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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

|For the quarter ended March 31, 2003 |  | Commission File Number        1-13591
|------------------------------------ |  | -------------------------------------

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

|Delaware(State or other jurisdiction of
incorporation or organization)            |  | 13-2966911(I.R.S. 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)               

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 ý    No o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

Number
of shares outstanding of the issuer's common stock as of May 2, 2003

|ClassCommon Stock, par value $0.01 per share |  | Number of Shares Outstanding24,959,742
|-------------------------------------------- |  | --------------------------------------

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AXS-ONE INC.    INDEX

|                                |  |            |  |                                                                                                        |  | Page
Number
|------------------------------- |  | ---------- |  | ------------------------------------------------------------------------------------------------------ |  | -----------
|PART I    FINANCIAL INFORMATION
|                                |  | Item 1.    |  | Financial Statements                                                                                   |  |            
|                                |  |            |  | Consolidated Balance Sheets
December 31, 2002 and March 31, 2003 (unaudited)                           |  | 3          
|                                |  |            |  | Consolidated Statements of Operations (unaudited)
Three months ended March 31, 2002 and 2003           |  | 4          
|                                |  |            |  | Consolidated Statements of Comprehensive Income (unaudited)
Three months ended March 31, 2002 and 2003 |  | 5          
|                                |  |            |  | Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, 2002 and 2003           |  | 6          
|                                |  |            |  | Notes to Consolidated Interim Financial Statements                                                     |  | 7          
|                                |  | Item 2.    |  | Management's Discussion and Analysis of Financial
Condition and Results of Operations                  |  | 14         
|                                |  | Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                             |  | 22         
|                                |  | Item 4.    |  | Controls and Procedures                                                                                |  | 23         
|PART II    OTHER INFORMATION    |  |           
|                                |  | Item 1.    |  | Legal Proceedings                                                                                      |  | 24         
|                                |  | Item 6.    |  | Exhibits and Reports on Form 8-K                                                                       |  | 24         
|SIGNATURES                      |  |           
|                                |  | Signatures |  | 25                                                                                                    

2

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AXS-ONE INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (In thousands, except per share data)        (Unaudited)

|                                                                                                                                                   |                                                                                                                                                               | December 31,
2002           |        | March 31,
2003 |       
|-------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------ | -------------- | ------
|ASSETS                                                                                                                                             |                                                                                                                                                               |                             |        |                |       
|Current assets:                                                                                                                                    |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   | Cash and cash equivalents                                                                                                                                     |                             | $      | 2,702          |       
|                                                                                                                                                   | Restricted cash                                                                                                                                               |                             |        | 67             |       
|                                                                                                                                                   | Accounts receivable, net of allowance for doubtful accounts of $379 and $236 at December 31, 2002 and March 31, 2003, respectively                            |                             |        | 3,866          |       
|                                                                                                                                                   | Due from joint venture                                                                                                                                        |                             |        | 345            |       
|                                                                                                                                                   | Prepaid expenses and other current assets                                                                                                                     |                             |        | 706            |       
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   |                                                                                                                                                               | Total current assets        |        |                | 7,686 
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|Equipment and leasehold improvements, at cost:                                                                                                     |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   | Computer and office equipment                                                                                                                                 |                             |        | 10,687         |       
|                                                                                                                                                   | Furniture and fixtures                                                                                                                                        |                             |        | 857            |       
|                                                                                                                                                   | Leasehold improvements                                                                                                                                        |                             |        | 860            |       
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   |                                                                                                                                                               |                             | 12,404 |                |       
|                                                                                                                                                   | Lessaccumulated depreciation and amortization                                                                                                                |                             |        | 12,035         |       
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   |                                                                                                                                                               |                             | 369    |                |       
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|Capitalized software development costs, net of accumulated amortization of $8,177 and $8,489 at December 31, 2002 and March 31, 2003, respectively |                                                                                                                                                               |                             | 2,378  |                |       
|Other assets                                                                                                                                       |                                                                                                                                                               |                             | 166    |                |       
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   |                                                                                                                                                               | $                           | 10,599 |                | $     
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                              |                                                                                                                                                               |                             |        |                |       
|Current liabilities:                                                                                                                               |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   | Current portion of long-term debt                                                                                                                             |                             | $      | 1,800          |       
|                                                                                                                                                   | Accounts payable                                                                                                                                              |                             |        | 2,304          |       
|                                                                                                                                                   | Accrued expenses                                                                                                                                              |                             |        | 2,973          |       
|                                                                                                                                                   | Due to joint venture                                                                                                                                          |                             |        | 179            |       
|                                                                                                                                                   | Deferred revenue                                                                                                                                              |                             |        | 8,821          |       
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   |                                                                                                                                                               | Total current liabilities   |        |                | 16,077
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|Long-term liabilities:                                                                                                                             |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   | Long-term debt, net of current portion                                                                                                                        |                             |        | 547            |       
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|Commitments and contingencies                                                                                                                      |                                                                                                                                                               |                             |        |                |       
|Stockholders' deficit:                                                                                                                             |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   | Preferred stock, $.01 par value, authorized 5,000 shares, no shares issued and outstanding                                                                    |                             |        |               |       
|                                                                                                                                                   | Common stock, $.01 par value, authorized 50,000 shares; 24,849 and 24,960 shares issued and outstanding at December 31, 2002 and March 31, 2003, respectively |                             |        | 248            |       
|                                                                                                                                                   | Additional paid-in capital                                                                                                                                    |                             |        | 72,052         |       
|                                                                                                                                                   | Accumulated deficit                                                                                                                                           |                             |        | (78,769        | )     
|                                                                                                                                                   | Accumulated other comprehensive income                                                                                                                        |                             |        | 444            |       
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   |                                                                                                                                                               | Total stockholders' deficit |        |                | (6,025
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       
|                                                                                                                                                   |                                                                                                                                                               | $                           | 10,599 |                | $     
|                                                                                                                                                   |                                                                                                                                                               |                             |        |                |       

The
accompanying notes are an integral part of these consolidated financial statements.

