
    AXS-One
    Records Compliance Management Architecture
  e-mail, e-discovery e-discovery
 3




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e-mail e-mail e-mail
  e-discovery
  e-mail
    AXS-One
    Records Compliance Management Products
  e-mail
  Distribution
    Client
    Services
   4




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Client
    Support
      e-mails
  Consulting
    Services
    Education
    Services
    Backlog
   5




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Revenue
    Concentrations
    Foreign
    Office Revenue
    Strategic
    Alliances and Business Development Programs
    go-to-market
    Product
    Development
  and/or
   6




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##### Table of Contents



Competition
  e-discovery
  Intellectual
    Property
    ® ® ®
  Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K
  Executive
    Officers of the Registrant
    Name

Age

PositionWilliam P. Lyons


64


Chairman of the Board and Chief Executive OfficerJoseph P. Dwyer


53


Executive Vice President, Chief Financial Officer and TreasurerPhilip L. Rugani


51


Executive Vice President, Field Operations  7




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##### Table of Contents



William P. Lyons
  Joseph P. Dwyer
  Philip L. Rugani
  Item 1A.
    Risk
    Factors  We
    have risks relating to liquidity.
   8




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##### Table of Contents



We
    have a previous history of net losses.
      
    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.    
    our clients must commit a significant amount of capital,
    frequently, a license purchase must be authorized through the
    multiple channels within a clients organization, and
    sales are driven through our partners, reducing our control over
    the sales cycle.     9




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
    a high percentage of our operating expenses are relatively
    fixed, and
    only a small percentage of our operating expenses vary with our
    revenues.  period-to-period quarter-to-quarter
    
    our customers budgeting and purchasing patterns, and
    our sales commission policies.        Our
    auditors have expressed substantial doubt about AXS-Ones
    ability to continue as a going concern.
    The
    market in which we compete is intensely
    competitive.
    
    timing and market acceptance of new products and enhancements
    developed by us, as well as by our competitors,
    whether our products are reliable, how they function, perform,
    and are priced,
    our customer service and support,
    our sales and marketing efforts, and
    our product distribution.   10




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
    reducing the price of our products,
    reducing our gross margins, and
    losing our market share.    AXS-One
    depends on one principal suite of products for its
    revenues.
    
    achieving broader market acceptance of our products and services,
    expanding our relationships with vendors in the hosting and
    emerging subscription market as well as our Value-Added Reseller
    network worldwide,
    expanding our relationships with systems integrators,
    maintaining our existing customer base,
    expanding our customer base, as well as
    enhancing our products and services to meet our customers
    evolving needs.    
    demand in the market for our type of software is reduced,
    competition increases, or
    sales of such products or services decline, 11




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Deterioration
    in general economic conditions has caused and could cause
    additional decreases or delays in spending by our customers and
    could harm our ability to generate license revenues and our
    results of operations.
      AXS-One
    has a concentration of revenues from certain
    customers.
      AXS-Ones
    market is characterized by new products frequently being
    introduced, rapid technology changes, product defect risks, and
    development delays.
      
    operating systems,
    hardware platforms, 12




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
    new environments such as subscription and hosting providers,
    interfaces, and
    third party hardware and application software.    
    we will be successful in developing and marketing product
    enhancements or new products that respond to:  
    technological change,
    changes in customer requirements, or
    emerging industry standards.  
    we will not experience difficulties that could delay or prevent
    our successfully developing, introducing and marketing new
    products and enhancements, or
    any new products or enhancements that we may introduce will be
    accepted by our target market.    
    hardware and software vendors,
    relational database management systems vendors,
    ERP software vendors,
    reporting software vendors,
    open source community,
    IM software vendors, or
    e-mail
    system vendors.    We may
    not be successful in convincing customers to migrate to future
    releases of our products.
   13




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An
    investment in our common stock may be less attractive because it
    is not traded on a recognized public market.
    Rules 15g-1 15g-9
  In the
    future, AXS-One may not have sufficient capital resources to
    fully carry out its business plans.
        AXS-One
    depends upon its proprietary technology and if we were unable to
    protect our technology, our competitive position would be
    adversely affected.
   14




