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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2001

Commission File Number: 1-13591

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

201-935-3400
(Registrant's telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act:

None

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

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

        The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of Common Stock on March 15, 2002 as reported on the American Stock Exchange, was approximately $12.7 million. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

        As of March 15, 2002, Registrant had outstanding 24,802,742 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

        Items 10, 11, 12 and 13 of Part III are incorporated by reference from a portion of the Registrant's definitive proxy statement to be furnished to stockholders in connection with the 2002 Annual Meeting of Stockholders.

Item 1. Business

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

General

        AXS-One Inc. ("AXS-One" or the "Company") (which, until October 31, 2000, was known as Computron Software, Inc.) is a provider of robust, secure business solutions that allow a company to achieve efficiency in its business processes and to extend those efficiencies to its customers, suppliers, and business partners. AXS-One has over 20 years of experience in designing and building process-centric business solutions for global organizations. AXS-One has a proven track record in developing flexible, high-volume, scalable, secure and effective business solutions for global 2000 organizations. AXS-One's ability to quickly identify emerging market opportunities and build high-quality innovative solutions has won many awards over the years, including Imaging Magazine's "Product of the Year" award for its Workflow (the precursor to the current AXS Process Manager), a "Best of AIIM" award for the first Internet/Java COLD product and the 2002 "Best of AIIM" award for Best Practices in Enterprise Content Management for AXS-One's AXSPoint Travel Industry Solution implemented at one of our clients, Brittany Ferries.

        AXS-One believes that the ultimate success of 21st century organizations will be determined by how seamlessly these organizations conduct business internally and with their partners, customers and suppliers. The Company's objective is to deliver Internet-based business solutions to allow organizations to establish transparent and seamless processes throughout their value-network, thus enabling true collaborative commerce. AXS-One's approach allows companies to preserve investments in existing systems by extending them with the creation of collaborative web services that automate business processes across corporate boundaries. This results in manageable investments, quick implementation schedules and rapid return on investments (ROIs).

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

        AXS-One is organized around three product families that represent separate lines of business ("LOB") within AXS-One:

AXS-One™ Enterprise—a suite of solutions that address mission critical business processes that directly affect the overall performance of an enterprise.

AXSPoint™—a suite of solutions encompassing process automation, enterprise report management and distribution, and delivery of web content.

Tivity™—AXS-One's verticalized version of AXS-One Enterprise specifically focused on the Professional Services Organization (PSO) industry.

        Each of these families of solutions has been enhanced using AXS-One's e-Cellerator™products. e-Cellerator products utilize a web services-based messaging, transaction and process-centric architecture that AXS-One has developed to support the design and development of large-scale,

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Internet-based collaborative commerce solutions. It is an "n-tier" (desktop browser, web servers, application servers and database server), component-based, Internet-deployable, scalable architecture fully compliant with WSDL, XML and SOAP web services protocols and architectures. At the core of the architecture is an advanced process engine that handles large volumes of complex business process logic. The user interface is very intuitive and is accessible over the Internet utilizing a combination of HTML, XML Style Sheets and Java applets or Visual Basic for the client/server desktop.

        e-Cellerator products run on Windows NT/Windows 2000, Sun Unix, HP UNIX, Tru64 UNIX and IBM RS/6000 Unix application servers. Linux is available, but not deployed. The e-Cellerator products support the following database engines: Oracle on all platforms, MS SQLServer on Windows NT/Windows 2000, and Informix and Sybase on the Unix servers. Solutions using e-Cellerator products can be hosted in-house or remotely by third-party application service providers (ASP). AXS-One is committed to delivering solutions that allow organizations to conduct business seamlessly with their customers, suppliers and partners in a collaborative Internet operating environment.

        AXS-One's Foundation products, included in the AXS-One Enterprise LOB, which are deployed in a client/server (with Visual Basic thin client and Browser based desktops) or web services-based model, continue to be maintained, enhanced and upgraded. These products are the back-office system of choice for large information-centric, global organizations such as AIG, Pfizer, AOL, Deutsche Bank, Emery, TNT, Ricoh and United Airlines. AXS-One's Foundation products have been particularly well received in those organizations that have adopted an internal "shared services" approach to back-office administration functions. AXS-One Financials have extensive functionality and are able to handle large volumes of complicated business transactions. They are designed to manage end-to-end business processes. AXS-One Financials are integrated with a robust process engine that allows organizations to manage and track a wide range of business-process metrics. The Process Design Workbench is a critical component of the solution. It enables organizations to quickly tailor standard business process templates to meet their own unique needs. The underlying "n-tier" architecture is highly scalable and able to meet the transaction volume needs of Fortune 100 organizations. AXS Process Manager (workflow), a critical component of the e-Cellerator family of products, can be used to automate business processes both within and across organizations, thus extending the reach of end-to-end process control outside of the walls of traditional bricks and mortar organizations and achieving true collaborative business communications.

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

Organization and Products

        The Company is organized into three LOBs: AXS-One Enterprise Solutions, AXSPoint Solutions and Tivity Solutions. AXS-One's international subsidiaries and distributors are responsible for selling and marketing the products of these three LOBs into their respective local markets.

        Further information specific to these three operating segments is presented in Note 10 to the Consolidated Financial Statements.

        AXS-One Enterprise Solutions.    Offers a suite of supply chain management solutions that address mission critical business processes that directly affect the overall performance of an enterprise. The degree of success or failure of these processes is measured in terms of speed, accuracy, control and accountability. AXS-One Enterprise solutions manage the revenue process, including relationships with customers, with Revenue Manager; the expense process, including relationships with vendors, with Expense Manager; the procurement process, including relationships with employees and vendors, with Procurement Manager; and the business planning, budgeting, analysis and reporting process, with

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Business Manager. Collectively, AXS-One Enterprise solutions enable enterprises to effectively manage entire process lifecycles with proven transactional applications, templated and automated process workflow, by maximizing and harnessing the power of the Internet.

        The AXS-One Enterprise Solutions LOB is also responsible for maintaining, supporting and enhancing AXS-One's Foundation suite of world-class back-office financial solutions and existing AXS-One North American customers, including Pfizer, AIG, Deutsche Bank, Ricoh, United Airlines and Emery.

        The AXS-One Enterprise Solutions LOB conducts comprehensive marketing programs in the United States, which include telemarketing, public relations, direct mail, advertising, seminars, trade shows and ongoing customer communications programs.

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

        Outside of the United States, the AXS-One Enterprise Solutions LOB utilizes the Company's sales and support offices in Australia, Singapore, South Africa, Central and Eastern Europe (sold as of September 20, 2001), and in the United Kingdom. In the past the Company has established distribution arrangements with third parties around the world including the reseller agreement entered into in 2001 with its former subsidiary located in Central and Eastern Europe and continually evaluates future third party arrangements. Currently, the AXS-One Enterprise Solutions LOB does not generate significant revenues from its distributors.

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

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

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

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the need for direct contact with the Accounts Payable department. Expense Manager streamlines the internal payment process and strengthens the customer/supplier relationship.

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

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

AXS-One Financials:

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

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        AXSPoint Solutions.    Is responsible for the development and marketing of core technology for solutions that enable organizations to electronically and securely share knowledge both within the enterprise, and with its customers and other business partners. The AXSPoint technology enables customers to gain and maintain competitive advantage by providing technology that captures and delivers content and information across the enterprise and throughout the value-network. AXSPoint, through professional service offerings, also provides customers with resources who have technology and industry expertise. AXSPoint utilizes the same underlying e-Cellerator architecture as other AXS-One products. AXSPoint can be used to rapidly transform traditional systems into powerful web services solutions. AXSPoint is a powerful tool for extending existing systems and for rapidly deploying collaborative commerce capabilities throughout a value network.

