<PAGE>
 
--------------------------------------------------------------------------------
                                        
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                               ________________

                                   FORM 10-Q

(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
        ACT OF 1934

                 FOR QUARTERLY PERIOD ENDED DECEMBER 31, 1998

                                      OR
                                        
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
        EXCHANGE ACT OF 1934

       FOR THE TRANSITION PERIOD FROM ............... TO ...............
                                        
                        COMMISSION FILE NUMBER 0-22601
                                               -------

                                  AXIOM INC.
            (Exact name of registrant as specified in its charter)

               Delaware                                51-0356153
       (State or Other Jurisdiction           (I.R.S. Employer Identification 
     of Incorporation or Organization)                    Number.)
                                              

                              4000 MIDLANTIC DRIVE
                          MOUNT LAUREL, NJ  08054-5476
              (Address of principal executive offices)  (Zip Code)

                                 (609) 866-1000
              (Registrant's Telephone Number, Including Area Code)


   Indicate by check mark 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 ___
                                              ---        


     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.  7,775,249 shares of Common
Stock, par value of $.01 per share, were outstanding as of February 16, 1999.

--------------------------------------------------------------------------------
<PAGE>
 
                          AXIOM INC. AND SUBSIDIARIES
                                        
                                     Index
<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             ----
<S>                                                                                                         <C>
Part I - Financial Information:

Item 1.  Consolidated Financial Statements (Unaudited)

         Consolidated Balance Sheets  as of December 31, 1998 and September 30, 1998........................   3
 
         Consolidated Statements of Operations - Three Months Ended December 31, 1998 and 1997..............   4
 
         Consolidated Statements of Cash Flows - Three Months Ended December 31, 1998 and 1997..............   5
 
         Notes to Consolidated Financial Statements.........................................................   6
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations..............  13
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.........................................  18
 
Part II - Other Information:
 
Item 1.  Legal Proceedings..................................................................................  18
 
Item 2.  Changes in Securities..............................................................................  19
 
Item 3.  Defaults Upon Senior Securities....................................................................  19
 
Item 4.  Submission of Matters to a Vote of Security Holders................................................  19
 
Item 5.  Other Information..................................................................................  19
 
Item 6.  Exhibits and Reports on Form 8-K...................................................................  19
          (a) Exhibits
          (b) Reports on Form 8-K
</TABLE>

                                       2
<PAGE>
 
<TABLE>
<CAPTION>
PART I.  FINANCIAL INFORMATION
ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                                    AXIOM INC. AND SUBSIDIARIES
                                                    CONSOLIDATED BALANCE SHEETS
                                                 (IN THOUSANDS, EXCEPT SHARE DATA)
                                                            (UNAUDITED)
                                                                                            DECEMBER 31,     SEPTEMBER 30,
                                                                                                1998              1998
                                                                                          --------------------------------
<S>                                                                                         <C>              <C>
                                          ASSETS
CURRENT ASSETS:
  Cash and cash equivalents...............................................................      $  2,465          $  1,093
  Accounts receivable, net of allowance for doubtful accounts of $3,995 and $3,985                 7,537            11,325
  Inventories.............................................................................         5,483             6,561
  Deferred tax assets.....................................................................           436               436
  Income tax receivable...................................................................           722               722
  Restricted cash.........................................................................           548                --
  Other...................................................................................           560               392
                                                                                          --------------------------------
     Total current assets.................................................................        17,751            20,529
                                                                                          --------------------------------
 
PROPERTY AND EQUIPMENT
  Computer hardware and software..........................................................         4,360             4,354
  Production and test equipment...........................................................         3,360             3,016
  Furniture fixtures and leasehold improvements...........................................         1,636             1,636
                                                                                           --------------------------------
                                                                                                   9,356             9,006
  Less - Accumulated depreciation and amortization........................................        (5,015)           (4,569)
                                                                                          --------------------------------
     Net property and equipment...........................................................         4,341             4,437
DEFERRED TAX ASSETS.......................................................................         2,502             2,502
RESTRICTED CASH...........................................................................            --               548
OTHER ASSETS..............................................................................           332               334
SOFTWARE DEVELOPMENT COSTS................................................................           709               363
INTANGIBLE ASSETS, net....................................................................           960             1,086
                                                                                          --------------------------------
                                                                                                $ 26,595          $ 29,799
                                                                                          ================================
 
 
                            LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current portion of long-term debt.......................................................      $    319          $    330
  Obligations to Securicor and affiliates.................................................           100                64
  Accounts payable........................................................................         2,067             4,930
  Accrued compensation and related benefits...............................................           863             1,085
  Accrued agent commissions...............................................................           337               353
  Other accrued expenses..................................................................         2,054             1,885
  Deferred revenues.......................................................................         2,374             1,602
                                                                                          --------------------------------
     Total current liabilities............................................................         8,114            10,249
                                                                                          --------------------------------
 
LONG-TERM LIABILITIES:
  Deferred tax liabilities................................................................           220               220
  Long-term debt..........................................................................           421               499
                                                                                          --------------------------------
     Total long term liabilities..........................................................           641               719
                                                                                          --------------------------------
 
COMMITMENTS AND CONTINGENCIES (NOTE 8)
 
STOCKHOLDERS' EQUITY
  Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and      
   outstanding............................................................................            --                --
  Common stock, $0.01 par value, 25,000,000 shares authorized, 7,775,249 and 7,790,305   
   shares issued and outstanding..........................................................            78                78
  Additional paid-in capital..............................................................        37,104            37,156
  Accumulated deficit.....................................................................       (19,335)          (18,397)
  Cumulative translation adjustment.......................................................            (7)               (6)
                                                                                          --------------------------------
     Total stockholders' equity...........................................................        17,840            18,831
                                                                                          --------------------------------
                                                                                                $ 26,595          $ 29,799
                                                                                          ================================
 
 
                                 The accompanying notes are an integral part of these statements.
</TABLE>

                                       3
<PAGE>
 
<TABLE>
<CAPTION>
                                                   AXIOM INC. AND SUBSIDIARIES
                                              Consolidated Statements of Operations
                                                          (In thousands)
                                                           (Unaudited)
 