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Our
    products may become subject to infringement
    claims.
    A
    security breach could harm our business.
    A
    variety of risks associated with AXS-Ones international
    operations could adversely affect our business.
     15




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Percentage ofYear

Amount

Total Revenues2008

$3.7 million

27.2%2007

$5.0 million

41.7%
     
    unexpected changes in tariffs, trade barriers and regulatory
    requirements,
    costs of localizing products for foreign countries,
    lack of acceptance of localized products in foreign markets,
    longer accounts receivable payment cycles,
    difficulties managing international operations,
    potentially adverse tax consequences,
    restrictions on repatriation of earnings,
    loss of key personnel,
    reduced legal protection of our intellectual property, and
    the burden of complying with a wide variety of foreign laws.    We
    rely on certain third-party relationships.
    
    enhance our product development,
    market and sell our products,
    implement our software products, and
    support our customers.     16




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We
    rely on strategic partners and resellers for a large portion of
    our new license revenue.
    AXS-Ones
    executive officers, directors and affiliates own a significant
    amount of its common stock.
    
    electing directors, and
    mergers, consolidations, and sale of all or substantially all of
    our assets.  AXS-One
    relies on its key personnel and may have difficulty attracting
    and retaining the skilled employees it needs to operate
    successfully.
      AXS-Ones
    common stock trading price may be volatile for reasons over
    which it may have little or no control.
    
    quarterly variations in our operating results,
    the gain or loss of significant contracts,
    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 software and computer industries,
    general economic and market conditions and
    limited trading volume of our common stock.   17




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AXS-One
    has never paid or declared dividends and does not expect to in
    the foreseeable future.
    Changes
    in laws and regulations that affect the governance of public
    companies have increased our operating expenses and will
    continue to do so.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  sub-leases
  Item 3.
    Legal
    Proceedings  and/or
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   18




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PART II
  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  mark-ups,
    Period

High


Low2008First quarter

$
0.51


$
0.25Second quarter


0.55



0.12Third quarter


0.50



0.13Fourth quarter


0.33



0.052007First quarter

$
0.90


$
0.58Second quarter


0.85



0.51Third quarter


0.84



0.38Fourth quarter


0.77



0.25       Item 6.
    Selected
    Financial Data    Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations      Overview
   19




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E-Discovery,
          e-mail e-mail e-mail
   20




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(e-delivery), time-to-value. E-Delivery
   21




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Results
    of Operations
    Year Ended


Year EndedDecember 31, 2008


December 31, 2007Data as a





Data as aTotal


percent of


Total


percent of(dollars in millions)

Consolidated


revenue


Consolidated


revenueRevenues:License fees

$
4.3



32.1
%

$
4.1



34.2
%Services


9.1



67.9



7.9



65.8Total revenues


13.4



100.0



12.0



100.0Operating expenses:Cost of license fees


0.3



2.2



0.5



4.2Cost of services


4.3



32.1



5.7



47.5Sales and marketing


6.6



49.3



8.0



66.7Research and development


5.6



41.8



7.0



58.3General and administrative


3.9



29.1



4.4



36.7Restructuring and other costs


0.3



2.2



0.5



4.1Total operating expenses


21.0



156.7



26.1



217.5Operating 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
)%   2008
    Compared to 2007
  Revenues
      Years Ended December 31,2008


2007% of





% of(in thousands)

Amount


Total


Amount


TotalMaintenance

$
6,371



70
%

$
5,409



69
%Consulting


2,666



29



1,907



24Subscription revenue


103



1



575



7Total services revenues

$
9,140



100
%

$
7,891



100
%    22




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E-Delivery
  Operating
    Expenses
            Operating
    Loss
    Other
    Expense, Net
    Net
    loss
   23




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Liquidity
    and Capital Resources
    Liquidity
    and Cash Flow
             24




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Silicon
    Valley Bank Financing
              Sand Hill
    Finance, LLC Financing
   25




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Secured
    Convertible Note Financings
               26




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Critical
    Accounting Policies
    Revenue
    Recognition
  97-2, (SOP 97-2), 98-9, SOP 97-2,
 27




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No. 01-14,
  Recently
    Issued Accounting Standards
   28




