##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



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FORM 10-K

For Annual and Transitional Reports Pursuant to Sections 13 or 15(d) of The Securities
Exchange Act of 1934



|x |  | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934    
|- |  | ----------------------------------------------------------------------------------------
| 
|  |  | For the fiscal year ended December 31, 2001                                             
| 
|o |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 0-25040

APPLIX, INC.(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Massachusetts                                                  |  | 04-2781676                          
|                                                               |  |                                     
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)

|                                              |  |           
|--------------------------------------------- |  | ----------
|289 Turnpike Road, Westborough, Massachusetts |  | 01581-2831
|                                              |  |           
|(Address of principal executive offices)      |  | (Zip Code)

Registrants telephone number, including area code:(508) 870-0300

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.0025 par value per share

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

On March 19, 2002, the aggregate market value of Common Stock held by
non-affiliates of the registrant was $25,354,992 based on the closing price of
the Common Stock on the Nasdaq National Market on March 19, 2002.

The number of shares of Common Stock outstanding as of March 19, 2002 was
12,189,900.

Documents Incorporated By Reference

|                                                                                                                                                                 |  |          
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------
|Document Part                                                                                                                                                    |  | Form 10-K
|                                                                                                                                                                 |  |          
|Definitive Proxy Statement with respect to
the Annual Meeting of Stockholders to be held on
May 30, 2002 to be filed with the Securities and
Exchange Commission |  | Part III 





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TABLE OF CONTENTS



|                                                   |                                                                                                      |                                                 |  |  |  |  |  | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business                                                                                    
|                                                   | Item 2.   Properties                                                                                
|                                                   | Item 3.   Legal Proceedings                                                                         
|                                                   | Item 4.   Submission of Matters to a Vote of Security Holders                                       
|                                                   | Item 5.   Market for Registrants Common Stock and Related Stockholder Matters                      
|                                                   | Item 6.   Selected Financial Data                                                                   
|                                                   | Item 7.   Managements Discussion and Analysis of Financial Condition and Results of Operations     
|                                                   | Item 7A.   Quantitative and Qualitative Disclosures about Market Risk                               
|                                                   | Item 8.   Financial Statements and Supplementary Data                                               
|                                                   | Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      
|PART III                                          
|                                                   | Item 11.   Executive Compensation                                                                   
|                                                   | Item 12.   Security Ownership of Certain Beneficial Owners and Management                           
|                                                   | Item 13.   Certain Relationships and Related Transactions                                           
|PART IV                                           
|                                                   | Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K                         
|SIGNATURES                                        
|                                                   | Item 14(a)  Index to Consolidated Financial Statements and Financial Statement Schedule             
|                                                   | Report of Ernst & Young LLP, Independent Auditors                                                   
|                                                   | Report of Independent Accountants                                                                   
|                                                   |                                                                                                      | Consolidated Balance Sheets                    
|                                                   |                                                                                                      | Consolidated Statements of Operations          
|                                                   |                                                                                                      | Consolidated Statements of Stockholders Equity
|                                                   |                                                                                                      | Consolidated Statements of Cash Flows          
|                                                   |                                                                                                      | Notes to Consolidated Financial Statements     
|                                                   | Schedule II  Valuation and Qualifying Accounts for the Years ended December 31, 2001, 2000 and 1999
|EXHIBIT INDEX                                     
|EX-10.14 EXPORT-IMPORT BANK LOAN AND SEC AGREEMENT
|EX-10.15 BORROWER AGREEMENT                       
|EX-10.16 LOAN AND SECURITY AGREEMENT              
|Ex-10.17 Non-Recourse Receivables Purchase Agrmnt 
|EX-21.1 SUBSIDIARIES                              
|EX-23.1 CONSENT OF ERNST & YOUNG LLP              
|EX-23.2 CONSENT OF PRICEWATERHOUSECOOPERS LLP     



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##### Table of Contents



APPLIX, INC.

FORM 10-K

TABLE OF CONTENTS

|           |  |                                                                                       |  |     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                       |  | Page
|           |  |                                                                                       |  |     
|PART I    
|           |  |                                                                                       |  |     
|Item 1.    |  | Business                                                                              |  | 3   
|Item 2.    |  | Properties                                                                            |  | 8   
|Item 3.    |  | Legal Proceedings                                                                     |  | 8   
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 8   
|           |  |                                                                                       |  |     
|PART II   
|           |  |                                                                                       |  |     
|Item 5.    |  | Market for the Registrants Common Equity and Related Stockholder Matters             |  | 9   
|Item 6.    |  | Selected Financial Data                                                               |  | 10  
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 10  
|Item 7A    |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 22  
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 23  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 23  
|           |  |                                                                                       |  |     
|PART III  
|           |  |                                                                                       |  |     
|Item 10.   |  | Directors and Executive Officers of the Registrant                                    |  | 23  
|Item 11.   |  | Executive Compensation                                                                |  | 24  
|Item 12.   |  | Security Ownership of Management and Certain Beneficial Owners                        |  | 24  
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 24  
|           |  |                                                                                       |  |     
|PART IV   
|           |  |                                                                                       |  |     
|Item 14.   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 24  
|Signatures |  | 26                                                                                   

Applix iTM1, Applix iEnterprise, Applix iCustomersight, Applix iHelpdesk and
Applix iService are trademarks of Applix, Inc. All other trademarks and company
names mentioned are the property of their respective owners. All rights
reserved.

2



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Certain information
contained in this Annual Report on Form 10-K is forward-looking
in nature. All statements included in this Annual Report on
Form 10-K or made by management of Applix, Inc. (Applix or
the Company) and its
subsidiaries, other than statements of historical facts, are
forward-looking statements. Examples of forward-looking statements include
statements regarding Applixs future financial results, operation results,
business strategies, projected costs, products, competitive positions and plans
and objectives of management for future operations. In some cases, forward-
looking statements can be identified by terminology such as may,  will,
should, would, expect, plan, anticipates, intend, believes,
estimates, predicts, potential, continue, or the negative of these
terms or other comparable terminology. Any expectations based on these
forward-looking statements are subject to risks and uncertainties and other
important factors, including those discussed in the section below entitled
Risk Factors. These and many other factors could affect Applixs future
financial and operating results, and could cause actual results to differ
materially from expectations based on forward-looking statements made in this
document or elsewhere by Applix or on its behalf. Applix does not undertake an
obligation to update its forward-looking statements to reflect future events or
circumstances.




PART I




Item 1. Business

General

Applix is a global provider of enterprise
performance management solutions that include interactive planning, customer
relationship management (CRM) and analytics and business intelligence solutions
that enable companies to achieve better, faster decision-making. Applix
solutions capture information from across the extended enterprise and enable
continual marketplace responsiveness. Adaptable, scalable and real-time, Applix
solutions support unique, complex and disparate business processes, providing
analysis, planning, measurement and response to changing customer requirements
and business dynamics. Headquartered in Westborough, MA, Applix has more than
2,600 customers worldwide, including many of the Fortune 500.

Applixs award-winning Applix iCRM and Applix iTM1 solution sets are
designed to easily accommodate even the most unique business processes of
companies. In 2001, Applix was honored with several prestigious awards for its
leading-edge technology, including Global FinancesTop Internet Infrastructure
Award, ISMs Top (CRM) Software Solution, Cebits Top CRM Solution in the
Wireless Category, the eWeekExcellence Award, and the Aberdeen Groups Top Ten
CRM Implementation award. Applix is one of the worlds only single-source
providers of iCRM, customer analytics and business planning software and
solutions.

Industry Background

The harsh economy in 2001, and the impact from global events in the second
half of the year, forced companies to adopt rigorous methods for assessing the
impact that any future investments would have on their business. With limited
resources, many companies were pressed to make difficult decisions as to those
areas of their business in which investment spending should be increased and
those in which it should be decreased, sometimes requiring a complete redesign
of the business model. It is not sufficient to simply gather data at the
departmental level; businesses need to gather, integrate, measure and analyze
enterprise-wide data, especially key performance indicators. At the end of the
day  or the year  it is becoming increasingly critical to establish closer
ties between departmental and enterprise level processes and data.

In the key markets Applix serves, companies continue to implement a
variety of customer and employee-facing systems that capture, aggregate, and,
equally importantly, report and analyze data from all potential touch points,
including websites, call centers and mobile devices. By properly analyzing all
of this data, companies can be proactive in assessing changing needs and
addressing them with an eye towards profitability. In January 2002, Information
Weekreported that the two most important business
intelligence (BI)
applications today are financial analysis, at 38% of total BI applications and
CRM analytics, which represents 35% of total BI applications. Growth is
predicted to be especially strong in business analytics: Datamonitor expects
the business intelligence market to double from the estimated 2002 level of $3
billion to $6 billion in 2004. Further, Gartner, Inc. estimates that more than
40% of Global 2000 enterprises will have implemented a corporate performance
management (CPM) system by 2005. This strong projected growth rate validates
Applixs conviction that in todays competitive corporate marketplace,
companies can no longer succeed by solely automatingtheir day-to-day
transactions. As importantly, companies must also aggregate, analyze, react to
key metrics such as customer retention and product profitability, and fine-tune
their business processes accordingly.

Applix is well positioned to deliver enterprise performance management
solutions, as evidenced by the numerous awards won last year and the growing
number of customers who have selected Applix software solutions to maximize
business performance.

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Applix Solutions

Applixs business solutions are based on two solution sets, Applix iTM1
and Applix iCRM.

Applix iTM1 and
Applix iCRM are solution sets that can function independently and
together. They allow customers to build CRM or multidimensional On-Line
Analytical Processing (OLAP) solutions.

In December 2001, Applix announced the combination of iCRM and iTM1 as a
new integrated product, which will provide enterprise-wide workflow within an
enabled business planning solution. Applix Integra combines the strengths of
Applix's two product lines and provides the analytics solutions for
both the back-
and front-office. In fact, Applix believes it will be one of the first
single-source vendors of an iCRM solution and an OLAP solution, and the first
to develop customer analytics solutions that rely on a formal integration
between two such solution sets.

Applixs analytics solutions enable companies to turn from reactive to
predictive when interacting with their customers and prospective customers.
Applix enables companies with even the most commoditized products to reduce
their customer defection rates, and create greater customer loyalty, all by
delivering the high degree of service that more and more customers are
beginning to expect.

Applix iCRM and Applix iTM1 owe their adaptability to the robust Applix
iEnterprise and Applix iTM1 technology platforms that power them. Applix
continues to enhance these platforms and the integration between them, in order
to continue providing software that best supports companies unique,
competitive business processes.

Applix Integra

The recently announced Applix Integra integrates the planning, analytics,
business workflow, collaboration, exception alerting and forecasting functions
of the Applix iTM1 and Applix iCRM solutions. Development efforts during the
year are expected to result in commercial availability of Applix Integra in
2002. Applix Integra will provide customers with immediate visibility into
their operational and financial data, in a single view, enabling the decision
makers to take advantage of unforeseen opportunities and quickly stabilize
fluctuations that threaten financial targets. Applix Integra will integrate
disparate data from multiple applications in real time and seamlessly  and
provide a clear picture of the status of the companys operations. Decision
makers will be able to foresee trends, respond quickly to changing customer
needs, detect deviating business indicators and alert managers with actionable
analytics, collaboratively manage the budget process and optimize service
delivery a host of high-level capabilities previously unavailable in real
time. In addition to the benefit of real-time, enterprise-spanning
intelligence, Applix Integra also means lower cost of ownership for the
business with an adaptable, upgradeable, low-support system and a proven
technology with proven results.

Planned components of Applix Integra include:



| |  |  | Real-time planning and
analytics. With these capabilities,
businesses can not only view the current situation at an enterprise
level, but can perform what-if analyses against the data and receive
the answers in real time, without having to wait for lengthy,
back-office batch processes to answer hours or even days later.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Dynamic business workflow. This enables a business to map its
processes with Applix Integras escalation, notification, detection,
and workflow capabilities. Easy-to-use wizards conform to complex
business rules so that users can stay ahead of opportunities and
issues.                                                  
|
| |  |  | Complex business modeling. Applix Integras unique
architecture of multi-cubes, rules, a real-time engine, and workflow
allow a business to manage its complex business models.                                                                                                                                                  
|
| |  |  | Actionable alerts. Timely alerts generated from a companys
analyses and business processes enable it to be proactive to its
business environment.                                                                                                                                                                               
|
| |  |  | Integrated application and deployment platform. Blending the
best of Applix iEnterprise and Applix iTM1 platforms means that a
business can easily develop and deploy Applix Integra solutions.
Using the Development Studio, a company can develop complex solutions
with simple drag-and-drop objects.                         

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Applix iTM1 Solution

Applix iTM1 enables budgeting/financial planning, business forecasting and
management reporting solutions to be developed for the entire enterprise. Its
unique real-time approach to consolidating, viewing and even editing vast
volumes of multidimensional data is an undisputable differentiator in the OLAP
market. With over 30,000 users in over 70% of the Fortune-50 companies and over
50% of the Fortune-500 companies, Applix iTM1 has been one of the leading
multi-dimensional databases for highly complex business and financial
analytical applications for over fifteen years.

Applix iTM1 solutions expand the scope of business planning processes to
continuously support changing customer demands, operational requirements, and
evolving eBusiness models in the new economy. It also allows for the quick and
effortless integration of information from CRM, enterprise resource planning
(ERP), financial systems, human resources, and other legacy databases in
order to allow a business to run according to supply resources and customer
demand. Using Applix iTM1, the back office and the front office staff can work
together seamlessly to manage the demand chain on a real-time basis.

Applix iTM1 allows business users to access their critical data via a
desktop browser, Microsoft Excel or the Web. With its powerful client-server
database engine and an elegant, easy-to-use interface, users are able to spend
more time analyzing information and less time maintaining data.

The Applix iTM1 approach provides the following benefits:



| |  |  | Instantaneous response times:Because of Applix iTM1s ability to
quickly load vast data sets into memory, it avoids other products
drawbacks that result from having to pre-calculate all consolidations
and derived values before anyone can view them.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Real-time what-if analyses:Because of Applix iTM1s memory-based
approach, users can instantly view the results of any what-if analyses
and updates they perform to ad hoc analyses of vast data sets.                                                   
|
| |  |  | Scalability: Applix iTM1s 64-bit capability, combined with its
ability to support multiple servers, multiple cubes, multi-threaded
processing and multi-user data updating, make it a logical choice for
large-scale operations.                        
|
| |  |  | Efficient use of system resources:Because Applix iTM1 never resorts
to pre-calculating customers data, it requires much less hardware and
processing power than other products, which suffer from a common data
explosion predicament.                
|
| |  |  | Rapid deployment:Applix iTM1 typically builds complete applications
for customers in a fraction of the time required by competing products.                                                                                                              

Applix iCRM

Applix iCRM is a suite of collaborative, Internet-based CRM solutions that
streamline companies methods for capturing, accessing and interpreting
customer data and responding to their needs from every corner of their
multi-channel enterprises. The suite of software automates Web-based
marketing, sales, customer service, partner service, product quality assurance
and internal helpdesks. With Applix iCRM, companies can operate their entire
enterprise system from a central site, enabling users anywhere in a global
organization to quickly and easily access and analyze corporate information.

The Applix iCRM solution set consists of the following application
modules, which are available as a fully integrated iCRM solution or on a
stand-alone basis:

Applix iSalesis a comprehensive marketing and sales force automation
solution that manages every phase of the sales cycle, from initial lead
generation and qualification to closure, fulfillment and follow-on sales.
Telemarketers, inside and outside sales representatives and managers can
optimize campaigns, lead tracking, forecasting, quote generation and account
management. Sales methodologies and other pre-defined application components
can be adapted to suit specific needs. Applix iSales supports wireless
communication, such as Web-enabled phones and personal data assistants (PDAs),
so a companys sales force can access important customer and prospect
information when and where they need it.

Applix iServiceis a customer service and customer support module for
managing existing customers and partners and their service level agreements
(SLAs). iCRM allows iService personnel to provide customer-facing services
through a variety of mediums including call centers, the Web, e-mail, fax and
wireless mobile links. Applix iService maintains information about customer
calls, resolutions, escalation status, and notifications; provides customer
feedback on product performance, function and features directly to an
organizations product development and quality assurance departments; and
displays customer history so customer service representatives are always
informed and ready to answer questions. Applix iService also provides Web-based
self-service features that allow customers of a global organization to report
problems, receive their resolutions and help themselves to a variety of
knowledge bases that assist them in solving problems.

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Applix iHelpdeskis an enterprise-wide incident management system for
internal information technology (IT) support groups. Applix iHelpdesk helps
manage customer problems from initial login through resource allocation,
escalation, modification and resolution. With powerful features that
streamline call management, problem diagnostics, caller profile management and
even caller training, Applix iHelpdesk provides the tools to be responsive to
customer and internal staff request. iHelpDesk features include automated load
balancing and on-demand graphic and text-based reporting, combined with
integration to industry-leading network management and asset management
products. Like Applix iService, Applix iHelpDesk enables an organization to
collect problems and access solutions, and it also provides feedback on product
performance, function and features directly to an organizations product
development and quality assurance departments.

The Applix iCRM approach provides the following benefits:



| |  |  | Integration of complex dependencies: All Applix iCRM applications
share a common data source, which ensures the consistency and integrity
of a companys data across all work groups. The interconnectedness of
multiple departments is further facilitated by Applix iCRMs rich
library of configurable business rules that easily accommodate the way
people want to share data and communicate with one another throughout
all corners of an extended enterprise.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Rapid adaptation: The Developers Studio provides a self-sufficient,
intuitive environment for building, adapting and viewing all aspects of
an iCRM implementation. Customers can accommodate all of their unique
business processes without resorting to external, disconnected
programming efforts.                                                                                                                                                               
|
| |  |  | Rapid deployment: Applix iCRMs rapid customization translates to
rapid deployment. Further, its thin-client architecture allows
thousands of users to run Applix iCRM applications on their Web browsers
without ever installing any software on their desktop machines, thereby
minimizing installation and maintenance chores throughout an enterprise.                                                                                                           
|
| |  |  | Low total cost of ownership (TCO): All of the above benefits,
combined with the scalability of Web-based applications, provide an
impressively low total cost of ownership.                                                                                                                                                                                                                                                                                          

Technology Platforms

All of Applixs software solutions are based on the Applix iEnterprise and
Applix iTM1 technology platforms.

Applix products owe their adaptability to the robust Applix technology
platforms that power them. The platforms provide a multi-tier, highly scalable
architecture featuring an XML-compliant Developers Studio development
environment, a central data schema, a wizard-driven business rule generator,
and other tools that drive application development.

Applix iTM1 solutions utilize the Applix iTM1 OLAP technology, which
includes 64-bit technology to analyze some of the biggest volumes of
multi-dimensional data in the industry. Applix iTM1 provides a multi-tier,
highly scalable engine whose efficient, in-memory methods for building
multidimensional cubes and calculating their values, are fully leveraged by
Applix iTM1 software solutions. Its flexible, scalable products  designed to
adapt to companies unique and competitive business processes  provide
analysis, planning, measurement and response to changing customer requirements
and business dynamics, all in real time.

By integrating Applix iCRM solutions with a solid, full-featured
technology platform, Applix is able to provide straightforward methods for
adapting its software to customers needs, rather than forcing customers to
compromise their business processes by adapting to the software.

Marketing And Sales

The Company focuses its Applix Integra, Applix iTM1, and Applix iCRM
marketing efforts on Global-2000 companies committed to customer service and
enhancing customer relations. The Company has focused its marketing efforts
for its Applix iCRM products on the following four industry sectors: financial
services, telecommunications, healthcare, and retail banking. For Applix iTM1,
the Company markets to enterprises seeking applications in budgeting,
forecasting, and operational planning. The Company feels that these industry
sectors are, and will continue to be, some of the fastest growing sectors for
its products. A key part of the Companys marketing strategy is an emphasis on
its single-sourced solution, its internet-architected product capabilities, its
rapid deployment and lower total cost of ownership for customers.

The Company strongly believes that its hybrid sales and marketing
strategy, utilizing both a direct sales force and strategic resellers, is an
important part of the Companys future success. The Company plans on
continuing to establish strategic marketing relationships with leading hardware
and software vendors and systems integrators within targeted industry sectors.
This is expected to support the Company in penetrating both new accounts within
its existing markets and also entirely new market segments.

Applixs Integra, Applix iTM1, and Applix iCRM solutions are sold through
a direct sales force and a network of value added resellers (VARs) and original
equipment manufacturers (OEMs). The Companys sales teams operate out of the
Companys offices in major metropolitan cities in the U.S. as well as its
offices in the United Kingdom, Germany, Canada, The Netherlands, Japan,
Singapore and Australia. These direct selling efforts are supplemented both
domestically and abroad with support from strategic marketing partners. While
the sales cycle for Applix products varies substantially from customer to
customer, it traditionally requires three to six months.

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Customer Training, Support, and Consulting Services

The Company believes that its superior consulting services and customer
support are a critical part of the Companys sales and marketing efforts. Many
of the Companys customers use the Companys products to develop and support
mission critical applications, and the Company therefore recognizes that
quality training, support and consulting services are especially important to
its customers.

The Companys in-house consultants assist in the sales process by working
directly with potential customers, educating them as to the benefits of the
Companys products. In support of customers rapid implementation success,
the Company utilizes a structured implementation methodology called Rapid
Results. This program ensures that CRM and analytics implementations are
completed on time, on budget, and meet business requirements by following four
highly defined steps. In addition, the Companys consultants work directly
with customer personnel in both information technology departments and in the
functional areas relevant to the application, to assist them in the planning
and deploying of Applix solutions.

Customers may elect to purchase a maintenance support plan for an annual
fee that is generally 18% of the license fee for covered products. Included in
the maintenance support plans are product upgrades and interim fixes to
reported problems. Maintenance support plan revenues accounted for
approximately 59% of the Companys professional services and maintenance
revenue from continuing operations in 2001, compared to approximately 49% of
professional services and maintenance revenue from continuing operations in
2000.

Product Development

The Company believes strongly that the path to success is predicated upon
constantly being at the forefront of technology and product innovation. With a
strong commitment to the future, Applix has continued its long history of
investing in product research and development. In 2001, Applix invested
approximately $7.7 million, or 19% of total revenues, on product research and
development (including capitalized software development costs).

The Companys product development team includes resources in the United
States and Europe.

With the integration of the Companys technology platforms, the Applix
Integra product development has resulted in a consolidation of resources,
resulting in reduced costs while maintaining, or increasing, product
development productivity.

Competition

The Company believes that it competes principally on the basis of product
features and functionality (including cross-platform availability,
interoperability, integration and extensibility), reliability, ease of use,
supportability, and total costs of ownership (initial investment and on-going
operating costs of the solution).

The markets for the Companys products are highly competitive and subject
to rapid change. The CRM market, a very broadly defined market, is in great
flux due to mergers and acquisitions that are expected to continue redefining
the market as ERP and telephony vendors encroach on this space.

Software vendors are under increasing pressure to provide solutions that
are easy to map to customers rapidly evolving business models and that
integrate with other solutions. Customers have become more methodical in their
methods of evaluating vendors solutions, and they often require that vendors
substantiate their claims with case studies that demonstrate compelling return
on investment benefits.

In the CRM market, and to a lesser degree in the business intelligence
market, many of the Companys competitors have significantly greater financial,
technological, and marketing resources than the Company. No assurance can be
given that the Company will be able to compete successfully against current and
future competition or that the competitive pressures faced by the Company will
not adversely affect its financial performance.