                                                                                                 For the Three Months Ended
                                                                                                          December 31,
                                                                                            --------------------------------------
                                                                                                  1998                 1997
                                                                                            -----------------      ---------------
<S>                                                                                         <C>                    <C>
REVENUES:
  Equipment  ...........................................................................        $4,549                 $4,748
  Services   ...........................................................................         2,630                  2,180 
                                                                                            -----------------      ---------------
       Total revenues  .................................................................         7,179                  6,928
                                                                                            -----------------      ---------------
 
COST OF REVENUES:
  Equipment  ...........................................................................         2,847                  2,527
  Services   ...........................................................................         1,346                  1,312
                                                                                            -----------------      ---------------
       Total cost of revenues  .........................................................         4,193                  3,839 
                                                                                            -----------------      ---------------
       Gross profit  ...................................................................         2,986                  3,089
                                                                                            -----------------      ---------------
 
OPERATING EXPENSES:
  Research, development and engineering  ...............................................         1,814                  1,954 
  Selling, general and administrative  .................................................         2,126                  2,814 
                                                                                            -----------------      ---------------
       Total operating expenses  .......................................................         3,940                  4,768
                                                                                            -----------------      ---------------
       Operating loss  .................................................................          (954)                (1,679)
INTEREST INCOME, net (including related party interest)  ...............................             1                     99
OTHER INCOME  ..........................................................................            15                     --
                                                                                            -----------------      ---------------
       Loss before income taxes  .......................................................          (938)                (1,580)
INCOME TAX BENEFIT  ....................................................................            --                    616
NET LOSS  ..............................................................................         $(938)                 $(964)
                                                                                            =================      ===============
 
BASIC AND DILUTED NET LOSS PER   
  COMMON SHARE  ........................................................................        $(0.12)                $(0.15)
                                                                                            =================      ===============

SHARES USED IN COMPUTING BASIC AND DILUTED    
  NET LOSS PER COMMON SHARE  ...........................................................         7,782                  6,467
                                                                                            =================      ===============
 
                                 The accompanying notes are an integral part of these statements.
</TABLE>

                                       4
<PAGE>
 
<TABLE>
<CAPTION>
                                                    AXIOM INC. AND SUBSIDIARIES
                                               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                          (IN THOUSANDS)
                                                            (UNAUDITED)
 
 
                                                                                      FOR THE THREE MONTHS ENDED DECEMBER 31,
                                                                                   -------------------------------------------
                                                                                           1998                     1997
                                                                                   ------------------       ------------------
<S>                                                                               <C>                       <C> 
OPERATING ACTIVITIES:
Net loss...........................................................................           $  (938)                 $  (964)
Adjustments to reconcile net loss to net cash provided by operating activities -
   Depreciation and amortization...................................................               572                      391
   Provision for doubtful accounts.................................................                10                       --
  Changes in assets and liabilities, net -
    Decrease (increase) in -
     Accounts receivable...........................................................             3,726                    3,109
     Inventories...................................................................             1,078                      467
     Other current assets..........................................................              (168)                    (418)
     Other assets..................................................................                 2                       (9)
     Income tax receivable.........................................................                --                     (615)
    Increase (decrease) in -
     Accounts payable..............................................................            (2,863)                  (1,525)
     Accrued compensation and related benefits.....................................              (222)                     118
     Accrued agent commissions.....................................................               (16)                     (93)
     Other accrued expenses........................................................               169                      567
     Deferred revenues.............................................................               772                      511
                                                                                   ------------------       ------------------
       Net cash provided by operating activities...................................             2,122                    1,539
                                                                                   ------------------       ------------------
 
INVESTING ACTIVITIES:
Purchase of property and equipment.................................................              (350)                    (289)
Capitalized software development costs.............................................              (346)                      --
                                                                                   ------------------       ------------------
       Net cash used in investing activities.......................................              (696)                    (289)
                                                                                   ------------------       ------------------
 
FINANCING ACTIVITIES:
Payments on long-term debt.........................................................               (89)                     (32)
Advances on obligations to Securicor and affiliates................................                36                      236
Repayment on obligations to Securicor and affiliates...............................                --                     (297)
                                                                                   ------------------       ------------------
       Net cash used in financing activities.......................................               (53)                     (93)
                                                                                   ------------------       ------------------
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................                (1)                      --
 
NET INCREASE IN CASH AND CASH EQUIVALENTS..........................................             1,372                    1,157
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.....................................             1,093                    7,206
                                                                                   ------------------       ------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD...........................................           $ 2,465                  $ 8,363
                                                                                   ==================       ==================
 
 
                                  The accompanying notes are an integral part of these statements.
</TABLE>

                                       5
<PAGE>
 
                          AXIOM INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                                        


1. BACKGROUND:

THE COMPANY

     Axiom Inc. (the "Company"), a Delaware corporation, changed its name from
Securicor Communications Inc. in May 1997.  Through May 1997, the Company's
business was conducted through its wholly-owned subsidiary, Securicor
Telesciences Inc. ("STI").  On that date, STI merged into the Company.  Prior to
May 1998, the Company was a majority-owned subsidiary of Securicor
Communications Limited ("SCL"), an entity organized under the laws of the United
Kingdom and a wholly-owned subsidiary of Securicor plc ("Securicor"), a company
organized under the laws of the United Kingdom.  As the merger represented a
transaction between entities under common control, the net assets of STI were
transferred at net book value.  Prior to the completion of the Company's initial
public offering, Securicor provided the financing requirements for the Company
through advances (See Note 6).  SCL currently owns approximately 44.7% of the
Company's outstanding Common Stock.

INITIAL PUBLIC OFFERING

     On July 8, 1997, the Company completed its initial public offering of
2,600,000 shares of Common Stock at a price of $12.00 per share.  The Company
received net cash proceeds of approximately $28,053,000 from the public
offering.  In addition, on August 6, 1997, the underwriters exercised their
over-allotment option of 390,000 shares of Common Stock at a price of $12.00 per
share.  The Company received net cash proceeds of $4,352,400.  Collectively,
both transactions are herein referred to as the "Offering."

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

INTERIM FINANCIAL INFORMATION AND SUMMARY FINANCIAL INFORMATION

     The financial statements as of December 31, 1998 and for the three months
ended December 31, 1998 and 1997 are unaudited and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for the fair presentation of results for these interim
periods.  The results for the three months ended December 31, 1998 are not
necessarily indicative of the results to be expected for the entire year.  While
the Company believes that the disclosures presented are adequate to make the
information not misleading, these Consolidated Financial Statements should be
read in conjunction with the Consolidated Financial Statements and the notes
included in the Company's Form 10-K for the fiscal year ended September 30,
1998.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries.  All significant intercompany accounts and
transactions have been eliminated.

