UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC  20549










FORM
10-Q








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


EXCHANGE
ACT OF 1934





For
the quarterly period ended March 31,
2009




Commission
File Number: 0-26358





AXS-ONE
INC.


(Exact
name of registrant as specified in its charter)





Delaware
            13-2966911(State
      or other jurisdiction ofincorporation
      or organization)
            (I.R.S.
      Employer Identification No.)





301
      Route 17 NorthRutherford,
      New Jersey
            07070(Address
      of principal executive offices)
            (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 x  NO r





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every interactive data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files) YES r   NO r





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):





Large
Accelerated Filer r     Accelerated
Filer r     Non-Accelerated
Filer r     Smaller
reporting company   x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES  r   NO   x





Number of
shares outstanding of the issuer’s common stock as of May 7, 2009




Class
                  
                  Number of Shares
      OutstandingCommon
      Stock, par value $0.01 per share
                  
                  
                  41,133,925






Table of Contents




AXS-ONE INC.





INDEX








PART
      I
            FINANCIAL
      INFORMATION
            PageNumberItem 1.   Financial
      StatementsConsolidated Balance Sheets - March 31, 2009 (unaudited)
      and December 31, 2008
            3Consolidated Statements of Operations (unaudited) - Three
      months ended March 31, 2009 and 2008
            4Consolidated
      Statements of Comprehensive Loss (unaudited) -Three
      months ended March 31, 2009 and 2008
            5Consolidated Statements of Cash Flows (unaudited) - Three
      months ended March 31, 2009 and 2008
            6Notes to Consolidated Interim Financial
      Statements
            7Item 2.    Management’s Discussion and Analysis of
      FinancialCondition and Results of Operations
            16Item 3.    Quantitative and Qualitative
      Disclosures About Market Risk
            22Item 4.    Controls and Procedures
            22PART
      II
            OTHER
      INFORMATIONItem 6.    Exhibits
            22Signatures
            23







Table of Contents






PARTI.  FINANCIAL INFORMATION
 Item1. Financial Statements
  
 AXS-ONE
INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 (In
thousands, except per share data)


March
      31,
                      
                      
                      December
      31,2009
                      
                      
                      2008ASSETS
                      
                      (unaudited)Current
      assets:Cash
      and cash equivalents
                      
                      $
                      458
                      
                      
                      $
                      933Accounts
      receivable, net of allowance for doubtful accounts of$80
      and $84 at March 31, 2009 and December 31, 2008,
    respectively
                      
                      
                      1,322
                      
                      
                      
                      932Prepaid
      expenses and other current assets
                      
                      
                      388
                      
                      
                      
                      495Total
      current assets
                      
                      
                      2,168
                      
                      
                      
                      2,360Equipment
      and leasehold improvements, at cost:Computer
      and office equipment
                      
                      
                      2,005
                      
                      
                      
                      2,005Furniture
      and fixtures
                      
                      
                      592
                      
                      
                      
                      592Leasehold
      improvements
                      
                      
                      669
                      
                      
                      
                      6693,266
                      
                      
                      
                      3,266Less--accumulated
      depreciation and amortization
                      
                      
                      3,127
                      
                      
                      
                      3,114139
                      
                      
                      
                      152Other
      assets
                      
                      
                      230
                      
                      
                      
                      232$
                      2,537
                      
                      
                      $
                      2,744LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Line
      of credit
                      
                      $
                      554
                      
                      
                      $
                      700Convertible
      debt, net of discount of $618 and $1,454 at March 31, 2009 and December
      31, 2008(principally
      to related parties)
                      
                      
                      12,343
                      
                      
                      
                      11,316Accounts
      payable
                      
                      
                      1,090
                      
                      
                      
                      786Accrued
      expenses
                      
                      
                      2,563
                      
                      
                      
                      2,988Deferred
      revenue
                      
                      
                      3,737
                      
                      
                      
                      2,851Total
      current liabilities
                      
                      
                      20,287
                      
                      
                      
                      18,641Long-term
      liabilities:Long-term
      deferred revenue
                      
                      
                      136
                      
                      
                      
                      169Total
      liabilities
                      
                      
                      20,423
                      
                      
                      
                      18,810Commitments
      and contingenciesStockholders'
      deficit:Preferred
      stock, $.01 par value, authorized 5,000 shares, no shares issued and
      outstanding
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, $.01 par value, authorized 125,000 shares; 41,134 and 41,341
      sharesissued
      and outstanding at March 31, 2009 and December 31, 2008,
      respectively
                      
                      
                      411
                      
                      
                      
                      414Additional
      paid-in capital
                      
                      
                      94,049
                      
                      
                      
                      93,902Accumulated
      deficit
                      
                      
                      (112,219
                      )
                      
                      
                      (110,252
                      )Accumulated
      other comprehensive loss
                      
                      
                      (127
                      )
                      
                      
                      (130
                      )Total
      stockholders' deficit
                      
                      
                      (17,886
                      )
                      
                      
                      (16,066
                      )$
                      2,537
                      
                      
                      $
                      2,744






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






3
 Table of Contents




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




Three
      Months EndedMarch
      31,2009
                      
                      
                      2008Revenues:License
      fees
                      
                      $
                      507
                      
                      
                      $
                      1,485Services
                      
                      
                      2,199
                      
                      
                      
                      2,409Total
      revenues
                      
                      
                      2,706
                      
                      
                      
                      3,894Operating
      expenses:Cost
      of license fees
                      
                      
                      40
                      
                      
                      
                      110Cost
      of services
                      
                      
                      824
                      
                      
                      
                      1,239Sales
      and marketing
                      
                      
                      897
                      
                      
                      
                      1,682Research
      and development
                      
                      
                      919
                      
                      
                      
                      1,490General
      and administrative
                      
                      
                      777
                      
                      
                      
                      1,125Restructuring
      costs and other costs
                      
                      
                      77
                      
                      
                      
                      -Total
      operating expenses
                      
                      
                      3,534
                      
                      
                      
                      5,646Operating
      loss
                      
                      
                      (828
                      )
                      
                      
                      (1,752
                      )Other
      income (expense):Interest
      income
                      
                      
                      -
                      
                      
                      
                      17Interest
      expense
                      
                      
                      (1,064
                      )
                      
                      
                      (446
                      )Other
      expense, net
                      
                      
                      (78
                      )
                      
                      
                      (24
                      )Total
      other expense, net
                      
                      
                      (1,142
                      )
                      
                      
                      (453
                      )Loss
      before income taxes
                      
                      
                      (1,970
                      )
                      
                      
                      (2,205
                      )Income
      tax benefit
                      
                      
                      (3
                      )
                      
                      
                      -Net
      loss
                      
                      $
                      (1,967
                      )
                      
                      $
                      (2,205
                      )Basic
      & diluted net loss per common share:
                      
                      $
                      (0.05
                      )
                      
                      $
                      (0.06
                      )Weighted
      average basic & dilutedcommon
      shares outstanding
                      
                      
                      39,599
                      
                      
                      
                      37,824








The accompanying notes are an integral part of these consolidated
financial statements.
    4
 Table of Contents
 AXS-ONE INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
 (In
thousands)
 (Unaudited)
 Three
      Months EndedMarch
      31,2009
                              
                              
                              2008Net
      loss
                              
                              $
                              (1,967
                              )
                              
                              $
                              (2,205
                              )Foreign
      currency translation adjustment
                              
                              
                              3
                              
                              
                              
                              (16
                              )Comprehensive
      loss
                              
                              $
                              (1,964
                              )
                              
                              $
                              (2,221
                              )
     The accompanying notes are an integral part of these consolidated
financial statements.
    5
 Table of Contents
  AXS-ONE INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (in
thousands)
 (unaudited)
  Three
      Months Ended,March 31,2009
                                
                                
                                2008Cash
      flows from operating activities:Net
      loss
                                
                                $
                                (1,967
                                )
                                
                                $
                                (2,205
                                )Adjustments
      to reconcile net loss to net cash flows used in operating
      activities:Depreciation
      and amortization
                                
                                
                                16
                                
                                
                                
                                36Provision
      for doubtful accounts, net
                                
                                
                                (2
                                )
                                
                                
                                132Stock
      based compensation expense
                                
                                
                                144
                                
                                
                                
                                190Non-cash
      interest expense
                                
                                
                                1,039
                                
                                
                                