        AXSPoint solutions have been deployed as self-service information systems, Internet report publishing and distribution systems, Internet-enabled information reconciliation systems, and transaction confirmation solutions. These solutions are typically implemented in weeks, thus providing a rapid time-to-value. AXSPoint technology captures Text, XML, and APA (AFP, Metacode, PCL) document data and places this information in a repository that provides easy access to this data for re-tasking. By combining this data with other data sources and supplying easy access via a robust user interface, AXSPoint facilitates short time-to-market for custom web applications. This rapid time-to-market is a critical selling point that differentiates this LOB's product line from competitive offerings. AXSPoint Solutions scale easily from small companies to large multinational enterprises.

        AXSPoint Solutions has approximately 75 North American customers, and over 125 clients globally, including First Union, Deutsche Bank, Chicago Mercantile Exchange, and JP Morgan Chase Bank. During 2001 many of these organizations were upgraded from the client/server versions of AXS-One COOL™software to the e-Cellerator products-based AXSPoint family of solutions. The Company anticipates that many clients remaining on the older technology will upgrade during 2002; however, no assurances regarding such upgrades can be made at this time.

        AXSPoint Solution's sales efforts in the United States are conducted by a direct sales force that is located at the Company's headquarters in Rutherford, New Jersey. In addition, the Company has begun establishing strategic alliances with hardware, database and software vendors to enhance its marketing efforts. AXSPoint Solutions is able to offer its customers highly flexible licensing methods that match the methods by which customers measure their return on investment.

        Comprehensive marketing programs are conducted in the United States, and include telemarketing, public relations, direct mail, advertising, seminars, trade shows and ongoing customer communications programs. To maintain a high level of customer satisfaction, AXSPoint has launched a Client Care Program with the primary goal of increasing client awareness around the flexibility that has been added to the AXSPoint products.

        Outside of the United States, the AXSPoint Solutions LOB utilizes the Company's sales and support offices in Australia, Central and Eastern Europe (sold as of September 20, 2001), Singapore, South Africa and the United Kingdom. In the past the Company has established distribution

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arrangements with third parties around the world including the reseller arrangement entered into in 2001 with its former subsidiary in Central and Eastern Europe and continually evaluates future third party arrangements. Currently, the AXSPoint Solutions LOB does not generate significant revenues from its distributors; however, it recognizes that active involvement with potential channel partners is a key to maintaining its worldwide presence.

AXSPoint Solutions:

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        In 2000, AXSPoint Central and AXSPoint Exchange were enhanced to leverage the power of eXtensible Markup Language (XML). In 2001, this capability was enhanced to allow AXSPoint Exchange to be deployed as a web service thus extending its value to organizations that wish to employ a centralized portal strategy. Significant enhancements were also made to the AXSPoint Exchange development capabilities via the deployment of Macromedia Ultradev Extensions. With these extensions a company can rapidly design and deploy complex ESS applications either as dedicated systems or through portals.

        The AXSPoint Professional Services Group provides strategic services to corporate executives who develop enterprise plans for the dissemination and analysis of mission critical information. In conjunction with the development of seminars directed specifically to executives, this group is tasked with establishing AXSPoint as "the provider of choice" for acquisition of Information Management knowledge and services. These services are delivered directly by AXSPoint subject matter experts and alliance partners.

        AXSPoint's market approach focuses on the development of alternate channels of distribution that leverages new incremental sources of revenue. Partnerships with systems integrators specialized in EBPP, ESS and document management solutions are being pursued and supported to establish AXSPoint products as core products used to deliver services to their clients. Software vendors that lack the ability to extend the functionality of their product are supplied with the ability to present their information on an enterprise basis by leveraging AXSPoint presentation and analysis functions. Lastly, AXSPoint is pursuing opportunities with web-based companies that require AXSPoint features and functionality as a complement to their business. The likelihood of success of these efforts cannot be determined at this time.

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

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

        The ability to integrate third party tools and products with Tivity's family of solutions is a key component of being able to offer an integrated full suite solution. Tivity is actively seeking partnerships during 2002 to enhance its product offerings. The likelihood of success of these efforts cannot be determined at this time.

        Tivity's business partners include the other AXS-One LOBs. By using AXS-One's e-Cellerator products, Tivity is able to provide PSOs and ISOs with world-class Internet transaction processing (ITP) and Internet knowledge processing (IKP) systems tailored to the specific requirements of these organizations.

        Tivity has global customers, including Mercer Management Consulting, Cap Gemini Ernst & Young, William M. Mercer and America Online. These organizations use client/server versions of AXS-One's TEAM (Time & Expense Accounting Management) software, and during 2002 the Company hopes to migrate many of these customers to e-Cellerator products based on Tivity's family of solutions. The likelihood of success of these efforts cannot be determined at this time.

        Tivity currently markets its products and services primarily through a direct sales force dispersed throughout the United States and directly and indirectly in other parts of the world. Tivity conducts comprehensive marketing programs in the United States, which include telemarketing, public relations, direct mail, advertising, seminars, trade shows and ongoing customer communications programs.

        Outside of the United States, Tivity utilizes the Company's sales and support offices in Australia, Singapore, South Africa and the United Kingdom. In the past, the Company has established distribution arrangements with third parties around the world and continually evaluates future third party arrangements. Currently, Tivity does not generate significant revenues from its distributors.

Tivity Solutions:

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Architecture

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

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

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

        AXS-One's e-Cellerator products support relational database management systems (RDBMS) from vendors such as Microsoft Corporation (Microsoft SQL), Oracle Corporation (Oracle), Sybase, Inc. (Sybase), and Informix Corporation (Informix). AXS-One's solutions run on a variety of UNIX-based application servers—Sun Microsystems, Inc. (Sun), Hewlett-Packard Corporation (HP), Compaq Tru64 UNIX and International Business Machines Corporation (IBM), as well as Intel-based servers running Windows NT/Windows2000. Linux is available, but not deployed.

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

Extensive Use of Object-Oriented Design Techniques

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

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

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

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

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

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

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

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

N-Tiered Architecture

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

        Though the classic two-tier client/server architecture is surprisingly still at the heart of many enterprise solutions, its limitations have been widely acknowledged. For example, the two-tier model requires application logic to be executed on individual client workstations, reducing performance dramatically.

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

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

        During 2001, AXS-One continued enhancing its Foundation products by use of its e-Cellerator technology. The revised architecture differs from AXS-One's traditional client/server architecture in that it adds a "templates and components" infrastructure deployed in an Internet server tier and re-engineered components to communicate with a standard XML web services protocol. This provides for a rich, intuitive end user experience, and reduces the need to upgrade and support client software, since use is made of industry standard browsers. In addition, AXS-One has made significant changes in the application and database tiers to better support high volume Internet transaction traffic.

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

Customization and Extensibility

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

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

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Presentation/user interface



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Direct access to component level via web services



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Direct access to application modules via web services



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Process logic



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Application logic



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Inquiry reporting



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Drill-down modules



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The relational information model



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Validation and rules



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Business components for integration with other systems



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Business process rules

Interoperability

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

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

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

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

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Process Driven

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

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

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

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

Maintaining Security

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

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

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

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

Lowering Total Cost of Ownership

        AXS-One believes that there are many ways in which its products and architecture lower the total cost of ownership for an organization. For example:

•

AXS-One provides Implementation Certainty, a proven methodology for assuring a smooth transition to, and rapid implementation of, its software.