3

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AXS-ONE INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share data)        (Unaudited)

|                                                   |                                    | Three Months Ended
March 31, |       
|-------------------------------------------------- | ---------------------------------- | ---------------------------- | ------
|
|Revenues:                                          |                                    |                              |       
|                                                   | License fees                       |                              | $     
|                                                   | Services                           |                              |       
|                                                   | Other-related parties              |                              |       
|                                                   |                                    |                              |       
|                                                   |                                    | Total revenues               |       
|                                                   |                                    |                              |       
|Operating expenses:                                |                                    |                              |       
|                                                   | Cost of license fees               |                              |       
|                                                   | Cost of services                   |                              |       
|                                                   | Sales and marketing                |                              |       
|                                                   | Research and development           |                              |       
|                                                   | General and administrative         |                              |       
|                                                   |                                    |                              |       
|                                                   |                                    | Total operating expenses     |       
|                                                   |                                    |                              |       
|Operating income                                   |                                    |                              | 627   
|                                                   |                                    |                              |       
|Other income (expense):                            |                                    |                              |       
|                                                   | Interest income                    |                              |       
|                                                   | Interest expense                   |                              |       
|                                                   | Gain on sale of subsidiary         |                              |       
|                                                   | Equity in losses of joint ventures |                              |       
|                                                   | Other expense, net                 |                              |       
|                                                   |                                    |                              |       
|                                                   |                                    | Other expense, net           |       
|                                                   |                                    |                              |       
|Net income                                         |                                    | $                            | 397   
|                                                   |                                    |                              |       
|Basic and diluted net income per common share      |                                    | $                            | 0.02  
|                                                   |                                    |                              |       
|Weighted average basic common shares outstanding   |                                    |                              | 24,793
|                                                   |                                    |                              |       
|Weighted average diluted common shares outstanding |                                    |                              | 25,854
|                                                   |                                    |                              |       

The
accompanying notes are an integral part of these consolidated financial statements.

4

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AXS-ONE INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME        (In thousands)        (Unaudited)

|                                        |                      | Three Months Ended
March 31,
|--------------------------------------- | -------------------- | ----------------------------
|
|Net income                              |                      | $                           
|Foreign currency translation adjustment |                      |                             
|                                        |                      |                             
|                                        | Comprehensive income |                             
|                                        |                      |                             

The
accompanying notes are an integral part of these consolidated financial statements.

5

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AXS-ONE INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands)  (Unaudited)

|                                                                                                     |                                                                        | Three Months Ended
March 31, |      
|---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ---------------------------- | -----
|
|Cash flows from operating activities:                                                                |                                                                        |                              |      
|Net income                                                                                           |                                                                        | $                            | 397  
|Adjustments to reconcile net income to net cash flows provided by operating activities:              |                                                                        |                              |      
|                                                                                                     | Increase in cash surrender value of officer's life insurance           |                              |      
|                                                                                                     | Depreciation and amortization                                          |                              |      
|                                                                                                     | Net recovery of doubtful accounts                                      |                              |      
|                                                                                                     | Gain on sale of subsidiary                                             |                              |      
|                                                                                                     | Loss on equity method investments                                      |                              |      
|                                                                                                     | Consulting services received in lieu of payment on note receivable     |                              |      
|                                                                                                     | Consulting services received in lieu of payment on accounts receivable |                              |      
|Changes in current assets and liabilities:                                                           |                                                                        |                              |      
|                                                                                                     | Restricted cash                                                        |                              |      
|                                                                                                     | Accounts receivable                                                    |                              |      
|                                                                                                     | Due from joint venture                                                 |                              |      
|                                                                                                     | Prepaid expenses and other current assets                              |                              |      
|                                                                                                     | Accounts payable and accrued expenses                                  |                              |      
|                                                                                                     | Deferred revenue                                                       |                              |      
|                                                                                                     |                                                                        |                              |      
|Net cash flows provided by operating activities                                                      |                                                                        |                              | 591  
|                                                                                                     |                                                                        |                              |      
|Cash flows from investing activities:                                                                |                                                                        |                              |      
|                                                                                                     | Change in other assets                                                 |                              |      
|                                                                                                     | Proceeds from sale of subsidiary                                       |                              |      
|                                                                                                     | Loan to joint venture                                                  |                              |      
|                                                                                                     | Capitalized software development costs                                 |                              |      
|                                                                                                     | Purchase of equipment and leasehold improvements                       |                              |      
|                                                                                                     |                                                                        |                              |      
|Net cash flows used in investing activities                                                          |                                                                        |                              | (232 
|                                                                                                     |                                                                        |                              |      
|Cash flows from financing activities:                                                                |                                                                        |                              |      
|                                                                                                     | Proceeds from exercise of stock options                                |                              |      
|                                                                                                     | Payments of long-term debt                                             |                              |      
|                                                                                                     |                                                                        |                              |      
|Net cash flows used in financing activities                                                          |                                                                        |                              | (444 
|                                                                                                     |                                                                        |                              |      
|Foreign currency exchange rate effects on cash and cash equivalents                                  |                                                                        |                              | 64   
|                                                                                                     |                                                                        |                              |      
|Net decrease in cash and cash equivalents                                                            |                                                                        |                              | (21  
|Cash and cash equivalents, beginning of period                                                       |                                                                        |                              | 1,048
|                                                                                                     |                                                                        |                              |      
|Cash and cash equivalents, end of period                                                             |                                                                        | $                            | 1,027
|                                                                                                     |                                                                        |                              |      
|Supplemental disclosures of cash flow information:                                                   |                                                                        |                              |      
|Cash paid during the period forInterest                                                             |                                                                        | $                            | 92   
|                                                                                                     | Income taxes                                                           |                              | $    
|Non-cash investing activitiesConsulting services received in lieu of payment on accounts receivable |                                                                        | $                            |     
|Consulting services received in lieu of payment on note receivable                                   |                                                                        | $                            | 48   

The
accompanying notes are an integral part of these consolidated financial statements.

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

(1)   OPERATIONS, BUSINESS CONDITIONS AND SIGNIFICANT ACCOUNTING POLICIES

The Company designs, markets and supports n-tier, Internet-enabled, client/server, e-business, financial, workflow, and desktop data
access and storage software solutions for global 2000 businesses, and scheduling and time and expenses solutions for professional services organizations. The Company also offers consulting,
installation, training and maintenance services in support of its customers' use of its software products.

(a)Basis of Presentation

The
accompanying consolidated financial statements include the accounts of AXS-One Inc. and its wholly owned subsidiaries located in Australia, Canada, Singapore,
South Africa, and the United Kingdom (collectively, the"Company"). All significant intercompany transactions and balances have been eliminated. During
the first quarter of 2001, the Company's South Africa operations entered into two joint ventures. Ownership was 50% or less in both entities until November 30, 2002, at which time the Company
acquired, for a nominal amount, the remaining 50% of the common stock of one of the entities, Hospitality Warehouse, to make it a wholly-owned subsidiary. All significant intercompany transactions and
balances have been eliminated. The Company uses the equity method of accounting for its joint venture that it owns between 20 and 50%. Under the equity method, investments are stated at cost plus or
minus the Company's equity in undistributed earnings or losses.

The
unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and, in the
opinion of management, contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of these consolidated financial statements.

These
consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's 2002 Annual Report on
Form 10-K filed with the Securities and Exchange Commission.

The
results of operations for the three-month period ended March 31, 2003 are not necessarily indicative of results to be expected for the full year 2003 or any future periods.