Proprietary Rights

Applix relies primarily on a combination of copyright law and trade secret
law to protect its proprietary technology. The Company has internal policies
and systems to ensure limited access to, and the confidential treatment of, its
trade secrets. The Company generally distributes its products under
shrink-wrap software license agreements, which contain various provisions to
protect the Companys ownership and confidentiality of the underlying
technology. The Company also requires its employees and other parties with
access to confidential information to execute agreements prohibiting the
unauthorized use or disclosure of the Companys technology. Despite these
precautions, it may be possible for a third party to misappropriate the
Companys technology or to independently develop similar technology. In
addition, effective copyright and trade secret protection may not be available
in every foreign country in which the Companys products are distributed, and
shrink-wrap licenses, which are not signed by the customer, may be
unenforceable in certain jurisdictions.

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Certain technologies used in or added onto the Companys products are
licensed from third parties. The Company generally pays royalties on such
technologies on a percentage of revenue basis (the amount of which is not
material to the Company). Applix believes that if the license for any such
third-party technology were terminated, it would be able to develop such
technology internally or license equivalent technology from another vendor
without significant expense. If the Companys right to distribute such
third-party products were terminated, sales of the Companys products could be
adversely affected.

The Company believes that, due to the rapid pace of technological
innovation for software applications, the Companys ability to establish and
maintain a position of technology leadership in the industry is dependent more
upon the skills of its development personnel than upon the legal protections
afforded its existing technology.

Applix is not engaged in any material disputes with other parties with
respect to the ownership or use of the Companys proprietary technology.
However, there can be no assurance that other parties will not assert
technology infringement claims or other claims against the Company in the
future. The litigation of such a claim may involve significant expense and
management time. In addition, if any such claims were successful, the Company
could be required to pay monetary damages and may also be required to either
refrain from distributing the infringing product or obtain a license from the
party asserting the claim (which license may not be available on commercially
reasonable terms).

Employees

As of December 31, 2001, the Company had 243 total employees.
Domestically, the Company had 44 employees in product research and development,
53 employees in sales and marketing, 14 employees in professional services, 8
employees in information systems, and 19 employees in finance, administration
and facilities. Internationally, the Company had 105 employees, which includes
62 employees in sales and marketing, 36 employees in professional services, 3
employees in information systems, and 4 employees in finance, administration
and facilities. None of the Companys employees are represented by a labor
union, and the Company believes that its employee relations are
good.




Item 2.   Properties

The Company moved into new headquarters (49,920 square feet) in November
2001, located at 289 Turnpike Road in Westboro, Massachusetts. The lease has
an original twelve-year term, which will expire in November 2013, with one
5-year option to extend the term. The Companys lease for 112-114 Turnpike
Road Westborough, Massachusetts expired on December 31, 2001. The Company also
leases smaller facilities in several metropolitan areas within the United
States and the United Kingdom, Germany, Canada, Singapore, Japan, The
Netherlands and Australia. The Company believes that its existing facilities
are adequate for its current needs and that suitable additional or substitute
space will be available as needed.




Item 3.   Legal Proceedings

The Company is not party to any legal proceedings material to the Companys business.




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

Not applicable.

Executive Officers of the Registrant

The following table sets forth the names, ages and positions of all
executive officers of the Company.

|                 |  |     |    |          |  |                                      
|---------------- |  | --- | -- | -------- |  | -------------------------------------
|Name             |  | Age |    | Position
|                 |  |     |    |         
|Alan Goldsworthy |  |     | 53 |          |  | President and Chief Executive Officer
|                
|Walt Hilger      |  |     | 36 |          |  | Chief Financial Officer and Treasurer
|                
|Craig Cervo      |  |     | 54 |          |  | Chief Technology Officer             

Mr. Goldsworthy was elected President, Chief Executive Officer and a
director of Applix in April 2000. Mr. Goldsworthy joined Applix in January
2000 and was elected President, eBusiness Division on January 21, 2000.
Prior to joining the Company, he served as Executive Vice President and then
Chief Executive Officer of CMI-Competitive Solutions, Inc. (CSI), a provider
of enterprise resource planning (ERP) solutions, from September 1996 to
December 1999. Prior to CSI, Mr. Goldsworthy worked from 1981 to 1996 at
Digital Equipment Corporation, holding various sales, marketing, and
operational management positions.

Mr. Hilger was elected as Chief Financial Officer and Treasurer on
September 25, 2001. Mr. Hilger joined the Company in November 1999 as the Vice
President of Operations and Planning. From 1997 to 1999, Mr. Hilger was Vice
President of Corporate Finance for Cahners Business Information, a billion
dollar business-to-business web content company. From 1988 to 1997, he worked
at Houghton-Mifflin Company, where he served as Corporate Manager of Financial
Planning and Analysis and later as Divisional Business Manager.

Mr. Cervo joined the Company in October 1992 as Vice President, Research &
Development and was elected Vice President of Product Development in October of
1994 and Chief Technology Officer in March 2001.

There are no family relationships among any of the executive officers.

8



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##### Table of Contents



PART II




Item 5.   Market for Registrants Common Stock and Related Stockholder Matters

The Companys Common Stock is listed on the Nasdaq National Market
(Nasdaq) under the symbol APLX. The table below sets forth the Nasdaq high
and low sale price of its common stock during the two most recent fiscal years.

|               |  |             |       |             |  |      |       |     |  |   |        |  |  |   |        | 
|-------------- |  | ----------- | ----- | ----------- |  | ---- | ----- | --- |  | - | ------ |  |  | - | ------ | 
|               |  | Fiscal 2001 |       | Fiscal 2000
|               |  |             |       |            
|Period         |  | High        |       | Low         |  | High |       | Low
|               |  |             |       |             |  |      |       |    
|First Quarter  |  | $           | 6.000 |             |  | $    | 2.130 |     |  | $ | 21.000 |  |  | $ | 10.875 | 
|Second Quarter |  | $           | 2.880 |             |  | $    | 1.590 |     |  | $ | 12.000 |  |  | $ | 5.500  | 
|Third Quarter  |  | $           | 1.990 |             |  | $    | 0.640 |     |  | $ | 8.125  |  |  | $ | 2.880  | 
|Fourth Quarter |  | $           | 2.000 |             |  | $    | 0.430 |     |  | $ | 4.500  |  |  | $ | 1.630  | 

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

The approximately number of holder of record of the Companys common stock
on March 19, 2002 was 194. This number does not include shareholders for whom
shares are held in a nominee or street name.

9



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##### Table of Contents






Item 6.   Selected Financial Data

|                                      |                                                            |  |      |         |      |  |      |         |      |  |      |        |   |  |   |         |   |  |   |        |  
|------------------------------------- | ---------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------- | - |  | - | ------ | -
|                                      |                                                            |  | 2001 |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                      |                                                            |  |      |         |      |  |      |         |      |  |     
|For the years ended December 31,      |                                                            |  |      |         |      |  |      |         |      |  |      |        |   |  |   |         |   |  |   |       
|(In thousands, except per share data) |                                                            |  |      |         |      |  |      |         |      |  |      |        |   |  |   |         |   |  |   |       
|Statement of Operations Data          |                                                            |  |      |         |      |  |      |         |      |  |      |        |   |  |   |         |   |  |   |       
|                                      | Total revenues                                             |  | $    | 40,303  |      |  | $    | 40,239  |      |  | $    | 36,871 |   |  | $ | 29,062  |   |  | $ | 22,036 |  
|                                      | Restructuring and other charges                            |  |      | 1,700   |      |  |      |        |      |  |      |       |   |  |   |        |   |  |   |       |  
|                                      | Amortization of goodwill and acquired intangible assets    |  |      | 374     |      |  |      | 127     |      |  |      |       |   |  |   |        |   |  |   |       |  
|                                      | Operating loss                                             |  |      | (9,541  | )    |  |      | (12,877 | )    |  |      | (7,624 | ) |  |   | (10,901 | ) |  |   | (7,158 | )
|                                      | Permanent
impairment of cost based investment              |  |      | 1,250   |      |  |      |        |      |  |      |       |   |  |   |        |   |  |   |       |  
|                                      | Net loss from continuing operations                        |  |      | (10,975 | )    |  |      | (15,307 | )    |  |      | (4,251 | ) |  |   | (6,259  | ) |  |   | (5,423 | )
|                                      | Net income (loss)                                          |  |      | (9,894  | )    |  |      | (18,912 | )    |  |      | 2,380  |   |  |   | 1,187   |   |  |   | (404   | )
|Per Share Data                        |                                                            |  |      |         |      |  |      |         |      |  |      |        |   |  |   |         |   |  |   |       
|                                      | Basic and diluted loss per share
from continuing operation |  | $    | (0.93   | )    |  | $    | (1.36   | )    |  | $    | (0.40  | ) |  | $ | (0.61   | ) |  | $ | (0.54  | )
|                                      | Basic and diluted income (loss) per share                  |  | $    | (0.83   | )    |  | $    | (1.68   | )    |  | $    | 0.22   |   |  | $ | 0.12    |   |  | $ | (0.04  | )

|                                      |                                                   |  |      |        |         |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------- | ------------------------------------------------- |  | ---- | ------ | ------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                      |                                                   |  | 2001 |        | 2000(a) |  | 1999 |        | 1998 |  | 1997
|                                      |                                                   |  |      |        |         |  |      |        |      |  |     
|AS
of December 31,                    |                                                   |  |      |        |         |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       
|(In thousands, except per share data) |                                                   |  |      |        |         |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       
|Balance Sheet Data                    |                                                   |  |      |        |         |  |      |        |      |  |      |        |  |  |   |        |  |  |   |       
|                                      | Cash, cash equivalents and
short-term investments |  | $    | 8,228  |         |  | $    | 12,546 |      |  | $    | 25,476 |  |  | $ | 21,445 |  |  | $ | 21,368 | 
|                                      | Restricted
cash                                   |  |      | 1,050  |         |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|                                      | Working capital                                   |  |      | 2,254  |         |  |      | 12,113 |      |  |      | 28,455 |  |  |   | 24,866 |  |  |   | 22,632 | 
|                                      | Total assets                                      |  |      | 24,938 |         |  |      | 33,074 |      |  |      | 54,681 |  |  |   | 45,613 |  |  |   | 44,365 | 
|                                      | Long-term debt                                    |  |      |       |         |  |      |       |      |  |      | 1,080  |  |  |   |       |  |  |   |       | 
|                                      | Total stockholders equity                        |  |      | 9,381  |         |  |      | 18,234 |      |  |      | 35,713 |  |  |   | 29,575 |  |  |   | 27,987 | 



---

|(a) |  | The balance sheet for December 31, 2000 reflects the net liabilities of the VistaSource business unit within current liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------




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

OVERVIEW

The Company was incorporated in 1983 to develop and market software
applications for the Unix workstation market. In October 1995, the Company
acquired Target Systems Corporation, which developed and marketed customer
interaction software. In October 1996, the Company acquired Sinper
Corporation, doing business under the name TM1, which developed and marketed
software used for on-line analytical processing (OLAP). These two acquisitions
enabled Applix to expand its product offerings to include customer analytics
and business planning. Applix focuses on customer analytics and business
planning through Applix iCRM, the Companys solution in the customer relationship
management (CRM) market and Applix iTM1, the Companys real time multi-dimensional
analysis software for business planning solutions.

The Company acquired Veriteam, Inc., doing business as CoSource.com, in
December 1999 to expand into the Linux market with an Internet accessible,
collaborative open source software development web site. In April 2000, the
Company announced the establishment of VistaSource, Inc. to focus on the
emerging Linux and open source markets. VistaSource, Inc. was established with
the assets of the Companys Applixwareproduct suite and CoSource.com.

In December 2000, the board of directors decided to dispose of
VistaSource. As a result of this decision, VistaSource was classified as a
discontinued operation as of December 31, 2000, and the Company recorded an
estimated loss of $3,605,000 which included approximately $367,000 in losses
from operations for the period from January 1, 2000 through the measurement
date of December 17, 2000, $2,200,000 relating to the removal of the net assets
of the VistaSource business, $1,100,000 in estimated losses from operations
from the measurement date through the estimated date of disposal and $1,300,000
in provisions for employee severance and benefits, transaction costs, bank fees
and other contractual commitments. These losses were partially offset by
proceeds of $1,300,000 received from the acquirer on March 31, 2001.

On March
30, 2001 the Company completed the sale of the VistaSource business and
received the purchase price of $1,300,000. For the twelve months ended
December 31, 2001, the Company recognized a gain of $1,081,000 for discontinued
operations due to a favorable liquidation of the net assets and liabilities of
the VistaSource business compared to previous estimates. The reserve balance
for the estimated costs associated with the disposition as of December 31, 2001
was $182,000, consisting primarily of severance costs.

10



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On March 30, 2001, the Company acquired Dynamic Decisions Pty Limited of
Australia in an effort to expand its customer analytics and business planning
software presence in Southeast Asia. Applix is building upon Dynamic Decisions
strong customer base and ability to offer high quality customer analytics and
business planning software and support services to the Companys customers. The
total cost of the acquisition was approximately $5,867,000, consisting of up to
$5,640,000 in consideration payable in cash and 100,000 shares of the
Companys common stock. The acquisition was accounted for under the purchase
method of accounting, and the purchase price was allocated based on the
estimated fair value of the assets acquired and liabilities assumed. An
intangible asset, acquired customer base, of $1,500,000 was recorded based on
its fair value. The excess of the purchase price over the fair value of the
net assets acquired at the time of acquisition of $934,000 has been recorded as
goodwill and has been amortized on a straight-line basis over its estimated
useful life of six years.

Of the cash portion
of the purchase price, $5,150,000 is payable in
installments over a maximum of 30 months beginning on July 1, 2001. As of
December 31, 2001, the Company had paid $1,267,000 of the maximum cash
consideration, which has been accounted for as purchase price. The remaining
amount of $3,883,000 is contingent upon continued employment of two key
executives of Dynamic Decisions, and will be accounted for as compensation
expense.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This Managements Discussion and Analysis of Financial Condition and
Results of Operations discusses the Companys consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Management bases
its estimates and assumptions on expected or known trends or events, historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.

Management believes the following critical accounting policies, among
others, involve the more significant judgments and estimates used in the
preparation of its consolidated financial statements.

Revenue Recognition

The Company recognizes revenue in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition (SOP 97-2), and SOP 98-9,
Software Revenue Recognition with Respect to Certain Transactions. SOP 97-2
requires that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists via a valid executed customer
order and/or signed license agreement; (2) physical or electronic delivery has
occurred including availability of license keys or services rendered; (3) the
fee is fixed or determinable representing amounts that are due unconditionally
with no future obligations under customary payment terms; and (4) collectibility
is probable. In the event that the Company is unable to meet any one or all of
the above criteria on a timely basis, revenue recognized for any reporting
period could be adversely affected.

Account Receivable and Bad Debt

The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
The Company continuously monitors collections and payments from its customers
and determines the allowance for doubtful accounts based upon historical
experience and specific customer collection issues. If the financial condition
of the Companys customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The
Company generally invoices the customer in the same local currency as to be
paid by the customer. The Company does not hedge its foreign customer
receivables due to the relatively small exposure from foreign currency rate
fluctuations.

Capitalized Software Development Costs

The Companys policy for capitalized software development costs is to
capitalize eligible research, design, and development costs relating to its
software products incurred between the time that the products technological
feasibility is established and the general release of the product to customers.
This policy requires management to use professional judgment in determining
what development costs are eligible and at what point technological feasibility
has been reached. Capitalized software development costs are amortized as a
cost of software license revenue over the estimated product life, and development costs not
capitalized under the policy are classified as a development expense in the
same period as incurred. If management determines that the recoverability of
these unamortized capitalized software costs is not probable, these costs may
require adjustment to their net realizable value, which could affect the
results of the reporting period.

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##### Table of Contents



Accounting For Cost Based Investments

The Company has two cost based investments, which had a zero value at
December 31, 2001. In assessing potential impairment for cost based
investments, the Company considers various factors including but not limited to
investees financial performance, anticipated funding needs, comparable
companies performance, and volatility inherent in the external market for
these investments. If these factors are not supportive of the carrying value of
the investment, the Company may record impairment charges not previously
recognized to reflect managements best estimate of recoverability. With the
divestment of its VistaSource business unit, the Company retained a cost based
investment in Real-Time International, Inc. that was deemed to have no value
at the date of the transaction. The Company also has a cost based investment
in TurboLinux, Inc., which was determined to be impaired, resulting in
recognition of a $1,250,000 impairment loss in 2001.

Goodwill and Other Intangible Assets and Related Impairment

During 2001, the Company completed its acquisition of Dynamic Decisions
and recorded goodwill in the amount of $934,000 associated with the excess
purchase price over the fair value of the net assets acquired and identifiable
intangible assets of $1,500,000 assigned to identified customer relationships.
The amounts assigned to the identifiable assets and liabilities acquired in
connection with the acquisition were based on estimated fair values at the date
of acquisition. The fair values were determined by the Companys management,
based in part upon information supplied by the management of the acquired
business and a valuation prepared by an independent appraiser. The valuation
of identified customer relationships has been based primarily upon future cash
flow projections discounted to present value using a risk-adjusted discount
rate.

In assessing the recoverability of the Companys goodwill and other
intangible assets, the Company must make assumptions regarding estimated future
cash flows and other factors including legal factors, market conditions and
operational performance of its acquired businesses to determine the fair value
of the respective assets. If these estimates or their related assumptions
change in the future, the Company may be required to record impairment charges
for these assets not previously recorded. In addition, the estimated lives of
goodwill and other intangible assets are based on current facts. If events
change, and the Company has overestimated the economic life of these assets,
the Company will begin to amortize the remaining unamortized carrying value of
these assets over the newly estimated life, which may result in additional
amortization expense.

Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, and is
now required to analyze its goodwill for impairment during the first six months
of fiscal 2002, and subsequently on an annual basis thereafter, unless facts or
circumstances arise earlier which indicate impairment. Any resulting impairment
loss could have a material adverse impact on financial condition and results of
operations. During the year ended December 31, 2001, the Company did not
record any impairment losses related to goodwill and other intangible assets.

Restructuring

During 2001, the Company recorded significant charges in connection with
its restructuring programs. These charges include estimates pertaining to
employee separation costs and the settlements of contractual obligations
resulting from the Companys actions. Although the Company does not anticipate
significant changes, the actual costs may differ from these estimates, which
would result in adjustments to the original estimates.

Deferred Taxes

The Company accounts for income taxes in accordance with Statement of
Accounting Standards No. 109 (FAS 109), Accounting for Income Taxes which
requires that deferred tax assets and liabilities be recognized using enacted
tax rates for the effect of temporary differences between the book and tax
bases of recorded assets and liabilities. FAS 109 also requires that deferred
tax assets be reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be realized. The
Company evaluates quarterly the realizability of its deferred tax assets by
assessing its valuation allowance and by adjusting the amount of such
allowance, if necessary. At December 31, 2001 and 2000, the Companys deferred
tax asset was fully reserved. In the event the Company were to determine in
the future that it would be able to realize its deferred tax assets in excess
of its net recorded amount, an adjustment to the deferred tax asset would
increase income in the period such determination was made.

12



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##### Table of Contents



RESULTS OF OPERATIONS

The following table sets forth certain items from the Companys
consolidated statements of operations as a percentage of net revenue for the
period from continuing operations:

|                                                      |                                 |               |       |                                  |       |      |       |       |       |   |       |       |       |  
|----------------------------------------------------- | ------------------------------- | ------------- | ----- | -------------------------------- | ----- | ---- | ----- | ----- | ----- | - | ----- | ----- | ----- | -
|                                                      |                                 |               |       | For The Years Ended December 31,
|                                                      |                                 |               |       |                                 
|                                                      |                                 |               |       | 2001                             |       | 2000 |       | 1999 
|                                                      |                                 |               |       |                                  |       |      |       |      
|Software license revenue                              |                                 |               | 47.9  | %                                |       |      | 59.0  | %     |       |   | 58.6  | %    
|Professional
service and maintenance revenue          |                                 |               | 52.1  | %                                |       |      | 41.0  | %     |       |   | 41.4  | %    
|                                                      |                                 |               |       |                                  |       |      |       |       |       |   |       |      
|                                                      |                                 | Total revenue |       |                                  | 100.0 | %    |       |       | 100.0 | % |       |       | 100.0 | %
|Cost of software license revenue                      |                                 |               | 5.8   | %                                |       |      | 4.9   | %     |       |   | 3.9   | %    
|Cost of professional services and maintenance revenue |                                 |               | 31.1  | %                                |       |      | 34.2  | %     |       |   | 31.3  | %    
|                                                      |                                 |               |       |                                  |       |      |       |       |       |   |       |      
|                                                      | Gross margin                    |               |       | 63.1                             | %     |      |       | 60.9  | %     |   |       | 64.8  | %    
|                                                     
|Operating expenses                                    |                                 |               |       |                                  |       |      |       |       |       |   |       |      
|                                                      | Selling and marketing           |               |       | 53.8                             | %     |      |       | 63.6  | %     |   |       | 54.1  | %    
|                                                      | Research and development        |               |       | 17.0                             | %     |      |       | 18.6  | %     |   |       | 19.2  | %    
|                                                      | General and administrative      |               |       | 11.8                             | %     |      |       | 10.7  | %     |   |       | 12.2  | %    
|                                                      | Restructuring and other charges |               |       | 4.2                              | %     |      |       |      |       |   |       |      |      
|                                                      |                                 |               |       |                                  |       |      |       |       |       |   |       |      
|                                                      | Total operating expenses        |               |       | 86.8                             | %     |      |       | 92.9  | %     |   |       | 85.5  | %    
|                                                      |                                 |               |       |                                  |       |      |       |       |       |   |       |      
|                                                      | Operating loss                  |               |       | (23.7                            | %)    |      |       | (32.0 | %)    |   |       | (20.7 | %)   
|Loss on impaired investment                           |                                 |               | (3.1  | %)                               |       |      |      |       |       |   |      |      
|Interest income, net                                  |                                 |               | 0.9   | %                                |       |      | 2.9   | %     |       |   | 2.8   | %    
|(Provision
for) benefit from income taxes             |                                 |               | (1.4  | %)                               |       |      | (8.9  | %)    |       |   | 6.4   | %    
|                                                      |                                 |               |       |                                  |       |      |       |       |       |   |       |      
|Net loss from continuing operations                   |                                 |               | (27.2 | %)                               |       |      | (38.0 | %)    |       |   | (11.5 | %)   
|                                                      |                                 |               |       |                                  |       |      |       |       |       |   |       |      

Year Ended December 31, 2001 compared to Year Ended December 31, 2000

Total revenue from continuing operations increased to $40,303,000 in
2001 from $40,239,000 in 2000. Software license revenue in 2001 of
$19,304,000 was approximately 19% lower than 2000 at $23,735,000 and
represented 48% of revenue from continuing operations for 2001 and 59% of
revenue from continuing operations for 2000. Domestic software license
revenue from continuing operations decreased 20% to $8,789,000 in 2001 from
$11,011,000 in 2000. International software license revenue from
continuing operations decreased 17% to $10,515,000 in 2001 from $12,724,000
in 2000. The decreases were primarily due to the decline in the global
economy and the continued slowdown in information technology spending.
The Company expects software license revenue to increase as a percent of
total revenue in the future primarily due to an expected increase in
software license revenues through new channel partners. The Companys
three largest customers (including resellers) comprised a total of 11% of
total software license revenue from continuing operations during 2001 and
9% of total software license revenue from continuing operations in 2000.