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•

AXS-One's architecture allows organizations to leverage existing development environments and to partition applications for maximum performance.



•

By customizing the software outside of the source code, it is easier to upgrade from one version of the software to another—a feature that lowers internal support costs.



•

New client forms, menus, and messages can be uploaded, reducing the maintenance required for new release implementations.



•

AXS-One supports multiple languages, including double-byte enablement using the same code. Therefore, the same product can be implemented across the enterprise.

Professional Services

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

        As of December 31, 2001, the Company had 116 employees worldwide providing customer support, consulting and training services. To maintain a high standard of service, the Company requests customer evaluations of service personnel on a quarterly basis. Bonus compensation for these personnel is based, in part, on the results of these reviews. The Company's services are described below.

Client Support

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

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

Technical Services

        The Company offers assistance in developing interfaces with third party software or legacy systems. These services are designed to enable the development of additional client-specific functionality, and to integrate with other mission critical systems. The Company also provides network troubleshooting and assists its customers in deploying Internet systems, RDBMS software and operating systems.

Consulting Services

        The Company's consulting services organization provides project assurance, business systems review, technical design, functional design, business modeling, system tailoring, system certification, change management and ongoing project support in connection with customer implementation of the Company's products. Similar services are also provided for upgrades to later versions of the software

17

and migrations to different operating platforms. The Company frequently works with third-party consultants and system integrators to provide customers with a full range of installation, customization and project management services.

Education Services

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

Strategic Alliances

        The Company has established strategic alliances and relationships with a number of organizations that it believes are important to the development, sales, marketing, integration, and support of its products. The Company's relationships with software and hardware vendors, systems integrators and consulting firms provide marketing and sales leads to the Company's direct sales force and expand the distribution of its products. The Company's strategic alliances and relationships also assist the Company in keeping pace with the technological developments of major software and hardware vendors. The Company intends to continue to develop its strategic alliances with leading hardware and software vendors, consulting firms, systems integrators and distributors in the future. The Company provides education services for its strategic business partners.

Product Development

        The Company has a dedicated product development and engineering organization and periodically releases new products and enhancements to existing products. Product development efforts are directed at increasing product functionality, improving product performance, providing support to existing products, expanding the capabilities of the products to inter-operate with third-party software and hardware, developing new products and integrating new technologies. In particular, the Company has from time to time devoted substantial resources to develop additional modules for its products and the capability to support additional platforms, databases, GUIs, toolsets and emerging technologies. While the Company anticipates that certain new products and enhancements will be developed internally, the Company has in the past and may continue to acquire or license technology or software from third parties when appropriate.

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

        As of December 31, 2001, the Company had 67 employees engaged in product development and engineering.

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Competition

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

Intellectual Property

        The Company's success is heavily dependent upon its proprietary technologies as well as products from third parties, software vendors, hardware vendors, etc. The Company regards its software as proprietary, and relies primarily on a combination of contractual provisions and trade secrets, copyright and trademark law to protect its proprietary rights. The Company has no patents or patent applications pending, and existing trade secrets and copyright laws afford only limited protection. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult, and while the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. The Company makes source code available to certain of its customers, which may increase the likelihood of misappropriation or other misuse of the Company's software. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies.

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

        The Company also licenses software from third parties, which is incorporated into its products. These licenses expire from time to time. In addition, the Company generally does not have access to

19

source code for the software supplied by these third parties. Certain of these third parties are small companies that do not have extensive financial and technical resources. If any of these relationships were to be terminated or if any of these third parties were to cease doing business, the Company may be forced to expend significant time and development resources to replace the licensed software. Such an event would have a material adverse effect upon the Company's business, results of operations and financial condition.

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

Employees

        As of December 31, 2001, the Company had 258 full-time employees, 180 within the United States and 78 outside the United States, including 67 in product development and engineering, 116 in customer service and support, 39 in sales and marketing, and 36 in finance, administration and executive management. The Company's employees are not covered by any collective bargaining agreements. The Company believes that its relations with its employees are good.

Risk Factors

We have a history of net losses.

        AXS-One may never generate sufficient revenues or reduce costs to be profitable. Even if we do become profitable, we may not sustain or increase profitability on a quarterly or annual basis in the future. AXS-One has incurred net losses of $3.7 million for 1999, $0.3 million for 2000 and $4.7 million during our year that ended December 31, 2001. As of December 31, 2001, we had an accumulated deficit of $80.7 million.

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

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

•

the proportion of revenues we attribute to license fees versus fees for the services we provide,



•

the number of third parties we use to perform services,



•

the amount of revenues we generate from our sale of third party software,



•

changes in our product mix,



•

demand for our products,



•

the size and timing of individual license transactions,



•

the products and enhancements that we, or our competitors, introduce,



•

changes in our customers' budgets,

20

•

potential customers unwillingness to undertake major expenditures with us due to our past operating results, and



•

competitive conditions in the industry and general economic conditions.

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

•

our clients must commit a significant amount of capital, and



•

frequently, a license must be authorized through the appropriate channels within a client's organization.

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

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

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

•

a high percentage of our operating expenses are relatively fixed,



•

planned expenditures are based primarily on sales forecasts, and



•

only a small percentage of our operating expenses vary with our revenues.

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

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

•

our customers' budgeting and purchase patterns, and



•

our sales commission policies. Generally, we compensate our sales personnel based on quarterly and annual performance quotas.

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

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

The electronic commerce software market is intensely competitive.

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

21

•

timing and market acceptance of new products and enhancements developed by us, as well as by our competitors,



•

whether our products are reliable, how they function, perform, and are priced,



•

our customer service and support,



•

our sales and marketing efforts, and



•

our product distribution.

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

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

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

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

•

reducing the price of our products,



•

reducing our gross margins, and



•

losing market share.

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

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

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

•

AXS-One Enterprise Solutions,



•

AXSPoint Solutions, and



•

Tivity Solutions.

        We expect that these products and services will continue to account for substantially all of our revenues during 2002. Accordingly, our future operating results will depend, in part, on

22

•

achieving broader market acceptance of our products and services,



•

maintaining our customer base, as well as



•

enhancing these products and services to meet our customers' evolving needs.

        Additionally, during 2002, our AXS-One Enterprise Solutions, AXSPoint Solutions and Tivity Solutions each need to gain greater market acceptance. If

•

demand in the market for electronic commerce software is reduced,



•

competition increases, or



•

sales of such products or services decline,

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

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

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

        The electronic commerce software market is characterized by

•

rapid technological change,



•

changes in customer requirements,



•

frequent new product introductions and enhancements, and



•

emerging industry standards.

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

•

operating systems,



•

hardware platforms,



•

interfaces, and



•

third party application software.

We cannot assure anyone that

•

we will be successful in developing and marketing product enhancements or new products that respond to



•

technological change,



•

changes in customer requirements, or



•

emerging industry standards.

23

•

we will not experience difficulties that could delay or prevent our successfully developing, introducing and marketing new products and enhancements, or



•

any new products or enhancements that we may introduce will be accepted by our targeted market.

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

•

hardware and software vendors,



•

relational database management systems vendors, or



•

reporting software vendors.

