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

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FORM 10-K

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Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002

Commission File Number: 1-13591

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

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|Delaware                                                         |  | 13-2966911                       
|---------------------------------------------------------------- |  | ---------------------------------
|(State or other jurisdiction of incorporation
or organization)   |  | (IRS Employer Identification No.)
|301 Route 17 North, Rutherford, New Jersey                       |  | 07070                            
|(Address of principal executive offices)                         |  | (Zip Code)                       
|201-935-3400(Registrant's telephone number, including area code)
|Securities Registered Pursuant to Section 12(b) of the Act:     

|Title of each class         |  | Name of each exchange
on which registered
|--------------------------- |  | -----------------------------------------
|Common Stock $.01 par value |  | American Stock Exchange                  

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

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 (the "Act")
during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

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

The
aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based upon the closing sale price of Common Stock
on June 28, 2002 (the last business day of the Registrant's most recently completed second fiscal quarter) as reported on the American Stock Exchange, was approximately $10.1 million.
Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As
of March 14, 2003, Registrant had outstanding 24,866,742 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12 and 13 of Part III are incorporated by reference from a portion of the Registrant's definitive proxy statement to
be furnished to stockholders in connection with the 2003 Annual Meeting of Stockholders.

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Item 1. Business

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 future financial results of the Company. Investors are cautioned that such
statements are only predictions and that actual events or results may differ materially. In evaluating such statements, investors should specifically consider the various factors identified in this
Report which could cause actual events or results to differ materially from those indicated by such forward-looking statements, including the matters set forth in "BusinessRisk Factors"
below.

General

AXS-One Inc. ("AXS-One" or the "Company") (which, until October 31, 2000, was known as Computron Software, Inc.) is a
provider of robust, secure business solutions that allow a company to achieve efficiency in its business processes and to extend those efficiencies to its customers, suppliers, and business partners.
AXS-One has a 25-year proven track record in developing flexible, high-volume, scalable, secure and effective business solutions for global 2000 organizations.
AXS-One's ability to quickly identify emerging market opportunities and build high-quality innovative solutions has won many awards over the years, including Imaging Magazine's
"Product of the Year" award for its Workflow (the precursor to the current AXS Process Manager), a "Best of AIIM" award for the first Internet/Java COLD product and the 2002 "Best of AIIM" award for
Best Practices in Enterprise Content Management for AXS-One's AXSPoint Travel Industry Solution implemented at one of our clients, Brittany Ferries.

AXS-One
believes that the ultimate success of 21st century organizations will be determined by how seamlessly these organizations conduct business internally and with their
partners, customers and suppliers. As a result of today's highly volatile business environment, corporations need to be very agile and solutions that address specific points of pain may be more
appropriate than traditional broad-based Enterprise Resource Planning (ERP) solutions. To meet this need, the Company's objective is to deliver Internet-based business solutions that allow
organizations to establish transparent and seamless processes throughout their value-network, thus enabling true collaborative commerce. AXS-One's approach allows companies to preserve
investments in existing systems by extending them with collaborative web services that automate business processes across corporate boundaries. This results in manageable investments, quick
implementation schedules and rapid return on investments (ROIs).

For
the past three years, AXS-One has invested significantly in the development of collaborative technology, and will continue to so invest throughout 2003. In particular,
AXS-One launched its AXS-One Web Services solutions in 2002, the result of multiple years of investment in upgrading its technology to a web services compliant architecture.

AXS-One
has three families of products:

|                    |   |  |                                                                                                                                                                                                                                                                                                                                                                                      
|------------------- | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AXS-One® Enterprise |  |  | a suite of solutions that address mission critical financial processes that directly affect the overall performance of an enterprise.                                                                                                                                                                                                                                                
|Tivity             |  |  | a verticalized version of AXS-One Enterprise solutions that addresses mission critical business processes of the professional services industry including industry specific modules, such as TEAM, Swift-AXS and
Revenue Cycle Management.                                                                                                                                          
|AXSPoint®           |  |  | a suite of products encompassing process automation, content management and distribution, compliance and secure, personalized delivery of web content. AXSPoint tools are utilized by AXS-One to develop solutions to address
specific vertical opportunities. The solutions are referred to as AXS-One Collaboration Frameworks. Examples include AXS-One Travel and AXS-One Legal.

Each
of these families of solutions has been enhanced using AXS-One's e-Cellerator products. First introduced in 1999 and now used in approximately
70 corporations, e-Cellerator products utilize a process-

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centric web services architecture that AXS-One has developed to support the design and development of large-scale, Internet-based collaborative commerce solutions. It is an
"n-tier" (desktop browser, web servers, application servers and database server), component-based, Internet-deployable, scalable architecture fully compliant with the industry standard
interface definition language (WSDL), eXtensible Markup Language (XML) and Simple Object Access Protocol (SOAP) web services protocols and architectures. At the core of the architecture is an advanced
process engine that handles large volumes of complex business process logic. The user interface is very intuitive and is accessible over the Internet utilizing a combination of HTML, XML Style Sheets
and Java applets or Visual Basic for the client/server desktop.

e-Cellerator
products run on Windows 2000, Sun Unix, HP UNIX, and IBM RS/6000 Unix application servers. Linux is available, but not deployed. The e-Cellerator
products support the following database engines: Oracle on all platforms, MS SQLServer on Windows 2000, and Informix and Sybase on the Unix servers. Solutions using e-Cellerator products
can be hosted in-house or remotely by third-party
application service providers (ASP). AXS-One is committed to delivering solutions that allow organizations to conduct business seamlessly with their customers, suppliers and partners in a
collaborative Internet operating environment.

AXS-One's
Foundation products, included in the AXS-One Enterprise product line, which are deployed in a client/server (with Visual Basic thin client and browser
based desktops) or web services-based model, continue to be maintained, enhanced and upgraded. These products are the back-office system of choice for large information-centric, global
organizations such as AIG, Pfizer, AOL, Deutsche Bank, Emery, TNT, and United Airlines. AXS-One's Foundation products are very well suited to those organizations that have adopted an
internal "shared services" approach to back-office administration functions, or organizations in the Financial Services, Transportation or Communications industries and in the public
sector. AXS-One Financials have extensive functionality and are able to handle large volumes of complicated business transactions. They are designed to manage
end-to-end business processes. AXS-One Financials are integrated with a robust process engine that allows organizations to manage and track a wide range of
business-process metrics. The Process Design Workbench is a critical component of the solution. It enables organizations to quickly tailor standard business process templates to meet their own unique
needs. The underlying "n-tier" architecture is highly scalable and able to meet the transaction volume needs of global 2000 organizations. AXS Process Manager (workflow), a critical
component of the e-Cellerator family of products, can be used to automate business processes both within and across organizations, thus extending the reach of
end-to-end process control outside of the walls of traditional bricks and mortar organizations and achieving true collaborative business communications.

In
the Net economy, with the virtual office becoming more prevalent, AXS-One believes it is well positioned to meet the e-business needs of complex organizations.
AXS-One's e-Cellerator products provide the ability to leverage technology and collaboratively distribute and process business knowledge electronically throughout the
enterprise or across enterprises.

Organization and Products

The Company has three main product lines: AXS-One Enterprise Solutions, Tivity Solutions and AXSPoint Solutions. AXS-One conducts
comprehensive marketing programs in the United States, which include telemarketing, public relations, direct mail, advertising, seminars, trade shows and ongoing customer communications programs.

AXS-One
currently markets its products and services primarily through a direct sales force in the United States and directly and indirectly in other parts of the world. Sales
efforts in the United States are conducted by a direct sales force located at the Company's headquarters in Rutherford, New Jersey, and in the Tampa, Dallas, Chicago and Atlanta areas.

Outside
of the United States, the Company utilizes its sales and support offices in Australia, Singapore, South Africa, and the United Kingdom. In the past the Company has established
distribution

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arrangements with third parties around the world, including the reseller agreement entered into in 2001 with its former subsidiary located in Central and Eastern Europe, and continually evaluates
future third party arrangements. Currently, AXS-One does not generate significant revenues from its distributors.

Further
information specific to these three product lines are presented in Note 10 to the Consolidated Financial Statements.

AXS-One Enterprise Solutions.Offers a suite of supply chain management solutions that
address mission critical business processes that directly affect the overall performance of an enterprise. The degree of success or failure of these processes is measured in terms of speed, accuracy,
control and accountability. AXS-One Enterprise solutions manage the revenue process, including relationships with customers, with Revenue Manager; and the expenditure process, including
relationships with vendors and employees, with Expense Manager and Procurement Manager. The business planning, budgeting, analysis and reporting process, key performance indicators (KPI's) and
business performance are managed with Business Manager. Collectively, AXS-One Enterprise solutions enable enterprises to effectively manage entire process lifecycles with proven
transactional applications, templated and automated process workflow, and by harnessing the power of the Internet. AXS-One Enterprise solutions are built on AXS-One's web
services architecture and can be deployed as integral parts of other solutions thus making them a solution of choice for third-party software vendors wishing to include world-class financials within
their state-of-the-art solutions. AXS-One Enterprise solutions have been successfully deployed within hosted Internet solutions such as those provided
by Comstrata, an internet-based property management solution in Australia.

AXS-One's
Foundation suite of world-class back-office financial solutions are continually maintained and enhanced to support existing customers, including Pfizer,
AIG, Deutsche Bank, TNT, United Airlines and Emery.

The
AXS-One Enterprise family of solutions leverages and shares the core functional components of AXS-One Foundation products, such as AXS-One
Financials, and the benefits of e-Cellerator products. The ability to utilize existing Foundation components enables AXS-One Enterprise Solutions to support a powerful set of
core business functionality, such as multi-language and multi-currency, and the ability to handle complex, process-centric business (such as the dissemination of purchase orders to suppliers utilizing
the Internet), and accounting requirements, such as different forms of payment. As a result, AXS-One Enterprise Solutions have all the features of a powerful e-business
solution, backed by the solid functionality of a world-class, global back-office suite of business products. AXS-One Enterprise Solutions and Foundation products are described
below.

AXS-One Enterprise Revenue Managermanages the entire billing, collection and cash application process. Revenue Manager begins with the
invoice to the customer and continues with an automated payment process. Once payment is received, Revenue Manager handles the entire cash application process by using either the customer's
instructions or system-constructed algorithms to apply the
payment. Revenue Manager automates the monitoring of the receivable asset. Customers falling behind in payments are notified by system generated dunning letters and/or by collectors who are alerted to
call the account. Revenue Manager extends its value by providing customers with a web-based self-service portal that allows for bill presentation, account reconciliation,
request for change of credit limit and/or address and e-mail correspondence with the Accounts Receivable personnel assigned to the account.

AXS-One Enterprise Expense Managersupervises the expense management process. From invoice entry through purchase order matching and
supervisor approval, Expense Manager allows for simplified data-entry with automated routing of invoices for payment approval(s). Once paid, a robust reconciliation process matches
payments to statement detail supplied by the bank. Like Revenue Manager, Expense Manager extends its value by providing vendors with a web-based self-service secure portal that
allows them a real-time view of their invoice and payment data and status, thereby reducing the need for direct contact with the Accounts Payable department. Expense Manager streamlines
the internal payment process and strengthens the customer/supplier relationship.

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AXS-One Enterprise Procurement Managersupervises the entire procurement lifecycle process. From supply need to payment for received goods
(requisition-to-payment), Procurement Manager allows employees to securely buy supplies via an Intranet web site in a controlled environment. Procurement Manager manages the
internal catalogs and/or links to external supplier catalogs via XML, manages budgetary controls, controls the approval process and creates the final purchase order. Once an ordered supply has been
received, Procurement Manager is notified by receipt verification from the receiver. Once an invoice is received from the supplier, Procurement Manager conducts a three-way match between
the original purchase order, the invoice and the receipt for accuracy. If everything matches then Procurement Manager triggers a scheduled payment. If a match is not found, Procurement Manager begins
exception processing. Procurement Manager streamlines and automates the entire procurement process including budgetary controls, catalog maintenance, inventory and approval management.

AXS-One Enterprise Business Managerencompasses the entire business planning, forecasting and reporting process. This process starts with
the business plan, which then goes through the budget process, and continues through monthly reporting. Business Manager then conducts periodic variance analysis and generates applicable reports that
may be made available over the web, which may then be compared to the original business plan and revisions made as necessary. Business Manager also handles and controls corporate budgeting (including
the Encumbrance Accounting Module), the treasury function and total assets in a dynamic workflow and Internet-based environment for maximum efficiency.



This
is AXS-One's Foundation suite of products. It is a world-class suite of back-office administrative systems being used by some of the largest organizations in
the world. It is built on a highly scalable, component-based, robust, n-tiered architecture.

|Module         |  | Features                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|General Ledger |  | The General Ledger (GL) module provides comprehensive financial accounting and management information across multiple companies, currencies, and reporting calendars. It stores and maintains financial, statistical, and budgetary information for
summary, comparison, calculation, inquiry, and reporting. AXS-One believes that the product fulfills statutory, consolidation, and management requirements while offering benefits such as comprehensive user control of essential functions and the
ledger structure, n-dimensional chart of account structure, customization of Advanced User Interface, total integration with other AXS-One applications (via its own sophisticated interfacing tool GENEX) and XML defined transactions with non-AXS-One
software. Through the use of various standard AXS-One utilities, data can also be uploaded to and/or downloaded from external sources.
|AXS Excel      |  | AXS Excel is AXS-One's financial report writer of choice. It utilizes Microsoft Excel as a design and delivery mechanism, combining the ability to design MS Excel templates with the ability to automatically extract information from the AXS-One
reporting suite and populate the information directly into designated areas of the template. AXS Excel can be used as a production report writer or for "what-if" type analysis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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|TransAXS®
Financial Reporting        |  | The TransAXS Financial Reporting (FR) system allows an organization to fully automate its weekly, monthly and quarterly production of business performance metrics. Key performance indicators (KPIs) are presented in Microsoft Excel spreadsheets and
distributed via email or an Internet browser to responsible individuals. TransAXS FR allows an organization to fully describe what information is to be sent to which individuals thus fully automating the distribution and creation of
reports.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TransAXS Business
Control Management |  | The TransAXS Business Control Management (BCM) module is workflow-based and is designed to allow organizations to automate the way in which budget information is downloaded/uploaded, disseminated and collected throughout the enterprise. It provides
the ability to track the status of each form, reducing the manual intervention often involved in the budget cycle process. TransAXS BCM is also able to generate monthly, quarterly and annual reporting of actuals versus targets and can allow
organizations to adopt a rolling forecast methodology.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Accounts Receivable                  |  | The Accounts Receivable module provides efficient and comprehensive debtor management facilities, offering complete financial accounting and management information, in multiple currencies, to fulfill statutory and management requirements. It is
parameter-driven for precise matching to user requirements and offers users control of many functions including a complex cash rules engine for payment application. Users can create and monitor collection campaigns from queue records based on data
from the customer master, customer statistics, and open item files using the Credit Manager's workbench function. Additionally, AXS-One Accounts Receivable has an optional Direct Invoicing module that handles pick list generation, invoice generation,
deal pricing, and pricing and discount tables for goods and services. It supports the EDI 820 and 823 requirements as well as ACH defined debit and credit authorizations. It can be integrated with AXS-One's reconciliation module (AP) to unify cash
management procedures. Through the use of various standard AXS-One utilities, data can be uploaded to and/or downloaded from external sources.
|Accounts Payable                     |  | The Accounts Payable module is a sophisticated vendor management system. It offers an easy-to-use method of managing suppliers, vendors, and the purchasing cycle. It embraces purchasing statistics, cash management forecasting, employee advance and
expense handling, EFT payment capability, built-in invoice logging, tracking and payment authorization and reconciliation procedures. It also provides comprehensive financial accounting and management reporting and inquiry (statistical and financial)
in multiple currencies. Through the use of various standard AXS-One utilities, data can also be uploaded to and/or downloaded from external sources.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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|Purchase Order               |  | The Purchase Order module enables automated purchase order processing, user-defined vendor evaluation, blanket and standard orders, and transmission of purchase orders through print, fax, EDI 850 or its XML equivalent. Additionally, the system
provides utilities to automate catalog maintenance through support of EDI 832 or its XML equivalent and standard AXS-One utilities. It also provides sophisticated buyer sourcing that includes automatic pick tickets and direct requisition to purchase
order processing. The system may optionally be integrated with AXS-One's encumbrance or corporate budgeting modules for additional spend management.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|---------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Expense Cycle
Management     |  | Expense Cycle Management (ECM) is a complete application that integrates portions of AXS-One's Financial modules with workflow technology. It is delivered with a graphical process design wizard called the Process Design Workbench. It comes with all
of the workflow tasks necessary for re-engineering the payment cycle, such as several scanning, faxing and invoice capture tasks, tasks for indexing documents, voucher approval routing options, EFT payments, exception handling, and full online
inquiry to the workflow and financial data. The solutions interact with approvers in two modes. Those users that do not have a large volume of invoices to approve are sent invoices via standard email, including an image of the original invoice. They
can approve the invoices from within email or, if they need greater background information can access the invoice approval information repository via a simple HTML interface. Users with larger numbers of invoices to approve will typically only
receive notifications via email and will approve invoices via a simple HTML interface.
|TransAXS Vendor              |  | TransAXS Vendor is a supplier self-service portal that gives vendors full access to information such as status of payments, purchase orders, and much more. It also allows vendors to update contact information and other relevant data. All changes made
through the portal are governed by a powerful approval process and no changes are allowed directly to the underlying master tables. TransAXS Vendor can also be used on an internal basis to give managers greater access to information about
vendors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Procurement Cycle
Management |  | Procurement Cycle Management (PCM) is a complete application that integrates portions of AXS-One's Financial modules with workflow technology, including the Process Design Workbench. It allows individual organizations to define the procurement cycle
process and provides a view of the current processes, identifying areas that can be improved. PCM can electronically create both requisitions and purchase orders, and upon completion of an online requisition, perform custom defined business rules and
automatically approve or route the requisition to a supervisor for manual approval and release.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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|TransAXS
Procurement   |  | TransAXS Procurement is a modern requisitioning and purchase order management system. It is fully integrated with Procurement Cycle Management and is designed to handle the myriad of requests made in an organization to purchase supplies or third
party services. TransAXS Procurement utilizes an HTML interface and a standard Internet-shopping paradigm with shopping carts and checkouts. As a result, it requires minimal training for end users who are already familiar with purchasing products and
services in an on-line environment. TransAXS Procurement can allow users to purchase products against an internal catalog or "punch-out" and purchase products directly from vendors' shopping sites. All purchases are routed for corporate approval and
verifications are made against budget limits and personal authority levels.         
|---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Inventory Control      |  | The Inventory Control module is a highly flexible inventory system with full integration to AXS-One Financials. This system features extensive inventory transaction capabilities and detailed reporting functionality. Notable features include Item
Master File maintenance and inquiry capability, and Bill of Materials. The system includes a full range of inventory transactions such as: warehouse moves, transfers, issues, and returns. Additional features include inventory count capabilities,
reporting and multiple costing methods. Through the use of various standard AXS-One utilities, data can also be uploaded to and/or downloaded from external sources.                                                                                                                                                                               
|Fixed Assets           |  | The Fixed Assets (FA) module tracks fixed assets, maintains related financial and accounting records and provides for flexible, unlimited depreciation calendars, user-defined asset identification and make, model and number descriptions. It can
generate fixed asset information directly for the AXS-One Financials/General Ledger. This will produce the data required to update asset accounts, accumulated depreciation accounts, depreciation expense accounts, and disposition gain or loss accounts,
 and relieve the appropriate FA clearing accounts. This update can then be posted directly to the AXS-One Financials/General Ledger and, with the integrated reconciliation of GL and FA, can be easily monitored. Through the use of various standard
AXS-One utilities, data can also be uploaded to and/or downloaded from external sources.
|Encumbrance
Accounting |  | The Encumbrance Accounting module enables public sector and not-for-profit organizations to avoid exceeding budgeted amounts by enforcing strict controls over disbursements and purchasing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Tivity Solutions.By leveraging the Company's proven experience in building
easy-to-customize, process-centric systems to automate business processes both within and outside an organization, Tivity products provide solutions to Professional Services
Organizations (PSOs) that decrease the time to bill and the effort involved in the billing and revenue recognition processes, while increasing the utilization of knowledge workers. This family of
solutions, a verticalized version of AXS-One Enterprise solutions, allows PSOs to operate virtually and globally across the enterprise. PSOs are among the first of the virtual workforces
requiring the ability to connect a complex network of clients, employees, contractors and partners in a truly global environment. Tivity products are able to provide that connectivity across all
trading partners of a PSO.

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Tivity
products provide these same solutions to Internal Service Organizations (ISOs). While ISOs do not need to bill external organizations, ISOs need to track project costs for
internal allocation and have the same needs as PSOs in maximizing the utilization of resources and in effectively managing the work product of these resources.

By
integrating e-Cellerator products with Tivity solutions, AXS-One is able to provide PSOs and ISOs with world-class Internet transaction processing (ITP) and
Internet knowledge processing (IKP) systems tailored to the specific requirements of these organizations.

The
ability to integrate third party tools and products with Tivity's family of solutions is a key component of being able to offer an integrated full suite solution. In 2002,
AXS-One formed a strategic partnership with Portfolio DecisionWare who designs, develops and markets a world-class Project Portfolio Management system. AXS-One is actively
seeking partnerships during 2003 to enhance its product offerings. The likelihood of success of these efforts cannot be determined at this time.