Professional services and maintenance revenue from continuing
operations increased 27% to $20,999,000 in 2001 from $16,504,000 in 2000
and represented 52% and 41% of total revenue from continuing operations for
2001 and 2000, respectively. Domestic professional services and
maintenance revenue from continuing operations increased 14% to $7,199,000
in 2001 from $6,304,000 in 2000. International professional services and
maintenance revenue increased 35% to $13,800,000 as compared to $10,200,000
in 2000. The increase was primarily due to increased maintenance revenue as
a result of the improved renewal rates for maintenance from existing
customers. The Company expects the maintenance
revenue as a component of total professional service and maintenance
revenue to continue to increase due to continuing improvement in
maintenance renewals from existing customers. The Company expects
professional service revenue to decrease as percentage of total professional services and
maintenance revenue due to the Companys increasing reliance on external
consultants. The Company expects the maintenance revenue to increase as a
percentage of professional services and maintenance revenue due to further
increases in maintenance revenues and the decrease in consulting revenue.
Maintenance revenues increased $4,340,000 to $12,387,000 in 2001 from
$8,047,000 in 2000. Maintenance revenue continues to grow as a higher
percentage of existing customers are choosing to extend maintenance support
contracts. The Company expects overall professional services and
maintenance revenue from continuing operations to decrease as a percent of
total revenue as a result of the expected decrease in professional
service revenues.

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Gross margin from continuing operations increased to 63% in 2001 from
61% in 2000. Software license revenue gross margin from continuing
operations decreased to 88% in 2001 from 92% in 2000. Professional
services and maintenance revenue gross margin from continuing operations
increased to 40% in 2001 from 17% in 2000, due to a change in revenue mix
from lower margin consulting revenues to higher margin maintenance
revenues.

Selling and marketing expenses from continuing operations, which
include domestic sales and marketing expenses and the cost of the Companys
international operations, decreased 15% to $21,671,000 in 2001 from
$25,580,000 in 2000. Selling and marketing expenses from continuing
operations decreased as a percentage of total revenue to 54% in 2001 from
64% in 2000. Decreases in selling and marketing expenses are related
primarily to completion of the corporate rebranding and remarketing effort
that was initiated in 2000. The decrease also reflects the declining
staffing levels associated with corporate restructuring initiatives
including reduction in headcount during 2001.

Product research and development expenses from continuing operations,
which consist primarily of employee salaries, benefits and related
expenses, decreased 9% to $6,848,000 in 2001 from $7,502,000 in 2000. The
Companys investment in product research and development represented 17%
and 19% of total revenue from continuing operations for 2001 and 2000,
respectively. The Company's product research and development costs
decreased slightly due to productivity gains recognized during 2001.
The development costs reflect continued investments in features and
functionality for the core Applix iTM1 and Applix iCRM products and
the development of the product platform supporting Applix Integra.

General and administrative expenses from continuing operations, which
include the costs of the Companys finance, human resources, and
administrative functions increased 11% to $4,754,000 in 2001 from
$4,292,000 in 2000. A decrease in staff costs as a result of restructuring
actions was more than offset by an increase in the amortization expense
from acquisition activity. General and administrative expenses from continuing
operations increased as a percentage of total revenue to 12% in 2001 from
11% in 2000. The Company expects that the general and administrative
costs as a percent of revenue will decrease in the future as the full
benefit from the Companys restructuring initiatives are fully realized.

The Company initiated three restructuring actions in 2001 involving
strategic decisions and continues to re-evaluate the current state of on-going businesses.
Restructuring charges consisted primarily of contract terminations, severance
charges and equipment charges incurred as a result of the cessation of
operations of a subsidiary and actions taken at the corporate level and several remaining
subsidiaries to increase operational efficiencies improve margins and further
reduce expenses.

In the second quarter of 2001, the Company adopted a plan of
restructuring aimed at reducing current operating costs company-wide. In
connection with this plan, 28 non-management employees; primarily sales,
marketing, and administrative personnel, and 2 executive level employees were
terminated. The Companys restructuring plan also included the closure of the
Companys sales office in France. As a result of the restructuring plan, the
Company recorded a restructuring charge of $512,000 for the three months ended
June 30, 2001. The restructuring charge consisted of $449,000 for severance
costs and $63,000 for the loss on disposal of the Companys French subsidiary,
which was sold on June 30, 2001. In connection with the sale, the Company paid
$100,000 to the purchaser to account for the assumed liabilities, which is
included in the restructuring charge. At December 31, 2001, $12,000 remained
accrued for severance cost. As a result of these plans, the Company expects
to save $4,000,000 on an annual basis.

In the third quarter of 2001, the Company adopted a plan of restructuring
to further reduce current operating costs company-wide through headcount
reductions. In connection with this plan, the Company recorded an additional
restructuring charge of $438,000 for severance related to the termination of
26 non-management employees, primarily sales, marketing, and administrative
personnel. Subsequent to the initial recording of the charge, adjustments
totaling $90,000 were recorded, reducing the charge to $348,000. At December
31, 2001, $58,000 remained accrued for severance costs. As a result of the
plan, the Company expects to save $1,000,000 on an annual basis.

In the fourth quarter of 2001, the Company adopted a plan of
restructuring to further reduce current operating costs company-wide. The plan
included the further reduction of headcount of one senior level executive and
16 non-management employees, primarily professional services, sales, and
administrative personnel. The plan also included the closure of several
domestic offices and the consolidation of space within one European office,
and the abandonment of leasehold improvements and support assets associated
with these locations, which were removed from service shortly after the
implementation of the plan. As a result of the restructuring plan, the
Company recorded a charge of $840,000, consisting of $363,000 for severance,
$385,000 for office closures and contractual obligations and $92,000 for the
write-off of impaired assets. At December 31, 2001, $696,000 remained
accrued for severance and other costs. As a result of this plan, the Company
expects to save $1,100,000 on an annual basis.

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In December 2001, the Company determined that its cost-based investment
in TurboLinux, Inc. of $1,250,000 was impaired. This assessment was based on
the Companys review of operating results for TurboLinux and the Companys
anticipated future cash flows from its investment. Accordingly, the investment
was written down to its estimated net realizable value of zero.

The operating loss, before restructuring costs of $1,700,000 in 2001 and
$0 in 2000 and amortization of $374,000 in 2001 and $127,000 in 2000, improved
41% to a loss of $7,467,000 in 2001 as compared to an operating loss of $12,750,000 in
2000. Benefits from the restructuring actions resulted in lower operating
expenses and led to a quarterly decline in operating losses. In the fourth
quarter, the Company reported an operating profit of $136,000
excluding the restructuring charges and acquisition related
amortization expense.

Net interest income from continuing operations decreased to $376,000
in 2001 from $1,153,000 in 2000 due to lower interest rates earned on
investments and a decrease in the Companys average cash position.

As a result of net operating losses incurred in 2001 and 2000 and
after evaluating the Companys anticipated performance over its normal
planning horizon, the Company has provided a full valuation allowance for
its net operating loss carryforwards and other net deferred tax assets for
federal and state tax purposes as of December 31, 2001. The provision in 2000
includes $7,832,000 relating to the establishment of a valuation allowance
against the deferred tax asset that was established following the decision
to dispose of VistaSource and based on the Companys historical operating
losses from continuing operations. The valuation allowance was established
during the fourth quarter of 2000 and reflects the reversal of the income
tax benefits recognized in the first three quarters of 2000 as well as the
deferred tax asset at December 31, 1999. Additionally, the Company
generates taxable income in many of the foreign jurisdictions in which it
transacts business. Accordingly, the Company has a recorded a tax
provision of $558,000 for the year ended December 31, 2001, for state and
foreign income tax liabilities, as compared to a provision of $3,583,000
for the year ended December 31, 2000, which included $582,000
for state and foreign income taxes.

Net loss from continuing operations was $10,975,000 in 2001 compared
to $15,307,000 in 2000. The decrease in net loss was attributed to
declining operating expenses, lower provisions for income taxes and
improved gross margin profitability. The decreases in selling and
marketing operating costs ($3,909,000) were offset by restructuring charges
and a loss from impaired investment ($2,950,000).

Year Ended December 31, 2000 compared to Year Ended December 31, 1999

Total revenue from continuing operations increased to $40,239,000 in
2000 from $36,871,000 in 1999. Software license revenue in 2000 of
$23,735,000 was approximately 10% higher than 1999 at $21,610,000 and
represented 59% of revenue from continuing operation for both years.
Domestic software license revenue from continuing operations increased 28%
to $11,011,000 from $8,621,000 in 1999. International software license
revenue from continuing operations decreased 2% to $12,724,000 in 2000 from
$12,989,000 in 1999. The Companys three largest customers (including
resellers) comprised a total of 9% of total software license revenue from
continuing operations during 2000 and 7% of total software license revenue
from continuing operations in 1999.

Professional services and maintenance revenue from continuing
operations increased 8% to $16,504,000 in 2000 from $15,261,000 in 1999 and
represented 41% of total revenue from continuing operations for both years.

Gross margin from continuing operations decreased to 61% in 2000 from
65% in 1999. Software license revenue gross margin from continuing
operations decreased to 92% in 2000 from 93% in 1999. Professional
services and maintenance revenue gross margin from continuing operations
decreased to 17% in 2000 from 25% in 1999, due to an increase in the number
of support and consulting personnel and lower utilization of consulting
resources in 2000 versus 1999.

Selling and marketing expenses from continuing operations increased
28% to $25,580,000 in 2000 from $19,957,000 in 1999. Selling and marketing
expenses from continuing operations increased as a percentage of total
revenue to 64% from 54% in 1999. The Company invested an incremental $ 5 -
$ 5.5 million in sales and marketing initiatives in 2000 to reposition and
rebrand the iCRM and iTM1 solutions and expand its sales organization. The
additional expenditures related primarily to these increased staffing
levels associated with hiring additional sales representatives and
additional spending for marketing programs.

Research and development expenses from continuing operations increased
6% to $7,502,000 in 2000 from $7,101,000 in 1999, representing 19% of total
revenue from continuing operations for both years. The increase in
research and development costs was primarily due to adding thin client and
distinct features and functionality to the iCRM and iTM1 solutions.

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General and administrative expenses from continuing operations
decreased 4% to $4,292,000 in 2000 from $4,485,000 in 1999, and decreased
slightly as a percentage of total revenue to 11% in 2000 from 12% in 1999.
The general and administrative expenses from continuing operations include
corporate overhead costs, which supported continuing and discontinued
operations.

Net interest income from continuing operations increased to $1,153,000
in 2000 from $1,031,000 in 1999 due to slightly higher interest rates.

The Company recorded a provision for income taxes of $3.6 million in
2000. This provision included $7,832,000 relating to the establishment of
a valuation allowance against the deferred tax asset that was established
following the decision to dispose of VistaSource and based on the Companys
historical operating losses from continuing operations. The valuation
allowance was established during the fourth quarter of 2000 and reflects
the reversal of the income tax benefits recognized in the first three
quarters of 2000 as well as the deferred tax asset at December 31, 1999.
The Company also recorded a provision for income taxes of $566,000 in 2000
in connection with taxable income in its foreign subsidiaries.

Net loss from continuing operations was $15,307,000 compared to
$4,251,000 in 1999. The increase in net loss was primarily attributed to
increased sales and marketing costs of $5.6 million and the establishment
of a valuation allowance on the Companys deferred tax asset of $7.8
million. The increase in sales and marketing costs was attributed to the
Companys previous announced plans to reposition its customer analytics and
business planning software business which resulted in incremental spending
of $5.0  $5.5 million.

The net loss from discontinued operation was $367,000 compared to the
net income from discontinued operation of $6,631,000 in 1999. The reduced
net income from discontinued operation was attributed to lower revenue from
the VistaSource business unit of $9 million and increased operating
expenses associated with the repositioning of VistaSource, Inc.

The loss on the disposal of VistaSource was $3.2 million attributed to
estimate expenses of $2.4 million to operate the business through its
disposition in the end of March 2001, $2.2 million relating to the removal
of the net assets of VistaSource, offset by $1.3 million in the expected
proceeds from the distribution.

Liquidity and Capital Resources

The Consolidated Statements of Cash Flows for fiscal years 2000 and
1999 include the cash flows from the VistaSource segment on a fully
consolidated basis and have not been restated to reflect discontinued
operations. The Consolidated Statement of Cash Flows for the fiscal year
2001 includes the cash flows from the VistaSource segment as discontinued
operations.

As of December 31, 2001, the Company had cash and cash equivalents of
$9,278,000, which included restricted cash of $1,050,000 that represents the
security deposit for the headquarter office lease, as compared to $12,546,000
as of December 31, 2000. Cash used in the Companys operations was $3,586,000
for the year ended December 31, 2001 compared to $8,972,000 for the year ended
December 31, 2000. The net loss of $9,894,000 for 2001 was partially offset
by the decrease in operating assets and liabilities of $3,472,000, which was
primarily due to an increase of accounts receivable collections of $4,635,000,
and an increase in deferred revenue bookings of $1,491,000.

Cash used in investing activities totaled $2,233,000 for the year ended
December 31, 2001 compared to cash provided by investing activities of
$10,697,000 for the year ended December 31, 2000. The decrease in cash
provided by investing activities primarily resulted from the Companys reduced
short-term investment activities in 2001 compared to 2000. This was partially
offset by the proceeds received from the sale of the discontinued operation of
$1,300,000, net cash payments in connection with the acquisition of Dynamic
Decisions of $1,733,000, net purchase of capital equipment of $856,000,
capitalized software development costs of $844,000, and a payment of $100,000
in connection with the sale of the Companys French subsidiary.

Cash provided from financing activities totaled $1,466,000 for the year
ended December 31, 2001, which consisted of proceeds received from the
exercise of incentive stock options and the Companys employee stock purchase
plan of $737,000, and net proceeds from factoring of receivables to a certain
bank of $729,000. This compares to total cash provided by financing
activities of $524,000 for 2000.

In connection with
the Company's acquisition of Dynamic Decisions, the Company expects
to pay out additional contingent consideration of $3,883,000 in eight quarterly
installments between January 1, 2002 and January 1, 2004.

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In connection with the office lease agreement for the Companys new
corporate headquarters, the Company established a $1,050,000 irrevocable
standby letter of credit on August 1, 2001. The letter of credit has been
fully collateralized by a restricted cash balance of $1,050,000 as required by
the issuing bank. The amount of the letter of credit and restricted cash will
be reduced over the term of the lease from December 1, 2002 to December 1,
2006, provided the Company has not defaulted on the office lease agreement.
The Company anticipates that it will partially utilize the credit facilities
described below to obtain a new, replacement letter of credit, which will not
require cash collateral. The irrevocable standby letter of credit and
underlying security deposit (restricted cash) requirement of $1,050,000 will
be reduced starting the first day of the second lease year as follows:

|                                     |  |                  |         | 
|------------------------------------ |  | ---------------- | ------- | 
|                                     |  | Reduction Amount
|                                     |  |                 
|Second lease year (December 1, 2002) |  | $                | 116,667 | 
|Third lease year (December 1, 2003)  |  | $                | 116,667 | 
|Fourth lease year (December 1, 2004) |  | $                | 175,001 | 
|Fifth lease year (December 1, 2005)  |  | $                | 233,330 | 
|Sixth lease year (December 1, 2006)  |  | $                | 283,335 | 

At the end of the sixth year, the Company can reduce the letter of credit
to $125,000 or substitute $125,000 in cash in lieu of the Letter of Credit.

The Company has no commitments or specific plans for any significant
capital expenditures in the next twelve months.

The Company has secured two revolving credit facilities, providing for
loans and other financial accommodations, with a bank totaling approximately
$5.0 million. The first facility has an interest rate of prime plus 1.25% and
is in the aggregate principal amount of up to the lesser of (i) $2.5 million
and (ii) an amount based upon a percentage the Companys qualifying domestic
accounts receivable. The second facility has an interest rate of prime plus
1.00% and is in the aggregate principal amount of up to the lesser of (i) $2.5
million and (ii) an amount based upon a percentage of the Companys qualifying
foreign accounts receivable. This second facility is guaranteed by the
Export-Import Bank of the United States (EXIM Bank) and includes certain
additional obligations of the Company in favor of EXIM Bank. The obligations
of the Company to SVB are guaranteed by certain of the Companys subsidiaries
and are secured by substantially all of the assets of the Company and such
subsidiaries. Because the Company has not yet satisfied certain conditions
precedent, covenants, and other requirements, the Company currently has no
availability to borrow or receive other financial accommodations under either
of the credit facilities. The facilities expire on December 5, 2002. At the
time the credit facility becomes available, a default in the bank covenants
could adversely affect the Companys ability to access its existing credit
facilities or obtain access to new credit facilities in the future and could
increase the cost of such facilities.

The Company has a non-recourse accounts receivable purchase arrangement
with a bank, pursuant to which the Company and the bank may agree from time to
time for the Company to sell qualifying accounts receivable to the bank, in an
aggregate amount of up to $2 million outstanding, at a purchase price equal to
the balance of the accounts less a discount rate and a fee. On or about
December 31, 2001, the Company factored certain accounts receivable to the
bank pursuant to the purchase arrangement in the amount of $729,000.

In accordance with generally accepted accounting principles (GAAP), the
Company recognized a sale for those accounts receivable balances for which
there was not a future obligation to the customer in the amount of $361,000.
The Company has concluded that these accounts have been legally isolated, and
accordingly, these amounts have been removed from the Companys accounts
receivable balance at December 31, 2001. The loss from the sale of the
financial assets and retained interest for cash collection were not material to
the Companys results of operations or financial position. The remainder of
$368,000 did not reduce the accounts receivable balance, and has been recorded
as a financing transaction and recognized as a liability at December 31, 2001.
This amount is expected to be repaid by the Company to the bank during 2002.
The sale of the receivables had an immaterial impact on the Companys days
sales outstanding (DSO) by reducing approximately 3 days from approximately 73 to 70
days.

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The following summarizes the expected effect of the Companys contractual
obligations (future minimum operating lease payments of its office
facilities and certain equipment) on the Companys liquidity and cash flow
in the future periods:

|                             |  |           |            | 
|---------------------------- |  | --------- | ---------- | 
|                             |  | Operating
|                             |  | Leases   
|                             |  |          
|2002                         |  | $         | 2,550,000  | 
|2003                         |  |           | 2,407,000  | 
|2004                         |  |           | 2,139,000  | 
|2005                         |  |           | 2,014,000  | 
|2006                         |  |           | 1,796,000  | 
|2007 and thereafter          |  |           | 11,674,000 | 
|                             |  |           |            | 
|Total minimum lease payments |  | $         | 22,580,000 | 
|                             |  |           |            | 

The Company has
incurred losses from continuing operations for the last several
years. As of December 31, 2001, the Company had an accumulated
deficit of $37.2 million. Operating losses and negative cash
flows may continue because of costs and expenses relating to brand
development, marketing and other promotional activities, continued
development of the Company's information technology infrastructure,
expansion of product offerings and development of relationships with
other businesses. Management's plans include increasing revenue and
generating positive cash flows from operations. The Company made
progress during the year towards decreasing operating losses on a
quarterly sequential basis. Additionally, the Company improved its
fourth quarter 2001 cash flow and improved its cash position at
December 31, 2001. The Company currently expects that the
principal sources of funding for its operating expenses, capital
expenditures and other liquidity needs will be a combination of its
available cash balances, funds generated from operations and its
available credit facilities. The Company believes that its currently
available sources of funds will be sufficient to fund its operations
for at least the next 12 months. However, there are a number of
factors that may negatively impact the Company's available sources of
funds. The amount of cash generated from operations will be dependent
upon such factors as the successful execution of the Company's
business plan, the successful introduction of Applix Integra and
worldwide economic conditions. In addition, borrowings under the
Company's credit facilities are dependent upon adequate borrowings
base and the maintenance of certain financial covenants, which may
limit the availability of borrowing. The Company does not currently
anticipate the need to draw down on the two revolving credit lines
for its working capital needs. Should the Company not meet its plans
to generate sufficient revenue or positive cash flows, it may need to
raise additional capital or reduce spending. Failure to do so could
have an adverse effect on the Company's ability to continue as a
going concern.

To date, inflation has not had a material adverse effect on the Companys
operating results.

Euro Conversion

On January 1, 2002, 12 of the 15 members of the European Union
established fixed conversion rates among their existing sovereign currencies
and adopted the Euro as their common legal currency and eliminated their
legacy currencies. The Company is currently conducting transactions in the
Euro and fully converted its information systems as of January 2002. The
Company does not expect the Euro conversion to have a material effect on its
competitive position or financial results.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 141 (FAS 141), Business Combinations and
No. 142 (FAS 142), Goodwill and Other Intangible Assets. FAS 141 eliminates the pooling-of-interests method of accounting for business
combinations except for qualifying business combinations that were initiated
prior to July 1, 2001. FAS 141 further clarifies the criteria for recognizing
intangible assets separately from goodwill. The requirements of FAS 141 are
effective for any business combination accounted for by the purchase method
that is completed after June 30, 2001. Under FAS 142, goodwill and indefinite
lived intangible assets are no longer amortized but are reviewed annually (or
more frequently if impairment indicators arise) for impairment. Separable
intangible assets that are not deemed to have an indefinite life will continue
to be amortized over their useful lives. The Company adopted FAS 142 on
January 1, 2002, and is currently in the process of evaluating the impact that
FAS 142 will have on its consolidated financial position and results of
operations.

In June 2001, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143 (FAS 143), Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. It also applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development, and/or the normal operation
of a long-lived asset, except for certain obligations of lessees. The Company
is required to adopt FAS 143 in the first quarter of fiscal 2003, and the
Company does not believe that the adoption of FAS 143 will have a material
effect on its financial position or results of operations.

In August 2001, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 144 (FAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses the financial
accounting and reporting for the impairment of long-lived assets. This
statement supersedes Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of and the accounting and reporting provisions for the
disposal of a segment of a business of APB Opinion No. 30, Reporting the
Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequent Occurring Events and
Transactions. The Company is required to adopt FAS 144 in the first quarter
of fiscal 2002. The Company has not yet determined what effect, if any,
the adoption of FAS 144 will have on its financial position and results of
operations.

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RISK FACTORS

OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS.

We expect to experience significant fluctuations in our future results
of operations due to a variety of factors, many of which are outside of our
control, including:



| |  |  | demand for and market acceptance of our products and services;                                                                                        
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the size and timing of customer orders, particularly large
orders, some of which represent more than 10% of total revenue during
a particular quarter;
|
| |  |  | introduction of products and services or enhancements by us and our competitors;                                                                      
|
| |  |  | competitive factors that affect our pricing;                                                                                                          
|
| |  |  | the mix of products and services we sell;                                                                                                             
|
| |  |  | the hiring and retention of key personnel;                                                                                                            
|
| |  |  | our expansion into international markets;                                                                                                             
|
| |  |  | the timing and magnitude of our capital expenditures, including costs relating to the expansion of our operations;                                    
|
| |  |  | changes in generally accepted accounting policies, especially
those related to the recognition of software revenue; and                               
|
| |  |  | new government legislation or regulation.                                                                                                             

We typically receive a majority of our orders in the last month of each
fiscal quarter because our customers often delay purchases of products until
the end of the quarter and our sales organization and our individual sales
representatives strive to meet quarterly sales targets. As a result, any
delay in anticipated sales is likely to result in the deferral of the
associated revenue beyond the end of a particular quarter, which would have
a significant effect on our operating results for that quarter. In addition,
most of our operating expenses do not vary directly with net sales and are
difficult to adjust in the short term. As a result, if net sales for a
particular quarter were below expectations, we could not proportionately
reduce operating expenses for that quarter, and, therefore, that revenue
shortfall would have a disproportionate adverse effect on our operating
results for that quarter. If our operating results are below the
expectations of public market analysts and investors, the price of our
common stock may fall significantly.