CASH AND CASH EQUIVALENTS

     For the purposes of the Statements of Cash Flows, the Company considers all
highly liquid investment instruments purchased with an original maturity of
three months or less to be cash equivalents.  Cash and cash equivalents are
comprised of investments in various money market funds.

RESTRICTED CASH

     Restricted cash consists of funds to support a standby letter of credit
required under a contractual arrangement with one of the Company's customers.
Based upon the contractual agreement, this amount will be released on December
31, 1999.  Accordingly, this restricted cash is reflected as a current asset as
of December 31, 1998.

                                       6
<PAGE>
 
                          AXIOM INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

INVENTORIES

     Inventories are valued at the lower of cost, determined on the first-in,
first-out method, or market.

SOFTWARE DEVELOPMENT COSTS

     The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed."  Under
SFAS No. 86, costs incurred to create a computer software product are charged to
research and development expense as incurred until technological feasibility has
been established.  The Company establishes technological feasibility upon
completion of a detailed program design.  At that point, computer software costs
are capitalized until the product is available for general release to customers.
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, including, but
not limited to, anticipated future revenues, estimated economic life, and
changes in technology.

     Amortization will begin when the product is released.  Capitalized software
development costs are amortized on a product-by-product basis using the
straight-line method over the estimated life of the product enhancement.

     Capitalized software development costs consist primarily of salary,
consulting, and computer costs incurred to develop new products.  During the
three months ended December 31, 1998 and 1997, respectively, software
development costs of $346,000 and $0 were capitalized.  Amortization has not yet
begun.

INTANGIBLE ASSETS

     Intangible assets consist of acquired technology, a non-compete agreement
and goodwill.  Acquired technology, the non-compete agreement and goodwill are
amortized over 2  1/2 to 4, 2 and 2 to 7 years, respectively, on a straight-line
basis.  The Company evaluates the realizability of intangible assets based on
estimates of undiscounted future cash flows over the remaining useful life of
the asset.  If the amount of such estimated undiscounted future cash flows is
less than the net book value of the asset, the asset is written down to its net
realizable value.  As of December 31, 1998, no such write-down was required.

AGENT COMMISSIONS

     In certain contracts, particularly large international contracts, the
Company may utilize an agent, who will work directly with the customer.  The
Company is typically charged a commission based on the total revenues of the
contract.  These charges are recorded when the revenues are recognized and
included in cost of revenues. Any earned but unpaid commissions are recorded in
accrued agent commissions.

CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to concentration
of credit risk are accounts receivable.  The Company's customer base principally
comprises the Regional Bell Operating Companies ("RBOCs"), as well as
international telephone companies (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations").  The Company typically does not
require collateral from its customers.

     The Company has significant activity with international customers. The
current economic and currency situation affecting certain countries, which
includes currency devaluation, external support and economic reorganization
programs to reduce growth and credit demand, could have a material adverse
effect on the Company's operating results.

                                       7
<PAGE>
 
                          AXIOM INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

REVENUE RECOGNITION

     Revenues are generally recognized upon shipment of the equipment.  In "bill
and hold" transactions, the Company recognizes revenues when the following
conditions are met: the equipment is complete, ready for shipment and segregated
from other inventory; the Company has no further significant performance
obligations in connection with the completion of the transaction; the commitment
and delivery schedule is fixed; the customer requested the transaction be
completed on this basis; and the risks of ownership have passed to the customer.
There were no outstanding accounts receivable balances relating to "bill and
hold" transactions at December 31, 1998 or 1997 or September 30, 1998.  Revenues
from installation and engineering activities are recognized as services are
provided.

     Depending on contract terms and conditions, software license fees are
recognized upon delivery of the product if no significant vendor obligations
remain and collection of the resulting receivable is deemed probable. The
Company had nominal stand-alone software license fee revenues for the three
months ended December 31, 1998 and 1997, respectively, and these amounts are
included in equipment revenues. If significant vendor obligations exist at
delivery and/or the product is subject to customer acceptance, revenue is
deferred until no significant obligations remain and/or acceptance has occurred.
If the payment of the license fee is coincident to services which are deemed to
be essential to the transaction, the license fee is deferred and recognized
using contract accounting over the period during which the services are
performed. The Company's software licensing agreements provide for a
warranty/customer support (typically 90 days). The portion of the license fee
associated with the warranty/ customer support is unbundled from the license fee
and is recognized ratably over the warranty period as services revenue.

     The Company offers support agreements to its customers.  Revenues from
customer support are recognized as services are provided.  Services are
generally provided ratably over the term of the customer support agreement and
are included in services revenue in the accompanying statements of operations.

RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES

     Research, development and engineering expenses are charged to expense as
incurred.  Engineering expenses consist of costs related to the development of
new products, enhancements to existing products and the integration of existing
products into application specific systems.  Beginning during the twelve months
ended September 30, 1998 ("fiscal 1998"), certain costs were capitalized.  See
"Software Development Costs."

INCOME TAXES

     The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes."  SFAS No. 109 requires the liability method of accounting for
deferred income taxes.  Deferred tax assets and liabilities are determined based
on the difference between the financial statement and tax bases of assets and
liabilities.  Deferred tax assets or liabilities at the end of each period are
determined using the enacted tax rates.

NET LOSS PER COMMON SHARE

     In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which superseded Accounting Principles Board Opinion
No. 15, "Earnings per Share." SFAS No. 128 requires dual presentation of basic
and diluted net loss per common share for complex capital structures on the face
of the statements of operations. According to SFAS No. 128, basic net loss per
common share, which replaced primary loss per share, is calculated by dividing
net loss available to common stockholders by the weighted average number of
shares of common stock outstanding for the period. Diluted net loss per common
share, which replaced fully diluted loss per share, reflects the potential
dilution from the exercise or conversion of securities into shares of common
stock, such as stock options. The Company was required to and did adopt SFAS No.
128 during the period ended December 31, 1997, as earlier application was not
permitted. As required by SFAS No. 128, all prior-period loss per common share
data has been restated to conform with the provisions of this statement.