AXS-One
has global customers using Tivity products, including Mercer Management Consulting, Cap Gemini Ernst & Young, William M. Mercer and America Online. These
organizations use client/server versions of AXS-One's TEAM (Time & Expense Accounting Management) software, and during 2003 the Company hopes to migrate many of these customers to
e-Cellerator products based on Tivity's family of solutions. The likelihood of success of these efforts cannot be determined at this time.



|Module                                      |  | Features                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|TEAM
(Time & Expense
Accounting Management) |  | The Time & Expense Accounting Management module gives business and practice managers complete control over the process of recording and billing time and expenses at every level (client, engagement, project, office, responsible employee, etc.), as
well as multiple options for cost and billing rates, contract billing and revenue recognition. Time and expense information, editing, and billing facilities can all be accessed from a standard web browser permitting up-to-the-minute accuracy and
prompt invoicing of time and expenses incurred on multiple levels of clients and/or projects. This powerful management tool can be utilized to increase the productivity and profitability of all chargeable time and services, while providing
flexibility in defining the billing rules for each client project. Through the use of various standard AXS-One utilities, such as Genex (Generalized External Interface) and XML documents, information can also be uploaded to and/or extracted from
external sources.
|SWIFT-AXS                                  |  | This module allows employees and contractors of PSOs and ISOs to remotely enter their timesheets and expense reports via the Internet or off-line on a personal computer. By providing timekeepers with an easy to use data capture system, timekeepers
are encouraged to enter timesheets and expense reports in a more timely fashion resulting in more accurate data, while leaving these workers more time to concentrate on productive work.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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|Time & Expense
Cycle Management                           |  | This module is a process-centric, user definable timesheet and expense report approval module that allows PSOs and ISOs to review and approve the timesheets and expense reports of its workers prior to accepting this data into the financial systems.
This review and approval process can be defined at the individual project level and can be extended outside of the organization to the client's representative.                                                                                                                                                                                                                                                                                                                                      
|--------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Revenue Cycle
Management (RCM)                            |  | This module is a process-centric revenue management module that allows PSOs to manage changes to their revenue stream more effectively. Phase I of RCM (Bill Memo Routing) currently available, automates the pre-billing approval process, which enables
organizations to manage their billing process more efficiently. Phase II of RCM, scheduled for release in the second quarter of 2003, will manage the ways in which changes to already recorded revenue are controlled and approved throughout the
enterprise. With RCM, organizations will be able to improve the quality and control of revenue. RCM will enhance the practice manager function by allowing fast and accurate access to pertinent information for clear and quick
decision-making.
|SMART (Speedily
Manage Alignment of
Resources and Tasks) |  | This Resource Management solution allows resource managers and project managers to plan and staff the projects and work assignments under their responsibility. It also allows resource managers to forecast resource requirements and to manage and
schedule resources. Individual employees may update their skills inventory and preferences for future assignments. This module allows the organization to model its business processes in terms of the subsequent review, acceptance and/or approval of
resource requests.                                                                                                                                                                                                                               
|Project Management                                        |  | This Project Management solution allows project managers to create new projects using previously stored templates and manage projects under their responsibility. This solution allows the user to identify and weigh key performance indicators to allow
analysis and notifications based on the overall performance of projects in the organization's portfolio. This solution will be enhanced to proactively reschedule work based on project performance. The enhanced solution is scheduled for release in the
fourth quarter of 2003.                                                                                                                                                                                                                  
|Employee Home Page                                        |  | The Employee Home Page extends the value of the complete Tivity suite by providing workers with a web-based self-service secure portal that allows them a real-time view of their timesheets, expense reports, assignments, project status, outstanding
client receivable balance, and items waiting their attention. It also allows the users to request changes to their personal information including skill sets and assignments, thereby reducing the need to chase-down the information required completing
their daily work.                                                                                                                                                                                                                           
|                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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|PSO Analysis            |  | Built upon the capabilities of AXSPoint solutions, this is a central repository for storing business performance information. It includes the ability to design and produce views of business performance metrics, such as project profitability, project
backlog and employee utilization. It also has the ability to publish these reports across the Internet or through e-mail. The report distribution process provides the ability to optionally track reports from a process viewpoint and to require
feedback and updates from subscribers.
|----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PSO Customer            |  | This is a subset of AXS-One Enterprise's Revenue Manager solution tailored to meet the unique needs of PSOs. This module manages the incoming cash flow of a PSO. PSO Customer extends its value by providing customers with a web-based self-service
portal that allows for bill presentation, account reconciliation, request for change of credit limit and/or address and e-mail correspondence with the Accounts Receivable personnel assigned to the account.                                                                                
|PSO Procurement
Manager |  | This module is AXS-One Enterprise's Procurement Manager solution tailored to meet the needs of PSOs. The PSO Procurement solution allows employees of PSOs to securely purchase products and services from vendors over the Internet.                                                                                                                                                                                                                                                                                                              
|PSO Expense
Manager     |  | This is AXS-One Enterprise's Expense Manager solution tailored for PSOs. This module monitors the outgoing cash flow processes. It allows third-party contractors to electronically manage their profile and business information. Like PSO Customer, PSO
Expense Manager extends its value by providing vendors, who may be employees, with a web-based self-service secure portal that allows them a real-time view of their invoice and payment data, thereby reducing the need for direct contact with the
Accounts Payable department.        

AXSPoint Solutions.Solutions that enable organizations to electronically and securely capture,
manage, and share corporate content and knowledge both within the enterprise, and with the Company's customers and other business partners. The AXSPoint technology enables customers to gain and
maintain competitive advantage by providing technology that captures, manages, and delivers content and information across the enterprise and throughout the value-network. AXS-One, through
professional service offerings, also provides customers with resources who have technology and industry expertise. AXSPoint products utilize the same underlying e-Cellerator architecture
as other AXS-One products. These products can be used to rapidly transform traditional systems into powerful web
services solutions. AXSPoint solutions are a powerful solution set for extending existing systems and for rapidly deploying collaborative commerce capabilities throughout a value network.

AXSPoint
solutions have been deployed as self-service information systems, Internet report publishing and distribution systems, compliance systems, customer service systems,
Internet-enabled information reconciliation systems, and transaction confirmation solutions. These solutions are typically implemented in weeks, thus providing a rapid
time-to-value. AXSPoint technology manages report, legacy, and systems data, email and instant message communications, and other business data and places this information in a
repository that provides easy access to this data for re-tasking. By combining this data with other data sources and supplying easy access via a robust user interface, AXSPoint solutions
facilitate short time-to-market for custom web applications. This rapid time-to-market combined with advanced

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functionality is a critical selling point that differentiates this AXS-One product line from competitive offerings. AXSPoint solutions scale easily from small companies to large
multinational enterprises.

AXSPoint
technology is also a books and records repository and, as such, not only delivers a powerful portal to information but can also eliminate many paper production and storage
costs. AXSPoint technology is able to store information in various media, which support the concept of Write Once Read Many (WORM). As a result, AXSPoint solutions are excellent replacements for
microfiche. AXSPoint solutions are able to store many forms of information within their WORM repositories, including e-mail, business reports, compliance reporting, and much more. AXSPoint
technology is also fully compliant with SEC Rule 17a-4 requirements for electronic communications such as email. The AXSPoint repository is able to store terabytes of information
and is also an excellent tool for email management.

AXS-One
has clients globally using AXSPoint solutions, including Wachovia, Deutsche Bank, Chicago Mercantile Exchange, and JP Morgan Chase. During 2001 and 2002 many of these
organizations were upgraded from the client/server versions of AXS-One COOL software to the e-Cellerator products-based AXSPoint family of solutions. The Company
anticipates that most of the clients remaining on the older technology will upgrade during 2003; however, no assurances regarding such upgrades can be made at this time.



|Module           |  | Features                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|---------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|COOL             |  | COOL is a client/server product that allows clients to store reports in an electronic format. It includes a suite of tools that allow business process owners to view portions of a report or multiple reports (such as purchase orders, checks registers
and financial reports) on-line thus eliminating the need to distribute a paper report. The product facilitates report distribution by allowing access to the information via user login to the core system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                 |  | This product's value lies in its ability to provide large enterprises with the ability to view, archive and disseminate massive amounts of information rapidly and with great flexibility. This speed and flexibility reduces the costs associated with
printing reports and resource time required to search, view, and analyze data appearing in multiple reports.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|AXSPoint Central |  | Consists of a central repository for storing business information, together with tools that allow information to be published from the repository. The base system comes with the ability to extract, capture, manage, and present information from
mainframe and legacy based systems, relational database management systems (RDBMS) systems, XML, and other business data content stores. These report files may be either internal reports or report files received from third-party organizations such as
vendors, customers or business partners. Once information is stored in the repository, users can gain access to this information via a standard browser. The repository stores historical views of the same information and allows users to analyze data
from historical content. This product was designed for clients presently using the COOL product who need the ability to access information using a web-browser and store or create XML, but do not need the extensive capabilities of the Exchange
product.
|                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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|AXSPoint Exchange                 |  | The AXSPoint Exchange solution allows rapid development of web-based Electronic Self Service (ESS) and dynamic content creation systems. AXSPoint Exchange solutions are designed to meet specific business needs, such as Electronic Bill Presentment and
Payment (EBPP), Vendor Self Service, Customer Self Service, Billing Consolidation, and Report Consolidation and Analysis. Access to the software is via a standard web-browser and is authenticated for data-level secured access to AXSPoint Central
content. Users can search, view, or download content as MS Excel spreadsheets or XML-tagged files for further analysis. These solutions are designed based on e-Cellerator architecture and can be combined with the AXS Process Manager module. AXSPoint
Exchange's enhanced rapid development environment makes it easy to use when building and supporting web-based information management applications.
|--------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                  |  | The value of this product lies in its ability to provide enterprise-wide access to mission critical data on a secured platform with rapid time-to-value. Recent advances in the design of this product have reduced the skill level needed to produce such
applications, thus reducing the overall cost of implementation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Email and Instant
Message Manager |  | Built on the foundation of AXSPoint archive and retrieval technologies, Email and Instant Message Manager is an enterprise solution that allows any organization to meet and manage compliance mandates and to leverage the corporate knowledge contained
within email and instant messaging systems. By providing a single interface to disparate corporate content systems, the Email and Instant Message Manager solution addresses both the compliance and operational requirements of managing long-term
messaging content storage by managing large dispersed email infrastructures and consolidating them into centralized, secure archives.                                                                                                                                                                                                                                                                          
|AXS Process Manager               |  | AXS Process Manager is process automation technology that enables AXS-One e-business solutions to bridge and automate the process void that exists between organizations. Business solutions are rules based, and allow user defined decision processing,
managed business processes and documents, and are able to operate across the Internet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                  |  | AXS Process Manager is used to build total web-based business solutions. Since a powerful rules engine is integrated directly into AXS Process Manager, organizations are able to extend the reach of AXS-One applications to drive all facets of their
business. AXS Process Manager will enable companies to build high-performance, production oriented, end-to-end process systems that directly access line-of-business and horizontal application data sources in batch mode and in real time without
compromising information.                                                                                                                                                                                                                                                                                                                                                                                        
|                                  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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|AXS-One
Collaboration
FrameWorks
Solutions |  | Launched in 2002, these are specific solutions designed for several vertical markets and include best practice templates and integrated software components, from both the AXSPoint Exchange and AXS Process Manager product lines. AXS-One Collaboration
FrameWorks solutions have been developed for Banking, Brokerage, Insurance, and Transportation markets, and are targeted for rapid implementation point solutions such as Loan Origination, New Accounts Processing, Confirmation and Exception Reporting,
Post-Issue Processing, Policy Archival and Distribution, Self-Service, Reconciliation and Dispute Management, among others.
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|AXS-One Clarity                            |  | A complement to the AXSPoint Central and AXSPoint Exchange environments, AXS-One Clarity is a Java-based analytical tool allowing for cube-based analysis of enterprise content.                                                                                                                                                                                                                                                                                                                                                                                                                                                                

In
2000, AXSPoint Central and AXSPoint Exchange were enhanced to leverage the power of eXtensible Markup Language (XML). In 2001, this capability was enhanced to allow AXSPoint Exchange
to be deployed as a web service thus extending its value to organizations that wish to employ a centralized portal strategy. Significant enhancements were also made to the AXSPoint Exchange
development capabilities via the deployment of Macromedia Ultradev Extensions. With these extensions a company can rapidly design and deploy complex Electronic Self Service (ESS) applications either
as dedicated systems or through portals. Also in 2001, and continuing into 2002, solutions based on AXSPoint Exchange and AXS Process Manager were deployed in four customers, allowing for the
interchange and collaboration of corporate content between vendors and suppliers. In March of 2002, AXS-One was awarded AIIM's Enterprise Content Management Best Practice Award for an
AXSPoint-based implementation at Brittany Ferries, a major European passenger and freight carrier, which enabled the rapid reconciliation of travel agent statements. In 2002, the AXSPoint product line
released industry standard web services, based on SOAP and Universal, Description, Discovery and Integration (UDDI) protocols, to further enable content access for both end-user interfaces
as well as enterprise application integration. In April 2002, AXS-One's web services technology was named "Best of AIIM 2002" by CMP Media's Transform Magazine. Also in 2002,
AXSPoint technology was extended to accept additional sources of information such as email.

Partnerships
with systems integrators specializing in Electronic Bill Presentment and Payment (EBPP), Electronic Self-Service (ESS) and document management solutions are
being pursued and supported to establish AXSPoint products as core products used to deliver services to their clients. Software vendors that lack the ability to extend the functionality of their
product are supplied with the ability to present their information on an enterprise basis by leveraging AXSPoint presentation and analysis functions. AXS-One is pursuing opportunities with
web-based companies that require AXSPoint features and functionality as a complement to their business. The likelihood of success of these efforts cannot be determined at this time.

AXS-One Collaboration FrameWorks Solutions

During 2001 and 2002, recognizing that fewer and fewer enterprise ERP decisions were being made, AXS-One shifted development resources to create a new
breed of rapid response, high return on investment (ROI), point solutions calledAXS-One Collaboration FrameWorks Solutionsthat address
many issues confronting companies under pressure to compete effectively with limited budget and personnel resources.

AXS-One
Collaboration FrameWorks solutions allow organizations to improve significantly their business performance in keys areas without the need for replacing existing
systems by plugging process and

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information gaps with point solutions. AXS-One Collaboration FrameWorks solutions are tactical solutions that are designed to be implemented in days or weeks rather than months or years.
The result is very focused projects, with short-term ROIs and without the risks normally associated with typical strategic IT initiatives. AXS-One Collaboration FrameWorks
solutions are deployed over the Internet and are based on a very robust web-services architecture.

These
solutions streamline the way companies do business with their suppliers, customers and trading partners. They provide more rapid access to key business information. New
AXS-One Collaboration FrameWorks solutions address the following business areas:



Architecture

At the heart of AXS-One's e-business solutions are e-Cellerator products, which utilize an open, Internet-ready,
n-tier web-services architecture designed to adapt to new technological innovation and enable organizations to capitalize on these innovations quickly and
cost-effectively. The architecture was created to simplify continuous process re-engineering (CPR) and allow companies to achieve their goals of increased competitiveness and
reduced costs. e-Cellerator products allow AXS-One's business solutions to either be installed on in-house computing resources or to be remotely hosted by
third-party application service providers (ASPs). This in turn leads to rapid implementation times and reduced project risks.

The
e-Cellerator products are Internet-based, process-centric, highly scalable and robust, able to handle the very high levels of transaction volumes and availability
demanded by e-business solutions. These products are built upon web services architecture and promote collaborative business communications. e-Cellerator products have been
designed by AXS-One to enable the design and creation of e-business solutions that connect disparate business processes and legacy systems across the Internet. These products
can access information through a variety of approaches and extract information contained in multiple data sources. Information can be extracted from computer reports, relational databases,
e-mail messages, XML documents, etc. e-Cellerator products can interface to legacy systems through Application Programming Interface (API) calls and multiple messaging
protocols, including XML, and can publish information via e-mails, reports, direct updates, messages, HTML pages or XML documents. AXS-One technology can rapidly extend legacy
applications with modern web services solutions. AXS-One tools can transform various forms of information into a standardized XML and store this information in an XML repository without
the need for retrofitting a company's legacy applications.

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The AXS Desk interface is a technology that sits on a web server and allows a user to access certain functionality of, and information from, AXS-One solutions through an
intuitive, no training, browser interface. The AXS Desk Designer module allows customers to construct and change AXS-One's Java-based applets using an industry standard form
design environment or to design HTML forms using XML style sheets and directly communicate with AXS-One web services components. AXS-One's traditional client/server solutions,
which utilize an ultra-thin Microsoft VB forms-based client, are also available. Any mix of these interfaces may be used in a single implementation.

AXS-One's
e-Cellerator products support relational database management systems (RDBMS) from vendors such as Microsoft Corporation (Microsoft SQL), Oracle
Corporation (Oracle), Sybase, Inc. (Sybase), and Informix Corporation (Informix). AXS-One's solutions run on a variety of UNIX-based application serversSun
Microsystems, Inc. (Sun), Hewlett-Packard Corporation (HP), and International Business Machines Corporation (IBM), as well as Intel-based servers running Windows 2000. Linux is available, but
not deployed.

AXS-One's
solutions are designed to take advantage of diverse configurations and processing capabilities at the customer or hosted site. For example, an AXS-One
installation can be configured to execute discrete application functions (components) on multiple application servers. Additional application servers can be licensed and utilized as users are added.

Extensive Use of Object-Oriented Design Techniques

Since 1990, AXS-One has relied heavily on object-oriented design techniques. The results can be seen throughout the architecture. For example, user
interface controls and display components are treated as objects that can be individually manipulated, customized, and extended by user organizations.

AXS-One
uses the Java programming language as one of the tools to build its e-Cellerator products. However, e-Cellerator products go beyond the
traditional, more technical view of object-oriented design techniques. e-Cellerator products-based solutions are built on an inventory of "business components", or logical decompositions
of discrete business processes. These business components are combined with the AXS Process Manager product to build robust, adaptable business processes.

AXS-One
has adapted these robust business components to a new web services architecture. AXS-One's e-Cellerator architecture is based on the latest
technology, including web services, SOAP, XML, HTTP and other standards. This architecture provides a simple, firewall friendly, easily deployable web services interface. At the same time, this
architecture provides for excellent scalability and reliability through the use of sophisticated resource pooling and request routing techniques.

The
web services infrastructure provides access to both existing and new business process components. These business components provide real time access to system information, and can be
used to process transactions in real time. They are very flexible; in that customer (and caller) defined data sets can be created and managed by the web services.

All
AXS-One web services are based on the industry standard interface definition language (WSDL), and support the SOAP protocol. Therefore, AXS-One web services
are compatible with modern development and deployment environments, such as Microsoft's.Net and Sun's Java 2 Enterprise Edition. This allows customers to use these environments to take advantage of
the AXS-One web services.

The
AXS Process Manager (workflow) and AXSPoint solutions can access and manage information from a variety of sources, including RDBMS systems, XML files, message queue products such as
IBM's MQ-Series, e-mail messages, images, faxes, reports, and other sources.

Using
the e-Cellerator architecture, web services can now be valid information sources. For example, a static report can be enhanced with real time information from a web
service (such as current status, or credit limit) enhancing the business value of that report, without recreating the report.

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The
Company believes that the benefits of a web services-based business component orientation are becoming increasingly apparent. Component-oriented applications tend to be more modular
than those developed with traditional methods, have cleaner interfaces, more shared code, and fewer entry points. Developers work in a simpler development environment that is less prone to error, and
produce applications that are easy to maintain, enhance, and distribute across the network. As a result, end-users get applications that are reliable, manageable, and easy to adapt to
changing business requirements.

N-Tiered Architecture

First-generation client/server systems utilized a two-tier architecture in which presentation and application logic were combined on client
workstations, and data was stored on one or more servers.

In
contrast, AXS-One's architecture has, for many years, separated application functions into multiple logical groupings or tiers. At the heart of AXS-One's
architecture are four tiers: PRESENTATION, PROCESS LOGIC, APPLICATION LOGIC and INFORMATION ACCESS tiers.

AXS-One's
traditional four tiers may themselves be partitioned into multiple physical tiers. For example, it is possible to deploy presentation services across the Internet
or private intranets and extranets, using either the AXS Desk/C module (presentation services on the client only) or the AXS Desk module (presentation services on the client and the web server).
Therefore, it is more appropriate to define the AXS-One architecture asN-Tier.

During
2002, AXS-One continued enhancing its Foundation products by upgrading them to be based on its e-Cellerator technology. The revised architecture differs
from AXS-One's traditional client/server architecture in that it adds a "templates and components" infrastructure deployed in an Internet server tier and re-engineered
components to communicate with a standard XML web services protocol. This provides for an intuitive end user experience, and reduces the need to upgrade and support client software, since use is made
of industry standard browsers. In addition, AXS-One has made significant changes in the application and database tiers to better support high volume Internet transaction traffic.

In
its data access tier, AXS-One is free to exploit the database access mechanism that is most appropriate for that database, and not use a "least common denominator"
solution across RDBMS. AXS-One's RDBMS interfaces are custom coded, and are focused on high function, high reliability, high security, and high performance information access issues.

Customization and Extensibility

With many e-business solutions, customers often require extensive modifications to obtain the capabilities they desire. Some architectures provide
this capability by requiring the customer to modify the product source code. These modifications add complexity and potential instability; there is no guarantee that customized source code versions of
the product will migrate to newer versions. Customers may later find themselves unable to utilize new features or technologies that could provide a competitive advantage.

AXS-One's
e-Cellerator products are designed to avoid this problem by using components that can be customized and extended without modifying the source code,
including:



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Interoperability

AXS-One's e-Cellerator products now contain extensive support for XML-based processing. For example, AXS-One's
traditional Genex interfaces, which provide straightforward techniques for importing and exporting information, have been extended with support for XML interfaces.

AXS-One's
report generation sub-system (Epic) has been extended to provide the ability to create XML reports in addition to standard text based reports. Now, for
example, XML purchase orders can be constructed and sent to a vendor over the Internet.

AXSPoint
solutions can now archive and retrieve XML documents, providing a high performance repository of business information with little effort. Or traditional reports can be converted
into XML documents, creating new uses for existing reports.

AXS-One's
e-Cellerator web services provide the ability to access and update information in batch or real-time using XML messages, allowing the
solutions to be tailored to meet specific customer requirements. Finally, AXS-One Financial and AXS Process Manager solutions can be executed with XML messages, providing the ability to
embed all or part of these solutions in customer systems.

Process Driven

End-to-end process management is becoming increasingly recognized as a critical element in successful e-business solutions.
For years, AXS-One has included with its financial applications a world-class workflow product, now known as AXS Process Manager, as an integral part of its business solutions.
AXS-One's e-business solutions are not merely integrated with workflow; they have been designed and built with a workflow engine.

AXS
Process Manager enables AXS-One e-business solutions to bridge and automate the process void that exists between organizations. Business solutions constructed
with e-Cellerator products are rules based, allow user defined decision processing, manage business processes and documents, and are able to operate across the Internet.

AXS
Process Manager is used to build total web-based business solutions. Since a powerful rules engine is integrated directly into AXS Process Manager, organizations are able
to extend the reach of AXS-One applications to drive all facets of their business. AXS-One will enable companies to build high-performance, production oriented,
end-to-end process systems that directly access line-of-business and horizontal application data sources in batch mode and in real time without
compromising information.

AXS-One
believes that AXS Process Manager is capable of being partitioned to a fine level of granularity, helping organizations increase performance at low cost. It is
capable of being implemented in global environments characterized by high volumes, large user bases, complex conditional routing and extensive exception handling and it is part of the core of our new
self-service solutions.

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Maintaining Security

AXS-One's e-Cellerator products provide multiple levels of security, including ways to define update versus read-only access
within specific transactions. An organization's security hierarchy exists both across systems and within individual applications.

For
information level security, AXS-One's applications support NO ACCESS, READ-ONLY ACCESS and READ-WRITE ACCESS for business documents. This is
defined in a security maintenance function, and uses application-based security schemes. AXS-One's security extends the native security mechanisms built into UNIX or Windows NT, as well as
native RDBMS security on a PER USER, USER GROUP or SYSTEM-WIDE basis.