(b)Revenue Recognition

The
Company recognizes revenue in accordance with Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), and Statement of Position
98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." Revenue from non-cancelable software licenses is recognized
when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectibility is probable. In multiple element arrangements, the Company defers the
vendor-specific objective evidence of fair value ("VSOE") related to the undelivered elements and recognizes revenue on the delivered elements using the residual method. The most commonly deferred
element is initial maintenance, which is recognized on a straight-line basis over the initial maintenance term. The VSOE of maintenance is determined by using a consistent percentage of
maintenance fee to license fee based on renewal rates. Maintenance fees in subsequent years are recognized on a straight-line basis over the life of the applicable agreement. Delivery of
software generally occurs when the product (on CDs) is delivered to a common carrier.

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For
software license and maintenance revenue, the Company assesses whether the fee is fixed and determinable and whether or not collection is probable. The Company assesses whether the
fee is fixed and determinable based on the payment terms associated with the transaction. If a significant portion of a fee is due after the Company's normal payment terms, which are 30 to
90 days from invoice date, it accounts for the fee as not being fixed and determinable. In these cases, the Company recognizes revenue as the fees become due.

The
majority of the Company's training and consulting services are billed based on hourly rates. The Company generally recognizes revenue as these services are performed. However, when
the Company
enters into an arrangement that requires it to perform significant work either to alter the underlying software or to build additional complex interfaces so that the software performs as the customer
requests, the Company recognizes the entire fee using contract accounting. This would apply to the Company's custom programming services which are generally contracted on a fixed fee basis.
Anticipated losses, if any, are charged to operations in the period such losses are determined.

Revenues
from joint ventures (included in Revenues: Other-Related Parties in the Company's Consolidated Statements of Operations) includes consulting revenue for the joint venture's use
of the Company's South African subsidiary's consultants (2003 only) and for management fees arising from the Company's South African subsidiary providing managerial, technical and other related
services to the joint ventures (2002 and 2003 periods) in accordance with the joint venture agreements. Revenue is recognized upon performance of the services.

The
Company assesses assuredness of collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. The Company
does not request collateral from its customers. If the Company determines that collection of a fee is not probable, it defers the fee and recognizes revenue at the time collection becomes probable,
which is generally upon receipt of cash.

The
Company adopted EITF Issue No. 01-14, "Income Statement Characterization of Reimbursement Received for 'Out of Pocket' Expenses Incurred" on January 1,
2002. Accordingly, reimbursements received for out-of-pocket expenses incurred are classified as revenue in the unaudited consolidated statements of operations.

(c)Stock-Based Compensation

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock Based Compensation-Transition and Disclosure, an Amendment of FASB
Statement No. 123" ("SFAS 148"). SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"), to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for stock-based compensation. However, it allows an entity to continue to measure compensation cost for those instruments using
the intrinsic-value method of accounting prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," provided it discloses the effect of
SFAS 123, as amended by SFAS 148, in footnotes to the financial statements. On April 22, 2003, the FASB decided to require stock-based employee compensation to be recorded as a
charge to earnings beginning in 2004. Until that time, the Company has chosen to continue to account for stock-based compensation using the intrinsic value method. Accordingly, no stock option related
compensation expense has been recognized in the consolidated statements of operations, as all options granted had an exercise price equal to the market value of the underlying stock on the date of
grant. The Company was required to adopt SFAS 148 for the year ended December 31, 2002. The adoption of SFAS 148 did not have an impact on the 2002 consolidated results of
operations or financial position of the Company and is not expected to have an impact on the consolidated results of operations or financial position of the Company through 2003 as the Company

8

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expects
to continue to apply the intrinsic value method prescribed by APB 25 until such time as the new standard is issued by the FASB.

Had
the Company, however, elected to recognize compensation cost based on fair value of the stock options at the date of grant under SFAS 123, as amended by SFAS 148, such
costs would have been recognized ratably over the vesting period of the underlying instruments and the Company's net income (loss) and net income (loss) per common share would have changed to the pro
forma amounts indicated in the table below.

|                                                                                                                |                     | Three Months Ended March 31,
|--------------------------------------------------------------------------------------------------------------- | ------------------- | ----------------------------
|
|Net income as reported                                                                                          |                     | $                           
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |                     |                             
|                                                                                                                |                     |                             
|Pro forma net income (loss)                                                                                     |                     | $                           
|                                                                                                                |                     |                             
|Net income per common share:                                                                                    |                     |                             
|                                                                                                                | Basic-as reported   |                             
|                                                                                                                | Basic-pro forma     |                             
|                                                                                                                | Diluted-as reported |                             
|                                                                                                                | Diluted-pro forma   |                             

The
Company has used the Black-Scholes option-pricing model in calculating the fair value of options granted. The assumptions used and the weighted average information for the three
months ended March 31, 2002 and 2003 are as follows:

|                                                                                                                |  | Three Months Ended March 31, |          
|--------------------------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------
|
|Risk-free interest rate                                                                                         |  |                              | 5.82     
|Expected dividend yield                                                                                         |  |                              |         
|Expected lives                                                                                                  |  |                              | 7 years  
|Expected volatility                                                                                             |  |                              | 129      
|Weighted-average grant date fair value of options granted during the period                                     |  | $                            | 0.89     
|Weighted-average remaining contractual life of options outstanding                                              |  |                              | 7.0 years
|Weighted-average exercise price of 2,595 and 3,891 options exercisable at March 31, 2002 and 2003, respectively |  | $                            | 1.59     

2)    REVOLVING LINE OF CREDIT AND LONG-TERM DEBT

On March 31, 1998, the Company entered into a Loan and Security Agreement ("Agreement") which contained a revolving line of credit and a term loan (the
"Initial Term Loan").

Borrowings
under the revolving line of credit bear annual interest at prime rate plus 1.25% subject to a minimum interest rate of 8.0% per annum. The Agreement provides for yearly fees
as follows: (i) $111 in year one, $86 in years two and three, $77 in year four, $74 in years five and six and (ii) an unused revolving line of credit fee of .375% per annum. The
Agreement is secured by substantially all domestic assets of the Company together with a pledge of 65% of the stock of its foreign subsidiaries, and contains certain restrictive financial covenants.
Under the revolving line of credit the Company currently has available the lesser of $5 million or 85% of eligible receivables, as defined. The net available amount under the revolving line of
credit at March 31, 2003 was approximately $0.5 million of which no amounts were outstanding.

9

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The
Initial Term Loan provided for $5 million available in one drawdown which the Company borrowed on the closing date in 1998. The Initial Term Loan bears interest at the prime
rate as defined (4.25% per annum at March 31, 2003) plus 1.5% subject to a minimum interest rate of 8.0% per annum.

Effective
December 22, 1999, in connection with the sale of its subsidiary in France, the Company amended the Agreement (Amendment No. 7) in order to make available to the
Company a second term loan in the original principal amount of $1.3 million, which the Company borrowed on that date and together with the Initial Term Loan, collectively the "A Term Loan," and
a third term loan (the "B Term Loan") in the original principal amount of $750, of which the Company borrowed $500 on November 3, 2000 and requested the remaining $250 on December 31,
2000 which was subsequently remitted and recorded on the Company's books on January 2, 2001.

