Axs One (AXSO) 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

Commission File Number:  0-26358

AXS-ONE INC.

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x  NO r

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

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

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

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

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

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

AXS-ONE INC.

INDEX

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

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

AXS-ONE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

	March 31,			December 31,
	2009			2008
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	458		$	933
Accounts receivable, net of allowance for doubtful accounts of
$80 and $84 at March 31, 2009 and December 31, 2008, respectively		1,322			932
Prepaid expenses and other current assets		388			495
Total current assets		2,168			2,360
Equipment and leasehold improvements, at cost:
Computer and office equipment		2,005			2,005
Furniture and fixtures		592			592
Leasehold improvements		669			669
		3,266			3,266
Less--accumulated depreciation and amortization		3,127			3,114
		139			152
Other assets		230			232
	$	2,537		$	2,744
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Line of credit	$	554		$	700
Convertible debt, net of discount of $618 and $1,454 at March 31, 2009 and December 31, 2008
(principally to related parties)		12,343			11,316
Accounts payable		1,090			786
Accrued expenses		2,563			2,988
Deferred revenue		3,737			2,851
Total current liabilities		20,287			18,641
Long-term liabilities:
Long-term deferred revenue		136			169
Total liabilities		20,423			18,810
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 125,000 shares; 41,134 and 41,341 shares
issued and outstanding at March 31, 2009 and December 31, 2008, respectively		411			414
Additional paid-in capital		94,049			93,902
Accumulated deficit		(112,219	)		(110,252	)
Accumulated other comprehensive loss		(127	)		(130	)
Total stockholders' deficit		(17,886	)		(16,066	)
	$	2,537		$	2,744

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

3

AXS-ONE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(unaudited)

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

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

4

AXS-ONE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2009			2008
Net loss	$	(1,967	)	$	(2,205	)
Foreign currency translation adjustment		3			(16	)
Comprehensive loss	$	(1,964	)	$	(2,221	)

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

5

AXS-ONE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Three Months Ended,
	March 31,
	2009			2008
Cash flows from operating activities:
Net loss	$	(1,967	)	$	(2,205	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization		16			36
Provision for doubtful accounts, net		(2	)		132
Stock based compensation expense		144			190
Non-cash interest expense		1,039			434
Changes in assets and liabilities
Accounts receivable		(404	)		(15	)
Prepaid expenses and other current assets		93			106
Change in other assets		-			12
Accounts payable and accrued expenses		(99	)		(559	)
Deferred revenue		866			372
Net cash flows used in operating activities		(314	)		(1,497	)
Cash flows from investing activities:
Purchase of equipment and leasehold improvements		(4	)		(14	)
Net cash flows used in investing activities		(4	)		(14	)
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants		-			2
Borrowing under revolving line-of-credit		1,198			367
Repayment of revolving line-of-credit		(1,344	)		-
Net cash flows (used in) provided by financing activities		(146	)		369
Foreign currency exchange rate effects on cash and cash equivalents		(11	)		(31	)
Net decrease in cash and cash equivalents		(475	)		(1,173	)
Cash and cash equivalents, beginning of period		933			3,362
Cash and cash equivalents, end of period	$	458		$	2,189
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	24		$	33

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

6

(1) OPERATIONS, BUSINESS CONDITIONS AND SIGNIFICANT ACCOUNTING POLICIES

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

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

(a) Basis of Presentation

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

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

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

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

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

7

(b) Revenue Recognition

The Company recognizes revenue in accordance with Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”), and Statement of Position 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.”  Revenue from non-cancelable software licenses is generally recognized when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectability is probable.  The Company recognizes license revenue from resellers when an end user has placed an order with the reseller and the above revenue recognition criteria have been met with respect to the reseller.  In multiple element arrangements, the Company defers the vendor-specific objective evidence (“VSOE”) of fair value related to the undelivered elements and recognizes revenue on the delivered elements using the residual method.  If VSOE of fair value does not exist for any undelivered element, the entire arrangement consideration is deferred until VSOE of fair value is determined for that undelivered element or the element is delivered.  The most commonly deferred elements are initial maintenance and consulting services.  Initial maintenance is recognized on a straight-line basis over the initial maintenance term.  The VSOE of fair value of maintenance is determined by using a consistent percentage of maintenance fee to license fee based on renewal rates.  Maintenance fees in subsequent years are recognized on a straight-line basis over the life of the applicable agreement.  Maintenance contracts entitle the customer to hot-line support and all unspecified product upgrades released during the term of the maintenance contract.  Upgrades include any and all unspecified patches or releases related to a licensed software product.  Maintenance does not include implementation services to install these upgrades.  The VSOE of fair value of services is determined by using an average consulting rate per hour for consulting services sold separately, multiplied by the estimate of hours required to complete the consulting engagement.