AXS-One
offers an additional security authorization server, targeted toward self-service and self-deployable applications. Further, since
AXS-One leverages standard web server technologies, standard Internet security schemes, such as SSL and RSA can be used to provide additional transactional security.

AXS-One
Web Services are built on industry standards including XML, SOAP and WSDL. Our Web Services include a full set of proven, pre-built financial services to
assist in billing, collections, payments, etc., for full end-to-end control of business processes. AXS-One Web Services allow applications to share services and
exchange information regardless of operating system, platform, device or interface. Our Web Services provide a robust ticket-based security envelope, modeled on Kerberos authentication protocol, to
control user and application access to services and information.

Client Services

The Company considers its Client Services to be a major asset and key differentiator from other vendors. With its twenty-four hours a day, seven days
a week client support, "Implementation Certainty" methodology, standard and customized training, product certification, and its level of dedicated support, AXS-One has created a client
services program to handle the needs of its customers.

As
of December 31, 2002, the Company had 115 employees worldwide providing customer support, consulting and training services. To maintain a high standard of service, the Company
requests
customer evaluations of service personnel on a quarterly basis. Incentive compensation for these personnel is based, in part, on the results of these reviews. The Company's services are described
below.

Client Support

Support for domestic U.S. clients is based out of the Company's corporate headquarters in Rutherford, New Jersey. Client support centers are also based in
Johannesburg, London, Melbourne, Singapore, and Sydney. Annual maintenance contracts are generally required for the first year of a customer's use of the Company's products, and are renewable on an
annual basis. The maintenance contract entitles the customer to any upgrades to licensed products released during the term of the contract. Maintenance fees vary depending on the hours of
hot-line support requested by the customer, and typically range between 18% and 25% of the license fees.

The
Company also provides management overview and product information bulletins on an ongoing basis and periodic informational updates about installed products. These bulletins generally
answer "commonly asked questions" and provide information about new product features. The Company also provides services for the development of customized documentation about the customer's system to
reflect, among other things, user-defined modifications and specific business logic and processes.

Technical Services

The Company offers assistance in developing interfaces with third party software or legacy systems. These services are designed to enable the development of
additional client-specific functionality, and to

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integrate with other mission critical systems. The Company also provides network troubleshooting and assists its customers in deploying Internet systems, RDBMS software and operating systems.

Consulting Services

The Company's consulting services organization provides project assurance, business systems review, technical design, functional design, business modeling, system
tailoring, system certification, change management and ongoing project support in connection with customer implementation of the Company's products. Similar services are also provided for upgrades to
later versions of the software and migrations to different operating platforms. The Company frequently works with third-party consultants and system integrators to provide customers with a full range
of installation, customization and project management services.

Education Services

The Company provides education services in North America through its Instructional Services group. This group is responsible for the development and delivery of
training courses designed to familiarize users with the Company's products. A course catalog and schedule are provided to the Company's customers describing courses to be delivered at the Company's
facilities throughout the year. In addition to regularly scheduled classroom training, the Company works with its customers to develop tailored training courses for delivery at their site. The group
also provides standard courses at the customer's location. Training courses vary in length from one to five days. Education services are also provided at the Company's international facilities in
Australia, Singapore, South Africa and the United Kingdom.

Strategic Alliances and Business Partner Programs

AXS-One's mission is to be a leading provider of e-business solutions. The solutions offered by the Company's product lines span a myriad
of diverse industries. In order to keep pace with these markets, increase sales and deliver exceptional customer satisfaction, the Company realizes that it must leverage not only its own key resources
but those of recognized "best of breed" providers of consulting and systems integration services, complementary software vendors and platform/technology leaders.

Since
its inception in 1978, the Company has established strategic alliances and relationships with a number of organizations as an integral component of its
go-to-market strategy. The Company believes those relationships are important to the development, sales, marketing, integration, and support of its products. During 2003, the
Company intends to continue to develop its strategic alliances and collaborate with hardware and software vendors, consulting firms, systems integrators and platform/technology firms.

The
Company's relationships with software and hardware vendors, systems integrators and consulting firms may provide marketing and sales leads to the Company's direct sales force and may
expand the distribution of its products across industries through its alliance partners. The Company's strategic alliances and relationships may also assist the Company in keeping pace with the
technological developments of major software and hardware vendors. However, no assurances can be given that these efforts will produce the desired results.

The
Company provides education, technical support and training services to its strategic business partners. The Company is planning new sales and marketing programs in 2003, including a
website and newsletter to find and contact potential new partners.

Product Development

The Company has a dedicated product development and engineering organization and periodically releases new products and enhancements to existing products. Product
development efforts are directed at increasing product functionality, improving product performance, providing support to existing products,

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expanding the capabilities of the products to inter-operate with third-party software and hardware, developing new products and integrating new technologies. In particular, the Company has from time
to time devoted substantial resources to develop additional modules for its products and the capability to support additional platforms, databases, graphical user interfaces (GUIs), toolsets and
emerging technologies. While the Company anticipates that certain new products and enhancements will be developed internally, the Company has in the past and may continue to acquire or license
technology or software from third parties when appropriate.

There
can be no assurance that the Company will be successful in developing and marketing product enhancements or new products that respond to technological change, changes in customer
requirements, or emerging industry standards, or that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of such products
and enhancements, or that any new products or enhancements that it may introduce will achieve market acceptance. The inability of the Company, for technological or other reasons, to develop and
introduce new products or enhancements, in a timely manner, in response to changing customer requirements, technological change or emerging industry standards, would have a material adverse effect on
the Company's business, results of operations and financial condition. See "BusinessRisk Factors."

As
of December 31, 2002, the Company had 64 employees engaged in product development and engineering.

Competition

The e-business software market is intensely competitive and rapidly changing. A number of companies offer products similar to the Company's products
and target the same customers as the Company. The Company believes its ability to compete depends upon many factors within and outside its control, including the timing and market acceptance of new
products and enhancements developed by the Company and its competitors, product functionality, performance, price, reliability, customer service and support, sales and marketing efforts and product
distribution. The Company's AXS-One Enterprise Solutions are positioned in a new, highly dynamic market, with competition from traditional ERP vendors such as the financial applications
software offered by SAP, Oracle Corporation, PeopleSoft, Inc. and others. In addition, many of the traditional ERP software providers have entered the e-business marketplace. In the
web-based procurement market traditional ERP vendors, Ariba and others are in competition with the Procurement Manager Solution. The Company also expects new start-ups to enter
this very large untapped market. The traditional competitors for the Company's client/server version of the AXSPoint Central product are Anacomp, IBM, MicroBank, Mobius and others. The principal
AXSPoint Solutions' competitors in the area of statement presentment include Mobius, Bluegill, Alysis and others. AXSPoint Solutions' competitors for the email and instant message manager product
include Iron Mountain, Legato and ZANTAZ. The principal competition to Tivity products is Lawson, Changepoint and others. See "BusinessRisk Factors."

Intellectual Property

The Company's success is heavily dependent upon its proprietary technologies as well as products from third parties, software vendors, hardware vendors, etc. The
Company regards its software as proprietary, and relies primarily on a combination of contractual provisions and trade secrets, copyright and trademark law to protect its proprietary rights. The
Company has no patents or patent applications pending, and existing trade secrets and copyright laws afford only limited protection. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products
is difficult, and while the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. The Company makes its
source code available to certain of its customers, which may increase the

20

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likelihood of misappropriation or other misuse of the Company's software. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent, as do the
laws of the United States. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the Company's technologies.

The
Company does not believe that any of its products, trademarks or other proprietary rights infringe the proprietary rights of third parties. However, there can be no assurance that
third parties will not assert infringement claims against the Company in the future with respect to current or future products. As the number of software products in the industry increases and the
functionality of these products further overlap, the Company believes that software developers may become increasingly subject to infringement claims. In addition, the e-business field has
seen an increase in the number of "business method" patents issued, and infringement claims asserted based on such patents. Any such claims, with or without merit, can be time consuming and expensive
to defend, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty and license agreements, if required, may not be available on terms
acceptable to the Company, or at all, which could have a material adverse effect on the Company's business, results of operations and financial condition.

The
Company also licenses software from third parties which is incorporated into its products. These licenses expire from time to time. In addition, the Company generally does not have
access to source code for the software supplied by these third parties. Certain of these third parties are small companies that do not have extensive financial and technical resources. If any of these
relationships were to be terminated for any reason or if any of these third parties were to cease doing business, the Company may be forced to expend significant time and development resources to
replace the licensed software. There can be no assurance that critical third party software could in fact be replaced on a timely or
cost effective basis. Such an event would have a material adverse effect upon the Company's business, results of operations and financial condition.

The
Company has obtained Federal registrations for its trademarks "AXS One®," the distinctive AXS-One logo, "Access Tomorrow Today®,"
"AXSPoint®," "TransAXS®," "Computron®," and "Yorvik®." In addition, the Company has certain U.S. common law rights, and rights under foreign laws in
relation to its trademarks, service marks and product names. Although the Company believes that the trademarks and service marks it uses are distinct, there can be no assurance that the Company will
be able to register or protect such trademarks and service marks. See "BusinessRisk Factors."

Employees

As of December 31, 2002, the Company had 254 full-time employees, 174 within the United States and 80 outside the United States, including 64
in product development and engineering, 115 in customer service and support, 33 in sales and marketing, 37 in finance, administration and executive management and 5 in Hospitality Warehouse. The
Company's employees are not covered by any collective bargaining agreements. The Company believes that its relations with its employees are good.

Risk Factors

We have a history of net losses.

Though AXS-One generated revenues and reduced costs sufficient to be profitable in 2002, we may not be able to sustain or increase profitability on a
quarterly or annual basis in the future. AXS-One incurred net losses of $0.3 million for 2000 and $4.7 million 2001 and generated net income of $1.9 million during the
year ended December 31, 2002. As of December 31, 2002, we had an accumulated deficit of $78.8 million.

21

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AXS-One's
quarterly operating results may fluctuate as a result of various factors inherent in our business that may cause the market price of our common stock to fall.
Additionally, our business has and will continue to experience significant seasonality.

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



Additionally,
clients' licensing of our products is often delayed because



Because
of these reasons, as well as others, our products' sales cycles are typically lengthy and subject to a number of significant risks over which we often have little or no control
which include a customer's budgetary constraints and internal authorization reviews.

Historically,
AXS-One has operated with little backlog, since products are generally shipped as we receive orders. Because our license fees in any quarter substantially
depend on orders booked and shipped in the last month, and often during the last week, of a given quarter, we typically recognize a substantial portion of our revenues in the last month of a quarter,
frequently concentrated in the last week of the quarter.

Delays
in the timing of when we recognize specific revenues may adversely and disproportionately affect our operating results because



Because
of these factors, we believe that period-to-period comparisons of our operating results are not necessarily meaningful and no one should rely on
quarter-to-quarter comparisons of our operating results to indicate our future performance.

22

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Additionally,
our business has experienced, and we expect to continue to experience, significant seasonality, due, in part, to our customers' buying patterns, caused primarily by:



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

Because
of all of these factors, in future quarters, our operating results may be significantly lower than the estimates of public market analysts and investors. Any discrepancy could
cause the price of our common stock to be quite volatile and to decline significantly. We cannot assure anyone that we will be profitable in any future quarter.

The electronic commerce software market is intensely competitive.

AXS-One cannot assure anyone that we will be able to compete successfully against current or future competitors or that competitive pressures will not
have a material adverse effect on our business, operating results and financial condition. The electronic commerce software market is intensely competitive and is changing rapidly. A number of
companies offer products similar to ours and target the same customers. We believe that our ability to compete depends upon many factors, many of which are not in our control, including, among others,



AXS-One
solutions are positioned in a highly dynamic market, with competition from traditional ERP vendors such as the financial applications software offered by SAP, Oracle
Corporation, PeopleSoft, Inc. and others. Additionally, many traditional enterprise resource planning software providers have entered into the e-business marketplace.

Most
of our competitors are substantially larger than us, and have significantly greater financial, technical and marketing resources, and extensive direct and indirect distributing
channels. As a result, our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to developing, promoting
and selling their products than we can. Our products also compete with those offered by other vendors, and with proprietary software developed by third-party professional service organizations, as
well as by potential customers' management information systems departments.

We
expect established and emerging companies to compete with us, as the electronic commerce software market continues to develop and expand, due to the relatively low barriers necessary
to enter the software market. We expect that competition will also increase as the software industry consolidates. Furthermore, we cannot assure anyone that any of the companies with whom we currently
have relationships, many of which may have significantly greater financial and marketing resources than we do, will not, in the future, develop or market software products that compete with our
products, or discontinue their relationship or support of us.

23

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Additionally, our current and potential competitors have established, or may establish in the future, cooperative relationships among themselves or with third parties to increase their
products' ability to address the needs of our prospective customers. Therefore, new competitors or alliances among competitors could emerge and rapidly acquire a significant market share. Increased
competition is likely to result in



Any
of these factors would adversely affect our business, our operating results and financial condition.

AXS-One depends on its principal products for its revenues.

Substantially all of our revenues are derived from licensing and fees from related services of



We
expect that these products and services will continue to account for substantially all of our revenues during 2003. Accordingly, our future operating results will depend, in part, on



During
2002, certain customers did not renew their annual maintenance, primarily due to our customers being acquired or merged with companies using other software. We cannot assure
anyone that this trend will not continue or that we will be able to maintain our existing customers.

Additionally,
during 2003, our AXS-One Enterprise Solutions, AXSPoint Solutions and Tivity Solutions each need to gain greater market acceptance. If



Any
of these factors could have a material adverse affect on our business, operating results and financial condition.

AXS-One's market is characterized by new products frequently being introduced, rapid technology changes, product defect risks, and development
delays.

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

The
electronic commerce software market is characterized by



24

---



Our
software performance, customization, reporting capabilities, or other business objectives may or may not be affected by these changes and may or may not render us incapable of
meeting future customer software demands. Introducing products embodying new technologies and emerging new industry standards can render existing products obsolete and unmarketable. Accordingly, it is
difficult to estimate our products' life cycles. Our future success will depend in part on our ability to maintain our client/server products and to develop and introduce new e-business
products that respond to evolving customer requirements and keep pace with technological development and emerging industry standards, such as new



We
cannot assure anyone that



Software
products as complex as those we offer often encounter development delays and, when introduced or when new versions are released, may contain undetected errors or may simply
fail. These delays, errors or failures create a risk that the software will not operate correctly and could cause our future operating results to fall short of expectations published by certain public
market financial analysts or others. From time to time, we develop products that are intended to be compatible with various new computer operating systems, although we make no assurances that we will
successfully develop software products that will be compatible with additional operating systems or that will perform as we intend. Additionally, our products, technologies and our business in general
rely upon third-party products from various sources including, among others,



In
the future, it is unclear whether our dependence upon these third-party products will affect our ability to support or make our products readily available. In the past, we have
experienced delays by third parties who develop software that our products depend upon. These holdups have resulted in delays in developing and shipping our products. Despite testing by our current
and potential customers, as well as by us, errors may be found in new products or enhancements after we ship them that can delay or adversely affect market acceptance. We cannot assure anyone that any
of these problems would not adversely affect our business, operating results and financial condition.

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

On
March 28, 2002, the American Stock Exchange notified us that we were not in compliance with their continued listing requirements due to our continuing losses and our
stockholders' deficit. On or about June 17, 2002, the American Stock Exchange accepted the plan we had submitted on April 30, 2002 for

25

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regaining compliance with their listing requirements by no later than March 31, 2003 and informed us that they would continue the listing of our common stock at least until that date, so long
as we continued to demonstrate satisfactory progress toward implementing that plan. We are currently in discussions with the Exchange with respect to our compliance with the listing requirements and
expect a decision from the Exchange within 30-45 days after the filing of this Annual Report with the SEC. Such a decision could take the form of a finding that we are in compliance
with the listing requirements, granting us an extension to achieve such compliance, a de-listing of our company or such other action. If our common stock were to be de-listed
by the American Stock Exchange, we might be unable to list our common stock with another stock exchange. In that event, trading of our common stock might be limited to the OTC Bulletin Board or
similar quotation system.

Inclusion
of our common stock on the OTC Bulletin Board or similar quotation system could adversely affect the liquidity and price of our common stock and make it more difficult for
AXS-One to raise additional capital on favorable terms, if at all. In addition, de-listing by the American Stock Exchange might negatively impact AXS-One's
reputation and, as a consequence, its business.

AXS-One depends upon its proprietary technology and if we were unable to protect our technology, our competitive position would be adversely
affected.

We
believe that our success greatly depends on our proprietary technology and software. We rely primarily on a combination of trademark and copyright law, trade secret protection and
contractual agreements with our employees, customers, partners and others to protect our proprietary rights. Despite our efforts to protect our proprietary rights, unauthorized third parties may
attempt to copy all or part of our products or reverse engineer or obtain and use information that we regard as proprietary. Additionally, the laws of some foreign countries do not protect our
proprietary rights to the same extent, as do the laws of the United States. We cannot assure anyone that the steps we take to protect our proprietary rights will be adequate or that our competitors
will not independently develop technologies that are substantially equivalent or superior to ours.

Our products may become subject to infringement claims.

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

A security breach could harm our business.

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

A variety of risks associated with AXS-One's international operations could adversely affect its business.

We
believe that our continued growth and profitability will require AXS-One to expand its sales in international markets, which require significant management attention and
financial resources. We cannot

26

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assure anyone, however, that we will be able to maintain or increase international market demand for our products and services.

The
information below shows the effects of the sale of the Company's Central and Eastern Europe (C.E.E.) subsidiary during 2001, upon revenues from our foreign customers. In 2000, 2001
and 2002 the Company's total revenues from customers outside the United States were as follows:

Customers Outside the United
States (including C.E.E.)

Customers Outside the United
States (excluding C.E.E.)Year$ Amount

Percentage

$ Amount

Percentage2000

$
17.6 million

34.8
%
$
15.6 million

32.1%2001

$
13.9 million

33.8
%
$
12.5 million

31.5%2002

$
11.5 million

30.8
%
$
11.5 million

30.8%


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



Any
of these factors, or others, could adversely affect our future international revenues and consequently, our business, operating results and financial condition.

Our operating results may be adversely affected by devaluation and currency risks.

Most
of our international license fees and service revenues are denominated in foreign currencies. Decreases in foreign currency values relative to the U.S. dollar could result in losses
to us from foreign currency translations. Currently, we do not hedge against foreign currency exchange risks but in the future we may commence hedging against specific foreign currency transaction
risks. We may be unable to hedge all our exchange rate exposure economically, and exchange rate fluctuations may have a negative effect on our ability to meet our obligations. For those international
sales that are U.S. dollar-denominated, any decreases in the value of foreign currencies relative to the U.S. dollar could make our products less price competitive.

We rely on certain third-party relationships.

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



27

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These
relationships assist our product development process, and assist us in marketing, servicing and implementing our products. A number of these relationships are not memorialized in formal written
agreements.

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

AXS-One's executive officers, directors and affiliates own a controlling amount of its common stock.

This
control may prevent or discourage tender offers for our common stock unless these controlling stockholders approve the terms of any such offers. As of March 14, 2003,
AXS-One's executive officers, directors and affiliates together beneficially own approximately 45.5% of our outstanding common
stock. As a result, these stockholders are able to exercise control over matters requiring stockholder approval including:



AXS-One relies on its key personnel and may have difficulty attracting and retaining the skilled employees it needs to operate successfully.

AXS-One's
future success will depend, in large part, on the continued service of its key executives, and if we fail to attract and maintain those executives, the quality of
our products, our business, financial condition and operating results could suffer. AXS-One has experienced turn over of its key executives in the past. In 2000, Michael Jorgensen assumed
responsibility for North American Sales in the AXS-One Enterprise Division and maintained that position until June 2001 when he was named Executive Vice President and Chief
Administrative Officer of the Company. Mr. Jorgensen left AXS-One in January of 2003. William Levering was named to replace Mr. Jorgensen as Chief Financial Officer, in
March 2001. In January 2001, Dennis Piccininni joined the Company as President of the Tivity Division, and Nat Bosco joined the Company as Vice President and General Manager of
AXS-Point Solutions. In June 2001, Mr. Piccininni was named Vice President of North America Sales and Marketing and Mr. Bosco was named Vice President, Implementation
and Custom Development Services in addition to his position in the AXSPoint organization. Mr. Bosco left the Company in July of 2002 and Mr. Piccininni left in January of 2003.
Mr. Gennaro Vendome assumed their responsibilities in addition to his prior responsibility for strategic sales. In February 2002, Thomas Manobianco re-joined
AXS-One as Vice President of Professional Services assuming responsibility for implementation and custom development services. We cannot assure anyone that turnover of our key executives
will not continue, and that such turnover would not adversely affect our business, operating results and financial condition.

We
also believe that our future success will depend, in large part, on our ability to attract, retain and motivate highly skilled employees, and, particularly, technical, management,
sales and marketing personnel. Competition for qualified employees in our industry is intense. AXS-One has from time to time in the past experienced, and expects to continue experiencing,
difficulty in hiring and retaining employees with appropriate qualifications. We cannot assure anyone that we will be able to retain our employees or attract or retain highly qualified employees to
develop, market, service and support our products and conduct our operations.

AXS-One's common stock's trading price may be volatile for reasons over which it may have little control.

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

28

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

AXS-One has never paid or declared dividends and does not expect to in the foreseeable future.

AXS-One
has never paid or declared any cash dividends and it does not expect to pay any cash dividends in the foreseeable future. We currently intend that future earnings, if
any, will be retained for business use.

Directors, Executive Officers and Key Management Employees

The current directors, executive officers and key management employees of the Company as of March 7, 2003, are as follows:

|Name                    |  | Age |  | Position                                                                              
|----------------------- |  | --- |  | --------------------------------------------------------------------------------------
|John A. Rade            |  | 68  |  | President, Chief Executive Officer, and Director                                      
|Elias Typaldos          |  | 52  |  | Executive Vice President, Technology and Business Operations and Chairman of the Board
|Gennaro Vendome         |  | 56  |  | Executive Vice President Sales, Marketing & Consulting, North America and Director    
|Paul Abel               |  | 49  |  | Vice President, Secretary and General Counsel                                         
|William G. Levering III |  | 42  |  | Vice President, Chief Financial Officer and Treasurer                                 
|Nancy J. Turner         |  | 44  |  | Vice President, Global Services                                                       
|Thomas V. Manobianco    |  | 46  |  | Vice President, Professional Services, North America                                  
|Daniel H. Burch(1)      |  | 51  |  | Director                                                                              
|Robert Migliorino(2)    |  | 53  |  | Director                                                                              
|William E. Vogel(1)     |  | 65  |  | Director                                                                              
|Edwin T. Brondo(2)      |  | 55  |  | Director                                                                              
|Allan Weingarten(1)     |  | 65  |  | Director                                                                              

---

John A. Radejoined the Company as a Director, President and Chief Executive Officer in February 1997. Prior to joining the
Company, Mr. Rade, was from April 1995, a Vice President of American Management Systems, Inc., and was also still active at S-Cubed International (now named Mergence
Technology Corporation), a company in the client server system development and consulting

29

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market, which he founded in February 1990. Prior to this he held senior executive positions with Information Science, Inc., Cap Gemini and Computer Sciences Corporation.