                                       8
<PAGE>
 
                          AXIOM INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

     The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per common share computations:

<TABLE>
<CAPTION>
                                       FOR THE THREE MONTHS ENDED DECEMBER 31,
 
                                                                LOSS                   SHARES              PER SHARE
                  1998                                       (NUMERATOR)           (DENOMINATOR)            AMOUNT
----------------------------------------------------    ------------------     -------------------     --------------
<S>                                                     <C>                     <C>                    <C>
Basic net loss per common share.....................             $(938,000)              7,782,000             $(0.12)
                                                                                                       ==============
  Dilutive effect of stock options..................                    --                      --
                                                        ------------------     -------------------
Diluted net loss per common share...................             $(938,000)              7,782,000             $(0.12)
                                                        ==================     ===================     ==============
<CAPTION>
                  1997
----------------------------------------------------
<S>                                                       <C>                   <C>                    <C>
Basic net loss per common share.....................             $(964,000)              6,467,000             $(0.15)
                                                                                                       ==============
  Dilutive effect of stock options..................                    --                      --
                                                        ------------------     -------------------
Diluted net loss per common share...................             $(964,000)              6,467,000             $(0.15)
                                                        ==================     ===================     ==============
</TABLE>
                                                                                

     Diluted loss per common share is the same as basic net loss per common
share as no additional shares for the potential dilution from the exercise or
conversion of securities into shares of common stock are included in the
denominator as the result is anti-dilutive due to the Company's losses. Options
to purchase 893,114 and 321,366 shares of common stock with a weighted average
exercise price of $3.78 and $12.00 per share were outstanding during the three
months ended December 31, 1998 and 1997, respectively, but were not included in
the computation of diluted net loss per common share.

COMPREHENSIVE INCOME

     The Company has adopted SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements and requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with equal prominence as other financial statements.  The
comprehensive loss for the three months ended December 31, 1998 was $939,000.
There were no comprehensive income adjustments for the three months ended
December 31, 1997.

                                                       Cumulative
                                                      Translation
                                                      Adjustments
                                                  -----------------
Beginning balance.................................              $(6)
Current period change.............................               (1)
                                                  -----------------
Ending Balance....................................              $(7)
                                                  =================

FOREIGN CURRENCY

     The Company's sales arrangements with international customers are fixed in
the amount of U.S. dollars to be received. Since the acquisition of Greendown
Software Limited (in February 1998), the name of which was changed to Axiom
(Europe) Limited, its sales are denominated in pounds Sterling.

                                       9
<PAGE>
 
                          AXIOM INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)

However, this activity has been insignificant to date.  Relative to
the activity with obligations to Securicor and affiliates, the Company charges
the related foreign exchange gains and losses to the statements of operations.

     The assets and liabilities of foreign operations are translated into U.S.
dollars using the rates of exchange at the end of the period.  The results of
operations are translated into U.S. dollars at the average daily exchange rates
for the period.

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

     For the three months ended December 31, 1998 and 1997, the Company paid
interest of $19,000 and $3,000, respectively.  For the three months ended
December 31, 1998 and 1997, income taxes paid by the Company were immaterial.

MANAGEMENT'S USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those estimates.

RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform with current
year presentation.

3.  ACCOUNTS RECEIVABLE:

<TABLE>
<CAPTION>
                                                    DECEMBER 31,           SEPTEMBER 30,
                                                        1998                    1998
                                                -----------------       -----------------
<S>                                               <C>                     <C>
Billed..........................................      $10,189,000             $13,970,000
Unbilled........................................        1,343,000               1,340,000
                                                -----------------       -----------------
                                                       11,532,000              15,310,000
Less - allowance for doubtful accounts..........       (3,995,000)             (3,985,000)
                                                -----------------       -----------------
                                                      $ 7,537,000             $11,325,000
                                                =================       =================
</TABLE>
                                        
     Unbilled accounts receivable includes costs and estimated earnings on
contracts in progress which have been recognized as revenues but not yet billed
to customers under the provisions of specified contracts.

4.  INVENTORIES:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,           SEPTEMBER 30,
                                                         1998                   1998
                                                  -----------------      -----------------
<S>                                                 <C>                    <C>
Raw materials.....................................       $3,751,000             $4,323,000
Work-in-process...................................          812,000                581,000
Finished goods....................................          920,000              1,657,000
                                                  -----------------      -----------------
                                                         $5,483,000             $6,561,000
                                                  =================      =================
</TABLE>

                                       10
<PAGE>
 
                          AXIOM INC. AND SUBSIDIARIES
            Notes To Consolidated Financial Statements (Continued)
                                  (UNAUDITED)

5.  LINE OF CREDIT:

     On December 7, 1998, the Company entered into an agreement with Silicon
Valley Bank to establish a $5,000,000 line of credit which the Company is using
to meet its short-term borrowing requirements.  The amount available under the
line of credit is based upon a percentage of eligible accounts receivable, as
defined.  Interest is charged at Silicon Valley Bank's prime rate plus 1%.
Borrowings under the agreement are secured by an interest in substantially all
of the Company's assets and require the Company to comply with specified
financial and non-financial covenants, as defined. All receivable collections 
are first applied against any outstanding line of credit balance. The highest
principal balance outstanding during the quarter ended December 31, 1998 was
$841,000. Interest was charged at a weighted average rate of 8.75% and interest
expense was $1,250. No amounts were outstanding under the line of credit at
December 31, 1998.

6.  OBLIGATIONS TO SECURICOR AND AFFILIATES:

     Information relative to the Company's obligations to Securicor and
affiliates is as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,           SEPTEMBER 30,
                                                              1998                   1998
                                                      -----------------      -----------------
<S>                                                     <C>                    <C>
Obligations to Securicor..............................         $100,000                $64,000
Obligations to affiliates.............................               --                     --
                                                      -----------------      -----------------
Total obligations to Securicor and affiliates.........         $100,000                $64,000
                                                      =================      =================
</TABLE>

     Prior to the completion of the Offering, the Company was funded through
advances from Securicor.  Certain advances were interest bearing and were loaned
to the Company at a base rate plus 1%.  There were no interest bearing advances
for the three months ended December 31, 1998 or 1997.  As these obligations to
Securicor and affiliates are due on demand, this amount is included in current
liabilities.