                                434Changes
      in assets and liabilitiesAccounts
      receivable
                                
                                
                                (404
                                )
                                
                                
                                (15
                                )Prepaid
      expenses and other current assets
                                
                                
                                93
                                
                                
                                
                                106Change
      in other assets
                                
                                
                                -
                                
                                
                                
                                12Accounts
      payable and accrued expenses
                                
                                
                                (99
                                )
                                
                                
                                (559
                                )Deferred
      revenue
                                
                                
                                866
                                
                                
                                
                                372Net
      cash flows used in operating activities
                                
                                
                                (314
                                )
                                
                                
                                (1,497
                                )Cash
      flows from investing activities:Purchase
      of equipment and leasehold improvements
                                
                                
                                (4
                                )
                                
                                
                                (14
                                )Net
      cash flows used in investing activities
                                
                                
                                (4
                                )
                                
                                
                                (14
                                )Cash
      flows from financing activities:Proceeds
      from exercise of stock options and warrants
                                
                                
                                -
                                
                                
                                
                                2Borrowing
      under revolving line-of-credit
                                
                                
                                1,198
                                
                                
                                
                                367Repayment
      of revolving line-of-credit
                                
                                
                                (1,344
                                )
                                
                                
                                -Net
      cash flows (used in) provided by financing activities
                                
                                
                                (146
                                )
                                
                                
                                369Foreign
      currency exchange rate effects on cash and cash equivalents
                                
                                
                                (11
                                )
                                
                                
                                (31
                                )Net
      decrease in cash and cash equivalents
                                
                                
                                (475
                                )
                                
                                
                                (1,173
                                )Cash
      and cash equivalents, beginning of period
                                
                                
                                933
                                
                                
                                
                                3,362Cash
      and cash equivalents, end of period
                                
                                $
                                458
                                
                                
                                $
                                2,189Supplemental
      disclosures of cash flow information:Cash
      paid during the year for:Interest
                                
                                $
                                24
                                
                                
                                $
                                33
   The accompanying notes are an integral part of these consolidated
financial statements.




6
 Table of Contents




(1) OPERATIONS, BUSINESS CONDITIONS AND SIGNIFICANT ACCOUNTING
POLICIES





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





As more
fully described below in Note 10 and in an 8-K filed on April 21, 2009, on April
16, 2009, the Company, and Unify Corporation, a Delaware corporation (“Unify”),
and UCAC, Inc., a Delaware corporation and wholly-owned subsidiary of Unify
(“Merger Sub”), entered into an Agreement and Plan of Merger (the “Agreement”),
whereby Merger Sub will merge with and into AXS-One and AXS-One shall become a
wholly-owned subsidiary of Unify (the “Merger”).  The Agreement and
the Merger were unanimously approved by the Board of Directors of AXS-One and
Unify. Completion of the Merger is conditioned upon, among other things, (i)
adoption of the Agreement by the stockholders of AXS-One and Unify, (ii)
declaration by the Securities and Exchange Commission that the S-4 registration
statement filed by Unify is effective, (iii) the accuracy of representations and
warranties (subject to materiality qualifiers) as of the date of the Agreement
and the Effective Time, (iv) the performance by the parties in all material
respects of their covenants under the Agreement, and (v) the Adjusted Working
Capital not being less than negative $1,750,000, subject to allowance for
issuance of additional subordinated promissory notes. Subject to these
conditions, the Company expects that the closing date for this transaction will
be between June 15, 2009 and July 15, 2009.





(a) Basis of
Presentation





The
accompanying Consolidated Interim Financial Statements include the accounts of
AXS-One Inc. and its wholly owned subsidiaries located in Australia, Singapore,
South Africa (until May 12, 2008), and the United Kingdom (collectively, the
"Company").  All
intercompany transactions and balances have been eliminated.





The
unaudited Consolidated Interim Financial Statements have been prepared by the
Company in accordance with US generally accepted accounting principles 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 Interim Financial Statements.  The preparation of these
Consolidated Interim Financial Statements in conformity with US generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the Consolidated
Interim Financial Statements and the reported amounts of revenues and expenses
during the periods presented.  Actual results could differ from those
estimates.  Some of the significant estimates involve determination of
vendor-specific objective evidence (VSOE) of fair value for revenue, allowance
for doubtful accounts, accrued expenses, provision for income taxes in foreign
jurisdictions, assessment of contingencies, and compensation expense pursuant to
SFAS No. 123R.





The
accompanying Consolidated Interim Financial Statements have been prepared
pursuant to the rules and regulations of the SEC.  Certain information
and note disclosures normally contained in annual financial statements prepared
in accordance with GAAP have been condensed or omitted, although the Company
believes the disclosures made are adequate to make the information not
misleading.  These Consolidated Interim Financial Statements should be
read in conjunction with the consolidated financial statements and related notes
included in the Company’s 2008 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for the three
months ended March 31, 2009 are not necessarily indicative of results to be
expected for the full year 2009 or any future periods.





The
financial statements of the Company have been prepared on a "going concern"
basis, which assumes the realization of assets and the liquidation of
liabilities in the ordinary course of business. However, such realization of
assets and liquidation of liabilities are subject to a significant number of
uncertainties. There are a number of factors that have negatively impacted the
Company's liquidity, and may impact the Company's ability to function as a going
concern. The Company incurred a net loss of $10.1 million and $14.9 million for
the years ended December 31, 2008 and 2007 respectively.  The Company
has not yet been able to obtain operating profitability and may not be able to
be profitable on a quarterly or annual basis in the
future.  Additionally, the Company had a cash balance of $0.5 million
at March 31, 2009 and availability under its $1.0 million bank credit facility
of $0.4 million, for which borrowing availability is limited to eligible
accounts receivable.  The Company had a working capital deficiency of
$18.1 million as of March 31, 2009.  The Company’s recent cost
reductions will allow it to become profitable at lower revenue levels than in
prior years. However, its ability to fund its operations is dependent on its
continued sales of its integrated content archiving software at levels
sufficient to achieve profitable operations or to further reduce operating
costs.  As of May 8, 2009, the Company’s cash position has reduced to
$331,000, which includes $447,000 borrowed on our bank credit line.
Additionally, the Company’s convertible debt approximating $13.1 million at May
8, 2009 matures on May 29, 2009 and the Company does not have the capital to pay
these notes, and accordingly, such notes will need to be restructured. If we are
unable to achieve profitable operations or secure additional sources of capital
in the near term, in addition to restructuring our convertible debt, there would
be substantial doubt about our ability to fund future operations through the
second quarter of 2009.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.





The
Company has taken a number of actions during 2009, 2008 and 2007 to reduce
operating expenses, streamline operations and raise operating capital. Short and
long-term liquidity require significant improvement in operating results and/or
the obtaining of additional capital or merger with another company. There can be
no assurance that the Company's plans to achieve adequate liquidity will be
successful.





7
 Table of Contents




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





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





For
software license, services and maintenance revenue, the Company assesses whether
the fee is fixed and determinable and whether or not collection is probable
based on the payment terms associated with the transaction and the
credit-worthiness of the customer.  If a significant portion of a fee
is due after our normal payment terms, which are 30 to 90 days from invoice
date, the fee is considered not fixed and determinable.  In these
cases, the Company recognizes revenue as the fees become due and collectability
is probable.





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





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





The
majority of our training and consulting services are billed based on hourly
rates.  The Company generally recognizes revenue as these services are
performed.  However, when there is an arrangement that is based on a
fixed fee or requires significant work to alter the underlying software so that
the software performs as the customer requests, the Company recognizes the
related revenue using the percentage of completion method of
accounting.  This requirement is infrequent.  This would
apply to our custom programming services, which are generally contracted on a
fixed fee basis.  Anticipated gains or losses, if any, are charged to
operations in the period such gains or losses are determined to be
probable.





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





(c)
Foreign Currency
Translation





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





(d) Stock-Based
Compensation





The
Company accounts for share-based awards granted to employees in accordance with
Statement of Financial Accounting Standards No. 123R (revised 2004),
"Share-Based Payment" ("SFAS 123R"), which requires that the costs resulting
from all share-based payment transactions be recognized as an expense in the
financial statements at their fair values. Total share-based compensation
expense recorded in the Consolidated Statements of Operations for the three
months ended March 31, 2009 was $0.1 million, and for the three ended March 31,
2008 was $0.2 million.