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FAS 157-2 
      Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk    Item 8.
    Financial
    Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.   29




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Item 9A(T)
    Controls
    and Procedures  Evaluation
    of disclosure controls and procedures
  Rule 13a-15(e))
  Managements
    Annual Report on Internal Control over Financial
    Reporting
            Item 9B.    Other
    Information
   30




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PART III
  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Regulation S-K
  Item 11.
    Executive
    Compensation  Regulation S-K
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Regulation S-K
  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Regulation S-K
  Item 14.
    Principal
    Accountant Fees and Services   31




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##### 



PART IV
  Item 15.
    Exhibits
    and Financial Statement Schedules  (a) (1)    Consolidated Financial
    Statements:
   
 Page No.Report of Independent Registered Public
    Accounting Firm, Amper, Politziner and Mattia LLP


38Consolidated Balance Sheets at December 31,
    2008 and 2007


39Consolidated Statements of Operations for the
    years ended December 31, 2008 and 2007


40Consolidated Statements of Comprehensive Loss for
    the years ended December 31, 2008 and 2007


41Consolidated Statements of Stockholders
    Equity (Deficit) for the years ended December 31, 2008 and
    2007


42Consolidated Statements of Cash Flows for the
    years ended December 31, 2008 and 2007


43Notes 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    (a) (3)    Exhibits:
  3
.1(a)

Fourth Amended and Restated Certificate of Incorporation3
.2(ff)

Certificate of Amendment to Certificate of Incorporation3
.3(a)

Amended and Restated Bylaws of the Company4
.1(dd)

Form of Common Stock Certificate10
.1(a)+

Employment Agreement between the Company and Elias Typaldos, as
    amended10
.2(c)+

1995 Stock Option Plan, as amended10
.3(b)

Securities Purchase Agreement10
.4(c)

Amendment to Securities Purchase Agreement10
.5(d)+

1998 Stock Option Plan, as amended10
.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, 200410
.9(h)+

Employment Agreement between the Company and William P. Lyons10
.10(i)+

Employment Agreement between the Company and Joseph P. Dwyer10
.11(i)

First Loan Modification to the Loan & Security
    Agreement dated January 27, 200510
.12(j)

Unit subscription agreement dated April 1, 2004,
    Class A Warrants, Class B Warrants, and Investor
    Rights Agreements dated April 5, 200410
.13(k)+

2005 Stock Incentive Plan, as amended10
.14(l)

Unit subscription agreement dated June 17, 2005,
    Class C Warrants, Class D Warrants, and Investor
    Rights Agreements dated June 17, 200510
.15(m)

Amended and Restated Loan and Security Agreement with Silicon
    Valley Bank dated September 13, 200510
.16(n)+

Agreement and General Release between the Company and Gennaro
    Vendome dated October 13, 2005
 32




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10
.17(o)

Form of Resale Restriction Agreement for accelerated Stock
    Options dated October 26, 200510
.18(p)+

Agreement and General Release between the Company and Matthew
    Suffoletto dated February 9, 200610
.19(q)

First Loan Modification Agreement with Silicon Valley Bank dated
    March 14, 200610
.20(r)+

Form of Restricted Stock Agreement for grants pursuant to 1998
    Stock Option Plan10
.21(r)+

Form of Restricted Stock Agreement for grants pursuant to 2005
    Stock Incentive Plan10
.22(s)

Asset Purchase Agreement between the Company and Computron
    Software, LLC dated October 31, 200610
.23(t)

Second Loan Modification Agreement with Silicon Valley Bank
    dated October 31, 200610
.24(t)

Intellectual Property Security Agreement in favor of Silicon
    Valley Bank dated October 31, 200610
.25(u)

Third Loan Modification Agreement with Silicon Valley Bank dated
    November 11, 200610
.26(v)+

Letter Agreement with William P. Lyons dated December 14,
    200610
.27(v)+

Letter Agreement with Joseph Dwyer dated December 14, 200610
.28(v)+

Letter Agreement with Elias Typaldos dated December 14, 200610
.29(v)+

Form of Restricted Stock Agreement for grants pursuant to 1998
    Stock Option Plan dated December 14, 200610
.30(w)+