Elias Typaldos, a founder of the Company, has been Senior Vice President, Research and Development and a director since the Company's
formation in 1978, and Chairman of the Board since March 1997. In April 2002, Mr. Typaldos was named Executive Vice President, Technology and Business Operations.

Gennaro Vendome, a founder of the Company, has been a Vice President and director since the Company's formation in 1978. In
April 2002, Mr. Vendome was named Executive Vice President of Sales, Marketing and Consulting for North America. Mr. Vendome also served as Treasurer of the Company from 1981
until 1991 and Secretary of the Company from 1982 until 1991.

Paul Abeljoined the Company in April 1997 as Secretary and Corporate Counsel and was promoted to Vice President, Secretary and
General Counsel in June 1998. From October 1996 to March 1997, Mr. Abel served as Project Manager for Charles River Computers, an IT systems integrator. From 1983 to
September 1996, Mr. Abel was an attorney with Matsushita Electric Corporation of America, an electronic products manufacturer/distributor.

William G. Levering IIIjoined the Company as Revenue Controller in June 1996, was promoted to Corporate Controller in
February 1997, Vice President, Corporate Controller in July 1998, and became Vice President, Chief Financial Officer and Treasurer on March 2, 2001. Prior to joining the Company,
Mr. Levering was a Senior Manager with the international accounting firm of KPMG LLP. Mr. Levering was employed by KPMG LLP from August 1982 to June 1996 and is a Certified
Public Accountant.

Nancy J. Turnerjoined the Company in September 1997. In December 2000, Ms. Turner assumed leadership of the
AXS-One Global Services Team, which provides the services and infrastructure to support the efforts of local operations around the world. Prior to that, Ms. Turner served as
AXS-One's Vice President of Knowledge Systems, Director of Documentation and Training, Assistant to the President for International Operations, and Director of the Year 2000 office. Before
joining the Company, Ms. Turner's assignments included Unit Delivery manager for the New Jersey unit of Cap Gemini, and various client services roles at ADP.

Thomas V. Manobiancorejoined the Company in February 2002 as the Vice President of Professional Services for North America. Prior
to rejoining the Company he was Vice President of Global Services for StorageApps, a technology start-up enterprise in the data storage industry. Mr. Manobianco held positions as
Vice President and Director of Professional Services for AXS-One from January 1995 to July 2000. From January 1989 to January 1995, he was a Senior Manager
within Accenture's Systems Integration practice.

Daniel H. Burchhas been a director since October 1999. Mr. Burch is the Chairman of the Board, Chief Executive Officer and
founder of MacKenzie Partners, Inc., a proxy solicitation and mergers and acquisitions firm. From January 1990 to the founding of MacKenzie Partners in February 1992,
Mr. Burch was Executive Vice President at Dewe Rogerson & Company, an investor and public relations firm.

Robert Migliorinohas been a director since 1991. As of January 1, 2002, Mr. Migliorino is a Managing Director and founding
partner of W. Capital Management LLC, a private equity investment firm. Prior to W. Capital he was a founding partner of the venture capital partnership Canaan Partners, which through its affiliates
was until early 2000 a principal stockholder of the Company. Prior to establishing Canaan Partners in 1987, he spent 15 years with General Electric Co. in their Drive Systems, Industrial
Control, Power Delivery, Information Services and Venture Capital businesses.

William E. Vogelhas been a director since August 1996. Mr. Vogel is currently retired. From 1971 to October 2002,
Mr. Vogel was Chief Executive Officer of Centennial Financial Group, Inc., which is in the health insurance business. He was also the Chief Executive Officer of W.S. Vogel
Agency, Inc., a life

30

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insurance brokerage general agency, from 1961. From November 2000 to October 2002, Mr. Vogel was an employee and Executive Sales Manager for Benefitmall.com.

Edwin T. Brondohas been a director since May 1997. Mr. Brondo is currently retired. From August 1998 to
August 2000 he was Executive Vice President and Chief Financial Officer of e-Vantage Solutions, Inc. (formerly called Elligent Consulting Group, Inc.), a technology
consulting company. e-Vantage Solutions may be deemed to be an affiliate of the Company by virtue of the relationship of e-Vantage Solutions with a major stockholder of the
Company. Mr. Brondo was Chief Administrative Officer and Senior Vice President of First Albany Companies, Inc., an investment banking firm, from June 1993 until
December 1997.

Allan Weingartenhas been a director since October 2000. Mr. Weingarten is currently Senior Vice President, Chief Financial
Officer of U.S. Industries, Inc., a manufacturer of home and building products. He is also a director of Programmers Paradise, Inc. After his retirement in 1995 as a Senior Partner at
Ernst and Young, LLP, and until January 2001, he was a private investor and independent business consultant.

Each
of the Directors shall be subject to re-election at the 2003 Annual Stockholders meeting.

Item 2. Properties

Facilities

The Company's corporate headquarters are located in Rutherford, New Jersey in leased facilities consisting of 48,800 square feet of office space occupied under a
lease expiring in December 2012 with an option to renew the lease for one additional five-year period. AXS-One has the right to cancel the lease in 2007 without penalty.
The Company leases additional facilities and offices, including facilities located in Rockwall, Texas and Mississauga, Canada. The Company also leases sales and support offices outside of North
America in Australia, Singapore, South Africa and the United Kingdom. While the Company believes that its facilities are adequate for its present needs, the Company periodically reviews its needs. The
Company believes that additional space, if needed, would be available on commercially reasonable terms.

Item 3. Legal Proceedings

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

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of 2002.

31

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PART II

Item 5.Market for the Registrant's Common Equity and Related Stockholder Matters

The Company's Common Stock currently trades on the American Stock Exchange under the symbol "AXO."

The
following table lists the high and low sales prices for the periods set forth below:

Period

High

Low2001First quarter

$
1.75

$
0.50Second quarter


0.70


0.35Third quarter


0.50


0.15Fourth quarter


0.55


0.212002First quarter

$
1.49

$
0.45Second quarter


1.23


0.44Third quarter


0.69


0.36Fourth quarter


0.81


0.40


As
of March 14, 2003 the approximate number of record holders of the Company's Common Stock was 676.

The
Company has never paid cash dividends on its capital stock. The Company currently intends to retain any earnings for use in its business and does not anticipate paying any cash
dividends in the foreseeable future.

Item 6. Selected Consolidated Financial Data

The selected consolidated financial data set forth below for the years ended December 31, 1998, 1999, 2000, 2001 and 2002 have been derived from the
audited consolidated financial statements of the Company. The consolidated statement of operations data for the years ended December 31, 2000, 2001 and 2002, and the consolidated balance sheet
data as of December 31, 2001 and 2002 are derived from, and are qualified by reference to, the audited consolidated financial statements and the related notes thereto included elsewhere in this
report. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company and related notes thereto included elsewhere in this report.

32

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|                                                                           |                                                        | Years Ended December 31, |       
|-------------------------------------------------------------------------- | ------------------------------------------------------ | ------------------------ | ------
|
|
|Statement of Operations Data:(1)(2)                                        |                                                        |                          |       
|Revenues:                                                                  |                                                        |                          |       
|                                                                           | License fees                                           |                          | $     
|                                                                           | Services(3)                                            |                          |       
|                                                                           | Other-related parties                                  |                          |       
|                                                                           |                                                        |                          |       
|                                                                           |                                                        | Total revenues           |       
|Operating expenses:                                                        |                                                        |                          |       
|                                                                           | Cost of license fees                                   |                          |       
|                                                                           | Cost of services(3)                                    |                          |       
|                                                                           | Sales and marketing                                    |                          |       
|                                                                           | Research and development                               |                          |       
|                                                                           | General and administrative                             |                          |       
|                                                                           | Goodwill impairment                                    |                          |       
|                                                                           | Restructuring costs                                    |                          |       
|                                                                           |                                                        |                          |       
|                                                                           |                                                        | Total operating expenses |       
|                                                                           |                                                        |                          |       
|Operating income (loss)                                                    |                                                        |                          | (8,841
|Other expense:                                                             |                                                        |                          |       
|                                                                           | Costs related to settlement of class action litigation |                          |       
|                                                                           | Loss on sales of subsidiaries                          |                          |       
|                                                                           | Equity in losses in joint ventures                     |                          |       
|                                                                           | Other, net                                             |                          |       
|                                                                           |                                                        |                          |       
|                                                                           |                                                        | Total other expense      |       
|                                                                           |                                                        |                          |       
|Income (loss) before income tax (provision) benefit and extraordinary item |                                                        |                          | (9,031
|Income tax (provision) benefit                                             |                                                        |                          | (12   
|                                                                           |                                                        |                          |       
|Income (loss) before extraordinary item                                    |                                                        |                          | (9,043
|Extraordinary loss on modification of debt                                 |                                                        |                          |      
|                                                                           |                                                        |                          |       
|                                                                           |                                                        | Net income (loss)        |       
|                                                                           |                                                        |                          |       
|Basic and diluted net income (loss) per common share                       |                                                        | $                        | (0.38 
|                                                                           |                                                        |                          |       
|Weighted average basic common shares outstanding                           |                                                        |                          | 23,963
|                                                                           |                                                        |                          |       
|Weighted average diluted common shares outstanding                         |                                                        |                          | 23,963
|                                                                           |                                                        |                          |       

|                                                                      |  | As of December 31, |       
|--------------------------------------------------------------------- |  | ------------------ | ------
|
|
|Balance Sheet Data:(1)(2)                                             |  |                    |       
|Cash and cash equivalents, short-term investments and restricted cash |  | $                  | 8,865 
|Working capital deficiency                                            |  |                    | (6,317
|Total assets                                                          |  |                    | 28,517
|Deferred revenue                                                      |  |                    | 9,558 
|Total long-term debt                                                  |  |                    | 2,229 
|Total stockholders' deficit                                           |  |                    | (2,375

---

33

---

Item 7. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations

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

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

Overview

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

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

We
have approximately 254 full-time employees in offices worldwide, including Asia, Australia, Canada, the United Kingdom, the United States and South Africa.
AXS-One Inc. was founded in 1978, and is based in Rutherford, New Jersey.

In
September 2001, we sold our wholly owned subsidiary located in Central and Eastern Europe, including offices in Poland, Estonia and Bulgaria. See below for the impact of the
divestiture of the Central and Eastern Europe subsidiary.

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

We
incurred net losses of $0.3 million and $4.7 million in 2000 and 2001, respectively, and generated net income of $1.9 million in 2002. We incurred operating
losses of $0.2 million and $4.1 million in 2000

34

---

and 2001, respectively and generated operating income of $2.8 million in 2002. Operating losses incurred by the Central and Eastern Europe subsidiary, which was sold in 2001, totaled
$0.6 million and $0.3 million in 2000 and 2001, respectively.

Recently Issued Accounting Standards

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (SFAS 144) "Accounting for the Impairment or Disposal of
Long-Lived Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." The adoption of SFAS 144 was required beginning
January 1, 2002. The adoption of SFAS No. 144 on January 1, 2002 did not have a material effect on our consolidated financial position or results of operations.

In
November 2001, the FASB Emerging Issues Task Force (EITF) reached a consensus to issue a FASB Staff Announcement Topic No. D-103
(re-characterized in January 2002 as EITF Issue No. 01-14), "Income Statement Characterization of Reimbursement Received for
'Out-of-Pocket' Expenses Incurred" which clarifies that reimbursements received for out-of-pocket expenses incurred should be characterized as revenue
in the consolidated statement of operations. This consensus was effective for financial reporting periods beginning after December 15, 2001. Upon application of this consensus, comparative
financial statements for prior periods should be reclassified to comply with the guidance in this consensus. The adoption of this consensus on January 1, 2002 resulted in an increase to
previously reported services revenue and cost of services of $1.8 million and $1.2 million for the years ended December 31, 2000 and 2001, respectively. There was no effect on
either our consolidated operating income (loss) or net income (loss).

In
July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 nullifies EITF Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)" ("EITF 94-3") and requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value in the period in
which the liability is incurred. Under EITF 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. The application of SFAS 146 is
expected to result in delayed recognition for certain types of costs as compared to the provisions of EITF 94-3. SFAS 146 is effective for new exit or disposal activities that are
initiated after December 31, 2002, and does not affect amounts currently reported in our consolidated financial statements. SFAS 146 will affect the types and timing of costs included in
future restructuring programs, if any, but is not expected to have a material impact on our consolidated financial position or results of operations.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." This statement amends SFAS No. 123, "Accounting
for Stock-based Compensation," to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based compensation. It also
amends the disclosure provisions of SFAS 123 to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based
employee compensation. Finally, this statement amends APB Opinion No. 28, "Interim Financial Reporting," to require disclosure about those effects in interim financial information. SFAS
No. 148 is effective for financial statements for fiscal years ending after December 15, 2002. We have elected to continue to follow the disclosure-only provisions of SFAS
No. 123 which require disclosure of the pro forma effects on net income (loss) and basic and diluted net income (loss) per common share as if the fair value method of accounting prescribed by
SFAS No. 123 had been adopted, as well as certain other information (see Notes 1 and 7 to the Consolidated Financial Statements).

35

---

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

Euro Currency

On January 1, 1999, certain countries of the European Union established fixed conversion rates between their existing currencies and one common currency,
the Euro. The Euro then began to trade on currency exchanges and to be used in business transactions. Beginning in January 2002, new
Euro-denominated currencies were issued. The existing local currencies were withdrawn from circulation by July 1, 2002. We derived approximately 34.8%, 33.8% and 30.8% in 2000, 2001
and 2002, respectively, of our total revenues outside the United States, a significant portion of which is in Europe. Excluding our Central and Eastern Europe subsidiary, which was sold in 2001 (see
Note 2 to the Consolidated Financial Statements), we derived 32.1%, 31.5% and 30.8% of our revenue from outside the United States in 2000, 2001 and 2002, respectively. The Euro conversion did
not have a material effect on our consolidated financial position or results of operations.

36

---



Results of Operations

The following tables set forth for the periods indicated, certain operating data, and data as a percentage of total revenues, both including and excluding the
Central and Eastern Europe (C.E.E.) subsidiary (including offices in Poland, Bulgaria and Estonia) sold in 2001.

Year Ended December 31, 2000Total
Consolidated

C.E.E.

Excluding
C.E.E.

Data as a
percent of
revenueRevenues:License fees

$
8.8

$
0.6

$
8.2

16.9
%Services


41.8


1.4


40.4

83.1Total revenues


50.6


2.0


48.6

100.0Operating expenses:Cost of license fees


1.2





1.2

2.4Cost of services


22.8


1.0


21.8

44.9Sales and marketing


10.6


0.5


10.1

20.8Research and development


6.9





6.9

14.2General and adminstrative


9.3


1.1


8.2

16.9Total operating expenses


50.8


2.6


48.2

99.2Operating income (loss)


(0.2
)

(0.6
)

0.4

0.8Other expense, net


(0.4
)




(0.4
)
(0.8
)Loss before income tax benefit


(0.6
)

(0.6
)



Income tax benefit


0.3





0.3

0.6Net income (loss)

$
(0.3
)
$
(0.6
)
$
0.3

0.6
%


|                                        |                                    | Year Ended December 31, 2001 |      | Year Ended
December 31, 2002 |     
|--------------------------------------- | ---------------------------------- | ---------------------------- | ---- | ---------------------------- | ----
|
|Revenues:                               |                                    |                              |      |                              |     
|                                        | License fees                       |                              | $    | 5.4                          |     
|                                        | Services                           |                              |      | 35.3                         |     
|                                        | Otherrelated parties              |                              |      | 0.5                          |     
|                                        |                                    |                              |      |                              |     
|                                        |                                    | Total revenues               |      |                              | 41.2
|                                        |                                    |                              |      |                              |     
|Operating expenses:                     |                                    |                              |      |                              |     
|                                        | Cost of license fees               |                              |      | 1.4                          |     
|                                        | Cost of services                   |                              |      | 18.4                         |     
|                                        | Sales and marketing                |                              |      | 9.5                          |     
|                                        | Research and development           |                              |      | 7.0                          |     
|                                        | General and administrative         |                              |      | 8.3                          |     
|                                        | Restructuring costs                |                              |      | 0.8                          |     
|                                        |                                    |                              |      |                              |     
|                                        |                                    | Total operating expenses     |      |                              | 45.4
|                                        |                                    |                              |      |                              |     
|Operating income (loss)                 |                                    |                              | (4.2 | )                            |     
|                                        |                                    |                              |      |                              |     
|Other expense:                          |                                    |                              |      |                              |     
|                                        | Equity in losses of joint ventures |                              |      | (0.1                         | )   
|                                        | Other expense, net                 |                              |      | (0.6                         | )   
|                                        |                                    |                              |      |                              |     
|                                        |                                    | Other expense, net           |      |                              | (0.7
|                                        |                                    |                              |      |                              |     
|Income (loss) before income tax benefit |                                    |                              | (4.9 | )                            |     
|Income tax benefit                      |                                    |                              | 0.2  |                              |     
|                                        |                                    |                              |      |                              |     
|Net income (loss)                       |                                    | $                            | (4.7 | )                            | $   
|                                        |                                    |                              |      |                              |     

37

---

Sale of Subsidiary

On September 20, 2001, we sold our wholly owned subsidiary located in Central and Eastern Europe (C.E.E.), which included offices in Poland, Estonia and
Bulgaria. We recorded a deferred gain of approximately $253,000 in connection with the sale (see Note 2 to the Consolidated Financial Statements).

Revenues
for the subsidiary in C.E.E. in 2000 and 2001 were $2.0 million and $1.4 million, respectively, or 4.0% and 3.4%, respectively, of total revenues. Revenues for
2001 included revenues through August 31 for C.E.E.

Results of Operations

The following discussions relate to changes in the results of operations, excluding C.E.E., for the three years presented in the results of operations tables.

Total Revenues

Our revenues are derived mainly from license fees and services. Total revenues decreased from $48.6 million in 2000 to $39.8 million in 2001 to
$37.3 million in 2002. This represents a decrease of 18.1% from 2000 to 2001 and 6.3% from 2001 to 2002. Total revenues for 2002 included $4.5 million or 12.0% of total revenues from AIG
Insurance and $6.0 million or 16.1% from Pfizer Inc. Total revenues for 2001 included $5.0 million or 12.6% of total revenues from one customer, Pfizer Inc. No one customer
represented more than 10% of total revenues in 2000. Total revenues in 2001 and 2002 decreased from the respective prior years as a result of a decrease in both service revenues and license revenues.
The decrease in both years is mainly attributable to the continued slow down in the economy in the United States and foreign markets, the effects of which are being felt throughout the software
industry, and increased competition, particularly in the services industry.

Our
future ability to grow revenue will be directly affected by increased price competition and an increasingly higher maintenance revenue base from which to grow. Our growth rate and
total revenue depend significantly on future upgrades for existing customers as well as our ability to respond successfully to the pace of technological change and to expand our customer base. If our
renewal rate or pace of new customer acquisition slows, our revenues and operating results would be adversely affected.

We
derived approximately $15.6 million, $12.5 million and $11.5 million or 32.1%, 31.5% and 30.8% of our total revenues from customers outside of the United States
in 2000, 2001 and 2002, respectively. We expect that revenues from customers outside the United States 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.

Risks
inherent in international revenue include the impact of longer payment cycles, greater difficulty in accounts receivable collection, unexpected changes in regulatory requirements,
tariffs and other trade barriers, and difficulties staffing and managing foreign operations. With respect to our international sales that are U.S. dollar denominated, decreases in the value of foreign
currencies relative to the U.S.
dollar could make our products less price competitive. These factors may have a material adverse effect on our future international revenue.

License Fees

License fees include revenues from software license agreements entered into between AXS-One and our customers with respect to both our products and,
to a lesser degree, third party products resold by AXS-One. License fees decreased $3.0 million or 36.6% from 2000 to 2001 and $1.3 million or 25.0% from 2001 to 2002.
License revenues in 2002 included license revenue of $0.6 million from one customer, JPMorgan Chase, or 14.7% of total license revenues for the year. License revenues in 2001 included license
revenue of $1.4 million from one customer, Deutsche Bank, or 27.3% of total license revenues for

38

---

the year. License revenues in 2000 included license revenue of $1.1 million from Pfizer Inc. and $1.4 million from MWR Support Activity or a combined 30.5% of total license
revenues for the year. The decrease in license revenue in 2001 was mainly attributable to general market conditions resulting in customers delaying or foregoing large purchases to control expenses and
competition from other software vendors in our market space. The decrease in 2002 was mainly the result of the absence of a large license contract that existed in each of the prior two years as well
as customers continuing to delay large purchases to control expenses under the current economic conditions.

Service Revenues

Service revenues include fees from software maintenance agreements, training, consulting services including installation and custom programming. Maintenance fees,
including first year maintenance, which is allocated from the total license arrangement based on vendor-specific objective evidence of fair value ("VSOE"), are recognized ratably over the period of
the maintenance agreement. Training, consulting and custom programming revenues are recognized as the services are performed.

Service
revenues decreased $6.3 million or 15.6% from 2000 to 2001 and $1.1 million or 3.2% from 2001 to 2002. Service revenues in 2002 included $6.0 million from
Pfizer Inc. and $4.1 million from AIG Insurance or a combined 30.7% of total service revenues. Service revenues in 2001 included $5.0 million from one customer,
Pfizer Inc., or 14.6% of total service revenues. No one customer represented more than 10% of service revenues in 2000. The decrease in 2001 was due primarily to a $6.4 million decrease
in consulting revenue resulting from a decrease in license sales attributable to market conditions during that time, as well as a decision by us in 2000 to change the releases of software upgrades to
an eighteen-month cycle. A major release was not made available until September 30, 2001 thus limiting the number of customer upgrades and related consulting services requested during the year.
Also contributing to the decrease is a $0.7 million decrease in custom programming revenue resulting from fewer requests for software modifications offset by an $0.8 million increase in
maintenance revenues resulting from new license agreements and customary annual increases for existing agreements. The decrease in 2002 is primarily due to a decrease in consulting revenue of
$0.4 million in our foreign locations due to lower license sales resulting in fewer demands for services. It is also the result of a
$0.5 million decrease in maintenance revenues. Maintenance revenues for the year 2001 were higher than for 2002 because the 2001 period included revenues from customers related to prior year
negotiated settlements and from incremental maintenance for continued support of older versions of our software no longer covered under current maintenance agreements.