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

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

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

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

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

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

 (c) Foreign Currency Translation

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

(d) Stock-Based Compensation

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

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

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

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

8

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

Stock Option Plans

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

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

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

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

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

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

9

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

Options Outstanding								Options Exercisable
Range of exercise prices		Number outstanding (in thousands)		Weighted average remaining life (years)		Weighted average exercise price		Number exercisable in thousands		Weighted average exercise price
$	0.06 -$0.30		728		9.47	$	0.10		133	$	0.30
$	0.35 - $0.44		942		8.78	$	0.40		276	$	0.43
$	0.46 - $1.52		723		3.02	$	0.78		704	$	0.76
$	1.72 – $3.78		218		5.85	$	2.13		192	$	2.16
$	4.21 - $6.00		904		5.06	$	4.22		904	$	4.22
			3,515						2,209

Non-Vested Restricted Stock

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

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

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

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

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

Warrants

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

10

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

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

(e) Income Taxes

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

(2) REVOLVING LINES OF CREDIT

Silicon Valley Bank

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

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

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

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

Sand Hill Finance

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

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

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(3) CONVERTIBLE NOTES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(5) CONTINGENCIES

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

(6) RESTRUCTURING AND OTHER COSTS

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

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

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The activities related to the restructurings are as follows:

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

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

(7) FINANCIAL INFORMATION BY GEOGRAPHIC AREA

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

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

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

(8) SALE OF SOUTH AFRICAN SUBSIDIARIES

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

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

(9) RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

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In June 2008 the FASB issued EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”. EITF 07-5 provides guidance in assessing whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock for purposes of determining whether the appropriate accounting treatment falls under the scope of SFAS 133, “Accounting For Derivative Instruments and Hedging Activities” and/or EITF 00-19, “Accounting For Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. EITF 07-05 is effective as of the beginning of our 2009 fiscal year. The adoption of EITF 07-05 did not have a material impact on our consolidated financial position or results of operations.

In May 2008, the FASB issued FASB Staff Position APB 14-1(“FSP”), Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP will require us to account separately for the liability and equity components of our convertible debt. The debt would be recognized at the present value of its cash flows discounted using our nonconvertible debt borrowing rate at the time of issuance. The equity component would be recognized as the difference between the proceeds from the issuance of the note and the fair value of the liability. The FSP also requires accretion of the resultant debt discount over the expected life of the debt. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Entities are required to apply the FSP retrospectively for all periods presented. The adoption of FSP APB 14-1 did not have a material impact on our consolidated financial position or results of operations.

(10) SUBSEQUENT EVENT

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

 Pursuant to the terms of the Merger Agreement:

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

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

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

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

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

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

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

This Report contains statements of a forward-looking nature within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to future events or the future financial performance of AXS-One.  Investors are cautioned that actual events or results may differ materially.  In evaluating such statements, investors should specifically consider the various factors identified in "Risk Factors" in our 2008 Annual Report on Form 10-K and subsequent SEC filings which could cause actual results to differ materially from those indicated by such forward-looking statements.

Overview

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

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

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

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

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

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

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

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

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

We have experienced, and may in the future experience, significant fluctuations in our quarterly and annual revenues, results of operations and cash flows.  We believe that domestic and international operating results and cash flows will continue to fluctuate significantly in the future as a result of a variety of factors.  For a description of these factors that may affect our operating results, see  "Risk Factors" in our 2008 Annual Report on Form 10-K

Results of Operations

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

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

Comparison of Three Months Ended March 31, 2009 to 2008

Revenues

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

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

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

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

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

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Operating Expenses

Cost of license fees consists primarily of amounts paid to third parties with respect to products we resell in conjunction with the licensing of our products.  The elements can vary substantially from period to period as a percentage of license fees.  Cost of license fees for the three months ended March 31, 2009 were lower than the same period last year due to lower usage and lower costs of third party software.

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

Sales and marketing expenses consist primarily of salaries, commissions and bonuses related to sales and marketing personnel, as well as travel and promotional expenses.  Sales and marketing expenses were $0.8 million or 46.7% lower for the three months ended March 31, 2009, as compared to the corresponding prior year period.  The decrease for the three-month period was primarily due to headcount reductions as a result of the reduction in force implemented in the fourth quarter of 2008 and the first quarter of 2009, and reduced cost resulting from selling the South Africa operations in 2008.