Employment Agreement with Joseph Dwyer dated February 15,
    200710
.31(w)+

Employment Agreement with Elias Typaldos dated February 15,
    200710
.32(x)

Fourth Loan Modification Agreement with Silicon Valley Bank
    dated March 6, 200710
.33(y)

Forbearance Agreement between the Company and Silicon Valley
    Bank dated as of May 15, 200710
.34(z)

Convertible Note and Warrant Purchase Agreement dated
    May 29, 200710
.35(z)

Investor Rights Agreement dated May 29, 200710
.36(z)

Form of Series A 6% Secured Promissory Note dated
    May 29, 200710
.37(z)

Form of Series B 6% Secured Promissory Note dated
    May 29, 200710
.38(z)

Form of Common Stock Warrant10
.39(z)

Security Agreement between BlueLine Capital Partners, LP, as
    Agent, and the Company dated May 29, 200710
.40(z)

Subordination Agreement between BlueLine Capital Partners, LP,
    as Agent, and Silicon Valley Bank dated May 29, 200710
.41(aa)

Second Amended and Restated Loan and Security Agreement between
    the Company and Silicon Valley Bank dated July 18, 200710
.42(bb)+

Agreement and General Release between the Company and Elias
    Typaldos dated August 13, 200710
.43(cc)+

Letter Agreement between the Company and Philip L. Rugani dated
    September 4, 200710
.44(ee)

First Loan Modification Agreement with Silicon Valley Bank dated
    November 12, 200710
.45(ee)

Convertible Note and Warrant Purchase Agreement dated
    November 13, 200710
.46(ee)

Investor Rights Agreement dated November 16, 2007
 33




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10
.47(ee)

Form of Amendment to Series A 6% Secured Convertible
    Promissory Note dated November 16, 200710
.48(ee)

Form of Amendment to Series B 6% Secured Convertible
    Promissory Note dated November 16, 200710
.49(ee)

Form of Series C 6% Secured Promissory Note dated
    November 16, 200710
.50(ee)

Form of Common Stock Purchase Warrant10
.51(ee)

Security Agreement Amendment dated November 16, 200710
.52(ee)

Amended and Restated Subordination Agreement dated
    November 16, 200710
.53(gg)+

Letter Agreement between the Company and William P. Lyons dated
    December 11, 200710
.54(gg)+

Restricted Stock Agreement between the Company and William P.
    Lyons dated December 11, 200710
.55(hh)

Second Loan Modification Agreement with Silicon Valley Bank
    dated March 18, 200810
.56(ii)

Third Loan Modification with Silicon Valley Bank dated
    April 30, 200810
.57(jj)

Financing Agreement with Sand Hill Finance, LLC dated
    May 22, 200810
.58(jj)

Common Stock Purchase Warrant with Sand Hill Finance, LLC dated
    May 22, 200810
.59(kk)

Convertible Note and Warrant Purchase Agreement dated
    July 24, 200810
.60(kk)

Investor Rights Agreement dated July 24, 200810
.61(kk)

Form of Series D 6% Convertible Note dated
    July 24, 200810
.62(kk)

Form of Common Stock Purchase Warrant10
.63(kk)

Second Security Agreement Amendment dated July 24, 200810
.64(kk)

Amended and Restated Subordination Agreement between BlueLine
    Capital Partners, LP (as agent) and Sand Hill Finance, LLC10
.65(kk)

Participation Rights Waiver and Joinder10
.66(kk)

Second Investor Rights Agreement Amendment dated July 24,
    200810
.67(kk)

Investor Rights Agreement Waiver and Modification dated
    July 24, 200810
.68(kk)

Form of Series A Note Amendment dated July 24, 200810
.69(kk)

Form of Series B Note Amendment dated July 24, 200810
.70(kk)

Form of Series C Note Amendment dated July 24, 200810
.71(ll)+

First Amendment to Employment Agreement with William Lyons dated
    August 12, 200810
.72(ll)+

First Amendment to Employment Agreement with Joseph Dwyer dated
    August 12, 200810
.73(ll)+

First Amendment to Offer of Employment Letter with Philip Rugani
    dated August 12, 200810
.74(mm)