The
A Term Loan bears interest at the rate of prime as defined (4.25% per annum at March 31, 2003) plus 1.5% subject to a minimum interest rate of 8.0% per annum. As of
December 31, 2002, no
amounts remained outstanding under the A Term loan. The B Term Loan bears interest at the fixed rate of 12.0% per annum.

Effective
March 16, 2001, the Company further amended the Agreement (Amendment No. 9) in order to make available an additional term loan (the "Additional B Term Loan") in
the original principal amount of up to $2.0 million, of which the Company borrowed only $750 on April 30, 2001 and $500 on May 30, 2001. This amendment also extended the
termination date of the credit facility to March 31, 2004 and established restrictive financial covenants for 2001. The availability of the Additional B Term Loan was subject to the Company's
compliance with the 2001 financial covenants.

On
June 29, 2001, the Company further amended the Agreement (Amendment No. 10) to make available an additional term loan (the "Second Additional B Term Loan") in the
original principal amount of $500 which was borrowed on July 31, 2001, to eliminate the financial covenant requirement for June 30, 2001, and to set two new monthly covenants for the
remainder of 2001 based on EBITDA (earnings before interest, taxes and depreciation and amortization) and minimum revenue requirements. The Company was in compliance with these new monthly covenants
through December 31, 2001.

On
March 13, 2002, the Company further amended the Agreement (Amendment No. 11) to set new financial covenants for the year 2002 based on cumulative quarterly EBITDA. The
Company was in compliance with these new covenants through June 30, 2002.

Effective
August 8, 2002, the Company further amended the Agreement (Amendment No. 12) in order to make available an additional term loan (the "Third Additional B Term
Loan") in the original principal amount of up to $1.5 million of which the Company borrowed $250 on August 21, 2002, $250 on September 13, 2002, and $500 on October 1,
2002, and to revise the Amendment No. 11 EBITDA covenants for the remainder of 2002. The Company was in compliance with these new covenants through December 31, 2002. The amount
available under the term loans at March 31, 2003 was $500.

The
aggregate outstanding principal amount of the Term Loans is repayable in monthly installments of $150 beginning September 2002 over the remaining term of the Loan and Security
Agreement, in accordance with Amendment No. 12. Any unpaid principal and interest is due in full on March 31, 2004.

Amendment
No. 12 provides a limitation that if the total outstanding balance of the Term Loans exceeds at any time the lesser of (i) 40% of eligible maintenance revenues
from August 8, 2002 through December 31, 2002, 25% of eligible maintenance revenues from January 1, 2003 through March 31, 2004 and (ii) $4.5 million, then
the Company is required to prepay the principal amount in an amount sufficient to cause the aggregate principal amount of the Term Loans to be less than or equal to the relevant limits set forth
above. As of March 31, 2003, eligible maintenance revenues as defined, totaled approximately $12.0 million.

10

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On March 21, 2003, we further amended the Agreement (Amendment No. 13) in order to set the EBITDA quarterly covenants for 2003. The Company was in compliance with these
covenants through March 31, 2003.

(3)   BASIC AND DILUTED NET INCOME PER COMMON SHARE

Basic and diluted net income per common share is presented in accordance with SFAS No. 128, "Earnings per Share" ("SFAS No. 128").

Basic
net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share for the three
months ended March 31, 2002 and 2003 does not include the effects of outstanding options to purchase 3,481 and 4,115 shares of common stock, respectively, and outstanding warrants to purchase
476 and 100 shares of common stock, respectively, as the effect of their inclusion is anti-dilutive for the periods.

The
following represents the calculations of the basic and diluted net income per common share for the three months ended March 31, 2002 and 2003.

|                                                                      |  | Three Months Ended March 31,
|--------------------------------------------------------------------- |  | ----------------------------
|
|Net income                                                            |  | $                           
|                                                                      |  |                             
|Weighted average basic common shares outstanding during the periods   |  |                             
|Dilutive effect of stock options and warrants                         |  |                             
|                                                                      |  |                             
|Weighted average diluted common shares outstanding during the periods |  |                             
|                                                                      |  |                             
|Basic net income per common share                                     |  | $                           
|                                                                      |  |                             
|Diluted net income per common share                                   |  | $                           
|                                                                      |  |                             

(4)   OPERATING SEGMENTS

The Company has three product lines that it offers to specific markets as part of its strategy to focus on market opportunities. The three product lines are as
follows:

The
Company evaluates the performance of its product lines based on revenues and operating income. Summarized financial information concerning the Company's reportable segments is shown
in

11

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the
following table. The Chief Executive Officer uses the information below in this format while making decisions about allocating resources to each product line and assessing its performance.

|                                                |              | AXS-One
Enterprise
Solutions |       | AXSPoint
Solutions |  | Tivity
Solutions |       | Total
|----------------------------------------------- | ------------ | ---------------------------- | ----- | ------------------ |  | ---------------- | ----- | -----
|Three Months Ended March 31, 2002               |              |                              |       |                    |  |                  |       |      
|Revenues:                                       |              |                              |       |                    |  |                  |       |      
|                                                | License fees |                              | $     | 536                |  | $                | 394   |      
|                                                | Services     |                              |       | 6,115              |  |                  | 1,105 |      
|                                                |              |                              |       |                    |  |                  |       |      
|Total revenues, excluding related party revenue |              |                              | 6,651 |                    |  | 1,499            |       |      
|Operating income                                |              |                              | 824   |                    |  | 821              |       |      
|Total assets                                    |              |                              | 7,711 |                    |  | 1,822            |       |      
|Capital expenditures                            |              |                              | 11    |                    |  | 2                |       |      
|Depreciation and amortization                   |              |                              | 480   |                    |  | 23               |       |      
|Three Months Ended March 31, 2003               |              |                              |       |                    |  |                  |       |      
|Revenues:                                       |              |                              |       |                    |  |                  |       |      
|                                                | License fees |                              | $     | 1,115              |  | $                | 126   |      
|                                                | Services     |                              |       | 5,470              |  |                  | 2,087 |      
|                                                |              |                              |       |                    |  |                  |       |      
|Total revenues, excluding related party revenue |              |                              | 6,585 |                    |  | 2,213            |       |      
|Operating income                                |              |                              | 1,669 |                    |  | 413              |       |      
|Total assets                                    |              |                              | 9,757 |                    |  | 2,238            |       |      
|Capital expenditures                            |              |                              | 28    |                    |  | 5                |       |      
|Depreciation and amortization                   |              |                              | 378   |                    |  | 11               |       |      