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

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

        On March 28, 2002, the American Stock Exchange notified us that we are not in compliance with their continued listing requirements due to our continuing losses and our stockholders' deficit. The Exchange will continue the listing of our Common Stock at least until March 31, 2003, on the conditions that we submit to them by May 1, 2002, a satisfactory plan for regaining compliance with their listing requirements no later than March 31, 2003 and then demonstrate satisfactory progress toward implementing that plan. We intend to do so. If we do not satisfy the Exchange's conditions, they may institute immediate delisting proceedings. If our common stock were to be de-listed by the American Stock Exchange, we might be unable to list our common stock with another stock exchange. In that event, trading of our common stock might be limited to the OTC Bulletin Board or similar quotation system.

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

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

        We believe that our success greatly depends on our proprietary technology and software. We rely primarily on a combination of trademark and copyright law, trade secret protection and contractual agreements with our employees, customers, partners and others to protect our proprietary rights. Despite our efforts to protect our proprietary rights, unauthorized third parties may attempt to copy all or part of our products or reverse engineer or obtain and use information that we regard as

24

proprietary. Additionally, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. We cannot assure anyone that the steps we take to protect our proprietary rights will be adequate or that our competitors will not independently develop technologies that are substantially equivalent or superior to ours.

Our products may become subject to infringement claims.

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

A security breach could harm our business.

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

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

        We believe that our continued growth and profitability will require AXS-One to expand its sales in international markets, which require significant management attention and financial resources. We cannot assure anyone, however, that we will be able to maintain or increase international market demand for our products and services.

        The information below shows the effects of the sale of the Company's French and German subsidiaries during 1999 and the Central and Eastern Europe subsidiary during 2001, upon revenues from our foreign customers. In 1999, 2000 and 2001 the Company's total revenues from customers outside the United States were as follows:

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

—

unexpected changes in tariffs, trade barriers and regulatory requirements,



—

costs of localizing products for foreign countries,



—

lack of acceptance of localized products in foreign markets,



—

longer accounts receivable payment cycles,



—

difficulties managing international operations,



—

potentially adverse tax consequences,



—

restrictions on repatriation of earnings,



—

reduced legal protection of our intellectual property, and



—

the burden of complying with a wide variety of foreign laws.

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

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

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

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We rely on certain third-party relationships.

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

—

enhance our product development and marketing and sales efforts,



—

implement our software products, and



—

support our customers.

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

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

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

        This control may prevent or discourage tender offers for our common stock unless these controlling stockholders approve the terms of any such offers. As of March 15, 2002, AXS-One's executive officers, directors and affiliates together beneficially own approximately 49.1% of our outstanding common stock. As a result, these stockholders are able to exercise control over matters requiring stockholder approval including:

—

electing directors, and



—

mergers, consolidations, and sale of all or substantially all of our assets.

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

        AXS-One's future success will depend, in large part, on the continued service of its key executives, and if we fail to attract and maintain those executives, the quality of our products, our business, financial condition and operating results could suffer. AXS-One has experienced turn over of its key executives in the past. In 2000, Michael Jorgensen assumed responsibility for North American Sales in the AXS-One Enterprise Division and maintained that position until June 2001 when he was named Executive Vice President and Chief Administrative Officer of the Company. William Levering was named to replace Mr. Jorgensen as Chief Financial Officer, in March 2001. In January 2001, Dennis Piccininni joined the Company as President of the Tivity Division, and Nat Bosco joined the Company as Vice President and General Manager of AXS-Point Solutions. In June 2001, Mr. Piccininni was named Vice President of North America Sales and Marketing and Mr. Bosco was named Vice President, Implementation and Custom Development Services in addition to his position in the AXSPoint organization. In February 2002, Thomas Manobianco re-joined AXS-One as Vice President of Professional Services assuming responsibility for implementation and custom development services previously held by Mr. Bosco. Mr. Bosco retains his position as Vice President and General Manager of

27

AXSPoint. We cannot assure anyone that turnover of our key executives will not continue, and that such turnover would not adversely affect our business, operating results and financial condition.

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

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

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

—

quarterly variations in our operating results,



—

the gain or loss of significant contracts,



—

changes in earning estimates by securities analysts,



—

announcements of technological innovations by us or our competitors,



—

announcements of new products or services by us or our competitors,



—

general conditions in the software and computer industries, and



—

general economic and market conditions.

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

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

        AXS-One has never paid or declared any cash dividends and it does expect to pay any cash dividends in the foreseeable future. We currently intend that future earnings, if any, will be retained for business use.

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Directors, Executive Officers and Key Management Employees

        The current directors, executive officers and key management employees of the Company as of March 8, 2002, are as follows:

(1)

Member of the Audit Committee

(2)

Member of the Compensation Committee

        John A. Rade joined the Company as a Director, President and Chief Executive Officer in February 1997. Prior to joining the Company, Mr. Rade, was from April 1995, a Vice President of American Management Systems, Inc., and was also still active at S-Cubed International (now named Mergence Technology Corporation), a company in the client server system development and consulting market, which he founded in February 1990. Prior to this he held senior executive positions with Information Science, Inc., Cap Gemini and Computer Sciences Corporation.

        Michael R. Jorgensen joined the Company as Executive Vice President and Chief Financial Officer, Treasurer and Secretary in February 1997. Effective March 2, 2001, Mr. Jorgensen became Executive Vice President, North America. Effective June 2001, Mr. Jorgensen became Executive Vice President and Chief Administrative Officer of the Company. Prior to joining the Company, from June 1993 to December 1996, Mr. Jorgensen was Senior Vice President and Chief Financial Officer of Ground Round Restaurants, Inc., a publicly-held chain of family restaurants. Prior to that, from March 1992 to April 1993, he was Vice President/Finance-Middle East of Alghanim Industries.

        Elias Typaldos, a founder of the Company, has been Senior Vice President, Research and Development and a director since the Company's formation in 1978, and Chairman of the Board since March 1997.

        Gennaro Vendome, a founder of the Company, has been a Vice President and director since the Company's formation in 1978. Mr. Vendome was Treasurer of the Company from 1981 until 1991 and Secretary of the Company from 1982 until 1991.

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

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

        Dennis W. Piccininni joined the Company in January 2001. Mr. Piccininni is Vice President, Sales and Marketing, North America. Prior to joining the Company he was the President and CEO of Systemcorp from December 1998 to July of 2000. From 1990 to 1998 Mr. Piccininni was Vice President and General Manager, Americas for ABT Corporation.

        Nat Bosco joined the Company in January 2001 as Vice President and General Manager of the AXSPoint LOB. From May 2000 to January 2001 Mr. Bosco was a Director at EE21, a recent Internet venture. From April 1998 to April 2000, Mr. Bosco held the position of President at Legacy Consulting, a privately held company. Coopers & Lybrand employed Mr. Bosco from 1992 through 1998, as a managing associate.

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

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

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

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

        William E. Vogel has been a director since August 1996. Since 1971, Mr. Vogel has been Chief Executive Officer of Centennial Financial Group, Inc., which is in the health insurance business. He has also been the Chief Executive Officer of W.S. Vogel Agency, Inc., a life insurance brokerage general agency, since 1961. In November 2000, Mr. Vogel became an employee and Executive Sales Manager for Benefitmall.com.

        Edwin T. Brondo has been a director since May 1997. Mr. Brondo is currently retired. From August 1998 to August 2000 he was Executive Vice President and Chief Financial Officer of e-Vantage Solutions, Inc (formerly called Elligent Consulting Group, Inc.), a technology consulting company. e-Vantage Solutions may be deemed to be an affiliate of the Company by virtue of the relationship of

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e-Vantage Solutions with a major stockholder of the Company. Mr. Brondo was Chief Administrative Officer and Senior Vice President of First Albany Companies, Inc., an investment banking firm, from June 1993 until December 1997.