Convertible Note and Warrant Purchase Agreement dated
    October 30, 200810
.75(mm)

Investor Rights Agreement dated October 30, 200810
.76(mm)

Form of Series E 6% Convertible Note dated
    October 30, 200810
.77(mm)

Form of Common Stock Purchase Warrant10
.78(mm)

Third Security Agreement Amendment dated October 30, 200810
.79(mm)

Second Amended and Restated Subordination Agreement dated
    October 30, 200810
.80(mm)

Participation Rights Waiver and Joinder10
.81(mm)

Form of Series A Note Amendment dated October 30, 200810
.82(mm)

Form of Series B Note Amendment dated October 30, 2008
 34




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##### Table of Contents



10
.83(mm)

Form of Series C Note Amendment dated October 30, 200810
.84(mm)

Form of Series D Note Amendment dated October 30, 200810
.85(nn)+

Second Amendment to Employment Agreement with William Lyons
    dated January 27, 200910
.86(nn)+

Second Amendment to Employment Agreement with Joseph Dwyer dated
    January 27, 200910
.87(nn)+

Second Amendment to Offer of Employment Letter with Philip
    Rugani dated January 27, 200921
.1**

List of Subsidiaries23
.1**

Consent of Amper, Politziner and Mattia LLP31
.1**

Rule 13a-14(a)/15d-14(a)
    certifications  William P. Lyons31
.2**

Rule 13a-14(a)/15d-14(a)
    certifications  Joseph Dwyer32
**

Officer Certifications under 18 USC 1350
     (a)

    
    Incorporated by reference to the Exhibits filed with the
    Companys Registration Statement on
    Form S-l,
    File
    No. 33-93990.(b)

    
    Incorporated by reference to the Exhibits filed with the
    Companys Form
    8-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
    10-Q(h)

    
    Incorporated by reference to the Exhibits filed with the
    Companys Form
    8-K filed on
    April 30, 2004(i)

    
    Incorporated by reference to the Exhibits filed with the
    Companys 2004
    Form 10-K(j)

    
    Incorporated by reference to the Exhibits filed with the
    Companys Form
    8-K filed on
    April 8, 2004(k)

    
    Incorporated by reference to the Exhibits filed with the
    Companys Proxy Statement filed on April 12, 2006(l)

    
    Incorporated by reference to the Exhibits 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 1, 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
    November 2, 2006(t)

    
    Incorporated by reference to the Exhibits filed with the
    Companys Form
    8-K filed on
    November 11, 2006(u)

    
    Incorporated by reference to the Exhibits filed with the
    Companys Form
    8-K filed on
    November 16, 2006 35




---



##### Table of Contents



(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. 36




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##### Table of Contents



SIGNATURES
     AXS-ONE INC.
  By:
    /s/  William
    P. Lyons         Signature

Title(s)/s/  William
    P. Lyons(William
    P. Lyons)

Chairman of the Board and Chief Executive Officer (Principal
    Executive Officer)/s/  Joseph
    P. Dwyer(Joseph
    P. Dwyer)

Executive Vice President, Chief Financial Officer and
    Treasurer
    (Principal Financial and Accounting Officer)/s/  Timothy
    Bacci(Timothy
    Bacci)

Director/s/  Anthony
    Bloom(Anthony
    Bloom)

Director/s/  Harold
    Copperman(Harold
    Copperman)

Director  37




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm  
        Schedule II-Valuation
        38




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except per share data)
  December 31,


December 31,2008


2007ASSETSCurrent assets:Cash and cash equivalents

$
933


$
3,362Restricted cash






7Accounts receivable, net of allowance for doubtful accounts of
    $84 and $116 at December 31, 2008 and December 31,
    2007, respectively


932



2,208Prepaid expenses and other current assets


495



831Total current assets


2,360



6,408Equipment and leasehold improvements, at cost:Computer and office equipment


2,005



2,039Furniture and fixtures


592



599Leasehold improvements


669



6723,266



3,310Less  accumulated depreciation and amortization


3,114



3,057152



253Other assets


232



283$
2,744


$
6,944LIABILITIES AND STOCKHOLDERS DEFICITCurrent 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