Research and development expenses consist primarily of personnel costs, costs of equipment, facilities and third party software development costs.  Research and development expenses have been charged to operations as incurred.  Research and development expenses were $0.6 million or 38.3% lower for the three months ended March 31, 2009, as compared to the comparable prior year period.  The decrease for the three-month period was primarily due to headcount reductions as a result of the reduction in force implemented in the fourth quarter of 2008 and the first quarter of 2009.

General and administrative expenses consist primarily of salaries for administrative, executive and financial personnel, and outside professional fees.  General and administrative expenses were $0.3 million or 30.9% lower for the three months ended March 31, 2009 as compared to the corresponding prior year period as a result of headcount reductions as a result of the reduction in force implemented in the fourth quarter of 2008 and the first quarter of 2009, reduced cost resulting from selling the South Africa operations in 2008 and lower bad debt expense.

Operating Loss

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

Other Income (Expense), Net

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

Net loss

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

Liquidity and Capital Resources

Liquidity and Cash Flow

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

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

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

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

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

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

Sand Hill Finance, LLC Financing

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

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

Secured Convertible Note Financings

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

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

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

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

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

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

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

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

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

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

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

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

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

Critical Accounting Estimates

Our critical accounting policy is revenue recognition.

Revenue Recognition

The Company recognizes revenue in accordance with Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”), and Statement of Position 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.”  Revenue from non-cancelable software licenses is generally recognized when the license agreement has been signed, delivery has occurred, the fee is fixed or determinable and collectability is probable.  The Company recognizes license revenue from resellers when an end user has placed an order with the reseller and the above revenue recognition criteria have been met with respect to the reseller.  In multiple element arrangements, the Company defers the vendor-specific objective evidence (“VSOE”) of fair value related to the undelivered elements and recognizes revenue on the delivered elements using the residual method. If VSOE of fair value does not exist for any undelivered element, the entire arrangement consideration is deferred until VSOE of fair value is determined for that undelivered element or the element is delivered.  The most commonly deferred elements are initial maintenance and consulting services.  Initial maintenance is recognized on a straight-line basis over the initial maintenance term.  The VSOE of fair value of maintenance is determined by using a consistent percentage of maintenance fee to license fee based on renewal rates.  Maintenance fees in subsequent years are recognized on a straight-line basis over the life of the applicable agreement.  Maintenance contracts entitle the customer to hot-line support and all unspecified product upgrades released during the term of the maintenance contract.  Upgrades include any and all unspecified patches or releases related to a licensed software product.  Maintenance does not include implementation services to install these upgrades.  The VSOE of fair value of services is determined by using an average consulting rate per hour for consulting services sold separately, multiplied by the estimate of hours required to complete the consulting engagement.

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

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

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

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

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

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

Recently Issued Accounting Standards

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

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

In June 2008 the FASB issued EITF 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”. EITF 07-5 provides guidance in assessing whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock for purposes of determining whether the appropriate accounting treatment falls under the scope of SFAS 133, “Accounting For Derivative Instruments and Hedging Activities” and/or EITF 00-19, “Accounting For Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”. EITF 07-05 is effective as of the beginning of our 2009 fiscal year. The adoption of EITF 07-05 did not have a material impact on our consolidated financial position or results of operations.

In May 2008, the FASB issued FASB Staff Position APB 14-1 (“FSP”), Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP will require us to account separately for the liability and equity components of our convertible debt. The debt would be recognized at the present value of its cash flows discounted using our nonconvertible debt borrowing rate at the time of issuance. The equity component would be recognized as the difference between the proceeds from the issuance of the note and the fair value of the liability. The FSP also requires accretion of the resultant debt discount over the expected life of the debt. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Entities are required to apply the FSP retrospectively for all periods presented. The adoption of FSP APB 14-1 did not have a material impact on our consolidated financial position or results of operations.

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

See our 2008 Annual Report on Form 10-K for a detailed discussion of risk factors.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk

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

Item 4.    Controls and Procedures

Evaluation of disclosure controls and procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of "disclosure controls and procedures" in Rule 13a-15(e).  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2009.  Based upon the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2009.

Internal controls over financial reporting

There have been no changes in the Company's internal control over financial reporting during the quarter ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 6.      Exhibits

Exhibit	Description
31.1	Rule 13a-14(a)/15d-14(a) Certification – William P. Lyons
31.2	Rule 13a-14(a)/15d-14(a) Certification – Joseph P. Dwyer
32	Officer Certifications under 18 USC 1350

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SIGNATURES

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

		AXS-ONE INC.
Date:   May 13, 2009	By:	/s/ William P. Lyons
		William P. Lyons Chief Executive Officer and Chairman of the Board
	By:	/s/ Joseph P. Dwyer                                   Joseph P. Dwyer Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

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