Reconciliation
of total segment operating income (loss) to consolidated operating income:

|                                                |  | Three Months Ended |       
|----------------------------------------------- |  | ------------------ | ------
|
|Operating income from reportable segments       |  | $                  | 1,728 
|Unallocated revenue, other-related parties      |  |                    | 88    
|Unallocated general and administrative expenses |  |                    | (1,013
|Other corporate unallocated expenses            |  |                    | (176  
|                                                |  |                    |       
|Total consolidated operating income             |  | $                  | 627   
|                                                |  |                    |       

(5)   DIVESTITURE

On September 20, 2001, the Company sold its wholly-owned subsidiary located in Central and Eastern Europe (C.E.E.), including offices in Poland, Estonia
and Bulgaria, to Porterfield International Ltd. ("Buyer"), a company wholly-owned by the former managing director of C.E.E. and his wife. The Company received consideration in the form of a
promissory note of Buyer in the face amount of $430 which was paid as of December 31, 2002. A net asset deficiency of the C.E.E. operations of $(3), at the time of the sale, offset by accrued
expenses of $180, directly related to the sale, resulted in a deferred gain of approximately $253, which the Company recorded in accordance with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 81 (SAB 81), "Gain Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged Entity." Additional direct costs of the sale of $3 and $5 recorded
during the three months ended June 30, 2002 and December 31, 2002, respectively, reduced the total deferred gain to $245.

The
Company recognized such gain as the note receivable was paid or equivalent value for services was received, but only after $180 was received. Through December 31, 2002, $430
had been received in

12

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either
payment to the Company or equivalent services provided by the Buyer to the Company or to the Company's joint venture. The Company recognized $219 of such gain through December 31, 2002,
which included a reversal of $45 related to the original $180 in accrued expenses recorded at the time of the sale. The $45 was recognized during the three months ended September 30, 2002 as a
result of the release of a past customer claim. The remaining gain of $71, reflected as Deferred revenue on the accompanying December 31, 2002 consolidated balance sheet, was recognized in
February 2003 when the Company received payment from the Company's joint venture for services provided by the Buyer to the joint venture. The following table shows the activity related to the
promissory note and related deferred gain and gain recognized:

|                                                                 |  | Note
Receivable |      | Deferred
Gain |   | Gain
Recognized
|---------------------------------------------------------------- |  | --------------- | ---- | ------------- | - | ---------------
|Balance at December 31, 2001                                     |  | $               | 336  |               | $ | 253            
|Direct expense incurred in June 2002                             |  |                 |     |               |   | (3             
|Cash payments and services received through December 31, 2002    |  |                 | (336 | )             |   | (174           
|Reversal of accrued expense in September 2002                    |  |                 |     |               |   |               
|Direct expense incurred in October 2002                          |  |                 |     |               |   | (5             
|Balance at December 31, 2002                                     |  |                 |     |               |   | 71             
|Cash payments received from joint venture through March 31, 2003 |  |                 |     |               |   | (71            
|Balance at March 31, 2003                                        |  | $               |     |               | $ |               

(6)   CONTINGENCIES

The Securities and Exchange Commission (SEC) performed an investigation of the Company and of certain former employees and officers of the Company relating to
activities performed through 1996 while they were employees of the Company. The Company filed a Form 8-K with the SEC on February 15, 2001 disclosing the SEC investigation
and its disposition with respect to the Company. In mid August 2001, the Company was informed by counsel for its former employees and officers, whom the Company knew to be the subject of the
SEC investigation, that such counsel had been informed by the SEC that the SEC was no longer pursuing its investigation of their clients. Under the Company's certificate of incorporation, and Delaware
law, the Company has an indemnification obligation to reimburse legal fees to former employees and officers relating to actions taken against them for work performed while they were employed by the
Company. Approximately $0.8 million in such estimated legal fees were recorded in general and administrative expenses during the nine months ended September 30, 2001. During the second
quarter of 2002, approximately $0.3 million of these charges were reversed due to favorable settlements of outstanding billings with legal firms. The Company does not anticipate any further
costs relating to this matter.

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

13

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Interim Financial Statements and Notes thereto and is qualified in its entirety by
reference thereto.

This
Report contains statements of a forward-looking nature within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, relating to future events or the future financial performance of AXS-One. Investors are cautioned that such
statements are only predictions and that actual events or results may differ materially. In evaluating such statements, investors should specifically consider the various factors identified in this
Report which could cause actual results to differ materially from those indicated by such forward-looking statements, including the matters set forth in "BusinessRisk Factors" in our 2002
Annual Report on Form 10K.

Overview

We are a provider of e-Business solutions for global 2000 companies, professional service organizations (PSOs) and financial managers who have
implemented high-volume, scalable and secure business solutions for hundreds of customers across the globe.

We
supply a suite of e-business solutions based upon our next generation n-tier Internet-architecture. This family of products,
e-Cellerator products, is designed to meet the needs of organizations that wish to conduct business across the Internet. e-Cellerator products are used to build
two families of solutions, AXS-One® Enterprise solutions and AXSPoint® solutions. AXS-One Enterprise solutions are designed to enable businesses to
conduct business transactions across the Internet. AXSPoint solutions are designed to enable organizations to exchange information and knowledge across the Internet. See "Item 1. Business" in our 2002
Annual Report on Form 10K.

We
have experienced, and may in the future experience, significant fluctuations in our quarterly and annual revenues, results of operations and cash flows. We believe that domestic and
international
operating results and cash flows will continue to fluctuate significantly in the future as a result of a variety of factors, including the timing of revenue recognition related to significant license
agreements, the lengthy sales cycle for our products, the proportion of revenues attributable to license fees versus services, the utilization of third parties to perform services, the amount of
revenue generated by re-sales of third party software, changes in product mix, demand for our products, the size and timing of individual license transactions, the introduction of new
products and product enhancements by us or our competitors, changes in customers' budgets, competitive conditions in the industry and general economic conditions. For a description of certain factors
that may affect our operating results, see "BusinessRisk Factors" in our 2002 Annual Report on Form 10K.

We
incurred net losses of $0.3 million and $4.7 million in 2000 and 2001, respectively, and generated net income of $1.9 million in 2002. We incurred operating
losses of $0.2 million and $4.1 million in 2000 and 2001, respectively and generated operating income of $2.8 million in 2002. Operating losses incurred by the Central and Eastern
Europe subsidiary, which was sold in 2001 totaled $0.6 million and $0.3 million for 2000 and 2001, respectively. We reported net income of $0.4 million for the three months ended
March 31, 2003 and operating income of $0.5 million for the same period.