7.  RELATED PARTY TRANSACTIONS:

     During the year ended September 30, 1996, certain key executive officers
were granted options to purchase the common stock of Securicor.  The aggregate
number of options granted to these executive officers which were outstanding as
of December 31, 1998 is 85,690.  The exercise price of these options is
(Pounds)2.45 per share, which was the fair market value of Securicor common
stock on the date of grant.  These options vest on the third anniversary of the
date of grant.  These options expire in June 2006, which is ten years from the
date of grant.

     From May 1997 to September 1998, the Company and Securicor had an agreement
pursuant to which Securicor provided certain international sales and marketing
services to the Company.  Total charges from Securicor for these services were
$20,000 for the three months ended December 31, 1997.  In addition, the Company
pays each of its directors an annual director's fee of $20,000.  The directors
fees paid to employees of Securicor are remitted to Securicor.  For the three
months ended December 31, 1998 and 1997, the Company paid $5,000 related to such
fees.

     The Company obtains its Directors and Officers insurance through Securicor.
Total Director and Officer insurance expense for the three months ended December
31, 1998 and 1997 was $7,000 and $14,000, respectively.

     From time to time, the Company and Securicor process miscellaneous
transactions on behalf of each other which are payable the month following the
month incurred.  These transactions have been, in the aggregate, immaterial to
date.

                                       11
<PAGE>
 
                          AXIOM INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

8.  COMMITMENTS AND CONTINGENCIES:

     The Company is obligated to make certain payments, as defined, to certain
key Company employees if such employees are terminated.  In addition, certain
key employees have performance incentives in the form of cash and equity (in
Securicor or an affiliate) related compensation.  The Company does not expect to
make these payments other than in the normal course of business.

     The Company is party to various claims arising in the ordinary course of
business.  Although the ultimate outcome of these matters is presently not
determinable, management believes that the resolution of these matters will not
have a material adverse effect on the Company's financial position or results of
operations.

     In August 1997, Acxiom Corporation ("Acxiom") filed suit against the
Company in the United States District Court for the District of Delaware
alleging trademark infringement and dilution under the Lanham Act, as well as
related state law causes of action. On November 16, 1998, the District Court
rendered its decision that Acxiom was entitled to an order enjoining the Company
from making further use of the Axiom name and related injunctive relief. The
court also concluded that Acxiom is not entitled to any money damages. The
Company and Acxiom have agreed that neither will appeal the Court's decision,
and the Company agreed to reimburse Acxiom for ancillary costs in the amount of
$50,000.

     Pursuant to the court order, the Company is required to change its name by
the end of March 1999.  The Company has proposed to amend the Company's Amended
and Restated Certificate of Incorporation to change the name of the Company to
Telesciences Inc.  If the proposed amendment is approved by the stockholders at
the Company's Annual Meeting on March 24, 1999, the amendment will become
effective when a certificate of amendment of the Company's Amended and Restated
Certificate of Incorporation is filed with the Secretary of State of the State
of Delaware, which filing is expected to be made promptly following the Annual
Meeting.

                                       12
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

OVERVIEW

     The Company's principal products are billing data collection, transaction
data management, revenue assurance, fraud management systems and traffic
management systems.  The Company also provides professional engineering services
for telecommunications service providers.

     The Company's billing data collection and transaction data management
systems collect and normalize data from telecommunications switches that connect
users of telecommunications networks.  They provide data to applications
including billing, customer care, marketing, fraud management, data warehousing
and network management applications.  The Company's systems interface with all
major switch types.

     The revenue assurance and fraud management systems help ensure carriers'
ability to bill accurately and completely for the services they render and guard
against fraudulent use of their networks.  The need for such systems is
increasing as a result of the complexity in the marketplace introduced by the
growing number of telecommunications carriers and their interconnections.  The
Company provides revenue assurance capabilities through its Sterling Fraud
Management System and in Specialized Processing Modules ("SPMs") running on the
Sterling Billing Mediation System.

     The Company's traffic management systems capture information on trunk
usage.  This information is transmitted to the customer's network planners who
use the information to optimize network performance.  This capability helps
carriers avoid problems of too many available trunks, resulting in increased
costs, and too few available trunks, resulting in disconnected calls, poor
service and lost revenue.

     The Company provides professional engineering services to integrate the
Company's product lines into customer networks and applications.

     A significant portion of the Company's revenues have been, and are expected
to continue to be, derived from substantial orders placed by large
organizations, and in particular three Regional Bell Operating Companies
("RBOCs").  Aggregate revenues from US West, Inc., Southwestern Bell Telephone
Company and Ameritech Corporation accounted for 41.1% and 56.9% of the Company's
total revenues for the three months ended December 31, 1998 and 1997,
respectively.

     Domestic revenues are typically generated under cancelable general purchase
agreements which provide for the continuing supply of products and services over
future years.  Pricing is based upon the volume of products ordered.
Internationally, the Company typically enters into long-term contracts for the
delivery of turn-key systems which include products and services.  All sales
arrangements with international customers are denominated in U.S. dollars.
Since the acquisition of Greendown Software Limited (in February 1998), which
changed its name to Axiom (Europe) Limited, its sales are denominated in pounds
Sterling. However, this activity has been insignificant to date. The Company's
revenues are difficult to forecast because the purchase of its systems generally
involves a significant commitment of capital and management time, which
generally results in lengthy sales cycles.

     Quarterly revenues are subject to substantial fluctuations due primarily to
the Company's concentration of customers and the timing of orders received.  The
timing of orders is, in part, dependent on the timing of the Company's
customers' annual budget process.  Prior to fiscal 1998, the Company's first and
second fiscal quarters have generated a lower level of revenues compared to the
Company's third and fourth fiscal quarters, by which time the Company's
customers have typically approved their budgets.  Historically, product and
service backlog has been a relatively small amount and the majority is fulfilled
within three months.  Because of its close links to, and ongoing communications
with, its customers, the Company generally is able to plan for product demand
and, when the order is received, ship its products within a relatively short
time period thereafter.

     Cost of revenues includes the direct cost of hardware and software modules,
other manufacturing costs related to the assembly and testing of products,
customer service costs, agent commissions where applicable, and other variable
costs such as freight, scrap and installation materials.  The Company has a
relatively high fixed cost base which is included in cost of revenues.  As a
result, any significant decline in revenues would likely have a significant
adverse effect on margins.