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

        Each of the Directors shall be subject to re-election at the 2002 Annual Stockholders meeting.

Item 2. Properties

Facilities

        The Company's corporate headquarters are located in Rutherford, New Jersey in leased facilities consisting of 48,800 square feet of office space occupied under a lease expiring in December 2012 with an option to renew the lease for one additional five-year period. The Company leases additional facilities and offices, including facilities located in the Atlanta, Chicago, Rockwall, Texas and Mississauga, Canada. The Company also leases sales and support offices outside of North America in Australia, Singapore, South Africa and the United Kingdom. While the Company believes that its facilities are adequate for its present needs, the Company periodically reviews its needs. The Company believes that additional space, if needed, would be available on commercially reasonable terms.

Item 3. Legal Proceedings

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

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

        No matters were submitted to a vote of security holders during the fourth quarter of 2001.

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PART II

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

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

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

        As of March 15, 2002 the approximate number of record holders of the Company's Common Stock was 664.

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

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Item 6.    Selected Consolidated Financial Data

        The selected consolidated financial data set forth below for the years ended December 31, 1997, 1998, 1999, 2000 and 2001 have been derived from the audited consolidated financial statements of the Company. The consolidated statement of operations data for the years ended December 31, 1999, 2000 and 2001, and the consolidated balance sheet data as of December 31, 2000 and 2001 are derived from, and are qualified by reference to, the audited consolidated financial statements and the related notes thereto included elsewhere in this report. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and related notes thereto included elsewhere in this report.

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(1)

For the periods 1997 through 1999, the data above included subsidiaries in France and Germany which were sold during 1999.

(2)

For the periods 1997 through 2001, the data above included the subsidiary in Central and Eastern Europe that was sold during 2001.

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

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

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

Overview

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

        We supply a suite of e-commerce solutions based upon our next generation n-tier Internet-architecture. This family of products, e-Cellerator products, is designed to meet the needs of organizations that wish to conduct business across the Internet. e-Cellerator products are used to build two families of solutions, AXS-One Enterprise solutions and AXSPoint solutions. AXS-One Enterprise solutions are designed to enable businesses to conduct business transactions across the Internet. AXSPoint solutions are designed to enable organizations to exchange information and knowledge across the Internet. These two families of solutions were announced in the fourth quarter of 1999, and AXS-One Enterprise solutions and AXSPoint solutions modules were made available throughout 2000 and 2001. See "Item 1. Business."

        We have approximately 258 employees in offices worldwide, including Asia, Australia, Canada, the United Kingdom, the United States and South Africa. AXS-One Inc., formerly known as Computron Software, Inc., was founded in 1978, and is based in Rutherford, New Jersey.

        In April and June 1996, respectively, AXS-One acquired the Financial Services Division of Generale de Service Informatique (GSI) based in Paris, France, and a portion of the business and

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assets of AT&T Istel and Co., GMBH, in Essen, Germany. These operations primarily provided software products and services in their respective countries. Both of these entities were sold during 1999. In September 2001, we sold our wholly owned subsidiary located in Central and Eastern Europe, including offices in Poland, Estonia and Bulgaria. See below for the impact of these divestitures.

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

        We incurred net losses of $3.7 million, $0.3 million and $4.7 million in 1999, 2000 and 2001, respectively, and operating losses of $1.2 million, $0.2 million and $4.1 million in 1999, 2000 and 2001, respectively. Operating losses incurred by our French and German subsidiaries, which were sold in 1999, totaled $2.4 million for 1999. The 1999 net loss includes a $2.2 million loss on sales of subsidiaries. Operating losses incurred by the Central and Eastern Europe subsidiary, which was sold in 2001 totaled $1.0 million, $0.6 million and $0.3 million for 1999, 2000 and 2001, respectively.

Recently Issued Accounting Standards

        In July 2001, the Financial Accounting Standards Board issued SFAS Nos. 141 and 142 (SFAS 141 and SFAS 142), "Business Combinations" and "Goodwill and Other Intangible Assets." SFAS 141 replaces APB 16 and requires the purchase method of accounting prospectively. It also provides guidance on the recognition of intangible assets apart from goodwill. SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Under SFAS 142, goodwill will be tested annually and whenever events or circumstances occur indicating that goodwill might be impaired. SFAS 141 and SFAS 142 are effective for all business combinations completed after June 30, 2001. Upon adoption of SFAS 142, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under SFAS 141 will be reclassified to goodwill. Companies are required to adopt SFAS 142 for fiscal years beginning after December 15, 2001. In connection with the adoption of SFAS 142, companies will be required to perform a transitional goodwill impairment assessment. The adoption of SFAS 141 on July 1, 2001 had no effect on our consolidated financial position or results of operations. The adoption of SFAS 142 on January 1, 2002 will have no effect on our consolidated financial position or results of operations.

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

        In November 2001, the FASB EITF reached a consensus to issue a FASB Staff Announcement Topic No. D-103 (re-characterized in January 2002 as EITF Issue No. 01-14), "Income Statement Characterization of Reimbursement Received for "Out-of-Pocket' Expenses Incurred" which clarifies that reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in

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the statement of operations. This staff announcement should be applied in financial reporting periods beginning after December 15, 2001. Upon application of this staff announcement, comparative financial statements for prior periods should be reclassified to comply with the guidance in this staff announcement. We are currently assessing the impact that the adoption of this staff announcement will have on our consolidated financial position and results of operations, but in any event there will be no effect on either our consolidated operating income (loss) or net income (loss) due to the reclassification.

Euro Currency

        On January 1, 1999, certain countries of the European Union established fixed conversion rates between their existing currencies and one common currency, the Euro. The Euro then began to trade on currency exchanges and to be used in business transactions. Beginning in January 2002, new Euro-denominated currencies were issued. The existing local currencies will be withdrawn from circulation by July 1, 2002. We derived approximately 37.9%, 35.8% and 34.5% for 1999, 2000 and 2001, respectively, of our total revenues outside the United States, a significant portion of which is in Europe. Excluding our French and German subsidiaries, which were sold in 1999 and our Central and Eastern Europe subsidiary, which was sold in 2001 (see Note 2 to the Consolidated Financial Statements), we derived 29.2%, 32.8% and 31.9% of our revenue from outside the United States in 1999, 2000 and 2001, respectively. We believe the Euro conversion will not have a material effect on our consolidated financial position and results of operations.

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Results of Operations

        The following tables set forth for the periods indicated, certain operating data, and data as a percentage of total revenues both including and excluding the French and German subsidiaries sold during 1999 and the Central and Eastern Europe (C.E.E.) subsidiary (including offices in Poland, Bulgaria and Estonia) sold in 2001.

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Sales of Subsidiaries

        In April and June 1996, respectively, AXS-One acquired the Financial Services Division of Generale de Service Informatique (GSI) based in Paris, France, and a portion of the business and assets of AT&T Istel and Co., GMBH, in Essen, Germany. These operations primarily provided internally developed proprietary software products and services in their respective countries.

        On June 1, 1999 and December 29, 1999, we sold our wholly owned subsidiaries located in Germany and France, respectively. AXS-One recorded a loss of $2.2 million or $0.09 per share in connection with the sales (see Note 2 to the Consolidated Financial Statements).