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




The table
below presents the assumptions used to calculate the fair value of options
granted during thethree
months ended March 31, 2009 and 2008.




Three
      Months EndedMarch
      31,2009
                          
                          
                          2008Risk-free
      interest rate
                          
                          
                          n/a
                          
                          
                          
                          2.78
                          %Expected
      dividend yield
                          
                          
                          n/a
                          
                          
                          
                          n/aExpected
      lives
                          
                          
                          n/a
                          
                          
                          5
      yearsExpected
      volatility
                          
                          
                          n/a
                          
                          
                          
                          63.76
                          %Forfeiture
      rate
                          
                          
                          n/a
                          
                          
                          
                          21.40
                          %Weighted-average
      grant date fair value ofoptions
      granted during the period
                          
                          
                          n/a
                          
                          
                          $
                          0.20




8
 Table of Contents





No stock
options were granted during the three months ended March 31, 2009.





Stock Option
Plans





The
Company has four stock incentive plans: the 1995 Stock Option Plan (the 1995
Plan), the 1998 Stock Option Plan (the 1998 Plan), the 2005 Stock Incentive Plan
(the 2005 Plan), and the 2008 Stock Incentive Plan (the 2008 Plan).





Under the
1995 Plan, the Company could grant up to 4.5 million shares of common
stock.  The 1995 Plan has expired and no further options can be issued
under this plan.  Outstanding options under this plan will continue to
vest.  Under the 1998 Plan, the Company could grant stock options or
stock appreciation rights to purchase an aggregate of up to 5.0 million shares
of Common Stock.  In accordance with June 2004 and May 2007
amendments, all shares under the 1998 Plan could also be used for restricted
stock awards.  The 1998 Plan has expired and no further grants can be
made under this plan.  Outstanding options under this plan will
continue to vest.  Under the 2005 Plan, the Company may grant stock
options, stock appreciation rights and restricted stock to purchase an aggregate
of up to 1.5 million shares of Common Stock.  Under the 2008 Plan, the
Company may grant stock options, restricted stock and other stock-based awards
to purchase an aggregate of up to 3.0 million shares of Common Stock. All
options granted under the foregoing plans expire ten years from the date of
grant (or five years for statutory options granted to 10% stockholders), unless
terminated earlier. For a more detailed description of all stock incentive
plans, refer to the Company’s 2008 Annual Report on Form 10-K.





On
February 1, 2008, the Company commenced a tender offer to employees to exchange
for new options their outstanding options. The number of shares of common stock
subject to new options to be granted to each option holder was equal to one-half
of the number of shares subject to the options tendered.  The offer
expired on March 3, 2008. The Company accepted for exchange options to purchase
an aggregate of 1,338,080 shares of Company common stock and granted new options
to purchase an aggregate of 669,040 shares of Company common stock. The options
were granted at the March 3, 2008 closing stock price of $0.44 per share with
two year vesting.  The Company valued the new options using the
Black-Scholes option pricing model and subtracted the current fair value of the
tendered options, which also used the Black-Scholes pricing model to arrive at
the incremental fair value for the newly issued options.  The
incremental fair value of these options was $145,000 which will be expensed over
the two year vesting period of the new options.




Stock option
transactions for the three months ended March 31, 2009 under all plans are as
follows:




Number
      of shares
                  (in
      thousands)
                
                
                Weighted
      average exercise price
                
                
                Weighted
      average remaining contractual life
                
                
                Aggregate
      intrinsic value as of 3/31/09
                  (in
      thousands)Balance,
      December 31, 2008
                
                
                3,690
                
                
                $
                1.48Granted
                
                
                -Exercised
                
                
                -Forfeited
                
                
                (97
                )
                
                $
                0.33Canceled
                
                
                (78
                )
                
                $
                1.66Balance,
      March 31, 2009
                
                
                3,515
                
                
                $
                1.51
                
                
                
                6.60
                
                
                $
                -Vested
      and expected to vest at March 31, 2009
                
                
                3,262
                
                
                $
                1.60Exercisable
      at March 31, 2009
                
                
                2,209
                
                
                $
                2.23
                
                
                
                5.02
                
                
                $
                -





Total
stock option expense recorded in the Consolidated Statements of Operations for
the three months ended March 31, 2009 was $21,000 and for the three months ended
March 31, 2008 was $20,000. The total intrinsic value of stock options exercised
during the three months ended March 31, 2009 and 2008 was zero. As of March 31,
2009, there was approximately $239,000 of total unrecognized compensation cost
related to stock options granted under the plans. That cost is expected to be
recognized over a weighted average period of 1.27 years.







9
 Table of Contents




A summary
of stock options outstanding and exercisable as of March 31, 2009
follows:





Options
      Outstanding
                          
                          
                          Options
      ExercisableRange
      of
                            exercise
      prices
                          
                          
                          Number
      outstanding (in thousands)
                          
                          
                          Weighted
      average remaining life (years)
                          
                          
                          Weighted
      average exercise price
                          
                          
                          Number
      exercisable in thousands
                          
                          
                          Weighted
      average exercise price$
                          0.06
      -$0.30
                          
                          
                          
                          728
                          
                          
                          
                          9.47
                          
                          
                          $
                          0.10
                          
                          
                          
                          133
                          
                          
                          $
                          0.30$
                          0.35
      - $0.44
                          
                          
                          
                          942
                          
                          
                          
                          8.78
                          
                          
                          $
                          0.40
                          
                          
                          
                          276
                          
                          
                          $
                          0.43$
                          0.46
      - $1.52
                          
                          
                          
                          723
                          
                          
                          
                          3.02
                          
                          
                          $
                          0.78
                          
                          
                          
                          704
                          
                          
                          $
                          0.76$
                          1.72
      – $3.78
                          
                          
                          
                          218
                          
                          
                          
                          5.85
                          
                          
                          $
                          2.13
                          
                          
                          
                          192
                          
                          
                          $
                          2.16$
                          4.21
      - $6.00
                          
                          
                          
                          904
                          
                          
                          
                          5.06
                          
                          
                          $
                          4.22
                          
                          
                          
                          904
                          
                          
                          $
                          4.223,515
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          2,209





Non-Vested Restricted
Stock




Compensation
expense for non-vested restricted stock is recorded based on its market value on
the date of grant and recognized ratably over the associated service period, the
period in which restrictions are removed. During the three months ended March
31, 2009 there were no shares of restricted stock granted. During the three
months ended March 31, 2008, there were no shares of restricted stock
granted.  During the three months ended March 31, 2009 and March 31,
2008, there were 208,000 and zero, respectively shares forfeited as a result of
employee terminations and director resignations.  As of March 31,
2009, 1,473,000 restricted shares are unvested.





The
following table summarizes transactions related to restricted stock for the
three months ended March 31, 2009:





Number
      of shares
                  (in
      thousands)
                
                
                Weighted
      average price per shareBalance,
      December 31, 2008
                
                
                1,777
                
                
                $
                0.59Granted
                
                
                -
                
                
                
                -Vested
                
                
                (96
                )
                
                $
                1.82Forfeited
                
                
                (208
                )
                
                $
                0.55Balance,
      March 31, 2009
                
                
                1,473
                
                
                $
                0.52




Total
restricted stock expense recorded in the Consolidated Statements of Operations
for the three months ended March 31, 2009 was $123,000, and for the three months
ended March 31, 2008 was $170,000.As of March 31, 2009,
there was approximately $0.5 million of total unrecognized compensation cost
related to restricted stock granted under the plans. That cost is expected to be
recognized over a weighted-average period of 0.93 years.





Stock
options and restricted stock available for grant under all plans were 1,054,000
at March 31, 2009.





Warrants





As of
March 31, 2009, the Company had warrants to purchase 10,300,000 shares
of common stock outstanding with an exercise price of $0.01 per share. At
March 31, 2009, all of these warrants were exercisable.  Warrants to
purchase 2,000,000, 3,750,000, 4,200,000 and 3,300,000 shares of common stock
were issued in May 2007, November 2007, July 2008 and October 2008 respectively
in connection with the convertible debt issuances described in Note
3.  3,050,000 of these warrants have been exercised and are no longer
outstanding.  The expense related to these warrants will be amortized
through the date of maturity of the convertible debt.  The Company
granted 100,000 warrants on May 22, 2008 to Sand Hill Finance in connection with
the issuance of the new credit facility described in Note 2.  The
expense related to these warrants will be amortized over the one year life of
the credit facility.  3,400,000 outstanding warrants expire in 2014
and 6,900,000 expire in 2015.