1,138Accrued expenses


2,988



3,796Deferred revenue


2,851



3,233Total current liabilities


18,641



8,167Long-term liabilities:Long-term convertible debt, net of discount of $1,918 at
    December 31, 2007 (principally to related parties)






7,037Long-term deferred revenue


169



120Other long-term liabilities






212Total liabilities


18,810



15,536Commitments and contingenciesStockholders 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



397Additional paid-in capital


93,902



91,311Accumulated deficit


(110,252
)


(100,108
)Accumulated other comprehensive loss


(130
)


(192
)Total stockholders deficit


(16,066
)


(8,592
)$
2,744


$
6,944    39




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)
  For the Years Ended December 31,2008


2007Revenues:License fees

$
4,283


$
4,058Services


9,140



7,891Total revenues


13,423



11,949Operating expenses:Cost of license fees


324



489Cost of services


4,254



5,680Sales and marketing


6,563



8,021Research and development


5,550



6,996General and administrative


3,950



4,416Restructuring and other costs


340



468Total operating expenses


20,981



26,070Operating loss


(7,558
)


(14,121
)Other income (expense):Interest income


27



191Interest 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    40




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands)
  Years Ended December 31,2008


2007Net loss

$
(10,144
)

$
(14,946
)Foreign currency translation adjustment


62



(43
)Comprehensive loss

$
(10,082
)

$
(14,989
)    41




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY (DEFICIT)(In thousands)
  AccumulatedOther


TotalCommon


Additional





Comprehensive


StockholdersStock


Paid-in


Accumulated


Income


EquityShares


Amount


Capital


(Deficit)


(Loss)


(Deficit)Balance  December 31, 2006


35,637


$
357


$
88,365


$
(85,162
)

$
(149
)

$
3,411Net loss














(14,946
)






(14,946
)Foreign currency translation adjustment


















(43
)


(43
)Stock based compensation expense


1,385



14



503











517Warrants issued related to convertible debt










2,285











2,285Exercise of stock options and warrants


2,664



26



158











184Balance  December 31, 2007


39,686


$
397


$
91,311


$
(100,108
)

$
(192
)

$
(8,592
)Net loss














(10,144
)






(10,144
)Foreign currency translation adjustment


















62



62Stock based compensation expense


955



10



1,209











1,219Warrants issued related to convertible debt










1,343











1,343Warrants issued related to credit line










39











39Exercise of warrants


700



7















7Balance  December 31, 2008


41,341


$
414


$
93,902


$
(110,252
)

$
(130
)

$
(16,066
)    42




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)
  Years Ended December 31,2008


2007Cash 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



215Provision for doubtful accounts


96



37Stock based compensation expense


1,219



517Loss of sale of fixed assets






104Gain of sale of assets, AXS-One South Africa


(38
)


Non-cash interest expense


2,452



572Changes in assets and liabilitiesAccounts receivable


1,038



96Prepaid expenses and other current assets


356



597Change in other assets


42



(175
)Accounts payable and accrued expenses


(1,115
)


569Deferred revenue


(166
)


679Net cash flows used in continuing operating activities


(6,159
)


(11,735
)Cash flows from continuing investing activities:Proceeds from sale of fixed assets






25Purchase 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



184Payment of debt issuance costs






(193
)Borrowing on revolving line-of-credit


3,548



1,000Repayment of revolving line-of-credit


(2,848
)


(1,000
)Issuance of convertible debt


3,200



8,750Net cash flows provided by continuing financing activities


3,907



8,741Cash 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



7,492Cash and cash equivalents, end of year

$
933


$
3,362Supplemental disclosures of cash flow information:Cash paid during the year for Interest

$
110


$
84Income taxes






121    43




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands, except per share data)
  (1)
    Operations,
    Business Conditions, Liquidity and Significant Accounting
    Policies  e-mail,
    and/or
  (a)
    Principles
    of Consolidation  Company)
  (b)
    Revenue
    Recognition  97-2, (SOP 97-2), 98-9, SOP 97-2,
 44