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

        Revenues for the three subsidiaries were $7.1 million for the year ended December 31, 1999, or 12.3% of total revenues. Revenues for 1999 include revenues through May 31 and November 30 for Germany and France, respectively. Revenues for the subsidiary in C.E.E. in 2000 and 2001 were $2.0 million and $1.4 million, respectively, or 4.1% and 3.5%, respectively, of total revenues. Revenues for 2001 included revenues through August 31 for C.E.E.

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Results of Operations

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

Total Revenues

        Our revenues are derived from license fees and services. Total revenues decreased from $50.8 million in 1999 to $46.8 million in 2000 to $38.6 million in 2001. This represents a decrease of 7.9% from 1999 to 2000 and 17.5% from 2000 to 2001. Total revenues in 2000 and 2001 decreased from the respective prior years as a result of a decrease in both service revenues and license revenues. The decrease in 2001 is mainly attributable to a slow down in the economy in the United States, the effects of which are being felt throughout the software industry, increased competition and rapid technological changes, and to a lesser degree, a decline in certain foreign markets.

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

        We derived approximately $14.8 million, $15.3 million and $12.3 million or 29.2%, 32.8% and 31.9% of our total revenues from customers outside of the United States in 1999, 2000 and 2001, respectively. We expect that revenues from customers outside the United States will continue to represent a significant percentage of our total revenues in the future. Most of our international license fees and services revenues are denominated in foreign currencies.

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

License Fees

        License fees include revenues from software license agreements entered into between AXS-One and our customers with respect to both our products and, to a lesser degree, third party products resold by AXS-One. License fees decreased 22.6% from 1999 to 2000 and 36.7% from 2000 to 2001. License revenues in 1999 included license revenue of $2.2 million from one customer or 20.8% of total license revenues for the year. License revenues in 2000 included license revenue of $2.5 million from two customers or 30.5% of total license revenues for the year. License revenues in 2001 included license revenue of $1.4 million from one customer or 27.3% of total license revenues for the year. The decrease from 1999 to 2000 was mainly attributable to product transitioning and general market conditions offset by the sale of our newly developed Internet-enabled products. The decrease in license revenue in 2001 was mainly attributable to general market conditions resulting in customers delaying or foregoing large purchases to control expenses and competition from other software vendors in our market space.

Service Revenues

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

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        Service revenues decreased 4.0% from 1999 to 2000 and 14.8% from 2000 to 2001. Service revenues in 2001 included revenue of $4.9 million from one customer or 15.2% of total service revenues. No one customer represented more than 10% of service revenues in 1999 or 2000. The majority of the decrease in 2000 related to a $3.5 million decrease in consulting revenue mainly in the U.S. operations, due to lower license sales and fewer demand for upgrades in the installed base. This decrease was partially offset by a $0.8 million increase in custom programming revenue resulting mainly from system modifications requested by two customers and a $1.2 million increase in maintenance revenue resulting from new license agreements and customary annual increases for existing agreements. The decrease in 2001 is due primarily to a $5.9 million decrease in consulting revenue resulting from a decrease in license sales attributable to current market conditions, as well as a decision by us in 2000 to change the releases of software upgrades to an eighteen-month cycle. A major release was not made available until September 30, 2001 limiting the number of customer upgrades requested during the year. Also contributing to the decrease is a $0.7 million decrease in custom programming revenue resulting from fewer requests for software modifications offset by an $0.8 million increase in maintenance revenues resulting from new license agreements and customary annual increases for existing agreements.

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

Other—Related Parties

        During January 2001, we entered into two South African joint ventures: AXS-One African Solutions (Pty) Ltd ("African Solutions") and Hospitality Warehouse (Pty) Ltd ("Hospitality Warehouse"). African Solutions sells and services our suite of products. Hospitality Warehouse uses our procurement software and generates fees for purchases made by member companies in the hospitality industry. Ownership is 50% or less in each joint venture. We use the equity method of accounting for our investments in 20 to 50-percent-owned companies. Under the equity method, investments are stated at cost plus or minus our equity in undistributed earnings or losses. Revenues for 2001 to these two joint ventures include management fee revenue of $0.3 million and consulting revenue of $0.2 million.

Cost of License Fees

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

        Cost of license fees decreased from $1.8 million in 1999 to $1.2 million in 2000, and increased to $1.3 million in 2001. These costs represented 17.0%, 14.6%, and 25.0% of license fees in 1999, 2000 and 2001, respectively. The decrease from 1999 to 2000 was mainly the result of decreased documentation costs of $0.3 million as well as lower third party royalty costs of $0.3 million due to the cancellation in the U.S. of a third party licensing agreement. Documentation costs decreased as a result of our decision in 1999 to move production of previously outsourced documentation to existing internal

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resources. Remaining unamortized documentation costs were fully amortized as of December 31, 1999. The increase in 2001 is mainly attributable to an increase in amortization of capitalized software development costs of $0.3 million due to the release of a new version of our software at the end of the third quarter of 2001. Capitalized software costs started being amortized for this new release in the fourth quarter of 2001 and will continue to be amortized in 2002. The increase in capitalized software development costs was partially offset by a decrease in third party royalty costs of $0.2 million due to fewer license sales in 2001 that included third party software.

Cost of Services

        Cost of services consists primarily of personnel and third party costs for product quality assurance, training, installation, consulting and customer support. Total service costs were $20.0 million in 1999 and 2000 and decreased to $16.4 million in 2001 which represented 49.8%, 51.8% and 49.8% of service revenues in 1999, 2000 and 2001, respectively. Cost of services as a percentage of service revenues increased in 2000 as a result of a decrease in service revenues. Cost of services decreased in 2001 mainly due to a decrease of $2.0 million in the cost of third party services. It also resulted from a decrease of $1.2 million in people related costs from a decrease in head count and $0.4 million in variable compensation based on revenue related bonus plans in the U.S. and U.K. operations related to the decrease in service revenues.

Sales and Marketing

        Sales and marketing expenses consist primarily of salaries, commissions and bonuses related to sales and marketing personnel as well as travel and promotional expenses. Sales and marketing expenses decreased from $10.6 million in 1999 to $10.1 million in 2000 to $9.1 million in 2001, which represented 100.0%, 123.2% and 175.0% of total license fee revenues, respectively. The decrease in 2000 was primarily attributable to a decrease of $0.6 million in salaries from lower headcount during the year and lower commissions of $0.7 million from decreased license revenues, partially offset by increased marketing costs of $0.6 million from the rebranding of our name. The decrease in 2001 was primarily a result of lower commissions of $1.0 million due to the decrease in license sales and a decrease of $0.6 million in public relations costs related to rebranding from the prior year offset by an increase of $0.5 million in personnel costs. Personnel costs increased by $0.9 million during the first half of 2001 as compared to the first half of 2000, but decreased by $0.4 million in the second half of 2001 as compared to the second half of 2000 as a result of the restructuring (see "Restructuring Costs" below). We do not anticipate an increase in headcount in 2002. Sales and marketing as a percentage of license fees have increased each year due to the decrease in license fee revenues. We continue to place significant emphasis, both domestically and internationally, on client sales through our own sales force.