OUR FUTURE SUCCESS IS DEPENDENT IN LARGE PART ON THE SUCCESS OF APPLIX INTEGRA

We have devoted a substantial amount of resources to the development
and marketing of our new Applix Integra product. We believe that our future
financial performance will be dependent in large part on the success of
Applix Integra. Because Applix Integra has been announced only recently and
has not yet begun commercial shipments, we cannot yet assess its market
acceptance or predict with accuracy the amount of revenue it will generate.

IF WE DO NOT INTRODUCE NEW PRODUCTS AND SERVICES IN A TIMELY MANNER,
OUR PRODUCTS AND SERVICES WILL BECOME OBSOLETE, AND OUR OPERATING RESULTS
WILL SUFFER.

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The customer analytics and business planning software markets are
characterized by rapid technological change, frequent new product
enhancements, uncertain product life cycles, changes in customer demands and
evolving industry standards. Our products could be rendered obsolete if
products based on new technologies are introduced or new industry standards
emerge.

Enterprise computing environments are inherently complex. As a result,
we cannot accurately estimate the life cycles of our products. New products
and product enhancements can require long development and testing periods,
which requires us to hire and retain increasingly scarce, technically
competent personnel. Significant delays in new product releases or
significant problems in installing or implementing new products could
seriously damage our business. We have, on occasion, experienced delays in
the scheduled introduction of new and enhanced products and may experience
similar delays in the future.

Our future success depends upon our ability to enhance existing
products, develop and introduce new products, satisfy customer requirements
and achieve market acceptance. We may not successfully identify new product
opportunities and develop and bring new products to market in a timely and
cost-effective manner.

FUTURE CAPITAL NEEDS.

We believe, based upon our current business plan, that our current cash
and cash equivalents, funds generated from operations and available credit
lines should be sufficient to fund our operations as planned for at least
the next twelve months. However, we may need additional funds sooner than
anticipated if our performance deviates significantly from our current
business plan or if there are significant changes in competitive or other
market factors. Such funds, whether from equity or debt financing or other
sources, may not be available, or available on terms acceptable to us.

ATTEMPTS TO EXPAND BY MEANS OF BUSINESS COMBINATIONS AND ACQUISITIONS MAY NOT
BE SUCCESSFUL AND MAY DISRUPT OUR OPERATIONS OR HARM OUR REVENUES.

We have in the past, and may in the future, buy businesses, products or
technologies. In the event of any future purchases, we will face
additional financial and operational risks, including:



| |  |  | difficulty in assimilating the operations, technology and
personnel of acquired companies;                                                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | disruption in our business because of the allocation of
resources to consummate these transactions and the diversion of
managements attention from our core business;
|
| |  |  | difficulty in retaining key technical and managerial personnel from acquired companies;                                                                               
|
| |  |  | dilution of our stockholders, if we issue equity to fund these transactions;                                                                                          
|
| |  |  | assumption of increased expenses and liabilities;                                                                                                                     
|
| |  |  | our relationships with existing employees, customers and
business partners may be weakened or terminated as a result of these
transactions; and                       
|
| |  |  | additional ongoing expenses associated with write-downs of
goodwill and other purchased intangible assets.                                                            

WE RELY HEAVILY ON KEY PERSONNEL.

We rely heavily on key personnel throughout the organization. The loss
of any of our members of management, or any of our staff of sales and
development professionals, could prevent us from successfully executing our
business strategies. Any such loss of technical knowledge and industry
expertise could negatively impact our success. Moreover, the loss of any
critical employees or a group thereof, particularly to a competing
organization, could cause us to lose market share, and the Applix brand
could be diminished.

WE MAY NOT BE ABLE TO MEET THE OPERATIONAL AND FINANCIAL CHALLENGES THAT WE
ENCOUNTER IN OUR INTERNATIONAL OPERATIONS.

Due to the Companys significant international operations, we face a
number of additional challenges associated with the conduct of business
overseas. For example:



| |  |  | we may have difficulty managing and administering a globally-dispersed business;
| | - |  | --------------------------------------------------------------------------------
|
| |  |  | fluctuations in exchange rates may negatively affect our operating results;     

20



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| |  |  | we may not be able to repatriate the earnings of our foreign operations;                                                                                                                        
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | we have to comply with a wide variety of foreign laws;                                                                                                                                          
|
| |  |  | we may not be able to adequately protect our trademarks
overseas due to the uncertainty of laws and enforcement in certain
countries relating to the protection of intellectual property
rights;
|
| |  |  | reductions in business activity during the summer months in
Europe and certain other parts of the world could negatively impact
the operating results of our foreign operations;                
|
| |  |  | export controls could prevent us from shipping our products
into and from some markets;                                                                                                         
|
| |  |  | multiple and possibly overlapping tax structures could
significantly reduce the financial performance of our foreign
operations;                                                                
|
| |  |  | changes in import/export duties and quotas could affect the
competitive pricing of our products and services and reduce our
market share in some countries; and                                 
|
| |  |  | economic or political instability in some international
markets could result in the forfeiture of some foreign assets and
the loss of sums spent developing and marketing those assets.         

BECAUSE THE CUSTOMER ANALYTICS AND BUSINESS PLANNING MARKETS ARE HIGHLY
COMPETITIVE, WE MAY NOT BE ABLE TO SUCCEED.

If we fail to compete successfully in the highly competitive and
rapidly changing customer analytics and business planning markets, we may
not be able to succeed. We face competition primarily from customer
relationship management software firms, Internet customer interaction
software vendors and computer telephony software companies. We also face
competition from traditional call center technology providers, large
enterprise application software vendors, independent systems integrators,
consulting firms and in-house IT departments. Because barriers to entry into
the software market are relatively low, we expect to face additional
competition in the future.

Many of our competitors can devote significantly more resources to the
development, promotion and sale of products than we can, and many of them
can respond to new technologies and changes in customer preferences more
quickly than we can. Further, other companies with resources greater than
ours may attempt to gain market share in the customer analytics and business
planning markets by acquiring or forming strategic alliances with our
competitors.

BECAUSE WE DEPEND ON THIRD-PARTY SYSTEMS INTEGRATORS TO SELL OUR PRODUCTS,
OUR OPERATING RESULTS WILL LIKELY SUFFER IF WE DO NOT DEVELOP AND MAINTAIN
THESE RELATIONSHIPS.

We rely in part on systems integrators to promote, sell and implement
our solutions. If we fail to maintain and develop relationships with systems
integrators, our operating results will likely suffer. In addition, if we
are unable to rely on systems integrators to install and implement our
products, we will likely have to provide these services ourselves, resulting
in increased costs. As a result, our results of operation may be harmed. In
addition, systems integrators may develop, market or recommend products that
compete with our products. Further, if these systems integrators fail to
implement our products successfully, our reputation may be harmed.

BECAUSE THE SALES CYCLE FOR OUR PRODUCTS CAN BE LENGTHY, IT IS DIFFICULT FOR
US TO PREDICT WHEN OR WHETHER A SALE WILL BE MADE.

The timing of our revenue is difficult to predict in large part due to
the length and variability of the sales cycle for our products. Companies
often view the purchase of our products as a significant and strategic
decision. As a result, companies tend to take significant time and effort
evaluating our products. The amount of time and effort depends in part on
the size and the complexity of the deployment. This evaluation process
frequently results in a lengthy sales cycle, typically ranging from three to
six months. During this time we may incur substantial sales and marketing
expenses and expend significant management efforts. We do not recoup these
investments if the prospective customer does not ultimately license our
product.

21



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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO PROTECT OUR TRADEMARKS FROM
MISUSE BY THIRD PARTIES.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Our collection of trademarks is important to our business. The
protective steps we take or have taken may be inadequate to deter
misappropriation of our trademark rights. We have filed applications for
registration of some of our trademarks in the United States. Effective
trademark protection may not be available in every country in which we offer
or intend to offer our products and services. Failure to protect our
trademark rights adequately could damage our brand identity and impair our
ability to compete effectively. Furthermore, defending or enforcing our
trademark rights could result in the expenditure of significant financial
and managerial resources.
|
| | OUR PRODUCTS MAY CONTAIN DEFECTS THAT MAY BE COSTLY TO CORRECT, DELAY MARKET
ACCEPTANCE OF OUR PRODUCTS AND EXPOSE US TO LITIGATION.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Despite testing by Applix and our customers, errors may be found in our
products after commencement of commercial shipments. If errors are
discovered, we may have to make significant expenditures of capital to
eliminate them and yet may not be able to successfully correct them in a
timely manner or at all. Errors and failures in our products could result in
a loss of, or delay in, market acceptance of our products and could damage
our reputation and our ability to convince commercial users of the benefits
of our products.                                                                                                                                          
|
| | In addition, failures in our products could cause system failures for
our customers who may assert warranty and other claims for substantial
damages against us. Although our license agreements with our customers
typically contain provisions designed to limit our exposure to potential
product liability claims, it is possible that these provisions may not be
effective or enforceable under the laws of some jurisdictions. Our insurance
policies may not adequately limit our exposure to this type of claim. These
claims, even if unsuccessful, could be costly and time-consuming to defend.                                                                              




Item 7A.   Quantitative and Qualitative Disclosures about Market Risk

As a multinational corporation, the Company is exposed to market risk,
primarily from changes in foreign exchange rates. These exposures may change
over time and could have a material adverse impact on the Companys financial
results. The Company uses foreign currency forward contracts to manage the
risk of exchange rate fluctuations. Most of the Companys international sales
through it subsidiaries are denominated in foreign currencies. Relative to
foreign currency exposures existing at December 31, 2001, a 10% unfavorable
movement in foreign exchange rates would not expose the Company to significant
losses in earnings or cash flows or significantly diminish the fair value of
the Companys foreign currency financial instruments, primarily due to the
short lives of the affected financial instruments. To date, foreign currency
fluctuations have not had a material effect on the Companys operating results.
In all cases, the Company uses these derivative instruments to reduce its
foreign exchange risk by essentially creating offsetting market exposures. The
instruments that the Company holds are not leveraged and are not held for
trading or speculative purposes.

At December 30, 2001, the Company held $9,278,000 in cash equivalents,
including $1,050,000 of restricted cash, consisting primarily of money market
funds. Cash equivalents are classified as available for sale and carried at
fair value, which approximates cost. A hypothetical 10% increase in interest
rates would not have a material impact on the fair market value of these
instruments due to their short maturity, and the Companys intention that all
the securities will be sold within one year. There have been no significant
changes since December 31, 2001.

22



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Item 8.   Financial Statements and Supplementary Data

Quarterly Operating Results for 2001 and 2000

|                                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|--------------------------------------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ------ | -
|                                                                |  | Q1 2001 |        | Q2 2001 |  | Q3 2001 |        | Q4 2001
|                                                                |  |         |        |         |  |         |        |        
|(Unaudited)                                                     |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|(In thousands, except per share data)                           |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Revenue from continuing operations                              |  | $       | 11,327 |         |  | $       | 10,444 |         |  | $ | 8,858  |   |  | $ | 9,674  |  
|Gross margin from continuing operations                         |  |         | 6,868  |         |  |         | 6,718  |         |  |   | 5,352  |   |  |   | 6,494  |  
|Operating profit before restructuring and amortization          |  |         | (3,367 | )       |  |         | (2,012 | )       |  |   | (2,134 | ) |  |   | 136    |  
|Restructuring and other charges                                 |  |         |       |         |  |         | 512    |         |  |   | 438    |   |  |   | 750    |  
|Amortization of goodwill and acquired assets                    |  |         | 32     |         |  |         | 114    |         |  |   | 114    |   |  |   | 114    |  
|Permanent impairment of cost based investment                   |  |         |       |         |  |         |       |         |  |   |       |   |  |   | 1,250  |  
|Net loss from continuing operations                             |  | $       | (3,310 | )       |  | $       | (2,679 | )       |  | $ | (2,678 | ) |  | $ | (2,308 | )
|Gain
from discontinued operation                                |  |         | 718    |         |  |         |       |         |  |   | 363    |   |  |   |       |  
|                                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Net loss                                                        |  | $       | (2,592 | )       |  | $       | (2,679 | )       |  | $ | (2,315 | ) |  | $ | (2,308 | )
|                                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Net loss per share                                              |  | $       | (0.22  | )       |  | $       | (0.23  | )       |  | $ | (0.19  | ) |  | $ | (0.19  | )
|Weighted average number of basic and
diluted shares outstanding |  |         | 11,689 |         |  |         | 11,740 |         |  |   | 11,934 |   |  |   | 11,975 |  

|                                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |         |  
|--------------------------------------------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ------- | -
|                                                                |  | Q1 2000 |        | Q2 2000 |  | Q3 2000 |        | Q4 2000
|                                                                |  |         |        |         |  |         |        |        
|(Unaudited)                                                     |  |         |        |         |  |         |        |         |  |   |        |   |  |   |         |  
|(In thousands, except per share data)                           |  |         |        |         |  |         |        |         |  |   |        |   |  |   |         |  
|Revenue from continuing operations                              |  | $       | 9,277  |         |  | $       | 8,938  |         |  | $ | 10,967 |   |  | $ | 11,057  |  
|Revenue from discontinued operation                             |  |         | 3,144  |         |  |         | 2,708  |         |  |   | 1,898  |   |  |   | 2,500   |  
|                                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |         |  
|Revenue as previously reported in the 10-Q                      |  | $       | 12,421 |         |  | $       | 11,646 |         |  | $ | 12,865 |   |  | $ | 13,557  |  
|                                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |         |  
|Gross margin from continuing operations                         |  | $       | 5,280  |         |  | $       | 5,101  |         |  | $ | 7,209  |   |  | $ | 6,907   |  
|Gross margin from discontinued operation                        |  |         | 2,628  |         |  |         | 1,979  |         |  |   | 1,183  |   |  |   | 1,827   |  
|                                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |         |  
|Gross margin as previously reported in the 10-Q                 |  | $       | 7,908  |         |  | $       | 7,080  |         |  | $ | 8,392  |   |  | $ | 8,734   |  
|                                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |         |  
|Operating profit before amortization                            |  | $       | (2,639 | )       |  | $       | (4,919 | )       |  | $ | (2,468 | ) |  | $ | (2,724  | )
|Amortization of goodwill and acquired assets                    |  | $       | 31     |         |  | $       | 32     |         |  | $ | 32     |   |  | $ | 32      |  
|Net loss from continuing operations                             |  | $       | (1,544 | )       |  | $       | (3,054 | )       |  | $ | (1,124 | ) |  | $ | (9,585  | )
|Net income (loss) from discontinued operation                   |  |         | 747    |         |  |         | (214   | )       |  |   | (1,101 | ) |  |   | (3,037  | )
|                                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |         |  
|Net loss                                                        |  | $       | (797   | )       |  | $       | (3,268 | )       |  | $ | (2,225 | ) |  | $ | (12,622 | )
|                                                                |  |         |        |         |  |         |        |         |  |   |        |   |  |   |         |  
|Net loss per share                                              |  | $       | (0.07  | )       |  | $       | (0.29  | )       |  | $ | (0.20  | ) |  | $ | (1.09   | )
|Weighted average number of basic and
diluted shares outstanding |  |         | 11,043 |         |  |         | 11,245 |         |  |   | 11,352 |   |  |   | 11,580  |  

The Companys Consolidated Financial Statement and Supplementary Data are
included under Item 14 of this Annual Report on Form 10-K are incorporated
herein by reference.




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

This information has been previously reported by the Registrant in a
Current Report on Form 8-K filed with the Commissioner on April 13, 2001.




PART III

Item 10.   Directors and Executive Officers of the Registrant

The response to this item is contained in part under the caption
Executive Officers of the Company in Part I of this Annual Report on Form
10-K, and in part in the Companys Proxy Statement for the Annual Meeting of
Stockholders to be held on May 30, 2002 (the 2002 Proxy Statement) in the
sections entitled Election of Directors  Members of the Board of Directors
and Other Matters  Section 16(a) Beneficial Ownership Reporting Compliance,
which sections are incorporated herein by reference.

23



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##### Table of Contents






Item 11.   Executive Compensation

The response to this item is contained in the 2002 Proxy Statement in the
sections entitled Election of Directors   Compensation of Directors and
Executive Compensation, which sections are incorporated herein by reference.




Item 12.   Security Ownership of Certain Beneficial Owners and Management

The response to this item is contained in the 2002 Proxy Statement in the
section entitled Beneficial Ownership of Voting Stock, which section is
incorporated herein by reference.




Item 13.   Certain Relationships and Related Transactions

The response to this item is item is contained in the 2002 Proxy Statement
in the section entitled Certain Relationships and Related Transactions, which
is incorporated herein by reference.




PART IV




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



| | (a) |  | 1.  Consolidated
Financial Statements
The consolidated financial statements listed in the accompanying Index to
Consolidated Financial Statements and
Financial Statement Schedule is filed as part of this Annual Report.               
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | 2.  Consolidated
Financial Statement Schedule
The consolidated financial statement schedule listed in the accompanying
Index to Consolidated Financial Statement and Financial Statement Schedule
is filed as part of this Annual Report.
|
| |     |  | 3.  Exhibits
The Exhibits filed as a part of this Annual Report on Form 10-K are the
following:                                                                                                                                          

|         |  |   |  |                                                                                                                                                                                                                                                                                                                                        
|-------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(1)   |  |  |  | Restated Articles of Organization.                                                                                                                                                                                                                                                                                                     
|        
|3.2(1)   |  |  |  | By-laws.                                                                                                                                                                                                                                                                                                                               
|        
|4.1(2)   |  |  |  | Form of Rights
Agreement, dated as of September 18, 2000, between the Company and
American Stock Transfer & Trust Company, which includes as
Exhibit A the terms of the Series A Junior Participating Preferred
Stock, as Exhibit B the Form of Rights Certificate, and as Exhibit C
the Summary of Rights to Purchase Preferred Stock.
|        
|10.1(1)+ |  |  |  | Applix, Inc. 1994 Equity Incentive Plan.                                                                                                                                                                                                                                                                                               
|        
|10.2(1)+ |  |  |  | Applix, Inc. 1984 Stock Option Plan.                                                                                                                                                                                                                                                                                                   
|        
|10.3(3)+ |  |  |  | Applix, Inc. 2000 Director Stock Option Plan.                                                                                                                                                                                                                                                                                          
|        
|10.4(6)  |  |  |  | Applix, Inc. 2001 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                        
|        
|10.5(5)  |  |  |  | Single Tenant
Commercial Lease by and between Westborough Land Realty Trust and the
Registrant, dated January 23, 2001.                                                                                                                                                                                                                
|        
|10.6+(5) |  |  |  | Employment
Agreement dated June 27, 2000 between the Registrant and Jitendra
Saxena, and Supplemental Agreement to Employment Agreement, dated
March 19, 2001 between the Registrant and Jitendra Saxena.                                                                                                                              
|        
|10.7(7)  |  |  |  | Consulting
Agreement between the Registrant and David C. Mahoney, dated September 10, 2001.                                                                                                                                                                                                                                            
|        
|10.8(6)+ |  |  |  | Executive Stock
Option Acceleration Agreement between the Registrant and Craig Cervo,
dated June 9, 2000.                                                                                                                                                                                                                              

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|          |  |   |  |                                                                                                                                                                                                                 
|--------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9(6)+  |  |  |  | Executive
Change-in-Control Agreement between the Registrant and Alan
Goldsworthy, dated July 3, 2001.                                                                                                          
|         
|10.10(7)+ |  |  |  | Executive
Change-in-Control Agreement between the Registrant and Walt Hilger,
dated September 27, 2001.                                                                                                         
|         
|10.11(4)  |  |  |  | Secured
Promissory Note and Pledge Agreement entered into on July 31, 2000
between the Company and Alan Goldsworthy.                                                                                            
|         
|10.12(4)  |  |  |  | Secured
Promissory Note and Pledge Agreement entered into on July 31, 2000 between the Company and Ed Terino.                                                                                                   
|         
|10.13(5)  |  |  |  | Asset Purchase
Agreement by and among Real-Time International, Inc., VistaSource,
Inc., Applix, Inc., Veriteam, Inc., VistaSource France, VistaSource
GmbH and VistaSource UK, Ltd., dated as of March 14, 2001.
|         
|10.14     |  |  |  | Export-Import
Bank Loan and Security Agreement, dated December 5, 2001 among the
Registrant, Applix (UK) Limited, Applix Australia Pty, Ltd., Veritem Ltd. And Silicon Valley Bank.                             
|         
|10.15     |  |  |  | Borrower
Agreement by the Registrant, Applix (UK) Limited, Applix Australia
Pty, Ltd., Veriteam, Ltd. in favor of the Export-Import Bank and Silicon Valley Bank.                                               
|         
|10.16     |  |  |  | Loan and
Security Agreement, dated December 5, 2001 between the Registrant and
Silicon Valley Bank.                                                                                                             
|         
|10.17     |  |  |  | Non-Recourse
Receivables Purchase Agreement dated December 31, 2001, between the
Registrant and Silicon Valley Bank.                                                                                            
|         
|21.1      |  |  |  | Subsidiaries of the Registrant.                                                                                                                                                                                 
|         
|23.1      |  |  |  | Consent of Ernst & Young LLP.                                                                                                                                                                                   
|         
|23.2      |  |  |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                          



---

|1. |  | Incorporated by reference from the Companys Registration Statement on
Form S-1 (File no. 33-85688).                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Incorporated by reference to the Companys Registration Statement on Form
8-A dated September 20, 2000.                                                                                              
|  
|3. |  | Incorporated by reference to the Registrants Report on Form 10-K for the
fiscal year ended December 31, 1999, as filed with the Commission on March
30, 2000.                                       
|  
|4. |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2000, as filed with the
Commission on November 14, 2000.                      
|  
|5. |  | Incorporated by reference to the Registrants Report on Form 10-K for the
fiscal year ended December 31, 2000, as originally filed with the
Commission on April 2, 2001 and amended on June 15, 2001.
|  
|6. |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2001, as filed with the
Commission on August 13, 2001.                             
|  
|7. |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2001, as filed with the
Commission on November 14, 2001.                      
|  
|+  |  | Management contract or compensatory plan.                                                                                                                                                            

|   
|---
|   
|   
|(b)
|   
|   

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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 as of March 27, 2001 by the undersigned, thereunto duly
authorized.



| | APPLIX, INC.
| | ------------



| | By:/s/ Alan Goldsworthy
Alan Goldsworthy
President and Chief Executive Officer
| | ------------------------------------------------------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.

|                                         |  |                                                                                    |  |               
|---------------------------------------- |  | ---------------------------------------------------------------------------------- |  | --------------
|Signature                                |  | Title                                                                              |  | Date          
|                                         |  |                                                                                    |  |               
|/s/ Alan GoldsworthyAlan Goldsworthy     |  | President and Chief Executive
Officer, and Director (Principal
Executive Officer)  |  | March 27, 2002
|                                        
|/s/ Walt HilgerWalt Hilger               |  | Chief Financial Officer and
Treasurer (Principal Financial and
Accounting Officer) |  | March 27, 2002
|                                        
|/s/ Jitendra SaxenaJitendra Saxena       |  | Director                                                                           |  | March 27, 2002
|                                        
|/s/ Peter GyenesPeter Gyenes             |  | Director                                                                           |  | March 23, 2002
|                                        
|/s/ Alain J. HanoverAlain J. Hanover     |  | Director                                                                           |  | March 22, 2002
|                                        
|/s/ David C. MahoneyDavid C. Mahoney     |  | Director                                                                           |  | March 22, 2002
|                                        
|/s/ John D. LoewenbergJohn D. Loewenberg |  | Director                                                                           |  | March 25, 2002
|                                        
|/s/ Charles F. KaneCharles F. Kane       |  | Director                                                                           |  | March 27, 2002

26



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Item 14(a)  Index to Consolidated Financial Statements and Financial Statement Schedule

|                                                                                                                   |  |      |    | 
|------------------------------------------------------------------------------------------------------------------ |  | ---- | -- | 
|                                                                                                                   |  | Page
|                                                                                                                   |  |     
|Report
of Ernst & Young LLP, Independent Auditors                                                                  |  |      | 28 | 
|Report
of Independent Accountants                                                                                  |  |      | 29 | 
|Consolidated Balance Sheets at December 31, 2001 and 2000                                                          |  |      | 30 | 
|Consolidated Statements of Operations for the years
ended December 31, 2001, 2000 and 1999                         |  |      | 32 | 
|Consolidated Statements of Stockholders Equity for the years ended
December 31, 2001, 2000 and 1999               |  |      | 33 | 
|Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999                         |  |      | 34 | 
|Notes to Consolidated Financial Statements                                                                         |  |      | 35 | 
|Financial Statement Schedule for the year ended
December 31, 2001.
Schedule II  Valuation and Qualifying Accounts |  |      | 50 | 

All other schedules have been omitted since the required information is
not present, or the amounts are not sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements.