10
 Table of Contents




The
following table summarizes transactions related to warrants for the three months
ended March 31, 2009.





(in
      thousands)
                
                Number
      of shares
                
                
                Weighted
      average price per shareBalance,
      December 31, 2008
                
                
                10,300
                
                
                $
                0.01Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Expired
                
                
                -
                
                
                
                -Balance,
      March 31,
      2009
                
                
                10,300
                
                
                $
                0.01





(e) Income Taxes





The
Company adopted the provisions of FASB Interpretation No. 48 (“FIN 48”)
“Accounting for Uncertainty in Income Taxes”, on January 1, 2007.  The
adoption of FIN 48 had no impact on the Company’s financial position and
statement of operations.  As of January 1, 2009, the Company is
subject to income tax examinations for its U.S. federal income taxes for the tax
years 2005, 2006 and 2007 and for non-U.S. income taxes for the tax years 1999
through 2007.





(2)
REVOLVING LINES OF CREDIT





Silicon
Valley Bank





On July
18, 2007, the Company entered into a Second Amended and Restated Loan and
Security Agreement with Silicon Valley Bank (“the Bank”) to amend and supplement
the Loan Agreement with the Bank (as amended, the “Second Amended Agreement”)
dated March 6, 2007.





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





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





On May
22, 2008, the Company terminated the Second Amended Agreement with Silicon
Valley Bank and all amounts outstanding were fully paid.





Sand
Hill Finance





On May
22, 2008, the Company entered into a Financing Agreement (the “Financing
Agreement”) with Sand Hill Finance, LLC (the “Lender”). Pursuant to the
Financing Agreement, the Lender may advance the Company from time to time up to
$1.0 million, based upon the sum of 80% of the face value of United States
accounts receivable secured by the Lender from the Company at the Lender’s sole
discretion. The security of such accounts receivable is with full recourse
against the Company. Advances under the Financing Agreement bear interest at a
rate of 1.58% per month. The Financing Agreement has a term of one year (with an
evergreen annual renewal provision unless either party provides notice of
termination) and contains certain customary affirmative and negative
non-financial covenants. The negative covenants include restrictions on change
of control, purchases and sales of assets, dividends (other than dividends
payable in stock) and stock repurchases. Pursuant to the Financing Agreement,
the Company pledged as collateral to the Lender substantially all of its
assets.  On March 19, 2009, the Lender extended the financing
agreement for an additional year beginning May 23, 2009.





As of
March 31, 2009, the Company had borrowings of $554,000 outstanding pursuant to
the Financing Agreement and had remaining availability of $446,000.





11
 Table of Contents




(3)
CONVERTIBLE NOTES





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





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





Each note
holder received a warrant to purchase a number of shares of AXS-One common stock
equal to 40% of the principal amount of notes purchased. Each warrant has an
exercise price of $0.01 per share and is exercisable at any time through
May 29, 2014. The value of the warrants using the Black-Scholes model
is $1.3 million using the following assumptions; issue date stock price of
$0.66 per share, a risk-free interest rate of 4.59%, a term of seven years and
volatility of 66%. The Company calculated the relative value of warrants as a
percent of value of the convertible debt and recorded the relative value of
$1 million as a discount to the convertible debt offset by an increase to
additional-paid-in-capital. This amount is being amortized as interest expense
over the two year term of the convertible debt.





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





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





Each
Series C note holder also received a warrant to purchase a number of shares of
AXS-One common stock equal to 100% of the principal amount of notes purchased.
Each warrant has an exercise price of $0.01 per share and is exercisable at any
time during the seven year period following the closing. The value of the
warrants using the Black-Scholes model is $1.8 million using the following
assumptions: issue date stock price of $0.50 per share, a risk free
interest rate of 4.04%, a term of seven years and volatility of 63%. The Company
calculated the relative value of warrants as a percent of value of the
convertible debt and recorded the relative value of $1.2 million as a
discount to the convertible debt offset by an increase to
additional-paid-in-capital. This amount is being amortized as interest expense
over the eighteen month term of the convertible debt.





On July
24, 2008, the Company entered into a Convertible Note and Warrant Purchase
Agreement pursuant to which it sold and issued an aggregate of $2.1 million
of Series D 6% Secured Convertible Promissory Notes due May 29, 2009
together with warrants to purchase an aggregate of 4,200,000 shares of
common stock of AXS-One at an exercise price of $0.01 per share. Net cash
proceeds to AXS-One after transaction expenses were approximately
$2.05 million. The Series D notes and warrants were sold in a private
placement under Rule 506 promulgated under the Securities Act of 1933, as
amended, to accredited investors, including directors and an officer of
AXS-One.





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





Each
Series D note holder also received a warrant to purchase a number of shares of
AXS-One common stock equal to 200% of the principal amount of notes purchased.
Each warrant has an exercise price of $0.01 per share and is exercisable at any
time during the seven year period following the closing. The value of the
warrants using the Black-Scholes model is $1.8 million using the following
assumptions: issue date stock price of $0.43 per share, a risk free
interest rate of 3.49%, a term of seven years and volatility of 67%. The Company
calculated the relative value of warrants as a percent of value of the
convertible debt and will record the relative value of $1.1 million as a
discount to the convertible debt offset by an increase to
additional-paid-in-capital. This amount will be amortized as interest expense
over the ten month term of the convertible debt.





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





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





Each
Series E note holder also received a warrant to purchase a number of shares of
AXS-One common stock equal to 300% of the principal amount of notes purchased.
Each warrant has an exercise price of $0.01 per share and is exercisable at any
time during the seven year period following the closing.  The value of
the warrants using the Black-Scholes model is $0.6 million using the
following assumptions: issue date stock price of $0.18 per share, a risk free
interest rate of 2.88%, a term of seven years and volatility of 70%. The Company
calculated the relative value of warrants as a percent of value of the
convertible debt and will record the relative value of $0.4 million as a
discount to the convertible debt offset by an increase to
additional-paid-in-capital. This amount will be amortized as interest expense
over the ten month term of the convertible debt.





12
 Table of Contents




The
effective interest rate on the convertible notes exceeds the coupon rate due to
the amortization of the discount of the debt resulting from the issuance of the
warrants.





Convertible
note details at March 31, 2009 are as follows:





(in
      thousands)
                
                Face
      amount
                
                
                Original discount
                
                
                Accrued
      interest thru 3/31/09
                
                
                Amortization
      of debt discount thru 3/31/09
                
                
                Carrying
      amount as of 3/31/09
                
                
                Carrying
      amount as of 12/31/08May
      29, 2007 agreement
                
                $
                5,000
                
                
                $
                (1,047
                )
                
                $
                577
                
                
                $
                950
                
                
                $
                5,480
                
                
                $
                5,256November
      13, 2007 agreement
                
                
                3,750
                
                
                
                (1,238
                )
                
                
                319
                
                
                
                1,079
                
                
                
                3,910
                
                
                
                3,626July
      24, 2008 agreement
                
                
                2,100
                
                
                
                (961
                )
                
                
                87
                
                
                
                725
                
                
                
                1,951
                
                
                
                1,612October
      30, 2008 agreement
                
                
                1,100
                
                
                
                (382
                )
                
                
                28
                
                
                
                256
                
                
                
                1,002
                
                
                
                822$
                11,950
                
                
                $
                (3,628
                )
                
                $
                1,011
                
                
                $
                3,010
                
                
                $
                12,343
                
                
                $
                11,316








(4)
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE





Basic and
diluted net income (loss) per common share is presented in accordance with SFAS
No. 128, "Earnings per Share" ("SFAS No. 128").  Basic net income
(loss) per common share is based on the weighted average number of shares of
common stock outstanding during the period.  Diluted net loss per
common share for the three months ended March 31, 2009 and 2008 does not include
the effects of outstanding options to purchase 3,515,000 and 3,280,000 shares of
common stock, respectively, 1,473,000 and 1,879,000 shares of restricted stock,
respectively, and outstanding warrants to purchase 10,300,000 and 4,207,000
shares of common stock for each period, as the effect of their inclusion is
anti-dilutive for the periods.