                                       13
<PAGE>
 
     Research, development and engineering expenses consist of payroll and
related expenses and other costs associated with the design and development of
the Company's products.  The majority of these costs are charged to expense as
incurred.  During fiscal 1998, the Company embarked upon a rearchitecture of its
core systems, principally for the Sterling Host Collector.  This work is
expected to enable the Company to further enhance its product offerings to its
existing customer base, as well as new and multi-service providers, which will
include companies using new technology such as Asynchronous Transfer Mode and
Internet Protocol.  The new technology is expected to use object oriented design
tools and the latest proven software tools and methods.  Due to the nature of
this rearchitecture project, the Company is capitalizing the costs of the
project and for the three months ended December 31, 1998, the total amount
capitalized was $346,000. These software development costs are accounted for
under SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed."  No costs were capitalized during the three
months ended December 31, 1997.  In fiscal 1999, the Company expects to
capitalize approximately $2.0 million of costs under SFAS No. 86 associated with
this project.

     Selling, general and administrative expenses consist of costs to support
the Company's sales, marketing and administrative functions.  Included within
these costs are payroll and related expenses, supplies, travel, outside
services, as well as the cost of the Company's participation in trade shows,
industry conferences and related travel and promotional costs.

     Certain prior year amounts have been reclassified to conform with current
year presentation.

YEAR 2000 READINESS DISCLOSURE

Background

     In the past, many computer software programs were written using two digits
rather than four to define the applicable year.  As a result, date-sensitive
computer software may recognize a date using "00" as the year 1900 rather than
the year 2000.  This is generally referred to as the Year 2000 issue.  If this
situation occurs, the potential exists for computer system failures or
miscalculations by computer programs, which could disrupt operations.

Approach

     The Company has established a group to coordinate the Company's response to
the Year 2000 issue, both as to its internal systems and as to its products.
This group includes the Company's Vice President - Operations Support, Director
of Quality, Director of Product Line Management, Manager of Engineering
Operations, Purchasing Manager and Manager of Information Technology, as well as
support staff.  The Company is in the process of implementing a Year 2000
compliance program consisting of the following: (i) compiling a list of internal
information technology ("IT") and non-IT systems, as well as Company products,
that may require adaptation, remediation or replacement with respect to the Year
2000 issue; (ii) identifying and prioritizing critical systems and products from
the list compiled in part (i) and making inquiries of third parties with whom
the Company does significant business (i.e., vendors and service providers) as
to the state of their Year 2000 readiness; (iii) analyzing critical systems and
products to determine which systems or products are not Year 2000 compliant and
evaluating the costs of adapting, repairing or replacing those systems; and (iv)
adapting, repairing or replacing noncompliant systems or products and testing of
the adapted, repaired or replaced systems.

     The Company intends to complete the above process and to be Year 2000
compliant in all material respects by mid-1999.  The Company intends to
formulate full contingency plans by March 31, 1999 for use if such goal is not
met.

Status

     The Company believes that all of its internal systems are currently Year
2000 compliant or will be Year 2000 compliant by mid-1999.  It has recently
replaced the hardware and software comprising its internal business systems and
has successfully tested the new systems for Year 2000 compliance.

     The Company believes that its internal telephone system is Year 2000
compliant.  The Company expects to complete Year 2000 compliance testing on the
telephone system by March 1999.  The Company does not expect that there will be
a material cost to the Company in the event that software must be upgraded.

                                       14
<PAGE>
 
     The Company believes that the products which will be supported beyond the
year 2000 are currently Year 2000 compliant.  It continues to test all such
products on an ongoing basis.  Certain products sold by the Company in the past
that have been discontinued are not Year 2000 compliant.  Most customers of
these products have been notified of such noncompliance.  The Company does not
intend to repair or replace such products.  The Company does not expect any of
such customers to assert that the Company has an obligation to repair or replace
such products, but there can be no assurance that such an assertion will not be
made.

Costs

     The total cost to the Company of making its systems Year 2000 compliant is
currently estimated to be less than $500,000, of which the Company has already
incurred approximately $250,000.  The cost for replacement of the equipment and
software will be capitalized and depreciated over their respective expected
useful lives.  The Company will recognize a loss currently for any undepreciated
balance of existing hardware or software to the extent they are replaced.  This
loss is included in the above cost estimate.  Furthermore, all costs related to
software modification, as well as all costs associated with the Company's
administration of its Year 2000 project, are being expensed as incurred and are
likewise included in the cost estimate above.

Risks Associated with the Year 2000 Problem

     The Company utilizes computer systems in many aspects of its business.  As
noted, the Company's critical systems are Year 2000 compliant, or are expected
to be so no later than mid-1999.

     The Company is also exposed to the risk that one or more of its vendors or
service providers could experience Year 2000 problems that impact the ability of
such vendor or service provider to provide goods and services.  Though this is
not considered as significant a risk with respect to the suppliers of goods, due
to the availability of alternative suppliers, the disruption of certain
services, such as utilities, could, depending upon the nature and extent of the
disruption, have a material adverse impact on the Company's operations.  The
Company is in the process of contacting all vendors and suppliers with whom the
Company has a material relationship to determine whether they will be
sufficiently Year 2000 compliant so as not to cause any material adverse effect
on the Company.  To date, the Company is not aware of any vendor or service
provider Year 2000 issue that management believes would have a material adverse
impact on the Company's operations.  However, the Company has no means of
guaranteeing that its vendors or service providers will be Year 2000 ready.  The
inability of vendors or service providers to complete their Year 2000 resolution
process in a timely fashion could have a material adverse impact on the Company.
The effect of non-compliance by vendors or service providers is not determinable
at this time.

     Widespread disruptions in the national or international economy, including
disruptions affecting the financial markets, resulting from Year 2000 issues or
in certain industries, such as disruptions affecting the financial industry and
commercial or investment banks, could also have a material adverse impact on the
Company.  The likelihood and effect of such disruptions is not determinable at
this time.

DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS

     From time to time, the Company may publish statements that are not
historical facts but are forward-looking statements relating to such matters as
anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters.  Such statements are generally identified by the use of forward-looking
words and phrases such as "intended", "expects", "anticipates", and "is (or are)
expected (or anticipated)."  The Private Litigation Reform Act of 1995 provides
a safe harbor for forward-looking statements.  In order to comply with the terms
of the safe harbor, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's forward-
looking statements.  The risks and uncertainties that may affect the operations,
performance, development and results of the Company's business include, but are
not limited to the following important factors:

    (i)     reliance on a limited number of significant customers and dependence
            on Sterling Series products;

    (ii)    difficulty in predicting quarterly revenues because of long sales
            cycles and customer budgetary constraints;

                                       15
<PAGE>
 
    (iii)   competition in the market for billing data collection and traffic
            management systems;

    (iv)    rapid and unexpected changes in the telecommunications markets and
            technologies;

    (v)     the success of the Company's sales and marketing strategies;

    (vi)    the ability of the Company to manage its growth;

    (vii)   the ability of the Company to obtain financing for operations and
            growth;

    (viii)  the ability of the Company to motivate, and retain the services of,
            its key management and technical personnel and continue to hire
            additional qualified personnel to meet the Company's evolving
            staffing needs; and

    (ix)    risks related to sales to international customers, including, but
            not limited to, currency fluctuations, instability in financial
            markets and unanticipated shifts in economic policies of foreign
            governments, particularly as it relates to Asia.


RESULTS OF OPERATIONS

QUARTER ENDED DECEMBER 31, 1998 COMPARED TO QUARTER ENDED DECEMBER 31, 1997

     Revenues

     Revenues increased 3.6% to $7.2 million for the quarter ended December 31,
1998 from $6.9 million for the quarter ended December 31, 1997. Sales to RBOC
customers were $3.1 million (43% of revenues) during the quarter ended December
31, 1998 compared to $4.0 million (57% of revenues) during the quarter ended
December 31, 1997. Other domestic sales, including sales to competitive local
exchange carriers ("CLECs") were $2.0 million and $1.4 million during the
quarter ended December 31, 1998 and 1997, respectively. International sales were
$2.1 million and $1.5 million during the quarter ended December 31, 1998 and
1997, respectively. Equipment revenues were $4.5 million for the quarter ended
December 31 1998, a decrease of 4.2% from the $4.7 million of equipment revenues
for the quarter ended December 31, 1997. This decrease resulted from reduced 
equipment sales to RBOC customers partially offset by increased equipment sales
to CLECs and international customers. Services revenues increased 20.6% to $2.6
million for the quarter ended December 31, 1998 from $2.2 million for the
quarter ended December 31, 1997. Included in services revenues were support
contract revenues of $907,000 and $1.0 million during the quarters ended
December 31, 1998 and 1997, respectively. Services revenues during the quarter
ended December 31, 1998 included $1.2 million of installation services provided
to one of the RBOCs.

     Gross Profit

     Gross profit decreased to $3.0 million (41.6% of revenues) for the
quarter ended December 31, 1998 from $3.1 million (44.6% of revenues) for the
quarter ended December 31, 1997. System sales through channels increased year on
year, causing a small reduction in margins. Gross profit related to equipment
revenues decreased to $1.7 million (37.4% of revenues) for the quarter ended
December 31, 1998 from $2.2 million (46.8% of revenues) for the quarter ended
December 31, 1997. The Company has a relatively high fixed cost base which is
included in cost of revenues. As a result, fluctuations in revenues have a
significant effect on margins. Gross profit from services revenues increased to
$1.3 million (48.8% of revenues) for the quarter ended December 31, 1998 from
$868,000 (39.8% of revenues) for the quarter ended December 31, 1997. Gross
profit from services revenues increased during the quarter ended December 31,
1998 due to the significant installation services provided to one of the RBOCs,
which typically yield a higher gross profit.

     Research, Development and Engineering

     Research, development and engineering expenses were $1.8 million and $2.0
million for the quarters ended December 31, 1998 and 1997, respectively.  As a
percentage of revenues, research, development and engineering expenses decreased
during the quarter ended December 31, 1998 to 25.3% from 28.2% for the quarter
ended December 31, 1997. Software development costs of $346,000 and $0 were
capitalized during the quarters ended December 31, 1998 and 1997, respectively,
and therefore, were not charged to research, development and engineering
expense.

                                       16
<PAGE>
 
     Selling, General and Administrative

     Selling, general and administrative expenses were $2.1 million for the
quarter ended December 31, 1998, a decrease of 24.4% compared to $2.8 million
for the same period in 1997.  As a percentage of revenues, selling, general and
administrative expenses decreased during the quarter ended December 31, 1998 to
29.6% from 40.6% for the quarter ended December 31, 1997.  Primarily, this
decrease resulted from the Company's program, instituted in July 1998, to reduce
expenses through a reduction in its work force as well as other cost cutting
measures. Additionally, during the quarter ended December 31, 1997, legal costs
of $100,000 were incurred related to the Acxiom Corporation lawsuit. No such
costs were incurred during the quarter ended December 31, 1998. See Part II Item
I-Legal-Proceedings.

     Interest Income

     Net interest income was $1,000 and $99,000 for the quarter ended December
31, 1998 and 1997, respectively.

     Income Taxes

     Due to continued losses throughout fiscal 1998, the Company did not record
an income tax benefit during the quarter ended December 31, 1998.  However, as
of December 31, 1998, the Company  recorded net deferred tax assets of
$2,718,000.  Based on an assessment of the Company's taxable earnings history
and expected future taxable income, management has determined that it is more
likely than not that the net deferred tax assets will be realized in future
periods.  The Company may be required to provide an additional valuation
allowance for this asset in the future if it does not generate sufficient
taxable income as planned.  Additionally, the ultimate realization of this asset
could be negatively impacted by market conditions and other variables not known
or anticipated at this time.

     The Company's effective tax rate was 39.0% for the quarter ended December
31, 1997.  An income tax benefit of $616,000 was recorded during the quarter
ended December 31, 1997.

     Backlog

     The Company's backlog (firm purchase orders for products and services that
have not yet been recognized as revenue) was approximately $10.9 million and
$7.5 million at December 31, 1998 and December 31, 1997, respectively.
Additionally, the Company had $5.5 million in the form of letters of intent at
December 31, 1998. The Company normally has a relatively small amount of
products and service backlog because ongoing informal communication with its
major customers generally enables the Company to anticipate orders and ship
products within a relatively short time after the customer's order is received.
The Company expects to be able to fill substantially all backlog existing at
December 31, 1998 prior to the end of the twelve months ending September 30,
1999 ("fiscal 1999").