Recently Issued Accounting Standards

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)" ("EITF 94-3") and requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair

14

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value
in the period in which the liability is incurred. Under EITF 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. Under
SFAS 146 recognition for certain types of costs are delayed as compared to the provisions of EITF 94-3. SFAS 146 is effective for new exit or disposal activities that are
initiated after December 31, 2002 and will affect the types and timing of costs included in future restructuring programs, if any. Its adoption on January 1, 2003 did not have a material
impact on our consolidated financial position or results of operations.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." This statement amends SFAS No. 123, "Accounting
for Stock-based Compensation," to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based compensation. It also
amends the disclosure provisions of SFAS 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based
employee compensation. Finally, this statement amends APB Opinion No. 28, "Interim Financial Reporting," to require disclosure about those effects in interim financial information. SFAS
No. 148 is effective for financial statements for fiscal
years ending after December 15, 2002. On April 22, 2003, the FASB decided to require stock-based employee compensation to be recorded as a charge to earnings beginning in 2004. Until
that time, we have elected to continue to follow the disclosure-only provisions of SFAS No. 123 which require disclosure of the pro forma effects on net income (loss) and basic and
diluted net income (loss) per common share as if the fair value method of accounting prescribed by SFAS No. 123 had been adopted, as well as certain other information (see Note 1(c) to
the Consolidated Interim Financial Statements). We will continue to monitor the FASB's progress on issuance of this standard as well as evaluate our position with respect to current guidance.

In
November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others". The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a
company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligations it assumes under that guarantee and must disclose that information
in its interim and annual financial statements. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002,
regardless of the guarantor's fiscal year-end. The disclosure requirements in the Interpretation are effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of this Interpretation on December 31, 2002 did not have a material impact on our consolidated financial position or results of operations.

15

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Results of Operations

The following table sets forth for the periods indicated, certain operating data, and data as a percentage of total revenues:

|                        |                                    | Three Months Ended
March 31, 2002 |     | Three Months Ended
March 31, 2003 |      
|----------------------- | ---------------------------------- | --------------------------------- | --- | --------------------------------- | -----
|
|
|
|Revenues:               |                                    |                                   |     |                                   |      
|                        | License fees                       |                                   | $   | 1,184                             |      
|                        | Services                           |                                   |     | 7,824                             |      
|                        | Other-related parties              |                                   |     | 88                                |      
|                        |                                    |                                   |     |                                   |      
|                        |                                    | Total revenues                    |     |                                   | 9,096
|                        |                                    |                                   |     |                                   |      
|Operating expenses:     |                                    |                                   |     |                                   |      
|                        | Cost of license fees               |                                   |     | 365                               |      
|                        | Cost of services                   |                                   |     | 3,807                             |      
|                        | Sales and marketing                |                                   |     | 1,516                             |      
|                        | Research and development           |                                   |     | 1,716                             |      
|                        | General and administrative         |                                   |     | 1,065                             |      
|                        |                                    |                                   |     |                                   |      
|                        |                                    | Total operating expenses          |     |                                   | 8,469
|                        |                                    |                                   |     |                                   |      
|Operating income        |                                    |                                   | 627 |                                   | 6.9  
|                        |                                    |                                   |     |                                   |      
|Other income (expense): |                                    |                                   |     |                                   |      
|                        | Equity in losses of joint ventures |                                   |     | (97                               | )    
|                        | Other expense, net                 |                                   |     | (133                              | )    
|                        |                                    |                                   |     |                                   |      
|                        |                                    | Other expense, net                |     |                                   | (230 
|                        |                                    |                                   |     |                                   |      
|Net income              |                                    | $                                 | 397 |                                   | 4.4  
|                        |                                    |                                   |     |                                   |      

Total Revenues

Total revenues increased $0.3 million or 3.8% for the three months ended March 31, 2003, as compared to the three months ended March 31,
2002. The increase in 2003 was mainly attributable to an increase of $0.8 million in revenues from our foreign subsidiaries in both license and services revenue partially offset by a decrease
of $0.4 million in revenue in our US operations. The decrease in revenue in our U.S. operations was primarily the result of continued weak economic conditions which, we believe, has resulted in
customers delaying or limiting their technology spending, choosing to purchase lower cost point solutions rather than higher dollar projects. We believe it was also the result of uncertainties
regarding the war in Iraq and the continued threat of terrorist attacks in the U.S. and throughout the world. Total revenues for the three months ended March 31, 2003 included
$3.4 million or 35.9% of total revenues from two customers. For the three months ended March 31, 2002, total revenues included $2.3 million or 25.0% of total revenues from two
customers.

We
derived approximately $2.6 million and $3.5 million or 29.1% and 37.0%, respectively, of our total revenues from customers outside of the United States for the three
months ended March 31, 2002 and 2003, respectively. We expect that such revenues will continue to represent a significant percentage of our total revenues in the future. Most of our
international license fees and service revenues are denominated in foreign currencies. Fluctuations in the value of foreign currencies relative to the US dollar in the future could result in
fluctuations in our revenue.

16

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License Fees

License fees include revenues from software license agreements we entered into with our customers with respect to both our products and, to a lesser degree, third
party products resold by us. Total license fees remained relatively flat for the three months ended March 31, 2003, as compared to the three months ended March 31, 2002.

Service Revenues

Service revenues include fees from software maintenance agreements, training, consulting services including installation and custom programming. Maintenance fees,
including first year maintenance, which is allocated from the total license arrangements based on VSOE, are recognized ratably over the period of the maintenance agreement. Training, consulting, and
custom programming revenues are recognized as the services are performed.

Service
revenues increased $0.3 million or 3.4% for the three months ended March 31, 2003, as compared to the three months ended March 31, 2002. The majority of the
increase relates to a $0.2 million increase in maintenance revenue resulting from new license agreements and customary annual increases for existing agreements.

The
following table sets forth for the periods indicated each major category of our service revenues as a percent of total service revenues:

|                       |  | Three Months Ended March 31, |      
|---------------------- |  | ---------------------------- | -----
|
|
|
|Maintenance            |  | $                            | 3,879
|Consulting             |  |                              | 3,863
|Training               |  |                              | 29   
|Custom programming     |  |                              | 53   
|                       |  |                              |      
|Total services revenue |  | $                            | 7,824
|                       |  |                              |      

OtherRelated Parties

During January 2001, we entered into two South African joint ventures: AXS-One African Solutions (Pty) Ltd ("African Solutions") and
Hospitality Warehouse (Pty) Ltd ("Hospitality Warehouse"). African Solutions sells and services our suite of products. Hospitality Warehouse uses our procurement software and generates fees for
purchases made by member companies primarily in the hospitality industry. Ownership was 50% or less in both entities until November 30, 2002, at which time we acquired, for a nominal amount,
the remaining 50% of the common stock of Hospitality Warehouse to make it a wholly-owned subsidiary. We use the equity method of accounting for our investments in 20 to 50-percent-owned
companies. Under the equity method, investments are stated at cost plus or minus our equity in undistributed earnings or losses. Revenues for the three months ended March 31, 2003 from the
joint venture includes management fee revenue of $33 thousand and consulting revenue of $82 thousand. Revenues for the three months ended March 31, 2002 from these joint ventures
included management fee revenue of $87 thousand and consulting related revenue of $1 thousand.