27



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##### Table of Contents






Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Applix, Inc.

We have audited the accompanying consolidated balance sheet of Applix, Inc. as
of December 31, 2001 and the related consolidated statements of operations,
stockholders equity, and cash flows for the year then ended. Our audit also
included the financial statement schedule for the year ended December 31, 2001
listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Applix, Inc. at
December 31, 2001, and the consolidated results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule for the year ended December 31, 2001, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Boston, Massachusetts
January 25, 2002, except for Note 16,
as to which the date
is February 8, 2002

28



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##### Table of Contents






Report of Independent Accountants

To the Board of Directors and Stockholders of Applix, Inc.:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Applix, Inc. and its subsidiaries at December 31, 2000,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Companys management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PricewaterhouseCoopers LLP/s/ PricewaterhouseCoopers LLPBoston, Massachusetts
January 24, 2001

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##### Table of Contents






Applix, Inc.
Consolidated Balance Sheets
December 31, 2001 and 2000
(in thousands, except share amounts)

ASSETS

|                                                                                             |                      |                                                                           |                                                |        |        |         |        |        |        |         |  
|-------------------------------------------------------------------------------------------- | -------------------- | ------------------------------------------------------------------------- | ---------------------------------------------- | ------ | ------ | ------- | ------ | ------ | ------ | ------- | -
|                                                                                             |                      |                                                                           |                                                |        | 2001   |         | 2000  
|                                                                                             |                      |                                                                           |                                                |        |        |         |       
|Current assets:                                                                              |                      |                                                                           |                                                |        |        |         |        |       
|                                                                                             |                      | Cash and cash equivalents                                                 |                                                | $      | 8,228  |         |        | $      | 12,546 |        
|                                                                                             |                      | Accounts receivable, net of allowances
of $1,446 and $1,397, respectively |                                                |        | 7,202  |         |        |        | 12,026 |        
|                                                                                             | Other current assets |                                                                           |                                                | 1,672  |        |         |        | 2,381  |       
|                                                                                             |                      |                                                                           |                                                |        |        |         |        |       
|                                                                                             | Total current assets |                                                                           |                                                | 17,102 |        |         |        | 26,953 |       
|                                                                                            
|Restricted cash                                                                              |                      |                                                                           | 1,050                                          |        |        |         |       |       
|                                                                                            
|Property and equipment, at cost:                                                             |                      |                                                                           |                                                |        |        |         |        |       
|                                                                                             |                      | Computer equipment                                                        |                                                |        | 11,959 |         |        |        | 11,817 |        
|                                                                                             |                      | Office furniture, equipment and leasehold improvements                    |                                                |        | 2,292  |         |        |        | 3,658  |        
|                                                                                             |                      |                                                                           |                                                |        |        |         |        |       
|                                                                                             |                      |                                                                           | 14,251                                         |        |        |         | 15,475 |       
|                                                                                             |                      |                                                                           | Less accumulated depreciation and amortization |        |        | (11,722 | )      |        |        | (12,379 | )
|                                                                                             |                      |                                                                           |                                                |        |        |         |        |       
|                                                                                             |                      |                                                                           | Net property and equipment                     |        |        | 2,529   |        |        |        | 3,096   |  
|                                                                                            
|Capitalized software costs, net of accumulated amortization of
$1,598 and $886, respectively |                      |                                                                           | 1,042                                          |        |        |         | 910    |       
|                                                                                            
|Goodwill, net of accumulated amortization of
$1,084 and $896, respectively                   |                      |                                                                           | 1,117                                          |        |        |         | 370    |       
|                                                                                            
|Intangible assets, net of accumulated amortization of $186                                   |                      |                                                                           | 1,314                                          |        |        |         |       |       
|                                                                                            
|Other assets                                                                                 |                      |                                                                           | 784                                            |        |        |         | 1,745  |       
|                                                                                             |                      |                                                                           |                                                |        |        |         |        |       
|TOTAL ASSETS                                                                                 |                      | $                                                                         | 24,938                                         |        |        | $       | 33,074 |       
|                                                                                             |                      |                                                                           |                                                |        |        |         |        |       

See accompanying Notes to Consolidated Financial Statements.

30



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Applix, Inc.
Consolidated Balance Sheets (continued)
December 31, 2001 and 2000
(in thousands, except share and per share amounts)

LIABILITIES AND STOCKHOLDERS EQUITY

|                                           |                                                                                                                                                   |   |        |         |      |   |        |         |  
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------ | ------- | ---- | - | ------ | ------- | -
|                                           |                                                                                                                                                   |   | 2001   |         | 2000
|                                           |                                                                                                                                                   |   |        |         |     
|Current liabilities:                       |                                                                                                                                                   |   |        |         |      |   |        |        
|                                           | Accounts payable                                                                                                                                  |   | $      | 2,137   |      |   | $      | 2,406   |  
|                                           | Accrued liabilities                                                                                                                               |   |        | 6,716   |      |   |        | 7,145   |  
|                                           | Deferred revenue                                                                                                                                  |   |        | 5,813   |      |   |        | 4,222   |  
|                                           | Net liabilities of discontinued operation                                                                                                         |   |        | 182     |      |   |        | 1,067   |  
|                                           |                                                                                                                                                   |   |        |         |      |   |        |        
|                                           | Total current liabilities                                                                                                                         |   |        | 14,848  |      |   |        | 14,840  |  
|                                          
|Long term liabilities                      |                                                                                                                                                   |   | 709    |         |      |   |       |        
|                                          
|Commitments and contingencies (Note 6)     |                                                                                                                                                   |   |       |         |      |   |       |        
|                                          
|Stockholders equity:                      |                                                                                                                                                   |   |        |         |      |   |        |        
|                                           | Preferred stock, $.01 par value; 1,000,000 shares
authorized, none issued and outstanding                                                         |   |        |         |      |   |        |         |  
|                                           | Common stock, $.0025 par value; 30,000,000
shares authorized; 12,320,096 and 11,893,893
shares issued at December 31, 2001 and 2000,
respectively |   |        | 31      |      |   |        | 30      |  
|                                           | Capital in excess of par value                                                                                                                    |   |        | 49,212  |      |   |        | 48,249  |  
|                                           | Accumulated deficit                                                                                                                               |   |        | (37,162 | )    |   |        | (27,268 | )
|                                           | Accumulated other comprehensive loss                                                                                                              |   |        | (503    | )    |   |        | (580    | )
|                                           | Notes receivable from stock purchase agreements                                                                                                   |   |        | (1,120  | )    |   |        | (1,120  | )
|                                           |                                                                                                                                                   |   |        |         |      |   |        |        
|                                           |                                                                                                                                                   |   | 10,458 |         |      |   | 19,311 |        
|                                          
|                                           | Less 306,198 shares of treasury stock                                                                                                             |   |        | (1,077  | )    |   |        | (1,077  | )
|                                           |                                                                                                                                                   |   |        |         |      |   |        |        
|                                          
|Total stockholders equity                 |                                                                                                                                                   |   | 9,381  |         |      |   | 18,234 |        
|                                           |                                                                                                                                                   |   |        |         |      |   |        |        
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                                   | $ | 24,938 |         |      | $ | 33,074 |        
|                                           |                                                                                                                                                   |   |        |         |      |   |        |        

See accompanying Notes to Consolidated Financial Statements.

31



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Applix, Inc.
Consolidated Statements of Operations
Years Ended December 31, 2001, 2000 and 1999
(in thousands, except per share data)

|                                                                |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |        |      | 
|--------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | ------- | ------- | ----- | ---- | ------- | ------- | ----- | - | ------ | ------ | ---- | 
|                                                                |                                                                                                                                   |                               |         | 2001    |       | 2000 |         | 1999   
|                                                                |                                                                                                                                   |                               |         |         |       |      |         |        
|Software license revenue                                        |                                                                                                                                   | $                             | 19,304  |         |       | $    | 23,735  |         |       | $ | 21,610 |       
|Professional
services and maintenance revenue                   |                                                                                                                                   |                               | 20,999  |         |       |      | 16,504  |         |       |   | 15,261 |       
|                                                                |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|                                                                | Total revenue                                                                                                                     |                               |         | 40,303  |       |      |         | 40,239  |       |   |        | 36,871 |     
|                                                               
|Cost of software license revenue                                |                                                                                                                                   |                               | 2,335   |         |       |      | 1,985   |         |       |   | 1,454  |       
|Cost
of professional services and maintenance revenue           |                                                                                                                                   |                               | 12,536  |         |       |      | 13,757  |         |       |   | 11,498 |       
|                                                                |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|                                                                | Gross margin                                                                                                                      |                               |         | 25,432  |       |      |         | 24,497  |       |   |        | 23,919 |     
|                                                               
|Operating expenses                                              |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|                                                                | Selling and marketing                                                                                                             |                               |         | 21,671  |       |      |         | 25,580  |       |   |        | 19,957 |     
|                                                                | Research and development                                                                                                          |                               |         | 6,848   |       |      |         | 7,502   |       |   |        | 7,101  |     
|                                                                | General and administrative                                                                                                        |                               |         | 4,754   |       |      |         | 4,292   |       |   |        | 4,485  |     
|                                                                | Restructuring and other charges                                                                                                   |                               |         | 1,700   |       |      |         |        |       |   |        |       |     
|                                                                |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|                                                                | Total operating expenses                                                                                                          |                               |         | 34,973  |       |      |         | 37,374  |       |   |        | 31,543 |     
|                                                               
|Operating loss                                                  |                                                                                                                                   |                               | (9,541  | )       |       |      | (12,877 | )       |       |   | (7,624 | )     
|Non-operating income (expense)                                  |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|                                                                | Permanent impairment of cost based investment                                                                                     |                               |         | (1,250  | )     |      |         |        |       |   |        |       |     
|                                                                | Interest income, net                                                                                                              |                               |         | 374     |       |      |         | 1,153   |       |   |        | 1,031  |     
|                                                                |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|Loss from continuing operations before income taxes             |                                                                                                                                   |                               | (10,417 | )       |       |      | (11,724 | )       |       |   | (6,593 | )     
|Provision (benefit) for income taxes                            |                                                                                                                                   |                               | 558     |         |       |      | 3,583   |         |       |   | (2,342 | )     
|                                                                |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|                                                                | Net loss from continuing operations                                                                                               |                               |         | (10,975 | )     |      |         | (15,307 | )     |   |        | (4,251 | )   
|Discontinued operation                                          |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|                                                                | Income (loss) from discontinued operation, including income tax
provision of $63 and $3,739 in 2000 and 1999, respectively        |                               |         |        |       |      |         | (367    | )     |   |        | 6,631  |     
|                                                                | Gain (loss) on disposal of discontinued operation, including a provision
of $2,367 for losses during the phase-out period in 2000 |                               |         | 1,081   |       |      |         | (3,238  | )     |   |        |       |     
|                                                                |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|Net income (loss)                                               |                                                                                                                                   | $                             | (9,894  | )       |       | $    | (18,912 | )       |       | $ | 2,380  |       
|                                                                |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|Basic and diluted income (loss) per share                       |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|                                                                | Continuing operations                                                                                                             |                               | $       | (0.93   | )     |      | $       | (1.36   | )     |   | $      | (0.40  | )   
|                                                                | Discontinued operation                                                                                                            |                               | $       | 0.09    |       |      | $       | (0.32   | )     |   | $      | 0.62   |     
|                                                                |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|                                                                |                                                                                                                                   | Total income (loss) per share |         | $       | (0.83 | )    |         | $       | (1.68 | ) |        | $      | 0.22 | 
|                                                                |                                                                                                                                   |                               |         |         |       |      |         |         |       |   |        |       
|Weighted average number of basic and diluted shares outstanding |                                                                                                                                   |                               | 11,861  |         |       |      | 11,246  |         |       |   | 10,625 |       

See accompanying Notes to Consolidated Financial Statements.

32



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##### Table of Contents






Applix, Inc.
Consolidated Statements of Stockholders Equity
Years ended December 31, 2001, 2000 and 1999
(in thousands, except share data)



|                                                                       |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|---------------------------------------------------------------------- |  | ------ | -- | ------------ |  | ----------- | ------ | ------------- |  | ------------ | ------- | ----- |  | ----------- | ---- | - |  | - | ------ | -
|                                                                       |  |        |    |              |  |             |        |               |  |              |         |       |  | ACCUMULATED |      |   |  |  
|                                                                       |  |        |    |              |  | CAPITAL     |        |               |  |              |         | OTHER |  |             |      |  
|                                                                       |  | COMMON |    | IN EXCESS OF |  | ACCUMULATED |        | COMPREHENSIVE |  | UNEARNED    
|                                                                       |  | STOCK  |    | PAR VALUE    |  | DEFICIT     |        | (LOSS) INCOME |  | COMPENSATION
|                                                                       |  |        |    |              |  |             |        |               |  |             
|Balance, December 31, 1998                                             |  | $      | 26 |              |  | $           | 41,689 |               |  | $            | (10,736 | )     |  | $           | (471 | ) |  | $ |       |  
|Stock option income
tax benefit                                        |  |        |    |              |  |             | 921    |               |  |              |         |       |  |             |      |   |  |   |        |  
|Stock issued for purchase
of Cosource.com
(148,571 shares)             |  |        |    |              |  |             | 640    |               |  |              |         |       |  |             |      |   |  |   |        |  
|Stock issued under stock
plans (749,391 shares)                        |  |        | 3  |              |  |             | 2,423  |               |  |              |         |       |  |             |      |   |  |   |        |  
|Issuance of restricted stock                                           |  |        |    |              |  |             | 1,440  |               |  |              |         |       |  |             |      |   |  |   | (1,440 | )
|Repurchase of common stock
(27,500 shares)                             |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|Net income                                                             |  |        |    |              |  |             |        |               |  |              | 2,380   |       |  |             |      |   |  |   |        |  
|Foreign currency exchange
translation adjustment                       |  |        |    |              |  |             |        |               |  |              |         |       |  |             | (85  | ) |  |   |        |  
|                                                                       |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|Comprehensive income                                                   |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|                                                                       |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|Balance, December 31, 1999                                             |  |        | 29 |              |  |             | 47,113 |               |  |              | (8,356  | )     |  |             | (556 | ) |  |   | (1,440 | )
|Stock issued under stock
plans (188,591 shares)                        |  |        |    |              |  |             | 1,184  |               |  |              |         |       |  |             |      |   |  |   |        |  
|Issuance of restricted stock
(256,002 shares)                          |  |        | 1  |              |  |             | 1,119  |               |  |              |         |       |  |             |      |   |  |   |        |  
|Amortization of unearned
compensation                                  |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   | 273    |  
|Forfeiture of restricted stock                                         |  |        |    |              |  |             | (1,167 | )             |  |              |         |       |  |             |      |   |  |   | 1,167  |  
|Net loss                                                               |  |        |    |              |  |             |        |               |  |              | (18,912 | )     |  |             |      |   |  |   |        |  
|Foreign currency exchange
translation adjustment                       |  |        |    |              |  |             |        |               |  |              |         |       |  |             | (24  | ) |  |   |        |  
|                                                                       |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|Comprehensive loss                                                     |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|                                                                       |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|Balance, December 31, 2000                                             |  |        | 30 |              |  |             | 48,249 |               |  |              | (27,268 | )     |  |             | (580 | ) |  |   |       |  
|Stock issued under stock
plans (326,203 shares)                        |  |        | 1  |              |  |             | 736    |               |  |              |         |       |  |             |      |   |  |   |        |  
|Stock issued for the
acquisition of Dynamic
Decisions (100,000 shares) |  |        |    |              |  |             | 227    |               |  |              |         |       |  |             |      |   |  |   |        |  
|Net loss                                                               |  |        |    |              |  |             |        |               |  |              | (9,894  | )     |  |             |      |   |  |   |        |  
|Foreign currency exchange
translation adjustment                       |  |        |    |              |  |             |        |               |  |              |         |       |  |             | 77   |   |  |   |        |  
|                                                                       |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|Comprehensive loss                                                     |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|                                                                       |  |        |    |              |  |             |        |               |  |              |         |       |  |             |      |   |  |   |        |  
|Balance, December 31, 2001                                             |  |        | 31 |              |  |             | 49,212 |               |  |              | (37,162 | )     |  |             | (503 | ) |  |   |       |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                       |  |            |        |          |  |       |        |   |  |   |         |  
|---------------------------------------------------------------------- |  | ---------- | ------ | -------- |  | ----- | ------ | - |  | - | ------- | -
|                                                                       |  | NOTES      |        |          |  |       |        |   |  |  
|                                                                       |  | RECEIVABLE |        |          |  |       |        |   |  |  
|                                                                       |  | FROM STOCK |        |          |  |       |        |   |  |  
|                                                                       |  | PURCHASE   |        | TREASURY |  |       |        |  
|                                                                       |  | AGREEMENTS |        | STOCK    |  | TOTAL
|                                                                       |  |            |        |          |  |      
|Balance, December 31, 1998                                             |  | $          |       |          |  | $     | (933   | ) |  | $ | 29,575  |  
|                                                                       |  |            |        |          |  |       |        |   |  |   |         |  
|Stock option income
tax benefit                                        |  |            |        |          |  |       |        |   |  |   | 921     |  
|Stock issued for purchase
of Cosource.com
(148,571 shares)             |  |            |        |          |  |       |        |   |  |   | 640     |  
|Stock issued under stock
plans (749,391 shares)                        |  |            |        |          |  |       |        |   |  |   | 2,426   |  
|Issuance of restricted stock                                           |  |            |        |          |  |       |        |   |  |   |        |  
|Repurchase of common stock
(27,500 shares)                             |  |            |        |          |  |       | (144   | ) |  |   | (144    | )
|Net income                                                             |  |            |        |          |  |       |        |   |  |   | 2,380   |  
|Foreign currency exchange
translation adjustment                       |  |            |        |          |  |       |        |   |  |   | (85     | )
|                                                                       |  |            |        |          |  |       |        |   |  |   |        
|Comprehensive income                                                   |  |            |        |          |  |       |        |   |  |   | 2,295   |  
|                                                                       |  |            |        |          |  |       |        |   |  |   |         |  
|Balance, December 31, 1999                                             |  |            |       |          |  |       | (1,077 | ) |  |   | 35,713  |  
|Stock issued under stock
plans (188,591 shares)                        |  |            |        |          |  |       |        |   |  |   | 1,184   |  
|Issuance of restricted stock
(256,002 shares)                          |  |            | (1,120 | )        |  |       |        |   |  |   |        |  
|Amortization of unearned
compensation                                  |  |            |        |          |  |       |        |   |  |   | 273     |  
|Forfeiture of restricted stock                                         |  |            |        |          |  |       |        |   |  |   |        |  
|Net loss                                                               |  |            |        |          |  |       |        |   |  |   | (18,912 | )
|Foreign currency exchange
translation adjustment                       |  |            |        |          |  |       |        |   |  |   | (24     | )
|                                                                       |  |            |        |          |  |       |        |   |  |   |         |  
|Comprehensive loss                                                     |  |            |        |          |  |       |        |   |  |   | (18,936 | )
|                                                                       |  |            |        |          |  |       |        |   |  |   |         |  
|Balance, December 31, 2000                                             |  |            | (1,120 | )        |  |       | (1,077 | ) |  |   | 18,234  |  
|Stock issued under stock
plans (326,203 shares)                        |  |            |        |          |  |       |        |   |  |   | 737     |  
|Stock issued for the
acquisition of Dynamic
Decisions (100,000 shares) |  |            |        |          |  |       |        |   |  |   | 227     |  
|Net loss                                                               |  |            |        |          |  |       |        |   |  |   | (9,894  | )
|Foreign currency exchange
translation adjustment                       |  |            |        |          |  |       |        |   |  |   | 77      |  
|                                                                       |  |            |        |          |  |       |        |   |  |   |         |  
|Comprehensive loss                                                     |  |            |        |          |  |       |        |   |  |   | (9,817  | )
|                                                                       |  |            |        |          |  |       |        |   |  |   |         |  
|Balance, December 31, 2001                                             |  |            | (1,120 | )        |  |       | (1,077 | ) |  |   | 9,381   |  
|                                                                       |  |            |        |          |  |       |        |   |  |   |         |  

See accompanying Notes to Consolidated Financial Statements.