LIQUIDITY AND CAPITAL RESOURCES

     The Company completed the Offering in July 1997.  Prior to the Offering,
the Company had financed its operations primarily with cash generated from
operations and borrowings from Securicor.  In July 1997, the Company received
net proceeds from the Offering of approximately $32.4 million (after deducting
underwriters' discounts and commissions and other offering expenses).  In August
1997, the Company repaid $22.9 million in Company borrowings from Securicor.  As
of December 31, 1998, the Company had $2.5 million of cash and cash equivalents,
$7.5 million in net trade accounts receivable and $9.6 million of working
capital.

     Net cash provided by operating activities was $2.1 million and $1.5 million
for the quarter ended December 31, 1998 and 1997, respectively.  For the quarter
ended December 31, 1998, the major contributors to the net cash provided by
operating activities were a decrease in accounts receivable of $3.7 million, a
decrease in inventories of $1.1 million and an increase in deferred revenues of
$772,000, partially offset by a net loss of $938,000 and a decrease in accounts
payable of $2.9 million.  For the quarter ended December 31, 1997, amortization
and depreciation of $391,000, a decrease in accounts receivable of $3.1 million,
a decrease in inventories of $467,000, an increase in deferred revenues of
$511,000 and an increase in other accrued expenses of $567,000 were offset by
the net loss, an increase in other current assets of $418,000, a $1.5 million
decrease in accounts payable and an increase in income tax receivable of
$615,000.

     Net cash used in investing activities relating to purchases of property and
equipment was $350,000 and $289,000 for the quarters ended December 31, 1998 and
1997, respectively.  In addition, the Company capitalized $346,000 of software
development costs during the quarter ended December 31, 1998.  No such costs
were capitalized in 1997.

     Net cash used in financing activities was $53,000 and $93,000 for the
quarter ended December 31, 1998 and 1997, respectively.

     On December 7, 1998, the Company entered into an agreement with Silicon
Valley Bank to establish a $5,000,000 line of credit which the Company is using
to meet its short-term borrowing requirements.  The amount available under the
line of credit is based upon a percentage of eligible account receivables, as
defined.  Interest is charged at Silicon Valley Bank's prime rate plus 1%.
Borrowings under the agreement are secured by an interest in 

                                       17
<PAGE>
 
substantially all of the Company's assets and require the Company to comply with
specified financial and non-financial covenants. All receivable collections are
first applied against any outstanding line of credit balance. The highest
principal balance outstanding during the quarter ended December 31, 1998 was
$841,000. Interest was charged at an annual rate of 8.75% and interest expense
was $1,250. No amounts were outstanding under the line of credit at December 31,
1998.

     The Company believes that its existing cash balances, cash generated from
operations and borrowings under its line of credit will be sufficient to meet
the Company's cash requirements into its fiscal year ending September 30, 2000.
However, depending upon profitability, its rate of growth and the timing of its
collections and other operating factors, the Company may require additional
equity or debt financing to meet its working capital requirements or capital
expenditure needs.  There can be no assurance that additional financing, if
needed, will be available when required or, if available, on terms satisfactory
to the Company.

INFLATION

     To date, inflation has not had a material impact on the Company's financial
condition and results of operations.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

     The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio.  The Company does not have any
derivative financial instruments in its portfolio.  The Company places its
investments in instruments that meet high credit quality standards.  The Company
is adverse to principal loss and ensures the safety and preservation of its
invested funds by limiting default risk, market risk and reinvestment risk.  As
of December 31, 1998, the Company's investments consisted of a money market
account and an overnight repurchase agreement.  The Company does not expect any
material loss with respect to its investment portfolio.

FOREIGN CURRENCY RISK

     The Company does not use foreign currency forward exchange contracts or
purchased currency options to hedge local currency cash flows or for trading
purposes.  All sales arrangements with international customers are denominated
in U.S. dollars. Since the acquisition of Greendown Software Limited (in
February 1998), which changed its name to Axiom (Europe) Limited, its sales are
denominated in pounds Sterling. However, this activity has been insignificant to
date.

     Through its subsidiary, Axiom (Europe) Limited, the Company has limited
operations in the United Kingdom.  Due to this limited activity, the Company
does not expect any material loss with respect to foreign currency risk.



PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In August 1997, Acxiom Corporation ("Acxiom") filed suit against the Company in
the United States District Court for the District of Delaware alleging trademark
infringement and dilution under the Lanham Act, as well as related state law
causes of action.  On November 16, 1998, the District Court rendered its
decision that Acxiom was entitled to an order enjoining the Company from making
further use of the Axiom name and related injunctive relief.  The court also
concluded that Acxiom is not entitled to any money damages.  The Company and
Acxiom have agreed that neither will appeal the Court's decision, and the
Company agreed to reimburse Acxiom for ancillary costs in the amount of $50,000.

     Pursuant to the court order, the Company is required to change its name by
the end of March 1999.  The Company has proposed to amend the Company's Amended
and Restated Certificate of Incorporation to change the name of the Company to
Telesciences, Inc.  If the proposed amendment is approved by the stockholders at
the Company's Annual Meeting on March 24, 1999, the amendment will become
effective when a certificate of 

                                       18
<PAGE>
 
amendment of the Company's Amended and Restated Certificate of Incorporation is
filed with the Secretary of State of the State of Delaware, which filing is
expected to be made promptly following the Annual Meeting.

ITEM 2. CHANGES IN SECURITIES

     None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company did not submit any matter to a vote of its security holders
during the first quarter of fiscal 1999.

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits
               27   Financial Data Schedule

          (b)  Reports on Form 8-K
               None

                                       19
<PAGE>
 
SIGNATURES

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

                                          AXIOM INC.


Dated: February 16, 1999              By:  /s/ Andrew P. Maunder
                                          -------------------------------------
                                                 Andrew P. Maunder
                                         President and Chief Executive Officer
                                           (Principal Executive Officer)
 
Dated: February 16, 1999              By:  /s/ Frances Penfold
                                          -------------------------------------
                                                Vice President, Finance
                                    (Principal Financial and Accounting Officer)

                                       20