Research and Development

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

        Research and development expenses (net of capitalized software development costs) decreased from $7.2 million in 1999 to $6.9 million in 2000 and increased slightly to $7.0 million in 2001, which represented 14.2%, 14.7% and 18.1% of total revenues, respectively. We capitalized software development costs of $1.5 million, $1.8 million and $1.0 million in 1999, 2000 and 2001, respectively. The decrease in research and development costs in 2000 was primarily the result of an increase of $0.2 million in capitalized software development costs. The increase in 2001 was primarily the result of a decrease of $0.8 million in capitalized software development costs partially offset by a decrease of approximately $0.7 million in costs for the Yorvik product that was discontinued in 2001. The rate of

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capitalization of software development costs may fluctuate depending on the mix and stage of development of our research and development projects.

General and Administrative

        General and administrative expenses consist primarily of salaries of administrative, executive and financial personnel and outside professional fees. General and administrative expenses decreased from $9.0 million in 1999 to $8.2 million in 2000 to $7.9 million in 2001. General and administrative expenses decreased in 2000 primarily due to decreases in employee recruitment costs of $0.1 million, bonus expense of $0.2 million and sales tax expense of $0.5 million in the U.S. operation and decreased personnel costs in the Canada and Singapore operations partially offset by a $0.6 million increase in professional fees in the U.S. operations. The decrease in sales tax expense related to a $0.5 million decrease of an accrued sales tax liability related to settled sales tax audits. The increase in professional fees in 2000 was mainly the result of costs related to litigation against us by former employees that were settled in 2000 and legal costs related to the rebranding of our company name and the sale of two subsidiaries. The decrease in 2001 resulted from a decrease in travel and living costs of $0.2 million, outside temporary help and consulting costs of $0.3 million and depreciation and amortization costs of $0.2 million partially offset by an increase of $0.4 million in legal fees.

        Legal fees amounted to $1.1 million for the year ended December 31, 2001. Of these fees $0.8 million relate to our indemnification obligation, under our certificate of incorporation and Delaware law, to reimburse legal fees to former employees and officers relating to work performed while employed by AXS-One. The Securities and Exchange Commission (SEC) performed an investigation of AXS-One and certain former employees and officers of AXS-One relating to activities performed through 1996 while they were employees of AXS-One. We filed a Form 8-K with the SEC on February 15, 2001 disclosing this investigation and its disposition with respect to AXS-One. In mid-August 2001, we were informed by counsel for our former employees and officers, whom we knew to be the subject of the SEC investigation, that such counsel had been informed by the SEC that the SEC was no longer pursuing its investigation of their clients. Therefore, we do not anticipate any more costs relating to this matter.

Restructuring Costs

        During our fiscal second quarter of 2001, based on weakening economies, especially in the United States and, to a lesser degree, in certain foreign locations, we eliminated 45 positions in the United States. We also eliminated eight positions, wrote-off certain non-performing assets and a cumulative foreign currency translation adjustment, and recorded a charge for remaining leases in our foreign operations. We recorded a charge to operations in the second quarter totaling approximately $1.1 million for these items, reflecting approximately $0.6 million in termination costs of those personnel as well as $0.3 million in asset and cumulative foreign currency translation adjustment write-offs and $0.2 million in lease costs. During the third and fourth quarters of 2001, we adjusted the charge to operations by approximately $(0.2) million and $(0.1) million, respectively, reflecting revised termination and lease costs. These revisions resulted from our decision to retain certain employees in one of our foreign locations to develop software enhancements for our Tivity solutions segment. These actions taken by the Company are expected to result in annual savings of approximately $12.0 million.

Operating Income (Loss)

        As a consequence of the above, we generated operating income of $2.2 million for 1999, $0.4 million in 2000 and incurred an operating loss of $3.9 million for 2001.

Other Income (Expense), Net

        Other income (expense), net decreased from $(0.6) million in 1999 to $(0.4) million in 2000 as a result of a decrease in the amortization of deferred loan costs which were written off in 1999 (see note 3 to the Consolidated Financial Statements). Other income (expense), net increased to $(0.7)

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million in 2001 as a result of increased loan costs related to our 2001 debt modification (see Note 3 to the Consolidated Financial Statements) and equity in losses related to two joint ventures in the South Africa operations. The increase was also the result of foreign currency transaction losses in the Australia and Singapore operations resulting from foreign currency fluctuations related to intercompany loans denominated in U.S. dollars.

Income Tax Benefit

        We recorded an income tax benefit of $0.5 million, $0.3 million and $0.2 million in 1999, 2000 and 2001, respectively, from the sales to third parties of certain expiring New Jersey State Tax net operating loss carry-forwards. We cannot be certain that the State of New Jersey will continue to allow such sales in the future or, if it did, that sales to third parties could be consummated.

Extraordinary Loss on Modification of Debt

        In connection with the 1999 sale of our subsidiary in France, we modified the outstanding term loan (see Note 3 to the Consolidated Financial Statements) resulting in an extraordinary loss in 1999, net of taxes, in the amount of $0.2 million for the write-off of deferred debt acquisition costs.

Results of Operations

        As a consequence of the above, we generated net income of $1.9 million and $0.3 million in 1999 and 2000, respectively, and incurred a net loss of $4.4 million in 2001.

Related Party Transactions

        AXS-One has certain business relationships with an entity that was founded by the President and Chief Executive Officer. The President and Chief Executive Officer owns a majority beneficial equity interest in such entity. During the years ended December 31, 1999, 2000 and 2001 we recorded as cost of license approximately $387, $422 and $84, respectively. For the years 1999 and 2000 these costs related to work performed by this entity on our behalf for the integration of their software with ours as well as royalty and maintenance fees related to sales of AXS-One products incorporating their software. For the year 2001, costs related to royalty and maintenance fees only.

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

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

        We have investments in and loans to these joint ventures of $124 and $60, respectively, net of equity in losses of $121 as of December 31, 2001. We earned $239 of consulting revenue and $303 of management fee revenue from these joint ventures during the year ended December 31, 2001.

Critical Accounting Policies

        Our critical accounting policies are as follows:

•

Revenue recognition and

•

Capitalized software development costs.

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Revenue Recognition

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

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

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

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

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

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

        We assess assuredness of collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. We do not request collateral from our customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and

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recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash.

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

Capitalized Software Development Costs

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

Liquidity and Capital Resources

        At December 31, 2001, we had cash and cash equivalents of $1.0 million and a working capital deficit of $10.7 million. Included in the deficit is $8.8 million of deferred revenue. On March 31, 1998, we entered into a Loan and Security Agreement ("Agreement") which contained a revolving line of credit and a term loan (the "Initial Term Loan").

        Borrowings under the revolving line of credit bear interest at prime rate plus 1.25% subject to a minimum interest rate of 8%. The Agreement provides for yearly fees as follows: (i) $111,000 in year one, $86,000 in years two and three, $77,000 in year four, $74,000 in years five and six and (ii) an unused revolving line of credit fee of .375% per annum. The Agreement is secured by substantially all of our domestic assets together with a pledge of 65% of the stock of our foreign subsidiaries, and contains certain restrictive financial covenants. Under the revolving line of credit we currently have available the lesser of $5.0 million or 85% of eligible receivables, as defined. The net available amount under the revolving line of credit at December 31, 2001 was approximately $1.5 million of which no amounts were outstanding.

        The Initial Term Loan provided for $5.0 million available in one drawdown which we borrowed on the closing date in 1998. The Initial Term Loan bears interest at the prime rate as defined (4.75% per annum at December 31, 2001) plus 1.5% subject to a minimum interest rate of 8.0% per annum.