Management
fees for the three months ended March 31, 2003 decreased from the same period in 2002 as a result of our decision to temporarily stop charging management fees until the
joint venture becomes profitable. We continue to charge director's fees which are included in total management fees for both periods. The increase in consulting revenue in the 2003 period resulted
from the transfer of

17

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the
consulting staff and related services in January 2003 from African Solutions to our South African subsidiary.

Cost of License Fees

Cost of license fees consist primarily of amortization of capitalized software development costs and amounts paid to third parties with respect to products we
resold in conjunction with the licensing of our products. The elements can vary substantially from period to period as a percentage of license fees.

Cost
of license fees decreased slightly from $365 thousand for the three months ended March 31, 2002 to $341 thousand for the three months ended March 31,
2003. The decrease was mainly the result of a decrease in amortization of capitalized software costs.

Cost of Services

Cost of services consists primarily of personnel and third party costs for product quality assurance, training, installation, consulting and customer support.

Cost
of services increased $0.2 million or 4.1% for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002. The increase is
primarily due to an increase of $0.1 million in personnel related costs resulting mainly from an increase in fringe benefits costs and increased use of temporary employees and consultants. As a
percentage of service revenues, cost of services was 49.0% for both periods.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, commission and bonuses related to sales and marketing personnel, as well as travel and promotional
expenses.

Sales
and marketing expenses increased $0.1 million or 7.6% for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002. The
increase is primarily a result of a $0.1 million increase in commissions expense in our foreign operations due to increased sales.

Research and Development

Research and development expenses consist primarily of personnel costs, costs of equipment, facilities and third party software development costs. Research and
development expenses are generally charged to operations as incurred. However, certain software development costs are capitalized in accordance with Statement of Financial Accounting Standards
No. 86 (SFAS 86), "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Such capitalized software development costs are generally amortized to cost of
license fees on a straight-line basis over periods not exceeding three years.

Research
and development expenses decreased $42 thousand or 2.4% for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002. We
capitalized $0.3 million in software development costs in the first quarter of 2003 as compared to $0.2 million in the first quarter of 2002. The rate of capitalization of software
development costs may fluctuate depending on the mix and stage of development of our product development and engineering projects.

General and Administrative

General and administrative expenses consist primarily of salaries for administrative, executive and financial personnel, and outside professional fees. General
and administrative expenses increased $0.3 million or 23.5% for the three months ended March 31, 2003, as compared to the three months

18

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ended
March 31, 2002. The increase is primarily as a result of a $0.1 million increase in rent expense due to a new lease for our Rutherford office beginning on January 1, 2003,
$0.1 million increase in insurance expense and a $0.1 million increase in professional fees.

The
Securities and Exchange Commission (SEC) performed an investigation of AXS-One and of certain of our former employees and officers relating to activities performed
through 1996 while they were our employees. We filed a Form 8-K with the SEC on February 15, 2001 disclosing the SEC investigation and its disposition with respect to
AXS-One. In mid August 2001, we were informed by counsel for our former employees and officers, whom we knew to be the subject of the SEC investigation, that such counsel had been
informed by the SEC that the SEC was no longer pursuing its investigation of their clients. Under our certificate of incorporation, and Delaware law, we have an indemnification obligation to reimburse
legal fees to former employees and officers relating to actions taken against them for work performed while they were our employees. Approximately $0.8 million in such estimated legal fees were
recorded during the year ended December 31, 2001. During the second quarter of 2002 approximately $0.3 million of these charges were reversed due to favorable settlements of outstanding
billings with legal firms. The Company does not anticipate any further costs relating to this matter.

Other Expense, Net

Other expense, net decreased $0.1 million for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002. The
decreased expense is primarily due to a decrease of $78 thousand of equity in losses of joint ventures related to two joint ventures entered into during the first quarter of 2001 by our South
Africa operations. On November 30, 2002, we acquired, for a nominal amount, the remaining 50% of the common stock of one of the entities, Hospitality Warehouse, to make it a wholly-owned
subsidiary. Equity in losses of joint ventures for the three months ended March 31, 2003 decreased because it includes only one entity as compared to both entities in the 2002 period. The
decreased expense also resulted from an increase in the gain recognized on the sale of our C.E.E. subsidiary of $52 thousand. Interest expense relates to the interest on the revolving line of
credit and term loan. (See Note 2 to the Consolidated Interim Financial Statements.)

Segment Information

For the three months ended March 31, 2003, AXS-One Enterprise Solutions had license fee revenues of $1.1 million compared to
$0.5 million for the comparable prior year period; services revenue of $5.5 million compared to $6.1 million for the comparable prior year period; and operating income of
$1.7 million compared to $0.8 million for the comparable prior year period. License fees were higher for the three months ended March 31, 2003 due to a $0.5 million sale to
one customer. Service revenues decreased due to fewer demands for upgrades in the installed base. Operating income for the three months ended March 31, 2003 increased $0.8 million from
the corresponding prior year period primarily as a result of a $0.6 million decrease in cost of services.

AXSPoint
Solutions had license fee revenues of $0.1 million for the three months ended March 31, 2003 compared to $0.4 million for the comparable prior year period;
service revenues of $2.1 million compared to $1.1 million for the comparable prior year period; and operating income of $0.4 million compared to $0.8 million for the
comparable prior year period. The decrease in license revenues was mainly due to less demand for our newer products during the quarter. The increase in service revenues was primarily due to increased
demand for consulting services to implement products sold in the fourth quarter of 2002. The decrease in operating income was mainly the result of an increase in cost of services for the three months
ended March 31, 2003 as compared to the prior year period.

19

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Tivity
Solutions had no license fee revenue for the three months ended March 31, 2003, as compared to $0.3 million for the comparable prior year period;
service revenues of $0.5 million as compared to $0.6 million for the comparable prior year period; and an operating loss of $(0.1) million as compared to operating income of
$0.1 million for the comparable prior year period. The decrease in services revenue for the three months ended March 31, 2003 as compared to the corresponding prior year period was
primarily the result of a decrease in maintenance revenue from customers' decisions not to renew maintenance. The decrease in operating income for the three months ended March 31, 2003 as
compared to the three months ended March 31, 2002, was primarily due to the lack of license sales for the quarter.

Critical Accounting Policies

Our critical accounting policies are as follows:



Revenue Recognition

We derive our revenue from primarily two sources: (i) software licenses and (ii) services and support revenue, which includes software maintenance,
training, consulting and custom programming revenue. We also derive a limited amount of management fee revenue from joint ventures (approximately 1% of total revenue in 2002) entered into during 2001
by our South Africa operations. As described below, significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Material
differences may result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.

We
license our software products on a perpetual basis. Each license agreement generally includes a provision for initial post-contract support (maintenance). For all license
sales we use a signed license agreement as evidence of an arrangement. For maintenance fees, we use a maintenance agreement as evidence of the arrangement. We use a professional services agreement as
evidence of an arrangement for our training, custom programming and consulting revenues. Management fee revenues from our joint ventures are evidenced by master agreements governing the relationship.