33



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##### Table of Contents






Applix, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 2001, 2000 and 1999
( in thousands)

|                                                     |                                                                                                      |                                                      |                                                 |        |        |        |        |         |         |        |        |       |         |         |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------- | ------ | ------ | ------ | ------ | ------- | ------- | ------ | ------ | ----- | ------- | ------- | -
|Years ended December 31,                             |                                                                                                      | 2001                                                 |                                                 | 2000   |        | 1999  
|                                                     |                                                                                                      |                                                      |                                                 |        |        |       
|Operating activities                                 |                                                                                                      |                                                      |                                                 |        |        |        |        |         |         |        |        |      
|                                                     | Net income (loss)                                                                                    |                                                      | $                                               | (9,894 | )      |        | $      | (18,912 | )       |        | $      | 2,380 |        
|                                                     | Adjustments to reconcile net income (loss) to net cash
provided by (used for ) operating activities: |                                                      |                                                 |        |        |        |        |         |         |        |        |       |        
|                                                     |                                                                                                      | Depreciation                                         |                                                 |        | 1,410  |        |        |         | 2,032   |        |        |       | 1,633   |        
|                                                     |                                                                                                      | Amortization                                         |                                                 |        | 1,086  |        |        |         | 1,330   |        |        |       | 862     |        
|                                                     |                                                                                                      | (Gain) loss on sale of discontinued operation        |                                                 |        | (1,081 | )      |        |         | 3,238   |        |        |       |        |        
|                                                     |                                                                                                      | Write-off of impaired investment                     |                                                 |        | 1,250  |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                      | Non-cash restructuring charges                       |                                                 |        | 92     |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                      | Non-cash stock compensation expense                  |                                                 |        | 30     |        |        |         | 573     |        |        |       |        |        
|                                                     |                                                                                                      | Provision for doubtful accounts                      |                                                 |        | 49     |        |        |         | 344     |        |        |       |        |        
|                                                     |                                                                                                      | Deferred tax asset                                   |                                                 |        |       |        |        |         | 3,001   |        |        |       | (406    | )      
|                                                     | Changes in operating assets and liabilities:                                                         |                                                      |                                                 |        |        |        |        |         |         |        |        |       |        
|                                                     |                                                                                                      | (Increase) decrease in accounts receivable           |                                                 |        | 4,635  |        |        |         | (1,214  | )      |        |       | 61      |        
|                                                     |                                                                                                      | (Increase) decrease in other assets                  |                                                 |        | 566    |        |        |         | 864     |        |        |       | (1,165  | )      
|                                                     |                                                                                                      | Increase in restricted cash                          |                                                 |        | (1,050 | )      |        |         |        |        |        |       |        |        
|                                                     |                                                                                                      | Increase (decrease) in accounts payable              |                                                 |        | (540   | )      |        |         | 433     |        |        |       | 592     |        
|                                                     |                                                                                                      | Increase (decrease) in accrued liabilities           |                                                 |        | (2,021 | )      |        |         | 381     |        |        |       | 61      |        
|                                                     |                                                                                                      | Increase in other liabilities                        |                                                 |        | 195    |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                      | Increase (decrease) in deferred revenue              |                                                 |        | 1,491  |        |        |         | (1,042  | )      |        |       | 705     |        
|                                                     |                                                                                                      | Increase in accrued discontinued operations          |                                                 |        | 196    |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                      |                                                      |                                                 |        |        |        |        |         |         |        |        |      
|                                                     |                                                                                                      |                                                      | Cash (used in) provided by operating activities |        |        | (3,586 | )      |         |         | (8,972 | )      |       |         | 4,723   |  
|                                                    
|Investing activities                                 |                                                                                                      |                                                      |                                                 |        |        |        |        |         |         |        |        |      
|                                                     |                                                                                                      | Property and equipment expenditures                  |                                                 |        | (856   | )      |        |         | (2,655  | )      |        |       | (1,709  | )      
|                                                     |                                                                                                      | Capitalized software costs                           |                                                 |        | (844   | )      |        |         | (1,803  | )      |        |       | (784    | )      
|                                                     |                                                                                                      | Payment for disposition of subsidiary                |                                                 |        | (100   | )      |        |         |        |        |        |       |        |        
|                                                     |                                                                                                      | Net proceeds from sale of discontinued operation     |                                                 |        | 1,300  |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                      | Payments for acquisition, net of cash acquired       |                                                 |        | (1,733 | )      |        |         |        |        |        |       | (1,197  | )      
|                                                     |                                                                                                      | Purchase of short-term investments                   |                                                 |        |       |        |        |         | (31,715 | )      |        |       | (41,000 | )      
|                                                     |                                                                                                      | Maturities of short-term investments                 |                                                 |        |       |        |        |         | 46,870  |        |        |       | 29,885  |        
|                                                     |                                                                                                      |                                                      |                                                 |        |        |        |        |         |         |        |        |      
|                                                     |                                                                                                      |                                                      | Cash provided by (used in) investing            |        |        | (2,233 | )      |         |         | 10,697 |        |       |         | (14,805 | )
|                                                    
|Financing activities                                 |                                                                                                      |                                                      |                                                 |        |        |        |        |         |         |        |        |      
|                                                     |                                                                                                      | Proceeds from issuance of stock under stock plans    |                                                 |        | 737    |        |        |         | 1,184   |        |        |       | 3,346   |        
|                                                     |                                                                                                      | Purchase of common stock                             |                                                 |        |       |        |        |         |        |        |        |       | (144    | )      
|                                                     |                                                                                                      | Payment on notes payable                             |                                                 |        |       |        |        |         | (660    | )      |        |       |        |        
|                                                     |                                                                                                      | Proceeds from factoring of receivables               |                                                 |        | 729    |        |        |         |        |        |        |       |        |        
|                                                     |                                                                                                      | Principal payments under capital lease obligations   |                                                 |        |       |        |        |         |        |        |        |       | (118    | )      
|                                                     |                                                                                                      |                                                      |                                                 |        |        |        |        |         |         |        |        |      
|                                                     |                                                                                                      |                                                      | Cash provided by financing activities           |        |        | 1,466  |        |         |         | 524    |        |       |         | 3,084   |  
|                                                    
|Effect of exchange rate changes on cash              |                                                                                                      |                                                      | 35                                              |        |        |        | (24    | )       |         |        | (85    | )    
|                                                     |                                                                                                      |                                                      |                                                 |        |        |        |        |         |         |        |        |      
|Net increase (decrease) in cash and cash equivalents |                                                                                                      |                                                      | (4,318                                          | )      |        |        | 2,225  |         |         |        | (7,083 | )    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                                                                      |                                                      | 12,546                                          |        |        |        | 10,321 |         |         |        | 17,404 |      
|                                                     |                                                                                                      |                                                      |                                                 |        |        |        |        |         |         |        |        |      
|Cash and cash equivalents at end of period           |                                                                                                      | $                                                    | 8,228                                           |        |        | $      | 12,546 |         |         | $      | 10,321 |      
|                                                    
|Supplemental disclosure of cash flow information     |                                                                                                      |                                                      |                                                 |        |        |        |        |         |         |        |        |      
|                                                     |                                                                                                      | Cash paid during the period for income taxes         |                                                 | $      | 311    |        |        | $       | 110     |        |        | $     | 312     |        
|                                                     |                                                                                                      | Stock issued in exchange for stockholder notes       |                                                 | $      |       |        |        | $       | 1,120   |        |        | $     |        |        
|                                                     |                                                                                                      | Stock issued for acquisition of Dynamic Decision Pty |                                                 | $      | 227    |        |        | $       |        |        |        | $     |        |        

See accompanying Notes to Consolidated Financial Statements.

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Applix, Inc.
Notes to Consolidated Financial Statements

1.   NATURE OF BUSINESS

Applix, Inc. (Applix or the Company) develops, markets and supports a
suite of Internet-based software applications. The Company has one principal
business segment, its customer analytics and business planning software
segment, which is reported as continuing operations. The Company provides
customer relationship management and business planning software that enables
customers to automate their front office business operations, including
customer relationship management and business planning. On March 30, 2001, the
Company sold its VistaSource business unit, previously reported as the Linux
Division. This unit has been reported as a discontinued operation for all
periods presented.

The Company has incurred losses from continuing operations for the last
several years. As of December 31, 2001, the Company had an accumulated
deficit of $37.2 million. Operating losses and negative cash flows may
continue because of costs and expenses relating to brand development,
marketing and other promotional activities, continued development of the
Companys information technology infrastructure, expansion of product
offerings and development of relationships with other businesses.
Managements plans include increasing revenue and generating positive cash
flows from operations. The Company made progress during the year towards
decreasing operating losses on a quarterly sequential basis. Additionally,
the Company improved its fourth quarter 2001 cash flow and improved its cash
position at December 31, 2001. The Company currently expects that the
principal sources of funding for its operating expenses, capital expenditures
and other liquidity needs will be a combination of its available cash
balances, funds generated from operations and its available credit facilities.
The Company believes that its currently available sources of funds will be
sufficient to fund its operations for at least the next 12 months. However,
there are a number of factors that may negatively impact the Companys
available sources of funds. The amount of cash generated from operations will
be dependent upon such factors as the successful execution of the Companys
business plan, the successful introduction of Applix Integra and worldwide
economic conditions. In addition, borrowings under the Companys credit
facilities are dependent upon adequate borrowings base and the maintenance of
certain financial covenants, which may limit the availability of borrowing.
The Company does not currently anticipate the need to draw down on the two
revolving credit lines for its working capital needs. Should the Company not
meet its plans to generate sufficient revenue or positive cash flows, it may
need to raise additional capital or reduce spending. Failure to do so could
have an adverse effect on the Companys ability to continue as a going
concern.

2.   SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Applix, Inc.
and all of its wholly owned subsidiaries. Upon consolidation all significant
intercompany accounts and transactions are eliminated.

Revenue Recognition

The Company derives its revenues from licenses of its software products
and from services the Company provides to its customers. Revenue from software
licensing and services fees is recognized in accordance with Statement of
Position (SOP) 97-2, Software Revenue Recognition, and SOP 98-9, Software
Revenue Recognition with Respect to Certain Transactions. Accordingly, the
Company recognizes software license revenue when: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred; (3) the fee is fixed or
determinable; and (4) collectibility is probable.

The Companys software arrangements may contain multiple elements, such as
software products, services and post-contract customer support (PCS). Revenue
earned on software arrangements involving multiple elements which qualify for
separate element treatment is allocated to each element based on the relative
fair values of those elements based on vendor specific objective evidence.
Typically, the Companys software licenses do not include significant
post-delivery obligations to be fulfilled by the Company and payments are due
within a three-month period from date of delivery. Consequently, license fee
revenue is generally recognized when the product is shipped. Revenue from
training, consulting and implementation services is recognized as the services
are performed. Revenue for PCS under software maintenance arrangements is
recognized ratably over the term of the arrangement, generally one year.
Revenue for license renewals is recognized when all the criteria under SOP 97-2
have been met.

Cash and Cash Equivalents

The Company considers highly liquid investments with maturities of less
than 90 days at time of acquisition to be cash equivalents. The Companys
investment portfolio consists of cash equivalents placed with institutions,
which management believes to be of high credit quality. Cash equivalents
consist of money market instruments, which are designated as available for sale
securities and are carried at fair value with unrealized gains and losses, if
any, reported as a separate component of stockholders equity. Cash equivalents totaled $1,166,000 and $8,471,000 at December 31, 2001
and 2000 respectively. Restricted cash of $1,050,000 represents required
collateral on a certain operating lease. The restricted cash will be released
to the Company ratably over the term of the lease agreement.

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

Concentrations of Credit Risk

The Companys financial instruments that are exposed to concentrations of
credit risk consist primarily of cash, cash equivalents, investments and trade
receivables. The Company maintains cash, cash equivalents and investment with
high credit quality financial institutions and monitors the amount of credit
exposure to any one financial institution.

The Company performs continuing credit evaluations of its customers
financial condition and although the Company generally does not require
collateral, letters of credit may be required from its customers in certain
circumstances. Reserves are provided for estimated amounts of accounts
receivable that may not be collected.

Property and Equipment

Property and equipment are stated at cost and are depreciated by use of
the straight-line and double declining balance methods over the estimated
useful lives of the related assets (2 to 6 years) as detailed below. Assets
recorded under capital leases are
amortized by the straight-line method over their respective useful lives or the
lease term, whichever is shorter.

|                      |  |             |   |  |  |                                         
|--------------------- |  | ----------- | - |  |  | ----------------------------------------
|                      |  | Estimated   |   | 
|                      |  | Useful Life |   | 
|Asset Type            |  | (In years)  |   | 
|                      |  |             |   | 
|Office furniture      |  |             | 6 |  |  |                                         
|Leasehold improvement |  |             | 5 |  |  | (or life of lease, whichever is shorter)
|Equipment             |  |             | 3 |  |  |                                         
|Computer equipment    |  |             | 3 |  |  |                                         
|Software              |  |             | 2 |  |  |                                         

Capitalized Software Costs

Costs related to research, design and development of computer software are
charged to research and development expense as incurred. The Company
capitalizes eligible software costs incurred between the time that the
products technological feasibility is established and the general release of
the product to customers. Such capitalized costs are then amortized on a
product-by-product basis generally over one to two years.

The Company evaluates the net realizable value of capitalized software on
an ongoing basis, relying on a number of factors including demand for a
product, operating results, business plans, and economic projections. In
addition, the Companys evaluation considers nonfinancial data such as market
trends, product development cycles, and changes in managements market
emphasis.

Amortization expense totaled $712,000, $983,000, and $797,000 for the
years ended December 31, 2001, 2000, 1999, respectively, and is included in the
cost of software license revenue.

Impairment of Long-Lived Assets

The Company evaluates the net realizable value of long-lived assets,
including goodwill and other intangible assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. These events or changes in circumstances are identified by a
number of factors including a significant decrease in demand for a product
related to an asset, history of operating cash flow losses, operating results,
business plans, and economic projections. In addition, the Companys
evaluation considers nonfinancial data such as market trends, product
development cycles, and changes in managements market emphasis. Management
believes that no such events have occurred.

The Company uses the undiscounted cash flow method to determine if
impairment has occurred. If indicators of impairment are present, and the
estimated undiscounted cash flows to be derived from the related assets are not
expected to be sufficient to recover the assets carrying amount, an impairment
loss is charged to expense in the period identified. The impairment loss is
based upon the difference between the carrying amount and the fair value, as
determined based upon discounted cash flows. The rates that would be

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

utilized to discount the net cash flows to net present value would take into
account the time value of money and investment risk factors.

Income Taxes

Deferred tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted income tax rates and laws that will be in effect
when the temporary differences are expected to reverse. A valuation allowance
is established against net deferred tax assets if, based on the weighted
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized.

Computation of Net Income (Loss) Per Common Share

Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted average number of common shares
outstanding during the period, plus the dilutive effect of common stock
equivalents. Potentially dilutive common shares consist of stock options.
The diluted computations do not include common stock equivalents for the years
ended December 31, 2001, 2000 and 1999, as their inclusion would have been
antidilutive. For the years ended December 31, 2001, 2000 and 1999, the
Company excluded dilutive potential common shares of 142,029, 1,034,000 and
1,391,000, respectively, from its calculation of income (loss) per share. The
Company has an additional 3,519,571 and 2,069,182 of antidilutive common stock
equivalents for the years ended December 31, 2001 and 2000, respectively, which
would not be included in the fully dilutive calculation of income (loss) per
share had the Company reported net income as the stock option exercise price
exceeded the average market price for the respective periods.

Translation of Foreign Currencies

The functional currency for all of the locations in which the Company has
a foreign operation is the applicable local currency.
Assets and liabilities of all foreign subsidiaries are translated at period-end
rates of exchange. Revenues and expenses are translated at average exchange
rates during the period. The resulting translation adjustments are included in
other comprehensive income. Transaction gains and losses that arise from
exchange rate changes included in income are immaterial for all periods
presented.

The Company uses foreign currency forward contracts to mitigate the
effects of exchange rate changes on intercompany balances and amounts
denominated in a currency other than the functional currency of the respective
subsidiary. Such exposures result from the portion of the Companys
operations, assets and liabilities are in currencies other than the US dollar,
primarily the Netherlands Guilders, Germany Deutsche Marks, United
Kingdom Pounds, Switzerland Francs and
Australia Dollars as of December 31, 2001. These foreign exchange contracts
are entered into in the ordinary course of business, and accordingly, are not
speculative in nature. The Company typically hedges intercompany and
receivable balances for a 90-day period. In accordance with FAS 133,
as defined below, the
changes in the fair value of these undesignated hedges are recognized in the
statement of operations immediately as an offset to the changes in fair value
of the asset or liability being hedged. For the years ended December 31, 2001,
2000 and 1999, the impact to the Companys statements of operations was not
material. The estimated fair value of foreign currency forward contracts is
based on the difference between the foreign currency contract rate
and period-end rate. At December 31, 2001 and 2000, the fair value of the Companys
outstanding foreign currency forward contracts was not material to the
Companys financial position.

Comprehensive Income

Components of comprehensive income include net income (loss) and certain
transactions that have generally been reported in the consolidated statement of
stockholders equity. Other comprehensive income is comprised of foreign
currency translation adjustments.

Advertising Expense

Advertising costs are expensed as incurred. Advertising expense was
$485,000 in 2001, $442,000 in 2000 and $244,000 in 1999.

Stock-Based Compensation

The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly,
recognizes no compensation expense for the stock options grants.

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Estimates
and assumptions in these financial statements relate to, among other items, the
useful lives of fixed assets, capitalized software costs and intangible assets,
valuation of deferred tax assets, the allowance for doubtful accounts and
accrued liabilities.

Reclassifications

Certain prior year financial statement items have been reclassified to
conform to the current years presentation.

Effect of Recent Accounting Pronouncements

In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FAS 133), Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The Company adopted
FAS 133 on January 1, 2001, which did not result in a material impact to its
consolidated financial position or results of operations.

In September 2000, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 140 (FAS 140), Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
- a Replacement of Statement of Financial Accounting Standards No. 125 (FAS
125). FAS 140 revises the standards of accounting for securitizations
and other transfers of financial assets and collateral and requires certain
disclosures, and reiterates many of the provisions of FAS 125. FAS 140 is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31,
2001. The Company adopted FAS No. 140 on April 1, 2001,
which did not result in a
material impact to its consolidated financial position or results of
operations.

In July 2001, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 141 (FAS 141), Business Combinations and
No. 142 (FAS 142), Goodwill and Other Intangible Assets. FAS 141 eliminates
the pooling-of-interests method of accounting for business combinations except
for qualifying business combinations that were initiated prior to July 1, 2001.
FAS 141 further clarifies the criteria for recognizing intangible assets
separately from goodwill. The requirements of FAS 141 are effective for any
business combination accounted for by the purchase method that is completed
after June 30, 2001. Under FAS 142, goodwill and indefinite lived intangible
assets are no longer amortized but are reviewed annually (or more frequently if
impairment indicators arise) for impairment. Separable intangible assets that
are not deemed to have an indefinite life will continue to be amortized over
their useful lives. The Company is required to adopt FAS 142 on January 1,
2002, and is currently in the process of evaluating the impact that FAS 142
will have on its consolidated financial position and results of operations.

In June 2001, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143 (FAS 143), Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It also applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development, and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. The Company is
required to adopt FAS 143 in the first quarter of fiscal 2003, and the Company
does not believe that the adoption of FAS 143 will have a material effect on
its financial position or results of operations.

In August 2001, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 144 (FAS 144), Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses the financial
accounting and reporting for the impairment of long-lived assets. This
statement supersedes Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of and the accounting and reporting provisions for the disposal
of a segment of a business of APB Opinion No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequent Occurring Events and Transactions. The
Company is required to adopt FAS 144 in the first quarter of fiscal 2002 and
the Company has not yet determined what effect, if any, the adoption of FAS 144
will have on its financial position and results of operations.

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

3.   DISCONTINUED OPERATION

In December 2000, the Board of Directors committed to a plan to dispose of
the operations of its VistaSource business. On March 30, 2001, the Company
completed the sale of the VistaSource business unit to Real Time International,
Inc. (Real-Time), a subsidiary of Parallax Capital Partners, LLC for
$1,300,000 and a 19% equity interest in Real-Time. The results of operations
including revenue, operating expenses, other income and expense, and income
taxes of the VistaSource business unit for 2001, 2000 and 1999 have been
reclassified in the accompanying statements of operations as a discontinued
operation. The Companys balance sheets at December 31, 2001 and 2000 reflect
the net liabilities of the VistaSource business as net liabilities of
discontinued operation within current liabilities.

At December 31, 2000, the estimated net losses associated with the
disposition of the VistaSource business were approximately $3,605,000. These
losses included approximately $367,000 in losses from operations for the period
from January 1, 2000 through the measurement date of December 17, 2000,
$2,200,000 relating to the removal of the net assets of the VistaSource
business, $1,100,000 in estimated losses from operations from the measurement
date through the estimated date of disposal and $1,300,000 in provisions for
employee severance and benefits, transaction costs, bank fees and other
contractual commitments. These losses were partially offset by proceeds of
$1,300,000 received from the divestiture.

The VistaSource business generated a loss from its operations of $870,000
in the first quarter of 2001 (through the date of disposal) compared to the
estimated $1,100,000 loss recognized at December 31, 2000. After adjustments
for the actual results of operations of the VistaSource business through the
date of disposal, changes in net assets delivered at closing and changes in
estimates of certain obligations, the net loss on the disposal was
approximately $2,524,000.

On March 30, 2001 the Company closed the sale of the VistaSource business
and received the purchase price of $1,300,000. For the twelve months ended
December 31, 2001, the Company has recognized a gain of $1,081,000 for
discontinued operations due to a favorable liquidation of the net assets and
liabilities of the VistaSource business compared to previous estimates. The
reserve balance for the estimated costs associated with the disposition as of
December 31, 2001 was $182,000, consisting primarily of severance costs.