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

|                       |  | Years Ended December 31, |       
|---------------------- |  | ------------------------ | ------
|
|
|
|Maintenance            |  | $                        | 15,717
|Consulting             |  |                          | 23,225
|Training               |  |                          | 206   
|Custom Programming     |  |                          | 1,186 
|                       |  |                          |       
|Total Service Revenues |  | $                        | 40,334
|                       |  |                          |       

OtherRelated Parties

During January 2001, we entered into two South African joint ventures: AXS-One African Solutions (Pty) Ltd ("African Solutions") and
Hospitality Warehouse (Pty) Ltd ("Hospitality Warehouse"). African

39

---

Solutions sells and services our suite of products. Hospitality Warehouse uses our procurement software and generates fees for purchases made by member companies primarily in the hospitality
industry. Ownership was 50% or less in each joint venture through November 30, 2002 at which time we acquired, for a nominal amount, the remaining 50% of common stock of Hospitality Warehouse
to make it a wholly owned subsidiary. We use the equity method of accounting for our investments in 20 to 50-percent-owned companies. Under the equity method, investments are stated at
cost plus or minus our equity in undistributed earnings or losses. Revenues for 2001 and 2002 from these joint ventures include management fee revenue of $303 thousand and $387 thousand,
respectively, and consulting revenue of $239 thousand and $18 thousand, respectively.

Management
fees for the year ended December 31, 2002 are higher than for the same period in 2001 as the 2001 period only represents seven months of trading from the new joint
venture. The decrease in consulting revenue resulted from the transfer of the consulting staff and related services to African Solutions. Consulting services are now provided to our customers by the
joint venture.

Cost of License Fees

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

Cost
of license fees increased from $1.2 million in 2000 to $1.3 million in 2001 to $1.4 million in 2002. These costs represented 14.6%, 25.0%, and 35.9% of total
license fees in 2000, 2001 and 2002, respectively. The increase in 2001 and 2002 was mainly attributable to an increase in amortization of capitalized software development costs of $0.3 million
for both years due to the release of a new version of our software at the end of the third quarter of 2001. Capitalized software costs started being amortized for this new release in the fourth
quarter of 2001 and continued to be amortized throughout 2002. In 2001 and 2002, the increase in capitalized software development costs was partially offset by a decrease in third party royalty costs
of $0.2 million and $0.1 million, respectively, due to fewer license sales that included third party software. The increase in 2002 was also offset by a decrease in documentation costs
from our foreign locations.

Cost of Services

Cost of services consists primarily of personnel and third party costs for product quality assurance, training, installation, consulting and customer support.
Total service costs decreased from $21.8 million in 2000 to $17.6 million in 2001 to $15.5 million in 2002 which represented 54.0%, 51.6% and 47.0% of total service revenues in
2000, 2001 and 2002, respectively. Cost of services decreased in 2001 mainly due to a decrease of $2.0 million in the cost of third party services. It also resulted from a decrease of
$1.2 million in people related costs from a decrease in headcount and $0.4 million in variable compensation based on revenue related bonus plans in the U.S. and U.K. operations related
to the decrease in service revenues. The decrease in 2002 is primarily due to a $1.7 million decrease in people related costs due to lower headcount and a $0.1 million decrease in cost
of third party services due to reduced usage of third party consultants.

Sales and Marketing

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 decreased from $10.1 million in 2000 to $9.1 million in 2001 to $6.4 million in 2002, which represented 123.2%, 175.0% and 164.1% of total
license fee revenues, respectively. The decrease in 2001 was primarily a result of lower commissions of $1.0 million due to the decrease in license sales and a decrease of $0.6 million
in public relations costs related to rebranding from the prior year offset by an increase of

40

---

$0.5 million in personnel costs. Personnel costs increased by $0.9 million during the first half of 2001 as compared to the first half of 2000, but decreased by $0.4 million in
the second half of 2001 as compared to the second half of 2000 as a result of the restructuring (see "Restructuring Costs" below). The decrease in 2002 is primarily the result of a $2.0 million
decrease in personnel related costs due to lower headcount and a $0.4 million decrease in marketing program expenses in the area of market research. Sales and marketing as a percentage of
license fees increased from 2000 to 2001 and decreased slightly from 2001 to 2002 due to the decrease in license fee revenues. We continue to place significant emphasis, both domestically and
internationally, on client sales through our own sales force.

Research and Development

Research and development expenses consist primarily of personnel costs, costs of equipment and facilities. Research and development expenses are generally charged
to operations as incurred. However, certain software development costs are capitalized in accordance with Statement of Financial Accounting Standards No. 86. Such capitalized software
development costs are generally amortized to cost of license fees on a straight-line basis over periods not exceeding three years.

Research
and development expenses (net of capitalized software development costs) increased from $6.9 million in 2000 to $7.0 million in 2001 and decreased to
$6.7 million in 2002, which represented 14.2%, 17.6% and 18.0% of total revenues, respectively. We capitalized software development costs of $1.8 million, $1.0 million and
$0.8 million in 2000, 2001 and 2002, respectively. The rate of capitalization of software development costs may fluctuate depending on the mix and stage of development of our research and
development projects. The increase in research and development costs in 2001 was primarily the result of a decrease of $0.8 million in capitalized software development costs partially offset by
a decrease of approximately $0.7 million in costs for the Yorvik product (a project management, inventory and operations module) that was discontinued in 2001. The decrease in 2002 was
primarily the result of a $0.3 million decrease in salary expense and a $0.1 million decrease in bonus expense partially offset by a decrease of $0.2 million in capitalized
software development costs.

General and Administrative

General and administrative expenses consist primarily of salaries of administrative, executive and financial personnel and outside professional fees. General and
administrative expenses decreased from $8.2 million in 2000 to $7.9 million in 2001 to $4.6 million in 2002. The decrease in 2001 resulted from a decrease in travel and living
costs of $0.2 million, outside temporary help and consulting costs of $0.3 million and depreciation and amortization costs of $0.2 million partially offset by an increase of
$0.4 million in legal fees. The decrease in 2002 resulted primarily from a $1.3 million decrease in professional fees resulting from lower legal costs, a $0.9 million decrease in
personnel related costs due to lower headcount, a $0.2 million decrease in rent expense from closing offices in 2001 and a $0.4 million decrease in depreciation and amortization expense.

Legal
fees amounted to $1.1 million for the year ended December 31, 2001. The Securities and Exchange Commission (SEC) performed an investigation of AXS-One and
of certain of our former employees and officers relating to activities performed through 1996 while they were our employees. We filed a Form 8-K with the SEC on February 15,
2001 disclosing the SEC investigation and its disposition with respect to AXS-One. In mid August 2001, we were informed by counsel for our former employees and officers, whom we
knew to be the subject of the SEC investigation, that such counsel had been informed by the SEC that the SEC was no longer pursuing its investigation of their clients. Under our certificate of
incorporation, and Delaware law, we have an indemnification obligation to reimburse legal fees to former employees and officers relating to actions taken against them for work performed while they
were our employees. Approximately $0.8 million in such estimated legal fees were recorded during the year ended December 31, 2001. During the second quarter of 2002 approximately
$0.3 million of these charges were

41

---

reversed due to favorable settlements of outstanding billings with legal firms. The Company does not anticipate any further costs relating to this matter.

Restructuring Costs

During June 2001, based on weakening economies, especially in the United States and to a lesser degree in certain foreign locations, we eliminated 45
positions in the United States. In addition, in certain foreign locations, we eliminated eight positions, wrote-off certain non-performing assets and cumulative foreign
currency translation adjustment and recorded a charge for remaining leases. We recorded a charge to operations in the second quarter of 2001 totaling approximately $1.1 million for these items,
reflecting approximately $0.6 million in termination costs of those personnel as well as $0.3 million in asset and cumulative foreign currency translation adjustment
write-offs and $0.2 million in lease costs. During the third and fourth quarters of 2001, we adjusted downward the charge to operations by approximately $(0.2) million and $(0.1)
million respectively, reflecting revised termination and lease costs. These revisions resulted from management's decision to retain certain employees in one of the foreign locations to develop
software enhancements for Tivity Solutions. The activity related to this restructuring is as follows:

|                                                                           |  | Employee
Termination
Costs |      | Asset and
Cumulative
Foreign
Currency
Translation
Adjustment
Write-offs |   | Lease
Costs |   | Total
Costss |     
|-------------------------------------------------------------------------- |  | -------------------------- | ---- | ----------------------------------------------------------------------- | - | ----------- | - | ------------ | ----
|
|Restructuring and other costs recorded in June 2001                        |  | $                          | 603  |                                                                         | $ | 300         |   | $            | 200 
|Write-off of assets and cumulative foreign currency translation adjustment |  |                            |     |                                                                         |   | (300        | ) |              |    
|Revision of the restructuring costs in September 2001                      |  |                            | (138 | )                                                                       |   |            |   |              | (28 
|Revision of the restructuring costs in December 2001                       |  |                            |     |                                                                         |   |            |   |              | (140
|Cash payments through December 31, 2001                                    |  |                            | (441 | )                                                                       |   |            |   |              | (32 
|                                                                           |  |                            |      |                                                                         |   |             |   |              |     
|Restructuring liability at December 31, 2001                               |  | $                          | 24   |                                                                         | $ |            |   | $            |    
|Cash payments through March 31, 2002                                       |  |                            | (24  | )                                                                       |   |            |   |              |    
|                                                                           |  |                            |      |                                                                         |   |             |   |              |     
|Restructuring liability at December 31, 2002                               |  | $                          |     |                                                                         | $ |            |   | $            |    
|                                                                           |  |                            |      |                                                                         |   |             |   |              |     

Operating Income (Loss)

As a consequence of the above, we generated operating income of $0.4 million in 2000, incurred an operating loss of $3.9 million in 2001 and
generated operating income of $2.7 million in 2002.

Other Expense, Net

Other expense, net increased from $(0.4) million in 2000 to $(0.7) million in 2001 to $(0.9) million in 2002. Other expense, net increased to $(0.7) million in
2001 as a result of increased loan costs related to our 2001 debt modification (see Note 3 to the Consolidated Financial Statements) and equity in losses related to two joint ventures in the
South Africa operations. The increase was also the result of foreign currency transaction losses in the Australia and Singapore operations resulting from foreign currency fluctuations related to
intercompany loans denominated in U.S. dollars. The increase in 2002 resulted primarily from a $(0.4) million increase in equity in losses in joint ventures partially offset by a $0.2 million
gain on sale of our subsidiary located in Central and Eastern Europe (see Note 2 to the Consolidated Financial Statements).

42

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Income Tax Benefit

We recorded an income tax benefit of $0.3 million, $0.2 million and $0.2 million in 2000, 2001 and 2002, respectively, from the sales to
third parties of certain expiring New Jersey State Tax net operating loss carry-forwards and research and development credits. We cannot be certain that the State of New Jersey will continue to allow
such sales in the future or, if it did, that sales to third parties could be consummated. The 2002 sale was partially offset by a $0.1 million provision for income taxes in certain foreign
locations.

Results of Operations

As a consequence of the above, we generated net income of $0.3 million in 2000, incurred a net loss of $4.4 million in 2001, and generated net
income of $1.9 million in 2002.

Related Party Transactions

AXS-One has certain business relationships with an entity that was founded by the President and Chief Executive Officer. The President and Chief
Executive Officer owns a majority beneficial equity interest in such entity. During the years ended December 31, 2000, 2001 and 2002 we recorded as cost of license approximately
$422 thousand, $84 thousand and $34 thousand, respectively. For the year 2000 these costs related to work performed by this entity on our behalf for the integration of their
software with ours as well as royalty and maintenance fees related to sales of AXS-One products incorporating their software. For the years 2001 and 2002, costs related to royalty and
maintenance fees only.

On
September 29, 1997, we entered into a Consulting Agreement with our former chairman and principal stockholder. The Consulting Agreement provided for consulting services during
the period of December 1, 1997 through November 30, 2000, in exchange for $300 thousand for each of the first two years and $250 thousand for the third year. All amounts
were expensed in general and administrative expenses as incurred and no amounts remained outstanding as of December 31, 2001. The agreement was not renewed.

We
are currently exploring the possibility of entering into an agreement with a business entity controlled by our former chairman and principal stockholder to utilize this entity's
software in connecting with our Email Manager product. No agreement has been entered into as of the filing of this report.

During
January 2001, AXS-One started two South African joint ventures: AXS-One African Solutions (Pty) Ltd ("African Solutions") and Hospitality
Warehouse (Pty) Ltd ("Hospitality Warehouse"). African Solutions sells and services AXS-One's suite of products. Hospitality Warehouse uses AXS-One's procurement
software and generates fees for purchases made by member companies in the hospitality industry.

We
had investments in and loans to these joint ventures of $124 thousand and $60 thousand, respectively, net of equity in losses of $121 thousand as of
December 31, 2001. As of December 31, 2002, the investment in African Solutions was $179 thousand, net of equity in losses of $405 thousand. In December 2002, we
purchased, for a nominal amount, the remaining 50% of common stock of Hospitality Warehouse to make it a wholly owned subsidiary. At the time of the acquisition our investment in the joint venture was
$112 thousand. Equity in losses in 2002 for Hospitality Warehouse, prior to the acquisition, was $120 thousand.

Revenues
for 2001 and 2002 from these joint ventures include management fee revenue of $303 thousand and $387 thousand, respectively, and consulting revenue of
$239 thousand and $18 thousand, respectively.

43

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Critical Accounting Policies

Our critical accounting policies are as follows:



Revenue Recognition

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

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

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

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

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

Revenues
from joint ventures (included in Revenues: Other-Related Parties in our Consolidated Statements of Operations) includes consulting revenue for the joint ventures' use of our
South African subsidiary's consultants (2001 only) and for management fees for our subsidiary providing managerial,

44

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technical and other related services to the joint ventures (2001 and 2002 periods) in accordance with the joint venture agreements. Revenue is recognized upon performance of the services.

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

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

Capitalized Software Development Costs

Our policy is to capitalize certain software development costs in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS 86"). Under SFAS 86, costs incurred to develop or significantly enhance computer software products are charged to research
and development expense as incurred until technological feasibility has been established. We establish technological feasibility upon completion of a detailed program design at which point all
research and development costs for that project are capitalized until the product is available for general release to customers. The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, anticipated
future revenues, estimated economic life and changes in technology. It is reasonably possible that estimates of anticipated future revenues, the remaining estimated economic life of the products, or
both will be reduced in the future due to competitive pressures. As a result, the carrying amount of the capitalized software costs may be reduced in the near term. Upon the general release of the
software product to customers, capitalization ceases and such costs are amortized (using the straight-line method) over the estimated life, which is generally three years.

Liquidity and Capital Resources

At December 31, 2002, we had cash and cash equivalents of $2.7 million and a working capital deficit of $8.4 million. Included in the deficit
is $8.8 million of deferred revenue. On March 31, 1998, we entered into a Loan and Security Agreement ("Agreement") that contained a revolving line of credit and a term loan (the
"Initial Term Loan").

Borrowings
under the revolving line of credit bear interest at prime rate plus 1.25% subject to a minimum interest rate of 8%. The Agreement provides for yearly fees as follows:
(i) $111,000 in year one, $86,000 in years two and three, $77,000 in year four, $74,000 in years five and six and (ii) an unused revolving line of credit fee of .375% per annum. The
Agreement is secured by substantially all of our domestic assets together with a pledge of 65% of the stock of our foreign subsidiaries, and contains certain restrictive financial covenants. Under the
revolving line of credit we currently have available the lesser of $5.0 million or 85% of eligible receivables, as defined. The net available amount under the revolving line of credit at
December 31, 2002 was approximately $0.9 million of which no amounts were outstanding.

The
Initial Term Loan provided for $5.0 million available in one drawdown which we borrowed on the closing date in 1998. The Initial Term Loan bears interest at the prime rate as
defined (4.25% per annum at December 31, 2002) plus 1.5% subject to a minimum interest rate of 8.0% per annum.

Effective
December 22, 1999, in connection with the sale of our subsidiary in France, we amended the Agreement (Amendment No. 7) in order to make available to us a second
term loan in the original principal amount of $1.3 million, which we borrowed on that date and together with the Initial Term Loan, collectively the "A Term Loan," and a third term loan (the "B
Term Loan") in the original principal

45

---

amount of $750,000 of which we borrowed $500,000 on November 3, 2000 and requested the remaining $250,000 on December 31, 2000 which was subsequently remitted and recorded on our books
on January 2, 2001.

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

Effective
March 16, 2001, we further amended the Agreement (Amendment No. 9) in order to make available an additional term loan (the "Additional B Term Loan") in the
original principal amount of up to $2.0 million of which we borrowed $750,000 on April 30, 2001, $500,000 on May 30, 2001 and $500,000 on July 31, 2001, to extend the
termination date of the credit facility to March 31, 2004 and to
establish restrictive financial covenants for 2001. The availability of the Additional B Term Loan was subject to our compliance with the 2001 financial covenants.

On
June 29, 2001, we further amended the Agreement (Amendment No. 10) to make available an additional term loan (the "Second Additional B Term Loan") in the original
principal amount of $500,000, which we borrowed on July 31, 2001, to eliminate the financial covenant requirement for June 30, 2001, and to set two new monthly covenants for the
remainder of 2001 based on EBITDA (earnings before interest, taxes and depreciation and amortization) and minimum revenue requirements. We were in compliance with these new monthly covenants through
December 31, 2001.

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

Effective
August 8, 2002, we further amended the Agreement (Amendment No. 12) in order to make available an additional term loan (the "Third Additional B Term Loan") in the
original principal amount of up to $1.5 million of which we borrowed $250,000 on August 21, 2002, $250,000 on September 13, 2002, and $500,000 on October 1, 2002, and to
revise the Amendment No. 11 EBITDA covenants for the remainder of 2002. We were in compliance with these new covenants through December 31, 2002.

The
aggregate outstanding principal amount of the Term Loans is repayable in monthly installments of $150,000 beginning September 1, 2002 over the remaining term of the Loan and
Security Agreement, in accordance with Amendment No. 12, with any unpaid remaining balance due in full on March 31, 2004. The total amount of Term Loans outstanding at
December 31, 2002 was $2.3 million.

Amendment
No. 12 provides a limitation that if the total outstanding balance of the Term Loans exceeds at any time the lesser of (i) 40% of eligible maintenance revenues
from August 8, 2002 through December 31, 2002, 25% of eligible maintenance revenues from January 1, 2003 through March 31, 2004 and (ii) $4.5 million, then we
are required to prepay the principal amount in an amount sufficient to cause the aggregate principal amount of the Term Loans to be less than or equal to the relevant limits set forth above. As of
December 31, 2002, eligible maintenance revenues as defined, totaled approximately $11.9 million.

On
March 21, 2003, the Company further amended the Agreement (Amendment No. 13) in order to set the EBITDA quarterly covenants for 2003.

We
have no significant capital commitments. Planned capital expenditures for 2003 total approximately $1.0 million, including any software development costs that may qualify for
capitalization under SFAS No. 86. Our aggregate minimum operating lease payments for 2003 will be approximately $1.8 million.

46

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Future
payments due under debt and lease obligations as of December 31, 2002 are as follows:

Term Loans

Non-Cancelable
Operating Leases

Total(in thousands)2003

$
1,800

$
1,777

$
3,5772004


547


1,611


2,1582005





1,483


1,4832006





1,437


1,437Thereafter





1,330


1,330Total

$
2,347

$
7,638

$
9,985


Our
operating activities provided cash of $3.1 million, $0.3 million and $3.3 million in 2000, 2001 and 2002, respectively. Net cash provided by operating activities
in 2000 was primarily the result of non-cash depreciation and amortization charges and a decrease in accounts receivable, partially offset by a decrease in accounts payable, accrued
expenses, and deferred revenue. Net cash provided by operating activities in 2001 was primarily the result of the net loss offset by non-cash depreciation and amortization charges, a
decrease in accounts receivable, and an increase in deferred revenue partially offset by a decrease in accounts payable and accrued expenses. Net cash provided by operating
activities in 2002 was primarily the result of the net income, non-cash depreciation and amortization charges and a decrease in accounts receivable partially offset by a decrease in
accounts payable and accrued expenses and an increase in receivables due from the joint venture.

Our
investing activities used cash of $3.2 million, $1.5 million and $1.1 million in 2000, 2001 and 2002, respectively. Investing activities were principally for
purchases of equipment and leasehold improvements totaling $0.9 million, $0.5 million and $0.2 million in 2000, 2001 and 2002, respectively and capitalized software development
costs totaling $1.8 million, $1.0 million and $0.8 million in 2000, 2001 and 2002, respectively.

Cash
provided by financing activities was $1.3 million and $0.2 million in 2000 and 2001, respectively. Cash provided by financing activities in 2000 was primarily the
result of proceeds from the exercise of stock options and warrants partially offset by repayments of the term loans. Cash provided by financing activities in 2001 was the result of proceeds of
$2.0 million from the issuance of additional term loans partially offset by repayments of the term loans. In 2002, cash used in financing activities resulted from $1.8 million in
payments against the term loan partially offset by proceeds from the issuance of debt of $1.0 million.

We
generated net income of $1.9 million for the year ended December 31, 2002 after experiencing net losses of $0.3 million and $4.7 million during the years
ended December 31, 2000 and 2001, respectively. As a result of intense competition and rapid technological change together with a slowing of the economy, we have experienced declining license
and service revenues for each of the three years. The ability to generate net income in 2002 was in response to management's initiatives that began in 2001 intended to improve operating results and
liquidity and better position AXS-One to compete under current market conditions. This included, but was not limited to, our restructuring efforts in June of 2001 (see Item 7:
Restructuring Costs) whereby we were able to reduce costs sufficiently to allow us to generate net income totaling $3.3 million during the last six quarters ending December 31, 2002 (see
Note 11 to the Consolidated Financial Statements). Due to these efforts we expect that our operating cash flow and available financial resources will be sufficient to fund our working capital
requirements through 2003. However, our ability to achieve the anticipated results is affected by the extent of cash generated from operations and the pace at which we utilize our available resources.
There is also the risk that cash held by our foreign subsidiaries will not be readily available for use in our U.S. operations to pay our debt and other obligations as the transfer of funds is subject
to various foreign government restrictions. Accordingly, we may in the future be required to seek additional sources of financing or future accommodations from

47

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our existing lender. No assurance can be given that management's initiatives will be successful or that any such additional sources of financing or lender accommodations will be available.

Item 7A. 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 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.

Item 8. Consolidated Financial Statements and Supplementary Data

The information required by this Item is incorporated by reference herein from Part IV Item 14(a) (1) and (2).

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

48

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PART III

Item 10. Directors and Executive Officers of the Registrant

The Company incorporates herein by reference the information concerning directors and executive officers in its Notice of Annual Stockholders' Meeting and Proxy
Statement to be filed within 120 days after the end of the Company's fiscal year (the "2003 Proxy Statement").

Item 11. Executive Compensation

The Company incorporates herein by reference the information concerning executive compensation contained in the 2003 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The Company incorporates herein by reference the information concerning security ownership of certain beneficial owners and management contained in the 2003 Proxy
Statement.