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
               45




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
    No. 01-14,
  (c)
    Use of
    Management Estimates    (d)
    Cash and
    Cash Equivalents and Restricted Cash    (e)
    Allowance
    for Doubtful Accounts    (f)
    Equipment
    and Leasehold Improvements    (g)
    Software
    Development Costs   46




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
      (h)
    Impairment
    or Disposal of Long-Lived Assets    (i)
    Income
    Taxes  Accounting for Uncertainty in Income Taxes
 47




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
  (j)
    Concentration
    of Credit Risk      (k)
    Foreign
    Currency Translation    (l)
    Stock-Based
    Compensation   48




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
    5-year
    Years Ended December 31,2008

2007Risk-free interest rates

2.64%

n/aExpected dividend yield



Expected lives

5 years

n/aExpected volatility

66.4%

n/aForfeiture rate

14.7%

n/aWeighted-average grant date fair value of options granted during
    the period

$0.15

n/a   (m)
    Basic and
    Diluted Net Loss per Common Share      49




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
  Years Ended December 31,2008


2007Net loss

$
(10,144
)

$
(14,946
)Weighted average basic common shares outstanding during the year


38,243



35,318Dilutive effect of stock options and warrants






Weighted average diluted common shares outstanding during the
    year


38,243



35,318Basic and diluted net loss per common share

$
(0.27
)

$
(0.42
)   (n)
    Fair
    Value of Financial Instruments    (o)
    Deferred
    Revenue    (p)
    Accounting
    for Guarantees and Warranties        (q)
    Recently
    Issued Accounting Standards   50




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
  FAS 157-2 
      (2)
    Revolving
    Lines of Credit  Silicon
    Valley Bank
     51




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
            Sand Hill
    Finance, LLC Financing
   52




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
    (3)
    Convertible
    notes             53




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
               54




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
        Amortization of


Carrying


CarryingFace


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


12/31/07May 29, 2007 agreement

$
5,000


$
(1,047
)

$
495


$
808


$
5,256


$
4,410November 13, 2007 agreement


3,750



(1,238
)


259



855



3,626



2,627July 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   (4)
    Lease
    Obligations      Years ending December 31,2009

$
8952010


8702011


7682012


162013/Thereafter


Total

$
2,549   (5)
    Related
    Party Transactions   55




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
  (6)
    Income
    Taxes    Years Ended December 31,2008


2007Domestic

$
(8,328
)

$
(9,492
)Foreign


(1,862
)


(5,167
)Total

$
(10,190
)

$
(14,659
)     Years Ended December 31,2008


2007Federal

$



$
State


5



(47
)Foreign


41



(240
)Total

$
46


$
(287
)       Years Ended December 31,2008


2007Federal income tax benefit at 34%

$
3,449


$
4,999State income tax benefit, net of Federal tax benefit


436



516Change 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
)  56




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
    December 31,2008


2007Deferred tax assets:Accruals and other

$
671


$
756Allowance for doubtful accounts


11



22Depreciation


274



327Research and development credit carry-forwards


2,895



2,895Net operating loss carry-forwards


28,348



26,169Deferred tax assets


32,199



30,169Less valuation allowance


32,199



30,169Net deferred taxes

$



$
     and/or
  non-U.S. subsidiaries,
    Balance at January 1, 2008

$
240Additions based on tax positions related to the current year


Reductions for tax positions of prior years


(41
)Balance at December 31, 2008

$
199  57




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
      (7)
    Stockholders
    Deficit  (a)
    Warrants      Weighted AverageNumber of


Weighted Average


Remaining LifeShares


Exercise Price


(Years)Balance, December 31, 2006


1,423


$
2.83



1.04Granted


5,750



0.01Expired


(516
)


4.24Exercised


(2,350
)


0.01Balance, December 31, 2007


4,307


$
0.43



5.37Granted


7,600



0.01Expired


(907
)


2.03Exercised


(700
)


0.01Balance, December 31, 2008


10,300



0.01



6.37   (b)
    Stock
    Option Plans     58




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
    12-month
     59




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
        Weighted AverageNumber of


Weighted Average


Remaining


AggregateShares


Exercise Price


Contractual Life


Intrinsic ValueBalance, December 31, 2006


5,528


$
2.38Granted






Exercised


(314
)