The
following represents the reconciliation (which does not include non-vested
restricted stock) of the shares used in the basic and diluted net loss per
common share calculation for the three months ended March 31, 2009 and
2008:




Three
      Months EndedMarch
      31,2009
                        
                        
                        2008Weighted-average
      basic common shares   outstanding during the
      periods
                        
                        
                        39,599
                        
                        
                        
                        37,824Dilutive
      effect of stock options and warrants
                        
                        
                        -
                        
                        
                        
                        -Weighted-average
      diluted common shares   outstanding during the
      periods
                        
                        
                        39,599
                        
                        
                        
                        37,824




(5)
CONTINGENCIES





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





(6)
RESTRUCTURING AND OTHER COSTS





In
December 2008, in order to reduce operating costs to better position ourselves
in the current market, we eliminated 26 positions from operations.  We
recorded a charge to operations of $340 in 2008 related to involuntary
termination benefits to be paid to the terminated employees. Approximately $200
of the 2008 restructuring cost has been paid as of March 31,
2009.  The restructuring accrual has been reduced $117 for prior
accruals that the Company no longer anticipates a requirement to pay. The
remaining liability at March 31, 2009 is $23 and is expected to be paid in
2009.





In
February 2009, in order to further reduce operating costs to better position
ourselves in the current market, we eliminated 15 positions from
operations.  We recorded a charge to operations of $195 in 2009
related to involuntary termination benefits to be paid to the terminated
employees and early terminations fees to be paid to a third party service
provider. Approximately $64 of the 2009 restructuring costs have been paid. The
remaining liability at March 31, 2009 is $131 and is expected to be paid in
2009.






13
 Table of Contents




The
activities related to the restructurings are as follows:




2009
                
                
                2008Restructuring
      liability at January 1
                
                $
                240
                
                
                $
                86Involuntary
      termination costs
                
                
                195
                
                
                
                -Cash
      payments
                
                
                (164
                )
                
                
                (86
                )Adjustments
      to prior accruals
                
                
                (117
                )
                
                
                -Restructuring
      liability at March 31
                
                $
                154
                
                
                $
                -





In
addition to the restructuring cost stated above, the Company recognized expense
of $645 in August 2007 relating to an Agreement and General Release with the
Company’s former Executive Vice President, Research &
Development.  The short-term liability of $129 related to the
agreement and general release is included in accrued expenses on the
accompanying March 31, 2009 Consolidated Balance Sheet.   $516
has been paid prior to March 31, 2009.





(7)
FINANCIAL INFORMATION BY GEOGRAPHIC AREA





SFAS No.
131, “Disclosure about Segments of an Enterprise and Related Information,”
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about reporting segments in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.





Revenues
and long-lived assets for the Company's United States, United Kingdom, Australia
and Asia, and former South Africa continuing operations are as
follows:




(in
      thousands)
                                              
                                              Three
      Months EndedMarch
      31,Revenues:
      (1)
                                              
                                              2009
                                              
                                              
                                              2008United
      States
                                              
                                              $
                                              2,047
                                              
                                              
                                              $
                                              3,039United
      Kingdom
                                              
                                              
                                              330
                                              
                                              
                                              
                                              415Australia
      and Asia
                                              
                                              
                                              329
                                              
                                              
                                              
                                              374South
      Africa
                                              
                                              
                                              -
                                              
                                              
                                              
                                              66Total
      Consolidated
                                              
                                              $
                                              2,706
                                              
                                              
                                              $
                                              3,894(1)
      Revenues are attributed to geographic area based on location of sales
      office.March
      31,
                                              
                                              
                                              December
      31,Long-Lived
      Assets:
                                              
                                              2009
                                              
                                              
                                              2008United
      States
                                              
                                              $
                                              63
                                              
                                              
                                              $
                                              74United
      Kingdom
                                              
                                              
                                              3
                                              
                                              
                                              
                                              3Australia
      and Asia
                                              
                                              
                                              73
                                              
                                              
                                              
                                              75South
      Africa
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Total
      Consolidated
                                              
                                              $
                                              139
                                              
                                              
                                              $
                                              152





(8)
SALE OF SOUTH AFRICAN SUBSIDIARIES





On May
12, 2008, the Company sold its subsidiaries in South Africa, AXS-One
(Proprietary) Ltd, and AXS-One African Solutions Ltd, to management and
investors for $1. AXS-One South Africa had a net asset deficiency of $48,000 at
the time of the sale and the Company incurred selling expenses of
$10,000.  The resulting estimated gain on sale of $38,000 was recorded
as gain on sale in the Company’s second quarter 2008 financial
results.





Subsequently,
the Company signed a reseller agreement with AXS-One (Proprietary) Ltd to sell
on a non-exclusive basis AXS-One products in Africa and the Middle
East.




(9)
RECENTLY ISSUED ACCOUNTING STANDARDS





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“FAS 141R”), which replaces FASB Statement No. 141. FAS 141R
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree, and the
goodwill acquired. FAS 141R also establishes disclosure requirements which will
enable users to evaluate the nature and financial effects of the business
combination. FAS 141R is effective as of the beginning of an entity’s fiscal
year that begins after December 15, 2008, which is our fiscal year
beginning January 1, 2009. This standard will have an impact on our
financial statements if an acquisition occurs.





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




14
 Table of Contents


In June
2008 the FASB issued EITF 07-5, “Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entity’s Own Stock”. EITF 07-5 provides
guidance in assessing whether an equity-linked financial instrument (or embedded
feature) is indexed to an entity’s own stock for purposes of determining whether
the appropriate accounting treatment falls under the scope of SFAS 133,
“Accounting For Derivative Instruments and Hedging Activities” and/or
EITF 00-19, “Accounting For Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Company’s Own Stock”. EITF 07-05 is effective
as of the beginning of our 2009 fiscal year. The adoption of EITF 07-05 did
not have a material impact on our consolidated financial position or results of
operations.
 
 In May
2008, the FASB issued FASB Staff Position APB 14-1(“FSP”), Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement). FSP will require us to account separately
for the liability and equity components of our convertible debt. The debt would
be recognized at the present value of its cash flows discounted using our
nonconvertible debt borrowing rate at the time of issuance. The equity component
would be recognized as the difference between the proceeds from the issuance of
the note and the fair value of the liability. The FSP also requires accretion of
the resultant debt discount over the expected life of the debt. The FSP is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those years. Entities are required to apply the FSP
retrospectively for all periods presented. The adoption of FSP APB 14-1 did not
have a material impact on our consolidated financial position or results of
operations.


(10)
SUBSEQUENT EVENT





As more
fully described in an 8-K filed on April 21, 2009, on April 16, 2009, the
Company, and Unify Corporation, a Delaware corporation (“Unify”), and UCAC,
Inc., a Delaware corporation and wholly-owned subsidiary of Unify (“Merger
Sub”), entered into an Agreement and Plan of Merger (the “Agreement”), whereby
Merger Sub will merge with and into AXS-One and AXS-One shall become a
wholly-owned subsidiary of Unify (the “Merger”).  The Agreement and
the Merger were unanimously approved by the Board of Directors of AXS-One and
Unify.





Pursuant
to the terms of the Merger Agreement:




·
            All
      of the issued and outstanding shares of common stock of AXS-One, and all
      warrants to purchase shares of common stock of AXS-One, will be converted
      into, in the aggregate, 1,000,000 shares of Unify common stock, or
      warrants to purchase shares of Unify common stock, as the case may
      be;





·
            The
      outstanding convertible notes of AXS-One with an aggregate outstanding
      principal and interest balance of approximately $13 million will be
      exchanged for 2,100,000 shares of Unify common stock, subject to certain
      adjustments based on AXS-One’s working capital at the effective time of
      the merger. The note holders may also be issued additional shares of Unify
      common stock based on revenue generated from AXS-One’s legacy products
      over the 12 months after the effective date of the
  Merger.





The
Merger is conditioned on among other things: the Merger Agreement being approved
by the stockholders of each of Unify and AXS-One; the shares of Unify’s common
stock to be issued in the Merger being registered on an effective registration
statement and authorized for listing on NASDAQ; the accuracy of the
representations and warranties of each party; and AXS-One having working capital
as of the effective time of the Merger of not less than negative $1.75 million
(subject to certain adjustments).