Summary operating results and balance sheet information of the
discontinued operation are as follows (in thousands):

|                                                                                                         |  |      |       |      |  |      |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                         |  | 2001 |       | 2000 |  | 1999
|                                                                                                         |  |      |       |      |  |     
|Operating Results:                                                                                       |  |      |       |      |  |      |        |   |  |   |        |  
|Revenue                                                                                                  |  | $    | 1,666 |      |  | $    | 10,250 |   |  | $ | 18,970 |  
|Income (loss) before income taxes                                                                        |  |      | (870  | )    |  |      | (304   | ) |  |   | 10,370 |  
|Net income (loss)                                                                                        |  |      | (870  | )    |  |      | (367   | ) |  |   | 6,631  |  
|Balance sheet information:                                                                               |  |      |       |      |  |      |        |   |  |   |        |  
|Accounts receivable, less allowance for doubtful accounts of
$200 and $0 for 2000 and 1999, respectively |  | $    |      |      |  | $    | 3,159  |   |  | $ | 4,178  |  
|Other current assets                                                                                     |  |      |      |      |  |      | 200    |   |  |   | 302    |  
|Property and equipment, less accumulated depreciation of
$602 and $243 for 2000 and 1999, respectively   |  |      |      |      |  |      | 1,218  |   |  |   | 646    |  
|Capitalized software, less accumulated amortization of
$425 and $1,557 for 2000 and 1999, respectively   |  |      |      |      |  |      | 367    |   |  |   | 165    |  
|Intangible assets, less accumulated amortization of $220 and
$18 for 2000 and 1999, respectively         |  |      |      |      |  |      | 1,098  |   |  |   | 1,300  |  
|Accounts payable                                                                                         |  |      |      |      |  |      | (254   | ) |  |   | (216   | )
|Accrued liabilities                                                                                      |  |      | (182  | )    |  |      | (985   | ) |  |   | (588   | )
|Deferred revenue                                                                                         |  |      |      |      |  |      | (2,632 | ) |  |   | (2,858 | )
|Note payable, current portion                                                                            |  |      |      |      |  |      |       |   |  |   | (358   | )
|Note payable, noncurrent portion                                                                         |  |      |      |      |  |      |       |   |  |   | (1,080 | )
|Accrued loss on disposal                                                                                 |  |      |      |      |  |      | (3,238 | ) |  |   |       |  
|                                                                                                         |  |      |       |      |  |      |        |   |  |   |        |  
|Net assets (liabilities) of discontinued operation                                                       |  | $    | (182  | )    |  | $    | (1,067 | ) |  | $ | 1,491  |  
|                                                                                                         |  |      |       |      |  |      |        |   |  |   |        |  

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

4.    ACCRUED LIABILITIES

Accrued liabilities at December 31, 2001 and 2000 consisted of the
following (in thousands):

|                                  |  |      |       |      |  |   |       | 
|--------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                  |  | 2001 |       | 2000
|                                  |  |      |       |     
|Income
taxes                      |  | $    | 938   |      |  | $ | 1,240 | 
|Sales
and value added taxes       |  |      | 1,278 |      |  |   | 1,777 | 
|Accrued
compensation and benefits |  |      | 2,524 |      |  |   | 2,463 | 
|Restructuring                     |  |      | 766   |      |  |   |      | 
|Other                             |  |      | 1,210 |      |  |   | 1,665 | 
|                                  |  |      |       |      |  |   |       | 
|Total                             |  | $    | 6,716 |      |  | $ | 7,145 | 
|                                  |  |      |       |      |  |   |       | 

5.    INCOME TAXES

Income (loss) from continuing operations before income taxes was taxed under
the following jurisdictions (in thousands):

|                                                                                                               |                               |                            |         |      |         |      |         |        |         |   |        |        |        |  
|-------------------------------------------------------------------------------------------------------------- | ----------------------------- | -------------------------- | ------- | ---- | ------- | ---- | ------- | ------ | ------- | - | ------ | ------ | ------ | -
|                                                                                                               |                               |                            |         | 2001 |         | 2000 |         | 1999  
|                                                                                                               |                               |                            |         |      |         |      |         |       
|Domestic                                                                                                       |                               | $                          | (11,617 | )    |         | $    | (12,831 | )      |         | $ | (7,330 | )     
|Foreign                                                                                                        |                               |                            | 1,200   |      |         |      | 1,107   |        |         |   | 737    |       
|                                                                                                               |                               |                            |         |      |         |      |         |        |         |   |        |       
|                                                                                                               |                               | Total                      |         | $    | (10,417 | )    |         | $      | (11,724 | ) |        | $      | (6,593 | )
|                                                                                                               |                               |                            |         |      |         |      |         |        |         |   |        |       
|The components of the income tax
provision (benefit) from
continuing operations are as
follows (in thousands): |                               |                            |         |      |         |      |         |        |         |   |        |       
|Current:                                                                                                       |                               |                            |         |      |         |      |         |        |         |   |        |       
|                                                                                                               |                               |                            |         |      |         |      |         |        |         |   |        |       
|                                                                                                               | Federal and state             |                            | $       | 77   |         |      | $       | 16     |         |   | $      | (2,859 | )     
|                                                                                                               | Foreign                       |                            |         | 481  |         |      |         | 566    |         |   |        | 207    |       
|                                                                                                               |                               |                            |         |      |         |      |         |        |         |   |        |       
|                                                                                                               |                               | Total Current              |         |      | 558     |      |         |        | 582     |   |        |        | (2,652 | )
|                                                                                                               |                               |                            |         |      |         |      |         |        |         |   |        |       
|Deferred:                                                                                                      |                               |                            |         |      |         |      |         |        |         |   |        |       
|                                                                                                               | Federal and state             |                            |         |     |         |      |         | (4,831 | )       |   |        | 215    |       
|                                                                                                               | Foreign                       |                            |         |     |         |      |         |       |         |   |        | 95     |       
|                                                                                                               | Change in valuation allowance |                            |         |     |         |      |         | 7,832  |         |   |        |       |       
|                                                                                                               |                               |                            |         |      |         |      |         |        |         |   |        |       
|                                                                                                               |                               | Total Deferred             |         |      |        |      |         |        | 3,001   |   |        |        | 310    |  
|                                                                                                               |                               |                            |         |      |         |      |         |        |         |   |        |       
|                                                                                                               |                               | Total income tax provision |         | $    | 558     |      |         | $      | 3,583   |   |        | $      | (2,342 | )
|                                                                                                               |                               |                            |         |      |         |      |         |        |         |   |        |       

The approximate tax effect of each type of temporary difference and
carryforward is as follows (in thousands):

|                                 |  |      |         |      |  |      |        |   |  |   |       | 
|-------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ----- | 
|                                 |  | 2001 |         | 2000 |  | 1999
|                                 |  |      |         |      |  |     
|Net operating loss
carryforwards |  | $    | 10,861  |      |  | $    | 5,066  |   |  | $ | 616   | 
|Deferred revenue                 |  |      | 264     |      |  |      | 719    |   |  |   | 243   | 
|Accounts receivable              |  |      | 505     |      |  |      | 607    |   |  |   | 193   | 
|Accrued expenses                 |  |      | 392     |      |  |      | 135    |   |  |   | 53    | 
|Vacation and benefits            |  |      | 254     |      |  |      | 549    |   |  |   | 776   | 
|Software/fixed assets            |  |      | 434     |      |  |      | 49     |   |  |   | 325   | 
|Tax credit
carryforwards         |  |      | 1,752   |      |  |      | 1,297  |   |  |   | 795   | 
|Valuation allowance              |  |      | (14,462 | )    |  |      | (8,422 | ) |  |   |      | 
|                                 |  |      |         |      |  |      |        |   |  |   |       | 
|NET DEFERRED TAX ASSET           |  | $    |        |      |  | $    |       |   |  | $ | 3,001 | 
|                                 |  |      |         |      |  |      |        |   |  |   |       | 

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

The following schedule reconciles the difference between the federal income tax
rate and the effective income tax rate for continuing operations (in
thousands):

|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                        |  | 2001 |        | 2000 |  | 1999
|                                        |  |      |        |      |  |     
|U.S. federal statutory rate             |  | $    | (3,541 | )    |  | $    | (3,986 | ) |  | $ | (2,241 | )
|State and foreign tax
provision, net    |  |      | (602   | )    |  |      | (589   | ) |  |   | (194   | )
|Research and
experimentation tax credit |  |      |       |      |  |      | (211   | ) |  |   | (237   | )
|Permanent items                         |  |      | 185    |      |  |      | 512    |   |  |   | 195    |  
|Other                                   |  |      | 43     |      |  |      | 25     |   |  |   | 135    |  
|Unbenefitted losses                     |  |      | 4,473  |      |  |      | 7,832  |   |  |   |       |  
|                                        |  |      |        |      |  |      |        |   |  |   |        |  
|TAX PROVISION                           |  | $    | 558    |      |  | $    | 3,583  |   |  | $ | (2,342 | )
|                                        |  |      |        |      |  |      |        |   |  |   |        |  

The Company had net operating loss carryforwards of approximately
$26,900,000 and $11,800,000 at December 31, 2001 and 2000, respectively. The
Company also has federal research tax credits of approximately $1,100,000 and
$1,300,000 at December 31, 2001 and 2000, respectively. These net operating
loss carryforwards and credits expire in various amounts through 2021.

A valuation allowance is established if it is more likely than not that
all or a portion of the deferred tax asset will not be realized. As a result
of the Companys review of its available evidence supporting the deferred tax
asset, the Company established a valuation allowance for the full amount of the
deferred tax asset due to the uncertainty of realization. The valuation
allowance increased by $6,040,000 during 2001, primarily due to the increase in
net operating loss carryforwards.

Any subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 2001 would be allocated as
follows (in thousands):

|                                        |  |   |        | 
|--------------------------------------- |  | - | ------ | 
|Reported in the statement of operations |  | $ | 12,102 | 
|Reported in capital in excess of par    |  |   | 2,360  | 
|                                        |  |   |        | 
|                                        |  | $ | 14,462 | 
|                                        |  |   |        | 

Under the provisions of the Internal Revenue Code, certain substantial
changes in the Companys ownership may have limited, or may limit in the
future, the amount of net operating loss carryforwards which could be utilized
annually to offset future taxable income and income tax liabilities. The
amount of any annual limitation is determined based upon the Companys value
prior to an ownership change.

6.    COMMITMENTS

The Company leases facilities and computer equipment under operating lease
agreements that expire on various dates through April 2010. Total rent expense
was $2,360,000, $2,095,000 and $1,846,000 for 2001, 2000 and 1999,
respectively. The following is a schedule of future minimum lease payments at
December 31, 2001 (in thousands):

|                             |  |   |        | 
|---------------------------- |  | - | ------ | 
|2002                         |  | $ | 2,550  | 
|2003                         |  |   | 2,407  | 
|2004                         |  |   | 2,139  | 
|2005                         |  |   | 2,014  | 
|2006                         |  |   | 1,796  | 
|2007 and thereafter          |  |   | 11,674 | 
|                             |  |   |        | 
|Total minimum lease payments |  | $ | 22,580 | 
|                             |  |   |        | 

The Companys
office lease for its headquarters has an original 12 year term, which
will expire in November 2013, with one five year option to
extend the term.

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

7.    STOCKHOLDERS EQUITY

Preferred Stock

The Company has 1,000,000 authorized shares of Preferred Stock, $0.01 per
value per share. The Board of Directors is authorized to fix designations,
relative rights, preferences and limitations on the preferred stock at the time
of issuance. As of December 31, 2001, none of the preferred stock was issued
and outstanding.

Common Stock Purchase Rights

On September 15, 2000, the Board of Directors of the Company declared a
dividend of one right for each outstanding share of the
Companys common stock
at the close of business on October 2, 2000. Under certain circumstances, each
right entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series A Junior Participating Preferred Stock,
$0.01 par value per share (the Preferred Stock), at a purchase price of
$42.00 in cash, subject to adjustment.

The rights are not exercisable and cannot be transferred separately from
the common stock until the earlier of (i) 10 business days following the
later of (a) the first date of a public announcement that a person or group of
affiliated or associated persons (an Acquiring Person) has acquired (or
obtained the right to acquire) beneficial ownership of 15% or more of the
outstanding shares of common stock or (b) the first date on which an executive
officer of the Company has actual knowledge that an Acquiring Person has become
such (the Stock Acquisition Date), or (ii) 10 business days (or such later
date as may be determined by the Board of Directors of the Company) following
the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 15% or more of the outstanding shares of
common stock (the earlier of (i) and (ii) being the Distribution Date).

In the event that any person becomes an Acquiring Person, unless the event
causing the 15% threshold to be crossed is a Permitted Offer (as defined in the
Rights Agreement), each holder of a right, with certain exceptions, shall have
the right to receive, upon exercise, in lieu of the Preferred Stock, that
number of shares of common stock (or in certain circumstances, cash, property
or other securities of the Company) that equals the exercise price of the right
divided by 50% of the current market price (as defined in the Rights Agreement)
per share of common stock at the date of the occurrence of such event.
However, the rights are not exercisable following such event until the time
that the rights are no longer redeemable by the Company as described below.
Notwithstanding the foregoing, following such event, all rights that are, or
(under certain circumstances specified in the Rights Agreement), were,
beneficially owned by any Acquiring Person will be null and void. Following
such event, subject to certain conditions, the Board of Directors of the
Company may exchange the Rights (other than rights owned by such Acquiring
Person which have become void), in whole or in part, at an exchange ratio of
one share of common stock, or one one-thousandth of a share of Preferred Stock, per right, subject to
adjustment.

In the event that, at any time after any person becomes an Acquiring
Person, (i) the Company is consolidated with, or merged with and into, another
entity and the Company is not the surviving entity of such consolidation or
merger (other than a consolidation or merger which follows a Permitted Offer)
or if the Company is the surviving entity, but shares of its outstanding common
stock are not changed or exchanged for stock or securities (of any other
person) or cash or any other property, or (ii) more than 50% of the Companys
assets or earning power is sold or transferred, each holder of a right shall
thereafter have the right to receive, upon exercise, that number of shares of
common stock of the acquiring company that equals the exercise price of the
right divided by 50% of the current market price (as defined in the Rights
Agreement) of such common stock at the date of the occurrence of the event.

The rights have certain anti-takeover effects, in that they would cause
substantial dilution to a person or group that attempts to acquire a
significant interest in the Company on terms not approved by the Board of
Directors of the Company. The rights expire on September 18, 2010 (the Final
Expiration Date), but may be redeemed by the Company in whole, but not in
part, for $0.001 per right (the Redemption Price), payable in cash or stock,
at any time prior to (i) the tenth business day after the Stock Acquisition
Date, or (ii) the Final Expiration Date. Immediately upon the action of the
Board of Directors of the Company ordering redemption of the rights, the rights
will terminate and the only right of the holders of the rights will be to
receive the Redemption Price. The rights may also be redeemable following
certain other circumstances specified in the Rights Agreement. Rights shall be
issued (i) in respect of each new share of common stock issued
after October 2, 2000 but prior to the
earlier of the Distribution Date or the Expiration Date and (ii) in connection
with the issuance or sale of common stock following the Distribution Date but
prior to the Expiration Date upon the exercise of stock options or
under any employee benefit plan or arrangement, or upon the exercise, conversion or
exchange of securities, granted or issued by the Company prior to the
Distribution Date.

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

Stock Option Plans

In 1994, the stockholders approved the 1994 Equity Incentive Plan of the
Company (the Equity Plan). As the result of several amendments, the Equity
Plan authorizes the issuance of options to purchase up to 5,490,157 shares of
common stock. The Equity Plan enables the Company to make awards of restricted
common stock and to grant options to purchase common stock to employees,
officers or directors of and consultants to the Company. Restricted stock
awards entitle the recipient to purchase
common stock from the Company under terms, which provide for vesting over a
period of time. The Company has the right to repurchase the unvested portion of
the common stock subject to the award upon the termination of the recipients
employment or other relationship with the Company. Stock options entitle the
optionee to purchase common stock from the Company, for a specified exercise
price, during a period specified in the applicable option agreement. The
Equity Plan is administered by the Compensation Committee of the Board of
Directors, which selects the persons to whom restricted stock awards and stock
options are granted and determines the number of shares of common stock covered
by the award or option, its purchase price or exercise price, its vesting
schedule and (in the case of stock options) its expiration date. Under the
Equity Plan, the incentive stock options must be granted with an exercise price
of no less than fair market value of the stock on the grant date. To date, no
restricted stock awards have been granted under the Equity Plan.

The Company also has a 1984 Stock Option Plan (the Option Plan) for
certain employees, directors, and consultants, under which both incentive stock
options and nonqualified options were issued. Under the Option Plan, the
incentive stock options must have been granted with an exercise price of no
less than the fair market of the stock on the date of grant. The exercise price
of the stock options and the terms of exercise for all options granted were
determined by the Board of Directors. Generally, stock options granted under
the Option Plan vest over a four or five-year period.

In 1996, the Board of Directors adopted, and the stockholders approved,
the 1996 Director Stock Option Plan (the Director Plan). The Director Plan
provides for the grant of nonstatutory options not intended to meet the
requirements of the Section 422 of the Internal Revenue Code of 1986, as
amended. Only directors of the Company who are not full-time employees of the
Company or any subsidiary of the Company are eligible to be granted options
under the Plan. A total of 50,000 shares of the Companys common stock were
initially reserved for issuance pursuant to the Director Plan. Shares issued
under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares. The Director Plan is administered by the Board of
Directors of the Company. The directors are elected by the stockholders of the
Company in accordance with the provisions of the Restated Articles of
Organization, as amended, and the By-Laws of the Company. Under the Director
Plan, the stock options must have been granted with an exercise price of no
less than the fair market value of the stock on the date of grant. Each option
granted pursuant to the Director Plan becomes exercisable in full on the first
anniversary of the date of grant, provided the optionee is serving as a
director of the Company on such date.

In 1996, the Board of Directors adopted the 1996 Sinper Stock Option Plan
(the Sinper Plan). The purpose of this plan is to secure for the Company and
its stockholders the benefits arising from capital stock ownership by employees
of Sinper Corporation (Sinper), which became a wholly owned subsidiary of the
Company pursuant to terms of the Agreement and Plan of Merger among the
Company, Applix Acquisition Corporation and Sinper. The Sinper Plan is
administered by the Board of Directors of the Company. Under the Sinper Plan,
the stock options must have been granted with an exercise price of no less than
the fair market value of the stock on the date of grant. No additional options
will be granted under the Sinper Plan.

In 1999, the Board of Directors adopted, and the stockholders approved,
the 2000 Director Stock Option Plan (the 2000 Director Plan). The 2000
Director Plan provides for the grant of non-statutory options not intended to
meet the requirements of the Section 422 of the Internal Revenue Code of 1986,
as amended. Only directors of the Company who are not full-time employees of
the Company or any subsidiary of the Company are eligible to be granted options
under the Plan. A total of 50,000 shares of the Companys common stock may be
issued upon the exercise of options granted under the 2000 Director Plan. Any
shares subject to options granted pursuant to the 2000 Director Plan which
terminate or expire unexercised will be available for future grants under the
2000 Director Plan. The 2000 Director Plan is administered by the Board of
Directors of the Company. The directors are elected by the stockholders of the
Company in accordance with the provisions of the Restated Articles of
Organization, as amended, and the By-Laws of the Company. Under the 2000
Director Plan, the stock options must be granted with an exercise price of no
less than the fair market value of the stock on the date of grant.

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

The 2000 Director Plan provides for the automatic grant of stock options
under the following circumstances: (i) an option for 1,500 shares of common
stock was automatically granted to each non-employee Director upon the approval
of the 2000 Director Plan by the stockholders of the Company, (ii) an option
for 10,000 shares of common stock will automatically be granted to each
non-employee Director who is initially elected to the Board of Directors after
the approval of the 2000 Director Plan by the stockholders of the Company, upon
his or her initial election to the Board of Directors (an Election Grant);
and (iii) on January 1 of each year (beginning January 1, 2001), an option for
4,000 shares of common stock will automatically be granted to each non-employee
Director, provided he or she attended at least 75% of the meetings of the
Board of Directors or any committees on which he or she served in the preceding
year. Each option will become exercisable (or vest), with respect to Election
Grants, in two equal annual installments on the first and second anniversary of
the date of grant, and with respect to all other options, on the first
anniversary of the date of grant, provided in each case that the optionee
continues to serve as a director on such date. The Board of Directors may
suspend, discontinue or amend the 2000 Director Plan.

Information with respect to activity under the stock option plans is as shown
below:

|                                                      |  |           |            |        |  |                     |            |                  |  |   |       | 
|----------------------------------------------------- |  | --------- | ---------- | ------ |  | ------------------- | ---------- | ---------------- |  | - | ----- | 
|                                                      |  |           |            |        |  | Options Outstanding
|                                                      |  |           |            |        |  |                    
|                                                      |  | Available |            |        |  |                     |            | Weighted Average
|                                                      |  | for Grant |            | Number |  | Exercise Price     
|                                                      |  |           |            |        |  |                    
|Balance at December 31, 1998                          |  |           | 308,842    |        |  |                     | 2,342,673  |                  |  | $ | 3.90  | 
|Additional authorized                                 |  |           | 500,000    |        |  |                     |           |                  |  |   |      | 
|Expiration of options under the 1984 and Sinper Plan  |  |           | (8,093     | )      |  |                     |           |                  |  |   |      | 
|Option granted                                        |  |           | (1,013,400 | )      |  |                     | 1,013,400  |                  |  | $ | 5.78  | 
|Option exercised                                      |  |           |           |        |  |                     | (559,292   | )                |  | $ | 3.29  | 
|Options cancelled                                     |  |           | 495,179    |        |  |                     | (495,179   | )                |  | $ | 4.67  | 
|                                                      |  |           |            |        |  |                     |            |                  |  |   |       | 
|Balance at December 31, 1999                          |  |           | 282,528    |        |  |                     | 2,301,602  |                  |  | $ | 4.82  | 
|                                                      |  |           |            |        |  |                     |            |                  |  |   |       | 
|Additional authorized                                 |  |           | 1,550,000  |        |  |                     |           |                  |  |   |      | 
|Stock issued                                          |  |           | (256,002   | )      |  |                     |           |                  |  |   |      | 
|Expiration of options under 1984 Plan                 |  |           | (202       | )      |  |                     |           |                  |  |   |      | 
|Options granted                                       |  |           | (1,451,080 | )      |  |                     | 1,451,080  |                  |  | $ | 10.08 | 
|Options exercised                                     |  |           |           |        |  |                     | (117,826   | )                |  | $ | 16.13 | 
|Options cancelled                                     |  |           | 531,674    |        |  |                     | (531,674   | )                |  | $ | 3.56  | 
|                                                      |  |           |            |        |  |                     |            |                  |  |   |       | 
|Balance at December 31, 2000                          |  |           | 656,918    |        |  |                     | 3,103,182  |                  |  | $ | 6.97  | 
|                                                      |  |           |            |        |  |                     |            |                  |  |   |       | 
|Additional authorized                                 |  |           | 1,000,000  |        |  |                     |           |                  |  |   |      | 
|Stock issued                                          |  |           | (35,000    | )      |  |                     |           |                  |  |   |      | 
|Expiration of options under 1984 Plan and Sinper Plan |  |           | (7,328     | )      |  |                     |           |                  |  |   |      | 
|Options granted                                       |  |           | (1,880,301 | )      |  |                     | 1,880,301  |                  |  | $ | 1.90  | 
|Options exercised                                     |  |           |           |        |  |                     | (66,241    | )                |  | $ | 3.06  | 
|Options cancelled                                     |  |           | 1,255,642  |        |  |                     | (1,255,642 | )                |  | $ | 6.74  | 
|                                                      |  |           |            |        |  |                     |            |                  |  |   |       | 
|Balance at December 31, 2001                          |  |           | 989,931    |        |  |                     | 3,661,600  |                  |  | $ | 4.52  | 
|                                                      |  |           |            |        |  |                     |            |                  |  |   |       | 

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

Related information for options outstanding and exercisable as of December 31,
2001 under the stock option plans is as follows:

|               |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|-------------- |  | ------------------- | --------- | ------------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|               |  | Options Outstanding |           | Options Exercisable
|               |  |                     |           |                    
|               |  |                     |           |                     |  | Weighted Average |      |             |  |                  |       |  |  |  |           |  |  |  
|Range of       |  | Number              |           | Remaining           |  | Weighted Average |      | Number      |  | Weighted Average
|Exercise Price |  | Outstanding         |           | Contractual Life    |  | Exercise Price   |      | Exercisable |  | Exercise Price  
|               |  |                     |           |                     |  |                  |      |             |  |                 
|$0.61-$0.99    |  |                     | 171,000   |                     |  |                  | 6.75 |             |  | $                | 0.74  |  |  |  |          |  |  |   |      | 
|$1.00-$1.65    |  |                     | 468,455   |                     |  |                  | 6.37 |             |  | $                | 1.39  |  |  |  | 11,404    |  |  | $ | 1.35  | 
|$1.66-$2.91    |  |                     | 951,006   |                     |  |                  | 6.38 |             |  | $                | 2.15  |  |  |  | 94,686    |  |  | $ | 2.39  | 
|$2.92-$4.88    |  |                     | 945,252   |                     |  |                  | 3.18 |             |  | $                | 3.57  |  |  |  | 813,946   |  |  | $ | 3.50  | 
|$4.89-$9.88    |  |                     | 670,620   |                     |  |                  | 4.19 |             |  | $                | 5.98  |  |  |  | 392,346   |  |  | $ | 5.93  | 
|$9.89-$17.75   |  |                     | 437,962   |                     |  |                  | 5.04 |             |  | $                | 13.53 |  |  |  | 183,746   |  |  | $ | 13.42 | 
|$17.76-$24.06  |  |                     | 9,805     |                     |  |                  | 4.94 |             |  | $                | 18.18 |  |  |  | 9,180     |  |  | $ | 18.19 | 
|$24.07-$34.75  |  |                     | 7,500     |                     |  |                  | 1.35 |             |  | $                | 34.75 |  |  |  | 7,500     |  |  | $ | 34.75 | 
|               |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 
|               |  |                     | 3,661,600 |                     |  |                  | 4.99 |             |  | $                | 4.52  |  |  |  | 1,512,808 |  |  | $ | 5.49  | 
|               |  |                     |           |                     |  |                  |      |             |  |                  |       |  |  |  |           |  |  |   |       | 

At December 31, 2001, 4,651,531 shares of common stock were reserved for
future issuance under the stock plans.

Stock-Based Compensation

As permitted under Statement of Financial Accounting Standards No. 123,
(FAS 123), Accounting for Stock-Based Compensation, the Company has elected
to follow Accounting Principles Board Opinion No. 25 (APB 25), Accounting for
Stock Issued to Employees, and related Interpretations, in accounting for
stock-based awards to employees. Under APB 25, the Company generally
recognized no compensation expense with respect to such awards.