We
recognize revenue in accordance with Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), and Statement of Position 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." Revenue from non-cancelable software licenses is recognized when the license
agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectibility is probable. In multiple element arrangements, we defer the VSOE related to the undelivered
elements and recognize revenue on the delivered elements using the residual method. The most commonly deferred element is initial maintenance, which is recognized on a straight-line basis
over the initial maintenance term. The VSOE of maintenance is determined by using a consistent percentage of maintenance fee to license fee based on renewal rates. Maintenance fees in subsequent years
are recognized on a straight-line basis over the life of the applicable agreement. Delivery of software generally occurs when the product (on CDs) is delivered to a common carrier.

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

20

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The
majority of our training and consulting services are billed based on hourly rates. We generally recognize revenue as these services are performed. However, when we enter into an
arrangement that requires us to perform significant work either to alter the underlying software or to build additional complex interfaces so that the software performs as the customer requests, we
recognize the entire fee using contract accounting. This would apply to our custom programming services, which are generally contracted on a fixed fee basis. Anticipated losses, if any, are charged to
operations in the period such losses are determined.

Revenues
from joint ventures (included in Revenues: Other-Related Parties in the our Consolidated Statements of Operations) includes consulting revenue for the joint venture's use of our
South African subsidiary's consultants (2003 only) and for management fees for our subsidiary providing managerial, technical and other related services to the joint ventures (2002 and 2003 periods)
in accordance with the joint venture agreements. Revenue is recognized upon performance of the services.

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

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

Capitalized Software Development Costs

Our policy is to capitalize certain software development costs in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS 86"). Under SFAS 86, costs incurred to develop a computer software product are charged to research and development expense
as incurred until technological feasibility has been established. We establish technological feasibility upon completion of a detailed program design from which point all research and development
costs for that project 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. It
is reasonably possible that estimates of anticipated future revenues, the remaining estimated economic life of the products, or both will be reduced in the future due to competitive pressures. As a
result, the carrying amount of the capitalized software costs may be reduced in the near term. Upon the general release of the software product to customers, capitalization ceases and such costs are
amortized (using the straight-line method) on a product-by-product basis over the estimated life, which is generally three years.

Liquidity and Capital Resources

The available amount under the revolving line of credit at March 31, 2003 was approximately $0.5 million. The available amount under the term loans
at March 31, 2003 was $0.5 million. Effective August 8, 2002, we further amended the Agreement (See Note 2 to the Consolidated Interim Financial Statements) to make
available an additional term loan in the original principal amount of up to $1.5 million of which we borrowed $250 thousand on August 21, 2002, $250 thousand on
September 13, 2002 and $500 thousand on October 1, 2002.

We
are required to comply with quarterly and annual financial statement reporting requirements, as well as certain restrictive financial and other covenants. The ability to continue to
borrow under the

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Agreement
is dependent upon future compliance with such covenants and available collateral. Management believes that our projected operating results throughout 2003 will result in compliance under the
Agreement, although there can be no assurances that such operating results will be achieved.

Our
operating activities provided cash of $0.6 million and $0.2 million for the three months ended March 31, 2002 and 2003, respectively. Net cash provided by
operating activities during the three months ended March 31, 2002 was comprised of the net income and an increase in deferred revenue partially offset by a decrease in accounts payable and
accrued expenses and an increase in accounts receivable, prepaid expenses, and other current assets. Net cash provided by operating activities during the three months ended March 31, 2003 was
comprised of the net income, an increase in deferred revenue and an increase in due from joint venture partially offset by an increase in accounts receivable and a decrease in accounts payable and
accrued expenses.

Our
investing activities used cash of $0.2 million and $0.3 million for the three months ended March 31, 2002 and 2003, respectively. The uses of cash for the three
months ended March 31, 2002 and 2003 were primarily for capitalized software development costs.

Cash
used by financing activities was $0.4 million during both the three months ended March 31, 2002 and March 31, 2003, and related mainly to repayments of debt.

We
have no significant capital commitments. Planned capital expenditures for 2003 total approximately $1.1 million, including any software development costs that may qualify for
capitalization under SFAS 86. Our aggregate minimum operating lease payments for 2003 will be approximately $1.8 million. We generated net income of $1.9 million for the year ended
December 31, 2002 after experiencing net losses of $0.3 million and $4.7 million during the years ended December 31, 2000 and 2001, respectively. As a result of intense
competition and rapid technological change together with a slowing of the economy, we have experienced declining license and service revenues in each of the past three years. The ability to generate
net income in 2002 was in response to management's initiatives that began in 2001 intended to improve operating results and liquidity and better position AXS-One to compete under current
market conditions. This included, but was not limited to, our restructuring efforts in June of 2001 whereby we were able to reduce costs sufficiently to allow us to generate net income during the last
seven quarters ending March 31, 2003. Due to these efforts we expect that our operating cash flow and available financial resources will be sufficient to fund our working capital requirements
through 2003. However, our ability to achieve the anticipated results is affected by the extent of cash generated from operations and the pace at which we utilize our available resources. There is
also the risk that cash held by our foreign subsidiaries will not be readily available for use in our U.S. operations to pay our debt and other obligations as the transfer of funds is subject to
various foreign government restrictions. Accordingly, we may in the future be required to seek additional sources of financing or future accommodations from our existing lender. No assurance can be
given that management's initiatives will be successful or that any such additional sources of financing or lender accommodations will be available.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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Certain Factors That May Affect Future Results and Financial Condition and the Market Price of Securities

See our 2002 Annual Report on Form 10K for a discussion of risk factors.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our chief executive officer and our chief financial officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing date of this quarterly
report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective and designed to ensure that material information relating to us and our consolidated
subsidiaries would be made known to them by others within those entities as appropriate to allow timely decisions regarding required disclosure of such information.

Changes in internal controls

There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect our disclosure controls and
procedures subsequent to the Evaluation Date.

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AXS-ONE INC.    PART II  OTHER INFORMATION

Item 1. Legal Proceedings

Historically, we have been involved in disputes and/or litigation encountered in our normal course of business. We believe that the ultimate outcome of these
proceedings will not have a material adverse effect on our business, consolidated financial condition, results of operations or cash flows.

Item 6. Exhibits and Reports on Form 8-K

| |                          |               |                                                                  
| | ------------------------ | ------------- | -----------------------------------------------------------------
| | (a) Exhibits            
| |                          | Exhibit 10.58 | Employment Agreement between the Company and Alexander Karakozoff
| |                          | Exhibit 31    | Rule 13a-14(a)/15d-14(a) Certifications                          
| |                          | Exhibit 32    | Officer Certifications under 18 USC 1350                         
| | (b) Reports on Form 8-K
| |                          | None          |                                                                  

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AXS-ONE INC.    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.

|                  | AXS-ONE INC.
|----------------- | ------------
|Date:May 15, 2003 | By:         
|                  | By:         

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