Item 13. Certain Relationships and Related Transactions

The Company incorporates herein by reference the information concerning certain relationships and related transactions contained in the 2003 Proxy Statement.

Item 14. Controls and Procedures

Evaluation of disclosure controls and procedures

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

Changes in internal controls

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

49

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PART IV

Item 15. Exhibits, Consolidated Financial Statements, Schedules, and Reports on Form 8-K

(a)(1) Consolidated Financial Statements:

|                                                                                                            |  | Page No.
|----------------------------------------------------------------------------------------------------------- |  | --------
|Independent Auditors' Report                                                                                |  | 56      
|Consolidated Balance Sheets at December 31, 2001 and 2002                                                   |  | 57      
|Consolidated Statements of Operations for the years ended December 31, 2000, 2001 and 2002                  |  | 58      
|Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2000, 2001 and 2002 |  | 59      
|Consolidated Statements of Stockholders' Deficit for the years ended December 31, 2000, 2001 and 2002       |  | 60      
|Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002                  |  | 61      
|Notes to Consolidated Financial Statements                                                                  |  | 62      
|(a)(2) Consolidated Financial Statement Schedules:                                                          |  |         
|Independent Auditors' Report on Consolidated Financial Statement Schedule                                   |  | 84      
|Schedule IIValuation and Qualifying Accounts for the years ended December 31, 2000, 2001 and 2002          |  | 85      

(a)(3) Exhibits.

|3.1   | *       | Fourth Amended and Restated Certificate of Incorporation                                                                                                       
|----- | ------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2   | *       | Amended and Restated Bylaws of the Company                                                                                                                     
|4.1   | *       | Specimen Common Stock Certificate                                                                                                                              
|4.2   |         | See Exhibits 3.1 and 3.2 for provisions of the Certificate of Incorporation and Bylaws of the Company defining rights of holders of Common Stock of the Company
|4.3   | #       | Form of Warrant (1997)                                                                                                                                         
|4.4   |      | Form of Warrant (2001)                                                                                                                                         
|10.3  | *       | Employment Agreement between the Company and Elias Typaldos, as amended                                                                                        
|10.4  | *       | Employment Agreement between the Company and Gennaro Vendome, as amended                                                                                       
|10.6  | *       | 1995 Stock Option Plan                                                                                                                                         
|10.9  | *       | License Agreement between the Company and Pfizer, Inc., as amended                                                                                             
|10.12 | *       | Contract between the Company and Polish State Railways Central Office of Purchasing and Sales Ferpol, a division of Polish State Railways                      
|10.13 | *       | Program License Contract between the Company and Deutsche Bank AG                                                                                              
|10.19 | ****    | 1995 Stock Option Plan, as amended                                                                                                                             
|10.20 | #       | Securities Purchase Agreement                                                                                                                                  
|10.21 | ****    | Employment Agreement between the Company and John Rade                                                                                                         
|10.24 | ****    | Amendment to Securities Purchase Agreement                                                                                                                     
|10.26 | *****   | Loan and Security Agreement with Foothill Capital Corporation dated March 31, 1998                                                                             
|10.27 | *****   | 1998 Stock Option Plan                                                                                                                                         
|10.28 | ******  | Amendment No. 1 to the Loan and Security Agreement                                                                                                             
|10.29 | ******* | Amendment No. 2 to the Loan and Security Agreement                                                                                                             

50

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|10.30 | ******** | Amendment No. 3 to the Loan and Security Agreement                                                                                                                         
|----- | -------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.31 | ******** | Amendment No. 4 to the Loan and Security Agreement                                                                                                                         
|10.32 | ******** | Amendment to the Employment Agreement between the Company and John Rade                                                                                                    
|10.35 | ******** | Software Assignment Agreement between the Company and S-Cubed International Corporation                                                                                    
|10.36 | ******** | OEM License Agreement between the Company and S-Cubed International Corporation                                                                                            
|10.37 | ******** | Consulting Services Agreement between the Company and S-Cubed International Corporation                                                                                    
|10.38 | ******** | Value added Reseller Agreement between the Company and S-Cubed International Corporation                                                                                   
|10.39 | ******** | Amendment No. 5 to the Loan and Security Agreement                                                                                                                         
|10.40 |         | Amendment No. 6 to the Loan and Security Agreement                                                                                                                         
|10.41 |         | Amendment No. 7 to the Loan and Security Agreement                                                                                                                         
|10.42 |         | Amendment No. 8 to the Loan and Security Agreement                                                                                                                         
|10.43 |        | Share Purchase Agreement, dated December 23, 1999, between the Company and ADONIX relating to the sale of all of the shares of AXS-One Software, S.A. (English translation)
|10.44 |       | Amendment No. 9 to the Loan and Security Agreement                                                                                                                         
|10.47 |       | Investment Banking Services Agreement between the Company and Stonegate Securities, Inc. dated November 2, 2000, and Amendment dated January 24, 2001.                     
|10.48 |       | Employment Agreement between the Company and William Levering                                                                                                              
|10.49 |      | Amendment No. 10 to the Loan and Security Agreement                                                                                                                        
|10.50 |     | Stock Purchase Agreement, dated as of September 1, 2001, between the Company and Porterfield Ltd. relating to the sale of all shares of AXS-One Sp. z.o.o.                 
|10.51 |     | Promissory Note of Porterfield International Ltd. Issued to the Company                                                                                                    
|10.52 |    | Employment Agreement between the Company and Thomas Manobianco                                                                                                             
|10.53 |    | Amendment No. 11 to the Loan and Security Agreement                                                                                                                        
|10.54 |    | Lease Agreement between the Company and CIN Meadows L.L.C.                                                                                                                 
|10.55 | %        | Amendment No. 12 to the Loan and Security Agreement                                                                                                                        
|10.56 | %%       | Investor Relations Services Agreement between the Company and Hayden Communications, Inc.                                                                                  
|10.57 | %%       | Amendment No. 13 to the Loan and Security Agreement                                                                                                                        
|21.1  | %%       | List of Subsidiaries                                                                                                                                                       
|23.1  | %%       | Consent of KPMG LLP                                                                                                                                                        
|99.1  | %%       | Officer Certifications under 18 USC 1350                                                                                                                                   

|        
|--------
|#       
|*       
|****    
|*****   
|******  
|******* 
|********
|       

51

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|     |  | Incorporated by reference to the Exhibits filed with the Company's Form 8-K filed on December 23, 1999
|------ |  | ------------------------------------------------------------------------------------------------------
|    |  | Incorporated by reference to the Exhibits filed with the Company's 2000 Form 10-K                     
|   |  | Incorporated by reference to the Exhibits filed with the Company's June 30, 2001 Form 10-Q            
|  |  | Incorporated by reference to the Exhibits filed with the Company's Form 8-K filed on October 5, 2001  
| |  | Incorporated by reference to the Exhibits filed with the Company's 2001 Form 10-K                     
|%      |  | Incorporated by reference to the Exhibits filed with the Company's June 30, 2002 Form 10-Q            
|%%     |  | Filed herewith                                                                                        

(b) Reports on Form 8-K filed in the fourth quarter of 2002:

None

52

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Rutherford, State of New Jersey, on this 31st day of March 2003.

| |  | AXS-ONE INC.
| |  | ------------
| |  | By:         

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities
indicated, on March 31, 2003.

|Signature                                           |  | Title(s)                                                                                          
|--------------------------------------------------- |  | --------------------------------------------------------------------------------------------------
|                                                    |  |                                                                                                   
|/s/JOHN A. RADE(John A. Rade)                       |  | Chief Executive Officer, President and Director (Principal Executive Officer)                     
|/s/WILLIAM G. LEVERING III(William G. Levering III) |  | Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
|/s/ELIAS TYPALDOS(Elias Typaldos)                   |  | Executive Vice President Technology and Business Operations and Chairman of the Board             
|/s/GENNARO VENDOME(Gennaro Vendome)                 |  | Executive Vice President Sales, Marketing and Consulting, North America, and Director             
|/s/DANIEL H. BURCH(Daniel H. Burch)                 |  | Director                                                                                          
|/s/ROBERT MIGLIORINO(Robert Migliorino)             |  | Director                                                                                          
|/s/WILLIAM VOGEL(William E. Vogel)                  |  | Director                                                                                          
|/s/EDWIN T. BRONDO(Edwin T. Brondo)                 |  | Director                                                                                          
|/s/ALLAN WEINGARTEN(Allan Weingarten)               |  | Director                                                                                          

53

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CERTIFICATION

I,
John A. Rade, certify that:

1.    I
have reviewed this annual report on Form 10-K of AXS-One Inc.;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Date:
March 31, 2003

| |  |                                                                           
| |  | --------------------------------------------------------------------------
| |  | /s/JOHN A. RADEJohn A. Rade
Chief Executive Officer President and Director

54

---

CERTIFICATION

I,
William G. Levering, certify that:

1.    I
have reviewed this annual report on Form 10-K of AXS-One Inc.;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Date:
March 31, 2003

| |  |                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------
| |  | /s/WILLIAM G. LEVERING IIIWilliam G. Levering III
Vice President, Chief Financial Officer, and Treasurer

55

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Independent Auditors' Report

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

We
have audited the accompanying consolidated balance sheets of AXS-One Inc. and subsidiaries as of December 31, 2001 and 2002, and the related consolidated
statements of operations, comprehensive income (loss), stockholders' deficit, and cash flows for each of the years in the three-year period ended December 31, 2002. These
consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AXS-One Inc. and
subsidiaries as of December 31, 2001 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2002, in conformity with accounting principles generally accepted in the United States of America.

GRAPHIC

Short
Hills, New Jersey
January 30, 2003, except as to
the last paragraph of note 3,
which is as of March 21, 2003

56

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

|                                                                                                                                         |                                                                                                                                                     | December 31,                |       
|---------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------
|
|ASSETS                                                                                                                                   |                                                                                                                                                    
|Current assets:                                                                                                                          |                                                                                                                                                     |                             |       
|                                                                                                                                         | Cash and cash equivalents                                                                                                                           |                             | $     
|                                                                                                                                         | Restricted cash                                                                                                                                     |                             |       
|                                                                                                                                         | Note receivablenet of deferred gain on sale of subsidiary of $253 at December 31, 2001                                                             |                             |       
|                                                                                                                                         | Accounts receivable, net of allowance for doubtful accounts of $657 and $379 at December 31, 2001 and 2002, respectively                            |                             |       
|                                                                                                                                         | Due from joint venture                                                                                                                              |                             |       
|                                                                                                                                         | Prepaid expenses and other current assets                                                                                                           |                             |       
|                                                                                                                                         |                                                                                                                                                     |                             |       
|                                                                                                                                         |                                                                                                                                                     | Total current assets        |       
|                                                                                                                                         |                                                                                                                                                     |                             |       
|Equipment and leasehold improvements, at cost:                                                                                           |                                                                                                                                                     |                             |       
|                                                                                                                                         | Computer and office equipment                                                                                                                       |                             |       
|                                                                                                                                         | Furniture and fixtures                                                                                                                              |                             |       
|                                                                                                                                         | Leasehold improvements                                                                                                                              |                             |       
|                                                                                                                                         |                                                                                                                                                     |                             |       
|                                                                                                                                         |                                                                                                                                                     |                             | 12,374
|                                                                                                                                         | Lessaccumulated depreciation and amortization                                                                                                      |                             |       
|                                                                                                                                         |                                                                                                                                                     |                             |       
|                                                                                                                                         |                                                                                                                                                     |                             | 729   
|                                                                                                                                         |                                                                                                                                                     |                             |       
|Capitalized software development costs, net of accumulated amortization of $6,815 and $8,177 at December 31, 2001 and 2002, respectively |                                                                                                                                                     |                             | 2,908 
|Investment in and loans to joint ventures                                                                                                |                                                                                                                                                     |                             | 184   
|Other assets                                                                                                                             |                                                                                                                                                     |                             | 51    
|                                                                                                                                         |                                                                                                                                                     |                             |       
|                                                                                                                                         |                                                                                                                                                     | $                           | 10,060
|                                                                                                                                         |                                                                                                                                                     |                             |       
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                    |                                                                                                                                                    
|Current liabilities:                                                                                                                     |                                                                                                                                                     |                             |       
|                                                                                                                                         | Current portion of long-term debt                                                                                                                   |                             | $     
|                                                                                                                                         | Accounts payable                                                                                                                                    |                             |       
|                                                                                                                                         | Accrued expenses                                                                                                                                    |                             |       
|                                                                                                                                         | Due to joint venture                                                                                                                                |                             |       
|                                                                                                                                         | Deferred revenue                                                                                                                                    |                             |       
|                                                                                                                                         |                                                                                                                                                     |                             |       
|                                                                                                                                         |                                                                                                                                                     | Total current liabilities   |       
|                                                                                                                                         |                                                                                                                                                     |                             |       
|Long-term liabilities:                                                                                                                   |                                                                                                                                                     |                             |       
|                                                                                                                                         | Long-term debt, net of current portion                                                                                                              |                             |       
|                                                                                                                                         |                                                                                                                                                     |                             |       
|Commitments and contingencies                                                                                                            |                                                                                                                                                     |                             |       
|Stockholders' deficit:                                                                                                                   |                                                                                                                                                     |                             |       
|                                                                                                                                         | Preferred stock, $.01 par value, authorized 5,000 shares, no shares issued and outstanding                                                          |                             |       
|                                                                                                                                         | Common stock, $.01 par value, authorized 50,000 shares; 24,785 and 24,849 shares issued and outstanding at December 31, 2001 and 2002, respectively |                             |       
|                                                                                                                                         | Additional paid-in capital                                                                                                                          |                             |       
|                                                                                                                                         | Accumulated deficit                                                                                                                                 |                             |       
|                                                                                                                                         | Accumulated other comprehensive income                                                                                                              |                             |       
|                                                                                                                                         |                                                                                                                                                     |                             |       
|                                                                                                                                         |                                                                                                                                                     | Total stockholders' deficit |       
|                                                                                                                                         |                                                                                                                                                     |                             |       
|                                                                                                                                         |                                                                                                                                                     | $                           | 10,060
|                                                                                                                                         |                                                                                                                                                     |                             |       

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

57

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

|                                                     |                                    | Years Ended December 31, |       
|---------------------------------------------------- | ---------------------------------- | ------------------------ | ------
|
|Revenues:                                            |                                    |                          |       
|                                                     | License fees                       |                          | $     
|                                                     | Services                           |                          |       
|                                                     | Otherrelated parties              |                          |       
|                                                     |                                    |                          |       
|                                                     |                                    | Total revenues           |       
|                                                     |                                    |                          |       
|Operating expenses:                                  |                                    |                          |       
|                                                     | Cost of license fees               |                          |       
|                                                     | Cost of services                   |                          |       
|                                                     | Sales and marketing                |                          |       
|                                                     | Research and development           |                          |       
|                                                     | General and administrative         |                          |       
|                                                     | Restructuring costs                |                          |       
|                                                     |                                    |                          |       
|                                                     |                                    | Total operating expenses |       
|                                                     |                                    |                          |       
|Operating income (loss)                              |                                    |                          | (188  
|                                                     |                                    |                          |       
|Other income (expense):                              |                                    |                          |       
|                                                     | Interest income                    |                          |       
|                                                     | Interest expense                   |                          |       
|                                                     | Gain on sale of subsidiary         |                          |       
|                                                     | Equity in losses of joint ventures |                          |       
|                                                     | Other expense                      |                          |       
|                                                     |                                    |                          |       
|                                                     |                                    | Other expense, net       |       
|                                                     |                                    |                          |       
|Income (loss) before income tax benefit, net         |                                    |                          | (603  
|Income tax benefit, net                              |                                    |                          | 304   
|                                                     |                                    |                          |       
|Net income (loss)                                    |                                    | $                        | (299  
|                                                     |                                    |                          |       
|Basic and diluted net income (loss) per common share |                                    | $                        | (0.01 
|                                                     |                                    |                          |       
|Weighted average basic common shares outstanding     |                                    |                          | 24,624
|                                                     |                                    |                          |       
|Weighted average diluted common shares outstanding   |                                    |                          | 24,624
|                                                     |                                    |                          |       

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

58

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

|                                                            |                             | Years Ended December 31,
|----------------------------------------------------------- | --------------------------- | ------------------------
|
|Net income (loss)                                           |                             | $                       
|Foreign currency translation adjustment                     |                             |                         
|Reclassification adjustment for losses included in net loss |                             |                         
|                                                            |                             |                         
|                                                            | Comprehensive income (loss) |                         
|                                                            |                             |                         

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

59

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AXS-ONE INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT        (In thousands)

|                                                                                                                  |  |        |  |   |     |  |   |        |  | Accumulated
Other
Comprehensive
Income
(Loss) |         |   |  
|----------------------------------------------------------------------------------------------------------------- |  | ------ |  | - | --- |  | - | ------ |  | --------------------------------------------- | ------- | - | -
|
|
|
|BalanceDecember 31, 1999                                                                                         |  | 23,923 |  | $ | 239 |  | $ | 70,141 |  | $                                             | (75,739 | ) | $
|Net loss                                                                                                          |  |       |  |   |    |  |   |       |  |                                               | (299    | ) |  
|Foreign currency translation adjustment                                                                           |  |       |  |   |    |  |   |       |  |                                               |        |   |  
|Exercise of stock options and warrants                                                                            |  | 862    |  |   | 9   |  |   | 1,891  |  |                                               |        |   |  
|                                                                                                                  |  |        |  |   |     |  |   |        |  |                                               |         |   |  
|BalanceDecember 31, 2000                                                                                         |  | 24,785 |  |   | 248 |  |   | 72,032 |  |                                               | (76,038 | ) |  
|Net loss                                                                                                          |  |       |  |   |    |  |   |       |  |                                               | (4,655  | ) |  
|Foreign currency translation adjustment                                                                           |  |       |  |   |    |  |   |       |  |                                               |        |   |  
|Decrease in cumulative translation adjustment due to sale of subsidiary and substantial liquidation of subsidiary |  |       |  |   |    |  |   |       |  |                                               |        |   |  
|                                                                                                                  |  |        |  |   |     |  |   |        |  |                                               |         |   |  
|BalanceDecember 31, 2001                                                                                         |  | 24,785 |  |   | 248 |  |   | 72,032 |  |                                               | (80,693 | ) |  
|Net income                                                                                                        |  |       |  |   |    |  |   |       |  |                                               | 1,924   |   |  
|Foreign currency translation adjustment                                                                           |  |       |  |   |    |  |   |       |  |                                               |        |   |  
|Exercise of stock options                                                                                         |  | 64     |  |   |    |  |   | 20     |  |                                               |        |   |  
|                                                                                                                  |  |        |  |   |     |  |   |        |  |                                               |         |   |  
|BalanceDecember 31, 2002                                                                                         |  | 24,849 |  | $ | 248 |  | $ | 72,052 |  | $                                             | (78,769 | ) | $
|                                                                                                                  |  |        |  |   |     |  |   |        |  |                                               |         |   |  

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

60

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

|                                                                                               |                                                      | Years Ended December 31,                                                                                                                                                                                                                                                                                                                                 |       
|---------------------------------------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|
|Cash flows from operating activities:                                                          |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|Net income (loss)                                                                              |                                                      | $                                                                                                                                                                                                                                                                                                                                                        | (299  
|Adjustments to reconcile net income (loss) to net cash flows provided by operating activities: |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|                                                                                               |                                                      | Increase in cash surrender value of officers' life insurance                                                                                                                                                                                                                                                                                             |       
|                                                                                               |                                                      | Depreciation and amortization                                                                                                                                                                                                                                                                                                                            |       
|                                                                                               |                                                      | Net provision for (recovery of) doubtful accounts                                                                                                                                                                                                                                                                                                        |       
|                                                                                               |                                                      | Loss on disposal of equipment and leasehold improvements                                                                                                                                                                                                                                                                                                 |       
|                                                                                               |                                                      | Gain on sale of subsidiary                                                                                                                                                                                                                                                                                                                               |       
|                                                                                               |                                                      | Non-cash portion of restructuring and other costs                                                                                                                                                                                                                                                                                                        |       
|                                                                                               |                                                      | Loss on equity method investments                                                                                                                                                                                                                                                                                                                        |       
|                                                                                               |                                                      | Non-cash revenue related to investment in joint ventures                                                                                                                                                                                                                                                                                                 |       
|                                                                                               |                                                      | Consulting services received in lieu of cash payment on note                                                                                                                                                                                                                                                                                             |       
|Changes in current assets and liabilities, net of divestiture and acquisition:                 |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|                                                                                               |                                                      | Restricted cash                                                                                                                                                                                                                                                                                                                                          |       
|                                                                                               |                                                      | Accounts receivable                                                                                                                                                                                                                                                                                                                                      |       
|                                                                                               |                                                      | Due from joint venture                                                                                                                                                                                                                                                                                                                                   |       
|                                                                                               |                                                      | Prepaid expenses and other current assets                                                                                                                                                                                                                                                                                                                |       
|                                                                                               |                                                      | Accounts payable and accrued expenses                                                                                                                                                                                                                                                                                                                    |       
|                                                                                               |                                                      | Deferred revenue                                                                                                                                                                                                                                                                                                                                         |       
|                                                                                               |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|Net cash flows provided by operating activities                                                |                                                      |                                                                                                                                                                                                                                                                                                                                                          | 3,134 
|                                                                                               |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|Cash flows from investing activities:                                                          |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|                                                                                               |                                                      | Change in other assets                                                                                                                                                                                                                                                                                                                                   |       
|                                                                                               |                                                      | Net payment made on sale of French subsidiary                                                                                                                                                                                                                                                                                                            |       
|                                                                                               |                                                      | Investment in joint venture                                                                                                                                                                                                                                                                                                                              |       
|                                                                                               |                                                      | Loan to joint venture                                                                                                                                                                                                                                                                                                                                    |       
|                                                                                               |                                                      | Proceeds received on note receivable                                                                                                                                                                                                                                                                                                                     |       
|                                                                                               |                                                      | Capitalized software development costs                                                                                                                                                                                                                                                                                                                   |       
|                                                                                               |                                                      | Cash paid for acquisition, net of cash acquired                                                                                                                                                                                                                                                                                                          |       
|                                                                                               |                                                      | Purchase of equipment and leasehold improvements                                                                                                                                                                                                                                                                                                         |       
|                                                                                               |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|Net cash flows used in investing activities                                                    |                                                      |                                                                                                                                                                                                                                                                                                                                                          | (3,176
|                                                                                               |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|Cash flows from financing activities:                                                          |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|                                                                                               |                                                      | Proceeds from exercise of stock options and warrants                                                                                                                                                                                                                                                                                                     |       
|                                                                                               |                                                      | Proceeds from issuance of long term debt                                                                                                                                                                                                                                                                                                                 |       
|                                                                                               |                                                      | Payments of long-term debt                                                                                                                                                                                                                                                                                                                               |       
|                                                                                               |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|Net cash flows provided by (used in) financing activities                                      |                                                      |                                                                                                                                                                                                                                                                                                                                                          | 1,295 
|                                                                                               |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|Foreign currency exchange rate effects on cash and cash equivalents                            |                                                      |                                                                                                                                                                                                                                                                                                                                                          | (200  
|                                                                                               |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|                                                                                               | Net increase (decrease) in cash and cash equivalents |                                                                                                                                                                                                                                                                                                                                                          |       
|Cash and cash equivalents, beginning of year                                                   |                                                      |                                                                                                                                                                                                                                                                                                                                                          | 1,154 
|                                                                                               |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|Cash and cash equivalents, end of year                                                         |                                                      | $                                                                                                                                                                                                                                                                                                                                                        | 2,207 
|                                                                                               |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|Supplemental disclosures of cash flow information:                                             |                                                      |                                                                                                                                                                                                                                                                                                                                                          |       
|                                                                                               | Cash paid during the year for                       |                                                                                                                                                                                                                                                                                                                                                          |       
|                                                                                               |                                                      | Interest                                                                                                                                                                                                                                                                                                                                                 |       
|                                                                                               |                                                      | Income taxes                                                                                                                                                                                                                                                                                                                                             |       
|                                                                                               | Non-cash investing activities                       |                                                                                                                                                                                                                                                                                                                                                          |       
|                                                                                               |                                                      | Investment in joint ventures                                                                                                                                                                                                                                                                                                                             |       
|                                                                                               |                                                      | Note received in connection with sale of C.E.E. subsidiary                                                                                                                                                                                                                                                                                               |       
|                                                                                               |                                                      | Consulting services received in lieu of payment on note receivable                                                                                                                                                                                                                                                                                       |       
|                                                                                               |                                                      | In December 2002, the Company purchased, for a nominal amount, the remaining 50% of common stock of one of its joint ventures to make it a wholly owned subsidiary. At the time of acquisition the Company's investment in
the joint venture was $112. In conjunction with the acquisition, net assets acquired and liabilities assumed were as follows: |       
|                                                                                               |                                                      | Fair value of assets acquired                                                                                                                                                                                                                                                                                                                            |       
|                                                                                               |                                                      | Liabilities assumed                                                                                                                                                                                                                                                                                                                                      |       

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

61

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

(1) Operations, Business Conditions and Significant Accounting Policies

The Company was incorporated under the laws of the State of Delaware in September 1978. The name of the Company was changed from Computron
Software, Inc. to AXS-One Inc. in November 2000. The Company designs, markets and supports n-tier, Internet-enabled client/server, e-business,
financial, workflow, desktop data access and storage solutions for global 2000 businesses, and scheduling and time and expense solutions for professional services organizations. The Company also
offers consulting, implementation, training and maintenance services in support of its customers' use of its software products.