Pro forma information regarding net income and earnings per share is
required by FAS 123 for awards granted after October 28, 1995 as if the Company
had accounted for its stock-based awards to employees under the fair value
method of FAS 123. The fair value of the Companys stock-based awards to
employees was estimated using the Black-Scholes options pricing model. The
Black-Scholes options valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Companys stock-based awards to employees have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in managements opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock-based awards to
employees. The fair value of the Companys stock-based awards to employees was
estimated assuming no expected dividends and the following weighted average
assumptions:

|                                |  |      |      |      |  |      |      |   |  |  |      |  
|------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                |  | 2001 |      | 2000 |  | 1999
|                                |  |      |      |      |  |     
|Expected life (years)           |  |      | 5    |      |  |      | 5    |   |  |  | 5    |  
|Expected stock price
volatility |  |      | 96.0 | %    |  |      | 95.2 | % |  |  | 94.9 | %
|Risk free interest rate         |  |      | 4.72 | %    |  |      | 6.42 | % |  |  | 5.18 | %

Using the above assumption the weighted average grant date fair values for
options granted were $1.42, $7.70 and $4.46 in 2001, 2000 and 1999,
respectively.

As required under FAS 123, the reported net loss and diluted loss per
share have been presented to reflect the impact had the Company been required
to include the amortization of the Black-Scholes option value as expense. For
purposes of this disclosure, the estimated fair value of the options is
amortized to expense over the options vesting periods. The Companys pro
forma information follows:

|                         |  |      |         |      |  |      |         |   |  |   |      | 
|------------------------ |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ---- | 
|                         |  | 2001 |         | 2000 |  | 1999
|                         |  |      |         |      |  |     
|Pro forma net loss       |  | $    | (11,931 | )    |  | $    | (22,514 | ) |  | $ | 773  | 
|Pro forma loss per share |  | $    | (1.01   | )    |  | $    | (2.00   | ) |  | $ | 0.07 | 

45



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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

Employee Stock Purchase Plan

The Company
established its Employee Stock Purchase Plan during 1995 (1995
Plan), allowing eligible employees to purchase common stock, in a series of
offerings, through payroll deductions of up to 10% of their total compensation.
The purchase price in each offering is 85% of the fair market value of the
stock on (i) the offering commencement date or (ii) the offering termination
date (six months after commencement date), whichever is lower. On February 26,
2001, the Board of Directors adopted, and on May 4, 2001, the stockholders
approved the Companys Employee
Stock Purchase Plan (2001 Plan), which authorized the issuance of up
to 800,000 shares of common stock and has generally the same terms as the
1995 Plan. Employees purchased 224,962 shares in 2001,
of which 124,958 shares were issued under the 2001 Plan and 100,004 shares were
issued under the 1995 Plan. During 2000, 70,765 shares were issued under the 1995
Plan. At December 31, 2001, 681,805 shares were available for issuance under
the 2001 Plan.

Notes Receivable from Stock Purchase Agreements

In September 2000, the Company sold 256,002 shares of common stock to
certain company executives. The purchase was funded by loans evidenced by
full-recourse promissory notes due and payable on July 31, 2005. Interest is
calculated on the unpaid principal balance at a rate of 6% per year, compounded
annually until paid in full. In the event that the stockholder sells any
shares prior to July 31, 2005, the net proceeds from such sale shall become
immediately due and payable without notice or demand. In the event the
executive leaves the Company, the loan is due and payable. Repayment terms were
extended to the original maturity date for several employees who subsequently
left the Company. The aggregate amount of the
notes totaled $1,120,000 at December 31, 2001 and 2000. These loans, which are
shown as a deduction to Stockholders equity, are secured by the common stock
purchased.

8.    EMPLOYEE BENEFIT PLAN

Applix has a defined contribution plan (401(k)) in which all full time
employees are eligible to participate once they have reached the age of 21.
Employee and employer contributions vest immediately. The Company may make
discretionary contributions to the plan as determined by the Board of
Directors. The Companys matching contribution to the plan was $205,000,
$267,000, and $225,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

9.    MAJOR CUSTOMER AND GEOGRAPHIC SEGMENT INFORMATIONS

As a result of the Vistasource disposition, the Company had only one
operating segment at December 31, 2001. Accordingly, the Company has restated
the historical segment data to exclude the Vistasource business unit, for which
the segment data is included in Note 3.

The Company operates in three major geographic areas. The following
geographic area data include sales based upon the location from which the sale
was made. Based on the structure of the Companys operations to achieve
consolidated objectives, there are significant interdependencies and overlaps
for each geographic area, and long-lived assets shown for each geographic area
may not be indicative of the amounts which would have been reported if the
operating entities were independent of one another.

A summary of the Companys operations by geographic locations for the
years ended December 31, 2001, 2000 and 1999 is as follows (in thousands):

|                                     |                                            |      |   |        |  |      |   |        |  |  |   |        | 
|------------------------------------ | ------------------------------------------ | ---- | - | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|Geographic Segment Information       |                                            | 2001 |   | 2000   |  | 1999
|                                     |                                            |      |   |        |  |     
|Revenue from continuing operations   |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | United States                              |      | $ | 15,054 |  |      | $ | 14,065 |  |  | $ | 12,714 | 
|                                     | Europe                                     |      |   | 20,865 |  |      |   | 23,019 |  |  |   | 22,508 | 
|                                     | Pacific Rim                                |      |   | 4,384  |  |      |   | 3,155  |  |  |   | 1,649  | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | Total revenue from continuing operations   |      | $ | 40,303 |  |      | $ | 40,239 |  |  | $ | 36,871 | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|Revenue from discontinued operations |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | United States                              |      | $ |       |  |      |   | 5,738  |  |  |   | 10,075 | 
|                                     | Europe                                     |      |   |       |  |      |   | 4,512  |  |  |   | 8,895  | 
|                                     | Pacific Rim                                |      |   |       |  |      |   |       |  |  |   |       | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | Total revenue from discontinued operations |      | $ |       |  |      | $ | 10,250 |  |  | $ | 18,970 | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|Long-lived Assets                    |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | United States                              |      | $ | 2,999  |  |      | $ | 4,544  |  |  | $ | 7,613  | 
|                                     | Europe                                     |      |   | 778    |  |      |   | 1,082  |  |  |   | 725    | 
|                                     | Pacific Rim                                |      |   | 2,225  |  |      |   |       |  |  |   |       | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       
|                                     | Total long-lived assets                    |      | $ | 6,002  |  |      | $ | 5,626  |  |  | $ | 8,338  | 
|                                     |                                            |      |   |        |  |      |   |        |  |  |   |       

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

10.    ACQUISITIONS

On March 31, 2001, the Company acquired all of the outstanding capital
stock of Dynamic Decisions Pty Limited (Dynamic Decisions) for total cost of
approximately $5,867,000 consisting of $5,640,000 in maximum cash
consideration to be paid and 100,000 shares of the Companys common stock. The acquisition
was accounted for under the purchase method of accounting. The purchase price
was allocated based on the estimated fair value of the assets acquired and
liabilities assumed. An intangible asset, acquired customer base, of
$1,500,000 was recorded based on the fair value of the asset at the time of
acquisition and will be amortized on a straightline basis over its estimated
useful life of six years. The excess of the purchase price over the fair value
of the net assets acquired of $934,000 has been recorded as goodwill, and has
been amortized on a straight-line basis over its estimated useful life of six
years.

Of the cash portion of the purchase price, $5,150,000 is payable in
installments over a maximum of 30 months beginning on July 1, 2001. As of
December 31, 2001, the Company had paid $1,267,000 of the maximum cash
consideration, which has been accounted for as purchase price. The remaining
amount of $3,883,000 is contingent upon the continued employment of two key
executives of Dynamic Decisions, and will be accounted for as compensation
expense. The results of operations of Dynamic Decisions are included in the
financial statements from the date of acquisition.

Unaudited pro forma revenue, net loss, and loss per share shown below for
the years ended December 31, 2001 and 2000 assumes the acquisition of Dynamic
Decisions occurred on January 1 of each respective period.

|                                                 |  |                         |        |      |  |   |         |  
|------------------------------------------------ |  | ----------------------- | ------ | ---- |  | - | ------- | -
|                                                 |  | TWELVE MONTHS ENDED    
|(in thousands, except for per share amounts)     |  | December 31 (UNAUDITED)
|                                                 |  |                        
|                                                 |  | 2001                    |        | 2000
|                                                 |  |                         |        |     
|Revenue                                          |  | $                       | 40,878 |      |  | $ | 43,311  |  
|Net income (loss)                                |  | $                       | (9,543 | )    |  | $ | (17,059 | )
|Total basic and diluted earning (loss) per share |  | $                       | (0.80  | )    |  | $ | (1.52   | )

On December 10, 1999, the Company acquired Cosource.com for an aggregate
cost of $4,300,000 consisting of cash of $480,000, stock valued at $2,100,000,
promissory notes for $1,400,000 and the estimated acquisition costs of
approximately $250,000. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the balance sheet accounts of Cosource.com
and the results of its operations have been included in the 1999 financial
statements of the Company since the date of the acquisition. The notes payable
were expected to be paid in eight equal installments over a four-year period at
a 5% annual interest rate. $1,400,000 of the stock issued was expected to
vest in eight equal installments over a four-year period. The notes payable
and the stock were contingent on the continued employment during that period of
two key employees and were therefore recorded as unearned compensation. In
2000, these two key employees left the Company. As a result, the Company
repurchased the stock which had not yet vested, and the Companys obligation
to make further payment on the notes terminated. Accordingly, the items
related to the unearned compensation and notes payable have been removed from
the balance sheet in 2000. The purchase resulted in $1,300,000 in goodwill,
various other intangible assets, which were being amortized over a seven-year
period from the acquisition date. The unamortized balance of the intangible
assets of $1,098,000 is included in the calculation of the loss on disposal of
VistaSource .

11.    RESTRUCTURING EXPENSES

In the second quarter of 2001, the Company adopted a plan of restructuring
aimed at reducing current operating costs company-wide. In connection with this
plan, 28 non-management employees, primarily sales, marketing, and
administrative personnel, and 2 executive level employees were terminated. The
Companys restructuring plan also included the closure of the
Companys sales office in France. As a result of the restructuring plan, the
Company recorded a restructuring charge of $512,000 for the three months ended
June 30, 2001. The restructuring charge consisted of $449,000 for severance
costs and $63,000 for the loss on disposal of the Companys French subsidiary,
which was sold on June 30, 2001. In connection with the sale, the Company paid
$100,000 to the purchaser, which is included in the restructuring charge.
Payments made for severance during the year totaled $437,000 resulting in a
remaining accrued severance balance of $12,000 at December 31, 2001.

In the third quarter of 2001, the Company adopted a plan of restructuring
to further reduce current operating costs company-wide through headcount
reductions. In connection with this plan, the Company recorded an additional
restructuring charge of $438,000 for severance related to the termination of 26 non-management
employees, primarily sales, marketing, and administrative personnel.
Subsequent to the initial recording of the charge, adjustments totaling $90,000
were recorded, reducing the charge to $348,000. Payments for severance
during the year totaled $290,000, resulting in a remaining accrued severance
balance of $58,000 at December 31, 2001.

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

In the fourth quarter of 2001, the Company adopted a plan of restructuring
to further reduce current operating costs company-wide. The plan included the
further reduction of headcount of one senior level executive and 16
non-management employees, primarily professional services, sales, and
administrative personnel. The plan also included the closure of several
domestic offices and the consolidation of space within one European office and
the abandonment of leasehold improvements and support assets associated with
these locations, which were removed from service shortly after the
implementation of the plan. As a result of the restructuring plan, the
Company recorded a charge of $840,000. The components of the fourth quarter
charge, as well as the Companys payments made against accruals is detailed as
follows:

|                              |  |                  |         |              |  |                   |         |   |  |            |         | 
|----------------------------- |  | ---------------- | ------- | ------------ |  | ----------------- | ------- | - |  | ---------- | ------- | 
|                              |  |                  |         |              |  |                   |         |   |  | Balance at
|Cash charges                  |  | Charges incurred |         | Payment made |  | December 31, 2001
|                              |  |                  |         |              |  |                  
|Cash
Charges                  |  |                  |         |              |  |                   |         |   |  |            |         | 
|Work
force reduction          |  | $                | 363,000 |              |  | $                 | (52,000 | ) |  | $          | 311,000 | 
|Office closures               |  |                  | 274,000 |              |  |                   |        |   |  |            | 274,000 | 
|Other contractual obligations |  |                  | 111,000 |              |  |                   |        |   |  |            | 111,000 | 
|                              |  |                  |         |              |  |                   |         |   |  |            |         | 
|Subtotal                      |  |                  | 748,000 |              |  |                   | (52,000 | ) |  |            | 696,000 | 
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|Non-cash charges              |  |                  |         |              |  |                   |         |   |  |            |         | 
|Impaired assets               |  |                  | 92,000  |              |  |                   |        |   |  |            |        | 
|                              |  |                  |         |              |  |                   |         |   |  |            |         | 
|Total                         |  | $                | 840,000 |              |  | $                 | (52,000 | ) |  | $          | 696,000 | 
|                              |  |                  |         |              |  |                   |         |   |  |            |         | 

12.    RESTRICTED CASH

On August 1, 2001, the Company established a $1,050,000 irrevocable
standby letter of credit in connection with executing an agreement to lease
certain office space. The irrevocable standby letter of credit is
collateralized by a restricted cash deposit of $1,050,000. The funds can be
drawn down over the term of the lease, provided the Company has not defaulted
on the office lease. The irrevocable standby letter of credit and underlying
security deposit (restricted cash) requirement of $1,050,000 will be reduced
starting the first day of the second lease year as follows:

|                                      |  |                  |         | 
|------------------------------------- |  | ---------------- | ------- | 
|                                      |  | Reduction Amount
|                                      |  |                 
|Second lease year (December 31, 2002) |  | $                | 116,667 | 
|Third lease year (December 31, 2003)  |  | $                | 116,667 | 
|Fourth lease year (December 31, 2004) |  | $                | 175,001 | 
|Fifth lease year (December 31, 2005)  |  | $                | 233,330 | 
|Sixth lease year (December 31, 2006)  |  | $                | 283,335 | 

At the end of the sixth year, the Company can reduce the letter of credit
to $125,000 or substitute $125,000 in cash in lieu of the Letter of Credit.

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Applix, Inc.
Notes to Consolidated Financial Statements (continued)

13.    NON-RECOURSE RECEIVABLE SALE

The Company has a non-recourse accounts receivable purchase arrangement
with a certain bank, pursuant to which the Company and the bank may agree from
time to time for the Company to sell qualifying accounts receivable to the
bank, in an
aggregate amount of up to $2 million outstanding, at a purchase price equal to
the balance of the accounts less a discount rate and a fee. On or about
December 31, 2001, the Company factored certain accounts receivable to the bank
pursuant to the Purchase Arrangement in the amount of $729,000.

In accordance with FAS 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, the Company recognized a
sale for those account receivable balances for which there was no future
obligation to the customer in the amount of $361,000. The Company has concluded
that these accounts have been legally isolated, and accordingly, this amount
has been derecognized from the Companys accounts receivable balance at
December 31, 2001. The loss from the sale of the financial assets and retained
interest for cash collection were not material to the Companys results of
operations or financial position. The remainder of $368,000 has been recorded
as a financing transaction and recognized as a liability at December 31, 2001.
This amount is expected to be repaid by the Company to the bank during 2002.

14.    IMPAIRMENT OF INVESTMENT

In December 2001, the Company determined that its cost-based investment in
TurboLinux, Inc. (TurboLinux) of $1,250,000 was impaired. This assessment
was based on the Companys review of TurboLinuxs operating results and the
Companys anticipated future cash flows from its investment. Accordingly, the
investment was written down to its estimated net realizable value of zero.

15.    BANK CREDIT FACILITIES

The Company has two secured revolving credit facilities, providing for
loans and other financial accommodations, with Silicon Valley Bank (SVB). The
first facility has an interest rate of prime plus 1.25% and is in the aggregate
principal amount of up to the lesser of (i) $2,500,000 and (ii) an amount based
upon a percentage the Companys qualifying domestic accounts receivable. The
second facility has an interest rate of prime plus 1.00% and is in the
aggregate principal amount of up to the lesser of (i) $2,500,000 and (ii) an
amount based upon a percentage of the Companys qualifying foreign accounts
receivable. This second facility is guaranteed by the Export-Import Bank of
the United States (EXIM Bank) and includes certain additional obligations of
the Company in favor of EXIM Bank. The obligations of the Company to SVB are
guaranteed by certain of the Companys subsidiaries and are secured by
substantially all of the assets of the Company and such subsidiaries. Because
the Company has not yet satisfied certain conditions precedent,
covenants and other
requirements, the Company currently has no availability to borrow or receive
other financial accommodations under either of the credit facilities. The
facilities expire on December 5, 2002.

16.    SUBSEQUENT
EVENT

On February 8, 2002,
a customer of the Companys divested business unit filed a claim
in Germany against the Companys German subsidiary, Veriteam
GmbH. The claim alleges a breach of contract pertaining to software
sold and implemented by the divested business unit on behalf of the
Company. The customer is seeking repayment for the cost of the
software and related services for approximately $800,000. The Company
has answered the customers claim, denying the claims
allegations. Due to the early nature of the claim, the Company has
been unable to fully assess the likely outcome of the claim, however,
the Company intends to vigorously defend its position and believes
the claim lacks substantial merit.

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Schedule II  Valuation
and Qualifying Accounts for the Year ended December 31, 2001.

|                                  |  |            |           |                 |  |            |         |             |  |  |         |  |  |  |           | 
|--------------------------------- |  | ---------- | --------- | --------------- |  | ---------- | ------- | ----------- |  |  | ------- |  |  |  | --------- | 
|                                  |  | Balance at |           | Additions       |  |            |         |             |  |  |         | 
|                                  |  | beginning  |           | Charges to cost |  | Charges to |         | Balance at 
|                                  |  | of year    |           | and expenses    |  | accounts   |         | end
of year
|                                  |  |            |           |                 |  |            |         |            
|2001                              |  |            |           |                 |  |            |         |             |  |  |         |  |  |  |           | 
|Allowance for accounts receivable |  |            | 1,397,000 |                 |  |            | 316,000 |             |  |  | 267,000 |  |  |  | 1,446,000 | 

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EXHIBIT INDEX

The Exhibits filed as a part of this Annual Report on Form 10-K are the
following:

|          |  |   |  |                                                                                                                                                                                                                                                                                                                                        
|--------- |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(1)    |  |  |  | Restated Articles of Organization.                                                                                                                                                                                                                                                                                                     
|         
|3.2(1)    |  |  |  | By-laws.                                                                                                                                                                                                                                                                                                                               
|         
|4.1(2)    |  |  |  | Form of Rights
Agreement, dated as of September 18, 2000, between the Company and
American Stock Transfer & Trust Company, which includes as
Exhibit A the terms of the Series A Junior Participating Preferred
Stock, as Exhibit B the Form of Rights Certificate, and as Exhibit C
the Summary of Rights to Purchase Preferred Stock.
|         
|10.1(1)+  |  |  |  | Applix, Inc. 1994 Equity Incentive Plan.                                                                                                                                                                                                                                                                                               
|         
|10.2(1)+  |  |  |  | Applix, Inc. 1984 Stock Option Plan.                                                                                                                                                                                                                                                                                                   
|         
|10.3(3)+  |  |  |  | Applix, Inc. 2000 Director Stock Option Plan.                                                                                                                                                                                                                                                                                          
|         
|10.4(6)   |  |  |  | Applix, Inc. 2001 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                        
|         
|10.5(5)   |  |  |  | Single Tenant
Commercial Lease by and between Westborough Land Realty Trust and the
Registrant, dated January 23, 2001.                                                                                                                                                                                                                
|         
|10.6+(5)  |  |  |  | Employment
Agreement dated June 27, 2000 between the Registrant and Jitendra
Saxena, and Supplemental Agreement to Employment Agreement, dated
March 19, 2001 between the Registrant and Jitendra Saxena.                                                                                                                              
|         
|10.7(7)   |  |  |  | Consulting
Agreement between the Registrant and David C. Mahoney, dated September 10, 2001.                                                                                                                                                                                                                                            
|         
|10.8(6)+  |  |  |  | Executive Stock
Option Acceleration Agreement between the Registrant and Craig Cervo,
dated June 9, 2000.                                                                                                                                                                                                                              
|         
|10.9(6)+  |  |  |  | Executive
Change-in-Control Agreement between the Registrant and Alan
Goldsworthy, dated July 3, 2001.                                                                                                                                                                                                                                 
|         
|10.10(7)+ |  |  |  | Executive
Change-in-Control Agreement between the Registrant and Walt Hilger,
dated September 27, 2001.                                                                                                                                                                                                                                
|         
|10.11(4)  |  |  |  | Secured
Promissory Note and Pledge Agreement entered into on July 31, 2000
between the Company and Alan Goldsworthy.                                                                                                                                                                                                                   
|         
|10.12(4)  |  |  |  | Secured Promissory Note and
Pledge Agreement entered into on July 31, 2000 between the Company
and Ed Terino.                                                                                                                                                                                                                          
|         
|10.13(5)  |  |  |  | Asset Purchase Agreement by and among Real-Time
International, Inc., VistaSource, Inc., Applix, Inc., Veriteam, Inc., VistaSource
France, VistaSource GmbH and VistaSource UK, Ltd., dated as of March 14, 2001.                                                                                                                       
|         
|10.14     |  |  |  | Export-Import
Bank Loan and Security Agreement, dated December 5, 2001 among the
Registrant, Applix (UK) Limited, Applix Australia Pty, Ltd., Veritem Ltd. And Silicon Valley Bank.                                                                                                                                                    

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|      |  |   |  |                                                                                                                                                                   
|----- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.15 |  |  |  | Borrower
Agreement by  the Registrant, Applix (UK) Limited, Applix Australia
Pty, Ltd., Veriteam, Ltd. in favor of the Export-Import Bank and Silicon Valley Bank.
|     
|10.16 |  |  |  | Loan and
Security Agreement, dated December 5, 2001 between the Registrant and
Silicon Valley Bank.                                                               
|     
|10.17 |  |  |  | Non-Recourse
Receivables Purchase Agreement dated December 31, 2001, between the
Registrant and Silicon Valley Bank                                               
|     
|21.1  |  |  |  | Subsidiaries of the Registrant.                                                                                                                                   
|     
|23.1  |  |  |  | Consent of Ernst & Young LLP.                                                                                                                                     
|     
|23.2  |  |  |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                            



---

|1. |  | Incorporated by reference from the Companys Registration Statement on
Form S-1 (File no. 33-85688).                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Incorporated by reference to the Companys Registration Statement
on Form 8-A dated September 20, 2000.                                                                                              
|  
|3. |  | Incorporated by reference to the Registrants Report on Form 10-K for the
fiscal year ended December 31, 1999, as filed with the Commission on March
30, 2000.                                       
|  
|4. |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2000, as filed with the
Commission on November 14, 2000.                      
|  
|5. |  | Incorporated by reference to the Registrants Report on Form 10-K for the
fiscal year ended December 31, 2000, as originally filed with the
Commission on April 2, 2001 and amended on June 15, 2001.
|  
|6. |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2001, as filed with the
Commission on August 13, 2001.                             
|  
|7. |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2001, as filed with the
Commission on November 14, 2001.                      
|  
|+  |  | Management contract or compensatory plan.                                                                                                                                                            

52