The
Merger Agreement also includes customary termination provisions for both the
Unify and AXS-One and provides that, in connection with the termination of the
Merger Agreement under specified circumstances, AXS-One will be required to pay
Unify a termination fee of $500,000. This termination fee would be reduced to
zero if Unify’s fiscal fourth quarter revenue (in accordance with GAAP) is less
than $4.5 million. Also, under specified circumstances, each party may be
obligated to reimburse the other for its expenses in negotiating and
memorializing the transactions contemplated by the Merger
Agreement.





Subject
to the above conditions, the Company expects that the closing date for this
transaction will be between June 15, 2009 and July 15, 2009.






15
 Table of Contents




Item2.    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 actual events or results may
differ materially.  In evaluating such statements, investors should
specifically consider the various factors identified in "Risk Factors" in our
2008 Annual Report on Form 10-K and subsequent SEC filings which could cause
actual results to differ materially from those indicated by such forward-looking
statements.





Overview





AXS-One
Inc. (“AXS-One” or the “Company”) is a software company providing robust, secure
business solutions that allow an organization to reduce the inherent risks and
costs associated with retaining and managing corporate electronic records as
well as to achieve efficiency in its business processes.  AXS-One has
a proven track record of developing flexible, high-performance, scalable, secure
and effective software for organizations.  AXS-One’s ability to
quickly identify emerging market opportunities and to build high-quality
software has won many awards over the years.  The Company has devoted
significant resources to developing new products which serve the Content
Archiving, Records Management, Compliance Management, E-Discovery, Litigation
Readiness, Knowledge Management, and Information Management
Markets.





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





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





We are
headquartered in Rutherford, New Jersey with 64 full-time employees, as of March
31, 2009, in offices worldwide, including Australia, Singapore, the United
Kingdom, Hong Kong and the United States.  Our foreign offices
generated approximately 24% and 22% of our total revenues for the three months
ended March 31, 2009 and 2008, respectively.  We expect that such
revenues will continue to represent a significant percentage of our total
revenues in the future.  Most of our international license fees and
services revenues are denominated in foreign currencies.  Fluctuations
in the value of foreign currencies relative to the U.S. dollar in the future
could result in fluctuations in our revenue.





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





We
encounter competition for all of our products in all markets and compete
primarily based on the quality of our products, our price, our customer service
and our time to implement.  The timing of the release of new products
is also important to our ability to generate sales.  During the second
half of 2003, we launched our Records Compliance Management solution for e-mail
and Instant Messaging Archival and Supervision in response to new regulatory
requirements for financial institutions in the United States as well as to
address the need to reduce costs in the e-mail management area. During 2008,
AXS-One announced further significant development of the AXS-One Compliance
Platform, in response to changes in the messaging market. The evolution of
e-mail products as well as the economic recession means that organizations are
re-assessing their commitment to their current e-mail vendors and evaluating
alternative options and new technologies, such as Cloud Computing. This is
resulting in more companies considering migrating all or some of their e-mail
users to a different mail platform.  In response to this, AXS-One
announced a new product, Dynamic Data MigratorTM (DDM) that significantly reduces
the timelines, costs and risks usually associated with migrating e-mail
platforms.  Unlike competitive solutions that physically convert
messages from one mail platform’s format to another mail platform’s format, DDM
leverages AXS-One’s archiving technology, giving end users uninterrupted, secure
access to all of their “old” mail, directly form their new mail client, without
requiring bulk conversion.  Original messages remain unchanged and are
retained with full fidelity, an important requirement for corporate counsels and
in-house legal teams who are increasingly required to produce electronic records
in their original format, in the event of litigation. If and when a user views
an “old message” from their new mail client (in order to reply to the message or
forward it for instance), DDM dynamically converts the message into the new
message format.  AXS-One believes that this approach (for which it has
applied for a patent), reduces migration timelines and costs by approximately
two thirds.  The first release of DDM is specifically designed for
organizations migrating from Lotus Notes and Domino to Microsoft
Exchange.  The timing and functionality of the release is the result
of customer feedback as well as a number of analyst reports highlighting the
change in market share by the leading messaging vendors.  The company
announced its first customer contract for DDM during the third quarter
2008.




AXS-One
believes that the enhancements and additional functionality made to the AXS-One
Compliance Platform through 2008 and 2009 continue to provide further
competitive advantage, and means that the Company can offer its customers and
prospective customers a broad suite of solutions that enable them to address
their current enterprise needs and to scale to meet their future
requirements.  Additionally, the Company believes that the AXS-One
Compliance Platform is increasingly attractive to partners and resellers and
supports the needs of its channel strategy. This includes the Company’s hosting
and SaaS strategy.





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





16
 Table of Contents




During
2008 and 2007, AXS-One continued to expand its technology and reseller
partnerships around the world. During 2008 the Company established a
relationship with Microsoft, the result of the Company’s announcement of Dynamic
Data Migrator.  The Company also continued to train and support
existing partners and, as a result, was able to record its first sales in Japan
and South Korea; and developed a number of large prospects in China as well as
in India, where the Company recorded its first sales in 2006.  The
Company believes these relationships are important to the development,
distribution, sales, marketing, integration, and support of its
products.





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.  For a description of these factors
that may affect our operating results, see  "Risk Factors" in our 2008
Annual Report on Form 10-K





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
                            
                            
                            Three
      Months EndedMarch
      31, 2009
                            
                            
                            March
      31, 2008Data
      as a
                            
                            
                            
                            
                            
                            Data
      as aAs
                            
                            
                            %
      of total
                            
                            
                            As
                            
                            
                            %
      of total(in
      thousands)
                            
                            Reported
                            
                            
                            revenue
                            
                            
                            Reported
                            
                            
                            revenue(Unaudited)
                            
                            
                            
                            
                            
                            (Unaudited)Revenues:License
      fees
                            
                            $
                            507
                            
                            
                            
                            18.7
                            %
                            
                            $
                            1,485
                            
                            
                            
                            38.1
                            %Services
                            
                            
                            2,199
                            
                            
                            
                            81.3
                            
                            
                            
                            2,409
                            
                            
                            
                            61.9Total
      revenues
                            
                            
                            2,706
                            
                            
                            
                            100.0
                            
                            
                            
                            3,894
                            
                            
                            
                            100.0Operating
      expenses:Cost
      of license fees
                            
                            
                            40
                            
                            
                            
                            1.5
                            
                            
                            
                            110
                            
                            
                            
                            2.8Cost
      of services
                            
                            
                            824
                            
                            
                            
                            30.5
                            
                            
                            
                            1,239
                            
                            
                            
                            31.8Sales
      and marketing
                            
                            
                            897
                            
                            
                            
                            33.1
                            
                            
                            
                            1,682
                            
                            
                            
                            43.2Research
      and development
                            
                            
                            919
                            
                            
                            
                            34.0
                            
                            
                            
                            1,490
                            
                            
                            
                            38.3General
      and administrative
                            
                            
                            777
                            
                            
                            
                            28.7
                            
                            
                            
                            1,125
                            
                            
                            
                            28.9Restructuring
      and other costs
                            
                            
                            77
                            
                            
                            
                            2.8
                            
                            
                            
                            -
                            
                            
                            
                            -Total
      operating expenses
                            
                            
                            3,534
                            
                            
                            
                            130.6
                            
                            
                            
                            5,646
                            
                            
                            
                            145.0Operating
      loss
                            
                            
                            (828
                            )
                            
                            
                            (30.6
                            )
                            
                            
                            (1,752
                            )
                            
                            
                            (45.0
                            )Other
      income (expense), net
                            
                            
                            (1,142
                            )
                            
                            
                            (42.2
                            )
                            
                            
                            (453
                            )
                            
                            
                            (11.6
                            )Loss
      before income taxes
                            
                            
                            (1,970
                            )
                            
                            
                            (72.8
                            )
                            
                            
                            (2,205
                            )
                            
                            
                            (56.6
                            )Income
      tax benefit
                            
                            
                            (3
                            )
                            
                            
                            (0.1
                            )
                            
                            
                            -
                            
                            
                            
                            -Net
      loss
                            
                            $
                            (1,967
                            )
                            
                            
                            (72.7
                            )
      %
                            
                            $
                            (2,205
                            )
                            
                            
                            (56.6
                            )
      %




Comparison
of Three Months Ended March 31, 2009 to 2008





Revenues





Total
revenues decreased $1.2 million or 30.5% for the three months ended March 31,
2009 as compared to the corresponding prior year period due to a $1.0 million
decrease in license revenue and a $0.2 million decrease in services
revenue.  The Company’s revenue has been negatively affected by the
current worldwide economic environment and the Company’s own financial viability
as potential customers have delayed their decision making process.