The
Company generated net income of $1.9 million for the year ended December 31, 2002 after experiencing net losses of $0.3 million and $4.7 million during
the years ended December 31, 2000 and 2001, respectively. As a result of product transitioning and general market conditions, the Company has also experienced declining license fees and service
revenues. The ability to generate net income in 2002 was as a result of management's initiatives that began in 2001 which included, but was not limited to, the restructuring in June of 2001 (see
Note 12), intended to improve operating results and liquidity and better position the Company to compete under current market conditions. The Company is continuing to monitor its expenses
especially in the area of marketing program costs and personnel related costs, including salaries, benefits and travel and living costs. However, the Company's ability to achieve the results
anticipated is affected by the extent of cash generated from operations and the pace at which the Company utilizes its available resources. The Company may be required to seek additional sources of
financing or future accommodations from its existing lender. No assurance can be made that management's initiatives will be successful or that any additional sources of financing or lender
accommodations will be available.

(a) Principles of Consolidation

The consolidated financial statements include the accounts of AXS-One Inc.; its wholly owned subsidiaries located in Australia, Canada,
Singapore, South Africa and the United Kingdom (collectively, the"Company")(see Note 2 for discussion of the sale of the Central and Eastern
Europe subsidiary in 2001). During the first quarter of 2001, the Company's South Africa operations entered into two joint ventures. Ownership is 50% or less in both entities. All significant
intercompany transactions and balances have been eliminated. The Company uses the equity method of accounting for its joint ventures that it owns between 20 and 50%. Under the equity method,
investments are stated at cost plus or minus the Company's equity in undistributed earnings or losses. During the fourth quarter of 2002, the Company purchased, for a nominal amount, the remaining 50%
of common stock of one of its joint ventures, and accordingly accounts for it as a wholly owned subsidiary (see Note 5).

(b) Revenue Recognition

The Company recognizes revenue in accordance with Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), and Statement
of Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." Revenue from non-cancelable software licenses is
recognized when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectibility is probable. In multiple element arrangements, the Company defers the
vendor-specific objective evidence of fair value ("VSOE") related to the undelivered elements and recognizes revenue on the delivered elements using the residual method. The most commonly deferred
element is initial maintenance, which is recognized on a straight-line basis over the initial maintenance

62

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term. The VSOE of maintenance is determined by using a consistent percentage of maintenance fee to license fee based on renewal rates. Maintenance fees in subsequent years are recognized on a
straight-line basis over the life of the applicable agreement. Delivery of software generally occurs when the product (on CDs) is delivered to a common carrier.

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

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

Revenues
from joint ventures (included in Revenues: Other-Related Parties in the Company's Consolidated Statements of Operations) includes consulting revenue for the joint ventures' use
of the Company's South African subsidiary's consultants (2001 only) and for management fees arising from the Company's South African subsidiary providing managerial, technical and other related
services to the joint ventures (2001 and 2002 periods) in accordance with the joint venture agreements. Revenue is recognized upon performance of the services.

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

The
Company adopted EITF Issue No. 01-14, "Income Statement Characterization of Reimbursement Received for 'Out of Pocket' Expenses Incurred" on January 1,
2002. Accordingly, reimbursements received for out-of-pocket expenses incurred are classified as revenue in the consolidated statement of operations. The adoption of this EITF
Issue on January 1, 2002 resulted in an increase to previously reported services revenue and cost of services of $1,776 and $1,216 for the years ended December 31, 2000 and 2001,
respectively. There was no effect on either the consolidated operating loss or net loss on those years. Reimbursements received for out-of-pocket expenses incurred in 2002 were
$1,422, reflected as services revenue in the accompanying 2002 consolidated statement of operations.

(c) Use of Management Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets

63

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and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates.
Some of the significant estimates involve recoverability of accounts receivable, capitalized software development costs, accrued expenses, provision for income taxes in foreign jurisdictions,
assessment of contingencies, and pro forma compensation expense.

(d) Cash and Cash Equivalents and Restricted Cash

Cash equivalents are stated at cost, which approximates market, and consist of short-term, highly liquid investments with original maturities of less
than three months. Restricted cash represents amounts on deposit for payments of lease obligations by the Australia subsidiary and amounts on deposit for U.S. employees' flexible spending accounts for
medical expenses not covered by insurance.

(e) Allowance for Doubtful Accounts

The Company evaluates the collectibility of accounts receivable based on a combination of factors. In cases where the Company is aware of circumstances that may
impair a specific customer's ability to meet its financial obligations, the Company records a specific allowance against amounts due, and thereby reduces the net receivable to the amount management
reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are outstanding, the current
business environment and historical experience.

(f) Equipment and Leasehold Improvements

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

(g) Software Development Costs

The Company's policy is to capitalize certain software development costs in accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS 86"). Under SFAS 86, costs incurred to develop or significantly enhance computer software products are charged to
research and development expense as incurred until technological feasibility has been established. The Company establishes technological feasibility upon completion of a detailed program design at
which point all research and development costs for that project are capitalized until the product is available for general release to customers. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized software development costs require considerable judgment by management with respect to certain external factors, including, but not limited to,
anticipated future revenues, estimated economic life and changes in technology. It is reasonably possible that estimates of anticipated future revenues, the remaining estimated economic life of the
products, or both will be reduced in the future due to competitive pressures. As a result, the carrying amount of the capitalized software costs may be reduced through a charge to operations in the
near term. Upon the general release of the software product to customers, capitalization

64

---

ceases and such costs are amortized (using the straight-line method) over the estimated life, which is generally three years.

During
2000, 2001 and 2002 capitalized software development costs amounted to $1,773, $950, and $777, respectively. The balance of capitalized software development costs at
December 31, 2002 also includes $54 attributable to the acquired South African joint venture. Annual amortization of software development costs of $738, $1,060 and $1,361 for 2000, 2001 and
2002, respectively, was recorded using the straight-line method over three years, the estimated economic life of the products.

(h) Impairment or Disposal of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," which was adopted on January 1, 2002, the Company monitors events or changes in circumstances that may indicate carrying amounts of its long-lived assets may not be
recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of its assets by determining whether the carrying amount of its assets will be recovered
through undiscounted, expected future cash flows. Should the Company determine that the carrying values of specific long-lived assets are not recoverable, the Company would record a charge
to operations to reduce the carrying value of such assets to their fair values. The Company considers various valuation factors, principally discounted cash flows, to assess the fair values of
long-lived assets.

(i) Income Taxes

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

(j) Concentration of Credit Risk

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

As
of December 31, 2002, two customers, AIG Insurance and Deutsche Bank, represented 15.3% and 10.4% respectively, of gross receivables. As of December 31, 2001, two
customers, Pfizer, Inc. and Mercer

65

---

Consulting, represented 11.4% and 10.2%, respectively, of gross accounts receivable. For the year ended December 31, 2002, two customers, AIG Insurance and Pfizer, Inc., represented
12.0% and 16.1%, respectively, of total revenues; one customer, JPMorgan Chase, represented 14.7% of total license revenues; and two customers, AIG Insurance and Pfizer Inc., represented 12.5%
and 18.2%, respectively, of total service revenues. For the year ended December 31, 2001 one customer, Pfizer Inc., represented 12.1% of total revenues; one customer, Deutsche Bank,
represented 26.3% of total license revenues; and one customer, Pfizer Inc., represented 14.1% of total service revenues. There was no single customer accounting for more than 10% of total
revenues or total service revenues in 2000, but two customers, Pfizer Inc. and MWR support Activities, accounted for 12.3% and 16.0%, respectively, of total license revenues.

(k) 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. Assets and liabilities are translated using exchange rates at the end of the period with translation adjustments
accumulated in stockholders' deficit. Intercompany loans are denominated in U.S. currency. Foreign currency transaction gains and losses, related to short-term intercompany loans, are
recorded in the consolidated statements of operations as incurred. Intercompany loans that are of a long-term nature 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' deficit. During 2002, no loans were
considered long-term in nature. During 2001, intercompany loans to the subsidiary sold during that year (See Note 2) were considered long-term in nature.

(l) Stock-Based Compensation

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

66

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

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

|                                                                                                                |                     | Year Ended December 31, |       
|--------------------------------------------------------------------------------------------------------------- | ------------------- | ----------------------- | ------
|
|Net income (loss) as reported                                                                                   |                     | $                       | (299  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |                     |                         | (2,163
|                                                                                                                |                     |                         |       
|Pro forma net income (loss)                                                                                     |                     | $                       | (2,462
|                                                                                                                |                     |                         |       
|Net income (loss) per common share:                                                                             |                     |                         |       
|                                                                                                                | Basicas reported   |                         | $     
|                                                                                                                |                     |                         |       
|                                                                                                                | Basicpro forma     |                         | $     
|                                                                                                                |                     |                         |       
|                                                                                                                | Dilutedas reported |                         | $     
|                                                                                                                |                     |                         |       
|                                                                                                                | Dilutedpro forma   |                         | $     
|                                                                                                                |                     |                         |       

The
Company has used the Black-Scholes option-pricing model in calculating the fair value of options granted. The assumptions used and the weighted average information
for the years ended December 31, 2000, 2001 and 2002 are as follows:

|                                                                                                                                |  | Years Ended December 31,
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------
|
|Risk-free interest rates                                                                                                        |  | 5.50%                   
|Expected dividend yield                                                                                                         |  |                        
|Expected lives                                                                                                                  |  | 7 years                 
|Expected volatility                                                                                                             |  | 184%                    
|Weighted-average grant date fair value of options granted during the period                                                     |  | $4.24                   
|Weighted-average remaining contractual life of options outstanding                                                              |  | 7.05 years              
|Weighted-average exercise price of 1,826, 2,769 and 3,868 options exercisable at December 31, 2000, 2001 and 2002, respectively |  | $1.49                   

(m) 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 is the same as basic net loss per
common share for the periods ended December 31, 2000 and 2001 since the effect of stock options and warrants is anti-dilutive for these periods. Diluted net income per common share
for the period ended December 31, 2002 does not include the effects of

67

---

outstanding options to purchase 4,329 shares of common stock and outstanding warrants to purchase 130 shares of common stock as the effect of their inclusion is anti-dilutive for the
periods presented.

The
following represents the calculations of the basic and diluted net income (loss) per common share for the years ended December 31, 2000, 2001 and 2002.

|                                                                   |  | Years Ended December 31,
|------------------------------------------------------------------ |  | ------------------------
|
|Net income (loss)                                                  |  | $                       
|                                                                   |  |                         
|Weighted average basic common shares outstanding during the year   |  |                         
|Dilutive effect of stock options and warrants                      |  |                         
|                                                                   |  |                         
|Weighted average diluted common shares outstanding during the year |  |                         
|                                                                   |  |                         
|Basic and diluted net income (loss) per common share               |  | $                       
|                                                                   |  |                         

(n) Fair Value of Financial Instruments

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

(o) Deferred Revenue

Deferred revenues primarily relate to customer support agreements that have been paid for by customers prior to the performance of those services and, to a lesser
extent, prepaid consulting and deferred license fees.

(p) Reclassifications

Certain reclassifications have been made in the 2000 and 2001 consolidated financial statements to conform to the 2002 presentation.

(q) Accounting for Guarantees

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

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

From
time to time, the Company may provide guarantees to third parties on behalf of a foreign subsidiary. These guarantees are generally related to maintaining operations in a certain
locality or to

68

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secure leases or other operating obligations of a subsidiary. The maximum exposure on these guarantees is not significant, either individually or in the aggregate.

(2)  Divestiture

On September 20, 2001, the Company sold its wholly-owned subsidiary located in Central and Eastern Europe (C.E.E.), including offices in Poland, Estonia
and Bulgaria, to Porterfield International Ltd. ("Buyer"), a company wholly-owned by the former managing director of C.E.E. and his wife. The Company received consideration in the form of a
promissory note of Buyer in the face amount of $430. The note is payable either in cash or, if the Company requests, an equivalent dollar amount of professional services, in 15 monthly
installments ending on December 1, 2002 and bears interest at the fixed rate of 6.75% per year. A net asset deficiency of the C.E.E. operations of $(3), at the time of the sale, offset by
accrued expenses of $180, directly related to the sale, resulted in a deferred gain of approximately $253, which the Company recorded in accordance with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 81 (SAB 81), "Gain Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged Entity." Additional direct costs of the sale of $3 and $5 recorded
during the three months ended June 30, 2002 and December 31, 2002, respectively, reduced the total deferred gain to $245.

In
accordance with SAB 81, the Company has presented, in the accompanying consolidated balance sheet, the deferred gain as an offset to the note receivable. The Company recognizes such
gain as the note receivable is paid or equivalent value for services is received, but only after $180 is received. Through December 31, 2002, $430 had been received in either payment to the
Company or equivalent services provided by the Buyer to the Company or to the Company's joint venture. The Company has recognized $219 of such gain through December 31, 2002, which includes a
reversal of $45 related to the original $180 in accrued expenses recorded at the time of the sale. The $45 was recognized during the three months ended September 30, 2002 as a result of the
release of a past customer claim. The remaining gain of $71, reflected as Deferred revenue on the accompanying December 31, 2002 consolidated balance sheet, is deferred until payment is
received from the Company's joint venture for services provided by the Buyer to the joint venture.

The
following table shows the activity related to the promissory note and related deferred gain and gain:

Note
Receivable

Deferred
Gain

Gain
RecognizedSeptember 20, 2001

$
430

$
253

$
Cash payments and services provided through December 31, 2001


(94
)




Balance at December 31, 2001


336


253


Direct expense incurred in June 2002





(3
)

Cash payments and services provided through December 31, 2002


(336
)

(174
)

174Reversal of accrued expense in September 2002








45Direct expense incurred in October 2002





(5
)

Balance at December 31, 2002

$


$
71

$
219


69

---

(2) Divestiture (Continued)

The
following table sets forth significant financial data of C.E.E., prior to its disposition, included in the consolidated results of operations for the years ended December 31,
2000 and 2001.

2000

2001Revenues:License fees

$
570

$
205Services


1,452


1,2082,022


1,413Total operating expenses


2,674


1,745Operating loss


(652
)

(332
)Other income (expense), net


(18
)

29Net loss

$
(670
)
$
(303
)


(3) Long-Term Debt

The Company's long-term debt consists of the following:

December 31,2001

2002Term loan

$
3,147

$
2,347Less: current portion


1,800


1,800Long-term debt, net of current portion

$
1,347

$
547


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

Borrowings
under the revolving line of credit bear annual interest at prime rate plus 1.25%, subject to a minimum interest rate of 8%. The Agreement provides for yearly fees as follows:
(i) $111 in year one, $86 in years two and three, $77 in year four, $74 in years five and six and (ii) an unused revolving line of credit fee of .375% per annum. The Agreement is secured
by substantially all domestic assets of the Company together with a pledge of 65% of the stock of its foreign subsidiaries, and contains certain restrictive financial covenants. Under the revolving
line of credit the Company currently has available the lesser of $5 million or 85% of eligible receivables, as defined. The net available amount under the revolving line of credit at
December 31, 2002 was approximately $0.9 million of which no amounts were outstanding.

The
Initial Term Loan provided for $5 million available in one drawdown which the Company borrowed on the closing date in 1998. The Initial Term Loan bears interest at the prime
rate as defined (4.25% per annum at December 31, 2002) plus 1.5% subject to a minimum interest rate of 8.0% per annum.

Effective
December 22, 1999, in connection with the sale of its subsidiary in France, the Company amended the Agreement (Amendment No. 7) in order to make available to the
Company a second term

70

---

loan in the original principal amount of $1.3 million, which the Company borrowed on that date and together with the Initial Term Loan, collectively the "A Term Loan," and a third term loan
(the "B Term Loan") in the original principal amount of $750, of which the Company borrowed $500 on November 3, 2000 and requested the remaining $250 on December 31, 2000 which was
subsequently remitted and recorded on the Company's books on January 2, 2001.

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

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

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

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

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

The
aggregate outstanding principal amount of the Term Loans is repayable in monthly installments of $150,000 beginning September 1, 2002 over the remaining term of the Loan and
Security Agreement, in accordance with Amendment No. 12, with any unpaid remaining balance due in full on March 31, 2004.

Amendment
No. 12 provides a limitation that if the total outstanding balance of the Term Loans exceeds at any time the lesser of (i) 40% of eligible maintenance revenues
from August 8, 2002 through December 31, 2002, 25% of eligible maintenance revenues from January 1, 2003 through March 31, 2004 and (ii) $4.5 million, then
the Company is required to prepay the principal amount in an amount sufficient to cause the aggregate principal amount of the Term Loans to be less than or equal to the relevant limits set forth
above. As of December 31, 2002, eligible maintenance revenues as defined, totaled approximately $11.9 million.

71

---

The
amounts of debt outstanding at December 31, 2002 mature as follows:

2003

$
1,8002004

$
547


On
March 21, 2003, the Company further amended the Agreement (Amendment No. 13) in order to set the EBITDA quarterly covenants for 2003.

(4) Lease Obligations

The Company leases office space and equipment under non-cancelable operating leases. Rent expense charged to operations in the accompanying
consolidated statements of operations for office space, vehicles and equipment under operating leases was $2,044, $2,011 and $1,736 for the years ended December 31, 2000, 2001 and 2002,
respectively.

Scheduled
future minimum payments required for all non-cancelable operating leases are as follows:

Years Ending December 312003

$
1,7772004


1,6112005


1,4832006


1,4372007


1,330


(5) Related Party Transactions

The Company has certain business relationships with an entity that was founded by the President and Chief Executive Officer. The President and Chief Executive
Officer owns a majority beneficial equity interest in such entity. During the years ended December 31, 2000, 2001 and 2002 the Company recorded as cost of license fees approximately $422, $84
and $34, respectively, from this related party. During 2000 these costs related to work performed by this entity on the Company's behalf for the integration of their software with the Company's as
well as royalty and maintenance fees related to sales of the Company's products incorporating their software. During 2001 and 2002, costs related to royalty and maintenance fees only.

The
Company entered into a Consulting Agreement dated September 29, 1997 with the Company's former chairman and principal stockholder. The Consulting Agreement provided for
consulting services during the period of December 1, 1997 through November 30, 2000, in exchange for $300 for each of the first two years and $250 for the third year. All amounts were
expensed in general and administrative expenses as incurred and no amounts remained outstanding as of December 31, 2001. The agreement was not renewed.

72

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During
January 2001, the Company entered into two South African joint ventures: AXS-One African Solutions (Pty) Ltd ("African Solutions") and Hospitality
Warehouse (Pty) Ltd ("Hospitality Warehouse"). African Solutions sells and services AXS-One's suite of products. Hospitality Warehouse uses AXS-One's procurement
software and generates fees for purchases made by member companies in the hospitality industry.

Revenues
from these joint ventures during 2001 and 2002 include management fee revenue of $303 and $387, respectively, and consulting revenue of $239 and $18, respectively.

As
of December 31, 2001 the Company had investments in and loans to these joint ventures of $124 and $60, respectively, net of equity in losses of $121. As of December 31,
2002, the investment in African Solutions was ($179), net of equity in losses of $405 reflected as Due to joint venture on the accompanying December 31,2002 consolidated balance sheet. The
Company has reduced this investment below zero as it will continue to fund the joint venture's operations. In December 2002, the Company purchased, for a nominal amount, the remaining 50% of
common stock of Hospitality Warehouse to make it a wholly owned subsidiary. At the time of the acquisition the investment in the joint venture was $112, net of equity in losses of $120.
Pro-forma results as if Hospitality Warehouse had been acquired on January 1, 2002 are not significantly different than the reported 2002 consolidated results.