$
0.51Forfeited


(161
)

$
1.82Expired


(1,247
)

$
2.48Balance, December 31, 2007


3,806


$
2.52Granted


2,004


$
0.29Exercised






Forfeited


(346
)

$
0.70Expired


(1,774
)

$
2.52Balance, December 31, 2008


3,690


$
1.48



6.89


$
Vested and expected to vest at December 31, 2008


3,367


$
1.69Exercisable at December 31, 2008


1,926


$
2.59



4.56


$
    60




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
    Options Outstanding


Options ExercisableWeighted averageRange of

Number


remaining life


Weighted average


Number


Weighted averageexercise prices

outstanding


(years)


exercise price


exercisable


exercise price$0.06 − $0.30


788



9.70


$
0.11



13


$
0.30$0.35 − $0.44


977



9.03


$
0.40



35


$
0.35$0.46 − $1.52


759



3.38


$
0.80



741


$
0.78$1.71 − $3.78


262



6.11


$
2.11



233


$
2.14$4.21 − $6.00


904



5.30


$
4.22



904


$
4.223,690











1,926   (c)
    Non-Vested
    Restricted Stock      Number of


Weighted averageshares


price per shareBalance, December 31, 2006


1,076


$
1.37Granted


1,415


$
0.62Vested


(465
)

$
1.05Forfeited


(30
)

$
2.49Balance, December 31, 2007


1,996


$
0.89Granted


1,200


$
0.25Vested


(1,174
)

$
0.72Forfeited


(245
)

$
0.75Balance, December 31, 2008


1,777


$
0.59       (8)
    Sale of
    South African Subsidiaries   61




---



##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
    (9)
    Employee
    401(k) Plan        (10)
    Financial
    Information by Geographic Area      AustraliaUnited


United


and


SouthStates


Kingdom


Asia


Africa


Consolidated2008Revenues(1)

$
9,768


$
1,671


$
1,891


$
93


$
13,423Long-lived assets


74



3



75







1522007Revenues(1)

$
6,929


$
2,703


$
1,785


$
532


$
11,949Long-lived assets


124







102



27



253     (1)
    
    Revenues are attributed to
    geographic area based on location of sales office. 62




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
   (11)
    Quarterly
    Financial Data (Unaudited)    Quarter2008

First


Second


Third


FourthTotal revenues


3,894



3,401



3,676



2,452Operating loss


(1,752
)


(2,107
)


(1,299
)


(2,400
)Net loss


(2,205
)


(2,525
)


(2,010
)


(3,404
)Basic & diluted net loss per common
    share(1)


(0.06
)


(0.07
)


(0.05
)


(0.09
)   Quarter2007

First


Second


Third


FourthTotal revenues


3,694



2,518



2,494



3,243Operating loss


(2,776
)


(3,588
)


(4,298
)


(3,459
)Net loss


(2,661
)


(3,657
)


(4,576
)


(4,052
)Basic & diluted net loss per common
    share(1)


(0.08
)


(0.10
)


(0.13
)


(0.11
)     (1)
    
    Basic and diluted net loss per
    common share is computed independently for each quarter.
    Therefore, the sum of the quarters will not necessarily equal
    the basic and diluted net income (loss) per common share for the
    full year.  (12)
    Restructuring
    Costs        2008


2007Restructuring liability at January 1

$
86


$
49Involuntary termination costs


340



468Cash payments


(186
)


(431
)Restructuring liability at December 31

$
240


$
86    63




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##### Table of Contents



AXS-ONE
    INC. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (In
    thousands, except per share data)
  (13)
    Contingencies  and/or
 64




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##### Table of Contents



SCHEDULE II  AXS-ONE
    INC. AND SUBSIDIARIES
    VALUATION AND QUALIFYING ACCOUNTS
    Years Ended December 31, 2008 and 2007
   (in
    thousands)
  Balance at


Charged


Amounts


BalanceBeginning


to Costs and


Written


at EndAllowance for Doubtful Accounts:

of Year


Expenses, net


Off


of YearYear ended December 31, 2008

$
116


$
96


$
(128
)

$
84Year ended December 31, 2007

$
83


$
40


$
(7
)

$
116  65