Total
revenues for the three months ended March 31, 2009 included $0.3 million or
11.5% of total revenues from one customer. Total revenues for the three months
ended March 31, 2008 included $1.3 million or 32.5% of total revenues from one
customer.





The
following table sets forth, for the periods indicated, each major category of
our services revenues as a percentage of total services revenue:




Three
      Months Ended March 31,(dollars
      in thousands)
                      
                      2009
                      
                      
                      
                      
                      
                      2008%
      of
                      
                      
                      
                      
                      %
      ofAmount
                      
                      
                      Total
                      
                      
                      Amount
                      
                      
                      TotalMaintenance
                      
                      $
                      1,574
                      
                      
                      
                      71.6
                      %
                      
                      $
                      1,516
                      
                      
                      
                      62.9
                      %Consulting
                      
                      
                      625
                      
                      
                      
                      28.4
                      %
                      
                      
                      893
                      
                      
                      
                      37.1
                      %Total
      services revenue
                      
                      $
                      2,199
                      
                      
                      
                      100.0
                      %
                      
                      $
                      2,409
                      
                      
                      
                      100.0
                      %




Maintenance
revenue increased 4% in the first quarter of 2009 compared with 2008 as a result
of increased maintenance contracts from new license agreements in the prior four
quarters. Consulting revenue decreased 30% compared to the same period last year
due to one large implementation project that included acceptance criteria which
was achieved during the first quarter of 2008.




17
 Table of Contents


Operating
Expenses
 
 Cost of
license fees consists primarily of amounts paid to third parties with respect to
products we resell 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 for the three
months ended March 31, 2009 were lower than the same period last year due to
lower usage and lower costs of third party software.


Cost of
services consists primarily of personnel and third party costs for installation,
consulting, training and customer support.  Cost of services decreased
$0.4 million or 33.5% for the three months ended March 31, 2009, as compared to
the corresponding prior year period.  The decrease for the three-month
period was mainly due to headcount reductions as a result of the reduction in
force implemented in the fourth quarter of 2008 and the first quarter of 2009
and reduced cost resulting from selling the South Africa operation in 2008. The
service margin was 62.5% for the three months ended March 31, 2009 compared to
48.6% for the corresponding prior year period.  This margin
improvement was a result of higher maintenance revenue and lower cost in the
first quarter of 2009 versus the first quarter of 2008.
 
 Sales and
marketing expenses consist primarily of salaries, commissions and bonuses
related to sales and marketing personnel, as well as travel and promotional
expenses.  Sales and marketing expenses were $0.8 million or 46.7%
lower for the three months ended March 31, 2009, as compared to the
corresponding prior year period.  The decrease for the three-month
period was primarily due to headcount reductions as a result of the reduction in
force implemented in the fourth quarter of 2008 and the first quarter of 2009,
and reduced cost resulting from selling the South Africa operations in
2008.












Operating
Loss





Operating
loss was reduced by $0.9 million to $0.8 million for the three months
ended March 31, 2009 as compared to the corresponding prior year period as a
result of the reductions in operating expenses of $2.1 million due to the
reasons described above, offset by lower revenue of $1.2 million.





Other
Income (Expense), Net





Other
income (expense), net decreased $0.7 million for the three months ended March
31, 2009, as compared to the same period in 2008.  This decrease is a
result of higher interest expense, including interest expense resulting from the
discount of debt from the issuance of warrants, associated with the convertible
debt issued on May 29, 2007, November 16, 2007, July 24, 2008 and October 30,
2008.





Net
loss





The net
loss was $2.0 million, or $(0.05) per diluted share for the three months ended
March 31, 2009, as compared to $2.2 million or $(0.06) per diluted share for the
three months ended March 31, 2008, for the reasons described
above.





Liquidity
and Capital Resources





Liquidity
and Cash Flow





Our
operating activities used cash of $0.3 million for the three months ended March
31, 2009 and $1.5 million for the three months ended March 31, 2008. Net cash
used in operating activities during the three months ended March 31, 2009 is
primarily the result of the net loss and increased accounts receivable offset
substantially by non-cash interest expense, non-cash stock compensation expense
and increased deferred revenue.





Our
investing activities were negligible for the three months ended March 31, 2009
and 2008.





Cash used
by financing activities was $0.1 million for the three months ended March 31,
2009.  Cash provided by financing activities was $0.4 million for the
three months ended March 31, 2008.  For the three months ended March
31, 2009, cash was used by the repayment of borrowings of bank
debt.  For the three months ended March 31, 2008, cash was provided by
the borrowings of bank debt.


18
 Table of Contents




We have
no significant capital commitments.  Planned capital expenditures for
the year 2009 are expected to be less than $0.2 million.  Our
aggregate minimum operating lease payments for 2009 will be approximately $0.9
million.  We have $0.1 million remaining of the aggregate minimum
royalties payable to third party software providers in accordance with 2009
agreements for third party software used in conjunction with our
software.





AXS-One
incurred a net loss of $10.1 million and $14.9 million for the years ended
December 31, 2008, and 2007, respectively and a net loss of $2.0 million during
the three months ended March 31, 2009.  We have not yet been able to
obtain operating profitability and may not be able to be profitable on a
quarterly or annual basis in the future.  In addition, in their report
prepared in conjunction with our December 31, 2008 financial statements, our
independent registered public accounting firm, Amper, Politziner & Mattia
LLP, included an explanatory paragraph stating that, because the Company has
incurred recurring net losses, has an accumulated deficit and has a working
capital deficiency as of December 31, 2008, there is substantial doubt about our
ability to continue as a going concern. Management’s initiatives over the last
two years, including the restructurings in February 2009, December 2008 and
2007, the executive management salary reductions for 2009, 2008 and 2007,
securing additional convertible debt financing in May 2007, November 2007, July
2008 and October 2008, and the Sand Hill Finance financing agreement have been
designed to improve operating results and liquidity and better position AXS-One
to compete under current market conditions.  However, we are required
to seek new sources of financing or future accommodations from our existing
lenders or other financial institutions, or we may seek equity or debt infusions
from private investors.  Our recent cost reductions will allow us to
become profitable at lower revenue levels than in prior years. However, our
ability to fund our operations is dependent on our continued sales of our
Integrated Content Arching software at levels sufficient to achieve profitable
operations. We may also be required to further reduce operating costs in order
to meet our obligations if deemed necessary.  As of May 8, 2009, the
Company’s cash position has reduced to $331,000, which includes $447,000
borrowed on our bank credit line. Additionally, the Company’s convertible debt
approximating $13.1 million at May 8, 2009 matures on May 29, 2009 and the
Company does not have the capital to pay these notes, and accordingly, such
notes will need to be restructured. If we are unable to achieve profitable
operations or secure additional sources of capital in the near term, in addition
to restructuring our convertible debt, there would be substantial doubt about
our ability to fund future operations through the second quarter of
2009.  No assurance can be given that management’s initiatives will be
successful or that any such additional sources of financing, lender
accommodations, equity or debt infusions will be available.





As more
fully described above and in an 8-K filed on April 21, 2009, on April 16, 2009,
the Company, and Unify Corporation, a Delaware corporation (“Unify”), and UCAC,
Inc., a Delaware corporation and wholly-owned subsidiary of Unify (“Merger
Sub”), entered into an Agreement and Plan of Merger (the “Agreement”), whereby
Merger Sub will merge with and into AXS-One and AXS-One shall become a
wholly-owned subsidiary of Unify (the “Merger”).  The Agreement and
the Merger were unanimously approved by the Board of Directors of AXS-One and
Unify. Completion of the Merger is conditioned upon, among other things, (i)
adoption of the Agreement by the stockholders of AXS-One and Unify, (ii)
declaration by the Securities and Exchange Commission (the “SEC”) that the S-4
registration statement filed by Unify is effective, (iii) the accuracy of
representations and warranties (subject to materiality qualifiers) as of the
date of the Agreement and the Effective Time, (iv) the performance by the
parties in all material respects of their covenants under the Agreement, and (v)
the Adjusted Working Capital not being less than negative $1,750,000, subject to
allowance for issuance of additional subordinated promissory notes to certain
holders of the existing subordinated notes. Subject to these conditions, the
Company expects that the closing date for this transaction will be between June
15, 2009 and July 15, 2009.