        Effective December 22, 1999, in connection with the sale of our subsidiary in France, we amended the Agreement (Amendment No. 7) in order to make available to us a second term loan in the original principal amount of $1.3 million, which we borrowed on that date and together with the Initial Term Loan, collectively the "A Term Loan," and a third term loan (the "B Term Loan") in the original principal amount of $750,000 of which we borrowed $500,000 on November 3, 2000 and requested the remaining $250,000 on December 31, 2000 which was subsequently remitted and recorded on our books on January 2, 2001.

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        The A Term Loan bears interest at the rate of prime as defined (4.75% per annum at December 31, 2001) plus 1.5% subject to a minimum interest rate of 8.0% per annum. The B Term Loan bears interest at the fixed rate of 12.0% per annum.

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

        On June 29, 2001, we further amended the Agreement (Amendment No. 10) to eliminate the financial covenant requirement for June 30, 2001, and set two new monthly covenants for the remainder of 2001 based on EBITDA (earnings before interest, taxes and depreciation and amortization) and minimum revenue requirements. We were in compliance with these new monthly covenants through December 31, 2001.

        The aggregate outstanding principal amount of the Term Loans is repayable in monthly installments of $150,000 beginning April 1, 2001 over the remaining term of the Loan and Security Agreement, in accordance with Amendment No. 10. The total amount of Term Loans outstanding at December 31, 2001 was $3.1 million.

        Amendment No. 10 provides a limitation that if the total outstanding balance of the Term Loans exceeds at any time the lesser of (i) 45% of eligible maintenance revenues through December 31, 2001, 40% of eligible maintenance revenues from January 1, 2002 through December 31, 2002, 25% of eligible maintenance revenues from January 1, 2003 through March 31, 2004 and (ii) $4.5 million, then we are required to prepay the principal amount in an amount sufficient to cause the aggregate principal amount of the Term Loans to be less than or equal to the relevant limits set forth above. As of December 31, 2001, eligible maintenance revenues as defined, totaled approximately $11.5 million.

        We have no significant capital commitments. Planned capital expenditures for 2002 total approximately $1.0 million, including any software development costs that may qualify for capitalization under Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." Our aggregate minimum operating lease payments for 2002 will be approximately $1.6 million.

        Future payments due under debt and lease obligations as of December 31, 2001 are as follows:

        Our operating activities provided cash of $0.6 million, $3.1 million and $0.3 million in 1999, 2000 and 2001, respectively. Net cash provided by operating activities in 1999 was primarily the result of the net loss offset by non-cash depreciation and amortization charges and the loss on sale of subsidiaries (see Note 2 to the Consolidated Financial Statements). Net cash provided by operating activities in 2000 was primarily the result of non-cash depreciation and amortization charges and a decrease in

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accounts receivable, partially offset by a decrease in accounts payable, accrued expenses, and deferred revenue. Net cash provided by operating activities in 2001 was primarily the result of the net loss offset by non-cash depreciation and amortization charges, a decrease in accounts receivable, and an increase in deferred revenue partially offset by a decrease in accounts payable and accrued expenses.

        Our investing activities used cash of $2.2 million, $3.2 million and $1.5 million in 1999, 2000 and 2001, respectively. Investing activities were principally for purchases of equipment and leasehold improvements totaling $0.7 million, $0.9 million and $0.5 million in 1999, 2000 and 2001, respectively and capitalized software development costs totaling $1.5 million, $1.8 million and $1.0 million in 1999, 2000 and 2001, respectively.

        Cash used in financing activities was $0.4 million in 1999. Cash provided by financing activities was $1.3 million and $0.2 million in 2000 and 2001, respectively. During 1999, cash used in financing activities primarily included repayments of the term loans totaling approximately $1.7 million partially offset by proceeds of $1.3 million from modification of the loan agreement. Cash provided by financing activities in 2000 was primarily the result of proceeds from the exercise of stock options and warrants partially offset by repayments of the term loans. Cash provided by financing activities, in 2001, was the result of proceeds of $2.0 million from the issuance of additional term loans partially offset by repayments of the term loans.

        We have experienced recurring net losses of $3.7 million, $0.3 million and $4.7 million during the years ended December 31, 1999, 2000 and 2001, respectively. Additionally, as a result of intense competition and rapid technological change together with a slowing of the economy, we have also experienced declining license and service revenues. In response to these conditions, management has pursued and is continuing to pursue several initiatives intended to improve operating results and liquidity and better position AXS-One to compete under current market conditions. This included, but was not limited to, our restructuring efforts in June of 2001 (see Item 7: Restructuring) whereby we were able to reduce costs sufficiently to allow us to generate net income of $0.5 million and $0.9 million for the quarters ended September 30 and December 31, 2001, respectively (see Note 11 to the Consolidated Financial Statements), after incurring a net loss of $6.0 million during the first half of the year. Due to these efforts we expect that our operating cash flow and available financial resources will be sufficient to fund our working capital requirements through 2002. However, our ability to achieve the anticipated results is affected by the extent of cash generated from operations and the pace at which we utilize our available resources. There is also the risk that cash held by our foreign subsidiaries will not be readily available for use in our U.S. operations to pay our debt and other obligations as the transfer of funds is subject to various foreign government restrictions. Accordingly, we may in the future be required to seek additional sources of financing or future accommodations from our existing lender. No assurance can be given that management's initiatives will be successful or that any such additional sources of financing or lender accommodations will be available.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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

        The information below summarizes our market risk associated with our variable rate debt obligation as of December 31, 2001. Fair value included herein has been estimated taking into consideration the nature and term of the debt instrument and the prevailing economic and market conditions at the balance sheet date. The table below presents principal cash flows by year of maturity

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based on the terms of the debt. The variable interest rate disclosed represents the rate at December 31, 2001, which is the minimum rate in accordance with the agreement. Changes in the prime interest rate during fiscal 2002 in excess of the minimum interest rate of 8% per annum will have a positive or negative effect on our interest expense. Each 1% fluctuation in the prime interest rate will increase or decrease our annual interest expense on our variable debt by approximately $7,700 based on the debt outstanding as of December 31, 2001. Further information specific to our debt is presented in Note 3 to the Consolidated Financial Statements.

Item 8. Consolidated Financial Statements and Supplementary Data

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

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

        None

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PART III

Item 10. Directors and Executive Officers of the Registrant

        The Company incorporates herein by reference the information concerning directors and executive officers in its Notice of Annual Stockholders' Meeting and Proxy Statement to be filed within 120 days after the end of the Company's fiscal year (the "2002 Proxy Statement").

Item 11. Executive Compensation

        The Company incorporates herein by reference the information concerning executive compensation contained in the 2002 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management

        The Company incorporates herein by reference the information concerning security ownership of certain beneficial owners and management contained in the 2002 Proxy Statement.

Item 13. Certain Relationships and Related Transactions

        The Company incorporates herein by reference the information concerning certain relationships and related transactions contained in the 2002 Proxy Statement.

PART IV

Item 14. Exhibits, Consolidated Financial Statements, Schedules, and Reports on Form 8-K

(a)(1)    Consolidated Financial Statements:

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(a)(3)    Exhibits.

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(b)  Reports on Form 8-K filed in the fourth quarter of 2001:

        On October 5, 2001, the Company filed a report on Form 8-K reporting the sale, on September 20, 2001, of its wholly owned subsidiary located in Central and Eastern Europe (including offices in Poland, Estonia and Bulgaria).

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rutherford, State of New Jersey, on this 29th day of March 2002.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities indicated, on March 29, 2002.

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Independent Auditors' Report