(6) Income Taxes

The components of income (loss) before income tax benefit, net are as follows:

Years Ended December 31,2000

2001

2002Domestic

$
340

$
(3,215
)
$
(546
)Foreign


(943
)

(1,622
)

2,410Total

$
(603
)
$
(4,837
)
$
1,864


Income
tax (provision) benefit is as follows:

|        |       | Years Ended December 31, |    
|------- | ----- | ------------------------ | ---
|
|State   |       | $                        | 304
|Foreign |       |                          |   
|        |       |                          |    
|        | Total |                          | $  
|        |       |                          |    

73

---

A
reconciliation of Federal income tax (expense) benefit at the statutory rate of 34% to income tax benefit, net reflected in the accompanying consolidated statements of
operations is as follows:

|                                                                                                                       |  | Years Ended December 31, |    
|---------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ---
|
|Federal income tax (expense) benefit at 34%                                                                            |  | $                        | 205
|State income tax (expense) benefit, net of Federal tax (expense) benefit                                               |  |                          | (24
|Change in valuation allowance, net of change in valuation allowance related to stock options and sales of subsidiaries |  |                          | 69 
|Foreign tax rate differential                                                                                          |  |                          | 131
|Reduction of state NOLs due to sale of New Jersey NOLs                                                                 |  |                          | (54
|Other, net                                                                                                             |  |                          | (23
|                                                                                                                       |  |                          |    
|                                                                                                                       |  | $                        | 304
|                                                                                                                       |  |                          |    

The
principal components of the Company's deferred taxes are as follows:

December 31,2001

2002Deferred tax assets:Non-deductible accruals and other

$
328

$
320Allowance for doubtful accounts


207


118Purchased research and development


992


881Research and development credit carry-forwards


2,895


2,895Net operating loss carry-forwards


22,382


21,068Deferred tax assets


26,804


25,282Less valuation allowance


25,641


24,352Net deferred tax assets


1,163


930Deferred tax liabilities:Software development costs


1,163


930Net deferred taxes

$


$



At
December 31, 2002, the Company had United States net operating loss carry-forwards of approximately $44,309 which are available to offset future Federal taxable
income, if any, and which begin to expire in 2007. In addition, foreign net operating loss carry-forwards aggregated approximately $10,658 at December 31, 2002.

The
Company has recorded a valuation allowance for its net deferred tax assets and will continue to monitor the realizability of such assets. Approximately $1,122 and $1,137 of the
Company's deferred tax asset pertaining to NOLs and the corresponding valuation allowance at December 31, 2001 and 2002, respectively, relates to tax deductions arising from the exercise of
stock options and/or subsequent sales of the underlying stock. For book purposes, the tax benefits related to such stock option transactions are recorded through equity when realized.

The
foreign net operating loss carryforwards and corresponding valuation allowance was reduced by $3,438 in 2001 due to the sale of C.E.E. that was completed in 2001.

74

---

Foreign
subsidiaries have paid, and are expected to continue to pay, appropriate taxes, if and when due, to their respective taxing authorities. It is the intention of the Company to
reinvest the earnings of its non-U.S. subsidiaries, if any, in those operations. Accordingly, no Federal taxes have been provided on undistributed foreign earnings and no deferred tax
liability for temporary differences related to the Company's foreign subsidiaries and foreign joint ventures has been established as the determination of the amounts is not practicable.

During
state fiscal years 2001, 2002 and 2003, AXS-One was authorized by the New Jersey Economic Development Authority ("NJEDA") in conjunction with the New Jersey Division
of Taxation to sell a portion of its New Jersey net operating losses and research and development credits for consideration that is to be used to fund its research activities in the State of New
Jersey. For the State's fiscal year 2003 (July 1, 2002 to June 30, 2003), AXS-One was authorized to sell $239 of its available tax benefit of $239 (related to tax years
through December 31, 2000). AXS-One sold the entire authorized amount for consideration of $198. As of December 31, 2002, the remaining New Jersey tax benefit in the amount
of $153 is available to sell if the program is extended by the NJEDA or will be available to offset future New Jersey income taxes.

(7) Stockholders' Deficit

(a) Warrants

In connection with a private placement of common stock in 1997, the Company issued warrants to purchase 734 shares of the Company's Common Stock. The warrants
were exercisable at $3.00 per share, subject to adjustment, until December 31, 2002. In February and March of 2000, 358 warrants were exercised for total proceeds of approximately $1,072. No
warrants were exercised during 2001 or 2002. The balance of 376 warrants expired at December 31, 2002.

On
November 2, 2000, the Company issued warrants to a Dallas corporation for the purchase of 200 shares of Common Stock in exchange for services to be rendered as the Company's
non-exclusive financial advisor and for certain investment-banking services. The warrants are exercisable at $1.875 per share, subject to adjustment, until January 24, 2006 and were
to vest in two separate tranches of 100 each on February 28, 2001 and May 31, 2001. By written notice dated May 25, 2001, 100 warrants that were to be vested on May 31,
2001 were cancelled in connection with the cancellation of the services
agreement. No warrants were exercised as of December 31, 2002 leaving 100 vested warrants unexercised at December 31, 2002. The fair value of these warrants was determined in accordance
with EITF Issue No. 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services," and was being
recognized as expense over the vesting period using variable accounting. No further compensation costs will be recognized related to these warrants since services are no longer being provided. The
expense related to this matter was not material.

75

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(7) Stockholders' Deficit (Continued)

On October 1, 2002, the Company entered into an agreement with a South Carolina corporation to provide investor relations services to the Company, whereby
upon expiration or termination of the agreement the Company will issue warrants to purchase the number of shares of common stock of the Company which is equal to the product of 10 shares multiplied by
the number of whole months during the actual term of the agreement to a maximum of 120 shares. The exercise price for the warrant is (i) for the initial up to 60 shares covered by the warrant,
$0.41 per share, which represents the closing price of the Company's common stock on October 1, 2002 and (ii) for the remaining shares covered by the warrant, if any, the closing price
of the Company's common stock on April 1, 2003. The warrant is fully vested on the date of its issuance by the Company. As of December 31, 2002, 30 shares were earned, but not issued.
The fair value of these warrants was determined in accordance with EITF Issue No. 96-18, and is being recognized as expense over the vesting period using variable accounting. The
expense related to this matter was not material.

A
summary of warrant activity is as follows:

|                                                                               |                       | Number
of Shares |      | Exercise Price
Per Share |             | Weighted Average
Exercise Price |   | Weighted Average
Remaining Life (Years)
|------------------------------------------------------------------------------ | --------------------- | ---------------- | ---- | ------------------------ | ----------- | ------------------------------- | - | ---------------------------------------
|Balance, December 31, 1999                                                     |                       | 734              |      |                          | $3.00       |                                 | $ | 3.00                                   
|                                                                               | Granted               |                  | 200  |                          |             | $1.875                          |   | $                                      
|                                                                               | Exercised             |                  | (358 | )                        |             | $3.00                           |   | $                                      
|                                                                               |                       |                  |      |                          |             |                                 |   |                                        
|Balance, December 31, 2000                                                     |                       | 576              |      | $                        | 1.875-$3.00 |                                 | $ | 2.61                                   
|Cancelled                                                                      |                       | (100             | )    |                          | $1.875      |                                 | $ | 1.875                                  
|                                                                               |                       |                  |      |                          |             |                                 |   |                                        
|Balance, December 31, 2001                                                     |                       | 476              |      | $                        | 1.875-$3.00 |                                 | $ | 2.76                                   
|                                                                               | Vested but not issued |                  | 30   |                          |             | $0.41                           |   | $                                      
|                                                                               | Cancelled             |                  | (376 | )                        |             | $3.00                           |   | $                                      
|                                                                               |                       |                  |      |                          |             |                                 |   |                                        
|Balance, December 31, 2002 (all of which are exercisable at December 31, 2002) |                       | 130              |      | $                        | 0.41-$1.875 |                                 | $ | 1.54                                   
|                                                                               |                       |                  |      |                          |             |                                 |   |                                        



Pursuant to the 1995 Stock Option Plan, as amended (the 1995 Plan), the Company may grant statutory and non-statutory options to purchase an aggregate
of up to 4,500 shares of Common Stock. The Company has specifically reserved such shares. Options may be granted under the discretionary option program to employees, consultants, independent advisors
and non-employee directors. Prior to adoption of the 1998 Plan discussed below, options were automatically granted to non-employee directors under the automatic option grant
programs. Options granted under the discretionary grant program have an exercise price of not less than 85% of the fair market value of the Common Stock on the grant date. Options granted under the
automatic grant program have an exercise price of 100% of the fair market value on the grant date.

In
April 1998, the Company adopted the 1998 Stock Option Plan (the 1998 Plan). Pursuant to the 1998 Plan, the Company may grant stock options or stock appreciation rights to
purchase an aggregate of up to 3,000 shares of Common Stock (inclusive of 1,500 shares added to the 1998 Plan by the stockholders

76

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in June 2001). Options may be granted under the discretionary option program to employees and consultants of the Company not to exceed 200 shares per person during any calendar year except
that in the first year of employment, the maximum grant will not exceed 400 shares per person. Non-employee directors receive an automatic grant of stock options to purchase 20 shares of
Common Stock upon date of commencement of service as a non-employee director and thereafter, 10 shares on the date of each annual meeting of stockholders, provided that on, and as of, such
date, such individual has been a non-employee director for the previous 12-month period. No option may have an exercise price less than the fair market value of the Common
Stock at the time of grant.

All
options granted under the Plans expire ten years from the date of grant (or five years for statutory options granted to 10% stockholders), unless terminated earlier. Options
generally vest over a four-year period. However, as of December 31, 2002, options to purchase approximately 676 shares of common stock had been granted with a two-year
vesting period and options to purchase approximately 140 shares of common stock become immediately vested upon the occurrence of certain events.

A
summary of stock option activity under the Plans is as follows:

|                               |  | Number of Shares |   | Exercise Price Per Share |             | Weighted Average Exercise Price
|------------------------------ |  | ---------------- | - | ------------------------ | ----------- | -------------------------------
|Balance, December 31, 1999     |  | 3,874            |   | $                        | 0.50-13.00  |                                
|Granted                        |  | 2,046            |   |                          | 0.88-7.63   |                                
|Exercised                      |  | (504             | ) |                          | 0.87-3.13   |                                
|Cancelled                      |  | (947             | ) |                          | 0.50-6.25   |                                
|                               |  |                  |   |                          |             |                                
|Balance, December 31, 2000     |  | 4,469            |   | $                        | 0.50-13.00  |                                
|Granted                        |  | 2,394            |   |                          | 0.21-0.72   |                                
|Exercised                      |  |                 |   |                          |            |                                
|Cancelled                      |  | (1,034           | ) |                          | 0.21-13.00  |                                
|                               |  |                  |   |                          |             |                                
|Balance, December 31, 2001     |  | 5,829            |   | $                        | 0.21-$13.00 |                                
|Granted                        |  | 982              |   |                          | 0.41-1.14   |                                
|Exercised                      |  | (64              | ) |                          | 0.30-0.72   |                                
|Cancelled                      |  | (470             | ) |                          | 0.30-6.25   |                                
|                               |  |                  |   |                          |             |                                
|Balance, December 31, 2002     |  | 6,277            |   | $                        | 0.21-$13.00 |                                
|                               |  |                  |   |                          |             |                                
|Exercisable, December 31, 2002 |  | 3,868            |   | $                        | 0.21-13.00  |                                
|                               |  |                  |   |                          |             |                                

77

---

A
summary of stock options outstanding and exercisable as of December 31, 2002, follows:

Options Outstanding

Options ExercisableRange of
exercise prices

Number
outstanding

Weighted average
remaining life(years)

Weighted average
exercise price

Number
exercisable

Weighted average
exercise price$
0.21-1.00

4,004

8.66

$
0.65

2,272

$
0.70$
1.06-3.44

1,579

4.70

$
1.82

1,245

$
1.82$
6.00-7.63

691

7.25

$
6.03

348

$
6.03$
13.00

3

2.58

$
13.00

3

$
13.006,277






3,868


(8) Profit Sharing Plan

The Company's Profit Sharing Plan (the Plan) is a defined contribution plan. All employees with three months of service and who are at least 21 years of
age are eligible to become participants in the Plan and to make voluntary contributions based on a percentage of their compensation within certain Plan limitations.

The
Plan falls under the provisions of Section 401(k) of the Internal Revenue Code. Employees may elect to contribute a percentage of their pretax salary, subject to statutory
limitations, as well as certain percentages of their after-tax salary, to the Plan. Through December 2001, the Company contributed 50% of the employees' first 6% of pretax salary
contribution. The Company's contributions charged to operations in the accompanying consolidated statements of operations were approximately $337, $379 and zero for the years ended December 31,
2000, 2001 and 2002, respectively.

In
addition, the Company may make additional contributions at the discretion of the Board of Directors, which would be allocated among all participants in proportion to each
participant's compensation, as defined. During the years ended December 31, 2000, 2001 and 2002, no additional contributions were made under the Plan.

For
the year 2002, all contributions by the Company were on a discretionary basis only as approved by the Board of Directors. No contributions were approved. Effective January 1,
2003, the Company will contribute 25% of the employees' first 6% of pretax salary contribution.

(9) 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 issued to
shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers.

78

---

Revenues
and long-lived assets for the Company's United States, United Kingdom, Australia and Southeast Asia and other international operations are as follows:

|                  |  | United
States |        | United
Kingdom |   | Australia and
Southeast
Asia |  | Other |       | Consolidated
|----------------- |  | ------------- | ------ | -------------- | - | ---------------------------- |  | ----- | ----- | ------------
|2000              |  |               |        |                |   |                              |  |       |       |             
|Revenues(1)       |  | $             | 34,189 |                | $ | 4,958                        |  | $     | 5,713 |             
|Long-lived assets |  |               | 3,906  |                |   | 158                          |  |       | 139   |             
|2001              |  |               |        |                |   |                              |  |       |       |             
|Revenues(1)       |  | $             | 27,783 |                | $ | 5,495                        |  | $     | 4,103 |             
|Long-lived assets |  |               | 3,412  |                |   | 108                          |  |       | 105   |             
|2002              |  |               |        |                |   |                              |  |       |       |             
|Revenues(1)       |  | $             | 26,826 |                | $ | 5,473                        |  | $     | 4,091 |             
|Long-lived assets |  |               | 2,485  |                |   | 112                          |  |       | 74    |             

---

The
Company does not believe there are any legal or other restrictions upon the repatriation of international earnings to the parent company. However, there are risks that repatriation
of international earnings to the U.S. may not be done on a timely basis due to delays encountered in certain foreign countries.

(10) Operating Segments

In the fourth quarter of 2002 the Company consolidated its sales and marketing efforts of its three business units in order to streamline the sales process and
control expenses. The Company continues to have three product lines that it offers to specific markets as part of its strategy to focus on market opportunities. The three product lines are as follows:



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

79

---

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

|                              |              | AXS-One
Enterprise
Solutions |        | AXS Point
Solutions |  | Tivity
Solutions |       | Total
|----------------------------- | ------------ | ---------------------------- | ------ | ------------------- |  | ---------------- | ----- | -----
|Year Ended December 31, 2000  |              |                              |        |                     |  |                  |       |      
|Revenues:                     |              |                              |        |                     |  |                  |       |      
|                              | License fees |                              | $      | 6,413               |  | $                | 2,010 |      
|                              | Services     |                              |        | 34,102              |  |                  | 3,457 |      
|                              |              |                              |        |                     |  |                  |       |      
|Total revenues                |              |                              | 40,515 |                     |  | 5,467            |       |      
|Operating income              |              |                              | 7,774  |                     |  | 1,560            |       |      
|Total assets                  |              |                              | 13,031 |                     |  | 950              |       |      
|Capital expenditures          |              |                              | 768    |                     |  | 61               |       |      
|Depreciation and amortization |              |                              | 1,888  |                     |  | 98               |       |      
|Year Ended December 31, 2001  |              |                              |        |                     |  |                  |       |      
|Revenues:                     |              |                              |        |                     |  |                  |       |      
|                              | License fees |                              | $      | 3,918               |  | $                | 849   |      
|                              | Services     |                              |        | 27,753              |  |                  | 4,312 |      
|                              |              |                              |        |                     |  |                  |       |      
|Total revenues                |              |                              | 31,671 |                     |  | 5,161            |       |      
|Operating income (loss)       |              |                              | 3,302  |                     |  | 1,370            |       |      
|Total assets                  |              |                              | 8,730  |                     |  | 782              |       |      
|Capital expenditures          |              |                              | 392    |                     |  | 33               |       |      
|Depreciation and amortization |              |                              | 1,759  |                     |  | 63               |       |      
|Year Ended December 31, 2002  |              |                              |        |                     |  |                  |       |      
|Revenues:                     |              |                              |        |                     |  |                  |       |      
|                              | License fees |                              | $      | 1,199               |  | $                | 2,369 |      
|                              | Services     |                              |        | 26,293              |  |                  | 4,248 |      
|                              |              |                              |        |                     |  |                  |       |      
|Total revenues                |              |                              | 27,492 |                     |  | 6,617            |       |      
|Operating income              |              |                              | 3,761  |                     |  | 4,075            |       |      
|Total assets                  |              |                              | 8,849  |                     |  | 1,315            |       |      
|Capital expenditures          |              |                              | 165    |                     |  | 15               |       |      
|Depreciation and amortization |              |                              | 1,848  |                     |  | 46               |       |      

80

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(10) Operating Segments (Continued)

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

|                                                |  | Year Ended December 31, |       
|----------------------------------------------- |  | ----------------------- | ------
|
|Operating income from reportable segments       |  | $                       | 9,826 
|Unallocated revenue, Other                      |  |                         |      
|Unallocated general and administrative expenses |  |                         | (8,704
|Other corporate unallocated expenses            |  |                         | (1,310
|                                                |  |                         |       
|Total consolidated operating income (loss)      |  | $                       | (188  
|                                                |  |                         |       

(11) Quarterly Financial Data (Unaudited)

Summarized quarterly financial data for 2001 and 2002 is as follows (in thousands except per share data):

|                                              |  | Quarter
|--------------------------------------------- |  | -------
|
|
|License fees                                  |  | $      
|Services                                      |  |        
|Other related parties                         |  |        
|Total revenues                                |  |        
|Operating income (loss)(3)                    |  |        
|Net income (loss)(3)                          |  |        
|Basic net income (loss) per common share(2)   |  |        
|Diluted net income (loss) per common share(2) |  |        

81

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|                                       |  | Quarter
|-------------------------------------- |  | -------
|
|
|License fees                           |  | $      
|Services                               |  |        
|Other related parties                  |  |        
|Total revenues                         |  |        
|Operating income                       |  |        
|Net income                             |  |        
|Basic net income per common share(2)   |  |        
|Diluted net income per common share(2) |  |        

---

Quarter2001First

Second

Third

FourthLicense fees

$
102

$
103

$


$
Services


459


477


272


Total revenues


561


580


272


Operating loss


(4
)

(151
)

(177
)

Net loss


(21
)

(91
)

(191
)




(12) Restructuring Costs

During June 2001, based on weakening economies, especially in the United States and to a lesser degree in certain foreign locations, the Company eliminated
45 positions in the United States and, in its foreign operations, eliminated eight positions, wrote-off certain non-performing assets and cumulative foreign currency
translation adjustment and recorded a charge for remaining leases. The Company recorded a charge to operations in the second quarter of 2001 totaling approximately $1.1 million for these items,
reflecting approximately $0.6 million in termination costs of those personnel as well as $0.3 million in asset and cumulative foreign currency translation adjustment
write-offs and $0.2 million in lease costs. During the third and fourth quarters of 2001, the Company adjusted the charge to operations by approximately $(0.2) million and $(0.1)
million respectively, reflecting revised termination and lease costs. These revisions resulted from the Company's decision to retain certain employees in one of the foreign

82

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locations to develop software enhancements for Tivity Solutions. The activity related to this restructuring is as follows:

|                                                                           |  | Employee
Termination
Costs |      | Asset and
Cumulative
Foreign
Currency
Translation
Adjustment
Write-offs |   | Lease
Costs |   | Total
Costs |     
|-------------------------------------------------------------------------- |  | -------------------------- | ---- | ----------------------------------------------------------------------- | - | ----------- | - | ----------- | ----
|
|Restructuring and other costs recorded in June 2001                        |  | $                          | 603  |                                                                         | $ | 300         |   | $           | 200 
|Write-off of assets and cumulative foreign currency translation adjustment |  |                            |     |                                                                         |   | (300        | ) |             |    
|Revision of the restructuring costs in September 2001                      |  |                            | (138 | )                                                                       |   |            |   |             | (28 
|Revision of the restructuring costs in December 2001                       |  |                            |     |                                                                         |   |            |   |             | (140
|Cash payments through December 31, 2001                                    |  |                            | (441 | )                                                                       |   |            |   |             | (32 
|                                                                           |  |                            |      |                                                                         |   |             |   |             |     
|Restructuring liability at December 31, 2001                               |  | $                          | 24   |                                                                         | $ |            |   | $           |    
|Cash payments through March 31, 2002                                       |  |                            | (24  | )                                                                       |   |            |   |             |    
|                                                                           |  |                            |      |                                                                         |   |             |   |             |     
|Restructuring liability at December 31, 2002                               |  | $                          |     |                                                                         | $ |            |   | $           |    
|                                                                           |  |                            |      |                                                                         |   |             |   |             |     

(13) Contingencies

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

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

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Independent Auditors' Report

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

Under
date of January 30, 2003, except as to the last paragraph of note 3, which is as of March 21, 2003, we reported on the consolidated balance sheets of
AXS-One Inc. and subsidiaries as of December 31, 2001 and 2002, and the related consolidated statements of operations, comprehensive income (loss), stockholders' deficit, and
cash flows for each of the years in the three-year period ended December 31, 2002, as contained in the 2002 annual report on Form 10-K. In connection with our
audits of the aforementioned consolidated financial statements, we also audited the accompanying related consolidated financial statement schedule. This consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits.

In
our opinion, such consolidated financial statement schedule for each of the years in the three-year period ended December 31, 2002, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

GRAPHIC

Short
Hills, New Jersey
January 30, 2003

84

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SCHEDULE II

AXS-ONE INC.    VALUATION AND QUALIFYING ACCOUNTS    Years Ended December 31, 2000, 2001 and 2002

|                                 |  | Balance at
Beginning
of Year |       | Charged
(Credited) to
Costs and
Expenses, net(c) |   | Amounts
Written
Off |   | Balance
at End
of Year
|-------------------------------- |  | ---------------------------- | ----- | ------------------------------------------------ | - | ------------------- | - | ----------------------
|Allowance For Doubtful Accounts: |  |                              |       |                                                  |   |                     |   |                       
|Year ended December 31, 2000     |  | $                            | 1,315 |                                                  | $ | 219                 |   | $                     
|Year ended December 31, 2001     |  | $                            | 1,060 |                                                  | $ | (58                 | ) | $                     
|Year ended December 31, 2002     |  | $                            | 657   |                                                  | $ | (131                | ) | $                     
|Restructuring Reserve:           |  |                              |       |                                                  |   |                     |   |                       
|Year ended December 31, 2001     |  | $                            |      |                                                  | $ | 797                 |   | $                     
|                                 |  |                              |       |                                                  |   |                     |   |                       
|Year ended December 31, 2002     |  | $                            | 24    |                                                  | $ |                    |   | $                     
|                                 |  |                              |       |                                                  |   |                     |   |                       

---

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