Sand
Hill Finance, LLC Financing





On May
22, 2008, the Company entered into a Financing Agreement (the “Financing
Agreement”) with Sand Hill Finance, LLC (the “Lender”). Pursuant to the
Financing Agreement, the Lender may advance the Company from time to time up to
$1.0 million, based upon the sum of 80% of the face value of United States
accounts receivable secured by the Lender from the Company at the Lender’s sole
discretion. The security of such accounts receivable is with full recourse
against the Company. Advances under the Financing Agreement bear interest at a
rate of 1.58% per month. The Financing Agreement has a term of one year (with an
evergreen annual renewal provision unless either party provides notice of
termination) and contains certain customary affirmative and negative
non-financial covenants. The negative covenants include restrictions on change
of control, purchases and sales of assets, dividends (other than dividends
payable in stock) and stock repurchases. Pursuant to the Financing Agreement,
the Company pledged as collateral to the Lender substantially all of its assets.
On March 19, 2009, Sand Hill Finance extended the financing agreement for an
additional year beginning May 23, 2009.





As of
March 31, 2009, the Company had borrowings of $554,000 outstanding pursuant to
the Financing Agreement and had remaining availability of $446,000.





Secured
Convertible Note Financings





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





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





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







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





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





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





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





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





Each
Series D note holder also received a warrant to purchase a number of shares of
AXS-One common stock equal to 200% of the principal amount of notes purchased.
Each warrant has an exercise price of $0.01 per share and is exercisable at any
time during the seven year period following the closing.





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





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





Each
Series E note holder also received a warrant to purchase a number of shares of
AXS-One common stock equal to 300% of the principal amount of notes purchased.
Each warrant has an exercise price of $0.01 per share and is exercisable at any
time during the seven year period following the closing.





The
effective interest rate on the convertible notes exceeds the coupon rate due to
the amortization of the discount of the debt resulting from the issuance of the
warrants.




Critical
Accounting Estimates





Our
critical accounting policy is revenue recognition.





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




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Delivery
of software generally occurs when the product (on CDs) is delivered to a common
carrier.  Occasionally, delivery occurs through electronic means where
the software is made available through our secure File Transfer Protocol (FTP)
site.  The Company generally does not offer any customers or resellers
a right of return.
 
 For
software license, services and maintenance revenue, the Company assesses whether
the fee is fixed and determinable and whether or not collection is probable
based on the payment terms associated with the transaction and the
credit-worthiness of the customer.  If a significant portion of a fee
is due after our normal payment terms, which are 30 to 90 days from invoice
date, the fee is considered not fixed and determinable.  In these
cases, the Company recognizes revenue as the fees become due and collectability
is probable.
 
 The
Company assesses assuredness of collection based on a number of factors,
including past transaction history with the customer and the credit-worthiness
of the customer.  Collateral is not requested from
customers.  If it is determined that collection of a fee is not
probable, the fee is deferred and revenue is recognized at the time collection
becomes probable, which is generally upon receipt of cash.
 
 The
Company’s arrangements do not generally include acceptance
clauses.  If, however, an arrangement includes an acceptance
provision, acceptance occurs upon the earliest of receipt of a written customer
acceptance or expiration of the acceptance period.
 
 The
majority of our training and consulting services are billed based on hourly
rates.  The Company generally recognizes revenue as these services are
performed.  However, when there is an arrangement that is based on a
fixed fee or requires significant work either to alter the underlying software
so that the software performs as the customer requests, the Company recognizes
the related revenue using the percentage of completion method of
accounting.  This would apply to our custom programming services,
which are generally contracted on a fixed fee basis.  Anticipated
gains or losses, if any, are charged to operations in the period such gains or
losses are determined to be probable.
 
 In
accordance with EITF Issue No. 01-14, “Income Statement Characterization of
Reimbursement Received for ‘Out of Pocket’ Expenses Incurred,” reimbursements
received for out-of-pocket expenses incurred are classified as services revenue
in the Consolidated Statements of Operations.
 
 Recently
Issued Accounting Standards
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“FAS 141R”), which replaces FASB Statement No. 141. FAS 141R
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquiree, and the
goodwill acquired. FAS 141R also establishes disclosure requirements which will
enable users to evaluate the nature and financial effects of the business
combination. FAS 141R is effective as of the beginning of an entity’s fiscal
year that begins after December 15, 2008, which is our fiscal year
beginning January 1, 2009. This standard will have an impact on our
financial statements if an acquisition occurs.
 
 In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements”.
SFAS 157 defines fair value, establishes a framework for measuring fair
value in accordance with accounting principles generally accepted in the United
States of America and expands disclosures about fair value measurements.
SFAS 157 applies under other accounting pronouncements that require or
permit fair value measurements. We were required to adopt SFAS 157
beginning January 1, 2008. In February 2008, the FASB released FASB Staff
Position (FSP FAS 157-2 — Effective Date of FASB Statement
No. 157), which delayed the effective date of SFAS No. 157 for
all non-financial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The adoption of SFAS No. 157 for our financial assets
and liabilities did not have a material impact on our consolidated financial
statements. The adoption of SFAS No. 157 for our non-financial assets
and liabilities, effective January 1, 2009, did not have a material impact
on our financial statements.
 
 In June
2008 the FASB issued EITF 07-5, “Determining Whether an Instrument (or
Embedded Feature) Is Indexed to an Entity’s Own Stock”. EITF 07-5 provides
guidance in assessing whether an equity-linked financial instrument (or embedded
feature) is indexed to an entity’s own stock for purposes of determining whether
the appropriate accounting treatment falls under the scope of SFAS 133,
“Accounting For Derivative Instruments and Hedging Activities” and/or
EITF 00-19, “Accounting For Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Company’s Own Stock”. EITF 07-05 is effective
as of the beginning of our 2009 fiscal year. The adoption of EITF 07-05 did
not have a material impact on our consolidated financial position or results of
operations.
 
 In May
2008, the FASB issued FASB Staff Position APB 14-1 (“FSP”), Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement). FSP will require us to account separately
for the liability and equity components of our convertible debt. The debt would
be recognized at the present value of its cash flows discounted using our
nonconvertible debt borrowing rate at the time of issuance. The equity component
would be recognized as the difference between the proceeds from the issuance of
the note and the fair value of the liability. The FSP also requires accretion of
the resultant debt discount over the expected life of the debt. The FSP is
effective for fiscal years beginning after December 15, 2008, and interim
periods within those years. Entities are required to apply the FSP
retrospectively for all periods presented. The adoption of FSP APB 14-1 did not
have a material impact on our consolidated financial position or results of
operations.






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Certain
Factors That May Affect Future Results and Financial Condition and the Market
Price of Securities
 
 See our
2008 Annual Report on Form 10-K for a detailed discussion of risk
factors.
  Item3.    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.
 
 Item4.    Controls and Procedures
 
 Evaluation
of disclosure controls and procedures
  The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company's Exchange Act reports
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based on the definition of "disclosure controls
and procedures" in Rule 13a-15(e).  In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily is required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
 
 The
Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of March 31, 2009.  Based upon the foregoing, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective as of March 31,
2009.
 
 Internal
controls over financial reporting
 
 There
have been no changes in the Company's internal control over financial reporting
during the quarter ended March 31, 2009 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.






PART
II.  OTHER INFORMATION








Item6.      Exhibits





Exhibit
                Description31.1
                Rule 13a-14(a)/15d-14(a) Certification – William P.
      Lyons31.2
                Rule 13a-14(a)/15d-14(a) Certification – Joseph P.
      Dwyer32
                Officer Certifications under 18 USC
    1350











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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
      13, 2009
                        By:
                        /s/ William P.
      LyonsWilliam
      P. Lyons
                          Chief
      Executive Officer and
                          Chairman
      of the BoardBy:
                        /s/ Joseph P.
      Dwyer
                          Joseph
      P. Dwyer
                          Executive
      Vice President,
                          Chief
      Financial Officer and Treasurer
                          (Principal
      Financial
Officer)











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